<PAGE>
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF
1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant
Check the appropriate box:
[_]Preliminary Proxy Statement [_]Confidential, for Use of the
[X]Definitive Proxy Statement Commission Only (as permitted
by Rule 14a-6(e)(2))
[_]Definitive Additional Materials
[_]Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
PANAMSAT CORPORATION
- -------------------------------------------------------------------------------
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Payment of Filing Fee (Check the appropriate box):
[_]$125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
[_]$500 per each party to the controversy pursuant to Exchange Act Rule 4a-
6(i)(3).
[_]Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1)Title of each class of securities to which transaction applies:
Common Stock, par value $.01 per share, and Class A Common Stock, par
value $.01 per share.
- -------------------------------------------------------------------------------
(2)Aggregate number of securities to which transaction applies:
38,177,855 Common Stock and 21,370,504 Class A Common Stock.
- -------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
$24.29 per share, assuming that the holders of the Common Stock and the
Class A Common Stock elect to receive the Standard Consideration as set
forth in the Proxy Statement/Prospectus ($15 in cash plus one half (
1/2) share of common stock, par value $.01 per share, of Magellan
International, Inc.), computed by adding the proposed cash payment per
share ($15) and one half ( 1/2) of the book value per share of common
stock of Magellan International, Inc. ($9.29, based on the September
30, 1996 unaudited pro forma combined book value per share of Magellan
International, Inc. set forth in the Proxy Statement/Prospectus).
- -------------------------------------------------------------------------------
(4)Proposed maximum aggregate value of transaction: $1,446,429,640
- -------------------------------------------------------------------------------
(5)Total fee paid: $289,286
1/50th of 1% of the proposed maximum value of the transaction
($1,446,429,640). Pursuant to the Reorganization Agreement, PanAmSat
and the Hughes Parties have each paid half of the total fee.
- -------------------------------------------------------------------------------
[X]Fee paid previously with preliminary materials.
- -------------------------------------------------------------------------------
[_]Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1)Amount Previously Paid:
- -------------------------------------------------------------------------------
(2)Form, Schedule or Registration Statement No.:
- -------------------------------------------------------------------------------
(3)Filing Party:
- -------------------------------------------------------------------------------
(4)Date Filed:
- -------------------------------------------------------------------------------
<PAGE>
LOGO PANAMSAT
April 18, 1997
Dear Fellow Stockholder:
You are cordially invited to attend the Special Meeting of Stockholders (the
"Special Meeting") of PanAmSat Corporation ("PanAmSat"), which will be held on
Thursday, May 8, 1997 at 11:00 a.m. local time at the Equinox Hotel, Historic
Route 7A, Manchester Village, Vermont.
At the Special Meeting you will be asked to consider and vote upon a
proposal to approve and adopt an Agreement and Plan of Reorganization dated as
of September 20, 1996, as amended on April 4, 1997 (the "Reorganization
Agreement"), and an Agreement and Plan of Merger dated as of April 4, 1997
(the "Merger Agreement") that provide for the combination of PanAmSat and the
existing commercial satellite business of Hughes Communications, Inc. and
certain of its subsidiaries (the "Galaxy Business").
Upon completion of the transactions contemplated by the Reorganization
Agreement, the Merger Agreement and various ancillary agreements (the
"Transaction"):
. PanAmSat will become a wholly owned subsidiary of a newly formed holding
company that will be known as "PanAmSat Corporation" ("New PanAmSat"),
which will also own and operate the Galaxy Business;
. each issued and outstanding share of Class A Common Stock and Common
Stock will be converted into, at the election of each holder, either (a)
the right to receive an amount in cash equal to $15, plus interest under
certain circumstances, plus one half ( 1/2) share of Common Stock of New
PanAmSat ("New PanAmSat Common Stock"), (b) the right to receive (subject
to proration, as applicable) one share of New PanAmSat Common Stock or
(c) the right to receive (subject to proration, as applicable) an amount
in cash equal to $30, plus interest under certain circumstances;
. New PanAmSat will acquire all of the capital stock of an entity that
indirectly owns all of the issued and outstanding shares of Class B
Common Stock in exchange for consideration at the election of such
entity's owner that is equal in amount and form (subject to proration, as
applicable), per share of Class B Common Stock indirectly owned by such
entity, to the consideration payable on account of each share of Class A
Common Stock and Common Stock in the Transaction; and
. Hughes Communications, Inc. and certain of its subsidiaries will receive
an aggregate of 106,622,807 shares of New PanAmSat Common Stock, which
will represent approximately 71.5% of the outstanding shares of New
PanAmSat Common Stock after the Transaction assuming that New PanAmSat
pays the direct and indirect stockholders of PanAmSat half stock and half
cash as consideration in the Transaction.
At the Special Meeting you will also be asked to consider and vote upon a
proposal to approve and adopt an amendment (the "Charter Amendment") to
PanAmSat's Amended and Restated Certificate of Incorporation. The Charter
Amendment would (i) change the name of PanAmSat to "PanAmSat International
Systems, Inc.," (ii) clarify that the shares of Class A Common Stock and Class
B Common Stock will not lose their status as such as a result of the
Transaction and (iii) clarify that certain restrictions in PanAmSat's
Certificate of Incorporation regarding the consideration that must be received
in a merger, consolidation or business combination will not apply to the
Transaction.
Detailed descriptions of the Reorganization Agreement, the Merger Agreement
and the Charter Amendment are set forth in the accompanying Proxy
Statement/Prospectus, which you should read carefully.
PANAMSAT'S BOARD OF DIRECTORS HAS DETERMINED THAT THE TRANSACTION IS FAIR TO
AND IN THE BEST INTERESTS OF PANAMSAT AND ITS STOCKHOLDERS. PANAMSAT'S BOARD
OF DIRECTORS HAS ALSO DETERMINED THAT THE CHARTER
<PAGE>
AMENDMENT IS ADVISABLE AND IN THE BEST INTERESTS OF PANAMSAT AND ITS
STOCKHOLDERS. PANAMSAT'S BOARD OF DIRECTORS HAS APPROVED THE REORGANIZATION
AGREEMENT, THE MERGER AGREEMENT AND THE CHARTER AMENDMENT AND RECOMMENDS A
VOTE "FOR" APPROVAL OF THE REORGANIZATION AGREEMENT AND THE MERGER AGREEMENT
AND RECOMMENDS A VOTE "FOR" APPROVAL OF THE CHARTER AMENDMENT.
The affirmative vote of (i) the holders of a majority of the votes of the
outstanding shares of Class A Common Stock and Common Stock, voting together
as a single class, and the holders of a majority of the votes of the
outstanding shares of Class B Common Stock and Common Stock, voting together
as a single class, as well as (ii) the holders of a majority of the votes of
the outstanding shares of each of the Class A Common Stock and the Class B
Common Stock (as long as the outstanding shares of Class A Common Stock and/or
Class B Common Stock represent at least 5% of the total outstanding shares of
Class A Common Stock, Class B Common Stock and Common Stock), is necessary to
approve the Reorganization Agreement, the Merger Agreement and the Charter
Amendment. In addition, the affirmative vote of the holders of the majority of
votes of the outstanding shares of Class A Common Stock, Class B Common Stock
and Common Stock, each voting as a separate class, is necessary to approve the
Charter Amendment. Pursuant to an agreement executed in connection with the
Reorganization Agreement, the beneficial owners of all of the issued and
outstanding shares of Class A Common Stock and Class B Common Stock have
agreed to vote all of their shares of stock of PanAmSat to approve the
Reorganization Agreement and the Merger Agreement and to take any actions
required in furtherance thereof. In connection therewith, immediately before
the record date for the Special Meeting, the holders of Class A Common Stock
voluntarily converted the number of shares of Class A Common Stock necessary
to constitute a majority of the outstanding shares of Common Stock from Class
A Common Stock into Common Stock (such shares of Common Stock, the "Converted
Shares"). On the record date for the Special Meeting, the beneficial owners of
all of the outstanding shares of Class A Common Stock, Class B Common Stock
and the Converted Shares held the voting power required to approve the
Reorganization Agreement, the Merger Agreement and the Charter Amendment.
Accordingly, approval thereof by the PanAmSat stockholders is assured.
Whether or not you plan to attend the Special Meeting, please complete, sign
and date the enclosed proxy card and return it promptly in the enclosed
postage prepaid envelope. If you attend the Special Meeting, you may vote in
person if you wish, even though you previously have returned your proxy card.
Your prompt cooperation is greatly appreciated.
Please do not send your Stock Certificates with your proxy card.
Concurrently herewith, a transmittal form and instructions for the surrender
and exchange of your shares are being mailed to you.
Very truly yours,
/s/ Frederick A. Landman
Frederick A. Landman
President and Chief Executive
Officer
PLEASE COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD.
<PAGE>
PANAMSAT CORPORATION
ONE PICKWICK PLAZA
GREENWICH, CONNECTICUT 06830
(203) 622-6664
----------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 8, 1997
----------------
TO THE STOCKHOLDERS OF PANAMSAT CORPORATION:
Notice Is Hereby Given that a Special Meeting of Stockholders (the "Special
Meeting") of PanAmSat Corporation ("PanAmSat") will be held on Thursday, May
8, 1997 at 11:00 a.m. local time at the Equinox Hotel, Historic Route 7A,
Manchester Village, Vermont for the following purposes:
1. To consider and vote upon a proposal to approve and adopt an Agreement
and Plan of Reorganization dated September 20, 1996, as amended on April 4,
1997 (the "Reorganization Agreement"), among Hughes Communications, Inc., a
California corporation ("HCI"), Hughes Communications Galaxy, Inc., a
California corporation ("HCG"), Hughes Communications Satellite Services,
Inc., a California corporation, Hughes Communications Services, Inc., a
California corporation, Hughes Communications Carrier Services, Inc., a
California corporation, Hughes Communications Japan, Inc., a California
corporation, Magellan International, Inc., a Delaware corporation ("New
PanAmSat"), and PanAmSat, and an Agreement and Plan of Merger dated as of
April 4, 1997 (the "Merger Agreement") by and among PanAmSat, PAS Merger
Corp., a Delaware corporation and newly formed subsidiary of New PanAmSat,
and New PanAmSat.
2. To consider and vote upon a proposal to approve and adopt an amendment
(the "Charter Amendment") to PanAmSat's Amended and Restated Certificate of
Incorporation. The Charter Amendment would (i) change the name of PanAmSat
to "PanAmSat International Systems, Inc.," (ii) clarify that the shares of
Class A Common Stock, par value $.01 per share, of PanAmSat (the "PAS Class
A Common Stock") and the shares of Class B Common Stock, par value $.01 per
share, of PanAmSat (the "PAS Class B Common Stock") will not convert into
shares of Common Stock, par value $.01 per share, of PanAmSat (the "PAS
Ordinary Common Stock," and together with the PAS Class A Common Stock and
PAS Class B Common Stock, the "PAS Common Stock") in connection with the
Reorganization Agreement, the Univisa Contribution Agreement (as defined
below) and the transactions contemplated thereby and (iii) clarify that the
provisions in PanAmSat's Amended and Restated Certificate of Incorporation
regarding the consideration that must be received in a merger,
consolidation or business combination will not apply to the transactions
contemplated by the Reorganization Agreement, the Merger Agreement and the
Univisa Contribution Agreement (as defined below).
3. To transact such other matters relating to the conduct of the Special
Meeting or any adjournments or postponements thereof.
See pages 12 and 13 of the Proxy Statement/Prospectus for charts depicting
the existing corporate structure of the entities that will engage in the
transactions described above, the structure of such transactions and the
corporate structure that will be achieved if such transactions are approved
and consummated.
The Reorganization Agreement and the Merger Agreement contemplate, among
other things, that PAS Merger Corp. will be merged with and into PanAmSat (the
"Merger") and the existing commercial satellite business of HCI and certain of
its subsidiaries (the "Galaxy Business") will be contributed to New PanAmSat,
with the result that: (a) PanAmSat will become a wholly owned subsidiary of
New PanAmSat, (b) each issued and outstanding share of PAS Class A Common
Stock and PAS Ordinary Common Stock will be converted,
<PAGE>
at the election of each holder, into either (i) the right to receive an amount
in cash equal to $15, plus one half ( 1/2) share of Common Stock, par value
$.01 per share, of New PanAmSat (the "New PAS Common Stock"), (ii) the right
to receive (subject to proration, as applicable) one share of New PAS Common
Stock or (iii) the right to receive (subject to proration, as applicable) an
amount in cash equal to $30 (collectively, the "Merger Consideration"), (c)
New PanAmSat will own and operate the Galaxy Business and (d) HCI and certain
of its subsidiaries will receive an aggregate of 106,622,807 shares of New PAS
Common Stock.
Assuming that New PanAmSat pays half stock and half cash as consideration in
the Merger and the Univisa Contribution (as defined below), the shares of New
PAS Common Stock received by HCI and certain of its subsidiaries will
represent approximately 71.5% of the outstanding shares of New PAS Common
Stock after the Merger. The Reorganization Agreement and the Merger Agreement
provide that the maximum aggregate cash consideration to be paid in connection
with the Merger and the Univisa Contribution will be equal to $15 multiplied
by the number of shares of PAS Common Stock outstanding at the time of the
Merger. In addition, if the closing of the Merger has not occurred on or prior
to September 20, 1997, the cash portion of the consideration payable in the
Merger and the Univisa Contribution will be increased at a rate equal to 9%
per annum from September 20, 1997, to the date of the closing of the Merger.
Finally, New PanAmSat may limit the aggregate number of shares of New PAS
Common Stock that may be issued in the Merger and the Univisa Contribution to
as few as one half ( 1/2) of the number of shares of PAS Common Stock
outstanding at the time of the Merger.
An election to receive all cash in connection with the Reorganization may
result in the receipt of either all cash or, in the event that the aggregate
amount of all elections to receive cash exceeds $15 multiplied by the number
of shares of PAS Common Stock outstanding at the time of the Reorganization, a
combination of cash and shares of New PAS Common Stock. For example, in the
event that all cash is elected by all direct and indirect holders of PAS
Common Stock, each such holder will receive $15 in cash plus one half ( 1/2)
share of New PAS Common Stock on account of each share of PAS Common Stock
held directly or indirectly by such holder.
An election to receive all stock in connection with the Reorganization may
result in the receipt of either all stock or, in the event that (i) the direct
and indirect holders of more than one half ( 1/2) of the number of shares of
PAS Common Stock outstanding at the time of the Reorganization elect to
receive stock on account of such shares and (ii) New PanAmSat exercises its
option to limit the number of additional shares of New PAS Common Stock to be
issued, a combination of cash and shares of New PAS Common Stock. For example,
in the event that all stock is elected by all direct and indirect holders of
PAS Common Stock and New PanAmSat exercises its option to limit the number of
additional shares of New PAS Common Stock to be issued, each such holder will
receive one half ( 1/2) share of New PAS Common Stock plus $15 in cash on
account of each share of PAS Common Stock held directly or indirectly by such
holder. An election to receive $15 in cash and one half ( 1/2) share of New
PAS Common Stock on account of each share of PAS Common Stock will not be
affected by the proration procedures.
The impact of the elections on New PanAmSat will depend upon whether such
elections direct New PanAmSat to issue more stock or pay more cash. If more
stock is issued, less debt will be incurred by New PanAmSat, making it less
highly leveraged. If more cash is paid (up to the proration limits), New
PanAmSat will incur more indebtedness as a result of such payments.
Immediately prior to the Merger, in a separate but related transaction (the
"Univisa Contribution"), pursuant to the Stock Contribution and Exchange
Agreement dated as of September 20, 1996 (the "Univisa Contribution
Agreement") among Grupo Televisa, S.A., a Mexican corporation ("Televisa"),
Satellite Company, L.L.C., a Nevada limited liability company ("S Company"),
New PanAmSat and HCI, New PanAmSat will acquire from S Company all of the
capital stock of Univisa, Inc., a Delaware corporation ("Univisa"), which is
the indirect holder of all of the outstanding shares of PAS Class B Common
Stock. In connection with the Univisa Contribution, S Company will receive,
for each share of PAS Class B Common Stock indirectly owned by Univisa, at S
Company's election, consideration that is equal in amount and form
2
<PAGE>
(subject to proration, as applicable) to the consideration payable on account
of each share of PAS Class A Common Stock and PAS Ordinary Common Stock in the
Merger.
Concurrently with the Merger and immediately following the Univisa
Contribution, 7.5 million shares of New PAS Common Stock received by S Company
in connection with the Univisa Contribution will be repurchased by New
PanAmSat for $225 million (the "Share Repurchase"). Following the Share
Repurchase, either Televisa, S Company and/or their designees will purchase
for $225 million all of PanAmSat's rights to purchase equity interests in
certain joint ventures to be formed to offer direct-to-home ("DTH") services
in Latin America and the Iberian Peninsula pursuant to the DTH Option Purchase
Agreement dated September 20, 1996 between PanAmSat, Televisa and S Company.
The affirmative vote of (i) the holders of a majority of the votes of the
outstanding shares of PAS Class A Common Stock and PAS Ordinary Common Stock,
voting together as a single class, and the holders of a majority of the votes
of the outstanding shares of PAS Class B Common Stock and PAS Ordinary Common
Stock, voting together as a single class, as well as (ii) the holders of a
majority of the votes of the outstanding shares of each of the PAS Class A
Common Stock and the PAS Class B Common Stock (as long as the outstanding
shares of PAS Class A Common Stock and/or PAS Class B Common Stock represent
at least 5% of the total outstanding shares of PAS Common Stock), is necessary
to approve the Reorganization Agreement, the Merger Agreement and the Charter
Amendment. In addition, the affirmative vote of the holders of the majority of
votes of the outstanding shares of PAS Class A Common Stock, PAS Class B
Common Stock and PAS Ordinary Common Stock, each voting as a separate class,
is necessary to approve the Charter Amendment. Pursuant to an agreement
executed in connection with the Reorganization Agreement, the beneficial
owners of all issued and outstanding shares of PAS Class A Common Stock and
PAS Class B Common Stock have agreed to vote all of their shares of PAS Common
Stock to approve the Reorganization Agreement, the Merger Agreement and the
Charter Amendment. Immediately before the record date for the Special Meeting,
the holders of PAS Class A Common Stock voluntarily converted the number of
shares of PAS Class A Common Stock necessary to constitute a majority of the
outstanding shares of PAS Ordinary Common Stock from PAS Class A Common Stock
into PAS Ordinary Common Stock (such shares of PAS Ordinary Common Stock, the
"Converted Shares"). On the record date for the Special Meeting, the
beneficial owners of all of the outstanding shares of PAS Class A Common
Stock, PAS Class B Common Stock and the Converted Shares held the voting power
required to approve the Reorganization Agreement, the Merger Agreement and the
Charter Amendment. Accordingly, approval thereof by the PanAmSat stockholders
is assured.
Only holders of record of shares of PAS Common Stock at the close of
business on April 8, 1997, the record date for the Special Meeting, are
entitled to notice of and to vote at the Special Meeting and any adjournments
or postponements thereof. A complete list of the stockholders entitled to vote
at the Special Meeting shall be open to examination of any stockholder, for
any purpose germane to the Special Meeting, during ordinary business hours for
a period of ten days prior to the Special Meeting at the Equinox Hotel,
Historic Route 7A, Manchester Village, Vermont.
By Order of the Board of Directors
Berta Escurra
Secretary
April 18, 1997
3
<PAGE>
IMPORTANT
ALL STOCKHOLDERS ARE INVITED TO ATTEND THE SPECIAL MEETING IN PERSON. IF
YOU PLAN TO ATTEND THE MEETING, PLEASE COMPLETE AND RETURN THE FORM
ENCLOSED WITH YOUR PROXY CARD, AND AN ADMITTANCE CARD WILL BE FORWARDED TO
YOU PROMPTLY.
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING IN PERSON, YOU ARE
URGED TO COMPLETE, DATE AND SIGN THE ENCLOSED PROXY AND RETURN IT IN THE
ENCLOSED ENVELOPE. THE ENVELOPE REQUIRES NO POSTAGE IF MAILED IN THE
UNITED STATES. IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE
SPECIAL MEETING. ANY STOCKHOLDER WHO SIGNS AND SENDS IN A PROXY CARD MAY
REVOKE IT AT ANY TIME BEFORE IT IS VOTED, AS DESCRIBED IN THE ACCOMPANYING
PROXY STATEMENT/PROSPECTUS.
PLEASE DO NOT SEND IN ANY STOCK CERTIFICATES WITH THE ENCLOSED PROXY CARD.
CONCURRENTLY HEREWITH, A LETTER OF TRANSMITTAL AND ELECTION FORM ARE BEING
MAILED TO YOU.
4
<PAGE>
PANAMSAT CORPORATION
PROXY STATEMENT
FOR A SPECIAL MEETING OF STOCKHOLDERS
OF PANAMSAT CORPORATION
TO BE HELD ON MAY 8, 1997
----------------
MAGELLAN INTERNATIONAL, INC.
(TO BE RENAMED "PANAMSAT CORPORATION" UPON CONSUMMATION OF THE TRANSACTIONS
DESCRIBED HEREIN)
PROSPECTUS
----------------
PanAmSat Corporation, a Delaware corporation ("PanAmSat"), is furnishing
this Proxy Statement/ Prospectus to its stockholders in connection with the
solicitation of proxies by the Board of Directors of PanAmSat (the "PanAmSat
Board") for use at its Special Meeting of Stockholders and at any adjournments
or postponements thereof (the "Special Meeting").
The Special Meeting has been called to consider and vote upon (i) a proposal
to approve and adopt an Agreement and Plan of Reorganization dated as of
September 20, 1996, as amended on April 4, 1997 (the "Reorganization
Agreement"), among Hughes Communications, Inc., a California corporation
("HCI"), Hughes Communications Galaxy, Inc., a California corporation ("HCG"),
Hughes Communications Satellite Services, Inc., a California corporation
("HCSS"), Hughes Communications Services, Inc., a California corporation
("HCS"), Hughes Communications Carrier Services, Inc., a California
corporation ("HCCS"), Hughes Communications Japan, Inc., a California
corporation ("HCJ," and together with HCI, HCG, HCSS, HCS and HCCS, the
"Hughes Parties"), Magellan International, Inc., a Delaware corporation ("New
PanAmSat"), and PanAmSat, and an Agreement and Plan of Merger dated as of
April 4, 1997 (the "Merger Agreement") by and among PanAmSat, PAS Merger
Corp., a Delaware corporation ("PAS Merger Corp.") and newly formed subsidiary
of New PanAmSat, and New PanAmSat and (ii) a proposal to approve and adopt an
amendment (the "Charter Amendment") to the Amended and Restated Certificate of
Incorporation of PanAmSat (the "PanAmSat Certificate of Incorporation") that
would (A) change the name of PanAmSat to "PanAmSat International Systems,
Inc." immediately prior to the Merger (as defined below), (B) clarify that the
shares of Class A Common Stock, par value $.01 per share, of PanAmSat (the
"PAS Class A Common Stock") and the
(Continued on next page)
SEE "RISK FACTORS" BEGINNING ON PAGE 34 FOR INFORMATION THAT SHOULD BE
CONSIDERED BY PANAMSAT STOCKHOLDERS.
See pages 12 and 13 of this Proxy Statement/Prospectus for charts depicting
the existing corporate structure of the entities that will engage in the
transactions described herein, the structure of such transactions and the
corporate structure that will be achieved if such transactions are approved
and consummated.
This Proxy Statement/Prospectus is first being mailed to stockholders on or
about April 18, 1997.
----------------
THE SHARES OF COMMON STOCK, PAR VALUE $.01 PER SHARE, OF NEW PANAMSAT (THE
"NEW PAS COMMON STOCK") ISSUABLE IN THE MERGER, THE UNIVISA CONTRIBUTION AND
THE ASSET CONTRIBUTION (AS DEFINED BELOW) HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION (THE "COMMISSION") OR
ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROXY
STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
----------------
The date of this Proxy Statement/Prospectus is April 16, 1997.
<PAGE>
(Continued from previous page)
shares of Class B Common Stock, par value $.01 per share, of PanAmSat (the
"PAS Class B Common Stock") will not convert into shares of Common Stock, par
value $.01 per share, of PanAmSat (the "PAS Ordinary Common Stock") in
connection with the Reorganization Agreement, the Univisa Contribution
Agreement (as defined below) and the transactions contemplated thereby and (C)
clarify that the provisions in the PanAmSat Certificate of Incorporation
regarding the consideration that must be received in a merger, consolidation
or business combination will not apply to the transactions contemplated by the
Reorganization Agreement, the Merger Agreement and the Univisa Contribution
Agreement.
As a result of the transactions contemplated by the Reorganization Agreement
and the Merger Agreement, among other things, at the Effective Time (as
defined below), PAS Merger Corp. will be merged with and into PanAmSat (the
"Merger") and the existing commercial satellite business of the Hughes Parties
will be contributed to New PanAmSat (the "Asset Contribution"), with the
result that: (a) PanAmSat will become a wholly owned subsidiary of New
PanAmSat, (b) each issued and outstanding share of PAS Class A Common Stock
and PAS Ordinary Common Stock will be converted into, at the election of each
holder, either (i) the right to receive an amount in cash equal to $15, plus
one half ( 1/2) share of New PAS Common Stock, (ii) the right to receive
(subject to proration, as applicable) one share of New PAS Common Stock or
(iii) the right to receive (subject to proration, as applicable) an amount in
cash equal to $30, (c) New PanAmSat will own and operate the existing
commercial satellite business of the Hughes Parties and (d) HCI and certain of
its subsidiaries will receive an aggregate of 106,622,807 shares of New PAS
Common Stock. Assuming that New PanAmSat pays half stock and half cash as
consideration in the Merger and the Univisa Contribution (as defined below),
the shares of New PAS Common Stock received by HCI and certain of its
subsidiaries will represent approximately 71.5% of the outstanding shares of
New PAS Common Stock after the Merger. The Reorganization Agreement and the
Merger Agreement provide that the maximum aggregate cash consideration to be
paid in connection with the Merger and the Univisa Contribution will be equal
to $15 multiplied by the number of shares of PAS Ordinary Common Stock, PAS
Class A Common Stock and PAS Class B Common Stock (collectively, the "PAS
Common Stock") outstanding at the time of the Merger. In addition, if the
closing of the Merger has not occurred on or prior to September 20, 1997, the
cash portion of the consideration payable in the Merger and the Univisa
Contribution will be increased at a rate equal to 9% per annum from September
20, 1997 to the date of the closing of the Merger. Finally, New PanAmSat may
limit the aggregate number of shares of New PAS Common Stock to be issued in
the Merger and the Univisa Contribution to as few as one half ( 1/2) of the
number of shares of PAS Common Stock outstanding at the time of the Merger.
An election to receive all cash in connection with the Reorganization may
result in the receipt of either all cash or, in the event that the aggregate
amount of all elections to receive cash exceeds $15 multiplied by the number
of shares of PAS Common Stock outstanding at the time of the Reorganization, a
combination of cash and shares of New PAS Common Stock. For example, in the
event that all cash is elected by all direct and indirect holders of PAS
Common Stock, each such holder will receive $15 in cash plus one half ( 1/2)
share of New PAS Common Stock on account of each share of PAS Common Stock
held directly or indirectly by such holder.
An election to receive all stock in connection with the Reorganization may
result in the receipt of either all stock or, in the event that (i) the direct
and indirect holders of more than one half ( 1/2) of the number of shares of
PAS Common Stock outstanding at the time of the Reorganization elect to
receive stock on account of such shares and (ii) New PanAmSat exercises its
option to limit the number of additional shares of New PAS Common Stock to be
issued, a combination of cash and shares of New PAS Common Stock. For example,
in the event that all stock is elected by all direct and indirect holders of
PAS Common Stock and New PanAmSat exercises its option to limit the number of
additional shares of New PAS Common Stock to be issued, each such holder will
receive one half ( 1/2) share of New PAS Common Stock plus $15 in cash on
account of each share of PAS Common Stock held directly or indirectly by such
holder. An election to receive $15 in cash and one half ( 1/2) share of New
PAS Common Stock on account of each share of PAS Common Stock will not be
affected by the proration procedures.
2
<PAGE>
The impact of the elections on New PanAmSat will depend upon whether such
elections direct New PanAmSat to issue more stock or pay more cash. If more
stock is issued, less debt will be incurred by New PanAmSat, making it less
highly leveraged. If more cash is paid (up to the proration limits), New
PanAmSat will incur more indebtedness as a result of such payments.
Immediately prior to the Merger, in a separate but related transaction (the
"Univisa Contribution"), pursuant to the Stock Contribution and Exchange
Agreement dated as of September 20, 1996 (the "Univisa Contribution
Agreement") among Grupo Televisa, S.A., a Mexican corporation ("Televisa"),
Satellite Company, L.L.C., a Nevada limited liability company ("S Company"),
New PanAmSat and HCI, New PanAmSat will acquire from S Company all of the
capital stock of Univisa, Inc., a Delaware corporation ("Univisa"), which is
the indirect holder of all of the outstanding shares of PAS Class B Common
Stock. In connection with the Univisa Contribution, S Company will receive for
each share of PAS Class B Common Stock indirectly held by Univisa, at S
Company's election, consideration that is equal in amount and form (subject to
proration, as applicable) to the consideration payable on account of each
share of PAS Class A Common Stock and PAS Ordinary Common Stock in the Merger.
Concurrently with the Merger and immediately following the Univisa
Contribution, 7.5 million shares of New PAS Common Stock received by S Company
in connection with the Univisa Contribution will be repurchased by New
PanAmSat for $225 million (the "Share Repurchase"). Following the Share
Repurchase, either Televisa, S Company and/or their designees will purchase
for $225 million all of PanAmSat's rights to purchase from Televisa equity
interests in certain joint ventures to be formed to offer direct-to-home
("DTH") services in Latin America and the Iberian Peninsula (the "DTH
Options"), pursuant to the DTH Option Purchase Agreement dated as of September
20, 1996 (the "DTH Option Purchase Agreement") between PanAmSat, Televisa and
S Company.
The affirmative vote of (i) the holders of a majority of the votes of the
outstanding shares of PAS Class A Common Stock and PAS Ordinary Common Stock,
voting together as a single class, and the holders of a majority of the votes
of the outstanding shares of PAS Class B Common Stock and PAS Ordinary Common
Stock, voting together as a single class, as well as (ii) the holders of a
majority of the votes of the outstanding shares of each of the PAS Class A
Common Stock and the PAS Class B Common Stock (as long as the outstanding
shares of PAS Class A Common Stock and/or PAS Class B Common Stock represent
at least 5% of the total outstanding shares of PAS Common Stock), is necessary
to approve the Reorganization Agreement, the Merger Agreement and the Charter
Amendment. In addition, the affirmative vote of the holders of the majority of
votes of the outstanding shares of PAS Class A Common Stock, PAS Class B
Common Stock and PAS Ordinary Common Stock, each voting as a separate class,
is necessary to approve the Charter Amendment. Pursuant to an agreement
executed in connection with the Reorganization Agreement, the beneficial
owners of all issued and outstanding shares of PAS Class A Common Stock and
PAS Class B Common Stock have agreed to vote all of their shares of PAS Common
Stock in favor of the Reorganization Agreement, the Merger Agreement and the
Charter Amendment. Immediately before the record date for the Special Meeting,
the holders of PAS Class A Common Stock voluntarily converted the number of
shares of PAS Class A Common Stock necessary to constitute a majority of the
outstanding shares of PAS Ordinary Common Stock from PAS Class A Common Stock
into PAS Ordinary Common Stock (such shares of PAS Ordinary Common Stock, the
"Converted Shares"). On the record date for the Special Meeting, the
beneficial owners of all of the outstanding shares of PAS Class A Common
Stock, PAS Class B Common Stock and the Converted Shares held the voting power
required to approve the Reorganization Agreement, the Merger Agreement and the
Charter Amendment. Accordingly, approval thereof by the PanAmSat stockholders
is assured.
This Proxy Statement/Prospectus constitutes the Prospectus of New PanAmSat
filed as part of a Registration Statement on Form S-4 (together with all
amendments, exhibits and schedules thereto, the "Registration Statement") with
the Commission under the Securities Act of 1933, as amended (the "Securities
Act"), relating to the shares of New PAS Common Stock issuable in connection
with the Merger and the Univisa Contribution. All information concerning New
PanAmSat contained in this Proxy Statement/Prospectus has been furnished by
New PanAmSat, all information concerning Galaxy (as defined below) has been
furnished by HCI and all information concerning PanAmSat prior to the Merger
contained in this Proxy Statement/Prospectus has been furnished by PanAmSat.
3
<PAGE>
AVAILABLE INFORMATION
PanAmSat is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxies and other information with the Commission.
Such reports, proxies and other information may be inspected and copied at the
public reference facilities maintained by the Commission at Room 1024, 450
Fifth Street, N.W., Washington, D.C. 20549, and at the regional offices of the
Commission located at Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661 and 7 World Trade Center, 13th Floor, New York, New
York 10048. Copies of such material can be obtained from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549,
at prescribed rates. The PAS Ordinary Common Stock (other than the Converted
Shares) is quoted on the Nasdaq National Market ("Nasdaq") and therefore such
reports, proxy statements and other information can also be inspected at the
offices of Nasdaq Operations, 1735 K Street, N.W., Washington, D.C. 20006.
The Registration Statement has been filed with the Commission, 450 Fifth
Street, N.W., Washington, D.C. 20549. This Proxy Statement/Prospectus does not
contain all of the information set forth in the Registration Statement,
certain parts of which are omitted in accordance with the rules and
regulations of the Commission, and the exhibits and schedules thereto.
Statements contained in this Proxy Statement/Prospectus as to the contents of
any contract or any other document referred to are not necessarily complete,
and in each instance reference is made to the copy of such contract or
document filed as an exhibit to the Registration Statement, each such
statement being qualified by such reference. For further information with
respect to New PanAmSat and the New PAS Common Stock offered hereby, reference
is made to the Registration Statement. A copy of the Registration Statement
may be inspected by anyone without charge at the Commission's principal office
in Washington, D.C. and copies of all or any part thereof may be obtained from
the Public Reference Section of the Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549, upon payment of certain fees prescribed by the
Commission.
Additional information concerning PanAmSat and a copy of the Registration
Statement also can be obtained via the Internet web site maintained by the
Commission at http://www.sec.gov.
4
<PAGE>
TABLE OF CONTENTS
<TABLE>
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<S> <C>
AVAILABLE INFORMATION..................................................... 4
INDEX OF DEFINED TERMS.................................................... 7
SUMMARY................................................................... 9
RISK FACTORS.............................................................. 34
THE SPECIAL MEETING....................................................... 44
Special Meeting.......................................................... 44
Record Date; Shares Entitled to Vote; Vote Required...................... 44
Proxies; Proxy Solicitation.............................................. 45
THE COMPANIES............................................................. 46
PanAmSat................................................................. 46
Galaxy................................................................... 46
New PanAmSat............................................................. 46
PAS Merger Corp.......................................................... 46
THE REORGANIZATION........................................................ 47
Background of the Reorganization......................................... 47
Recommendation of the PanAmSat Board and Reasons for the Merger.......... 50
Opinion of PanAmSat's Financial Advisor.................................. 51
Accounting Treatment..................................................... 54
Certain Federal Income Tax Consequences.................................. 54
Regulatory Approvals..................................................... 56
Agreement of the Class A Holders and the Class B Holder to Vote in Favor
of the Reorganization................................................... 57
Stock Exchange Listings.................................................. 57
Federal Securities Laws Consequences..................................... 57
Appraisal Rights......................................................... 58
Interests of Certain Persons in the Reorganization....................... 60
Management and Operations of New PanAmSat and PanAmSat After the Merger.. 63
Financing in Connection with the Reorganization.......................... 64
THE REORGANIZATION AGREEMENT.............................................. 65
Terms of the Reorganization.............................................. 65
Elections by Holders of PAS Common Stock; Exchange of Certificates in the
Merger.................................................................. 67
Certain Representations and Warranties................................... 70
Conditions to the Reorganization......................................... 71
Conduct of Business Prior to the Effective Time.......................... 73
Non-Solicitation......................................................... 76
Standstill Agreement..................................................... 77
Indemnification.......................................................... 77
Certain Benefits Matters................................................. 80
Termination.............................................................. 80
Termination Fee.......................................................... 81
Certain Related Party Transactions....................................... 81
Expenses................................................................. 81
Amendment................................................................ 81
THE UNIVISA CONTRIBUTION AGREEMENT........................................ 82
THE DTH SALE.............................................................. 86
Background............................................................... 86
Terms of the DTH Option Purchase Agreement............................... 87
Opinion of PanAmSat's Financial Advisor Regarding the DTH Sale........... 87
</TABLE>
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<S> <C>
OTHER AGREEMENTS......................................................... 89
Assurance Agreement..................................................... 89
Principal Stockholders Agreement........................................ 89
Stockholder Agreement................................................... 91
Registration Rights Agreement........................................... 93
Income Tax Indemnification and Allocation Agreement..................... 94
BUSINESS OF PANAMSAT..................................................... 95
Overview................................................................ 95
Customers and Markets................................................... 95
Conversion and Initial Public Offering.................................. 96
Business Strategy....................................................... 97
Services................................................................ 99
DTH Strategy............................................................ 103
PanAmSat Satellites..................................................... 105
Launch Arrangements..................................................... 116
Insurance............................................................... 117
Sales and Marketing..................................................... 118
Competition............................................................. 118
Government Regulation................................................... 120
Employees............................................................... 126
Properties.............................................................. 126
Legal Proceedings....................................................... 126
BUSINESS OF GALAXY....................................................... 128
Overview................................................................ 128
Business Strategy....................................................... 128
Satellite Services...................................................... 130
Satellite Technology.................................................... 133
Galaxy Satellites....................................................... 134
Satellite Development and Construction.................................. 142
Launch Arrangements..................................................... 142
Insurance .............................................................. 143
Sale-Leaseback Arrangements............................................. 144
Competition............................................................. 145
Government Regulation................................................... 145
Employees............................................................... 150
Properties.............................................................. 150
Legal Proceedings....................................................... 150
BUSINESS OF NEW PANAMSAT................................................. 151
Liquidity and Capital Resources......................................... 151
PER SHARE MARKET PRICE AND DIVIDEND INFORMATION OF PAS ORDINARY COMMON
STOCK................................................................... 152
SELECTED HISTORICAL FINANCIAL INFORMATION OF PANAMSAT.................... 153
PANAMSAT MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS................................................... 155
Overview................................................................ 155
Results of Operations................................................... 156
1996 Compared to 1995................................................... 157
</TABLE>
5
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<TABLE>
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<S> <C>
1995 Compared to 1994............... 159
Liquidity and Capital Resources..... 161
SELECTED HISTORICAL FINANCIAL
INFORMATION OF GALAXY............... 163
GALAXY MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS............... 164
Overview............................ 164
Transponders in Service and
Available.......................... 164
Satellite Capacity Contracts........ 165
Backlog............................. 166
Results of Operations............... 167
1996 Compared to 1995............... 167
1995 Compared to 1994............... 168
Liquidity and Capital Resources..... 169
Accounting Change................... 171
UNAUDITED PRO FORMA COMBINED
FINANCIAL STATEMENTS................ 172
DESCRIPTION OF NEW PANAMSAT CAPITAL
STOCK............................... 177
General............................. 177
Common Stock........................ 177
New PAS Preferred Stock............. 177
Registration Rights................. 177
Advance Notice Provisions for
Stockholder Nominations and
Stockholder Proposals.............. 178
Stockholder Meetings................ 178
Board of Directors.................. 178
Limitation of Liability of
Directors.......................... 179
Indemnification of Directors and
Officers........................... 179
Delaware General Corporation Law
Section 203........................ 179
COMPARISON OF STOCKHOLDERS' RIGHTS... 180
Voting.............................. 180
Board of Directors.................. 181
Limitation of Liability of
Directors.......................... 181
Indemnification of Directors and
Officers; Advancement of Expenses
and Insurance...................... 181
Stockholder Nominations of
Candidates for the Board of
Directors and Other Proposals...... 182
Amendment or Repeal of the
Certificate of Incorporation and
Bylaws............................. 182
Preemptive Rights................... 183
Liquidation Rights.................. 183
Delaware General Corporation Law
Section 203........................ 184
MANAGEMENT OF NEW PANAMSAT........... 185
Executive Officers.................. 185
Executive Compensation.............. 186
Employment Agreements............... 186
</TABLE>
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<S> <C>
Board of Directors............... 187
Director Compensation;
Committees...................... 188
NEW PANAMSAT EMPLOYEE BENEFIT AND
OPTION PLANS..................... 190
Employee Benefit Plans........... 190
Long-Term Stock Incentive Plan... 190
Annual Incentive Plan............ 193
Deferred Compensation Plan....... 194
OWNERSHIP OF PANAMSAT CAPITAL
STOCK............................ 195
PRO FORMA OWNERSHIP OF NEW
PANAMSAT CAPITAL STOCK........... 198
CERTAIN TRANSACTIONS.............. 200
PanAmSat......................... 200
Hughes Parties................... 202
PROPOSAL TO APPROVE AND ADOPT THE
CHARTER AMENDMENT................ 204
LEGAL MATTERS..................... 205
EXPERTS........................... 205
FUTURE STOCKHOLDER PROPOSALS...... 205
PANAMSAT FINANCIAL STATEMENTS..... FIN-1
GALAXY FINANCIAL STATEMENTS....... FIN-20
MAGELLAN INTERNATIONAL, INC.
FINANCIAL STATEMENTS............. FIN-31
Appendix A--Agreement and Plan of
Reorganization................... A-1
Appendix AA--Amendment to
Agreement and Plan of
Reorganization................... AA-1
Appendix B--Agreement and Plan of
Merger........................... B-1
Appendix C--Stock Contribution and
Exchange Agreement............... C-1
Appendix D--Opinion of Morgan
Stanley & Co. Incorporated....... D-1
Appendix E--Opinion of Salomon
Brothers Inc..................... E-1
Appendix F--Form of Restated New
PanAmSat Certificate of
Incorporation.................... F-1
Appendix G--Form of Restated New
PanAmSat Bylaws.................. G-1
Appendix H--DTH Option Purchase
Agreement........................ H-1
Appendix I--Delaware General
Corporation Law Section 262...... I-1
Appendix J--Charter Amendment..... J-1
Appendix K--Assurance Agreement... K-1
Appendix L--Principal Stockholders
Agreement........................ L-1
Appendix M--Amended and Restated
Stockholder Agreement............ M-1
Appendix N--Amended and Restated
Registration Rights Agreement.... N-1
Appendix O--Income Tax
Indemnification and Allocation
Agreement........................ O-1
</TABLE>
6
<PAGE>
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
TERM PAGE
- ---- ----
<S> <C>
401(k) Plan................................................................ 190
1993 Indentures............................................................ 118
1993 Notes................................................................. 97
1995 Stock Plan............................................................ 62
1996 Letter Agreement...................................................... 86
1997 Stock Plan............................................................ 190
AARs....................................................................... 62
Acquisition Proposal....................................................... 77
Allocation Determination................................................... 68
Annual Incentive Plan...................................................... 193
Anselmo Group.............................................................. 97
Antitrust Division......................................................... 18
Arianespace................................................................ 34
Article VII Trust.......................................................... 196
Asset Contribution......................................................... 2
Assurance Agreement........................................................ 23
Brazil Transponder Agreement............................................... 96
BSS........................................................................ 38
Capital Expenditures for Satellites Under Construction..................... 76
Cash Cap................................................................... 69
Cash Election.............................................................. 67
CDV........................................................................ 101
Certificate of Designation................................................. 117
Charter Amendment.......................................................... 1
Class A Holders............................................................ 22
Class A Trustee............................................................ 22
Class B Holder............................................................. 22
Closed System.............................................................. 76
Closing.................................................................... 16
Closing Date............................................................... 16
Code....................................................................... 55
Collateral Agreements...................................................... 84
Commencement Date.......................................................... 91
Commission................................................................. 1
Committing Companies....................................................... 92
Communications Act......................................................... 121
Comsat..................................................................... 37
Comsat Litigation.......................................................... 40
Contributed Entities....................................................... 9
Conversion................................................................. 25
Converted Shares........................................................... 3
CSU........................................................................ 132
Damages.................................................................... 84
DGCL....................................................................... 14
DIRECTV.................................................................... 42
DISCO I.................................................................... 146
Discount Note Indenture.................................................... 118
Discount Notes............................................................. 97
Disinterested Director..................................................... 77
Dissenting Shares.......................................................... 58
DTH........................................................................ 3
DTH Option Purchase Agreement.............................................. 3
DTH Options................................................................ 3
DTH Sale................................................................... 23
DTH Termination Date....................................................... 87
DTVI....................................................................... 42
Early Buy Out Option....................................................... 40
EBITDA..................................................................... 26
Effective Time............................................................. 16
Election Deadline.......................................................... 68
Election Form.............................................................. 67
</TABLE>
<TABLE>
<CAPTION>
TERM PAGE
- ---- ----
<S> <C>
Employee Separation Plan................................................... 20
Excess Cash................................................................ 69
Exchange Act............................................................... 4
Exchange Agent............................................................. 68
Exchange Debentures........................................................ 117
Exchange Fund.............................................................. 68
Exchange Indenture......................................................... 117
Expenses................................................................... 81
Extension Period........................................................... 87
FCC........................................................................ 19
FCC Applications........................................................... 57
Final Date................................................................. 80
Flex Credits............................................................... 190
FTC........................................................................ 19
GAAP....................................................................... 19
Galaxy..................................................................... 9
Galaxy Assets.............................................................. 65
Galaxy Business............................................................ 65
Galaxy Financial Statements................................................ 29
Galaxy Liabilities......................................................... 65
Galaxy Permit.............................................................. 72
GE Americom................................................................ 37
General Motors............................................................. 9
GLA........................................................................ 86
Globo...................................................................... 86
HAC........................................................................ 36
HAC PAS-5 Contract......................................................... 115
HCCS....................................................................... 1
HCG........................................................................ 1
HCI........................................................................ 1
HCJ........................................................................ 1
HCS........................................................................ 1
HCSS....................................................................... 1
HE......................................................................... 9
HE Pension Plan............................................................ 190
HSC........................................................................ 130
HSCC....................................................................... 201
HSCI....................................................................... 142
HSR Act.................................................................... 18
HSR Filings................................................................ 56
Hughes Indemnified Party................................................... 79
Hughes Parties............................................................. 1
IDS........................................................................ 103
Indebtedness............................................................... 144
Indemnified Liabilities.................................................... 78
Indemnified Party.......................................................... 79
Indemnified Person......................................................... 78
Indemnified Persons........................................................ 78
Indemnifying Party......................................................... 79
Intelsat................................................................... 37
Interim Period............................................................. 73
IPO........................................................................ 25
IRS........................................................................ 55
ISOs....................................................................... 62
ITU........................................................................ 38
ITU Radio Regulations Board................................................ 124
Joint Trustees............................................................. 196
Known Liabilities Estimate................................................. 84
Latin America JVs.......................................................... 86
Launch Agreement........................................................... 142
Leases..................................................................... 144
</TABLE>
7
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<TABLE>
<CAPTION>
TERM PAGE
- ---- ----
<S> <C>
Letter of Transmittal...................................................... 68
LKE........................................................................ 35
LKE Launch Contract........................................................ 116
Lockheed................................................................... 142
Loral Space................................................................ 125
Loral SpaceCom............................................................. 37
Maximum Cash Amount........................................................ 69
MDC........................................................................ 34
Mercer..................................................................... 47
Merger..................................................................... 2
Merger Agreement........................................................... 1
Merger Consideration....................................................... 66
Minority Stockholders...................................................... 23
Morgan Stanley............................................................. 15
Morgan Stanley Opinion..................................................... 51
Named Executive Officers................................................... 20
Nasdaq..................................................................... 4
New Financing.............................................................. 40
New PanAmSat............................................................... 1
New PanAmSat Board......................................................... 24
New PanAmSat Bylaws........................................................ 66
New PanAmSat Certificate of Incorporation.................................. 66
New PanAmSat Certificates.................................................. 68
New PanAmSat Indemnified Party............................................. 79
New PanAmSat Savings Plan.................................................. 80
New PAS Common Stock....................................................... 1
New PAS Preferred Stock.................................................... 177
News Corp.................................................................. 40
NQSOs...................................................................... 62
NYSE....................................................................... 57
Option Consideration....................................................... 62
Options.................................................................... 62
Optus...................................................................... 117
Original MOU............................................................... 86
Orion...................................................................... 119
Pacstar.................................................................... 125
PanAmSat................................................................... 1
PanAmSat Board............................................................. 1
PanAmSat Capital........................................................... 118
PanAmSat Certificate of Incorporation...................................... 1
PanAmSat Financial Statements.............................................. 25
Parent Company............................................................. 170
Partnership................................................................ 25
PAS-9/R.................................................................... 35
PAS Class A Common Stock................................................... 1
PAS Class B Common Stock................................................... 2
PAS Common Stock........................................................... 2
PAS Global System.......................................................... 98
PAS Merger Corp. .......................................................... 1
PAS Ordinary Common Stock.................................................. 2
PAS Permit................................................................. 72
PAS Preferred Stock........................................................ 39
PAS Shares................................................................. 66
PAS Treasury Stock......................................................... 66
PCSI....................................................................... 121
Permits.................................................................... 71
Person..................................................................... 76
Plan Year.................................................................. 193
Principal Stockholders..................................................... 22
</TABLE>
<TABLE>
<CAPTION>
TERM PAGE
- ---- ----
<S> <C>
Principal Stockholders Agreement........................................... 22
Prorated Cash Amount....................................................... 69
Prorated Stock Amount...................................................... 69
PSTN....................................................................... 121
PTT........................................................................ 124
Record Date................................................................ 11
Registration Rights Agreement.............................................. 24
Registration Rights Holders................................................ 24
Registration Statement..................................................... 3
Related Agreements......................................................... 71
Reorganization............................................................. 14
Reorganization Agreement................................................... 1
Requested Cash Amount...................................................... 69
Requested Stock Amount..................................................... 69
Revised MOU................................................................ 86
S Company.................................................................. 3
Salomon Brothers........................................................... 23
Salomon Brothers Opinion................................................... 87
Section 262................................................................ 22
Securities Act............................................................. 3
Senior Secured Note Indenture.............................................. 118
Senior Secured Notes....................................................... 97
Severance Agreements....................................................... 61
Share Repurchase........................................................... 3
SIN........................................................................ 185
SPACEWAY................................................................... 42
Spain Joint Venture........................................................ 86
Spain Transponder Agreement................................................ 96
Special Meeting............................................................ 1
SS/Loral................................................................... 36
SS/Loral Satellite Contract................................................ 115
Standard Cash Consideration................................................ 66
Standard Consideration..................................................... 66
Standard Election.......................................................... 67
Stock Certificate.......................................................... 67
Stock Consideration........................................................ 67
Stock Election............................................................. 67
Stockholder Agreement...................................................... 23
Stockholder Notice Procedure............................................... 178
Superior Acquisition Proposal.............................................. 76
Surviving Corporation...................................................... 65
Tax Agreement.............................................................. 24
TCI........................................................................ 86
Televisa................................................................... 3
Televisa Spain............................................................. 87
Termination Fee............................................................ 81
Trust Holdback............................................................. 85
TT&C....................................................................... 9
Univisa.................................................................... 3
Univisa Contribution....................................................... 3
Univisa Contribution Agreement............................................. 3
USHI....................................................................... 10
Value Unit................................................................. 82
Value Unit Consideration................................................... 82
Voting Trust............................................................... 57
Voting Trust Agreement..................................................... 22
VSAT....................................................................... 103
Welfare Benefits........................................................... 61
XIPS....................................................................... 35
</TABLE>
8
<PAGE>
SUMMARY
Certain significant matters discussed in this Proxy Statement/Prospectus are
summarized below. This summary is not intended to be complete and is qualified
by reference to the more detailed information appearing or incorporated by
reference in this Proxy Statement/Prospectus (including the Appendices hereto).
As used in this Proxy Statement/Prospectus, (i) "PanAmSat" refers to PanAmSat
Corporation and, unless the context requires otherwise, its subsidiaries, and
(ii) "Galaxy" refers to the operations of HCI, HCG, HCSS, HCS, HCCS and HCJ
related specifically to the "Galaxy Business" (as such term is defined in the
section captioned "THE REORGANIZATION AGREEMENT--Terms of the Reorganization--
The Asset Contribution").
THE COMPANIES
PanAmSat.................... PanAmSat operates the world's first privately
owned global (excluding domestic U.S.) satellite
communications system and currently owns and
operates four satellites serving Latin America,
the Caribbean, Europe, Asia, the Middle East and
Africa. PanAmSat currently provides satellite
services primarily to the broadcasting and
business communications markets and also provides
services to the long-distance telephone markets.
In connection with its current services, PanAmSat
is pursuing international opportunities in the
satellite DTH television market. PanAmSat plans
to launch additional satellites in the future to
meet anticipated increases in customer demand and
currently has four satellites under construction.
The mailing address of PanAmSat's principal
executive offices is One Pickwick Plaza,
Greenwich, Connecticut 06830, and its telephone
number is (203) 622-6664. See "THE COMPANIES--
PanAmSat."
Galaxy...................... Galaxy is a leading provider of domestic
commercial satellite services, operating a fleet
of ten geostationary fixed service satellites,
nine of which primarily serve the United States
and one of which serves both the United States
and Latin America. Galaxy offers satellite
transponder capacity to cable television
programmers, broadcast television programmers,
business communications customers and DTH service
providers, for video, audio and data
communications applications. Galaxy also provides
satellite tracking, telemetry and control
("TT&C") services for its own satellite fleet as
well as for satellites owned by others. Galaxy
plans to launch and operate additional satellites
in the future to meet anticipated demand and
presently has five satellites in various stages
of development.
Galaxy is owned and operated by HCI through its
subsidiaries HCG, HCSS, HCS, HCCS and HCJ (all
such subsidiaries collectively, the "Contributed
Entities"). HCI is an indirect, wholly owned
subsidiary of Hughes Electronics Corporation
("HE"), which is itself a wholly owned subsidiary
of General Motors Corporation ("General Motors").
The mailing address of HCI's principal executive
offices is P.O. Box 9712, Long Beach, California
90810-9928 and its telephone number is (310) 525-
5000. See "THE COMPANIES--Galaxy."
9
<PAGE>
New PanAmSat................ New PanAmSat is currently a wholly owned
subsidiary of HCI that does not conduct any
business activities. As a result of the Merger
and the Univisa Contribution, PanAmSat will
become a wholly owned subsidiary of New PanAmSat
and, assuming that New PanAmSat pays half stock
and half cash as consideration in the Merger and
the Univisa Contribution (and giving effect to
the Share Repurchase), (i) HCI and certain of its
subsidiaries will own approximately 71.5% of the
New PAS Common Stock and (ii) the former direct
and indirect holders of PAS Common Stock will own
approximately 28.5% of New PAS Common Stock. If
all of PanAmSat's stockholders elect to receive
all stock in the Merger and pursuant to the
Univisa Contribution (and giving effect to the
Share Repurchase) and New PanAmSat does not
exercise its option to limit the number of
additional shares of New PAS Common Stock to be
issued in lieu of cash to PanAmSat stockholders,
(i) HCI and certain of its subsidiaries will own
approximately 53.5% of the outstanding shares of
New PAS Common Stock and (ii) the former direct
and indirect holders of PAS Common Stock will own
approximately 46.5% of the outstanding shares of
New PAS Common Stock after the Merger. Pursuant
to the terms of the Reorganization Agreement, New
PanAmSat may exercise its option to limit the
number of shares of New PAS Common Stock to be
issued, at any time prior to the payment to
stockholders pursuant to the elections.
The mailing address of New PanAmSat's principal
executive offices is One Pickwick Plaza,
Greenwich, Connecticut 06830, and its telephone
number is (203) 622-6664. See "THE COMPANIES--New
PanAmSat."
PAS Merger Corp............. PAS Merger Corp., a wholly owned subsidiary of
New PanAmSat, was formed by New PanAmSat solely
for the purpose of effecting the Merger.
The mailing address of PAS Merger Corp.'s
principal executive offices is c/o PanAmSat
Corporation, One Pickwick Plaza, Greenwich,
Connecticut 06830, and its telephone number is
(203) 622-6664. See "THE COMPANIES--PAS Merger
Corp."
Televisa.................... Televisa is a Mexican corporation that indirectly
owns all of the issued and outstanding shares of
PAS Class B Common Stock. S Company is a 100%
directly and indirectly owned subsidiary of
Televisa. Univisa is a wholly owned subsidiary of
S Company. Univisa Satellite Holdings, Inc., a
Delaware corporation ("USHI"), is a wholly owned
subsidiary of Univisa and directly owns all
issued and outstanding shares of PAS Class B
Common Stock.
SPECIAL MEETING OF PANAMSAT STOCKHOLDERS
Date, Time and Place of the
Special Meeting............
The Special Meeting is to be held on Thursday,
May 8, 1997 at 11:00 a.m. local time at the
Equinox Hotel, Historic Route 7A, Manchester
Village, Vermont. See "THE SPECIAL MEETING--
Special Meeting."
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<PAGE>
Purpose of the Special The purpose of the Special Meeting is to approve
Meeting.................... and adopt (a) the Reorganization Agreement and
the Merger Agreement and (b) the Charter
Amendment. See "THE SPECIAL MEETING."
Record Date; Shares Only holders of record of PAS Common Stock at the
Entitled to Vote........... close of business on April 8, 1997 (the "Record
Date") are entitled to notice of and to vote at
the Special Meeting. See "THE SPECIAL MEETING--
Record Date; Shares Entitled to Vote; Vote
Required."
Vote Required............... The approval and adoption of the Reorganization
Agreement, the Merger Agreement and the Charter
Amendment require the affirmative vote of (i) the
holders of a majority of the votes of the
outstanding shares of PAS Class A Common Stock
and PAS Ordinary Common Stock, voting together as
a single class, and the holders of a majority of
the outstanding shares of PAS Class B Common
Stock and PAS Ordinary Common Stock, voting
together as a single class, as well as (ii) the
holders of a majority of the votes of the
outstanding shares of PAS Class A Common Stock
(as long as the outstanding shares of PAS Class A
Common Stock represent at least 5% of the total
outstanding shares of PAS Common Stock) and a
majority of the votes of the outstanding shares
of PAS Class B Common Stock (as long as the
outstanding shares of PAS Class B Common Stock
represent at least 5% of the total outstanding
shares of PAS Common Stock). In addition, the
affirmative vote of the holders of the majority
of votes of the outstanding shares of PAS Class A
Common Stock, PAS Class B Common Stock and PAS
Ordinary Common Stock, each voting as a separate
class, is necessary to approve the Charter
Amendment. See "THE SPECIAL MEETING--Record Date;
Shares Entitled to Vote; Vote Required." Pursuant
to the Principal Stockholders Agreement, the
beneficial owners of all outstanding shares of
PAS Class A Common Stock and PAS Class B Common
Stock have agreed to vote all of their shares of
PAS Common Stock in favor of the Reorganization
Agreement and the Merger Agreement and to take
any actions required in furtherance thereof. In
connection therewith, immediately before the
Record Date, the holders of PAS Class A Common
Stock voluntarily converted the number of shares
of PAS Class A Common Stock necessary to
constitute a majority of the outstanding shares
of PAS Ordinary Common Stock from PAS Class A
Common Stock into PAS Ordinary Common Stock. On
the Record Date, the beneficial owners of all of
the outstanding shares of PAS Class A Common
Stock, PAS Class B Common Stock and the Converted
Shares held the voting power required to approve
the Reorganization Agreement, the Merger
Agreement and the Charter Amendment. ACCORDINGLY,
APPROVAL THEREOF BY THE PANAMSAT STOCKHOLDERS IS
ASSURED. See "OTHER AGREEMENTS--Principal
Stockholders Agreement." As of the Record Date,
the directors and executive officers of PanAmSat
and their affiliates owned approximately 81% of
the outstanding shares of PAS Common Stock. See
"OWNERSHIP OF PANAMSAT CAPITAL STOCK."
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OWNERSHIP AND CORPORATE STRUCTURE OF
PANAMSAT AND THE GALAXY BUSINESS
PRIOR TO THE REORGANIZATION
CHART
- -------------------------------------------------------------------------------
DIAGRAM OF THE REORGANIZATION
CHART
12
<PAGE>
OWNERSHIP AND CORPORATE
STRUCTURE OF NEW PANAMSAT
FOLLOWING THE REORGANIZATION*
CHART
13
<PAGE>
THE REORGANIZATION
General..................... On the Closing Date (as defined below), (i) PAS
Merger Corp. will merge with and into PanAmSat
and the shares of PAS Class A Common Stock and
PAS Ordinary Common Stock will be converted into
the right to receive shares of New PAS Common
Stock and/or cash, (ii) S Company will contribute
all of its capital stock of Univisa to New
PanAmSat in exchange for shares of New PAS Common
Stock and/or cash and (iii) HCI and certain of
its subsidiaries will contribute all of Galaxy's
assets and liabilities comprising the Galaxy
Business to New PanAmSat in exchange for shares
of New PAS Common Stock. See "THE REORGANIZATION
AGREEMENT--Terms of the Reorganization--The
Merger." The Merger, the Univisa Contribution,
the Asset Contribution and the transactions
contemplated thereby are collectively referred to
as the "Reorganization."
The Merger.................. PAS Merger Corp. will be merged with and into
PanAmSat in accordance with the applicable
provisions of the Delaware General Corporation
Law ("DGCL"). PanAmSat will be the surviving
corporation in the Merger and shall continue its
existence under the DGCL. As a result of the
Merger and the Univisa Contribution, New PanAmSat
will own, directly or indirectly, all outstanding
shares of PAS Common Stock and PanAmSat will
become a wholly owned subsidiary of New PanAmSat.
See "THE REORGANIZATION AGREEMENT--Terms of the
Reorganization--The Merger."
At the Effective Time (as defined below), each
issued and outstanding share of PAS Class A
Common Stock and PAS Ordinary Common Stock
(except for PAS Common Stock held in treasury and
dissenting shares) will be converted into the
right to receive, at the election of each holder
of PAS Class A Common Stock and PAS Ordinary
Common Stock, one of (i) an amount in cash equal
to $15 plus one half ( 1/2) share of New PAS
Common Stock, (ii) one share of New PAS Common
Stock (subject to proration, as applicable) or
(iii) an amount in cash equal to $30 (subject to
proration, as applicable). In addition, if the
closing of the Merger has not occurred on or
prior to September 20, 1997, the cash portion of
the Merger Consideration with respect to PAS
Shares (as defined below) will be increased at a
rate equal to 9% per annum from and including
September 20, 1997, but excluding the Closing
Date (as defined below). See "THE REORGANIZATION
AGREEMENT--Terms of the Reorganization--Merger
Consideration."
Univisa Contribution........ Immediately prior to the Merger, in a separate
but related transaction, New PanAmSat will
acquire from S Company all of the capital stock
of Univisa, which indirectly owns all of the
shares of PAS Class B Common Stock. In connection
with the Univisa Contribution, S Company will
receive, for each share of PAS Class B Common
Stock indirectly owned by Univisa, at S Company's
election, consideration equal in amount and form
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<PAGE>
(subject to proration, as applicable) to the
consideration payable on account of each share of
PAS Class A Common Stock and PAS Ordinary Common
Stock in the Merger. See "THE UNIVISA
CONTRIBUTION AGREEMENT."
Asset Contribution.......... At the Effective Time, HCI and certain of its
subsidiaries will contribute all of Galaxy's
assets and liabilities to New PanAmSat in
exchange for an aggregate of 106,622,807 shares
of New PAS Common Stock, representing
approximately 71.5% of the outstanding shares of
New PAS Common Stock after the Merger (assuming
that New PanAmSat pays half stock and half cash
as consideration in the Merger and the Univisa
Contribution). See "THE REORGANIZATION
AGREEMENT--Terms of the Reorganization--The Asset
Contribution."
Fractional Shares........... No fractional shares of New PAS Common Stock will
be issued in the Merger or pursuant to the
Univisa Contribution. In lieu of the issuance of
any such fractional shares, cash adjustments will
be paid to each holder of PAS Common Stock who
otherwise would be entitled to receive a
fractional share of New PAS Common Stock in the
Merger or pursuant to the Univisa Contribution
and the amount of such cash adjustment shall be
equal to the product of such fractional amount
and the Standard Cash Consideration (as defined
below). See "THE REORGANIZATION AGREEMENT--Terms
of the Reorganization--Fractional Shares."
Recommendations of the
PanAmSat Board.............
The PanAmSat Board has approved the
Reorganization Agreement and the Merger Agreement
and deemed advisable and approved the Charter
Amendment, and recommends that PanAmSat
stockholders vote "FOR" approval and adoption of
the Reorganization Agreement and the Merger
Agreement and "FOR" approval and adoption of the
Charter Amendment. See "THE REORGANIZATION--
Recommendation of the PanAmSat Board and Reasons
for the Merger."
Opinion of PanAmSat's
Financial Advisor..........
PanAmSat has received the written opinion of
Morgan Stanley & Co. Incorporated ("Morgan
Stanley"), PanAmSat's financial advisor, to the
effect that, as of September 20, 1996, the
consideration in the aggregate to be received by
the holders of shares of PAS Common Stock in
connection with the Merger and the Univisa
Contribution and the transactions contemplated
thereby was fair from a financial point of view
to such holders and the consideration to be paid
in the Share Repurchase was fair from a financial
point of view to New PanAmSat. Morgan Stanley
subsequently delivered its opinion to the
PanAmSat Board that, as of the date of this Proxy
Statement/Prospectus, the consideration in the
aggregate to be received by the holders of shares
of PAS Common Stock in connection with the Merger
and the Univisa Contribution and the transactions
contemplated thereby is fair from
15
<PAGE>
a financial point of view to such holders and the
consideration to be paid in the Share Repurchase
is fair from a financial point of view to New
PanAmSat. The full text of the opinion of Morgan
Stanley, dated the date of this Proxy
Statement/Prospectus, which sets forth the
assumptions made, procedures followed, matters
considered and limitations on the review
undertaken, is attached hereto as Appendix D.
Each PanAmSat stockholder should read such
opinion carefully in its entirety. The opinion of
Morgan Stanley is directed only to the matters
set forth therein and does not constitute a
recommendation to any holder of PAS Common Stock
as to how such holder should vote with respect to
the Reorganization Agreement, the Merger
Agreement and the Charter Amendment or as to
whether a PanAmSat stockholder should elect to
receive the Standard Consideration, the Stock
Consideration or the Standard Cash Consideration
(as such terms are defined below). See""THE
REORGANIZATION--Opinion of PanAmSat's Financial
Advisor."
Closing Date; Closing....... The closing date of the Merger, the Univisa
Contribution and the Asset Contribution (the
"Closing Date") shall occur on the seventh
business day following satisfaction or waiver of
the conditions to the Reorganization, unless
another date is agreed to in writing by the
parties to the Reorganization Agreement and the
parties to the Univisa Contribution Agreement
(the "Closing").
Effective Time of the The Merger will be consummated and become
Merger..................... effective at the time (the "Effective Time") at
which the certificate of merger to be filed
pursuant to the DGCL is accepted for filing by
the Secretary of State of the State of Delaware
or such later date and time as may be specified
in such certificate of merger. See "THE
REORGANIZATION AGREEMENT--Conditions to the
Reorganization."
Business of PanAmSat
Pending the Merger.........
PanAmSat has agreed that prior to the Effective
Time or earlier termination of the Reorganization
Agreement, except as contemplated by the
Reorganization Agreement, each of PanAmSat and
its subsidiaries will conduct its operations in
the ordinary course of business consistent with
past practice. In addition, unless agreed to in
writing or except as otherwise permitted pursuant
to the Reorganization Agreement or as previously
disclosed to the Hughes Parties, prior to the
Effective Time neither PanAmSat nor any of its
subsidiaries is permitted to engage in any of a
number of actions specified in the Reorganization
Agreement. See "THE REORGANIZATION AGREEMENT--
Conduct of Business Prior to the Effective Time."
Non-Solicitation; PanAmSat has agreed that, prior to the Closing or
Termination Fee............ earlier termination of the Reorganization
Agreement, neither PanAmSat nor any of its
subsidiaries or any of their officers, employees,
representatives, agents or affiliates will,
directly or indirectly, enter into, solicit,
initiate, continue, encourage or respond to any
discussions or
16
<PAGE>
negotiations with any third party (other than
HCI, HCG or any of their affiliates or
representatives) concerning any merger,
consolidation, share exchange or similar
transaction, any purchase of significant assets
or equity of PanAmSat or its significant
subsidiaries, or any other transaction that would
involve the transfer or potential transfer of
control of PanAmSat, other than the transactions
contemplated by the Reorganization Agreement. See
"THE REORGANIZATION AGREEMENT--Non-Solicitation."
In the event that the Reorganization Agreement is
terminated as a result of certain actions by the
PanAmSat Board or certain stockholders of
PanAmSat, PanAmSat will be obligated to pay to
HCI a termination fee of $80 million and
concurrently pay or reimburse HCI for up to $7.5
million of fees and expenses incurred by HCI and
its affiliates in connection with the
Reorganization. See "THE REORGANIZATION
AGREEMENT--Termination Fee."
Management and Operations
of PanAmSat and New
PanAmSat After the
Merger.....................
After the Merger, PanAmSat will be a wholly owned
subsidiary of New PanAmSat and will operate as
one of New PanAmSat's business units. The
corporate headquarters of New PanAmSat will be in
Greenwich, Connecticut. See "THE REORGANIZATION--
Management and Operations of New PanAmSat and
PanAmSat After the Merger." Frederick A. Landman,
the current President and Chief Executive Officer
of PanAmSat, will be President and Chief
Executive Officer of New PanAmSat. Other members
of the executive management team will be as
follows: Lourdes Saralegui, current Executive
Vice President of PanAmSat, will be Executive
Vice President of New PanAmSat; Carl A. Brown,
current Senior Vice President, Galaxy Satellite
Services of HCI, will be Executive Vice President
of New PanAmSat; Kenneth N. Heintz, current Vice
President of Corporate Development of HE, will be
Executive Vice President and Chief Financial
Officer of New PanAmSat; James W. Cuminale,
current Senior Vice President and General Counsel
of PanAmSat, will be Senior Vice President,
General Counsel and Secretary of New PanAmSat;
and Robert A. Bednarek, current Senior Vice
President, Engineering and Operations of
PanAmSat, will be Senior Vice President and Chief
Technology Officer of New PanAmSat. See
"MANAGEMENT OF NEW PANAMSAT."
New PanAmSat Employee
Benefit and Stock Option
Plans......................
New PanAmSat will adopt certain benefit and stock
option plans which will be available to certain
of its employees. See "NEW PANAMSAT EMPLOYEE
BENEFIT AND OPTION PLANS."
Financing in Connection
with the Reorganization....
The total amount of funds required to be paid by
New PanAmSat as consideration in the
Reorganization will be approximately $1.725
billion, comprised of (i) up to approximately
$1.5 billion to be paid to holders of PAS Class A
Common Stock and PAS Ordinary Common Stock,
holders of options to acquire PAS Ordinary Common
Stock and S Company as consideration in the
17
<PAGE>
Merger and the Univisa Contribution and (ii) $225
million to fund the Share Repurchase. Pursuant to
the Assurance Agreement, HE has agreed to lend up
to $1.725 billion to New PanAmSat on the Closing
Date to pay the cash consideration in the Merger
and the Univisa Contribution and to fund the
Share Repurchase. See "OTHER AGREEMENTS--
Assurance Agreement." The terms of such loan will
be no less favorable than the terms that New
PanAmSat would obtain from a third-party
commercial lender. See "THE REORGANIZATION--
Financing in Connection with the Reorganization."
Any additional funds needed by New PanAmSat on
the Closing Date will be funded from cash on
hand. See "RISK FACTORS--Substantial Leverage and
Additional Capital Requirements" and "BUSINESS OF
NEW PANAMSAT--Liquidity and Capital Resources."
Conditions to the
Reorganization;
Termination................
The consummation of the Reorganization is
conditioned upon the fulfillment or waiver (where
permissible) of certain conditions set forth in
the Reorganization Agreement. See "THE
REORGANIZATION AGREEMENT--Conditions to the
Reorganization." The Reorganization Agreement may
be terminated (i) by mutual consent of PanAmSat
and HCI, (ii) by either PanAmSat or HCI if the
Merger, the Univisa Contribution and the Asset
Contribution have not been consummated by
December 20, 1997 or (iii) under certain other
limited circumstances. See "THE REORGANIZATION
AGREEMENT--Termination."
Certain Federal Income Tax
Consequences...............
For federal income tax purposes, no income, gain
or loss will be recognized by PanAmSat pursuant
to the Merger. The holders of PAS Ordinary Common
Stock or PAS Class A Common Stock that receive:
(i) solely shares of New PAS Common Stock will
not recognize gain or loss as a result of the
Merger; (ii) solely cash consideration will
recognize gain or loss equal to the difference
between the cash consideration and the tax basis
of their shares; or (iii) both shares of New PAS
Common Stock and cash consideration will
recognize gain equal to the lesser of (A) the
cash consideration that they receive, or (B) the
gain that they realize. See "THE REORGANIZATION--
Certain Federal Income Tax Consequences."
PanAmSat stockholders are urged to consult their
own tax advisors as to the specific tax
consequences to them of the Merger.
Regulatory Approvals........ Consummation of the Reorganization was
conditioned upon, among other things, expiration
or termination of the waiting periods under the
Hart-Scott-Rodino Improvements Act of 1976, as
amended, and the rules promulgated thereunder
(the "HSR Act"). The waiting periods under the
HSR Act, however, have expired without a Request
for Additional Information by the Antitrust
Division of the Department of Justice (the
"Antitrust Division") or the Federal
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<PAGE>
Trade Commission ("FTC"). Accordingly, no
antitrust approvals are required from the
Antitrust Division or the FTC to consummate the
Reorganization.
In addition, consummation of the Reorganization
was conditioned upon, among other things, ap-
proval by the Federal Communications Commission
(the "FCC") of the transfer of control of
PanAmSat and the receipt of other necessary regu-
latory approvals. The FCC issued its approval or-
der on April 4, 1997 and the applicable appeal
period will expire on May 5, 1997. See "THE REOR-
GANIZATION--Regulatory Approvals."
Listing of New PAS Common New PanAmSat has obtained conditional approval
Stock...................... for the listing of the New PAS Common Stock on
the Nasdaq. It is presently anticipated that the
PAS Ordinary Common Stock, which is currently
listed on the Nasdaq under the symbol "SPOT,"
will be replaced by the listing of New PAS Common
Stock and trade under the same symbol. See "THE
REORGANIZATION--Stock Exchange Listings."
Accounting Treatment........ The Reorganization will be accounted for under
the purchase method of accounting in accordance
with generally accepted accounting principles
("GAAP"), with Galaxy as the acquirer of
PanAmSat. See "THE REORGANIZATION--Accounting
Treatment."
Interests of Certain
Persons in the
Reorganization.............
In considering the Reorganization Agreement, the
Merger Agreement and the transactions
contemplated thereby, PanAmSat's stockholders
should be aware that certain members of the
management of PanAmSat and the PanAmSat Board and
certain principal stockholders of PanAmSat have
certain interests in the Reorganization that are
in addition to the interests of stockholders of
PanAmSat generally:
Televisa. Under the Univisa Contribution
Agreement, S Company, as the indirect holder of
all of the shares of PAS Class B Common Stock,
will receive, for each share of PAS Class B
Common Stock indirectly owned by Univisa, at S
Company's election, consideration that is equal
in amount and form (subject to proration, as
applicable) to the consideration payable on
account of each share of PAS Class A Common Stock
and PAS Ordinary Common Stock in the Merger. In
addition, concurrently with the Merger and
immediately following the Univisa Contribution,
7.5 million shares of New PAS Common Stock
received by S Company in connection with the
Univisa Contribution will be repurchased by New
PanAmSat for $225 million. Following such Share
Repurchase, either Televisa, S Company and/or
their designees will purchase the DTH Options
from PanAmSat for $225 million pursuant to the
DTH Option
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<PAGE>
Purchase Agreement. It is a condition to the
Reorganization that the sale of the DTH Options
shall have occurred. See "THE REORGANIZATION--
Interests of Certain Persons in the
Reorganization," "THE UNIVISA CONTRIBUTION
AGREEMENT" and "THE DTH SALE."
General Severance Policy. On April 22, 1996, the
PanAmSat Board adopted a general severance policy
for all employees upon termination without cause.
Under such policy, Frederick A. Landman,
President and Chief Financial Officer of
PanAmSat, Lourdes Saralegui, Executive Vice
President of PanAmSat, Patrick J. Costello, Chief
Financial Officer of PanAmSat, James W. Cuminale,
Senior Vice President and General Counsel of
PanAmSat, and Robert A. Bednarek, Senior Vice
President, Engineering and Operations, of
PanAmSat (the "Named Executive Officers") would
be entitled to receive a minimum of four weeks'
salary and a maximum of 52 weeks' salary as
severance.
Employee Separation Plan. On April 22, 1996, the
PanAmSat Board adopted an Employee Separation
Plan (the "Employee Separation Plan") providing
that for a one-year period following a "change of
control" (as defined below) any employee who is
terminated without cause would be entitled to
receive six months' continuation of certain
additional benefits. The Employee Separation Plan
applies to all employees of PanAmSat, other than
any employee that is otherwise covered by a
Severance Agreement (as defined below). The
Employee Separation Plan is effective for one
year and is renewable at PanAmSat's option.
PanAmSat has extended the Employee Separation
Plan until the first anniversary following the
Closing Date.
Executive Severance Pay Program. On April 22,
1996, the PanAmSat Board adopted an executive
severance pay program covering the Named
Executive Officers and approximately 55 other key
employees. Pursuant to severance agreements
between PanAmSat and each covered officer,
severance benefits are payable to such officers
under certain circumstances following a change of
control and are determined by multiplying base
salary and a cash bonus component by 3 in the
case of Mr. Landman, Ms. Saralegui, Mr. Costello,
Mr. Cuminale and Mr. Bednarek and by 1.5 in the
case of the remaining key employees. Covered
officers would be entitled to certain other
welfare and insurance benefits until the earlier
of (i) 36 months in the case of Mr. Landman and
Ms. Saralegui, (ii) 24 months in the case of the
remaining three covered officers and (iii) 18
months in the case of the remaining key
employees, or the obtaining of similar benefits
on reemployment. The severance agreements
restrict the ability of the Named Executive
Officers and remaining key employees to compete
with PanAmSat for 18 and 12 month periods
following their respective termination from
PanAmSat.
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<PAGE>
Stock Incentive Plan. PanAmSat has granted to
certain of its employees options to purchase an
aggregate of 1,250,000 shares of Common Stock,
including grants to Mr. Landman, Ms. Saralegui,
Mr. Costello, Mr. Cuminale and Mr. Bednarek for
200,000 shares, 150,000 shares, 75,000 shares,
75,000 shares and 75,000 shares, respectively. At
the Effective Time, each of the foregoing holders
will receive for each share of PAS Ordinary
Common Stock subject to such options an amount
(subject to applicable withholding tax) in cash
equal to the difference between $30 and the per
share exercise price of such option. Such options
are exercisable at the price of $17 per share.
After discussions with HCI, PanAmSat did not
grant any new options to its employees in
September 1996, the first anniversary of its
initial public stock offering, as previously
anticipated. Instead, in lieu of such options,
PanAmSat paid cash in the aggregate amount of
$4.8 million to 195 of its employees, including
$950,000 to Mr. Landman, $500,000 to Ms.
Saralegui, $300,000 to Mr. Costello, $225,000 to
Mr. Cuminale and $225,000 to Mr. Bednarek.
Indemnification. The Reorganization Agreement
provides for certain rights of indemnification,
payment of attorneys' fees and maintenance of
liability insurance policies of directors or
officers of the Contributed Entities, New
PanAmSat or PanAmSat or their respective
subsidiaries after the Closing Date, with respect
to matters existing or occurring at or prior to
the Closing Date. See "THE REORGANIZATION--
Interests of Certain Persons in the
Reorganization" and "THE REORGANIZATION
AGREEMENT--Indemnification."
Registration Rights. Pursuant to the Registration
Rights Agreement (as defined below) certain
directors, executive officers and affiliates of
PanAmSat have rights, under certain circumstances
and subject to certain conditions, to require New
PanAmSat to register all or any portion of the
shares of New PAS Common Stock which they hold.
See "OTHER AGREEMENTS--Registration Rights
Agreement."
Employment Agreements. New PanAmSat anticipates
that it will enter into employment agreements
with Mr. Landman and Ms. Saralegui on terms and
conditions to be negotiated by the parties
thereto. New PanAmSat also anticipates that for a
one-year transition period after the Effective
Time, New PanAmSat will pay HE for the services
of Mr. Heintz, who will continue to be employed
by HE during such transition period.
Exchange of Certificates.... Concurrently herewith, holders of certificates
that formerly represented shares of PAS Ordinary
Common Stock or PAS Class A Common Stock are
receiving a letter of transmittal, instructions
for use in effecting the surrender of such
certificates in exchange for the Merger
Consideration and an election form providing for
such
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<PAGE>
holders to make an election as to the Merger
Consideration to be received by them in respect
of their shares of PAS Ordinary Common Stock and
PAS Class A Common Stock. See "THE REORGANIZATION
AGREEMENT--Elections by Holders of PAS Common
Stock; Exchange of Certificates in the Merger."
STOCKHOLDERS SHOULD NOT SEND STOCK CERTIFICATES
WITH THEIR PROXIES. AN ELECTION FORM AND A LETTER
OF TRANSMITTAL ARE BEING MAILED CONCURRENTLY
HEREWITH TO EACH PERSON WHO IS A HOLDER OF
OUTSTANDING PAS ORDINARY COMMON STOCK OR PAS
CLASS A COMMON STOCK ON THE RECORD DATE, AND UPON
REQUEST TO THE EXCHANGE AGENT, WILL BE MAILED TO
EACH PERSON WHO BECOMES A HOLDER OR BENEFICIAL
OWNER OF PAS ORDINARY COMMON STOCK OR PAS CLASS A
COMMON STOCK PRIOR TO THE ELECTION DEADLINE. PAS
ORDINARY COMMON STOCK AND PAS CLASS A COMMON
STOCK CERTIFICATES WILL BE EXCHANGED FOR THE
MERGER CONSIDERATION FOLLOWING CONSUMMATION OF
THE MERGER IN ACCORDANCE WITH INSTRUCTIONS
CONTAINED IN THE ELECTION FORM AND LETTER OF
TRANSMITTAL.
Appraisal Rights............ In connection with the Merger, holders of shares
of PAS Ordinary Common Stock will be entitled to
demand appraisal rights in respect of their
shares of PAS Ordinary Common Stock under Section
262 of the DCGL ("Section 262"), subject to the
satisfaction by such stockholders of the
conditions for appraisal rights established by
Section 262. Failure to take any of the steps
required under Section 262 on a timely basis may
result in the loss of appraisal rights. Section
262 is set forth in full in Appendix I to this
Proxy Statement/Prospectus. See "THE
REORGANIZATION--Appraisal Rights."
OTHER AGREEMENTS
Principal Stockholders Concurrently with the execution of the
Agreement.................. Reorganization Agreement, HCI, HCG, S Company,
USHI (the "Class B Holder"), the holders of the
PAS Class A Common Stock and the Converted Shares
(the "Class A Holders") and the Trustees (the
"Class A Trustee") under the Voting Trust
Agreement dated as of February 28, 1995 (the
"Voting Trust Agreement") among certain holders
of PAS Class A Common Stock (the Class A Trustee,
S Company, the Class B Holder, together with the
Class A Holders, the "Principal Stockholders")
entered into the Principal Stockholders Agreement
dated September 20, 1996 (the "Principal
Stockholders Agreement") pursuant to which each
Principal Stockholder agreed to vote in favor of
the Merger, the Reorganization Agreement and the
other actions contemplated thereby. In addition,
the Principal
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Stockholders agreed to vote against certain
actions which would be inconsistent with the
terms of the Principal Stockholders Agreement,
the Reorganization Agreement and the other
actions contemplated thereby. As of the Record
Date, the Class A Holders and the Class B Holder
owned (i) 100% of the outstanding shares of PAS
Class A Common Stock, (ii) 100% of the
outstanding shares of PAS Class B Common Stock
and (iii) approximately 50.1% of the outstanding
shares of PAS Ordinary Common Stock. See "THE
REORGANIZATION--Agreement of the Class A Holders
and the Class B Holder to Vote in Favor of the
Reorganization" and "OTHER AGREEMENTS--Principal
Stockholders Agreement."
DTH Sale.................... It is a condition to the Reorganization that
PanAmSat dispose of the DTH Options. See "THE
REORGANIZATION--Background of the
Reorganization," "THE REORGANIZATION AGREEMENT--
Conditions to the Reorganization" and "THE DTH
SALE." After the Share Repurchase, pursuant to
the DTH Option Purchase Agreement, PanAmSat will
sell to either Televisa, S Company and/or their
designees the DTH Options for a purchase price of
$225 million (the "DTH Sale"). The closing of the
DTH Sale will occur substantially concurrently
with the receipt by S Company of the
consideration to be paid to it pursuant to the
Univisa Contribution Agreement. See "THE DTH
SALE." PanAmSat has received the written opinion
dated September 19, 1996 of Salomon Brothers Inc
("Salomon Brothers"), PanAmSat's financial
advisor with respect to the DTH Sale, to the
effect that, as of such date and based upon and
subject to the qualifications described therein,
the consideration to be received by PanAmSat for
the sale of the DTH Options represented fair
value to PanAmSat for the DTH Options from a
financial point of view. The full text of the
opinion of Salomon Brothers, which sets forth the
assumptions made and matters considered, is
attached hereto as Appendix E. See "THE DTH
SALE."
Assurance Agreement......... Pursuant to the Assurance Agreement dated
September 20, 1996 (the "Assurance Agreement")
among HE, PanAmSat, S Company and New PanAmSat,
HE agreed to lend or arrange for a third party to
lend to New PanAmSat, on or before the Closing
Date, $1.725 billion (plus any interest accrued
pursuant to the Reorganization Agreement). HE
further agreed, among other things, to cause its
subsidiaries to perform their respective
obligations under the Reorganization Agreement
and related agreements. See "OTHER AGREEMENTS--
Assurance Agreement."
Stockholder Agreement....... On the Closing Date, HCI, S Company, the Class A
Holders (the Class A Holders together with S
Company, the "Minority Stockholders") and New
PanAmSat will enter into the Amended and Restated
Stockholder Agreement (the "Stockholder
Agreement") pursuant to which the parties thereto
will agree to (i) certain restrictions on HCI,
the Minority Stockholders and New PanAmSat
regarding the sale of shares of New PAS Common
Stock,
23
<PAGE>
and on HCI and its affiliates regarding the
purchase of more than 81% of New PAS Common
Stock, (ii) the designation of directors to the
Board of Directors of New PanAmSat (the "New
PanAmSat Board") and (iii) certain covenants of
HE and any entity owned 50% or more by HE not to
compete with New PanAmSat. See "OTHER
AGREEMENTS--Stockholder Agreement."
Registration Rights Pursuant to the Amended and Restated Registration
Agreement.................. Rights Agreement to be entered into on the
Closing Date (the "Registration Rights
Agreement"), HCI, S Company and the Class A
Holders (collectively, the "Registration Rights
Holders") and New PanAmSat, the Registration
Rights Holders will have, among other things, the
right, under certain circumstances and subject to
certain conditions and exceptions, to require New
PanAmSat to register all or any portion of New
PAS Common Stock held by them provided the
aggregate value of such shares is at least $100
million. See "THE REORGANIZATION--Interests of
Certain Persons in the Reorganization" and "OTHER
AGREEMENTS--Registration Rights Agreement."
Income Tax Indemnification
and Allocation Agreement...
On the Closing Date, HE and New PanAmSat will
enter into the Tax Indemnification and Allocation
Agreement (the "Tax Agreement"), pursuant to
which HE will be responsible for and indemnify
New PanAmSat and its subsidiaries for certain
income taxes and transfer taxes. See "OTHER
AGREEMENTS--Income Tax Indemnification and
Allocation Agreement."
RISK FACTORS
Risk Factors................ The information set forth under "RISK FACTORS"
should be reviewed and carefully considered in
evaluating the Reorganization and the ownership
of New PAS Common Stock to be issued in the
Merger.
24
<PAGE>
PANAMSAT SUMMARY HISTORICAL FINANCIAL INFORMATION
The following summary financial information for and as of each year in the
five-year period ended December 31, 1996 has been derived from the consolidated
financial statements of PanAmSat and its subsidiaries and predecessor entities,
audited by Arthur Andersen LLP, independent public accountants (including the
related notes thereto, the "PanAmSat Financial Statements"). This summary
financial information should be read in conjunction with the PanAmSat Financial
Statements and "PANAMSAT MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS" appearing elsewhere in this Proxy
Statement/Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------
1996 1995 1994 1993 1992
---------- ---------- ---------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Total revenues.......... $246,943 $116,155 $63,744 $50,798 $40,328
Income from operations.. 108,774 32,783 20,401 23,038 19,092
Interest (income)
expense, net........... 622(1) (1,592)(1) 2,403(1) 6,103(1) 1,208
Income before taxes..... 108,152 34,375 17,998 16,935 17,108
Income taxes(2)......... 46,432 16,829 -- -- --
Net income.............. 61,720 17,546 17,998 16,935 17,108
Preferred stock dividend
requirement............ 41,422 25,976 -- -- --
Net income (loss) to
common shares.......... $20,298 $(8,430) $17,998 $16,935 $17,108
CERTAIN PRO FORMA
DATA(3)
OTHER FINANCIAL DATA:
EBITDA(4)............... $170,108(5) $66,195(5) $36,732 $31,269 $25,306
EBITDA margin........... 69%(5) 57%(5) 58% 62% 63%
Capital expenditures for
satellite systems under
development............ $280,858 $333,052 $300,217 $260,134 $22,555
Payments due from
customers under long-
term contracts(6)...... $2,435,608 $1,928,200 $1,270,000 $764,500 $239,700
Customers under long-
term contracts at end
of period(6)........... 199 177 121 108 89
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
(IN THOUSANDS)
-----------------
<S> <C>
BALANCE SHEET DATA:
Working capital (deficit)................................... $ (8,758)
Total assets................................................ 1,615,363
Long-term debt (less current portion)(7).................... 626,010
Long-term debt (less current portion) plus Preferred
Stock(7)................................................... 955,080
Stockholders' equity........................................ 497,368
</TABLE>
- --------
(1) Net of capitalized interest of $9.0 million, $41.0 million, $37.8 million
and $39.5 million for the years ended December 31, 1993, 1994, 1995, and
1996, respectively.
(2) As a partnership, PanAmSat, L.P., a Delaware limited partnership and a
predecessor of PanAmSat (the "Partnership"), was not subject to federal or
state income taxes. Accordingly, no income taxes were deducted from net
income on the Partnership's financial statements. However, the Partnership
was obligated under its Partnership Agreement to make certain tax
distributions to its partners. On March 2, 1995, the Partnership was
converted to corporate form (the "Conversion") and, accordingly, is now
subject to income taxes. See "BUSINESS OF PANAMSAT--Conversion and Initial
Public Offering."
(3) The following Certain Pro Forma Data gives effect to the Conversion and
the consummation of the initial public offering of PanAmSat's Common Stock
on September 20, 1995 (the "IPO") as if each had occurred at January 1,
1995. See "BUSINESS OF PANAMSAT-- Conversion and Initial Public Offering."
The pro forma adjustment to income taxes for the periods indicated is
based on a pro forma statutory tax rate of 40.3%.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1995
----------------------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C>
STATEMENT OF OPERATIONS DATA (UNAUDITED):
Pro forma adjustment to income tax provision........ $(1,207)
Pro forma net income................................ 18,753
Pro forma loss to available common stockholders..... (7,223)
Pro forma loss per common share..................... $ (.07)
Pro forma weighted average common shares
outstanding........................................ 100,000,000
</TABLE>
(footnotes continued on following page)
25
<PAGE>
Pro forma loss per share included in the PanAmSat Financial Statements
appearing elsewhere in this Proxy Statement/Prospectus of $(.08) per share
for the year ended December 31, 1995 is based on 89,678,638 weighted average
shares outstanding as of December 31, 1995, reflecting the IPO which
occurred on September 21, 1995.
(4) Represents earnings before net interest expense, income taxes,
depreciation and amortization ("EBITDA"). EBITDA is commonly used in the
communications industry to analyze companies on the basis of operating
performance, leverage and liquidity. EBITDA should not be considered a
measure of profitability or liquidity as determined in accordance with
generally accepted accounting principles in the statements of operations
and cash flows.
(5) Includes expenses related to the assumption by PanAmSat of phantom stock
plans of a predecessor company and the grant of a limited partnership
interest in the Partnership to the Executive Vice President of PanAmSat in
connection with the corporate reorganization of PanAmSat of $8.3 million
for the year ended December 31, 1995 and expenses related to the
Reorganization Agreement and a corporate compensation plan totaling $9.6
million for the year ended December 31, 1996. EBITDA and EBITDA margin
excluding such expenses were $74.5 million and 64% for the year ended
December 31, 1995 and $179.7 million and 73% for the year ended December
31, 1996. See Notes 11 and 13 of the PanAmSat Financial Statements.
(6) Represents future payments due from customers under long-term contracts at
the end of the periods indicated, excluding arrangements for satellite
capacity for DTH services in Latin America. At December 31, 1996,
approximately $22.6 million of PAS-1 customer payments, $92.4 million of
PAS-2 customer payments, $35.6 million of PAS-3 customer payments and
$79.2 million of PAS-4 customer payments were under contracts which are
terminable by the customer under certain circumstances. Certain contracts
may also be terminated if certain technical performance specifications
contained in the agreements, including useful life, are not achieved, or,
at the customer's option after a minimum service period. Future cash
payments expected from customers may be reduced for outage or transponder
failure and may be further reduced for "lowest price" provisions for like
transponder capacity given to similarly situated customers. The terms of
PanAmSat's long-term contracts range from one year to the life of the
satellite. See "PANAMSAT MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS--Overview."
(7) Excludes, as to each of PAS-5 and PAS-6, a portion of the respective
purchase prices which will become payable after such satellite is
delivered and which amount may be paid immediately in cash or deferred
over periods of up to 15 years with interest rates ranging from 8.0% to
10.0% per annum. At December 31, 1996, these amounts aggregated
approximately $34.5 million. A portion of the respective purchase prices
of PAS-7 and PAS-8 may also be deferrable. PanAmSat presently intends to
defer such payments at the time they become payable to the extent such
deferral is permitted under the terms of its then-outstanding indebtedness
and preferred stock. PanAmSat anticipates that if, at the time such
payments become payable, PanAmSat is prohibited from incurring such
indebtedness under the terms of its outstanding indebtedness or preferred
stock, it will either seek the consent of the holders thereof to incur
such indebtedness or will obtain funds from sources permitted under the
terms thereof to make such payments. There can be no assurance that such
consent will be obtained or that funds will be available to PanAmSat from
sources permitted under the terms of its outstanding indebtedness and
preferred stock. See Notes 6, 7 and 8 of the PanAmSat Financial Statements
appearing elsewhere in this Proxy/Statement Prospectus and "BUSINESS OF
PANAMSAT--PanAmSat Satellites."
26
<PAGE>
PANAMSAT SUMMARY SATELLITE DATA
<TABLE>
<CAPTION>
PAS-1 PAS-2 PAS-3 PAS-4 PAS-5
---------------- ----------------- ---------------- ------------------ ----------------
<S> <C> <C> <C> <C> <C>
Region Covered.. Atlantic Ocean Pacific Ocean Atlantic Ocean Indian Ocean Atlantic Ocean
Expected
Launch(1)...... Operational Operational Operational Operational 1997
Satellite....... GE 3000 HS 601 HS 601 HS 601 HS 601 HP
Expected End of
Useful
Life(3)........ 2001 2010 2010 2011 2012
Orbital
Location....... 45(degrees) W.L. 191(degrees) W.L. 43(degrees) W.L. 68.5(degrees) E.L. 58(degrees) W.L.(4)
TRANSPONDERS(7)
Ku-band......... 6 @ 72 MHz 12 @ 54 MHz 12 @ 54 MHz 16 @ 27 MHz 24 @ 36 MHz
4 @ 64 MHz 4 @ 64 MHz 8 @ 54 MHz
C-band.......... 6 @ 72 MHz 12 @ 54 MHz 12 @ 54 MHz 12 @ 54 MHz 24 @ 36 MHz
12 @ 36 MHz 4 @ 64 MHz 4 @ 64 MHz 4 @ 64 MHz
Usable Band-
width (8)...... 1,296 MHz 1,808 MHz 1,808 MHz 1,768 MHz 1,728 MHz
OUTPUT POWER(9)
Ku-band......... 6 @ 16 Watts 16 @ 63 Watts 16 @ 63 Watts 24 @60 Watts 18 @110 Watts
6 @ 60 Watts
C-band.......... 6 @ 16 Watts 16 @ 30 Watts 16 @ 34 Watts 16 @ 30 Watts 24 @ 50 Watts
12 @ 8.5 Watts
Total Output
Power(9)....... 294 Watts 1,488 Watts 1,552 Watts 1,920 Watts 3,540 Watts
<CAPTION>
PAS-6 PAS-7 PAS-8
---------------------- --------------------- --------------------
<S> <C> <C> <C>
Region Covered.. Atlantic Ocean Indian Ocean Pacific Ocean
Expected
Launch(1)...... 1997 1998 1998
Satellite....... SS/L FS-1300 SS/L FS-1300(2) SS/L FS-1300(2)
Expected End of
Useful
Life(3)........ 2012 2011 2013
Orbital
Location....... 43(degrees) W.L.(4)(5) 68.5(degrees) E.L.(6) 194(degrees) W.L.(6)
TRANSPONDERS(7)
Ku-band......... 36 @ 36 MHz 30 @ 36 MHz 24 @ 36 MHz
C-band.......... -- 14 @ 36 MHz 24 @ 36 MHz
Usable Band-
width (8)...... 1,296 MHz 1,584 MHz 1,728 MHz
OUTPUT POWER(9)
Ku-band......... 36 @100 Watts 30 @100 Watts 24 @100 Watts
C-band.......... -- 14 @ 50 Watts 24 @ 50 Watts
Total Output
Power(9)....... 3,600 Watts 3,700 Watts 3,600 Watts
</TABLE>
- --------
(1) PAS-1 was launched in June 1988 and commenced commercial service in
November 1988. PAS-2 was launched in July 1994 and commenced commercial
service in August 1994. PAS-4 was launched in August 1995 and commenced
commercial service in September 1995. PAS-3 was launched in January 1996
and commenced commercial service in February 1996. Future launch dates are
based on PanAmSat estimates.
(2) PanAmSat has entered into a contract with Space Systems/Loral, Inc. for the
construction and delivery of PAS-6, PAS-7 and PAS-8, with options to
purchase additional satellites and/or replacement satellites for PAS-7 or
PAS-8. PAS-6 has been delivered to the launch site. However, SS/Loral has
recently informed PanAmSat of circumstances that could result in a delay in
the launch of PAS-6. See "RISK FACTORS--Risk of Delays; Excess Weight." The
contract contemplates delivery of PAS-7 in 1997 and PAS-8 in 1998.
(3) The information for PAS-1, PAS-2, PAS-3 and PAS-4 is based on fuel level
estimates at January 31, 1997. The information for PAS-5, PAS-6, PAS-7 and
PAS-8 is based on the terms of their satellite contracts, current mass
projections and their launch contracts. Based upon current launch vehicle
capabilities, each of PAS-5, PAS-6 and PAS-8 may have sufficient fuel to
achieve a significantly longer life, in excess of 20 years. The
construction design life of each satellite remains 15 years, which
conservatively is the basis for the predicted life specified above. PAS-7
also has a design life of 15 years, but SS/Loral has informed PanAmSat that
it is expected to exceed its contractual weight specifications. To ensure
that the excess weight does not affect the satellite's intended operational
lifetime, PanAmSat is exploring several options, including satellite
modifications by SS/Loral or the use of an alternative Ariane IV launcher
configuration to deploy the spacecraft.
(4) The application for PAS-5 is pending with the FCC. PanAmSat has received
conditional regulatory approval for PAS-6, which approval is subject to a
full financial showing and demonstration of consultation with Intelsat.
(5) PanAmSat has requested FCC approval to co-locate PAS-6 with PAS-3. PanAmSat
expects to receive final authorization from the FCC to locate PAS-6 at
43(degrees) W.L. prior to its anticipated launch.
(6) PanAmSat has received conditional regulatory approval for the orbital slot
of 72(degrees) E.L. from the FCC, which approval is subject to a full
financial showing and demonstration of consultation with Intelsat. In
addition, PanAmSat has requested approval to co-locate a satellite with
PAS-4 at 68.5(degrees) E.L. PanAmSat intends to locate PAS-7 at the
68.5(degrees) E.L. orbital location if its application for such orbital
location is granted, in which case the 72(degrees) E.L. orbital slot could
be used for another satellite. PanAmSat tentatively plans to locate PAS-8
at 194(degrees) W.L. and has an application for that orbital slot pending
with the FCC.
(7) Satellite transponders receive transmissions from Earth and relay them back
to Earth. Transponders are composed of receivers, preamplifiers, power
amplifiers, frequency shifters and a host of other electronics. C-band and
Ku-band are ranges of frequencies used worldwide for commercial satellite
communications. The C-band frequency is widely used for the distribution of
television programming. The Ku-band frequency is widely used for DTH
television broadcasting, satellite news-gathering applications and on-site
business communications networks that require the use of very small
antennas. Construction of PAS-6 has been completed and it has been
delivered to the launch site. However, SS/Loral has recently informed
PanAmSat of circumstances that could result in a delay in the launch of
PAS-6. See "RISK FACTORS--Risk of Delays; Excess Weight." The designs of
PAS-5 and PAS-7 are complete. The design for PAS-8 is still to be
completed.
(footnotes continued on following page)
27
<PAGE>
(8) Bandwidth is one measure of the information carrying capacity of a
transponder. A transponder's bandwidth and power together determine the
amount of information that can be carried. Construction of PAS-6 has been
completed and it has been delivered to the launch site. However, SS/Loral
has recently informed PanAmSat of circumstances that could result in a
delay in the launch of PAS-6. See "RISK FACTORS--Risk of Delays; Excess
Weight." The designs of PAS-5 and PAS-7 are complete. The design for PAS-8
is still to be completed.
(9) Output power is the transmitter power of each transponder and is not a
measure of the signal power received on Earth. Total output power is the
aggregate power of all the transponders on the satellite. High output power
allows for the use of smaller and less expensive receiving antennas to
obtain the satellite signal. Construction of PAS-6 has been completed and
it has been delivered to the launch site. However, SS/Loral has recently
informed PanAmSat of circumstances that could result in a delay in the
launch of PAS-6. See "RISK FACTORS--Risk of Delays; Excess Weight." The
designs of PAS-5 and PAS-7 are complete. The design for PAS-8 is still to
be completed.
28
<PAGE>
GALAXY SUMMARY HISTORICAL FINANCIAL INFORMATION
The summary financial information of Galaxy as of December 31, 1996, 1995 and
1994 and for each of the four years in the period ended December 31, 1996 has
been derived from the financial statements of Galaxy and audited by Deloitte &
Touche LLP, independent auditors. The summary financial information set forth
below as of December 31, 1993 and 1992 and for the period ended December 31,
1992 has been derived from unaudited financial statements of Galaxy which, in
the opinion of management, include all adjustments necessary for a fair and
consistent presentation of such information. This summary financial information
should be read in conjunction with the above mentioned audited and unaudited
Galaxy financial statements (including the related notes thereto, the "Galaxy
Financial Statements") and "GALAXY MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS" appearing elsewhere in this
Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------
1996 1995 1994 1993 1992
--------- ---------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Total revenues............ $ 482,770 $386,126 $328,243 $220,247 $371,642
--------- ---------- -------- -------- --------
Costs and expenses
Cost of outright sales
and sales-type leases... 52,969 49,616 45,747 34,530 117,230
Leaseback expense, net of
deferred gain........... 59,927 36,597 36,617 36,576 18,524
Depreciation and
amortization............ 58,523 76,522 54,126 52,025 59,403
Direct operating costs... 34,794 29,931 33,627 35,034 58,826
Selling, general &
administrative.......... 34,119 30,146 51,595 19,278 22,289
--------- ---------- -------- -------- --------
Operating income.......... 242,438 163,314 106,531 42,804 95,370
Interest expense,
net(1).................. (4,903) (5,828) (6,826) (5,848) (3,525)
Other income............. 2,184 7,892 3,885 44,876 2,818
--------- ---------- -------- -------- --------
Income before taxes....... 239,719 165,378 103,590 81,832 94,663
Income tax expense........ 89,895 62,017 38,846 30,687 35,499
--------- ---------- -------- -------- --------
Net income................ $ 149,824 $103,361 $64,744 $51,145 $59,164
========= ========== ======== ======== ========
OTHER FINANCIAL DATA:
EBITDA(2)................. $ 303,145 $247,728 $164,542 $139,705 $157,591
EBITDA margin............. 63% 64% 50% 63% 42%
Capital expenditures...... 308,735 280,543 114,660 111,104 290,481
Total assets.............. 1,275,516 1,137,978 868,408 850,640 872,948
</TABLE>
- --------
(1) Net of capitalized interest of $14.6 million, $10.1 million, $5.1 million,
$1.6 million and $9.7 million for the years ended December 31, 1996, 1995,
1994, 1993 and 1992, respectively.
(2) Represents earnings before net interest expense, income tax expense,
depreciation and amortization. EBITDA is commonly used in the
communications industry to analyze companies on the basis of operating
performance, leverage and liquidity. EBITDA should not be considered as a
measure of profitability or liquidity as determined in accordance with
generally accepted accounting principles in the statements of income and
cash flows.
29
<PAGE>
GALAXY SUMMARY SATELLITE DATA
OPERATIONAL SATELLITES
<TABLE>
<CAPTION>
GALAXY I-R GALAXY III-R GALAXY IV GALAXY V GALAXY VI
----------------- ----------------- ---------------- ----------------- ----------------
<S> <C> <C> <C> <C> <C>
Region Covered.......... United States Latin America/ United States United States United States
United States
Satellite............... HS 376 HS 601 HS 601 HS 376 HS 376
Expected End of Useful
Life(1)................ 2006 2004 2005 2004 2002
Orbital Location........ 133(degrees) W.L. 95(degrees) W.L. 99(degrees) W.L. 125(degrees) W.L. 74(degrees) W.L.
Transponders(2)
Ku-band(3).............. -- 16 @ 27 MHz 16 @ 27 MHz -- --
8 @ 54 MHz 8 @ 54 MHz
C-band(4)............... 24 @ 36 MHz 24 @ 36 MHz 24 @ 36 MHz 24 @ 36 MHz 24 @ 36 MHz
Usable Bandwidth(5)..... 864 MHz 1,728 MHz 1,728 MHz 864 MHz 864 MHz
Output Power(6)
Ku-band................. -- 24 @ 63 Watts 24 @ 50 Watts -- --
C-band.................. 24 @ 16 Watts 24 @ 16 Watts 24 @ 16 Watts 24 @ 16 Watts 24 @ 10 Watts
Total Output Power...... 384 Watts 1,896 Watts 1,584 Watts 384 Watts 240 Watts
<CAPTION>
GALAXY VII GALAXY IX SBS 4 SBS 5 SBS 6
----------------- ----------------- ---------------- ----------------- ----------------
<S> <C> <C> <C> <C> <C>
Region Covered.......... United States United States United States United States United States
Satellite............... HS 601 HS 376 HS 376 HS 376 HS 393
Expected End of Useful
Life(1)................ 2006 2008 2002 1999 2005
Orbital Location........ 91(degrees) W.L. 123(degrees) W.L. 77(degrees) W.L. 123(degrees) W.L. 74(degrees) W.L.
(inclined)(7)
Transponders(2)
Ku-band(3).............. 16 @ 27 MHz -- 10 @ 43 MHz 10 @ 43 MHz 19 @ 43 MHz
8 @ 54 MHz 4 @ 110 MHz
C-band(4)............... 24 @ 36 MHz 24 @ 36 MHz -- -- --
Usable Bandwidth(5)..... 1,728 MHz 864 MHz 430 MHz 870 MHz 817 MHz
Output Power(6)
Ku-band................. 24 @ 50 Watts -- 10 @ 20 Watts 14 @ 20 Watts 19 @ 41 Watts
C-band.................. 24 @ 16 Watts 24 @ 16 Watts -- -- --
Total Output Power...... 1,584 Watts 384 Watts 200 Watts 280 Watts 779 Watts
</TABLE>
EXPECTED FUTURE SATELLITES
<TABLE>
<CAPTION>
GALAXY VIII-I GALAXY X GALAXY XI GALAXY XII GALAXY XIII-I GALAXY XIV-I
---------------- ----------------- ---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Region Covered..... Latin America United States United States To be determined To be determined To be determined
Expected Launch.... 1997 1998 1998 To be determined 1999 2000
Satellite.......... HS 601HP HS 601HP HS 702 HS 601HP HS 702 HS 702
Expected End of
Useful Life(8).... 2012 2010 2013 To be determined 2014 2015
Orbital Location... 95(degrees) W.L. 123(degrees) W.L. 74(degrees) W.L. To be determined To be determined To be determined
Transponders(2)
Ku-band(3)......... 32 @ 24 MHz 24 @ 36 MHz 24 @ 36 MHz 24 @ 36 MHz To be determined To be determined
C-band(4).......... -- 24 @ 36 MHz 24 @ 36 MHz 24 @ 36 MHz To be determined To be determined
Usable
Bandwidth(5)...... 768 MHz 1,728 MHz 1,728 MHz 1,728 MHz 1440-1944 MHz 1440-1944 MHz
Output Power(6)
Ku-band............ 32 @ 115 Watts 24 @ 63 Watts 24 @ 75 Watts To be determined To be determined To be determined
C-band............. -- 24 @ 20 Watts 24 @ 20 Watts To be determined To be determined To be determined
Total Output
Power............. 3,680 Watts 1,992 Watts 2,280 Watts To be determined To be determined To be determined
</TABLE>
(footnotes on following page)
30
<PAGE>
- --------
(1) The expected end of useful life for each of Galaxy's operational
satellites (other than SBS 4) is based on a fuel level estimate at
December 31, 1996. The expected end of useful life for SBS 4 is based on
the degree of its north-south inclination at December 31, 1996.
(2) Satellite transponders receive transmissions from Earth and relay them
back to Earth. Transponders are composed of receivers, preamplifiers,
power amplifiers, frequency shifters and a host of other electronics.
(3) Ku-band is a range of relatively high frequencies (between approximately
12 GHz and 14 GHz) used for commercial satellite communications. Ku-band
is widely used for distribution of broadcast television and DTH services,
as well as business communications, and allows for the use of relatively
small receive antennas.
(4) C-band is a range of relatively low frequencies (between approximately 4
GHz and 6 GHz) used for commercial satellite communications. C-band is
used primarily for cable and broadcast distribution and requires the use
of relatively large receive antennas on the ground.
(5) Bandwidth is one measure of the information carrying capacity of a
transponder. A transponder's bandwidth and power together determine the
amount of information that can be carried.
(6) Output power is the transmitter power of each transponder and is not a
measure of the signal power received on Earth. High output power allows
for the use of smaller and less expensive receive antennas to obtain a
satellite signal.
(7) Satellite operators may opt to extend the life of a satellite by allowing
it to move into a fuel-conserving mode called "inclined orbit." When a
satellite is put into inclined orbit, only east-west station-keeping is
continued. While in this mode, the satellite moves in a figure-8 crossing
the equator twice daily. The uncorrected north-south inclination increases
over time and certain customers must retrofit their existing ground
equipment or purchase new equipment to enable them to track the movement
of the satellite. After reaching a certain degree of north-south
inclination, tracking antennas can no longer reliably follow the movement
of the satellite and its useful life ends.
(8) The expected end of useful life for each of Galaxy's expected future
satellites is based on the terms (with respect to Galaxy VIII-i and Galaxy
X) or anticipated terms (with respect to Galaxy XI, Galaxy XIII-i and
Galaxy XIV-i) of the relevant satellite construction contract and the
terms (with respect to Galaxy VIII-i, Galaxy X and Galaxy XI) or
anticipated terms (with respect to Galaxy XIII-i and Galaxy XIV-i) of the
relevant satellite launch arrangement.
31
<PAGE>
SUMMARY UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The Summary Unaudited Pro Forma Combined Financial Statements of New PanAmSat
as of and for the year ended December 31, 1996 have been derived from the
PanAmSat Financial Statements and the Galaxy Financial Statements, combined to
give effect to the Merger, the Univisa Contribution (including the Share
Repurchase) and the Asset Contribution, as if such transactions had occurred at
January 1, 1996 for purposes of the Unaudited Pro Forma Combined Statement of
Income and on December 31, 1996 for purposes of the Unaudited Pro Forma
Combined Balance Sheet, applying the purchase method of accounting with Galaxy
as the acquirer of PanAmSat.
The following Unaudited Pro Forma Combined Financial Statements do not
purport to present information regarding the financial position or results of
operations of New PanAmSat had the transactions and events assumed therein
occurred on the dates specified, nor information that is necessarily indicative
of the results of operations that may be achieved in the future. The Unaudited
Pro Forma Combined Statement of Income does not give effect to (i) any cost
savings that may be realized as a result of the combination of the two
companies or (ii) nonrecurring costs that may be incurred after the
Reorganization is consummated, consisting primarily of expenses related to
relocating employees and modifying facilities. The significance of such
potential cost savings and nonrecurring cost increases will depend on how New
PanAmSat decides in the future to structure its operations. The Unaudited Pro
Forma Combined Financial Statements are based on certain assumptions and
adjustments described in the Notes to Unaudited Pro Forma Combined Financial
Statements and should be read in conjunction therewith and with "THE
REORGANIZATION," "PANAMSAT MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS," "GALAXY MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" and the PanAmSat
Financial Statements and Galaxy Financial Statements appearing elsewhere in
this Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1996
-----------------
(IN THOUSANDS,
EXCEPT PER SHARE
DATA)
<S> <C>
INCOME STATEMENT DATA
Total revenues............................................... $ 726,847
Costs and expenses:
Costs of outright sales and sales-type leases................ 52,969
Leaseback expense, net of deferred gain...................... 59,927
Depreciation and amortization................................ 188,063
Direct operating costs....................................... 59,770
Selling, general and administrative expenses................. 73,480
Compensatory programs........................................ 4,874
Reorganization costs......................................... 4,758
---------
Total costs and expenses................................... 443,841
---------
Operating income............................................. 283,006
Interest expense, net........................................ (123,626)
Other income................................................. 2,184
---------
Income before income taxes and minority interest............. 161,564
Income tax expense........................................... 89,087
Minority interest............................................ 28,263
---------
Net income (loss)............................................ $ 44,215
=========
Income per share............................................. $ 0.30
=========
Weighted average number of common shares outstanding......... 149,123
=========
<CAPTION>
DECEMBER 31, 1996
-----------------
<S> <C>
BALANCE SHEET DATA
Cash and cash equivalents.................................... $ 213,482
Working capital.............................................. 109,464
Total assets................................................. 6,239,187
Total debt................................................... 2,342,850
Shareholders' equity......................................... 2,720,991
</TABLE>
32
<PAGE>
COMPARATIVE HISTORICAL AND PRO FORMA COMBINED PER SHARE DATA
The following table sets forth (i) the historical income per share from
continuing operations, the historical net income per share, the historical book
value per share and the cash dividends declared per share of PAS Common Stock
and (ii) the unaudited pro forma combined net income per share, the unaudited
pro forma combined book value per share and the unaudited pro forma combined
cash dividends declared per share of New PanAmSat Common Stock after giving
effect to the Reorganization. The historical and pro forma combined net income
per share information is derived from the historical and pro forma combined
information presented elsewhere herein. The pro forma combined financial
information should be read in conjunction with the PanAmSat Financial
Statements and Galaxy Financial Statements appearing elsewhere herein. The pro
forma combined information does not purport to be indicative of the financial
position or operating results which would have been achieved had the
Reorganization been consummated as of January 1, 1996 and should not be
construed as representative of future financial performance or operating
results.
<TABLE>
<CAPTION>
PANAMSAT NEW PANAMSAT PANAMSAT PRO
HISTORICAL DATA PRO FORMA DATA FORMA EQUIVALENT(1)
--------------- -------------- -------------------
<S> <C> <C> <C>
Income (loss) per share
from continuing
operations:
Year ended December 31,
1996.................... $ .20 $ .30 $ .15
Net income (loss) per
share:
Year ended December 31,
1996.................... $ .20 $ .30 $ .15
Book value per share:
December 31, 1996........ $ 4.96 $18.25 $ 9.13
Cash dividends declared:
Year ended December 31,
1996.................... $ -- $ -- $ --
</TABLE>
- --------
(1) The PanAmSat Pro Forma Equivalent represents the pro forma income and book
value per share multiplied by .50 (the conversion factor assuming PanAmSat
stockholders receive one-half share of New PanAmSat Common Stock for each
share of PanAmSat Common Stock) so that the PanAmSat Pro Forma Equivalent
amounts represent the respective values of one share of PanAmSat Common
Stock.
33
<PAGE>
RISK FACTORS
This Proxy Statement/Prospectus contains certain forward-looking statements
as defined in the Private Securities Litigation Reform Act of 1995. The
following factors, among others, could cause actual results to differ
materially from those contained in such forward-looking statements. When used
in this Proxy Statement/Prospectus, and in the documents incorporated by
reference herein, the words "estimate," "project," "anticipate," "expect,"
"intend," "believe" and similar expressions are intended to identify forward-
looking statements. In addition, the following important factors should be
considered by the holders of shares of PAS Common Stock in connection with any
decision made with respect to the matters to be voted upon at the Special
Meeting.
Risk of Launch Failure. Satellites are subject to significant launch risks,
including launch failure, destruction and damage, which prevent proper
commercial operation and cause incorrect orbital placement. Since September
1991, approximately 12% of all commercial geosynchronous satellites have
experienced a launch failure, failure to achieve geosynchronous orbit from
transfer orbit or failure to operate upon reaching orbit. The launch failure
rate varies by launch vehicle and manufacturer. Of the five satellite launches
by PanAmSat since 1988 and the 17 satellite launches by Galaxy since 1983,
PanAmSat has experienced one launch failure and Galaxy has experienced two
launch failures: on December 1, 1994, PanAmSat's third satellite, the original
PAS-3, was destroyed upon launch as a result of a malfunction of an Ariane IV
launch vehicle; on August 22, 1992, Galaxy's original Galaxy I-R satellite was
destroyed upon launch as a result of an Atlas launch vehicle malfunction; and
Galaxy's Leasat 4, which was launched on August 27, 1985, never became
operational due to the failure of its communications payload. Each of PAS-3,
Galaxy I-R and Leasat 4 was insured in an amount sufficient to construct,
launch and insure a replacement satellite, and each was subsequently replaced
with a satellite that was successfully launched on January 12, 1996, February
19, 1994 and January 9, 1990, respectively. There can be no assurance that any
future launches of satellites owned by PanAmSat, Galaxy or New PanAmSat will
be successful. An unsuccessful launch of any of New PanAmSat's future
satellites could have a material adverse effect on New PanAmSat.
Certain launch vehicles scheduled to be used by PanAmSat and Galaxy have
unproven track records and are susceptible to certain risks associated with
new launch vehicles. For example, PanAmSat may launch PAS-7 on an Ariane IV or
Ariane V rocket. On June 4, 1996, the maiden flight of the Ariane V launch
vehicle ended in failure and there can be no assurance that future Ariane V
launches will be reliable. Arianespace S.A. ("Arianespace") is going forward
with the development of Ariane V, but the timing of the availability of the
Ariane V launch vehicle for commercial launches is uncertain. In the event
that the Ariane V program is delayed, PanAmSat has contractual rights that
could be used to maintain the launch of PAS-7 substantially on schedule.
PanAmSat expects to launch PAS-5 and PAS-8 on a Proton launch vehicle. On
November 17, 1996, a Proton launch vehicle suffered a launch failure, the
second such failure in 1996. Preliminary indications are that the failure may
have been caused by the satellite and not the launcher, and as such PanAmSat
does not believe that such failure will cause any delay to future PanAmSat
launches or Proton launches. An investigation of the failure has commenced,
but a final report has not been issued. Likewise, Galaxy plans to launch
Galaxy X on a McDonnell Douglas Corporation ("MDC") Delta III rocket, which,
like the Ariane V rocket, has never before been used to launch a satellite. On
January 17, 1997, a Delta II launch vehicle (the previous generation of Delta
launch vehicles) suffered a launch failure. An investigation into the failure
has commenced, and pending the report of such investigation, MDC has given
notice that there may be delays requiring an extension of the launch schedule.
In addition, Galaxy XI will be the first commercial launch by Sea Launch Co.,
a newly-formed venture among Boeing Commercial Space Co. (United States),
Kvaerner a.s. (Norway), RSC-Energia (Russia) and NPO-Yuzhnoye (Ukraine), which
plans to launch satellites from a newly-developed, ocean-going platform. There
can be no assurance that Galaxy's planned launch on the Delta III rocket or
Galaxy's planned launch using the Sea Launch Co. platform will be successful.
PanAmSat and Galaxy also are susceptible to certain risks associated with
utilizing launch vehicles constructed by companies located in or launching
from locations within Russia and other republics of the former Soviet Union.
The launch vehicle to be used for Galaxy XI in connection with the Sea Launch
Co. platform is a Ukrainian-built Zenit rocket. PanAmSat plans to launch PAS-
5, PAS-8 and possibly future satellites utilizing a
34
<PAGE>
Russian-built Proton rocket provided by Lockheed-Khrunichev-Energia
International, Inc. (now known as International Launch Services) ("LKE"). A
U.S.-constructed satellite that is to be launched outside of the United States
requires an export license from the U.S. government. Additionally, launches by
a Russian launch company, including those by LKE, are governed by a United
States-Russia launch agreement, which contains certain restrictions as to the
number and pricing of Russian launches. Either of these requirements could
result in denial of permission, or unacceptable delay in granting permission,
to launch a satellite in a republic of the former Soviet Union. In addition to
the risk of not being able to obtain permits required to launch from former
Soviet republics and using previously untested technology (such as the Sea
Launch Co. launch platform), the evolving nature of the governmental,
political, social and legal structures within Russia and the Ukraine create
additional risks. Changes in policies of the Russian and Ukrainian governments
or the political leadership of such governments may have a significant adverse
impact on the political and economic environment in such countries. Because
the governmental and legal systems in Russia and the Ukraine are evolving and
untested, there is and will continue to be uncertainty concerning the value,
transferability and enforceability of the contract rights which PanAmSat and
Galaxy may acquire. Moreover, economic reforms could result in further
political or social instability. Any political or social instability could
affect the cost, timing and overall advisability of using a Russian-built
Proton rocket, a Ukrainian-built Zenit rocket or a Russian launch provider. In
the event that a launch scheduled with a Russian launch provider or Ukranian
rocket becomes unavailable or impractical, PanAmSat and Galaxy believe that
alternative launch arrangements would be available. There can be no assurance,
however, that such alternative launch arrangements would not result in delay
or additional expense to New PanAmSat.
PanAmSat and Galaxy typically have insured satellite launches for an amount
sufficient to construct, launch and insure a replacement satellite, and
PanAmSat and Galaxy expect that New PanAmSat will continue to purchase such
insurance for its future satellites. PanAmSat already has obtained insurance
in an amount sufficient to cover the construction, launch and insurance costs
for PAS-5, PAS-6, PAS-7 and PAS-8 and an additional satellite that would be
used in case of loss of any of the foregoing satellites or to be launched as
PAS-9 if none of the aforementioned satellites fail (hereafter "PAS-9/R").
Galaxy recently obtained insurance in an amount sufficient to cover the
construction, launch and insurance costs for Galaxy VIII-i, but has not yet
obtained launch insurance for any of its other future launches. Launch
insurance typically does not cover lost operating revenues or customers, and,
depending on individual customer contracts, the delay of service caused by a
launch failure may result in the loss of customers that pre-booked transponder
capacity. A launch failure, to the extent that insurance proceeds are
inadequate to compensate for losses resulting therefrom, could have a material
adverse effect on New PanAmSat and any such failure could significantly delay
the ability of New PanAmSat to expand its satellite fleet.
Risk of In-Orbit Failure. Satellites are also subject to risks after they
have been properly deployed and are operational. Over the period from 1989 to
1996, the risk of an insured commercial satellite failing prematurely due to,
among other things, mechanical failure, a collision with objects in space or
an inability to maintain proper orbit was approximately 1.6%. More recently,
in January 1997, AT&T Corp.'s Skynet Satellite Services lost its Telstar 401
satellite to an in-orbit failure. The likelihood of in-orbit failure may be
heightened by PanAmSat's and Galaxy's use on certain of their satellites of
new satellite technology, including PanAmSat's use of a new xenon ion
propulsion system ("XIPS") on PAS-5, and Galaxy's use of XIPS on Galaxy VIII-
i, Galaxy XI, Galaxy XIII-i and Galaxy XIV-i. In addition, Galaxy's planned
deployment of new HS 702 model satellites may increase the risk of such
failure. See "BUSINESS OF PANAMSAT--PanAmSat Satellites" and "BUSINESS OF
GALAXY--Galaxy Satellites." Neither PanAmSat nor Galaxy has ever experienced
an in-orbit failure of a satellite as a whole or any major nonredundant
subsystem after it achieved full operational capability and prior to the end
of its expected life, but both PanAmSat and Galaxy maintain in-orbit insurance
in order to mitigate in-orbit risks. For each PanAmSat or Galaxy satellite,
PanAmSat or Galaxy, as the case may be, purchases in-orbit insurance coverage
calculated to avoid, at a minimum, a book loss in the event of a casualty. The
amount of this coverage, however, is not sufficient to construct, launch and
insure a replacement satellite. New PanAmSat's future practices with regard to
the amount of in-orbit insurance coverage have not yet been determined, but
New PanAmSat is likely to maintain at least enough insurance to protect
against a book loss in the event of the in-orbit failure of one of its
satellites. In-orbit satellite insurance purchased by PanAmSat, Galaxy
35
<PAGE>
or New PanAmSat will not compensate for business interruption and similar
losses (including, among other things, loss of operating revenue and
incidental and consequential damages) which might arise from the in-orbit
failure of a satellite. In addition, PanAmSat's and Galaxy's in-orbit and
launch insurance policies typically include customary commercial satellite
insurance exclusions including, among other things, damage or loss caused by
military actions or acts of war, anti-satellite devices, government action,
frequency interference or nuclear reaction. Damage to or loss of a satellite
that is excluded from coverage under New PanAmSat's insurance policies could
have a material adverse effect on New PanAmSat. See "BUSINESS OF PANAMSAT--
Insurance" and "BUSINESS OF GALAXY--Insurance."
Risk of Satellite Damage or Loss from Acts of War, Electrostatic Storm and
Space Debris. The loss, damage or destruction of any of PanAmSat's, Galaxy's
or New PanAmSat's satellites as a result of military actions or acts of war,
anti-satellite devices, electrostatic storm or collision with space debris
would have a material adverse effect on New PanAmSat. PanAmSat's and Galaxy's
insurance policies include customary exclusions, including for (i) military or
similar actions, (ii) laser, directed-energy or nuclear anti-satellite
devices, (iii) insurrection and similar acts or governmental action to prevent
such acts, (iv) governmental confiscation, (v) nuclear reaction or radiation
contamination, (vi) willful or intentional acts of PanAmSat, Galaxy or their
respective contractors, (vii) loss of market, loss of revenue, extra expenses,
incidental and consequential damages, (viii) third-party claims against
PanAmSat or Galaxy and (ix) electromagnetic or radio frequency interference,
except for physical damage to a satellite directly resulting from such
interference.
Risk of Delays; Excess Weight. A significant delay in the delivery or launch
of any of New PanAmSat's future satellites would adversely affect New
PanAmSat's marketing plan for such satellite. Such a delay can result from the
construction of satellites and launch vehicles, launch failures, the periodic
unavailability of reliable launch opportunities and possible delays in
obtaining regulatory approvals. If satellite construction schedules are not
met, there can be no assurance that a launch opportunity will be available at
the time a satellite is ready to be launched. The occurrence of a launch
failure would result in a more significant delay in the deployment of a
particular satellite because of the need both to construct a replacement
satellite and obtain another launch opportunity. New PanAmSat also must obtain
authorizations from the FCC to launch and operate satellites, and there can be
no assurance that New PanAmSat will obtain such authorization in a timely
manner. A significant delay in the launch of any of PanAmSat's or Galaxy's
satellites could enable customers who have pre-purchased or agreed to lease
capacity of such satellite to terminate their contracts. Such a delay also
could adversely affect the ability of New PanAmSat to expand the existing
PanAmSat and Galaxy satellite fleets as currently contemplated.
Certain recent events have occurred that will cause PanAmSat's launch of
PAS-5 and PAS-7 to be delayed, although PanAmSat does not believe that there
is a substantial risk to its ability to launch its satellites within the time
limits required by its existing customer contracts. The launch of PAS-5 has
been rescheduled for July 1997 to allow time for Hughes Aircraft Company
("HAC"), which is building PAS-5, to secure certain satellite subcomponents,
the production of which has been delayed. There can be no assurance that
SS/Loral or HAC will be able to meet the applicable revised schedules.
PanAmSat expects completion and delivery of PAS-7 in December 1997 followed by
an anticipated launch in the first quarter of 1998. In addition to the revised
delivery schedule, SS/Loral has informed PanAmSat that it expects that the
satellite will exceed its contractual weight specifications. To ensure that
the excess weight does not affect the satellite's intended operational
lifetime of approximately 15 years, PanAmSat is exploring several options,
including satellite modifications by SS/Loral or the use of an alternative
Ariane IV launcher configuration to deploy the spacecraft. There can be no
assurance that SS/Loral will be able to reduce the mass of the satellite from
its current projections or that PanAmSat will be able to reach an agreement
with Arianespace on the terms or timing of a more powerful launch than
currently specified in PanAmSat's launch contract.
The launch of PAS-6 has been rescheduled for May 1997 to allow time for
Space Systems/Loral, Inc. ("SS/Loral"), which built PAS-6, to replace the
power control units on the spacecraft. Construction of PAS-6 has been
completed and it has been delivered to the launch site. Additionally, SS/Loral
has recently informed
36
<PAGE>
PanAmSat of circumstances that have developed which could affect the power
system of PAS-6. The matter is under investigation and could result in a delay
in the launch. This situation could result in a delay in the launch of PAS-6
and may require the return of the spacecraft to SS/Loral's facilities for
further testing or other work. In the event the spacecraft is required to be
returned to SS/Loral, rescheduling of the launch of PAS-6 with Arianespace
will be required. There can be no assurance that SS/Loral will be able to
resolve the matter within the time available to maintain the current launch
schedule and, if it is unable to maintain the current schedule, there can be
no assurance that a new launch opportunity for the satellite will be available
from Arianespace in order to avoid additional delay. PanAmSat believes that
there is sufficient time to resolve this matter within the time period
required by its existing customer contracts.
Competition and Market Demand. The telecommunications industry is highly
competitive. PanAmSat and Galaxy face, and New PanAmSat will face, competition
from other satellite companies and from other telecommunications companies
which offer competing services using satellites or terrestrial facilities.
Many of these existing and potential competitors have or could have equal or
greater resources than PanAmSat, Galaxy and New PanAmSat and some of these
competitors are government-sponsored. Increased competition may also result
from: (i) a recent FCC decision that allows all U.S.-licensed satellite
operators to provide service anywhere within their coverage areas, (ii) a
pending proceeding in which the FCC has proposed to codify the terms under
which foreign licensed satellite systems may serve the United States and (iii)
a World Trade Organization agreement pursuant to which the United States has
committed to further opening its telecommunications market, including its
satellite services markets, with the exception of DTH and direct broadcast
satellite services, to foreign-owned and foreign-licensed competitors from
World Trade Organization countries.
PanAmSat faces and New PanAmSat will face significant competition in the
provision of international satellite services. Intelsat, an international
consortium owned by 140 governments ("Intelsat"), provides satellite services
around the world with a fleet of 24 satellites and is presently considering
privatizing all or part of its operations. In February 1996, Comsat
Corporation ("Comsat") and the Clinton Administration agreed to submit a
proposal to Intelsat regarding a restructuring that would divide Intelsat into
two separate entities through the creation of a new Intelsat affiliate
company. Intelsat is also considering other proposals and is expected to take
up the issue of restructuring at the 1997 meeting of its member governments.
If the proposal or any other proposal on restructuring is approved and an
affiliate company of Intelsat is established, this could result in increased
competition to PanAmSat and New PanAmSat. In addition, PanAmSat faces an
increasing number of competitors in each region where PanAmSat conducts its
business, from foreign, domestic, national and regional systems. See "BUSINESS
OF PANAMSAT--Competition." Galaxy faces and New PanAmSat will face significant
competition in the provision of satellite services to the United States. GE
American Communications, Inc., ("GE Americom"), Comsat and Loral SpaceCom
Corporation ("Loral SpaceCom") are all competitors of Galaxy. Also, Loral
SpaceCom recently acquired AT&T Corp.'s Skynet Satellite Services business,
making Loral SpaceCom a more formidable direct competitor of New PanAmSat. In
addition, subject to meeting certain financial requirements, Orion Network
Systems, Inc. and Echostar Communications Corporation have been authorized by
the FCC to construct, launch and operate satellites to serve the United States
and may compete with New PanAmSat in the future. See "BUSINESS OF GALAXY--
Competition."
The satellites of PanAmSat and Galaxy have been, and those of New PanAmSat
will continue to be, designed to satisfy future demand for their services. As
a result, it is likely that most of the future satellites of New PanAmSat,
notwithstanding pre-launch marketing efforts, will have excess available
capacity at the time of their launch. If the expanding supply of
telecommunications services, including those of PanAmSat and Galaxy, exceeds
the demand for such services, such overcapacity could have a negative impact
on New PanAmSat's operating results. To the extent that New PanAmSat's
competitors offer services that are more sophisticated, cost-effective,
efficient or reliable than those now offered or to be offered by PanAmSat or
Galaxy, such competing services also could have a material adverse effect on
New PanAmSat's operations. Further, New PanAmSat's satellites may face
increasing competition from other technologies, including fiber optic cable
technology, which could reduce the demand for New PanAmSat's satellite
services. See "BUSINESS OF PANAMSAT--Competition" and "BUSINESS OF GALAXY--
Competition."
37
<PAGE>
Regulatory Risks. The satellite industry is highly regulated both in the
United States and internationally. New PanAmSat will be subject to the
regulatory authority of the U.S. government (primarily the FCC) and the
national communications authorities of the countries in which it operates. The
business prospects of New PanAmSat could be adversely affected by the adoption
of new laws, policies or regulations, or changes in the interpretation or
application of existing laws, policies and regulations, that modify the
present regulatory environment. While PanAmSat and Galaxy have generally been
successful in obtaining necessary licenses, there can be no assurance that New
PanAmSat will succeed in obtaining all requisite regulatory approvals for the
construction, launch and operation of any of New PanAmSat's future satellites
and for the orbital slots planned for these satellites or, if obtained, that
such licenses will not impose operational restrictions on New PanAmSat. Nor
can there be any assurance that New PanAmSat will succeed in coordinating any
or all of its future satellites internationally.
In furtherance of their business plans, each of Galaxy and PanAmSat
currently has applications pending before the FCC for authorizations for new
and replacement satellites at various orbital locations. As part of the
regulatory process for orbital slot allocation, PanAmSat and Galaxy are
required to engage in frequency coordination with other satellite operators.
Although PanAmSat has been able to coordinate PAS-1, PAS-2 and PAS-3 and
Galaxy has been able to coordinate its existing satellites, there can be no
assurance that satisfactory coordination will be achieved for any of
PanAmSat's, Galaxy's or New PanAmSat's future satellites. In addition, up to
one half of the C-band transponders on PAS-4 overlap in frequency with a
Russian satellite operating at 70(degrees) E.L. PanAmSat, under the auspices
of the U.S. government, has attempted to coordinate PAS-4 and the Russian
satellite with the Russian authorities. The Russian authorities, however, have
refused to provide full technical information regarding the satellite and
claim that PAS-4 interferes with the Russian satellite. The Russian
authorities have filed a complaint with the International Telecommunications
Union (the "ITU") and have requested that the U.S. authorities require
PanAmSat to cease the alleged interference. The U.S. government has challenged
the Russian authorities' claim of interference and has urged the Russian
authorities to provide additional technical information regarding the
satellite and to proceed with coordination. The ITU has declined to rule
against PanAmSat and has referred the matter to the parties for further
coordination efforts. PanAmSat believes that PAS-4 and the Russian satellite
could be coordinated successfully with reduced adverse effects on PAS-4
capacity. However, until coordination is completed successfully, PanAmSat's
ability to provide services in Russia or to Russian customers will be affected
adversely, both technically and politically. It is PanAmSat's belief that the
Russian authorities have taken the position that they will not license within
Russia the use of the PanAmSat satellites. If PAS-7 is to be co-located with
PAS-4, it is unlikely that PAS-7 will be permitted to operate its C-band
transponders for commercial use until the above described coordination issues
with Russia have been resolved successfully. Also, the governments of Tonga
and Papua New Guinea have filed notices of intended use which conflict with
the registrations for PAS-2, PAS-4 and PAS-8. PanAmSat believes that these
notices are not likely to have any material impact on its ability to provide
service on PAS-2, PAS-4 and PAS-8.
Satellite companies, including Galaxy and PanAmSat, increasingly are
attempting to expand the range of usable frequencies for satellite
communications as the frequencies that traditionally have been used for fixed
satellite services are becoming saturated at desirable orbital locations. Some
of the new frequencies are subject to special coordination requirements, and
there can be no assurance that Galaxy, PanAmSat or New PanAmSat will be able
to satisfy these requirements without there being a material adverse effect on
New PanAmSat's business. For example, the frequencies that are intended to be
used to uplink to PAS-7 and PAS-6 include frequencies in the 13.75-14.0 GHz
band, which constitute approximately 33% of the frequencies on PAS-6 and
approximately 80% of the Ku-band frequencies on PAS-7. These frequencies must
be coordinated with the U.S. government on an earth-station-by-earth-station
basis to insure that harmful interference to primary government operations is
minimized. PanAmSat presently is undertaking such coordination and believes
that it will be able to coordinate successfully with federal government users.
While PanAmSat believes that it will successfully coordinate with such earth
stations or will institute operational solutions that will mitigate the
problem, there can be no assurance that PanAmSat's efforts will be successful.
See "BUSINESS OF PANAMSAT--Government Regulation--Authorizations to Construct,
Launch and Operate Satellites." Similarly, certain of Galaxy's FCC
applications request authority to make use of certain Broadcast Satellite
Services ("BSS") frequencies at twelve
38
<PAGE>
orbital locations. Uses of the BSS frequency bands at particular orbital
locations have been assigned to countries in accordance with the ITU's BSS
band plan. Under the ITU's regulations, satellite operators also can make
additional uses of BSS frequencies, provided that those uses do not interfere
with the uses set forth in the ITU BSS band plan. In light of the fact that
use of the BSS frequencies in accordance with Galaxy's FCC applications is
such an additional use, Galaxy's use of the BSS frequencies must not
unacceptably interfere with the planned and existing BSS systems by any more
than the degree permitted under the ITU's regulations. While Galaxy believes
that its use of such frequencies can be conducted on an acceptable
interference basis consistent with the ITU's regulations, there can be no
assurance that the ITU will modify the BSS band plan to accommodate such use
or that the FCC will authorize Galaxy to use the BSS frequencies at all or any
of the requested locations. See "BUSINESS OF GALAXY-- Government Regulation--
International Telecommunications Union Coordination."
Regulatory schemes in countries in which PanAmSat operates, or New PanAmSat
may seek to operate, may impose impediments on PanAmSat's or New PanAmSat's
operations. PanAmSat, its customers or companies with which PanAmSat does
business must have authority from each country in which PanAmSat provides
services. Although PanAmSat believes that it, its customers and/or companies
with which it does business presently hold the requisite licenses and
approvals for the countries in which PanAmSat currently provides services, the
regulatory schemes in each country are different and thus there may be
instances of noncompliance of which PanAmSat is not aware. In addition,
portions of PanAmSat's future satellites are being designed to provide service
to countries in which regulatory impediments continue to exist. Although
PanAmSat believes these regulatory schemes will not prevent New PanAmSat from
pursuing its business plan, there can be no assurance that any current
regulatory approvals held by PanAmSat are, or will remain, sufficient in the
view of foreign regulatory authorities, or that any additional necessary
approvals will be granted on a timely basis, or at all, in all jurisdictions
in which PanAmSat or New PanAmSat wishes to operate its new satellites or that
restrictions applicable thereto will not be unduly burdensome.
Risks from International Operations. PanAmSat derives and New PanAmSat will
derive substantial revenues by providing international telecommunication
services. Such operations are subject to certain risks such as changes in
domestic and foreign government regulations and telecommunications standards,
licensing requirements, tariffs, taxes and other trade barriers, exchange
controls and political and economic instability, including fluctuations in the
value of foreign currencies which may make payment in U.S. dollars more
expensive for foreign customers.
Substantial Leverage and Additional Capital Requirements. At December 31,
1996, PanAmSat had outstanding long-term indebtedness of approximately $626.0
million (excluding vendor financing that PanAmSat intends to incur if
permitted by the terms of its outstanding indebtedness and preferred stock as
satellites are launched or become operational) and the 12 3/4% Mandatorily
Exchangeable Senior Redeemable Preferred Stock of PanAmSat (the "PAS Preferred
Stock") with an aggregate liquidation preference of approximately $329
million, which PAS Preferred Stock PanAmSat currently expects will be
exchanged for debt securities in the third quarter of 1997. The indentures
governing PanAmSat's outstanding debt and the certificate of designation for
outstanding PAS Preferred Stock contain, and the indenture that will be
entered into in connection with the issuance of the debt securities to be
issued in exchange for the PAS Preferred Stock will contain, various financial
and operating covenants that, among other things, restrict PanAmSat's ability
to borrow funds or guarantee borrowings of New PanAmSat, restrict the payment
of dividends, other distributions or the redemption of capital stock and other
restricted payments to its stockholders, including New PanAmSat, restrict
transactions with affiliates, restrict the use of proceeds from the sale of
assets, restrict the merger, consolidation or sale of PanAmSat or the sale of
substantially all of the assets of PanAmSat and restrict the ability of New
PanAmSat to use the assets of PanAmSat as collateral for any new borrowing.
PanAmSat presently anticipates that its indebtedness and the PAS Preferred
Stock will remain outstanding following the consummation of the transactions
contemplated by the Reorganization Agreement and the Univisa Contribution
Agreement.
At the Effective Time, New PanAmSat will be obligated to pay up to
approximately $1.5 billion to holders of PAS Ordinary Common Stock and PAS
Class A Common Stock, holders of options to acquire PAS Ordinary
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Common Stock and S Company as the cash portion of the consideration payable in
connection with the Merger and the Univisa Contribution, and pay an additional
$225 million in the Share Repurchase. Pursuant to the Assurance Agreement, HE
has agreed to loan up to $1.725 billion to New PanAmSat (the "New Financing").
The terms of the New Financing will be comparable to the terms that New
PanAmSat would obtain from a third-party commercial lender. Although the
precise terms have not been finalized, the New Financing is expected to be in
the form of a three year term loan that will be fully negotiated prior to the
Closing Date. The New Financing will include covenants that prohibit or limit,
among other things, transactions with affiliates and pledges of New PanAmSat's
assets and will require that New PanAmSat and its subsidiaries maintain a
certain minimum consolidated net worth. Because the indentures governing
PanAmSat's existing debt and the certificate of designation for the PAS
Preferred Stock restrict the ability of PanAmSat to pay dividends to New
PanAmSat, prohibit the use of PanAmSat's assets as collateral for any new
borrowing and restrict PanAmSat's ability to guarantee indebtedness of others,
the terms of the New Financing are less favorable to New PanAmSat than if New
PanAmSat were able to borrow against the consolidated credit of PanAmSat and
Galaxy. As a result of the New Financing, the existing PanAmSat indebtedness
and the PAS Preferred Stock, New PanAmSat will be highly leveraged. The
restrictions contained in the loan documents for the indebtedness of New
PanAmSat (including the indebtedness of its subsidiaries), in combination with
the leveraged nature of New PanAmSat, could limit the ability of New PanAmSat
to respond to market conditions or to engage in certain business activities.
PanAmSat and Galaxy currently have substantial capital programs in place for
constructing, launching and insuring future satellites. On the Closing Date,
assuming PAS-6 is successfully launched as scheduled, PanAmSat and Galaxy
together will have nine satellites under various stages of development for
which PanAmSat and Galaxy have budgeted capital expenditures. PanAmSat will
require approximately $330 million following the Closing Date for the
construction, insurance and launch of PAS-5, PAS-6, PAS-7 and PAS-8.
Similarly, Galaxy will require approximately $743 million following the
Closing Date to complete construction, insurance and launch of Galaxy VIII-i,
Galaxy X, Galaxy XI, Galaxy XII, Galaxy XIII-i and Galaxy XIV. Galaxy and
PanAmSat currently are discussing whether certain changes should be made to
the technical specifications and locations of certain of their satellites
under development in order to better serve the business objectives of New
PanAmSat, which changes may impact the amount and timing of future capital
expenditures made by New PanAmSat and PanAmSat. The aggregate amount of cash
needed to fund development of all of PanAmSat's and Galaxy's satellites is
expected to be funded from cash on hand and cash flow of the consolidated
operations of New PanAmSat and PanAmSat. In addition to funding new
satellites, New PanAmSat also expects to exercise options under Galaxy's sale-
leaseback arrangements to purchase all of the transponders subject to such
leases at a purchase price equal to the fair market value of such transponders
at such time before the end of the initial term of such lease at a specified
purchase price (the "Early Buy Out Option"), which exercise will require New
PanAmSat to fund additional outlays of approximately $152 million in 1998 and
approximately $366 million in 1998. See "BUSINESS OF GALAXY--Sale-Leaseback
Arrangements." The ability of New PanAmSat to exercise such options and fund
its other capital programs and meet its debt obligations depends on the
success of New PanAmSat's business strategy, which is subject to uncertainties
and contingencies that will be beyond New PanAmSat's control.
Litigation. On or about March 11, 1996, an action was commenced by Comsat
against PanAmSat, The News Corporation Limited ("News Corp.") and Televisa in
the United States District Court for the District of Maryland (the "Comsat
Litigation"). The complaint alleged that News Corp. wrongfully terminated an
agreement with Comsat for the use of transponders on an Intelsat satellite in
the amount of $261,240,000 over the term of a five-year agreement and breached
its alleged obligations under a tariff filed by Comsat with the FCC. As to
PanAmSat, the complaint alleged that PanAmSat, alone and in conspiracy with
others, interfered in a manner which would subject PanAmSat to liability with
the alleged contract and News Corp.'s alleged obligations under the tariff.
The complaint sought compensatory damages of $250 million and unspecified
punitive damages. On April 30, 1996, PanAmSat and the other defendants filed
motions to dismiss the complaint on numerous grounds, including lack of
personal jurisdiction. By order dated October 10, 1996, the District Court
dismissed the complaint without prejudice on the ground that the Court lacked
personal jurisdiction over all of
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the defendants. On or about October 25, 1996, Comsat commenced a similar
action against PanAmSat, News Corp. and Televisa in the United States District
Court for the Central District of California. The complaint alleges that News
Corp. wrongfully terminated an agreement with Comsat for the lease of
transponders on an Intelsat satellite over the term of a five-year lease,
breached certain alleged promises related to such agreement and breached its
alleged obligations under a tariff filed by Comsat with the FCC. As to
PanAmSat, the complaint alleges that PanAmSat, alone and in conspiracy with
Televisa, intentionally interfered with the alleged agreement and with
Comsat's economic relationship with News Corp. The complaint in the present
action seeks actual and consequential damages, and punitive or exemplary
damages, in an amount to be determined at trial but which Comsat alleges
exceeds $50,000. On December 11, 1996, PanAmSat, News Corp. and Televisa filed
motions to dismiss the action on various grounds, including that the FCC has
primary jurisdiction over the dispute, that federal law preempts the claims
asserted against PanAmSat and Televisa, that the claims asserted against
Televisa and PanAmSat are not recognized by federal law, that such claims fail
to state a cause of action and that because such claims depend upon the
existence of enforceable rights under the tariff Comsat filed with the FCC,
the claims fail if the FCC determines that Comsat has no such rights. In this
regard, in April 1996, News Corp. filed a complaint with the FCC challenging
Comsat's tariff. Thereafter Comsat filed a motion with the FCC to hold that
proceeding in abeyance pending resolution of Comsat's civil suit. By letter
ruling dated December 6, 1996, the FCC denied Comsat's motion and established
a schedule to resolve the issues raised by News Corp.'s complaint. On January
27, 1997, the parties appeared before Judge Wardlaw for a hearing on the
motion to dismiss. From the bench, the Judge denied the motions to dismiss and
the parties have proceeded to discovery. PanAmSat believes the claims against
it are without merit and intends to vigorously contest any further prosecution
of these claims, although there can be no assurance that PanAmSat will
prevail.
Uncertainties of Post-Merger Operations. The success of the Reorganization
and the related transactions will depend in part on the ability of New
PanAmSat to effectively integrate the businesses of PanAmSat and Galaxy.
PanAmSat's operations are primarily focused on international markets and
Galaxy's operations are primarily focused on North America. Although the
management of both companies believe that the operations of PanAmSat and
Galaxy will be complementary, there can be no assurance that the parties will
not encounter difficulties in merging the operations of PanAmSat with those of
Galaxy or that the benefits expected from the Reorganization will be realized.
The process of integrating the businesses of PanAmSat and Galaxy may also
require a disproportionate amount of time and attention of New PanAmSat's
management and financial and other resources of New PanAmSat. In addition,
integrating the two companies may be made more difficult initially by the
necessity of coordinating geographically separated organizations and
integrating personnel with disparate business backgrounds and corporate
cultures. As is typical in many business combinations, if PanAmSat and Galaxy
are not successful in integrating their corporate strategies and operations or
if their integrated operations fail to achieve market acceptance, their
combined business could be adversely affected.
Effect of Loss of Key Personnel. The success of New PanAmSat's business will
depend in part upon the performance of Frederick A. Landman, President and
Chief Executive Officer, Carl A. Brown, Executive Vice President, and Lourdes
Saralegui, Executive Vice President, of New PanAmSat. The loss of such
executives could have an adverse effect on New PanAmSat's business. New
PanAmSat is not the beneficiary of any keyman life insurance policies for any
of Mr. Landman, Mr. Brown or Ms. Saralegui. See "THE REORGANIZATION--
Management and Operations of New PanAmSat and PanAmSat After the Merger."
Control by the Principal Stockholder of New PanAmSat. Upon consummation of
the Reorganization, HCI will own at least a majority of the outstanding shares
of New PAS Common Stock. HCI will generally be able to control the vote on all
matters submitted to a vote of the holders of shares of outstanding New PAS
Common Stock, including election of New PanAmSat's directors, amendments to
New PanAmSat's Certificate of Incorporation and Bylaws and approval of
significant corporate transactions and other actions pertaining to New
PanAmSat which require approval of New PanAmSat's stockholders. Additionally,
HCI will be in a position to prevent a takeover of New PanAmSat by one or more
third parties, which could deprive New PanAmSat's minority stockholders of a
control premium that might otherwise be realized by them in connection with an
acquisition of New PanAmSat. See "OTHER AGREEMENTS--Stockholder Agreement."
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Potential Conflicts of Interest. After the Reorganization is consummated,
HCI may have significant on-going conflicts of interest between its ownership
of up to approximately 71.5% of New PAS Common Stock, its interests in
contracts to which its affiliates and New PanAmSat are parties and HCI's and
its affiliates' other interests in the communications industry. PanAmSat and
Galaxy have entered into material contracts and transactions with certain
affiliates of HCI, including satellite construction contracts and an agreement
for New PanAmSat to use three launch service opportunities. See "BUSINESS OF
PANAMSAT--Launch Arrangements," "BUSINESS OF GALAXY--Satellite Development and
Construction" and "--Launch Arrangements." New PanAmSat may enter into similar
contracts in the future. The Stockholder Agreement, however, provides that
agreements entered into between New PanAmSat and HCI or its affiliates must be
on terms no less favorable to New PanAmSat than those agreements ordinarily
entered into in comparable transactions by HCI or its relevant affiliate on an
arm's length basis with an unrelated party. In addition, a committee of the
New PanAmSat Board that is composed entirely of directors who are not current
or former employees of New PanAmSat or any of its affiliates must approve all
such agreements. With certain exceptions, pursuant to the Stockholder
Agreement, HCI and its affiliates may not compete with New PanAmSat in the
business presently conducted by Galaxy from the Closing Date until five years
after Closing. Nonetheless, HCI and certain of its affiliates have other
interests in the communications industry which may not coincide with New
PanAmSat's interests. For example, Hughes Network Systems sells satellite-
based business communications services on very small aperture terminals,
DIRECTV, Inc. ("DIRECTV") and DIRECTV International, Inc. ("DTVI") provide DTH
services and Hughes Satellite and Communications constructs satellites for
companies, which, in some cases, will compete directly with New PanAmSat. In
addition, HCI is developing a satellite business known as "SPACEWAY" for high
speed point-to-point transmission of voice, video, audio and data using Ka-
band frequencies ("SPACEWAY").
Shares Eligible for Future Sale. Upon completion of the Reorganization, New
PanAmSat is expected to have an aggregate of 149,122,807 shares of New PAS
Common Stock outstanding, assuming that New PanAmSat does not issue more stock
than cash as consideration in the Merger and the Univisa Contribution. In
addition, up to 50,000,000 additional shares of New PAS Common Stock could be
issued in connection with the Merger and the Univisa Contribution if New
PanAmSat chooses, at its option, to issue additional shares of New PAS Common
Stock as consideration in the Univisa Contribution and the Merger to satisfy
elections by holders of PAS Class A Common Stock and PAS Ordinary Common Stock
and S Company to receive additional shares of such stock in lieu of cash
consideration. See "THE REORGANIZATION AGREEMENT--Elections by Holders of PAS
Common Stock; Exchange of Certificates in the Merger." The shares of New PAS
Common Stock that are paid as consideration in the Merger will be freely
tradable on the public market without restriction or further registration
under the Securities Act, except to the extent that such shares are held by a
person deemed to be an "affiliate" (as defined in the Securities Act) of New
PanAmSat or a person that would be deemed to have been an "affiliate" of
PanAmSat prior to the Merger, in which case such shares may be resold only in
transactions permitted by the resale provisions of Rule 145 under the
Securities Act or as otherwise permitted under the Securities Act. See "THE
REORGANIZATION--Federal Securities Laws Consequences." All of the other shares
of New PAS Common Stock issued in connection with the Merger, the Univisa
Contribution and the Asset Contribution will be "restricted securities" within
the meaning of Rule 144 promulgated under the Securities Act, but will be
eligible for public sale pursuant to Rule 144. New PanAmSat also may decide to
issue additional shares of New PAS Common Stock in the future. No predictions
can be made as to the effect, if any, that market sales of shares of New PAS
Common Stock, or the availability of shares for future sales, will have on the
market price of shares of New PAS Common Stock prevailing from time to time.
Sales of substantial amounts of New PAS Common Stock, or the perception that
such sales could occur, could adversely affect prevailing market prices for
New PAS Common Stock and could impair New PanAmSat's future ability to raise
capital through an offering of its equity securities. Neither PanAmSat nor
Galaxy currently anticipates that New PanAmSat will issue any shares of
preferred stock.
Pursuant to the Stockholder Agreement, New PanAmSat, HCI, the Class A
Holders and S Company will be subject to certain restrictions on the sale of
their shares of New PAS Common Stock after the Closing Date. The parties to
the Stockholder Agreement are considering modifying the sale restrictions so
that the Class A Holders
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and S Company would be permitted to sell a substantial portion of their shares
of New PanAmSat Common Stock during the first year after the Closing. See
"OTHER AGREEMENTS--Stockholder Agreement." In addition, concurrently with the
consummation of the Merger and the Univisa Contribution, HCI, S Company and
the Class A Holders will become parties to a Registration Rights Agreement
with New PanAmSat pursuant to which such parties will have the right, under
specific circumstances, to cause New PanAmSat to register their shares of New
PAS Common Stock under the Securities Act at the expense of New PanAmSat. See
"OTHER AGREEMENTS--Registration Rights Agreement."
No Prior Public Market; Potential Volatility of Stock Price. Prior to the
Reorganization, there has been no public market for New PAS Common Stock. It
is anticipated that the New PAS Common Stock will be listed on the Nasdaq
under the symbol "SPOT" subject to official notice of issuance. However, there
can be no assurance that an active public market will develop or be sustained
after the Reorganization or that the price at which New PAS Common Stock will
trade in the public market subsequent to the Reorganization will correspond
with expectations. Further, the stock market may experience volatility that
affects the market prices of companies in ways unrelated to the operating
performance of such companies. These market fluctuations may adversely affect
the market price of New PAS Common Stock.
No Dividends. PanAmSat and Galaxy anticipate that New PanAmSat will retain
future earnings for use in its business and does not anticipate paying any
dividends on New PAS Common Stock in the near future.
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THE SPECIAL MEETING
SPECIAL MEETING
This Proxy Statement/Prospectus is being furnished to PanAmSat stockholders
in connection with the solicitation by the PanAmSat Board of proxies for use
at the Special Meeting to be held on Thursday, May 8, 1997 at 11:00 a.m. local
time at the Equinox Hotel, Historic Route 7A, Manchester Village, Vermont.
At the Special Meeting, PanAmSat stockholders will consider and vote upon
the following proposals: (a) the approval and adoption of the Reorganization
Agreement and the Merger Agreement and (b) the approval and adoption of the
Charter Amendment. See "PROPOSAL TO APPROVE AND ADOPT THE CHARTER AMENDMENT."
THE PANAMSAT BOARD HAS APPROVED THE REORGANIZATION AGREEMENT AND THE MERGER
AGREEMENT AND HAS DEEMED ADVISABLE AND APPROVED THE CHARTER AMENDMENT AND
RECOMMENDS THAT PANAMSAT STOCKHOLDERS VOTE "FOR" APPROVAL AND ADOPTION OF THE
REORGANIZATION AGREEMENT AND THE MERGER AGREEMENT AND "FOR" APPROVAL AND
ADOPTION OF THE CHARTER AMENDMENT. See "THE REORGANIZATION--Recommendation of
the PanAmSat Board and Reasons for the Merger." The Reorganization Agreement
has been approved by all of the required Hughes Parties.
This Proxy Statement/Prospectus also contains certain information concerning
the sale by PanAmSat of the DTH Options. The PanAmSat Board has determined
that the sale of the DTH Options is fair to and in the best interests of
PanAmSat and its stockholders and has approved such sale. No stockholder
approval is required or sought in connection with such sale. See "THE
REORGANIZATION--Background of the Reorganization," "THE REORGANIZATION
AGREEMENT--Conditions to the Reorganization" and "THE DTH SALE."
RECORD DATE; SHARES ENTITLED TO VOTE; VOTE REQUIRED
The close of business on April 8, 1997 has been fixed as the Record Date for
determining the holders of PAS Common Stock who are entitled to notice of and
to vote at the Special Meeting. As of the Record Date, there were 100,011,620
shares of PAS Common Stock outstanding of which 21,231,415 shares consisted of
PAS Class A Common Stock, 40,459,431 shares consisted of PAS Class B Common
Stock and 38,320,774 shares consisted of PAS Ordinary Common Stock outstanding
and entitled to vote. The holders of record on the Record Date of shares of
PAS Class A Common Stock and PAS Class B Common Stock are entitled to 15 votes
per share of PAS Class A Common Stock and PAS Class B Common Stock, as the
case may be, on each matter submitted to a vote at the Special Meeting. As of
the Record Date, the directors, executive officers and affiliates of PanAmSat
owned approximately 81% of the outstanding shares of PAS Common Stock. The
holders of record of shares of PAS Ordinary Common Stock are entitled to one
vote per share of PAS Ordinary Common Stock on each matter submitted to a vote
at the Special Meeting. The presence in person or by proxy of the holders of
record of a majority of the votes of the outstanding shares entitled to vote
is necessary to constitute a quorum for the transaction of business at the
Special Meeting. The affirmative vote of (i) the holders of a majority of the
votes of the outstanding shares of PAS Class A Common Stock and PAS Ordinary
Common Stock, voting together as a single class, and the holders of a majority
of the outstanding shares of PAS Class B Common Stock and PAS Ordinary Common
Stock, voting together as a single class, as well as (ii) the holders of a
majority of the votes of the outstanding shares of PAS Class A Common Stock
(as long as the outstanding shares of PAS Class A Common Stock represent at
least 5% of the total outstanding shares of PAS Common Stock) and a majority
of the votes of the outstanding shares of PAS Class B Common Stock (as long as
the outstanding shares of PAS Class B Common Stock represent at least 5% of
the total outstanding shares of PAS Common Stock), is necessary to approve the
Reorganization Agreement, the Merger Agreement and the Charter Amendment. In
addition, the affirmative vote of the holders of the majority of votes of the
outstanding shares of PAS Class A Common Stock, PAS Class B Common Stock and
PAS Ordinary Common Stock, each voting as a separate class, is necessary to
approve the Charter Amendment.
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Pursuant to the Principal Stockholders Agreement, the Class A Holders and
Class B Holder have agreed to vote all of their shares of PAS Common Stock in
favor of the Reorganization Agreement and the Merger Agreement and to take any
actions required in furtherance thereof. In connection therewith, immediately
before the Record Date, the Class A Holders voluntarily converted the number
of shares of PAS Class A Common Stock necessary to constitute a majority of
the outstanding PAS Ordinary Common Stock from PAS Class A Common Stock into
PAS Ordinary Common Stock. On the Record Date, the beneficial owners of all of
the outstanding shares of PAS Class A Common Stock, PAS Class B Common Stock
and the Converted Shares held the voting power required to approve the
Reorganization Agreement, the Merger Agreement and the Charter Amendment.
Accordingly, approval thereof by the PanAmSat stockholders is assured.
PROXIES; PROXY SOLICITATION
Shares of PAS Common Stock represented by properly executed proxies at or
prior to the Special Meeting which have not been revoked will be voted at the
Special Meeting in accordance with the instructions contained therein. Shares
of PAS Common Stock represented by properly executed proxies for which no
instruction is given will be voted "FOR" approval and adoption of the
Reorganization Agreement and the Merger Agreement and "FOR" approval and
adoption of the Charter Amendment. PanAmSat stockholders are requested to
complete, sign, date and return promptly the enclosed proxy card in the
postage prepaid envelope provided for this purpose to ensure that their shares
are voted. A stockholder may revoke a proxy by submitting, at any time prior
to the vote on the Reorganization Agreement, the Merger Agreement and the
Charter Amendment, a later-dated proxy with respect to the same shares, by
delivering written notice of revocation to the Secretary of PanAmSat at any
time prior to such vote or by attending the Special Meeting and voting in
person. Mere attendance at the Special Meeting will not in and of itself
revoke a proxy.
If the Special Meeting is postponed or adjourned for any reason, at any
subsequent reconvening of the Special Meeting all proxies will be voted in the
same manner as such proxies would have been voted at the original convening of
the meeting (except for any proxies which have theretofore effectively been
revoked or withdrawn), notwithstanding that they may have been effectively
voted on the same or any other matter at a previous meeting. Abstentions and
broker non-votes will have the effect of a vote against the approval of the
Reorganization Agreement, the Merger Agreement and the Charter Amendment.
PanAmSat's Board knows of no other matter that will be presented for action at
the PanAmSat Special Meeting. If, however, any other matter properly comes
before the PanAmSat Special Meeting, the persons named in the proxy or their
substitutes will vote thereon in accordance with their best judgment.
PanAmSat will bear the cost of soliciting proxies from its stockholders. In
addition to solicitation by mail, directors, officers and employees of
PanAmSat may solicit proxies by telephone, telegram or otherwise. Such
directors, officers and employees of PanAmSat will not be additionally
compensated for such solicitation but may be reimbursed for out-of-pocket
expenses incurred in connection therewith. Brokerage firms, fiduciaries and
other custodians who forward soliciting material to the beneficial owners of
shares of PAS Common Stock held of record by them will be reimbursed for their
reasonable expenses incurred in forwarding such material.
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THE COMPANIES
PANAMSAT
PanAmSat operates the world's first privately owned global (excluding
domestic U.S.) satellite communications system and currently owns and operates
four satellites serving Latin America, the Caribbean, Europe, Asia, the Middle
East and Africa. PanAmSat currently provides satellite services primarily to
the broadcasting and business communications markets and also provides
services to the long-distance telephony market. In connection with its current
services, PanAmSat is pursuing international opportunities in the satellite
DTH television market. PanAmSat plans to launch additional satellites in the
future to meet anticipated increases in customer demand and currently has four
satellites under construction.
PanAmSat's first satellite, PAS-1, was launched in 1988 for service over the
Atlantic Ocean Region and is a leading satellite for television and cable
programming distribution in Latin America. PanAmSat's second satellite, PAS-2,
was launched in July 1994 for service over the Pacific Ocean Region and is a
leading satellite for programming distribution in the Asia-Pacific region.
PanAmSat's PAS-4 satellite was launched in August 1995 for service over the
Indian Ocean Region and is a leading satellite for programming distribution in
south Asia and Africa. PanAmSat's PAS-3 satellite was launched on January 12,
1996 for service over the Atlantic Ocean Region. PAS-3 and PAS-1 are the
leading satellites for television and cable programming distribution in Latin
America. PanAmSat expects to launch two additional satellites to serve the
Atlantic Ocean Region: PAS-6 in May 1997; and PAS-5 in July 1997. However,
SS/Loral has recently informed PanAmSat of circumstances that could result in
a delay in the launch of PAS-6. See "RISK FACTORS--Risk of Delays; Excess
Weight." PanAmSat intends to launch PAS-7 and PAS-8 in early 1998, which are
expected to serve the Indian Ocean Region and the Pacific Ocean Region,
respectively. PanAmSat expects that in the future it will launch additional
satellites to meet then-anticipated customer demand. There can be no
assurance, however, that the schedule for PanAmSat's future satellite launches
will be met.
GALAXY
Galaxy is a leading provider of commercial satellite services in the United
States. Galaxy offers satellite transponder capacity to cable television
programmers, broadcast television programmers, business communications
customers and DTH service providers for video, audio and data communications
applications. Galaxy operates a fleet of ten commercial geostationary fixed
service satellites, nine of which primarily serve the United States and one of
which serves both the United States and Latin America. Galaxy also provides
satellite TT&C services for its own satellite fleet as well as for other
satellites owned by DIRECTV, PanAmSat and American Mobile Satellite
Corporation.
Galaxy was established by HE in 1979 and launched its first satellite in
1983. Galaxy's expansion of service to customers in the United States was
accelerated by the acquisitions of the three-satellite Westar C-band system in
1989 and the three-satellite SBS Ku-band system in 1990. Today, in addition to
Galaxy's fleet of ten commercial satellites, Galaxy has two satellites under
construction (Galaxy VIII-i and Galaxy X) and three additional satellites in
various stages of development (Galaxy XI, Galaxy XIII-i and Galaxy XIV-i)
which are expected to provide new and replacement transponder capacity for
satellite customers. Subject to regulatory approvals, Galaxy expects to launch
these five satellites by 2000. There can be no assurance, however, that
regulatory approvals will be obtained or that the schedule for Galaxy's future
satellite launches will be met.
NEW PANAMSAT
New PanAmSat, a wholly owned subsidiary of HCI, has not conducted any
substantial business activities to date, other than those incident to its
formation, its execution of the Reorganization Agreement and related
agreements and its participation in the preparation of this Proxy
Statement/Prospectus. Immediately following the consummation of the Merger,
New PanAmSat will own and operate Galaxy and become a holding company for
PanAmSat and its subsidiaries. Accordingly, the business of New PanAmSat,
operated directly and through its wholly owned subsidiary, will be the
businesses currently conducted by PanAmSat and Galaxy. See "BUSINESS OF NEW
PANAMSAT," "BUSINESS OF PANAMSAT" and "BUSINESS OF GALAXY."
PAS MERGER CORP.
PAS Merger Corp., a Delaware corporation and wholly owned subsidiary of New
PanAmSat, was formed by New PanAmSat solely for the purpose of effecting the
Merger.
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THE REORGANIZATION
BACKGROUND OF THE REORGANIZATION
In late January 1996, Mrs. Mary Anselmo, the majority beneficial owner of
the PAS Class A Common Stock, and Mr. Emilio Azcarraga, the Chairman of
Televisa, the beneficial owner of all of the PAS Class B Common Stock, agreed
to explore options for achieving liquidity with respect to their respective
stock positions in PanAmSat.
The two stockholders accordingly instructed management of PanAmSat to
explore options that would allow the stockholders to achieve their strategic
objectives, and management conducted discussions with PanAmSat's financial
advisor, Morgan Stanley, and PanAmSat's lawyers, Chadbourne & Parke LLP, in
order to determine how the respective goals of the holders of the PAS Class A
Common Stock and the holder of the PAS Class B Common Stock could be achieved
in a manner that would ensure equal treatment for all holders of PAS Common
Stock. Televisa's representatives stated that a condition to any transaction
would be that the transaction be structured in a tax efficient manner from
Televisa's perspective.
On February 15, 1996, the PanAmSat Board met to discuss the options
available to PanAmSat, including the possibility of conducting an auction for
the sale of PanAmSat, a search for a strategic buyer or buyers, a secondary
sale of stock to the public or some combination of the foregoing. The PanAmSat
Board also authorized management to design and implement retention
arrangements for the officers and employees of PanAmSat.
On March 21, 1996 the PanAmSat Board held a special meeting at which it
formally agreed to engage Morgan Stanley to act as financial advisor to
PanAmSat to explore strategic alternatives, including joint ventures,
alliances, mergers or the sale of PanAmSat. Over the next few weeks management
worked with Morgan Stanley to refine the methodology for a corporate
transaction and with Chadbourne & Parke LLP to evaluate certain employee and
officer retention issues. The PanAmSat Board discussed with its legal and
financial advisors the desirability of proceeding both with a secondary
offering for the sale of shares of PAS Class A Common Stock and PAS Class B
Common Stock and an exploration of strategic alternatives. In connection with
the former, the PanAmSat Board authorized the filing of a secondary offering
with the Commission at or before the time that PanAmSat announced its
intention to seek a business combination or sale of its stock in order to
permit PanAmSat to proceed quickly with an offering and provide liquidity to
the holders of the PAS Class A Common Stock and the PAS Class B Common Stock
if a business combination or strategic alliance did not materialize. The
PanAmSat Board also authorized Morgan Stanley to approach a select group of
companies to gauge their level of interest in a transaction involving
PanAmSat. At the March 21, 1996 meeting, the PanAmSat Board also authorized
the engagement of William M. Mercer, Incorporated ("Mercer") to advise
PanAmSat with respect to employee retention arrangements that would be
comparable to those at similar companies.
On April 2, 1996, PanAmSat publicly announced that it was exploring
alternatives to enable its stockholders to meet their financial objectives and
in connection therewith filed a registration statement with the Commission for
an underwritten secondary offering of PAS Common Stock anticipated to be in
the amount of approximately $350 million.
On the day of the public announcement, pursuant to PanAmSat's instructions,
Morgan Stanley called a number of potentially interested parties, including
HE, to solicit interest in a transaction involving PanAmSat. Over the course
of the following weeks, confidentiality agreements with various interested
parties were executed and information requests were made of and responded to
by PanAmSat. HE signed its confidentiality agreement on April 10, 1996 and
commenced its information requests the next day, which requests were responded
to by PanAmSat on April 13, 16, 19 and 22.
On April 18, 1996, Morgan Stanley forwarded to the various interested
parties a letter outlining the procedures for written preliminary indications
of interest and a copy of the draft merger agreement proposed by PanAmSat.
Over the next two to three weeks, the interested parties responded with
preliminary indications of
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interest to Morgan Stanley, and on May 3, 1996, HE submitted its preliminary
indication of interest to Morgan Stanley.
Pursuant to PanAmSat's instructions, Morgan Stanley notified certain of the
interested parties of their selection to proceed to the due diligence phase of
the process in the following week and a number of the interested parties and
their representatives, including HE and its representatives, met at the
offices of Chadbourne & Parke LLP in New York City over the following month to
attend management presentations, if requested, to review certain documents of
PanAmSat made available in a due diligence room and to discuss with PanAmSat
and its representatives follow-up questions with respect to the management
presentations and the due diligence materials.
During the week beginning June 7, 1996, Morgan Stanley met with various
interested parties to discuss the preliminary indications of interest, the
sale process and the related timetable, and on June 13, 1996, Morgan Stanley
sent out a letter to interested parties, including HE, outlining the
procedures for a firm written offer for PanAmSat.
On June 25, 1996, HE submitted to Morgan Stanley a proposal to combine
Galaxy with PanAmSat in a 100% stock transaction. Morgan Stanley also received
bids from other interested parties that were not all stock bids. Since
PanAmSat and the holders of the PAS Class A Common Stock and PAS Class B
Common Stock deemed an all stock bid unsatisfactory, representatives of
PanAmSat and its management commenced discussions with other of the interested
parties and indicated to HE that an all stock bid was not satisfactory.
On July 19, 1996, HE submitted a revised proposal to Morgan Stanley wherein
HE proposed to combine Galaxy with PanAmSat in a half cash, half stock
transaction. The HE proposal involved stock in a new venture that would
include Galaxy and contained as a condition to the transaction that PanAmSat
divest the DTH Options. PanAmSat's representatives and advisors met with HE's
representatives and advisors at HCI's offices in Long Beach, California to
conduct preliminary due diligence on Galaxy intermittently during the period
of July 20, 1996 to August 1, 1996. As PanAmSat was not satisfied with the
proposed structure, which involved leaving PanAmSat as a public holding
company with an interest in a new joint venture company into which both
parties would place their geostationary satellite businesses, a meeting was
held in Darien, Connecticut on July 26, 1996, among C. Michael Armstrong,
Chairman and Chief Executive Officer of HE, Charles H. Noski, Senior Vice
President and Chief Financial Officer of HE, Kenneth N. Heintz, Vice President
Corporate Development of HE, Carl A. Brown, Senior Vice President, Galaxy
Satellite Services of HCI, Frederick A. Landman, Patrick J. Costello and James
W. Cuminale of PanAmSat and representatives of the Anselmo family, together
with representatives of Morgan Stanley, Greenhill & Co. and Donaldson, Lufkin
& Jenrette Securities Corporation, the latter two also acting as advisors to
HE, and Lawrence W. Dam and Guillermo Canedo White (by telephone) of Televisa
to discuss the proposed transaction structure. The foregoing meetings and
discussions were followed with meetings in New York on August 6, 7, and 8,
1996, with all representatives and advisors, for the purpose of discussing
alternate structures that would achieve the parties' objectives. At the end of
such meetings, the parties agreed on a structure that closely approximated the
structure ultimately used in the transaction. Each of the earlier proposals
received between July 19, 1996 and August 14, 1996 contained ranges of stated
notional valuations of PanAmSat, which in some cases were higher than the
final proposal ultimately agreed to by the parties. However, none of the
earlier proposals contained a cash component and all involved an assumed
valuation for the Galaxy Business which varied from the actual valuation. At
the direction of the holders of PAS Class A Common Stock and PAS Class B
Common Stock, PanAmSat required that bids be comprised of cash. PanAmSat and
its advisors conducted negotiations with the goal of obtaining the highest
value for PanAmSat's stockholders.
On August 14, 1996, PanAmSat and representatives of the Anselmo family and
the PAS Class B Common Stock and counsel to and representatives of Televisa
met at Morgan Stanley's offices in New York City to review the status of the
transaction. This meeting was followed immediately by a meeting between the
principal executive officers of PanAmSat and HE, their representatives and
advisors, and a representative of the Anselmo family to discuss the exact
percentages of the new company that each side would hold at the end of the
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transaction. This meeting ended inconclusively but was followed by an
additional meeting on August 15, 1996 at which the parties agreed on a
structure and the percentage split that ultimately formed the basis for the
transaction: New PanAmSat would acquire Galaxy and would offer $1.5 billion in
cash and an additional amount of stock in New PanAmSat to the stockholders of
PanAmSat in a combination or merger with a subsidiary of New PanAmSat.
Assuming that all of the available cash was used in the merger, following the
transaction HE would hold 72% and the former stockholders of PanAmSat would
hold 28% of New PanAmSat. HE indicated that, following the Closing, it would
consider causing New PanAmSat to sell shares in an offering in an aggregate
amount equal to $1.5 billion (assuming a $30 per share offering price for New
PanAmSat stock, HE would hold approximately 52.5% of New PanAmSat, and the
public, together with the former stockholders of PanAmSat, would hold the
remainder). At the August 15, 1996 meeting the parties also agreed on all of
the other principal points of the transaction, subject to the negotiation and
execution of definitive agreements and approval of the parties' respective
Boards.
From August 20 to 26, 1996, PanAmSat's representatives and advisors met with
HE's representatives and advisors at HCI's facility in Long Beach, California
to continue due diligence on Galaxy. From August 26 to 29, 1996, HE
representatives and advisors met with PanAmSat representatives and advisors at
Chadbourne & Parke LLP in New York City to perform confirmatory due diligence.
Latham & Watkins, counsel to HE, also sent out a first draft of the proposed
Reorganization Agreement at this time and the parties held preliminary
discussions at the offices of Chadbourne & Parke LLP on major points of
understanding that would form the basis for the initial negotiation on the
documents. This was followed by a day of negotiations at Latham & Watkins'
offices in Los Angeles on September 4, 1996.
In mid-August 1996, the members of the DTH Committee of the PanAmSat Board
(comprised of three directors unaffiliated with Televisa) determined that it
was desirable to engage Salomon Brothers to represent PanAmSat in connection
with the sale of the DTH Options. The DTH Committee believed that, given that
the interest of PanAmSat in the DTH Options is held derivatively through
Televisa, Televisa-controlled entities would be equity participants in the
joint ventures to which the DTH Options applied and the interests in the DTH
Options were subject to certain prohibitions on transfers, Televisa would be
the most logical party to purchase the DTH Options. Accordingly, over this
time period representatives of the two companies, including Frederick A.
Landman and Guillermo Canedo White (who is also a member of the PanAmSat
Board), had discussions to establish a price for this asset. The parties
agreed on a purchase price of $225 million in shares of New PAS Common Stock
assuming a valuation of $30 per share of New PAS Common Stock. Since Televisa
required that the purchase be made with stock of New PanAmSat and the 1993
Indentures (as defined below) require that PanAmSat receive at least 85% in
cash in connection with certain sales of assets, the parties agreed on the
structure ultimately adopted: a share repurchase by New PanAmSat of 7.5
million shares of the New PAS Common Stock received by S Company pursuant to
the Univisa Contribution for $225 million, followed by a purchase of the DTH
Options by either Televisa, S Company and/or their designees for $225 million.
See "THE DTH SALE."
The parties reconvened at the offices of Chadbourne & Parke LLP in New York
from September 11 to 19, 1996, to conclude the negotiation and drafting of the
definitive agreements, which ultimately provided, among other things, that if
all of the available cash was used in the merger following the transaction HE
would indirectly hold 71.5%, and the former stockholders of PanAmSat would
hold 28.5%, of New PanAmSat. At various times during the months preceding the
announcement of the transaction, PanAmSat's Common Stock traded above $30 per
share. During the negotiations, PanAmSat and its advisors focused primarily on
obtaining the highest value for PanAmSat's stockholders.
On September 19, 1996, the PanAmSat Board met to consider the final terms of
the proposed Reorganization. After a detailed discussion of the consideration
in the aggregate to be received by the holders of the PAS Common Stock
pursuant to the Merger and the Univisa Contribution, the consideration to be
received by PanAmSat for the DTH Options, the consideration to be paid in the
Share Repurchase and other legal, accounting and financial issues, the
PanAmSat Board received the opinion of Morgan Stanley that the consideration
in the aggregate to be received by the holders of the PAS Common Stock
pursuant to the Merger and the Univisa Contribution is fair to such holders
from a financial point of view. See "THE
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REORGANIZATION--Opinion of PanAmSat's Financial Advisor." The PanAmSat Board
also received the opinion of Salomon Brothers that the consideration to be
received by PanAmSat for the DTH Options represented fair value for the DTH
Options from a financial point of view. See "THE DTH SALE--Opinion of
PanAmSat's Financial Advisor Regarding the DTH Sale." The PanAmSat Board then
determined that the Reorganization, upon the terms and conditions set forth in
the Reorganization Agreement, is fair to, and in the best interests of, the
stockholders of PanAmSat and unanimously approved and adopted the
Reorganization Agreement and the Merger and resolved to recommend to the
stockholders of PanAmSat that they vote to approve the Reorganization
Agreement, the Merger and the transactions contemplated thereby. The parties
signed the definitive agreements on September 20, 1996 and issued a press
release announcing the Reorganization and the related transactions the same
day.
On April 4, 1997, the parties entered into an Amendment to the
Reorganization Agreement pursuant to which they agreed to amend the
Reorganization Agreement and the forms of Stockholder Agreement and
Registration Rights Agreement to be entered into at the Closing to, among
other things, (i) reflect the voluntary conversion by the holders of PAS Class
A Common Stock to PAS Ordinary Common Stock immediately prior to the Record
Date and (ii) clarify certain other provisions.
RECOMMENDATION OF THE PANAMSAT BOARD AND REASONS FOR THE MERGER
In considering the recommendations of the PanAmSat Board with respect to the
Reorganization Agreement, the Merger Agreement and the transactions
contemplated thereby, PanAmSat's stockholders should be aware that certain
members of PanAmSat's management, the PanAmSat Board and the Principal
Stockholders have certain interests in the Reorganization that are different
from and in addition to their duties as directors and officers of PanAmSat.
See "THE REORGANIZATION--Interests of Certain Persons in the Reorganization."
The PanAmSat Board believes that the terms of the Reorganization are fair
to, and in the best interests of, PanAmSat and its stockholders. Accordingly,
the PanAmSat Board, by a unanimous vote of those directors present, has
approved the Reorganization Agreement and the Merger Agreement and recommends
their adoption by the holders of PAS Common Stock. The PanAmSat Board believes
that the Reorganization represents a unique opportunity. The Reorganization
will result in shareholder liquidity for PanAmSat stockholders, each of whom
will have the opportunity to receive a minimum of $15 in cash for each of
their shares. For the holders of shares of PAS Class A Common Stock and S
Company, the indirect holder of PAS Class B Common Stock, which represent more
than 80% of the outstanding shares of PAS Common Stock, the Reorganization
provides an alternative to obtaining cash for shares in a public offering. The
Reorganization will result in the combination of PanAmSat and Galaxy, two
premiere satellite service companies with complementary businesses, and
provide unusual opportunities for those PanAmSat stockholders who elect to
take stock in the combined enterprise to participate in its growth. This
growth will derive from operating efficiencies obtained from: economies of
scale; the ability to provide one point of contact for global satellite
services in one company; improved opportunities for cost reductions;
geographic market diversification, which reduces risk and affords unusual
growth opportunities; the ability to provide domestic and international
satellite coverage; and the long-term financial capability of a larger
company. In the judgment of the PanAmSat Board, these factors combine to offer
stockholders improved opportunities for earnings.
In reaching this conclusion, the PanAmSat Board considered: (i) the
prospective financial strength of each company individually and the benefits
of the combination discussed above; (ii) current industry, economic and market
conditions which encourage consolidation to reduce risk and create new avenues
for earnings growth; (iii) the proposed structure of the transaction between
PanAmSat and Galaxy and the terms of the Reorganization Agreement and other
documents to be executed in connection with the Reorganization, which provide
for reciprocal representations and warranties, conditions to closing and
rights to termination, and balanced rights and obligations; and (iv) the
opinion of Morgan Stanley to the effect that the consideration in the
aggregate to be received by the holders of shares of PAS Common Stock in
connection with the Merger and the Univisa Contribution, is fair from a
financial point of view to such holders. See "--Opinion of PanAmSat's
Financial Advisor" below and Appendix D. In determining that the Merger is
fair to and in the best interests of its stockholders, the PanAmSat Board
considered the above facts as a whole and did not assign specific or relative
weights to them.
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THE PANAMSAT BOARD HAS APPROVED THE REORGANIZATION AGREEMENT, THE MERGER
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY AND BELIEVES THAT THE
TERMS OF THE MERGER ARE FAIR TO, AND IN THE BEST INTEREST OF, PANAMSAT'S
STOCKHOLDERS. THE PANAMSAT BOARD ALSO HAS DEEMED ADVISABLE AND APPROVED THE
CHARTER AMENDMENT. THE PANAMSAT BOARD RECOMMENDS A VOTE "FOR" APPROVAL OF THE
REORGANIZATION AGREEMENT AND THE MERGER AGREEMENT AND A VOTE "FOR" APPROVAL OF
THE CHARTER AMENDMENT.
OPINION OF PANAMSAT'S FINANCIAL ADVISOR
In March 1996, PanAmSat retained Morgan Stanley to act as its financial
advisor in connection with a proposed sale or business combination involving
PanAmSat.
At the September 19, 1996 meeting of the PanAmSat Board, Morgan Stanley
rendered its oral opinion that, as of such date and subject to the various
considerations to be set forth in its written opinion, the consideration in
the aggregate to be received by the holders of shares of PAS Common Stock, in
connection with the Merger and the Univisa Contribution, is fair from a
financial point of view to such holders. Morgan Stanley subsequently delivered
to the PanAmSat Board a written opinion dated September 20, 1996 confirming
such oral opinion and containing its additional opinion that the consideration
to be paid in the Share Repurchase is fair from a financial point of view to
New PanAmSat. Morgan Stanley subsequently confirmed its September 20, 1996
opinion by delivery of a written opinion dated as of the date of this Proxy
Statement/Prospectus (the "Morgan Stanley Opinion").
THE FULL TEXT OF THE MORGAN STANLEY OPINION WHICH SETS FORTH, AMONG OTHER
THINGS, ASSUMPTIONS MADE, PROCEDURES FOLLOWED, MATTERS CONSIDERED, AND
LIMITATIONS ON THE REVIEW UNDERTAKEN BY MORGAN STANLEY, IS ATTACHED AS
APPENDIX D TO THIS PROXY STATEMENT/PROSPECTUS AND IS INCORPORATED HEREIN BY
REFERENCE. THE MORGAN STANLEY OPINION IS DIRECTED TO THE PANAMSAT BOARD AND
ADDRESSES ONLY THE FAIRNESS OF THE CONSIDERATION IN THE AGGREGATE TO BE
RECEIVED BY THE HOLDERS OF SHARES OF PAS COMMON STOCK, IN CONNECTION WITH THE
MERGER AND THE UNIVISA CONTRIBUTION, FROM A FINANCIAL POINT OF VIEW AND THE
FAIRNESS OF THE CONSIDERATION TO BE PAID BY NEW PANAMSAT IN THE SHARE
REPURCHASE FROM A FINANCIAL POINT OF VIEW. IT DOES NOT ADDRESS ANY OTHER
ASPECT OF THE REORGANIZATION AND DOES NOT CONSTITUTE AN OPINION OR A
RECOMMENDATION AS TO HOW ANY HOLDERS OF SHARES OF PAS COMMON STOCK SHOULD VOTE
AT THE SPECIAL MEETING OR WHETHER SUCH HOLDERS SHOULD ELECT TO RECEIVE THE
STANDARD CONSIDERATION, THE STOCK CONSIDERATION OR THE STANDARD CASH
CONSIDERATION (AS SUCH TERMS ARE DEFINED BELOW). IN ADDITION, THE MORGAN
STANLEY OPINION DOES NOT IN ANY MANNER ADDRESS THE PRICES AT WHICH THE SHARES
OF NEW PAS COMMON STOCK WILL TRADE FOLLOWING CONSUMMATION OF THE
REORGANIZATION. THE SUMMARY OF THE MORGAN STANLEY OPINION SET FORTH IN THIS
PROXY STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE
FULL TEXT OF SUCH OPINION. THE HOLDERS OF SHARES OF PAS COMMON STOCK ARE URGED
TO READ THE MORGAN STANLEY OPINION IN ITS ENTIRETY.
In arriving at its opinion, Morgan Stanley, among other things: (i) analyzed
certain publicly available financial statements of PanAmSat and other publicly
available information relating to PanAmSat and Galaxy; (ii) analyzed certain
internal financial statements and other financial and operating data
concerning PanAmSat and Galaxy prepared by the respective managements of
PanAmSat and HCI and discussed certain of this data with senior executives of
PanAmSat and HCI; (iii) analyzed certain financial projections of PanAmSat and
Galaxy prepared by the respective managements of PanAmSat and HCI; (iv)
discussed the past and current operations and financial condition and the
prospects of PanAmSat and Galaxy with senior executives of PanAmSat and HCI,
respectively; (v) reviewed the reported prices and trading activity for PAS
Common Stock; (vi) analyzed the estimated pro forma impact of the Merger, the
Univisa Contribution and the Asset Contribution on New PanAmSat's financial
ratios; (vii) reviewed and considered the financial and other information
prepared by members of senior management of PanAmSat and HCI relating to the
relative contributions of PanAmSat and Galaxy to New PanAmSat; (viii)
participated in discussions and negotiations among representatives of
PanAmSat, HCI and certain other parties and their financial and legal
advisors; (ix) reviewed the Reorganization Agreement, the Univisa Contribution
Agreement and certain related documents; and (x) performed such other analyses
as Morgan Stanley deemed appropriate.
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In rendering its opinion, Morgan Stanley assumed and relied upon, without
independent verification, the accuracy and completeness of the information
reviewed by Morgan Stanley for purposes of its opinion. Morgan Stanley assumed
that the financial projections of PanAmSat and Galaxy were reasonably prepared
on bases reflecting the best currently available estimates and judgments of
the future financial performance of PanAmSat and Galaxy, respectively. Morgan
Stanley did not make any independent valuation or appraisal of the assets or
liabilities of PanAmSat or Galaxy, nor was it furnished with any such
appraisals. The Morgan Stanley Opinion is necessarily based on economic,
market and other conditions as in effect on, and the information made
available to it as of, the date of its opinion. Morgan Stanley assumed that
the Merger, the Univisa Contribution and the Asset Contribution and the Share
Repurchase will be consummated in accordance with the terms set forth in the
Reorganization Agreement, the Univisa Contribution Agreement and certain
related agreements. In addition, Morgan Stanley assumed that the Merger, the
Univisa Contribution and the Asset Contribution together will be treated as a
tax-free exchange, pursuant to the Code (as defined below). Morgan Stanley
also assumed that in connection with the receipt of all necessary regulatory
approvals for the Merger, the Univisa Contribution and the Asset Contribution,
no restrictions will be imposed that would have a material adverse effect on
the contemplated benefits expected to be derived in the proposed Merger, the
Univisa Contribution and the Asset Contribution.
The following is a brief summary of certain analyses performed by Morgan
Stanley and reviewed with the PanAmSat Board in connection with its opinions
to the PanAmSat Board.
PAS Common Stock Performance. Morgan Stanley's analysis of the performance
of the PAS Common Stock consisted of a historical analysis of closing prices
and trading volumes from the date of PanAmSat's IPO on September 21, 1995 to
September 16, 1996. During this period, PAS Common Stock, since its IPO price
of $17, achieved a high of $33.25 and a low of $14, based on closing prices.
PAS Common Stock closed at a price of $28 on September 16, 1996.
Transaction Consideration Analysis. Morgan Stanley noted that, based on the
financial projections of New PanAmSat as of June 30, 1997 and assuming that
New PanAmSat pays half stock and half cash as consideration in the Merger and
the Univisa Contribution, the consideration to be received by S Company and
the holders of shares of PAS Class A Common Stock and PAS Ordinary Common
Stock--i.e., 28.50% of New PanAmSat (following consummation of the sale of the
DTH Options and Share Repurchase) plus the Standard Cash Consideration (as
defined below) of $1.5 billion--is between $29.25 and $31.50 for each
outstanding share of PAS Common Stock. Morgan Stanley observed that this range
of consideration to be received represents a 35.7% to 41.4% internal rate of
return as compared to the IPO price of $17 on September 21, 1995, a 51.1% to
57.3% internal rate of return to the historical low close of $14 on October 9,
1995, and a (6.2%) to (2.7%) internal rate of return to the historical high
close of $33.25 on April 30, 1996.
Discounted Cash Flow Analysis. Morgan Stanley conducted a discounted cash
flow analysis of PanAmSat and Galaxy for the fiscal years ended 1997 through
2003 to estimate the present value of the stand-alone unlevered free cash
flows that PanAmSat and Galaxy are expected to generate if PanAmSat and Galaxy
perform in accordance with scenarios based upon certain financial forecasts.
The discounted cash flow analysis for PanAmSat and Galaxy was based upon
certain discussions with the senior management of PanAmSat and HCI as well as
upon certain financial forecasts prepared by the management of PanAmSat and
HCI. Unlevered free cash flows of PanAmSat and Galaxy were calculated as net
income plus depreciation and amortization plus deferred taxes plus other
noncash expenses plus after-tax net interest expense less noncash revenues
less capital expenditures less investment in working capital.
Morgan Stanley calculated terminal values for PanAmSat by applying a 7%
perpetual growth rate, valued as of June 30, 1997, to the unlevered free cash
flow in fiscal 2003, representing an estimated long-term cash flow growth rate
for PanAmSat. The unlevered free cash flow streams and terminal values for
PanAmSat were then discounted to the present using a range of discount rates
from 14.2% to 15.2%. The discount rate ranges were selected based upon a
weighted average cost of capital analysis of PanAmSat. Using the financial
information and forecasts provided by management of PanAmSat, Morgan Stanley
derived an implied per share
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equity value range for PanAmSat ranging from $30.66 to $35.40. Morgan Stanley
also derived an implied per share equity value range for PanAmSat based on
applying certain sensitivities to the projections provided by PanAmSat's
management, which indicated an implied per share equity value ranging from
$24.85 to $28.67.
Morgan Stanley calculated terminal values for Galaxy by applying perpetual
growth rates, valued as of June 30, 1997, in the range of 6.5% to 7.0% to the
unlevered free cash flow in fiscal 2003, representing a range of estimated
long-term cash flow growth rates for Galaxy. The unlevered free cash flow
streams and terminal values for Galaxy were then discounted to the present
using a range of discount rates from 12.7% to 13.7%. The discount rate ranges
were selected based upon a weighted average cost of capital analysis of
Galaxy. Using the financial information and forecasts provided by management
of HCI, Morgan Stanley derived an implied equity value range for Galaxy. This
analysis indicated an implied equity value range for Galaxy for the case where
Galaxy's plan to expand internationally through the launch of certain
satellites (Galaxy XIII-i, Galaxy XIV-i, Galaxy XV-i and Galaxy XVI-i) was
fully implemented, of $3.8 billion to $4.6 billion. Morgan Stanley also
derived an implied equity value range for Galaxy for the case where Galaxy's
international expansion plan was partially implemented, of $3.1 billion to
$3.7 billion. In the case where Galaxy's international expansion plan was not
implemented, the implied equity value of Galaxy ranged from $2.2 billion to
$2.5 billion.
Relative Contribution Analysis. Morgan Stanley analyzed the pro forma
contribution of each of PanAmSat and Galaxy to New PanAmSat. Such analysis
included, among other things, relative contributions of equity value
determined in accordance with the discounted cash flow methodology described
above, sales and EBITDA, tangible invested capital, tangible book value, and
contract revenue backlog. Morgan Stanley observed that, depending on the full,
partial or non-implementation of Galaxy's international expansion plan,
PanAmSat would contribute a range of 42.5% to 56.4% of the discounted cash
flow equity value of New PanAmSat, 41.5% to 55.1% of 1996 to 1998 projected
sales, 40.1% to 55.3% of 1996 to 1998 projected EBITDA, 51.3% of the tangible
invested capital estimated as of June 30, 1997, 43.6% of the tangible book
value estimate as of June 30, 1997 and 46.4% of the contract revenue backlog
as of August 31, 1996.
Pro Forma Analysis. Morgan Stanley analyzed the pro forma impact of the
Reorganization on New PanAmSat. Such analysis was based on cash flow estimates
for the fiscal years 1996 through 2000 based on financial projections prepared
by the respective managements of PanAmSat and Galaxy. Morgan Stanley noted
that PanAmSat's one year forward EBITDA multiple based on financial
projections prepared by management was 10.6x on September 16, 1996. Morgan
Stanley observed that if New PanAmSat traded at between 8.5x to 9.5x pro forma
estimated EBITDA for 1998, then this would result in an estimated per share
equity value in June 1997 for New PanAmSat ranging from $27.96 to $33.37.
Morgan Stanley also analyzed the estimated trading performance of New PanAmSat
based on the combined discounted cash flow values of PanAmSat and Galaxy. This
analysis indicated that the estimated trading value range of New PanAmSat in
June 1997 for the case where Galaxy's international expansion plan was fully
implemented of $34.33 to $42.78 per share. In the case where such expansion
plan was partially implemented, the estimated trading value of New PanAmSat
ranged from $29.61 to $37.18 per share. In the case where Galaxy's
international expansion plan was not implemented at all, the estimated trading
value of New PanAmSat ranged from $23.84 to $29.21 per share.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to a partial analysis or summary description. In
arriving at its opinion, Morgan Stanley considered the results of all of its
analyses as a whole and did not attribute any particular weight to any
particular analysis or factor considered by it. Furthermore, selecting any
portions of Morgan Stanley's analyses, without considering all analyses, would
create an incomplete view of the process underlying the Morgan Stanley
Opinion. In addition, Morgan Stanley may have deemed various assumptions more
or less probable than other assumptions, so that the ranges of valuations
resulting for any particular analysis described above should not be taken to
be Morgan Stanley's view of the actual value of PanAmSat, Galaxy or New
PanAmSat.
In performing its analyses, Morgan Stanley made numerous assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond the control of PanAmSat or HCI. The
analyses performed by Morgan Stanley are not necessarily indicative of actual
values,
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which may be significantly more or less favorable than suggested by such
analyses. Such analyses were prepared solely as a part of the Morgan Stanley
Opinion and were provided to the PanAmSat Board in connection with the
delivery of the Morgan Stanley Opinion. The analyses do not purport to be
appraisals or to reflect the prices at which PanAmSat, Galaxy or New PanAmSat
might actually be sold. Because such estimates are inherently subject to
uncertainty, none of PanAmSat, HCI or Morgan Stanley nor any other person
assumes responsibility for their accuracy. In addition, as described above,
the Morgan Stanley Opinion, including Morgan Stanley's presentation to the
PanAmSat Board, was one of many factors taken into consideration by the
PanAmSat Board in making its determination to approve the Merger and the
Univisa Contribution. Consequently, the Morgan Stanley analyses described
above should not be viewed as determinative of the opinion of the PanAmSat
Board with respect to the value of PanAmSat, Galaxy or New PanAmSat.
The PanAmSat Board retained Morgan Stanley based upon its experience and
expertise. Morgan Stanley is an internationally recognized investment banking
and advisory firm. Morgan Stanley, as part of its investment banking business,
is continually engaged in the valuation of businesses and securities in
connection with mergers and acquisitions, negotiated underwritings,
competitive biddings, secondary distributions of listed and unlisted
securities, private placements and valuations for corporate and other
purposes. Morgan Stanley is a full-service securities firm engaged in
securities trading and brokerage activities, as well as providing investment
banking and financial advisory services. In the ordinary course of its trading
and brokerage activities, Morgan Stanley or its affiliates may at any time
hold long or short positions, and may trade or otherwise effect transactions,
for its own account or the accounts of customers, in securities of PanAmSat or
General Motors (including its GMH "targeted" stock). In the past, Morgan
Stanley and its affiliates have provided financial advisory services to
PanAmSat, Televisa and HCI and certain of their affiliates, including acting
as lead underwriter in connection with the IPO in September 1995, acting as
lead underwriter in connection with the public offering of the PAS Preferred
Stock in April 1995 and in connection with financial advice involving the DTH
joint venture in December 1995, and has received fees of approximately $16
million for rendering such services in the past two years to PanAmSat and its
affiliates. In addition, as of the date of the opinion and concurrently with
the negotiation of the Merger, the Univisa Contribution and the Asset
Contribution and at the request of Televisa, certain principal investing funds
affiliated with Morgan Stanley engaged in preliminary discussions with
Televisa concerning the potential acquisition or financing of some or all of
the New PAS Common Stock to be received by S Company.
Pursuant to an engagement letter between PanAmSat and Morgan Stanley,
PanAmSat agreed to pay Morgan Stanley (i) an advisory fee estimated to be
$250,000 in the event the Merger, the Univisa Contribution and the Asset
Contribution are not consummated and, (ii) if the Merger, the Univisa
Contribution and the Asset Contribution are consummated, a transaction fee
equal to approximately $12,000,000. Any advisory fees previously paid will be
credited against the transaction fee. In addition to the foregoing
compensation, PanAmSat agreed to reimburse Morgan Stanley for its expenses,
including reasonable fees and expenses of its counsel, and to indemnify Morgan
Stanley for liabilities and expenses arising out of the engagement and the
transactions in connection therewith, including liabilities under federal
securities laws.
ACCOUNTING TREATMENT
The Merger, the Univisa Contribution and the Asset Contribution will be
accounted for under the purchase method of accounting in accordance with
generally accepted accounting principles, with Galaxy as the acquirer of
PanAmSat. Under the purchase method of accounting, the purchase price of
PanAmSat will be allocated to the assets acquired and liabilities assumed
based upon their fair values, with the excess purchase consideration allocated
to goodwill. The results of New PanAmSat's operations will include the results
of operations of PanAmSat and Galaxy commencing at the Effective Time.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the material U.S. federal income tax
consequences of the Merger to PanAmSat and its stockholders. The summary is
based upon the Internal Revenue Code of 1986, as amended
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and all regulations promulgated thereunder (collectively, the "Code"),
administrative pronouncements, judicial decisions, and subsequent changes to
any of the foregoing which may affect the tax consequences described herein.
This summary does not purport to be a comprehensive description of all of the
tax consequences applicable to a particular taxpayer. In particular, this
summary does not address the tax treatment to holders subject to special tax
rules, such as banks, insurance companies, dealers in securities or
stockholders who acquired PAS Common Stock pursuant to the exercise of
employee stock options or otherwise as compensation. In addition, except as
set forth below, this summary only applies to holders (a) who are U.S.
citizens or residents, U.S. corporations, partnerships or other entities
created or organized under the laws of the United States, or estates or
trusts, the income of which is subject to U.S. federal income taxation
regardless of its source and (b) that hold shares as capital assets.
Stockholders are urged to consult their tax advisors as to the particular U.S.
federal income tax consequences to them of the Merger and as to the foreign,
state, local and other tax consequences thereof.
Chadbourne & Parke LLP has provided an opinion to the effect that, under
current law, the transfer of PAS Ordinary Common Stock or PAS Class A Common
Stock by the stockholders of PanAmSat to New PanAmSat pursuant to the Merger
in exchange for the Merger Consideration (as defined below) will constitute a
transfer described in Section 351 of the Code, and accordingly, that the
Merger will have the tax consequences set forth below. Such opinion is subject
to the conditions, qualifications and assumptions set forth therein and has
been filed as an exhibit to the Registration Statement of which this Proxy
Statement/Prospectus is a part. Opinions of counsel are not binding on the
Internal Revenue Service ("IRS") or the courts, and the parties do not intend
to request a ruling from the IRS with respect to the Merger. Accordingly,
there can be no assurance that the IRS will not challenge such conclusion or
that a court will not sustain such challenge.
Tax Consequences of the Merger to Stockholders. The holders of PAS Ordinary
Common Stock or PAS Class A Common Stock that receive solely New PAS Common
Stock will not recognize gain or loss as a result of the Merger. The holders
of PAS Ordinary Common Stock or PAS Class A Common Stock that receive solely
cash consideration will recognize gain or loss equal to the difference between
the cash consideration and the tax basis of their shares. Such gain, if any,
will be long-term capital gain if such PAS Ordinary Common Stock or PAS Class
A Common Stock was held for more than one year at the time of consummation of
the Merger. Any increase in the cash portion of the Merger Consideration (as
defined below) as a result of the Merger not closing on or before September
20, 1997, will constitute additional cash consideration received in the Merger
rather than interest income.
Subject to the discussion below concerning fractional shares, holders of PAS
Ordinary Common Stock or PAS Class A Common Stock who receive both cash
consideration and New PAS Common Stock will recognize gain measured by the
lesser of (i) the excess, if any, of (x) the sum of the fair market value (at
the Effective Time) of the New PAS Common Stock and cash consideration
received by them over (y) the aggregate tax basis of their shares of PAS
Ordinary Common Stock or PAS Class A Common Stock, and (ii) the cash
consideration received by them (not including any cash received in lieu of
fractional shares as discussed below). Such gain, if any, will be long-term
capital gain if such PAS Ordinary Common Stock or PAS Class A Common Stock was
held for more than one year at the time of consummation of the Merger. A loss
would not be recognized by such holder. A stockholder who holds more than one
block of PAS Ordinary Common Stock or PAS Class A Common Stock (i.e., shares
acquired at different times or prices) will determine the amount of gain
recognized and loss not recognized pursuant to the Merger separately with
respect to each such block of PAS Common Stock. For this purpose, all of the
cash consideration and New PAS Common Stock received by a holder of PAS
Ordinary Common Stock or PAS Class A Common Stock will be allocated
proportionately among the blocks of PAS Ordinary Common Stock or PAS Class A
Common Stock surrendered by such holder.
The aggregate tax basis of the shares of New PAS Common Stock received by
PanAmSat's stockholders, including the fractional shares deemed to be received
(as discussed below), will be the same as the aggregate tax basis of the
shares of PAS Ordinary Common Stock or PAS Class A Common Stock exchanged
therefor (i) increased by the gain recognized (as calculated above) and (ii)
decreased by the cash consideration received (other than cash received in lieu
of fractional shares). The holding period of the shares of New PAS Common
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Stock received in the Merger will include the holding period of the shares of
PAS Ordinary Common Stock or PAS Class A Common Stock surrendered therefor.
PanAmSat stockholders who receive cash in lieu of fractional shares of New
PAS Common Stock will be treated as having received such fractional shares
pursuant to the Merger and then as having sold those fractional shares in the
market for cash. Such stockholders will recognize gain or loss with respect to
such fractional shares in an amount equal to the difference between the tax
basis allocated to such fractional shares (as calculated above), and the cash
received in respect thereof. Any such gain or loss will be capital gain or
loss and will constitute long-term capital gain or loss if the holding period
of the PAS Ordinary Common Stock or PAS Class A Common Stock in exchange for
which such fractional shares are deemed issued (as determined above) exceeds
one year.
Backup Withholding. Certain non-corporate stockholders may be subject to
backup withholding at a rate of 31% on payments of cash consideration and cash
with respect to fractional shares. Backup withholding will not apply, however,
to a stockholder who furnishes a correct taxpayer identification number or
certification of foreign status and makes any other required certification or
who otherwise is exempt from backup withholding. Generally, a stockholder of
PanAmSat will provide such certification on Form W-9 (Request for Taxpayer
Identification Number and Certification) or on Form W-8 (Certificate of
Foreign Status).
Reporting Requirements. Each PanAmSat stockholder (other than stockholders
that receive solely the Standard Cash Consideration (as defined below) for
their shares or who exercise and perfect dissenters' rights as objecting
stockholders, as applicable) will be required to retain records and file with
such holder's U.S. federal income tax return a statement setting forth certain
facts relating to the Merger. It is also expected that such stockholders will
be asked to indicate in the letter of transmittal their tax basis in the
shares of PAS Ordinary Common Stock or PAS Class A Common Stock surrendered by
them pursuant to the Merger.
Tax Consequences to New PanAmSat and PanAmSat. No income, gain or loss will
be recognized by New PanAmSat or PanAmSat pursuant to the Merger. In addition,
no income, gain or loss will be recognized by New PanAmSat as a result of the
Asset Contribution or the Univisa Contribution.
Tax Consequences to Stockholders upon Exercise of Objecting or Dissenting
Stockholders' Rights. A holder of PAS Ordinary Common Stock or PAS Class A
Common Stock who exercises and perfects dissenters' right or rights of
objecting stockholders, as applicable, with respect to all stock owned
actually or constructively, will generally recognize capital gain or loss
equal to the difference between the amount of cash received (other than in
respect of interest awarded by a court) and such stockholder's tax basis in
his or her shares of stock. Such capital gain or loss will be long-term
capital gain or loss if such shares have a holding period exceeding one year
at the time of the consummation of the Merger. Interest, if any, awarded by a
court to an objecting or dissenting stockholder will be includible in such
stockholder's income as ordinary income for U.S. federal income tax purposes.
REGULATORY APPROVALS
HSR Act and Antitrust. Under the HSR Act, the Merger may not be consummated
until notifications have been given and certain information has been furnished
("HSR Filings") to the Antitrust Division and the FTC and specified waiting
period requirements have been satisfied. Each of Televisa's ultimate parent
entity, two holders of PAS Class A Common Stock and General Motors have made
HSR Filings. All of such filings were made by November 5, 1996, and the
specified waiting periods under the HSR Act have expired without a Request for
Additional Information by the Antitrust Division or the FTC. Accordingly, no
antitrust approvals are required from the Antitrust Division or the FTC.
State or federal antitrust authorities may still bring legal action under
the antitrust laws. Private parties may also seek to take legal action under
the antitrust laws under certain circumstances.
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FCC Approval Process. Consummation of the Reorganization was subject to the
prior approval of the FCC. On October 8, 1996, the parties filed applications
with the FCC (collectively, the "FCC Applications") requesting: (i) consent to
transfer of control of the FCC licenses, permits and authorizations held by
PanAmSat Licensee Corp. and PanAmSat Carrier Services, Inc. from the voting
trust created by the Voting Trust Agreement (the "Voting Trust") to New
PanAmSat; (ii) consent to a pro forma assignment to New PanAmSat of the FCC
licenses, permits and authorizations held by HCG and HCSS; (iii) consent to a
pro forma transfer of control to New PanAmSat of HCS and HCCS; and (iv)
associated waivers relating to certain pending FCC applications. The FCC
granted these applications on April 4, 1997, and the applicable appeal period
will expire on May 5, 1997.
AGREEMENT OF THE CLASS A HOLDERS AND THE CLASS B HOLDER TO VOTE IN FAVOR OF
THE REORGANIZATION
Concurrently with the execution of the Reorganization Agreement, (i) S
Company and the Class B Holder, (ii) the Class A Holders, along with the Class
A Trustee, and (iii) HCI and HCG entered into the Principal Stockholders
Agreement. Pursuant to the Principal Stockholders Agreement, each of the Class
A Holders, the Class A Trustee and the Class B Holder has agreed to vote all
shares of PAS Common Stock, for which such holder has the right to vote, for
approval and adoption of the Reorganization Agreement and the Merger Agreement
and to take any actions required in furtherance thereof. As of the Record
Date, the Class A Holders and the Class B Holder owned (i) 100% of the
outstanding shares of PAS Class A Common Stock, (ii) 100% of the outstanding
shares of PAS Class B Common Stock and (iii) approximately 50.1% of the
outstanding shares of PAS Ordinary Common Stock. In addition, the Principal
Stockholders Agreement restricts the ability of each holder of PAS Class A
Common Stock and PAS Class B Common Stock to sell or transfer any of their
shares, subject to certain exceptions. See "OTHER AGREEMENTS--Principal
Stockholders Agreement."
STOCK EXCHANGE LISTINGS
In the Reorganization Agreement, New PanAmSat has agreed to use reasonable
efforts to cause the shares of New PAS Common Stock, which are to be issued
pursuant to the Reorganization, to be listed for trading on either the New
York Stock Exchange (the "NYSE") or the Nasdaq. New PanAmSat has obtained
conditional approval for the listing of New PAS Common Stock on the Nasdaq. It
is presently anticipated that the PAS Ordinary Common Stock, which is
currently listed on the Nasdaq under the symbol "SPOT," will be replaced by
the listing of New PAS Common Stock and trade under the same symbol.
FEDERAL SECURITIES LAWS CONSEQUENCES
All shares of New PAS Common Stock received by holders of PAS Ordinary
Common Stock and PAS Class A Common Stock in the Merger will be freely
transferable, except that (i) shares of New PanAmSat received by persons who
are deemed "affiliates" (as such term is defined under the Securities Act) of
PanAmSat prior to the Merger may be resold by them only in transactions
permitted by the resale provisions of Rule 145 promulgated under the
Securities Act (or Rule 144 in the case of such persons who become affiliates
of New PanAmSat) or as otherwise permitted under the Securities Act and (ii)
shares of New PAS Common Stock issued to the Class A Holders and S Company
will be subject to restrictions under the Stockholder Agreement. Persons who
may be deemed to be affiliates of PanAmSat or New PanAmSat generally include
individuals or entities that control, are controlled by, or are under common
control with, such party and may include certain officers and directors of
such party as well as principal stockholders of such party. The Reorganization
Agreement requires PanAmSat to use reasonable best efforts to deliver or cause
to be delivered to New PanAmSat, prior to the Closing Date, from each
affiliate of PanAmSat, a letter agreement to the effect that such person will
not offer or sell or otherwise dispose of any of the shares of New PAS Common
Stock issued to such persons in or pursuant to the Merger in violation of the
Securities Act or the rules and regulations promulgated by the Commission
thereunder.
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APPRAISAL RIGHTS
Holders of shares of PAS Common Stock will be entitled to appraisal rights
under Section 262 of the DGCL as to shares owned by them. Section 262 is
reprinted in its entirety as Appendix I to this Proxy Statement/Prospectus.
The Class A Holders and the Class B Holder, however, will vote their shares in
favor of the Merger and therefore will not be entitled to appraisal rights.
The following discussion is not a complete statement of the law relating to
appraisal rights and is qualified by reference to Appendix I. THIS DISCUSSION
AND APPENDIX I SHOULD BE REVIEWED CAREFULLY BY ANY HOLDER OF PANAMSAT COMMON
STOCK WHO WISHES TO EXERCISE STATUTORY APPRAISAL RIGHTS OR WHO WISHES TO
PRESERVE THE RIGHT TO DO SO BECAUSE FAILURE TO STRICTLY COMPLY WITH THE
PROCEDURES SET FORTH HEREIN AND THEREIN WILL RESULT IN THE LOSS OF APPRAISAL
RIGHTS.
A record holder of shares of PAS Common Stock who makes the demand described
herein with respect to such shares, who continuously is the record holder of
such shares through the Effective Time, and who neither votes in favor of the
Merger nor consents thereto in writing, will be entitled to seek an appraisal
by the Delaware Court of Chancery of the fair value of his or her shares of
Common Stock. All references in this summary to a "stockholder" are to the
record holder of the shares of PAS Common Stock as to which appraisal rights
are asserted. A person having a beneficial interest in shares of PAS Common
Stock that are held of record in the name of another person, such as a broker
or nominee, must act promptly to cause the record holder to properly follow
the steps summarized below and in a timely manner to perfect whatever
appraisal rights the record holder may have.
Under Section 262, where a merger is to be submitted for adoption at a
meeting of stockholders, a constituent corporation must notify each of the
record holders of its stock who were such as of the record date and for whom
appraisal rights are available, not less than 20 days prior to such meeting,
of the availability of such appraisal rights and include in each such notice a
copy of Section 262. This Proxy Statement/Prospectus shall constitute such
notice to the record holders of PAS Common Stock.
HOLDERS OF PAS COMMON STOCK WHO DESIRE TO EXERCISE THEIR APPRAISAL RIGHTS
MUST NOT VOTE IN FAVOR OF THE MERGER. EACH STOCKHOLDER ELECTING TO DEMAND THE
APPRAISAL OF HIS OR HER SHARES OF PAS COMMON STOCK ("DISSENTING SHARES") MUST
DELIVER TO PANAMSAT, BEFORE THE TAKING OF THE VOTE ON THE MERGER AT THE
SPECIAL MEETING, A WRITTEN DEMAND FOR APPRAISAL OF HIS OR HER SHARES OF PAS
COMMON STOCK. ANY SUCH STOCKHOLDER MUST MAIL OR DELIVER HIS OR HER WRITTEN
DEMAND TO THE SECRETARY OF PANAMSAT AT ONE PICKWICK PLAZA, GREENWICH,
CONNECTICUT 06830. Such demand for appraisal will be sufficient if it
reasonably informs PanAmSat of the stockholder's identity and that the
stockholder intends to thereby demand appraisal of his or her shares of PAS
Common Stock. Appraisal rights will not be available under Section 262 if the
stockholder does not continuously hold through the Effective Time the shares
of PAS Common Stock with respect to which appraisal is being demanded. Within
ten days after the Effective Time, PanAmSat must provide notice of the
Effective Time to all stockholders who have therefore complied with Section
262.
A demand for appraisal must be executed by, or by another as agent for, the
stockholder of record, fully and correctly, as such stockholder's name appears
on PanAmSat's list of stockholders. Beneficial owners who are not record
owners and who desire their corresponding record holder to exercise appraisal
rights should instruct the record holder to comply strictly with the statutory
requirements with respect to the exercise of appraisal rights BEFORE the
taking of the vote on the Merger at the Special Meeting. If the shares of PAS
Common Stock are held of record in a fiduciary capacity, such as by a trustee,
guardian or custodian, such demand must be executed by the fiduciary or by an
agent on his behalf. If the shares of PAS Common Stock are held of record by
more than one person, as in a joint tenancy or tenancy in common, such demand
must be executed by all joint owners. An authorized agent, including an agent
for two or more joint owners, may execute the demand for appraisal for a
stockholder of record; however, the agent must identify the record owner and
expressly disclose the fact that, in exercising the demand, such person is
acting as agent for the record holder. If a stockholder
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holds shares of PAS Common Stock through a broker who in turns holds the
shares through a central securities depository nominee, a demand for appraisal
of such shares must be made by or on behalf of the depository nominee and must
identify the depository nominee as the record holder.
A record holder, such as a broker, who holds shares of PAS Common Stock as
nominee for others, may exercise appraisal rights with respect to the shares
of PAS Common Stock held for all or less than all beneficial owners of shares
of PAS Common Stock as to which such person is the record holder. In such case
the written demand must set forth the number of shares of PAS Common Stock
covered by such demand. Where the number of shares of PAS Common Stock is not
expressly stated, the demand will be presumed to cover all shares of PAS
Common Stock outstanding in the name of such record holder.
Within 120 days after the Effective Time, either PanAmSat, as the surviving
corporation in the Merger, or any stockholder who previously has complied with
the required conditions of Section 262 and who is otherwise entitled to
appraisal rights may file a petition in the Delaware Court of Chancery
demanding a determination of the fair value of the shares of PAS Common Stock.
If a petition for an appraisal is timely filed, after a hearing on such
petition, the Delaware Court of Chancery will determine which stockholders are
entitled to appraisal rights and will appraise the shares of PAS Common Stock
owned by such stockholders, determining the fair value of such shares of PAS
Common Stock exclusive of any element of value arising from the accomplishment
or expectation of the Merger, together with a fair rate of interest, if any,
to be paid upon the amount determined to be the fair value. In determining
such fair value, the Delaware Court of Chancery is to take into account all
relevant factors. In Weinberger v. UOP Inc., decided February 1, 1983, the
Delaware Supreme Court discussed the factors that could be considered in
determining fair value in an appraisal proceeding, stating that "proof of
value by any techniques or methods which are generally considered acceptable
in the financial community and otherwise admissible in court" should be
considered and that "[f]air price obviously requires consideration of all
relevant factors involving the value of a company." The Delaware Supreme Court
has stated that in making this determination of fair value the court must
consider market value, asset value, dividends, earnings prospects, the nature
of the enterprise and any other facts which could be ascertained as of the
date of the merger which throw any light on future prospects of the merged
corporation. Section 262 provides that fair value is to be "exclusive of any
element of value arising from the accomplishment or expectation of the
merger." In Cede & Co. v. Technicolor, Inc., decided October 21, 1996, the
Delaware Supreme Court stated that such exclusion is a "narrow exclusion
[that] does not encompass known elements of value," but which rather applies
only to the speculative elements of value arising from such accomplishment or
expectation. In Weinberger, the Delaware Supreme Court construed Section 262
to mean that "elements of future value, including the nature of the
enterprise, which are known or susceptible of proof as of the date of the
merger and not the product of speculation, may be considered." In addition,
Delaware courts have decided that the statutory appraisal remedy, depending on
the factual circumstances, may or may not be a stockholder's exclusive remedy
in connection with transactions such as the Merger.
Stockholders considering seeking appraisal should have in mind that the
"fair value" of their shares of PAS Common Stock determined under Section 262
could be more than, the same as or less than the market value of such
securities or the Merger Consideration. The cost of the appraisal proceeding
may be determined by the Delaware Court of Chancery and taxed against the
parties as the Delaware Court of Chancery deems equitable in the
circumstances. Upon application of a dissenting stockholder, the Delaware
Court of Chancery may order that all or a portion of the expenses incurred by
any dissenting stockholder in connection with the appraisal proceeding,
including without limitation, reasonable attorneys' fees and the fees and
expenses of experts, be charged pro rata against the value of all shares of
PAS Common Stock entitled to appraisal.
Within 120 days after the Effective Time, any stockholder who has previously
complied with the requirements for exercise of appraisal rights as discussed
above is entitled, upon written request, to receive from the surviving
corporation in the Merger a statement setting forth the aggregate number of
shares of PAS Common Stock not voted in favor of the Merger and with respect
to which demands for appraisal have been made and the aggregate number of
holders of such shares. Such statement must be mailed to the stockholders
within 10 days after the written request therefor has been received by the
Surviving Corporation.
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Any stockholder who has duly demanded appraisal in compliance with Section
262 will not, from and after the Effective Time, be entitled to vote for any
purpose the shares of PAS Common Stock subject to such demand or to receive
payment of dividends or other distribution on such shares of PAS Common Stock,
except for dividends or distributions payable to stockholders of record at a
date prior to the Effective Time.
At any time within 60 days after the Effective Time, any stockholder shall
have the right to withdraw his or her demand for appraisal and to accept the
terms offered in the Merger whereby such holder will be deemed to have made a
Standard Election (as hereafter defined); after this period, the stockholder
may withdraw his or her demand for appraisal only with the consent of New
PanAmSat. If no petition for appraisal is filed with the Delaware Court of
Chancery within 120 days after the Effective Time, stockholders' rights to
appraisal shall cease. Inasmuch as PanAmSat will have no obligation to file
such a petition, and has no present intention to do so, any stockholder who
desires such a petition to be filed is advised to file it on a timely basis.
However, no petition timely filed in the Delaware Court of Chancery demanding
appraisal shall be dismissed as to any stockholder without the approval of the
Delaware Court of Chancery, and such approval may be conditioned upon such
terms as the Delaware Court of Chancery deems just. Any holder of PAS Common
Stock who effectively withdraws his or her demand for appraisal, or whose
right to an appraisal shall cease, shall be deemed to have lost such holder's
appraisal rights.
INTERESTS OF CERTAIN PERSONS IN THE REORGANIZATION
In considering the Reorganization Agreement, the Merger Agreement and the
transactions contemplated thereby, PanAmSat's stockholders should be aware
that certain members of PanAmSat's management and the PanAmSat Board and the
Principal Stockholders have certain interests in the Reorganization that are
different from and in addition to the interests of stockholders of PanAmSat
generally:
Televisa. Televisa, through its subsidiary Univisa, indirectly owns all of
the shares of PAS Class B Common Stock. The primary purpose of the Univisa
Contribution is to facilitate the consummation of the Merger and the sale of
the DTH Options and to provide a tax efficient structure for Televisa to
participate indirectly in the Reorganization. See "THE REORGANIZATION--
Background of the Reorganization." As a result of the structure of the Univisa
Contribution, S Company will be offered consideration equal in amount and form
(subject to proration, as applicable) to that offered to the holders of the
PAS Ordinary Common Stock and the PAS Class A Common Stock. See "--Background
of the Reorganization" and "THE UNIVISA CONTRIBUTION AGREEMENT."
In addition, concurrently with the Merger and immediately following the
Univisa Contribution, New PanAmSat will repurchase for $225 million 7.5
million shares of New PAS Common Stock received by S Company in connection
with the Univisa Contribution. Following such Share Repurchase, either
Televisa, S Company and/or their designees will purchase for $225 million all
of PanAmSat's interest in the DTH Options, pursuant to the DTH Option Purchase
Agreement. It is a condition to the Merger, the Univisa Contribution and the
Asset Contribution that the DTH Sale shall have occurred. See "THE
REORGANIZATION AGREEMENT--Conditions to the Reorganization" and "THE DTH
SALE."
General Severance Policy. On April 22, 1996, the PanAmSat Board adopted a
general severance policy for all employees providing for payments upon
termination without cause equal to: (i) one week of salary for every year of
service up to five years, (ii) two weeks of salary for every year of service
over five years and (iii) minimum and maximum severance levels depending upon
the nature of such employee's position at PanAmSat. Under the policy, the
Named Executive Officers are eligible to receive a minimum of four weeks'
salary and a maximum of 52 weeks' salary as severance. Other employees of
PanAmSat are eligible to receive a minimum of two weeks' salary and a maximum
of 29 weeks' salary, depending on their classification, as severance.
Employee Separation Plan. On April 22, 1996, the PanAmSat Board also adopted
an Employee Separation Plan providing that for a one-year period following a
"change of control" any employee who is terminated
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without cause is eligible to receive, in addition to the benefits covered by
PanAmSat's general severance policy, six months' continuation of such
employee's: (i) base salary and annual cash bonus (which shall be prorated for
such period), (ii) medical and dental insurance benefits, (iii) long-term
disability insurance benefits and (iv) life and accidental death and
dismemberment insurance benefits ("Welfare Benefits"). The Employee Separation
Plan applies to all employees of PanAmSat, other than any employee who is
otherwise covered by a Severance Agreement (as defined below). The Employee
Separation Plan shall be effective for one year and is renewable at PanAmSat's
option. PanAmSat has extended the Employee Separation Plan until the first
anniversary following the Closing Date.
Generally, a "change in control" will be deemed to have occurred under the
Employee Separation Plan or the Severance Agreements referred to below upon:
(a) the sale of all or substantially all of the assets of PanAmSat; (b) the
loss by the holders of the PAS Class A Common Stock of the power to elect a
majority of the PanAmSat Board; (c) a majority of the PanAmSat Board ceasing
to consist of nominees of the holders of the PAS Class A Common Stock; or (d)
a complete liquidation or dissolution of PanAmSat. For purposes of the
Employee Separation Plan and the Severance Agreements, the Merger will
constitute a "change in control."
Executive Severance Pay Program. On April 22, 1996, the PanAmSat Board
adopted an executive severance pay program that would be triggered by a change
in control. The program covers the Named Executive Officers and approximately
55 key employees. The program consists of individual change in control
agreements ("Severance Agreements") for all covered officers and key
employees.
The principal purposes of the Employee Separation Plan and the executive
severance pay program are (a) to help assure that executives give impartial
consideration to evaluating and negotiating a potential business combination
which is in the best interest of PanAmSat's stockholders, but which may result
in the loss of, or reduction in, the executive's job; (b) to make PanAmSat's
plans more competitive with severance plans of other comparable companies and
to facilitate PanAmSat's ability to attract, retain and motivate talented
employees in an uncertain, rapidly consolidating communications industry
environment; (c) to provide security and ensure that key executives are
retained during critical negotiations prior to and through any change in
control; and (d) to avoid the legal expense and reduce the management time
associated with contested terminations, to allow for better forecasts of
amounts due to employees terminated after a change in control and to provide
for a general release of legal claims associated with such terminations.
The benefits under the Severance Agreements covering Frederick A. Landman
and Lourdes Saralegui would be triggered if, within two years following a
change in control, (i) the covered officer's employment is terminated with or
without cause by PanAmSat or (ii) the covered officer voluntarily terminates
his or her employment.
The benefits under the Severance Agreements covering Patrick J. Costello,
James W. Cuminale and Robert A. Bednarek would be triggered if, (x) within two
years following a change in control, (i) the covered officer's employment is
terminated without cause, (ii) the covered officer's responsibilities and/or
duties are materially reduced or changed such that they are inconsistent with
such officer's former responsibilities or duties, including a change in
location of employment of more than 35 miles from the officer's current
location of employment (unless the move is to New York City from PanAmSat's
Greenwich offices), or (iii) PanAmSat reduces or fails to pay or award to the
covered officer when due any salary, bonus or benefits or (y) the covered
officer voluntarily terminates employment at any time during the 30 days
following the one year anniversary of the change in control.
The benefits under the Severance Agreements covering all other key employees
would be triggered if, within two years following a change in control, (i) the
covered officer's employment is terminated without cause, (ii) the covered
officer's responsibilities and/or duties are materially reduced or the covered
officer's responsibilities are changed such that they are inconsistent with
such officer's former responsibilities, including relocation of employment of
more than 35 miles from the officer's current location of employment (unless
the covered officer is moved to New York City from PanAmSat's Greenwich
offices), or (iii) PanAmSat reduces or fails to pay or award to the covered
officer when due any salary, bonus, or benefits.
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Each Severance Agreement is effective for three years from May 1, 1996 and
will automatically be extended for additional one-year periods unless PanAmSat
gives a termination notice prior to the second anniversary or any subsequent
anniversary of the Severance Agreement.
Severance benefits payable to officers covered by Severance Agreements are
determined by multiplying base salary and a cash bonus component by 3 in the
case of the Named Executive Officers and by 1.5 in the case of remaining key
employees. Covered officers are entitled to Welfare Benefits until the earlier
of (i) 36 months in the case of Frederick A. Landman and Lourdes Saralegui,
(ii) 24 months in the case of the remaining three Named Executive Officers and
(iii) 18 months in the case of the remaining key employees, or the obtaining
of similar benefits on reemployment. The Severance Agreements restrict the
ability of (x) the Named Executive Officers and (y) the remaining key
employees to compete with PanAmSat for 18 and 12 month periods, respectively,
following termination from PanAmSat.
PanAmSat has reserved the right to grant additional severance benefits to
certain recently hired key employees. In PanAmSat's discretion, such severance
benefits may be greater than 1.5 but may not exceed 3 times base salary and a
bonus component.
In addition, the Named Executive Officers would be entitled to reimbursement
of any legal fees incurred in connection with the enforcement or defense of
their Severance Agreements. If a Named Executive Officer becomes subject to
the 20% excise tax on excess parachute payments under Section 4999 of the
Code, including, without limitation, as a result of any payments made under
the Stock Plan (as defined below), PanAmSat would be required to make an
additional payment in an amount such that the officer will be in the same
after-tax position as though the 20% excise tax had not been imposed. Under
the executive severance pay program, "bonus" shall generally mean an annual
cash amount that is not less than the greater of the annual cash bonus awarded
to an employee by PanAmSat for the fiscal year preceding the fiscal year in
which a change in control occurs and the bonus set for the fiscal year in
which termination occurs, in any case prorated for a partial year.
Mr. Costello, who will no longer serve as Chief Financial Officer of
PanAmSat after the Closing Date, will be entitled to receive a severance
payment of $975,000 as a result of the Reorganization. See "MANAGEMENT OF NEW
PANAMSAT--Board of Directors" for a description of Mr. Costello's anticipated
role at New PanAmSat.
Stock Incentive Plan. Effective March 2, 1995, PanAmSat adopted the PanAmSat
Corporation Long-Term Stock Investment Plan (the "1995 Stock Plan"), which
provides for the granting of nonqualified stock options ("NQSOs"), incentive
stock options ("ISOs" and, collectively with NQSOs, the "Options"), alternate
appreciation rights ("AARs"), restricted stock, performance units and
performance shares to executive officers and other key employees of PanAmSat,
and to other service providers, including independent contractors of PanAmSat.
PanAmSat has granted to certain of its employees Options under the 1995 Stock
Plan to purchase an aggregate of 1,250,000 shares of Common Stock, including
grants to Frederick A. Landman, Lourdes Saralegui, Patrick J. Costello, James
W. Cuminale and Robert A. Bednarek for 200,000 shares, 150,000 shares, 75,000
shares, 75,000 shares and 75,000 shares, respectively. At the Effective Time,
each of the foregoing holders will receive for each share of PAS Ordinary
Common Stock subject to such Options an amount (subject to applicable
withholding tax) in cash equal to the difference between (i) the Standard Cash
Consideration, and (ii) the per share PAS Ordinary Common Stock exercise price
of such Option, to the extent such difference is a positive number (the
"Option Consideration"), provided that with respect to any person subject to
Section 16(b) of the Exchange Act, any such amount shall be paid as soon as
practicable after the first date payment can be made without liability to such
person under Section 16(b) of the Exchange Act. All but 57,500 of such Options
are exercisable at the price of $17 per share and each will become fully
vested upon consummation of the Merger. See "--THE REORGANIZATION AGREEMENT--
Terms of the Reorganization" and "--Certain Benefits Matters."
After discussions with HCI, PanAmSat did not grant any new options to its
employees in September 1996, the first anniversary of its IPO, as previously
anticipated. Instead, in consultation with HE, PanAmSat engaged
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Mercer to advise as to what companies comparable to PanAmSat would award on an
annual basis in the form of stock options and to assist PanAmSat in
determining the cash value of such stock options. After consulting with
Mercer, PanAmSat set the amount of the cash awards that would be paid in lieu
of stock options. Accordingly, in September 1996 PanAmSat paid cash awards in
the aggregate amount of $4.8 million to 195 employees, including $950,000 to
Mr. Landman, $500,000 to Ms. Saralegui, $300,000 to Mr. Costello, $225,000 to
Mr. Cuminale and $225,000 to Mr. Bednarek.
Registration Rights. Pursuant to the Registration Rights Agreement, the
Registration Rights Holders will have the right, under certain circumstances
and subject to certain conditions, to require New PanAmSat to register under
the Securities Act all or any portion of the shares of New PAS Common Stock
which they hold unless (i) the shares have been effectively registered under
Section 5 of the Securities Act and disposed of pursuant to an effective
Registration Statement or (ii) all of a holder's shares of New PAS Common
Stock may be freely sold and transferred without restriction under Rule 144 or
Rule 145 under the Securities Act or any successor rule such that, after any
such transfer referred to in this clause (ii), such securities may be freely
transferred without restriction under the Securities Act. Under the
Registration Rights Agreement, the Class A Holders as a group and the Class B
Holder each will be able to demand on three occasions, under certain
circumstances and subject to certain limitations, that New PanAmSat register
their shares under the Securities Act. See "OTHER AGREEMENTS--Registration
Rights Agreement."
Indemnification. The Reorganization Agreement provides that all rights to
indemnification existing on the date of the Reorganization Agreement in favor
of the present or former directors or officers of any of the Contributed
Entities, New PanAmSat or PanAmSat or their respective subsidiaries, will
continue to be in full force and effect for five years after the Closing Date
with respect to matters existing or occurring at or prior to the Closing Date.
New PanAmSat will, to the fullest extent permitted by law, indemnify and hold
harmless such current and former directors from and after the Closing Date
against all losses, claims, damages, costs, expenses, liabilities or judgments
or amounts paid in settlement with the approval of the indemnifying party
(which approval shall not be unreasonably withheld) in connection with any
proceeding based on or arising out of any matter occurring at or prior to the
Closing Date. HCI and PanAmSat, prior to the Closing Date and New PanAmSat,
from and after the Closing Date, will pay the attorneys' fees of any
indemnified person and assist in the vigorous defense of any such matter. The
Reorganization Agreement provides that, with respect to matters arising before
the Closing Date, New PanAmSat will maintain directors' and officers'
liability insurance policies as currently maintained by HCI, the Contributed
Entities, New PanAmSat or PanAmSat, as the case may be, and their respective
subsidiaries, for a period of five years after the Closing Date to the extent
that such policies are obtainable at an annual cost of not greater than 175%
of the last annual premium paid prior to the date of the Reorganization
Agreement. See "THE REORGANIZATION AGREEMENT--Indemnification."
Employment Agreements.
It is anticipated that Frederick A. Landman and Lourdes Saralegui will enter
into employment agreements with New PanAmSat. See "MANAGEMENT OF NEW
PANAMSAT--Executive Officers."
MANAGEMENT AND OPERATIONS OF NEW PANAMSAT AND PANAMSAT AFTER THE MERGER
After the Merger, PanAmSat will be a wholly owned subsidiary of New
PanAmSat. PanAmSat will operate as one of New PanAmSat's business units, and
the corporate headquarters of New PanAmSat will be in Greenwich, Connecticut.
Frederick A. Landman, the current president and Chief Executive Officer of
PanAmSat, will be President and Chief Executive Officer and a Director of New
PanAmSat. Other members of the executive management team will include: Lourdes
Saralegui, current Executive Vice President of PanAmSat, who will be Executive
Vice President of New PanAmSat; Carl A. Brown, current Senior Vice President,
Galaxy Satellite Services of HCI, who will be Executive Vice President of New
PanAmSat; Kenneth N. Heintz, current Vice President of Corporate Development
of HE, who will be Executive Vice President and Chief Financial Officer of New
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PanAmSat; James W. Cuminale, current Senior Vice President and General Counsel
of PanAmSat, who will be Senior Vice President, General Counsel and Secretary
of New PanAmSat, and Robert A. Bednarek, current Senior Vice President,
Engineering and Operations of PanAmSat, who will be Senior Vice President and
Chief Technology Officer of New PanAmSat. See "MANAGEMENT OF NEW PANAMSAT."
FINANCING IN CONNECTION WITH THE REORGANIZATION
The total amount of funds required to be paid by New PanAmSat as
consideration in the Reorganization is expected to be approximately $1.725
billion, including (i) approximately $1.5 billion to be paid to holders of PAS
Class A Common Stock and PAS Ordinary Common Stock, holders of options to
acquire PAS Ordinary Common Stock and S Company in consideration in the Merger
and the Univisa Contribution and (ii) $225 million to fund the Share
Repurchase. Pursuant to the Assurance Agreement, HE has agreed to lend up to
$1.725 billion to New PanAmSat on the Closing Date. The terms of such New
Financing will be no less favorable than the terms that New PanAmSat would
obtain from a third-party commercial lender. HE intends to borrow from General
Motors the funds necessary to provide the New Financing. Any additional funds
needed by New PanAmSat on the Closing Date will be funded from cash on hand.
The precise terms of the New Financing have not been finalized, but will be
fully negotiated prior to the Closing Date. Generally, HE's provision of the
New Financing will be in the form of a three year term loan bearing interest
at a rate of 2% above the London Inter-Bank Offering Rate (which interest rate
is subject to renegotiation if New PanAmSat attains an investment grade credit
rating or PanAmSat ceases to be subject to the restricted payments and
restrictions on pledging its assets contained in the indentures governing
PanAmSat's existing indebtedness and the certificate of designation for the
PAS Preferred Stock). Under the New Financing, New PanAmSat will be required
to pay seven quarterly installments of $50 million each commencing 15 months
after the Closing Date, with the balance of the loans payable on the maturity
date of the New Financing. In addition, New PanAmSat will be required to make
certain prepayments of principal upon the occurrence of certain events,
including the issuance of equity, the issuance of certain debt, the sale of
material assets of New PanAmSat and the receipt of insurance proceeds. The New
Financing will include covenants that prohibit or limit, among other things,
transactions with affiliates and pledges of New PanAmSat's assets and will
require that New PanAmSat and its subsidiaries maintain a certain consolidated
net worth.
Because the indentures governing PanAmSat's existing debt and the
certificate of designation for the PAS Preferred Stock restrict the use of
PanAmSat's assets as collateral for any new borrowing or its ability to
guarantee indebtedness of others, the terms of the New Financing are less
favorable to New PanAmSat than if New PanAmSat were able to borrow against the
consolidated credit of PanAmSat and Galaxy. See "RISK FACTORS--Substantial
Leverage and Additional Capital Requirements."
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THE REORGANIZATION AGREEMENT
TERMS OF THE REORGANIZATION
The following is a summary of certain provisions of the Reorganization
Agreement, a copy of which is attached hereto as Appendix A, and the Amendment
to the Reorganization Agreement, a copy of which is attached hereto as
Appendix AA, both of which are incorporated herein by reference. The following
summary is qualified by reference to the complete text of the Reorganization
Agreement.
The Merger. Pursuant to the Reorganization Agreement and the Merger
Agreement, at the Effective Time, PAS Merger Corp. will be merged with and
into PanAmSat and all of the outstanding shares of the PAS Class A Common
Stock and the PAS Ordinary Common Stock will be exchanged for the Merger
Consideration (as defined below). At the Effective Time, the separate
corporate existence of PAS Merger Corp. will cease and the internal corporate
affairs of PanAmSat (the "Surviving Corporation") will continue to be governed
by the laws of the State of Delaware. The Merger will be consummated promptly
following receipt of all required governmental approvals and satisfaction or
waiver (where permissible) of the other conditions to the Merger. The Merger
will become effective at the time at which the certificate of merger to be
filed pursuant to the DGCL is accepted for filing by the Secretary of State of
the State of Delaware or such later date and time as may be specified in such
certificate of merger.
The Univisa Contribution. Immediately prior to the Merger, in a separate but
related transaction pursuant to the Univisa Contribution Agreement, New
PanAmSat will acquire from S Company all of the capital stock of Univisa,
which indirectly owns all of the shares of PAS Class B Common Stock. In
connection with the Univisa Contribution, S Company will receive for each
share of PAS Class B Common Stock indirectly owned by Univisa, at S Company's
election, consideration equal in amount and form (subject to proration, as
applicable), to the consideration payable on account of each share of PAS
Class A Common Stock and PAS Ordinary Common Stock in the Merger. See "THE
UNIVISA CONTRIBUTION AGREEMENT" and "THE REORGANIZATION--Background of the
Reorganization" for a description of the reason that the PAS Class B Common
Stock has been treated in the manner set forth above.
The Asset Contribution. Pursuant to the Reorganization Agreement, on the
Closing Date, HCI will cause the Galaxy Assets (as defined below) and the
Galaxy Liabilities (as defined below) to be conveyed to or assumed by New
PanAmSat. In order to effect the foregoing transfer, (x) HCG and HCSS shall
convey to New PanAmSat all right, title and interest in and to the Galaxy
Assets owned by them, and (y) HCI shall convey, transfer, assign and deliver
to New PanAmSat all of HCI's right, title and interest in and to all of the
issued and outstanding shares of common stock of HCS, HCCS and HCJ. For
purposes of the Reorganization Agreement, "Galaxy Assets" include any and all
of the assets, properties, interests and rights owned by or used in the Galaxy
Business (as defined below) of every kind and description, whether located in
HCG, HCSS, HCS, HCCS or HCJ, but excluding certain assets, including all
assets of HCI or its subsidiaries related to HCI's SPACEWAY business, its
mobile telecommunications business, American Mobile Satellite Corporation and
ICO Global Communications. For purposes of the Reorganization Agreement,
"Galaxy Liabilities" include, with certain exceptions, all direct and indirect
liabilities of any type arising out of or relating to the Galaxy Business. For
purposes of the Reorganization Agreement, the "Galaxy Business" means the
business of HE or any of HE's affiliates existing on the Closing Date relating
to (i) the sale or lease of, or the provision of satellite services via,
transponder capacity on satellites operating in geostationary earth orbit in
the C-band, Ka-band and Ku-band frequencies for the transmission of video,
audio and data signals; and (ii) the provision of TT&C services for such
satellites and for other satellites operating in geostationary earth orbit in
the C-band, Ka-band, Ku-band, L-band and UHF-band frequencies or other
frequency bands that may be utilized in the future; but in each case,
excluding the sale or lease of transponder capacity and TT&C services provided
on or for any satellite that has both (x) multiple (six or more) receive and
transmit beams and (y) an on-board satellite payload processor which can
switch uplink signals in one beam to a downlink signal in one of multiple
beams. As consideration for the Asset Contribution, on the Closing Date New
PanAmSat will issue to HCI, HCG and HCSS, in such proportions as HCI shall
determine, an aggregate of 106,622,807 shares of New PAS Common Stock.
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Corporate Structure Following Reorganization. As a result of the Merger and
the Univisa Contribution, New PanAmSat will own, directly and indirectly, all
of the shares of PAS Common Stock (but not the PAS Preferred Stock, which will
remain outstanding) and PanAmSat will become a wholly owned subsidiary of New
PanAmSat. As a result of the Asset Contribution, New PanAmSat will become the
owner and operator of the Galaxy Business. At the Effective Time, New PanAmSat
will change its corporate name to "PanAmSat Corporation" and PanAmSat will
change its name to "PanAmSat International Systems, Inc."
Certificate of Incorporation and Bylaws. The Reorganization Agreement
provides that the certificate of incorporation of New PanAmSat (the "New
PanAmSat Certificate of Incorporation") and the bylaws of New PanAmSat (the
"New PanAmSat Bylaws") will be in the form attached as Appendices F and G
hereto, respectively. The Reorganization Agreement provides that the PanAmSat
Certificate of Incorporation as in effect at the Effective Time will become
the certificate of incorporation of the Surviving Corporation until duly
amended in accordance with the terms thereof and the DGCL; provided that the
PanAmSat Certificate of Incorporation will be amended prior to the
Reorganization pursuant to the Charter Amendment. See "THE SPECIAL MEETING"
and "PROPOSAL TO APPROVE AND ADOPT THE CHARTER AMENDMENT." The Bylaws of
PanAmSat in effect at the Effective Time will become the Bylaws of the
Surviving Corporation.
Directors and Officers. The directors of PAS Merger Corp. at the Effective
Time will become the directors of the Surviving Corporation until their
successors have been duly elected or appointed in accordance with applicable
law. The officers of PanAmSat at the Effective Time will become the officers
of the Surviving Corporation until their successors have been duly elected or
appointed in accordance with applicable law. See "THE REORGANIZATION--
Management and Operations of New PanAmSat and PanAmSat after the Merger."
Effect of the Merger on the Securities of PanAmSat and PAS Merger Corp. In
addition, at the Effective Time, the shares of the common stock of PAS Merger
Corp. outstanding immediately prior to the Effective Time shall be converted
into and become (a) the number of shares of Class A Common Stock of the
Surviving Corporation that is equal to the number of shares of, and having
terms identical in all respects to, the PAS Class A Common Stock outstanding
immediately prior to the Merger and (b) the number of shares of Common Stock
of the Surviving Corporation that is equal to the number of shares of, and
having terms identical in all respects to, the PAS Ordinary Common Stock
outstanding immediately prior to the Merger. At the Effective Time, (i) all
shares of PAS Class A Common Stock and PAS Ordinary Common Stock held by any
person other than New PanAmSat or any of its subsidiaries shall cease to be
outstanding and shall be canceled and retired, and the holder thereof shall
have no rights except the right to receive, without interest, the Merger
Consideration and cash in lieu of fractional shares as described below, and
(ii) each share of PAS Common Stock held in treasury ("PAS Treasury Stock")
will be canceled and retired without payment of any consideration therefor.
All outstanding shares of PAS Class B Common Stock will remain outstanding and
continue to be held indirectly by Univisa, which will become a subsidiary of
New PanAmSat, as a result of the Univisa Contribution. The PAS Preferred Stock
shall remain outstanding.
Merger Consideration. Pursuant to the Reorganization Agreement, at the
Effective Time each issued and outstanding share of PAS Class A Common Stock
and PAS Ordinary Common Stock other than Dissenting Shares and PAS Treasury
Stock (collectively, the "PAS Shares") will be converted, at the election of
the holder thereof, into one of the following (collectively, the "Merger
Consideration"):
(a) the right to receive (x) an amount in cash equal to one half ( 1/2)
of the Standard Cash Consideration (as defined below) plus (y) one half (
1/2) share of New PAS Common Stock (collectively, the "Standard
Consideration"). The "Standard Cash Consideration" means an amount in cash
equal to $30, provided that if the Closing has not occurred on or prior to
September 20, 1997, the Standard Cash Consideration with respect to PAS
Shares will be increased at a rate equal to 9% per annum from and including
the first anniversary date to but excluding the Closing Date; or
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(b) the right to receive (subject to proration, as applicable) New PAS
Common Stock in an amount equal to one share of New PAS Common Stock (the
"Stock Consideration"); or
(c) the right to receive (subject to proration, as applicable) the
Standard Cash Consideration.
The number of shares of New PAS Common Stock and the amount of cash
distributed with respect to elections for the Stock Consideration and/or the
Standard Cash Consideration may be limited under certain circumstances.
However, the number of shares of New PAS Common Stock and the amount of cash
distributed to PanAmSat stockholders that elect to receive the Standard
Consideration on account of their PAS Shares will not in any way be affected
by such limits. See "--Elections by Holders of PAS Common Stock; Exchange of
Stock Certificates in the Merger."
Treatment of Options for PAS Common Stock. Each holder of a then-outstanding
Option to purchase shares of PAS Ordinary Common Stock under the Stock Plan,
whether or not then exercisable, will, in settlement thereof, receive for each
share of PAS Ordinary Common Stock subject to such Option an amount (subject
to applicable withholding tax) in cash equal to the Option Consideration,
provided that with respect to any person subject to Section 16(b) of the
Exchange Act, any such amount shall be paid as soon as practicable after the
first date payment can be made without liability to such person under Section
16(b) of the Exchange Act. Upon receipt of the Option Consideration, each
Option will be canceled. The surrender of an Option to PanAmSat in exchange
for the Option Consideration will be deemed a release of all rights the holder
had in respect of such Option. Except as otherwise agreed to by the parties to
the Reorganization Agreement, the Stock Option Plans will terminate as of the
Effective Time and the provisions in any other plan, program or arrangement
providing for the issuance or grant of any interest in respect of the capital
stock of PanAmSat or any of its subsidiaries will be canceled.
Fractional Shares. No fractional shares of New PAS Common Stock will be
issued in the Merger or the Univisa Contribution. In lieu of the issuance of
any such fractional shares, each holder of PAS Common Stock who otherwise
would be entitled to receive a fractional share of New PAS Common Stock
pursuant to the Merger or the Univisa Contribution will be paid a cash
adjustment in respect of any fractional share of New PAS Common Stock that
would otherwise be issuable, and the amount of such cash adjustment shall be
equal to the product of such fractional amount and the Standard Cash
Consideration.
Transfer Restrictions. At or after the Effective Time, there will be no
transfers on the stock transfer books of PanAmSat of the certificates
representing PAS Common Stock (each, a "Stock Certificate") which were
outstanding immediately prior to the Effective Time. If, after the Effective
Time, certificates formerly representing any such Stock Certificates are
presented to the Surviving Corporation, they will be canceled and exchanged
for the consideration, if any, deliverable in respect thereof pursuant to the
Reorganization Agreement. Stock Certificates surrendered in exchange for
Merger Consideration by any person constituting an "affiliate" of PanAmSat for
purposes of Rule 145(c) under the Securities Act shall not be exchanged until
New PanAmSat has received a written agreement from such person not to transfer
shares of New PAS Common Stock in violation of Rule 145.
ELECTIONS BY HOLDERS OF PAS COMMON STOCK; EXCHANGE OF CERTIFICATES IN THE
MERGER
Elections. Concurrently herewith, an election form (the "Election Form") is
being mailed to each person who is a record holder of PAS Shares on the Record
Date. Each such holder will have the right to submit an Election Form
specifying the number of shares of PAS Common Stock that such person desires
to have converted into the right to receive the Standard Consideration (a
"Standard Election"), the number of shares of PAS Common Stock that such
person desires to have converted into the right to receive the Stock
Consideration (a "Stock Election") and the number of shares of PAS Common
Stock that such person desires to have converted into the right to receive the
Cash Consideration (a "Cash Election"). All PAS Shares for which such an
election is not made will be deemed to have made the Standard Election. The
same procedure regarding the foregoing elections will be used to determine the
consideration to be paid to S Company in the Univisa Contribution. See "THE
UNIVISA CONTRIBUTION AGREEMENT." The number of shares of New PAS Common Stock
issued to PanAmSat stockholders that make an effective Stock Election and the
amount of cash distributed to New PanAmSat stockholders that make an effective
Cash Election may be subject to the proration procedures
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described below. HOWEVER, THE NUMBER OF SHARES OF NEW PAS COMMON STOCK AND THE
AMOUNT OF CASH DISTRIBUTED TO PANAMSAT STOCKHOLDERS THAT MAKE AN EFFECTIVE
STANDARD ELECTION WILL NOT IN ANY WAY BE AFFECTED BY THE PRORATION PROCEDURES.
The Reorganization Agreement requires that, prior to the Effective Time, HCI
must designate a bank or trust company reasonably acceptable to PanAmSat to
act as the exchange agent for purposes of paying the Merger Consideration (the
"Exchange Agent"). HCI has appointed Boston EquiServe, L.P. to serve as the
Exchange Agent. Concurrently herewith, the Exchange Agent mailed an Election
Form to each person who was a holder of record of PAS Shares immediately prior
to the Record Date (i) a letter of transmittal (the "Letter of Transmittal")
which specifies that delivery shall be effected, and risk of loss and title to
each Stock Certificate will pass, only upon delivery of such Stock
Certificates to the Exchange Agent, (ii) instructions for use in effecting the
surrender of such Stock Certificate in exchange for the Merger Consideration
with respect to the PAS Common Stock formerly represented thereby and (iii) an
Election Form providing for such holders to make the Standard Election, the
Stock Election or the Cash Election. An election will be valid only if a
properly completed and executed Election Form accompanied by the Stock
Certificate of the holder submitting such Election Form is received by the
Exchange Agent by 5:00 p.m. (Eastern Standard Time) on the day immediately
preceding the date of the Special Meeting, as the same may be postponed or
adjourned (the "Election Deadline"). Holders of all PAS Shares transferred
following the Record Date or for which an effective election has not been made
will be deemed to have made a Standard Election.
HOLDERS OF PAS COMMON STOCK SHOULD NOT SEND ANY CERTIFICATES REPRESENTING
PAS COMMON STOCK WITH THE ENCLOSED PROXY CARD. CONCURRENTLY HEREWITH, AN
ELECTION FORM AND A LETTER OF TRANSMITTAL ARE BEING MAILED TO EACH PERSON WHO
IS A HOLDER OF OUTSTANDING PAS ORDINARY COMMON STOCK OR PAS CLASS A COMMON
STOCK ON THE RECORD DATE, AND UPON REQUEST TO THE EXCHANGE AGENT, WILL BE
MAILED TO EACH PERSON WHO BECOMES A HOLDER OR BENEFICIAL OWNER OF PAS ORDINARY
COMMON STOCK OR PAS CLASS A COMMON STOCK PRIOR TO THE ELECTION DEADLINE.
PANAMSAT STOCKHOLDERS SHOULD SEND CERTIFICATES REPRESENTING PAS ORDINARY
COMMON STOCK AND PAS CLASS A COMMON STOCK TO THE EXCHANGE AGENT ONLY AFTER
THEY RECEIVE, AND IN ACCORDANCE WITH, THE INSTRUCTIONS CONTAINED IN THE
ELECTION FORM AND LETTER OF TRANSMITTAL.
As soon as practicable after the Election Deadline, the Exchange Agent will
determine the allocation of the cash and stock portions of the Merger
Consideration and shall notify New PanAmSat of its determination (the
"Allocation Determination"). Promptly after the Allocation Determination, New
PanAmSat will deposit (or cause to be deposited) with the Exchange Agent, for
the benefit of the holders of PAS Common Stock and S Company, (i) cash in an
amount sufficient to pay the aggregate cash portion of the Merger
Consideration and the cash consideration payable in connection with the
Univisa Contribution and (ii) certificates representing the shares of New PAS
Common Stock ("New PanAmSat Certificates") for exchange in accordance with the
Reorganization Agreement and the Univisa Contribution Agreement (the cash and
shares deposited are hereafter referred to as the "Exchange Fund"). Upon
surrender of a Stock Certificate, the holder of such Stock Certificate (or, S
Company, upon the consummation of the Univisa Contribution) will be entitled
to receive promptly after the Allocation Determination, in exchange therefor
(a) a certified or bank cashier's check in the amount equal to the cash, if
any, which such holder has the right to receive (including any cash in lieu of
fractional shares of New PAS Common Stock) pursuant to the Reorganization
Agreement and/or (b) a New PanAmSat Certificate representing the number of
shares of New PAS Common Stock, if any, which such holder has the right to
receive pursuant to the Reorganization Agreement, in each case less the amount
of any required withholding taxes. Until so surrendered, each Stock
Certificate will be deemed, from and after the Effective Time, to represent
only the right to receive the Merger Consideration with respect to the PAS
Shares formerly represented thereby.
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Proration of Cash Elections. The amount of cash distributed to PanAmSat
stockholders that make effective Cash Elections may be limited under certain
circumstances. The Reorganization Agreement provides that the aggregate amount
of cash to be paid in the Merger and pursuant to the Univisa Contribution
Agreement will not exceed the product of (x) $15 (plus any interest applicable
to the Standard Cash Consideration) and (y) the aggregate number of shares of
PAS Common Stock issued and outstanding immediately prior to the Effective
Time (the "Maximum Cash Amount"). In the event that the sum of (a) the
aggregate amount of cash represented by the Cash Elections under the
Reorganization Agreement and the Univisa Contribution Agreement and (b) the
product of the aggregate number of Dissenting Shares and the Standard Cash
Consideration (such sum, the "Requested Cash Amount") exceeds the Maximum Cash
Amount minus the aggregate amount of cash payable pursuant to Standard
Elections made or deemed to have been made (such difference, the "Cash Cap"),
each holder making (or deemed to make) a Cash Election under the
Reorganization Agreement and the Univisa Contribution Agreement will receive
(a) cash in an amount equal to the greater of (i) $15 (plus any interest
applicable to the Standard Cash Consideration) and (ii) the product of the
Standard Cash Consideration and a fraction, the numerator of which is the Cash
Cap and the denominator of which is the Requested Cash Amount (the "Prorated
Cash Amount") and (b) a number of shares of New PAS Common Stock equal to a
fraction, the numerator of which is equal to the Standard Cash Consideration
minus the Prorated Cash Amount and the denominator of which is the Standard
Cash Consideration. See "THE UNIVISA CONTRIBUTION AGREEMENT."
Proration of Stock Elections. The number of shares of New PAS Common Stock
that may be issued pursuant to Stock Elections under the Reorganization
Agreement and the Univisa Contribution Agreement may be limited under certain
circumstances. The Reorganization Agreement provides that, at New PanAmSat's
option, in the event that the Requested Cash Amount is less than the Cash Cap,
each holder making a Stock Election will receive, at New PanAmSat's option,
for each share for which a Stock Election has been made, (i) not more than the
Stock Consideration and not less than a number of shares of New PAS Common
Stock equal to a fraction, the numerator of which is the product of the
aggregate number of shares of New PAS Common Stock represented by Stock
Elections and the Standard Cash Consideration (the "Requested Stock Amount")
minus the difference between the Cash Cap and the Requested Cash Amount, and
the denominator of which is the Requested Stock Amount (such whole or
fractional share, the "Prorated Stock Amount") and (ii) cash in an amount
equal to the product of the Standard Cash Consideration and one minus the
Prorated Stock Amount. As of the date of this Proxy Statement/Prospectus, New
PanAmSat has not determined whether it will limit the Requested Stock Amount.
Certain Prorations of Excess Cash. In addition, the holders of PAS Class A
Common Stock and S Company have agreed between themselves, without affecting
the rights of the holders of the PAS Ordinary Common Stock, that to the extent
that $15 multiplied by the number of outstanding shares of PAS Common Stock
exceeds the sum of (x) one half ( 1/2) of the cash represented by the shares
of PAS Common Stock that make effective Cash Elections under the
Reorganization Agreement and the Univisa Contribution Agreement, plus (y) the
cash represented by shares of PAS Common Stock as to which Standard Elections
were effectively made under the Reorganization Agreement and the Univisa
Contribution Agreement ("Excess Cash"), then the first $30 million of such
Excess Cash (plus any interest as provided in the Reorganization Agreement)
that S Company would have been entitled to receive pursuant to the Univisa
Contribution Agreement shall instead be paid to the holders of PAS Class A
Common Stock, and S Company shall receive the second $30 million (plus any
interest as provided in the Reorganization Agreement) that holders of PAS
Class A Common Stock would have been entitled to receive pursuant to the
Reorganization Agreement. If cash is transferred from one holder to another,
then the number of shares of New PAS Common Stock equal to the additional cash
that was delivered divided by $30 will be transferred from the transferee of
such cash to the transferor of such cash.
Value Unit Proration. The Univisa Contribution Agreement contemplates that
the Share Repurchase of 7.5 million shares of New PAS Common Stock in exchange
for $225 million will occur immediately after S Company receives the
consideration payable in exchange for the Univisa Contribution. The
Reorganization Agreement assures that 7.5 million shares will be available for
redemption under the Univisa Contribution
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Agreement by providing that if, as a result of all elections and prorations,
7.5 million shares would not be available for repurchase pursuant to the
Univisa Contribution Agreement, then S Company's elections would be further
prorated to ensure that a minimum of 7.5 million shares of New PAS Common
Stock would be available for the Share Repurchase. See "THE UNIVISA
CONTRIBUTION AGREEMENT" and "THE DTH SALE."
Unclaimed Amounts. Any portion of the Exchange Fund (including the proceeds
of any investments thereof and any shares of New PAS Common Stock) that
remains unclaimed by former stockholders of PanAmSat six months after the
Effective Time will be delivered to New PanAmSat. Thereafter, former
stockholders of PanAmSat will be entitled to look only to New PanAmSat for
payment of the consideration payable on account of the Merger, cash in lieu of
fractional shares and unpaid dividends and distribution on New PAS Common
Stock deliverable in respect of each share such stockholder holds as
determined pursuant to the Reorganization Agreement, in each case without any
interest thereon. None of HCI, its affiliates, PanAmSat, New PanAmSat, the
Exchange Agent or any other person will be liable to any former holder of PAS
Shares or shares of PAS Class B Common Stock for any amount properly delivered
to a public official pursuant to applicable abandoned property, escheat or
similar laws.
An election to receive all cash in connection with the Reorganization may
result in the receipt of either all cash or, in the event that the aggregate
amount of all elections to receive cash exceeds $15 multiplied by the number
of shares of PAS Common Stock outstanding at the time of the Reorganization, a
combination of cash and shares of New PAS Common Stock. For example, in the
event that all cash is elected by all direct and indirect holders of PAS
Common Stock, each such holder will receive $15 in cash plus one half ( 1/2)
share of New PAS Common Stock on account of each share of PAS Common Stock
held directly or indirectly by such holder.
An election to receive all stock in connection with the Reorganization may
result in the receipt of either all stock or, in the event that (i) the direct
and indirect holders of more than one half ( 1/2) of the number of shares of
PAS Common Stock outstanding at the time of the Reorganization elect to
receive stock on account of such shares and (ii) New PanAmSat exercises its
option to limit the number of additional shares of New PAS Common Stock to be
issued, a combination of cash and shares of New PAS Common Stock. For example,
in the event that all stock is elected by all direct and indirect holders of
PAS Common Stock and New PanAmSat exercises its option to limit the number of
additional shares of New PAS Common Stock to be issued, each such holder will
receive one half ( 1/2) share of New PAS Common Stock plus $15 in cash on
account of each share of PAS Common Stock held directly or indirectly by such
holder. An election to receive $15 in cash and one half ( 1/2) share of New
PAS Common Stock on account of each share of PAS Common Stock will not be
affected by the proration procedures.
The impact of the elections on New PanAmSat will depend upon whether such
elections direct New PanAmSat to issue more stock or pay more cash. If more
stock is issued, less debt will be incurred by New PanAmSat, making it less
highly leveraged. If more cash is paid (up to the proration limits), New
PanAmSat will incur more indebtedness as a result of such payments.
CERTAIN REPRESENTATIONS AND WARRANTIES
The Reorganization Agreement contains various representations and warranties
by both PanAmSat and the Hughes Parties and New PanAmSat as of the date of the
Reorganization Agreement as to, among other things, (i) due organization, good
standing and corporate authority to enter into the Reorganization Agreement
and related agreements; (ii) capital structure; (iii) ability of the parties
to execute and deliver the Reorganization Agreement and related agreements and
to perform their respective obligations thereunder; lack of violation thereby
under their respective charters, bylaws or material contracts; (iv) the need
for governmental or third-party consents to enter into the Reorganization
Agreement and related agreements; (v) compliance with laws; (vi) absence of
certain litigation; (vii) certain tax matters; (viii) absence of material
liabilities related to employee benefit plans and the absence of material
labor disputes; (ix) accuracy of statements supplied for inclusion in this
Proxy Statement/Prospectus; (x) absence of non-ordinary course changes to the
respective businesses; (xi) status
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of insurance; (xii) ownership of intellectual property; (xiii) absence of
material environmental liabilities; (xiv) investment banking fees; (xv)
material contracts; (xvi) ownership of real and personal property; (xvii)
ownership of certain satellite-related assets; and (xviii) consultations with
Intelsat, Eutelsat and other similar intergovernmental entities.
The Reorganization Agreement also contains separate representations and
warranties by PanAmSat as to (i) the filing of certain documents and financial
statements with the Commission and (ii) the receipt of fairness opinions from
Morgan Stanley and Salomon Brothers.
The Hughes Parties and New PanAmSat also made separate representations as to
the accuracy of certain financial statements of Galaxy and that, as of June
30, 1996, the Contributed Entities had made Capital Expenditures for
Satellites Under Construction (as defined below) of at least $175 million for
the six-month period ended June 30, 1996.
CONDITIONS TO THE REORGANIZATION
Obligations of PanAmSat, the Hughes Parties and New PanAmSat. The respective
obligations of PanAmSat, the Hughes Parties and New PanAmSat to consummate the
Merger, the Univisa Contribution and the Asset Contribution are subject to the
satisfaction on or prior to the Closing Date of the following conditions, any
or all of which may be waived in whole or in part by the party benefiting
thereby: (i) no government entity shall have enacted, issued, promulgated,
enforced or entered any statute, rule, regulation or order (whether temporary,
preliminary or permanent) which is in effect and which materially restricts,
prevents or prohibits consummation of the transactions contemplated by the
Reorganization Agreement or any of the related agreements; (ii) the
Reorganization Agreement and the transactions contemplated thereby shall have
been approved in the manner required by applicable law or by the applicable
regulations of any stock exchange by the holders of the issued and outstanding
shares of PAS Common Stock; (iii) the expiration or termination of any waiting
period under the HSR Act shall have occurred, and no action shall have been
instituted by the Antitrust Division or the FTC challenging or seeking to
enjoin the consummation of the transactions contemplated by the Reorganization
Agreement, which action shall not have been withdrawn by the party instituting
such action or dismissed or terminated pursuant to a final, non-appealable
judgment of a U.S. federal court; (iv) (A) the FCC shall have granted by final
order the FCC Applications, without conditions, qualifications or other
restrictions that are likely to have a material adverse effect immediately
after the Closing Date, on New PanAmSat or any of its subsidiaries; and (B)
except for Permits (as defined below) which lapse, expire or are terminated
due to ordinary course changes in the business of PanAmSat and Galaxy, each of
the Galaxy Permits and PAS Permits (as such terms are defined below) issued to
Galaxy or PanAmSat by the FCC will be in full force and effect;
notwithstanding the foregoing, HCI will have the unilateral right within 60
days after public notice of such final order, action or decision by the FCC to
elect to waive this condition if HCI determines, in its sole discretion, that
any pending appeal is not likely to have a material adverse effect on New
PanAmSat and its subsidiaries, taken as a whole; provided that, if HCI fails
to waive this condition within such 60-day period, then either PanAmSat or HCI
shall have the right to terminate the Reorganization Agreement; (v) receipt of
all necessary approvals from all government entities, other than the FCC, that
have issued any Permits with respect to any PanAmSat satellites, PanAmSat
ground stations, Galaxy satellites, Galaxy ground stations or other
broadcasting and communications services; (vi) receipt of all other approvals
or orders and the completion of all filings, notices or declarations required
to be made before any government entity, other than the FCC, except where the
failure to obtain such approval or make such filing would not be likely to
have a material adverse effect on New PanAmSat or its subsidiaries; (vii) the
effectiveness of the Registration Statement and the absence of any stop order
suspending the effectiveness thereof and no proceeding for that purpose having
been initiated by the Commission and all necessary approvals under state
securities laws shall have been received; (viii) each of several agreements
related to the Reorganization (the "Related Agreements") shall have been
executed, delivered and, to the extent required to be performed by such
agreements on or prior to the Closing Date, performed (or capable of being
performed concurrently with consummation of the transactions contemplated
under the Reorganization Agreement) by the parties thereto; (ix) the shares of
New PAS Common Stock issuable in the Merger shall have been approved, upon
official notice of issuance, for listing on either the NYSE or the Nasdaq. For
purposes of the Reorganization Agreement, the term "Permits" means all permits
(including conditional use permits), licenses, franchises, approvals,
certificates, concessions, privileges, immunities,
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consents or other authorizations issued or authorized by any government
entity, the term "PAS Permit" means any Permit that is material to PanAmSat
and the term "Galaxy Permit" means any Permit that is material to the Galaxy
Business.
Obligation of PanAmSat. The obligation of PanAmSat to effect the
transactions contemplated by the Reorganization Agreement is subject to the
satisfaction of the following conditions, any or all of which may be waived in
whole or in part by PanAmSat: (i) each of the representations and warranties
of the Hughes Parties set forth in the Reorganization Agreement shall be true
and correct in all material respects (without regard to any materiality
limitations contained in any such representation or warranty and except that
the representation of HCI with respect to the Contributed Entities' Capital
Expenditures for Satellites Under Construction (as defined below) shall be
true and correct in all respects without regard to materiality), in each case
as of the date of the Reorganization Agreement and except for inaccuracies or
omissions having or reasonably likely to have, individually or in the
aggregate, an economic impact on Galaxy of less than $50 million (excluding
the representation of the Hughes' Parties with respect to Capital Expenditures
for Satellites Under Construction) provided that a breach of the
representation and warranty with respect to Capital Expenditures for
Satellites Under Construction shall not be considered a failure of this
condition, if any deficiency is cured by the Closing Date; (ii) each of the
Hughes Parties and HE shall have performed in all material respects (other
than the obligations of the Hughes Parties and HE with respect to the
establishment and maintenance of a closed accounting system, dispositions of
assets and the obligation of HCI and/or HE to add at least $575 million to the
Capital Expenditures for Satellites Under Construction account between June
30, 1996 through the Closing Date, which will be performed without regard to
materiality) all obligations required to be performed by it under the
Reorganization Agreement and the Related Agreements to which it is a party on
or before the Closing Date; notwithstanding the foregoing, the obligations of
PanAmSat to effect the transactions contemplated by the Reorganization
Agreement shall not be relieved by the failure of the foregoing condition if
such failure is the result, directly or indirectly, of any breach by PanAmSat
of any of its material obligations under the Reorganization Agreement; (iii)
no material adverse change shall have occurred since September 20, 1996 with
respect to the Galaxy Business having or reasonably likely to have,
individually or in the aggregate, an adverse economic impact or consequence
(including diminution in value) of more than $200 million; provided, however,
that none of the following shall be deemed to be a "change": (a) the loss,
denial or dismissal of any pending application for a Galaxy Permit that has
been filed with the FCC or (b) a loss, to the extent caused by or related to
(1) a mere delay in the receipt of revenue, as opposed to the cancellation or
modification of a contract, and the consequent loss of revenue related to such
delay or (2) the launch or in-orbit failure of any Galaxy satellite, to the
extent such loss is covered by insurance.
Obligations of the Hughes Parties. The obligations of the Hughes Parties to
effect the transactions contemplated by the Reorganization Agreement are
subject to the satisfaction of the following conditions, any or all of which
may be waived in whole or in part by HCI: (i) each of the representations and
warranties of PanAmSat set forth in the Reorganization Agreement shall be true
and correct in all material respects (without regard to any materiality
limitations contained in any such representation or warranty) as of the date
of the Reorganization Agreement, except for inaccuracies or omissions having
or reasonably likely to have, individually or in the aggregate, an economic
impact on PanAmSat and its subsidiaries taken as a whole of less than $50
million; (ii) PanAmSat shall have performed in all material respects all
obligations required to be performed by it under the Reorganization Agreement
and the related agreements to which it is a party on or before the Closing
Date; notwithstanding the foregoing, the obligations of HCI to effect the
transactions contemplated by the Reorganization Agreement shall not be
relieved by the failure of the foregoing condition if such failure is the
result, directly or indirectly, of any breach by any Hughes Party of any of
its material obligations under the Reorganization Agreement; (iii) no material
adverse change shall have occurred since September 20, 1996 with respect to
PanAmSat having or reasonably likely to have, individually or in the
aggregate, an adverse economic impact or consequence (including diminution in
value) of more than $200 million; provided, however, that none of the
following shall be deemed to be a "change": (a) the loss, denial or dismissal
of any pending application for a PAS Permit that has been filed with the FCC
or (b) a loss, to the extent caused by or related to (1) a mere delay in the
receipt of revenue, as opposed to the cancellation or modification of a
contract, and the consequent
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loss of revenue related to such delay or (2) the launch or in-orbit failure of
any PanAmSat satellite, to the extent such loss is covered by insurance, but
provided further that the parties have agreed that the Comsat Litigation and
any possible exposure in respect thereof may be evaluated in connection with a
determination of whether a material adverse change has occurred
notwithstanding the fact that the Comsat Litigation is disclosed in the
schedules to the Reorganization Agreement; (iv) PanAmSat shall have delivered
to HCI written evidence of the agreement by each holder of Options to
terminate such Options on or before the Effective Time; (v) PanAmSat shall
have delivered to HCI evidence satisfactory to HCI that PanAmSat will, as of
the Closing Date, terminate all of its obligations under the Original MOU (as
defined below under the caption "THE DTH SALE") and the related oral agreement
regarding an equity interest in a DTH venture in the Iberian Peninsula; and
(vi) PanAmSat shall have delivered to HCI a letter of resignation from each
person that is a director of PanAmSat immediately prior to the Closing, which
resignation shall be effective as of the Effective Time.
CONDUCT OF BUSINESS PRIOR TO THE EFFECTIVE TIME
Except as contemplated by the Reorganization Agreement, or with the prior
written consent of the other parties thereto, each of PanAmSat, as to PanAmSat
and its subsidiaries, and HCI and HCG, as to the Galaxy Business, have agreed,
among other things, that during the period from September 20, 1996 through the
Closing Date (the "Interim Period"), except as otherwise disclosed on the
Schedules: (i) each of PanAmSat and the Contributed Entities will carry on
their respective businesses in the ordinary course and use commercially
reasonable efforts to keep intact its present business organizations, keep
available the services of its current officers and employees and preserve its
goodwill and relationships with customers, suppliers and others having
business dealings with it; (ii) neither PanAmSat nor any of the Contributed
Entities will (a) declare any dividends on or make other distributions in
respect of any class or series of its capital stock, except for noncash
dividends in respect of preferred stock, or cash dividends or distributions
paid on or with respect to the capital stock of a wholly owned subsidiary; (b)
split or reclassify any of its capital stock or issue or authorize or propose
the issuance of any other securities in respect of its capital stock; or (c)
repurchase or redeem or otherwise acquire any shares of its capital stock or
other securities of it, or any of its affiliates; (iii) neither PanAmSat nor
any of the Contributed Entities will, subject to certain exceptions, (a) issue
or sell additional shares of capital stock of any class, or securities
convertible into capital stock of any class, or any rights, warrants or
options to acquire any convertible securities or capital stock, or any other
securities in respect of shares of common stock outstanding or (b) amend,
waive or otherwise modify any of the terms of any option, warrant or stock
option plan; (iv) neither PanAmSat nor any of the Contributed Entities will
amend or propose to amend their respective articles of incorporation or
bylaws; (v) neither PanAmSat nor any of the Contributed Entities will, subject
to certain exceptions, (a) acquire or agree to acquire any satellite or other
spacecraft which it has not previously agreed in writing to acquire, or (b)
except as otherwise required, make one or more investments or capital
expenditures exceeding $35 million in the aggregate in any twelve-month period
for all such investments or expenditures that occur from September 20, 1996;
provided, however, that (1) PanAmSat or any Contributed Entity may replace any
satellite lost in a launch or in orbit, and (2) PanAmSat may continue existing
capital programs (plus additional expenses solely for change orders of up to
10% of the progress payments on each satellite remaining to be paid as of the
date of the Reorganization Agreement) and purchase such terrestrial equipment
as necessary to supply customers in the ordinary course in connection with
leases of transponder capacity by such customers; and provided further, that
PanAmSat shall not make additional investments in, or make any capital
expenditures for the benefit of, any business engaged in DTH services unless
ancillary to the sale or lease of, or other provision of services or capacity
via, transponders; (vi) neither PanAmSat nor any of the Contributed Entities
will sell, pledge, lease, dispose of or encumber any of its assets other than
in the ordinary course of business consistent with past practice; (vii)
neither PanAmSat nor any of the Contributed Entities will authorize,
recommend, propose or announce an intention to adopt a plan of complete or
partial liquidation or dissolution; (viii) neither PanAmSat nor any of the
Hughes Parties will take any action that results in any of their respective
representations or warranties being untrue in any material respect or any of
their respective covenants or any other conditions to the Asset Contribution,
the Univisa Contribution or the Merger not being satisfied in all material
respects; (ix) neither PanAmSat nor any of the Contributed Entities will,
subject to certain exceptions, assume, incur or pre-pay any indebtedness or
guarantee any such indebtedness or issue or sell any
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debt securities or warrants or rights to acquire any debt securities or
guarantee any such indebtedness or enter into any lease other than in the
ordinary course, or create any mortgages, liens, security interests or other
encumbrances on their property in connection with any indebtedness thereof, or
enter into any keepwell or other agreements to maintain the financial
condition of another person; (x) neither PanAmSat nor any of the Contributed
Entities will, subject to certain exceptions and other than in the ordinary
course of business consistent with past practice, enter into, materially
modify or amend any of the terms or provisions of any material contract, other
than in the ordinary course of business consistent with past practice; (xi)
neither PanAmSat nor any of the Contributed Entities will take any action,
other than in the ordinary course of business, consistent with past practice
or as required by the Commission or by law, to effect any material change in
any of its current accounting policies, procedures and practices; (xii)
neither PanAmSat nor any of the Contributed Entities will pay, discharge or
satisfy any material claims, liabilities or obligations other than in the
ordinary course of business and consistent with past practice; (xiii) neither
PanAmSat nor any of the Contributed Entities will waive any rights of
substantial value or make any payment, direct or indirect, of any material
liability before the same comes due, except to the extent to which fair value
is received in exchange for such waiver or payment; (xiv) neither PanAmSat nor
any of the Contributed Entities will fail to maintain its existing insurance
coverage; (xv) neither PanAmSat nor any of the Contributed Entities will
engage in any transaction, agreement or understanding with, directly or
indirectly, any of such entity's affiliates (as defined in Rule 12b-2 under
the Exchange Act) which involves the transfer of consideration or has a
financial impact on such entity, other than pursuant to existing agreements
which are done on terms that the respective board of directors determines in
good faith to be equal to, or more favorable than, the terms that could be
obtained from third parties in similar transactions and/or for similar goods
or services or which are otherwise permitted; (xvi) except for Permits which
lapse or expire due to ordinary course changes in the business of PanAmSat or
Galaxy, and subject to certain other exceptions, neither PanAmSat nor Galaxy
will surrender or fail to renew or extend any of the Permits issued to them by
the FCC (other than those related to PanAmSat or Galaxy ground stations) or
give the FCC or other government entity with jurisdiction any grounds to
institute any proceeding for the revocation, suspension or adverse
modification of any PAS Permit, or Galaxy Permit, issued by the FCC; (xvii)
each of the Contributed Entities and PanAmSat will, subject to certain
exceptions, use commercially reasonable efforts to maintain each material FCC
construction Permit until the applicable construction projects are complete
and will use commercially reasonable efforts to avoid having certain permits
dismissed or denied; (xviii) each of the Contributed Entities and PanAmSat
will use commercially reasonable efforts to protect the transmissions to and
from PanAmSat's satellites and ground stations and to and from Galaxy's
satellites and ground stations from interference from other radio
communications facilities (existing or proposed) to the extent such
interference is prohibited by FCC rules or rights accorded to such satellites
under the ITU's Radio Regulations and shall promptly notify the other party of
any actual or threatened interference; and (xix) subject to certain
exceptions, neither PanAmSat nor the Contributed Entities will enter into any
contract, agreement or other instrument that (a) does not expire by the later
of one year after the date of the Reorganization Agreement or six months after
the Closing Date or (b) is not subject to termination upon less than six
months' written notice to the other party thereto, which in either case
materially restricts or limits its right to conduct business or compete.
In addition to the foregoing and subject to certain exceptions, PanAmSat and
HCI also have agreed that none of PanAmSat, its subsidiaries or the
Contributed Entities will, during the Interim Period: (i) increase any
compensation or fringe benefits of any of its directors, officers, or key
employees; (ii) pay or agree to pay any pension, retirement allowance,
severance, termination or other employee benefit not required or contemplated
by any of its existing benefit plans to any such director, officer or key
employee, whether past or present; (iii) enter into any new, or materially
amend any existing, employment or severance or termination agreement with any
such director, officer or key employee (other than with respect to new hires
consistent with past practice); or (iv) establish, adopt, enter into or amend
any collective bargaining, bonus, profit sharing, thrift, compensation, stock
option, restricted stock, pension, retirement, savings, welfare, deferred
compensation, employment, termination, severance or other employee benefit
plan, agreement, trust, fund, policy or arrangement for the benefit or welfare
of any directors, officers or current or former employees, except in each case
(a) to the extent required by applicable law or regulation, (b) pursuant to
existing collective bargaining agreements, (c) in the case of PanAmSat and its
subsidiaries only, for cash bonuses in lieu of options not to exceed $5
million in the
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aggregate, (d) normal bonuses and normal increases to officers and key
employees consistent with past practice or other agreements which PanAmSat and
HCI believe are necessary for the continued conduct of their respective
business in the ordinary course, or (e) for amendments to its existing
benefits plans which were disclosed to the other parties prior to the
execution of the Reorganization Agreement or which would not materially
increase the cost of benefits to PanAmSat and its subsidiaries, taken as a
whole, or to the Galaxy Business, as the case may be. During the Interim
Period, control of the operations of PanAmSat and its subsidiaries will remain
with PanAmSat and control of the Galaxy Business will remain with HCI and the
Contributed Entities. No action will be taken constituting an assignment or
transfer of control of an FCC permit requiring the consent of the FCC without
first obtaining such consent or approval.
Subject to certain exceptions, New PanAmSat has agreed that during the
Interim Period it will conduct no operations and will preserve intact its
business organization. In addition, subject to certain exceptions, New
PanAmSat will not, prior to the Closing Date, without the prior written
consent of PanAmSat: (i) amend its certificate of incorporation or bylaws
(other than as contemplated by the Reorganization Agreement); (ii) issue,
pledge or sell additional shares of capital stock of any class or securities
convertible into capital stock of any class, or any rights, warrants or
options to acquire any convertible securities or capital stock, or any other
securities in respect of, in lieu of, or in substitution for, shares of common
stock outstanding on September 20, 1996; (iii) declare any dividend or other
distribution in respect of any class or series of its capital stock; (iv)
authorize, recommend, propose or announce an intention to adopt a plan of
complete or partial liquidation or dissolution; (v) take any action that would
make any representation or warranty of the Hughes Parties contained in the
Reorganization Agreement inaccurate in any respect at, or as of any time prior
to, the Closing Date; or (vi) enter into a contract, commitment or arrangement
to do any of the foregoing, or to authorize, recommend, propose or announce an
intention to do any of the foregoing.
The parties to the Reorganization Agreement have also agreed: (i) to provide
each other during the Interim Period with reasonable access to information
about their respective businesses, other than competitively sensitive
information such as pricing or customer specific information; (ii) to treat as
confidential each other's confidential information; (iii) to cooperate in
preparing filings in connection with obtaining any necessary regulatory
approvals, including FCC consent, to the transactions contemplated by the
Reorganization Agreement; (iv) to give notice to each other of certain events;
(v) to consult with each other as to any press releases or public
announcements relating to the Reorganization Agreement or the transactions
contemplated thereby; (vi) that PanAmSat will deliver to HCI a letter
identifying, to the best of PanAmSat's knowledge, all persons whom PanAmSat
expects will be deemed to be affiliates of PanAmSat for purposes of Rule 145
under the Securities Act; (vii) that New PanAmSat will prepare and submit to
the NYSE or the Nasdaq a listing application covering the shares of New PAS
Common Stock issuable in the Merger; (viii) that, on or prior to the Closing
Date, each Contributed Entity shall enter into written agreements to document
all previously undocumented arrangements with Affiliates of the Contributed
Entities for material goods or services provided to the Galaxy Business; (ix)
that promptly following the Closing, New PanAmSat will enter into a customary
agreement to pay and indemnify HE for obligations arising under existing
guarantees provided by HE of leveraged leases of transponders used in the
Galaxy Business; (x) to supplement their respective schedules delivered in
connection with the Reorganization Agreement as of the Closing Date to the
extent necessary to reflect matters permitted by, or consented to by, the
other parties or as may be necessary to make the schedules accurate and
complete in all material respects as of the Closing Date; (xi) subject to the
fulfillment at or before the Closing Date of each of the conditions of
performance set forth in the Reorganization Agreement or the waiver thereof,
to perform such further acts and execute such documents as may be reasonably
required to effect the transactions contemplated by the Reorganization
Agreement; (xii) to enter into and take all actions necessary to consummate
the transactions contemplated by each of the Related Agreements to which they
are a party, subject in each case to the terms and conditions of each such
Related Agreement; and (xiii) to cooperate in the preparation of this Proxy
Statement/Prospectus and the related Registration Statement pertaining to the
shares of New PAS Common Stock issuable in connection with the Merger.
Pursuant to the Reorganization Agreement, HCI shall cause one of the
Contributed Entities to acquire a leasehold interest, for a term of at least
30 years and otherwise on commercially reasonable terms and conditions, in and
to the real property on which are located the ground station and other
improvements currently owned by HCSS located off
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East Garton Road in Castle Rock, Colorado. In addition, such lease shall
provide that any domestic or international satellite arc shall not be blocked
by any improvement or structure on any adjoining land owned or controlled by
HCSS, its successors and assigns. HCI shall cause one of the Contributed
Entities to continue to negotiate, on commercially reasonable terms, for the
acquisition of the fee interest of Texaco Exploration and Production, Inc. in
and to approximately 752 acres located off Telegraph Road in Fillmore,
California.
The Reorganization Agreement further provides that, as of July 1, 1996, the
Galaxy Business will operate as a separate stand-alone entity with respect to
all aspects of its cash management including retention of the cash receipts
and proceeds from all sources of the business together with the payment of all
necessary operating expenses of the business (excluding noncash outlays for
expenses such as depreciation and amortization) and capital outlays (including
those expenses and capital outlays that are directly attributable to the
business but which may, for convenience purposes, be paid by HE and
redistributed to the Galaxy Business) (the "Closed System"). The Galaxy
Business also will be responsible for the payment of all properly allocated
costs of the Galaxy Business, including its allocated share of corporate and
sector "General & Administrative" costs consistent with the past accounting
practices of the Galaxy Business. The Galaxy Business will compute an income
tax provision for the taxable earnings of the business in accordance with GAAP
and will provide for the appropriate income taxes of the business including
the determination and recognition of necessary deferred tax amounts (which
deferred tax amounts may not be deducted as cash expenses). In addition, HCI
will cause all proceeds received during the Interim Period from any source
with respect to the disposition of any asset or group of assets disposed of in
related transactions valued in excess of $60,000 (other than for satellites
under construction) included in the Galaxy Business to be separately
identified and retained within the Closed System. The aforementioned practices
will constitute a Closed System of cash management. HCI will be required to
use cash proceeds retained in the business to fund additions to its Capital
Expenditures for Satellites Under Construction accounts. For purposes of the
Reorganization Agreement, "Capital Expenditures for Satellites Under
Construction" includes manufacturing, launch and launch insurance, progress
payments and capitalized interest amounts. HCI, with the assistance of HE,
will continue to manage and pursue its capital expenditures program for the
construction and development of satellites during the period from July 1, 1996
through the Closing Date as it deems necessary in the ordinary course of its
business and consistent with prudent business practices. To the extent that
additions to HCI's Capital Expenditures for Satellites Under Construction
accounts, as determined on a consistent basis and in accordance with GAAP and
HCI's historical accounting practices and procedures, during the period from
July 1, 1996 through the Closing of the Merger, do not equal or exceed $575
million in the aggregate, HE shall be obligated to contribute any difference
in cash at the Closing. At Closing, the Galaxy Business will not participate
in any cash management programs of HE and New PanAmSat will operate as an
independent company.
NON-SOLICITATION
Under the Reorganization Agreement, PanAmSat agreed that it will not, and
will not permit its subsidiaries to, directly or indirectly, enter into,
solicit, initiate or continue any discussions or negotiations with, or
encourage or respond to any inquiries or proposals by, or participate in any
negotiations with, or provide any information to, or otherwise cooperate in
any other way with, any corporation, partnership, person or other entity or
group (each, a "Person") (other than HCI, HCG or any of their affiliates or
representatives), concerning any offer or proposal which constitutes or is
reasonably likely to lead to any Acquisition Proposal (as defined below);
provided that the PanAmSat Board may, in the event of an unsolicited
Acquisition Proposal, engage in negotiations or discussions with, or provide
information or data to, any Person relating to an Acquisition Proposal if (x)
the Acquisition Proposal is a bona fide fully-financed written offer submitted
to the PanAmSat Board and, after consulting with a nationally recognized
investment bank, the PanAmSat Board determines that such Acquisition Proposal
is economically superior to the transactions contemplated by the
Reorganization Agreement and the related agreements (a "Superior Acquisition
Proposal"), and (y) the PanAmSat Board determines, after having received the
written opinion of outside legal counsel to PanAmSat, that the failure to
engage in such negotiations or discussions or provide such information would
result in a breach of the fiduciary duties of the PanAmSat Board under
applicable law. Then, in such event, the PanAmSat Board may withdraw or modify
its approval or recommendation of the Merger or the Reorganization Agreement,
approve or recommend the
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Superior Acquisition Proposal or terminate the Reorganization Agreement. HCI
shall have the right to match any such Superior Acquisition Proposal and to
have such matching proposal immediately accepted by PanAmSat, for five
business days after HCI is informed of the necessary determinations with
respect to such Superior Acquisition Proposal. Any information furnished to
any Person in connection with an Acquisition Proposal shall be provided
pursuant to a confidentiality agreement in customary form on terms not more
favorable to such Person than the terms contained in the Confidentiality
Agreement dated as of July 19, 1996 between PanAmSat and HE. Subject to all of
the foregoing requirements, PanAmSat will immediately notify HCI orally and in
writing if any discussions or negotiations are sought to be initiated, any
inquiry or proposal is made or any information is requested by any Person with
respect to any actual or potential Acquisition Proposal, and immediately
notify HCI of all material terms of any proposal which it may receive in
respect of any such Acquisition Proposal (as defined below), including the
identity of the Person making the Acquisition Proposal or the request for
information, if known, and thereafter shall inform HCI on a timely, ongoing
basis of the status and content of any discussions or negotiations with such a
third party, including immediately reporting any material changes to the terms
and conditions thereof. PanAmSat will, and will cause its subsidiaries and
affiliates to and will use its best efforts to ensure that their respective
officers, directors, employees, investment bankers, attorneys, accountants and
other agents, immediately cease and cause to be terminated all discussions and
negotiations that have taken place prior to the date of the Reorganization
Agreement, if any, with any Persons conducted heretofore with respect to any
Acquisition Proposal. As used in the Reorganization Agreement, "Acquisition
Proposal" means any of the following (other than the transactions contemplated
by the Reorganization Agreement) involving PanAmSat or any of its
subsidiaries: (i) any merger, consolidation, share exchange, recapitalization,
business combination, or other similar transaction; (ii) any sale, lease
exchange, mortgage, pledge, transfer or other disposition of 10% or more of
the assets of PanAmSat and its subsidiaries, taken as a whole, in a single
transaction or series of transactions; (iii) any tender offer or exchange for
or other purchase of 10% or more of the outstanding shares of the capital
stock of PanAmSat or the filing of a registration statement under the
Securities Act in connection therewith; or (iv) any public announcement of a
proposal, plan or intention to do any of the foregoing. Nothing contained in
the foregoing summary shall prohibit PanAmSat or the PanAmSat Board from
taking and disclosing to its stockholders a position with respect to a tender
offer by a third party pursuant to Rules 14d-9 and 14e-2(a) promulgated under
the Exchange Act or making such disclosure as may be required by applicable
law. Note, however, that subject to certain exceptions, under the Principal
Stockholders Agreement, stockholders controlling over 98% of the vote have
agreed to use their reasonable efforts to remove any member of the PanAmSat
Board that fails to submit the Merger to the stockholders for their approval.
See "OTHER AGREEMENTS--Principal Stockholders Agreement."
STANDSTILL AGREEMENT
The Reorganization Agreement provides that for five years following the
Closing, none of the Hughes Parties or their affiliates shall acquire, or come
to hold, beneficially or otherwise, whether by purchase, exchange or
otherwise, individually or in the aggregate, more than 81% of the outstanding
equity interests in New PanAmSat, except (i) pursuant to a merger which is
approved by the holders of a majority of the shares of New PAS Common Stock
not owned directly or indirectly by HE or any of its affiliates, (ii) pursuant
to a tender offer recommended by the Disinterested Directors (as defined
below) of New PanAmSat and a second-step merger which offers the same per
share consideration to all holders of New PAS Common Stock and in which more
than one half of the outstanding New PAS Common Stock not owned by HCI and its
affiliates at the inception of the transaction is either tendered or voted in
favor of the transaction, and (iii) except pursuant to such other transaction
as shall provide for equal treatment of holders of New PAS Common Stock and is
approved by the holders of a majority of the shares of New PAS Common Stock
not owned by HCI and its affiliates and by a majority of the Disinterested
Directors of New PanAmSat. For purposes of the Reorganization Agreement
"Disinterested Director" means a director of New PanAmSat that is not an
existing or retired employee of New PanAmSat or any of its affiliates.
INDEMNIFICATION
Indemnification and Insurance for Directors and Officers. The Reorganization
Agreement provides that, from and after the Closing Date, all rights to
indemnification existing on September 20, 1996 in favor of individuals who at
or prior to the Closing Date were directors or officers of any of the
Contributed Entities, New
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PanAmSat, PanAmSat or any of their respective subsidiaries, as set forth in
their respective organizational documents, will survive the Merger, the
Univisa Contribution and the Asset Contribution with respect to matters
existing or occurring at or prior to the Closing Date and shall continue in
full force and effect for a period of five years following the Closing Date.
Each of HCI, the Contributed Entities, New PanAmSat, and PanAmSat will, and
from and after the Closing Date, New PanAmSat will indemnify, defend and hold
harmless each person who was on September 20, 1996, or has been at any time
prior to September 20, 1996 or who becomes prior to the Closing Date, an
officer or director of HCI, any Contributed Entity, New PanAmSat or PanAmSat,
or any of their respective subsidiaries (each individually an "Indemnified
Person" and, collectively, the "Indemnified Persons") against all losses,
claims, damages, costs, expenses (including attorneys' fees and expenses),
liabilities or judgments or amounts that are paid in settlement with the
approval of the Indemnified Person (which approval shall not be unreasonably
withheld) as a result of, or in connection with, any threatened or actual
claim, action, suit, proceeding or investigation based in whole or in part on,
or arising in whole or in part out of, the fact that such person is or was a
director or officer of HCI, any Contributed Entity, New PanAmSat or PanAmSat,
or any of their respective subsidiaries or out of or in connection with
activities in such capacity, whether pertaining to any matter existing or
occurring at or prior to the Closing Date and whether asserted or claimed
prior to, at or after the Closing Date ("Indemnified Liabilities"), including
all Indemnified Liabilities based in whole or in part on, or arising in whole
or in part out of, or pertaining to the Reorganization Agreement or the
transactions contemplated by the Reorganization Agreement, in each case to the
full extent a corporation is permitted under the corporate law of the state in
which it is incorporated to indemnify any such person and, without limiting
the generality or effect of the foregoing, to the fullest extent provided in
the respective organizational documents of HCI, the Contributed Entities, New
PanAmSat and PanAmSat and their respective subsidiaries as in effect on
September 20, 1996. New PanAmSat will pay expenses in advance of the final
disposition of any such action or proceeding to each Indemnified Person to the
fullest extent permitted by law. In the event any such claim, action, suit,
proceeding or investigation is brought against any Indemnified Persons
(whether arising before or after the Closing Date), (i) the Indemnified
Persons may retain counsel reasonably satisfactory to HCI or PanAmSat, or from
and after the Closing, New PanAmSat and HCI or PanAmSat will, or from and
after the Closing, New PanAmSat will pay all fees and expenses of such counsel
for the Indemnified Persons promptly as statements therefore are received and
(ii) HCI or PanAmSat shall, or from and after the Closing, New PanAmSat will,
use all reasonable efforts to assist in the vigorous defense of any such
matter, provided that none of HCI or PanAmSat, or from and after the Closing,
New PanAmSat, will be liable for any settlement effected without its prior
written consent, which consent will not unreasonably be withheld. Any
Indemnified Party wishing to claim indemnification under this section, upon
learning of any such claim, action, suit, proceeding or investigation, shall
notify HCI or PanAmSat, or from and after the Closing, New PanAmSat (but the
failure so to notify shall not relieve a party from any liability which it may
have under this section except and only to the extent such failure materially
prejudices such party), and shall deliver to HCI or PanAmSat, or from and
after the Closing, New PanAmSat, any undertaking contemplated or required by
the corporate law of its state in which it is incorporated. The Indemnified
Persons as a group may retain only one law firm to represent them with respect
to each such matter unless there is, in the opinion of counsel to an
Indemnified Person, under applicable standards of professional conduct, a
conflict on any significant issue between the positions of any two or more
Indemnified Persons or unless different defenses may exist. Each of HCI, the
Contributed Entities, New PanAmSat and PanAmSat agree that all rights to
indemnification, including provisions relating to advances of expenses
incurred in defense of any action or suit, existing in favor of the
Indemnified Persons with respect to matters occurring through the Closing
Date, will survive the Asset Contribution, the Univisa Contribution and the
Merger and will continue in full force and effect for a period of not less
than four years from the Closing Date; provided, however, that all rights to
indemnification in respect of any Indemnified Liabilities asserted or made
within such period will continue until the disposition of such Indemnified
Liabilities.
For a period of five years after the Closing Date, New PanAmSat will
maintain in effect or replace with equivalent policies of directors' and
officers' liability insurance as maintained by HCI, the Contributed Entities,
New PanAmSat or PanAmSat, as the case may be, and their respective
subsidiaries with respect to matters arising before the Closing Date, provided
that New PanAmSat will not be required to pay an annual premium for such
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insurance in excess of 175% of the last annual premium paid by HCI, a
Contributed Entity, New PanAmSat or PanAmSat, as the case may be, prior to
September 20, 1996, but in such case will purchase as much coverage as
possible for such amount.
Indemnification for Excluded and Contributed Liabilities. Pursuant to the
Reorganization Agreement, HCI agrees to indemnify, defend and hold harmless
New PanAmSat and each of its subsidiaries and their respective successors-in-
interest against any losses, claims, damages or liabilities, joint or several,
arising out of or in connection with any loss, claim, damage or liability
against or pertaining to any Hughes Party and/or their Affiliates (other than
New PanAmSat and its subsidiaries) other than the Galaxy Liabilities, and HCI
shall reimburse New PanAmSat, each such subsidiary and each such successor-in-
interest (each, a "New PanAmSat Indemnified Party") for any legal or any other
expenses reasonably incurred by any of them in connection with investigating
or defending any such loss, claim, damage or liability.
New PanAmSat agrees to indemnify, defend and hold harmless each of HCI and
HCG and their subsidiaries and successors-in-interest after the Closing
against any losses, claims, damages or liabilities, joint or several, arising
out of or in connection with the Galaxy Liabilities assumed by New PanAmSat
pursuant to the terms of the Reorganization Agreement, and New PanAmSat shall
reimburse HCI or HCG, as the case may be, and each of their subsidiaries and
each such successor-in-interest (each, a "Hughes Indemnified Party") for any
legal or any other expenses reasonably incurred by any of them in connection
with investigating or defending any such loss, claim, damage, liability or
action.
Whenever any claim shall arise for indemnification as described above, the
New PanAmSat Indemnified Party or the Hughes Indemnified Party, as the case
may be (in either case, an "Indemnified Party"), shall promptly notify the
other party providing such indemnification (an "Indemnifying Party") in
writing of such claim and, when known, the facts constituting the basis for
such claim. Failure by any Indemnified Party to so notify the Indemnifying
Party shall not relieve such Indemnifying Party of any liability hereunder
except to the extent that such failure materially prejudices such Indemnifying
Party.
After receipt of the foregoing notice, if the Indemnifying Party undertakes
to defend any such claim, then the Indemnifying Party shall be entitled, if it
so elects, to take control of the defense and investigation with respect to
such claim and to employ and engage attorneys of its own choice to handle and
defend the same, at the Indemnifying Party's cost, risk and expense, upon
written notice to the Indemnified Party of such election, which notice
acknowledges such Indemnifying Party's obligation to provide indemnification
hereunder. The Indemnifying Party shall not settle any third-party claim that
is the subject of indemnification without the written consent of the
Indemnified Party, which consent shall not be unreasonably withheld; provided,
however, that the Indemnifying Party may settle a claim without the
Indemnified Party's consent if such settlement (i) makes no admission or
acknowledgment of liability or culpability with respect to such Indemnified
Party, (ii) includes a complete release of the Indemnified Party and (iii)
does not require the Indemnified Party to make any payment or forego or take
any action. The Indemnified Party shall cooperate in all reasonable respects
with the Indemnifying Party and its attorneys in the investigation, trial and
defense of any lawsuit or action with respect to such claim and any appeal
arising therefrom. The Indemnified Party may, at its own cost, participate in
any investigation, trial and defense of such lawsuit or action controlled by
the Indemnifying Party and any appeal arising therefrom. If, after receipt of
notice described in the preceding paragraph, the Indemnifying Party does not
undertake to defend any such claim, the Indemnified Party may, but shall have
no obligation to, contest any lawsuit or action with respect to such claim and
the Indemnifying Party shall be bound by the result obtained with respect
thereto by the Indemnified Party (including, without limitation, the
settlement thereof without the consent of the Indemnifying Party). If there
are one or more legal defenses available to the Indemnified Party that
conflict with those available to the Indemnifying Party, the Indemnified Party
shall have the right, at the expense of the Indemnifying Party, to assume the
defense of the lawsuit or action; provided, however, that the Indemnified
Party may not settle such lawsuit or action without the consent of the
Indemnifying Party, which consent shall not be unreasonably withheld.
At any time after the commencement of a defense of any lawsuit or action,
the Indemnifying Party may request the Indemnified Party to agree in writing
to the abandonment of such contest or to the payment or compromise by the
Indemnifying Party of such claim, whereupon such action shall be taken unless
the
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Indemnified Party determines that the contest should be continued and so
notifies the Indemnifying Party in writing within 15 days of receipt of such
request from the Indemnifying Party. If the Indemnified Party determines that
the contest should be continued, the Indemnifying Party shall be liable only
to the extent of the lesser of (i) the amount which the other parties to the
contested claim had agreed to accept in payment or compromise as of the time
the Indemnifying Party made its request therefor to the Indemnified Party or
(ii) such amount for which the Indemnifying Party may be liable with respect
to such claim by reason of the provisions of the Reorganization Agreement.
CERTAIN BENEFITS MATTERS
The Reorganization Agreement provides that, unless otherwise agreed to by
PanAmSat and HE, New PanAmSat shall establish, as of the Effective Time, a
defined contribution pension plan (the "New PanAmSat Savings Plan") which
shall be qualified under Sections 401(a) and (k) of the Code and a trust
related thereto which shall be exempt from taxation under Section 501(a) of
the Code. The New PanAmSat Savings Plan shall provide for employee deferrals
and employer matching contributions at the rate of 4% of compensation, with
employer matching contributions made in stock of New PanAmSat. To the extent
permitted by law, credit for past service with the Galaxy Business or PanAmSat
prior to the Effective Time shall be provided under the New PanAmSat Savings
Plan to participants for the purpose of vesting and eligibility to
participate.
New PanAmSat shall provide stock options to certain employees from and after
the time that New PanAmSat's stock is publicly held. The New PanAmSat Board
will act upon the recommendations of a joint committee of representatives of
PanAmSat and HCI with regard to such stock options.
TERMINATION
The Reorganization Agreement is subject to termination by mutual consent of
HCI and PanAmSat or at the option of either PanAmSat or HCI if the Merger, the
Univisa Contribution and the Asset Contribution are not consummated on or
before December 20, 1997 (the "Final Date"), provided that such right to
terminate will not be available to any party whose failure to fulfill any
obligation under the Reorganization Agreement has been the cause of or
resulted in the failure of the Asset Contribution, the Univisa Contribution or
the Merger to occur on or before such date, provided further that the non-
breaching party will have the right to proceed with the Reorganization in such
case. In addition, prior to such time, the Reorganization Agreement is subject
to termination upon: (i) a breach of any representation, warranty, covenant or
agreement by either party, or if any representation or warranty shall have
become materially inaccurate or incomplete, in either case, such that the
conditions to Closing could not be satisfied, provided that willful or
reckless breaches shall be deemed to cause the conditions to Closing to become
incapable of fulfillment; (ii) the issuance of any permanent, final and non-
appealable injunction or order of a court or other competent authority
preventing the consummation of any of the Asset Contribution, the Univisa
Contribution or the Merger; or (iii) failure to receive the requisite vote for
approval and adoption by the PanAmSat stockholders for the Reorganization
Agreement and the Merger.
In addition to the foregoing termination events, the Reorganization
Agreement may be terminated by HCI at any time prior to the Closing Date if
(i) the PanAmSat Board withdraws, modifies or changes its recommendation of
the Reorganization Agreement in any manner adverse to HCI or resolves to do
any of the foregoing, (ii) the PanAmSat Board recommends to its stockholders
any Acquisition Proposal, or (iii) a tender offer or exchange offer for 15% or
more of the outstanding PAS Common Stock is commenced, and the PanAmSat Board
recommends that the holders of such stock tender their shares in such tender
or exchange offer. See "--Termination Fee."
The Reorganization Agreement also may be terminated by the PanAmSat Board at
any time prior to the Closing Date if in the exercise of its good faith
judgment as to fiduciary duties owed to its stockholders imposed by law, and
provided that the PanAmSat Board shall have complied with each of the other
requirements set forth in the Reorganization Agreement with respect to
alternative proposals, the PanAmSat Board adopts a Superior Acquisition
Proposal.
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TERMINATION FEE
PanAmSat has agreed that, in the event that the Reorganization Agreement
shall be terminated as a result of (i) the failure to consummate the Merger,
the Univisa Contribution and the Asset Contribution prior to the Final Date
when (A) an Acquisition Proposal has been made but not rejected by PanAmSat
and (B) PanAmSat or any of its subsidiaries or stockholders shall thereafter
consummate or agree to consummate a transaction that would constitute an
Acquisition Proposal with any person within twelve (12) months from the date
of such termination, (ii) PanAmSat's stockholders have failed to approve the
Reorganization Agreement and the Merger and an Acquisition Proposal has been
made and not withdrawn or rejected, or (iii) action of the PanAmSat Board (A)
to withdraw, modify or change its recommendation of the Reorganization
Agreement in a manner adverse to the Hughes Parties, (B) to recommend to the
PanAmSat stockholders any Acquisition Proposal, or (C) a tender offer or
exchange offer for 15% or more of the outstanding shares of PAS Common Stock
is commenced and the PanAmSat Board recommends that the holders of stock
tender their shares in such tender or exchange offer, or (iv) if in the
exercise of its good faith judgment as to fiduciary duties of the PanAmSat
Board owed to its stockholders imposed by law, the PanAmSat Board adopts a
Superior Acquisition Proposal, then PanAmSat shall pay to HCI $80 million (the
"Termination Fee"). The Termination Fee is payable in the case of termination
under clause (i) described above at the earlier of the signing of a definitive
agreement relating to such Acquisition Proposal or at the closing of such
Acquisition Proposal, and within one business day of termination described in
clauses (ii), (iii) and (iv) above. If a Termination Fee is payable by
PanAmSat, PanAmSat also shall assume and concurrently pay or reimburse HCI for
all reasonable fees and expenses (the "Expenses") incurred by HCI and its
affiliates (including the fees and expenses of their counsel, accountants,
financial advisors and funding sources) related to the matters contemplated by
the Reorganization Agreement and the Related Agreements, up to $7.5 million in
the aggregate. If PanAmSat fails to pay the Termination Fee or the Expenses
when due, PanAmSat shall also pay to HCI all costs and expenses (including
fees and disbursements of counsel) incurred in collecting such overdue
amounts, together with interest on such overdue amounts from the date such
payment was required to be made until the date such payment is received at a
rate per annum equal to the "reference rate" as announced from time to time by
Bank of America NT&SA.
CERTAIN RELATED PARTY TRANSACTIONS
Pursuant to the Reorganization Agreement, in the enforcement, interpretation
or amendment of the Reorganization Agreement and the related agreements by New
PanAmSat affecting the rights and obligations of HE or its affiliates
following the Closing, New PanAmSat will be represented by a committee of the
New PanAmSat Board comprised of Disinterested Directors. See "DESCRIPTION OF
NEW PANAMSAT CAPITAL STOCK."
EXPENSES
Whether or not the Reorganization is consummated, each party will pay its
own expenses in connection with the transactions contemplated by the
Reorganization Agreement, except that (i) the filing fees in connection with
filings under the HSR Act, (ii) the filing fee in connection with the filing
of this Proxy Statement/Prospectus or the Registration Statement with the
Commission, (iii) the filing fees in connection with necessary applications to
the FCC and similar foreign agencies, (iv) the expenses incurred in connection
with the printing and mailing of the Registration Statement and the Proxy
Statement/Prospectus and (v) fees and expenses related to any expert
consultants (excluding attorneys and accountants) retained in connection with
certain regulatory filings will be shared equally by the Hughes Parties, on
the one hand, and PanAmSat, on the other hand.
AMENDMENT
Subject to applicable law, the Reorganization Agreement may be amended,
modified and supplemented, whether before or after the vote of the
stockholders of PanAmSat contemplated hereby, by written agreement of the
parties thereto, at any time prior to the Closing Date; provided, however,
that after the approval of the Merger and the Reorganization Agreement by the
stockholders of PanAmSat, no such amendment or modification may reduce or
change the consideration to be received by the stockholders of PanAmSat in the
Merger.
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THE UNIVISA CONTRIBUTION AGREEMENT
The following is a summary of certain provisions of the Univisa Contribution
Agreement, a copy of which is attached hereto as Appendix C and incorporated
herein by reference. The following summary is qualified by reference to the
complete text of the Univisa Contribution Agreement.
Concurrently with the execution of the Reorganization Agreement, HCI, New
PanAmSat, Televisa and S Company entered into the Univisa Contribution
Agreement pursuant to which S Company agreed to contribute to New PanAmSat all
of the outstanding capital stock of Univisa, which is the indirect owner of
all outstanding shares of PAS Class B Common Stock.
The Univisa Contribution. The Univisa Contribution Agreement provides that
on the Closing Date (immediately after the Asset Contribution and immediately
before the Merger), S Company will contribute to New PanAmSat all of the
outstanding shares of capital stock of Univisa. In exchange for such
contribution, S Company will receive consideration with an aggregate value
deemed by the parties as of the date of the Univisa Contribution Agreement to
be equal to the product of $30 multiplied by the number of shares of PAS Class
B Common Stock indirectly owned by S Company (the "Value Unit Consideration"),
which shall be divided into units with a deemed value of $30 each (each such
unit, a "Value Unit"), each such Value Unit to be exchanged, at the election
of S Company, for one of the following:
(i) the right to receive the Standard Consideration (consisting of an
amount in cash equal to one half ( 1/2) of the Standard Cash Consideration
plus one half ( 1/2) share of New PAS Common Stock); or
(ii) the right to receive the Stock Consideration (consisting of one (1)
share of New PAS Common Stock); or
(iii) the right to receive the Standard Cash Consideration (consisting of
an amount in cash equal to $30, plus any interest that accrues pursuant to
the Reorganization Agreement if the Closing has not occurred on or prior to
September 20, 1997).
S Company's election to receive the Stock Consideration or the Standard Cash
Consideration in exchange for Value Units shall be subject to adjustment in
accordance with the proration procedures specified in the Reorganization
Agreement. See "THE REORGANIZATION AGREEMENT--Elections by Holders of PAS
Common Stock; Exchange of Certificates in the Merger." At the time that the
Value Unit Consideration is paid, a portion of such consideration equal to the
Trust Holdback (as defined below) will be assigned and delivered to a trustee
to be selected by New PanAmSat, HCI, S Company and Televisa, to be held in
trust to satisfy certain indemnification obligations of S Company and
Televisa. See "--Indemnification." As a result of the Univisa Contribution,
Univisa will become a wholly owned subsidiary of New PanAmSat. Thereafter, New
PanAmSat will indirectly own all of the outstanding shares of PAS Class B
Common Stock, which shall remain outstanding after the Merger as Class B
Common Stock of the Surviving Corporation.
Repurchase of Shares and Purchase of DTH Option. Immediately after S Company
receives the consideration payable in exchange for the Univisa Contribution,
New PanAmSat will repurchase 7.5 million shares of New PAS Common Stock
received by S Company in exchange for $225 million. Following the Share
Repurchase, either Televisa, S Company and/or their designees will purchase
the DTH Options for $225 million. See "THE DTH SALE."
Certain Representations and Warranties. The Univisa Contribution Agreement
contains customary representations and warranties by each of Televisa, S
Company, HCI and New PanAmSat as to due organization, good standing and
corporate authority, capital structure (with respect to Televisa and S
Company), enforceability of the Univisa Contribution Agreement, no violations
of its charter, bylaws or material agreements, and the absence of government
and third party consents required to consummate the Univisa Contribution. The
Univisa Contribution Agreement contains additional representations and
warranties as to, among other things, the preparation of Univisa's financial
statements in accordance with United States generally accepted accounting
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principles, the preparation of Televisa's financial statements in accordance
with Mexican generally accepted accounting principles, and the tax returns
filed and taxes paid (or reserved for) by Univisa and its subsidiaries. Each
of HCI and New PanAmSat also has represented and warranted that it has no plan
or intention to liquidate (completely or partially) or dissolve Univisa or
USHI, or merge, consolidate or combine either of them with or into New
PanAmSat, PanAmSat or any other entity, other than a merger of USHI into
Univisa qualifying as a tax free liquidation for Federal income tax purposes,
and it has no plan or intention to cause or permit Univisa, USHI or PanAmSat
to take any of the foregoing actions.
Certain Covenants. Pursuant to the Univisa Contribution Agreement, each of
Televisa and S Company has agreed, among other things, that during the Interim
Period: (i) neither Univisa nor any of its subsidiaries will engage in any new
business activities; (ii) Univisa and its subsidiaries shall pay, discharge
and satisfy all direct and indirect liabilities, indebtedness or other
obligations that become due on or before the Closing Date; (iii) on or prior
to the Closing Date, Univisa and its subsidiaries shall distribute to
Televisa, S Company and their designees all assets of Univisa and its
subsidiaries (other than shares of USHI stock, shares of PAS Class B Common
Stock and cash sufficient to pay all liabilities and expenses, including
taxes, incurred by Univisa or USHI in connection with the transactions
contemplated by the Univisa Contribution Agreement (that are the
responsibility of Univisa) which are not paid prior to the Closing Date); and
(iv) Televisa and S Company will assume any and all liabilities of Univisa and
USHI relating to occurrences or events prior to or through the last date on
which transactions contemplated by the Univisa Contribution Agreement and the
Reorganization Agreement are consummated relating to the assets transferred
out of Univisa or USHI. Each of Televisa, S Company, HCI and New PanAmSat has
agreed that, during the Interim Period, none of them will take or permit any
of their subsidiaries to take any action that results in any condition to
Closing not being satisfied in all material respects. The parties to the
Univisa Contribution Agreement also have agreed to certain other customary
covenants regarding access to Univisa's properties, books and records,
cooperation in the preparation of filings to obtain any required governmental
approvals, providing notice of certain events and consulting with each other
as to press releases or public announcements. In addition, Univisa is required
to change the names of "Univisa, Inc." and "Univisa Satellite Holdings, Inc."
to names that do not include "Univisa" prior to the Closing Date, and to
cooperate in preparing a Known Liabilities Estimate (as such term is defined
in the Univisa Contribution Agreement) of the amount reasonably necessary to
satisfy in full all of the liabilities of each of Univisa and USHI estimated
or projected as of the Closing Date together with the amount reasonably
necessary to satisfy all taxes for all taxable years and other periods ending
on the Closing Date, including any such taxes attributable to any
distributions of assets by Univisa made in contemplation of the transactions
contemplated by the Univisa Contribution Agreement.
Conditions to the Univisa Contribution. The obligations of the parties to
consummate the Univisa Contribution are subject to the satisfaction on or
prior to the Closing Date of the following conditions, any or all of which may
be waived in whole or in part by the party benefiting thereby: (i) no order,
rule or statute by a government entity restricting or prohibiting the Univisa
Contribution shall have been issued or entered which would materially restrict
or prevent consummation of the Univisa Contribution; (ii) the waiting period
under the HSR Act or any related action shall have expired or been terminated
or withdrawn; (iii) all necessary governmental approvals shall have been
obtained; (iv) PanAmSat's Certificate of Incorporation shall have been amended
so that the consummation of the Univisa Contribution will not cause shares of
PAS Class B Common Stock to be converted or exchanged into any other shares of
the capital stock of PanAmSat; (v) all of the conditions to the obligations of
HCI (in the case of HCI and New PanAmSat) and PanAmSat (in the case of
Televisa and S Company) under the Reorganization Agreement shall have been
satisfied or waived; (vi) each of certain representations and warranties set
forth in the Univisa Contribution Agreement shall be true and correct in all
material respects as of the date of the Univisa Contribution Agreement and
(except to the extent such representations or warranties speak as of an
earlier date) as of the Closing Date; (vii) each of the parties shall have
performed in all material respects all obligations required to be performed by
it under the Univisa Contribution Agreement on or before the Closing Date,
provided that the failure of the foregoing condition shall not relieve the
party relying on such condition of its obligations under the Univisa
Contribution Agreement if such failure is the result, directly or indirectly,
of any breach by such party of any of its material obligations
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under the Univisa Contribution Agreement; and (viii) each of the parties shall
have executed and delivered certain agreements and shall have received written
opinions of legal counsel to the other parties regarding certain specified
matters.
The Univisa Contribution Agreement also contains the following conditions to
the obligations of HCI and New PanAmSat: (i) on the Closing Date, Univisa's
sole subsidiary will be USHI, and Univisa's sole assets will consist of all of
the USHI stock and cash sufficient to pay all liabilities and expenses,
including taxes, incurred by Univisa or USHI in connection with the
transactions contemplated by the Univisa Contribution Agreement; (ii) on the
Closing Date, except for certain known liabilities, neither Univisa nor USHI
shall have any liabilities; (iii) the Known Liabilities Estimate (as such term
is defined in the Univisa Contribution Agreement) shall be equal to or less
than $150 million; (iv) neither Univisa nor USHI shall have any employees at
Closing and all members of the boards of directors of Univisa and USHI shall
resign from such boards effective as of the Closing Date; and (v) there shall
have been no material change in the financial condition, results of
operations, business or assets of Televisa which materially adversely affects
the ability of Televisa to perform its obligations under the Univisa
Contribution Agreement and certain agreements related to the collateral
securing the indemnification obligations of Televisa and S Company under the
Univisa Contribution Agreement (the "Collateral Agreements").
Agreement to Maintain Existing Capital Structure. For a period of two years
from the Closing Date, neither HCI nor New PanAmSat shall, and neither shall
cause or permit Univisa, USHI or PanAmSat to: (i) liquidate (completely or
partially), dissolve, merge, consolidate or combine Univisa or USHI with or
into New PanAmSat, PanAmSat or any other entity; (ii) recapitalize in any way
the classes of PAS Class A Common Stock, PAS Class B Common Stock and PAS
Ordinary Common Stock as they exist on the Closing Date; (iii) liquidate
(partially or completely), dissolve, merge, consolidate or combine PanAmSat
with or into (a) Univisa or USHI, (b) New PanAmSat or (c) any other person,
except in the case of clause (c), a merger, consolidation or combination of
which PanAmSat is the survivor; or (iv) distribute or otherwise transfer
shares of PAS Class B Common Stock to New PanAmSat or any other person, or
contribute or otherwise transfer shares of PAS Class A Common Stock or PAS
Ordinary Common Stock to Univisa or USHI.
Indemnification. Pursuant to the Univisa Contribution Agreement, Televisa
and S Company have agreed to jointly and severally indemnify each of HCI and
New PanAmSat, their affiliates, subsidiaries, representatives, successors and
assigns, against any costs, losses, taxes, liabilities, obligations, damages,
claims, demands, expenses, lost profits, damage to the environment, reasonable
attorneys' fees and all costs of defending any of the foregoing (collectively,
"Damages") incurred in connection with or arising out of, without duplication,
(i) any breach or inaccuracy of any representation or warranty, or breach of
any covenant, made by Televisa or S Company pursuant to the Univisa
Contribution Agreement, (ii) administering the Collateral Agreements, (iii)
any liabilities of Univisa and USHI existing prior to the Closing Date or
relating to the transfer of assets out of Univisa or USHI, (iv) any taxes of
Univisa, USHI or their subsidiaries or affiliates for all periods prior to the
Closing Date, including taxes attributable to distributions of assets by
Univisa and/or its subsidiaries contemplated by the Univisa Contribution
Agreement or the Reorganization Agreement, (v) any taxes imposed on taxable
income or gain recognized by Univisa or USHI for U.S. income tax purposes with
respect to the PAS Class B Common Stock held by USHI solely with respect to
the Reorganization, (vi) any liability imposed upon either HCI or New PanAmSat
by reason of New PanAmSat's status as transferee of the shares of capital
stock of Univisa, and (vii) any taxes of either HCI or New PanAmSat imposed on
receipt of indemnity payments in respect of Damages to the extent necessary to
make the after-tax amount of such payment equal to the amount of such Damages
incurred by HCI and New PanAmSat. Notwithstanding clauses (ii) through (vii)
above, Televisa and S Company need not provide indemnification for any Damages
incurred in connection with (a) HCI or New PanAmSat liquidating, dissolving or
combining Univisa or USHI in breach of certain representations and covenants
contained in the Univisa Contribution Agreement, (b) the breach by HCI or New
PanAmSat of a covenant in the Univisa Contribution Agreement regarding the
manner in which the Univisa Contribution will be reported for U.S. tax
purposes, (c) the breach by HCI or New PanAmSat of a covenant that, for two
years following the Closing Date, HCI and New PanAmSat shall not consummate
(and shall not permit Univisa, USHI
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or PanAmSat to consummate) certain corporate transactions involving Univisa,
USHI, PanAmSat, New PanAmSat or other entities, certain changes to the capital
structure of PanAmSat and certain stock transfers involving shares of capital
stock of PanAmSat, or (d) any other transaction consummated after the Closing
Date. Under the Collateral Agreements to be entered into on the Closing Date,
Televisa and S Company have agreed to deposit the following assets in trust to
secure their indemnification obligations described in this paragraph: (x) $25
million cash, (y) cash or cash equivalents in the amount of the Damages for
which Televisa and S Company are obligated to indemnify as described in this
paragraph and (z) at least five million shares of New PAS Common Stock or $30
in cash per share in lieu thereof (collectively, the "Trust Holdback"). The
Univisa Contribution Agreement also provides that HCI and New PanAmSat will
jointly and severally indemnify each of Televisa and S Company and their
respective affiliates, subsidiaries, representatives, successors and assignees
from and against any Damages incurred in connection with any breach or
inaccuracy of any representation or warranty, or breach of any covenant, made
by HCI or New PanAmSat in the Univisa Contribution Agreement.
Termination. The Univisa Contribution Agreement is subject to termination by
mutual consent of S Company and HCI, or by either of S Company or HCI if: (i)
the Univisa Contribution is not consummated on or before the Final Date and
the terminating party is not in material breach of its obligations under the
Univisa Contribution Agreement; (ii) the conditions to the terminating party's
obligations under the Univisa Contribution Agreement have not been complied
with or performed on or before the Closing Date and such party has materially
breached any of its material representations, warranties or covenants without
curing such non-compliance or non-performance; (iii) any injunction or order
of a court or other competent authority preventing the consummation of the
Univisa Contribution shall have become permanent, final and non-appealable; or
(iv) for any reason the Reorganization Agreement is terminated, except that S
Company shall not be able to terminate if the Reorganization Agreement is
terminated because PanAmSat's stockholders fail to approve and adopt the
Merger and the Reorganization Agreement or the PanAmSat Board takes or fails
to take certain action with respect to its recommendation of the
Reorganization Agreement.
Expenses. Whether or not the Univisa Contribution is consummated, each party
will pay its own expenses in connection with the transactions contemplated by
the Univisa Contribution Agreement, except that Univisa shall reimburse HCI
and New PanAmSat for the reasonable fees and disbursements of their counsel
(including any opinions to be rendered by such counsel), the fees and
disbursements of their certified public accountants, and their out-of-pocket
expenses (including all out-of-pocket expenses incurred by them or any of
their subsidiaries in complying with the covenant by HCI and New PanAmSat not
to take certain corporate actions with respect to Univisa or USHI for two
years following the Closing Date), in each case to the extent all such
expenses are incurred incident to the preparation of the Univisa Contribution
Agreement and the consummation of the transactions contemplated thereby, and
the aggregate amount of all such expenses does not exceed $500,000.
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THE DTH SALE
BACKGROUND
On March 27, 1995, PanAmSat and Televisa entered into a DTH System in Latin
America Memorandum of Understanding (the "Original MOU") evidencing their
intent to form various joint ventures to provide DTH services in Latin America
(the "Latin America JVs").
In November 1995, PanAmSat announced that it would serve as a satellite
provider for the Latin America DTH service to be offered by Globo
Participacoes, Ltd. ("Globo"), Televisa, News Corp. and Tele-Communications
International, Inc. ("TCI"). On February 29, 1996, PanAmSat, Televisa, Globo
and News Corp. entered into a letter agreement (as subsequently amended, the
"1996 Letter Agreement") pursuant to which PanAmSat agreed to provide service
to the Latin America JVs on 48 transponders ultimately on PAS-5 and PAS-6,
with temporary service on PAS-3 pending the commencement of service on PAS-6.
Under the 1996 Letter Agreement, Globo, Televisa and News Corp. agreed to
proportionally guaranty 100% of PanAmSat's fees for transponder services
provided to the Latin America JVs.
The Original MOU was terminated and superseded on September 20, 1996 by the
Revised DTH System in Latin America Memorandum of Understanding (the "Revised
MOU"), except with respect to the guaranty obligations described above.
Pursuant to the Revised MOU and certain oral agreements with Televisa,
PanAmSat has certain options to purchase equity interests in certain Televisa-
controlled entities that would take equity interests in the Latin America JVs
and companies formed to sell DTH services to consumers in Latin America. In
addition, the Revised MOU provides that with respect to the matters described
therein, all prior written or oral agreements and understandings related
thereto are terminated, other than an indemnification agreement between
Televisa and PanAmSat dated January 22, 1996 relating to certain agreements
between PanAmSat and Irdeto, B.V., which survives the Revised MOU.
PanAmSat and Televisa also have an oral agreement in principle that grants
to PanAmSat certain options to purchase equity interests in a joint venture to
offer DTH services in Spain (the "Spain Joint Venture") that would have the
capacity to broadcast approximately 24-80 digital channels to subscribers in
Spain using small 24-36 inch (60-90 cm) antennas.
An HCI affiliate is an investor in Galaxy Latin America ("GLA"), a
partnership that provides DTH services in Latin America. During the
negotiation of the Merger, HCI made it a condition to the Reorganization that
PanAmSat divest itself of the DTH Options. See "THE REORGANIZATION--Background
of the Reorganization," and "THE REORGANIZATION AGREEMENT--Conditions to the
Reorganization." Accordingly, on September 20, 1996, PanAmSat, Televisa and S
Company entered into the DTH Option Purchase Agreement, pursuant to which
either Televisa, S Company and/or their designees will acquire PanAmSat's
interests in the Latin America JVs and the Spain Joint Venture. The DTH Option
Purchase Agreement has no effect on the 1996 Letter Agreement and does not
terminate or alter any agreements regarding PanAmSat's provision of
transponder services to the Latin America JVs.
On August 16, 1996, the members of the DTH Committee of the PanAmSat Board
(comprised of directors unaffiliated with Televisa) engaged Salomon Brothers
to represent it in connection with the sale of the DTH Options. Given that the
interest of PanAmSat in the DTH Options is held derivatively through Televisa
and that Televisa-controlled entities would be equity participants in the
Latin America JVs and the Spain Joint Venture, it was determined that Televisa
would be the appropriate party to purchase the DTH Options. After
negotiations, it was agreed that either Televisa, S Company and/or their
designees would purchase the DTH Options for $225 million. Televisa required
that the purchase be made with stock of New PanAmSat, and the 1993 Indentures
require that, in connection with any sale of PanAmSat assets, at least 85% of
the proceeds be paid in cash. As a result, the parties agreed to the following
structure: immediately after New PanAmSat's payment of consideration to S
Company in the Univisa Contribution, New PanAmSat will repurchase 7.5 million
shares of the New PAS Common Stock received by S Company pursuant to the
Univisa Contribution for $225 million, and then either Televisa, S Company
and/or their designees will purchase the DTH Options for $225 million. See
"THE REORGANIZATION--Background of the Reorganization."
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In a separate transaction, on September 20, 1996, PanAmSat agreed to provide
Televisa, S.A. de C.V., a wholly owned subsidiary of Televisa ("Televisa
Spain"), with transponder service from five PAS-3 Ku-band transponders, at
least three of which will be for the delivery of television services to Spain,
which may include DTH services. The transponder service fees reflect market
rates. This agreement is unaffected by the DTH Sale.
As a result of the DTH Sale, PanAmSat will no longer have options to acquire
any equity interests in the Latin America JVs and the Spain Joint Venture.
Notwithstanding the foregoing, the 1996 Letter Agreement will remain in effect
with respect to 36 transponders. The Brazil Transponder Agreement has since
been entered into for 12 of the transponders originally covered by the 1996
Letter Agreement. Accordingly, PanAmSat will provide transponder service to
the Latin America JVs pursuant to the 1996 Letter Agreement and the Brazil
Transponder Agreement. See "BUSINESS OF PANAMSAT--Customers and Markets."
TERMS OF THE DTH OPTION PURCHASE AGREEMENT
The following is a summary of certain provisions of the DTH Option Purchase
Agreement, a copy of which is attached hereto as Appendix H and incorporated
herein by reference. The following summary is qualified by reference to the
complete text of the DTH Option Purchase Agreement.
The DTH Option Purchase Agreement provides that PanAmSat will sell the DTH
Options (which are comprised of PanAmSat's rights to purchase equity interests
in the Latin America JVs and the Spain Joint Venture), at Televisa's option,
to Televisa and/or its designees or, under certain circumstances, at S
Company's option, to S Company and/or its designees, for a purchase price of
$225 million. The closing of the DTH Sale will occur substantially
concurrently with the receipt by S Company of the consideration to be paid by
New PanAmSat to it in connection with the Univisa Contribution.
Pursuant to the DTH Option Purchase Agreement, the parties have made certain
representations and warranties to each other, as to, among other things (i)
corporate power and authority to execute and deliver the DTH Option Purchase
Agreement and to effect the transactions contemplated thereby, (ii) due
authorization by all necessary corporate action, (iii) due execution and
delivery of the DTH Option Purchase Agreement and enforceability of the DTH
Option Purchase Agreement and (iv) required governmental consents. The parties
have also agreed to cooperate and endeavor in good faith to take all actions
required in connection with the consummation of the transactions contemplated
by the DTH Option Purchase Agreement.
The DTH Option Purchase Agreement may be terminated at any time prior to the
closing thereof (the "DTH Termination Date") if the Reorganization Agreement
is terminated. Notwithstanding such a termination, Televisa may extend the DTH
Option Purchase Agreement for a period of up to 12 months after the DTH
Termination Date (the "Extension Period") by giving written notice to PanAmSat
within the Extension Period. If the DTH Option Purchase Agreement is so
extended, the purchase price shall be increased at the rate of 10% per annum.
If PanAmSat enters into an agreement to effect a business combination within
the Extension Period and if Televisa has committed to purchase the DTH Options
in connection with such business combination, the closing of the DTH Options
shall be adjourned, at Televisa's option, until the consummation of such
business combination.
OPINION OF PANAMSAT'S FINANCIAL ADVISOR REGARDING THE DTH SALE
On September 19, 1996, Salomon Brothers delivered its written opinion (the
"Salomon Brothers Opinion") to the PanAmSat Board that, as of such date, and
based upon and subject to the qualifications described below, the
consideration to be paid by Televisa to acquire the DTH Options represented
fair value for the DTH Options from a financial point of view.
A copy of the Salomon Brothers Opinion is attached hereto as Appendix E.
Stockholders of PanAmSat are urged to read the Salomon Brothers Opinion in its
entirety for information with respect to the procedures followed, assumptions
made, matters considered and limits of the review by Salomon Brothers in
rendering the Salomon Brothers Opinion. References herein to the Salomon
Brothers Opinion are qualified by reference to the full text of the Salomon
Brothers Opinion, which is incorporated herein by reference.
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In connection with rendering the Salomon Brothers Opinion, Salomon Brothers
reviewed certain publicly available information concerning PanAmSat and
certain other financial information concerning PanAmSat, the Latin America JVs
and the Spain Joint Venture, including financial forecasts, that were provided
to Salomon Brothers by PanAmSat and Televisa. Salomon Brothers discussed the
business operations and financial condition of the Latin America JVs and the
Spain Joint Venture, as well as other matters Salomon Brothers believed to be
relevant to its inquiry, with certain officers and employees of PanAmSat and
Televisa. Salomon Brothers also considered such other information, financial
studies, analyses, investigations and financial, economic and market criteria
that it deemed relevant.
In its review and analysis and in arriving at its opinion, Salomon Brothers
assumed and relied upon the accuracy and completeness of the financial and
other information reviewed by it, and Salomon Brothers did not assume any
responsibility for independent verification of such information. With respect
to the financial forecasts relating to the Latin America JVs and the Spain
Joint Venture, Salomon Brothers assumed that such financial forecasts had been
reasonably prepared on bases reflecting the best currently available estimates
and judgments of the management of the Latin America JVs and the Spain Joint
Venture as to the future financial performance of the Latin America JVs and
the Spain Joint Venture, and Salomon Brothers expressed no opinion with
respect to such forecasts or the assumptions on which they were based. Salomon
Brothers did not make or obtain or assume any responsibility for making or
obtaining any independent evaluations or appraisals of any of the assets
(including properties and facilities) or liabilities of the Latin America JVs
and the Spain Joint Venture. Salomon Brothers was not asked to, and did not,
solicit other proposals for the acquisition of the DTH Options. No limitations
were imposed by PanAmSat with respect to the Salomon Brothers Opinion.
The Salomon Brothers Opinion is necessarily based upon conditions as they
existed as of the date of such opinion. The Salomon Brothers Opinion does not
address PanAmSat's underlying business decision to sell the DTH Options to any
party, including Televisa, in connection with the Merger. The Salomon Brothers
Opinion does not address the fairness of the Merger. The Salomon Brothers
Opinion is directed only to the consideration to be paid by Televisa to
acquire the DTH Options and does not constitute a recommendation concerning
how any stockholder of PanAmSat should vote with respect to the Merger.
Based upon the terms of Salomon Brothers' engagement, the Salomon Brothers
Opinion is intended solely for the benefit and use of PanAmSat (including its
management, directors and attorneys) in considering the sale of the DTH
Options. Salomon Brothers was retained by PanAmSat solely as an advisor to
PanAmSat, and not as an advisor to or agent of any other person, and
PanAmSat's engagement of Salomon Brothers was not intended to confer rights
upon any such other person (including any stockholder, employee or creditor of
PanAmSat) as against Salomon Brothers, Salomon Brothers' affiliates or their
respective directors, officers, agents and employees.
Salomon Brothers has acted as financial advisor to PanAmSat and will receive
a fee for its services. Pursuant to an engagement letter dated August 16,
1996, PanAmSat has agreed to pay Salomon Brothers for the rendering of the
Salomon Brothers Opinion a cash fee of $900,000, of which $400,000 will be
payable upon consummation of the sale of the DTH Options. PanAmSat has also
agreed to (i) reimburse Salomon Brothers for certain out-of-pocket expenses
incurred by Salomon Brothers in connection with its services and (ii)
indemnify Salomon Brothers and certain related persons against certain
liabilities, including liabilities under the federal securities law, relating
to or arising out of its engagement by or services to PanAmSat. In the
ordinary course of business, Salomon Brothers may actively trade the
securities of PanAmSat, Televisa and General Motors (including its GMH
"targeted stock") for Salomon Brothers' own account and for the accounts of
its customers and, accordingly, may at any time hold a long or short position
in such securities.
Salomon Brothers is an internationally recognized investment banking firm
that provides financial services in connection with a wide range of business
transactions. As part of its business, Salomon Brothers regularly engages in
the valuation of companies and their securities in connection with mergers and
acquisitions, negotiated underwritings, competitive biddings, secondary
distributions of listed and unlisted securities, private placements and for
other purposes. PanAmSat retained Salomon Brothers based on Salomon Brothers'
expertise in the valuation of companies as well as its familiarity with the
telecommunications industry.
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OTHER AGREEMENTS
The following is a summary of certain provisions of the Assurance Agreement,
Principal Stockholders Agreement, Stockholder Agreement, Registration Rights
Agreement and Tax Agreement, copies of which are attached hereto as Appendices
K, L, M, N and O and incorporated herein by reference. The following summaries
are qualified by reference to the complete text of such agreements.
ASSURANCE AGREEMENT
Contemporaneously with the execution of the Reorganization Agreement, HE
entered into the Assurance Agreement for the benefit of PanAmSat, S Company
and New PanAmSat, pursuant to which HE made assurances with respect to certain
obligations of HE's subsidiaries under the Reorganization Agreement and the
Univisa Contribution Agreement. The Assurance Agreement requires HE to loan or
arrange for a third party to loan to New PanAmSat, on or before the Closing
Date, $1.725 billion (plus any interest that accrues pursuant to the
Reorganization Agreement and Univisa Contribution Agreement) to pay the cash
consideration in the Merger and the Univisa Contribution and to fund the Share
Repurchase. This obligation is conditioned upon the satisfaction of all of the
conditions to the obligations of HCI and the entities currently comprising the
Galaxy Business to effect the Reorganization pursuant to the Reorganization
Agreement. If the loan is funded by a third party, HE is not required to
provide a guarantee or credit enhancement of such loan and, if the loan is
provided by HE, it shall be on commercially reasonably terms. HE has
determined that it will loan the $1.725 billion to New PanAmSat pursuant to
the terms of the New Financing that will be fully negotiated prior to Closing.
See "THE REORGANIZATION--Financing in Connection with the Reorganization."
The Assurance Agreement also provides that HE will cause its subsidiaries
(i) to operate the Galaxy Business in a manner consistent with its operations
prior to September 20, 1996, and (ii) to perform their respective obligations
under such agreements.
HE is obligated under the Assurance Agreement to take certain other
affirmative actions: HE will continue, after the Closing Date, to provide a
guaranty of New PanAmSat's obligations under all leveraged leases of Galaxy
transponders that were entered into prior to September 20, 1996, and HE will
cause its subsidiaries to negotiate and enter into a non-exclusive, royalty-
free, perpetual cross-license with New PanAmSat with respect to intellectual
property of HE that is used in the Galaxy Business prior to the Closing Date
and intellectual property of Galaxy that is used by HE prior to the Closing
Date.
PRINCIPAL STOCKHOLDERS AGREEMENT
Voting of Shares. Concurrently with the execution of the Reorganization
Agreement, the Principal Stockholders entered into the Principal Stockholders
Agreement pursuant to which each Principal Stockholder has agreed that, at any
meeting (whether annual or special and whether or not an adjourned or
postponed meeting) of the holders of PAS Common Stock, however called, or in
connection with any written consent of the holders of PAS Common Stock, such
Principal Stockholder will vote (or cause to be voted) the shares of PAS
Common Stock held of record or beneficially owned by such Principal
Stockholder (i) in favor of the Merger, the Reorganization Agreement and the
approval and adoption of the terms thereof and each of the other actions
contemplated by the Reorganization Agreement and the Principal Stockholders
Agreement; (ii) against any Acquisition Proposal and against any action or
agreement that would result in a breach in any respect of any covenant,
representation or warranty or any other obligation or agreement under the
Reorganization Agreement, the Univisa Contribution Agreement or the Principal
Stockholders Agreement; and (iii) against the following actions (other than
pursuant to the terms of the Principal Stockholders Agreement, the
Reorganization Agreement or the Univisa Contribution Agreement): (A) any
extraordinary corporate transaction, such as a merger, consolidation or other
business combination involving PanAmSat or its subsidiaries; (B) any sale,
lease or transfer by PanAmSat of a material amount of assets (including stock)
of PanAmSat or its subsidiaries, or a reorganization, restructuring,
recapitalization, special dividend, dissolution or liquidation of PanAmSat or
its subsidiaries; or (C) (1) any change in a majority of the persons who
constitute the board of directors of PanAmSat or its subsidiaries, including
any proposal to sell a substantial equity interest in PanAmSat or its
subsidiaries; (2) any change in the present capitalization of PanAmSat
including any proposal to sell a substantial
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equity interest in PanAmSat and its subsidiaries; (3) any amendment of
PanAmSat's or any of its subsidiaries' charters or bylaws; (4) any other
change in PanAmSat's or any of its subsidiaries' corporate structure or
business; or (5) any other action which is intended, or could reasonably be
expected, to impede, interfere with, delay, postpone, or materially adversely
affect the Merger and the transactions contemplated by the Principal
Stockholders Agreement, the Reorganization Agreement and the Univisa
Contribution Agreement. Each Principal Stockholder also has agreed (a) not to
enter into any agreement or understanding that would be inconsistent with the
provisions of the Principal Stockholders Agreement and (b) to take certain
actions intended to cause the transactions contemplated by the Reorganization
Agreement to be approved by PanAmSat's stockholders, if the PanAmSat Board has
failed or refused (other than as a result of a breach by HCI or any of its
affiliates under the Reorganization Agreement or because HCI and its
affiliates will not be able to satisfy the conditions precedent thereto) to
submit the transactions contemplated by the Reorganization Agreement to the
holders of PAS Common Stock.
Limitation on Transfer of Shares. Pursuant to the Principal Stockholders
Agreement, the Principal Stockholders have also agreed that they will not: (i)
sell, transfer or pledge any or all of their shares of PAS Common Stock or any
interest therein (or enter into any agreement or consent to do the same),
except for certain limited sales and transfers specified in the Principal
Stockholders Agreement and provided that a Principal Stockholder may pledge
its shares in connection with bona fide loan transactions with institutional
lenders if the terms of such pledge satisfy certain conditions; (ii) grant any
proxies or powers of attorney, deposit the shares into a voting trust or enter
into a voting agreement with respect to their shares of PAS Common Stock,
except that a Principal Stockholder may deposit its shares into a voting trust
or enter into a voting agreement in connection with any loan from an
institutional lender if certain conditions are satisfied; or (iii) take any
action that would be in contravention of the Principal Stockholders Agreement
or result in a breach by PanAmSat of its obligations under the Reorganization
Agreement.
Permitted sales and transfers under the Principal Stockholders Agreement are
limited to, for each of S Company, on the one hand, and the Class A Holders as
a group, on the other hand, sales of up to an aggregate of 2,500,000 shares of
PAS Common Stock (up to an aggregate of 5,000,000 shares collectively),
provided that such amounts may be increased to up to 5,000,000 shares each (or
10,000,000 shares collectively) upon the mutual agreement between S Company
and the Class A Holders, and provided further that except in the case of
transfers pursuant to Rule 144 or a registered public offering, any shares so
transferred convert to PAS Ordinary Common Stock and the transferee of such
shares becomes a party to the Principal Stockholders Agreement and agrees not
to make an Acquisition Proposal and not to dissent in the Merger. Each
Principal Stockholder has further agreed that it will not transfer any shares
of PAS Common Stock during a period of up to 30 days prior to the Closing Date
commencing on such date as HCI shall notify the Principal Stockholders to
cease transfers pursuant to this sentence.
No Solicitation. The Principal Stockholders Agreement requires that none of
the Principal Stockholders will, nor will they permit any of their respective
subsidiaries, or any of its or their officers, directors, employees, agents of
their affiliates (including any investment banker, attorney or accountant
retained by any Principal Stockholder) to, directly or indirectly, enter into,
solicit, initiate, or continue any discussions or negotiations with, or
encourage or respond to any inquiries or proposals by, or participate in any
negotiations with, or provide any information to, or otherwise cooperate in
any other way with, any person or group, other than HCI, HCG and their
affiliates, concerning any Acquisition Proposal. Each of the Principal
Stockholders is obligated to immediately notify HCI and HCG if any discussions
or negotiations are sought to be initiated, any inquiry or proposal is made,
or any information is requested with respect to any Acquisition Proposal, and
must notify HCI and HCG of the terms it receives regarding any such
Acquisition Proposal, including the identity of the prospective purchaser or
soliciting party if known. Each of the Principal Stockholders has further
agreed to use its best efforts as a stockholder of PanAmSat to cause PanAmSat
not to solicit any inquiries or any proposal which constitutes, or may
reasonably be expected to lead to, an Acquisition Proposal. Nothing contained
in the provisions described above will prohibit any director of PanAmSat from
taking actions in his or her capacity as such which are permitted or required
under the Reorganization Agreement.
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Stockholder Termination Fee. The Principal Stockholders Agreement further
provides that in the event that the Reorganization Agreement is terminated and
a Termination Fee is payable by PanAmSat to HCI pursuant to the Reorganization
Agreement, then each of the Principal Stockholders will be obligated to pay to
HCI an amount equal to (x) the number of shares of PAS Common Stock
beneficially owned by such Principal Stockholder on September 20, 1996,
multiplied by (y) the excess of (i) the per share value of consideration paid
or payable in consequence of consummation of the Acquisition Proposal over
(ii) $30.
STOCKHOLDER AGREEMENT
On the Closing Date, the Minority Stockholders, HCI and New PanAmSat will
enter into the Stockholder Agreement, pursuant to which the parties thereto
will agree to (i) certain restrictions on the purchase and sale of shares of
New PAS Common Stock, (ii) the designation of directors to the New PanAmSat
Board and (iii) certain covenants not to compete.
Tag-Along Right. The Stockholder Agreement will provide that each Minority
Stockholder will have the right to participate on a "tag-along" basis in any
proposed disposition by HCI or its affiliates (other than New PanAmSat) of
more than 5% of the then-outstanding shares of New PAS Common Stock. A
Minority Stockholder may participate in any such disposition by selling the
number of its shares of New PAS Common Stock that is equal to the product of
(a) the total number of shares proposed to be transferred and (b) a fraction,
the numerator of which is the total number of shares owned by such Minority
Stockholder and the denominator of which is the total number of shares owned
by HCI and all stockholders proposing to participate in such sale.
Sale Restrictions on HCI and New PanAmSat. The Stockholder Agreement will
provide that HCI and its affiliates (other than New PanAmSat) will be
restricted from disposing of their shares of New PAS Common Stock from the
Closing through the earlier of (i) the date of the disposition of shares by
the Minority Stockholders which causes the Minority Stockholders to
beneficially own, in the aggregate, less than 5% of the number of shares of
New PAS Common Stock outstanding immediately after the Closing, or (ii) the
date that is twelve months (plus certain additional periods of time) after the
date (the "Commencement Date") that is the earlier of (x) the first
anniversary of the Closing (or eighteen months after the Closing in the event
the Minority Stockholders sell more than five million shares of PAS Common
Stock (except as provided in the Stockholders Agreement) between September 20,
1996 and the Closing) and (y) the date New PanAmSat notifies the Minority
Stockholders that it has completed the refinancing of up to $1.725 billion of
indebtedness incurred by New PanAmSat in connection with the Reorganization.
New PanAmSat will be subject to similar restrictions on issuances of new
shares of New PAS Common Stock, except that such restrictions will not apply
to sales of New PAS Common Stock by New PanAmSat prior to the Commencement
Date to the extent that the net proceeds of such sales are used entirely to
refinance the $1.725 billion in new indebtedness that will be incurred by New
PanAmSat on the Closing. None of the foregoing sale restrictions will apply to
reasonable issuances of shares by New PanAmSat for employee plans, in
acquisitions from non-affiliates, pursuant to a dividend reinvestment plan or
upon exercise or conversion of previously issued options, warrants or
convertible securities.
Sale Restrictions on the Minority Stockholders. The Stockholder Agreement
will provide that each of the Minority Stockholders be restricted from
disposing of its shares of New PAS Common Stock after the Closing Date and
prior to the Commencement Date except to certain permitted transferees.
Notwithstanding the foregoing, Minority Stockholders may sell New PAS Common
Stock in private transactions with the consent of HCI, which consent will be
granted if, in HCI's reasonable judgment, such transfer will not materially
adversely affect New PanAmSat's financing plans or the price of or demand for
New PAS Common Stock.
The Minority Stockholders, HCI and New PanAmSat are considering modifying
the above described sale restrictions applicable to New PanAmSat and the
Minority Stockholders. In general, such modifications would permit the
Minority Stockholders to sell shares of New PanAmSat Common Stock during the
period from the Closing until the Commencement Date, and permit New PanAmSat
to sell shares of New PanAmSat Common Stock for the twelve to eighteen month
period after the Commencement Date.
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Standstill Right. The Stockholder Agreement will require that, for five
years after the Closing Date, HCI and its affiliates will be prohibited from
acquiring more than 81% of the outstanding common equity interests in New
PanAmSat, except (i) pursuant to a merger approved by a majority of the shares
of New PAS Common Stock not owned by HCI and its affiliates, (ii) pursuant to
a tender offer recommended by a majority of the Disinterested Directors of New
PanAmSat and a second-step merger which offers the same per share
consideration to all holders of New PAS Common Stock and in which more than
half of the outstanding New PAS Common Stock not owned by HCI and its
affiliates at the inception of the transaction is either tendered or voted in
favor of the transaction and (iii) pursuant to another transaction that
provides for parity of treatment of holders of New PAS Common Stock and is
approved by the holders of a majority of the shares of New PAS Common Stock
not owned by HCI and its affiliates and by a majority of the Disinterested
Directors of New PanAmSat.
Board of Directors. The Stockholder Agreement also will provide that each of
HCI and the Minority Stockholders will be obligated to cause the New PanAmSat
Board to consist of ten members, eight of which will be designated by HCI (one
of whom shall be Frederick A. Landman so long as he is the Chief Executive
Officer of New PanAmSat). The former holders of PAS Class A Common Stock and
their transferees, as a group, will be entitled to appoint one director so
long as such holders and their permitted transferees, collectively, own more
than 4% of the shares of New PAS Common Stock outstanding immediately after
the Closing Date. Similarly, S Company will be entitled to appoint one
director so long as S Company and its permitted transferees collectively own
more than 4% of the shares of New PAS Common Stock outstanding immediately
after the Closing Date.
Transactions with Affiliates. The Stockholder Agreement will provide that,
for five years after the Closing Date, HCI and its affiliates (other than New
PanAmSat) will be prohibited from proposing, approving or amending any
contract, agreement or understanding with New PanAmSat, except on terms that
are no less favorable to New PanAmSat than those ordinarily entered into in
comparable transactions by HCI or the relevant HCI affiliate on an arms'
length basis with an unrelated party. All material transactions between HCI or
an HCI affiliate and New PanAmSat will be subject to approval by a committee
comprised of Disinterested Directors of New PanAmSat.
HE's Covenant Not to Compete. The Stockholder Agreement also will provide
that, for five years after the Closing Date, HE and any entity owned 50% or
more by HE (excluding New PanAmSat and its subsidiaries) (the "Committing
Companies") will be restricted from competing with New PanAmSat in the Galaxy
Business in any geographic area. The covenant not to compete described in the
preceding sentence will not apply to the Committing Companies with respect to
(a) all aspects of the DTH satellite business, (b) all aspects of value-added
services, including the provision of transponder capacity that is ancillary to
the services rendered by such company, (c) all aspects of the business of
providing satellite capacity to the U.S. government or any department or
agency thereof; (d) the provision of project financing, or taking of a
minority equity position in any other satellite operating or service company
as part of a satellite sale, (e) all aspects of the business of manufacturing
and selling or leasing satellites in their entirety, other than the sale or
lease of individual transponders or portions thereof (unless otherwise
permitted by these exceptions) and (f) the acquisition of a third party where
the competing business is not a substantial part of such acquired business,
provided that such competing business shall be disposed of in a commercially
reasonable manner as soon as commercially reasonable after such acquisition.
In addition, HE will retain and continue to operate all aspects of the
business of providing mobile satellite services and all aspects of SPACEWAY.
New PanAmSat's Covenant Not to Compete. The Stockholder Agreement also will
require that, for five years after the Closing Date, New PanAmSat and its
controlled affiliates will not engage in any aspect of the direct broadcast
satellite business or the sale or lease of transponders, other than through
the provision of transponder services and the provision of other value-added
services ancillary thereto to third parties engaged in the direct broadcast
satellite business, provided that New PanAmSat will not be precluded from
providing project financing to such third parties, or taking minority equity
positions in such third parties, in connection with sale or lease of
transponders or channels therein or the provision of transponder services. In
addition, for so long as
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Televisa and its controlled affiliates own any New PAS Common Stock, neither
New PanAmSat nor any of its controlled affiliates may own any equity interest
in a DTH enterprise offering predominantly Spanish language programming in the
Americas or the Iberian Peninsula.
First Offer Rights. The Stockholder Agreement will provide that if New
PanAmSat determines to launch a satellite that uses certain Ku-band BSS
frequencies into certain specified orbital slots within five years after the
Closing Date, HE will have a right of first offer to commence negotiations for
up to a three month period to attempt to enter into a full life service
agreement with respect to some or all, but not less than half, of the
available capacity on the BSS band transponders on the first such satellite
that New PanAmSat determines to place into each slot on terms and conditions
to be negotiated in good faith and consistent with normal business practice.
Generally, if negotiations are not commenced or do not result in a signed
agreement within the specified periods, neither party shall have any
obligation to the other with respect to such satellite.
REGISTRATION RIGHTS AGREEMENT
On the Closing Date, the Registration Rights Holders and New PanAmSat will
enter into the Registration Rights Agreement with respect to the shares of New
PAS Common Stock to be received by the Registration Rights Holders in the
Merger, the Univisa Contribution and the Asset Contribution. The Registration
Rights Agreement will give the Registration Rights Holders the right to demand
that New PanAmSat register all or any portion of New PAS Common Stock held by
them, provided that the aggregate value of shares of New PAS Common Stock
requested to be registered pursuant to any demand (including shares held by
Registration Rights Holders not making such demand but requesting to be
included in such registration) shall be at least $100 million. The
Registration Rights Holders that receive shares of New PAS Common Stock in
respect of shares of PAS Class A Common Stock and Converted Shares and certain
of their transferees, as a group, and S Company and certain of its
transferees, as a group, will each be entitled to three such demand
registrations and HCI will be entitled to six demand registrations. Such
demand registrations will be subject to certain restrictions including
postponement by New PanAmSat for a limited period if such registration would
interfere with any proposed offering of shares, pending financing,
acquisition, corporate reorganization or other significant transaction
involving New PanAmSat.
The Registration Rights Agreement will provide that demand registrations
will also be subject to customary underwriter "cutbacks," in which event the
amount of shares to be offered for the account of each Registration Rights
Holder shall be reduced pro rata on the basis of the number of shares to be
registered by each Registration Rights Holder.
If New PanAmSat seeks to register, in a proposed firm commitment
underwritten offering solely for cash for its own account (other than a
registration statement (a) on Form S-8 or any successor forms thereto, or
(b) filed solely in connection with a dividend reinvestment plan or employee
benefit plan of New PanAmSat or its affiliates) or for the account of any
holder of New PAS Common Stock, each of the Registration Rights Holders also
will have the right to request that New PanAmSat include any or all of their
shares in the proposed offering. The Registration Rights Agreement will limit
the ability of each Registration Rights Holder to effect a public sale or
distribution of its shares of New PAS Common Stock during certain periods if
New PanAmSat or an underwriter (in the case of an underwritten public offering
by New PanAmSat), as the case may be, determines that a public sale or
distribution of such shares would have a material adverse impact on an
offering of New PAS Common Stock for which New PanAmSat has filed a
registration statement.
In any registration effected pursuant to the Registration Rights Agreement,
each Registration Rights Holder will be required to pay all underwriting
discounts, commissions or fees and transfer taxes related to the offering and
sale of its shares of New PAS Common Stock as well as all other fees and
expenses, including its counsel, in connection with such registration. New
PanAmSat will be obligated to pay all registration and filing fees, printing
expenses, fees and disbursements of counsel, independent certified public
accountants, and other persons retained by New PanAmSat and other expenses
incurred by New PanAmSat in connection with any such registration.
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The Registration Rights Agreement also will contain certain customary
indemnification provisions whereby New PanAmSat will indemnify the
Registration Rights Holders, the prospective underwriters and other securities
industry personnel participating in the distribution of shares of New PAS
Common Stock for liabilities arising out of actual or alleged material
misstatements or omissions in a registration statement that were not furnished
by the Registration Rights Holders or underwriters. Likewise, each
Registration Rights Holder will indemnify New PanAmSat for liabilities arising
out of actual or alleged material misstatements or omissions made in the
registration statement in reliance on information provided in writing to New
PanAmSat by such Registration Rights Holder.
INCOME TAX INDEMNIFICATION AND ALLOCATION AGREEMENT
Pursuant to the Reorganization Agreement, on the Closing Date, HE and New
PanAmSat will enter into the Tax Agreement. The Tax Agreement principally will
provide that, following consummation of the transactions contemplated by the
Reorganization Agreement, HE will be responsible for and indemnify New
PanAmSat and its direct and indirect subsidiaries against (i) any federal,
state or local income taxes of any of the entities comprising the Galaxy
Business prior to the Asset Contribution for all taxable years or other
periods ending on or before the Closing Date and (ii) any liability for
transfer taxes applicable to the asset transfers made in connection with the
Reorganization. The Tax Agreement also will establish, as between HE and New
PanAmSat, certain procedures for the filing of state income tax returns and
the allocation and payment of state income tax liabilities, in each case, for
periods subsequent to the Closing Date.
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BUSINESS OF PANAMSAT
OVERVIEW
PanAmSat operates the world's first privately owned global (excluding
domestic U.S.) satellite communications system. PanAmSat currently provides
satellite services primarily to the broadcasting and business communications
markets and also provides services to the long-distance telephony market. In
connection with its current services, PanAmSat is pursuing international
opportunities in the satellite DTH television market. See "--DTH Strategy."
PanAmSat's first satellite, PAS-1, was launched in June 1988 for service
over the Atlantic Ocean Region and is a leading satellite for television and
cable programming distribution in Latin America. PanAmSat's second satellite,
PAS-2, was launched in July 1994 for service over the Pacific Ocean Region and
is a leading satellite for programming distribution in the Asia-Pacific
Region. PanAmSat's PAS-4 satellite was launched in August 1995 for service
over the Indian Ocean Region and is a leading satellite for programming
distribution in south Asia and Africa. PanAmSat's PAS-3 satellite was launched
in January 1996 for service over the Atlantic Ocean Region. PAS-3 and PAS-1
are the leading satellites for television and cable programming distribution
in Latin America. PanAmSat expects to launch two additional satellites to
serve the Atlantic Ocean Region: PAS-6 in May 1997; and PAS-5 in July 1997.
However, SS/Loral has recently informed PanAmSat of circumstances that could
result in a delay in the launch of PAS-6. See "RISK FACTORS--Risk of Delays;
Excess Weight." PanAmSat intends to launch PAS-7 during the first quarter of
1998 and PAS-8 during the second quarter of 1998. PAS-7 and PAS-8 are expected
to serve the Indian Ocean Region and the Pacific Ocean Region, respectively.
PanAmSat expects that in the future it will launch additional satellites to
meet then-anticipated customer demand. There can be no assurance, however,
that the schedule for PanAmSat's future satellite launches will be met.
CUSTOMERS AND MARKETS
PanAmSat is the first private company to provide global (excluding domestic
U.S.) satellite services. PanAmSat has several hundred customers and, at
December 31, 1996, had signed long-term contracts to provide satellite
capacity on PAS-1, PAS-2, PAS-3, PAS-4, PAS-5 and PAS-6 aggregating
approximately $3.7 billion. At December 31, 1996, PanAmSat's long-term
contracts were comprised of approximately $293.7 million expected to be
received in the year ending December 31, 1997, $342.0 million expected to be
received in the year ending December 31, 1998, $342.4 million expected to be
received in the year ending December 31, 1999, $338.1 million expected to be
received in the year ending December 31, 2000 and $2,332.4 million expected to
be received on and after January 1, 2001. PanAmSat's customers for television
programming distribution and other broadcasting services include ABS-CBN
Broadcasting Co., Arab Radio and Television, the BBC, Bloomberg Information
Television, CBS, China Central Television, Chinese Television Network, Country
Music Television, Discovery, Disney, ESPN, 20th Century Fox, Fuji TV, HBO, Fox
Sports International, Liberty Sports, M-Net/MultiChoice, NBC, NHK,
SABC/Sentech, Sony, Taiwan Asia Space Cable, Tele-Communications, Inc.,
Televisa, Television Broadcasts International, Television Corporation of
Singapore, Turner Broadcasting Systems (CNN, Cartoon Network, TNT) and Viacom
(MTV, Nickelodeon), and for business communications services include the
Associated Press, Citicorp, Credit Suisse, Dow Jones/Telerate, El Tiempo, Ji
Tong, Impsat, MCI, Procedatos, PT. Primacom, Reuters, Sara Lee, Sprint,
Transtel and the U.S. government. PanAmSat's customers for DTH Services
include Sky Entertainment Services Latin America, one of the Latin America
JVs, Showtime (also known as Gulf DTH) and Firstnet, which operate in the
Middle East; and M-Net/MultiChoice and SABC/Sentech, which operate in South
Africa; and TVBI and Taiwan Asia Satellite Cable Inc., which operate in
Taiwan.
PanAmSat's video distribution services, which generated approximately 83% of
PanAmSat's total revenues for the year ended December 31, 1996, include the
provision of satellite capacity and services for (i) television programming
distribution, (ii) "backhaul" operations (i.e., the transmission of video
feeds from one location to another) and (iii) ad hoc services, such as the
transmission of special events and live news reports. PanAmSat's business
communications services, which generated approximately 16% of PanAmSat's total
revenues for the year ended December 31, 1996, include (a) the provision of
satellite capacity to communications carriers that provide private business
networks for data, voice, corporate video and Internet communications and (b)
the
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provision of such networks and related services by PanAmSat directly to end-
users. PanAmSat's telephony services provide satellite capacity for use in
domestic (non-U.S.) and international public telephone networks.
PanAmSat plans to provide DTH satellite services to specific television
markets around the world. In November 1995, PanAmSat announced that it would
serve as a satellite service provider for the Latin America DTH service to be
offered by Globo, Televisa, News Corp. and TCI. On February 29, 1996, PanAmSat
entered into the 1996 Letter Agreement with Globo, Televisa and News Corp. to
provide service to the Latin America JVs to be formed by Globo, Televisa, News
Corp. and TCI on 48 transponders ultimately on PAS-5 and PAS-6, with temporary
service on PAS-3 pending the commencement of service on PAS-6. This capacity
would enable the Latin America JVs to broadcast to Latin America, the
Caribbean and certain areas of the southern United States approximately 500
digital channels to subscribers using small 24-36 inch (60-90 cm) antennas and
to permit distribution of program packages of approximately 120 digital
channels to specific market areas. The 1996 Letter Agreement contemplates that
three separate full-scale transponder agreements will be entered into for the
regions of (i) Brazil, (ii) Mexico, including other Spanish- and Portuguese-
speaking parts of North America, and (iii) Latin America (except Brazil and
Mexico). A full-scale transponder agreement has been entered into (and
subsequently amended) with respect to 12 transponders for Brazil (the "Brazil
Transponder Agreement") and the 1996 Letter Agreement remains in force as to
the remaining 36 transponders for the other regions. Execution of full-scale
transponder agreements for the other two regions is subject to negotiation and
no assurance can be given that such full-scale agreements will be consummated.
See "--DTH Strategy" and "THE DTH SALE."
The 1996 Letter Agreement and the Brazil Transponder Agreement provide for
minimum payments over their respective terms of approximately $1.3 billion,
depending upon the actual useful life of the satellites in question, their
predicted performance and their in-service dates. For most of the
transponders, the amounts to be paid reflect service fees that are equal to
PanAmSat's best estimate of the cost to design, construct, launch, insure and
operate the satellites, and for the balance of the transponders, the amounts
to be paid reflect service fees that are based on a fixed price. On the cost-
based transponders, PanAmSat also could receive revenue sharing from the Latin
America JVs. The Brazil Transponder Agreement was entered into on the same
economic terms as to the applicable 12 transponders as were set forth in the
1996 Letter Agreement. Subsequent amendments to the Brazil Transponder
Agreement and the 1996 Letter Agreement address the possibility of a longer
than originally anticipated life of PAS-6 (under which the agreements may be,
but are not required to be, extended beyond the originally anticipated useful
life of PAS-6) but do not alter the minimum values anticipated under the 1996
Letter Agreement, as originally entered into.
Under an agreement dated as of September 20, 1996 (the "Spain Transponder
Agreement"), PanAmSat will provide to Televisa Spain transponder service from
five PAS-3 Ku-band transponders, at least three of which will be for the
delivery of television services to Spain, that may include DTH services. The
transponder service fees reflect market rates. This agreement is unaffected by
the DTH Sale.
PanAmSat has also designed PAS-2, PAS-4 and PAS-7 and is designing PAS-8
with the capability of providing high-powered digital DTH service in their
respective coverage areas. PanAmSat's satellites are platforms for operational
DTH services in Brazil, the Middle East and South Africa, and for planned DTH
services for India and Spanish-speaking Latin America. Digital DTH channels on
PanAmSat's satellites are capable of providing image and sound quality
superior to current cable, MMDS or broadcast television services.
PanAmSat believes that the demand for international satellite services in
the broadcasting and business communications markets will grow substantially
in the foreseeable future. This growth is expected to result from (i)
increased distribution of television programming to national, regional and
international audiences, (ii) continuing worldwide deregulation of
telecommunications markets, (iii) continuing technological advancements and
(iv) economic development worldwide and the increasing globalization of
business.
CONVERSION AND INITIAL PUBLIC OFFERING
Between 1992 and March 2, 1995, PanAmSat operated as the Partnership and
prior to 1992, as a sole proprietorship and through other forms of
organization. On March 2, 1995, pursuant to an amended Exchange
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and Subscription Agreement and Plan of Reorganization, PanAmSat, the
Partnership (PanAmSat's predecessor) and its partners consummated the
Conversion. In connection therewith, (i) Rene Anselmo, PanAmSat's late
Chairman of the Board and Chief Executive Officer, members of the family of
the late Mr. Anselmo, trusts for the benefit of certain Anselmo family
members, Frederick A. Landman, PanAmSat's current President and Chief
Executive Officer, and Lourdes Saralegui, Executive Vice President of PanAmSat
(collectively, the "Anselmo Group"), exchanged their interests in the
Partnership for shares of PAS Class A Common Stock, representing approximately
49.66% of the outstanding common stock of PanAmSat, (ii) USHI exchanged its
interest in the Partnership for shares of PAS Class B Common Stock,
representing approximately 50.15% of the outstanding common stock of PanAmSat
and (iii) a partner of the Partnership exchanged his interest in the
Partnership for shares of PAS Ordinary Common Stock, representing
approximately .19% of the outstanding capital stock of PanAmSat. On September
27, 1995, PanAmSat completed its IPO of 18,920,000 shares of PAS Ordinary
Common Stock, including 4,595,676 shares held by members of the Anselmo Group
and Televisa, and PanAmSat received net proceeds of approximately $229
million. In addition, PanAmSat has issued 9 3/4% Senior Secured Notes due 2000
(the "Senior Secured Notes"), 11 3/8% Senior Subordinated Discount Notes due
2003 (the "Discount Notes," and together with the Senior Secured Notes, the
"1993 Notes") and the PAS Preferred Stock. Copies of the indentures and
certificate of designation relating thereto have been filed or incorporated by
reference as exhibits to the Registration Statement of which this Proxy
Statement/Prospectus is a part. Summaries of the Senior Secured Notes,
Discount Notes and PAS Preferred Stock are also available in PanAmSat's
registration statement on Form S-1, filed on April 2, 1996 under file number
333-3114.
BUSINESS STRATEGY
PanAmSat's strategy has evolved from its experience with the development and
marketing of PAS-1, PAS-2, PAS-3 and PAS-4 and its analysis of the current and
anticipated worldwide market for satellite communications services. PanAmSat
believes that implementation of its strategy has established PanAmSat as an
international leader for broadcasting and business communication services.
PanAmSat's strategy is to continue to focus on six key elements:
. Customer-driven service offerings;
. Superior satellite system technical characteristics;
. Emphasis on broadcasting services;
. Concentration on other high-growth communications services;
. Early market entry; and
. Global coverage.
Customer-Driven Service Offerings
PanAmSat believes that the most important aspect of its business strategy is
that PanAmSat is market driven and responsive to its customers' needs.
PanAmSat offers customers ease-of-access and operation with respect to the use
of satellite capacity. PanAmSat also offers customers a complete end-to-end
package of satellite communications services on a one-stop shopping basis. The
end-to-end services provided by PanAmSat include satellite capacity, teleport
services and network services, including the design, integration, management
and maintenance of networks and the procurement of ground equipment. PanAmSat
furnishes substantially all of its terrestrial services outside of the United
States through independent contractors.
PanAmSat developed its service strategy when it first commenced operations,
at which time Intelsat was PanAmSat's only significant competitor. Intelsat
generally provides services only through its signatories and not directly to
end-users. Intelsat's rates are often inflexible, fixed by tariff and
customarily include a markup by
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each signatory. In addition, Intelsat and its signatories have historically
focused on international telephony services, rather than the requirements of
other users, such as television broadcasters and business communications
network users. Intelsat also typically has launched satellites with generic
beam designs that have generally been suitable primarily for transmission to
the large, expensive "gateway" earth stations of national telephone companies.
See "--Competition."
Superior Satellite System Technical Characteristics
The satellites in PanAmSat's global (excluding domestic U.S.) satellite
system (the "PAS Global System") are designed to provide high-transmission
power, a key technical characteristic sought by broadcasting and business
communications customers. The satellites' high power and other technical
characteristics permit high-quality transmissions for the distribution of
television programming and enable broadcasting and business communications
customers to utilize cost-effective networks using small, low-cost antennas on
the ground.
The orbital slots for PanAmSat's satellites were selected to optimize the
satellites' coverage and the global connectivity of the PAS Global System.
Since orbital slots are limited in number and each slot provides a different
range of coverage areas, PanAmSat believes that its early selection of orbital
slots enhanced its technological capabilities and scope of coverage. The
geographic coverage patterns of the satellites in the PAS Global System are
custom-designed to focus signal power over centers of population and economic
activity.
Emphasis on Broadcasting Services
PanAmSat expects the international broadcasting market to experience
significant growth as broadcasters and cable television programmers seek to
expand the distribution of their programming to national, regional and
international audiences worldwide. Future demand is expected to include
international television programming distribution, backhaul operations and ad
hoc services. PanAmSat has designed its satellite services to meet the program
distribution requirements of broadcasters and programmers. The technical
characteristics and coverage areas of each of PAS-2, PAS-3, PAS-4, PAS-5, PAS-
6 and PAS-7 were specified after extensive discussions with PanAmSat's major
customers and potential customers regarding their service needs. The technical
specifications of PAS-8 are in the design stages and subject to change.
PanAmSat facilitates television programming distribution by offering satellite
capacity, teleport services and technical services.
In addition, PanAmSat provides satellite capacity on PAS-3, and plans to
provide satellite capacity on PAS-5 and PAS-6, for digital DTH services in
response to the desire of broadcasters and programmers to increase their
viewing audiences in Latin America. PanAmSat expects there to be significant
demand for digital DTH services in Latin America because of the large number
of television households without cable services or access to extensive
programming in the region. See "--DTH Strategy."
Concentration on Other High-Growth Communications Services
PanAmSat targets other high-growth markets where its satellites provide
advantages to users of private business networks and long-distance telephony
services in rural and underdeveloped areas. Business and other organizations,
particularly those with sites in remote locations or inadequate terrestrial-
based services available to them, have become increasingly dependent upon
satellites to serve their communications requirements. These communications
requirements are based on the need to collect, process, respond to and
disseminate information, such as ATM and credit card verification and
inventory control. Organizations such as banks and retail chains are, in
increasing numbers, installing very small on-site antennas to set up
satellite-based communications networks instead of using higher cost and/or
unreliable terrestrial telephone lines. In addition, a growing number of
domestic and regional telephone companies, especially in developing countries,
are using the satellite capacity of PanAmSat and others to offer long-distance
telephony services in rural areas. Internet service providers in several
countries in Latin America and Asia also use satellites for international
access to the Internet.
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Early Market Entry
PanAmSat's strategy is to launch high-powered satellites early in their
respective markets that are capable of delivering broadcast and business
communications services via signals that may be received by users of small
antennas. Partly as a result of its early market entry, PanAmSat believes it
has established PAS-1, PAS-2, PAS-3 and PAS-4 as leading satellites for
television programming distribution in their respective coverage areas and as
important satellites for private business networks.
Global Coverage
PanAmSat is the first private company to provide global (excluding domestic
U.S.) satellite services. Accordingly, customers are able to contract solely
with PanAmSat for all of their global satellite communications requirements.
Previously, users of satellites who wanted to communicate or transmit over
broad areas were required to enter into contracts with a number of different
Intelsat signatories and/or regional and domestic operators that often
provided overlapping coverage or had substantial gaps in their coverage.
Customers with global communications requirements include video programmers,
broadcasters, news and sports organizations and operators of public and/or
private communications networks.
PanAmSat believes that its orbital slots provide a competitive advantage for
PanAmSat's global satellite services due to the limited number of available
slots that provide commercially desirable transoceanic coverage. Applications
for orbital slots for C-band and Ku-band geostationary satellites have been
filed by the U.S. government with the ITU on behalf of PanAmSat at 45(degrees)
W.L. (Atlantic Ocean Region), 43(degrees) W.L. (Atlantic Ocean Region),
68.5(degrees) E.L. (Indian Ocean Region), 72(degrees) E.L. (Indian Ocean
Region), 191(degrees) W.L. (Pacific Ocean Region) and 194(degrees) W.L.
(Pacific Ocean Region). PanAmSat has requested registration of a second
satellite at 43(degrees) W.L. (Atlantic Ocean Region) and a satellite at
58(degrees) W.L. (Atlantic Ocean Region). See "--Government Regulation--
International Telecommunications Union Coordination." In addition, PanAmSat
has applied for U.S. government authorization to use 79(degrees) W.L.
(PanAmSat has informally asked that the FCC associate this application with
the 81(degrees) W.L. orbital location) and 93(degrees) W.L. for C-band and Ku-
band geostationary satellites. If these two applications are granted, the FCC
would have to assign different orbital locations because it since has assigned
the 79(degrees) and 93(degrees) W.L. locations to other applicants. PanAmSat
also has applied for nine orbital slots for Ka-band geostationary satellites,
one of which the FCC tentatively has assigned to it subject to final action on
its applications for those orbital locations. Pursuant to an agreement among
all the Ka-band applicants that is subject to FCC approval, PanAmSat expects
to be assigned a second Ka-band orbital location. The U.S. government has
filed with the ITU for these additional slots, substantially all of which are
sought by other U.S. applicants as well. See "--Government Regulation--U.S.
Regulation."
SERVICES
In the year ended December 31, 1996, PanAmSat's revenues were derived from
the following markets:
<TABLE>
<CAPTION>
SERVICES 1996 REVENUES
-------- -------------
<S> <C>
Video Distribution............................................. 86%
Business Communications........................................ 13
Telephony...................................................... 1
---
Total........................................................ 100%
===
</TABLE>
Video Distribution
Local, domestic and international broadcasters use satellite capacity and
services for (i) television programming distribution, (ii) "backhaul"
operations (i.e., the transmission of video feeds from one location to
another) and (iii) ad hoc services such as the transmission of special events
and live news reports from the scene of the event. Currently, the largest
market for broadcasting services is the full-time leasing of satellite
capacity
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by programmers for distributing programming to television stations, local
cable operators, master antenna systems and, on a limited basis, directly to
homes.
Television Programming Distribution. PanAmSat's program distribution
strategy is to establish each of its satellites as a leading satellite for the
distribution of television programming to cable and other redistribution
systems in its service region and to position the PAS Global System as a
single source for the global (excluding domestic U.S.) distribution of
television programming.
In January 1989, CNN became the first international programmer to use PAS-1
to distribute television programming in Latin America. Over the next twenty-
four months, PanAmSat entered into agreements with other full-time
programmers, such as ESPN, HBO, Televisa and TNT. Local cable television
operators and over-the-air broadcasters installed antennas to receive
programming from this core group of international programmers, thus creating
an infrastructure in Latin America to receive PAS-1 signals. As a result of
the installed base of antennas pointed at PAS-1, programmers desiring regional
distribution sought to use PAS-1 to reach that audience and compete
effectively with the major full-time video programmers in Latin America. Upon
the commencement of PAS-3 services on February 19, 1996, PanAmSat started
migrating some broadcast customers from PAS-1 to PAS-3, under a plan to
provide additional PAS-1 capacity for business communications services. PAS-1
and PAS-3 are now the leading satellites for television and cable programming
distribution in Latin America. As of December 1996, PAS-1 and PAS-3
cumulatively distributed more than 60 television and cable programming
channels to Latin America.
For domestic Latin America broadcasters, PanAmSat offers the ability to
create national networks where, due to local geography and high costs, none
was possible before. For example, Telefe, the leading television network in
Argentina, was created when a group of independent local Argentine television
stations began using PAS-1 in December 1990 for national programming
distribution. Domestic broadcasters in Peru and Chile also used PAS-1 to
create national networks.
PanAmSat offers broadcasters direct access to PanAmSat satellites from their
own facilities. This direct access leads to both economic and operational
efficiencies for the broadcasters. PanAmSat satellites also offer a number of
other advantages for domestic broadcasters. Domestic broadcasters may, for
example, purchase certain segments of an international programmer's feed
(e.g., a sports event from ESPN or a news show from CNN) for broadcast as part
of their own programming, without incurring the cost of adding a separate
earth station to receive the international programmer's segments. In addition,
domestic broadcasters can sell their programming (e.g., a local sports event)
regionally or internationally because PanAmSat satellites allow them to use
the same transmission antenna to relay their programming internationally as
well as domestically.
Local cable and television station operators also benefit from the use of
PanAmSat satellites for television programming distribution. For example, in
Latin America, such operators need only two small earth stations pointed at
each of PAS-1 and PAS-3 to receive dozens of channels from both domestic and
regional broadcasters.
In the Pacific Ocean Region, PanAmSat's strategy has been to establish PAS-2
as the leading satellite for the trans-Pacific distribution of television and
cable programming. As of December 1996, PAS-2 provided pan-Asian C-band
coverage and access to the western United States for more than 20 broadcast
customers, including ABS-CBN (Philippines), Asia Business News, the BBC,
Bloomberg Information Television, China Central Television, Chinese Television
Network (Hong Kong), Discovery, Disney, ESPN and Liberty Sports, NBC, NHK
(Japan), Television Broadcasts International (Hong Kong) and Television
Corporation of Singapore.
In the Indian Ocean Region, PanAmSat's strategy has been to establish PAS-4
as the leading satellite for the distribution of television and cable
programming throughout southern Asia, including the Indian Subcontinent and
the Middle East. Broadcast customers for PAS-4 C-band services throughout
southern Asia include Asia Business News, the BBC, China Central Television,
Discovery, Disney, Doordarshan (India), ESPN, HBO, Jain TV, Sony and Turner
Broadcasting Systems. In addition, PAS-4 is designed to provide C-band program
distribution services throughout Africa and northern Asia.
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For the global distribution of television programming, customers that have
agreements with PanAmSat for service over several satellites include the BBC,
China Central Television, ESPN, Doordarshan (India), Liberty Sports, NHK,
Turner International and Viacom International.
Compressed Digital Video. At December 31, 1992, PanAmSat had sold out its
capacity on PAS-1 for full-time television programming distribution to Latin
America. Since February 1993, PanAmSat has used compressed digital video
("CDV") technology to expand its satellite channel capacity and offer digital
television channels to its broadcast customers at a lower cost than comparable
analog capacity. As part of its marketing strategy, PanAmSat designates
certain capacity on each satellite for digital channels that have generated,
and PanAmSat expects will continue to generate, substantially more revenue per
transponder as a result of video compression even though each customer's cost
per channel distributed by satellite is reduced. PanAmSat also believes that
CDV technology provides television viewers with higher quality channels, movie
programming options, new data and other service applications. PanAmSat is
using a range of leading CDV suppliers for broadcast services on PAS-2, PAS-3
and PAS-4 from various teleport facilities throughout the world. In April
1996, PanAmSat announced that it would provide global CDV services using
equipment by Scientific-Atlanta that meets the MPEG-2/DVB international
digital transmission standards.
Backhaul Operations. Broadcasters use satellite capacity for backhaul
operations, such as transporting programming from a broadcaster's foreign news
bureau to its broadcast center for simultaneous or later transmission.
PanAmSat's services in this area are focused on the transportation of program
material and syndicated programming for broadcasters on a scheduled basis.
Program distributors utilize 24-hour full-time channels or scheduled part-time
video services on PanAmSat satellites to transport programming between
locations. NHK, a leading Japanese broadcaster, for example, utilizes full-
time transponders on PAS-1, PAS-2 and PAS-4 for the transportation of
programming and news.
Special Events and Live News Coverage. Broadcasters use PanAmSat to transmit
coverage of live scheduled special events to programmers on a short-term ad
hoc basis. For instance, PanAmSat transmitted approximately 10,000 hours of
television coverage of the 1996 Summer Olympics over the PAS Global System.
PanAmSat also provides broadcast services to relay live news coverage, short
duration video feeds and syndicated programming for broadcasters on a
scheduled or ad hoc basis. For instance, PanAmSat broadcasted more than 150
hours of international news coverage of the 1996 U.S. Presidential election
for U.S., European and Asian broadcasters.
Radio. Radio broadcasters use satellites for program distribution, coverage
of news and sporting events and other broadcast and backhaul applications.
Customers for radio services on PAS-1 include BBC World Service, Radio France
International, Caribbean News Agency and Radio Netherlands.
DTH Distribution. High powered DTH satellites are designed to enable
broadcasters and programmers to reach the maximum number of television viewers
possible. Programming distributed over a DTH satellite is accessed by
households and also by local cable systems that redistribute that programming
through ground-based cable to households. In addition, the total television
audience can be increased significantly because the satellite's high
transmission power enables households equipped with 24-36 inch (60-90 cm)
satellite dishes and related equipment to receive the programming directly
from the satellite.
PanAmSat's strategy includes launching and operating satellites capable of
providing DTH services. Each of PAS-2 through PAS-8 has or will have the
capability to provide high-powered DTH service in its respective coverage
area. For instance, M-Net/MultiChoice and SABC/Sentech commenced transmissions
in September 1995 of a multichannel DTH service throughout South Africa using
transponders on PAS-4. PanAmSat's satellites are also platforms for
operational DTH services in Brazil and the Middle East and planned DTH
services in India and Spanish-speaking Latin America. See "--DTH Strategy."
Other Services. PanAmSat offers a number of additional services to
broadcasters. These include teleport services such as complete network support
and signal turnaround (e.g., retransmission of a signal from a U.S.
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domestic satellite through PanAmSat's teleports to PAS-1 for distribution to
Latin America and to PAS-2 for distribution to Asia). For instance, PanAmSat
provides transmission uplink services from its teleport in Homestead, Florida,
for the Latin America JVs. PanAmSat also provides third-party services and
equipment such as trucks equipped for live news reports and sporting events
and domestic satellite capacity, if required. In addition, PanAmSat offers
one-stop service management such as coordination and traffic management for
international live news reporting.
Business Communications
PanAmSat's business communications services include (i) the provision of
satellite capacity to communications carriers that provide private business
networks for data, voice, corporate video and Internet communications and (ii)
the provision of such networks and related services by PanAmSat directly to
end-users. Network users utilize satellites rather than ground-based
transmission media because satellite systems provide customers:
. cost savings for large, geographically dispersed networks;
. independence from telephone companies;
. predictability of costs over a long period;
. flexibility in changing and adding remote locations to a network;
. integrated network management and control of all remote locations; and
. increased network availability and lower transmission error rates.
Many businesses and organizations currently use satellite communications
networks for certain of their communications needs. For example, retail chains
use satellite business communications networks for rapid credit card
authorization and inventory control. Banks use satellite networks to connect
automated teller machines to processing computers. News agencies use satellite
networks to distribute information continuously to numerous locations, and
paging operators use satellite networks to distribute paging information from
a central switch to multiple remote transmitters for retransmission to pagers.
Carrier Services. The largest portion of PanAmSat's revenues in the business
communications market is derived from the provision of satellite capacity to
domestic and regional communications carriers in Latin America. PanAmSat does
not provide substantial value-added services to such carriers. The provision
of satellite capacity to carriers involves relatively low marketing and
operating costs, while promoting the use of PAS-1 and PAS-3 for business
communications in Latin America. Carriers in Latin America that use PanAmSat
satellite capacity include Infosat of Venezuela, Telegan, S.A. of Colombia and
Impsat of Argentina. U.S. carriers include Sprint and MCI. In addition, the
carrier Ji Tong of China and PT. Primacom of Indonesia use capacity on PAS-2
and Transtel of South Africa uses capacity on PAS-4.
Internet service providers also are using several PanAmSat satellites for
international Internet access. As of December 1996, PanAmSat's satellites
provided access to the U.S. Internet network for Internet service providers in
more than 20 countries in Latin America and Asia.
Governments currently represent one of the single largest users of
communications facilities. The U.S. government has stated that it intends to
move governmental traffic, particularly nonclassified military traffic, off of
dedicated satellites and onto commercial satellites. PanAmSat has participated
from time to time in bids for the U.S. Defense Department's procurements of
several commercial satellite transponders. PanAmSat has provided services
directly to the U.S. State and Defense Departments and currently is providing
services to the U.S. government as a subcontractor to government carriers.
U.S. government users accounted for approximately 2% of PanAmSat's total
revenue for the year ended December 31, 1996.
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Private Networks. PanAmSat offers end-to-end satellite services for two
types of private business communications networks: International Digital
Services ("IDS") networks and very small aperture terminal ("VSAT") networks.
IDS networks consist of rooftop antennas and are used by customers that have
relatively steady flows of information to and/or from all of the points in the
network. Because of their large transmission requirements, IDS networks
require dedicated, permanent communication links to each point. VSAT networks
differ from IDS networks in that VSAT networks consist of very small (e.g.,
1.2 to 1.8 meters) rooftop antennas and are utilized by customers that need to
send short bursts of data over the network for relatively short periods of
time. Through the use of VSAT technology and sophisticated software, these
networks can be served with a relatively small amount of satellite capacity.
In addition to providing satellite capacity, PanAmSat's services to its
business communications customers include the purchase and installation of on-
site antennas and the design, integration, management, operation and
maintenance of business networks. These services are provided by PanAmSat's
teleports in Ellenwood, Georgia, Homestead, Florida and Napa, California, or
through subcontractors. Examples of PanAmSat's business communications
services using PanAmSat's satellites and teleports include an IDS network
linking Citicorp's regional headquarters in Miami, Florida with eight
locations in Latin America, five other IDS networks for banks and another IDS
network linking several of Reuters' Latin American offices to Reuters offices
in the United States.
Networks using VSATs have been growing rapidly to meet the specialized data
requirements of particular industries, such as banking, mining and retailing.
PanAmSat expects the international VSAT market to grow significantly in the
future. Recognizing both the demand for this service as well as the failure of
existing carriers to provide adequate VSAT services, many governments have
recently deregulated this market.
Telephony
Although PanAmSat was initially not permitted by the FCC to offer
international public telephone service between the United States and any other
country, PanAmSat currently provides domestic and international long-distance
telephony services. PanAmSat provides satellite capacity to domestic telephone
companies in Chile, Nicaragua and Honduras. PanAmSat also provides satellite
capacity to Tricom, a Dominican Republic-based carrier which provides
international long-distance telephone service between the United States and
the Dominican Republic. Tricom is currently the only international telephone
carrier under contract with PanAmSat.
Effective January 1, 1997, the FCC no longer restricts the number of public
switched circuits for fully connected telephone traffic that PanAmSat may
carry. See "--Government Regulation." The emergence of competition for long-
distance services and significant deregulation in several countries such as
the United Kingdom, Japan, Korea, New Zealand, the Philippines and Australia
has led PanAmSat to believe that the long-distance telephony market offers
PanAmSat future opportunities globally.
DTH STRATEGY
PanAmSat has designed the Ku-band capacity on the PAS Global System (other
than PAS-1) with the capability of providing DTH services. PanAmSat's strategy
is to provide satellite capacity to customers that provide DTH services.
PanAmSat also contemplates facilitating the development of DTH service in
certain regions by providing satellite capacity and coordinating technical
issues with its customers, without direct investment in the DTH service,
although PanAmSat may receive equity interests under certain circumstances in
connection with its provision of transponder capacity. Based on this strategy,
PanAmSat's satellites are platforms for current DTH services in Brazil, the
Middle East and South Africa and for planned DTH services in India and
Spanish-speaking Latin America.
As part of PanAmSat's digital DTH strategy, PanAmSat intends to provide
satellite capacity on PAS-3, PAS-5 and PAS-6 for digital DTH services in Latin
America, the Caribbean and certain areas of the southern United States.
PanAmSat believes there is significant demand for digital DTH service in these
regions in part
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because of the limited percentage of households that receive television
programming (except in the United States) through other transmission systems
such as cable and wireless cable and, in the United States, the limited amount
of Spanish-language programming available.
Pursuant to the Original MOU, PanAmSat and Televisa intended to establish
and operate a Ku-band digital DTH satellite broadcasting business serving
Latin America. The Original MOU was superseded and terminated by the Revised
MOU, except with respect to certain indemnification obligations in favor of
PanAmSat. Pursuant to Section 1.1 of the Revised MOU and certain oral
agreements in principle with Televisa, PanAmSat has DTH Options to acquire
equity interests in the Latin America JVs and companies formed to sell program
services to consumers in the Iberian Peninsula. An affiliate of HCI is an
investor in a venture that provides DTH services in Latin America. HCI has
made it a condition to the Merger, the Univisa Contribution and the Asset
Contribution that PanAmSat dispose of these DTH Options. See "THE
REORGANIZATION AGREEMENT--Conditions to the Reorganization." Accordingly,
PanAmSat, Televisa and S Company have entered into the DTH Option Purchase
Agreement whereby immediately after the Share Repurchase PanAmSat will sell
the DTH Options to either Televisa, S Company and/or their designees, for a
purchase price of $225 million. The closing of the DTH Sale will occur
substantially concurrently with the receipt by S Company of the consideration
to be paid by New PanAmSat to it pursuant to the Univisa Contribution
Agreement. In connection with the DTH Sale, PanAmSat has received the opinion
of Salomon Brothers, PanAmSat's financial advisor with respect to the DTH
Sale, to the effect that as of September 19, 1996 and based upon and subject
to the qualifications described therein, the consideration to be received by
PanAmSat for the sale of the DTH Options represented fair value to PanAmSat
for the DTH Options from a financial point of view. See "THE DTH SALE."
DTH Services in Latin America
In November 1995, PanAmSat announced that it would serve as a satellite
service provider for the Latin America DTH service to be offered by Globo,
Televisa, News Corp. and TCI. On February 29, 1996, PanAmSat signed the 1996
Letter Agreement with Globo, Televisa and News Corp. to provide service to the
Latin America JVs on 48 transponders ultimately on PAS-5 and PAS-6, with
temporary service on PAS-3 pending the commencement of service on PAS-6. This
capacity would enable the Latin America JVs to broadcast to Latin America, the
Caribbean and certain areas of the southern United States approximately 500
digital channels to subscribers using small 24-36 inch (60-90 cm) antennas and
to permit distribution of program packages of approximately 120 digital
channels to specific market areas.
Under the 1996 Letter Agreement, Globo, Televisa and News Corp. have agreed
to proportionally guarantee 100 percent of the fees for transponder services
to the Latin America JVs. These guarantee obligations may be assigned to TCI
and, with PanAmSat's prior written consent, to new equity participants in the
Latin America JVs. PanAmSat will receive minimum service fees equivalent to
PanAmSat's best estimate of the cost per transponder to PanAmSat of designing,
launching, operating and insuring each satellite for transponders used by the
Latin America JVs. PanAmSat also will receive additional revenue based on
subscriber revenues of the Latin America JVs above a certain threshold, except
that the transponders that will be used by the Latin America JV operating in
Brazil will be charged on a fixed fee basis.
The 1996 Letter Agreement contemplates that three separate full-scale
transponder agreements will be entered into for the regions of (i) Brazil,
(ii) Mexico, including other Spanish- and Portuguese-speaking parts of North
America, and (iii) Latin America (except Brazil and Mexico). The Brazil
Transponder Agreement has been entered into with respect to 12 transponders on
PAS-6 for Brazil, while the 1996 Letter Agreement remains in force as to the
remaining 24 transponders on PAS-6 and 12 transponders on PAS-5 for the other
regions. Execution of full-scale transponder agreements for the other two
regions is subject to negotiation and no assurance can be given that such
full-scale transponder agreements will be executed. See "--Customers and
Markets."
The 1996 Letter Agreement and the Brazil Transponder Agreement provide for
minimum payments over their respective terms of approximately $1.3 billion,
depending upon the actual useful life of the satellites in
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question, their predicted performance and their in-service dates. For most of
the transponders, the amounts to be paid reflect service fees that are equal
to PanAmSat's best estimate of the cost to design, construct, launch, insure
and operate the satellites, and for the balance of the transponders, the
amounts to be paid reflect service fees that are based on a fixed price. On
the cost-based transponders, PanAmSat also could receive revenue sharing from
the Latin America JVs.
DTH Services in Spain
Pursuant to the Spain Transponder Agreement, PanAmSat will provide Televisa
Spain with transponder service from five PAS-3 Ku-band transponders, at least
three of which will be for the delivery of television services to Spain, which
may include DTH services. The transponder service fees reflect market rates.
The Spain Transponder Agreement is unaffected by the DTH Sale.
PANAMSAT SATELLITES
Coverage Areas
PAS-1 and PAS-3 provide coverage of the Atlantic Ocean Region, and PAS-2
provides, and PAS-8 will provide, coverage of the Pacific Ocean Region. PAS-5
and PAS-6 will provide additional coverage of the Atlantic Ocean Region and
PAS-4 provides, and PAS-7 will provide, coverage of the Indian Ocean Region.
PanAmSat is the first private company to provide global (excluding domestic
U.S.) satellite services. Accordingly, customers are able to contract solely
with PanAmSat for all of their international satellite needs.
Construction of PAS-6 has been completed and it has been delivered to the
launch site. PAS-5 and PAS-7 are under construction and their designs are
complete. The coverage areas of PAS-8 are in the design stage and therefore
are subject to change. The coverage areas of a satellite are determined by the
shape of the satellite beams and are not alterable after launch. However,
certain of the transponders on PAS-2, PAS-3, PAS-4, PAS-6, PAS-7 and PAS-8 may
be transferred from one beam to another if market conditions warrant and PAS-5
has a moveable beam that can be focused over different regions.
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PAS-1
PAS-1 provides four separate C-band coverage beams for all or parts of Latin
America and two Ku-band beams, one for the United States and one for Europe.
One PAS-1 C-band beam provides nearly complete coverage of Latin America and
reaches the southern United States. Until March 1993, when PanAmSat began to
use CDV technology, all of the long-term capacity on this beam was sold out.
See "--Services--Video Distribution." As of December 1996, full-time
broadcasters and programmers who use this beam included Cinecanal, ESPN, NBC,
USA and VCC.
The three other PAS-1 C-band beams focus coverage on different parts of Latin
America. As of December 1996, programmers using these beams on a full-time
basis included Cinecanal, CTC, HBO Ole, channels 2, 4, 5 and 13 (Peru), Sony,
Telefe (Argentina), Television Nacional de Chile and Warner Bros. These C-band
beams are also used for business communications services by Citicorp, Reuters,
Credit Suisse, Pacific National Bank and others. Carriers that use PAS-1
include Telegan, S.A. of Colombia and Impsat of Argentina. The PAS-1 Ku-band
beams are used for broadcasting and business communication services between the
United States and Europe. Customers for this service include BBC, CBS News and
NHK.
Upon the commencement of PAS-3 services on February 19, 1996, PanAmSat
started implementing a plan to migrate some broadcast customers from PAS-1 to
PAS-3, thereby providing additional PAS-1 capacity for business communications
services.
[MAP OF PAS-1 COVERAGE]
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PAS-2
PAS-2 contains two C-band beams. These beams enable broadcasters to
distribute programming throughout Asia, Australia and New Zealand. One of these
beams also reaches across the Pacific Ocean to the western coasts of Canada and
the United States. Prior to the launch of PAS-2, U.S. programmers had to use
one satellite to cross the Pacific Ocean and another to distribute programming
within Asia. Because of PAS-2's coverage and high transmission power, North
American broadcasters can now distribute programming directly via PAS-2 from
the United States to Asia, and Asian broadcasters can distribute their
programming throughout Asia to North America. For instance, ESPN and Viacom are
using PAS-2 for United States-to-Asia program distribution, while ABS-CBN
(Philippines) is using PAS-2 for intra-Asian distribution and access to the
U.S. cable market.
Three Ku-band beams on PAS-2 provide high-powered coverage that is focused on
Korea, Japan, China, including Hong Kong and Taiwan, Australia and New Zealand.
For instance, Television Broadcasting International and Taiwan Asia Space Cable
are using PAS-2 Ku-band capacity for high-power program distribution services
throughout Taiwan.
[MAP OF PAS-2 COVERAGE]
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PAS-3
PanAmSat has established PAS-3, in conjunction with PAS-1, as the leading
satellites for cable and television programming distribution in Latin America.
Certain broadcasting customers on PAS-1 have moved to PAS-3, and the resulting
available capacity on PAS-1 is being used primarily for broadcasting and
business communications services in Latin America. PAS-3's two C-band beams
provide nearly total coverage of North America, South America, Western Europe
and Africa. This coverage creates new options for broadcast distribution among
these four continents as well as expanding channel capacity in Latin America.
As of December 1996, PAS-3 customers for Pan-American C-band broadcast
services included Arab Radio and Television, Artear (Argentina), BBC, Bravo,
Caracol, China Central Television, Country Music Television, Discovery, ESPN,
20th Century Fox, HBO Ole, Liberty, NBC, Teledifusora Paraguaya, Televisa, TVN,
TV-5, Universidad Catolica and The Weather Channel. In addition, PAS-3 will
serve as an initial platform for the introduction of Latin America DTH services
offered by the Latin America JVs. It is also anticipated that PAS-3 will serve
as the platform for the Spain Transponder Agreement.
[MAP OF PAS-3 COVERAGE]
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PAS-4
PAS-4 provides extensive coverage of the Indian Ocean Region with three C-
band and five Ku-band beams. The three C-band and five Ku-band beams provide
coverage of most of Europe, Africa, India and Asia, the Middle East and
Australia. The Ku-band transponders offer communications services to key
regions of economic activity including southern Africa, Far East Asia, Europe,
India and the Middle East. Due to the satellite's strategic orbital location
and the satellite's design, PanAmSat's customers are able to access the
satellite from as far east as Tokyo and as far west as Great Britain.
PAS-4 links together key regions of the world for broadcast distribution,
business communications and telephony services. For instance, broadcasters in
Europe using PAS-4 are able to reach the Far East and Australia directly over
one satellite.
Broadcast customers that use C-band capacity on PAS-4 for program
distribution in south Asia include Asia Business News, the BBC, China Central
Television, Discovery, Disney, Doordarshan, ESPN, HBO, Liberty, Home TV, Jain
TV, Sony, Turner Broadcasting and Viacom. Customers that use C-band capacity
for pan-African program distribution include M-Net/MultiChoice for its
multichannel digital C-band pan-African DTH platform and Viacom. In addition,
M-Net/MultiChoice and SABC/Sentech use PAS-4 Ku-band capacity to provide DTH
services in South Africa.
[MAP OF PAS-4 COVERAGE]
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PAS-5
PAS-5 will be a high-powered satellite and will contain 24 Ku-band and 24 C-
band transponders. Twelve of the satellite's 24 Ku-band transponders will be
used by the Latin America JVs to provide DTH services in Mexico, the Caribbean
and the southern United States. The C-band transponders have been designed to
provide coverage for broadcast distribution and other services in North
America, South America and Europe. It is anticipated that PAS-5 will serve as a
platform for the Latin America DTH Services offered by the Latin America JVs.
[MAP OF PAS-5 COVERAGE]
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PAS-6
PanAmSat has designed PAS-6 to provide DTH services in Latin America. All 36
transponders will be used by the Latin America JVs to provide DTH services in
Latin America. Subject to FCC approval, PanAmSat plans to co-locate PAS-6 with
PAS-3. It is anticipated that PAS-6 will serve as the main platform for the DTH
Services offered by the Latin America JVs.
[MAP OF PAS-6 COVERAGE]
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PAS-7
PAS-7 will be a high-powered satellite providing service over the Indian
Ocean Region. PAS-7 is expected to contain 14 C-band and 30 Ku-band
transponders and to be co-located with PAS-4. PAS-7 has been designed to
expand upon the DTH, broadcast and business communications services that are
offered on PAS-4. See "RISK FACTORS--Regulatory Risks."
[MAP OF PAS-7 COVERAGE]
PAS-8
PAS-8 will be a high-powered satellite providing service over the Pacific
Ocean Region. PAS-8 is expected to contain 24 C-band and 24 Ku-band
transponders. PanAmSat's strategy with PAS-8 is to expand upon the broadcast
and business communications services that are offered on PAS-2. PAS-8 is in
the design stages and subject to change.
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Operational and Expected Future Satellites
Set forth below is a description of the specifications of PanAmSat's
operational and expected future satellites as currently contemplated by
PanAmSat's management. However, the specifications concerning PanAmSat's
future satellites are subject to change as a result of continuing discussions
between representatives of PanAmSat and Galaxy regarding the likely needs of
New PanAmSat following the Reorganization. The PAS Global System will consist
of the following eight satellites:
<TABLE>
<CAPTION>
PAS-1 PAS-2 PAS-3 PAS-4 PAS-5
---------------- ----------------- ---------------- ------------------ ----------------
<S> <C> <C> <C> <C> <C>
Region Covered.. Atlantic Ocean Pacific Ocean Atlantic Ocean Indian Ocean Atlantic Ocean
Expected
Launch(1)...... Operational Operational Operational Operational 1997
Satellite....... GE 3000 HS 601 HS 601 HS 601 HS 601 HP
Expected End of
Useful
Life(3)........ 2001 2010 2010 2011 2012
Orbital
Location....... 45(degrees) W.L. 191(degrees) W.L. 43(degrees) W.L. 68.5(degrees) E.L. 58(degrees) W.L.(4)
TRANSPONDERS(7)
Ku-band........ 6 @ 72 MHz 12 @ 54 MHz 12 @ 54 MHz 16 @ 27 MHz 24 @ 36 MHz
4 @ 64 MHz 4 @ 64 MHz 8 @ 54 MHz
C-band......... 6 @ 72 MHz 12 @ 54 MHz 12 @ 54 MHz 12 @ 54 MHz 24 @ 36 MHz
12 @ 36 MHz 4 @ 64 MHz 4 @ 64 MHz 4 @ 64 MHz
Usable Band-
width (8)..... 1,296 MHz 1,808 MHz 1,808 MHz 1,768 MHz 1,728 MHz
OUTPUT POWER(9)
Ku-band........ 6 @ 16 Watts 16 @ 63 Watts 16 @ 63 Watts 24 @ 60 Watts 18 @ 110 Watts
6 @ 60 Watts
C-band......... 6 @ 16 Watts 16 @ 30 Watts 16 @ 34 Watts 16 @ 30 Watts 24 @ 50 Watts
12 @ 8.5 Watts
Total Output
Power(9)...... 294 Watts 1,488 Watts 1,552 Watts 1,920 Watts 3,540 Watts
<CAPTION>
PAS-6 PAS-7 PAS-8
---------------------- --------------------- --------------------
<S> <C> <C> <C>
Region Covered.. Atlantic Ocean Indian Ocean Pacific Ocean
Expected
Launch(1)...... 1997 1998 1998
Satellite....... SS/L FS-1300 SS/L FS-1300(2) SS/L FS-1300(2)
Expected End of
Useful
Life(3)........ 2012 2011 2013
Orbital
Location....... 43(degrees) W.L.(4)(5) 68.5(degrees) E.L.(6) 194(degrees) W.L.(6)
TRANSPONDERS(7)
Ku-band........ 36 @ 36 MHz 30 @ 36 MHz 24 @ 36 MHz
C-band......... -- 14 @ 36 MHz 24 @ 36 MHz
Usable Band-
width (8)..... 1,296 MHz 1,584 MHz 1,728 MHz
OUTPUT POWER(9)
Ku-band........ 36 @ 100 Watts 30 @ 100 Watts 24 @ 100 Watts
C-band......... -- 14 @ 50 Watts 24 @ 50 Watts
Total Output
Power(9)...... 3,600 Watts 3,700 Watts 3,600 Watts
</TABLE>
- -------
(1) PAS-1 was launched in June 1988 and commenced commercial service in
November 1988. PAS-2 was launched in July 1994 and commenced commercial
service in August 1994. PAS-4 was launched in August 1995 and commenced
commercial service in September 1995. PAS-3 was launched in January 1996
and commenced commercial service in February 1996. Future launch dates are
based on PanAmSat estimates.
(2) PanAmSat has entered into a contract with SS/Loral for the construction
and delivery of PAS-6, PAS-7 and PAS-8, with options to purchase
additional satellites and/or replacement satellites for PAS-7 or PAS-8.
PAS-6 has been delivered to the launch site. However, SS/Loral has
recently informed PanAmSat of circumstances that could result in a delay
in the launch of PAS-6. See "RISK FACTORS--Risk of Delays; Excess Weight."
The contract contemplates delivery of PAS-7 in 1997 and PAS-8 in 1998.
(3) The information for PAS-1, PAS-2, PAS-3 and PAS-4 is based on fuel level
estimates at January 31, 1997. The information for PAS-5, PAS-6, PAS-7 and
PAS-8 is based on the terms of their satellite contracts, current mass
projections and their launch contracts. Based upon current launch vehicle
capabilities, each of PAS-5, PAS-6 and PAS-8 may have sufficient fuel to
achieve a significantly longer life, in excess of 20 years. The
construction design life of each satellite remains 15 years, which
conservatively is the basis for the predicted life specified above. PAS-7
also has a design life of 15 years, but SS/Loral has informed PanAmSat
that it is expected to exceed its contractual weight specifications. To
ensure that the excess weight does not affect the satellite's intended
operational lifetime, PanAmSat is exploring several options, including
satellite modifications by SS/Loral or the use of an alternative Ariane IV
launcher configuration to deploy the spacecraft.
(4) The application for PAS-5 is pending with the FCC. PanAmSat has received
conditional regulatory approval for PAS-6, which approval is subject to
full financial showing and demonstration of consultation with Intelsat.
(5) PanAmSat has requested FCC approval to co-locate PAS-6 with PAS-3.
PanAmSat expects to receive final authorization from the FCC to locate
PAS-6 at 43(degrees) W.L. prior to its anticipated launch.
(6) PanAmSat has received conditional regulatory approval for the orbital slot
of 72(degrees) E.L. from the FCC, which approval is subject to a full
financial showing and demonstration of consultation with Intelsat. In
addition, PanAmSat has requested approval to co-locate a satellite with
PAS-4 at 68.5(degrees) E.L. PanAmSat intends to locate PAS-7 at the
68.5(degrees) E.L. orbital location if its application for such orbital
location is granted, in which case the 72(degrees) E.L. orbital slot could
be used for another satellite. PanAmSat tentatively plans to locate PAS-8
at 194(degrees) W.L. and has an application for that orbital slot pending
with the FCC.
(7) Satellite transponders receive transmissions from Earth and relay them
back to Earth. Transponders are composed of receivers, preamplifiers,
power amplifiers, frequency shifters and a host of other electronics. C-
band and Ku-band are ranges of frequencies used worldwide for commercial
satellite communications. The C-band frequency is widely used for the
distribution of television programming. The Ku-band frequency is widely
used for DTH television broadcasting, satellite news-gathering
applications and on-site business communications networks that require the
use of very small antennas. Construction of PAS-6 has been completed and
it has been delivered to the launch site. However, SS/Loral has recently
informed PanAmSat of circumstances that could result in a delay in the
launch of PAS-6. See "RISK FACTORS--Risk of Delays; Excess Weight." The
designs of PAS-5 and PAS-7 are complete. The design for PAS-8 is still to
be completed.
(8) Bandwidth is one measure of the information carrying capacity of a
transponder. A transponder's bandwidth and power together determine the
amount of information that can be carried. Construction of PAS-6 has been
completed and it has been delivered to the launch site. However, SS/Loral
has recently informed PanAmSat of circumstances that could result in a
delay in the launch of PAS-6. See "RISK FACTORS--Risk of Delays; Excess
Weight." The designs of PAS-5 and PAS-7 are complete. The design for PAS-8
is still to be completed.
(9) Output power is the transmitter power of each transponder and is not a
measure of the signal power received on Earth. Total output power is the
aggregate power of all the transponders on the satellite. High output
power allows for the use of smaller and less expensive receiving antennas
to obtain the satellite signal. Construction of PAS-6 has been completed
and it has been delivered to the launch site. However, SS/Loral has
recently informed PanAmSat of circumstances that could result in a delay
in the launch of PAS-6. See "RISK FACTORS--Risk of Delays; Excess Weight."
The designs of PAS-5 and PAS-7 are complete. The design for PAS-8 is still
to be completed.
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Types of Satellites
PAS-1 is a GE Series 3000 satellite with 12 36-MHz and six 72-MHz
transponders at C-band and six 72-MHz transponders at Ku-band. The satellite
offers coverage of the Americas and Europe. PAS-1 was launched in June 1988
and has an expected in-orbit life of 13.25 years from the date of launch. PAS-
1 has not experienced any anomalies that have affected or which are expected
to affect the satellite's continued operation through its projected end-of-
life. In late 1989, PAS-1 experienced a loss of approximately one half of the
power on one transponder. A spare amplifier was switched over to the
transponder which effectively restored the lost power. No problems occurred
during the switchover, and this transponder currently meets all performance
specifications. In November 1992, PAS-1 experienced a loss of approximately
one half the power on another transponder in the same transponder bank. A
spare amplifier was not available because the spare amplifier assigned to the
transponder bank had already been switched to the transponder which
experienced power loss in late 1989. However, the transponder which
experienced the power loss in November 1992 continues to meet the performance
requirements under PanAmSat's contracts with the two customers which are using
this transponder, and PanAmSat has given these customers a nominal one-time
credit related to this loss of power. See "--Insurance."
PAS-2 and PAS-3 are Hughes HS 601 satellites, each with 12 54-MHz and four
64-MHz transponders at C-band and 12 54-MHz and four 64-MHz transponders at
Ku-band. PAS-2 offers coverage of Asia and western North America. PAS-3 offers
coverage of the Americas, Europe and Africa. PAS-2 was launched in July 1994
and has an expected in-orbit life of 15 years from the date of launch. PAS-2
has not experienced any anomalies that have affected or which are expected to
affect the satellite's continued operation through its projected end-of-life.
In February 1995, the satellite experienced a brief outage on one transponder
amplifier and a spare amplifier was switched over. An additional amplifier
experienced a loss of gain in January 1996 and a spare amplifier was switched
over. No problems occurred during these switchovers, and these transponders
currently meet all performance specifications. PAS-3 was successfully launched
in January 1996, and commenced service in February 1996. PAS-3 has an in-orbit
expected life of 14 to 15 years from the date of launch. During in-orbit
testing, a Ku-band amplifier on PAS-3 was determined to be defective and a
spare amplifier was switched over.
PAS-4 is a Hughes HS 601 satellite with 12 54-MHz and four 64-MHz
transponders at C-band and 16 27-MHz and eight 54-MHz transponders at Ku-band.
PAS-4 offers coverage of Europe, Africa, India and Asia, the Middle East, and
Australia. PAS-4 was successfully launched in August 1995 and commenced
service in September 1995. PAS-5 is also a Hughes HS 601 satellite designed to
meet PanAmSat's operational requirements. PAS-6 was constructed by SS/Loral.
The design of PAS-5 is complete and construction has commenced. PAS-5 is
expected to carry 24 36-MHz transponders at Ku-band and 24 36-MHz transponders
at C-band. PanAmSat expects that the satellite will be able to carry 96 to 120
digital program channels over Ku-band transponders for reception within the
satellite's coverage area by households equipped with 24-36 inch (60-90 cm)
antennas. The satellite also can be used for other broadcast and business
communications services employing small, low-cost antennas on the ground.
Construction of PAS-6 has been completed and it has been delivered to the
launch site. However, SS/Loral has recently informed PanAmSat of circumstances
that could result in a delay in the launch of PAS-6. See "RISK FACTORS--Risk
of Delays; Excess Weight." PAS-6 will carry 36 36-MHz transponders at Ku-band
that will be able to carry 288 to 360 digital program channels. PanAmSat has
contracted with SS/Loral to build PAS-7 and PAS-8. PAS-7 has been designed to
contain 14 36-MHz C-band and 30 36-MHz Ku-band transponders. PAS-8 is expected
to contain 24 36-MHz C-band and 24 36-MHz Ku-band transponders. PAS-8 is in
the design stages and subject to change.
When launched, each of PanAmSat's new satellites will have at least five
times (twelve times in the case of PAS-6) the transmission power of PAS-1.
This added power will allow PanAmSat and its customers to reduce their ground
segment costs significantly by allowing the use of smaller earth stations.
The new satellites will offer a high-powered, multi-beam design. The
provision of both C-band and Ku-band capacity on each satellite, except for
PAS-6, will give PanAmSat flexibility to meet its customers' needs for
domestic, regional and international communications services.
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The C-band frequency is widely used for the distribution of television
programming. C-band is optimal for areas with relatively low levels of
microwave interference or relatively high levels of rainfall and in markets
which have a tolerance for a range of earth station sizes. C-band is currently
widely used in South America, Asia, Africa and the United States.
The Ku-band frequency is widely used for DTH television broadcasting,
satellite news gathering applications and on-site business communications
networks that require the use of very small antennas. Ku-band is optimal for
areas with high levels of terrestrial microwave interference and where small
earth stations are required due to zoning or other physical considerations or
market needs. Ku-band is utilized throughout Europe, Australia and Japan and,
increasingly, in North America.
The HAC PAS-5 Contract
PanAmSat has contracted with HAC for the construction and delivery of PAS-5
(the "HAC PAS-5 Contract"). The HAC PAS-5 Contract calls for the delivery to
support an early May 1997 launch. HAC has notified PanAmSat that construction
is delayed and that HAC will be able to support a launch no earlier than late
June 1997. After a specified grace period, there will be liquidated damages
payable by HAC in the event of a late delivery which is the fault of HAC.
Payments representing approximately 80% of the total cost of the satellite
will be made during the period of the satellite's construction and upon
completion of the satellite's in-orbit testing with the remainder of such
costs to be paid in the form of incentive payments based upon the satellite's
orbital performance over the 15-year period following launch. PanAmSat has the
option of prepaying the incentive obligations at any time. The incentive
obligations are subject to reduction or refund if the satellite fails to meet
specific technical operating standards. The HAC PAS-5 Contract provides for a
limited pre-launch warranty by HAC which requires HAC to correct or replace
any non-conforming goods with conforming goods, if such correction or
replacement can be reasonably accomplished as determined by HAC. If the
delivery is delayed due to the fault of PanAmSat, PanAmSat will be obligated
to pay to HAC its reasonable costs incurred as a result of the delay plus a
profit component.
The SS/Loral Satellite Contract
PanAmSat has contracted with SS/Loral for the construction and delivery of
PAS-6, PAS-7 and PAS-8, and for the option to purchase up to two additional
satellites and up to four spare satellites (the "SS/Loral Satellite
Contract"). The SS/Loral Satellite Contract calls for the delivery of PAS-6,
PAS-7 and PAS-8 no later than November 10, 1996, August 4, 1997 and February
21, 1998, respectively. Despite the specified November 10, 1996 delivery date,
PAS-6 was delivered to the launch site in March 1997. However, SS/Loral has
recently informed PanAmSat of circumstances that could result in a delay in
the launch of PAS-6. See "RISK FACTORS--Risk of Delays; Excess Weight."
PanAmSat expects completion and delivery of PAS-7 in December 1997 followed by
an anticipated launch in the first quarter of 1998. In addition to the revised
delivery schedule, SS/Loral has informed PanAmSat that it expects that the
satellite will exceed its contractual weight specifications. To ensure that
the excess weight does not affect the satellite's intended operational
lifetime of approximately 15 years, PanAmSat is exploring several options,
including satellite modifications by SS/Loral or the use of an alternative
Ariane IV launcher configuration to deploy the spacecraft. There are limited
liquidated damages payable by SS/Loral in the event of a late delivery that is
the fault of SS/Loral and reductions in price that are specified for excess
weight. Payments representing approximately 80% of the total cost of the
satellite will be made during the period of the satellite's construction and
upon completion of the satellite's in-orbit testing with the remainder of such
cost to be paid in the form of incentive payments based on orbital performance
which will be made over the 15-year period following launch. PanAmSat has the
option of prepaying the incentive obligations at any time. The incentive
obligations are subject to reduction or refund if the satellite fails to meet
specific technical operating standards. The SS/Loral Satellite Contract
provides for a pre-launch warranty by SS/Loral which requires that the
satellite be free from defects and perform in accordance with technical
specifications.
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LAUNCH ARRANGEMENTS
Launch Services for PAS-5, PAS-6, PAS-7, PAS-8 and Future Satellites
PanAmSat expects to launch PAS-5 and PAS-8 on a Proton launch vehicle, PAS-6
on an Ariane IV launch vehicle and PAS-7 on an Ariane IV or Ariane V launch
vehicle. Arianespace has had a successful launch rate of approximately 93%
since it began operations in May 1984 and an approximately 95% success rate
with the Ariane IV launch vehicle. The Ariane V is Arianespace's latest-
generation launch vehicle and is capable of carrying heavier payloads. The
first experimental launch of Ariane V suffered a launch failure on June 4,
1996. Arianespace is going forward with the development of Ariane V, but the
timing of the availability of Ariane V for commercial launches is uncertain.
In addition, on November 17, 1996, a Proton launch vehicle suffered a launch
failure, the second such failure in 1996. Preliminary indications are that the
failure may have been caused by the satellite and not the launch vehicle, and
as such PanAmSat does not believe that such failure will cause any delay to
future PanAmSat or Proton launches. An investigation of the failure has
commenced, but a final report has not been issued. Detailed information about
the nature of the launch failure or whether it will have an impact on the
timing of the launch of PAS-5 is not currently available.
PanAmSat has entered into a contract with Arianespace for the launch of PAS-
6, which is expected to be launched from Arianespace's launch base in French
Guiana. In connection with the delayed delivery of PAS-6, PanAmSat has amended
its launch agreement with Arianespace to specify an April 1997 launch slot (or
earlier if both PanAmSat and Arianespace can accommodate it) for PAS-6.
However, Arianespace has informed PanAmSat that because of a delay in its
preceding launch with another customer, the launch of PAS-6 will likely be
delayed until May 1997. If PAS-6 is required to be returned to SS/Loral,
rescheduling of the launch of PAS-6 with Arianespace will be required.
In December 1995, PanAmSat signed a multi-launch service contract with
Arianespace for one firm launch, which PanAmSat currently plans to use for
PAS-7, and rights for additional launches. PanAmSat has exercised its rights
for an additional launch in late 1999 or early 2000 for an unspecified
satellite. Arianespace has indicated its ability to provide a first quarter
1998 launch to accommodate the delay in the construction of PAS-7. It may be
possible to negotiate an agreement with Arianespace for a more powerful
launch, but there can be no assurance that PanAmSat will be able to reach
agreement with Arianespace on the terms or timing of a more powerful launch
than currently specified in PanAmSat's launch contract.
PanAmSat has entered into an agreement (the "LKE Launch Contract") with LKE
which provides for launch services on the Proton launch vehicle. The Proton,
which is built in Russia and launched in Khazakhstan, has a reliability rate
of 94% over the last 50 launches. If the Proton is unavailable due to
technical, regulatory or other factors, LKE would provide launch services for
at least one launch using an alternative launch vehicle. See "RISK FACTORS--
Risks of Launch Failure." The LKE Launch Contract provides for the launch of
three of PanAmSat's satellites. It is anticipated that two of these launches
will be used for PAS-5 and PAS-8. PanAmSat and LKE have agreed to a revised
launch schedule for PAS-5 for July 1997.
PanAmSat has reached agreements with SS/Loral, Arianespace and LKE that will
give PanAmSat contractual rights for the construction and launch of
replacement satellite(s) within 12 months or less of the launch failure of any
one or more of PAS-5, PAS-6, PAS-7 or PAS-8, in all cases in less time than it
took for the replacement satellite for PAS-3 to be constructed and launched
after the original satellite suffered a launch failure. Based upon provisions
that PanAmSat has been able to negotiate in contracts for its existing in-
orbit satellites and negotiations thus far with respect to services for its
future satellites, PanAmSat believes that these contractual rights for
replacement satellite(s) will allow it to retain its anticipated customer
contracts for these satellites in most circumstances (as was the case when
PAS-3 suffered a launch failure), including in the event of a launch failure.
However, any further delay to the launch of PAS-5 (more than currently
anticipated) could mean that replacement satellites, if required, would not be
available in time to avoid certain customers' rights to terminate their
contracts with respect to such satellites. Moreover, if PAS-6 is returned to
the manufacturer, as described above under the section captioned "RISK
FACTORS--Risk of Delays; Excess Weight,"
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it would be unlikely, if there is a launch failure of PAS-6, that a
replacement satellite could be launched in time to avoid the termination
rights of the PAS-6 customer contracts.
The launch contracts provide that PanAmSat may terminate such contracts at
its option, and the contracts include termination liability schedules that
increase in magnitude as the timing of any such termination approaches the
date of launch. The maximum liability, calculated in accordance with such
schedules, for launch services that have been ordered in connection with any
individual launch (including postponement fees) is approximately $45.0
million. Payments made by PanAmSat prior to PanAmSat's election to terminate
any such launch contract are offset against any such liability owed. The
launch contracts also contain rights for replacement launches in the event of
launch failures within specified periods following request for relaunch.
Control of Satellites After Launch
Once a satellite is placed at its orbital location, ground stations control
it until the end of its in-orbit lifetime. PAS-1 is controlled under a long-
term TT&C agreement by GE Capital Spacenet Services, Inc. from PanAmSat's
earth station facility located in Ellenwood, Georgia. PanAmSat has an
agreement with HCSS (and, in the case of PAS-5, with HAC) whereby HCSS will
provide TT&C services for PAS-2, PAS-3 and PAS-5 from HCSS facilities, which
will employ, in some cases, earth station facilities to be supplied by
PanAmSat. HCSS presently provides TT&C services for twelve satellites in
orbit. See "CERTAIN TRANSACTIONS." PanAmSat has an agreement with Optus
Networks Pty Limited ("Optus"), a leading supplier, for the provision of TT&C
for PAS-4. Optus is a recognized provider of such services with experience in
maintaining Hughes' satellites in orbit at locations that are outside of the
look angle of Hughes' U.S. facilities. PanAmSat and SS/Loral have an agreement
pursuant to which SS/Loral would provide TT&C service for PAS-6, PAS-7 and
PAS-8.
INSURANCE
Under the satellite construction contracts, the contractor generally bears
the risk of loss of a satellite during the construction phase up to the
delivery, at which time title and risk of loss pass to PanAmSat (at which time
the launch insurance will become operative).
In January 1996, PanAmSat obtained launch insurance for the construction,
launch and insurance costs for future satellites at a contracted premium rate
of 16% of the amount insured for PAS-5, PAS-6, PAS-7 and PAS-8. In April 1996,
PanAmSat obtained launch insurance for the construction, launch and insurance
costs at a contracted premium rate of 16% for PAS-9/R. The Certificate of
Designation (the "Certificate of Designation") for the PAS Preferred Stock
contains, and the Indenture (the "Exchange Indenture") relating to PanAmSat's
12 3/4% Senior Subordinated Notes due 2005 (the "Exchange Debentures") would
contain covenants requiring PanAmSat to obtain launch insurance for PAS-5 and
PAS-6 sufficient to cover the estimated cost of construction, launch and
launch insurance for a replacement satellite in the event of a total launch
failure up to a maximum of $230 million. Coverage under PanAmSat's launch
insurance will include claims arising from occurrences up to 180 days after
the launch. As a general matter, however, PanAmSat anticipates that the
insurance coverage will include not only catastrophic loss of a satellite
during launch but also the failure of a satellite to obtain proper orbit or to
perform in accordance with specifications once in orbit. If 50% or more of a
satellite's capability is lost, then a constructive total loss is deemed to
have occurred, and the full amount of insurance would become due and payable.
If the satellite is able to achieve more than 50% but less than 85% of its
performance specifications, PanAmSat will be entitled to a portion of the
amount of the insurance after taking into account a deductible equivalent to
no more than 15% of the satellite's capability. Losses are measured in
transponder years with Ku-band transponders weighted as 1.25 times the value
of C-band transponders.
The insurance policies include standard commercial launch insurance
provisions and customary exclusions including (i) military or similar actions,
(ii) laser, directed-energy or nuclear anti-satellite devices,
(iii) insurrection and similar acts or governmental action to prevent such
acts, (iv) governmental confiscation, (v) nuclear reaction or radiation
contamination, (vi) willful or intentional acts of PanAmSat or its
contractors, (vii) loss of market, loss of revenue, extra expenses, incidental
and consequential damages, and (viii) third-party claims against PanAmSat.
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Over the period from 1989 to 1996, the risk of an insured commercial
satellite failing prematurely due to, among other things, mechanical failure,
a collision with objects in space or an inability to maintain proper orbit,
was approximately 1.6%. In-orbit insurance is typically purchased after a
satellite has been satisfactorily tested in-orbit, and coverage would commence
upon expiration of the launch insurance. The covenants under the Indenture
dated as of August 5, 1993 (the "Senior Secured Note Indenture"), among
PanAmSat, PanAmSat Capital Corporation ("PanAmSat Capital") and First Trust
National Association, as trustee, pursuant to which the Senior Secured Notes
were issued, and the Indenture dated as of August 5, 1993 (the "Discount Note
Indenture," and together with the Senior Secured Note Indenture, the "1993
Indentures"), among PanAmSat, PanAmSat Capital and U.S. Trust Company of New
York, as trustee, pursuant to which the Discount Notes require PanAmSat to
maintain in-orbit insurance for PAS-1, PAS-2, PAS-3 and PAS-4 in specified
amounts. The Certificate of Designation requires, and the Exchange Indenture
would require, PanAmSat to maintain in-orbit insurance for PAS-1, PAS-2, PAS-
3, PAS-4, PAS-5 and PAS-6. As of December 31, 1996, PanAmSat carried
approximately $60.0 million of in-orbit insurance for PAS-1, $192.0 million of
in-orbit insurance for PAS-2 (which amount decreases on a straight-line basis
over the estimated useful life of the satellite), $219.8 million of in-orbit
insurance for PAS-3 (which amount decreases on a straight-line basis over the
estimated useful life of the satellite), and $216.5 million of in-orbit
insurance for PAS-4 (which amount decreases on a straight-line basis over the
estimated useful life of the satellite). PanAmSat is presently exploring its
insurance options with respect to in-orbit coverage of each of PAS-5 and PAS-6
and intends to obtain in-orbit insurance initially for approximately 96% of
the construction, launch and insurance costs of each satellite, as well as for
PAS-7, PAS-8 and PAS-9/R. PanAmSat renewed its in-orbit insurance on PAS-1 in
1996 at an increased contracted annual premium rate of 3.75% of the coverage
provided thereby. This increase is attributable to certain anomalies which
appeared in 1995 in the performance of one of the command receivers on PAS-1.
PanAmSat has put in place certain operational procedures which are designed to
prevent the recurrence of these anomalies. The contracted annual premium rate
for PAS-2, PAS-3 and PAS-4 in-orbit insurance is 2.15% of the coverage
provided thereby.
Coverage under PanAmSat's in-orbit insurance will include claims arising
from occurrences subsequent to 180 days after the launch. The insurance
coverage includes the failure of a satellite to continue to perform in
accordance with specifications. If 50% or more of a satellite's remaining
capability is lost, then a constructive total loss is deemed to have occurred,
and the full amount of insurance would become due and payable. If the
satellite is able to maintain more than 50% but less than 90% of its
performance specifications, PanAmSat will be entitled to a portion of the
amount of the insurance after taking into account a deductible equivalent to
not more than 10% of the satellite's capability. PanAmSat's in-orbit policies
typically include customary commercial satellite insurance exclusions,
including, among other things, damage or loss caused by military actions or
acts of war, anti-satellite devices, government action, frequency interference
or nuclear reaction.
SALES AND MARKETING
PanAmSat's sales and marketing activities are separated into three general
service areas: full-time program distribution; part-time and ad hoc broadcast;
and business communications and long-distance telephony.
PanAmSat's Greenwich headquarters has a sales and marketing department for
each service area. PanAmSat also has sales and marketing offices in Coral
Gables, Florida, Sydney, Australia, London, England, Tokyo, Japan and
Johannesburg, South Africa, which provide integrated sales and marketing for
all three service areas in their respective regions. The senior executive
officers of PanAmSat have been directly involved in marketing to key
broadcasting and business communications customers.
COMPETITION
PanAmSat competes with companies and organizations which own or utilize
satellite or terrestrial transmission facilities. Many of such entities have
greater financial resources than PanAmSat.
Other Satellite Operators
PanAmSat's largest competitor in the international satellite communications
industry is Intelsat. Intelsat's mandate, established by international treaty,
is to provide international satellite capacity on a non-discriminatory
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basis to countries around the world. Since its formation in 1964, Intelsat's
primary business has been the provision of satellite capacity for long-
distance telephony circuits. Historically, Intelsat has made available only a
small fraction of its transponders on each of its satellites for broadcasting
services. Comsat is the U.S. signatory of Intelsat and is the exclusive
wholesale marketer of Intelsat satellite capacity in the United States.
Intelsat's satellites have historically been general purpose, lower-powered
satellites designed to serve large areas with public telephone service
transmitted between large and expensive gateway earth stations. The technical
features of Intelsat's satellites have not been well suited for services such
as programming distribution and business communications networks, which
involve large numbers of small earth stations. Intelsat's marketing
flexibility is limited because it generally provides capacity directly to its
signatories who then market such capacity to their customers. This marketing
structure has hindered Intelsat from marketing directly to customers and has
greatly increased the administrative procedures and costs involved in
obtaining satellite services from Intelsat.
In recent years, Intelsat has responded to international and regional
competition from private satellite systems by purchasing higher-powered
satellites, offering focused regional coverage and pursuing arrangements which
are designed to permit broader marketing and support of its services,
including establishing regional Intelsat offices. Intelsat has also begun to
shift away from its historical focus on international telephony services
towards providing television and business communications network services. For
example, in October 1994, Intelsat's assembly of parties decided on a
classification of its proposed DTH services that will make it easier for
Intelsat to provide DTH services. Intelsat currently operates satellites that
are capable of providing DTH services in Latin America and is considering the
purchase and launch of a dedicated DTH satellite to serve Latin America. In
December 1996, Intelsat approved a proposal to construct a satellite for DTH
services in the Asia-Pacific Region. There can be no assurance that Intelsat
will not obtain a competitive advantage over PanAmSat for broadcasting and
business communications services. In February 1996, Comsat and the Clinton
Administration agreed to submit a proposal regarding Intelsat restructuring
that would divide Intelsat into two separate entities through the creation of
a new Intelsat affiliate company. Comsat has been discussing the proposal with
other Intelsat signatories, but based on trade press reports it appears that
the proposal has little or no support outside the United States. Intelsat is
also considering other proposals and is expected to take up the issue of
restructuring at the 1997 meeting of its member governments. If the joint
proposal or any other proposal on restructuring is approved and an affiliate
company of Intelsat is established, this could result in increased competition
to PanAmSat.
For regional television distribution outside the United States, broadcasters
use, among others, Arabsat (Middle East), Eutelsat (Europe), Astra (Europe),
AsiaSat and APStar (Asia), Columbia Communications Corp. (Atlantic and Pacific
Ocean regions), Orion Network Systems, Inc. ("Orion") (Atlantic Ocean region)
and Palapa (Southeast Asia) and, to a lesser extent, Intelsat. While these
entities are active in regions in which PanAmSat plans to provide facilities
and services, only Intelsat is a global system. Countries that have domestic
satellite systems include Argentina, Australia, Brazil, Canada, China, France,
Germany, India, Italy, Japan, Malaysia, Mexico, Russia, South Korea, Spain,
Thailand, Turkey and the United States. Argentina, Brazil, Malaysia, Mexico
and Thailand also provide regional services on their domestic satellites.
For example, AsiaSat, a private regional satellite operator based in Hong
Kong, has granted an exclusive right for international program distribution on
its current AsiaSat-1 satellite to one broadcaster, StarTV. StarTV requires
broadcasters to distribute their programming under the StarTV name and also
requires broadcasters to share a portion of their revenues with StarTV.
AsiaSat-1 also offers satellite capacity for business communications and voice
services. In 1995, AsiaSat launched the AsiaSat-2 satellite on a Chinese
rocket and published reports indicate that AsiaSat has entered into a lease
for satellite capacity with StarTV which was also granted an exclusive right
for international programming distribution on AsiaSat-2.
Proposed Satellite Systems
Other companies have announced plans to operate regional or transoceanic
satellite systems. Entry into the international satellite communications
industry can be expensive and difficult. The construction and launch of a
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satellite comparable to PanAmSat's new satellites usually takes approximately
three or more years and costs approximately $200 million to $250 million. In
addition, there are a limited number of orbital slots. The operation of an
international satellite communications system also requires approvals from
national telecommunications authorities and Intelsat and, in certain cases,
from regional satellite authorities, such as Eutelsat. See "--Government
Regulation." While the trend around the world is to liberalize these
regulatory requirements, at present obtaining the necessary licenses involves
significant time, expense and expertise.
Orion has announced plans to construct and launch an additional satellite in
mid-to-late 1997 in the Atlantic Ocean Region and a satellite thereafter in
the Asia-Pacific region.
Two Japanese domestic satellite operators plan to provide regional service
throughout the Pacific Ocean Region. The first of three satellites was
launched in August 1995. In January 1996, GE Capital Satellites International
Inc. announced that the government of Gibraltar had filed applications on its
behalf with the ITU for 12 orbital slots in which to operate satellites
serving Africa, Asia and the Pacific Rim.
Countries planning to launch domestic satellites include Egypt, Laos and the
Philippines.
Service Providers
A number of U.S.-based service providers offer business communications
services in competition with PanAmSat through Intelsat satellite capacity
including Comsat, MCI and Sprint. In addition, MCI and Sprint are users of
PanAmSat's satellites when they seek to use satellites for part or all of the
network services they offer their customers. Certain service providers, such
as Keystone Communications, utilize leased satellite capacity to provide
limited services to broadcasters, primarily for ad hoc applications.
Optical Fiber Cables
Optical fiber cables generally do not compete with PanAmSat's services. The
primary use of optical fiber cables is to carry high-volume telephony
communications on a point-to-point basis, a market PanAmSat does not intend to
enter. Transcontinental optical fiber cables currently carry video traffic,
but this service is largely for point-to-point traffic (e.g., New York to
London). Optical fiber cables are not readily usable for point-to- multipoint
broadcast applications or for the transmission of ad hoc events which require
short-term satellite capacity and transportable uplink earth stations. These
areas are expected to constitute the largest segments of PanAmSat's
broadcasting services.
U.S. Domestic Satellites
The FCC traditionally has not permitted U.S. domestic satellites to provide
international service except in limited circumstances. However, on January 22,
1996, the FCC released a decision permitting all U.S.-licensed satellites to
provide both domestic and international services without regard to whether the
satellites initially had been licensed as domestic satellites or separate
international systems. In practice, however, most existing U.S. domestic
satellites are designed to serve principally the United States. The FCC's
decision also authorized direct broadcast satellite systems licensed by the
FCC to provide international service.
GOVERNMENT REGULATION
The international communications environment is highly regulated. As an
operator of a privately owned international satellite system, PanAmSat is
subject to the regulatory authority of the U.S. government (primarily the FCC)
and the national communications authorities of the countries in which it
operates. In addition, PanAmSat is subject to the Intelsat consultation
process as described below, which can result in the imposition of operational
restrictions on PanAmSat. While PanAmSat has all necessary licenses and
governmental approvals for the construction, launch and operation of PAS-1,
PAS-2, PAS-3 and PAS-4, there can be no assurance that PanAmSat will succeed
in obtaining all requisite regulatory approvals for PAS-5, PAS-6, PAS-7 and
PAS-8 and for the orbital slots planned for these satellites without the
imposition of operational restrictions on PanAmSat.
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U.S. Regulation
The FCC is the governmental body with primary authority in the United States
over all satellite carriers.
1. Licensing Terms
PanAmSat is not regulated as a common carrier. As a non-common carrier,
PanAmSat is free to set prices and serve customers according to its business
judgment, without rate of return or price cap regulation or requirements not
to discriminate among customers, and with minimal governmental scrutiny of its
business decisions. PanAmSat is subject to the FCC's review primarily for: (i)
the licensing of individual satellites and earth stations (e.g., meeting
minimum financial, legal and technical standards); (ii) avoidance of
interference with other radio stations; and (iii) compliance with rules the
FCC has established specifically for U.S.-based international satellite
companies.
PanAmSat's original license from the FCC prohibited it from carrying any
traffic to or from the United States that interconnected with a public
switched telephone network ("PSTN"). This restriction was designed to protect
Intelsat's public switched telephone services business from competition and
broadly precluded any separate international satellite company, such as
PanAmSat, from any connection, direct or indirect, into the PSTN on either
side of a circuit that enters or leaves the United States. Thus, a customer
could not terminate a private line carried by PanAmSat into a switchboard that
would switch the call into the PSTN, either in the United States or at the
other end of the circuit.
In subsequent decisions, the FCC authorized PanAmSat to provide a wide range
of services involving the PSTN. In response to a petition filed by PanAmSat
with the FCC, and in recognition of changed conditions, the FCC in March 1992
modified this restriction to permit carriage of 1,250 64-kbps bearer circuits
of fully connected telephone traffic per satellite and stated its intention to
eliminate this restriction entirely by January 1, 1997. In March 1994, the FCC
reaffirmed the 1,250 64-kbps bearer circuit standard for public switched
services and authorized PanAmSat to provide an unlimited number of private
lines that are connected to the PSTN. The interconnected private lines are
subject to resale restrictions and to restrictions against using the
interconnected private lines to provide public switched telephone service. In
October 1994, Intelsat increased the threshold below which Intelsat presumes
private international satellite systems do not cause economic harm to 8,000
64-kbps bearer circuits per satellite. In November 1996, the FCC brought its
policies into line with this new standard, and effective January 1, 1997, the
FCC no longer restricts the number of public switched circuits that PanAmSat
may carry. For purposes of Intelsat consultation, however, the presumption
that private international satellite systems do not cause economic harm
continues to be limited to systems carrying 8,000 64-kbps bearer circuits or
less per satellite. The FCC's previous separate system policies restricted
PanAmSat's ability to provide U.S. domestic service, subject to certain
exceptions. On January 22, 1996, however, the FCC released a decision
abolishing those restrictions and also permitting all U.S.-licensed satellites
to provide international service.
The FCC has granted PanAmSat Carrier Services, Inc. ("PCSI"), a wholly owned
subsidiary of PanAmSat, authority, pursuant to Section 214 of the
Communications Act of 1934, as amended (the "Communications Act"), to provide
international private line and public switched services via the PAS-1
satellite on a common carrier basis. Although PCSI is a common carrier,
PanAmSat will continue to operate as a non-common carrier.
2. Authorization to Construct, Launch and Operate Satellites
PanAmSat has conditional or final authorization from the FCC for a total of
five satellites. The U.S. government has filed with the ITU for, among other
things, all of PanAmSat's orbital slots for PAS-1 through PAS-8. See "--
International Telecommunications Union."
PanAmSat is licensed by the FCC to operate PAS-1 in geostationary orbit at
45(degrees) W.L. PanAmSat is required to engage in frequency coordination with
other satellite operators. These include Orion Satellite Corporation, which
has an FCC authorization for an international satellite in the orbital
location adjacent to PAS-1. Orion has taken the position that PanAmSat must
accept interference from Orion's satellite because PAS-1 does not have "full
frequency reuse," while PanAmSat has disputed this position. The FCC has
suggested that Orion's position
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is incorrect, but stated that it will not rule definitively on the issue
unless the parties are unable to resolve their differences by frequency
coordination. Orion announced in 1993 that it had canceled its contract for
construction of the satellite which was intended for this orbital slot but
reaffirmed its intention to build such satellite at an unspecified later date.
PanAmSat is licensed to operate PAS-2 in geostationary orbit at 191(degrees)
W.L. PAS-2 was launched in July 1994.
PanAmSat is licensed to operate PAS-3 in geostationary orbit at 43(degrees)
W.L. PAS-3 was launched in January 1996.
PanAmSat is licensed to operate PAS-4 in geostationary orbit at
68.5(degrees) E.L. PAS-4 was launched in August 1995.
PanAmSat has obtained conditional regulatory approval from the FCC to
construct, launch and operate PAS-6 at 43(degrees) W.L., where it would be co-
located with PAS-3 over the Atlantic Ocean Region in order to provide DTH
television services throughout Latin America.
PanAmSat has obtained conditional regulatory approvals from the FCC to
construct, launch, operate and locate a satellite at 72(degrees) E.L. (over
the Indian Ocean Region), subject to a full financial showing and
demonstration of consultation with Intelsat. In addition, PanAmSat has
requested approval to co-locate a satellite with PAS-4. PanAmSat intends to
locate PAS-7 at the 68.5(degrees) E.L. orbital location if its application for
such orbital location is granted. PanAmSat has requested a waiver that would
enable its 68.5(degrees) E.L. co-located application to be processed under the
pre-existing separate system policies, rather than under recently-adopted new
FCC processing policies under which the FCC would not process the application
until it had completed processing of all domestic satellite and separate
system applications that were pending when the FCC adopted the new processing
policies on January 19, 1996. If these policies were to apply, then after the
FCC had finished processing pending applications it would issue a public
notice establishing a new processing round including the 68.5(degrees) E.L.
application and any other applications filed in response to the public notice.
Absent a waiver, therefore, processing could be substantially delayed beyond
the anticipated PAS-7 launch, which is scheduled for the third quarter of
1997. No delay would occur if PanAmSat elects to position PAS-7 at 72(degrees)
E.L.
None of these final or conditional authorizations, as appropriate, is
subject to further administrative or judicial reconsideration or review. The
FCC reserves the right to require the repositioning of a satellite's orbital
slot if the FCC determines that it is in the national interest that such a
change be made. The FCC has rarely used this authority.
PanAmSat's conditional construction authorizations, by themselves, do not
entitle PanAmSat to expend funds toward the construction of its satellites.
Accordingly, from time to time PanAmSat has requested and received waivers
pursuant to Section 319(d) of the Communications Act from the FCC permitting
such expenditures in specified amounts.
PanAmSat also has pending FCC applications for the following satellites:
PAS-8, to be located at 194(degrees) W.L. (over the Pacific Ocean Region) and
PAS-5, to be located at 58(degrees) W.L. (to supplement the capacity of PAS-1
and PAS-3). PanAmSat may request approval to co-locate PAS-8 with PAS-2.
Final FCC authorization for each of PanAmSat's satellites and orbital slots
is subject to demonstration that PanAmSat has sufficient funds to construct,
launch and operate the satellite for one year and completion of the Intelsat
consultation process with at least one country in addition to the United
States. The FCC recently revised its financial qualification requirements for
separate system applicants, requiring that such applicants make a full
financial showing at the time they file. The FCC's decision gives applicants
whose applications are already on file an opportunity to amend their
applications to conform to the new financial requirements. Applications that
were filed prior to April 25, 1995 are "grandfathered" and need not comply.
Applications that were filed after
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that date and that specified "uncongested" portions of the orbital arc may,
upon "appropriate request," defer their full financial showing pursuant to the
two-step financial standard that previously was applicable to separate
systems. PAS-5 and PAS-8 are grandfathered under the new rules, and PanAmSat
has requested that PAS-6 and PAS-7 be processed under the pre-existing two-
step financial standard. PanAmSat therefore believes that these new financial
requirements will not materially affect its ability to obtain final authority
for PAS-5, PAS-6, PAS-7 and PAS-8. There can be no assurance, however, that
these new requirements will not materially affect the ability of PanAmSat to
obtain final authority for any future satellites.
PanAmSat also has filed applications for satellites at 79(degrees) W.L.
(PanAmSat has informally requested that the FCC associate this application
with the 81(degrees) W.L. orbital location) and at 93(degrees) W.L. These
applications, as well as the applications and authorizations discussed above
for PAS-1 through PAS-8, all involve operations on C-band and Ku-band
frequencies. If these two applications are granted, the FCC would have to
assign different orbital locations because it since has assigned the
79(degrees) W.L. and 93(degrees) W.L. locations to other applicants. In
addition, PanAmSat has filed applications for nine Ka-band satellites. Two of
the nine applications were filed within the deadline for the first Ka-band
"processing group" and the FCC tentatively has assigned to PanAmSat the
orbital location it requested in one application subject to final action on
its application for the orbital location. Pursuant to an agreement among all
the Ka-band applicants that is subject to FCC approval, PanAmSat expects to be
assigned a second Ka-band orbital location. The remaining seven applications
were filed after the deadline, and the FCC's International Bureau denied
PanAmSat's request to reopen the initial Ka-band processing round. Unless that
decision is reversed on review or appeal, the seven applications might not be
processed until the FCC commences a second Ka-band processing round. The FCC
has an ongoing rulemaking process to determine on what basis it will authorize
applicants to construct, launch and operate satellites in the Ka-band.
The frequencies that are intended to be used to uplink to PAS-7 and PAS-6
include frequencies in the 13.75-14.0 GHz band, which constitute approximately
33% of the frequencies of PAS-6 and approximately 80% of the Ku-band
frequencies on PAS-7. These frequencies must be coordinated with the U.S.
government on an earth-station-by-earth-station basis to insure that harmful
interference to primary government operations is minimized. PanAmSat presently
is undertaking such coordination and believes that it will be able to
coordinate successfully with federal government users. While PanAmSat believes
that it will successfully coordinate with such earth stations or will
institute operational solutions that will mitigate the problem, there can be
no assurance that PanAmSat's efforts will be successful. See "RISK FACTORS--
Regulatory Risks."
3. Intelsat Consultation
Prior to receiving final licensing and launch authority, and prior to
offering services between the United States and any overseas point, PanAmSat
has to complete a consultation with Intelsat under Article XIV of the Intelsat
Agreement. This requires arranging for the U.S. government and the appropriate
governmental authority in at least one overseas point to consult with Intelsat
to assure that use of the new satellite will cause Intelsat neither technical
harm arising from signal interference nor "significant economic harm."
Thereafter, in order to provide services involving additional countries, those
countries have had to associate with the prior Article XIV consultation. In
September 1994, Intelsat's board of governors eliminated the association
requirement. To provide domestic services in any country other than the United
States, PanAmSat need only make the technical showing. For PAS-1, the first
private international satellite to go through the process, the consultation
process was extremely difficult, as Intelsat initially took the view that any
separate system would cause significant economic harm. Over time, however,
Intelsat has modified its views. In November 1992, Intelsat adopted a
resolution indicating that it will no longer scrutinize for significant
economic harm any satellite services that do not connect with the public
telephone network or which do not provide more than 1,250 64-kbps bearer
circuits connecting to the PSTN per satellite. In October 1994, Intelsat
approved an increase in this limitation to 8,000 64-kbps bearer circuits per
satellite, and in November 1996, the FCC brought its policies into line with
this new standard. The FCC is responsible for ensuring that PanAmSat has
undergone the necessary consultation and that it operates in accordance with
the technical parameters forming the basis for an Article XIV consultation. If
PanAmSat changes the terms (either technical or service) of its operation in a
significant way, it may need to reconsult with Intelsat.
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Overseas National Telecommunications Authorities
PanAmSat is the first private company to provide global (excluding domestic
U.S.) satellite services. Most countries where PanAmSat operates are
signatories of Intelsat. As a result, their national telecommunications
authorities may require confirmation that PanAmSat successfully completed
technical coordination with Intelsat before providing services on a given
satellite. Beyond this consultation, PanAmSat may be subject to national
communications and/or broadcasting laws. While these vary from country to
country, national telecommunications authorities have not typically required
PanAmSat to obtain licenses or regulatory authorizations in order to provide
space segment capacity to licensed entities. PanAmSat believes that Argentina,
Colombia and Pakistan are the only countries in which PanAmSat currently
operates that require national regulatory approval for the provision of space
services to licensed carriers. PanAmSat has obtained authorization from the
Argentine National Telecommunications Commission to provide services on PAS-1
and PAS-3 in Argentina, and has applied for authorization for PAS-6. Recent
changes in the law in Argentina, however, appear to limit the circumstances in
which non-Argentinian satellites may be used to provide certain satellite
services in Argentina. PanAmSat will oppose these measures vigorously to the
extent the measures are determined to apply to PanAmSat's satellite system.
There can be no assurance, however, that PanAmSat will be able to obtain the
authorizations needed to serve customers in Argentina in the future or to
avoid having its existing authorizations circumscribed in a manner that
adversely affects its ability to serve existing customers in Argentina.
PanAmSat has also received regulatory approval in Pakistan.
National laws and regulatory practices governing access to satellite systems
vary substantially among countries. Many countries have liberalized their
national communications market, allowing multiple entities to seek licenses to
provide voice, data or video services for their own use or for third-party
use; to own and operate private earth station equipment; and to choose a
provider of satellite capacity. Many countries allow licensed radio and
television broadcasters and cable television providers to own their own
transmission broadcast facilities and purchase satellite capacity without
restriction. In such environments, customer access to PanAmSat's services can
be a relatively simple procedure. PanAmSat may provide services through one or
many licensed carriers or to end users of private network services directly.
Such liberalization policies have been adopted in most Latin American
countries and, increasingly, in Europe, Africa and Asia.
In several countries, PanAmSat has chosen to apply to national
telecommunications authorities to obtain licenses for provision of services
directly to end users. In Ecuador, France, Germany, Japan and the United
Kingdom, PanAmSat has obtained licenses covering its operations which permit
PanAmSat to provide certain services directly to end users. In Colombia and
Peru, PanAmSat has requested from the national telecommunications authorities
its own licenses to service customers directly.
Other countries, however, have maintained strict monopoly regimes, so that
end-users may be required to access PanAmSat's services through a single,
government owned entity. In such markets, the entity (often the Posts,
Telephone and Telegraph authority, or the "PTT") may hold a monopoly on
ownership and operation of facilities or on the provision of communications
and/or broadcasting services to, from and within a country, including via
satellite. In order to provide services in such environments, PanAmSat may be
required to negotiate an operating agreement with the PTT that describes the
types of services offered by each party, the contractual terms for service and
each party's rates. Depending on the national regulatory requirements, these
operating agreements may require that PanAmSat's services be obtained through
the PTT alone at a pre-arranged markup, with all associated ground services
provided by the PTT; or the operating agreement may allow customers to own and
operate their own facilities but purchase PanAmSat's services through the PTT
at a rate reflecting the pre-arranged markup.
Notwithstanding the wide variety of regulatory regimes extant in the
countries where PanAmSat currently provides service, PanAmSat believes that
PanAmSat and its customers are in compliance in all material respects with all
applicable laws and regulations governing its operations.
International Telecommunications Union
Nations are required to register their proposed use of orbital slots with
the Radio Regulations Board of the ITU (formerly the International Frequency
Registration Board) (the "ITU Radio Regulations Board") to ensure
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that there is an orderly process for accommodating each country's needs for
orbital locations. After a nation has advised the ITU Radio Regulations Board
of its desire to use a given orbital location at a given frequency, other
nations may give notice of their use or intended use in a manner that would
conflict with the first proposal. The nations are then obligated to negotiate
in an effort to coordinate the proposed uses and resolve interference
concerns. The FCC takes responsibility for filing and coordinating PanAmSat's
orbital slots with the ITU Radio Regulations Board. If all disputes are
resolved, the nations requesting proposed uses may be formally notified,
which, theoretically, provides interference protection from subsequent or
nonconforming uses. The ITU Radio Regulations Board has no dispute resolution
or enforcement mechanisms, however, and if the nations cannot agree upon a
coordination or upon resolution of an interference problem, there are no clear
remedies under international law. Although PAS-1 has been operating since
1988, Brazil has not yet withdrawn certain objections which it raised to PAS-
1's orbital slot, and, accordingly, the FCC has never received final
notification from the ITU Radio Regulations Board that PAS-1's orbital slot
has been finally registered. PanAmSat believes that Brazil's objections will
not adversely affect PanAmSat's ability to continue to operate PAS-1.
The government of Papua New Guinea and the government of Tonga have filed
notices of intended use that potentially conflict with the registrations for
PAS-2, PAS-4 and PAS-8. The government of Tonga has filed conflicting claims
for orbital slots with regard to other ITU Radio Regulations Board filings in
the past, but neither the government of Tonga nor the government of Papua New
Guinea (whose filing that potentially conflicts with PAS-2 dates back to the
mid-1980s) has ever launched a satellite. On September 12, 1994, however, an
agreement was announced between an agent of Tonga and APT Satellite to locate
APStar-1 at 138(degrees) E.L., an orbital location that Tonga had filed for at
the ITU. Moreover, Tonga has entered into a series of agreements with a start-
up company, Rimsat, that provides Rimsat access to the orbital locations
claimed by Tonga. Rimsat, in turn, has arranged to acquire various Russian
satellites to place in such locations. PanAmSat believes Rimsat placed two
Russian-built satellites over the Pacific Ocean at 134(degrees) E.L. and
130(degrees) E.L., neither of which conflicts with orbital locations reserved
for PanAmSat. Tonga and Rimsat, however, have announced similar arrangements
that would place Russian satellites at 70(degrees) E.L., which could conflict
with PAS-4's slot of 68.5(degrees) E.L., and at 189.25(degrees) W.L., which
could conflict with PAS-2 at 191(degrees) W.L. Rimsat reportedly has defaulted
on its payments to Tonga and to the vendor of its Russian satellites, and
courts in Indiana and the island of Nevis, respectively, have appointed a
bankruptcy trustee and a receiver to manage Rimsat's affairs. The Russian
company from which Rimsat obtained its satellites reportedly has taken back
control of the satellites. Papua New Guinea filed with the ITU for a slot at
192.55(degrees) W.L. prior to the time that the FCC filed on PanAmSat's behalf
for PAS-2. PanAmSat believes the Papua New Guinea registration has expired but
Papua New Guinea claims its registration will remain valid for several years.
On June 16, 1993, PanAmSat filed an application with the FCC to change the
orbital location of PAS-2 from 192(degrees) W.L. to 191(degrees) W.L. , in
part to gain an additional degree of separation from the location claimed by
Papua New Guinea. Pacific Satellite, Inc. ("Pacstar"), a company that is owned
in part by Papua New Guinea and that claims rights to Papua New Guinea's
orbital location, filed a "Petition to Deny or in the Alternative to Condition
Approval on Showing of No Interference" against PanAmSat's application. The
FCC has denied the Pacstar petition. Pacstar's appeal to the United States
Court of Appeals for the District of Columbia was dismissed because it was
untimely. According to press accounts, Papua New Guinea and Loral Space and
Communications Ltd. ("Loral Space") entered into an agreement in early 1997
under which Loral Space would build and place three satellites into orbital
locations claimed by Papua New Guinea, including the 192.55(degrees) W.L.
orbital location, and Loral Space and Papua New Guinea would share capacity on
the satellites.
In addition, a Russian government satellite operates at 70(degrees) E.L. Up
to one half of the C-band transponders on PAS-4 overlap in frequency with the
Russian satellite. PanAmSat, under the auspices of the U.S. government, has
attempted to coordinate the two satellites with Russian authorities. The
Russian authorities, however, have refused to provide full technical
information regarding the satellite, and claim that PAS-4 interferes with the
Russian satellite. The Russian authorities have filed a complaint with the ITU
and have requested that the U.S. authorities require PanAmSat to cease the
alleged interference. The U.S. government challenged the Russian authorities'
claim of interference and has urged the Russian authorities to provide
additional technical information regarding the satellite, and to proceed with
coordination. On November 8, 1996, the ITU declined to
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take action on the Russian complaint and referred the matter to the U.S. and
Russian authorities for further coordination efforts. PanAmSat believes that
PAS-4 and the Russian satellite could be coordinated successfully with reduced
adverse effects on PAS-4 capacity. However, until coordination is completed
successfully, PanAmSat's ability to provide services in Russia or to Russian
customers will be affected adversely, both technically and politically. It is
PanAmSat's belief that Russia has taken the position that it will not license
within Russia the use of PanAmSat's satellites. If PAS-7 is to be co-located
with PAS-4, it is unlikely that PAS-7 will be permitted to operate its C-band
transponders for commercial use until the above described coordination issues
with Russia have been resolved successfully.
In addition, after the registration for PAS-4 had been filed, Intelsat filed
in August 1993 with the ITU Radio Regulations Board for an orbital location
that could conflict with PAS-4's then-intended slot and Intelsat subsequently
announced plans to place a satellite near its end-of-life at that location.
PanAmSat reached an agreement with Intelsat pursuant to which PanAmSat was
able to occupy 68.5(degrees) E.L.; Intelsat can locate its end-of-life
satellite at 72(degrees) E.L. for a limited period and, at the conclusion of
that period, PanAmSat may bring a satellite into service at 72(degrees) E.L.
PanAmSat's FCC application for PAS-5 includes requests to use the so-called
"planned band" frequencies. The U.S. planned band registration request for
PAS-6 specifies 45(degrees) W.L., and needs to be modified to specify
43(degrees) W.L. Although PanAmSat believes the FCC will approve operations at
43(degrees) W.L. as requested by PanAmSat, there can be no guarantee of such
approval or of successful registration at 43(degrees) W.L. in lieu of
45(degrees) W.L.
The U.S. government has filed with the ITU for nine orbital slots for Ka-
band geostationary satellites, substantially all of which are sought by
PanAmSat and other U.S. applicants as well.
All of the registrations for PanAmSat's satellites are or will be subject to
the ITU coordination process. The filings described above that conflict with
PanAmSat's registered slots may delay the receipt of final registration for
PAS-2's and PAS-4's orbital locations with the ITU Radio Regulations Board.
EMPLOYEES
At December 31, 1996, PanAmSat had 210 full-time employees. The Engineering
and Operations department consists of 116 employees, all of whom, with the
exception of the senior vice-president of engineering and three marketing
support engineers, are based full-time at PanAmSat's teleports in Ellenwood,
Georgia, Homestead, Florida and Napa, California. The broadcasting, business
communications and new business development departments consist of 49 people.
There are 45 employees involved in providing administrative, accounting,
regulatory and public relations services. PanAmSat believes its relations with
its employees are good.
PROPERTIES
PanAmSat's executive offices are located in Greenwich, Connecticut. PanAmSat
leases its executive offices pursuant to a lease that will expire on March 21,
2003. PanAmSat currently operates three teleports in conjunction with the PAS
Global System. PanAmSat operates its primary teleport in Ellenwood, Georgia
and operates regional teleports in Homestead, Florida for PAS-1 and PAS-3, and
in Napa, California for PAS-2. All of such teleports are manned 24 hours a
day. PanAmSat owns its Homestead, Florida teleport.
PanAmSat also leases office space for its sales and marketing offices in
Coral Gables, Florida, Sydney, Australia, London, England and Tokyo, Japan.
PanAmSat's leases for its foreign offices have been entered into upon terms
that PanAmSat deems to be reasonable and customary.
LEGAL PROCEEDINGS
In July 1989, PanAmSat and its then chairman, Rene Anselmo, filed an
antitrust lawsuit against Comsat, the U.S. signatory to Intelsat, in the
United States District Court for the Southern District of New York. In
September 1990, the District Court dismissed the complaint, primarily on the
ground that Comsat is immune
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from suit for actions taken "in its role as the U.S. representative to
Intelsat." PanAmSat filed an appeal of the dismissal with the United States
Court of Appeals for the Second Circuit. In September 1991, the Second Circuit
reversed the dismissal and remanded the case to the District Court to permit
the filing of an amended complaint alleging conduct not shielded by immunity.
The amended complaint, which seeks substantial damages and injunctive relief,
was filed on November 15, 1991. Comsat moved to dismiss the amended complaint,
but on March 30, 1993, the court denied Comsat's motion and allowed PanAmSat
to proceed on all points it had raised in its amended complaint. The amended
complaint alleges anticompetitive conduct by Comsat, as well as actions by
Comsat in concert with others, to prevent or delay PanAmSat's entry into
various markets. On December 16, 1994, Comsat filed a summary judgment motion
and on March 1, 1995 PanAmSat filed papers in opposition to Comsat's motion.
On September 4, 1996, the District Court granted Comsat's motion for summary
judgment against PanAmSat. PanAmSat filed a notice of appeal on October 2,
1996. Briefs have been submitted to the court, but a date for a hearing has
not yet been set.
On or about October 25, 1996, an action was commenced by Comsat against
PanAmSat, News Corp. and Televisa, in the United States District Court for the
Central District of California. The complaint alleges that News Corp.
wrongfully terminated an agreement with Comsat for the lease of transponders
on an Intelsat satellite over the term of a five-year lease, breached certain
alleged promises related to such agreement, and breached its alleged
obligations under a tariff filed by Comsat with the FCC. As to PanAmSat, the
complaint alleges that PanAmSat, alone and in conspiracy with Televisa,
intentionally interfered with the alleged agreement and with Comsat's economic
relationship with News Corp. Comsat had previously filed a similar action in
the United States District Court for the District of Maryland. By order dated
October 10, 1996 the Maryland District Court dismissed without prejudice the
complaint in that action on the ground that the court lacked personal
jurisdiction over all of the defendants. The complaint in the present action
seeks actual and consequential damages, and punitive or exemplary damages, in
an amount to be determined at trial but which Comsat alleges exceed $50,000.
On December 11, 1996, PanAmSat, News Corp. and Televisa filed motions to
dismiss the action on various grounds, including that the FCC has primary
jurisdiction over the dispute, that federal law preempts the claims asserted
against PanAmSat and Televisa, that the claims asserted against Televisa and
PanAmSat are not recognized by federal law, that the claims against PanAmSat
and Televisa fail to state a cause of action and that because the claims
against PanAmSat and Televisa depend upon the existence of enforceable rights
under the tariff Comsat filed with the FCC, the claims fail if the FCC
determines that Comsat has no such rights. In this regard, in April 1996, News
Corp. filed a complaint with the FCC challenging Comsat's tariff. Thereafter,
Comsat filed a motion with the FCC to hold that proceeding in abeyance pending
resolution of Comsat's civil suit. By letter ruling dated December 6, 1996,
the FCC denied Comsat's motion and established a schedule to resolve the
issues raised by News Corp.'s complaint. On January 27, 1997, the parties
appeared before Judge Wardlaw for a hearing on the motion to dismiss. From the
bench, the Judge denied the motions to dismiss and the parties have proceeded
to discovery. Although PanAmSat believes this action is without merit and
intends to vigorously contest this matter, it is unable to predict the final
outcome of this matter at this time.
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BUSINESS OF GALAXY
OVERVIEW
Galaxy is a leading provider of commercial satellite services in the United
States. Galaxy offers satellite transponder capacity to cable television
programmers, broadcast television programmers, business communications
customers and DTH service providers for video, audio and data communications
applications. Galaxy operates a fleet of ten commercial geostationary fixed
service satellites, nine of which primarily serve the United States and one of
which serves both the United States and Latin America. Galaxy also provides
satellite TT&C services for its own satellite fleet as well as for other
satellites owned by DIRECTV, PanAmSat and American Mobile Satellite
Corporation.
Galaxy was established by HE in 1979 and launched its first satellite in
1983. Galaxy's expansion of service to customers in the United States was
accelerated by the acquisitions of the three-satellite Westar C-band system in
1989 and the three-satellite SBS Ku-band system in 1990. Today, in addition to
Galaxy's fleet of ten commercial satellites, Galaxy has two satellites under
construction (Galaxy VIII-i and Galaxy X) and three additional satellites in
various stages of development (Galaxy XI, Galaxy XIII-i and Galaxy XIV-i)
which are expected to provide new and replacement transponder capacity with
U.S. and international coverage. Subject to regulatory approval, Galaxy
expects to launch these five satellites by 2000. See "--Government Regulation"
and "RISK FACTORS--Regulatory Risks."
Galaxy provides satellite transponder capacity to cable television
programmers such as Time Warner, Inc., Viacom, Inc., The Walt Disney Company,
Fox Basic Cable, Inc., MSNBC, Discovery Communications, Inc., and Black
Entertainment Television, broadcast television programmers such as NBC, CBS,
ABC, Warner Bros. and Group W Broadcasting, and business communications
customers such as Hughes Network Systems, General Motors, WalMart, Circuit
City, Westcott Communications, Scientific Atlanta, United Video, Microspace,
General Communications, Inc., SPACECONNECTION, BAF Satellite & Technology,
Keystone Communications and Vista Satellite Communications, Inc. In addition,
Galaxy provides satellite capacity to a subsidiary of DTVI for use by GLA, a
provider of DTH services in Latin America. GLA is a joint venture among a
subsidiary of HE and several Latin American media companies.
Galaxy provides its customers with whole or partial transponder capacity
through sales contracts, sales-type lease contracts and operating lease
contracts. Galaxy has over 180 customers and, at December 31, 1996, Galaxy's
backlog of committed and likely future cash payments totaled approximately
$3,399 million. See "GALAXY MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS--Backlog."
BUSINESS STRATEGY
Galaxy's business strategy is to provide its customers with high quality
satellite transponder capacity supported by timely and responsive technical
and customer service. Specifically, this business strategy emphasizes the
following principal elements:
. Innovative Marketing;
. Customer Service;
. Strategic Expansion of Satellite Fleet; and
. Superior Technical Characteristics and Performance.
Innovative Marketing
Galaxy has utilized innovative marketing programs designed to enhance the
value provided to customers by anticipating and responding to their demands
for satellite communications services. Among the marketing initiatives
utilized by Galaxy have been the (i) provision of satellite transponder
capacity on a non-common
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carrier basis, (ii) marketing and sale of transponder capacity prior to
launch, (iii) creation of cable and broadcast neighborhoods, (iv) provision of
backup transponder capacity and (v) initiation of satellite-specific antenna
voucher programs for cable system operators.
Prior to the launch of Galaxy I, commercial satellite transponders were
provided primarily on a common carrier basis. With the launch of Galaxy I in
1983, Galaxy began to provide transponder capacity to customers at negotiated
rates. Today, full-time customers can choose among three financing
alternatives to acquire satellite transponder capacity: a sale, a sales-type
lease or an operating lease.
An important element of Galaxy's marketing strategy has been Galaxy's
practice of marketing transponder capacity on new satellites well before their
launch. For example, Galaxy has obtained substantial long-term commitments for
C-band and Ku-band capacity on Galaxy X, a hybrid satellite that is not
scheduled to be launched until 1998.
Galaxy has been a pioneer in the development and marketing of cable
neighborhoods and a broadcast neighborhood. These innovations, which
concentrate a broad range of quality cable programming or broadcast
programming on certain Galaxy satellites, have made such Galaxy satellites
particularly attractive to cable programmers or broadcast programmers desiring
to widely distribute their programming to cable system operators or television
stations. Galaxy I-R, Galaxy V, Galaxy VII and Galaxy IX operate as cable
neighborhoods and Galaxy IV operates as a broadcast neighborhood.
Galaxy has also been able to market its ability to provide its customers
access to backup capacity in the event of transponder or satellite failure.
Galaxy satellites have between 6 and 11 spare amplifiers per satellite to
provide backup capacity. In addition, six of the Galaxy satellites contain two
reserve transponders for every 22 primary transponders. Further, Galaxy VI
serves as an in-orbit spare satellite for Galaxy's C-band capacity.
Galaxy's marketing efforts have from time to time also included antenna
voucher programs in which cable system operators are given vouchers which can
be redeemed for credit toward the purchase price of a receive antenna which
must be aimed at a specific Galaxy satellite. These programs encourage cable
programmers to utilize capacity on certain Galaxy satellites because they
increase the number of cable system operators with receive antennas aimed at
such Galaxy satellites.
Customer Service
Galaxy makes customer service a top priority by seeking customer input and
by responding to customer needs and requests in a timely and complete manner.
Galaxy operations personnel are available 24 hours a day to respond to
customers. In October 1996, Galaxy hosted its first annual Galaxy Users Group
conference to inform customers in the cable, broadcast, business
communications and occasional use areas of current and future Galaxy plans and
to seek customer feedback. Galaxy is also increasing communication with its
customers through direct mail, the Galaxy Website and increased account
manager visits.
In order to meet its customers' operational requirements, Galaxy recently
constructed a state-of-the-art Satellite Operations Center and Network
Operations Center in Long Beach, California. Using more efficient and user-
friendly systems, the Galaxy operations personnel guide customers through the
uplink process, coordinate satellite access, monitor signal transmissions,
troubleshoot signal interference problems and advise customers regarding the
adjustment of their equipment. In addition, Galaxy's engineering personnel
work closely with Galaxy's marketing personnel to provide technical guidance
to customers during the planning and development of their service requirements
and coordinate with Network Operations Center personnel to facilitate service
initiation.
Strategic Expansion of Satellite Fleet
Galaxy has sought to expand its satellite fleet in order to meet the demand
of existing and potential customers. In addition to the expansion of its fleet
through the construction and launch of new satellites, Galaxy has made
strategic acquisitions of satellites and transponder capacity in order to
supplement its service offerings.
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Such acquisitions have included Galaxy's acquisition in 1989 of the three-
satellite Westar fleet, which expanded Galaxy's C-band capacity and brought
Galaxy's first broadcast television customer, and Galaxy's acquisition in 1990
of the three-satellite SBS system, which provided Galaxy's first Ku-band
capacity.
Galaxy's current plans for expansion of its satellite fleet both in the
United States and internationally are designed to address the growing demand
for satellite capacity by customers with a wide range of communications needs.
Anticipating the requirement for additional C-band capacity, Galaxy
established a new cable neighborhood with the launch of Galaxy IX in May 1996.
In addition, each of Galaxy X and Galaxy XI, which are expected to be launched
in 1998, is expected to provide an additional 24 C-band and 24 Ku-band
transponders to serve the United States.
Galaxy's expansion plans also include the development of additional
satellites that will be designed to deliver high-power communications services
to individual consumers, as well as business and broadcasting customers
worldwide. Subject to FCC and ITU approval, two of these additional satellites
will be Galaxy XIII-i, which is expected to be launched in 1999, and Galaxy
XIV-i, which is expected to be launched in 2000. Galaxy's management is in the
process of determining the payload configuration and specifications for Galaxy
XIII-i and Galaxy XIV-i given the capabilities of the HS-702 satellite design
and anticipated customer demand.
Superior Technical Characteristics and Performance
The Galaxy satellite fleet consists entirely of spacecraft built by Hughes
Space and Communications ("HSC"). The newer Galaxy satellites, as well as the
Galaxy satellites under construction and development, have been or will be
designed to provide high transmission power and other technically advanced
characteristics typically sought by Galaxy's primary customers in cable,
broadcast, DTH and business communications. For example, the HS 702 satellite,
HSC's newest design, will be configurable for up to 90 high power transponders
and will contain a more efficient fuel system, thereby extending the
satellite's life expectancy. Galaxy XI, Galaxy XIII-i and Galaxy XIV-i are
expected to be HS 702 satellites.
Galaxy provides support systems to control its satellites and serve its
customers. Galaxy's network of ground control and uplink stations link
Galaxy's satellites to Galaxy's Satellite Operations Center located in Long
Beach, California. Ground stations in Fillmore, California, Castle Rock,
Colorado, and Spring Creek, New York, relay orbit commands from the
controllers at the Satellite Operations Center to the orbiting satellites. The
ground stations also serve as back-up TT&C facilities and are able to track
the spacecraft during launch. In 1995, Galaxy completed installation of a new
satellite control system which enables operations personnel to interpret
satellite operations data and conduct satellite stationkeeping using efficient
user-friendly workstations. In addition, Galaxy employees at Galaxy's Network
Operations Center, located in Long Beach, California, coordinate both full-
time and occasional access to the Galaxy fleet of satellites. They also
resolve problems relating to interference with other satellite signals and
monitor satellite power levels through Galaxy's proprietary Transponder Access
and Control System.
SATELLITE SERVICES
Galaxy offers a broad range of commercial satellite communications services,
providing transponder capacity for video distribution as well as business
communications. In addition, Galaxy provides other satellite services, such as
occasional-use transponder capacity and TT&C. In the year ended December 31,
1996, Galaxy's revenues were derived from the following services in the
following percentages:
<TABLE>
<CAPTION>
SERVICES 1996 REVENUES
-------- -------------
<S> <C>
Video Distribution............................................ 65.1%
Business Communications....................................... 26.2%
Satellite Services and Other.................................. 8.7%
----
Total....................................................... 100%
====
</TABLE>
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Video Distribution
Cable Distribution. Galaxy is a leading provider of satellite transponder
capacity to cable television programmers in the United States. Cable
programmers utilize transponder capacity on Galaxy satellites primarily to
transmit their programming to cable system operators throughout the United
States for distribution on cable systems. Time Warner, Inc., Viacom, Inc., The
Walt Disney Company, Fox Basic Cable, Inc., and MSNBC are among the cable
programmers utilizing capacity on Galaxy satellites to transmit programming
such as CNN, HBO, Cinemax, Showtime, MTV, Nickelodeon, The Movie Channel, The
Disney Channel, ESPN, ESPN2, fX and MSNBC. Some of this programming is
transmitted in "multiplex" format, enabling different versions to be
transmitted for distribution in different parts of the country in order to
accommodate time zone differences or provide programming variety.
Galaxy has successfully developed premium cable neighborhoods on Galaxy I-R,
Galaxy V, Galaxy VII and Galaxy IX. A cable neighborhood is formed when
popular cable programming, such as HBO, ESPN, CNN, MTV and Showtime, is
transmitted to cable system operators via particular Galaxy satellites.
Because these Galaxy satellites carry such popular programming, they attract a
base of cable system operators with receive antennas aimed at these
satellites, thereby making such satellites more attractive to other cable
programmers, including smaller niche-oriented programmers, that want cable
system operators to be able to receive their programming without having to
invest in additional receive antennas. This, in turn, enables cable system
operators to utilize only one receive antenna aimed at a particular satellite
to receive a wide variety of quality programming.
Broadcast Distribution. Galaxy also provides satellite transponder capacity
to broadcast television programmers, such as NBC, CBS and ABC, who use
Galaxy's satellites for program distribution to local affiliates, satellite
newsgathering operations and "backhaul" operations (i.e., the use of a
satellite to transport a signal from a remote broadcasting site such as a
sports stadium or convention center back to network headquarters). In
addition, by providing satellite capacity on Galaxy IV to the CBS network, as
well as syndicators like Warner Bros. and Group W Video Services, Galaxy has
transformed Galaxy IV into a broadcast neighborhood through which broadcast
television programmers may distribute a variety of network and syndicated
programming to television stations with receive antennas aimed at Galaxy IV.
In recent years, Galaxy has provided satellite transponder capacity to an
increasing number of niche-oriented cable and broadcast programmers. Such
niche-oriented programming focuses on a particular field of interest such as
cooking, history, sports or foreign language programming. This programming is
provided by both small programmers with only one channel and by larger
programmers desiring to expand their channel offerings. Examples of such
programmers on Galaxy satellites include Food Network, The Golf Channel, Asia
Broadcast Network, The Family Channel and The Game Show Network. Some niche
programmers provide foreign language news and entertainment programming which
is packaged by a cable system or local broadcaster with other such programming
into one channel. Niche-oriented programming has grown as cable system
operators have expanded the capacity of their systems and as individual
consumers have increasingly utilized backyard satellite dishes to watch niche-
oriented programming that may not be available locally. Niche-oriented
programming has also grown as a result of video compression, which can lower
programmers' cost per channel by increasing the number of channels that may be
transmitted on a transponder. In addition, niche-oriented programming has
become more attractive as advertisers have increasingly sought to reach
specific demographic groups.
DTH Distribution. Galaxy also provides satellite transponder capacity to a
subsidiary of DTVI for use by GLA, a provider of DTH services in Latin
America. GLA, which is a joint venture among a subsidiary of HE and several
Latin American media companies, utilizes 24 high-powered Ku-band transponders
on Galaxy III-R to provide more than 140 channels of video and audio
programming to subscribers in Mexico, the Caribbean and Central and South
America. Following the successful launch of Galaxy VIII-i, this DTH service is
expected to utilize transponder capacity on Galaxy VIII-i instead of Galaxy
III-R.
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Subject to FCC and ITU approval, Galaxy XIII-i, Galaxy XIV-i and other future
satellites are expected to be dual payload satellites carrying high-powered Ku-
band (BSS) transponders and Ka-band transponders. See "--Government Regulation"
and "RISK FACTORS--Regulatory Risks." The Ku-band (BSS) transponders on such
satellites are expected to be well-suited for customers desiring to enter the
DTH market or expand their current DTH offerings internationally.
Business Communications
Galaxy provides satellite transponder capacity for business communications
(i) directly to end-users, such as General Motors, Westcott Communications,
WalMart and Circuit City and (ii) to system integrators, such as Hughes Network
Systems, Scientific Atlanta and United Video, which provide data, voice and
video communications networks to their business customers. Galaxy also provides
transponder capacity to educational institutions, such as California State
University ("CSU") and the Indiana Higher Education Telecommunication System,
for use in distance learning programs.
Galaxy provides satellite transponder capacity for use in two-way VSAT
networks to both business end-users and communications carriers. Financial
transactions, point-of-sale credit and debit card purchases, manufacturing
control and inventory management, as well as ticketing and reservation
functions within the travel and lodging industry, are some of the many VSAT
applications now being served by Galaxy's transponder capacity. For example,
WalMart utilizes Galaxy's VSAT technology in its point-of-sale tracking system,
which transmits sales information via Galaxy's SBS 5 to a computer at WalMart
corporate headquarters that automatically reorders inventory.
Galaxy's satellite transponder capacity also serves two types of business
television networks: (i) private networks, which link a company's headquarters
with its branches or remote sites and (ii) programming networks, which supply
educational and motivational programs to businesses within similar industries.
For example, General Motors uses Galaxy satellites to reach thousands of its
dealerships and suppliers and Westcott Communications uses Galaxy satellite
capacity to broadcast its subscription networks, which provide training in the
health and medical sciences, law enforcement, fire and emergency services,
industrial security and automotive fields.
Galaxy also provides satellite transponder capacity to educational
institutions, such as CSU and the Indiana Higher Education Telecommunication
System, for use in distance learning programs. For example, CSU uses Galaxy
satellite capacity to offer distance learning programs through its CSUSAT
network. Seven campuses use the CSUSAT network, which is carried on Galaxy V,
to offer a full range of classes to more than 30 receive sites throughout
California. CSU Chico, which pioneered the use of satellite technology in the
CSU system, offers 25 upper-division courses via satellite and has served more
than 12,000 off campus students since 1980.
Other Satellite Services
In addition to the sale and lease of satellite transponder capacity on its
fleet of 10 commercial satellites, Galaxy provides several other satellite
services to its customers. In particular, Galaxy (i) provides TT&C services for
Galaxy satellites and several satellites owned by other companies, (ii) offers
occasional-use transponder capacity, (iii) offers backup C-band transponder
capacity on Galaxy VI and (iv) provides transponder capacity on satellites
outside of its fleet of 10 commercial satellites.
TT&C Services. When a customer commits to use Galaxy transponder capacity,
the customer secures the technical support of Galaxy's Satellite Operations
Center located in Long Beach, California. Galaxy's Satellite Operations Center
provides 24-hour monitoring and control of the orbital positions and operating
conditions of Galaxy's satellites. Satellite Operations Center personnel
maintain proper orbital position and attitude, monitor on-board housekeeping
systems, adjust transponder power levels and remotely "rewire" satellites, if
necessary, to bring backup systems on-line in the event of a subsystem failure.
The necessary TT&C satellite commands
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are generated by Satellite Operations Center personnel and communicated to the
satellites from Galaxy's earth stations located in Spring Creek, New York,
Castle Rock, Colorado, and Fillmore, California. In addition to providing TT&C
services for its own fleet of satellites, Galaxy has contracted to provide
TT&C services for DIRECTV's three satellites, American Mobile Satellite
Corporation's AMSC-1 and PanAmSat's PAS-2 and PAS-3 satellites.
Occasional-Use Capacity. Galaxy serves occasional-use customers by offering
satellite transponder capacity through two principal methods. First, Galaxy
offers long-term transponder leases to satellite brokers, such as BAF
Communications, SPACECONNECTION and The Williams Group, who sell occasional-
use transponder capacity to their customers. These brokers resell this
capacity and specialize in "value-added services," packaging transponder
capacity with syndication distribution, fixed and transportable satellite
transmission, video conferencing and special event services for broadcast,
business, educational and government satellite users. Second, Galaxy's Video
Timesharing Services department provides occasional-use transponder capacity
directly to end-users. A computerized time availability system offers instant
scheduling information and reservations and enables customers to reserve
capacity in increments of as little as fifteen minutes.
Backup Satellite Capacity. Galaxy customers may contract for C-band backup
capacity on Galaxy VI. Generally, subject to the specific terms of individual
contracts, such customers are entitled to replacement capacity on Galaxy VI if
a transponder failure occurs and no spare amplifier or reserve transponder is
available on the satellite on which they utilize capacity or if such satellite
suffers a catastrophic failure. Galaxy VI can meet a customer's immediate
needs by providing transponder capacity at Galaxy VI's current orbital
position or, subject to FCC approval, from a relocated orbital position.
Galaxy VI is able to serve as the in-orbit spare for the entire Galaxy C-band
fleet because existing customers on Galaxy VI are subject to preemption (i.e.,
removal) if the capacity utilized by such existing customers is needed to
provide backup transponder capacity to customers that have contracted for such
capacity. However, Galaxy has never had to preempt an existing full-time
customer on Galaxy VI.
Other Satellite Capacity. In addition to providing transponder capacity on
its fleet of 10 commercial satellites, Galaxy provides transponder capacity on
Brasilsat A1. Galaxy has leased all of the capacity on Brasilsat Al (24 10-
watt C-band transponders) from the Brazilian company EMBRATEL until the end of
the satellite's life, which is currently expected to be 2002. Galaxy leased
this capacity to provide backup protection for Galaxy III-R, Galaxy IX and
future Galaxy satellites, and to meet the demand for occasional-use satellite
capacity. Brasilsat A1 remains licensed by the Brazilian government and Galaxy
has obtained interim authority from the FCC to use capacity on the satellite
at the 79(degrees) W.L. orbital location until December 31, 1997 in order to
provide service to the United States. Brasilsat A1 must relinquish this
orbital location when the location is ready to be occupied by the satellite
regularly assigned there by the FCC. Authorization has not yet been given to
use capacity on Brasilsat A1 at another location. This satellite operates in
inclined orbit mode and has already exceeded its design life expectancy.
Galaxy also owns and operates Leasat 5, a satellite previously used to provide
communications services to the U.S. Navy under an agreement that expired in
February 1997. Leasat 5 is currently in an inclined orbit, and Galaxy
management is exploring opportunities to lease the available capacity on
Leasat 5.
SATELLITE TECHNOLOGY
Fixed service satellites of the type utilized by Galaxy are well-suited for
transmissions that must reach many locations over great distances
simultaneously (i.e., point-to-multipoint transmission), such as the
distribution of television programming to cable system operators, television
stations and directly to homes. Fixed service satellites are capable of
providing large geographic areas with signal coverage and, unlike terrestrial
transmission systems, the cost of satellite services does not increase with
the distance of transmission or the number of locations transmitting or
receiving signals. Fixed service satellites are also well-suited for
communications services that require access from transportable transmission
points, such as the transmission of live news coverage from an on-site truck,
because fixed service satellites can be accessed from virtually anywhere
within the geographic area they cover.
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Fixed service satellites typically contain transponders that transmit in one
or both of two bands of frequencies, C-band and Ku-band. C-band is a set of
relatively low frequencies (between approximately 4 GHz and 6 GHz) that
require the use of relatively large receive antennas. Cable and broadcast
distribution accounts for most of the traffic on C-band satellites. Because C-
band is shared with terrestrial point-to-point microwave stations, its use
requires coordination with other users. Ku-band is a set of relatively high
frequencies (between approximately 12 GHz and 14 GHz) which allow for the use
of smaller receive antennas. Ku-band satellites are widely used for broadcast
distribution, VSAT business communications and DTH services. Ku-band signals
operate at frequencies that are susceptible to degradation due to rain and
typically have lower availability rates than C-band signals. In addition to C-
band and Ku-band frequencies, a third band called Ka-band recently has
attracted the interest of satellite operators worldwide. Ka-band signals are
transmitted at even higher frequencies (between approximately 17 GHz and 30
GHz) than Ku-band signals and allow the use of antennas that are even smaller
than those utilized for Ku-band. However, because Ka-band signals operate at
higher frequencies, rain and other atmospheric conditions may present
challenges to effective transmission. In addition, because portions of the Ka-
band are shared with terrestrial services, the use of such frequencies
requires coordination with other users.
Satellite communications service providers and their customers are
increasingly utilizing digital technology. Digital technology is the ability
to convert any form of data into the simple language of computers, expressed
in values of "1" and "0." Reducing data, whether numbers, pictures or sounds,
to those values increases the ability to manipulate and combine information.
Digital technology provides superior signal control and quality and, when
combined with compression technology, can increase the number of available
channels and reduce the cost per channel to the customer. Digital compression
levels ranging from 2:1 to 8:1, which allow the simultaneous transmission of
between two and eight channels on a single transponder, are possible for video
programming. The compression level is determined in part by the customers'
broadcast quality requirements and the type of programming being distributed,
with higher quality broadcasts and sports and other high action programming
typically having lower levels of compression due to greater data flow
requirements.
GALAXY SATELLITES
General
Galaxy's satellites can be divided into two basic categories: spin-
stabilized satellites and body-stabilized satellites. The HS 376 (Galaxy I-R,
Galaxy V, Galaxy VI, Galaxy IX, SBS 4 and SBS 5) and the HS 393 (SBS 6) are
spin-stabilized satellites, in which the solar array drums, propellant tanks
and other portions of the power and fuel systems spin at approximately 50 to
60 revolutions per minute while the antenna and communications shelf are
despun so that they remain pointed toward Earth. Spin-stabilized satellites
are less expensive and often require less time to develop and construct than
body-stabilized satellites. However, body-stabilized satellites, including the
HS 601 (Galaxy III-R, Galaxy IV and Galaxy VII), the HS 601 HP (Galaxy VIII-i,
Galaxy X and Galaxy XII) and the HS 702 (Galaxy XI, Galaxy XIII-i and Galaxy
XIV-i), which contain large deployable solar array wings, are designed to
offer greater power and larger payloads. For example, the HS 702 satellite
will offer customers nearly twice the capacity and power of most commercial
satellites now in operation. In addition, Galaxy's HS 702 satellites and at
least one of Galaxy's HS 601 HP satellites (Galaxy VIII-i) are expected to
offer XIPS which, by utilizing fuel more efficiently, will extend the
satellites' life expectancies.
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Coverage Areas
[MAP OF GALAXY I-R, IV, V, VII, X AND SBS 5 COVERAGE]
[MAP OF GALAXY III-R COVERAGE]
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[MAP OF GALAXY VI, SBS 4 AND SBS 6 COVERAGE]
[MAP OF GALAXY VIII-i KU-BAND COVERAGE]
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Operational Satellites
<TABLE>
<CAPTION>
GALAXY I-R GALAXY III-R GALAXY IV GALAXY V GALAXY VI
----------------- ----------------- ---------------- ----------------- ----------------
<S> <C> <C> <C> <C> <C>
Region Covered.......... United States Latin America/ United States United States United States
United States
Satellite............... HS 376 HS 601 HS 601 HS 376 HS 376
Expected End of Useful
Life(1)................ 2006 2004 2005 2004 2002
Orbital Location........ 133(degrees) W.L. 95(degrees) W.L. 99(degrees) W.L. 125(degrees) W.L. 74(degrees) W.L.
Transponders(2)
Ku-band(3)............. -- 16 @ 27 MHz 16 @ 27 MHz -- --
8 @ 54 MHz 8 @ 54 MHz
C-band(4).............. 24 @ 36 MHz 24 @ 36 MHz 24 @ 36 MHz 24 @ 36 MHz 24 @ 36 MHz
Usable Bandwidth(5)..... 864 MHz 1,728 MHz 1,728 MHz 864 MHz 864 MHz
Output Power(6)
Ku-band................ -- 24 @ 63 Watts 24 @ 50 Watts -- --
C-band................. 24 @ 16 Watts 24 @ 16 Watts 24 @ 16 Watts 24 @ 16 Watts 24 @ 10 Watts
Total Output Power...... 384 Watts 1,896 Watts 1,584 Watts 384 Watts 240 Watts
<CAPTION>
GALAXY VII GALAXY IX SBS 4 SBS 5 SBS 6
----------------- ----------------- ---------------- ----------------- ----------------
<S> <C> <C> <C> <C> <C>
Region Covered.......... United States United States United States United States United States
Satellite............... HS 601 HS 376 HS 376 HS 376 HS 393
Expected End of Useful
Life(1)................ 2006 2008 2002 1999 2005
Orbital Location........ 91(degrees) W.L. 123(degrees) W.L. 77(degrees) W.L. 123(degrees) W.L. 74(degrees) W.L.
(inclined)(7)
Transponders(2)
Ku-band(3)............. 16 @ 27 MHz -- 10 @ 43 MHz 10 @ 43 MHz 19 @ 43 MHz
8 @ 54 MHz 4 @ 110 MHz
C-band(4).............. 24 @ 36 MHz 24 @ 36 MHz -- -- --
Usable Bandwidth(5)..... 1,728 MHz 864 MHz 430 MHz 870 MHz 817 MHz
Output Power(6)
Ku-band................ 24 @ 50 Watts -- 10 @ 20 Watts 14 @ 20 Watts 19 @ 41 Watts
C-band................. 24 @ 16 Watts 24 @ 16 Watts -- -- --
Total Output Power...... 1,584 Watts 384 Watts 200 Watts 280 Watts 779 Watts
</TABLE>
- --------
(1) The expected end of useful life for each of Galaxy's operational
satellites (other than SBS 4) is based on a fuel level estimate at
December 31, 1996. The expected end of useful life for SBS 4 is based on
the degree of its north-south inclination at December 31, 1996.
(2) Satellite transponders receive transmissions from Earth and relay them
back to Earth. Transponders are composed of receivers, preamplifiers,
power amplifiers, frequency shifters and a host of other electronics.
(3) Ku-band is a range of relatively high frequencies (between approximately
12 GHz and 14 GHz) used for commercial satellite communications. Ku-band
is widely used for distribution of broadcast television and DTH services,
as well as business communications, and allows for the use of relatively
small receive antennas.
(4) C-band is a range of relatively low frequencies (between approximately 4
GHz and 6 GHz) used for commercial satellite communications. C-band is
used primarily for cable and broadcast distribution and requires the use
of relatively large receive antennas on the ground.
(5) Bandwidth is one measure of the information carrying capacity of a
transponder. A transponder's bandwidth and power together determine the
amount of information that can be carried.
(6) Output power is the transmitter power of each transponder and is not a
measure of the signal power received on Earth. High output power allows
for the use of smaller and less expensive receive antennas to obtain a
satellite signal.
(7) Satellite operators may opt to extend the life of a satellite by allowing
it to move into a fuel-conserving mode called "inclined orbit." When a
satellite is put into inclined orbit, only east-west station-keeping is
continued. While in this mode, the satellite moves in a figure-8 crossing
the equator twice daily. The uncorrected north-south inclination
increases over time and certain customers must retrofit their existing
ground equipment or purchase new equipment to enable them to track the
movement of the satellite. After reaching a certain degree of north-south
inclination, tracking antennas can no longer reliably follow the movement
of the satellite and its useful life ends.
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GALAXY I-R
Galaxy I-R was put into service at 133(degrees) W.L. in March 1994. Galaxy
I-R's expected end of life is March 2006. Galaxy I-R is an HS 376 satellite
with 24 16-watt C-band transponders. This satellite is a second-generation
cable-dedicated satellite which features higher power and longer life than its
predecessor, Galaxy I. Galaxy I-R provides U.S. cable distribution services to
ESPN, Home Box Office, The Disney Channel, Turner Classic Movies, USA Network
and other cable programmers.
GALAXY III-R
Galaxy III-R was launched in December 1995 and successfully placed into
geostationary orbit at 95(degrees) W.L. The C-band portion of the satellite
was placed into service on January 12, 1996 and the Ku-band portion of the
satellite was put into service on July 17, 1996. Galaxy III-R's expected end
of life is March 2005. Galaxy III-R is an HS 601 dual payload satellite,
providing both C-band and Ku-band capacity for a variety of applications,
including video, audio and data distribution. The 24 16-watt C-band
transponders aboard Galaxy III-R are used to distribute programming throughout
the continental United States, Alaska, Hawaii and the Caribbean. Customers
include Home Box Office, Viacom, SPACECONNECTION, TVN Entertainment Corp. and
Vista Satellite Communications, Inc. The 24 63-watt Ku-band transponders on
Galaxy III-R are used for GLA's DTH service to Mexico, Central and South
America, and the Caribbean. Upon the successful launch of Galaxy VIII-i,
Galaxy anticipates that the Ku-band capacity on Galaxy III-R will be leased
for U.S. service on a preemptible basis and will serve as backup capacity to
Galaxy VIII-i.
GALAXY IV
Galaxy IV was placed into service at 99(degrees) W.L. in August 1993 and its
expected end of life is July 2005. Galaxy IV is an HS 601 hybrid satellite
with 24 16-watt C-band transponders and 24 50-watt Ku-band transponders.
Galaxy IV serves broadcast video, radio and data network customers in the
continental United States, Alaska, Hawaii and the Caribbean basin. Customers
committed to Galaxy IV's C-band capacity include CBS, National Public Radio,
Warner Bros. and Telemundo. The Ku-band capacity is used by ABS-CBN, Hughes
Network Systems, Microspace and Reuters, among others.
GALAXY V
Galaxy V was placed into service at 125(degrees) W.L. in May 1992 and its
expected end of life is May 2004. Galaxy V is an HS 376 satellite with 24 16-
watt C-band transponders carrying cable television programming for
distribution throughout the continental United States, Alaska, Hawaii and the
Caribbean basin. Customers include Cable News Network, Arts & Entertainment,
The Disney Channel, ESPN, Viacom, The Family Channel, Turner Network
Television, Black Entertainment Television, CNBC, The Discovery Channel, Group
W, Home Box Office and USA Network.
GALAXY VI
Galaxy VI was launched in October 1990 and operated at various orbital
locations prior to its relocation to 74(degrees) W.L. in May 1994. Galaxy VI's
expected end of life is December 2002. Galaxy VI, an HS 376 satellite, is the
in-orbit spare for Galaxy's C-band fleet. Galaxy VI has 24 10-watt C-band
transponders with coverage of the continental United States, Alaska, Hawaii
and the Caribbean basin. As an in-orbit spare, Galaxy VI provides backup
protection for those C-band customers who have contracted for such protection.
In the event of a catastrophic failure on another satellite, Galaxy VI would
meet their immediate needs by either moving to the appropriate orbital
location, subject to FCC approval, or providing transponder capacity from
Galaxy VI's current orbital location. Galaxy is able to utilize Galaxy VI as
the in-orbit C-band backup satellite because its customers lease capacity on
Galaxy VI on a preemptible basis. Some of these full-time video and data
customers include Turner Broadcasting, Much Music, Midwest Sports, NHK, Vista
Satellite Communications, Inc., Keystone Communications, Inc. and TV Asia.
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GALAXY VII
Galaxy VII was placed into service at 91(degrees) W.L. in December 1992 and
its expected end of useful life is December 2006. Galaxy VII, an HS 601 dual
payload satellite, provides a variety of satellite services to users in the
continental United States, Alaska, Hawaii and the Caribbean basin. Galaxy VII
has 24 16-watt C-band transponders and 24 50-watt Ku-band transponders. Cable
and broadcast customers utilizing the C-band payload include Fox, Bravo, Sega,
The Disney Channel, WTCL, CBS, Black Entertainment Television and The Golf
Channel. The Ku-band capacity is utilized by TCI as well as several business
customers, including WESTCOTT Communications, Chrysler Satellite Network,
Hughes Network Systems, the Indiana Higher Education Telecommunication System,
Scientific Atlanta and Walgreens.
GALAXY IX
Galaxy IX was placed into service at 123(degrees) W.L. in June 1996 and its
expected end of useful life is June 2008. Galaxy IX, an HS 376 satellite, has
a payload consisting of 24 16-watt C-band transponders serving the continental
United States, Alaska, Hawaii and the Caribbean basin. Customers utilizing
capacity on Galaxy IX include General Communication, Inc., TVN Entertainment
Corp., Vyvx, Inc., NHK, The Computer Television Network and Viacom, Inc., with
the west coast feeds of Showtime, Nickelodeon, The Movie Channel and MTV and
the national feed of The Sundance Channel.
SBS 4
SBS 4 was launched in August 1984 and operated at various orbital locations
prior to its relocation to 77(degrees) W.L. in February 1993 where it has
temporary authority to operate. SBS 4 is now in inclined orbit mode. SBS 4 has
already exceeded its normal life expectancy. Although it is anticipated that
SBS 4 will be operated through 2002, SBS 4 must relinquish the 77(degrees)
W.L. orbital location when that location is ready to be occupied by the
satellite regularly assigned there, and Galaxy has not been authorized to
operate SBS 4 at another location. SBS 4, an HS 376 satellite, has a Ku-band
payload of 10 20-watt transponders which are all occupied by NBC for news
transmission services across the United States.
SBS 5
SBS 5 was placed into service at 123(degrees) W.L. in November 1988 and its
expected end of useful life is November 1999. SBS 5, an HS 376 satellite, has
a payload consisting of 14 20-watt Ku-band transponders serving the
continental United States. Several transponders also provide coverage of
Alaska and Hawaii. Video and data customers include Walmart, Circuit City,
Oklahoma State University, Comsat, Hughes Network Systems, General
Communications, Inc. and Ethnic American Broadcasting Company. SBS 5 will be
replaced by Galaxy X when Galaxy X is launched. In order to continue operating
SBS 5 thereafter, Galaxy will need to obtain appropriate regulatory
authorization and there can be no assurance that such authorization will be
granted.
SBS 6
SBS 6 was launched in October 1990 and operated at various orbital locations
prior to its relocation to 74(degrees) W.L. in October 1995. SBS 6's expected
end of useful life is November 2005. SBS 6, an HS 393 satellite, has 19 41-
watt Ku-band transponders providing full coverage for the continental United
States. The transponders on SBS 6 are primarily used for distributing
broadcast and cable video, satellite newsgathering and occasional usage.
Customers include BAF Satellite & Technology, Conus Communications, Turner
Broadcasting, Vyvx, Inc., SPACECONNECTION and MSNBC.
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Expected Future Satellites
Galaxy currently has six satellites under construction or in other stages of
development. Set forth below is a description of the specifications of such
satellites as currently contemplated by Galaxy's management. However, such
specifications are subject to change as a result of continuing discussions
between representatives of Galaxy and PanAmSat regarding the likely needs of
New PanAmSat following the Reorganization. For a discussion regarding Galaxy's
plans for funding the capital expenses of constructing and launching such
satellites, see "GALAXY MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS--Liquidity and Capital Resources."
<TABLE>
<CAPTION>
GALAXY VIII-I GALAXY X GALAXY XI GALAXY XII GALAXY XIII-I GALAXY XIV-I
---------------- ----------------- ---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Region Covered...... Latin America United States United States To be determined To be determined To be determined
Expected Launch..... 1997 1998 1998 To be determined 1999 2000
Satellite........... HS 601HP HS 601HP HS 702 HS 601HP HS 702 HS 702
Expected End of
Useful Life(1)..... 2012 2010 2013 To be determined 2014 2015
Orbital Location.... 95(degrees) W.L. 123(degrees) W.L. 74(degrees) W.L. To be determined To be determined To be determined
Transponders(2)
Ku-band(3)......... 32 @ 24 MHz 24 @ 36 MHz 24 @ 36 MHz 24 @ 36 MHz To be determined To be determined
C-band(4).......... -- 24 @ 36 MHz 24 @ 36 MHz 24 @ 36 MHz To be determined To be determined
Usable
Bandwidth(5)....... 768 MHz 1,728 MHz 1,728 MHz 1,728 MHz 1440-1944 MHz 1440-1944 MHz
Output Power(6)
Ku-band............ 32 @ 115 watts 24 @ 63 watts 24 @ 75 watts To be determined To be determined To be determined
C-band............. -- 24 @ 20 watts 24 @ 20 watts To be determined
Total Output Power.. 3,680 Watts 1,992 Watts 2,280 Watts To be determined To be determined To be determined
</TABLE>
- --------
(1) The expected end of useful life for each of Galaxy's expected future
satellites is based on the terms (with respect to Galaxy VIII-i and Galaxy
X) or anticipated terms (with respect to Galaxy XI, Galaxy XIII-i and
Galaxy XIV-i) of the relevant satellite construction contract and the
terms (with respect to Galaxy VIII-i, Galaxy X and Galaxy XI) or
anticipated terms (with respect to Galaxy XIII-i and Galaxy XIV-i) of the
relevant satellite launch arrangement.
(2) Satellite transponders receive transmissions from Earth and relay them
back to Earth. Transponders are composed of receivers, preamplifiers,
power amplifiers, frequency shifters and a host of other electronics.
(3) Ku-band is a range of relatively high frequencies (between approximately
12 GHz and 14 GHz) used for commercial satellite communications. Ku-band
is widely used for distribution of broadcast television and DTH services,
as well as business communications, and allows for the use of relatively
small receive antennas.
(4) C-band is a range of relatively low frequencies (between approximately 4
GHz and 6 GHz) used for commercial satellite communications. C-band is
used primarily for cable and broadcast distribution and requires the use
of relatively large receive antennas on the ground.
(5) Bandwidth is one measure of the information carrying capacity of a
transponder. A transponder's bandwidth and power together determine the
amount of information that can be carried.
(6) Output power is the transmitter power of each transponder and is not a
measure of the signal power received on Earth. High output power allows
for the use of smaller and less expensive receive antennas to obtain a
satellite signal.
GALAXY VIII-I
Subject to FCC approval of Galaxy's pending application for Galaxy VIII-i,
this satellite, which is scheduled to be launched in 1997, will be co-located
with Galaxy III-R and is to replace Galaxy III-R as the satellite by which GLA
delivers DTH programming to Mexico, Central and South America and the
Caribbean. Subject to FCC approval, Galaxy VIII-i is expected to have 32 115-
watt Ku-band transponders. Galaxy VIII-i will be one of the first HS 601HP
satellites to be launched carrying XIPS, a new technology designed to reduce a
satellite's fuel requirements and lengthen its in-orbit life. This satellite
will have a life expectancy of 15 years.
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GALAXY X
Galaxy X, which the FCC recently authorized Galaxy to construct, launch and
operate, will be an HS 601 HP hybrid satellite carrying 24 20-watt C-band
transponders and 24 63-watt Ku-band transponders. Galaxy X is currently under
construction and scheduled for launch in the spring of 1998 to 123(degrees)
W.L. This satellite will have a life expectancy of 12 years. Galaxy IX and SBS
5 are currently located at 123(degrees) W.L. and will be moved after the
successful launch of Galaxy X. Galaxy IX will move to its FCC assigned
position at 127(degrees) W.L. and SBS 5 will either be sold or be moved to
another yet-to-be determined location. Galaxy IX C-band customers migrating to
Galaxy X after its launch will include Viacom, with the west coast feeds of
Showtime, Nickelodeon, The Movie Channel and MTV, and the national feed of The
Sundance Channel. Galaxy X will serve the continental United States, Alaska,
Hawaii and the Caribbean basin. Galaxy X already has a number of customers
contracted to use its Ku-band transponders full-time, including General
Communications, Inc., Computer Television Network and Televideocomm.
GALAXY XI
Galaxy plans to file with the FCC for authority for Galaxy XI, which is
expected to be the first HS 702 satellite, as a replacement satellite for
Galaxy VI (C-band) and SBS 6 (Ku-band), co-located at 74(degrees) W.L. Subject
to FCC approval, it is expected that Galaxy XI will be launched to such
orbital location in the summer of 1998 and will have a life expectancy of 15
years. Galaxy XI is expected to carry a dual payload of 24 20-watt C-band
transponders and 24 75-watt Ku-band transponders.
GALAXY XII
Galaxy's management intends to contract with HSC for the procurement of
long-lead items for Galaxy XII, which will act as a ground spare providing
backup for the launch of Galaxy X and Galaxy XI and which may be used as an
additional satellite if not deployed as a spare. Galaxy XII is expected to be
an HS 601 HP satellite with a life expectancy of 15 years. As currently
contemplated, the satellite will be built by HSC and will have 24 Ku-band
transponders and 24 C-band transponders. The management of Galaxy has not yet
determined the precise orbital location, region covered or configuration for
Galaxy XII. Accordingly, Galaxy has not yet filed an application with the FCC
for authority to launch or operate Galaxy XII.
GALAXY XIII-I
Subject to FCC approval of Galaxy's pending application for Galaxy XIII-i,
this HS 702 satellite is expected to provide international coverage. Galaxy
XIII-i is expected to be launched in 1999 and is designed to have a life
expectancy of 15 years. Galaxy's management is in the process of determining
the payload configuration and specifications for Galaxy XIII-i given the
capabilities of the HS-702 satellite design and anticipated customer demand.
The orbital location for Galaxy XIII-i also remains to be determined.
GALAXY XIV-I
Subject to FCC approval of Galaxy's pending application for Galaxy XIV-i,
this HS 702 satellite also is expected to provide international coverage.
Galaxy XIV-i is expected to be launched in 2000 and is designed to have a life
expectancy of 15 years. Galaxy's management is in the process of determining
the payload configuration and specifications for Galaxy XIV-i given the
capabilities of the HS-702 satellite design and anticipated customer demand.
The orbital location for Galaxy XIV-i also remains to be determined.
Additional Future Satellites
Galaxy also has applied to the FCC for authorization to construct, launch
and operate an international hybrid Ku-band and extended Ku-band satellite to
be located at 91(degrees) W.L. and has applications pending to construct,
launch and operate additional hybrid Ka-band and Ku-band (BSS) satellites that
are expected, subject to FCC and ITU approval, to provide international
coverage. See "--Government Regulation" and "RISK FACTORS--Regulatory Risks."
In addition, Galaxy's business plan contemplates the filing of additional
applications for authorization to launch and operate satellites that will
provide U.S. and/or international service.
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SATELLITE DEVELOPMENT AND CONSTRUCTION
Galaxy currently has two satellites under construction (Galaxy VIII-i and
Galaxy X) and three satellites in various stages of development (Galaxy XI,
Galaxy XIII-i and Galaxy XIV-i). Galaxy has entered into agreements with HSC
for the construction and testing of Galaxy VIII-i and Galaxy X, both HS 601 HP
satellites, to be delivered in the fall of 1997. The agreement contains a
limited pre-launch warranty that Galaxy VIII-i will be free from any defects
in material or workmanship and will conform to all applicable specifications
and drawings. This warranty is limited to correction or replacement of the
defective item or system. Title and risk of loss will transfer to Galaxy upon
the earlier of (i) the completion of in-orbit testing by HSC, (ii) 45 days
after intentional ignition of any rocket motor on the launch vehicle or (iii)
upon partial failure, total failure or total constructive failure of the
satellite as defined in the applicable launch insurance contract. The
agreements provide that if the delivery is delayed due to the fault of Galaxy,
Galaxy will be obligated to pay HSC its reasonable costs incurred as a result
of the delay plus a profit component. The Galaxy X agreement also provides for
certain contract price reduction in the event of a delay due primarily to
HSC's fault.
Galaxy has also entered into letter agreements with HSC authorizing HSC to
take certain limited actions in connection with the development of Galaxy XI,
Galaxy XIII-i and Galaxy XIV-i. Prior to the Closing Date, Galaxy expects to
enter into agreements with HSC for the construction and testing of Galaxy XI,
Galaxy XIII-i and Galaxy XIV-i and for the procurement of long-lead items for
Galaxy XII.
LAUNCH ARRANGEMENTS
Galaxy has entered into an agreement (the "Launch Agreement") with Hughes
Space & Communications International, Inc. ("HSCI"), whereby HSCI has agreed
to provide certain launch services to Galaxy, such services to be provided by
third-party launch providers under contract with HSCI. Subject to FCC
approval, Galaxy intends to launch Galaxy VIII-i in the fall of 1997 from the
Cape Canaveral Air Station in Florida on a Lockheed Martin ("Lockheed") Atlas
IIA.S. launch vehicle. The Atlas IIA.S. is Lockheed Martin's latest generation
of launch vehicle and provides increased performance and payload capacity. The
successful launch rate for the Atlas II, Atlas IIA and Atlas IIA.S. launch
vehicles has been 100%, with a successful launch rate of approximately 87.1%
for all Atlas launch vehicles.
Galaxy plans to launch Galaxy X in the spring of 1998 from the Cape
Canaveral Air Station in Florida on an MDC Delta III launch vehicle. This
launch will be the first commercial launch utilizing the Delta III, MDC's
latest generation of launch vehicle, a high-performance launch vehicle capable
of carrying larger payloads. The Delta II, MDC's previous generation launch
vehicle, upon which the Delta III technology is based in part, has had a
successful launch rate of approximately 97%. On January 17, 1997, a Delta II
launch vehicle carrying a United States Air Force satellite suffered a launch
failure. MDC has suspended its Delta II launch schedule pending its
investigation into the failure, and, pending completion of such investigation,
has notified HSCI that there may be delays requiring an extension of the Delta
III launch schedule.
Subject to FCC approval, Galaxy plans to launch Galaxy XI in the summer of
1998 via a Sea Launch Zenit launch vehicle. Sea Launch is a joint venture
between Boeing Commercial Space Co. (United States), Kavaerner A.S. (Norway),
RSC-Energia (Russia) and the NPO-Yuzhnoye space concern (Ukraine). This launch
will be the first commercial launch via the Sea Launch service, which will
utilize a three-stage launch vehicle launched from a novel 430-foot-long semi-
submersible launch platform in the Pacific Ocean near the equator. The NPO-
Yuzhnoye space concern will provide the first two stages of the launch
vehicle, based upon prior generation Zenit launch vehicles, and RSC-Energia
will provide the third stage of the launch vehicle, based upon the fourth
stage of prior generation Proton launch vehicles. Prior generation Zenit
launch vehicles have been utilized for several Russian government satellite
launches with a success rate of approximately 89%, and the fourth stage of
prior generation Proton launch vehicles has a launch success rate of
approximately 95%. The Sea Launch service is designed to efficiently launch a
large satellite payload into an orbit that is closer to the desired orbit,
thereby saving satellite fuel and extending satellite life.
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Under the terms of the Launch Agreement, Galaxy may terminate each of the
above-mentioned Lockheed, MDC and Sea Launch launches at its option, subject
to the payment of a specified termination fee which increases as the
applicable launch date approaches. In addition, Galaxy may terminate each of
such launches without penalty if the applicable launch provider causes a delay
that is longer than a specified period. The Launch Agreement also provides
that Galaxy may postpone each of such launches for a specified period before
the applicable launch provider is entitled to terminate its launch. In
addition, in the event of a failure of any of such
launches Galaxy may exercise the right to obtain a replacement or new launch
within a specified period following its request for relaunch.
Galaxy expects to enter into agreements to secure launches for additional
future satellites as necessary. There can be no assurance, however, that
Galaxy will be able to obtain necessary future launches. Additionally, a
significant delay in the launch of any of Galaxy's satellites could enable
customers who have pre-purchased or agreed to lease capacity on such
satellites to terminate their contracts. See "RISK FACTORS--Risk of Delays,
Excess Weight."
INSURANCE
Galaxy historically has purchased satellite launch insurance in an amount
sufficient to cover the in-orbit replacement cost of its satellites, including
construction, launch and launch insurance costs. Galaxy typically purchases
launch insurance approximately three months prior to the applicable launch.
Launch insurance policies generally cover both total loss and partial loss and
contain terms similar to the terms described below with respect to in-orbit
insurance.
Typically, in-orbit insurance coverage commences after a satellite has been
satisfactorily tested in-orbit. Galaxy maintains in-orbit insurance for each
of its operational satellites. At December 31, 1996, Galaxy carried
approximately $117.2 million of in-orbit insurance for Galaxy I-R, $222
million of in-orbit insurance for Galaxy III-R, $201.1 million of in-orbit
insurance for Galaxy IV, $68.8 million of in-orbit insurance for Galaxy V,
$58.9 million of in-orbit insurance for Galaxy VI, $256.6 million of in-orbit
insurance for Galaxy VII, $113 million of in-orbit insurance for Galaxy IX,
$15.6 million of in-orbit insurance for SBS 4, $28.9 million of in-orbit
insurance for SBS 5 and $103.9 million of in-orbit insurance for SBS 6. The
amount of in-orbit insurance for a given satellite is calculated as follows:
transponders sold are initially insured at the base sales price of the
transponder; transponders leased under a sales-type lease are initially
insured for the net present value of lease payments; transponders leased under
operating leases are initially insured for the net book value of the
transponder; and the amount of in-orbit insurance coverage for each satellite
declines on a straight line or variable rate basis over the coverage period,
except for Galaxy IX and Galaxy III-R with respect to which the amount of
insurance is currently fixed. Under Galaxy's in-orbit insurance policies, if a
total satellite failure occurs (meaning the satellite is completely unusable
or has an actual remaining satellite capacity of 50% or less of predicted
remaining satellite capacity) then the loss payee is entitled to the
applicable amount of insurance. If there is a partial satellite failure
(meaning the actual remaining satellite capacity is reduced to less than or
equal to 90% (with respect to Galaxy III-R, Galaxy IV and Galaxy VII) or 100%
(with respect to Galaxy I-R, Galaxy V, Galaxy VI, Galaxy IX, SBS 4, SBS 5 and
SBS 6), but more than 50% of the predicted remaining satellite capacity), then
the loss payee is entitled to receive the applicable amount of insurance
multiplied by the percentage decrease in satellite capacity. With respect to
Galaxy VII, Galaxy IV and Galaxy III-R only, if there is a total payload
failure with respect to the C-band payload (meaning that there are fewer than
13 operating C-band transponders in the payload) then the loss payee is
entitled to receive 40% of the applicable amount of insurance, and if there is
a total payload failure with respect to the Ku-band payload (meaning that
there are fewer than 13 operating Ku-band transponders in the payload), then
the loss payee is entitled to receive 60% of the applicable amount of
insurance. Galaxy typically obtains in-orbit insurance policies with two-year
coverage periods and historically has renegotiated its policies in October of
each year. Galaxy concluded its renegotiations for the in-orbit insurance
policy for Galaxy I-R, Galaxy V, Galaxy VI, Galaxy IX, SBS 4, SBS 5 and SBS 6
on October 30, 1996, with an effective date for the new policy of October 12,
1996. Galaxy recently concluded negotiations with respect to the in-orbit
insurance for Galaxy VIII-i for the two year period following its launch.
Galaxy will be renegotiating its in-orbit insurance policy for Galaxy III-R,
Galaxy IV and Galaxy VII in the first quarter of 1997, based on new estimates
of satellite life predictions to be made available in late April.
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Galaxy's in-orbit and launch insurance policies typically include customary
commercial satellite insurance exclusions including damage or loss caused by
(i) war or warlike action in time of peace or war, (ii) any anti-satellite
device, or device employing atomic or nuclear fission and/or fusion or device
employing laser or directed energy beams, (iii) insurrection, strikes, riot,
civil commotion, rebellion, revolution, civil war, usurpation or action taken
by a government authority in hindering, combating or defending against such an
occurrence, whether there be declaration of war or not, (iv) confiscation by
order of any government or governmental authority or agent (whether secret or
otherwise) or public authority, (v) nuclear reaction, nuclear radiation or
radioactive contamination of any nature, whether such loss or damage be direct
or indirect, except for radiation naturally occurring in the space
environment, (vi) electromagnetic or radio frequency interference, except for
physical damage to a satellite directly resulting from such interference,
(vii) willful or intentional acts of Galaxy designed to cause loss or failure
of a satellite, (viii) third-party liability and (ix) loss of revenue, extra
expenses, incidental damages and/or consequential damages.
SALE-LEASEBACK ARRANGEMENTS
Galaxy entered into several sale-leaseback arrangements with respect to
certain transponders on SBS 6, Galaxy VII and Galaxy III-R in December 1991,
September 1993 and February 1996, respectively. All of the other operational
Galaxy satellites are owned by Galaxy and it is expected that all of Galaxy's
planned future satellites will be owned by Galaxy. Pursuant to the agreements
governing such arrangements, Galaxy sold 19 Ku-band transponders on SBS 6 for
approximately $204.7 million, 16 Ku-band and 14 C-band transponders on Galaxy
VII for approximately $314.8 million and 24 Ku-band transponders on Galaxy
III-R for $252.0 million. Concurrently with such sale, Galaxy agreed to lease
back the same transponders on terms that require Galaxy to make scheduled rent
payments and operate and maintain such transponders and the applicable
satellites for terms of 11.2 years, 11 years and 6.9 years, respectively (the
"Leases"). During the initial term of each Lease, Galaxy is obligated to make
semi-annual rent payments in an amount at least equal to the payments of
interest and principal due on indebtedness that was incurred by the third
party that purchased the transponders subject to such Lease (the
"Indebtedness") and to enable such third party to recoup a significant part of
its investment in such transponders. Such Indebtedness is secured by the
related Lease and the transponders covered thereby.
Galaxy's payment obligations under each sale-leaseback arrangement are
guarantied by HE pursuant to related guaranty agreements. Although the
Assurance Agreement provides that HE will continue to guaranty such
arrangements after the Closing Date, the Reorganization Agreement requires New
PanAmSat to enter into an agreement with HE to pay and indemnify HE for
performing any of its obligations under such guaranties.
At the end of the initial term of each Lease, Galaxy has the option of
renewing such Lease through the end of the useful life of the applicable
satellite. Renewed leases generally will be subject to the same terms and
conditions of the Lease that was renewed, except that the rent amount will be
the fair market rental value of the applicable transponders at the time of
such renewal. Galaxy also has the right to terminate any Lease if Galaxy
determines in good faith that the continued lease of the transponders subject
to the Lease has become uneconomical or that the transponders subject to such
Lease have become obsolete or surplus to Galaxy's needs. Upon any such
termination, however, Galaxy is required to assist in reselling such
transponders to another party and Galaxy will be responsible for making up any
shortfall between the proceeds received in such sale and a specified
termination amount. Finally, Galaxy has the option under each Lease to
exercise an Early Buy Out Option. Under the Leases for SBS 6, Galaxy can
exercise an Early Buy Out Option on 8 of SBS 6's transponders on June 26,
1998, or December 26, 1999, for $57.6 million or $46.2 million, respectively,
and can exercise an Early Buy Out Option on SBS 6's remaining 11 transponders
on January 3, 1998, or January 3, 2000, for $94.1 million or $65.3 million,
respectively. Galaxy can exercise Early Buy Out Options for 22 of the
transponders on Galaxy VII on January 2, 1999, for $138.6 million, and can
exercise Early Buy Out Options with respect to the 8 remaining leased
transponders on such satellite on July 2, 1999, for $57.3 million. With
respect to the leased transponders on Galaxy III-R, Galaxy has an Early Buy
Out Option on July 2, 1999, for $170.4 million. Payment of the Early Buy Out
Option prices may be partially satisfied by Galaxy's assumption of the
underlying leveraged lease debt. If Galaxy elects to exercise any Early Buy
Out Option, the respective Early Buy Out Option payments would be reduced to
the extent of the principal amount of such debt that is assumed.
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Galaxy also is required under each of the Leases to obtain and maintain in-
orbit insurance on the satellite subject to such Lease and, upon the loss of
one or more transponders, to either pay a specified loss amount or provide
replacement transponder capacity to the lessor under such Lease. Galaxy has
certain additional payment obligations under each Lease in the event that
Galaxy fails to make lease payments or perform its other obligations under
such Lease or if HE fails to adhere to the terms of its guaranty of such
Lease. Finally, each of the Leases imposes limits on the ability to move the
satellite on which transponders are located other than in certain specified
situations and imposes limitations on the ability of Galaxy to consolidate or
merge with another entity unless certain circumstances are satisfied.
COMPETITION
The communications services market is highly competitive. Galaxy competes
with several companies and other entities which own or utilize satellite
and/or terrestrial transmission facilities. Most or all of such competitors
have substantial resources and a few of such competitors have equal or greater
resources than Galaxy.
Other Satellite Operators
Galaxy faces significant competition in the provision of satellite services
to the United States. Galaxy, GE Americom, Loral SpaceCom and Comsat all
currently provide fixed satellite services to the United States. Loral
SpaceCom has received authorization from the FCC and, subject to meeting
certain financial requirements, Orion and Echostar Communications Corporation
have received authorization from the FCC to construct, launch and operate
fixed service satellites with U.S. coverage. Also, Loral SpaceCom recently
acquired AT&T's Skynet Satellite Services business. In addition, the FCC has a
pending rulemaking proceeding that proposes to codify the terms under which
foreign-licensed satellite systems, of which there are many, may serve the
United States, and certain foreign-licensed satellites have coverage areas
that include the United States. Increased competition may also result from a
World Trade Organization agreement pursuant to which the United States has
committed to opening its telecommunications market, including its satellite
services markets with the exception of DTH and direct broadcast satellite
services, to foreign-owned and foreign-licensed competitors from World Trade
Organization countries. With respect to the operation of the Ku-band payload
of Galaxy III-R, Galaxy also faces significant competition in Latin America,
and Galaxy may, in the future, face significant competition in other
international markets in which it may operate.
Terrestrial Communications Service Providers
Galaxy faces competition from terrestrial communications service providers,
such as facilities-based long distance telephone companies, resellers of long-
distance telephone capacity, local exchange carriers, cable companies and
wireless cable companies. Such companies utilize various means of
transmission, including copper wire, coaxial cable, fiber-optic cable and
microwave-based facilities. Galaxy believes, however, that with respect to
certain areas of its business, which primarily involve point-to-multipoint
communications over great distances, satellite technology is often more
efficient and less expensive than terrestrial technologies. There can be no
assurance, however, that technological, regulatory or other developments will
not hinder Galaxy's ability to compete or enhance terrestrial communications
service providers' ability to compete in Galaxy's primary areas of business.
GOVERNMENT REGULATION
The satellite industry is highly regulated both in the United States and
internationally. The ownership and operation of Galaxy's fixed service
satellite system is subject to the rules and regulations of the FCC, which
acts pursuant to the Communications Act and related federal laws. The FCC
regulates, among other things, the construction, launch and operation of U.S.
satellites, and violations of the FCC's rules can result in various sanctions,
including fines, loss of authorizations or the denial of applications for new
authorizations or for renewals of existing authorizations. Galaxy also is
subject to regulation by the national communications authorities of any
foreign countries in which it may operate. In addition, Galaxy is subject to
the Intelsat
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consultation process and the ITU frequency coordination process, which can
result in the imposition of various restrictions on Galaxy's business that may
have a material adverse effect on its operations.
The following is a brief summary of relevant provisions of certain U.S. and
international laws and regulations that are applicable to Galaxy's operations.
FCC Regulation of U.S. Satellites
The FCC is the governmental body with primary authority in the United States
over satellite operators. Among other things, the FCC allocates portions of
the radio frequency spectrum to certain services and grants licenses to and
regulates individual entities using that spectrum. Various legislative and
regulatory proposals under consideration from time to time by Congress, the
FCC and various other federal agencies have in the past materially affected,
and may in the future materially affect, Galaxy and the satellite industry. In
addition, certain aspects of existing federal laws and regulations are the
subject of legislative or administrative proposals to modify, repeal or adopt
new laws and administrative regulations and policies.
Elimination of Regulatory Distinctions Between Domestic and International
Systems
Prior to recent changes to its regulations, the FCC distinguished between
domestic U.S. satellites and "separate international systems," i.e., U.S.-
licensed satellites that provided international service. Specifically, with
certain exceptions for the provision of trans-border services and operators
that obtained separate FCC authorizations, U.S. domestic satellite licensees
were permitted to serve only the United States. Similarly, except for the
provision of U.S. service that was ancillary to international service and
except for operators that obtained separate FCC authorizations, separate
system satellite licensees were permitted to provide only international
service. On January 22, 1996, the FCC released its Domestic and International
Satellite Consolidation Order ("DISCO I") eliminating the previous regulatory
distinctions, and the FCC now regulates all U.S.-licensed geostationary fixed
service satellites under a unified regulatory scheme in which they can provide
a full range of domestic and international services. In practice, however,
existing U.S. domestic satellites are designed to serve principally the United
States. Petitions for reconsideration of the order establishing the new
policies, including a petition filed by PanAmSat, are pending before the FCC.
There can be no assurance that further modifications to the FCC's rules and
policies will not be made as a result of those petitions for reconsideration,
or that any such modifications will not have a material adverse effect on
Galaxy's operations.
Licensing Terms
License Period. The FCC grants authorizations to satellite operators, such
as Galaxy, that meet the FCC's legal, technical and financial qualification
requirements. Such authorizations are for 10-year terms, although the FCC
reserves the right to grant or renew satellite licenses for periods of less
than 10 years if, in its judgment, the public interest, convenience and
necessity will be served by such action. Certain Galaxy satellites are, or are
expected to be, operational beyond their 10-year license terms. The
authorization for the SBS 4 satellite held by Galaxy expired in 1994, and
Galaxy has obtained successive 180-day grants of special temporary
authorization from the FCC to enable it to continue to operate the satellite
past the expiration of the satellite's license. There can be no assurance,
however, that the FCC will continue to grant such special temporary
authorizations or other extensions or renewals of license terms with respect
to the SBS 4 satellite or other satellites. A denial of such authority could
have a material adverse effect on Galaxy's operations.
To conserve fuel and further extend the life of SBS 4, Galaxy currently is
operating the satellite in "inclined orbit mode" pursuant to FCC
authorization. Brasilsat A1 also is operating in inclined orbit mode. In
inclined orbit, a satellite no longer operates within normal north-south
stationkeeping parameters. The FCC requires that, if it assigns another
satellite operating within normal stationkeeping parameters to an orbital
location in use by an inclined orbit satellite, the inclined orbit satellite
must be relocated or deorbited once the new satellite is ready to occupy that
location. The FCC recently assigned satellites to 77(degrees) W.L. and
79(degrees) W.L., the orbital locations currently used by SBS 4 and Brasilsat
A1. Once the newly assigned satellites are ready to occupy those locations,
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Galaxy must relocate SBS 4 and cause the Brazilian government, which operates
Brasilsat A1, to relocate that satellite as well. There can be no assurance
that those satellites will be authorized to provide service at any other
desirable orbital locations.
Non-Common Carrier Operation. The FCC's authorizations permit Galaxy to
operate its satellites on a non-common carrier basis. As a non-common carrier,
Galaxy is free to set prices and serve customers according to its business
judgment, without rate of return or price cap regulation or the obligation not
to discriminate among customers, and with minimal governmental scrutiny of its
business decisions. In addition to the licensing of individual satellites and
earth stations, Galaxy is subject to the FCC's review primarily to ensure the
avoidance of interference with other users of the radio frequency spectrum and
compliance with various FCC rules of general application to satellite
operators. The FCC reserves the right to require a satellite to be relocated
to a different orbital location if the FCC determines that it is in the public
interest that such a change be made, but the FCC rarely has used this
authority.
Authorizations To Construct, Launch and Operate Satellites
Authorizations. Galaxy has obtained FCC authorization to construct, launch
and operate, and it currently is operating: the C-band Galaxy I-R at
133(degrees) W.L.; the hybrid (C-band and Ku-band) Galaxy III-R at 95(degrees)
W.L.; the hybrid (C-band and Ku-band) Galaxy IV at 99(degrees) W.L.; the C-
band Galaxy V at 125(degrees) W.L.; the C-band Galaxy VI at 74(degrees) W.L.;
the hybrid (C-band and Ku-band) Galaxy VII at 91(degrees) W.L.; the C-band
Galaxy IX at 123(degrees) W.L. (to be relocated to 127(degrees) W.L. upon the
launch of Galaxy X into the 123(degrees) W.L. orbital location); the Ku-band
SBS 4 at 77(degrees) W.L.; the Ku-band SBS 5 at 123(degrees) W.L.; and the Ku-
band SBS 6 at 74(degrees) W.L. In its May 7, 1996 Orbital Assignment Order and
in a subsequent order released on November 21, 1996, the FCC authorized Galaxy
to construct, launch and operate the hybrid (C-band and Ku-band) Galaxy X
satellite, and assigned that satellite to the 123(degrees) W.L. orbital
location. The FCC also has granted Galaxy special temporary authorization to
utilize the transponder capacity of the Brazilian-owned and licensed C-band
Brasilsat A1 satellite from the 79(degrees) W.L. location in order to provide
U.S. service. Galaxy has applied for the proposed extended Ku-band Galaxy
VIII-i satellite, upon the successful launch of which into the 95(degrees)
W.L. orbital location the Ku-band payload of Galaxy III-R will be returned to
U.S. service. Galaxy also has applied for a hybrid (Ku- and extended Ku-band)
international satellite to be located at 91(degrees) W.L. In addition, Galaxy
has an application pending for authorization for several hybrid Ka-band and
Ku-band (BSS) international geostationary satellites, including Galaxy XIII-i
and Galaxy XIV-i. In response to such application, the FCC has assigned to
Galaxy 12 Ka-band orbital locations that are suitable for international
satellite service, six of which will be retained by Galaxy after the
Reorganization and six of which will be retained by HE for use in a separate
business, subject to certain non-compete restrictions contained in the
Stockholders Agreement. In addition, an application remains pending for an
additional Ka-band location that Galaxy expects to utilize. Galaxy's
applications with the FCC for Ku-band (BSS) satellites at 12 orbital locations
are also pending before the FCC. Use of the orbital positions for Ku-band
(BSS) satellites is currently being coordinated through the ITU and is subject
to approval by the ITU as a modification to its current BSS plan. See "--
International Telecommunications Union Coordination." Galaxy plans to file an
application for authorization for the hybrid (C-band and Ku-band) Galaxy XI as
a replacement satellite at 74(degrees) W.L. In addition, Galaxy's business
plan contemplates the filing of additional applications for authorization for
satellites that will provide U.S. and/or international service.
Application Processing. In processing applications for authorization for
new, or "expansion," satellites that will provide primarily domestic U.S.
service, the FCC traditionally has granted such authorizations through
consolidated "processing rounds" in which it considers and resolves
contemporaneously filed applications. Prior to the FCC's DISCO I decision,
this process had been limited to domestic satellite applications. The FCC's
decision extended the processing round procedure to future applications for
all U.S.-licensed satellites regardless of the proposed coverage area. The
most recent processing round for domestic U.S. C-band and Ku-band fixed
service satellites began in December 1994 and recently was completed following
the issuance of the FCC's Orbital Assignment Order in May 1996 and individual
orders in November 1996 assigning orbital locations and granting
authorizations to construct, launch and operate satellites to applicants for
proposed expansion and replacement satellites, including Galaxy IX and Galaxy
X. A petition for reconsideration of certain orbital
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assignments (other than assignments granted to Galaxy) made in the processing
round presently is pending before the FCC. Applications for replacement
satellites typically are resolved outside of a processing round.
The FCC's rules limit the number of new satellite authorizations that
operators may be granted at one time. The rules provide that legally,
technically and financially qualified applicants not already holding satellite
authorizations initially may be assigned up to two orbital locations in each
pair of frequency bands proposed. For existing operators, the FCC's rules
specify that legally, technically and financially qualified applicants may be
assigned no more than one additional orbital location beyond their current
authorizations in each frequency band in which they are authorized to operate,
provided that their in-orbit satellites are essentially filled and that they
have no more than two unused orbital locations for previously authorized but
unlaunched satellites in that band. The FCC historically has interpreted the
rules to allow applicants to be authorized for more than those one or two
satellites at a time in a given frequency band when those additional
satellites are needed to serve geographically separate areas, but there can be
no assurance that the FCC will maintain this interpretation in the future.
These rules impose limitations on the pace at which Galaxy may be able to add
future satellites to its fleet.
On December 16, 1996, the FCC released an order streamlining its rules and
regulations governing satellite applications and licensing procedures. The new
rules are expected to take effect in April 1997. Under the new rules, the FCC
has, among other things, abolished the construction permit requirement for
satellites in favor of a requirement that operators submit prior written
notification that they plan to commence satellite construction at their own
risk. The FCC also has eliminated the requirement to obtain FCC authorization
prior to placing a satellite into inclined orbit and relaxed rules governing
satellite licensee reports. Thus, under the FCC's new policy, satellite
operators such as Galaxy will be able to construct future satellites, at their
own risk, without prior FCC approval.
Pending Proceedings. On May 14, 1996, the FCC released a notice of proposed
rulemaking to require that U.S.-licensed earth stations that seek to
communicate with foreign-licensed satellites demonstrate that the foreign-
licensed satellite's markets provide U.S. licensees effective competitive
opportunities to provide an equivalent service there. To the extent that the
FCC's proposal, whether or not it is adopted, is viewed unfavorably by foreign
regulators, it could complicate Galaxy's efforts to obtain those
authorizations that may be necessary to provide international service to
foreign nations.
Foreign Telecommunications Authorities
With respect to the provision of international satellite service, Galaxy may
be subject to the communications and/or broadcasting laws and regulations of
foreign telecommunications authorities. While these laws and regulations vary
from country to country, foreign telecommunications authorities generally have
not required companies to obtain licenses or regulatory authorizations in
order to provide space segment capacity to licensed entities within those
countries; however, foreign telecommunications authorities in certain
countries may require that foreign-licensed satellite operators obtain
authorizations in order to provide satellite services in such countries. Laws
and regulatory practices governing access to satellite systems vary
substantially among countries. Certain countries have liberalized their
national communications market, allowing multiple entities to seek licenses to
provide voice, data or video services for their own use or for third-party
use, to own and operate private earth station equipment, and to choose a
provider of satellite capacity. Some countries allow licensed radio and
television broadcasters and cable television providers to own their own
broadcast transmission facilities and to purchase satellite capacity without
restriction. In such countries, customer access to Galaxy's services may be a
relatively simple procedure. Other countries, however, have maintained strict
monopoly regimes, so that end-users may be required to access satellite
services through a single, government-owned entity. In such markets, the
entity (often the PTT) may hold a monopoly on the ownership and operation of
facilities or on the provision of communications and/or broadcasting services
to, from and within a country, including via satellite, rendering the
provision of service from U.S.-licensed satellites more complicated.
Galaxy III-R currently is the only Galaxy satellite that provides
international service, other than on an ancillary basis. GLA's local partners
have applied for and, in certain countries, have obtained authorizations from
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foreign telecommunications authorities to use capacity on Galaxy III-R to
provide DTH services to various countries in Latin America. Through its local
partners, GLA currently is authorized to provide or expects to receive
authorization shortly to provide, and is providing or expects shortly to begin
providing, service throughout Latin America, although it has not yet obtained
authorization to provide service in Argentina. There can be no assurance,
however, that all of the foreign regulatory authorizations sought by GLA's
local partners, or any future customers of Galaxy operating in foreign
countries, will be granted.
Intelsat Consultations
Prior to receiving final licensing and launch authority and commencing
service in the United States or internationally, Galaxy must complete a
consultation process with Intelsat under Article XIV of the Intelsat
Agreement. An Intelsat consultation for a U.S.-licensed spacecraft requires
arranging for the U.S. government to consult with Intelsat to ensure that use
of the new satellite will cause Intelsat neither technical harm arising from
signal interference nor "significant economic harm."
The FCC is responsible for ensuring that Galaxy has undergone the necessary
consultations and that it operates in accordance with the technical parameters
forming the basis for an Article XIV consultation. If Galaxy changes the terms
(either technical or service) of its operation in a significant way, it may
need to reconsult with Intelsat. Galaxy has requested that the FCC initiate
Intelsat consultations with respect to certain satellites and expects that
those consultations will be completed expeditiously. At the appropriate time,
Galaxy will request that the FCC initiate Intelsat consultations with respect
to those satellites for which applications presently are pending. There can be
no assurance, however, that any such consultations will be completed
successfully.
International Telecommunications Union Coordination
Nations register their proposed use of orbital locations with the ITU Radio
Regulations Board to ensure that there is an orderly process for accommodating
each country's needs for orbital locations. See "BUSINESS OF PANAMSAT--
Government Regulation."
The U.S. government has filed with the ITU for all of Galaxy's existing and
proposed orbital locations, and the use of any of these locations will need to
be coordinated with foreign administrations that have filed for neighboring
orbital locations. For the most part, the right to use certain frequencies at
a given orbital location is determined on a "first-come, first-served" basis,
based on the date on which a country makes certain filings at the ITU.
However, the ITU has "planned" the use of certain frequency bands in a manner
that effectively reserves for various countries the right to use those
frequency bands at given locations in accordance with certain technical
parameters. The ITU has "planned" the use of the Ku-band (BSS) frequencies in
this manner and has adopted procedures that allow for countries to propose
modifications to that plan: that is, proposals for additional uses of those
frequencies that do not cause unacceptable interference with any preassigned
uses. Proposed modifications that are filed with the ITU are reviewed by the
ITU to ensure that they comply with its rules and procedures. A proposed
modification that is approved formally becomes part of the ITU's Ku-band (BSS)
plan and receives the associated regulatory protections.
Galaxy's proposal to use the Ku-band (BSS) frequencies at 12 locations
requires a modification to the ITU's BSS plan. Use of those orbital positions
for Ku-band (BSS) services is subject to approval by the ITU as a modification
to its current BSS plan. The U.S. government has forwarded the required
filings to the ITU and Galaxy believes that those filings comply with ITU
requirements in all material respects. However, the ITU plans to revise the
BSS plan in the fall of 1997 and it is uncertain whether Galaxy's proposed
modifications will be approved before that time or at all. If the ITU modifies
its BSS plan, it is not clear what effect such revisions would have on
Galaxy's proposal to use the Ku-band (BSS) frequencies at 12 locations around
the world. Galaxy believes that its proposal has a very good chance of
obtaining ITU approval, but there are significant competing interests and
there can be no assurance that the ITU will approve Galaxy's proposal. See
"RISK FACTORS--Regulatory Risks."
The foregoing does not purport to describe all present and proposed U.S.,
foreign and international laws and regulations relating to the satellite
industry. The changing laws, regulations and policies in the United States
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and other countries will continue to affect the satellite industry. Galaxy
cannot predict the impact that these changes will have on its business or
whether the general deregulatory trend observed in the United States and
certain other countries in recent years will continue. Galaxy believes that
continued deregulation would be beneficial to it, but deregulation also could
reduce the limitations facing its existing and potential new competitors.
EMPLOYEES
As of December 31, 1996, Galaxy had 275 full-time employees. The
Engineering, Operations and Technology departments consist of 176 employees,
all of whom are located at Galaxy's Long Beach, California facilities, with
the exception of 34 employees based at Galaxy's teleports in Fillmore,
California, Castle Rock, Colorado, and Spring Creek, New York. The Sales and
Marketing department consists of 35 people. There are 64 employees involved in
providing administrative, finance, human resources, legal and public relations
services. The number of personnel is fairly stable and is not anticipated to
increase substantially over the next few years. Galaxy is not a party to any
collective bargaining agreement and believes its relations with its employees
are good.
PROPERTIES
Galaxy's Corporate Headquarters is located in Long Beach, California. Galaxy
also has a Network Operations Center and a Satellite Operations Center and
Warehouse located in Long Beach, California. In addition, Galaxy operates
earth stations in Spring Creek, New York, Castlerock, Colorado, and Fillmore,
California. Galaxy has leased its Corporate Headquarters and Network
Operations Center through 2008. Galaxy owns its Satellite Operations Center
and Warehouse as well as the Spring Creek Earth Station. Galaxy is currently
in the process of negotiating the purchase of the Fillmore Earth Station from
Texaco Exploration and Production, Inc., and is in the process of negotiating
a lease of the Castlerock Earth Station from HE. The following table sets
forth certain information concerning Galaxy's properties and those that it
expects to purchase or lease prior to the Closing Date:
<TABLE>
<CAPTION>
APPROXIMATE
SQUARE
FOOTAGE OR OWNED
DESCRIPTION/USE LOCATION ACREAGE OR LEASED
--------------- -------- ----------- ---------
<S> <C> <C> <C>
Corporate Headquarters and
Network Facility............... Long Beach, California 189,791(1) Leased
Satellite Operations Center and
Warehouse...................... Long Beach, California 63,500 Owned
Spring Creek Earth Station...... Spring Creek, New York 10.36 acres Owned
Fillmore Earth Station.......... Fillmore, California 752.1 acres Leased(2)
Castlerock Earth Station........ Castlerock, Colorado 14,393 Leased(3)
</TABLE>
- --------
(1) It is anticipated that this space will be reduced.
(2) Galaxy is currently in the process of negotiating the purchase of the
Fillmore Earth Station from Texaco Exploration and Production, Inc.
(3) Galaxy is currently negotiating a lease of the Castlerock Earth Station
from HE.
LEGAL PROCEEDINGS
There are no material legal proceedings pending or, to the knowledge of
Galaxy's management, threatened against Galaxy.
150
<PAGE>
BUSINESS OF NEW PANAMSAT
New PanAmSat, a wholly owned subsidiary of HCI, has not conducted any
business activities to date, other than those incident to its formation, its
execution of the Reorganization Agreement and related agreements and its
participation in the preparation of this Proxy Statement/Prospectus.
Immediately following the consummation of the Reorganization, New PanAmSat
will own and operate Galaxy and will own, directly and indirectly, all of the
outstanding capital stock of PanAmSat. Accordingly, the business of New
PanAmSat, operated directly and through its wholly owned subsidiary, will be
the businesses currently conducted by PanAmSat and Galaxy. See "BUSINESS OF
PANAMSAT" and "BUSINESS OF GALAXY." For a discussion of the benefits that the
PanAmSat Board believes will result from the Reorganization, see "THE
REORGANIZATION--Recommendation of the PanAmSat Board and Reasons for the
Merger."
LIQUIDITY AND CAPITAL RESOURCES
Upon consummation of the Reorganization, New PanAmSat will collect all cash
receipts and disburse all cash payments related to the business previously
operated by Galaxy, while PanAmSat, as a wholly-owned subsidiary of New
PanAmSat, will continue to collect all cash receipts and disburse all cash
payments related to PanAmSat's business. New PanAmSat and its subsidiaries
will not participate in the cash management system utilized by HE and its
subsidiaries, and HE is not required to provide any additional funding or
financing to New PanAmSat other than the New Financing. At Closing, New
PanAmSat will have outstanding approximately $1.725 billion in long-term
indebtedness represented by the New Financing and PanAmSat will have
outstanding long-term indebtedness of approximately $626 million (as of
December 31, 1996) and the Preferred Stock with an aggregate liquidation
preference of approximately $329 million (as of December 31, 1996). Management
of PanAmSat and Galaxy expect that the consolidated operations of New PanAmSat
and its subsidiaries going forward will be financed through cash on hand
(including $60 million contributed by HE at Closing and $135 million received
by PanAmSat net of taxes in the DTH Sale), cash flow from operations and
additional vendor financing.
For as long as PanAmSat's existing indebtedness and the PAS Preferred Stock
are outstanding, PanAmSat will be subject to provisions contained in the
indentures governing such indebtedness and the certificate of designation for
such preferred stock that will significantly limit PanAmSat's ability to pay
dividends or loans funds to New PanAmSat. As a result, New PanAmSat will be
restricted from using PanAmSat's cash flows to fund New PanAmSat's capital
expenditures. However, to the extent that New PanAmSat's cash on hand and cash
flow from operations of New PanAmSat alone are not sufficient to fund capital
expenditures at the New PanAmSat level, New PanAmSat will be able to either
sell assets to PanAmSat for cash or assign satellites under development to
PanAmSat which then would be developed by PanAmSat.
The significant cash outlays for New PanAmSat and PanAmSat will continue to
be primarily capital expenditures related to the construction and launch of
satellites. On the Closing Date, assuming PAS-6 is successfully launched as
scheduled, PanAmSat and Galaxy together will have nine satellites under
various stages of development for which PanAmSat and Galaxy have budgeted
capital expenditures. PanAmSat will require approximately $330 million
following the Closing Date for the construction, insurance and launch of PAS-
5, PAS-6, PAS-7 and PAS-8. Similarly, Galaxy will require approximately $743
million following the Closing Date to complete the construction, insurance and
launch of Galaxy VIII-i, Galaxy X, Galaxy XI, Galaxy XII, Galaxy XIII-i and
Galaxy XIV-i. Galaxy and PanAmSat currently are discussing whether certain
changes should be made to the technical specifications and locations of
certain of their satellites under development in order to better serve the
business objectives of New PanAmSat, which changes may impact the amount and
timing of future capital expenditures made by New PanAmSat and PanAmSat. The
aggregate amount of cash needed to fund development of all of PanAmSat's and
Galaxy's satellites is expected to be funded from cash on hand and cash flow
of the consolidated operations of New PanAmSat and PanAmSat. In addition to
funding new satellites, New PanAmSat also expects to exercise the Early Buy
Out Options, which will require New PanAmSat to fund additional outlays of
approximately $152 million in 1998 and approximately $366 million in 1999. See
"BUSINESS OF GALAXY--Sale-Leaseback Arrangements." Such additional outlays
also are expected to be
151
<PAGE>
funded from the cash flow from the consolidated operations of New PanAmSat and
PanAmSat. There can be no assurance, however, that New PanAmSat will be able
to fund such expenditures or any other future expenditures from the cash flow
of New PanAmSat's consolidated operations and, if it is so unable, that New
PanAmSat will be able to incur additional indebtedness sufficient to fund such
expenditures. See "RISK FACTORS--Substantial Leverage and Additional Capital
Requirements."
PER SHARE MARKET PRICE AND DIVIDEND INFORMATION OF PAS ORDINARY COMMON STOCK
The PAS Ordinary Common Stock has been quoted on Nasdaq under the symbol
"SPOT" since September 21, 1995, the first day following the IPO. The table
below sets forth, for the fiscal quarters indicated, the range of high and low
sale prices per share of PAS Ordinary Common Stock on Nasdaq as reported by
the Dow Jones Historical Stock Quote Reporter Service. These prices reflect
inter-dealer prices, without retail mark-up, mark-down or commission, and may
not necessarily represent actual transactions.
<TABLE>
<CAPTION>
HIGH LOW
--------- -------
<S> <C> <C>
1995
Fourth Quarter (from September 21, 1995)................. $22 3/8 $12 1/4
1996
First Quarter............................................ 33 1/2 19 1/2
Second Quarter........................................... 34 19/64 27
Third Quarter............................................ 30 21 3/4
Fourth Quarter .......................................... 30 3/8 27 1/4
1997
First Quarter............................................ 30 3/4 27 3/4
</TABLE>
There is no public trading market for the PAS Class A Common Stock or the
PAS Class B Common Stock. As of March 24, 1997, there were approximately 62
holders of record of PAS Ordinary Common Stock.
PanAmSat has never declared or paid cash dividends on the PAS Common Stock.
On April 2, 1996, the last full trading day prior to public announcement of
PanAmSat's intention to pursue strategic alternatives, including the possible
sale of PanAmSat, the reported high and low sale prices on Nasdaq per share of
PAS Ordinary Common Stock were $31 1/4 and $30 1/2, respectively. On September
19, 1996, the last full trading day prior to the public announcement of the
proposed Reorganization, the reported high and low sale prices on Nasdaq per
share of PAS Ordinary Common Stock were $28 1/2 and $27 1/4, respectively. On
April 14, 1997, the most recent practicable date prior to the printing of this
Proxy Statement/Prospectus, the reported Nasdaq closing price per share of PAS
Ordinary Common Stock was $27 9/16. Stockholders are urged to obtain current
market quotations.
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<PAGE>
SELECTED HISTORICAL FINANCIAL INFORMATION OF PANAMSAT
The following selected financial information for and as of each year in the
five-year period ended December 31, 1996 has been derived from PanAmSat's
consolidated financial statements and its subsidiaries and predecessor
entities, audited by Arthur Andersen LLP, independent public accountants. This
selected financial information should be read in conjunction with the PanAmSat
Financial Statements and "PANAMSAT MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS" appearing elsewhere in this
Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------
1996 1995 1994 1993 1992
---------- ---------- ---------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Total revenues.......... $246,943 $116,155 $63,744 $50,798 $40,328
---------- ---------- ---------- -------- --------
Operating expenses
Direct expenses........ 10,505 5,729 4,254 3,424 2,175
Sales and marketing.... 14,012 9,543 7,179 4,461 2,599
Engineering and
technical............. 17,337 10,659 5,811 3,841 3,918
General and
administrative........ 25,349 15,688 9,768 7,066 5,554
Depreciation and
amortization.......... 61,334 33,412 16,331 8,231 6,990
Other expenses(1)...... 4,758 -- -- 737 --
Compensatory
programs(2)........... 4,874 8,341 -- -- --
Total operating
expenses.............. 138,169 83,372 43,343 27,760 21,236
---------- ---------- ---------- -------- --------
Income from
operations............ 108,774 32,783 20,401 23,038 19,092
Interest and other
expense (income), net.. 622(4) (1,592)(4) 2,403(4) 6,103(4) 1,984(3)
---------- ---------- ---------- -------- --------
Income before taxes.... 108,152 34,375 17,998 16,935 17,108
Income taxes(5)......... 46,432 16,829 -- -- --
---------- ---------- ---------- -------- --------
Net income............. 61,720 17,546 17,998 16,935 17,108
Preferred stock dividend
requirement............ 41,422 25,976 -- -- --
---------- ---------- ---------- -------- --------
Net income (loss) to
common shares......... $20,298 $(8,430) $17,998 $16,935 $17,108
========== ========== ========== ======== ========
CERTAIN PRO FORMA
DATA(6)
OTHER FINANCIAL DATA:
EBITDA(7)............... $170,108(8) $66,195(8) $36,732 $31,269 $25,306
EBITDA margin........... 69%(8) 57%(8) 58% 62% 63%
Capital expenditures for
satellite systems under
development............ $280,858 $333,052 $300,217 $260,134 $22,555
Payments due from
customers under long-
term contracts(9)...... $2,435,608 $1,928,200 $1,270,000 $764,500 $239,700
Customers under long-
term contracts at end
of period(9)........... 199 177 121 108 89
BALANCE SHEET DATA (AT
END OF PERIOD):
Working capital
(deficit).............. $(8,758) $(889) $21,992 $51,179 $27,039
Total assets............ 1,615,363 1,438,820 820,255 731,660 136,594
Long-term debt (less
current portion)(10)... 626,010 575,284 510,202 455,727 5,474
Long-term debt (less
current portion) plus
Preferred Stock(10).... 955,080 862,932 510,202 455,727 5,474
Partner's interest--
conditionally
redeemable(11)......... -- -- 194,591 193,936 50,000
Partners'/stockholders'
equity(12)............. 497,368 476,862 80,935 59,847 49,098
</TABLE>
- -------
(1) Other expenses relate to costs incurred in connection with the
Reorganization Agreement.
(2) In 1995, this reflects expenses related to the assumption by PanAmSat of
phantom stock plans of a predecessor company and the grant of a limited
partnership interest in the Partnership to the Executive Vice President
of PanAmSat in connection with the corporate reorganization of PanAmSat.
In 1996, this represents a cash bonus paid to employees who would
otherwise have qualified for the grant of stock options under PanAmSat's
Long-Term Stock Investment Plan. See Note 11 to Notes to the PanAmSat
Financial Statements.
(3) In 1992, this includes costs (net of insurance reimbursement) arising
from damage caused by Hurricane Andrew to PanAmSat's teleport in
Homestead, Florida.
(4) Net of capitalized interest of $9.0 million, $41.0 million, $37.8 million
and $39.5 million for the years ended December 31, 1993, 1994, 1995 and
1996, respectively.
(5) As a partnership, the Partnership was not subject to federal or state
income taxes. Accordingly, no income taxes were deducted from net income
on the Partnership's financial statements. However, the Partnership was
obligated under its Partnership Agreement to make certain tax
distributions to its partners. On March 2, 1995, the Partnership was
converted to corporate form and, accordingly, is now subject to income
taxes. See "BUSINESS OF PANAMSAT--Conversion and Initial Public
Offering."
(footnotes continued on following page)
153
<PAGE>
(6) The following Certain Pro Forma Data gives effect to the Conversion and
the consummation of the IPO as if each had occurred at January 1, 1995.
See "BUSINESS OF PANAMSAT--Conversion and Initial Public Offering." The
pro forma adjustment to income taxes for the periods indicated is based
on a pro forma statutory tax rate of 40.3%.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1995
----------------------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C>
STATEMENT OF OPERATIONS DATA (UNAUDITED):
Pro forma adjustment to income tax provision........ $(1,207)
Pro forma net income................................ 18,753
Pro forma loss to available common stockholders..... (7,223)
Pro forma loss per common share..................... $ (.07)
Pro forma weighted average common shares
outstanding........................................ 100,000,000
</TABLE>
Pro forma loss per share included in the PanAmSat Financial Statements
appearing elsewhere in this Proxy Statement/Prospectus of $(.08) per share
for the year ended December 31, 1995 is based on 89,678,638 weighted
average shares outstanding as of December 31, 1995 reflecting the IPO which
occurred on September 21, 1995.
(7) Represents earnings before net interest expense, income taxes,
depreciation and amortization. EBITDA is commonly used in the
communications industry to analyze companies on the basis of operating
performance, leverage and liquidity. EBITDA should not be considered as a
measure of profitability or liquidity as determined in accordance with
generally accepted accounting principles in the statements of operations
and cash flows.
(8) Includes expenses related to the assumption by PanAmSat of phantom stock
plans of a predecessor company and the grant of a limited partnership
interest in the Partnership to the Executive Vice President of PanAmSat
in connection with the corporate reorganization of PanAmSat of $8.3
million for the year ended December 31, 1995 and expenses related to the
Reorganization Agreement and a corporate compensation plan totaling $9.6
million for the year ended December 31, 1996. EBITDA and EBITDA margin
excluding such expenses were $74.5 million and 64% for the year ended
December 31, 1995 and $179.7 million and 73% for the year ended December
31, 1996. See Notes 11 and 13 of the PanAmSat Financial Statements.
(9) Represents future payments due from customers under long-term contracts
at the end of the periods indicated, excluding arrangements for satellite
capacity for DTH services in Latin America. At December 31, 1996,
approximately $22.6 million of PAS-1 customer payments, $92.4 million of
PAS-2 customer payments, $35.6 million of PAS-3 customer payments and
$79.2 million of PAS-4 customer payments were under contracts which are
terminable by the customer under certain circumstances, including after a
minimum service period. Certain contracts may also be terminated if
certain technical performance specifications contained in the agreements,
including useful life, are not achieved, or, at the customer's option
after a minimum service period. Future cash payments expected from
customers may be reduced for outage or transponder failure and may be
further reduced for "lowest price" provisions for like transponder
capacity given to similarly situated customers. The terms of PanAmSat's
long-term contracts range from one year to the life of the satellite. See
"PANAMSAT MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS--Overview."
(10) Excludes, as to each of PAS-5 and PAS-6, a portion of the respective
purchase prices which will become payable after such satellite is
delivered and which amount may be paid immediately in cash or deferred
over periods of up to 15 years with interest rates ranging from 8.0% to
10.0% per annum. At December 31, 1996, these amounts aggregated
approximately $34.5 million. A portion of the respective purchase prices
of PAS-7 and PAS-8 may also be deferrable. PanAmSat presently intends to
defer such payments at the time they become payable to the extent such
deferral is permitted under the terms of its then-outstanding
indebtedness and preferred stock. PanAmSat anticipates that if, at the
time such payments become payable, PanAmSat is prohibited from incurring
such indebtedness under the terms of its outstanding indebtedness or
preferred stock, it will either seek the consent of the holders thereof
to incur such indebtedness or will obtain funds from sources permitted
under the terms thereof to make such payments. There can be no assurance
that such consent will be obtained or that funds will be available to
PanAmSat from sources permitted under the terms of its outstanding
indebtedness and preferred stock. See Notes 6, 7 and 8 of the PanAmSat
Financial Statements appearing elsewhere in this Proxy
Statement/Prospectus and "BUSINESS OF PANAMSAT--PanAmSat Satellites."
(11) Under the Partnership Agreement of the Partnership, if the launches of
PAS-2, PAS-3 and PAS-4 were not all successfully completed by December
31, 2001, USHI would have had the right to redeem its $200.0 million
investment in PanAmSat in 2004 for $200.0 million, less certain
distributions paid to USHI, plus a yield thereon of 6.0% per annum. In
the Conversion, USHI's redemption rights with respect to its interest in
the Partnership were extinguished.
(12) Net of distributions of $16.4 million and $6.2 million for the years
ended December 31, 1992 and 1993, respectively, and a contribution of $.7
million for the year ended December 31, 1994. There were no distributions
or contributions in 1995 or 1996.
154
<PAGE>
PANAMSAT MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis of the financial condition and results
of operations of PanAmSat should be read in conjunction with the financial
data and the PanAmSat Financial Statements appearing elsewhere in this Proxy
Statement/Prospectus.
OVERVIEW
PanAmSat's first satellite, PAS-1, was launched in June 1988 for service
over the Atlantic Ocean Region and is a leading satellite for television and
cable programming distribution in Latin America. PanAmSat's second satellite,
PAS-2, was launched in July 1994 for service over the Pacific Ocean Region and
is a leading satellite for programming distribution in the Asia-Pacific
region. PanAmSat's PAS-4 satellite was launched in August 1995 for service
over the Indian Ocean Region and is a leading satellite for programming
distribution in south Asia and Africa. PanAmSat's PAS-3 satellite was launched
in January 1996 for service over the Atlantic Ocean Region. PAS-3 and PAS-1
are the leading satellites for television and cable programming distribution
in Latin America. PanAmSat expects to launch two additional satellites to
serve the Atlantic Ocean Region: PAS-6 in May 1997; and PAS-5 in July 1997.
However, SS/Loral has recently informed PanAmSat of circumstances that could
result in a delay in the launch of PAS-6. See "RISK FACTORS--Risk of Delays;
Excess Weight." PanAmSat intends to launch PAS-7 and PAS-8 in early 1998. PAS-
7 and PAS-8 are expected to serve the Indian Ocean Region and the Pacific
Ocean Region, respectively. PanAmSat expects that in the future it will launch
additional satellites to meet then-anticipated customer demand. There can be
no assurance, however, that the schedule for PanAmSat's future satellite
launches will be met.
At December 31, 1996, PanAmSat's long-term contracts provided for future
payments of approximately $2.4 billion, consisting of $187 million for PAS-1,
$516 million for PAS-2, $583 million for PAS-3 and $1.1 billion for PAS-4,
excluding arrangements for satellite capacity for the DTH service in Latin
America. At December 31, 1996, approximately $22.6 million of PAS-1 customer
payments, $92.4 million of PAS-2 customer payments, $35.6 million of PAS-3
customer payments and $79.2 million of PAS-4 customer payments were under
contracts which may be terminable by the customer if certain technical
performance specifications contained in the agreements, including useful life,
are not achieved or, at the customer's option, after a minimum service period.
At December 31, 1996, PanAmSat's long-term contracts, excluding arrangements
for satellite capacity for the DTH service in Latin America, were comprised of
approximately $247.8 million expected to be received in the year ending
December 31, 1997, $261.6 million expected to be received in the year ending
December 31, 1998, $262.0 million expected to be received in the year ending
December 31, 1999, $257.7 million expected to be received in the year ending
December 31, 2000 and $1,405 million expected to be received on and after
January 1, 2001. The estimated useful life of each of PAS-1, PAS-2, PAS-3 and
PAS-4 is 13, 14, 15 and 15 years from launch, respectively. PanAmSat signed
the 1996 Letter Agreement to provide services to the Latin America JVs on 48
transponders on the PAS-5 and PAS-6 satellites at a minimum value of
approximately $1.3 billion, depending upon actual useful life, of the
satellites in question, their predicted performance and their in-service
dates. For most of the transponders, this value reflects service fees that are
equal to PanAmSat's best estimate of the cost to design, construct, launch,
insure and operate the satellites and for the balance of the transponders, the
value reflects service fees that are based on a fixed price. On the cost-based
transponders, PanAmSat also could receive revenue sharing from the Latin
America JVs and the Spain Joint Venture. The backlog for the 1996 Letter
Agreement is comprised of approximately $45.9 million expected to be received
in the year ending December 31, 1997, $80.4 million expected to be received in
each of the years ending December 31, 1998, 1999 and 2000, and $927.0 million
expected to be received on and after January 1, 2001. See "BUSINESS OF
PANAMSAT--DTH Strategy." Future cash payments expected from customers may be
reduced for outage or transport failure and may be further reduced for "lowest
price" provisions for like transponder capacity given to similarly situated
customers. The terms of PanAmSat's long-term contracts range from one year to
the life of the satellite.
During the construction period of each of its new satellites, and
thereafter, PanAmSat may incur increased operating expenses, including
expenditures for sales and marketing in excess of the levels previously
incurred,
155
<PAGE>
increased engineering and technical expenses, as well as increased general and
administrative expenses, which increased expenses may not be offset by
additional revenues until the new satellites are successfully launched and
commence service. As a result, PanAmSat's operating income and EBITDA margins
were lower in 1994 than in 1993. However, in 1995 and 1996, EBITDA margin
increased due to a significant growth in revenues, and operating income margin
increased in 1996, and would have increased in 1995 except for the $8.3
million corporate reorganization and compensation expense related to the
assumption by PanAmSat of phantom stock plans of a predecessor company and the
grant of a limited partnership interest in the Partnership to the Executive
Vice President of PanAmSat. PanAmSat's income from operations and EBITDA in
1995 were also adversely affected by the corporate reorganization compensation
expense. Also, commencing at the in-service date of any successfully-launched
satellite, all satellite construction, launch, launch insurance, capitalized
interest and development costs for such satellite will be depreciated on a
straight-line basis over the estimated useful life of the satellite. Further,
after the in-service date of any successfully-launched satellite (or upon a
launch failure), PanAmSat will be required to expense, and no longer will be
able to capitalize, interest allocable to such satellite's construction,
launch and development costs. Interest capitalized in future periods is
dependent on the level of satellites under construction, which is expected to
vary.
PanAmSat is not a party to any material currency or interest rate hedging
transactions, and substantially all of PanAmSat's long-term customer contracts
and vendor obligations are denominated in U.S. dollars.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage of
total revenues represented by certain revenue and expense items in PanAmSat's
Statements of Operations.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
STATEMENT OF OPERATIONS DATA: 1996 1995 1994 1993 1992
- ----------------------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Total revenues(1)............................... 100% 100% 100% 100% 100%
Operating expenses
Direct expenses............................... 4 5 7 7 5
Sales and marketing........................... 6 8 11 9 6
Engineering and technical..................... 7 9 9 8 10
General and administrative.................... 10 14 15 14 14
Depreciation and amortization................. 25 29 26 16 17
Compensatory programs......................... 2 7 -- -- --
Other expenses................................ 2 -- -- 1 2
--- --- --- --- ---
Total operating expenses.................... 56 72 68 55 54
--- --- --- --- ---
Income from operations.......................... 44% 28% 32% 45% 46%
=== === === === ===
Other Operating Data:
EBITDA Margin(2)................................ 69%(3) 57%(3) 58% 62% 63%
=== === === === ===
</TABLE>
- --------
(1) Revenues from PAS-2 for the fiscal years ended December 31, 1994, 1995 and
1996 were $3.7 million, $29.2 million and $53.2 million, respectively.
Revenues for PAS-4 for the fiscal years ended December 31, 1995 and 1996
were $21.4 million and $74.7 million, respectively.
(2) EBITDA represents earnings before net interest expense, income taxes,
depreciation and amortization. EBITDA is commonly used in the
communications industry to analyze companies on the basis of operating
performance, leverage and liquidity. EBITDA should not be considered as a
measure of profitability or liquidity as determined in accordance with
generally accepted accounting principles in the statements of operations
and cash flows.
(3) Includes expenses of $8.3 million in 1995 related to the assumption by
PanAmSat of phantom stock plans of a predecessor company and the grant of
a limited partnership interest in the Partnership to an Executive Vice
President of PanAmSat in connection with the corporate reorganization of
PanAmSat and, in 1996, expenses of $9.6 million related to the
Reorganization Agreement and a corporate compensation plan. EBITDA Margin
excluding such expenses was 64% for the year ended December 31, 1995 and
73% for the year ended December 31, 1996.
PanAmSat provides satellite services primarily to the video distribution and
business communications markets. PanAmSat also provides services to the
telephony market. PanAmSat's video distribution services include the provision
of satellite capacity and services for (i) television programming
distribution, (ii) "backhaul" operations (i.e., the transmission of video
feeds from one location to another) and (iii) ad hoc
156
<PAGE>
services such as the transmission of special events and live news reports from
the scene of an event. PanAmSat's business communications services include (a)
the provision of satellite capacity to communications carriers that provide
private business networks for data, voice and corporate video communications
and (b) the provision of such networks and related services by PanAmSat
directly to end-users. PanAmSat's telephony services provide satellite
capacity for use in domestic (non-U.S.) and international public telephone
networks. PanAmSat's total revenues in each of these markets, and the revenues
in these markets as a percentage of total revenues, for the periods indicated
below were:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------
STATEMENT OF OPERATIONS DATA 1996 1995 1994 1993 1992
- ---------------------------- ------------ ------------ ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Video Distribution...... $204,810 83% $ 83,876 72% $38,905 61% $32,194 63% $30,918 77%
Business communica-
tions.................. 39,905 16 30,135 26 22,369 35 17,138 34 8,093 20
Telephony............... 2,228 1 2,144 2 2,470 4 1,466 3 1,317 3
-------- --- -------- --- ------- --- ------- --- ------- ---
Total revenues.......... $246,943 100% $116,155 100% $63,744 100% $50,798 100% $40,328 100%
======== === ======== === ======= === ======= === ======= ===
</TABLE>
1996 COMPARED TO 1995
Revenues. Total revenues for the year ended December 31, 1996 were $246.9
million, an increase of $130.7 million, or 112%, over 1995. The increase in
total revenues was due primarily to the growth in video distribution services.
Video distribution services revenue was $204.8 million in the year ended
December 31, 1996, an increase of $120.9 million or 144% over 1995. The growth
in video distribution services revenue during 1996 was due primarily to the
commencement of video services on the PAS-3 satellite, and the continuing
increase in space segment leasing for video services on the PAS-2 and PAS-4
satellites.
Business communications services revenue was $39.9 million in 1996, an
increase of $9.8 million, or 32% over 1995. The increase was due primarily to
commencement of service for several new data network and carrier service
contracts which originated during the past year.
Telephony services revenue was $2.2 million in 1996, an increase of $0.1
million or 5% from 1995.
Direct Expenses. Direct expenses were $10.5 million in the year ended
December 31, 1996, an increase of $4.8 million, as compared to $5.7 million in
1995. Direct expenses were 4% and 5% of total revenues in the years ended
December 31, 1996 and 1995, respectively.
Sales and Marketing Expenses. Sales and marketing expenses were $14.0
million in the year ended December 31, 1996, an increase of $4.5 million, as
compared to $9.5 million in 1995. Sales and marketing expenses were 6% and 8%
of total revenues in the years ended December 31, 1996 and 1995, respectively.
The dollar increase in sales and marketing expenses during 1996 was primarily
attributable to PanAmSat's efforts in marketing capacity on the PAS Global
System and the pursuit of DTH opportunities worldwide.
Engineering and Technical Expenses. Engineering and technical expenses were
$17.3 million in the year ended December 31, 1996, an increase of $6.6
million, as compared to $10.7 million in 1995. Engineering and technical
expenses were 7% and 9% of total revenues in the years ended December 31, 1996
and 1995, respectively. The dollar increase in engineering and technical
expenses during 1996 was due primarily to TT&C costs associated with PAS-3 and
PAS-4, as well as costs associated with contracts to provide carrier
monitoring services.
General and Administrative Expenses. General and administrative expenses
were $25.3 million in the year ended December 31, 1996, an increase of $9.6
million, as compared to $15.7 million in 1995. General and administrative
expenses were 10% of total revenues in 1996 as compared to 14% of total
revenues in 1995. The dollar increase in general and administrative expenses
during 1996 was due primarily to increased costs of $6.4 million associated
with in-orbit insurance on PAS-3 and PAS-4. The remaining increase of $3.2
million primarily results from additional personnel and other administrative
costs associated with PanAmSat's expansion.
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Depreciation and Amortization. Depreciation and amortization was $61.3
million in the year ended December 31, 1996, an increase of $27.9 million, or
84%, as compared to $33.4 million for the year ended 1995. Depreciation and
amortization was 25% of total revenues in 1996 as compared to 29% of total
revenues in 1995. The dollar increase in 1996 was due primarily to
depreciation expense associated with PAS-3 and PAS-4.
Compensatory Programs. Compensatory program expense was $4.9 million in the
year ended December 31, 1996 compared to $8.3 million for the year ended
December 31, 1995, a decrease of $3.4 million. Compensatory program expense
during 1996 represents a cash bonus paid to employees who would otherwise have
qualified for the grant of stock options under the Company's Long-Term Stock
Investment Plan. Compensatory program expense during 1995 is related to the
assumption by the Company of phantom stock plans of a predecessor company and
the grant of a limited partnership interest in the Partnership to the
Executive Vice President of the Company.
Reorganization Costs. Reorganization costs of $4.8 million for the year
ended December 31, 1996 consist of legal, accounting and investment banking
fees associated with the Agreement and Plan of Reorganization with Hughes
announced in September 1996.
Income From Operations. Income from operations was $108.8 million for the
year ended December 31, 1996, an increase of $76.0 million, as compared to
$32.8 million in 1995. Income from operations was 44% and 28% of total
revenues in the years ended December 31, 1996 and 1995, respectively. The
dollar increase in income from operations during 1996 was due primarily to the
increase in video distribution services revenues.
Interest. Interest income was $24.3 million for the year ended December 31,
1996 compared to $20.6 million in the prior year. The dollar increase in
interest income during 1996 is a result of interest earned on proceeds from
the offerings of the Preferred Stock and the Common Stock in 1995 that had not
been applied to satellite systems under development. Interest expense, net of
capitalized interest, increased from $19.0 million in the year ended December
31, 1995 to $24.9 million during the year ended December 31, 1996. This
increase in interest expense is due to interest expense incurred on satellite
incentive obligations and additional accretion of the Discount Notes.
Income Before Income Taxes. Income before income taxes was $108.2 million
for the year ended December 31, 1996, an increase of $73.8 million, as
compared to $34.4 million in 1995. Income before income taxes was 44% and 30%
of total revenues in the years ended December 31, 1996 and 1995, respectively.
The dollar increase in income before income taxes during 1996 was due
primarily to the increase in video distribution services revenues.
Income Taxes. PanAmSat had an income tax provision of $46.4 million for the
year ended December 31, 1996 compared to $16.8 million for the year ended
December 31, 1995. The increase in income taxes during 1996 was due to the
increase in income before income taxes.
Net Income. Net income was $61.7 million for the year ended December 31,
1996, an increase of $44.2 million, as compared to $17.5 million in 1995. Net
income was 25% and 15% of total revenues in the years ended December 31, 1996
and 1995, respectively. The dollar increase in net income during 1996 was due
primarily to the increase in video distribution services revenues.
Preferred Stock Dividend. PanAmSat had preferred stock dividends of $41.4
million for the year ended December 31, 1996, an increase of $15.4 million, as
compared to $26.0 million in 1995. The preferred stock dividends are a result
of the issuance of the Preferred Stock on April 21, 1995.
Net Income (Loss) To Common Shares. Net income (loss) to common shares was
$20.3 million for the year ended December 31, 1996, an increase of $28.7
million, as compared to ($8.4) million in 1995. Net income (loss) to common
shares was 8% and (7%) of total revenues in the years ended December 31, 1996
and 1995, respectively. The dollar increase in net income (loss) to common
shares during 1996 was due primarily to the increase in video distribution
services revenues.
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EBITDA. EBITDA was $170.1 million for the year ended December 31, 1996, an
increase of $103.9 million, or 157%, as compared to $66.2 million in 1995.
EBITDA was 69% of total revenues in 1996 as compared to 57% of total revenues
in 1995. The dollar increase in EBITDA during 1996 was due primarily to the
increase in video distribution services revenues.
1995 COMPARED TO 1994
Revenues. Total revenues for the year ended December 31, 1995 were $116.2
million, an increase of $52.5 million, or 82%, over 1994. The increase in
total revenues was due primarily to the growth in video distribution services.
Video distribution services revenue was $83.9 million in the year ended
December 31, 1995, an increase of $45.0 million, or 116%, over 1994. The
growth in video distribution services revenue during 1995 was due primarily to
revenues from video services on PAS-2 and the commencement of revenues from
video services on PAS-4.
Business communications services revenue was $30.1 million in 1995, an
increase of $7.7 million, or 34%, over 1994. The increase was due primarily to
commencement of service for several new IDS network and carrier service data
contracts which originated during the past year.
Telephony services revenue was $2.1 million in 1995, a decrease of $0.4
million, or 16%, from 1994.
Direct Expenses. Direct expenses were $5.7 million and $4.3 million in the
years ended December 31, 1995 and 1994, respectively. Direct expenses were 5%
and 7% of total revenues in 1995 and 1994, respectively.
Sales and Marketing Expenses. Sales and marketing expenses were $9.5 million
in the year ended December 31, 1995, an increase of $2.3 million, as compared
to $7.2 million in 1994. Sales and marketing expenses were 8% and 11% of total
revenues in the years ended December 31, 1995 and 1994, respectively. The
dollar increase in sales and marketing expenses during 1995 was primarily
attributable to PanAmSat's efforts in marketing capacity on its new
satellites.
Engineering and Technical Expenses. Engineering and technical expenses were
$10.7 million in the year ended December 31, 1995, an increase of $4.9
million, as compared to $5.8 million in 1994. Engineering and technical
expenses were 9% of total revenues for both 1995 and 1994. The dollar increase
in engineering and technical expenses during 1995 was due primarily to
increased personnel costs associated with its new teleport facilities and TT&C
costs associated with PAS-2 and PAS-4.
General and Administrative Expenses. General and administrative expenses
were $15.7 million in the year ended December 31, 1995, an increase of $5.9
million, as compared to $9.8 million in 1994. General and administrative
expenses were 14% of total revenues in 1995 as compared to 15% of total
revenues in 1994. The dollar increase in general and administrative expenses
during 1995 was due primarily to increased costs of $4.6 million associated
with in-orbit insurance on PAS-2 and PAS-4. The remaining increase of $1.3
million primarily results from additional personnel and other administrative
costs associated with PanAmSat's expansion.
Depreciation and Amortization. Depreciation and amortization was $33.4
million in the year ended December 31, 1995, an increase of $17.1 million, or
105%, as compared to $16.3 million for the year ended 1994. Depreciation and
amortization was 29% of total revenues in 1995 as compared to 26% of total
revenues in 1994. The dollar increase in 1995 was due primarily to
depreciation expense associated with PAS-2 and PAS-4, the latter being placed
in service during 1995.
Compensatory Programs. Compensation expense related to corporate
reorganization of $8.3 million in 1995 related to the assumption by PanAmSat
of the phantom stock plans of a predecessor company and the grant of a limited
partnership interest in the Partnership to the Executive Vice President of
PanAmSat.
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Income From Operations. Income from operations was $32.8 million for the
year ended December 31, 1995, an increase of $12.4 million, as compared to
$20.4 million in 1994. Income from operations was 28% and 32% of total
revenues in the years ended December 31, 1995 and 1994, respectively. The
dollar increase in income from operations during 1995 was due primarily to the
increase in video distribution services revenues.
Interest. Interest income was $20.6 million for the year ended December 31,
1995 compared to $7.2 million in the prior year. The dollar increase in
interest income during 1995 is a result of interest earned on proceeds from
the offerings of the Preferred Stock and the Common Stock in 1995 that had not
been applied to satellite systems under development. Interest expense, net of
capitalized interest, increased from $9.6 million in the year ended December
31, 1994 to $19.0 million during the year ended December 31, 1995. This
increase in interest expense is due to interest expense incurred on satellite
incentive obligations and additional accretion of the Discount Notes, coupled
with decreased amounts of interest eligible for capitalization on construction
in progress in 1995.
Income Before Income Taxes. Income before income taxes was $34.4 million for
the year ended December 31, 1995, an increase of $16.4 million, as compared to
$18.0 million in 1994. Income before income taxes was 30% and 28% of total
revenues in the years ended December 31, 1995 and 1994, respectively. The
dollar increase in income before income taxes during 1995 was due primarily to
the increase in video distribution services revenues.
Income Taxes. PanAmSat had an income tax provision of $16.8 million for the
year ended December 31, 1995 and did not have any income tax provision for the
prior year. The 1995 provision is the result of the Conversion of PanAmSat
from a partnership to a corporation on March 2, 1995.
Net Income. Net income was $17.5 million for the year ended December 31,
1995, a decrease of $5 million, as compared to $18.0 million in 1994. Net
income was 15% and 28% of total revenues in the years ended December 31, 1995
and 1994, respectively.
Preferred Stock Dividend. PanAmSat had preferred stock dividends of $26.0
million for the year ended December 31, 1995 and did not have any preferred
stock dividends for the prior year. The preferred stock dividends in 1995 are
a result of the issuance of the PAS Preferred Stock on April 21, 1995.
Net Income (Loss) To Common Shares. Net income (loss) to common shares was
$(8.4) million for the year ended December 31, 1995, a decrease of $26.4
million, as compared to $18.0 million in 1994. Net income (loss) to common
shares was (7%) and 28% of total revenues in the years ended December 31, 1995
and 1994, respectively. The dollar decrease in net income (loss) to common
shares during 1995 was due primarily to the PAS Preferred Stock dividend
requirement.
Pro Forma Net Income. Pro forma net income was $18.8 million for the year
ended December 31, 1995, an increase of $8.0 million, as compared to $10.8
million in 1994. Pro forma net income was 16% and 17% of total revenues in the
years ended December 31, 1995 and 1994, respectively.
Pro Forma Net Income (Loss) To Common Shares. Pro forma net income (loss) to
common shares was $(7.2) million for the year ended December 31, 1995, a
decrease of $18.0 million, as compared to $10.8 million in 1994. Net income
(loss) to common shares was (6%) and 17% of total revenues in the years ended
December 31, 1995 and 1994, respectively. The dollar decrease in pro forma net
income (loss) to common shares during 1995 was due primarily to the PAS
Preferred Stock dividend requirement.
EBITDA. EBITDA, excluding the $8.3 million corporate reorganization
compensation charge, was $74.5 million for the year ended December 31, 1995,
an increase of $37.8 million, or 103%, as compared to $36.7 million in 1994.
EBITDA, excluding the $8.3 million corporate reorganization compensation
charge, was 64% of total revenues in 1995 as compared to 58% of total revenues
in 1994. The dollar increase in EBITDA was due primarily to the increase in
video distribution services revenues.
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<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, PanAmSat and its predecessors have financed their
operations through a combination of debt and equity financing, vendor
financing, bank financing, equipment leases and cash flow from operations. On
August 5, 1993, PanAmSat completed the sale of $175 million aggregate
principal amount of the Senior Secured Notes and $460.2 million aggregate
principal amount of the Discount Notes in a public offering and received net
proceeds of approximately $425.5 million. The original PAS-3 satellite was
destroyed during a launch failure on December 1, 1994. PanAmSat collected in
1995 the insurance proceeds in the amount of $214.0 million for the original
PAS-3 satellite. On April 21, 1995, PanAmSat completed the sale of 275,000
shares of the PAS Preferred Stock in a public offering and received net
proceeds of approximately $261.8 million. On September 27, 1995, the public
offering of 18,920,000 shares of the PAS Ordinary Common Stock was completed.
Of such shares, 14,324,324 shares of PAS Ordinary Common Stock were sold by
PanAmSat and 4,595,676 shares of PAS Ordinary Common Stock were sold by
certain selling stockholders. PanAmSat received net proceeds of approximately
$229.1 million from its sale of shares of PAS Ordinary Common Stock, but did
not receive any of the proceeds from the sale of shares by the selling
stockholders.
The total cost for the construction and launch of PAS-5 and PAS-6, including
launch insurance, certain components for spare satellites, ground facilities
and related development expenses, is estimated to be approximately $473.0
million. PanAmSat expects to fund $296.3 million of such costs with the net
proceeds of the offering of the PAS Preferred Stock and $70.0 million of
vendor financing. The balance of such costs and any additional costs due to
cost overruns, delays or other unanticipated expenses is anticipated to be
funded from future cash flow from operations and cash on hand.
The total cost for the construction and launch of PAS-7 and PAS-8, including
launch insurance, ground facilities and related development expenses (but
excluding capitalized interest expense), is estimated to be approximately
$420.0 million. PanAmSat expects to fund $224.6 million of such costs with the
net proceeds to it from the offering of the PAS Ordinary Common Stock. The
balance of such costs and any additional costs due to cost overruns, delays or
other unanticipated expenses is expected to be funded from vendor financing
and future cash flow from operations.
PanAmSat believes that the net proceeds to it from the offerings of PAS
Preferred Stock and PAS Ordinary Common Stock, vendor financing, future cash
flow from operations (assuming PAS-5 and PAS-6 are successfully launched and
commence service on the schedule currently contemplated) and cash on hand will
be sufficient to fund PanAmSat's operations, its remaining costs for the
construction and launch of PAS-5 and PAS-6, its anticipated minimum
contractual commitments for the construction and launch of PAS-7 and PAS-8, as
well as to pursue international opportunities for DTH services which may be
identified by PanAmSat in the future. Any additional costs due to cost
overruns, delays or other unanticipated expenses are expected to be funded
from additional vendor financing and future cash flow from operations. There
can be no assurance, however, that PanAmSat's assumptions with respect to the
construction and launch costs for PAS-5, PAS-6, PAS-7 or PAS-8 will be
correct, that under the terms of PanAmSat's then-outstanding indebtedness and
preferred stock it will be permitted to incur all of the vendor financing
available to it, or that additional vendor financing and PanAmSat's future
cash flow from operations will be sufficient to cover any shortfall in funding
for PAS-5, PAS-6, PAS-7 and PAS-8, or any such additional costs, or to pursue
international opportunities for DTH services. The ability of PanAmSat to incur
any additional debt financing will be subject to the terms of PanAmSat's
outstanding indebtedness and preferred stock. There can be no assurance that
PanAmSat will be successful in obtaining such additional financing in the
amounts or on terms acceptable to PanAmSat. The failure to obtain such
financing could have a material adverse effect on PanAmSat's operations and
its ability to accomplish its business plan. See "RISK FACTORS--Substantial
Leverage and Additional Capital Requirements." For a discussion of the
liquidity and capital requirements of PanAmSat as a portion of the business of
New PanAmSat following the Closing, see "BUSINESS OF NEW PANAMSAT--Liquidity
and Capital Resources."
Cash flows provided by operating activities increased to $177.7 million in
the year ended December 31, 1996, from $95.0 million in the year ended
December 31, 1995, an increase from $26.1 million in the year ended
161
<PAGE>
December 31, 1994. The increase in cash flows in 1996 was due primarily to the
significant growth in revenues and noncash charges. The increase in cash flows
in 1995 was due primarily to increases in prepaid service revenue related to
service contracts for PAS-4 and PAS-2 and noncash charges.
Net cash used in investing activities decreased to $186.2 million in the
year ended December 31, 1996, from $594.3 million in the year ended December
31, 1995, an increase from $63.1 million in the year ended December 31, 1994.
The 1996 decrease primarily reflects $280.9 million of expenditures for
satellite systems under development partially funded by $117.2 million of
proceeds from maturity of marketable securities. This compares to $333.1
million in expenditures for satellite systems under development and $488.8
million of purchases of marketable securities during 1995 partially funded
with $191.1 million of insurance proceeds collected on the launch failure of
the original PAS-3 satellite. The 1995 increase primarily reflects the
insurance proceeds received in the amount of $191.1 million (net of payments
made directly to the satellite vendor) and the net proceeds of the offering of
PAS Preferred Stock and PAS Ordinary Common Stock used to fund $333.1 million
in expenditures for the new satellite system under development and $488.8
million in expenditures used to purchase marketable securities. This compares
to $300.2 million in expenditures for the satellite system under development
during 1994 partially funded with $247.8 million from maturity of marketable
securities. Expenditures on other property and equipment, primarily at
PanAmSat's teleports in Homestead, Florida, Ellenwood, Georgia and Napa,
California were $22.3 million, $13.5 million and $10.5 million in 1996, 1995,
and 1994, respectively.
Net cash used in financing activities decreased to $3.6 million in the year
ended December 31, 1996, from $490.1 million provided by financing activities
in the year ended December 31, 1995, an increase from $48.5 million provided
by financing activities in the year ended December 31, 1994. The 1996 decrease
reflects $3.7 million in repayments of long-term debt for the year ended
December 31, 1996 compared to $2.1 million of repayments of long-term debt
during 1995 funded by $263.4 million of net proceeds collected on the offering
of PAS Preferred Stock and $228.8 million of net proceeds collected on the
issuance of PAS Ordinary Common Stock. The remaining net proceeds were used to
purchase marketable securities. The 1995 increase was primarily attributable
to the issuance of 275,000 shares of Preferred Stock by PanAmSat in April 1995
yielding net proceeds of $263.4 million (excluding related costs incurred in
the prior year) and the issuance of 14,324,324 shares of PAS Ordinary Common
Stock yielding net proceeds of $228.8 million.
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SELECTED HISTORICAL FINANCIAL INFORMATION OF GALAXY
The following selected financial information of Galaxy as of December 31,
1996, 1995 and 1994 and for each of the four years in the period ended
December 31, 1996 have been derived from the financial statements of Galaxy
audited by Deloitte & Touche LLP, independent auditors. The selected financial
information set forth below as of December 31, 1993 and 1992 and for the
period ended December 31, 1992 have been derived from unaudited financial
statements of Galaxy which, in the opinion of management, include all
adjustments necessary for a fair and consistent presentation of such
information. This selected financial information should be read in conjunction
with the Galaxy Financial Statements and "GALAXY MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" appearing elsewhere
in this Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------
1996 1995 1994 1993 1992
--------- --------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME
DATA:
Total revenues.......... 482,770 $386,126 $328,243 $220,247 $371,642
--------- --------- -------- -------- --------
Costs and expenses
Cost of outright sales
and sales-type
leases................ 52,969 49,616 45,747 34,530 117,230
Leaseback expense, net
of deferred gain...... 59,927 36,597 36,617 36,576 18,524
Depreciation and amor-
tization.............. 58,523 76,522 54,126 52,025 59,403
Direct operating
costs................. 34,794 29,931 33,627 35,034 58,826
Selling, general &
administrative........ 34,119 30,146 51,595 19,278 22,289
--------- --------- -------- -------- --------
Operating income........ 242,438 163,314 106,531 42,804 95,370
Interest expense,
net(1)................ (4,903) (5,828) (6,826) (5,848) (3,525)
Other income........... 2,184 7,892 3,885 44,876 2,818
--------- --------- -------- -------- --------
Income before taxes..... 239,719 165,378 103,590 81,832 94,663
Income tax expense...... 89,895 62,017 38,846 30,687 35,499
--------- --------- -------- -------- --------
Net income.............. $ 149,824 $103,361 $64,744 $51,145 $59,164
========= ========= ======== ======== ========
OTHER FINANCIAL DATA:
EBITDA(2)............... $ 303,145 $247,728 $164,542 $139,705 $157,591
EBITDA margin........... 63% 64% 50% 63% 42%
Capital expenditures.... 308,735 280,543 114,660 111,104 290,481
Total assets............ 1,275,516 1,137,978 868,408 850,640 872,948
</TABLE>
- --------
(1) Net of capitalized interest of $14.6 million, $10.1 million, $5.1 million,
$1.6 million and $9.7 million for the years ended December 31, 1996, 1995,
1994, 1993 and 1992, respectively.
(2) Represents earnings before net interest expense, income tax expense,
depreciation and amortization. EBITDA is commonly used in the
communications industry to analyze companies on the basis of operating
performance, leverage and liquidity. EBITDA should not be considered as a
measure of profitability or liquidity as determined in accordance with
generally accepted accounting principles in the statements of income and
cash flows.
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GALAXY MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the financial condition and results
of operations of Galaxy should be read in conjunction with the financial data
and the Galaxy Financial Statements appearing elsewhere in this Proxy
Statement/Prospectus.
OVERVIEW
Galaxy's business consists primarily of providing satellite transponder
capacity for video, audio and data communications applications to cable
television programmers, broadcast television programmers, DTH service
providers and business communications customers. At December 31, 1996, Galaxy
operated a fleet of ten commercial geostationary fixed service satellites,
nine of which primarily serve the United States and one of which serves both
the United States and Latin America. Galaxy also provides satellite TT&C
services for its own satellite fleet as well as for other satellite capacity
providers.
Galaxy's revenues are composed of revenues from video distribution
(primarily cable television, broadcast television and DTH services
distribution), revenues from business communications and revenues from
satellite services and other (primarily TT&C, occasional-use satellite
capacity, backup satellite capacity and capacity on two additional
satellites). The table below summarizes the composition of revenues for each
of the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1996 1995 1994
------- ------- -------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Video Distribution................................. $ 314.4 $ 235.9 $ 166.8
Business Communications............................ 126.4 98.4 107.0
Satellite Services and Other....................... 42.0 51.8 54.4
------- ------- -------
Total Revenues..................................... $ 482.8 $ 386.1 $ 328.2
======= ======= =======
TRANSPONDERS IN SERVICE AND AVAILABLE
At December 31, 1996, Galaxy had a total of 283 commercial transponders in
service, an increase of 72 transponders over the total number in service at
December 31, 1995. This increase was attributable to Galaxy III-R and Galaxy
IX being placed in service during 1996. At December 31, 1996, 96% of Galaxy's
283 commercial transponders had been sold or committed. For purposes of the
discussion herein, the term "transponders in service" refers to the number of
operational transponders with which satellites in orbit are physically
equipped, excluding spares but including reserve transponders, whereas the
term "available transponders" refers to the number of transponders in service
that have not been sold outright or committed under a sales-type lease or an
operating lease of at least one year in duration from the date of such
determination. While the discussion herein describes customer contracts only
in terms of whole transponders, Ku-band customers may enter into time-share
arrangements for the utilization of partial transponder capacity. The
following table presents the number of commercial transponders in Galaxy's
fleet placed in service and removed from service for each of the periods
indicated:
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Beginning Transponders in Service.................. 211 235 259
Plus: Satellites placed in Service................. 72 24
Less: Satellites removed from Service.............. (24) (48)
------- ------- -------
Ending Transponders in Service..................... 283 211 235
======= ======= =======
</TABLE>
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The table below reconciles the number of transponders in service to the
number of available transponders at the end of each of the periods indicated:
<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------------------
1996 1995 1994
-------- -------- -------
<S> <C> <C> <C>
Transponders in Service...................... 283 211 235
Less: Transponders Sold Outright (51) (50) (71)
Transponders under Sales-Type Leases....... (41) (35) (21)
Transponders under Operating Leases........ (180)* (108) (88)
-------- -------- -------
Available Transponders....................... 11 18 55
======== ======== =======
% of Transponders Committed.................. 96% 91% 77%
- --------
* Includes 24 transponders committed under a month-to-month operating lease
arrangement with a related party. See "--Backlog."
SATELLITE CAPACITY CONTRACTS
Galaxy's satellite capacity is priced on a contract rather than a tariff
basis. Galaxy is not a common carrier and consequently is not required to
provide service to all customers on uniform terms and is not subject to any
rate of return limitations or financial regulation. Galaxy contracts with
customers for the use of a specific amount of transponder capacity, typically
on a particular satellite, under contracts structured as: (i) outright sales,
(ii) sales-type leases or (iii) operating leases. The table below summarizes
the number of transponders sold outright under contracts or committed under
leases for satellites placed into service during each of the periods
indicated:
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1996 1995 1994
-------- -------- -------
<S> <C> <C> <C>
Transponders Sold Outright................... 1 3 13
Transponders Committed under Sales-Type
Leases...................................... 6 14 13
Transponders Committed under Operating
Leases...................................... 72 22 50
-------- -------- -------
Total Transponders Sold Outright and
Committed Under Leases...................... 79 39 76
======== ======== =======
</TABLE>
Galaxy's method of accounting for each type of contract is as follows:
Outright Transponder Sale. Pursuant to a transponder sale contract, a
customer may purchase outright all rights and title to a transponder. At
December 31, 1996, Galaxy had sold outright 51 of the 283 commercial
transponders then in service. In connection with an outright sale, Galaxy
recognizes the sale proceeds as revenue and records as cost of sales the cost
basis of the transponder sold. In circumstances where transponders sold
outright are aboard a satellite that has not yet been placed into service, the
sale is recognized for accounting purposes using the percentage-of-completion
method based on costs incurred. Contracts for the outright sale of a
transponder include a TT&C service agreement with Galaxy. The periodic
payments under these service agreements are recognized as revenue when earned
and are included in Satellite Services and Other revenues.
Sales-Type Lease. Sales-type leases result when a customer enters into a
lease contract which, by virtue of its terms at the inception of the lease, is
accounted for by Galaxy as a sale. At December 31, 1996, Galaxy had entered
into sales-type leases with respect to 41 of its 283 commercial transponders
then in service. Sales-type leases are not terminable or preemptible (except
for certain unlikely specified events) and have a term equal to at least 75%
of the estimated remaining useful life of the satellite. At the time that a
customer enters into a sales-type lease, Galaxy recognizes the net present
value of the future minimum lease payments as revenue from sales-type leases
with a corresponding increase to net investment in sales-type leases. The cost
basis of the
165
<PAGE>
transponder is charged to cost of sales in a manner similar to an outright
sale. During the term of the lease, Galaxy recognizes, in each respective
period, that portion of the periodic lease payment deemed to be attributable
to interest income as revenues from sales-type leases. The balance of the
periodic payments is deemed to be payment of principal and is recognized as a
reduction of net investment in sales-type leases. In circumstances where
transponders sold pursuant to a sales-type lease are aboard a satellite that
has not yet been placed into service, the sale is recognized for accounting
purposes using the percentage-of-completion method based on costs incurred. On
occasion, in response to customer credit issues which may arise or be
identified subsequent to entering into a sales-type lease, Galaxy will
establish specific allowances for doubtful accounts. The provision for
doubtful accounts is included in Selling, General and Administrative Expenses.
The allowances are related to specific customers, based upon the individual
circumstances of each customer at that time, and may be wholly or partially
reversed when the specific circumstances subsequently improve. The table below
summarizes the net investment in sales-type lease activity for each of the
periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1996 1995 1994
------- ------- -------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Beginning Net Investment in Sales-Type Leases... 283.5 $ 189.9 $ 140.6
Plus: Additional Sales-Type Leases.............. 90.2 106.5 83.5
Less: Principal Component of Periodic Lease
Payments....................................... (31.2) (19.6) (10.6)
(Increase) Decrease in Allowance for Doubtful
Accounts....................................... (1.3) 6.7 (23.6)
------- ------- -------
Ending Net Investment in Sales-Type Leases...... $ 341.2 $ 283.5 $ 189.9
======= ======= =======
</TABLE>
In conjunction with each sales-type lease agreement, Galaxy also enters into
a TT&C service agreement. The periodic payments under these service agreements
are recognized as revenue when earned and are included in Satellite Services
and Other revenues.
Operating Lease. For transponders contracted under operating leases,
periodic lease payments are recognized as revenues from operating leases on a
straight-line basis over the term of the lease. At December 31, 1996, Galaxy
had entered into operating leases with respect to 180 of the 283 commercial
transponders then in service. Galaxy enters into operating leases of
transponder capacity on both a preemptible and non-preemptible basis. In
particular, Galaxy employs Galaxy VI to provide in-orbit backup for C-band
transponder capacity. Galaxy also maintains reserve Ku-band transponders
aboard certain other Galaxy satellites to provide customers with backup
capacity in the event of a Ku-band transponder failure, to the extent that no
on-board spare transponder is available. Galaxy offers customers priority
access to backup transponder capacity for a monthly fee. Backup service
revenue is included in Satellite Services and Other revenues. Subject to a
transponder failure or other situation that would require Galaxy to switch
customers to such backup capacity, that capacity is offered to other customers
on a preemptible basis at reduced rates. Preemptible service contracts are
accounted for as operating leases.
BACKLOG
"Backlog" represents the future cash payments which Galaxy's management
believes are likely to be received by Galaxy from operating and sales-type
leases, TT&C and satellite services contracts. Backlog for satellite services
includes cash payments received pursuant to agreements or arrangements ranging
from one year to the life of the satellite. As Galaxy has expanded its
satellite fleet, backlog has increased substantially. Representative of the
high demand for transponder capacity, the transponder capacity on the most
recent Galaxy satellites has been completely sold out prior to the launch of
such satellites.
At December 31, 1996, Galaxy's backlog of future cash payments totaled
approximately $3,399 million, of which approximately $359.2 million
(representing the net present value of future cash payments from sales-type
leases) had previously been recognized by Galaxy as revenue. Galaxy's backlog
at December 31, 1996 included (i) approximately $900.0 million of future cash
payments under an operating lease agreement with a related party
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<PAGE>
(with respect to the lease of all transponder capacity on Galaxy VIII-i) that
Galaxy's management believes will be executed by April 30, 1997, (ii)
approximately $132.3 million of cash payments for (a) such related party's
continued use of transponder capacity on Galaxy III-R through the date on
which such related party's lease of Galaxy VIII-i begins and (b) the provision
to such related party of in-orbit back-up capacity on Galaxy III-R during the
term of the VIII-i lease, and (iii) approximately $240.0 million of cash
payments under anticipated follow-on leases by existing customers on SBS-5 and
SBS-6 of transponder capacity on Galaxy X and Galaxy XI, which satellites will
be located at the same orbital locations presently occupied by SBS-5 and SBS-
6. Galaxy's backlog at December 31, 1996 included an aggregate of
approximately $1,080 million of cash payments under agreements or arrangements
with entities affiliated with Galaxy (including the related-party arrangements
described in the preceding sentence). Galaxy's backlog of future cash payments
at December 31, 1996 was comprised of approximately $345.7 million expected to
be received in the year ending December 31, 1997, $404.7 million expected to
be received in the year ending December 31, 1998, $355.1 million expected to
be received in the year ending December 31, 1999, $346.4 million expected to
be received in the year ending December 31, 2000 and $1,946.8 million expected
to be received on and after January 1, 2001. At December 31, 1995, Galaxy's
backlog totaled approximately $3,152.1 million, which amount was comprised of
similar types of future payments as described in the second preceding
sentence. The net increase of approximately $246.9 million in backlog from
December 31, 1995 to the same date in 1996 was due primarily to Galaxy's
obtaining additional customer commitments for Galaxy X, which is scheduled for
launch in 1998.
RESULTS OF OPERATIONS
1996 COMPARED TO 1995
Revenues. Revenues increased $96.7 million, or 25.0%, to $482.8 million in
1996 from $386.1 million in 1995. Cable, broadcast and DTH distribution
revenues increased $78.5 million, or 33.3%, to $314.4 million in 1996 from
$235.9 million in 1995, principally as a result of additional transponder
capacity with the successful launch of Galaxy III-R and Galaxy IX. Business
communications revenues increased $28.0 million, or 28.5%, to $126.4 million
in 1996 from $98.4 million in 1995. The increase was primarily due to an
increase in the full and occasional use of SBS 6, Galaxy IV and Galaxy VII Ku-
band transponders. Satellite Services and Other revenues decreased $9.8
million, or 18.9%, to $42.0 million in 1996 from $51.8 million in 1995
principally due to a decrease in ground service sales.
The revenue increase can also be analyzed based on the type of agreement.
Revenues from sales and sales-type leases decreased slightly to $131.2 million
in 1996 from $133.4 million in 1995. The slight decrease was attributable to a
lower volume in 1996 relative to 1995 of outright sales and sales-type leases
of transponders previously placed in service, offset by higher interest income
on sales-type leases and sales of transponders on Galaxy X recognized using
the percentage-of-completion method. The lower volume of outright sales and
sales-type leases in 1996 primarily reflects a decrease in available in-orbit
C-band transponder capacity, which is typically purchased outright or via
sales-type leases by cable video providers. Available in-orbit C-band
transponder capacity is not expected to increase in the near term, accordingly
outright sales and sales-type lease activity is expected to remain at levels
similar to 1996. Revenues from operating leases of transponders increased
$92.5 million, or 50.1%, to $277.1 million in 1996 from $184.6 million in
1995, due primarily to additional transponder capacity placed in service with
the successful launch of Galaxy III-R and Galaxy IX in 1996, including
revenues received from a related party for certain Galaxy III-R transponder
leases. Related party revenues from Galaxy III-R transponder operating leases
are expected to remain constant in the near term, then subsequently increase
with the transfer of service to Galaxy VIII-i as noted above under "Backlog."
This transponder operating lease activity represents the only currently
expected material prospective interaction between Galaxy and the other
business activities retained by HCI.
Cost of Outright Sales and Sales-Type Leases of Transponders. Cost of
outright sales and sales-type leases of transponders increased $3.4 million,
or 6.9%, to $53.0 million in 1996 from $49.6 million in 1995, reflecting
relatively constant margins on transponder sales and sales-type leases.
167
<PAGE>
Direct Operating Costs. Direct operating costs increased $4.9 million, or
16.4%, to $34.8 million for the year ended December 31, 1996 from $29.9
million for the year ended December 31, 1995 principally due to an increase in
TT&C costs related to Galaxy III-R and Galaxy IX which were launched in 1996.
Selling, General, Administrative Expenses. Selling, general and
administrative expenses increased slightly to $34.1 million for the year ended
December 31, 1996 from $30.1 million for the year ended December 31, 1995
principally due to an increase in the provision for doubtful accounts.
Leaseback Expenses, Net of Deferred Gain. Leaseback expenses, net of
deferred gain, increased $23.3 million, or 63.7%, to $59.9 million for the
year ended December 31, 1996 from $36.6 million for the year ended December
31, 1995. This increase in leaseback expense, net of deferred gain, was due to
the sale-leaseback of Galaxy III-R in 1996.
Depreciation and Amortization. Depreciation decreased $18.0 million, or
23.5%, to $58.5 million for the year ended December 31, 1996, from $76.5
million for the year ended December 31, 1995, due primarily to accelerated
depreciation in 1995 attributable to a reduction in the expected useful
lifetime of one noncommercial satellite resulting from a customer's decision
not to exercise a lease renewal option, partially offset by additional
depreciation associated with the launch and placement in service of Galaxy
III-R. For each of the periods noted, the amortization of goodwill was $3.3
million.
Other Income. Other income decreased $5.7 million to $2.2 million for the
year ended December 31, 1996 from $7.9 million for the year ended December 31,
1995, primarily due to non-recurring revenue earned in 1995 for providing
services to General Motors.
Income Tax Expense. The effective tax rate for each of the two years ended
December 31, 1996 and 1995, respectively, was 37.5%, reflecting the U.S.
federal, state and local income taxes reduced for foreign sales corporation
benefits.
1995 COMPARED TO 1994
Revenues. Revenues increased $57.9 million, or 17.6%, to $386.1 million in
1995 from $328.2 million in 1994. Video distribution revenues increased $69.1
million, or 41.4%, to $235.9 million in 1995 from $166.8 million in 1994,
principally due to the higher demand for Ku-band transponders. Business
communications revenues decreased $8.6 million, or 8.0%, to $98.4 million in
1995 from $107.0 million in 1994, principally as a result of a reduction in
full and occasional use of SBS 6, Galaxy IV and Galaxy VII Ku-band
transponders. Satellite Services and Other revenues decreased $2.6 million, or
4.8%, to $51.8 million in 1995 from $54.4 million in 1994 due to a decrease in
foreign ground service sales.
Sales and sales-type lease revenues increased $10.5 million, or 7.5%, to
$149.7 million from $139.2 million in 1994. The increase reflects higher
volume of sales and sales-type leases of transponders previously placed in
service and higher amounts of interest income on sales-type leases, which more
than offset sales recognized in 1994 on Galaxy I-R using the percentage-of-
completion method. Revenues from operating leases increased $50.0 million, or
37.1%, to $184.6 million in 1995 from $134.6 million in 1994. This increase
resulted principally from growth in the Ku-band market.
Cost of Sales and Sales-Type Leases. Cost of sales and sales-type leases
increased to $49.6 million in 1995 from $45.7 million in 1994, reflecting
stable operating margins on transponder sales and sales-type leases.
Direct Operating Costs. Direct operating costs decreased $3.7 million, or
11.0%, to $29.9 million from $33.6 million for the years ended December 31,
1995 and 1994, respectively.
Selling, General and Administrative Expenses. In 1995, selling, general and
administrative expenses decreased $21.5 million, or 41.7%, to $30.1 million
from $51.6 million in 1994, primarily due to a provision for doubtful accounts
established in 1994 related to specific customers committed under sales-type
lease arrangements.
Leaseback Expenses, Net of Deferred Gain. Leaseback expenses, net of
deferred gain, remained relatively constant for each of the years ended
December 31, 1995 and 1994.
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<PAGE>
Depreciation and Amortization. Depreciation increased $22.4 million, or
41.4%, to $76.5 million for the year ended December 31, 1995 from $54.1
million for the year ended December 31, 1994, due primarily to a reduction in
the expected useful lifetime of one noncommercial satellite resulting from a
customer's decision not to exercise a lease renewal option. For each of the
periods noted, the amortization of intangible assets was $3.3 million.
Other Income. Other income increased $4.0 million to $7.9 million for the
year ended December 31, 1995 from $3.9 million for the year ended December 31,
1994, primarily due to non-recurring revenue earned in 1995 for providing
services to General Motors.
Income Tax Expense. The effective tax rate for each of the years ended
December 31, 1995 and 1994 was 37.5%, reflecting the U.S. federal, state and
local income taxes reduced for foreign sales corporation benefits.
LIQUIDITY AND CAPITAL RESOURCES
Galaxy participates in the cash management system utilized by HE and its
subsidiaries, which collects all cash receipts and disburses all cash payments
on behalf of Galaxy. The net cash supplied or required by Galaxy is treated as
net distributions to or contributions from HE and is included in the net
investment of HE reflected as "Parent Company's Net Investment" on Galaxy's
Balance Sheet. Since its inception, Galaxy has financed its operations through
a combination of cash flow from operations, proceeds from the sale and
leaseback of satellite transponders and investment by HE. The significant cash
outlays of Galaxy are primarily capital expenditures related to the
construction and launch of satellites.
Galaxy's cash receipts from operations primarily derive from contracts with
customers for a specific amount of transponder capacity structured as: (i)
outright sales, (ii) sales-type leases or (iii) operating leases. The
following tables reconcile Galaxy's revenues to its total cash receipts from
customers by type of contract:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1996 1995 1994
------- ------- -------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Total Revenues..................................... $ 482.8 $ 386.1 $ 328.2
Increase in Net Investment in Sales-Type Leases*... (57.2) (86.9) (72.9)
(Increase)/Decrease in Other Contract Related
Receivables....................................... (5.7) (6.1) 17.1
------- ------- -------
Total Cash Receipts From Customers............... $ 419.9 $ 293.1 $ 272.4
======= ======= =======
Cash Receipts from Customers:
Outright Transponder Sales......................... $ 21.1 $ 16.5 $ 48.5
Sales-Type Leases.................................. 74.0 46.5 24.9
Operating Leases................................... 274.2 178.3 144.6
Satellite Services and Other....................... 50.6 51.8 54.4
------- ------- -------
Total............................................ $ 419.9 $ 293.1 $ 272.4
======= ======= =======
</TABLE>
- --------
* Excludes the provision for doubtful accounts, for which a non-cash charge is
included in selling, general and administrative expenses.
Cash Receipts From Customers. Cash receipts from customers increased $126.8
million, or 43.3%, to $419.9 million for the year ended December 31, 1996 from
$293.1 million for the year ended December 31, 1995. The increase was
primarily attributable to 72 new transponders placed in service and committed
in 1996, plus the outright sale or commitment under sales-type and operating
leases of seven previously available transponders.
Cash receipts from customers increased $20.7 million, or 7.6%, to $293.1
million for the year ended December 31, 1995, from $272.4 million for the year
ended December 31, 1994. The increase was primarily attributable to the
outright sale or commitment under sales-type and operating leases in 1995 of
37 previously available transponders. This increase of 37 transponders was
offset by the retirement of 24 previously sold transponders for a net addition
of 13 sold and committed transponders.
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<PAGE>
Net Cash Provided by Operating Activities. Net cash provided by operating
activities was $165.9 million, $93.8 million and $115.6 million for the years
ended December 31, 1996, 1995, and 1994, respectively.
Cash flows from operations increased $72.1 million, or 76.9%, to $165.9
million for the year ended December 31, 1996 from $93.8 million for the year
ended December 31, 1995. The increase was primarily attributable to increased
cash receipts from customers on additional transponders committed under sales-
type and operating leases in 1996. Cash flows from operations decreased $21.8
million, or 18.9%, to $93.8 million for the year ended December 31, 1995, from
$115.6 million for the year ended December 31, 1994. The decrease was
primarily attributable to higher cash collections in early 1994 due to the
completion and placement in service of Galaxy I-R and an increase in 1995 tax
payments caused by reductions in temporary differences associated with
depreciation on satellites, which more than offset increases in cash receipts
from customers attributable to newly sold or committed transponders under
sales-type and operating leases in 1995.
Net Contributions from (Distributions to) Parent Company. Net contributions
from (distributions to) HE ("Parent Company") were ($109.1) million, $186.7
million and ($1.1) million for the years ended December 31, 1996, 1995 and
1994, respectively.
Net cash flows to Parent Company increased $295.8 million, to a net
distribution of $109.1 million for the year ended December 31, 1996 from a net
contribution of $186.7 million for the year ended December 31, 1995 primarily
as a result of proceeds from the sale and leaseback of Galaxy III-R and
increased cash collections from customers, which more than offset a slight
increase in capital expenditures. Net cash flows from Parent Company increased
$187.8 million, to a net contribution of $186.7 million for the year ended
December 31, 1995, from a net distribution of $1.1 million for the year ended
December 31, 1994. The increase was primarily attributable to a substantial
increase in capital expenditures for new satellites and a decline in operating
cash flows.
Capital Expenditures. Capital expenditures include all additions to
satellites and other property and equipment, but are primarily attributable to
satellite costs. Satellite costs include satellite construction costs, launch
costs, launch insurance and capitalized interest. For the years ended December
31, 1996, 1995 and 1994, capital expenditures were $308.7 million, $280.5
million and $114.7 million, respectively. In 1996, Galaxy's capital
expenditures primarily related to the construction and launch of Galaxy IX in
May 1996 and additional costs incurred in connection with the design and/or
construction of Galaxy VIII-i, Galaxy X and Galaxy XI. In 1995, capital
expenditures primarily related to the construction and launch of Galaxy III-R
in December 1995 and additional costs incurred in connection with the
construction of Galaxy VIII-i, Galaxy IX, Galaxy X and Galaxy XI. In 1994,
capital expenditures primarily related to the construction and launch of
Galaxy I-R in February 1994 and additional costs for Galaxy III-R, Galaxy
VIII-i and Galaxy IX. Galaxy currently has six satellites in various stages of
development for which Galaxy has budgeted future capital expenditures. Such
satellites include Galaxy VIII-i, Galaxy X, Galaxy XI, Galaxy XII, Galaxy
XIII-i and Galaxy XIV-i. The expected total cost of constructing, launching
and insuring each such satellite ranges from approximately $203 million to
approximately $276 million, with the aggregate cost of constructing, launching
and insuring all such satellites expected to be approximately $1,485 million.
Of this aggregate amount, Galaxy had expended approximately $383 million
through December 31, 1996, and expects to fund the remainder through the end
of the year 2000. In addition, Galaxy expects to exercise its Early Buy Out
Options with respect to the leases of transponders on SBS-6 in 1998 for
approximately $152 million, the lease of transponders on Galaxy III-R in 1999
for approximately $170 million and the leases of transponders on Galaxy VII in
1999 for approximately $196 million. Historically, Galaxy has funded capital
expenditures with cash flow from operations of Galaxy's business, proceeds
from the sale and leaseback of satellite transponders and investment by HE.
The Reorganization Agreement requires that, during the period from July 1,
1996 through the Closing Date, cash flows from Galaxy's business and
additional investments by HE be used to fund additional capital expenditures
of approximately $575 million for satellites under construction. At December
31, 1996, approximately $156 million of this funding requirement had been
satisfied. The remaining $419 million of such funding requirement will be
satisfied prior to the Closing Date by (i) HE using Galaxy cash flows and
additional investments by HE to pay approximately $359 million under contracts
for the procurement of long-lead items and/or construction of Galaxy XI,
Galaxy XII, Galaxy XIII-i and Galaxy XIV-i, which agreements Galaxy expects to
enter into prior to
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<PAGE>
the Closing Date, and (ii) HE contributing $60 million in cash to New PanAmSat
which funds will be used to pay certain closing costs in connection with
consummating the Reorganization and to pay operating expenses of New PanAmSat
after the Closing Date. Following the Closing Date, Galaxy anticipates that
New PanAmSat will fund the remaining $1,261 million of capital expenditures
required to construct all Galaxy satellites currently under development and
fund New PanAmSat's exercise of the Early Buy Out Options solely from New
PanAmSat's cash on hand and cash flows from the consolidated operations of New
PanAmSat and PanAmSat. See "BUSINESS OF NEW PANAMSAT--Liquidity and Capital
Resources." HE will have no continuing obligation to fund any additional
capital expenditures related to Galaxy's or New PanAmSat's business other than
as described above.
Sales and Leaseback Transactions. Galaxy has sold and leased back
transponders on three separate satellites. In 1991, Galaxy sold all 19
transponders on SBS-6 for $204.7 million and leased the transponders back for
a lease term of 11.2 years. In 1992, Galaxy sold 30 transponders on Galaxy VII
for $314.8 million and leased the transponders back for a lease term of 11
years. In 1996, Galaxy sold 24 transponders on Galaxy III-R for $252.0 million
and leased the transponders back for a lease term of 6.9 years. In connection
with each sale and leaseback transaction, Galaxy recognized a deferred gain in
an amount equal to the difference between the sale proceeds and its cost basis
in the transponders sold, which deferred gain is being amortized on a
straight-line basis over the term of the lease. Periodic lease payments by
Galaxy in connection with the leaseback of transponders are recognized as an
expense on a straight-line basis over the term of the applicable lease, net of
the amortization of the corresponding deferred gain. Lease payments related to
the sale and leaseback of transponders were $62.4 million, $59.9 million and
$62.1 million for the years ended December 31, 1996, 1995 and 1994,
respectively. Under each sale leaseback agreement, Galaxy has the option to
buy back the transponders either at the end of the lease term for fair market
value or at an earlier date and price as stipulated in each respective
agreement. The early buyout terms are SBS-6 in 1998 for $151.7 million, Galaxy
III-R in 1999 for $170.3 million and Galaxy VII in 1999 for $195.9 million,
each of which Galaxy may or may not choose to exercise.
ACCOUNTING CHANGE
Effective January 1, 1996, Galaxy adopted SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."
This statement established accounting standards for the impairment of long-
lived assets, certain identifiable intangibles, and goodwill related to those
assets to be held and used, and for long-lived assets and certain identifiable
intangibles to be disposed of. Adoption of this statement did not have a
material effect on Galaxy's operating results or financial position.
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UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The Unaudited Pro Forma Combined Financial Statements of New PanAmSat as of
and for the year ended December 31, 1996 have been derived from the PanAmSat
Financial Statements and the Galaxy Financial Statements, combined to give
effect to the Merger, the Univisa Contribution (including the Share
Repurchase) and the Asset Contribution, as if such transactions had occurred
at January 1, 1996 for purposes of the Unaudited Pro Forma Combined Statement
of Income and on December 31, 1996 for purposes of the Unaudited Pro Forma
Combined Balance Sheet, applying the purchase method of accounting with Galaxy
as the acquirer of PanAmSat. The unaudited pro forma adjustments are based
upon information set forth in this Proxy Statement/Prospectus and certain
assumptions described below and in the notes to the Unaudited Pro Forma
Combined Financial Statements.
Upon consummation of the Merger, each outstanding share of PAS Ordinary
Common Stock and PAS Class A Common Stock will be converted into the right to
receive, at the election of each holder, either (i) $15 in cash plus one half
( 1/2) share of New PAS Common Stock, (ii) one share of New PAS Common Stock
(subject to proration, as applicable, described below) or (iii) $30 in cash
(subject to proration, as applicable, described below). In connection with the
Univisa Contribution, S Company will receive for each share of PAS Class B
Common Stock indirectly held by Univisa, at S Company's election,
consideration that is equal in amount and form (subject to proration, as
applicable, described below) to the consideration payable on account of each
share of PAS Class A Common Stock and PAS Ordinary Common Stock in the Merger.
The exact amount of cash and/or shares of New PAS Common Stock to be received
by holders of PAS Ordinary Common Stock and PAS Class A Common Stock and S
Company is dependent on, among other things, (a) the stated preferences of
such direct and indirect holders of PAS Common Stock on the Election Forms,
(b) the proration procedures to be applied if the Requested Cash Amount
exceeds the Maximum Cash Amount, and (c) if the Requested Cash Amount is less
than the Cash Cap, whether New PanAmSat, in its sole discretion, limits the
Requested Stock Amount. The Unaudited Pro Forma Combined Financial Statements
assume that all holders of PAS Ordinary Common Stock and PAS Class A Common
Stock receive on account of their shares, and S Company receives, per share of
PAS Class B Common Stock indirectly owned by S Company, the Standard
Consideration of $15 in cash and one half ( 1/2) share of New PAS Common
Stock. See "THE REORGANIZATION AGREEMENT--Terms of the Reorganization" and
"THE UNIVISA CONTRIBUTION AGREEMENT--The Univisa Contribution." The Unaudited
Pro Forma Combined Financial Statements also assume that there will be
149,122,807 shares of New PAS Common Stock outstanding upon consummation of
the Reorganization, which is based on the same assumption regarding payment of
the Standard Consideration and that New PanAmSat will not make an additional
offering of its stock prior to Closing.
The Unaudited Pro Forma Combined Statements of Income do not give effect to
(i) any cost savings that may be realized as a result of the combination of
the two companies or (ii) nonrecurring costs that may be incurred after the
Reorganization is consummated, consisting primarily of expenses related to
relocating employees and modifying facilities. The significance of such
potential cost savings and nonrecurring cost increases will depend on how New
PanAmSat decides in the future to structure its operations. Galaxy and
PanAmSat management believe that the anticipated financial impacts of expected
pension benefits, post-retirement benefits other than pension benefits and
incentive plans on the future operations of New PanAmSat will be comparable to
the impacts included in the PanAmSat Financial Statements and Galaxy Financial
Statements.
These Unaudited Pro Forma Combined Financial Statements should be read in
conjunction with each of the Galaxy and PanAmSat audited financial statements,
including the notes thereto, contained elsewhere herein. The Unaudited Pro
Forma Combined Financial Statements do not purport to present the financial
position or results of operations of New PanAmSat had the transactions and
events assumed therein occurred on the dates specified, nor are they
necessarily indicative of the results of operations that may be achieved in
the future.
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<PAGE>
NEW PANAMSAT
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
AS OF DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL HISTORICAL PRO FORMA NEW
GALAXY PANAMSAT ADJUSTMENTS PANAMSAT
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents.... $ 29 $ 1,453 $ 225,000 (a) $ 213,482
(13,000)(b)
Operating lease, sale and
contract receivables........ 21,742 10,236 31,978
Net investment in sales-type
leases...................... 20,634 20,634
Prepaid expenses and other
receivables................. 23,313 8,228 31,541
Deferred income taxes........ 46,989 46,989
---------- ---------- ---------- ----------
Total current assets....... 112,707 19,917 212,000 344,624
Satellites and other property
and equipment, net.......... 403,893 726,592 1,130,485
Satellite systems under de-
velopment................... 316,332 479,749 796,081
Net investment in sales-type
leases...................... 320,610 320,610
Marketable securities and re-
stricted cash............... 379,179 418,898 (c) 798,077
Operating lease and other re-
ceivables................... 21,005 21,005
Intangible assets, net of am-
ortization.................. 72,896 2,728,233 (d) 2,801,129
Deferred costs and other as-
sets........................ 9,926 17,250 (e) 27,176
Deferred income taxes........ 28,073 20,958 (f)
(49,031)(f)
---------- ---------- ---------- ----------
Total...................... $1,275,516 $1,615,363 $3,348,308 $6,239,187
========== ========== ========== ==========
LIABILITIES AND PARENT
COMPANY'S NET
INVESTMENT/SHAREHOLDERS'
EQUITY
Accounts payable and accrued
liabilities................. $ 24,459 $ 16,084 $ 90,000 (a) $ 147,793
17,250 (e)
Accrued in-orbit performance
insurance................... 26,481 26,481
Deferred gains on sales and
leasebacks.................. 42,871 42,871
Deferred revenues............ 5,424 8,424 13,848
Current portion of long-term
debt........................ 4,167 4,167
---------- ---------- ---------- ----------
Total current liabilities.. 99,235 28,675 107,250 235,160
Due to affiliates............ 64,720 20,400 (g) 85,120
Long-term debt............... 561,289 52,394 (h) 2,338,683
1,725,000 (i)
Accrued operating leaseback
and contract expense........ 107,841 688 108,529
Deferred gains on sales and
leasebacks.................. 234,751 234,751
Deferred revenues............ 31,596 71,921 103,517
Deferred income taxes........ 61,631 (49,031)(f) 12,600
---------- ---------- ---------- ----------
Total liabilities.......... 473,423 788,924 1,856,013 3,118,360
Preferred stock/minority in-
terest...................... 329,071 70,765 (h) 399,836
Parent Company's net
investment ................. 802,093 (802,093)(j)
PAS Class A Common Stock
($0.01 par value 100,000,000
shares authorized,
40,459,432 shares issued and
outstanding)................ 405 (405)(j)
PAS Class B Common Stock
($0.01 par value,
100,000,000 shares
authorized, 40,459,431
shares issued and
outstanding)................ 405 (405)(j)
PAS Common Stock ($0.01 par
value, 400,000,000 shares
authorized, 19,081,137
shares issued and
outstanding)................ 191 (191)(j)
New PAS Common Stock ($0.01
par value, 149,122,807
shares issued
and outstanding)............ 1,491 (j) 1,491
Additional Paid-in-Capital... 477,505 2,241,995 (j) 2,719,500
Retained Earnings............ 18,862 (18,862)(j)
---------- ---------- ---------- ----------
Total...................... $1,275,516 $1,615,363 $3,348,308 $6,239,187
========== ========== ========== ==========
</TABLE>
See notes to unaudited pro forma combined financial statements.
173
<PAGE>
NEW PANAMSAT
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL HISTORICAL PRO FORMA NEW
GALAXY PANAMSAT ADJUSTMENTS PANAMSAT
---------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
REVENUES
Outright sales and sales-type
leases....................... $163,686 $163,686
Operating leases, satellite
services and other........... 319,084 $246,943 $ (2,866)(k) 563,161
-------- -------- --------- --------
Total revenues.............. 482,770 246,943 (2,866) 726,847
-------- -------- --------- --------
COSTS AND EXPENSES
Cost of outright sales and
sales-type leases............ 52,969 52,969
Leaseback expense, net of de-
ferred gain.................. 59,927 59,927
Depreciation and amortiza-
tion......................... 58,523 61,334 68,206 (l) 188,063
Direct operating costs........ 34,794 27,842 (2,866)(k) 59,770
Selling, general and adminis-
trative expenses............. 34,119 39,361 73,480
Compensatory programs......... 4,874 4,874
Reorganization costs.......... 4,758 4,758
-------- -------- --------- --------
Total costs and expenses.... 240,332 138,169 65,340 443,841
-------- -------- --------- --------
Operating income.............. 242,438 108,774 (68,206) 283,006
Interest expense, net......... (4,903) (622) (118,101)(m) (123,626)
Other income.................. 2,184 2,184
-------- -------- --------- --------
Income before income taxes and
minority interest............ 239,719 108,152 (186,307) 161,564
Income tax expense............ 89,895 46,432 (47,240)(n) 89,087
Minority interest............. 28,263 (o) 28,263
-------- -------- --------- --------
NET INCOME...................... 149,824 61,720 (167,329) 44,215
Preferred stock dividend...... 41,422 (41,422)(o)
-------- -------- --------- --------
Net income to common shares... $149,824 $ 20,298 $(125,907) $ 44,215
======== ======== ========= ========
Income per share.............. $ 0.20 $ 0.30
======== ========
Weighted average number of
common shares outstanding.... 100,332 48,791 (p) 149,123
======== ========= ========
</TABLE>
See notes to unaudited pro forma combined financial statements.
174
<PAGE>
NOTES TO UNAUDITED PRO FORMA
COMBINED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS)
The Unaudited Pro Forma Combined Financial Statements of New PanAmSat give
effect to the Reorganization applying the purchase method of accounting with
Galaxy as the acquirer of PanAmSat, the New Financing and certain related
transactions as if they had occurred at January 1, 1996 for purposes of the
Unaudited Pro Forma Combined Statements of Income and on December 31, 1996 for
purposes of the Unaudited Pro Forma Combined Balance Sheet. The Unaudited Pro
Forma Combined Financial Statements do not purport to present the financial
position or results of operations of New PanAmSat had the transactions and
events assumed therein occurred on the dates specified, nor are they
necessarily indicative of the results of operations that may be achieved in
the future.
The Unaudited Pro Forma Combined Statements of Income do not give effect to
(i) any cost savings that may be realized as a result of the combination of
the two companies nor (ii) nonrecurring costs that may be incurred after the
consummation of the Reorganization, primarily related to employee relocations
and facility modification-related expenses. The significance of such potential
cost savings and nonrecurring cost increases will depend on how New PanAmSat
decides in the future to structure its operations.
The following pro forma adjustments were made:
(a) To record cash proceeds and tax liability related to the sale of the DTH
Options concurrent with the Reorganization.
(b) To reflect the expected cost of repurchasing PanAmSat's outstanding stock
options.
(c) To record estimated cash required to be contributed by HCI and/or HE
pursuant to the Reorganization Agreement to partially fund the
construction and launch costs of various Galaxy spacecraft.
(d) To record the increase in intangible assets representing the excess of the
purchase price over the fair value of the net assets acquired:
<TABLE>
<S> <C>
Cash portion of the Merger Consideration........................ $1,500,000
Estimated fair value of the equity portion of the Merger Con-
sideration..................................................... 1,500,000
Estimated transaction fees, costs and expenses.................. 20,400
PanAmSat historical equity at December 31, 1996................. (497,368)
Adjustment to fair value of existing PanAmSat indebtedness and
preferred stock................................................ 123,159
Adjustment for the repurchase of PanAmSat stock options......... 13,000
Adjustment to deferred income taxes............................ (20,958)
Adjustment for current income taxes payable.................... 90,000
----------
Net increase in intangible assets........................... $2,728,233
==========
</TABLE>
Based on the results of an outside appraisal, the fair values of PanAmSat's
satellites, based on their estimated replacement costs, approximate their
existing net book values. The fair values of the remaining net assets of
PanAmSat are assumed to approximate their existing net book values.
(e) To accrue estimated debt issuance costs. See note (i) below.
(f) To record deferred income taxes in connection with the increase in the
carrying values of the existing PanAmSat indebtedness and to net the non-
current deferred income tax liability with the non-current deferred income
tax assets.
(g) To record payable to HE for reimbursement of estimated transaction fees,
costs and expenses expected to be paid by HE.
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<PAGE>
(h) To increase the carrying values of existing PanAmSat indebtedness and
preferred stock to the preliminary estimate of their respective fair
values as required by the purchase accounting treatment of the
Reorganization.
(i) To reflect anticipated borrowings. HE will provide the New Financing from
intercompany funding provided by General Motors.
(j) To give effect to the issuance of approximately 149,123,000 shares of New
PanAmSat common stock, $0.01 par value, and other capital transactions in
connection with the Reorganization.
<TABLE>
<S> <C>
Estimated fair value of the equity portion of the Merger Con-
sideration.................................................... $1,500,000
PanAmSat historical equity..................................... (497,368)
Estimated cash required to be contributed by HCI for satellite
construction and launch costs................................. 418,898
----------
$1,421,530
==========
</TABLE>
The estimated fair value of the equity portion of the Merger Consideration
represents the difference between the aggregate total consideration ($3
billion) and the aggregate Maximum Cash Amount of $1.5 billion (defined as
the product of (x) $15, and (y) the aggregate number of shares of PAS
Common Stock issued and outstanding immediately prior to the Effective Time
(approximately 100,000,000). In the event that stockholders were to elect
to receive Stock Consideration only (rather than the Standard
Consideration) and New PanAmSat exercises its option to issue shares of New
PAS Common Stock in excess of 149,122,807, the borrowings discussed in
adjustment (i) would be decreased to $225 million with a corresponding
increase in shareholders' equity to $4,220,991, and interest expense of
$115,800 related to additional borrowings on the part of New PanAmSat
discussed in adjustment (m) would be eliminated.
(k) To eliminate intercompany revenues, costs and transactions between Galaxy
and PanAmSat.
(l) To reflect amortization of the excess of the purchase price of PanAmSat
over the preliminary estimate of the fair value of the net assets acquired
using the straight-line method over 40 years.
(m) To adjust interest expense as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1996
------------
<S> <C>
To reflect pro forma interest expense at an assumed rate of
7.72% (six-month LIBOR plus 2%) related to the borrowings
contemplated by the Reorganization including amortization of
debt issuance costs........................................... $136,620
To reduce interest expense to reflect the amortization of the
adjustment to fair value of existing PanAmSat indebtedness.... (18,519)
--------
Net increase in interest expense............................... $118,101
========
</TABLE>
(n) To reflect income taxes at an assumed marginal rate of 40% on the pro
forma adjustments described in note (m) above. Amortization of goodwill is
not deductible for tax purposes.
(o) To reclassify the preferred stock dividend of subsidiary to minority
interest and to reflect amortization of the adjustment to fair value of
preferred stock of subsidiary (historical PanAmSat) of $13,159.
(p) Represents the difference between PanAmSat's weighted average common
shares and the number of shares of New PanAmSat Common Stock that are
assumed to be outstanding upon consummation of the Reorganization.
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<PAGE>
DESCRIPTION OF NEW PANAMSAT CAPITAL STOCK
The following summary is a description of the capital stock of New PanAmSat
as set forth in the New PanAmSat Certificate of Incorporation and the New
PanAmSat Bylaws that will be in effect prior to consummation of the
Reorganization. Such summary does not purport to be complete and is subject to
and qualified by all of the provisions of the New PanAmSat Certificate of
Incorporation and New PanAmSat Bylaws which are attached hereto as Exhibits F
and G, respectively. All references in the discussion below to the New PanAmSat
Certificate of Incorporation or New PanAmSat Bylaws shall mean such documents
as amended and restated.
GENERAL
New PanAmSat is incorporated in the state of Delaware and, pursuant to the
New PanAmSat Certificate of Incorporation, will be authorized to issue
450,000,000 shares of all classes of stock, consisting of 400,000,000 shares of
New PAS Common Stock, par value $.01 per share, and 50,000,000 shares of
Preferred Stock, par value $.01 per share, of New PanAmSat ("New PAS Preferred
Stock"). No shares of New PAS Preferred Stock are outstanding or will be
outstanding immediately after consummation of the Reorganization.
COMMON STOCK
Assuming that all holders of PAS Ordinary Common Stock and PAS Class A Common
Stock and S Company elect to receive a combination of cash and shares of New
PAS Common Stock as consideration in the Merger and the Univisa Contribution,
there will be 149,122,807 shares of New PAS Common Stock issued and outstanding
upon consummation of the Reorganization. All such issued and outstanding shares
of New PAS Common Stock will be validly issued, fully paid and nonassessable.
Subject to (i) any preferential rights of any outstanding series of New PAS
Preferred Stock and (ii) any dividend restrictions that may be contained in
credit facilities of New PanAmSat, the holders of New PAS Common Stock are
entitled to receive such dividends, if any, as may be declared from time to
time by the New PanAmSat Board out of funds legally available therefor. It is
not anticipated that dividends will be paid at any time in the foreseeable
future with respect to New PAS Common Stock.
Holders of New PAS Common Stock are entitled to one vote per share on all
matters submitted to a vote of the stockholders of New PanAmSat and do not have
cumulative voting rights. Holders of New PAS Common Stock do not have
preemptive, redemption, conversion or sinking fund rights. In the event of a
liquidation, dissolution or winding up of New PanAmSat, the holders of New PAS
Common Stock are entitled to share equally and ratably in the assets of New
PanAmSat, if any, remaining after the payment of all debts and liabilities of
New PanAmSat and the liquidation preference of any outstanding New PAS
Preferred Stock.
The transfer agent and registrar for New PAS Common Stock will be Boston
EquiServe, L.P. New PanAmSat has obtained conditional approval for the listing
of the New PAS Common Stock on the Nasdaq. It is presently anticipated that the
PAS Ordinary Common Stock, which is currently listed on the Nasdaq under the
symbol "SPOT," will be replaced by the listing of New PAS Common Stock and
trade under the same symbol.
NEW PAS PREFERRED STOCK
The New PanAmSat Board is authorized to issue New PAS Preferred Stock in one
or more series with such designations, powers, preferences and rights,
qualifications and limitations or restrictions thereon, including voting
powers, dividend rights, liquidation preferences, redemption rights and
conversion privileges as it determines. There are no plans, agreements or
understandings for the issuance of any shares of New PAS Preferred Stock.
REGISTRATION RIGHTS
Pursuant to the terms of the Registration Rights Agreement that will be
entered into at Closing by and among New PanAmSat, HCI, S Company and the
existing holders of PAS Class A Common Stock,
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<PAGE>
New PanAmSat will grant to such parties registration rights with respect to
their shares of New PAS Common Stock that may be issued to them in connection
with the Reorganization. With certain limitations, these registration rights
grant such parties the opportunity to (i) demand registration of all or any
portion of their shares of New PAS Common Stock, provided that the aggregate
value of the shares of New PAS Common Stock requested to be registered by such
parties shall be at least $100 million, and (ii) piggyback upon certain
registrations by New PanAmSat of shares of New PAS Common Stock pursuant to a
firm commitment underwritten offering solely for cash for its own account
(other than a registration statement (a) on Form S-8 or any successor forms
thereto, or (b) filed solely in connection with a dividend reinvestment plan
or employee benefit plan of New PanAmSat or its affiliates) or for the account
of any holder of shares of New PAS Common Stock. See "OTHER AGREEMENTS--
Registration Rights Agreement."
ADVANCE NOTICE PROVISIONS FOR STOCKHOLDER NOMINATIONS AND STOCKHOLDER
PROPOSALS
The New PanAmSat Bylaws establish an advance notice procedure for
stockholders to make nominations of candidates for election as directors or
bring other business before an annual meeting of stockholders of New PanAmSat
(the "Stockholder Notice Procedure"). The Stockholder Notice Procedure
provides that (i) only persons who are nominated by, or at the direction of,
the New PanAmSat Board or by a stockholder who has given timely written notice
containing specified information to the Secretary of New PanAmSat prior to the
meeting at which directors are to be elected, will be eligible for election as
directors of New PanAmSat, and (ii) at an annual meeting, only such business
may be conducted as has been properly brought before the meeting by, or at the
direction of, the New PanAmSat Board, or by a stockholder who has given timely
written notice to the Secretary of New PanAmSat of such stockholder's
intention to bring such business before such meeting. In general, for notice
of stockholder nominations or business to be made at an annual meeting to be
timely, such notice must be received by New PanAmSat not less than 60 days nor
more than 90 days prior to the annual meeting.
The purpose of requiring stockholders to give New PanAmSat advance notice of
nominations and other business is to afford the New PanAmSat Board a
meaningful opportunity to consider the qualifications of the proposed nominees
or the advisability of the other proposed business and, to the extent deemed
necessary or desirable by the New PanAmSat Board, to inform stockholders and
make recommendations about such qualifications or business, as well as to
provide a more orderly procedure for conducting meetings of stockholders. The
Stockholder Notice Procedure may have the effect of precluding a contest for
the election of directors or the consideration of stockholder proposals if the
proper procedures are not followed, and of discouraging or deterring a third
party from conducting a solicitation of proxies to elect its own slate of
directors or to approve its own proposal, without regard to whether
consideration of such nominees or proposals might be harmful or beneficial to
New PanAmSat and its stockholders.
STOCKHOLDER MEETINGS
The New PanAmSat Certificate of Incorporation does not permit stockholders
of New PanAmSat to act by written consent without a meeting.
The New PanAmSat Bylaws permit the New PanAmSat Board or a committee of the
New PanAmSat Board that has been duly designated by the New PanAmSat Board and
whose power and authority, as expressly provided in a resolution of the New
PanAmSat Board, includes the power to call such a meeting, to call a special
meeting of New PanAmSat stockholders.
BOARD OF DIRECTORS
The New PanAmSat Certificate of Incorporation provides for an initial 10
member board of directors. Such number of directors may be changed in
accordance with the terms of the New PanAmSat Bylaws upon the earlier to occur
of certain events set forth in the Stockholder Agreement. As long as the
Stockholder Agreement is in
178
<PAGE>
effect, HCI will designate all members of the New PanAmSat Board not
designated by the Minority Stockholders; provided that one of the directors
designated by HCI shall be Frederick A. Landman as long as he remains Chief
Executive Officer of New PanAmSat. The Minority Stockholders initially are
entitled to designate two directors of New PanAmSat, one of whom will be
designated by the Class A Holders and one by S Company. See "OTHER
AGREEMENTS--Stockholder Agreement."
LIMITATION OF LIABILITY OF DIRECTORS
Pursuant to section 102(b)(7) of the DGCL, the New PanAmSat Certificate of
Incorporation provides that the directors will not be personally liable for
monetary damages to New PanAmSat or its stockholders for breach of fiduciary
duty as a director, except for: (i) breach of the duty of loyalty; (ii) acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law; (iii) liability under Section 174 of the DGCL; or
(iv) any transaction from which the director derives an improper benefit.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The New PanAmSat Certificate of Incorporation obligates New PanAmSat to
indemnify its present and former directors and officers and to pay or
reimburse expenses in advance of the final disposition of a proceeding to the
fullest extent permitted from time to time by the DGCL, provided that the
advancement of expenses will be made only upon receipt of an undertaking by
the director or officer to repay all amounts advanced if it shall ultimately
be determined that the director or officer is not entitled to be indemnified.
The DGCL provides that a director, officer, employee or agent of a Delaware
corporation may be indemnified against liability (other than in an action by
or in the right of the corporation) and expenses including attorneys' fees
incurred by such person in connection with such proceeding, provided 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 proceeding, had no reason to believe the conduct was
unlawful. For actions or suits brought by or in the name of the corporation,
the DGCL provides that a director, officer, employee or agent of a corporation
may be indemnified against expenses including attorneys' fees incurred by such
person in connection with such proceeding if such person acted in good faith
and in a manner such person reasonably believed to be in, or at least not
opposed to, the best interest of the corporation, except that if such person
is adjudged to be liable to the corporation, such person can be indemnified
for such expenses if and only to the extent that a court determines that
despite the adjudication of liability, in view of all the circumstances of the
case, such person is fairly and reasonably entitled to indemnity for such
expenses as the court shall deem proper. The indemnification provisions of the
New PanAmSat Certificate of Incorporation are mandatory and cannot be amended
without stockholder action.
DELAWARE GENERAL CORPORATION LAW SECTION 203
Section 203 of the DGCL provides that, subject to certain exceptions
contained therein, a corporation may not engage in any business combination or
certain other transactions with any "owner of 15% or more of the outstanding
voting stock of the corporation" for a three year period following the date
that such stockholder becomes an interested stockholder unless certain
procedures are followed to safeguard against overreaching or misconduct by
such interested stockholder. In the New PanAmSat Certificate of Incorporation,
New PanAmSat has expressly elected not to be governed by the restrictions of
Section 203 of the DGCL.
179
<PAGE>
COMPARISON OF STOCKHOLDERS' RIGHTS
Upon consummation of the Merger and the Univisa Contribution, holders of PAS
Ordinary Common Stock and PAS Class A Common Stock and S Company will become
stockholders of New PanAmSat. Accordingly, their rights will cease to be
defined and governed by the PanAmSat Certificate of Incorporation and PanAmSat
Bylaws and instead will be defined and governed by the New PanAmSat
Certificate of Incorporation and New PanAmSat Bylaws, which both will be
amended and restated prior to consummating the Merger and the Univisa
Contribution. Although PanAmSat and New PanAmSat are governed by the DGCL and
their certificates of incorporation and bylaws have many similarities, certain
provisions of the New PanAmSat Certificate of Incorporation and New PanAmSat
Bylaws, as will be amended and restated, differ in material respects from
those contained in the PanAmSat Certificate of Incorporation and PanAmSat
Bylaws. The following summary, which does not purport to be a complete
statement of the general differences among the rights of the stockholders of
New PanAmSat and the stockholders of PanAmSat, sets forth certain differences
between the New PanAmSat Certificate of Incorporation and New PanAmSat Bylaws
and the PanAmSat Certificate of Incorporation and PanAmSat Bylaws. The
following discussion is qualified by reference to the full text of each of
such documents, which in the case of the New PanAmSat Certificate of
Incorporation and New PanAmSat Bylaws have been attached hereto as Exhibits F
and G, respectively, and are hereby incorporated herein by reference, and in
the case of the PanAmSat Certificate of Incorporation and PanAmSat Bylaws are
hereby incorporated herein by reference. The following discussion assumes that
the New PanAmSat Certificate of Incorporation and New PanAmSat Bylaws have
been amended.
VOTING
New PanAmSat. The New PanAmSat Certificate of Incorporation provides for
450,000,000 shares of stock, consisting of 400,000,000 shares of New PAS
Common Stock and 50,000,000 shares of New PAS Preferred Stock. The New
PanAmSat Bylaws provide that each stockholder entitled to vote at any meeting
of stockholders shall be entitled to one vote for each share of stock held by
such stockholder which has voting power upon the matter in question. At all
meetings of stockholders for the election of directors, a plurality of the
votes cast shall be sufficient to elect a director. All other elections and
questions shall, unless otherwise provided by law, the New PanAmSat
Certificate of Incorporation, the New PanAmSat Bylaws or the rules and
regulations of any stock exchange applicable to New PanAmSat, be decided by
the affirmative vote of the majority of the votes present in person or
represented by proxy and entitled to vote thereon. Neither the New PanAmSat
Certificate of Incorporation nor the New PanAmSat Bylaws provide for
supervoting rights.
PanAmSat. PanAmSat's authorized common stock consists of 400,000,000 shares
of PAS Ordinary Common Stock, 100,000,000 shares of PAS Class A Common Stock
and 100,000,000 shares of PAS Class B Common Stock. The shares of PAS Common
Stock presently outstanding are validly issued, fully paid and non-assessable.
The rights of holders of PAS Ordinary Common Stock, PAS Class A Common Stock
and PAS Class B Common Stock are identical except for voting and conversion
rights.
Holders of PAS Ordinary Common Stock are entitled to cast one vote per share
and holders of PAS Class A Common Stock and holders of PAS Class B Common
Stock are entitled to cast fifteen votes per share on all matters submitted to
a vote of common stockholders. The PAS Ordinary Common Stock votes (i) with
the PAS Class A Common Stock for the election of a majority of the directors
of PanAmSat and (ii) with the PAS Class B Common Stock for the election of the
remaining directors of PanAmSat, in each case voting together as a single
class. Also, except as provided in the PanAmSat Certificate of Incorporation
or otherwise required by law, the affirmative vote of (a) the holders of a
majority of the voting power of the PAS Class A Common Stock and the PAS
Ordinary Common Stock, voting together as a single class, and (b) the holders
of a majority of the voting power of the PAS Class B Common Stock and the PAS
Ordinary Common Stock, voting together as a single class, are required to
approve all other matters submitted to a vote of PanAmSat's stockholders.
Approval of (a) a majority of the votes of the outstanding shares of PAS
Class A Common Stock (as long as the outstanding shares of PAS Class A Common
Stock represent at least 5% of the total outstanding shares of
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<PAGE>
PAS Common Stock) and a majority of the votes of the outstanding shares of PAS
Class B Common Stock (as long as the outstanding shares of PAS Class B Common
Stock represent at least 5% of the total outstanding shares of PAS Common
Stock), is required in order to take the following actions: (1) material
transactions outside the ordinary course of business and not provided for in
PanAmSat's business plan; (2) material changes to PanAmSat's business plan, or
any material deviation in expenditures, material increases in the level of
indebtedness for borrowed money or incurrence of any guarantees, above the
amounts contemplated by PanAmSat's business plan; (3) subject to certain
exceptions relating to the PAS Preferred Stock, any distributions with respect
to, or redemptions, repurchases, acquisitions or other payments in respect of,
equity interests of PanAmSat; (4) issuances of PAS Ordinary Common Stock or
other equity interests in PanAmSat; (5) any public offering or registration of
securities of PanAmSat; (6) the dissolution, liquidation, termination, merger,
consolidation or reorganization of PanAmSat; (7) certain stockholder or
affiliate transactions; (8) any amendment to the PanAmSat Certificate of
Incorporation or the PanAmSat Bylaws; (9) the creation of any committee of the
PanAmSat Board; or (10) the appointment of the Chief Executive Officer, if a
person other than Rene Anselmo, Frederick A. Landman or Lourdes Saralegui.
BOARD OF DIRECTORS
New PanAmSat. The New PanAmSat Certificate of Incorporation provides for an
initial 10 member board of directors. Such number of directors may be changed
in such manner as provided in the New PanAmSat Bylaws upon the earlier to
occur of certain events set forth in the Stockholder Agreement. As long as the
Stockholder Agreement is in effect, HCI will designate all members of the New
PanAmSat Board not designated by Minority Stockholders; provided that one of
the directors designated by HCI shall be Frederick A. Landman as long as he
remains Chief Executive Officer of New PanAmSat. The Minority Stockholders
initially are entitled to designate two directors of New PanAmSat, one of whom
will be designated by the Class A Holders and one by S Company. See "OTHER
AGREEMENTS--Stockholder Agreement." Immediately after the Closing Date, it is
anticipated that New PanAmSat will have only nine directors if S Company has
not yet appointed a director. Such seat will remain vacant until S Company
appoints a director. See "MANAGEMENT OF NEW PANAMSAT--Board of Directors."
PanAmSat. The PanAmSat Certificate of Incorporation provides for an initial
five member board of directors and such number of directors may be changed
from time to time upon the affirmative vote of at least a majority of the
votes of the outstanding shares of PAS Class A Common Stock and the
outstanding shares of PAS Class B Common Stock, each voting as separate
classes. The holders of PAS Class A Common Stock and the holders of PAS
Ordinary Common Stock, voting together as a single class, are entitled to
elect at least a majority of the PanAmSat Board, and the holders of PAS Class
B Common Stock and the holders of PAS Ordinary Common Stock, voting together
as a single class, are entitled to elect the remaining directors of PanAmSat.
LIMITATION OF LIABILITY OF DIRECTORS
The DGCL provides that a corporation may include in its certificate of
incorporation a provision which limits or eliminates the personal liability of
a director to the corporation and/or its stockholders for monetary damages for
such person's conduct as a director, provided that such provision may not so
limit a director's liability (i) for breach of his or her duty of loyalty to
the corporation or its stockholders; (ii) for acts or omissions not in good
faith or involving intentional misconduct or a knowing violation of law; (iii)
for unlawful payments of dividends, certain stock repurchases or redemptions;
or (iv) for any transaction from which the director derived an improper
personal benefit. Both New PanAmSat and PanAmSat provide in their respective
certificates of incorporation for the limitation on liability of directors to
the fullest extent allowed under the DGCL.
INDEMNIFICATION OF DIRECTORS AND OFFICERS; ADVANCEMENT OF EXPENSES AND
INSURANCE
The DGCL provides that a director, officer, employee or agent of a Delaware
corporation may be indemnified against liability (other than in an action by
or in the right of the corporation) and expenses (including attorneys' fees)
incurred by such person in connection with such proceeding, provided such
person acted in good
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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
proceeding, had no reason to believe the conduct was unlawful. For actions or
suits brought by or in the name of the corporation, the DGCL provides that a
director, officer, employee or agent of a corporation may be indemnified
against expenses (including attorneys' fees) incurred by such person in
connection with such 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
interest of the corporation, except that if such person is adjudged to be
liable to the corporation, such person can be indemnified if and only to the
extent that a court determines that despite the adjudication of liability, in
view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses as the court shall deem
proper. Expenses incurred by an officer or director in defending an action,
suit or proceeding may be advanced prior to 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 is ultimately determined
he is not entitled to indemnification. The respective certificates of
incorporation of PanAmSat and New PanAmSat provide for indemnification of
directors and officers and advancement of expenses to the fullest extent
permitted under the DGCL. The DGCL also permits Delaware corporations to
purchase and maintain insurance on behalf of any person who is or was a
director or officer of the corporation. The PanAmSat Bylaws permit PanAmSat to
purchase liability insurance for its officers and directors. The
Reorganization Agreement requires that, subject to certain exceptions, New
PanAmSat purchase liability insurance for its officers and directors for a
period of five years following the Closing Date.
STOCKHOLDER NOMINATIONS OF CANDIDATES FOR THE BOARD OF DIRECTORS AND OTHER
PROPOSALS
New PanAmSat. The New PanAmSat Bylaws establish an advance notice procedure
for stockholders to nominate candidates for election as directors or bring
other business before an annual meeting of stockholders of New PanAmSat. Such
stockholder notice procedure provides that (i) only persons who are nominated
(a) pursuant to New PanAmSat's notice of meeting, (b) by, or at the direction
of, the New PanAmSat Board or (c) by a stockholder who has given timely
written notice containing specified information to the Secretary of New
PanAmSat prior to the meeting at which directors are to be elected, will be
eligible for election as directors of New PanAmSat, and (ii) at an annual
meeting only such business may be conducted as has been properly brought
before the meeting (a) pursuant to New PanAmSat's notice of meeting, (b) by,
or at the direction of, the New PanAmSat Board or (c) by a stockholder who has
given timely written notice containing specified information to the Secretary
of New PanAmSat of such stockholder's intention to bring such business before
such meeting. In general, for notice of stockholder nominations or business to
be made at an annual meeting to be timely, such notice must be received by New
PanAmSat not less than 60 days nor more than 90 days prior to the annual
meeting.
The purpose of requiring stockholders to give New PanAmSat advance notice of
nominations and other business is to afford the New PanAmSat Board a
meaningful opportunity to consider the qualifications of the proposed nominees
or the advisability of the other proposed business and, to the extent deemed
necessary or desirable by the New PanAmSat Board, to inform stockholders and
make recommendations about such qualifications or business, as well as to
provide a more orderly procedure for conducting meetings of stockholders. The
Stockholder Notice Procedures may have the effect of precluding a contest for
the election of directors or the consideration of stockholder proposals if the
proper procedures are not followed and of discouraging or deterring a third
party from conducting a solicitation of proxies to elect its own slate of
directors or to approve its own proposal, without regard to whether
consideration of such nominees or proposals might be harmful or beneficial to
New PanAmSat and its stockholders.
PanAmSat. PanAmSat has no advance notice requirement with regard to
stockholder nominations for the PamAmSat Board or for other stockholder
proposals.
AMENDMENT OR REPEAL OF THE CERTIFICATE OF INCORPORATION AND BYLAWS
The DGCL provides that (i) a corporation's certificate of incorporation may
be amended only by a vote of the stockholders of such corporation and (ii) the
bylaws of a corporation may be amended by a vote of its stockholders or, if
provided in its certificate of incorporation, by the board of directors of
such corporation.
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New PanAmSat. The New PanAmSat Certificate of Incorporation provides for the
amendment, alteration, change or repeal of any provision contained in the New
PanAmSat Certificate of Incorporation, as permitted under Delaware law and
expressly authorizes the New PanAmSat Board to make, alter and repeal the New
PanAmSat Bylaws.
PanAmSat. The PanAmSat Certificate of Incorporation requires the approval by
a majority of the votes of the outstanding shares of both PAS Class A Common
Stock and PAS Ordinary Common Stock, voting together as a single class, as
well as a majority of the votes of the outstanding shares of both PAS Class B
Common Stock and PAS Ordinary Common Stock, voting together as a single class,
to amend the PanAmSat Certificate of Incorporation or PanAmSat Bylaws.
Additionally, as long as the outstanding shares of PAS Class A Common Stock
and/or PAS Class B Common Stock represent at least 5% of the number of
outstanding shares of PAS Common Stock, a majority of the votes of each such
outstanding class must approve any proposed amendment to, or repeal of, the
PanAmSat Certificate of Incorporation or PanAmSat Bylaws.
PREEMPTIVE RIGHTS
The DGCL provides that no stockholder of a Delaware corporation shall have
any preemptive right to subscribe to an additional issue of stock or to any
security convertible into such stock unless such right is expressly granted in
the certificate of incorporation.
New PanAmSat. The New PanAmSat Certificate of Incorporation and New PanAmSat
Bylaws do not provide for preemptive rights.
PanAmSat. Holders of PAS Class A Common Stock and holders of PAS Class B
Common Stock shall be entitled to purchase, in each instance, at the net price
per share received by PanAmSat for the PAS Ordinary Common Stock, additional
shares of PAS Class A Common Stock or PAS Class B Common Stock, respectively,
if and to the extent necessary to maintain 51% of the total voting power of
PAS Class A Common Stock and the PAS Ordinary Common Stock, voting together as
a single class, in the case of the PAS Class A Common Stock, and 51% of the
total voting power of PAS Class B Common Stock and the PAS Ordinary Common
Stock, voting together as a single class, in the case of the PAS Class B
Common Stock.
PanAmSat may not issue any additional shares of PAS Class A Common Stock or
PAS Class B Common Stock without the approval of the holders of a majority of
the shares of PAS Ordinary Common Stock, except that PanAmSat may issue
additional shares of PAS Class A Common Stock and PAS Class B Common Stock in
connection with stock splits, stock dividends and other distributions and as
otherwise permitted by the Certificate of Incorporation. The holders of PAS
Ordinary Common Stock, PAS Class A Common Stock and PAS Class B Common Stock
are not entitled to preemptive rights or similar rights, except as described
as above.
LIQUIDATION RIGHTS
Generally, under the DGCL, a corporation may create one or more classes or
series of stock which classes or series may have such preferences as shall be
stated and expressed in the certificate of incorporation or in the resolution
adopted by the board of directors providing for the issue of such stock
pursuant to authority expressly vested in it by the provisions of its
certificate of incorporation. These preferences may include a priority on the
distribution of assets in liquidation.
New PanAmSat. PanAmSat and Galaxy currently anticipate that, following the
Reorganization, New PanAmSat will have only New PAS Common Stock issued and
outstanding. Should New PanAmSat elect to issue New PAS Preferred Stock, the
New PanAmSat Board may determine what preference such New PAS Preferred Stock
shall have in the distribution of assets in liquidation. The ability of the
New PanAmSat Board to designate and determine the rights of shares of New PAS
Preferred Stock may adversely affect the rights of the holders of New PAS
Common Stock by allowing the New PanAmSat Board to entrench itself and make it
more difficult for a third party to acquire a majority of the outstanding
voting stock of New PanAmSat.
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PanAmSat. Upon voluntary or involuntary liquidation, dissolution or winding-
up of the affairs of PanAmSat, the holders of PAS Preferred Stock shall be
entitled to receive the full amount to which they are entitled pursuant to the
PanAmSat Certificate of Incorporation and any resolutions that may be adopted
from time to time. As of April 2, 1997, there were 20,000,000 shares of PAS
Preferred Stock authorized and 341,843.2640 shares of PAS Preferred Stock
outstanding. The shares of PAS Preferred Stock outstanding at December 31,
1996 had an aggregate liquidation preference of $329 million. Upon
dissolution, holders of PAS Class A Common Stock, PAS Class B Common Stock and
PAS Ordinary Common Stock shall be entitled to share equally in the assets of
PanAmSat remaining after satisfying such liquidation preference.
DELAWARE GENERAL CORPORATION LAW SECTION 203
Section 203 of the DGCL provides that, subject to certain exceptions
provided therein, a corporation shall not engage in any business combination
or certain other transactions with any "owner of 15% or more of the
outstanding voting stock of the corporation" for a three year period following
the date that such stockholder becomes an interested stockholder unless
certain procedures are followed to safeguard against overreaching or
misconduct by such interested stockholder. In both the New PanAmSat
Certificate of Incorporation and the PanAmSat Certificate of Incorporation,
each of New PanAmSat and PanAmSat has expressly elected not to be governed by
the restrictions of Section 203 of the DGCL.
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MANAGEMENT OF NEW PANAMSAT
EXECUTIVE OFFICERS
The following table sets forth certain information with respect to those
individuals who are expected to serve as executive officers of New PanAmSat
immediately following the effective time of the Reorganization.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Frederick A. Landman.... 49 President and Chief Executive Officer
Carl A. Brown........... 48 Executive Vice President
Lourdes Saralegui....... 35 Executive Vice President
Kenneth N. Heintz....... 50 Executive Vice President and Chief Financial Officer
James W. Cuminale....... 44 Senior Vice President, General Counsel and Secretary
Robert A. Bednarek...... 39 Senior Vice President and Chief Technology Officer
</TABLE>
Frederick A. Landman will be Chief Executive Officer and a Director of New
PanAmSat. He presently is President and Chief Executive Officer of PanAmSat,
which positions he has held since September 1995. Mr. Landman has also been a
Director of PanAmSat since October 1994. Mr. Landman has been associated with
PanAmSat since its inception in 1984. Prior to 1984, Mr. Landman was Executive
Vice President at Galavision, Inc., the pay cable television service of
Spanish International Network, Inc. (now known as Univision) ("SIN"). As
Executive Vice President of SIN, Mr. Landman supervised the successful
transition from terrestrial to satellite delivery of SIN's television
programming. SIN was the first U.S. commercial network to utilize satellite
distribution for all of its programming. Mr. Landman began his 11-year career
at SIN in 1973 in the research department.
Carl A. Brown will be Executive Vice President of New PanAmSat. He has
served as Senior Vice President of Galaxy Satellite Services for HCI since May
1994. From March 1991 to May 1994, Mr. Brown served as Vice President of
Galaxy Satellite Services of HCI. Prior to joining HCI in 1988, Mr. Brown
served as Vice President, Sales and Marketing for Oak Communications from
March 1987 to August 1988, Director, Sales and Marketing/Western Region for
American Satellite Company from July 1983 to March 1987 and Marketing
Director, Allstate Communications Co., from 1969 to 1983.
Lourdes Saralegui will be Executive Vice President of New PanAmSat. She
currently is and has been Executive Vice President and a Director of PanAmSat
since October 1994. Ms. Saralegui has been associated with PanAmSat since its
founding in 1984. Prior to becoming Executive Vice President of PanAmSat,
Ms. Saralegui served as Assistant to the Chairman, Director of Development
Broadcast Transponder Sales and Fixed International Broadcast Services, and
Vice President.
Kenneth N. Heintz will be Executive Vice President and Chief Financial
Officer of New PanAmSat. He is presently Vice President, Corporate Development
of HE, which position he has held since September 1994. Mr. Heintz is also a
director and Treasurer of New PanAmSat, which positions he will resign from by
the Closing Date. Mr. Heintz was formerly a partner in the international
accounting firm of Deloitte & Touche LLP, where he was employed from 1967
until joining HE. While at Deloitte & Touche LLP, Mr. Heintz provided services
to HE at various times during the period from 1974 to 1994. Mr. Heintz will
continue to be a vice president of HE for a one year transition period
following the Closing Date.
James W. Cuminale will be Senior Vice President, General Counsel and
Secretary of New PanAmSat. He has served as Senior Vice President and General
Counsel of PanAmSat since January 1996 and joined PanAmSat as General Counsel
in March 1995. From 1983 to 1995, Mr. Cuminale was a partner in the law firm
of Ivey, Barnum & O'Mara. As a partner of Ivey, Barnum & O'Mara, Mr. Cuminale
provided legal services to PanAmSat from 1991 to 1995.
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Robert A. Bednarek will be Senior Vice President and Chief Technology
Officer of New PanAmSat. He is presently, and has been since January 1996,
Senior Vice President, Engineering and Operations of PanAmSat. From 1990, the
year in which he joined PanAmSat, to 1995, Mr. Bednarek was a Vice President.
Mr. Bednarek was formerly Vice President of Rubin, Bednarek & Associates, a
communications engineering consulting firm, of which he is a co-founder. Prior
to co-founding Rubin, Bednarek & Associates, he was Deputy Chief Scientist at
the Corporation for Public Broadcasting. As a member of Rubin, Bednarek &
Associates, Mr. Bednarek provided services to PanAmSat from 1984 to 1990.
EXECUTIVE COMPENSATION
New PanAmSat has not yet paid any compensation to its executive officers. It
is anticipated that the annual base salaries for 1997 for Mr. Landman, Ms.
Saralegui, Mr. Brown, Mr. Heintz, Mr. Cuminale and Mr. Bednarek will be
$600,000, $375,000, $250,000, $280,000, $225,000 and $220,000, respectively.
For information regarding employment agreements with Mr. Landman and
Ms. Saralegui, see "THE REORGANIZATION--Interests of Certain Persons in the
Reorganization." Mr. Landman, Ms. Saralegui, Mr. Brown, Mr. Cuminale and Mr.
Bednarek will also be entitled to participate in New PanAmSat's 1997 Stock
Plan (as defined below), Annual Incentive Plan and Deferred Compensation Plan.
Mr. Heintz will be entitled to participate in the 1997 Stock Plan (as defined
below) and will continue to be entitled to participate in HE's benefit plans
as long as he continues to be an employee of HE. See "--Executive Officers"
and "CERTAIN TRANSACTIONS--Hughes Parties."
Both Mr. Heintz and Mr. Brown will be reimbursed for all of their expenses
incurred in connection with their relocation to Greenwich, Connecticut. New
PanAmSat will reimburse Mr. Heintz for his expenses up to $100,000; any
additional costs will be paid for by HE. Mr. Brown will be fully reimbursed by
New PanAmSat. Among the expenses that will be covered are home marketing
assistance, home purchase assistance, house closing costs, interim living
expenses and actual moving costs. In addition, New PanAmSat and HE will
provide for spouse career assistance, tax assistance and a relocation
allowance. PanAmSat has loaned to Mr. Brown $92,250 at an interest rate of 5
7/10% to facilitate Mr. Brown's purchase of a home in Connecticut. It is
anticipated that he will repay this loan by the end of May 1997.
In the future, the New PanAmSat Board will rely on its Compensation
Committee, which will be composed of non-employee directors, to recommend the
form and amount of compensation to be paid to New PanAmSat's executive
officers. It is anticipated that the Compensation Committee will generally
adhere to compensation policies which reflect the belief that (i) New PanAmSat
must attract and retain individuals of outstanding ability and motivate and
reward such individuals for sustained performance, (ii) a substantial portion
of an executive's compensation should be at risk based on the executive's
performance and that of New PanAmSat, and (iii) within these parameters,
levels of compensation should generally be in line with that offered by
comparable corporations. On an ongoing basis, the type and amount of
compensation to be paid by New PanAmSat to its officers will be entirely
discretionary and within the subjective judgment of the Compensation
Committee.
EMPLOYMENT AGREEMENTS
It is anticipated that Frederick A. Landman will serve as President and
Chief Executive Officer of New PanAmSat after the Effective Time pursuant to
an employment agreement to be entered into between Mr. Landman and New
PanAmSat on terms and conditions to be negotiated by the parties thereto.
It is also anticipated that Lourdes Saralegui will serve as Executive Vice
President of New PanAmSat after the Effective Time pursuant to an employment
agreement to be entered into between Ms. Saralegui and New PanAmSat on terms
and conditions to be negotiated by the parties thereto.
It is further anticipated that Kenneth N. Heintz will serve as Executive
Vice President and Chief Financial Officer of New PanAmSat after the Effective
Time and will continue to be employed by HE for a one-year transition period
after the Effective Time. It is anticipated that during such transition period
New PanAmSat will pay HE for the services provided by Mr. Heintz to New
PanAmSat.
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BOARD OF DIRECTORS
The following table sets forth information as to the persons who are
expected to serve as directors of New PanAmSat following the Reorganization:
<TABLE>
<CAPTION>
NAME AGE
---- ---
<C> <S> <C>
Charles H. Noski, Chairman of the Board 44
Frederick A. Landman 49
Patrick J. Costello 40
Steven D. Dorfman 61
John J. Higgins 63
Ted G. Westerman 61
Dennis F. Hightower 55
James M. Hoak 53
Joseph R. Wright, Jr. 58
</TABLE>
Charles H. Noski is presently Vice Chairman and Chief Financial Officer of
HE, which positions he has held since 1996 and 1993, respectively. He is also
a member of HE's board of directors, executive committee and its Office of the
Chairman. Mr. Noski is also the Chairman of the Board of Hughes Investment
Management Company. He has held various executive positions with HE and its
subsidiaries since joining the organization in 1990. HE and Hughes Investment
Management Company are all affiliates of New PanAmSat. Mr. Noski is currently
the President of New PanAmSat (which position he will resign from by the
Closing Date) and a member of its board of directors.
Frederick A. Landman is presently President and Chief Executive Officer of
PanAmSat, which positions he has held since September 1995. Mr. Landman has
also been a Director of PanAmSat since October 1994. Mr. Landman has been
associated with PanAmSat since its inception in 1984. Prior to 1984, Mr.
Landman was Executive Vice President at Galavision, Inc., the pay cable
television service of SIN. As Executive Vice President of SIN, Mr. Landman
supervised the successful transition from terrestrial to satellite delivery of
SIN's television programming. SIN was the first U.S. commercial network to
utilize satellite distribution for all of its programming. Mr. Landman began
his 11-year career at SIN in 1973 in the research department.
Patrick J. Costello is presently the Chief Financial Officer and a director
of PanAmSat. Mr. Costello was elected as a Director of PanAmSat in October
1996 as a replacement for Reverge Anselmo, who resigned from the PanAmSat
Board in September 1996. He has been the Chief Financial Officer of PanAmSat
since May 1992. From 1985 through 1992, Mr. Costello was a practicing
Certified Public Accountant. It is anticipated that Mr. Costello will serve as
a transitional consultant to New PanAmSat for a reasonable period following
the Closing Date. See "CERTAIN TRANSACTIONS--PanAmSat."
Steven D. Dorfman is presently Executive Vice President of HE and Chairman
of the Hughes Telecommunications and Space Company, which positions he has
held since October 1, 1996. Both companies are affiliates of New PanAmSat, Mr.
Dorfman is also a member of HE's Office of the Chairman. Prior to his current
position, Mr. Dorfman served as President and Chief Executive Officer of
Hughes Space and Communications Company. Prior to that assignment, Mr. Dorfman
was President and Chief Executive Officer of HCI. He serves on the board of
directors of DIRECTV, American Mobile Satellite Corporation and Galaxy Latin
America. He also serves on various boards of directors of subsidiaries of HE.
John J. Higgins is presently Senior Vice President and General Counsel for
HE, an affiliate of New PanAmSat, which positions he has held since 1990 and
1988, respectively. From May 1988 until 1990, Mr. Higgins served as Vice
President and General Counsel for HE. Mr. Higgins also serves as a member of
HE's Office of the Chairman. He serves on the board of directors of Public
Counsel, is a trustee of Siena College, Loudonville, New York, and a member of
the Fordham Law School National Alumni Council.
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Ted G. Westerman is presently Senior Vice President and Chief Administrative
Officer of HE, an affiliate of New PanAmSat, which positions he has held since
1993 and 1996, respectively. Mr. Westerman is also a member of HE's Office of
the Chairman. Prior to that time he had been a Vice President of HE since
1990. He has held various executive positions with HE and its subsidiaries
since joining the organization in 1978.
Dennis F. Hightower is presently a Senior Lecturer on Business
Administration at the Harvard University Graduate School of Business
Administration, which position he has held since July 1996. He was a senior
executive with The Walt Disney Company from June 1987 to June 1996. He was
named President of Walt Disney Television & Telecommunications in March 1995.
Prior to 1995, Mr. Hightower was President of Disney Consumer Products,
Europe, Middle East and Africa. He is a member of the board of directors of
the TJX Companies, Inc., the Price Waterhouse Chairman's Advisory Council and
the Howard University Board of Trustees.
James M. Hoak founded Heritage Communications, Inc. (a diversified
communications company) in 1971 and served as its Chief Executive Officer
until 1991. From 1991 to 1995, Mr. Hoak served as the Chief Executive Officer
of Crown Media, Inc. (a cable television company). Mr. Hoak has served as
Chairman of the Board of Heritage Media Corporation (a company engaged in
targeted marketing services and broadcast television and radio) since its
inception in 1987. Mr. Hoak has also served as the Chairman of Hoak Capital
Corporation (a private investment company) since September 1991, Chairman of
HBW Holdings, Inc. (an investment banking and securities firm) since July 1996
and Chairman of James M. Hoak & Co. Mr. Hoak is a director of Dynamex, Inc.,
MidAmerican Energy Company, Pier 1 Imports, Inc. and Texas Industries, Inc.
Joseph R. Wright, Jr. is presently Chairman, CEO and a director of AVIC
Group International, Inc., a U.S. public company which develops and finances
telecommunications projects in the People's Republic of China. He is also
Chairman and a director of GRC International, Inc., a U.S. public company that
provides research and technical support to government and private entities. He
also serves as Vice Chairman of The Jefferson Group, Inc., a consulting and
public relations firm in Washington, D.C. and is Co-Chairman of Baker & Taylor
Holdings, Inc., an international book and video distribution company. From
1989 to 1994, Mr. Wright served as Vice Chairman and Executive Vice President
and as a director of W.R. Grace & Co. Prior to that, he was Director of the
Federal Office of Management and Budget during the Reagan Administration. Mr.
Wright also serves on the board of directors of Travelers Group and on the
Board of Trustees for Hampton University.
The New PanAmSat Certificate of Incorporation provides for an initial 10
member board of directors. As long as the Stockholder Agreement is in effect,
HCI will designate all members of the New PanAmSat Board not designated by
Minority Stockholders; provided that one of the directors designated by HCI
shall be Frederick A. Landman as long as he remains Chief Executive Officer of
New PanAmSat. It is anticipated that prior to the Closing Date HCI will
appoint Mr. Noski, Mr. Landman, Mr. Dorfman, Mr. Higgins, Mr. Westerman,
Mr. Hightower, Mr. Hoak and Mr. Wright. The Minority Stockholders initially
are entitled to designate two directors of New PanAmSat, one of whom will be
designated by the Class A Holders and one by S Company. It is expected that
prior to the Closing Date the Class A Holders will appoint Mr. Costello as a
director. As of the date hereof, S Company had not yet indicated who it
expects to appoint as a director or if it will appoint a director prior to the
Closing Date. The directorship to be filled by S Company will remain vacant
until S Company appoints a director. See "OTHER AGREEMENTS--Stockholder
Agreement."
DIRECTOR COMPENSATION; COMMITTEES
New PanAmSat expects to pay each of its non-employee directors a fee of
$16,000 per year for services as a director plus $1,000 to $1,500 for
attendance at each meeting of the New PanAmSat Board. In addition, New
PanAmSat shall reimburse the directors for travel expenses incurred in
connection with their duties as directors of New PanAmSat and the non-employee
directors will be eligible to participate in the 1997 Stock Plan (as defined
below). Patrick J. Costello will not receive a director's fee during the time
that he is serving as a transitional consultant to New PanAmSat.
At the Effective Time, the New PanAmSat Board is expected to have (i) a
Disinterested Directors Committee, (ii) an Audit Committee and (iii) a
Compensation Committee.
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Disinterested Directors Committee. The Disinterested Directors Committee
will be composed of the directors of New PanAmSat that are not existing or
retired employees of New PanAmSat or any of its "affiliates" (as defined in
Rule 12b-2 under the Securities and Exchange Act of 1934, as amended). Its
functions will be to review and recommend (in accordance with Section 7.23 of
the Reorganization Agreement and Section 2(c) of the Stockholder Agreement)
action on tender offers to acquire outstanding equity interests of New
PanAmSat for a period of five years after the Closing.
Audit Committee. The Audit Committee will be composed of three or more
directors of New PanAmSat, none of whom is an officer or employee of New
PanAmSat. It will have the powers and responsibilities designated to it by the
New PanAmSat Board from time to time. Its functions will be to make
recommendations
annually concerning the appointment of a firm of independent accountants to
audit New PanAmSat financial statements; review the arrangements for and scope
of the audit by independent accountants; consider the adequacy of the system
of New PanAmSat internal accounting controls and review any proposed
corrective actions.
Compensation Committee. The Compensation Committee will be composed of three
or more directors of New PanAmSat, each of whom shall satisfy the "non-
employee director" requirements of Rule 16b-3 of the Exchange Act and the
"outside director" requirements of Section 162(m) of the Code. It will have
the following powers and responsibilities: to review and recommend
compensation levels, bonus amounts, stock option grants and benefit plans; to
request and review reports from New PanAmSat management on the scope,
competence, performance and motivation of management employees; to develop,
review and recommend bonus, stock option and similar incentive plans or
programs and retirement and welfare plans or programs; to interpret bonus,
stock option and similar incentive plans; and to develop, review and recommend
changes of major benefit programs.
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NEW PANAMSAT EMPLOYEE BENEFIT AND OPTION PLANS
EMPLOYEE BENEFIT PLANS
New PanAmSat will offer its employees a comprehensive flexible benefits
package that will include the New PanAmSat Savings Plan (the "401(k) Plan"), a
health plan offering various medical, dental and vision coverage options,
several life, disability and accident insurance programs and a paid time-off
plan. The 401(k) Plan will be a defined contribution plan intended to qualify
under Section 401(a) of the Code that will include a cash or deferred
arrangement intended to qualify under Section 401(k) of the Code. Any employee
who completes one half year of service and attains age 21 will be eligible to
participate in the 401(k) Plan. Each participant will be able to elect to make
elective deferral contributions from 1% up to 15% of the participant's
compensation subject to a limit ($9,500 for 1997) which is prescribed by the
Code and adjusted for inflation periodically. The employer will make 100%
matching contributions with respect to each participant's elective deferrals
in the form of New PAS Common Stock, up to a maximum of 4% of the
participant's compensation. The employer may also make discretionary profit-
sharing contributions under the plan. Elective deferral and employer matching
contributions will be fully vested at all times. Any employer discretionary
profit-sharing contributions will be subject to a 6-year vesting schedule
under which the participant will become 20% vested after 2 years of service,
40% vested after 3 years of service, and so on, until the participant becomes
100% vested after 6 years of service. Upon retirement or other termination of
employment, a participant's account balance will be distributable to the
participant (or to the participant's beneficiary) in accordance with the
participant's election. Amounts will be distributed either in a lump sum or in
installment payments. It is anticipated that distributions may be made
available to participants during their employment in order to satisfy an
immediate and heavy financial need which cannot be reasonably satisfied from
other sources. It is also anticipated that the 401(k) Plan will permit
participants to borrow a portion of their vested account balances pursuant to
a uniform and non-discriminatory loan program. See "THE REORGANIZATION
AGREEMENT--Certain Benefits Matters."
Current HCI employees who are participants in HE's defined benefit pension
plan (the "HE Pension Plan") and who will become employees of New PanAmSat in
connection with the Reorganization will generally receive a lump-sum
distribution of their accrued benefits in the HE Pension Plan.
New PanAmSat employees will generally be eligible to receive "flex credits"
("Flex Credits") equal to 2% of the employee's annual salary. These Flex
Credits may be used to purchase health and insurance benefits offered under
the New PanAmSat benefits package and, to the extent not utilized for such
purposes, may be invested in the New PanAmSat Savings Plan or taken by the
employee as taxable income.
LONG-TERM STOCK INCENTIVE PLAN
It is anticipated that the New PanAmSat Board will adopt, subject to
approval by the stockholders of New PanAmSat, the Long-Term Stock Incentive
Plan Established in 1997 (the "1997 Stock Plan"). The 1997 Stock Plan is
intended to satisfy specific requirements of Section 162(m) of the Code
(discussed below) for grants of stock options (and may be amended, to the
extent necessary, to satisfy such requirements with respect to restricted
stock, performance units and performance shares) and Rule 16b-3 under the
Exchange Act. The 1997 Stock Plan is designed to provide long-term incentives
and rewards to employees of New PanAmSat, to assist New PanAmSat in attracting
and retaining employees with experience and/or ability on a basis competitive
with industry practices and to associate the interest of such employees with
those of the New PanAmSat stockholders. The 1997 Stock Plan will provide for
the issuance of up to 7,456,140 shares of New PAS Common Stock, approximately
5% of the outstanding shares of New PAS Common Stock at the Closing, pursuant
to the grant or exercise of stock options (including ISOs), alternate
appreciation rights, restricted stock, performance units and performance
shares. No single participant may be granted awards pursuant to the 1997 Stock
Plan covering in excess of 2,000,000 shares of New PAS Common Stock. Awards
may be granted to officers, other employees, directors and independent
contractors, as described below.
Administration. The 1997 Stock Plan will be administered by the Compensation
Committee of the New PanAmSat Board. Shares available under the 1997 Stock
Plan can be allocated among the various types of
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awards and among the participants as the Compensation Committee deems
appropriate. Awards may be granted for such terms as the Compensation
Committee may determine, except that the term of an ISO may not exceed ten
years from its date of grant. No awards outstanding on the termination date of
the 1997 Stock Plan shall be affected or impaired by such termination. Awards
will not be transferable, except by will and the laws of descent and
distribution, unless otherwise permitted by the Compensation Committee. The
Compensation Committee will have broad authority to set the terms and
conditions of individual agreements with participants, other than with respect
to the participants' exercise rights upon termination of employment (or
services, in the case of a non-employee award recipient) by reason of death,
disability, retirement, termination by New PanAmSat without "cause" and upon
termination for any other reason. See "Exercisability of Awards" below.
Exercisability of Awards. Upon the death or disability of a recipient of an
award under the 1997 Stock Plan during the recipient's employment (or
performance of services in the case of a non-employee) the recipient may
exercise any award which is otherwise exercisable on the date of death or
disability within one year of termination due to death or disability. In the
case of death, the award may be exercised by the recipient's estate or by a
person who acquires the right to exercise the award by death of the recipient.
In the case of disability, the award may be exercised by the recipient or, if
the recipient is incapacitated, by a guardian or legal representative. If the
employment (or the performance of services, in the case of a non-employee) of
an award recipient terminates by reason of retirement or by reason of
termination by New PanAmSat without "cause" (as defined in the 1997 Stock
Plan), the recipient may exercise any award which was exercisable on the date
of termination of employment (or services, in the case of a non-employee)
within three months of such a termination. It has not yet been determined how
long this period will be extended upon disability or retirement. Upon
termination of the employment (or services, in the case of a non-employee) of
an award recipient for any other reason, any award granted to the individual
will terminate. Any award granted which is not exercised within the
permissible time following termination of employment (or services in the case
of non-employees) will terminate.
Method of Payment for Stock Options. Upon exercise of any option granted
under the 1997 Stock Plan, the optionee must pay to New PanAmSat in full, the
exercise price for such shares set by the Compensation Committee on the date
of grant and any applicable withholding taxes either in cash, previously owned
New PAS Common Stock or a combination of cash and previously owned New PAS
Common Stock. In addition, each option agreement must permit the optionee to
pay the exercise price through a cashless exercise program established by New
PanAmSat or the Compensation Committee with a broker.
Types of Awards. As indicated above, several types of stock-related grants
will be available under the 1997 Stock Plan. A summary of these grants is set
forth below:
. Stock Options. The 1997 Stock Plan authorizes the Compensation Committee
to grant options to purchase New PAS Common Stock at an exercise price
(the "option price") equal to the fair market value of the New PAS
Common Stock at the date of such grant (110% of the fair market value in
the case of ISOs granted to ten (10%) percent shareholders of New PAS
Common Stock). As noted above, options may be granted either as ISOs or
nonqualified options. The principal difference between ISOs and
nonqualified options is their tax treatment. See "Federal Income Tax
Consequences," below.
. Alternate Appreciation Rights. The 1997 Stock Plan authorizes the
Compensation Committee to grant alternate appreciation rights in
conjunction with the grant of options, whether ISOs or nonqualified
options. An alternate appreciation right will permit the optionee to be
paid the appreciation on the shares underlying the option in lieu of
exercising the option. Upon exercise of an alternate appreciation right,
the participant will receive an amount, payable in New PAS Common Stock,
equal to the difference between the fair market value of the New PAS
Common Stock as of the exercise date and the exercise price of the
option related to the alternate appreciation right.
. Restricted Stock. The 1997 Stock Plan authorizes the Compensation
Committee to grant restricted stock to individuals with such
restrictions as the Compensation Committee may designate.
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<PAGE>
. Performance Units. The 1997 Stock Plan authorizes the Compensation
Committee to grant performance units to individuals based on performance
criteria established by the Compensation Committee.
. Performance Shares. The 1997 Stock Plan authorizes the Compensation
Committee to grant performance shares to individuals based on
performance criteria established by the Compensation Committee.
Amendment and Discontinuance. The 1997 Stock Plan may be amended, altered or
discontinued by the Compensation Committee, but no amendment, alteration or
discontinuance may be made which would (i) impair the rights of a participant
under an award previously granted to him without the participant's consent,
except such an amendment made to comply with changes in law or stock exchange
rules, (ii) increase the maximum number of shares of New PAS Common Stock
which may be issued under the 1997 Stock Plan to all participants or to any
one participant (other than increases resulting from "Changes in
Capitalization" described below), (iii) extend the period during which any
award may be granted or exercised, or (iv) extend the term of the 1997 Stock
Plan, without shareholder approval.
Changes in Capitalization. The 1997 Stock Plan provides that, in the event
of any change in the outstanding New PAS Common Stock by reason of a stock
dividend or distribution, recapitalization, merger, consolidation, split-up,
combination, exchange of shares or the like, the Compensation Committee may
appropriately adjust the number of shares of New PAS Common Stock which may be
issued under the 1997 Stock Plan, the maximum number of shares in respect of
which options or other awards may be granted to any individual during its
term, the number of shares of New PAS Common Stock subject to options
previously granted, the exercise price of options previously granted, and any
and all other matters deemed appropriate by the Compensation Committee.
Federal Income Tax Consequences. The following discussion is intended only
as a brief summary of the federal income tax rules relevant to stock options,
alternate appreciation rights, restricted stock, performance units and
performance shares. The laws governing tax aspects of awards are highly
technical and subject to change.
. Nonqualified Options and Alternative Appreciation Rights. Upon the grant
of a nonqualified option (with or without an alternate appreciation
right), the optionee will not recognize any taxable income and New
PanAmSat will not be entitled to a deduction. Upon the exercise of such
an option or an alternate appreciation right, the excess of the fair
market value of the shares acquired on the exercise of the option over
the option price (the "spread"), or the consideration paid to the
optionee upon exercise of the alternate appreciation right, will
constitute compensation taxable to the optionee as ordinary income. In
determining the amount of the spread or the amount of consideration paid
to the optionee, the fair market value of the stock on the date of
exercise is used, except that in the case of an optionee subject to
Section 16(b) of the Exchange Act, such ordinary income will not be
realized until the end of such period, if any, during which a sale of
the shares could subject the optionee to suit under Section 16(b), and
will be measured by the fair market value of the stock at that time,
unless such optionee elects under Section 83(b) of the Code to realize
ordinary income at the time of exercise, measured by the fair market
value of the stock at that time. The precise application of the
foregoing deferral of income rule under applicable rules adopted by the
Commission under Section 16 of the Exchange Act is not entirely clear.
It appears likely, however, that realization of income will no longer be
deferred, at least unless the optionee has other matching purchases of
stock during the six-month period prior to the exercise of the option,
and perhaps not even then. New PanAmSat, in computing its federal income
tax, will generally be entitled to a deduction in an amount equal to the
compensation taxable to the optionee.
. Incentive Stock Options. An optionee who is granted an ISO would not
recognize taxable income either on the date of grant or on the date of
its timely exercise, although the exercise of an ISO would be an item of
tax preference income potentially subject to the alternative minimum
tax. Upon
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<PAGE>
disposition of the New PAS Common Stock acquired upon exercise of an
ISO, capital gain or loss would be recognized in an amount equal to the
difference between the sales price and the option exercise price,
provided the participant has not disposed of the New PAS Common Stock
within two years of the date of grant and within one year from the date
of exercise. When a participant exercises an ISO, New PanAmSat would not
generally be entitled to a tax deduction. However, if the participant
disposes of stock acquired through exercise of such an option before
meeting the required holding period, the participant must generally
recognize ordinary income in the amount of the difference between the
option exercise price and the fair market value of the New PAS Common
Stock on the date of exercise, and New PanAmSat would be entitled to a
deduction equal to the amount of ordinary income recognized by the
participant. If the holder of an ISO pays the exercise price, in full or
in part, with previously acquired shares of New PAS Common Stock, no
capital gain or loss is recognized upon the surrender of such previously
acquired shares.
. Restricted Stock, Performance Units and Performance Shares. The federal
income taxation of individuals who are awarded restricted stock,
performance units or performance shares will depend upon the
restrictions and limitations imposed on such awards by the Compensation
Committee. During any periods that the awards are subject to substantial
limitations or restrictions (for example, restricted shares which are
awarded subject to a substantial risk of forfeiture based on the
performance of services or the attainment of performance goals), the
individual receiving the award will not be subject to current federal
income taxation. Concomitantly, during the period when the awards are
subject to substantial limitations or restrictions, New PanAmSat will
not be entitled to a compensation deduction. However, because the
specific limitations and restrictions applicable to these awards are
determined solely by the Compensation Committee and are not specified in
the terms of the 1997 Stock Plan, no specific discussion of their
federal income tax consequences is possible.
The only benefits determinable as of the date of this Proxy
Statement/Prospectus that will be received under the 1997 Stock Plan are stock
options to purchase New PAS Common Stock. It is anticipated that Mr. Landman,
Mr. Brown, Ms. Saralegui, Mr. Heintz, Mr. Cuminale and Mr. Bednarek will
receive grants of 93,750, 31,250, 31,250, 25,000, 12,500 and 12,815 shares,
respectively. Such options are anticipated to be granted on the Closing Date.
It is anticipated that such options will vest at a rate of 33 1/3% per year
over three years commencing on the date of the grant.
ANNUAL INCENTIVE PLAN
New PanAmSat intends to establish the Annual Incentive Plan (the "Annual
Incentive Plan"), effective as of January 1, 1997, subject to approval by New
PanAmSat's stockholders. The Annual Incentive Plan is intended to satisfy
specific requirements of Section 162(m) of the Code with respect to the
payment of performance-based awards. The Annual Incentive Plan will, in its
current draft form, provide for the payment to eligible participants of annual
incentive cash awards. The annual terms of the plan will correspond to New
PanAmSat's fiscal year, running from January 1 through December 31 (the "Plan
Year"), with the initial Plan Year to commence on January 1, 1997.
To be eligible to participate in the Annual Incentive Plan, an individual
must be: (i) an employee of New PanAmSat and (ii) recommended by the Chief
Executive Officer and considered and approved by the Compensation Committee
for participation in the Annual Incentive Plan.
The Annual Incentive Plan will provide a target bonus for all participants
that is tied to pre-established corporate financial performance measures and
goals designed to promote shareholder value creation. The performance period
with respect to which awards may be payable under the Annual Incentive Plan
will generally be the Plan Year, provided that the Committee has the authority
and discretion to designate different performance periods under the Annual
Incentive Plan.
Within the first ninety days of each Plan Year, the Compensation Committee
will approve or establish in writing one or more performance goals or
measures, a specific target objective or objectives with respect to such
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performance goals or measures, and an objective formula or method for
compiling the amount of incentive compensation payable to each participant
under the Annual Incentive Plan if the goals are attained.
As soon as practicable after the end of the Plan Year, the Compensation
Committee will certify in writing the extent to which participants have
achieved the performance goals and standards for the Plan Year, including the
specific target objectives and the satisfaction of any other material terms of
the incentive awards. The Compensation Committee will then calculate the
amount of each participant's incentive award for the relevant period.
Approved incentive awards will be payable by New PanAmSat in cash to each
participant, or to his or her estate in the case of death, as soon as
practicable after the end of each performance period and after the
Compensation Committee has certified in writing that the specified goals were
achieved.
An incentive award that would be payable but for the fact that the
participant was not employed by New PanAmSat on the last day of the
performance period shall either be prorated or not paid, in accordance with
the rules and regulations adopted by the Compensation Committee for the
administration of the Annual Incentive Plan. In the event that a participant's
employment with New PanAmSat terminates voluntarily or for cause, no portion
of any target award will be paid. If termination is involuntary or on account
of death, disability or retirement, a pro rata award will be paid within a
reasonable period of time after the end of the fiscal year in which the
termination occurs.
The maximum amount of compensation payable under the Annual Incentive Plan
during any performance period is $1 million for any participant in the Annual
Incentive Plan.
DEFERRED COMPENSATION PLAN
New PanAmSat anticipates that it will implement a plan that will allow its
executive officers and certain of its employees to defer compensation. The
details of such plan have not yet been finalized by New PanAmSat.
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<PAGE>
OWNERSHIP OF PANAMSAT CAPITAL STOCK
The following table sets forth certain information regarding the shares of
PAS Common Stock beneficially owned as of December 31, 1996 by (i) each person
or entity who, insofar as PanAmSat has been able to ascertain, beneficially
owned as of such date more than 5% of PAS Class A Common Stock, PAS Class B
Common Stock or PAS Ordinary Common Stock, (ii) each of the directors of
PanAmSat, (iii) each of PanAmSat's Chief Executive Officer and the four other
most highly compensated executive officers of PanAmSat for the fiscal year
ended December 31, 1996 and (iv) all directors and executive officers of
PanAmSat, as a group (7 persons).
<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER OF SHARES(2) TOTAL CAPITAL STOCK
---------------------------------- -----------------------------------------------------------
PAS PAS PERCENTAGE PERCENTAGE
PAS PAS ORDINARY PAS PAS ORDINARY OF PAS OF TOTAL
NAME OF BENEFICIAL CLASS A CLASS B COMMON CLASS A CLASS B COMMON COMMON VOTING
OWNER(1) COMMON STOCK COMMON STOCK STOCK COMMON STOCK COMMON STOCK STOCK STOCK POWER
------------------ ------------ ------------ -------- ------------ ------------ -------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Voting Trust
(3)(5)(6)(19)........... 40,459,432 -- -- 100% -- -- 40.5% 49.2%
Article VII Trust Created
Under the Rene Anselmo
Revocable Trust Dated
June 10, 1994
(3)(4)(6)(12)(19)....... 28,955,313 -- -- 71.6% -- -- 29.0% 35.2%
Mary Anselmo
(3)(4)(5)(6)(7)(12)(14)(19).. 30,845,991 -- -- 76.2% -- -- 30.8% 37.5%
Frederick A. Landman
(3)(4)(5)(6)(8)(12)(19).. 4,953,058 -- 40,000 12.2% -- * 4.9% 6.0%
Pier Landman
(3)(6)(9)(12)(13)(19)... 540,176 -- -- 1.3% -- -- * *
Reverge Anselmo
(3)(4)(5)(6)(10)(12)(16)(19).. 678,031 -- -- 1.7% -- -- * *
Lourdes Saralegui
(3)(4)(5)(6)(11)(12)(19).. 374,099 -- 30,000 * -- * * *
Frederick A. Landman
Irrevocable Trust
(3)(6)(12)(13)(19)...... 2,122,738 -- -- 5.2% -- -- 2.1% 2.6%
Rissa Landman Trust
(3)(6)(12)(13)(19)...... 94,534 -- -- * -- -- * *
Chloe Landman Trust
(3)(6)(12)(13)(19)...... 94,534 -- -- * -- -- * *
Rayce Anselmo Trust
(3)(5)(6)(12)(14)(19)... 756,271 -- -- 1.9% -- -- * *
Patrick J. Costello
(6)(14)(16)............. -- -- 17,567 -- -- * * *
James W. Cuminale (17)... -- -- 17,000 -- -- * * *
Robert A. Bednarek (18).. -- -- 18,000 -- -- * * *
Lawrence W. Dam.......... -- -- 3,300 -- -- * * *
Guillermo Canedo White... -- -- -- -- -- -- -- --
Univisa Satellite
Holdings, Inc.(15)...... -- 40,459,431 -- -- 100% -- 40.5% 49.2%
All executive officers
and directors as a group
(7 persons) (4)(5)(12).. 40,459,432 -- 125,867 100% -- * 40.5% 49.2%
</TABLE>
- --------
* Less than 1%.
(1) For purposes of this table, beneficial ownership of securities is defined
in accordance with the rules of the Commission and means generally the
power to vote or exercise investment discretion with respect to
securities, regardless of any economic interests therein. Except as
otherwise indicated, PanAmSat believes that the beneficial owners of
shares of PAS Ordinary Common Stock listed below have sole investment and
voting power with respect to such shares, subject to community property
laws where applicable. In addition, for purposes of this table, a person
or group is deemed to have "beneficial ownership" of any shares which
such person has the right to acquire within 60 days after the date of
this Proxy Statement/Prospectus. For purposes of calculating the
percentage of outstanding shares held by each person listed below, any
shares which such person has the right to acquire within 60 days after
the date of the Proxy Statement/Prospectus are deemed to be outstanding,
but not for the purpose of calculating the percentage ownership of any
other person.
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(2) Each share of PAS Class A Common Stock and PAS Class B Common Stock is
convertible into one share of PAS Ordinary Common Stock.
(3) The address of such entity or person is c/o PanAmSat Corporation, One
Pickwick Plaza, Greenwich, Connecticut 06830.
(4) Mary Anselmo, Reverge Anselmo, Frederick A. Landman and Lourdes Saralegui
are joint trustees (the "Joint Trustees") under the Article VII Trust
Created Under the Rene Anselmo Revocable Trust dated June 10, 1994 (the
"Article VII Trust"), which was created by Rene Anselmo (the former
Chairman of the Board and Chief Executive Officer of PanAmSat), and
succeeded to all of the stock owned by Rene Anselmo on the date of his
death; Mrs. Anselmo has the sole power to require or prohibit the sale of
the shares owned by this trust.
(5) Mary Anselmo, Reverge Anselmo, Frederick A. Landman and Lourdes Saralegui
are joint voting trustees under the Voting Trust which gives them voting,
but not dispositive, power over all of the outstanding shares of PAS
Class A Common Stock. The Voting Trust Agreement grants to the Article
VII Trust a right of first refusal to purchase the shares of certain
holders of voting trust certificates under certain circumstances. Each of
Mary Anselmo, Reverge Anselmo, Frederick A. Landman and Lourdes
Saralegui, in his or her capacity as joint voting trustee, may be deemed
to be the beneficial owner of all the shares of PAS Class A Common Stock
held by the Voting Trust, but each of them disclaims beneficial ownership
of such shares, other than the shares held in the Voting Trust for his or
her benefit. The Voting Trust will terminate on the Effective Date of the
Merger.
(6) The shares of PAS Class A Common Stock held in the Voting Trust consist
of (i) 28,955,313 shares held for the benefit of the Article VII Trust,
(ii) 1,890,678 shares held for the benefit of Mrs. Anselmo, (iii) 678,031
shares held for the benefit of Reverge Anselmo, (iv) 540,176 shares held
for the benefit of Pier Landman, (v) 756,271 shares held for the benefit
of the Rayce Anselmo Trust, for which Mary Anselmo and Patrick Costello
are co-trustees, (vi) 4,953,058 shares held for the benefit of Mr.
Landman, (vii) 374,099 shares held for the benefit of Ms. Saralegui,
(viii) 189,068 shares held for the benefit of trusts for the benefit of
Mr. Landman's minor children (the Rissa Landman Trust and Chloe Landman
Trust) and (ix) 2,122,738 shares held for the benefit of the Frederick A.
Landman Irrevocable Trust, for which Patrick Costello is the sole
trustee.
(7) The shares of PAS Class A Common Stock shown to be owned by Mrs. Anselmo
include 28,955,313 shares owned by the Article VII Trust for which Mrs.
Anselmo is a Joint Trustee, has sole power to require or prohibit the
sale, is the principal beneficiary and for which Mrs. Anselmo claims
beneficial ownership, and exclude 8,857,170 shares of PAS Class A Common
Stock included in the Voting Trust, as to which she disclaims beneficial
ownership.
(8) The shares of PAS Class A Common Stock shown to be owned by Mr. Landman
do not include (i) 28,955,313 shares held for the benefit of the Article
VII Trust for which Mr. Landman is a Joint Trustee, (ii) 540,176 shares
owned by Mr. Landman's former wife, Pier Landman, (iii) 189,068 shares
owned by trusts for the benefit of Mr. Landman's minor children and (iv)
2,122,738 shares owned by the Frederick A. Landman Irrevocable Trust,
with respect to all of which Mr. Landman disclaims beneficial ownership.
The shares shown to be owned by Mr. Landman also do not include an
additional 3,699,079 shares of PAS Class A Common Stock included in the
Voting Trust, as to which he disclaims beneficial ownership. The shares
of PAS Ordinary Common Stock shown to be owned by Mr. Landman include
40,000 shares of which he has beneficial ownership pursuant to the 1995
Stock Plan.
(9) The shares of PAS Class A Common Stock shown to be owned by Ms. Landman
do not include (i) 189,168 shares held by trusts for Ms. Landman's minor
children, for which Ms. Landman is the trustee and for which she
disclaims beneficial ownership, and (ii) 2,122,738 shares held by the
Frederick A. Landman Irrevocable Trust, for which Ms. Landman is the
principal beneficiary and for which she claims beneficial ownership to
the extent of her pecuniary interest therein.
(10) The shares shown to be owned by Mr. Anselmo exclude (i) 28,955,313 shares
held by the Article VII Trust for which Mr. Anselmo is a Joint Trustee
and (ii) an additional 10,826,088 shares of PAS Class A Common Stock
included in the Voting Trust, as to which he disclaims beneficial
ownership.
(11) The shares shown to be owned by Ms. Saralegui do not include (i)
28,955,313 shares held for the benefit of the Article VII Trust for which
Ms. Saralegui is a joint trustee and (ii) an additional 40,085,333 shares
of PAS Class A Common Stock included in the Voting Trust, as to which she
disclaims beneficial ownership. The shares of PAS Ordinary Common Stock
shown to be owned by Ms. Saralegui include 30,000 shares of which she has
beneficial ownership pursuant to the 1995 Stock Plan.
(12) These shares of PAS Class A Common Stock are held in the Voting Trust.
(13) Pier Landman is the principal lifetime beneficiary of the Frederick A.
Landman Irrevocable Trust, and Rissa Landman and Chloe Landman are the
remaindermen.
(14) Rayce Anselmo is the principal lifetime beneficiary of the Rayce Anselmo
Trust. Mary Anselmo and Patrick Costello are co-trustees of this trust
and disclaim beneficial ownership of the shares owned by this trust.
(15) The address of Univisa Satellite Holdings, Inc. is c/o Univisa, Inc.,
2121 Avenue of the Stars, Suite 3300, Los Angeles, California 90067. USHI
is a wholly owned subsidiary of Televisa.
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(16) Reverge Anselmo resigned from the PanAmSat Board effective October 2,
1996 and Patrick Costello was appointed to replace him. The shares of PAS
Ordinary Common Stock shown to be owned by Mr. Costello include 16,500
shares of which he has beneficial ownership pursuant to the 1995 Stock
Plan. The shares shown to be owned by Mr. Costello exclude 756,271 shares
of Class A Common Stock held for the benefit of the Rayce Anselmo Trust,
for which Mr. Costello is the co-trustee and for which shares Mr.
Costello disclaims beneficial ownership.
(17) These shares include 15,000 shares of PAS Ordinary Common Stock of which
Mr. Cuminale has beneficial ownership pursuant to the 1995 Stock Plan.
(18) These shares include 15,000 shares of PAS Ordinary Common Stock of which
Mr. Bednarek has beneficial ownership pursuant to the 1995 Stock Plan.
(19) Immediately before the Record Date, an aggregate of 19,228,017 shares of
PAS Class A Common Stock were converted voluntarily by all holders of PAS
Class A Common Stock on a pro rata basis into 19,228,017 shares of PAS
Ordinary Common Stock. Accordingly, as of the Record Date, the Voting
Trust held (i) 100% of the PAS Class A Common Stock, (ii) 50.1% of PAS
Ordinary Common Stock, (iii) 40.5% of PAS Common Stock and (iv) 35.0% of
the total voting power. The following table sets forth certain
information regarding the shares of PAS Common Stock beneficially owned
by the Class A Holders as of the Record Date:
<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER OF SHARES TOTAL CAPITAL STOCK
------------------------- -----------------------------------------------------
PAS PAS PAS PAS PERCENTAGE PERCENTAGE OF
CLASS A ORDINARY CLASS A ORDINARY OF PAS TOTAL VOTING
NAME OF BENEFICIAL OWNER COMMON STOCK COMMON STOCK COMMON STOCK COMMON STOCK COMMON STOCK POWER
- ------------------------ ------------ ------------ ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Voting Trust............ 21,231,415 19,228,017 100% 50.1% 40.5% 35.0%
Article VII Trust
Created Under the Rene
AnselmoRevocable Trust
Dated June 10, 1994.... 15,194,535 13,760,778 71.6% 35.9% 29.0% 25.1%
Mary Anselmo............ 16,186,684 14,659,307 76.2% 38.3% 30.8% 26.7%
Frederick A.
Landman(a)............. 2,599,157 2,353,901 12.2% 6.1% 4.9% 4.3%
Pier Landman............ 283,462 256,714 1.3% * * *
Reverge Anselmo......... 355,802 322,229 1.7% * * *
Lourdes
Saralegui(b)........... 196,311 177,788 * * * *
Frederick A. Landman
Irrevocable Trust...... 1,113,924 1,008,814 5.2% 2.6% 2.1% 1.8%
Rissa Landman Trust..... 49,608 44,926 * * * *
Chloe Landman Trust..... 49,608 44,926 * * * *
Rayce Anselmo Trust..... 396,859 359,412 1.9% * * *
All Class A Holders..... 21,231,415 19,228,017 100% 50.1% 40.5% 35.0%
</TABLE>
- --------
* Less than 1%.
(a) Mr. Landman's shares do not include 40,000 shares of PAS Ordinary Common
Stock of which Mr. Landman has beneficial ownership pursuant to the 1995
Stock Plan.
(b) Ms. Saralegui's shares do not include 30,000 shares of PAS Ordinary Common
Stock of which Ms. Saralegui has beneficial ownership pursuant to the 1995
Stock Plan.
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<PAGE>
PRO FORMA OWNERSHIP OF NEW PANAMSAT CAPITAL STOCK
The following table sets forth certain information regarding the shares of
New PAS Common Stock that will be owned immediately after giving effect to the
Merger, the Univisa Contribution (including the Share Repurchase contemplated
thereby) and the Asset Contribution, assuming that all holders of PAS Ordinary
Common Stock and PAS Class A Common Stock receive the Standard Consideration
in the Merger and that S Company receives the equivalent of the Standard
Consideration in the Univisa Contribution, by (i) each person or entity
expected to beneficially own more than 5% of New PAS Common Stock, (ii) each
person expected to be a director of New PanAmSat, (iii) each person expected
to be one of the five most highly compensated executive officers of New
PanAmSat, based on 1996 compensation levels for PanAmSat and Galaxy executive
officers and (iv) all persons expected to be New PanAmSat directors and
executive officers, as a group.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP OF
SHARES OF NEW PAS PERCENTAGE OWNERSHIP OF
NAME OF BENEFICIAL OWNER (1) COMMON STOCK NEW PANAMSAT
---------------------------- ----------------------- -----------------------
<S> <C> <C>
General Motors Corporation(2).. 106,622,807 71.5%
Mary Anselmo(3)(4)(5).......... 15,422,995 10.3%
Article VII Trust Created Under
the Rene Anselmo Revocable
Trust Dated June 10,
1994(3)(4)(5)................. 14,477,656 9.7%
Satellite Company,
L.L.C.(6)(7).................. 12,729,715 8.5%
Charles H. Noski............... -- --
Frederick A. Landman(3)(4)(8).. 2,476,529 1.7%
Patrick J. Costello............ 533 *
Steven D. Dorfman.............. -- --
John J. Higgins................ -- --
Ted G. Westerman............... -- --
Dennis F. Hightower............ -- --
James M. Hoak.................. -- --
Joseph R. Wright............... -- --
Lourdes Saralegui(3)(4)(9)..... 187,049 *
Carl A. Brown.................. -- --
Kenneth N. Heintz.............. -- --
James W. Cuminale.............. 1,000 *
Robert A. Bednarek............. 1,500 *
All executive officers and di-
rectors as a group (14 per-
sons)(4)...................... 17,144,267 10.9%
</TABLE>
- --------
* Less than 1%
(1) For purposes of this table, beneficial ownership of securities is defined
in accordance with the rules of the Commission and means generally the
power to vote or exercise investment discretion with respect to
securities, regardless of any economic interests therein. Except as
otherwise indicated, Galaxy and PanAmSat believe that the beneficial
owners of shares of New PAS Common Stock listed below have sole investment
and voting power with respect to such shares, subject to community
property laws where applicable. In addition, for purposes of this table, a
person or group is deemed to have "beneficial ownership" of any shares
which such person has the right to acquire within 60 days after the date
of this Proxy Statement/Prospectus. For purposes of calculating the
percentage of outstanding shares held by each person listed below, any
shares which such person has the right to acquire within 60 days after the
date of the Proxy Statement/Prospectus are deemed to be outstanding, but
not for the purpose of calculating the percentage ownership of any other
person.
(2) The address of such entity is 3044 West Grand Boulevard, Detroit, Michigan
48202-3091. All of such shares will be owned of record by HCI, HCG and
HCSS, each of which entity is a wholly owned subsidiary of General Motors
Corporation.
(3) The address of such entity or person is c/o PanAmSat Corporation, One
Pickwick Plaza, Greenwich, Connecticut 06830.
(4) Mary Anselmo, Reverge Anselmo, Frederick A. Landman and Lourdes Saralegui
are the Joint Trustees under the Article VII Trust, which was created by
Rene Anselmo (the former Chairman of the Board and Chief Executive Officer
of PanAmSat), and succeeded to all of the stock owned by Rene Anselmo on
the date of his death. On the Effective Date of the Merger, a majority of
the Joint Trustees will have power to vote all of the New PAS Common Stock
that will be held by the Article VII Trust and Mrs. Anselmo, as Joint
Trustee, will have the sole power to require or prohibit the
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sale of such shares. Each of the Joint Trustees, in his or her capacity as
such, may be deemed to be the beneficial owner of all the shares of New PAS
Common Stock that will be held by the Article VII Trust, but each Joint
Trustee, other than Mrs. Anselmo, disclaims beneficial ownership of such
shares.
(5) The shares of New PAS Common Stock shown to be owned by Mrs. Anselmo
include 14,477,656 shares to be owned by the Article VII Trust, for which
Mrs. Anselmo is a Joint Trustee, has sole power to require or prohibit the
sale, is the principal beneficiary and for which Mrs. Anselmo claims
beneficial ownership.
(6) The address of such entity is Fonovisa Centroamerica, S.A., De Popa de
Curridabat 25 Mts. Este, Edificio Galerias del Este, Local 8, San Jose,
Costa Rica. Satellite Company, L.L.C. is a 100% direct and indirect
subsidiary of Grupo Televisa, S.A.
(7) S Company will receive 20,229,715 shares of New PAS Common Stock in the
Univisa Contribution. Immediately following S Company's receipt of such
shares, New PanAmSat will repurchase for $225 million 7.5 million of such
shares.
(8) The shares of New PAS Common Stock shown to be owned by Mr. Landman do not
include (i) 14,477,656 shares to be held for the benefit of the Article
VII Trust for which Mr. Landman is a Joint Trustee, (ii) 270,088 shares to
be owned by Mr. Landman's former wife, Pier Landman, (iii) 94,534 shares
to be owned by trusts for the benefit of Mr. Landman's minor children and
(iv) 1,061,369 shares to be owned by the Frederick A. Landman Irrevocable
Trust, with respect to all of which Mr. Landman disclaims beneficial
ownership. Pier Landman is the principal lifetime beneficiary of the
Frederick A. Landman Irrevocable Trust, and Mr. Landman's minor children
are the remaindermen. Pier Landman is also the sole trustee of the trusts
for the benefit of Mr. Landman's minor children.
(9) The shares shown to be owned by Ms. Saralegui do not include 14,477,656
shares held for the benefit of the Article VII Trust for which Ms.
Saralegui is a Joint Trustee with respect to which Ms. Saralegui disclaims
beneficial ownership.
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CERTAIN TRANSACTIONS
PANAMSAT
PanAmSat has various satellite service agreements with Televisa and its
affiliates. Pursuant to these agreements, PanAmSat received payments in the
nine months ended September 30, 1996 aggregating $6.7 million, relating to
satellite services provided by the PAS-1 and PAS-3 satellites. At September
30, 1996, approximately $195 million of PanAmSat's expected future cash
payments from the PAS-1 and PAS-3 satellites were represented by long-term
arrangements with Televisa and its affiliates.
PanAmSat previously was committed to purchase several million dollars' worth
of equipment in connection with a DTH joint venture to be formed by PanAmSat
and Televisa pursuant to the Original MOU. This commitment was canceled by
PanAmSat pursuant to the Revised MOU and any costs associated with this
termination have been reimbursed by Televisa under a separate indemnification
agreement. See "THE DTH SALE."
In November 1995, PanAmSat announced that it would serve as a satellite
service provider for the Latin America DTH service to be offered by Globo,
Televisa, News Corp. and TCI. PanAmSat signed the 1996 Letter Agreement to
provide service to the Latin America JVs on 48 transponders ultimately on PAS-
5 and PAS-6, with temporary service on PAS-3 pending the commencement of
service on PAS-6. See "BUSINESS OF PANAMSAT--DTH Strategy." Under the 1996
Letter Agreement, Globo, Televisa and News Corp. have agreed to proportionally
guarantee 100% of the fees for transponder services to the Latin America JVs.
These guarantee obligations may be assigned to TCI and, with PanAmSat's prior
written consent, to new equity participants in the Latin America JVs. PanAmSat
will receive minimum service fees equivalent to PanAmSat's estimate of the
cost per transponder to PanAmSat of designing, launching, operating and
insuring each satellite for transponders used by the Latin America JVs.
PanAmSat also will receive additional revenue based on subscriber revenues of
the Latin America JVs above a certain threshold, except that the transponders
that will be used by the Latin America JV operating in Brazil will be charged
on a fixed fee basis. The 1996 Letter Agreement also contemplates that three
separate full-scale transponder agreements will be entered into for the
regions of (i) Brazil, (ii) Mexico and (iii) Latin America (not including
Brazil and Mexico) and, with respect to Spanish and/or Portuguese language
programming, the United States, Canada and Puerto Rico. The Brazil Transponder
Agreement has been entered into with respect to 12 transponders on PAS-6 for
Brazil, while the 1996 Letter Agreement remains in force as to the remaining
24 transponders on PAS-6 and 12 transponders on PAS-5 for the other regions.
Execution of full-scale transponder agreements for the other two regions is
subject to negotiation and no assurance can be given that such full-scale
transponder agreements will be executed. The 1996 Letter Agreement and the
Brazil Transponder Agreement provide for minimum payments over their
respective terms of approximately $1.3 billion, depending upon the actual
useful life of the satellites in question, their predicted performance and
their in-service dates. On cost-based transponders, PanAmSat will also be
eligible to receive revenue sharing from the Latin America JVs.
Pursuant to the Original MOU, PanAmSat and Televisa intended to establish
and operate a Ku-band digital DTH satellite broadcasting business serving
Latin America. The Original MOU was terminated and superseded by the Revised
MOU, except with respect to the indemnification obligations described above.
Pursuant to the Revised MOU and certain oral agreements in principle with
Televisa, PanAmSat has DTH Options to purchase equity in certain of the Latin
America JVs and the Spain Joint Venture. PanAmSat, Televisa and S Company have
entered into the DTH Option Purchase Agreement whereby after the Share
Repurchase PanAmSat will sell the DTH Options to either Televisa, S Company
and/or their designees for a purchase price of $225 million. The closing of
the DTH Sale will occur substantially concurrently with receipt by S Company
of the consideration to be paid by New PanAmSat in connection with the Univisa
Contribution. PanAmSat has received the written opinion of Salomon Brothers,
PanAmSat's financial advisor, to the effect that as of September 19, 1996 and
based upon and subject to the qualifications described therein, the
consideration to be received by PanAmSat for the sale of the DTH Options
represents fair value to PanAmSat for the DTH Options from a financial point
of view. See "THE DTH SALE."
On September 20, 1996, PanAmSat agreed to provide Televisa Spain transponder
capacity on five Ku-band transponders on PAS-3, at least three of which will
be used to deliver television services to Spain, which may include DTH
services. The transponder service fees reflect market rates.
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As of March 31, 1995, PanAmSat entered into a contract with HAC for the
construction and delivery of PAS-5. The HAC PAS-5 Contract calls for the
delivery of PAS-5 in the spring of 1997. Payments representing approximately
80% of the total cost of the satellite will be made during the period of the
satellite's construction and upon completion of the satellite's in-orbit
testing, with the remainder of such costs to be paid in the form of incentive
payments made over the 15-year period following launch, based upon the
satellite's orbital performance. PanAmSat has the option of prepaying the
incentive obligations at any time, which incentive obligations are subject to
reduction or refund if the satellite fails to meet specific technical
operating standards. The HAC PAS-5 Contract provides for a limited pre-launch
warranty by HAC which requires HAC to correct or replace any non-conforming
goods with conforming goods, if such correction or replacement can be
reasonably accomplished as determined by HAC. There are limited liquidated
damages of up to $1.0 million payable by HAC in the event of a late delivery
which is the fault of HAC. If the delivery is delayed due to the fault of
PanAmSat, PanAmSat will be obligated to pay to HAC its reasonable costs
incurred as a result of the delay plus a 15% profit component.
As of March 31, 1995, PanAmSat entered into a binding letter agreement with
HAC, acting through Hughes Space and Communications Company ("HSCC") for HSCC,
through its affiliate, HCSS, to provide TT&C services for PAS-5 that are
equivalent to the TT&C services that are provided to PanAmSat by HCSS. Radio
frequency (RF) links for the PAS-5 TT&C service and, at HSCC's request, for
PAS-3, are to be provided by PanAmSat. The price for the PAS-5 TT&C services
is less than the price charged by HCSS for TT&C services for either PAS-2 or
PAS-3. The letter agreement calls for other terms and conditions to be
consistent with terms and conditions under which TT&C services for PAS-2 and
PAS-3 are provided, subject to certain specified exceptions as to which terms
are more favorable to PanAmSat. Although the PAS-5 TT&C agreement contemplated
the completion of a full-scale agreement by December 1, 1995, that has not yet
occurred. While PanAmSat believes that such agreement will be reached, if it
is not, the letter agreement allows the details of the contract to be
determined by binding arbitration, if necessary.
The law firm of Ivey, Barnum & O'Mara, of which James W. Cuminale, Senior
Vice President and General Counsel of PanAmSat, was a partner, provided
certain legal services to PanAmSat and received nominal fees from PanAmSat
during the fiscal year ended December 31, 1995.
The communications engineering consulting firm of Rubin, Bednarek &
Associates, of which Robert A. Bednarek, Senior Vice President, Engineering
and Operations, of PanAmSat, was a principal during 1995, provides engineering
and technical services to PanAmSat and received fees from PanAmSat of
approximately $1.4 million for the fiscal year ended December 31, 1995. Mr.
Bednarek terminated his association with Rubin, Bednarek & Associates as of
December 31, 1995.
After the Closing Date, Patrick J. Costello, the current Chief Financial
Officer of PanAmSat, will no longer be an officer of PanAmSat or New PanAmSat.
However, Mr. Costello will provide consulting services to New PanAmSat for a
transitional period following the Closing for a fee equal to a pro rata share
of his current salary. In addition, Mr. Costello also has been appointed by
the Class A Holders to serve as a Director of New PanAmSat. See "MANAGEMENT OF
NEW PANAMSAT--Board of Directors." Mr. Costello, who will no longer serve as
Chief Financial Officer of PanAmSat after the Closing Date, will be entitled
to receive a severance payment of $975,000 as a result of the Reorganization.
See "THE REORGANIZATION--Interests of Certain Persons in the Reorganization."
Between 1992 and March 2, 1995, PanAmSat operated as the Partnership and
prior to 1992 as a sole proprietorship and through other forms of
organization. On March 2, 1995, pursuant to an amended Exchange and
Subscription Agreement and Plan of Reorganization, PanAmSat, the Partnership
and its partners consummated the Conversion. In March 1995, in connection with
the Conversion, the Partnership granted to Lourdes Saralegui, Executive Vice
President of PanAmSat, a 43% limited partnership interest in the Partnership
and Ms. Saralegui became a limited partner of the Partnership. Concurrently
with such transaction, the Anselmo Group contributed to the Partnership a
limited partnership interest in the Partnership in like amount. Any income tax
deduction in an amount which does not exceed $50 million in value which is
available to the Partnership as a result of such transaction has been
specially allocated to the Anselmo Group.
PanAmSat believes that each of the transactions described above was on terms
at least as favorable to PanAmSat as could be expected by third parties.
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As part of the Conversion, in connection with the merger of a company
controlled by the late Rene Anselmo into PanAmSat, Mr. Anselmo and Frederick
A. Landman jointly and severally indemnified PanAmSat against undisclosed
liabilities of that company. In addition, in connection with the Conversion,
PanAmSat assumed the phantom stock plans of that company. In connection with
the termination of such plans by PanAmSat, Patrick J. Costello, Chief
Financial Officer of PanAmSat, and Robert A. Bednarek, Senior Vice President,
Engineering and Operations of PanAmSat, received cash payments aggregating
approximately $964,000 during fiscal 1995.
Prior to the Conversion, the Partnership made quarterly distributions to its
limited partners to pay income taxes for each year that the Partnership had
taxable income. Such distributions were calculated using the highest effective
combined U.S. federal, state, local and foreign tax rate that was imposed on
any partner who was a U.S. person with respect to such partner's allocable
share of taxable income of the Partnership for such taxable year. The
Partnership Agreement provided that the tax distribution for each taxable year
was to be reasonably estimated by the Managing Committee of the Partnership.
If the required tax distribution for a taxable year was greater or less than
the aggregate of the estimated amounts so distributed by the Partnership, the
Partnership was obligated to distribute the excess to the partners, or the
partners were obligated to contribute the deficiency to the Partnership, in
proportion to their percentage interests. There were no such tax distributions
for the year ended December 31, 1996.
HUGHES PARTIES
Galaxy has been operated since its inception as a separate business unit of
HCI, but has been party to many ongoing arrangements and relationships with
other companies affiliated with HCI and HE. These inter-company arrangements
have included HE's provision of payroll, research, insurance (including
medical, dental and vision insurance for Galaxy employees), other employee
benefits, retirement and incentive plans, professional development, medical
services, long-term disability and general administrative services. Galaxy
also has received certain support services from HE's finance, human resources,
administration, communications, legal, marketing, technology and research
departments. All of such services have been provided to Galaxy by HE on a cost
basis. Galaxy also has provided miscellaneous support services to DTVI,
formerly a business unit of HCI and incorporated as a separate subsidiary in
January 1996, which services have included administrative, legal, human
resources and finance services. Galaxy does not anticipate that it will
provide such services to DTVI after the Closing Date. Galaxy has contracted
with HSC for the construction of each of Galaxy's existing in-orbit satellites
and Galaxy's satellites currently under development. From January 1, 1994 to
December 31, 1996, Galaxy paid to HSC approximately $333 million in the
aggregate in connection with the procurement of long lead items and/or
construction of Galaxy I-R, Galaxy III-R, Galaxy VIII-i, Galaxy IX, Galaxy X,
Galaxy XI, Galaxy XIII and Galaxy XIV, and, from January 1, 1997 going
forward, Galaxy has paid and expects to pay to HSC approximately $450 million
pursuant to existing satellite contracts and new agreements for the
construction of Galaxy XI, Galaxy XII, Galaxy XIII and Galaxy XIV which Galaxy
intends to enter into prior to the Closing Date. Affiliates of HE also have
been responsible for arranging for the launch of all of Galaxy's existing in-
orbit satellites. Galaxy currently is a party to various other agreements with
affiliates of HE with respect to, among other things, (i) the provision of
rights to three satellite launch opportunities previously acquired by an
affiliate of HE and involving aggregate consideration of approximately $220
million, (ii) the provision of TT&C services for satellites owned by HE
affiliates DIRECTV and American Mobile Satellite Corporation in exchange for
aggregate consideration of approximately $6.4 million per year, (iii) the
lease of transponder capacity to an affiliate of DTVI and Hughes Network
Systems for aggregate consideration of approximately $82.4 million per year,
(iv) the leaseback of Galaxy III-R pursuant to which Galaxy is obligated to
make lease payments of approximately $39.2 million per year for the term of
the lease or until Galaxy exercises its Early Buy Out Option with respect to
such satellite, and (v) the lease by Galaxy of its corporate headquarters and
network operations facility in Long Beach, California for approximately $.7
million per year. Prior to the Closing Date, Galaxy also intends to enter into
a new operating lease agreement with an affiliate of DTVI with respect to the
lease of transponder capacity on Galaxy VIII-i for approximately $60 million
per year (which transponder capacity will replace some of the transponder
capacity utilized by such affiliate pursuant to clause (iii) in the preceding
sentence).
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For a one-year transition period after the Effective Time, Kenneth N.
Heintz, who will be Executive Vice President and Chief Financial Officer of
New PanAmSat, will continue to be a vice president of and employed by HE. It
is expected that during such transition period New PanAmSat will pay HE for
the services provided by Mr. Heintz to New PanAmSat. See "MANAGEMENT OF NEW
PANAMSAT--Employment Agreements."
Both Mr. Heintz and Mr. Brown will be reimbursed for all of their expenses
incurred in connection with their relocation to Greenwich, Connecticut. New
PanAmSat will reimburse Mr. Heintz for his expenses up to $100,000; any
additional costs will be paid for by HE. Mr. Brown will be fully reimbursed by
New PanAmSat. Among the expenses that will be covered are home marketing
assistance, home purchase assistance, house closing costs, interim living
expenses and actual moving costs. In addition, New PanAmSat and HE will
provide for spouse career assistance, tax assistance and a relocation
allowance. PanAmSat has loaned to Mr. Brown $92,250 at an interest rate of 5
7/10% to facilitate Mr. Brown's purchase of a home in Connecticut. It is
anticipated that he will repay this loan by the end of May 1997.
203
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PROPOSAL TO APPROVE AND ADOPT THE CHARTER AMENDMENT
One of the purposes of the Special Meeting is to obtain the approval and
adoption of the Charter Amendment by PanAmSat's stockholders. The PanAmSat
Certificate of Incorporation currently sets forth the name of PanAmSat as
"PanAmSat Corporation." The Reorganization Agreement requires that PanAmSat
change its name so that New PanAmSat may be named "PanAmSat Corporation." One
of the purposes of the Charter Amendment is to change the name of PanAmSat to
"PanAmSat International Systems, Inc." immediately prior to the Merger.
Accordingly, the PanAmSat Board deemed advisable and approved an amendment to
Article One of the PanAmSat Certificate of Incorporation by unanimous written
consent dated April 15, 1997 and found such amendment to be in the best
interests of PanAmSat and its stockholders.
The PanAmSat Certificate of Incorporation currently requires or may be
deemed to require that any share of PAS Class A Common Stock or PAS Class B
Common Stock that is transferred to any entity other than a "Permitted
Transferee" under the PanAmSat Certificate of Incorporation will lose its
status as such and be converted into a share of PAS Ordinary Common Stock. See
"COMPARISON OF STOCKHOLDERS' RIGHTS." Another purpose of the Charter Amendment
is to clarify that the direct holder of the PAS Class B Common Stock would not
participate in the Merger by reason of such conversion or deemed conversion of
the shares of PAS Class B Common Stock upon the consummation of the Univisa
Contribution immediately prior to the Merger. It is accordingly a condition to
the consummation of the Reorganization that an amendment to the PanAmSat
Certificate of Incorporation to clarify that the shares of PAS Class A Common
Stock and PAS Class B Common Stock will not be converted into shares of PAS
Ordinary Common Stock in connection with the Reorganization Agreement, the
Univisa Contribution Agreement and the transactions contemplated thereby, be
approved by the requisite holders of PAS Common Stock and be effective prior
to the consummation of the Univisa Contribution. Accordingly, the PanAmSat
Board deemed advisable and approved an amendment to Article Five, paragraph
5.8(a) of the PanAmSat Certificate of Incorporation by unanimous written
consent dated January 21, 1997 and found such amendment to be in the best
interests of PanAmSat and its stockholders. The number of shares of PAS Class
A Common Stock and PAS Class B Common Stock that would be affected by this
amendment would be 21,231,415 and 40,459,431, respectively. See "THE SPECIAL
MEETING--Record Date; Shares Entitled to Vote; Vote Required," and "THE
REORGANIZATION AGREEMENT--Terms of the Reorganization."
The PanAmSat Certificate of Incorporation currently requires that in any
merger, consolidation or business combination, the consideration to be
received per share by the holders of PAS Class A Common Stock, PAS Class B
Common Stock and PAS Ordinary Common Stock must be identical for each class of
stock. In the Merger, the direct holder of the PAS Class B Common Stock will
not receive the Merger Consideration; instead, the indirect parent of such
holder, S Company, will receive consideration pursuant to the Univisa
Contribution Agreement equal in amount and form (subject to proration, as
applicable) to the Merger Consideration payable on account of each share of
PAS Class A Common Stock and PAS Ordinary Common Stock. Furthermore, S Company
may be deemed to receive certain additional benefits from the Share Repurchase
and the DTH Sale. A further purpose of the Charter Amendment is to clarify
that receipt of consideration equal to the Merger Consideration and any
additional benefits arising from the Reorganization by the indirect holder of
the PAS Class B Common Stock, instead of by the direct holder thereof, would
not violate the PanAmSat Certificate of Incorporation. Accordingly, the
PanAmSat Board deemed advisable and approved an amendment to Article Five,
paragraph 5.10 of the PanAmSat Certificate of Incorporation by action at its
meeting on January 27, 1997 and found such amendment to be in the best
interests of PanAmSat and its stockholders.
Pursuant to the Principal Stockholders Agreement, the beneficial owners of
all of the issued and outstanding shares of PAS Class A Common Stock and PAS
Class B Common Stock have agreed to vote all of their shares of PAS Common
Stock in favor of the Charter Amendment. Immediately before the Record Date,
the holders of PAS Class A Common Stock voluntarily converted the number of
shares of PAS Class A Common Stock necessary to constitute a majority of the
outstanding shares of PAS Ordinary Common Stock from PAS Class A Common Stock
into PAS Ordinary Common Stock. On the Record Date, the beneficial owners of
all of the
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issued and outstanding shares of PAS Class A Common Stock and PAS Class B
Common Stock held 100% of the voting power of their respective classes of
stock and the holders of Converted Shares held approximately 50.1% of the
voting power of the PAS Ordinary Common Stock. Accordingly, approval of the
Charter Amendment by each class of PanAmSat's stockholders is assured.
LEGAL MATTERS
The legality of the shares of New PAS Common Stock to be issued in
connection with the Merger is being passed upon for New PanAmSat by Chadbourne
& Parke LLP. Certain tax consequences of the Merger also will be passed upon
by Chadbourne & Parke LLP.
EXPERTS
The consolidated financial statements of PanAmSat included in this Proxy
Statement/Prospectus and elsewhere in the Registration Statement have been
audited by Arthur Andersen LLP, independent public accountants, as set forth
in their report. The consolidated financial statements referred to above have
been incorporated herein by reference in reliance upon the authority of those
firms as experts in giving said reports.
The financial statements of the Galaxy Business as of December 31, 1996 and
1995 and for each of the three years in the period ended December 31, 1996
included in this Proxy Statement/Prospectus have been audited by Deloitte &
Touche LLP, independent auditors, as stated in their report appearing herein
and are included in reliance upon the report of such firm given upon their
authority as experts in accounting and auditing.
Representatives of each of Arthur Andersen LLP and Deloitte & Touche LLP
will be present at the Special Meeting and will be available to respond to
questions.
FUTURE STOCKHOLDER PROPOSALS
If the Reorganization is consummated prior to May 20, 1997, the first annual
meeting of the stockholders of New PanAmSat is expected to be held in 1997 and
PanAmSat will not hold its 1997 Annual Meeting of Stockholders. If the
Reorganization is not consummated by May 20, 1997, the 1997 Annual Meeting of
Stockholders of PanAmSat is expected to be held on or about May 30, 1997. Any
proposal to be included in the Proxy Statement for PanAmSat's 1997 Annual
Meeting of Stockholders must have been received by PanAmSat no later than
December 15, 1996 in a form that complies with applicable regulations.
Subject to the foregoing, if any New PanAmSat stockholder intends to submit
a proposal at the New PanAmSat 1997 Annual Meeting of Stockholders and wishes
such proposal to be considered for inclusion in the proxy materials for such
meeting, such holder must submit the proposal to the Secretary of New PanAmSat
in writing so as to be received at the offices of New PanAmSat by December 15,
1997. The New PanAmSat Bylaws require that for nominations or other business
to be properly brought before an annual meeting by a stockholder, the
stockholder must have given timely notice thereof in writing to the Secretary
of New PanAmSat and such other business must otherwise be a proper matter for
stockholder action. In general, to be timely, a stockholder's notice shall be
delivered to the Secretary at the principal executive offices of New PanAmSat
not later than the close of business on the 60th day nor earlier than the
close of business on the 90th day prior to the annual meeting. Notices must be
sent to the Corporate Secretary, New PanAmSat, One Pickwick Plaza, Greenwich,
Connecticut 06830. Such proposals must also meet the other requirements of the
rules of the Commission relating to stockholder proposals.
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
PANAMSAT FINANCIAL STATEMENTS
Report of Independent Public Accountants................................ FIN-1
Balance Sheets--December 31, 1996 and 1995.............................. FIN-2
Statements of Operations--Years Ended December 31, 1996, 1995 and 1994.. FIN-4
Statements of Stockholders' Equity and Partners' Equity for Each of the
Three Years in the Period Ended December 31, 1996 ..................... FIN-5
Statements of Cash Flows--Years Ended December 31, 1996, 1995 and 1994.. FIN-6
Notes to Financial Statements........................................... FIN-7
GALAXY FINANCIAL STATEMENTS
Independent Auditors' Report............................................ FIN-20
Balance Sheets--December 31, 1996 and 1995.............................. FIN-21
Statements of Income and Parent Company's Net Investment--Years Ended
December 31, 1996, 1995 and 1994....................................... FIN-22
Statements of Cash Flows--Years Ended December 31, 1996, 1995 and 1994.. FIN-23
Notes to Financial Statements........................................... FIN-24
NEW PANAMSAT FINANCIAL STATEMENTS
Independent Auditors' Report............................................ FIN-31
Consolidated Balance Sheet--December 31, 1996........................... FIN-32
Notes to Consolidated Balance Sheet..................................... FIN-33
</TABLE>
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
PanAmSat Corporation:
We have audited the accompanying consolidated balance sheets of PanAmSat
Corporation (a Delaware Corporation) and subsidiaries and predecessor entity
as of December 31, 1996 and 1995, and the related consolidated statements of
operations, stockholders' equity and partners' equity, and cash flows for each
of the three years in the period ended December 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of PanAmSat
Corporation and subsidiaries and predecessor entity as of December 31, 1996
and 1995 and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 1996 in conformity with
generally accepted accounting principles.
Arthur Andersen LLP
Stamford, Connecticut
January 27, 1997
FIN-1
<PAGE>
PANAMSAT CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1995
-------------- --------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.................... $ 1,453,055 $ 13,562,113
Accounts receivable, less allowance for
doubtful accounts of $200,000 and $100,000
respectively................................ 10,235,520 4,881,255
Prepaid expenses and other current assets.... 8,228,455 5,594,999
-------------- --------------
Total current assets....................... 19,917,030 24,038,367
SATELLITES AND OTHER PROPERTY AND EQUIPMENT,
AT COST....................................... 864,683,595 609,927,311
Less: Accumulated Depreciation and
Amortization................................ (138,091,220) (79,177,520)
-------------- --------------
726,592,375 530,749,791
MARKETABLE SECURITIES.......................... 379,178,538 495,078,866
SATELLITE SYSTEMS UNDER DEVELOPMENT............ 479,748,974 377,383,581
DEBT ISSUANCE COSTS (Net of amortization)...... 9,454,276 11,414,920
OTHER ASSETS................................... 472,166 154,287
-------------- --------------
Total assets............................... $1,615,363,359 $1,438,819,812
============== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
FIN-2
<PAGE>
PANAMSAT CORPORATION
BALANCE SHEETS--(CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1995
-------------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
<S> <C> <C>
Current portion of long-term debt............. $ 4,166,778 $ 3,287,250
Accounts payable.............................. 2,318,877 834,405
Accrued interest.............................. 7,109,375 7,109,375
Accrued liabilities and taxes................. 6,656,741 7,686,452
Deferred revenue.............................. 8,423,704 6,009,836
-------------- --------------
Total current liabilities................... 28,675,475 24,927,318
LONG-TERM DEBT.................................. 626,009,539 575,283,661
DEFERRED INCOME TAXES........................... 61,631,004 31,573,000
DEFERRED REVENUE................................ 71,920,802 41,656,778
OTHER LIABILITIES............................... 687,934 867,934
-------------- --------------
Total liabilities........................... 788,924,754 674,308,691
-------------- --------------
COMMITMENTS AND CONTINGENCIES
PREFERRED STOCK, 12 3/4% Mandatorily
Exchangeable Senior Redeemable Preferred Stock,
$0.01 par value, 20,000,000 shares authorized,
331,284 shares issued and outstanding, 8,838
shares for accrued dividends................... 329,070,909 287,648,667
-------------- --------------
STOCKHOLDERS' EQUITY:
Class A Common Stock, $0.01 par value,
100,000,000 shares authorized, 40,459,432
shares issued and outstanding................ 404,594 404,594
Class B Common Stock, $0.01 par value,
100,000,000 shares authorized, 40,459,431
shares issued and outstanding................ 404,594 404,594
Common Stock, $0.01 par value, 400,000,000
shares authorized, 19,089,017 shares issued
and outstanding.............................. 190,891 190,812
Additional paid-in-capital.................... 477,505,039 477,297,753
Retained earnings............................. 18,862,578 (1,435,299)
-------------- --------------
Total stockholders' equity.................. 497,367,696 476,862,454
-------------- --------------
Total liabilities and stockholders' equity.. $1,615,363,359 $1,438,819,812
============== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
FIN-3
<PAGE>
PANAMSAT CORPORATION
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1996 1995 1994
------------- ------------- ------------
<S> <C> <C> <C>
REVENUES:
Unaffiliated parties............. $ 237,833,855 $ 112,231,953 $ 58,710,472
Related parties.................. 9,108,731 3,922,824 5,033,434
------------- ------------- ------------
246,942,586 116,154,777 63,743,906
OPERATING EXPENSES:
Direct expenses-service
agreements....................... 10,504,777 5,729,290 4,254,122
Sales and marketing.............. 14,012,050 9,542,672 7,179,192
Engineering and technical
services......................... 17,337,180 10,659,106 5,811,516
General and administrative....... 25,349,395 15,687,798 9,767,705
Depreciation and amortization.... 61,333,743 33,411,878 16,330,674
Compensatory programs............ 4,873,596 8,341,040 --
Reorganization costs............. 4,758,177 -- --
------------- ------------- ------------
138,168,918 83,371,784 43,343,209
------------- ------------- ------------
INCOME FROM OPERATIONS............. 108,773,668 32,782,993 20,400,697
INTEREST INCOME.................... (24,275,310) (20,637,256) (7,186,549)
INTEREST EXPENSE................... 24,897,084 19,044,771 9,589,322
------------- ------------- ------------
INCOME BEFORE INCOME TAXES......... 108,151,894 34,375,478 17,997,924
INCOME TAXES....................... 46,431,775 16,829,000 --
------------- ------------- ------------
NET INCOME......................... 61,720,119 17,546,478 $ 17,997,924
------------- ------------- ============
PREFERRED STOCK DIVIDEND........... 41,422,242 25,976,655
------------- -------------
NET INCOME (LOSS) TO COMMON
SHARES............................. $ 20,297,877 $ (8,430,177)
============= =============
PRO FORMA (UNAUDITED) NET INCOME
AND EARNINGS PER COMMON SHARE:
Historical net income............ $ 17,546,478 $ 17,997,924
Pro forma adjustment to income
tax provision................... (1,207,000) 7,245,000
------------- ------------
Pro forma net income............. 18,753,478 10,752,924
------------- ------------
Preferred stock dividend......... 25,976,655 --
------------- ------------
Pro forma net income (loss) to
common shares................... $ (7,223,177) $ 10,752,924
============= ============
Actual and pro forma earnings
(loss) per common shares........ $ 0.20 $ (0.08) $ 0.13
============= ============= ============
Actual and pro forma weighted
average number of common shares
outstanding..................... 100,331,987 89,678,638 85,675,677
============= ============= ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
FIN-4
<PAGE>
PANAMSAT CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY AND PARTNERS' EQUITY
<TABLE>
<CAPTION>
PARTNER'S COMMON STOCK
INTEREST PAR VALUE ADDITIONAL
LIMITED GENERAL PARTNERS' CONDITIONALLY ----------------------- PAID-IN RETAINED
PARTNERS PARTNERS EQUITY REDEEMABLE SHARES AMOUNT CAPITAL EARNINGS
------------ --------- ------------ ------------- ----------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, January
1, 1994.......... $ 59,309,145 $ 537,831 $ 59,846,976 $ 193,936,250 -- $ -- $ -- $ --
Net Income...... 17,817,944 179,980 17,997,924 -- -- -- -- --
Issuance of
common stock.... -- -- -- -- 100 1 999 --
Contributions,
net............. 660,918 6,676 667,594 654,373 -- -- -- --
Contribution of
limited
partner's
interest........ 2,422,500 -- 2,422,500 -- -- -- -- --
------------ --------- ------------ ------------- ----------- ---------- ------------ ------------
BALANCE, December
31, 1994......... 80,210,507 724,487 80,934,994 194,590,623 100 1 999 --
Net loss for
period ending
March 2, 1995... (6,924,930) (69,949) (6,994,879) -- -- -- -- --
Capital
contribution of
equity interest
granted to an
executive....... 3,849,300 -- 3,849,300 -- -- -- -- --
Contribution of
assets and
liabilities to
PanAmSat
Corporation and
issuance of
common stock.... (77,134,877) (654,538) (77,789,415) (194,590,623) 99,692,550 996,925 248,487,113 --
Cancellation of
common stock
upon
reorganization
to PanAmSat
Corporation
(Note 2)........ -- -- -- -- (100) (1) (999) --
Issuance of
preferred
stock........... -- -- -- -- -- -- -- --
Accretion and
preferred
dividends
payable in
kind............ -- -- -- -- -- -- -- (25,976,655)
Reverse stock
split and
issuance of
common stock.... -- -- -- -- 307,450 3,075 228,810,640 --
Net Income for
the period of
March 3, 1995
through December
31, 1995........ -- -- -- -- -- -- -- 24,541,356
------------ --------- ------------ ------------- ----------- ---------- ------------ ------------
BALANCE, December
31, 1995......... -- -- -- -- 100,000,000 1,000,000 477,297,753 (1,435,299)
Net Income...... -- -- -- -- -- -- -- 61,720,119
Exercise of
employee stock
options......... -- -- -- -- 7,880 79 207,286 --
Accretion and
preferred
dividends
payable in
kind............ -- -- -- -- -- -- -- (41,422,242)
------------ --------- ------------ ------------- ----------- ---------- ------------ ------------
BALANCE, December
31, 1996......... $ -- $ -- $ -- $ -- 100,007,880 $1,000,079 $477,505,039 $ 18,862,578
============ ========= ============ ============= =========== ========== ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
FIN-5
<PAGE>
PANAMSAT CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
CASH FLOWS PROVIDED BY OPERATING
ACTIVITIES:
Net income....................... $ 61,720,119 $ 17,546,478 $ 17,997,924
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation and amortization.... 61,333,743 33,411,878 16,330,674
Deferred income taxes............ 30,058,004 8,677,000 --
Accretion of interest on senior
subordinated discount notes..... 40,341,610 36,128,588 32,355,546
Accretion of interest on
marketable securities........... (1,347,432) (1,004,072) (484,390)
Interest expense capitalized..... (39,469,904) (37,840,680) (41,038,656)
Compensation expense granted as
equity interest................. -- 3,849,300 --
Compensation expense on exercise
of employee stock options....... 73,405 -- --
Changes in assets and
liabilities:
Increase in accounts
receivable..................... (5,354,265) (1,946,143) (664,672)
Increase in prepaid expenses
and other current assets....... (2,633,456) (1,838,622) (3,120,439)
(Increase) decrease in tax
distribution receivable........ -- 6,671,967 (6,671,967)
Increase (decrease) in accounts
payable........................ 1,484,472 (837,248) 996,779
Increase (decrease) in accrued
liabilities and taxes.......... (1,029,711) 5,169,191 (1,208,956)
Increase in deferred revenue.... 32,677,892 27,045,197 11,603,136
Decrease in other liabilities... (180,000) (60,000) (11,000)
------------- ------------- -------------
NET CASH PROVIDED BY OPERATING
ACTIVITIES.................... 177,674,477 94,972,834 26,083,979
------------- ------------- -------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Expenditures for property and
equipment....................... (22,251,315) (13,476,119) (10,474,642)
Expenditures for satellite
systems under development....... (280,857,781) (333,051,711) (300,217,208)
Purchase of marketable
securities...................... -- (488,789,459) --
Proceeds from maturity of
marketable securities........... 117,247,760 50,000,000 247,753,638
Proceeds from insurance claim
receivable...................... -- 191,084,380 --
Increase in other assets......... (319,955) (83,217) (120,515)
------------- ------------- -------------
NET CASH USED IN INVESTING
ACTIVITIES.................... (186,181,291) (594,316,126) (63,058,727)
------------- ------------- -------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Partner's conditionally
redeemable capital
contribution.................... -- -- 50,000,000
Capital contributions, net....... -- -- 1,321,967
Proceeds from preferred stock
offering, net................... -- 263,377,104 --
Proceeds from issuance of common
stock, net...................... -- 228,813,715 --
Deferred offering costs.......... -- -- (1,705,093)
Repayments of long-term debt..... (3,736,204) (2,139,623) (1,082,762)
Proceeds from exercise of
employee stock options.......... 133,960 -- --
------------- ------------- -------------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES.......... (3,602,244) 490,051,196 48,534,112
------------- ------------- -------------
NET (DECREASE) INCREASE IN CASH
AND CASH EQUIVALENTS.......... (12,109,058) (9,292,096) 11,559,364
CASH AND EQUIVALENTS, beginning of
year............................. 13,562,113 22,854,209 11,294,845
------------- ------------- -------------
CASH AND EQUIVALENTS, end of
year............................. $ 1,453,055 $ 13,562,113 $ 22,854,209
============= ============= =============
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Cash received for interest....... $ 22,927,878 $ 19,633,184 $ 10,497,017
============= ============= =============
Cash paid for interest........... $ 24,897,084 $ 20,756,864 $ 18,015,432
============= ============= =============
Cash paid for taxes.............. $ 15,122,000 $ 8,845,000 $ --
============= ============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
FIN-6
<PAGE>
PANAMSAT CORPORATION
NOTES TO FINANCIAL STATEMENTS
(1) PRINCIPLES OF PRESENTATION:
On March 2, 1995, pursuant to the amended Exchange and Subscription
Agreement and Plan of Reorganization, PanAmSat Corporation (the "Company"),
PanAmSat, L.P. (the "Partnership") and its partners consummated various
transactions whereby the Company acquired the Partnership and converted it to
corporate form. In connection therewith, (i) Rene Anselmo and affiliated
persons and entities (the "Anselmo Group") exchanged their interests in the
Partnership for shares of Class A Common Stock representing approximately
49.66% of the outstanding common stock of the Company, (ii) Univisa Satellite
Holdings, Inc. ("Univisa") exchanged its interest in the Partnership for
shares of Class B Common Stock representing approximately 50.15% of the
outstanding common stock of the Company and (iii) a partner of the Partnership
exchanged his interest in the Partnership for shares of Common Stock
representing approximately 0.19% of the outstanding common stock of the
Company. The Amended and Restated Certificate of Incorporation of the Company
provides, among other things, the holders of the Class A Common Stock with the
ability to elect a majority of the Company's board of directors and the
Anselmo Group and Univisa with a veto over certain significant corporate
transactions of the Company. On September 27, 1995, the Company completed an
initial public offering of 18,920,000 shares of common stock, including
4,595,676 shares held by certain selling stockholders, and received net
proceeds of approximately $229 million.
Prior to the conversion, the Partnership operated under terms of the Amended
and Restated Agreement of Limited Partnership (the "Partnership Agreement")
dated December 31, 1992. Univisa, a wholly owned subsidiary of Grupo Televisa,
S.A. ("Televisa") and a general partner in the Partnership, made cash
investments in partnership units of $200 million.
All assets and liabilities transferred were reflected at historical cost by
the Company and the Partnership. Accordingly, the accompanying financial
statements reflect the combined assets, liabilities, equity and operations of
the Company and the Partnership as if they had operated as a single entity
since their respective dates of organization. The accompanying financial
statements include the accounts of the Company and its wholly-owned
subsidiaries. All significant intercompany transactions and balances have been
eliminated.
(2) BUSINESS DESCRIPTION:
The business of the Company is to operate an international
telecommunications satellite system. The Company currently provides video,
data and voice telecommunications services in North America, South America,
Europe and Africa via its PAS-1 satellite ("PAS-1") and PAS-3 satellite ("PAS-
3"), in the Asia-Pacific region via its PAS-2 satellite ("PAS-2") and in
Europe, Africa and Asia via its PAS-4 satellite ("PAS-4"). PAS-1 was launched
in June 1988, PAS-2 in July 1994, PAS-4 in August 1995 and PAS-3 in January
1996. The Company currently intends to construct and deploy four additional
satellites over the Atlantic, Atlantic, Indian, and Pacific ocean regions,
respectively (see Note 6). In addition, the Company intends to pursue
providing satellite capacity to customers offering direct-to-home ("DTH")
services internationally and has entered into various agreements relating to
the provision of satellite capacity for DTH services in Latin America and
Spain (see Note 4). The development, launch and operation of
telecommunications satellites involve significant risks of construction
delays, launch delays, launch failure or damage to a satellite following its
launch which may reduce its performance or result in its destruction. Such
delays, launch failures or damage would adversely affect operating results.
The Company holds a license from the Federal Communications Commission
("FCC") to operate PAS-1 in geostationary orbit at 45 degrees West Longitude,
PAS-2 at 191 degrees West Longitude, PAS-3 at 43 degrees West Longitude and
PAS-4 at 68.5 degrees East Longitude. The Company has obtained or applied for
authorizations from the FCC for an all Ku-band satellite, additional C/Ku-band
hybrid satellites and for new Ka-band satellites. Conditional authority has
been received for additional satellites at 72 degrees East Longitude and 43
degrees West Longitude (to be co-located with PAS-3). The Company has also
filed applications with the
FIN-7
<PAGE>
PANAMSAT CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
FCC for additional C/Ku-band hybrid satellites at 194 degrees West Longitude,
58 degrees West Longitude (the Company has informally requested the FCC
associate this application with the 81 degree West Longitude orbital
location), 68.5 degrees East Longitude (to be co-located with PAS-4), 79
degrees West Longitude (the Company has informally requested the FCC to
associate this application with the 81 degree West Longitude orbital
location), and 93 degrees West Longitude. The Company has filed applications
with the FCC for Ka-band satellites at 58 degrees, 79 degrees, 43 degrees, 45
degrees, and 103 degrees West Longitude, and at 169 degrees, 166 degrees, 68.5
degrees, and 72 degrees East Longitude. The Company's wholly-owned subsidiary,
PanAmSat Carrier Services, Inc., has an FCC authorization to provide common
carrier service via PAS-1. The Company also holds licenses to provide domestic
and international satellite communications services in France, Germany, the
United Kingdom, Ecuador, Argentina, Pakistan and Japan.
The Company provides telecommunications services under long-term and
occasional (spot) booking arrangements, a majority of which are with foreign
entities, including Univisa affiliates.
The following summarizes the Company's foreign and domestic sales:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------
1996 1995 1994
------------ ------------ -----------
<S> <C> <C> <C>
Sales to unaffiliated customers:
United States........................... $ 98,983,567 $ 49,936,228 $26,175,302
Central and South America............... 47,673,139 29,078,131 23,680,874
Other foreign........................... 91,177,149 33,217,594 8,854,296
------------ ------------ -----------
$237,833,855 $112,231,953 $58,710,472
============ ============ ===========
</TABLE>
Future cash payments expected from customers under all long-term
arrangements for satellites in service (see Note 5) aggregate approximately
$2.4 billion as of December 31, 1996, excluding any DTH service agreements
described in Note 4. Such cash payments may be reduced for outage or
transponder failure and may be further reduced for "lowest price" provisions
for like transponder capacity given to similarly situated customers.
Approximately $229.8 million of such arrangements at December 31, 1996 are
terminable at the customer's option after a minimum service period.
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
USE OF ESTIMATES--
The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of certain estimates by
management in determining the reported amount of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ materially
from those estimates.
REVENUE RECOGNITION--
The Company enters into contracts to provide satellite capacity and related
services. These contracts generally provide for the use of satellite and, in
certain cases, earth station and teleport facilities for periods ranging from
one year to the life of the satellite. Virtually all contracts stipulate
payment terms in U.S. dollars.
Service agreements and occasional (spot) services. Revenues under service
agreements and occasional (spot) services are recognized as services are
performed and billed. The Company has certain obligations, including providing
spare or substitute capacity if available, in the event of satellite service
failure under certain long-term agreements. If no spare or substitute capacity
is available, the agreements may be terminated. Except for certain deposits,
the Company is not obligated to refund payments previously made.
FIN-8
<PAGE>
PANAMSAT CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Transponder contracts. Long-term transponder contracts provide for use of a
transponder for the life of the transponder. Payments for the transponder are
made over a shorter period, usually seven years. Uncured transponder failures
during the payment period result in cessation of customer payments. The
Company is not required to refund any portion of customer payments if a
transponder fails. The economic risk of loss passes to the customer upon
receipt of final payment by the Company.
Revenue under transponder contracts is recognized ratably over the payment
period, and a pro rata share of the cost of the satellite system and a pro
rata share of future telemetry, tracking and control ("TT&C") costs for the
life of the satellite are expensed over the same period. Accordingly, no
revenue will be recognized beyond the payment period, usually seven years, and
all estimated costs related to these transponders will have been recognized as
of the final payment date. Revenues of approximately $3.2 million, $3.6
million, and $4.5 million for the years ended December 31, 1996, 1995 and
1994, respectively, are included in the accompanying statements of operations
relating to such contracts.
CASH AND CASH EQUIVALENTS--
Cash and cash equivalents consists of cash on hand and highly liquid
investments with maturities at date of acquisition of three months or less.
ACCOUNTS RECEIVABLE--
Accounts receivable include amounts earned under service agreements and
occasional (spot) services which are billable as performed.
MARKETABLE SECURITIES--
Marketable securities consist of debt securities issued by the United States
Treasury and other U.S. government corporations and agencies, corporate debt
securities and other securities (primarily investments in money market funds
consisting of the aforementioned securities) and have maturity dates within
one year. The carrying amounts of these securities are approximately $130.8
million, $103.7 million and $144.7 million, respectively at December 31, 1996.
The Company has classified the debt securities as held-to-maturity and,
accordingly, are recorded at amortized cost, which approximates fair value.
The money market funds are recorded at cost plus accrued income, which
approximates fair value. Proceeds of these securities are intended to be used
for the satellite systems under development and, accordingly, are classified
as long-term.
SATELLITES AND OTHER PROPERTY AND EQUIPMENT--
Satellites and other property and equipment are stated at historical cost.
The cost of the PAS-1, PAS-2, PAS-3 and PAS-4 satellite system includes all
construction costs, incentive obligations, launch costs, launch insurance,
direct development costs, and capitalized interest. Substantially all other
property and equipment consists of the Company's teleport facilities.
Depreciation and amortization are provided using the straight-line method
over the estimated useful lives of the respective assets as follows:
<TABLE>
<CAPTION>
ESTIMATED LIVES
(YEARS)
---------------
<S> <C>
PAS 1, PAS 2, PAS-3, and PAS-4 satellite system............ 13-15
Communications equipment................................... 7
General support equipment.................................. 5-10
Buildings.................................................. 25
</TABLE>
FIN-9
<PAGE>
PANAMSAT CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The estimated useful lives of the satellites were determined by an
engineering analysis performed at the in-service dates. The original estimated
useful lives are periodically reviewed using current TT&C data provided by
various service providers. To date, no significant change in the original
estimated useful lives has resulted. The telecommunications industry is
subject to rapid technological change which may require the Company to revise
the estimated useful lives of its satellites and communications equipment or
to adjust their carrying amounts.
Research and development costs and maintenance and repairs are charged to
operations as incurred.
SATELLITE SYSTEMS UNDER DEVELOPMENT--
Expenditures for satellite systems under development include construction,
launch and launch insurance progress payments, certain direct development
costs, capitalized interest, and components for a spare satellite (see Note
6).
Cost of satellites which are lost at launch are carried, net of any
insurance proceeds, in satellite systems under development. The remaining net
amounts are depreciated proportionately over the estimated useful lives of
related satellites placed in service.
DEBT ISSUANCE COSTS--
Debt issuance costs relate to the issuance of the Company's 9 3/4% Senior
Secured Notes ("Senior Secured Notes") and the Company's 11 3/8% Senior
Subordinated Discount Notes ("Discount Notes") in August 1993. These costs
totaled approximately $16.2 million at December 31, 1996, and are being
amortized over the life of the Notes using the interest method. The
accumulated amortization at December 31, 1996 is approximately $6.7 million.
INCOME TAXES--
As a result of the conversion of the Partnership to a corporation on March
2, 1995, the Company files corporate federal and state income tax returns.
This change in tax status was recognized by establishing deferred tax assets
and liabilities for temporary differences between the tax basis of assets and
liabilities and amounts reported in the balance sheet at the date of
conversion (see Note 9).
The current provision for income taxes represents actual or estimated
amounts payable or refundable on tax returns filed or to be filed for each
year. Deferred tax assets and liabilities are recorded for the estimated
future tax effects of temporary differences between the tax basis of assets
and liabilities and amounts reported in the balance sheets. The overall change
in deferred tax assets and liabilities for the period measures the deferred
tax expense for the period. Effects of changes in enacted tax laws on deferred
tax assets and liabilities are reflected as adjustments to tax expense in the
period of enactment.
EARNINGS PER SHARE--
The unaudited pro forma earnings per share have been calculated and
presented on a pro forma basis (i) to reflect the pro forma adjustments to the
income tax provision as if the Company had been incorporated and (ii) as if
the shares issued to effect the conversion of the Partnership to corporate
form and to effect a .859399 for 1 reverse split of the Company's common stock
on September 15, 1995 were outstanding for all periods presented and (iii) to
reflect the weighted average number of common shares issued in the Company's
initial public offering. When dilutive, stock options are included in the
weighted average number of shares outstanding using the treasury stock method.
FIN-10
<PAGE>
PANAMSAT CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NET INCOME (LOSS) ALLOCATION--
The Partnership Agreement had provided that profits and losses of the
Partnership be allocated among the partners' percentage interests.
(4) SATELLITE CAPACITY FOR DTH SERVICES:
In November 1995, the Company announced that it would serve as a satellite
service provider for a Latin America DTH service ("Latin America DTH") to be
offered by the Globo Organization ("Globo"), Televisa, The News Corporation
Limited ("News Corp.") and Tele-Communications International, Inc. ("TCI"). On
February 29, 1996, the Company signed a binding letter agreement with Globo,
Televisa, and News Corp. (the "1996 Letter Agreement") to provide service to a
series of joint ventures (the "Latin America JVs") to be formed by them and
TCI on 48 transponders ultimately on PAS-5 and PAS-6 with temporary service on
PAS-3 pending the commencement of service on PAS-6. Also under the 1996 Letter
Agreement, Globo, Televisa, and News Corp. have agreed to proportionally
guarantee 100 percent of the fees for transponder services to the Latin
America JVs. These guarantee obligations may be assigned to TCI and, with the
Company's prior written consent, to new equity participants in the Latin
America JVs. The Company will receive minimum service fees equivalent to the
Company's best estimate of the cost per transponder to the Company of
designing, launching, operating and insuring each satellite for the
transponders used by the Latin America JVs. The Company also will receive
additional revenue based on subscriber revenues of the Latin America JVs above
a certain threshold, except that the transponders on PAS-3 and PAS-6 that will
be used by the Latin America JV operating in Brazil will be charged on a fixed
fee basis. On June 26, 1996, a full-scale agreement was executed for service
in Brazil on twelve transponders (the "Brazil Agreement"). The 1996 Letter
Agreement remains in force for the remaining 36 transponders. Globo and News
Corp. have proportionately guaranteed the obligations under the Brazil
Agreement.
On September 20, 1996, the Company entered into an agreement with Televisa
S.A. de C.V., an affiliate of Televisa, to provide transponder service on up
to five PAS-3 Ku-band transponders, at least three of which will be used for
distribution of television services in Spain, which may include DTH services.
The service fees reflect market rates. This agreement superseded a verbal
agreement in principle with Televisa whereby PanAmSat and Televisa had
intended to form a joint venture to offer DTH services in the Iberian
Peninsula.
Concurrently with the Combination (see Note 13) and immediately following
the Univisa Contribution, 7.5 million shares of New PanAmSat common stock
received by Satellite Company, L.L.C., a Nevada limited liability company ("S
Company") and a subsidiary of Televisa, in connection with the Univisa
Contribution will be repurchased by New PanAmSat for $225 million. Following
such repurchase, either Televisa, S Company and/or their designees will
purchase for $225 million all of PanAmSat's rights to purchase from Televisa
equity interests in certain joint ventures to be formed to offer DTH services
in Latin America and the Iberian Peninsula.
The Company also has significant investments in and commitments for PAS-5
and PAS-6 (see Note 6) which it had intended to use in the proposed DTH
business. Pursuant to the Reorganization Agreement, it is anticipated that the
Company's rights to acquire equity interests in the Latin American JVs will be
sold at the closing of the Reorganization.
(5) SATELLITES AND OTHER PROPERTY AND EQUIPMENT:
The Company's principal operating assets consist of PAS-1, PAS-2, PAS-3 and
PAS-4. The Company has in-orbit insurance coverage of $60 million for PAS-1
through August 26, 1997. In-orbit insurance coverage for PAS-2, PAS-3 and PAS-
4 of $188 million, $215 million and $212 million, respectively, expires on May
21, 1997. The Company intends to obtain new in-orbit insurance coverage to
become effective upon these expiration dates. The Company operates terrestrial
sites and network control centers in Homestead, Florida, Ellenwood, Georgia
and Napa, California.
FIN-11
<PAGE>
PANAMSAT CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Satellites and other property and equipment balances are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1996 1995
------------- ------------
<S> <C> <C>
Satellites in service (PAS 1, PAS-2, PAS-3
and PAS 4).................................. $ 800,336,064 $568,338,771
Buildings and leasehold improvements......... 22,821,996 14,554,391
Communications and support equipment......... 39,536,928 25,057,147
Land......................................... 1,988,607 1,977,002
------------- ------------
864,683,595 609,927,311
Less: Accumulated depreciation and
amortization................................ (138,091,220) (79,177,520)
------------- ------------
$ 726,592,375 $530,749,791
============= ============
</TABLE>
(6) SATELLITE SYSTEMS UNDER DEVELOPMENT:
The Company has contracted with Hughes Aircraft Company ("Hughes") to
construct a satellite, PAS-5, to be deployed over the Atlantic Ocean region.
The Company has also contracted with Space Systems/Loral ("Loral") for the
construction and delivery of PAS-6, PAS-7 and PAS-8, and for the option to
purchase up to two additional satellites and up to four spare satellites
pursuant to the Loral Satellite Contract. PAS-6, PAS-7 and PAS-8 are to be
deployed over the Atlantic, Indian and Pacific ocean regions, respectively.
PAS-5 and PAS-6 will be suitable for DTH broadcast purposes and are scheduled
to be delivered in 1997. PAS-7 and PAS-8 are scheduled to be delivered in 1997
and 1998, respectively.
The Hughes and Loral contract terms include progress payments payable
monthly during the period of the satellites' construction and incentive
obligations payable monthly with interest ranging from 9.5% to 10% per annum
over a period of 10-15 years, scheduled to commence after the delivery and
launch of the satellites. The incentive obligations are subject to reduction
or refund (as applicable) if the satellites fail fully to meet specific
technical operating standards. The contracts contain rights to cancellation,
which would result in the forfeiture of all progress payments with escalating
termination payments.
The Company has entered into launch contracts with International Launch
Services ("ILS") for the launch of three satellites and Arianespace S.A.
("Arianespace") for the launch of one satellite. The Company expects to launch
PAS-5 and PAS-8 under the ILS contract from Khazakhstan using Proton rockets
and PAS-6 using an Ariane IV launcher. The Company has also entered into a
multi-launch agreement ("Multi-Launch Agreement") with Arianespace which
provides for one firm launch, which the Company plans to use for PAS-7, and
rights for additional launches. The Company has exercised its rights for an
additional launch in late 1999 or early 2000 for an unspecified satellite. The
launch contracts provide that the Company may terminate such contracts at its
option, and the contracts include termination liability schedules that
increase in magnitude as the timing of any such termination approaches the
date of launch. The maximum termination liability, calculated in accordance
with such schedules, for launch services that have been ordered in connection
with any individual launch (including postponement fees) is approximately
$45.0 million. Payments made by the Company prior to the Company's election to
terminate any such launch contract are offset against any such liability owed.
The Company has obtained policies for up to an aggregate of $1.2 billion of
launch insurance for PAS-5, PAS-6, PAS-7, PAS-8 and a replacement satellite,
or if no replacement is required, a satellite to be designated as PAS-9. The
Company expects the total cost (including costs for engineering, construction,
launch, launch insurance, direct development costs and certain components for
a spare satellite) of PAS-5, PAS-6, PAS-7, and PAS-8 to be approximately $846
million, of which the Company has paid $429 million at December 31, 1996. The
Company has contracted commitments for approximately $417 million at December
31, 1996 related to its satellite systems under development.
FIN-12
<PAGE>
PANAMSAT CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(7) LONG-TERM DEBT:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1996 1995
------------ ------------
<S> <C> <C>
9 3/4% Senior Secured Notes due 2000 (a)............ $175,000,000 $175,000,000
11 3/8% Senior Subordinated Discount Notes due
2003--accreting to $460,206,000 in August 1998
(including accreted interest of $121,288,807 and
$80,947,197 at December 31, 1996 and 1995,
respectively) (b).................................. 386,289,228 345,947,618
Incentive obligations--payable to Hughes in monthly
installments including interest at 10%
collateralized by a security interest in three
transponders on PAS 2, PAS-3 and PAS-4,
respectively....................................... 67,201,987 55,111,069
Deferred satellite performance incentive--payable to
GE Astro in equal monthly installments of $66,075
including interest at 10%, maturing September 1998;
collateralized by a security interest in the
proceeds of future transponder sales from PAS-1.... 1,267,969 1,899,661
Note payable--payable to Hughes Network Systems,
Inc. in monthly installments including interest at
8.5% collateralized by communications equipment.... 417,133 612,563
------------ ------------
630,176,317 578,570,911
Less--Current maturities............................ 4,166,778 3,287,250
------------ ------------
$626,009,539 $575,283,661
============ ============
</TABLE>
- --------
(a) Interest on the Senior Secured Notes is payable semi-annually on February
1 and August 1 of each year, commencing February 1, 1994. Interest
incurred for the years ended December 31, 1996 and 1995 totaled
approximately $17 million per year. The Senior Secured Notes are
redeemable after August 1, 1998, in whole or in part, at the option of the
Company, at a price of 101.625% declining to 100% of principal plus
accrued and unpaid interest, if any, to the date of redemption. The Senior
Secured Notes rank senior in right of payment to all subordinated
indebtedness of the Company and pari passu in right of payment with all
Senior Debt (as defined in the indenture for the Senior Secured Notes).
The Senior Secured Notes are secured by liens on certain assets of the
Company, including PAS-1, PAS-2, PAS-3 and PAS-4.
(b) Interest on the Discount Notes accretes prior to August 1, 1998 at which
time the principal outstanding will be approximately $460.2 million.
Interest accreted for the years ended December 31, 1996 and 1995 totaled
approximately $40.3 million and $36.1 million, respectively. After August
1, 1998, interest on the Discount Notes will be payable semi-annually on
February 1 and August 1 of each year, commencing on February 1, 1999. The
Discount Notes are not redeemable prior to August 1, 1998. Thereafter, the
Discount Notes are redeemable, in whole or in part, at the option of the
Company, at a price of 104.266% declining to 100% of principal plus
accrued and unpaid interest, if any, to the date of redemption. The
Company will be required to redeem 25% of the original aggregate principal
amount of the Discount Notes at a redemption price equal to 100% of the
principal amount thereof together with accrued and unpaid interest on each
of August 1, 2001 and August 1, 2002. The Discount Notes are unsecured and
are subordinated in right of payment to all present and future Senior Debt
of the Company, including the Senior Secured Notes.
The indentures relating to the Senior Secured Notes and Discount Notes
contain restrictive covenants that, among other things, impose limitations on
the Company and its subsidiaries with respect to their ability to (i) incur
additional indebtedness; (ii) make certain investments; (iii) sell assets or
apply the proceeds therefrom; (iv) enter into transactions with affiliates and
(v) pay dividends. Under the financial covenants included in these
restrictions the Company is not currently permitted to incur additional
indebtedness, except as described below, or to make certain investments or pay
dividends.
FIN-13
<PAGE>
PANAMSAT CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Under terms of the Senior Secured and Discount Notes, the Company is limited
to borrowing up to $30 million of additional bank debt and/or $15 million of
debt in connection with the purchase of certain communications equipment,
excluding satellite incentive obligations for PAS-1, PAS-2, PAS-3 and PAS-4.
No such indebtedness or availability of such indebtedness existed at December
31, 1996.
Annual maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
AMOUNT
YEAR ENDING DECEMBER 31, ------------
<S> <C>
1998........................................................ $ 4,372,467
1999........................................................ 3,974,298
2000........................................................ 179,390,470
2001........................................................ 4,850,219
2002 and thereafter......................................... 433,422,085
------------
$626,009,539
============
</TABLE>
The fair value of the Company's debt exceeded the carrying value by
approximately $46.5 million at December 31, 1996. Capitalized interest totaled
approximately $39.5 million, $37.8 million and $41.0 million in 1996, 1995 and
1994, respectively, and is included in satellite systems under development.
(8) PREFERRED STOCK
On April 21, 1995, the Company consummated the sale of 275,000 shares of
Preferred Stock and received proceeds of approximately $261.5 million, net of
underwriting discounts and commissions of approximately $10.7 million and
offering expenses of approximately $2.5 million. The Company anticipates that
all of such net proceeds will be applied to the development, construction and
launch of PAS-5 and PAS-6.
Dividends on the Preferred Stock are payable quarterly in arrears commencing
on July 15, 1995. On or before April 15, 2000, the Company may, at its option,
pay dividends in cash or in additional fully paid and non-assessable shares of
Preferred Stock having an aggregate liquidation preference equal to the amount
of such dividends. After April 15, 2000, dividends may be paid only in cash.
As of December 31, 1996, 340,122 shares have been issued and accrued.
The Preferred Stock is not redeemable prior to April 15, 2000. On or after
April 15, 2000, the Preferred Stock is redeemable at the option of the
Company, in whole or in part from time to time at a redemption price of
106.375% declining to 100% of liquidation value plus accrued and unpaid
dividends. The Preferred Stock is subject to mandatory redemption in whole on
April 15, 2005 at a price equal to the liquidation preference thereof plus
accrued and unpaid dividends. Subject to certain conditions, the Company will
be required to exchange all the outstanding shares of Preferred Stock into the
Company's 12 3/4% Senior Subordinated Notes due 2005 as soon as practicable
following the date that such exchange is permitted by the terms of the Senior
Secured Notes and the Discount Notes.
The fair value of the Company's Preferred Stock exceeded the carrying value
by approximately $75.1 million at December 31, 1996.
(9) INCOME TAXES:
Prior to the conversion, the Partnership was not subject to federal or state
income taxes. The partners were required to report their share of income or
loss in their respective income tax returns. Under the terms of the
Partnership Agreement, quarterly distributions were required for income taxes
for each year that the Partnership
FIN-14
<PAGE>
PANAMSAT CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
had taxable income. Such distributions were calculated using the highest
effective combined U.S. federal, state, local and foreign tax rate that was
imposed on any partner which was a U.S. person with respect to such partner's
allocable share of taxable income of the Partnership for such taxable year. At
December 31, 1994, the Partnership was owed approximately $6.7 million from
its partners for quarterly tax distributions made prior to the launch of PAS-
2, which resulted in a loss for the year ended December 31, 1994. Such amounts
were repaid in 1995.
Taxable income (loss) for the Company and its predecessor entities was
approximately $3.4 million and $(5.5 million) for 1995 and 1994, respectively.
Substantially all of the difference between the Company's and its
predecessors' book income and taxable income (loss) was attributable to
differences in depreciation for tax and financial reporting purposes and
customer deposits. As a result of the Partnership conversion, a net deferred
tax liability of approximately $22.9 million was recorded March 2, 1995, the
conversion date.
The temporary differences that give rise to the net deferred tax liability
and their approximate tax effects as of December 31, 1996 and 1995 are as
follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1995
----------------- -----------------
<S> <C> <C>
Satellites and other property and
equipment............................ $103,344 $ 52,199
Customer deposits..................... (22,517) (16,694)
Alternative minimum tax credits....... (16,854) (3,097)
Other................................. (2,342) (835)
-------- --------
Net deferred tax liability.......... $ 61,631 $ 31,573
======== ========
</TABLE>
The components of the provision for income taxes for the year ended December
31, 1996 and for the period March 2, 1995 through December 31, 1995 are as
follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1995
----------------- -----------------
<S> <C> <C>
Current provision
Federal................................ $13,721 $ 7,191
State.................................. 1,641 961
Deferred provision....................... 31,070 8,677
------- -------
Total provision...................... $46,432 $16,829
======= =======
</TABLE>
The provisions for income taxes for the year ended December 31, 1996 and for
the period March 2, 1995 through December 31, 1995 are reconciled to the
amount computed by applying the statutory federal tax rate to income before
taxes as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1995
----------------- -----------------
<S> <C> <C>
Statutory rate......................... $37,853 $14,480
Permanent differences.................. 1,772 174
State income taxes, net of federal
benefit............................... 6,807 2,175
------- -------
Total provision for income taxes... $46,432 $16,829
======= =======
</TABLE>
As of December 31, 1996, subject to review by the Internal Revenue Service,
the Company has approximately $16.9 million of alternative minimum tax credit
carryforwards which have no expiration date.
FIN-15
<PAGE>
PANAMSAT CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
PRO FORMA TAX EFFECTS (UNAUDITED)--
The accompanying statements of operations present, on an unaudited pro forma
basis, net income for the years ended December 31, 1995 and 1994 as if the
Company had been taxed at corporate federal and state tax rates and as if the
conversion occurred on January 1, 1994. The pro forma tax effects assume the
net deferred tax liability as described above would have been provided as the
related temporary differences arose.
The components of the pro forma provisions for income taxes for the years
ended December 31, 1995 and 1994 are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1995 DECEMBER 31, 1994
------------------ -----------------
<S> <C> <C>
Current (benefit) provision
Federal............................... $ 5,444 $(1,997)
State................................. 832 (218)
Deferred provision...................... 9,346 9,460
------- -------
Total pro forma provision........... $15,622 $ 7,245
======= =======
</TABLE>
The pro forma provisions for income taxes for the years ended December 31,
1995 and 1994 are reconciled to the amounts computed by applying the statutory
federal tax rate to income before taxes as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1995 DECEMBER 31, 1994
----------------- -----------------
<S> <C> <C>
Statutory rate......................... $12,031 $6,299
Permanent differences.................. 1,371 --
State income taxes, net of federal ben-
efit.................................. 2,220 946
------- ------
Total pro forma provision for income
taxes............................... $15,622 $7,245
======= ======
</TABLE>
Substantially all of the difference between the Company's income for
financial reporting purposes and pro forma taxable income is attributable to
the difference in depreciation and customer deposits for tax and financial
reporting purposes, and, in 1995, the permanent difference created by a $3.8
million charge related to a grant of a limited partnership interest in the
Partnership to the Executive Vice President of the Company, for which the
income tax benefit was specially allocated to the Anselmo Group.
(10) RELATED PARTY TRANSACTIONS:
The Company has an employment agreement with Frederick A. Landman, President
and Chief Executive Officer, which terminates December 31, 1997 subject to
automatic annual renewal. Total annual base compensation is $600,000 under
this agreement.
The Company has earned revenues of approximately $9.1 million, $3.9 million
and $5.0 million for 1996, 1995 and 1994, respectively, from entities
affiliated with Univisa. In addition, approximately $193.5 million of the
Company's expected future cash payments at December 31, 1996 for PAS-1 and
PAS-3 under long-term arrangements are from the same entities.
The Company had a commitment to purchase certain equipment for a minimum of
$2.2 million in connection with the DTH venture described above. This
commitment has been canceled by the Company and certain costs associated with
this termination have been, and any additional costs will be, reimbursed by
Televisa under a separate indemnification agreement.
Certain engineering and technical services are provided by Rubin Bednarek &
Associates, a firm in which an executive of the Company, Robert Bednarek, was
a principal until December 31, 1995. Fees paid to this firm were approximately
$1,435,000 and $1,097,000 for the years ended December 31, 1995 and 1994,
respectively.
FIN-16
<PAGE>
PANAMSAT CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(11) EMPLOYEE BENEFIT PLANS:
NON-QUALIFIED PLANS--
In December 1991, a predecessor company adopted non-qualified phantom stock
plans. In connection with the conversion of the Partnership into a
corporation, the plans were assumed by the Company and the Partnership
recorded a compensation charge and a liability of approximately $2.8 million,
which was the estimated fair value of the phantom shares at that time. The
Company was obligated to adjust this liability at each balance sheet date to
the then current estimate of fair value. Accordingly, the Company recorded
additional charges of $1.7 million in 1995. The liability was paid in
connection with the Company's initial public offering.
Also in connection with the conversion of the Partnership, the Executive
Vice President of the Company was granted a Partnership interest from the
Anselmo Group which was exchanged for Class A Common Stock upon the
consummation of the conversion. As a result, the Partnership recorded a non-
recurring compensation charge of approximately $3.8 million with an offsetting
increase to capital.
1995 STOCK PLAN--
Effective March 2, 1995, the Company adopted the PanAmSat Corporation Long-
Term Stock Investment Plan (the "Stock Plan"), which provides for the granting
of non-qualified stock options, incentive stock options, alternate
appreciation rights, restricted stock, performance units and performance
shares to executive officers and other key employees of the Company, and to
other service providers, including independent contractors of the Company.
Restricted stock, performance units and performance shares may be granted in
the discretion of the Committee (as defined below) on such terms as the
Committee may decide. The maximum number of shares of common stock which may
be issued under the Stock Plan is 5,000,000, and the maximum number of shares
of common stock which may be issued to any grantee pursuant to the Stock Plan
is 2,000,000. The Stock Plan is administered by a committee of the Board of
Directors (the "Committee") consisting of at least two directors of the
Company. As of December 31, 1996, options for 1,057,345 shares of common stock
have been granted under the Stock Plan, including options for 100,000 shares
granted to non-employees. Such options are exercisable at prices ranging from
$17.00 to $28.75 per share (the stock's market price at the date of grant) and
vest ratably over five years.
The Company accounts for the Stock Plan under APB Opinion No. 25. Had
compensation cost for this plan been determined consistent with SFAS No. 123,
the Company's net income (loss) and earnings (loss) per share would have been
reduced as follows:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C> <C>
Net income (loss)......................... As Reported $20,297,877 $(8,430,177)
Pro Forma 19,411,228 (9,279,621)
Earnings (loss) per share................. As Reported $0.20 $(0.08)
Pro Forma 0.19 (0.09)
</TABLE>
A summary of the status of the Company's Stock Plan at December 31, 1996 and
1995 and changes during the years then ended is presented in the table and the
narrative below:
<TABLE>
<CAPTION>
1996 1995
----------------- -----------------
SHARES WTD. AVG. SHARES WTD. AVG.
(000'S) PRICE (000'S) PRICE
------- --------- ------- ---------
<S> <C> <C> <C> <C>
Outstanding at beginning of year.......... 1,042 17 --
Granted................................... 63 23 1,047 17
Exercised................................. (48) 17 (5) 17
----- -----
Outstanding at end of year................ 1,057 17 1,042 17
===== =====
Weighted average fair value of options
granted.................................. $4.94 -- $6.76 --
</TABLE>
FIN-17
<PAGE>
PANAMSAT CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
994,000 of the 1,057,000 options outstanding at December 31, 1996 have
exercise prices of $17 with a weighted average exercise price of $17 and a
weighted average remaining contractual life of 4 years. 199,000 of these
options are exercisable. The remaining 63,000 options have exercise prices
between $17 and $29, with a weighted average exercise price of $23 and a
weighted average remaining contractual life of 5 years. None of these options
are currently exercisable. There were no options exercisable at December 31,
1995.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted average
assumptions used for grants in 1995 and 1996, respectively: risk-free interest
rate of 5.84 percent and 5.35 percent; expected dividend yield of 0 percent
and 0 percent; expected lives of 5.0 and 1.7 years; expected stock price
volatility of 33.2 percent and 33.2 percent.
COMPENSATION PLANS--
On April 22, 1996, the Company adopted a General Severance Policy, an
Employee Separation Plan and an Executive Severance Pay Program, the first two
of which were amended by action of the Board of Directors on October 28, 1996.
Under the General Severance Policy, all employees would be entitled to receive
a minimum of two weeks' salary and a maximum of 29 weeks' salary upon
termination without cause and upon the execution by the employee of a release
of all claims against the Company. Under the Employee Separation Plan any
employee (other than below) who is terminated without cause following a change
in control, as defined, would be entitled to receive six months' continuation
of such employee's salary and certain benefits. The Executive Severance Pay
Program covers five senior officers and approximately 55 other key employees
not covered by the Employee Separation Plan and provides severance benefits of
between 1.5 and 3 times the base salary and cash bonus for each such
employee's salary payable upon a change in control, as defined. The
Reorganization (see Note 13) will constitute a change in control.
In September 1996, the Company adopted a plan to pay a cash bonus to its
employees who would otherwise have qualified for the grant of stock options
under the Company's Long-Term Stock Investment Plan. Such compensation
totaling $4.8 million was paid in October 1996 in lieu of stock options.
(12) COMMITMENTS AND CONTINGENCIES:
Orbital control of satellites in service is maintained by various service
providers under long-term TT&C agreements totaling approximately $66.8
million. Total annual TT&C costs for satellites in service is approximately
$5.2 million per year. TT&C costs are included in Engineering and Technical
Services and are generally expensed on a straight-line basis over the term of
the agreement.
The Company has commitments for operating leases primarily relating to
equipment and its executive office facilities in Greenwich, Connecticut. These
leases contain escalation provisions for increases in rental due to increased
real estate taxes and operating expenses. Minimum annual rentals of all
leases, exclusive of increases in real estate taxes and operating assessments,
are as follows:
<TABLE>
<S> <C>
1997............................................................ $1,016,100
1998............................................................ 978,188
1999............................................................ 953,792
2000............................................................ 883,939
Thereafter...................................................... 783,416
----------
$4,615,435
==========
</TABLE>
FIN-18
<PAGE>
PANAMSAT CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Total rent expense approximated $1,009,000, $825,000 and $546,000 for the
years ended December 31, 1996, 1995 and 1994, respectively.
In March 1996, Comsat Corporation ("Comsat") initiated an action seeking
compensatory damages of $250 million and unspecified punitive damages against
the Company, Televisa and News Corp. The complaint alleges that the Company
interfered with the alleged termination, by News Corp., of an alleged contract
between Comsat and News Corp. Although the Company believes this action is
without merit and intends to vigorously contest this matter, it is unable to
predict the final outcome of this action at this time.
(13) AGREEMENT AND PLAN OF REORGANIZATION:
On September 20, 1996 (the "Announcement Date"), the Company and Hughes
Electronics Corporation ("Hughes") announced their agreement to combine their
respective satellite service operations (the "Combination") into a new
publicly held company ("New PanAmSat"). Under the terms of the Agreement and
Plan of Reorganization that was entered into on the Announcement Date, the
Galaxy Business of Hughes will be combined with the Company to form New
PanAmSat. Holders of PanAmSat Common Stock and Class A Common Stock will have
three options to receive payment with respect to their outstanding shares: (a)
one half share of common stock of New PanAmSat and $15 in cash, (b) one share
of common stock of New PanAmSat (subject to proration, as applicable), or (c)
$30 in cash (subject to proration, as applicable). The maximum cash
consideration to be paid to the Company's direct and indirect stockholders
will be equal to $15 multiplied by the number of shares of Common Stock
outstanding and Hughes may elect to limit the number of shares of New PanAmSat
Stock issued to one-half of the number of shares of PanAmSat Common Stock
outstanding at the time. Immediately after the Combination, Hughes will own
71.5% of New PanAmSat unless the Company's direct and indirect stockholders
request more shares of New PanAmSat Common Stock than cash and New PanAmSat
permits additional shares of its common stock to be issued in lieu of cash to
the Company's direct and indirect stockholders. In a separate but related
transaction, New PanAmSat will acquire all of the outstanding shares of
Univisa, Inc., the indirect holder of all of the Class B Common Stock of the
Company, for consideration that is equal in amount and form (subject to
proration, as applicable) to the consideration payable on account of each
share of PanAmSat Common Stock and Class A Common Stock (the "Univisa
Contribution"). Assuming that New PanAmSat pays half stock and half cash as
consideration in the Combination and the Univisa Contribution, immediately
after the Combination, Hughes will own 71.5% of New PanAmSat, unless the
Company's direct and indirect stockholders request more shares of New PanAmSat
Common Stock than cash and New PanAmSat permits additional shares of its
common stock to be issued in lieu of cash to the Company's direct and indirect
stockholders. The Combination requires governmental approval of the U.S.
Federal Communications Commission which is expected to be received within six
to 12 months of the Announcement Date.
In connection with the above transactions, the Company has incurred certain
professional and advisory fees totaling $4.8 million for the year ended
December 31, 1996. The Company expects these fees will aggregate approximately
$20 million, with the majority of the remaining fees payable upon the
successful completion of the Combination. The Reorganization Agreement
includes termination provisions which require that, in the event that the
Reorganization Agreement is terminated by the Company, and the Company
consummates or agrees to consummate certain business combination transactions,
PanAmSat will pay $80 million to Hughes Communications, Inc.
FIN-19
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Galaxy Business of Hughes Communications, Inc.:
We have audited the accompanying balance sheet of the Galaxy Business of
Hughes Communications, Inc. ("Galaxy") as of December 31, 1996 and 1995 and
the related statements of income and parent company's net investment and of
cash flows for each of the three years in the period ended December 31, 1996.
These financial statements are the responsibility of Galaxy's management. Our
responsibility is to express an opinion on the 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 Galaxy at December 31, 1996 and 1995 and
the results of its operations and its cash flows for each of the three years
in the period ended December 31, 1996 in conformity with generally accepted
accounting principles.
Deloitte & Touche LLP
Los Angeles, California
February 28, 1997
FIN-20
<PAGE>
THE GALAXY BUSINESS OF HUGHES COMMUNICATIONS, INC.
BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1996 1995
---------- ----------
<S> <C> <C>
ASSETS:
Cash.................................................... $ 29 $ 35
Operating lease and sale receivables.................... 21,742 14,494
Net investment in sales-type leases (Note 3)............ 20,634 18,788
Prepaid expenses and other receivables.................. 23,313 25,038
Deferred income taxes (Note 7).......................... 46,989 38,767
---------- ----------
Total current assets.................................. 112,707 97,122
Satellites and other property and equipment, net (Notes
4 and 5)............................................... 720,225 662,863
Net investment in sales-type leases (Note 3)............ 320,610 264,727
Operating lease receivables and other assets............ 21,005 22,200
Intangible assets, net of amortization.................. 72,896 76,170
Deferred income taxes (Note 7).......................... 28,073 14,896
---------- ----------
TOTAL ASSETS............................................ $1,275,516 $1,137,978
========== ==========
LIABILITIES:
Accounts payable and accrued liabilities................ $ 24,459 $24,049
Accrued in-orbit performance insurance.................. 26,481 27,825
Deferred gains on sales and leasebacks (Note 4)......... 42,871 27,134
Deferred revenues....................................... 5,424 6,616
---------- ----------
Total current liabilities............................. 99,235 85,624
Deferred gains on sales and leasebacks (Note 4)......... 234,751 183,202
Accrued operating leaseback expense..................... 107,841 69,103
Deferred revenues....................................... 31,596 38,658
---------- ----------
Total liabilities..................................... 473,423 376,587
COMMITMENTS AND CONTINGENCIES (Notes 6 and 8)
PARENT COMPANY'S NET INVESTMENT......................... 802,093 761,391
---------- ----------
TOTAL LIABILITIES AND PARENT COMPANY'S NET INVESTMENT... $1,275,516 $1,137,978
========== ==========
</TABLE>
Reference should be made to Notes to Financial Statements.
FIN-21
<PAGE>
THE GALAXY BUSINESS OF HUGHES COMMUNICATIONS, INC.
STATEMENTS OF INCOME AND PARENT COMPANY'S NET INVESTMENT
YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
REVENUES (Note 5):
Outright transponder sales.......... $32,466 $16,335 $41,448
Sales-type leases of transponders... 131,220 133,409 97,747
Operating leases of transponders.... 277,074 184,577 134,625
Satellite services and other........ 42,010 51,805 54,423
-------- -------- --------
Total revenues.................... 482,770 386,126 328,243
-------- -------- --------
COSTS AND EXPENSES (Note 5):
Cost of outright sales and sales-
type leases of transponders........ 52,969 49,616 45,747
Leaseback expenses, net of deferred
gain (Note 4)...................... 59,927 36,597 36,617
Depreciation and amortization....... 58,523 76,522 54,126
Direct operating costs.............. 34,794 29,931 33,627
Selling, general and administrative
expenses........................... 34,119 30,146 51,595
-------- -------- --------
Total costs and expenses.......... 240,332 222,812 221,712
-------- -------- --------
Operating income.................... 242,438 163,314 106,531
Interest expense, net (Note 5)...... (4,903) (5,828) (6,826)
Other income........................ 2,184 7,892 3,885
-------- -------- --------
Income before income taxes.......... 239,719 165,378 103,590
Income tax expense (Note 7)......... 89,895 62,017 38,846
-------- -------- --------
NET INCOME.......................... 149,824 103,361 64,744
PARENT COMPANY'S NET INVESTMENT,
beginning of period................ 761,391 471,310 407,692
Net contributions from
(distributions to) parent company.. (109,122) 186,720 (1,126)
-------- -------- --------
PARENT COMPANY'S NET INVESTMENT, end
of period.......................... $802,093 $761,391 $471,310
======== ======== ========
</TABLE>
Reference should be made to Notes to Financial Statements.
FIN-22
<PAGE>
THE GALAXY BUSINESS OF HUGHES COMMUNICATIONS, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income...................................... $149,824 $103,361 $ 64,744
Adjustments to reconcile net income to net cash
provided by operating activities:
Cost of outright transponder sales............ 14,523 5,990 18,319
Gross profit on sales-type leases............. (51,802) (62,855) (56,069)
Depreciation and amortization................. 58,523 76,522 54,126
Amortization of deferred gains on sales and
leasebacks................................... (41,559) (27,133) (27,043)
Provision for doubtful accounts............... 1,315 (6,666) 23,561
Deferred income taxes......................... (21,399) (18,235) 6,817
Changes in operating assets and liabilities:
Collections of principal on net investment in
sales-type leases............................ 31,204 19,554 10,582
Prepaid expenses and other receivables........ 1,725 (1,604) 6,152
Operating lease receivables and other assets.. (6,053) (6,543) 21,232
Accounts payable and accrued liabilities...... 409 4,883 (1,721)
Accrued in-orbit performance insurance........ (1,344) 3,603 (1,528)
Accrued operating leaseback expense........... 38,738 3,441 3,919
Deferred revenues............................. (8,253) (481) (7,501)
-------- -------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES..... 165,851 93,837 115,590
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to satellites and other property and
equipment.................................... (308,735) (280,543) (114,660)
Proceeds from sale and leaseback.............. 252,000
-------- -------- --------
NET CASH USED IN INVESTING ACTIVITIES......... (56,735) (280,543) (114,660)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net contributions from (distributions to)
parent company............................... (109,122) 186,720 (1,126)
-------- -------- --------
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES................................... (109,122) 186,720 (1,126)
-------- -------- --------
Net increase (decrease) in cash............... (6) 14 (196)
Cash at beginning of the period............... 35 21 217
-------- -------- --------
Cash at end of the period..................... $29 $35 $21
======== ======== ========
</TABLE>
Reference should be made to Notes to Financial Statements.
FIN-23
<PAGE>
THE GALAXY BUSINESS OF HUGHES COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
(IN THOUSANDS)
1. GENERAL INFORMATION
Basis of Presentation and Description of Business--The financial statements
relate to the Galaxy Business of Hughes Communications, Inc. ("HCI")
("Galaxy") which consists of the operations of several related entities owned
by HCI, itself a wholly owned subsidiary of Hughes Electronics Corporation
("HE"or the "parent company"). The accompanying financial statements have been
derived from the historical financial statements of HCI based on assumptions
management believes represent a reasonable basis for presenting the results of
operations and financial position of Galaxy and include allocations of HE and
HCI corporate expenses. Corporate expenses have been systematically allocated
to Galaxy based primarily on three factors: total revenues, gross payroll and
certain tangible assets. Management believes that this allocation methodology
is reasonable and that the allocated costs are comparable to those which
Galaxy would have incurred on a stand-alone basis. The financial information
included herein may not necessarily reflect the financial position and results
of operations of Galaxy in the future.
Galaxy is a leading provider of commercial satellite services in the United
States. Galaxy offers satellite transponder capacity to cable television
programmers, broadcast television programmers, business communications
customers and direct-to-home ("DTH") service providers, for video, audio and
data communications applications. Galaxy operates a fleet of ten commercial
geostationary fixed service satellites, nine of which primarily serve the
United States and one of which serves both the United States and Latin
America. Galaxy also provides satellite telemetry, tracking, and control
("TT&C") services for its own satellite fleet as well as for other satellites
owned by DIRECTV, Inc., PanAmSat and American Mobile Satellite Corporation.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates in the Preparation of the Financial Statements--The
preparation of the 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 outright sales, sales-type
lease and operating lease contracts with customers to provide satellite
transponders, transponder capacity and related services.
Pursuant to an outright transponder sale contract, all rights and title to a
transponder may be purchased. In connection with an outright sale, Galaxy
recognizes the sales amount as revenue and the cost basis of the transponder
is removed and charged to cost of sales. Contracts for sales of transponders
include a TT&C service agreement with Galaxy.
Lease contracts qualifying for capital lease treatment (typically based on
the term of the lease) are accounted for as sales-type leases. For sales-type
lease transactions related to completed satellite transponders, at the time
that a customer enters into a sales-type lease, Galaxy recognizes as revenue
the net present value of the future minimum lease payments. The cost basis of
the transponder is removed and charged to cost of sales. During the life of
the lease, Galaxy recognizes as revenues in each respective period that
portion of each periodic lease payment deemed to be attributable to interest
income. The balance of each periodic lease payment represents principal
repayment and is recognized as a reduction of net investment in sales-type
leases. Interest income from sales-type leases of $41 million, $27 million and
$14 million is included in sales-type lease revenues for the years ended
December 31, 1996, 1995, and 1994.
FIN-24
<PAGE>
THE GALAXY BUSINESS OF HUGHES COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
For satellite transponders under construction which have been sold outright
or where a sales-type lease has been signed, revenues are recognized using the
percentage-of-completion method based on costs incurred.
Lease contracts that do not qualify as sales-type leases are accounted for
as operating leases. Operating lease revenues are recognized on a straight-
line basis over the lease terms. Differences between operating lease payments
received and revenues recognized are deferred and included in operating lease
receivables.
Revenues related to service agreements and video time-sharing are recognized
as services are rendered.
Galaxy has entered into agreements for the sale and leaseback of certain of
its satellite transponders. Gains resulting from such transactions are
deferred and amortized over the leaseback period. The leaseback transactions
have been classified as operating leases and, therefore, the cost and
associated depreciation related to the satellite transponders sold are not
included in the accompanying financial statements. Leaseback expense is
recorded using the straight-line method over the term of the lease, net of the
amortization of the deferred gains. Differences between operating leaseback
payments made and expense recognized are deferred and included in accrued
operating leaseback expense.
Satellites and Other Property and Equipment and Depreciation--Satellites and
other property and equipment are carried at cost. Satellite costs include
construction costs, launch costs, launch insurance, and capitalized interest.
Expenditures for satellites under construction include manufacturing, launch
and launch insurance progress payments, and capitalized interest amounts.
Depreciation is computed generally using the straight-line method over the
estimated useful lives of the assets, generally 12 years for satellite
transponders and 5 to 18 years for other property and equipment.
Intangible Assets--Effective December 31, 1985, General Motors Corporation
("GM") acquired Hughes Aircraft Company ("HAC"), now a wholly owned subsidiary
of HE. The acquisition of HAC was accounted for as a purchase. The excess of
the purchase price over the net tangible assets acquired, $4,245 million, was
assigned to intangible assets, primarily goodwill. The portion of such
intangible assets and related amortization attributable to Galaxy has been
reflected in the accompanying financial statements.
Intangible assets are amortized using the straight-line method, primarily
over 40 years. Recoverability is periodically evaluated by assessing whether
the unamortized carrying amount can be recovered over its remaining life
through undiscounted cash flows generated by underlying tangible assets.
Deferred Revenues--Galaxy enters into agreements with many of its customers
under which the customers make prepayments for TT&C services to be rendered
over a specified period. Payments received are deferred and amortized over the
periods of performance.
In-Orbit Performance Insurance--Galaxy accrues obligations for the present
value of estimated in-orbit performance insurance costs on transponder sales,
sales-type leases and other agreements with performance warranty provisions,
concurrently with the recognition of the related revenue.
Galaxy also purchases insurance for its owned satellite transponders.
Premiums paid relative to such insurance are amortized to expense over the
insurance policy terms, which are typically one year.
Income Taxes--Galaxy, along with other HE subsidiaries, joins with GM in
filing a consolidated U.S. federal income tax return. Current and deferred
income taxes are computed by HE and allocated to Galaxy according to
principles established by Statement of Financial Accounting Standards (SFAS)
No. 109, "Accounting for Income Taxes." Deferred income tax assets and
liabilities reflect the impact of temporary differences between the amounts of
assets and liabilities recognized for financial reporting purposes and such
FIN-25
<PAGE>
THE GALAXY BUSINESS OF HUGHES COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
amounts recognized for tax purposes, as measured by applying currently enacted
tax laws. HE has paid Galaxy's share of the consolidated income tax liability.
The income taxes that would have been paid by Galaxy if it were a separate
taxpayer but were not paid under HE's policy result in an increase in the
parent company's net investment.
Fair Value of Financial Instruments--The carrying amounts of cash, operating
lease and sale receivables, accounts payable and accrued liabilities
approximate their fair values generally due to the short maturity of these
items. The carrying amount of the net investment in sales-type leases
approximates its fair value because the interest rates implicit in the leases
approximate current market rates.
Concentration of Credit Risk--Galaxy provides satellite transponders and
related services and extends credit to a large number of customers in the
commercial satellite communications market. Management monitors its exposure
to credit losses and maintains allowances for anticipated losses which are
charged to selling, general and administrative expenses.
Accounting Change--Effective January 1, 1996, Galaxy adopted SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of." This Statement established accounting standards for the
impairment of long-lived assets, certain identifiable intangibles, and
goodwill related to those assets to be held and used, and for long-lived
assets and certain identifiable intangibles to be disposed of. Adoption of
this Statement did not have a material effect on Galaxy's operating results or
financial position.
Reclassifications--Certain reclassifications have been made to conform to
the current presentation.
FIN-26
<PAGE>
THE GALAXY BUSINESS OF HUGHES COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
3. NET INVESTMENT IN SALES-TYPE LEASES
The components of net investment in sales-type leases are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1995
------------ ------------
<S> <C> <C>
Total minimum lease pay-
ments...................... $696,723 $532,982
Allowance for doubtful ac-
counts..................... (17,968) (16,653)
Less unearned interest in-
come....................... (337,511) (232,814)
-------- --------
Total net investment in
sales-type leases.......... 341,244 283,515
Less current portion........ (20,634) (18,788)
-------- --------
$320,610 $264,727
======== ========
</TABLE>
Future minimum payments due from customers under sales-type leases and
related service agreements (primarily TT&C and in-orbit performance
protection) as of December 31, 1996 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-----------------------
SERVICE
MINIMUM LEASE AGREEMENT
PAYMENTS PAYMENTS
------------- ---------
<S> <C> <C>
1997.......................... $62,316 $7,344
1998.......................... 68,584 8,304
1999.......................... 74,066 8,200
2000.......................... 74,186 8,178
2001.......................... 74,185 8,178
Thereafter.................... 343,386 27,222
-------- -------
$696,723 $67,426
======== =======
</TABLE>
4. SATELLITES AND OTHER PROPERTY AND EQUIPMENT, NET
Satellites and other property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1995
------------ ------------
<S> <C> <C>
Satellite transponders under
lease...................... $602,059 $442,678
Satellites under construc-
tion....................... 316,332 385,833
Buildings and leasehold im-
provements................. 41,632 21,299
Machinery and equipment..... 92,573 92,221
Other....................... 8,346 11,756
--------- --------
1,060,942 953,787
Less accumulated deprecia-
tion....................... (340,717) (290,924)
--------- --------
$720,225 $662,863
========= ========
</TABLE>
FIN-27
<PAGE>
THE GALAXY BUSINESS OF HUGHES COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Future minimum lease payments due from customers under noncancelable
operating leases on completed satellites, exclusive of sublease payments
reported below are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1996
MINIMUM LEASE
PAYMENTS
-----------------
<S> <C>
1997.................................................... $159,046
1998.................................................... 124,381
1999.................................................... 91,826
2000.................................................... 82,984
2001.................................................... 68,906
Thereafter.............................................. 169,516
--------
$696,659
========
</TABLE>
In February 1996, Galaxy entered into a sale and leaseback of certain
satellite transponders on Galaxy III-R with General Motors Acceptance
Corporation ("GMAC"), a subsidiary of GM. Proceeds from the sale were $252
million and resulted in a gain of $109 million, which was deferred and is
being amortized over the seven-year leaseback period. The transponders on
Galaxy III-R are currently under month-to-month subleases pending the planned
conversion of the satellite from international to domestic service in late
1997. Accordingly, there are no sublease payments on these transponders in the
table below. In 1991 and 1992, Galaxy entered into agreements for the sales
and leasebacks of certain transponders on SBS-6 and Galaxy VII, respectively,
resulting in deferred gains of $96 million in 1991 and $180 million in 1992,
which are being amortized over the leaseback periods. The transponder
leaseback terms include early buy out options as follows: $152 million in 1998
and $366 million in 1999. As of December 31, 1996, the future minimum lease
amounts payable to lessors under the operating leasebacks and the future
minimum payments due from sublessees under noncancelable subleases are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1996
------------------
LEASEBACK SUBLEASE
AMOUNTS PAYMENTS
--------- --------
<S> <C> <C>
1997................................................... $110,368 $68,947
1998................................................... 107,265 56,437
1999................................................... 133,268 40,449
2000................................................... 164,657 40,511
2001................................................... 90,930 40,151
Thereafter............................................. 366,749 149,352
-------- --------
$973,237 $395,847
======== ========
</TABLE>
5. RELATED PARTY TRANSACTIONS
The following table summarizes the significant related party transactions
between Galaxy and other HE entities:
<TABLE>
<CAPTION>
1996 1995 1994
------- -------- -------
<S> <C> <C> <C>
Revenues:
Operating leases............................. $72,043 $26,261 $20,308
Satellite services........................... 11,397 18,513 21,434
Costs and expenses:
Allocation of corporate general and
administrative expenses..................... 10,127 9,926 4,468
Imputed interest............................. 19,475 15,924 11,883
Other services............................... 889 2,316 1,459
Satellite purchases.......................... 196,400 115,337 21,595
</TABLE>
FIN-28
<PAGE>
THE GALAXY BUSINESS OF HUGHES COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Imputed interest was charged to Galaxy based on net operating assets. During
the years ended December 31, 1996, 1995, and 1994, Galaxy capitalized interest
costs of $14.6 million, $10.1 million, and $5.1 million, respectively, as part
of the cost of its satellites under construction.
6. COMMITMENTS AND CONTINGENCIES
Galaxy is subject to potential liability under various claims and legal
actions which are pending or may be asserted against it. The aggregate
ultimate liability of Galaxy under these claims and actions was not
determinable at December 31, 1996. In the opinion of Galaxy's management, such
liability is not expected to have a material adverse effect on Galaxy's
operations or financial position.
From July 1, 1996 through closing of the agreement described in Note 9,
Galaxy, as part of HCI and HE, is obligated under such agreement to fund
additional capital expenditures of approximately $575 million for the
construction and launch of various Galaxy spacecraft. At December 31, 1996
$419 million of this funding requirement remained.
7. INCOME TAXES
The income tax provision consisted of the following:
<TABLE>
<CAPTION>
1996 1995 1994
-------- ------- -------
<S> <C> <C> <C>
Taxes currently payable U.S. Federal and
State....................................... $111,294 $80,252 $32,029
Deferred tax (assets) liabilities--net U.S.
Federal and State........................... (21,399) (18,235) 6,817
-------- ------- -------
Total income tax provision................... $ 89,895 $62,017 $38,846
======== ======= =======
</TABLE>
The income tax provision was different than the amount computed using the
U.S. statutory income tax rate for the reasons set forth in the following
table:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Expected tax at U.S. statutory income tax
rate....................................... $83,902 $57,882 $36,257
U.S. State and local income taxes........... 14,479 9,989 6,257
Foreign sales corporation tax benefit....... (9,589) (6,615) (4,144)
Other....................................... 1,103 761 476
------- ------- -------
Total income tax provision.................. $89,895 $62,017 $38,846
======= ======= =======
</TABLE>
Temporary differences which gave rise to deferred tax assets and liabilities
are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1995
-------------------- --------------------
DEFERRED DEFERRED DEFERRED DEFERRED
TAX TAX TAX TAX
ASSETS LIABILITIES ASSETS LIABILITIES
-------- ----------- -------- -----------
<S> <C> <C> <C> <C>
Sales and leasebacks............ $111,049 $84,135
Depreciation.................... $71,616 $62,750
Accruals and advances........... 29,841 27,913
Other........................... 5,788 4,365
-------- ------- -------- -------
Total deferred taxes............ $146,678 $71,616 $116,413 $62,750
======== ======= ======== =======
</TABLE>
FIN-29
<PAGE>
THE GALAXY BUSINESS OF HUGHES COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
8. RETIREMENT AND INCENTIVE PLANS
Galaxy's employees participate in contributory and non-contributory defined
benefit retirement plans maintained by HE. These plans are available to
substantially all full-time employees. Benefits are based on years of service
and compensation earned during a specified period of time before retirement.
The accumulated plan benefit obligations and plan net assets for the employees
of the Business have not been separately determined and are not included in
Galaxy's balance sheet. In addition to pension benefits, HE charges Galaxy its
allocated share of employee-related postretirement benefit costs. The
accumulated postretirement benefit obligation related to Galaxy's employees
has not been separately determined and is not included in the balance sheet.
Galaxy's employees also participate in other HE health and welfare plans.
Charges related to these plans, included in the statements of income, were not
significant for the years ended December 31, 1996, 1995, and 1994.
9. AGREEMENT AND PLAN OF REORGANIZATION
On September 20, 1996 (the "Announcement Date"), HE and PanAmSat Corporation
announced their agreement to combine their respective satellite service
operations (the "Combination") into a new publicly held company ("New
PanAmSat"). Under the terms of the Agreement and Plan of Reorganization that
was entered into on the Announcement Date, Galaxy will be combined with
PanAmSat to form New PanAmSat. Holders of PanAmSat Common Stock and PanAmSat
Class A Common Stock will have three options to receive payment with respect
to their outstanding shares: (a) one-half share of common stock of New
PanAmSat and $15 in cash, (b) one share of common stock of New PanAmSat
(subject to proration, as applicable) or (c) $30 in cash (subject to proration
as applicable). The maximum cash consideration to be paid to PanAmSat's direct
and indirect stockholders will be equal to $15 multiplied by the number of
shares of PanAmSat Common Stock outstanding and HE may elect to limit the
number of shares of New PanAmSat Stock issued to one-half of the number of
shares of PanAmSat Common Stock outstanding at the time. Immediately after the
Combination, HE will own 71.5% of New PanAmSat unless the direct and indirect
holders of PanAmSat Common Stock request more shares of New PanAmSat common
stock than cash and New PanAmSat permits additional shares of its common stock
to be issued in lieu of cash to PanAmSat's direct and indirect stockholders.
In a separate but related transaction, New PanAmSat will acquire all of the
outstanding shares of Univisa, Inc., the indirect holder of all of PanAmSat's
Class B Common Stock, for consideration that is equal in amount and form
(subject to proration, as applicable) to that being paid to the holders of
PanAmSat Common Stock and PanAmSat Class A Common Stock. The Combination
requires governmental approval of the U.S. Federal Communications Commission
which is expected to be received within 6 to 12 months of the Announcement
Date.
FIN-30
<PAGE>
INDEPENDENT AUDITORS' REPORT
Magellan International, Inc.:
We have audited the accompanying consolidated balance sheet of Magellan
International, Inc. ("the Company") as of December 31, 1996. This financial
statement is the responsibility of the Company's management. Our
responsibility is to express an opinion on the financial statement based on
our audit.
We conducted our audit 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 statement is 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 audit provides a reasonable basis
for our opinion.
In our opinion, such consolidated balance sheet presents fairly, in all
material respects, the financial position of the Company at December 31, 1996
in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Los Angeles, California
February 28, 1997
FIN-31
<PAGE>
MAGELLAN INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEET
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
<S> <C>
ASSETS
Cash............................................................... $25,166
=======
LIABILITIES
Amounts due to Affiliates.......................................... $24,990
SHAREHOLDER'S EQUITY
Common Stock (1,000 shares authorized, 100 shares issued and
outstanding, par value $0.01)..................................... 1
Additional Paid-in-Capital......................................... 9
Retained Earnings.................................................. 166
-------
Total Equity....................................................... 176
-------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY.......................... $25,166
=======
</TABLE>
Reference should be made to Notes to Consolidated Balance Sheet.
FIN-32
<PAGE>
MAGELLAN INTERNATIONAL, INC.
NOTES TO CONSOLIDATED BALANCE SHEET
YEAR ENDED DECEMBER 31, 1996
1. GENERAL INFORMATION
Magellan International, Inc. ("Magellan") is a wholly owned subsidiary of
Hughes Communications, Inc. ("HCI"), itself a wholly owned subsidiary of
Hughes Electronics Corporation ("HE"), that does not conduct any business
activities. Magellan is also the parent company of PAS Merger Corp., a wholly
owned subsidiary formed for the purposes of effecting a merger with PanAmSat
Corporation.
2. AGREEMENT AND PLAN OF REORGANIZATION
On September 20, 1996 (the "Announcement Date"), Magellan, HCI and certain
subsidiaries of HCI entered into an agreement pursuant to which HCI and
certain of its subsidiaries will contribute the assets and liabilities of the
Galaxy Business of HCI to Magellan, and PAS Merger Corp., will merge into
PanAmSat Corporation. In connection with the agreement, holders of PanAmSat
Common Stock and PanAmSat Class A Common Stock will have three options to
receive payment with respect to their outstanding shares: (a) one-half share
of common stock of Magellan and $15 in cash, (b) one share of common stock of
Magellan (subject to proration, as applicable), or (c) $30 in cash (subject to
proration, as applicable). The maximum cash consideration to be paid by
Magellan to PanAmSat's direct and indirect stockholders will be equal to $15
multiplied by the number of shares of PanAmSat Common Stock outstanding and HE
may elect to limit the number of shares of Magellan issued to one-half of the
number of shares of PanAmSat Commons Stock outstanding at the time.
Immediately after the combination, HE will own 71.5% of Megellan unless
PanAmSat's stockholders request more shares of Magellan common stock than cash
and Magellan permits additional shares of its common stock to be issued in
lieu of cash to PanAmSat's direct and indirect stockholders. In a separate but
related transaction, Megellan will acquire all of the outstanding shares of
Univisa, Inc., the indirect holder of all of PanAmSat's Class B Common Stock,
for consideration that is equal in amount and form (subject to proration, as
applicable) to that being paid to the holders of PanAmSat Common Stock and
PanAmSat Class A Common Stock. The agreement requires governmental approval of
the U.S. Federal Communications Commission which is expected to be received
within 6 to 12 months of the Announcement Date.
FIN-33
<PAGE>
APPENDICES
<TABLE>
<C> <S>
Appendix A...... Agreement and Plan of Reorganization
Appendix AA..... Amendment to Agreement and Plan of Reorganization
Appendix B...... Agreement and Plan of Merger
Appendix C...... Stock Contribution and Exchange Agreement
Appendix D...... Opinion of Morgan Stanley & Co. Incorporated
Appendix E...... Opinion of Salomon Brothers Inc
Appendix F...... Form of Restated New PanAmSat Certificate of Incorporation
Appendix G...... Form of Restated New PanAmSat Bylaws
Appendix H...... DTH Option Purchase Agreement
Appendix I ..... Delaware General Corporation Law Section 262
Appendix J ..... Charter Amendment
Appendix K...... Assurance Agreement
Appendix L...... Principal Stockholders Agreement
Appendix M...... Stockholder Agreement
Appendix N...... Registration Rights Agreement
Appendix O...... Income Tax Indemnification and Allocation Agreement
</TABLE>
<PAGE>
APPENDIX A
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF REORGANIZATION
AMONG
HUGHES COMMUNICATIONS, INC.,
HUGHES COMMUNICATIONS GALAXY, INC.,
HUGHES COMMUNICATIONS SATELLITE SERVICES, INC.,
HUGHES COMMUNICATIONS SERVICES, INC.,
HUGHES COMMUNICATIONS CARRIER SERVICES, INC.,
HUGHES COMMUNICATIONS JAPAN, INC.,
MAGELLAN INTERNATIONAL, INC.
AND
PANAMSAT CORPORATION
SEPTEMBER 20, 1996
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
ARTICLE I
<C> <S> <C>
The Asset Contribution.................................................... A-3
1.1 Contribution of the Galaxy Business................................ A-3
1.2 Exclusion of Certain Assets and Liabilities........................ A-4
1.3 Issuance of Shares of Newco Common Stock........................... A-4
1.4 Conveyancing and Assumption Documents.............................. A-4
ARTICLE II
The Merger................................................................ A-4
2.1 Organization of the Merger Subsidiary.............................. A-4
2.2 The Merger......................................................... A-4
2.3 Directors.......................................................... A-5
2.4 Officers........................................................... A-5
2.5 Certificate of Incorporation and Bylaws............................ A-5
2.6 Name............................................................... A-5
2.7 Actions of Newco................................................... A-5
ARTICLE III
The Closing............................................................... A-5
ARTICLE IV
Effect of the Merger on Securities of PAS and Merger Sub.................. A-6
4.1 Merger Sub Stock................................................... A-6
4.2 Conversion of PAS Shares........................................... A-6
4.3 Elections by Holders of Shares..................................... A-7
4.4 Proration.......................................................... A-9
4.5 Dividends, Fractional Shares, Etc.................................. A-9
4.6 Certain Additional Prorations...................................... A-10
ARTICLE V
Representations and Warranties of PAS..................................... A-11
5.1 Organization, Standing and Power................................... A-11
5.2 Capital Structure.................................................. A-11
5.3 Authority; No Violations; Consents and Approvals................... A-12
5.4 SEC Documents...................................................... A-13
5.5 Information Supplied............................................... A-14
5.6 Compliance with Laws............................................... A-14
5.7 Litigation......................................................... A-16
5.8 Taxes.............................................................. A-16
5.9 Employees and Agents; Benefit Plans ............................... A-16
5.10 Absence of Certain Changes or Events............................... A-19
5.11 Opinion of Financial Advisors...................................... A-20
5.12 Insurance.......................................................... A-20
5.13 Intellectual Property.............................................. A-20
5.14 Environmental Matters.............................................. A-21
5.15 Investment Banking Fees and Commissions............................ A-22
5.16 Material Contracts................................................. A-22
</TABLE>
A-i
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
5.17 Personal Property................................................ A-23
5.18 Real Property.................................................... A-23
5.19 Certain Assets and Agreements.................................... A-24
(a)Ground Stations............................................... A-24
(b)Satellites and Transponders................................... A-25
(c)Tracking, Telemetry and Control Equipment..................... A-25
(d)ITU Frequency Registration.................................... A-25
(e)Satellite Coordination........................................ A-25
5.20 IGO Determinations............................................... A-25
ARTICLE VI
Representations and Warranties of the Hughes Parties.................... A-26
6.1 Organization, Standing and Power................................. A-26
6.2 Capital Structure................................................ A-26
6.3 Authority; No Violations; Consents and Approvals................. A-26
6.4 Galaxy Financial Statements...................................... A-27
6.5 Information Supplied............................................. A-28
6.6 Compliance with Laws............................................. A-28
6.7 Litigation....................................................... A-30
6.8 Taxes............................................................ A-30
6.9 Employees and Agents; Benefit Plans.............................. A-30
6.10 Absence of Certain Changes or Events............................. A-33
6.11 Insurance........................................................ A-34
6.12 Intellectual Property............................................ A-34
6.13 Environmental Matters............................................ A-35
6.14 Investment Banking Fees and Commissions.......................... A-35
6.15 Material Contracts............................................... A-35
6.16 Personal Property................................................ A-36
6.17 Real Property.................................................... A-36
6.18 Certain Assets and Agreements.................................... A-37
(a)Ground Stations............................................... A-37
(b)Satellites and Transponders................................... A-37
(c)Tracking, Telemetry and Control Equipment..................... A-38
(d)ITU Frequency Registration.................................... A-38
(e)Satellite Coordination........................................ A-38
6.19 IGO Determinations............................................... A-38
ARTICLE VII
Covenants............................................................... A-38
7.1 Interim Operations of PAS........................................ A-38
(a)Ordinary Course............................................... A-38
(b)Dividends; Changes in Capital Stock........................... A-39
(c)Issuance of Securities........................................ A-39
(d)Governing Documents........................................... A-39
(e)No Solicitation............................................... A-39
(f)No Spacecraft Acquisitions, Investments or Capital
Expenditures..................................................... A-40
(g)No Dispositions............................................... A-40
(h)No Dissolution, Etc........................................... A-40
(i)Other Actions................................................. A-41
(j)Certain Employee Matters...................................... A-41
</TABLE>
A-ii
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
(k)Indebtedness.................................................. A-41
(l)Agreements.................................................... A-41
(m)Accounting.................................................... A-41
(n)Payment of Claims............................................. A-41
(o)Waivers and Payments.......................................... A-41
(p)Insurance..................................................... A-42
(q)Affiliate Transactions........................................ A-42
(r)PAS Permits................................................... A-42
(s)Construction Permits and Applications......................... A-42
(t)Interference.................................................. A-42
(u)No Restrictive Agreements..................................... A-42
(v)Certain Other Agreements...................................... A-43
7.2 Interim Operations of the Galaxy Business........................ A-43
(a)Ordinary Course............................................... A-43
(b)Dividends; Changes in Capital Stock........................... A-43
(c)Issuance of Securities........................................ A-43
(d)Governing Documents........................................... A-43
(e)No Spacecraft Acquisitions, Investments or Capital
Expenditures.................................................. A-43
(f)No Dispositions............................................... A-44
(g)No Dissolution, Etc........................................... A-44
(h)Other Actions................................................. A-44
(i)Certain Employee Matters...................................... A-44
(j)Indebtedness.................................................. A-44
(k)Agreements.................................................... A-44
(l)Accounting.................................................... A-45
(m)Payment of Claims............................................. A-45
(n)Waivers and Payments.......................................... A-45
(o)Insurance..................................................... A-45
(p)Affiliate Transactions........................................ A-45
(q)Galaxy Permits................................................ A-45
(r)Construction Permits and Applications......................... A-45
(s)Interference.................................................. A-46
(t)No Restrictive Agreements..................................... A-46
(u)Additional Property........................................... A-46
(v)Certain Other Agreements...................................... A-46
7.3 Interim Operations of Newco...................................... A-46
7.4 Control of Galaxy and PAS........................................ A-47
7.5 Registration Statement and Proxy Statement/Prospectus............ A-47
7.6 PAS Stockholders' Meeting........................................ A-48
7.7 Access to Information............................................ A-48
7.8 Confidentiality.................................................. A-48
(a)Preservation of Confidentiality............................... A-48
(b)Property Right in Confidential Information.................... A-49
(c)Termination of Agreement...................................... A-49
7.9 Legal Conditions, Filings and Consents........................... A-49
7.10 Indemnification and Insurance for Directors and Officers......... A-51
7.11 Indemnification for Excluded and Contributed Liabilities......... A-52
7.12 Notices of Certain Events........................................ A-53
7.13 Publicity........................................................ A-54
7.14 Rule 145 Affiliates.............................................. A-54
7.15 Supplemental Disclosure Schedules................................ A-54
</TABLE>
A-iii
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
7.16 Newco Employee Benefits Arrangements............................. A-54
(a)Replacement of Retirement Plan................................ A-54
(b)Replacement of Savings Plan................................... A-55
(c)Newco Stock Options........................................... A-56
(d)Retiree Medical Benefits...................................... A-56
(e)PAS ERISA Plans and PAS Benefit Arrangements.................. A-56
(f)HCI Indemnification........................................... A-57
(g)PAS Indemnification........................................... A-57
7.17 Further Action................................................... A-57
7.18 Documentation of Intercompany Agreements......................... A-57
7.19 Listing Application.............................................. A-57
7.20 Leveraged Lease Guarantee........................................ A-57
7.21 Disposition of Assets............................................ A-57
7.22 Related Agreements............................................... A-58
7.23 Standstill Restriction........................................... A-58
7.24 Capital Expenditures and the Closed System for Cash Management... A-58
ARTICLE VIII
Conditions.............................................................. A-59
8.1 Conditions to Each Party's Obligation to Effect the Asset
Contribution, the Univisa Contribution and the Merger........... A-59
(a)No Order...................................................... A-59
(b)Stockholder Approval.......................................... A-59
(c)HSR Act....................................................... A-59
(d)FCC Consents.................................................. A-59
(e)Other Satellite Approvals..................................... A-59
(f)Other Approvals............................................... A-60
(g)Registration Statement........................................ A-60
(h)Related Agreements............................................ A-60
(i)Listing Application........................................... A-60
8.2 Additional Conditions to Obligations of PAS...................... A-60
(a)Representations and Warranties................................ A-60
(b)Performance of Obligations.................................... A-60
(c)Material Adverse Change....................................... A-61
8.3 Additional Conditions to Obligations of the Hughes Parties....... A-61
(a)Representations and Warranties................................ A-61
(b)Performance of Obligations.................................... A-61
(c)Material Adverse Change....................................... A-61
(d)Termination of Options........................................ A-61
(e)Termination of DTH Equity Obligations......................... A-61
(f)Resignation of PAS Directors.................................. A-62
ARTICLE IX
Termination and Amendment............................................... A-62
9.1 Termination...................................................... A-62
9.2 Effect of Termination............................................ A-62
9.3 Termination Fee.................................................. A-63
9.4 Amendment........................................................ A-63
9.5 Extension; Waiver................................................ A-63
</TABLE>
A-iv
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
ARTICLE X
<C> <S> <C>
General Provisions...................................................... A-64
10.1 Nonsurvival of Representations, Warranties and Agreements........ A-64
10.2 Expenses......................................................... A-64
10.3 Notices.......................................................... A-64
10.4 Interpretation................................................... A-65
Entire Agreement; No Third-Party Beneficiaries; Rights of
10.5 Ownership........................................................ A-65
10.6 Assignment....................................................... A-65
10.7 Governing Law.................................................... A-65
10.8 Severability..................................................... A-66
10.9 Injunctive Relief................................................ A-66
10.10 Attorneys' Fees.................................................. A-66
10.11 Cumulative Remedies.............................................. A-66
10.12 Counterparts..................................................... A-66
</TABLE>
SCHEDULES
<TABLE>
<C> <S>
Schedule 1.1 Excluded Assets
</TABLE>
A-v
<PAGE>
DEFINITION CROSS-REFERENCE TABLE
<TABLE>
<CAPTION>
TERM SECTION
---- -------
<S> <C>
Acquisition Proposal............................................. 7.1(e)
affiliate........................................................ 7.23
Affiliate........................................................ 5.6(b)
Agreement........................................................ Preamble
Allocation Determination......................................... 4.3(d)
Asset Contribution............................................... Recital A
Assurance Agreement.............................................. Recital C
Bankruptcy Exception............................................. 5.3(a)
Capital Expenditures for Satellites Under Construction........... 7.24
Cash Cap......................................................... 4.4(b)
Cash Election.................................................... 4.2(a)(iii)
CERCLA........................................................... 5.14(a)(i)
Class A Common Stock............................................. Recital D
Class B Common Stock............................................. Recital E
Closed System.................................................... 7.24
Closing.......................................................... Article III
Closing Date..................................................... Article III
Code............................................................. Recital B
Confidentiality Agreement........................................ 7.7(b)
Contributed Entities............................................. 1.1
DGCL............................................................. 2.1
Disinterested Director........................................... 7.23
Dissenting Shares................................................ 4.2(d)
DTH Option Purchase Agreement.................................... Recital F
DTH Services..................................................... 7.1(f)
Effective Time................................................... 2.2(b)
Election Deadline................................................ 4.3(d)
Election Form.................................................... 4.3(c)
Environmental Law................................................ 5.14(a)(i)
ERISA............................................................ 5.9(c)(i)
Exchange Act..................................................... 4.2(e)
Exchange Agent................................................... 4.3(b)
Exchange Fund.................................................... 4.3(b)
Excluded Assets.................................................. 1.1
Excluded Liabilities............................................. 1.2
FCC Consent Application.......................................... 7.9(c)
FCC Rules........................................................ 7.1(t)
Final Order...................................................... 8.1(d)
GAAP............................................................. 1.1
Galaxy........................................................... Preamble
Galaxy Assets.................................................... 1.1
Galaxy Backlog................................................... 6.15(c)
Galaxy Balance Sheet............................................. 6.4
Galaxy Benefit Arrangement....................................... 6.9(c)(ii)
Galaxy Benefit Employees......................................... 6.9(c)(i)
Galaxy Business.................................................. 1.1
Galaxy Data...................................................... 6.18(b)
Galaxy Employees................................................. 6.9(a)
Galaxy ERISA Plans............................................... 6.9(c)(i)
Galaxy Financial Statements...................................... 6.4
Galaxy Ground Stations........................................... 6.18(a)
Galaxy Intellectual Property..................................... 6.12
Galaxy Leased Real Property...................................... 6.17(b)
</TABLE>
A-vi
<PAGE>
<TABLE>
<CAPTION>
TERM SECTION
---- -------
<S> <C>
Galaxy Liabilities............................................... 1.1
Galaxy Owned Real Property....................................... 6.17(a)
Galaxy Permits................................................... 6.6(b)
Galaxy Satellite................................................. 6.18(b)
Galaxy Violation................................................. 6.3(b)
Government Entity................................................ 5.3(a)
Hazardous Materials.............................................. 5.14(a)(ii)
HCCS............................................................. Preamble
HCI.............................................................. Preamble
HCJ.............................................................. Preamble
HCS.............................................................. Preamble
HCSS............................................................. Preamble
HE............................................................... Recital C
HE Retirement Plan............................................... 7.16(a)(i)
HE Savings Plan.................................................. 7.16(b)(i)
HSR Act.......................................................... 5.3(c)
Hughes Indemnified Party......................................... 7.11(b)
Hughes Parties................................................... Recital C
Hughes Party..................................................... Recital C
IGO Determinations............................................... 5.20
Income Tax Agreement............................................. Recital C
Indemnified Liabilities.......................................... 7.10(b)
Indemnified Party................................................ 7.11(c)
Indemnified Person............................................... 7.10(b)
Indemnified Persons.............................................. 7.10(b)
Indemnifying Party............................................... 7.11(c)
Interim Period................................................... 7.4
Joint Committee.................................................. 7.16(c)
Law.............................................................. 5.6(a)
Letter of Transmittal............................................ 4.3(c)
Liabilities...................................................... 7.11(a)
Liens............................................................ 5.17
material adverse effect.......................................... 5.1
Material Contract................................................ 5.16(a)
Maximum Cash Amount.............................................. 4.4(a)
Merger........................................................... Recital A
Merger Agreement................................................. 2.2
Merger Consideration............................................. 4.2(a)
Merger Sub....................................................... 2.1
Newco............................................................ Preamble
Newco Certificates............................................... 4.3(b)
Newco Common Stock............................................... 1.3
Newco Indemnified Party.......................................... 7.11(a)
Newco Retirement Plan............................................ 7.16(a)(ii)
Newco Savings Plan............................................... 7.16(b)(ii)
Option Consideration............................................. 4.2(e)
Options.......................................................... 4.2(e)
PAS.............................................................. Preamble
PAS Affiliates................................................... 7.14
PAS Backlog...................................................... 5.16(c)
PAS Balance Sheet................................................ 5.17
PAS Benefit Arrangement.......................................... 5.9(c)(ii)
PAS Common Stock................................................. 2.5
PAS Data......................................................... 5.19(b)
PAS Employees.................................................... 5.9(c)(i)
</TABLE>
A-vii
<PAGE>
<TABLE>
<CAPTION>
TERM SECTION
---- -------
<S> <C>
PAS ERISA Plans................................................. 5.9(c)(i)
PAS Ground Stations............................................. 5.19(a)
PAS Intellectual Property....................................... 5.13
PAS Leased Real Property........................................ 5.18(b)
PAS Owned Real Property......................................... 5.18(a)
PAS Permits..................................................... 5.6(b)
PAS Preferred Stock............................................. 5.2
PAS Satellite................................................... 5.19(b)
PAS Savings Plan................................................ 7.16(b)(i)
PAS SEC Documents............................................... 5.4
PAS Stockholder Approval........................................ 5.3(c)
PAS Violation................................................... 5.3(b)
PAS Voting Debt................................................. 5.2
PBGC............................................................ 7.16(a)(v)
Permits......................................................... 5.6(a)
Permitted Lien.................................................. 5.17(ii)
Person.......................................................... 7.1(e)
Principal Stockholders.......................................... Recital D
Principal Stockholders Agreement................................ Recital D
Proceeds........................................................ 7.21
Prorated Cash Amount............................................ 4.4(b)
Prorated Stock Amount........................................... 4.4(c)
Proxy Statement/Prospectus...................................... 7.5
Registration Rights Agreement................................... Recital G
Registration Statement.......................................... 7.5
Related Agreements.............................................. 7.9(a)
Release......................................................... 5.14(a)(iii)
Remedial Action................................................. 5.14(a)(iv)
Reorganization.................................................. Recital A
Requested Cash Amount........................................... 4.4(b)
Requested Stock Amount.......................................... 4.4(c)
S Company....................................................... Recital A
SEC............................................................. 5.2
Securities Act.................................................. 4.5(b)
Share Certificate............................................... 4.2(b)
Shares.......................................................... 4.2(a)
Significant Subsidiary.......................................... 7.1(h)
SPOT Difference................................................. 4.6
Standard Cash Consideration..................................... 4.2(a)(i)
Standard Consideration.......................................... 4.2(a)(i)
Standard Election............................................... 4.2(a)(i)
Stock Consideration............................................. 4.2(a)(ii)
Stock Election.................................................. 4.2(a)(ii)
Stockholder Agreement........................................... Recital H
Stock Option Plans.............................................. 4.2(e)
Subsidiary...................................................... 2.2(a)
Superior Acquisition Proposal................................... 7.1(e)
tax, taxes and taxable.......................................... 5.8
Televisa........................................................ Recital F
Termination Fee................................................. 9.3
Transferred Retirement Plan Participants........................ 7.16(a)(i)
Transferred Savings Plan Participants........................... 7.16(b)(i)
Univisa......................................................... Recital A
Univisa Contribution............................................ Recital A
Univisa Contribution Agreement.................................. Recital E
</TABLE>
A-viii
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement"), dated
September 20, 1996, is entered into by and among HUGHES COMMUNICATIONS, INC.,
a California corporation ("HCI"), HUGHES COMMUNICATIONS GALAXY, INC., a
California corporation ("Galaxy"), HUGHES COMMUNICATIONS SATELLITE SERVICES,
INC., a California corporation ("HCSS"), HUGHES COMMUNICATIONS SERVICES, INC.,
a California corporation ("HCS"), HUGHES COMMUNICATIONS CARRIER SERVICES,
INC., a California corporation ("HCCS"), HUGHES COMMUNICATIONS JAPAN, INC., a
California corporation ("HCJ"), MAGELLAN INTERNATIONAL, INC., a Delaware
corporation ("Newco") and PANAMSAT CORPORATION, a Delaware corporation
("PAS").
RECITALS
A. The respective Boards of Directors of each of the parties have approved,
and deem it advisable and in the best interests of their respective companies
and stockholders to consummate the reorganization provided for herein (the
"Reorganization"), pursuant to which Newco will acquire the Galaxy Business
(as defined in Section 1.1) and the business of PAS by (i) HCI causing the
contribution of assets and liabilities comprising the Galaxy Business to Newco
in exchange for shares of common stock of Newco (the "Asset Contribution"),
(ii) Satellite Company, L.L.C., a Nevada limited liability company ("S
Company"), contributing its capital stock of Univisa, Inc., a Delaware
corporation ("Univisa"), to Newco in exchange for shares of common stock of
Newco and/or cash (the "Univisa Contribution") and (iii) a subsidiary of Newco
merging with and into PAS (the "Merger").
B. For federal income tax purposes, it is intended that the Asset
Contribution, the Univisa Contribution and the Merger together qualify as an
exchange under the provisions of Section 351 of the United States Internal
Revenue Code of 1986, as amended (the "Code").
C. As a condition and inducement to PAS to enter into this Agreement (and
effect the transactions contemplated hereby) and S Company to enter into the
Univisa Contribution Agreement (as defined in Recital E) and effect the
transactions contemplated thereby, (i) concurrently with the execution and
delivery hereof, Hughes Electronics Corporation, a Delaware corporation
("HE"), is executing and delivering the Assurance Agreement in the form
attached hereto as Exhibit A (the "Assurance Agreement"), pursuant to which HE
will (a) on or before the Closing Date (as defined in Article III), loan or
cause to be loaned to Newco and/or one or more subsidiaries of Newco (other
than PAS, Univisa, Merger Sub (as defined in Section 2.1) or any of their
respective direct or indirect subsidiaries) sufficient cash funds to pay the
cash consideration payable upon consummation of the Univisa Contribution and
the Merger, (b) cause its subsidiaries to contribute all of the assets and
liabilities comprising the Galaxy Business to Newco and (c) cause HCI, Galaxy,
HCSS, HCS, HCCS and HCJ (each, a "Hughes Party," and collectively, the "Hughes
Parties") to continue to conduct the Galaxy Business in the ordinary course
and to perform their respective obligations under this Agreement and (ii) on
or before the Closing Date, HE and Newco will enter into an Income Tax
Indemnification and Allocation Agreement (the "Income Tax Agreement") in the
form attached hereto as Exhibit B.
D. As a condition and inducement to Galaxy to enter into this Agreement (and
effect the transactions contemplated hereby), concurrently with the execution
and delivery hereof, all of the beneficial and record holders of PAS' Class A
Common Stock, par value $.01 per share ("Class A Common Stock"), and S
Company, the sole stockholder of Univisa (the holders of Class A Common Stock
and S Company together, the "Principal Stockholders"), are entering into a
stockholders agreement in the form attached hereto as Exhibit C (the
"Principal Stockholders Agreement"), pursuant to which, among other things,
the Principal Stockholders have agreed to vote or cause to be voted the shares
of PAS owned directly or indirectly by such stockholders as of the date of
this Agreement in favor of the transactions contemplated hereby.
E. Newco will, immediately prior to the Merger, acquire the stock of
Univisa, which indirectly owns all of the shares of PAS' Class B Common Stock,
par value $.01 per share ("Class B Common Stock"), by exchanging
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with S Company all of the outstanding capital stock of Univisa for shares of
common stock of Newco and/or cash, pursuant to the terms of the Stock
Contribution and Exchange Agreement in the form attached hereto as Exhibit D
(the "Univisa Contribution Agreement").
F. Concurrently with the execution and delivery hereof, PAS, Grupo Televisa,
S.A., a corporation (Sociedad Anonima) organized under the laws of Mexico
("Televisa"), and S Company are entering into a purchase and sale agreement in
the form attached hereto as Exhibit E (the "DTH Option Purchase Agreement"),
pursuant to which one of Televisa, a designee or Televisa or S Company,
immediately following the Univisa Contribution, will purchase all of PAS'
rights in the DTH Option (as defined in the DTH Option Purchase Agreement).
G. Concurrently with the consummation of the Asset Contribution, the Univisa
Contribution and the Merger, the Principal Stockholders, HCI and Newco will
enter into a Registration Rights Agreement in the form attached hereto as
Exhibit F (the "Registration Rights Agreement") pursuant to which, among other
things, each of the Principal Stockholders and HCI will have certain
registration rights with respect to its shares of Newco Common Stock.
H. Concurrently with the consummation of the Asset Contribution, the Univisa
Contribution and the Merger, Newco, HCI and the Principal Stockholders will
enter into a stockholder agreement in the form attached hereto as Exhibit G
(the "Stockholder Agreement").
I. HCI, Galaxy, HCSS, HCS, HCCS, HCJ, Newco and PAS desire to make certain
representations, warranties, covenants and agreements in connection with the
transactions contemplated hereby.
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AGREEMENT
In consideration of the foregoing and the mutual promises herein and for
other good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, the parties hereto, intending to be legally bound, hereby
agree as follows:
Article I
The Asset Contribution
1.1 Contribution of the Galaxy Business. Subject to the terms and conditions
of this Agreement, at the Closing (as defined in Article III), HCI shall cause
(a) any and all of the assets, properties, interests and rights owned, leased
or used in the Galaxy Business, of every kind and description, whether located
in Galaxy, HCSS, HCS, HCCS or HCJ (collectively, the "Contributed Entities")
or their respective Affiliates (as defined in Section 5.6(b)), including,
without limitation, (i) the Galaxy Permits (as defined in Section 6.6(b)) set
forth on Schedule 6.6(b), (ii) the Galaxy Intellectual Property (as defined in
Section 6.12) set forth on Schedule 6.12, (iii) all Material Contracts (as
defined in Section 5.16) relating to the Galaxy Business set forth on Schedule
6.15, (iv) the Galaxy Owned Real Property and Galaxy Leased Real Property (as
such terms are defined in Section 6.17) set forth on Schedules 6.17(a) and
6.17(b), respectively, (v) the Galaxy Ground Stations (as defined in Section
6.18(a)) owned by any of the Contributed Entities, (vi) the Galaxy Satellites
(as defined in Section 6.18(b)) set forth on Schedule 6.18(b), including all
rights to any orbital slots or satellites under construction, (vii) machinery,
equipment, furniture and fixtures located at any of the Galaxy Owned Real
Property or Galaxy Leased Real Property facilities, (viii) all prepaid
expenses, prepaid royalties, advances and deposits, (ix) insurance policies,
premiums or proceeds, including, without limitation, launch and in orbit
insurance as set forth on Schedule 6.11, (x) all rights in and to indemnity
claims relating to the Galaxy Assets and the Galaxy Liabilities (as hereafter
defined), (xi) all records, files and customer lists of the Galaxy Business,
(xii) all accounts receivable, (xiii) all choses in action and other claims
relating to the Galaxy Business, (xiv) all cash and cash equivalents related
to the Galaxy Business, (xv) all other assets included on the Galaxy Balance
Sheet (as defined in Section 6.4) and (xvi) all assets related to the Galaxy
Business created after the date of the Galaxy Balance Sheet, but specifically
excluding certain categories of assets held by Galaxy, HCSS, HCS and HCCS
which are described on Schedule 1.1 (the "Excluded Assets") (all of the
assets, properties, interests and rights used in the Galaxy Business, other
than the Excluded Assets, being referred to herein as the "Galaxy Assets"),
and (b) all direct and indirect liabilities, debts, obligations, commitments,
expenses, claims, deficiencies, guaranties or endorsements of any nature,
whether absolute, accrued, contingent or otherwise, known or unknown, matured
or unmatured, arising out of, in connection with or relating to, the Galaxy
Business, including, without limitation, (i) liabilities included on the
Galaxy Balance Sheet, (ii) liabilities of the type described on the Galaxy
Balance Sheet incurred or recognized since June 30, 1996, but specifically
excluding (1) intercompany indebtedness other than related to the purchase or
sale of products and services to or from Affiliates in the ordinary course of
business or permitted to be paid from the Closed System (as defined in Section
7.24) or otherwise under this Agreement, and (2) indebtedness for borrowed
money incurred other than in accordance with the terms of this Agreement,
(iii) liabilities arising from the Galaxy Business and not required by
generally accepted accounting practices ("GAAP") to be included on the Galaxy
Balance Sheet, (iv) liabilities related to the Galaxy Employees or any Galaxy
ERISA Plan or Galaxy Benefit Arrangement, unless otherwise excluded by HCI, in
which case HCI shall provide PAS with notice of its intent to exclude such
liability no later than 30 days before the Effective Time (as defined in
Section 2.2(b)), and (v) liabilities incurred under any contract assumed by
Newco (collectively, the "Galaxy Liabilities"), in each case to be
transferred, conveyed, assigned and delivered or assumed by Newco.
Notwithstanding the foregoing, the parties expressly understand and agree that
the Galaxy Liabilities shall not include liabilities arising as a result of
the reorganization of the Galaxy Business that will occur prior to the Closing
or as a result of the contribution of the Galaxy Business to Newco that will
occur at the Closing. In order to effect the foregoing transfer, conveyance,
assignment, delivery and assumption, without limitation, at the Closing: (x)
Galaxy and HCSS shall convey, transfer, assign and deliver to Newco all right,
title and interest in and to the Galaxy Assets owned by them, and (y) HCI
shall convey, transfer, assign and deliver to Newco all
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of HCI's right, title and interest in and to all of the issued and outstanding
shares of common stock of HCS, HCCS and HCJ. For purposes of this Agreement,
the term "Galaxy Business" means the business of HE or any of HE's Affiliates
existing on the Closing Date relating to (i) the sale or lease of, or the
provision of satellite services via, transponder capacity on satellites
operating in geostationary earth orbit in the C-band, Ka-band and Ku-band
frequencies for the transmission of video, audio and data signals; and (ii)
the provision of telemetry, tracking and control services for such satellites
and for other satellites operating in geostationary earth orbit in the C-band,
Ka-band, Ku-band, L-band and UHF-band frequencies or other frequency bands
that may be utilized in the future; but in each case excluding the sale or
lease of transponder capacity and telemetry, tracking and control services
provided on or for any satellite that has both (x) multiple (six or more)
receive and transmit beams and (y) an on-board satellite payload processor
which can switch uplink signals in one beam to a downlink signal in one of
multiple beams.
1.2 Exclusion of Certain Assets and Liabilities. Immediately prior to the
transactions contemplated in Section 1.1, each of HCS, HCCS and HCJ shall
convey, transfer, assign and deliver to one or more entities controlled by HE
(that are not Contributed Entities) all of the right, title and interest of
HCS, HCCS and HCJ in and to Excluded Assets owned by them and all direct and
indirect liabilities, debts, obligations, commitments, expenses, claims,
deficiencies, guaranties or endorsements of any nature, whether absolute,
accrued, contingent or otherwise, known or unknown, matured or unmatured,
arising out of or connected with the Excluded Assets (the "Excluded
Liabilities").
1.3 Issuance of Shares of Newco Common Stock. As consideration for the Asset
Contribution, Newco shall, at the Closing, issue and deliver to HCI, Galaxy
and HCSS, in such proportion as HCI shall determine, an aggregate of one
hundred six million six hundred twenty two thousand eight hundred seven
(106,622,807) shares of common stock, par value $.01 per share, of Newco
("Newco Common Stock").
1.4 Conveyancing and Assumption Documents. HCI, HCSS and Galaxy shall, prior
to the Closing, enter into all deeds, bills of sale, assignments, instruments
of assumption and other instruments, and obtain all third party and regulatory
consents, in each case necessary to consummate the transactions contemplated
by this Article I to enable Newco to operate the Galaxy Business in the manner
such business was operated by HCI prior to the Closing Date hereof; provided
that all such instruments shall be in form and substance, and shall be
executed and delivered in a manner, reasonably satisfactory to HCI, Newco and
PAS.
Article II
The Merger
2.1 Organization of the Merger Subsidiary. As promptly as practicable
following the execution of this Agreement, Newco shall cause PAS Merger Corp.
("Merger Sub") to be organized as a corporation under the Delaware General
Corporation Law (the "DGCL") for the sole purpose of effectuating the Merger.
The Certificate of Incorporation and Bylaws of Merger Sub shall be in such
forms as shall be determined by Newco in consultation with PAS as soon as
practicable following the execution of this Agreement. The authorized capital
stock of Merger Sub shall initially consist of 100 shares of common stock, par
value $.01 per share, which shall be issued to Newco at a price of $1.00 per
share. As promptly as practicable following the execution of this Agreement
(but in no event later than thirty (30) days prior to the Closing Date), Newco
shall designate, in consultation with PAS, the initial directors and officers
of Merger Sub.
2.2 The Merger. Pursuant to a Plan of Merger, in a form to be mutually
agreed upon by HCI and PAS (the "Merger Agreement"), upon the terms and
subject to the conditions set forth in this Agreement and in the Merger
Agreement, at the Closing, Merger Sub shall be merged with and into PAS in
accordance with the applicable provisions of the DGCL. PAS shall be the
surviving corporation in the Merger and shall continue its corporate existence
under the DGCL. As a result of the Merger and the Univisa Contribution, Newco
shall own,
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directly and indirectly, all of the common stock of PAS. The effects and
consequences of the Merger shall be as set forth herein and in the Merger
Agreement.
(a) As used in this Agreement, the term "Subsidiary," with respect to any
party, means any corporation, partnership, joint venture, other legal entity
or organization, whether incorporated or unincorporated, of which: (i) such
party or any other Subsidiary of such party is a general partner; (ii) voting
power to elect a majority of the Board of Directors or others performing
similar functions with respect to such corporation, partnership, joint
venture, other legal entity or organization is held by such party or by any
one or more of its Subsidiaries, or by such party and any one or more of its
Subsidiaries; or (iii) more than 50% of all classes of equity securities is,
directly or indirectly, owned or controlled by such party or by any one or
more of its Subsidiaries, or by such party and any one or more of its
Subsidiaries.
(b) As used in this Agreement, the term "Effective Time" shall mean the time
and date which is (i) the later of the date and time of the filing of the
certificate of merger relating to the Merger with the Secretary of State of
the State of Delaware (or such other date and time as may be specified in such
certificate as may be permitted by law) or (ii) such other time and date as
HCI, Newco and PAS may agree.
2.3 Directors. The directors of Merger Sub immediately prior to the
Effective Time shall be the directors of the surviving corporation in the
Merger as of the Effective Time and until their successors are duly appointed
or elected in accordance with applicable law.
2.4 Officers. The officers of Merger Sub immediately prior to the Effective
Time shall be the officers of the surviving corporation in the Merger as of
the Effective Time and until their successors are duly appointed or elected in
accordance with applicable law.
2.5 Certificate of Incorporation and Bylaws. The Certificate of
Incorporation and Bylaws of PAS in effect at the Effective Time shall be the
Certificate of Incorporation and Bylaws of the surviving corporation in the
Merger until duly amended in accordance with the terms thereof and the DGCL;
provided, that the Certificate of Incorporation of PAS shall be amended,
effective prior to the Univisa Contribution, to provide that, notwithstanding
the Univisa Contribution and the Merger, shares of Class A Common Stock, Class
B Common Stock and PAS's Common Stock, par value $.01 per share (the "PAS
Common Stock") shall retain all rights, privileges and powers currently
possessed by shares of such classes of stock.
2.6 Name. At the Effective Time, Newco will change its corporate name to
"PanAmSat Corporation" and PAS shall change its corporate name to a new name
specified by Newco.
2.7 Actions of Newco. Newco shall (a) execute the Merger Agreement as the
sole stockholder of Merger Sub, (b) cause the directors and officers of Merger
Sub to take such steps as may be necessary or appropriate to complete the
organization of Merger Sub and to approve the Merger Agreement and (c) cause
Merger Sub to perform its obligations under this Agreement and the Merger
Agreement.
Article III
The Closing
Unless this Agreement shall have been terminated and the transactions herein
contemplated shall have been abandoned pursuant to Article IX, the closing of
the Asset Contribution, the Univisa Contribution and the Merger shall take
place at 10:00 a.m., New York time, on the seventh business day following
satisfaction or waiver of the conditions set forth in Article VIII (the
"Closing Date"), at the offices of Chadbourne & Parke LLP, New York City,
unless another date, time or place is agreed to in writing by the parties
hereto and the parties to the Univisa Contribution Agreement (the "Closing").
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Article IV
Effect of the Merger on Securities
of PAS and Merger Sub
4.1 Merger Sub Stock. At the Effective Time, the shares of the common stock
of Merger Sub outstanding immediately prior to the Effective Time shall be
converted into and shall become (i) the number of shares of Class A Common
Stock of the surviving corporation in the Merger that is equal to the number
of shares of, and having terms identical in all respects to, Class A Common
Stock outstanding immediately prior to the Merger and (ii) the number of
shares of Common Stock of the surviving corporation in the Merger that is
equal to the number of shares of, and having terms identical in all respects
to, PAS Common Stock outstanding immediately prior to the Merger.
4.2 Conversion of PAS Shares.
(a) Except as otherwise provided in Section 4.4 and subject to Sections
4.2(c) and 4.2(d), at the Effective Time, each issued and outstanding share,
other than any share owned by Newco or any Subsidiary of Newco, of PAS Common
Stock and Class A Common Stock (collectively, the "Shares") shall be converted
into, at the election of the holder thereof, one of the following (as may be
adjusted pursuant to Sections 4.4 and 4.6, the "Merger Consideration"):
(i) for each such Share with respect to which an election to receive a
combination of Newco Common Stock and cash has been effectively made and
not revoked or lost pursuant to Sections 4.3(c), (d) and (e) (a "Standard
Election"), the right to receive (x) an amount in cash equal to one-half of
the Standard Cash Consideration plus (y) one-half (0.5) share of Newco
Common Stock (collectively, the "Standard Consideration"). The "Standard
Cash Consideration" means an amount in cash equal to thirty dollars
($30.00), provided that, if the Closing shall not have occurred on or prior
to the first anniversary of this Agreement, the Standard Cash Consideration
shall be increased at a rate equal to 9% per annum from and including the
first anniversary date to but excluding the Closing Date; or
(ii) for each such Share with respect to which an election to receive
solely Newco Common Stock has been effectively made and not revoked or lost
pursuant to Sections 4.3(c), (d) and (e) (a "Stock Election"), the right to
receive one (1) share of Newco Common Stock (the "Stock Consideration"); or
(iii) for each such Share with respect to which an election to receive
solely cash has been effectively made and not revoked or lost pursuant to
Sections 4.3(c), (d) and (e) (a "Cash Election"), the right to receive the
Standard Cash Consideration.
(b) As a result of the Merger and without any action on the part of the
holder thereof, at the Effective Time, (i) all Shares held by any person other
than Newco (or any Subsidiary of Newco) shall cease to be outstanding and
shall be cancelled and retired and shall cease to exist, and each such holder
of Shares shall thereafter cease to have any rights with respect to such
Shares, except the right to receive, without interest, the Merger
Consideration and cash in lieu of fractional shares of Newco Common Stock in
accordance with Section 4.5(c) upon the surrender of a certificate
representing such Shares (a "Share Certificate") and (ii) all outstanding
shares of Class B Common Stock shall continue to be indirectly held by
Univisa.
(c) Notwithstanding anything contained in this Section 4.2 to the contrary,
each Share issued and held in PAS' treasury immediately prior to the Effective
Time shall, by virtue of the Merger, cease to be outstanding and shall be
cancelled and retired without payment of any consideration therefor.
(d) Notwithstanding anything in this Section 4.2 to the contrary, Shares
which are issued and outstanding immediately prior to the Effective Time and
which are held by stockholders who have not voted such shares in favor of the
Merger and who shall have properly exercised their rights of appraisal for
such shares in the manner provided by the DGCL (the "Dissenting Shares") shall
be deemed to have made a Cash Election for purposes of Section 4.4, but shall
not be converted into or be exchangeable for the right to receive the Merger
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Consideration, unless and until such holder shall have failed to perfect or
shall have effectively withdrawn or lost his right to appraisal and payment,
as the case may be. If such holder shall have so failed to perfect or shall
have effectively withdrawn or lost such right, his shares shall thereupon be
deemed to have been converted into and to have become exchangeable for, at the
Effective Time, the right to receive the Standard Consideration, without any
interest thereon. PAS shall give Newco prompt notice of any Dissenting Shares
(and shall also give Newco prompt notice of any withdrawals of such demands
for appraisal rights) and Newco shall have the right to direct all
negotiations and proceedings with respect to any such demands. Neither PAS nor
the corporation surviving the Merger shall, except with the prior written
consent of Newco, voluntarily make any payment with respect to, or settle or
offer to settle, any such demand for appraisal rights.
(e) At the Effective Time, each holder of a then-outstanding option to
purchase Shares under PAS' Long-Term Stock Investment Plan and the Option
Agreements between PAS and certain of its executive officers and other
employees (collectively, the "Stock Option Plans"), whether or not then
exercisable (the "Options"), shall, in settlement thereof, receive for each
Share subject to such Option an amount (subject to any applicable withholding
tax) in cash equal to the difference between (i) the Standard Cash
Consideration and (ii) the per Share exercise price of such Option to the
extent such difference is a positive number (such amount being hereinafter
referred to as, the "Option Consideration"); provided, however, that with
respect to any person subject to Section 16(b) of the Securities Exchange Act
of 1934, as amended, (the "Exchange Act"), any such amount shall be paid as
soon as practicable after the first date payment can be made without liability
to such person under Section 16(b) of the Exchange Act. Upon receipt of the
Option Consideration, the Option shall be canceled. The surrender of an Option
to PAS in exchange for the Option Consideration shall be deemed a release of
any and all rights the holder had or may have had in respect of such Option.
Prior to the Effective Time, PAS shall obtain all necessary consents or
releases from holders of Options under the Stock Option Plans and take all
such other lawful action as may be necessary to give effect to the
transactions contemplated by this Section 4.2(e) (except for any such action
that may require the approval of PAS' stockholders). Except as otherwise
agreed to by the parties, (i) the Stock Option Plans shall terminate as of the
Effective Time and the provisions in any other plan, program or arrangement
providing for the issuance or grant of any other interest in respect of the
capital stock of PAS or any Subsidiary thereof, shall be canceled as of the
Effective Time, and (ii) PAS shall assure that following the Effective Time no
participant in the Stock Option Plans or other plans, programs or arrangements
shall have any right thereunder to acquire equity securities of PAS, the
corporation surviving the Merger or any Subsidiary thereof and to terminate
all such plans.
4.3 Elections by Holders of Shares.
(a) Each person who, at the Effective Time, is a record holder of Shares
(other than holders of Shares to be cancelled as set forth in Section 4.2(c)
or Dissenting Shares) shall have the right to submit an Election Form (as
defined in Section 4.3(c)) specifying the number of Shares that such person
desires to have converted into the right to receive Newco Common Stock and
cash pursuant to the Standard Election, the number of Shares that such person
desires to have converted into the right to receive Newco Common Stock
pursuant to a Stock Election and the number of Shares that such person desires
to have converted into the right to receive cash pursuant to a Cash Election.
(b) Promptly after the Allocation Determination (as defined in Section
4.3(d)), Newco shall deposit (or cause to be deposited) with a bank or trust
company to be designated by HCI and reasonably acceptable to PAS (the
"Exchange Agent"), for the benefit of the holders of Shares and S Company, for
exchange in accordance with this Article IV and the Univisa Contribution
Agreement, (i) cash in the amount sufficient to pay the aggregate cash portion
of the Merger Consideration and the consideration payable in the Univisa
Contribution and (ii) certificates representing the shares of Newco Common
Stock ("Newco Certificates") for exchange in accordance with this Article IV
and the Univisa Contribution Agreement (the cash and shares deposited pursuant
to clauses (i) and (ii) being hereinafter referred to as the "Exchange Fund").
Newco Common Stock into which Shares shall be converted pursuant to the Merger
shall be deemed to have been issued at the Effective Time.
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(c) As soon as reasonably practicable after the Effective Time, the Exchange
Agent shall mail to each holder of record of Shares immediately prior to the
Effective Time (excluding any Shares which will be cancelled pursuant to
Section 4.2(c) or Dissenting Shares) (A) a letter of transmittal (the "Letter
of Transmittal") (which shall specify that delivery shall be effected, and
risk of loss and title to Share Certificates shall pass, only upon delivery of
such Share Certificates to the Exchange Agent and shall be in such form and
have such other provisions as Newco shall specify), (B) instructions for use
in effecting the surrender of Share Certificates in exchange for the Merger
Consideration with respect to the Shares formerly represented thereby, and (C)
an election form (the "Election Form") providing for such holders to make the
Standard Election, the Stock Election or the Cash Election. As of the Election
Deadline (as defined in Section 4.3(d)), all holders of Shares immediately
prior to the Effective Time that shall not have submitted to the Exchange
Agent or shall have properly revoked an effective, properly completed Election
Form shall be deemed to have made a Standard Election.
(d) Any Standard Election, Stock Election or Cash Election shall have been
validly made only if the Exchange Agent shall have received by 5:00 p.m. New
York time on a date (the "Election Deadline") to be mutually agreed upon by
HCI, Newco and PAS, an Election Form properly completed and executed (with the
signature or signatures thereof guaranteed to the extent required by the
Election Form) by such holder accompanied by such holder's Share Certificates,
or by an appropriate guarantee of delivery of such Share Certificates from a
member of any registered national securities exchange or of the National
Association of Securities Dealers, Inc. or a commercial bank or trust company
in the United States as set forth in such Election Form. Any holder of Shares
who has made an election by submitting an Election Form to the Exchange Agent
may, at any time prior to the Election Deadline, change such holder's election
by submitting a revised Election Form, properly completed and signed that is
received by the Exchange Agent prior to the Election Deadline. Any holder of
PAS Common Stock may at any time prior to the Election Deadline revoke his
election and withdraw his Share Certificates deposited with the Exchange Agent
by written notice to the Exchange Agent received by the close of business on
the day prior to the Election Deadline. As soon as practicable after the
Election Deadline, the Exchange Agent shall determine the allocation of the
cash portion of the Merger Consideration and the stock portion of the Merger
Consideration and shall notify Newco of its determination (the "Allocation
Determination").
(e) Upon surrender of a Share Certificate for cancellation to the Exchange
Agent, together with the Letter of Transmittal duly executed, and such other
documents as Newco or the Exchange Agent shall reasonably request, the holder
of such Share Certificate shall be entitled to receive promptly after the
Allocation Determination in exchange therefor (A) a certified or bank
cashier's check in the amount equal to the cash, if any, which such holder has
the right to receive pursuant to the provisions of this Article IV (including
any cash in lieu of fractional shares of Newco Common Stock pursuant to
Section 4.5(c)), and (B) a Newco Certificate representing that number of
shares of Newco Common Stock, if any, which such holder has the right to
receive pursuant to this Article IV (in each case less the amount of any
required withholding taxes), and the Share Certificate so surrendered shall
forthwith be cancelled. Until surrendered as contemplated by this Section
4.3(e), each Share Certificate shall be deemed at any time after the Effective
Time to represent only the right to receive the Merger Consideration with
respect to the Shares formerly represented thereby.
(f) Newco shall have the right to make reasonable rules, not inconsistent
with the terms of this Agreement, governing the validity of the Election
Forms, the manner and extent to which Standard Elections, Stock Elections or
Cash Elections are to be taken into account in making the determinations
prescribed by Section 4.4, the issuance and delivery of certificates for Newco
Common Stock into which Shares are converted in the Merger, and the payment of
cash for Shares converted into the right to receive cash in the Merger.
(g) Notwithstanding the foregoing provisions of this Section 4.3, the
parties hereto may decide to distribute Election Forms to PAS' stockholders
and require that holders making such elections respond prior to the Merger,
upon such additional terms and conditions as may be agreed to by the parties.
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4.4 Proration.
(a) As is more fully set forth below and except as may be paid pursuant to
Section 4.5 or otherwise in respect of Dissenting Shares, the aggregate amount
of cash to be paid in the Merger and in the Univisa Contribution (other than
the cash payment of $225 million provided for in the last sentence of Section
1.2(a) of the Univisa Contribution Agreement) shall not exceed the product of
(x) one-half ( 1/2) of the Standard Cash Consideration and (y) the aggregate
number of shares of PAS Common Stock, Class A Common Stock and Class B Common
Stock issued and outstanding immediately prior to the Effective Time (such
product, the "Maximum Cash Amount").
(b) In the event that the sum of the aggregate amount of cash represented by
the Cash Elections hereunder (including Cash Elections deemed to have been
made with respect to Dissenting Shares) and under the Univisa Contribution
Agreement received by the Exchange Agent (such sum, the "Requested Cash
Amount") exceeds the Maximum Cash Amount minus the aggregate amount of cash
payable on account of all Standard Elections made or deemed to have been made
hereunder or under the Univisa Contribution Agreement (such difference, the
"Cash Cap"), each holder making (or deemed to make) a Cash Election hereunder
or under the Univisa Contribution Agreement shall receive, for each Share or
Value Unit (as such term is defined in the Univisa Contribution Agreement), as
the case may be, with respect to which a Cash Election has been made (or is
deemed to have been made) hereunder or under the Univisa Contribution
Agreement, (x) cash in an amount equal to the Prorated Cash Amount and (y) a
number of shares of Newco Common Stock equal to a fraction, the numerator of
which is equal to the Standard Cash Consideration minus the Prorated Cash
Amount and the denominator of which is the Standard Cash Consideration. The
term "Prorated Cash Amount" means the greater of (i) one-half ( 1/2) of the
Standard Cash Consideration and (ii) the product of the Standard Cash
Consideration and a fraction, the numerator of which is the Cash Cap and the
denominator of which is the Requested Cash Amount.
(c) The aggregate number of shares of Newco Common Stock that may be issued
pursuant to Stock Elections hereunder and under the Univisa Contribution
Agreement is not subject to any maximum. In the event that the Requested Cash
Amount is less than the Cash Cap, each holder making a Stock Election
hereunder or under the Univisa Contribution Agreement shall receive, at the
option of Newco, for each Share or Value Unit, as the case may be, with
respect to which a Stock Election has been made hereunder or under the Univisa
Contribution Agreement, (x) not more than the Stock Consideration and not less
than a number of shares of Newco Common Stock equal to a fraction the
numerator of which is the Requested Stock Amount minus the difference between
the Cash Cap and the Requested Cash Amount, and the denominator of which is
the Requested Stock Amount (such whole or fractional share, the "Prorated
Stock Amount") and (y) cash in an amount equal to the product of (A) the
Standard Cash Consideration and (B) one minus the Prorated Stock Amount. The
term "Requested Stock Amount" means the product of the aggregate number of
shares of Newco Common Stock represented by Stock Elections hereunder or under
the Univisa Contribution Agreement received by the Exchange Agent and the
Standard Cash Consideration.
4.5 Dividends, Fractional Shares, Etc.
(a) Notwithstanding any other provisions of this Agreement, no dividends or
other distributions declared after the Effective Time on Newco Common Stock
shall be paid with respect to any Shares which, prior to the Effective Time,
were represented by a Share Certificate until such Share Certificate is
surrendered for exchange as provided herein. Subject to the effect of
applicable Laws (as defined in Section 5.6(a)), following surrender of any
such Share Certificate, there shall be paid to the holder of the Newco
Certificates issued in exchange therefor, without interest, (i) at the time of
such surrender, the amount of dividends or other distributions with a record
date after the Effective Time theretofore payable with respect to such whole
shares of Newco Common Stock and not paid, less the amount of any withholding
taxes which may be required thereon, and (ii) at the appropriate payment date,
the amount of dividends or other distributions with a record date after the
Effective Time but prior to surrender and a payment date subsequent to
surrender payable with respect to such whole shares of Newco Common Stock,
less the amount of any withholding taxes which may be required thereon.
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(b) At or after the Effective Time, there shall be no transfers on the stock
transfer books of PAS of the Share Certificates which were outstanding
immediately prior to the Effective Time. If, after the Effective Time,
certificates formerly representing any such Shares are presented to the
surviving corporation in the Merger, they shall be cancelled and exchanged for
certificates for the consideration, if any, deliverable in respect thereof
pursuant to this Agreement in accordance with the procedures set forth in this
Article IV. Share Certificates surrendered for exchange by any person
constituting an "affiliate" of PAS for purposes of Rule 145(c) under the
Securities Act of 1933, as amended (the "Securities Act"), shall not be
exchanged until Newco has received a written agreement from such person as
provided in Section 7.14.
(c) No fractional shares of Newco Common Stock shall be issued pursuant to
the Merger or the Univisa Contribution. In lieu of the issuance of any
fractional share of Newco Common Stock pursuant to the Merger or the Univisa
Contribution, cash adjustments will be paid to holders in respect of any
fractional share of Newco Common Stock that would otherwise be issuable, and
the amount of such cash adjustment shall be equal to the product of such
fractional amount and the Standard Cash Consideration.
(d) Any portion of the Exchange Fund (including the proceeds of any
investments thereof and any shares of Newco Common Stock) that remains
unclaimed by the former stockholders of PAS six months after the Effective
Time shall be delivered to Newco. Any former stockholder of PAS who has not
theretofore complied with this Article IV shall thereafter look only to Newco
for payment of the consideration payable on account of the Univisa
Contribution or the Merger, as the case may be, cash in lieu of fractional
shares and unpaid dividends and distributions on the Newco Common Stock
deliverable in respect of each share such stockholder holds as determined
pursuant to this Agreement, in each case without any interest thereon.
(e) None of HCI, its Affiliates, PAS, Newco, the Exchange Agent or any other
person shall be liable to any former holder of Shares or shares of Class B
Common Stock for any amount properly delivered to a public official pursuant
to applicable abandoned property, escheat or similar laws.
(f) In the event that any Share Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
such Share Certificate to be lost, stolen or destroyed and, if required by
Newco, the posting by such person of a bond in such reasonable amount as Newco
may direct as indemnity against any claim that may be made against it with
respect to such Share Certificate, the Exchange Agent will issue in exchange
for such lost, stolen or destroyed Share Certificate the applicable Merger
Consideration, cash in lieu of fractional shares, and unpaid dividends and
distributions on Shares as provided in this Section 4.5, deliverable in
respect thereof pursuant to this Agreement.
4.6 Certain Additional Prorations. In the event that the aggregate number of
shares of Newco Common Stock for which Value Units were to be exchanged
pursuant to Section 1.2(a) of the Univisa Contribution Agreement would
otherwise be less than seven million five hundred thousand (7,500,000) (after
giving effect to any prorations pursuant to Section 4.4, if applicable), then
notwithstanding anything to the contrary contained in this Agreement or in the
Univisa Contribution Agreement, (i) a number of Value Units equal to seven
million five hundred thousand (7,500,000) minus the aggregate number of shares
of Newco Common Stock for which Value Units would otherwise be exchanged
pursuant to Section 1.2(a) of the Univisa Contribution Agreement (after giving
effect to any prorations pursuant to Section 4.4, if applicable) (such
difference, the "SPOT Difference") shall be exchanged for Newco Common Stock
(after giving effect to any prorations pursuant to Section 4.4, if
applicable), (ii) the aggregate amount of cash for which Value Units were
otherwise to be exchanged pursuant to Section 1.2(a) of the Univisa
Contribution Agreement (after giving effect to any prorations pursuant to
Section 4.4, if applicable) shall be reduced by an amount equal to the product
of the SPOT Difference and the Standard Cash Consideration, and (iii) the
aggregate number of Shares with respect to which Cash Elections or Stock
Elections were made hereunder shall be adjusted in accordance with Section
4.4, if applicable, giving effect (a) first, to the Shares as to which a Cash
Election was made but which were to be converted into the right to receive
shares of Newco Common Stock in lieu of cash in accordance with Section
4.4(b), and (b) second, to all other Shares as to which a Stock Election was
made.
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Article V
Representations and Warranties of PAS
PAS represents and warrants to each of the Hughes Parties as follows:
5.1 Organization, Standing and Power. Each of PAS and its Subsidiaries is a
corporation duly organized, validly existing and in good standing under the
laws of its respective jurisdiction of incorporation, has all requisite
corporate power and authority necessary to own, lease and operate its
properties and to carry on its business as now being conducted, and is duly
qualified, and in good standing to own, lease and operate its properties and
to conduct business in each jurisdiction, domestic and foreign, in which the
business it is conducting, or the operation, ownership or leasing of its
properties, makes such qualification necessary, other than in such
jurisdictions where the failure to so qualify or be in good standing is not
likely to have a material adverse effect on PAS and its Subsidiaries, taken as
a whole. PAS and each of its Subsidiaries has heretofore made available to HCI
true, complete and correct copies of its Certificate of Incorporation and
Bylaws as currently in effect together with all amendments thereto. No
resolution has been adopted to amend any of such Certificates of Incorporation
or Bylaws except as expressly called for by this Agreement. None of PAS or its
Subsidiaries (i) has been dissolved, adopted resolutions to dissolve or acted
in any way to accomplish, request or approve such dissolution, (ii) is a party
to any merger or (iii) has been declared bankrupt, and, to PAS' knowledge, no
action or request is pending to declare it bankrupt. PAS has made available to
HCI minute books for each of PAS and its Subsidiaries which contain complete
and accurate records in all material respects of all meetings, or consents in
lieu thereof, of the stockholders and the Board of Directors (including
committees thereof) of each such entity since its date of formation. As used
in this Agreement, any reference to any event, change or effect having a
"material adverse effect" on any person or entity means (i) such event, change
or effect, individually or in the aggregate with other events, changes, or
effects, is materially adverse to the financial condition, business, results
of operations, assets, liabilities, properties or prospects of such person or
entity and (ii) such event, change or effect, individually, or in the
aggregate with other events, changes or effects, would impair the right or
ability of the parties hereto and thereto to consummate the transactions
contemplated hereby and by the Related Agreements (as defined in Section 7.9).
5.2 Capital Structure. As of the date hereof, the authorized capital stock
of PAS consists of 100,000,000 shares of Class A Common Stock, 100,000,000
shares of Class B Common Stock, 400,000,000 shares of PAS Common Stock and
20,000,000 shares of Preferred Stock, $.01 par value per share ("PAS Preferred
Stock"). At the close of business on September 1, 1996: (i) 40,459,432 shares
of Class A Common Stock, 40,459,431 shares of Class B Common Stock, 19,081,137
shares of PAS Common Stock and 311,132.777 shares of PAS Preferred Stock were
issued and outstanding, 1,065,225 shares of PAS Common Stock were reserved for
issuance pursuant to currently outstanding options pursuant to the Stock
Option Plans, and, except for the issuance of shares of PAS Common Stock
pursuant to the exercise of the Options and except as set forth on Schedule
5.2, there are no employment, executive termination or similar agreements
providing for the issuance of any shares of Class A Common Stock, Class B
Common Stock, PAS Common Stock or PAS Preferred Stock; (ii) no shares of Class
A Common Stock, Class B Common Stock, PAS Common Stock or PAS Preferred Stock
were held by PAS or any of its Subsidiaries; and (iii) except as set forth on
Schedule 5.2, no bonds, debentures, notes or other instruments or evidence of
indebtedness having the right to vote (or convertible into, or exercisable or
exchangeable for, securities having the right to vote) on any matters on which
stockholders of PAS may vote ("PAS Voting Debt") were issued or outstanding.
All outstanding shares of the capital stock of PAS and the outstanding capital
stock of each of PAS' Subsidiaries and all such shares which may be issued
upon the exercise of outstanding options and warrants are validly issued,
fully paid and nonassessable and no such shares are subject to preemptive or
other similar rights. Except as set forth on Schedule 5.2, all outstanding
shares of capital stock of PAS' Subsidiaries are owned by PAS or a direct or
indirect wholly-owned Subsidiary of PAS, free and clear of all liens, charges,
encumbrances, claims and options of any nature. Except as set forth on
Schedule 5.2, neither PAS nor any of PAS' Subsidiaries (i) beneficially owns
any capital shares or has any other record or beneficial equity or other
ownership or interest in any corporation, partnership, joint venture,
association or other entity or business enterprise or (ii) has any commitment
to contribute to the capital of, make loans to, or share the losses of any
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person or entity (other than any of PAS or any of its Subsidiaries). Except as
set forth in this Section 5.2 and except for changes since September 1, 1996
resulting from the exercise of stock options granted pursuant to the Stock
Option Plans, there are outstanding: (i) no shares of capital stock, PAS
Voting Debt or other voting securities of PAS authorized, issued or
outstanding; (ii) no securities of PAS or any Subsidiary of PAS convertible
into, or exchangeable or exercisable for, shares of capital stock, PAS Voting
Debt or other voting securities of PAS or any Subsidiary of PAS; and (iii) no
options, warrants, calls, rights (including preemptive rights), commitments or
agreements to which PAS or any Subsidiary of PAS is a party or by which it is
bound, in any case obligating PAS or any Subsidiary of PAS to issue, deliver,
sell, purchase, redeem or acquire, or cause to be issued, delivered, sold,
purchased, redeemed or acquired, additional shares of capital stock of PAS or
any PAS Voting Debt or other voting securities of PAS or of any Subsidiary of
PAS, or obligating PAS or any Subsidiary of PAS to grant, extend or enter into
any such option, warrant, call, right, convertible security, commitment or
agreement. Since September 1, 1996, PAS has not (i) granted any options,
warrants or rights to purchase shares of capital stock of PAS or (ii) amended
or repriced any Option or the Stock Option Plans, and set forth on Schedule
5.2 is a list of all outstanding options, warrants and rights to purchase
shares of capital stock of PAS and the exercise prices relating thereto.
Except as set forth on Schedule 5.2, there are not as of the date hereof and
there will not be at the Effective Time any stockholder agreements, voting
trusts or other agreements or understandings to which PAS or any of its
Subsidiaries is a party or by which any such entity is bound relating to the
voting of any shares of the capital stock of PAS or any of its Subsidiaries.
Except as set forth on Schedule 5.2, there are no restrictions on PAS to vote
the stock of any of its Subsidiaries. Except as granted in connection with the
transactions contemplated by this Agreement, no person has any rights to cause
PAS or its Subsidiaries to register with the United States Securities and
Exchange Commission (the "SEC") any securities of PAS or any of its
Subsidiaries.
5.3 Authority; No Violations; Consents and Approvals.
(a) PAS has all requisite corporate power and authority to execute and
deliver this Agreement and the Related Agreements to which it is a party and
to perform its obligations hereunder and thereunder and to effect the
transactions contemplated hereby and thereby, and subject to PAS Stockholder
Approval (as defined in Section 5.3(c)), to consummate the transactions
contemplated hereby. The execution, delivery and performance of this Agreement
and the Related Agreements to which PAS is a party and the consummation of the
transactions contemplated hereby and thereby have been duly authorized by all
necessary corporate action on the part of PAS, subject, if required with
respect to consummation of the Merger, to PAS Stockholder Approval. Each of
this Agreement and the Related Agreements to which PAS is a party has been
duly executed and delivered by PAS and, subject, if required with respect to
consummation of the Merger, to PAS Stockholder Approval, and assuming that
each of this Agreement and the Related Agreements to which PAS is a party
constitutes the valid and binding agreement of the other parties thereto, and
subject to obtaining all necessary approvals by Government Entities,
constitutes a valid and binding obligation of PAS enforceable in accordance
with its terms except that the enforcement hereby may be limited by (a)
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium or
other similar laws now or hereafter in effect relating to creditors' rights
generally and (b) general "principles of equity" (regardless of whether
enforceability is considered in a proceeding at law or in equity) (the
foregoing exception, the "Bankruptcy Exception"). For purposes of this
Agreement, the term "Government Entity" means any legislative, executive,
judicial, regulatory or other governmental or quasi-governmental authority,
instrumentality or body, whether domestic or foreign, local, state, federal or
other, including, without limitation, any administrative agency, commission or
court.
(b) The execution, delivery and performance by PAS of each of this Agreement
and the Related Agreements to which PAS is a party does not, and the
consummation by PAS of the transactions contemplated hereby and thereby will
not, (x) conflict with, or result in any violation of, or default (with or
without notice or lapse of time, or both) which is likely to have a material
adverse effect on PAS and its Subsidiaries, taken as a whole, or give rise to
a right of termination, cancellation or acceleration of any obligation or the
loss of a material benefit, or the creation of a material lien, pledge,
security interest or other encumbrance on assets or property, or right of
first refusal with respect to any material asset or property (any such
conflict, violation, default, right of
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<PAGE>
termination, cancellation or acceleration, loss, creation or right of first
refusal, a "PAS Violation"), under or pursuant to any provision of the
respective Certificate of Incorporation or Bylaws of PAS or equivalent
constituent document of any of its Subsidiaries or, (y) except as to which
requisite waivers or consents have been obtained and, except as set forth on
Schedule 5.3(b) hereto and assuming the consents, approvals, authorizations or
permits and filings or notifications referred to in paragraph (c) of this
Section 5.3 are duly and timely obtained or made and, if required, PAS
Stockholder Approval is obtained, result in any PAS Violation of any Material
Contract, PAS ERISA Plan (as defined in Section 5.9(c)(i)), PAS Benefit
Arrangement (as defined in Section 5.9(c)(ii)), PAS Permit (as defined in
Section 5.6(b)), or Law applicable to PAS or any of its Subsidiaries or any of
their respective properties or assets; provided, however, that nothing in this
Section 5.3 will be deemed to constitute a representation or warranty by PAS
as to any antitrust law or requirement. The Board of Directors of PAS has
taken all actions necessary under the DGCL, including approving the
transactions contemplated by this Agreement and the Related Agreements, to
ensure that Section 203 of the DGCL and the provisions of any other state
takeover laws do not, and will not, apply to the transactions contemplated
hereby and thereby. No vote of the holders of the PAS Preferred Stock is
required to consummate the Asset Contribution, the Univisa Contribution, the
Merger or any of the other transactions contemplated hereby.
(c) No consent, approval, order or authorization of, or registration,
declaration or filing with, notice to, or permit from any Government Entity,
is required by or with respect to PAS or any of its Subsidiaries in connection
with the execution and delivery by PAS of any of this Agreement or the Related
Agreements to which PAS is a party or the consummation by PAS of the
transactions contemplated hereby and thereby, which if not obtained or made is
likely to have a material adverse effect on PAS' ability to consummate the
transactions contemplated hereby and thereby, except for: (A) the filing of a
premerger notification and report form by PAS under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, and the rules and regulations
thereunder (the "HSR Act") and the expiration or termination of the applicable
waiting period thereunder; (B) the filing with the SEC of (x) the Proxy
Statement/Prospectus and related Registration Statement (as such terms are
defined in Section 7.5) relating to a meeting of the holders of shares of
common stock of PAS to adopt this Agreement (the "PAS Stockholder Approval")
and (y) such reports under and such other compliance with the Exchange Act and
the rules and regulations thereunder, as may be required in connection with
this Agreement and the Related Agreements to which PAS is a party and the
transactions contemplated hereby and thereby; (C) the filing of the
Certificate of Merger with the Secretary of State of the State of Delaware;
(D) such filings and approvals as may be required by any applicable state
securities, "blue sky" or takeover laws; (E) such filings and approvals as may
be required by any foreign premerger notification Laws; (F) such consents,
approvals, orders, authorizations and filings required under any
environmental, health or safety law; (G) the filing with the FCC of (x) the
applications and waiver requests described in Section 7.9(c), (y) any
requisite post Closing amendments to pending FCC applications filed by PAS and
its Subsidiaries, reflecting (subject to FCC consent and consummation) the
Asset Contribution, the Univisa Contribution and the Merger, and (z)
associated filings with the FCC that do not require the FCC's consent or
approval; and (H) such other consents, approvals, orders, authorizations,
registrations, declarations, filings, notices and Permits (as defined in
Section 5.6(a)) set forth on Schedule 5.3(c).
5.4 SEC Documents. PAS has made available to HCI a true and complete copy of
each form, report, schedule, registration statement and definitive proxy
statement filed by PAS with the SEC since July 29, 1993 and prior to the date
of this Agreement (the "PAS SEC Documents"), which are all the documents
(other than preliminary material) that PAS was required to file with the SEC
since such date. As of their respective dates, or, if required to be amended,
as of the date of the last such amendment, (i) the PAS SEC Documents complied
in all material respects with the requirements of the Securities Act or the
Exchange Act, as the case may be, and the rules and regulations of the SEC
thereunder applicable to such PAS SEC Documents, and (ii) none of the PAS SEC
Documents contained any 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, in light of the circumstances under which they were made,
not misleading. Each of the financial statements of PAS included in the PAS
SEC Documents have been prepared from, and are in accordance with, the books
and records of PAS and/or its consolidated Subsidiaries, comply in all
material respects with applicable accounting requirements and with the
published
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<PAGE>
rules and regulations of the SEC with respect thereto, were prepared in
accordance with GAAP applied on a consistent basis during the periods involved
(except as may be indicated in the notes thereto) and present fairly, in all
material respects, in accordance with applicable requirements of GAAP, the
consolidated financial position of PAS and its consolidated Subsidiaries as of
their respective dates and the consolidated results of operations and the
consolidated cash flows of PAS and its consolidated Subsidiaries for the
periods presented therein. No Subsidiary of PAS is required to file any form,
report or other document with the SEC. The books and all other financial
records of PAS and each of its Subsidiaries are complete and correct in all
material respects.
5.5 Information Supplied. The Proxy Statement/Prospectus (as defined in
Section 7.5), or any amendment thereof or supplement thereto, will not, on the
date it is first mailed to PAS' stockholders or at the time of PAS'
stockholders meeting, contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances under which they
are made, not misleading; provided, however, that no representation is made by
PAS with respect to statements made therein based on information supplied by
any Hughes Party for inclusion in the Proxy Statement/Prospectus. The
information supplied by PAS for inclusion in each Registration Statement (as
defined in Section 7.5) will not, on the date it is first filed with the SEC
and as of the date it becomes effective, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading. Subject to the
proviso set forth in the second preceding sentence, the Proxy
Statement/Prospectus, will comply as to form, in all material respects, with
the provisions of the Exchange Act and the rules and regulations thereunder.
5.6 Compliance with Laws.
(a) Except as disclosed on Schedule 5.6(a) or the PAS SEC Documents, the
businesses of PAS and its Subsidiaries are not being conducted in violation of
any Law the violation of which is likely to have a material adverse effect on
PAS or any of its Subsidiaries. Except as disclosed on Schedule 5.6(a), no
material investigation or review by any Government Entity with respect to PAS,
any of its Subsidiaries or their respective businesses is pending or, to the
best knowledge of PAS, threatened and PAS has not received any written
citation or notification alleging any violation of any Law or Permit the
continuing violation of which is likely to have a material adverse effect on
PAS or any of its Subsidiaries. As used in this Agreement, the term "Law"
means any applicable domestic or foreign, federal, state or local laws,
statutes, regulations, rules, codes, ordinances, orders and governmental
licenses, franchises, permits and governmental authorizations enacted,
adopted, issued or promulgated by any Government Entity (including, without
limitation, to the extent applicable, those pertaining to communications,
broadcasting, consumer protection, building, zoning, environmental and
occupational safety and health requirements and all requirements of the
Communications Act of 1934, as amended, or any successor statute, and the
rules and regulations of the FCC promulgated thereunder) or common law. As
used in this Agreement, the term "Permits" means all permits (including
conditional use permits), licenses, franchises, approvals, certificates,
concessions, privileges, immunities, consents or other authorizations issued
or authorized by any Government Entity.
(b) Set forth on Schedule 5.6(b) is a true and complete list of all Permits
issued to or held by PAS or any of its Subsidiaries (as amended or modified),
except for Permits which are immaterial to the assets or business of PAS or
any of its Subsidiaries (collectively, the "PAS Permits"); provided, however,
that notwithstanding the foregoing materiality threshold, Schedule 5.6(b)
lists (i) all Permits issued by the FCC to PAS or any of its Subsidiaries,
(ii) all Permits, whether or not issued by the FCC, authorizing the
construction, launch or operation of the PAS Satellites or the PAS Ground
Stations (other than Permits granted or issued by local or municipal
Government Entities, such as building permits, local occupancy permits or
zoning regulations, which are not material to PAS and its Subsidiaries, taken
as a whole), and (iii) all Permits issued to PAS or any of its Subsidiaries by
Government Entities that regulate broadcasting or communications, authorizing
any of PAS or its Subsidiaries to provide broadcasting or communications
services. Schedule 5.6(b) also sets forth a true and complete list of all
pending applications for Permits that would be PAS Permits if issued or
granted and all
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<PAGE>
pending applications by PAS or its Subsidiaries for modification, extension or
renewal of PAS Permits. The PAS Permits are all of the Permits required to be
issued to or held by PAS or its Subsidiaries in order to allow PAS and its
Subsidiaries to own or lease their respective assets and to lawfully conduct
their respective businesses, including, without limitation, the construction,
launch and operation of, and transmitting to and from, each of the PAS
Satellites and the PAS Ground Stations (as such terms are defined in Section
5.19(a)) and the provision of broadcasting or communications services, except
where the failure to possess any such Permit is not likely to have a material
adverse effect on PAS and its Subsidiaries, taken as a whole. Notwithstanding
the generality of the preceding paragraph, except as set forth on Schedule
5.6(b), each of PAS and its Subsidiaries has fulfilled and complied in all
material respects with its obligations under each of the PAS Permits owned,
held or possessed by it, and no event has occurred or condition or state of
facts exists which constitutes or, after notice or lapse of time or both,
would constitute a breach or default under any PAS Permit and which permits
or, after notice or lapse of time or both, would permit revocation or
termination of any such PAS Permit, and neither PAS nor any of its
Subsidiaries has received or has knowledge of any written notice of
cancellation or default or of any dispute concerning any such PAS Permit, or
of any such event, condition or state of facts where the effect thereof would
be material to PAS and its Subsidiaries, taken as a whole. Each of the PAS
Permits is validly held by the entities listed on Schedule 5.6(b), is in full
force and effect in all material respects, is free and clear of all Liens
(other than Permitted Liens), is unimpaired by acts or omission of PAS or its
employees, partners or Affiliates, will expire on the date shown on Schedule
5.6(b), is valid for the balance of its current term, and is not subject to
any restriction or condition that limits in any material respect the full
operation of PAS' business as now operated. Except as set forth on Schedule
5.6(b) and for rulemaking proceedings affecting the satellite industry in
general, no complaints, proceedings or applications are pending, or to PAS'
best knowledge, threatened, at the FCC or any other Government Entity, that
would result in the revocation, forfeiture, adverse modification, non-renewal
or suspension of any of the PAS Permits, the denial of any pending application
by PAS or its Affiliates for a Permit or a modification, extension or renewal
thereof, the issuance against PAS of any cease and desist order, or the
imposition of any administrative actions by the FCC or any other Government
Entity with respect to the PAS Permits, or that would adversely affect the
ability of the corporation surviving the Merger to continue to operate the
business of PAS and its Subsidiaries as currently operated by such parties.
Except as set forth on Schedule 5.6(b), PAS has not received any complaint
that any of the PAS Satellites or the PAS Ground Stations is causing
objectionable interference to the transmissions or reception of any other
radio communications facility, and to PAS' best knowledge, no other radio
communications facility is causing objectionable interference to the
transmissions from or the receipt of signals by any PAS Satellite or PAS
Ground Station. Except as set forth on Schedule 5.6(b), none of the PAS
Permits that has been issued prior to the date hereof is the subject of any
pending renewal application; no renewal of any PAS Permit issued by the FCC
would constitute a major environmental action under the FCC Rules excluding
the impact of the FCC's new RF radiation rules adopted by the FCC in ET Docket
No. 93-62 on August 1, 1996; and PAS is not aware of any reason why the PAS
Permits will not be renewed in the ordinary course or why any of the PAS
Permits might be revoked. PAS knows of the existence of no fact that, under
present Law, would disqualify PAS from consummating the Merger within the time
contemplated herein. Except as set forth on Schedule 5.6(b), all information
contained in any pending application by PAS or any of its Subsidiaries for a
Permit or modification, extension, or renewal of a PAS Permit is true, correct
and complete in all material respects. Except as set forth on Schedule 5.6(b),
PAS has duly filed or caused to be filed with the FCC all required material
reports, statements, documents, registrations, filings or submissions with
respect to the operations of the business of PAS and its Subsidiaries, the PAS
Permits issued by the FCC, PAS' and its Subsidiaries' ownership of their
assets and the pending applications by PAS or any of its Subsidiaries for
Permits or for modification, extension or renewal of PAS Permits. All such
filings complied in all material respects with Laws when made and no
deficiencies have been asserted with respect to any such filings. Except for
rulemaking proceedings affecting the satellite industry in general, no
judgment, decree, order or notice of violation has been issued by the FCC (or
other Government Entity) which permits or contemplates revocation,
modification or termination of any of the PAS Permits or which would result in
any material impairment of any rights thereunder. As used in this Agreement,
the term "Affiliate" means with respect to any person or entity, any person or
entity which directly or indirectly controls, is controlled by or is under
common control with such person or entity; provided, however, that "Affiliate"
with respect to any person or entity shall also include any person or entity
of which the first person or entity directly or indirectly owns ten percent
(10%)
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or more of the common equity and shall, in the case of each Hughes Party,
include HE, but exclude any person controlling HE and any person under common
control with HE but not itself controlled by HE.
(c) Except as set forth on Schedule 5.6(c), neither PAS, its Subsidiaries or
Affiliates, nor any of their respective employees, are officials or officers
of any Government Entity or any political party, and neither PAS nor any of
its Subsidiaries or Affiliates has taken, is taking or will take, or has
allowed or will allow on its behalf to be taken, any action which would have
violated or would violate the United States Foreign Corrupt Practices Act of
1977, the U.S. Export Administration Act, as amended, or any Laws to which
such party or person is subject, relating in each case to payments for the
purpose of influencing an act or decision of a Government Entity or government
official; provided, however, that nothing in this sentence shall be deemed to
subject any party or person to any Law to which such party or person would not
otherwise be subject. Each of PAS and its Subsidiaries is in material
compliance with all domestic and foreign laws restricting or regulating the
export of technology to foreign countries.
5.7 Litigation. Except as disclosed on Schedule 5.7 or in the PAS SEC
Documents, there is no suit, action or proceeding pending or, to PAS'
knowledge, threatened against or affecting PAS or any of its Subsidiaries, nor
is there any written judgment, decree, injunction, rule or order of any
Government Entity or arbitrator outstanding against PAS or any of its
Subsidiaries.
5.8 Taxes. Each of PAS and its Subsidiaries has timely filed or has obtained
timely extensions for all tax returns required to be filed by such party
completely and accurately in all material respects and has timely paid (or PAS
has paid on behalf of any such Subsidiary), or has established an adequate
reserve for the payment of, all material taxes which are required to be paid
in respect of the taxable period reflected in such returns or for periods
since the most recent date on which a return was filed. All taxes shown to be
due on the tax returns that have been filed by PAS and each of its
Subsidiaries have been timely paid. Except as provided on Schedule 5.8,
neither PAS nor any of its Subsidiaries has waived any statute of limitations
in respect of taxes of PAS or any of its Subsidiaries. Except as provided on
Schedule 5.8, none of the tax returns filed by PAS or any of its Subsidiaries
has been examined by any taxing authority, and no audit, action, proceeding or
assessment is pending or threatened by any taxing authority against PAS or any
of its Subsidiaries where such audit, proceeding or assessment is likely to
have a material adverse effect on PAS and its Subsidiaries, taken as a whole.
All material taxes which PAS or any of its Subsidiaries is required by law to
withhold or to collect for payment have been duly withheld and collected, and
have been paid or accrued, reserved against and entered on the books of PAS.
There are no material liens for taxes (other than for current taxes not yet
due and payable) on the assets of PAS or any of its Subsidiaries. PAS has
previously delivered or made available to HCI true and complete copies of its
federal income tax returns for each of the fiscal years ended December 31,
1992 through December 31, 1995. Except as set forth on Schedule 5.8 or as
provided herein, neither PAS nor any of its Subsidiaries is a party to or
bound by any agreement providing for the allocation or sharing of taxes with
any entity which is not, either directly or indirectly, a Subsidiary of PAS.
Neither PAS nor any of its Subsidiaries has filed or is required to file a
consent pursuant to or agreed to the application of Section 341(f) of the
Code. PAS is not a "United States real property holding corporation" as
defined in Section 897(c)(2) of the Code during the applicable period
specified in Section 897(c)(1)(A)(ii) of the Code. For the purpose of this
Agreement, the term "tax" (and, with correlative meaning, the terms "taxes"
and "taxable") shall include all federal, state, local and foreign income,
profits, franchise, gross receipts, payroll, sales, employment, use, property,
withholding, excise and other taxes, duties or assessments of any nature
whatsoever, together with all interest, penalties and additions imposed with
respect to such amounts.
5.9 Employees and Agents; Benefit Plans.
(a) Schedule 5.9(a) contains a complete and accurate list of all employees
of PAS and its Subsidiaries, whether active or inactive, indicating thereon
the direct entity by whom such employee is employed and the employee's job
title. PAS also shall provide on Schedule 5.9(a) as to each such employee, the
position held, the length of service, employee loans, stock options, annual
salary, incentive bonuses, international and other allowances and PAS' cost of
dental, health (other than retiree health), life and long-term disability
insurance.
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Except as set forth on Schedule 5.9(a), no employee of PAS or any of its
Subsidiaries is represented by any union, or covered by any collective
bargaining or similar agreement in connection with their employment at PAS,
nor is any such employee covered by a written agreement of employment in
connection with their employment at PAS, or to PAS' knowledge, any oral
employment agreement, which cannot be terminated at will by PAS or one of its
Subsidiaries or which provides for severance pay or other compensation,
including stock option rights and deferred compensation arrangements, upon
termination of employment or upon change of control of PAS or any of its
Subsidiaries. Except as listed and described on Schedule 5.9(a), neither PAS
nor any of its Subsidiaries is a party to any collective bargaining or other
similar labor agreement, including any such agreement which provides for or
may give rise to any liability or obligation for any severance or termination
pay or which will be the subject of renegotiation by virtue of the
consummation of the transactions contemplated by this Agreement, and to PAS'
knowledge, no labor organization has filed a petition to become the collective
bargaining representative with respect to PAS or any of its Subsidiaries.
(b) Except as set forth on Schedule 5.9(b), PAS and each of its Subsidiaries
have complied in all material respects with all applicable employment and
labor laws, including but not limited to those relating to wages, hours,
collective bargaining, discrimination, plant closing notices, and the payment
of social security and similar taxes, and are not liable for any arrears of
wages or any material penalties for failure to comply with any of the
foregoing. There are no lawsuits, governmental proceedings, arbitration
proceedings or written claims pending or, to PAS' knowledge, threatened
between PAS or any of its Subsidiaries and any of their employees, or any
labor union or labor organization representing or purporting to represent any
of their employees. To PAS' knowledge, there are no union organizing or
election activities involving any non-union employees of PAS or any of its
Subsidiaries which have occurred since December 31, 1993 or threatened as of
the date hereof.
(c) Schedule 5.9(c) sets forth a true and complete list of all of the
following, true, correct and complete copies of which have been delivered to
or made available to HCI:
(i) each "employee benefit plan," as defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), (the
"PAS ERISA Plans") maintained, contributed to or required to be contributed
to by PAS or any of its Subsidiaries, or under which PAS or any of its
Subsidiaries could incur any liability, for the benefit of current, former
and retired employees of PAS or any of its Subsidiaries ("PAS Employees")
or any beneficiaries or dependents of any PAS Employees, except for foreign
plans to which PAS is required to contribute pursuant to the law(s) of any
foreign country;
(ii) each other plan, program, policy, contract, agreement or arrangement
providing for bonuses, pensions, deferred compensation, stock or stock
related awards, severance pay, salary continuation or similar benefits,
hospitalization, medical, dental or disability benefits, life insurance or
other employee benefits, or compensation to or for any PAS Employee or
members of any PAS Employee's families (other than directors and officers'
liability policies), whether or not insured or funded (a "PAS Benefit
Arrangement").
(d) Except as set forth on Schedule 5.9(d), and except where such failure is
not likely to have a material adverse effect on PAS and its Subsidiaries,
taken as a whole, each PAS ERISA Plan and PAS Benefit Arrangement has been
established and maintained in all material respects in accordance with its
terms and in material compliance with all Laws. PAS has listed on Schedule
5.9(d) all exceptions, without regard to whether such exceptions are likely to
have a material adverse effect on PAS and its Subsidiaries, taken as a whole,
to this Section 5.9(d), of which PAS has actual knowledge.
(e) Except as set forth on Schedule 5.9(e), neither PAS nor any of its
Subsidiaries have represented, promised or contracted (whether in oral or
written form) to any current or former PAS Employee (either individually or to
PAS Employees as a group) that such current or former PAS Employee(s) would be
provided with life insurance or employee health or welfare plan benefits upon
their retirement or termination of employment (except as may be required by
statute), except where such representation, promise or contract is not likely
to have a material adverse effect on PAS and its Subsidiaries, taken as a
whole. PAS has listed on Schedule
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5.9(e) all exceptions, without regard to whether such exceptions are likely to
have a material adverse effect on PAS and its Subsidiaries, taken as a whole,
to this Section 5.9(e) of which PAS has actual knowledge.
(f) Except as set forth on Schedule 5.9(f), PAS has delivered or made
available to HCI true and complete copies of all PAS ERISA Plans, all related
trust agreements, the latest summary plan descriptions, the latest Internal
Revenue Service determination letter and application therefor for each plan
which is intended to be qualified under Section 401(a) of the Code, and all
PAS Benefit Arrangements and employment severance agreements pursuant to plans
which PAS or any of its Subsidiaries has or may have any liability. Any
document listed on Schedule 5.9(f) shall be delivered by PAS to HE within 30
days after execution of this Agreement.
(g) Except as set forth on Schedule 5.9(g), neither the execution or
delivery of this Agreement or the Related Agreements nor the consummation of
the transactions contemplated hereby or thereby (either alone or together with
any additional or subsequent events), shall constitute an event under any PAS
ERISA Plan, PAS Benefit Arrangement, loan or individual agreement or contract
that may result in any payment (whether of severance pay or otherwise),
restriction, or limitation upon the assets of any PAS ERISA Plan or PAS
Benefit Arrangement, acceleration of payment or vesting, increase in benefits
or compensation, or required funding with respect to any PAS Employee or any
of its subsidiaries or the forgiveness of any loan or other commitment of any
PAS Employee.
(h) Except as set forth on Schedule 5.9(h), there are no pending, or, to
PAS' knowledge, threatened actions or suits by or on behalf of any PAS ERISA
Plans or PAS Benefit Arrangements, by any PAS Employee or beneficiary covered
under any such PAS ERISA Plan or PAS Benefit Arrangement, or otherwise
involving any such plan or arrangement (other than routine claims for
benefits), except to the extent that such pending or threatened actions or
suits are not likely to have a material adverse effect on PAS and its
Subsidiaries, taken as a whole.
(i) Except as set forth on Schedule 5.9(i), with respect to each PAS ERISA
Plan that is funded wholly or partially through an insurance policy, there is
no liability of PAS or any of its Subsidiaries under any such insurance policy
or ancillary agreement with respect to such insurance policy in the nature of
a retroactive rate adjustment, loss sharing arrangement or other actual or
contingent liability arising wholly or partially out of events occurring prior
to the Effective Time which is likely to have a material adverse effect on PAS
and its Subsidiaries, taken as a whole.
(j) Except as set forth on Schedule 5.9(j), all employee contributions to
PAS ERISA Plans to the date hereof have been properly withheld by PAS and each
of its Subsidiaries, all contributions required to be made to each such plan
by PAS and each of its Subsidiaries (including employee contributions and
compensation deferrals and employer matching or other contributions) have been
made on a timely basis or will be made on a timely basis and all of such
contributions have been or will be fully paid into the funding arrangements
for the respective PAS ERISA Plan, except where such failure is not likely to
have a material adverse effect on PAS and its Subsidiaries, taken as a whole.
(k) Except as set forth on Schedule 5.9(k), to PAS' knowledge, there are no
pending lawsuits, governmental proceedings, arbitration proceedings or written
claims by PAS Employees against PAS or any of its Subsidiaries or any of its
PAS Employees, nor is PAS aware of any such pending lawsuits, governmental
proceedings, arbitration proceedings or written claims of any PAS Employee
pursuant to any applicable Law relating to employees, including human rights
legislation, labor standards legislation, occupational health and safety
legislation, worker's compensation legislation or any other employment-related
legislation.
(l) Schedule 5.9(l) sets forth a complete and accurate list of any and all
loans of any nature whatsoever (other than routine travel advances) made by
PAS or any of its Subsidiaries to any current or former PAS Employee or any
affiliate of any such current or former employee.
(m) PAS and each of its Subsidiaries is and has been, and PAS' business is
and has been, in compliance with all occupational health and safety rules and
regulations of applicable Law, except for noncompliance that is
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not likely to have a material adverse effect on PAS and its Subsidiaries,
taken as a whole. PAS has listed on Schedule 5.9(m) all exceptions, without
regard to whether such exceptions would have a material adverse effect on PAS
and its Subsidiaries, taken as a whole, to this Section 5.9(m) of which PAS
has actual knowledge.
(n) Except as set forth on Schedule 5.9(n), there are no currently pending
notices of assessment, or any other communications related thereto which PAS
or any of its Subsidiaries have received from any workers' compensation board
or similar authorities in any jurisdictions where PAS' business is carried on
and there are no assessments which are unpaid, except for assessments and
other communications that are not likely to have a material adverse effect on
PAS and its Subsidiaries, taken as a whole. PAS has listed on Schedule 5.9(n)
all exceptions, without regard to whether such exceptions are likely to have a
material adverse effect on PAS and its Subsidiaries, taken as a whole, to this
Section 5.9(n) of which PAS has actual knowledge.
(o) Except as set forth on Schedule 5.9(o), the deductibility of any amount
paid or payable to any PAS Employee will not be disallowed by the application
of Section 162(m) of the Code.
(p) Except as set forth on Schedule 5.9(p), there are no employment,
severance or termination agreements, other compensation arrangements,
agreements or plans currently in effect which provide for the payment of any
amount (whether in cash, property, the vesting of property or other benefit,
right or enhancement) in connection with any of the transactions contemplated
by this Agreement or the Related Agreements to any employee, officer,
shareholder or director of PAS or any of its Subsidiaries who is a
"disqualified individual" (as such term is defined in Section 280G(c) of the
Code) that would be characterized as an "excess parachute payment" (as such
term is defined in Section 280G(b) of the Code).
(q) It is the position of PAS that Section C of each Agreement listed in
number 12 of Schedule 5.9(c) means that, if a material change (as defined in
such agreement) should occur, the executive covered by such agreement shall be
entitled to no less than the aggregate employee welfare benefits that such
executive and such executive's dependents would have received under the
provisions of the benefit arrangements, policies or practices of PAS in effect
immediately prior to a material change, at no increased cost or expense to the
executive and such executive's dependents, in the aggregate.
5.10 Absence of Certain Changes or Events. Since June 30, 1996 to the date
hereof and except as otherwise disclosed on Schedule 5.10 or as contemplated
by this Agreement:
(a) each of PAS and its Subsidiaries has (i) conducted its business only
in the usual and ordinary course, (ii) operated its business substantially
in accordance with past practices, (iii) attempted to preserve its business
and assets intact and (iv) attempted to preserve the goodwill of its
business' suppliers, customers, distributors and others having business
with it;
(b) there has not been any material adverse change in the condition
(physical, financial or otherwise) of the assets and liabilities of PAS and
its Subsidiaries, taken as a whole, other than usual and ordinary change
which occurs in the normal course of usage;
(c) there has not been any damage, destruction, loss or claim (whether or
not covered by insurance) that has had a material adverse effect on PAS and
its Subsidiaries, taken as a whole;
(d) neither PAS nor any of its Subsidiaries has, directly or indirectly,
declared, ordered, paid, made or set apart or resolved to pay (i) any sum
or property as a dividend or other distribution on account of any capital
thereof or (ii) any redemption, retirement, purchase or acquisition, direct
or indirect, of any capital or securities thereof;
(e) there has not been any change in any method of accounting or
accounting practice or procedure by PAS or any of its Subsidiaries except
for any such change after the date hereof required by GAAP or the SEC;
(f) neither PAS nor any of its Subsidiaries has mortgaged, pledged or
subjected to any material Lien (other than Permitted Liens (as defined in
Section 5.17)) any of its material properties or assets, tangible or
intangible;
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(g) neither PAS nor any of its Subsidiaries has acquired or disposed of
any material assets or properties in any transaction with any of their
Affiliates or any of their Affiliate's officers, directors, shareholders or
monthly salaried employees on terms that are more favorable than arms'
length or, except in the ordinary course of business, acquired or disposed
of any assets or properties of material value in any transaction with any
other person or entity;
(h) there has not been any material transaction or commitment made, or
any contract or other agreement entered into, by PAS or any of its
Subsidiaries relating to its assets or business (including the acquisition
or disposition of any assets) or any relinquishment by PAS or any of its
Subsidiaries of any material contract, property or other right, other than
transactions and commitments in the ordinary course of business and those
contemplated by this Agreement and the Related Agreements;
(i) neither PAS nor any of its Subsidiaries has forgiven or cancelled any
material debts or claims, or waived in any material respect any rights
without having received fair consideration therefor;
(j) there has not been any amendment of any term of any outstanding
indebtedness in excess of $50,000,000 in the aggregate or security of PAS
or any of its Subsidiaries;
(k) there has not been any loan, advance or capital contribution to or
investment (other than cash balances of PAS or any of its Subsidiaries in
money market or other short term investment accounts) to any person or
entity in excess of $5,000,000 in the aggregate, other than loans, advances
or capital contributions or investments made in the ordinary course of
business;
(l) neither PAS nor any of its Subsidiaries has incurred any other
material liabilities or obligations or given any guarantee (whether
absolute, accrued, contingent or otherwise), other than liabilities
incurred or guarantees given in the ordinary course of business; and
(m) neither PAS nor any of its Subsidiaries has adversely modified,
terminated, waived, transferred, permitted to lapse, or failed to preserve
any PAS Permit issued by the FCC, any PAS Permit relating to the
construction, launch or operation of the PAS Satellites or PAS Ground
Stations, or any PAS Permit authorizing the provision of broadcasting or
communications services in such a manner as is likely to have a material
adverse effect on the assets or business of PAS and its Subsidiaries, taken
as a whole.
5.11 Opinion of Financial Advisors. Morgan Stanley & Co. Incorporated has
delivered to the Board of Directors of PAS its opinion that, as of the date
hereof, the consideration payable in connection with the Univisa Contribution
and the Merger to be received by the holders of shares of common stock of PAS
is fair, from a financial point of view, to such holders. Salomon Brothers Inc
has delivered to the Board of Directors of PAS its opinion that the
consideration to be paid for the DTH Option represents fair value from a
financial point of view.
5.12 Insurance. Each of PAS and its Subsidiaries maintains reasonably
adequate insurance with respect to its properties and business against loss or
damage of the kinds customarily insured against by corporations of established
reputation engaged in the same or similar businesses and similarly situated,
of such types and in such amounts as are customarily carried under similar
circumstances by such other corporations, and, except as set forth on Schedule
5.12, in the case of any PAS Satellite (as defined in Section 5.19(b)) which
is currently in orbit, PAS carries in-orbit insurance in an amount required by
the indentures to which it is a party. A description of all launch and in-
orbit satellite insurance policies is set forth on Schedule 5.12.
5.13 Intellectual Property. Schedule 5.13 sets forth a listing and
description of all material domestic, foreign, common law, registered and
pending applications for patents, trademarks, service marks, logos, slogans,
designs, copyrights, trade names, and all material licenses running to or from
PAS or any of its Subsidiaries relating to PAS' or any of its Subsidiaries'
businesses or owned by PAS or any of its Subsidiaries. Unless expressly set
forth otherwise on Schedule 5.13, PAS and its Subsidiaries own (or where
indicated on Schedule 5.13, have a right to use), free and clear of any liens,
security interests, encumbrances or claims of others, all patents, trademarks,
service marks, logos, slogans, designs, copyrights, trade names, design
registrations, and other intellectual property listed on Schedule 5.13 and any
trade secrets, know-how, confidential information,
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material computer programs (including any source code), documentation,
engineering and technical drawings, processes, methodologies, trade dress, and
technology utilized in or incidental to the businesses of PAS and its
Subsidiaries (all of the foregoing items collectively referred to as the "PAS
Intellectual Property"). Except as set forth on Schedule 5.13, (a) no
proceedings are pending or, to PAS' knowledge, threatened in writing, which
challenge the validity of the ownership by PAS and/or its Subsidiaries of the
PAS Intellectual Property; (b) PAS has no knowledge of any infringement or
infringing use of any of the PAS Intellectual Property or licenses by any
person or entity, and PAS and its Subsidiaries have, and as of the Closing
Date will have, good and valid title to all of the PAS Intellectual Property
that is owned by PAS or any of its Subsidiaries and their licenses and other
rights to use will be adequate for conducting the businesses of PAS and its
Subsidiaries and enforceable in accordance with their terms; (c) to PAS'
knowledge, no infringement of any material intellectual property right or
other proprietary right of any third party has occurred or will result in any
way from the conduct of the business of PAS and its Subsidiaries by PAS or any
of its Subsidiaries or from the signing and execution of this Agreement or the
Related Agreements or the consummation of any or all of the transactions
contemplated hereby or thereby, and no written claim has been made by any
third party based upon an allegation of any such infringement; (d) the PAS
Intellectual Property is valid and in full force and effect and no aspect
thereof is subject to any outstanding order, ruling, decree, judgment or
stipulation by or with any court, arbitrator or administrative agency; and (e)
there are no restrictions on the direct or indirect transfer of any license,
or any interest therein, held by PAS or any if its Subsidiaries in respect of
the PAS Intellectual Property.
5.14 Environmental Matters.
(a) For purposes of this Agreement:
(i) "Environmental Law" means all applicable foreign, domestic, federal,
state or local laws, statutes, regulations, rules, codes, ordinances, or
common law enacted, adopted, issued or promulgated by any Government
Entity, orders and permits which relate to the protection of human health
or the environment, including, without limitation all such Environmental
Laws regulating Releases or threatened Releases of any Hazardous Materials,
the Comprehensive Environmental Response, Compensation, and Liability Act
("CERCLA") (42 U.S.C. (S)(S) 9601, et seq.), the Hazardous Materials
Transportation Act (49 U.S.C. (S)(S) 1801, et seq.), the Resource
Conservation and Recovery Act (42 U.S.C. (S)(S) 6901, et seq.), the Clean
Water Act (33 U.S.C. (S)(S) 1251, et seq.), the Clean Air Act (33 U.S.C.
(S)(S) 7401, et seq.), the Toxic Substances Control Act (15 U.S.C. (S)(S)
7401, et seq.), the Federal Insecticide, Fungicide, and Rodenticide Act (7
U.S.C. (S)(S) 136, et seq.), and the Occupational Safety and Health Act (29
U.S.C. (S) 651, et seq.), each as amended, and the regulations promulgated
pursuant thereto, and any common law and any such applicable state or local
statutes, and the regulations promulgated pursuant thereto, as such laws
are in effect on the date hereof;
(ii) "Hazardous Materials" means (i) any substance, material or waste
which is regulated under applicable Environmental Laws, including, without
limitation, any material or substance which is defined as a "hazardous
waste," "hazardous material," "hazardous substance," "extremely hazardous
waste" or "restricted hazardous waste," "contaminant," "toxic waste" or
"toxic substance" under any provision of Environmental Law; (ii) any oil,
petroleum, petroleum fraction or petroleum derived substance; (iii) any
radioactive materials; (iv) asbestos in any form; (v) urea formaldehyde;
(vi) polychlorinated biphenyls; (vii) pesticides; or (viii) radon.
(iii) "Release" means any release, spill, effluent, emission, leaking,
pumping, injection, deposit, disposal, discharge, dispersal, leaching or
migration into the environment, including, without limitation, the movement
of Hazardous Materials through or in the air, soil, surface water, or
groundwater; and
(iv) "Remedial Action" means all actions, including, without limitation,
any capital expenditures, required by a Government Entity or required under
any Environmental Law, to (i) clean up, remove or treat any Hazardous
Materials or other substance in the indoor or outdoor environment; (ii)
prevent the Release or threat of Release, or minimize the further Release
of any Hazardous Material so it does not endanger or threaten to endanger
the public health or welfare of the environment; or (iii) perform pre-
remedial studies and investigations or post-remedial monitoring and care
pertaining or relating to a Release.
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(b) The operations of PAS and its Subsidiaries are in substantial compliance
with all Environmental Laws. Except as set forth on Schedule 5.14(b), neither
PAS nor any of its Subsidiaries has received any written notice with respect
to any of its assets of any material violation of any Environmental Law.
(c) Except as set forth on Schedule 5.14(c), there are no conditions
associated with PAS' assets, the operation of its business or PAS' owned or,
to PAS' knowledge, leased real property as currently operated that would under
applicable Environmental Law require or could reasonably be expected to
require PAS or any of its Subsidiaries to (i) undertake any action that would
materially impair the ability of PAS' business to use PAS' material owned and
leased real property as currently operated or PAS' material assets as
currently used, (ii) incur material expenditures or (iii) undertake remedial
obligations at any real property that is owned, operated or leased by PAS or
that is adjacent to real property owned, operated or leased by PAS, in each
case which would cost individually in excess of $1.0 million.
(d) Except as set forth on Schedule 5.14(d), as of the date hereof, PAS and
its Subsidiaries are not subject to any outstanding orders, agreements or
contracts with any Government Entity or other person respecting (i) violations
of Environmental Laws, (ii) Remedial Action or (iii) any Release or threatened
Release of a Hazardous Material, in either case which could be expected to
have a material adverse effect on PAS and its Subsidiaries, taken as a whole.
5.15 Investment Banking Fees and Commissions. Except for Morgan Stanley &
Co. Incorporated and Salomon Brothers Inc (copies of whose engagement letters
with PAS have been furnished to HCI), no person or entity is entitled to
receive from PAS or any of its Subsidiaries or any of their directors,
officers or employees any investment banking, brokerage or finder's fee or
fees for financial consulting or other advisory services in connection with
this Agreement or the transactions contemplated hereby based upon arrangements
made by or on behalf of PAS, nor is any person or entity (including
stockholders of PAS) entitled to receive reimbursement from PAS or any of its
Subsidiaries for any such services or any legal fees and expenses.
5.16 Material Contracts.
(a) PAS has provided or made available to HCI or its independent auditors
and/or legal counsel (i) true and complete copies of all written Material
Contracts, or (ii) with respect to such Material Contracts that have not been
reduced to writing, a written description thereof, each of which is listed on
Schedule 5.16(a). Except as set forth on Schedule 5.16(a), neither PAS nor any
of its Subsidiaries has received any notice or has any knowledge that any
other party is, in default in any respect under any such Material Contract,
other than payment defaults under transponder lease agreements which are not
more than 90 days past due. Except as set forth on Schedule 5.16(a), each of
the Material Contracts of PAS and its Subsidiaries is in full force and effect
and constitutes a valid, legal and binding agreement of the parties thereto,
enforceable in accordance with its terms except for the Bankruptcy Exception.
As used in this Agreement, the term "Material Contract" means, as to any
person or entity, all written contracts, agreements, commitments,
arrangements, leases (including with respect to personal property), policies
and other instruments to which it or any of its Subsidiaries is a party or by
which it or any such Subsidiary is bound which, when assuming that all options
to renew or extend are exercised, (x) require payments to be made in excess of
$1,000,000 per year for goods and/or services, or (y) do not by their terms
expire and are not subject to termination within six months from the date of
the execution and delivery thereof and require payments to be made in excess
of $5,000,000 individually.
(b) Except as set forth on Schedule 5.16(b), neither PAS nor its
Subsidiaries is a party, as of the date hereof, to any contract, agreement,
commitment, arrangement, lease (including with respect to personal property),
policy or other instrument that is not subject to termination by PAS upon less
than six months written notice to the other party thereto which materially
restricts or limits the right of PAS or any of its Subsidiaries or which
would, on or after the Closing Date, materially restrict or limit Newco's or
any of its Affiliates' right to conduct its business or compete, including
without limitation, any restriction on its ability to sell, lease or otherwise
provide services from available transponder capacity to any person or entity
for any purpose at any orbital location and in any frequency band, any
geographical, market segment, product line or other industry limitation, or
any
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exclusive or sole supply or vendor arrangement or agreement. Nothing in this
Section 5.16(b) shall preclude or require disclosure on Schedule 5.16(b) of
most favored nations provisions, options for additional services or capacity,
rights of negotiation, or similar provisions agreed to in the ordinary course
of business (including, without limitation, of the kind set forth in the
agreements referenced on Schedule 5.16(a)).
(c) As of June 30, 1996, the contracts, agreements, commitments,
arrangements, leases (including with respect to personal property) that
represent obligations of third parties to make payments to PAS in exchange for
the sale or lease of transponder capacity, have an aggregate stated amount of
unpaid payments owing to PAS of $3,026,000,000 over the remaining stated term
of such contracts, after allowance for doubtful accounts or other allowances
or deductions known as of such date which are ordinary and customary in the
conduct of PAS' business (the "PAS Backlog"). The PAS Backlog represents
amounts that, assuming the due performance by each party of its obligations
under each contract and the occurrence of no event that would permit
termination of a contract without liability to the terminating party, will be
due for, and will arise out of, bona fide sales and delivery of goods,
performance of services and other business transactions, unless the underlying
contract thereto is properly terminated in accordance with the terms thereof.
Except as set forth on Schedule 5.16(c), there are no refunds, discounts or
other adjustments payable by PAS with respect to any portion of the PAS
Backlog, and to the knowledge of PAS, there are no defenses, rights of setoff,
counterclaims, assignments, restrictions, encumbrances, or conditions
enforceable by any third parties on or affecting any portion of the PAS
Backlog. Except as set forth on Schedule 5.16(c), neither PAS nor any of its
Subsidiaries is, or has received any notice or has any knowledge that any
other party is, in default in any material respect under any contract
representing any portion of the PAS Backlog, other than (i) payment defaults
under transponder lease agreements which are not more than 90 days past due
and (ii) defaults or terminations under transponder lease agreements that are
promptly replaced by contracts providing for reasonably equivalent or superior
backlog payments.
5.17 Personal Property. PAS and/or its Subsidiaries have good and valid
title to all personal property and assets (whether tangible or intangible)
reflected on the consolidated balance sheet of PAS and its Subsidiaries as of
December 31, 1995 (the "PAS Balance Sheet") or acquired after December 31,
1995, except for property and assets sold since December 31, 1995 in the
ordinary course of business and except for satellite systems under
development, with respect to which title will not be taken, other than as
provided in the applicable contract therefor; provided, that except as
disclosed on Schedule 5.17, there are no Liens with respect to any satellites
under development. Except as set forth on Schedule 5.17, none of such
properties or assets (whether real or personal) is subject to any mortgage,
life interest, lien, pledge, charge, security interest, fiduciary assignment,
hypothecation or title retention agreement relating to such properties or
assets (collectively, "Liens"), except:
(i) Liens disclosed on the PAS Balance Sheet; or
(ii) (a) Liens for taxes and other governmental charges and assessments
arising in the ordinary course of business and in amounts comparable to the
amounts of such Liens in prior years, which are not yet due and payable or,
provided that an appropriate reserve has been established by the related
person or entity, a Lien the amount or validity of which is being contested
in good faith by appropriate proceedings, (b) Liens of landlords and Liens
of carriers, warehousemen, mechanics and materialmen and other like Liens
arising in the ordinary course of business for sums not yet due and payable
and in amounts comparable to the amounts of such Liens in past years, and
(c) Liens or imperfections on property which, individually or collectively,
as to a party or any of its Subsidiaries, are not material in amount or do
not materially detract from the value of or materially impair the existing
use of the property affected by such Lien or imperfection (each, a
"Permitted Lien").
5.18 Real Property.
(a) Schedule 5.18(a) sets forth a complete description of all real property
owned by PAS or any of its Subsidiaries (the "PAS Owned Real Property"),
together with a description of such ownership and the identity of the entity
that owns such property. PAS has good and valid title to the PAS Owned Real
Property and otherwise owns the PAS Owned Real Property free and clear of all
liens, security interests, claims and other
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charges and encumbrances, except for (i) Permitted Liens and (ii)
encumbrances, if any, which do not materially impair the existing use of the
property.
(b) Schedule 5.18(b) sets forth a list of all of the land, buildings and
other real property leased or sub-leased by PAS or any of its Subsidiaries
(the "PAS Leased Real Property"). PAS or one its Subsidiaries has a good and
valid leasehold interest in and right to peaceful quiet possession as against
each landlord with respect to each PAS Leased Real Property. True and complete
copies of all leases of the PAS Leased Real Property have been made available
for review to HCI. Such leases are in full force and effect according to their
terms, constitute the legal, valid and binding obligations of PAS and/or its
Subsidiaries party thereto and, to PAS' knowledge, such leases have not been
amended or modified except as disclosed in writing to HCI. Neither PAS nor any
of its Subsidiaries is in material default with respect to any of the leases
of the PAS Leased Real Property, nor has any event occurred which with the
passage of time, the giving of notice, or both, would constitute an event of
default or otherwise would place PAS or any of its Subsidiaries in material
default under any of such leases; neither PAS nor any of its Subsidiaries has
received any notice of any such default or event; and, to PAS' knowledge, no
landlord is in default under any of such leases, and no event has occurred
which with the passage of time, the giving of notice, or both, would
constitute an event of default or otherwise place any landlord in default
thereunder.
(c) The PAS Owned Real Property and the PAS Leased Real Property, together
with facilities furnished under contract with others, comprise substantially
all of the real estate used in, or necessary to conduct, PAS' business, and
such use and occupancy is in conformance in all material respects with all
applicable laws, rules and regulations, including but not limited to,
applicable zoning, subdivision and other land use rules and regulations, the
violation of which is likely to have a material adverse effect on PAS and its
Subsidiaries, taken as a whole.
(d) To PAS' knowledge, other than PAS or any of its Subsidiaries, there are
no parties in possession of any portion of the PAS Leased Real Property or the
PAS Owned Real Property, whether as lessees or sublessees thereof, or tenants
at sufferance, trespassers or otherwise, except as disclosed on Schedule
5.18(d). The location, construction, occupancy, operation or use of the PAS
Owned Real Property and, to the best knowledge of PAS, the PAS Leased Real
Property (including the buildings, improvements, fixtures and equipment
located thereon) do not contravene any laws, rules or regulations, or any
restrictive covenant or deed restriction (recorded or otherwise), or any PAS
Permit, affecting any of such property the contravention of which is likely to
have a material adverse effect on PAS and its Subsidiaries, taken as a whole.
There are no pending or, to the best knowledge of PAS, threatened condemnation
proceedings with respect to any PAS Leased Real Property, lease, or the PAS
Owned Real Property, or litigation or administrative actions relating thereto.
All buildings, improvements, fixtures and equipment used in connection with
PAS' business are located on the PAS Owned Real Property and the PAS Leased
Real Property and do not encroach on any adjoining property, and, to the best
knowledge of PAS, no buildings or improvements encroach upon the PAS Owned
Real Property or the PAS Leased Real Property which is likely to have a
material adverse effect on PAS and its Subsidiaries, taken as a whole.
5.19 Certain Assets and Agreements.
(a) Ground Stations. Each ground station, including, without limitation, the
related broadcasting facility assets (consisting of land, building, fixtures,
improvements and telemetry, tracking and control equipment) that is owned or
leased by PAS or any of its Subsidiaries in connection with PAS' business is
listed on Schedule 5.19(a) (the "PAS Ground Stations"). Except as otherwise
set forth on Schedule 5.19(a) with respect to each such ground station, the
improvements thereto and all components used in connection therewith,
including, without limitation, transmission/reception systems and programming
and data broadcasting systems, if any, (i) are in good operating condition and
repair and are suitable for their intended purposes and (ii) are supported by
a back-up, fuel-powered electricity generator capable of generating power
sufficient to meet the requirements of the operations conducted at the ground
station. The transmission/reception systems and programming and data
broadcasting systems at each such ground station have the redundancies that
are set forth on Schedule 5.19(a).
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(b) Satellites and Transponders. Set forth on Schedule 5.19(b) are the
following: (i) a complete and accurate list, by orbital location, of each
satellite and transponder thereon owned by PAS or any of its Subsidiaries in
connection with PAS' or any of its Subsidiaries' business (each a "PAS
Satellite"), (ii) a true and correct copy of a satellite loading chart listing
each transponder on each PAS Satellite, along with the type of transponder (C-
band, Ku-band or other) and the customer or group of related customers that
have leased or purchased capacity on such transponder and the amount of such
capacity, and (iii) the most recent "Health Status Report," summarizing all
spacecraft related incidents and anomalies known to PAS as well as the current
status, to the best knowledge of PAS, of the subsystems on the PAS Satellites
(power, telemetry and command, reaction control, communications and antenna).
For each PAS Satellite, true, correct and complete copies of the foregoing
will be delivered or made available to HCI (all such data, records, tapes,
information, lists and reports are collectively referred to herein as the "PAS
Data") prior to the Closing Date. Such PAS Data represent, to the best
knowledge of PAS, all relevant and material information relating to the
operating condition and repair of the PAS Satellites, and the fuel life
expectancies of the PAS Satellites. The information contained in the PAS Data
is, to the best knowledge of PAS, accurate and complete records (except as to
only those informational gaps disclosed to HCI) of the subject matters covered
therein; however, PAS makes no representation or warranty as to the accuracy
of any conclusion expressed as to fuel life expectancies of the PAS
Satellites. Such PAS Satellites are to the best of PAS' knowledge, subject to
the Health Status Reports, in good condition. Except as specifically provided
herein, PAS makes no representations or warranties, express or implied, with
respect to the PAS Satellites.
(c) Tracking, Telemetry and Control Equipment. Except as otherwise set forth
on Schedule 5.19(c), to the best of PAS' knowledge, the tracking, telemetry
and control equipment (on the ground) used by third party contractors to
provide tracking, telemetry and control services related to each PAS Satellite
is (i) in good operating condition and repair, ordinary wear and tear
excepted, and (ii) not in need of maintenance or repairs except for ordinary,
routine maintenance and repairs.
(d) ITU Frequency Registration. Schedule 5.19(d) contains a summary, by
orbital location, of the status of frequency registration at the International
Telecommunications Union, of each PAS Satellite, including the identity of the
sponsoring administration and the frequency bands covered.
(e) Satellite Coordination. Except as set forth on Schedule 5.19(e), to the
best knowledge of PAS, no person or entity has asserted that it has rights to
operate a spacecraft in a manner that would result in interference with
respect to any PAS Satellite or any Satellite for which PAS has applied for a
Permit. Except as set forth on Schedule 5.19(e), PAS is not aware of any
asserted dispute with respect to PAS' continued ability to utilize any PAS
Satellite substantially in the manner that such PAS Satellite has been used in
connection with the business of PAS and its Subsidiaries to date. Schedule
5.19(e) also contains a list of all satellite coordination agreements to which
PAS or its Subsidiaries or Affiliates is a party, a summary of all operational
or technical limitations set forth therein, and a summary of all coordination
discussions with other persons or entities, domestic or foreign, with regard
to the PAS Satellites or any Satellite for which PAS has applied for a Permit
in which PAS or its Subsidiaries or Affiliates has been engaged in the past
three years.
5.20 IGO Determinations. Schedule 5.20 contains a list of all consultations
and similar arrangements that have been effectuated with INTELSAT, EUTELSAT
and other similar intergovernmental entities, including without limitation all
Article XIV(c) and XIV(d) consultations under the INTELSAT Agreements
(collectively the "IGO Determinations") with respect to the PAS Satellites
that are needed to operate the business of PAS or any of its Subsidiaries as
they are now being conducted. Except as set forth on Schedule 5.20, PAS is not
aware of any difficulties in obtaining any other IGO Determinations with
respect to the PAS Satellites or any Satellite for which PAS has applied for a
Permit.
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Article VI
Representations and Warranties of
the Hughes Parties
Each Hughes Party and Newco represent and warrant to PAS as follows:
6.1 Organization, Standing and Power. Each of the Hughes Parties is a
corporation duly organized, validly existing and in good standing under the
laws of its respective jurisdiction of incorporation, has all requisite
corporate power and authority necessary to own, lease and operate its
properties and to carry on its business as now being conducted, and is duly
qualified, and in good standing to own, lease and operate its properties and
to conduct its business relating to the Galaxy Business in each jurisdiction,
domestic and foreign, in which the operation of the Galaxy Business, or the
operation, ownership or leasing of the assets necessary to operate the Galaxy
Business, makes such qualification necessary, other than in such jurisdictions
where the failure to so qualify or be in good standing is not likely to have a
material adverse effect on the Galaxy Business. Each of the Hughes Parties
have heretofore made available to PAS true, complete and correct copies of its
Certificate of Incorporation and Bylaws as currently in effect together with
all amendments thereto. No resolution has been adopted to amend any of such
Certificates of Incorporation or Bylaws except as expressly called for by this
Agreement. None of the Hughes Parties (i) has been dissolved, adopted
resolutions to dissolve or acted in any way to accomplish, request or approve
such dissolution, (ii) is a party to any merger or (iii) has been declared
bankrupt, and, to such entity's knowledge, no action or request is pending to
declare it bankrupt. The Hughes Parties have made available to PAS minute
books for each of the Hughes Parties which contain complete and accurate
records in all material respects of all meetings, or consents in lieu thereof,
of the stockholders and the Board of Directors (including committees thereof)
of each such entity since its date of formation.
6.2 Capital Structure. As of the date hereof, all of the issued and
outstanding shares of capital stock of the Contributed Entities and Newco are
validly issued, fully paid and nonassessable, are not subject to preemptive or
other similar rights, and are owned by HCI free and clear of all liens,
charges, encumbrances, claims and options of any nature. Except as set forth
on Schedule 6.2, none of the Contributed Entities (i) beneficially owns any
capital shares or has any other record or beneficial equity or other ownership
or interest in any corporation, partnership, joint venture, association or
other entity or business enterprise or (ii) has any commitment to contribute
to the capital of, make loans to, or share the losses of any person or entity
(other than any of the Contributed Entities). Except as set forth in this
Section 6.2, there are outstanding: (i) no shares of capital stock, or bonds,
debentures, notes or other instruments or evidence of indebtedness having the
right to vote (or convertible into, or exchangeable for, securities having the
right to vote), or other voting securities of any Contributed Entity or Newco
authorized, issued or outstanding; (ii) no securities of any Contributed
Entity or Newco are convertible into, or exchangeable or exercisable for,
shares of capital stock, or other voting securities of the Contributed
Entities or Newco; and (iii) no options, warrants, calls, rights (including
preemptive rights), commitments or agreements to which any Contributed Entity
or Newco is a party or by which it is bound, in any case obligating any
Contributed Entity or Newco to issue, deliver, sell, purchase, redeem or
acquire, or cause to be issued, delivered, sold, purchased, redeemed or
acquired, additional shares of capital stock or other voting securities of any
Contributed Entity or Newco, or obligating any Contributed Entity or Newco to
grant, extend or enter into any such option, warrant, call, right, convertible
security, commitment or agreement. None of the Contributed Entities nor Newco
has granted any options, warrants or rights to purchase any capital stock of
any Contributed Entity. Except as set forth on Schedule 6.2, there are not as
of the date hereof, and there will not be at the Effective Time, any
stockholder agreements, voting trusts or other agreements or understandings to
which any Contributed Entity or Newco is a party or by which it is bound
relating to the voting of any shares of the capital stock of any Contributed
Entity or Newco. There are no restrictions on HCI to vote the stock of any of
the Contributed Entities. Except as provided for herein, no person has any
rights to cause any Contributed Entity or Newco to register with the SEC any
securities of any Contributed Entity or Newco.
6.3 Authority; No Violations; Consents and Approvals.
(a) Each of the Hughes Parties has all requisite corporate power and
authority to execute and deliver this Agreement and the Related Agreements to
which it is a party and to perform its obligations hereunder and
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thereunder and to effect the transactions contemplated hereby and thereby. The
execution, delivery and performance of this Agreement and the Related
Agreements to which a Hughes Party is a party and the consummation of the
transactions contemplated hereby and thereby have been duly authorized by all
necessary corporate action on the part of each such entity. Each of this
Agreement and the Related Agreements to which a Hughes Party is a party has
been duly executed and delivered by such Hughes Party and assuming that each
of this Agreement and the Related Agreements to which a Hughes Party is a
party constitutes the valid and binding agreement of the other parties
thereto, and subject to obtaining all necessary approvals by Government
Entities, constitutes a valid and binding obligation of such Hughes Party
enforceable in accordance with its terms except that the enforcement hereby
may be limited by the Bankruptcy Exception.
(b) The execution, delivery and performance by the Hughes Parties of each of
this Agreement and the Related Agreements to which a Hughes Party is a party
does not, and the consummation by the Hughes Parties of the transactions
contemplated hereby and thereby will not, (x) conflict with or result in any
violation of, or default (with or without notice or lapse of time, or both)
which is likely to have a material adverse effect on the Galaxy Business, or
give rise to a right of termination, cancellation or acceleration of any
obligation or the loss of a material benefit, or the creation of a material
lien, pledge, security interest or other encumbrance on assets or property, or
right of first refusal with respect to any material asset or property (any
such conflict, violation, default, right of termination, cancellation or
acceleration, loss, creation or right of first refusal, a "Galaxy Violation"),
under or pursuant to any provision of the respective Certificate of
Incorporation or Bylaws of such entity or equivalent constituent document of
any of its Subsidiaries or, (y) except as to which requisite waivers or
consents have been obtained and, except as set forth on Schedule 6.3(b) hereto
and assuming the consents, approvals, authorizations or permits and filings or
notifications referred to in paragraph (c) of this Section 6.3 are duly and
timely obtained or made, result in any Galaxy Violation of any Material
Contract, Galaxy ERISA Plan (as defined in Section 6.9(c)(i)), Galaxy Benefit
Arrangement (as defined in Section 6.9(c)(ii)), Galaxy Permit (as defined in
Section 6.6(b)), or Law applicable to such entity or the Galaxy Business;
provided, however, that nothing in this Section 6.3 will be deemed to
constitute a representation or warranty by any Hughes Party as to any
antitrust law or requirement.
(c) No consent, approval, order or authorization of, or registration,
declaration or filing with, notice to, or permit from any Government Entity is
required by or with respect to any Hughes Party in connection with the
execution and delivery by a Hughes Party of any of this Agreement or the
Related Agreements to which such Hughes Party is a party or the consummation
by any Hughes Party of the transactions contemplated hereby and thereby, which
if not obtained or made is likely to have a material adverse effect on such
Hughes Party's ability to consummate the transactions contemplated hereby and
thereby, except for: (A) the filing of a premerger notification and report
form by the applicable Hughes Party under the HSR Act and the expiration or
termination of the applicable waiting period thereunder; (B) the filing with
the SEC of (x) the Registration Statement (as defined in Section 7.5), and (y)
such reports under and such other compliance with the Exchange Act and the
rules and regulations thereunder, as may be required in connection with this
Agreement and the Related Agreements to which a Hughes Party is a party and
the transactions contemplated hereby and thereby; (C) such filings and
approvals as may be required by any applicable state securities, "blue sky" or
takeover laws; (D) such filings and approvals as may be required by any
foreign pre-merger notification Laws; (E) such consents, approvals, orders,
authorizations and filings required under any environmental, health or safety
law; (F) the filing with the FCC of (x) the applications and waiver requests
described in Section 7.9(c), (y) any requisite post Closing amendments to
pending FCC applications filed by the Hughes Parties, reflecting (subject to
FCC consent and consummation) the Asset Contribution, the Univisa Contribution
and the Merger, and (z) associated filings with the FCC that do not require
the FCC's consent or approval; and (G) such other consents, approvals, orders,
authorizations, registrations, declarations, filings, notices and Permits set
forth on Schedule 6.3(c).
6.4 Galaxy Financial Statements. Attached as Schedule 6.4 are audited
consolidated balance sheets relating to the Galaxy Business as of December 31,
1994 and December 31, 1995 and an unaudited consolidated balance sheet as of
June 30, 1996 (the "Galaxy Balance Sheet") and the related audited
consolidated statements of operations for the two fiscal years ended December
31, 1995 and the unaudited consolidated statements of
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operations for the six month period ended June 30, 1996 (such financial
statements being hereinafter referred to collectively as the "Galaxy Financial
Statements"). The Galaxy Financial Statements have been prepared from, and are
in accordance with, the books and records of the Galaxy Business, were
prepared in accordance with GAAP applied on a consistent basis during the
periods involved (except as may be indicated therein and, with respect to the
unaudited financial statements, subject to normal year end adjustments which
Galaxy's management believes would not be material in amount or effect) and
present fairly, in all material respects, in accordance with applicable
requirements of GAAP, the consolidated financial position of the Galaxy
Business as of their respective dates and the consolidated results of
operations of the Galaxy Business for the periods presented therein. The books
and all other financial records of the Galaxy Business are complete and
correct in all material respects. As of June 30, 1996, the Contributed
Entities have made capital expenditures for "satellites under construction" of
at least $175 million, all of which represents capital expenditures incurred
in the ordinary course of business and consistent with prudent business
practices and all rights to which are being transferred to Newco hereby.
6.5 Information Supplied. The Registration Statement (as defined in Section
7.5), or any amendment thereof or supplement thereto, will not, on the date it
is first filed with the SEC and on the date it becomes effective contain any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading; provided, however, that no representation is made by any of the
Hughes Parties with respect to statements made therein based on information
supplied by PAS for inclusion in each Registration Statement. The information
supplied by any of the Hughes Parties for inclusion in the Proxy
Statement/Prospectus will not, on the date it is first mailed to the holders
of the shares of common stock of PAS or at the time of PAS' stockholder's
meeting contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they are made,
not misleading. Subject to the proviso set forth in the second preceding
sentence, the Proxy Statement/Prospectus, will comply as to form, in all
material respects, with the provisions of the Exchange Act and the rules and
regulations thereunder.
6.6 Compliance with Laws.
(a) Except as set forth on Schedule 6.6(a), the Galaxy Business is not being
conducted in violation of any Law the violation of which is likely to have a
material adverse effect on the Galaxy Business. Except as disclosed on
Schedule 6.6(a), no material investigation or review by any Government Entity
with respect to any of the Contributed Entities or the Galaxy Business is
pending or, to the best knowledge of any of the Hughes Parties, threatened and
none of the Hughes Parties has received any written citation or notification
alleging any violation of any Law or Permit the continuing violation of which
is likely to have a material adverse effect on the Galaxy Business.
(b) Set forth on Schedule 6.6(b) is a true and complete list of all Permits
issued to or held by any of the Hughes Parties with respect to the Galaxy
Business (as amended or modified), except for Permits which are immaterial to
the Galaxy Business (collectively, the "Galaxy Permits"); provided, however,
that notwithstanding the foregoing materiality threshold, Schedule 6.6(b)
lists (i) all Permits issued by the FCC to any of the Hughes Parties relating
to the Galaxy Business, (ii) all Permits, whether or not issued by the FCC,
authorizing the construction, launch or operation of the Galaxy Satellites or
the Galaxy Ground Stations (other than Permits granted or issued by local or
municipal Government Entities, such as building permits, local occupancy
permits or zoning regulations, which are not material to the Galaxy Business),
and (iii) all Permits issued to the Hughes Parties (relating to the Galaxy
Business) by Government Entities that regulate broadcasting or communications,
authorizing any of the Contributed Entities to provide broadcasting or
communications services relating to the Galaxy Business. Schedule 6.6(b) also
sets forth a true and complete list of all pending applications for Permits
that would be Galaxy Permits if issued or granted and all pending applications
by any of the Hughes Parties for modification, extension or renewal of Galaxy
Permits. The Galaxy Permits are all of the Permits required to be issued to or
held by any of the Contributing Entities in order to allow the Contributed
Entities to own or lease their respective assets relating to the Galaxy
Business and to lawfully conduct the Galaxy Business, including,
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without limitation, the construction, launch and operation of, and
transmitting to and from, each of the Galaxy Satellites and the Galaxy Ground
Stations (as such terms are defined in Section 6.18(a)), and the provision of
broadcasting or communications services, except where the failure to possess
any such Permit is not likely to have a material adverse effect on the Galaxy
Business. Notwithstanding the generality of the preceding paragraph, except as
set forth on Schedule 6.6(b), each of the Hughes Parties has fulfilled and
complied in all material respects with its obligations under each of the
Galaxy Permits owned, held or possessed by it, and no event has occurred or
condition or state of facts exists which constitutes or, after notice or lapse
of time or both, would constitute a breach or default under any Galaxy Permit
and which permits or, after notice or lapse of time or both, would permit
revocation or termination of any such Galaxy Permit, and no Hughes Party has
received or has knowledge of any written notice of cancellation or default or
of any dispute concerning any such Galaxy Permit, or of any such event,
condition or state of facts where the effect thereof would be material to the
Galaxy Business. Each of the Galaxy Permits is validly held by the entities
listed on Schedule 6.6(b), is in full force and effect in all material
respects, is free and clear of all Liens (other than Permitted Liens), is
unimpaired by acts or omission of any Hughes Party or their respective
employees, partners or Affiliates, will expire on the date shown on Schedule
6.6(b), is valid for the balance of its current term, and, except as set forth
on Schedule 6.6(b), is not subject to any restriction or condition that limits
in any material respect the full operation of the Galaxy Business as now
operated. Except as set forth on Schedule 6.6(b) and for rulemaking
proceedings affecting the satellite industry in general, no complaints,
proceedings or applications are pending, or to the Contributed Entities' best
knowledge, threatened, at the FCC or any other Government Entity, that would
result in the revocation, forfeiture, adverse modification, non-renewal or
suspension of any of the Galaxy Permits, the denial of any pending application
by any Hughes Party for a Permit in connection with the Galaxy Business or a
modification, extension or renewal thereof, the issuance against any Hughes
Party of any cease and desist order with respect to the Galaxy Business, or
the imposition of any administrative actions by the FCC or any other
Government Entity with respect to the Galaxy Permits, or that would adversely
affect the ability of Newco after the Asset Contribution to continue to
operate the Galaxy Business as currently operated by the Contributed Entities.
Except as set forth on Schedule 6.6(b), none of the Hughes Parties has
received any complaint that any of the Galaxy Satellites or the Galaxy Ground
Stations is causing objectionable interference to the transmissions or
reception of any other radio communications facility, and to the best
knowledge of such entity, no other radio communications facility is causing
objectionable interference to the transmissions from or the receipt of signals
by any Galaxy Satellite or Galaxy Ground Station. Except as set forth on
Schedule 6.6(b), none of the Galaxy Permits that has been issued prior to the
date hereof is the subject of any pending renewal application; no renewal of
any Galaxy Permit issued by the FCC would constitute a major environmental
action under the FCC Rules excluding the impact of the FCC's new RF radiation
rules adopted by the FCC in ET Docket No. 93-62 on August 1, 1996; and none of
the Hughes Parties is aware of any reason why the Galaxy Permits will not be
renewed in the ordinary course or why any of the Galaxy Permits might be
revoked. None of the Hughes Parties knows of the existence of any fact that,
under present Law, would disqualify Galaxy from consummating the Asset
Contribution within the time contemplated herein. Except as set forth on
Schedule 6.6(b), all information contained in any pending application by a
Hughes Party for a Permit in connection with the Galaxy Business or
modification, extension, or renewal of a Galaxy Permit is true, correct and
complete in all material respects. Except as set forth on Schedule 6.6(b),
each of the Hughes Parties have duly filed or caused to be filed with the FCC
all required material reports, statements, documents, registrations, filings
or submissions with respect to the operations of the Galaxy Business, the
Galaxy Permits issued by the FCC, the Hughes Parties' ownership of their
assets in connection with the Galaxy Business and the pending applications by
any of the Hughes Parties for Permits or for modification, extension or
renewal of Galaxy Permits. All such filings complied in all material respects
with Laws when made and no deficiencies have been asserted with respect to any
such filings. Except for rulemaking proceedings affecting the satellite
industry in general, no judgment, decree, order or notice of violation has
been issued by the FCC (or other Government Entity) which permits or
contemplates revocation, modification or termination of any of the Galaxy
Permits or which would result in any material impairment of any rights
thereunder.
(c) Except as set forth on Schedule 6.6(c), none of the Hughes Parties, nor
any of their Subsidiaries or Affiliates, nor any of their respective
employees, are officials or officers of any Government Entity or any
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political party, and none of the Contributed Entities, nor any of their
Subsidiaries or Affiliates has taken, is taking or will take, or has allowed
or will allow on its behalf to be taken, any action which would have violated
or would violate the United States Foreign Corrupt Practices Act of 1977, the
U.S. Export Administration Act, as amended, or any Laws to which such party or
person is subject, relating in each case to payments for the purpose of
influencing an act or decision of a Government Entity or government official;
provided, however, that nothing in this sentence shall be deemed to subject
any party or person to any Law to which such party or person would not
otherwise be subject. With respect to the Galaxy Business, each of the Hughes
Parties is in material compliance with all domestic and foreign laws
restricting or regulating the export of technology to foreign countries.
6.7 Litigation. Except as disclosed on Schedule 6.7, there is no suit,
action or proceeding pending or, to the knowledge of any of the Hughes
Parties, threatened against any of the Contributed Entities or affecting the
Galaxy Business, nor is there any written judgment, decree, injunction, rule
or order of any Government Entity or arbitrator outstanding against any
Contributed Entity in respect of the Galaxy Business.
6.8 Taxes. Each of the Contributed Entities has timely filed or has obtained
timely extensions for all tax returns required to be filed by such party
completely and accurately in all material respects and has timely paid (or
such entity's parent has paid), or has established an adequate reserve for the
payment of, all material taxes which are required to be paid in respect of the
taxable period reflected in such returns or for periods since the most recent
date on which a return was filed. All taxes shown to be due on the tax returns
that have been filed by the Contributed Entities have been timely paid. Except
as provided on Schedule 6.8, none of the Contributed Entities has waived any
statute of limitations in respect of taxes of such entity. Except as provided
on Schedule 6.8, none of the tax returns filed by the Contributed Entities has
been examined by any taxing authority, and no audit, action, proceeding or
assessment is pending or threatened by any taxing authority against the
Contributed Entities where such audit, proceeding or assessment is likely to
have a material adverse effect on the Galaxy Business. All material taxes
which any of the Contributed Entities is required by law to withhold or to
collect for payment with respect to the Galaxy Business have been duly
withheld and collected, and have been paid or accrued, reserved against and
entered on the books of such entity. There are no material liens for taxes
(other than for current taxes not yet due and payable) on the assets of any of
the Contributed Entities relating to the Galaxy Business. The Contributed
Entities have previously delivered or made available to PAS true and complete
copies of their federal income tax returns for each of the fiscal years ended
December 31, 1992 through December 31, 1995. Except as set forth on Schedule
6.8 or as provided herein, none of the Contributed Entities is a party to or
bound by any agreement providing for the allocation or sharing of taxes with
any entity which is not, either directly or indirectly, a Contributed Entity.
None of the Contributed Entities has filed or is required to file a consent
pursuant to or agreed to the application of Section 341(f) of the Code. None
of the Contributed Entities is a "United States real property holding
corporation" as defined in Section 897(c)(2) of the Code during the applicable
period specified in Section 897(c)(1)(A)(ii) of the Code.
6.9 Employees and Agents; Benefit Plans.
(a) Schedule 6.9(a) contains a complete and accurate list of all employees
of the Contributed Entities who work primarily in the Galaxy Business (the
"Galaxy Employees"), whether active or inactive, indicating thereon the direct
entity by whom such employee is employed and the employee's job title. Upon
the completion of the Asset Contribution, each of the Galaxy Employees, to the
extent still employed in connection with the Galaxy Business, will become an
employee of Newco or one of its wholly-owned Subsidiaries. HCI also shall
provide on Schedule 6.9(a) or on a separate schedule that HE shall deliver to
PAS within 20 days after the execution of this Agreement, a list that
specifically identifies all employees that were listed on the list provided
for in the first sentence of this subsection and who shall be employed by the
Newco as of the Effective Time showing for each, the position held, the length
of service, employee loans, stock options, annual salary, incentive bonuses,
international and other allowances and the Contributed Entities' cost of
dental, health (other than retiree health), life and long-term disability
insurance. Except as set forth on Schedule 6.9(a), no Galaxy Employee is
represented by any union, or covered by any collective bargaining or similar
agreement in connection with their employment at any Contributed Entity, nor
is any such employee covered by a written agreement of employment
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in connection with their employment at any Contributed Entity, or to the
knowledge of the Contributed Entities, any oral employment agreement, which
cannot be terminated at will by any of the Contributed Entities or which
provides for severance pay or other compensation, including stock option
rights and deferred compensation arrangements, upon termination of employment
or upon change of control of the Contributed Entities. Except as listed and
described on Schedule 6.9(a), none of the Contributed Entities is a party to
any collective bargaining or other similar labor agreement, including any such
agreement which provides for or may give rise to any liability or obligation
for any severance or termination pay or which will be the subject of
renegotiation by virtue of the consummation of the transactions contemplated
by this Agreement, and to each Hughes Party's knowledge, no labor organization
has filed a petition to become the collective bargaining representative with
respect to any of the Contributed Entities.
(b) Except as set forth on Schedule 6.9(b), the Contributed Entities have
complied in all material respects with all applicable employment and labor
laws with respect to the Galaxy Employees, including but not limited to those
relating to wages, hours, collective bargaining, discrimination, plant closing
notices, and the payment of social security and similar taxes, and are not
liable for any arrears of wages or any material penalties for failure to
comply with any of the foregoing. There are no lawsuits, governmental
proceedings, arbitration proceedings or written claims pending or, to the
Contributed Entities' knowledge, threatened between the Contributed Entities
and any of the Galaxy Employees, or any labor union or labor organization
representing or purporting to represent any of the Galaxy Employees. To the
Contributed Entities' knowledge, there are no union organizing or election
activities involving any non-union Galaxy Employees which have occurred since
December 31, 1993 or threatened as of the date hereof.
(c) Schedule 6.9(c) sets forth a true and complete list of all of the
following, true, correct and complete copies of which have been delivered to
or made available to PAS:
(i) each "employee benefit plan," as defined in Section 3(3) of ERISA,
(the "Galaxy ERISA Plans") maintained, contributed to or required to be
contributed to by the Galaxy Business, or under which the Galaxy Business
could incur any liability, for the benefit of current, former and retired
employees of the Contributed Entities ("Galaxy Benefit Employees") or any
beneficiaries or dependents of any Galaxy Benefit Employees, except for
foreign plans to which the Contributed Entities are required to contribute
pursuant to the law(s) of any foreign country;
(ii) each other plan, program, policy, contract, agreement or arrangement
providing for bonuses, pensions, deferred compensation, stock or stock
related awards, severance pay, salary continuation or similar benefits,
hospitalization, medical, dental or disability benefits, life insurance or
other employee benefits, or compensation to or for any Galaxy Benefit
Employee or members of any Galaxy Benefit Employee's families (other than
directors and officers' liability policies), whether or not insured or
funded (a "Galaxy Benefit Arrangement").
(d) Except as set forth on Schedule 6.9(d), and except where such failure is
not likely to have a material adverse effect on the Galaxy Business, each
Galaxy ERISA Plan and Galaxy Benefit Arrangement has been established and
maintained in all material respects in accordance with its terms and in
material compliance with all Laws. HCI has listed on Schedule 6.9(d) all
exceptions, without regard to whether such exceptions are likely to have a
material adverse effect on the Galaxy's Business, to this Section 6.9(d) of
which HCI or any of the Contributed Entities have actual knowledge.
(e) Except as set forth on Schedule 6.9(e), none of the Contributed Entities
have represented, promised or contracted (whether in oral or written form) to
any current or former Galaxy Benefit Employee (either individually or to
Galaxy Benefit Employees as a group) that such current or former Galaxy
Benefit Employee(s) would be provided with life insurance or employee health
or welfare plan benefits upon their retirement or termination of employment
(except as may be required by statute), except where such representation,
promise or contract is not likely to have a material adverse effect on the
Galaxy Business. HCI has listed on Schedule 6.9(e) all exceptions, without
regard to whether such exceptions are likely to have a material adverse effect
on the Galaxy Business, to this Section 6.9(e) of which HCI or any of the
Contributed Entities have actual knowledge.
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(f) Except as set forth on Schedule 6.9(f), HCI has delivered or made
available to PAS true and complete copies of all Galaxy ERISA Plans, all
related trust agreements, the latest summary plan descriptions, the latest
Internal Revenue Service determination letter and application therefor for
each plan which is intended to be qualified under Section 401(a) of the Code,
and all Galaxy Benefit Arrangements and employment severance agreements
pursuant to plans which the Galaxy Business has or may have any liability.
(g) Except as set forth on Schedule 6.9(g), neither the execution or
delivery of this Agreement or the Related Agreements nor the consummation of
the transactions contemplated hereby or thereby (either alone or together with
any additional or subsequent events), shall constitute an event under any
Galaxy ERISA Plan, Galaxy Benefit Arrangement, loan or individual agreement or
contract that may result in any payment (whether of severance pay or
otherwise), restriction, or limitation upon the assets of any Galaxy ERISA
Plan or Galaxy Benefit Arrangement, acceleration of payment or vesting,
increase in benefits or compensation, or required funding with respect to any
Galaxy Benefit Employee or any of its subsidiaries or the forgiveness of any
loan or other commitment of any Galaxy Benefit Employee.
(h) Except as set forth on Schedule 6.9(h), there are no pending, or, to the
Contributed Entities' knowledge, threatened material actions or suits by or on
behalf of any Galaxy ERISA Plans or Galaxy Benefit Arrangements, by any Galaxy
Benefit Employee or beneficiary covered under any such Galaxy ERISA Plan or
Galaxy Benefit Arrangement, or otherwise involving any such plan or
arrangement (other than routine claims for benefits), except to the extent
that such pending or threatened actions or suits are not likely to have a
material adverse effect on the Galaxy Business.
(i) Except as set forth on Schedule 6.9(i), with respect to each Galaxy
ERISA Plan that is funded wholly or partially through an insurance policy,
there is no liability of the Galaxy Business under any such insurance policy
or ancillary agreement with respect to such insurance policy in the nature of
a retroactive rate adjustment, loss sharing arrangement or other actual or
contingent liability arising wholly or partially out of events occurring prior
to the Effective Time which is likely to have a material adverse effect on the
Galaxy Business.
(j) Except as set forth on Schedule 6.9(j), all employee contributions to
Galaxy ERISA Plans to the date hereof have been properly withheld by the
Galaxy Business, all contributions required to be made to each such plan by
the Galaxy Business (including employee contributions and compensation
deferrals and employer matching or other contributions) have been made on a
timely basis or will be made on a timely basis and all of such contributions
have been or will be fully paid into the funding arrangements for the
respective Galaxy ERISA Plan, except where such failure is not likely to have
a material adverse effect on the Galaxy Business.
(k) Except as set forth on Schedule 6.9(k), to the Contributed Entities'
knowledge, there are no pending lawsuits, governmental proceedings,
arbitration proceedings or written claims by Galaxy Benefit Employees against
the Galaxy Business or any of its Galaxy Benefit Employees, nor are any of the
Contributed Entities aware of any such pending lawsuits, governmental
proceedings, arbitration proceedings or claims of any Galaxy Benefit Employee
pursuant to any applicable Law relating to employees, including human rights
legislation, labor standards legislation, occupational health and safety
legislation, worker's compensation legislation or any other employment-related
legislation.
(l) Schedule 6.9(l) sets forth a complete and accurate list of any and all
loans of any nature whatsoever (other than routine travel advances) made by
the Galaxy Business to any current or former Galaxy Benefit Employee or any
affiliate of any such current or former employee.
(m) The Galaxy Business is and has been in compliance with all occupational
health and safety rules and regulations of applicable Law, except for
noncompliance that is not likely to have a material adverse effect on the
Galaxy Business. HCI has listed on Schedule 6.9(m) all exceptions, without
regard to whether such exceptions would have a material adverse effect on the
Galaxy Business, to this Section 6.9(m) of which HCI or any of the Contributed
Entities have actual knowledge.
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(n) Except as set forth on Schedule 6.9(n), there are no currently pending
notices of assessment, or any other communications related thereto which any
Contributed Entity has received from any workers' compensation board or
similar authorities in any jurisdictions where the Galaxy Business is carried
on and there are no assessments which are unpaid, except for assessments and
other communications that are not likely to have a material adverse effect on
the Galaxy Business. HCI has listed on Schedule 6.9(n) all exceptions, without
regard to whether such exceptions are likely to have a material adverse effect
on the Galaxy Business, to this Section 6.9(n), of which HCI or any of the
Contributed Entities have actual knowledge.
(o) Except as set forth on Schedule 6.9(o), the deductibility of any amount
paid or payable to any Galaxy Benefit Employee will not be disallowed by the
application of Section 162(m) of the Code.
(p) Except as set forth on Schedule 6.9(p), there are no employment,
severance or termination agreements, other compensation arrangements,
agreements or plans currently in effect relating to the Galaxy Business which
provide for the payment of any amount (whether in cash, property, the vesting
of property or other benefit, right or enhancement) in connection with any of
the transactions contemplated by this Agreement or the Related Agreements to
any employee, officer, shareholder or director of the Galaxy Business who is a
"disqualified individual" (as such term is defined in Section 280G(c) of the
Code) that would be characterized as an "excess parachute payment" (as such
term is defined in Section 280G(b) of the Code).
6.10 Absence of Certain Changes or Events. Since June 30, 1996 to the date
hereof and except as otherwise disclosed on Schedule 6.10 or as contemplated
by this Agreement:
(a) each of the Contributed Entities has (i) conducted its business
related to the Galaxy Business only in the usual and ordinary course, (ii)
operated its business related to the Galaxy Business substantially in
accordance with past practices, (iii) attempted to preserve its business
and assets related to the Galaxy Business intact and (iv) attempted to
preserve the goodwill of its suppliers, customers, distributors and others
having business with it in respect of the Galaxy Business;
(b) there has not been any material adverse change in the condition
(physical, financial or otherwise) of the assets and liabilities comprising
the Galaxy Business other than usual and ordinary change which occurs in
the normal course of usage;
(c) there has not been any damage, destruction, loss or claim (whether or
not covered by insurance) that has had a material adverse effect on the
Galaxy Business;
(d) none of the Contributed Entities has, in connection with the Galaxy
Business, directly or indirectly, declared, ordered, paid, made or set
apart or resolved to pay (i) any sum or property as a dividend or other
distribution on account of any capital thereof or (ii) any redemption,
retirement, purchase or acquisition, direct or indirect, of any capital or
securities thereof;
(e) there has not been any change in any method of accounting or
accounting practice or procedure by any of the Contributed Entities with
respect to the Galaxy Business except for any such change after the date
hereof required by GAAP;
(f) none of the Contributed Entities has mortgaged, pledged or subjected
to any material Lien (other than Permitted Liens) any of its material
properties or assets, tangible or intangible in each case related to the
Galaxy Business;
(g) none of the Contributed Entities has acquired or disposed of any
material assets or properties related to the Galaxy Business in any
transaction with any of its Affiliates or any of its Affiliate's officers,
directors, shareholders or monthly salaried employees on terms that are
more favorable than arms' length or, except in the ordinary course of
business, acquired or disposed of any assets or properties of material
value in any transaction with any other person or entity;
(h) there has not been any material transaction or commitment made, or
any contract or other agreement entered into, by any of the Contributed
Entities relating to the Galaxy Business (including the acquisition or
disposition of any assets) or any relinquishment by any of the Contributed
Entities of any
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material contract, property or other right, other than transactions and
commitments in the ordinary course of business and those contemplated by
this Agreement and the Related Agreements;
(i) none of the Contributed Entities has forgiven or cancelled any
material debts or claims, or waived in any material respect any rights
without having received fair consideration therefor, in each case related
to the Galaxy Business;
(j) there has not been any amendment of any term of any outstanding
indebtedness in excess of $50,000,000 in the aggregate or security of any
of the Contributed Entities in respect of the Galaxy Business;
(k) there has not been any loan, advance or capital contribution to or
investment (other than cash balances of the Contributed Entities in money
market or other short term investment accounts) to any person or entity
related to the Galaxy Business in excess of $5,000,000 in the aggregate,
other than loans, advances or capital contributions or investments made in
the ordinary course of business;
(l) none of the Contributed Entities has incurred any other material
liabilities or obligations or given any guarantee (whether absolute,
accrued, contingent or otherwise), other than liabilities incurred or
guarantees given in the ordinary course of business, in each case in
respect of the Galaxy Business; and
(m) none of the Contributed Entities nor any of their Subsidiaries have
adversely modified, terminated, waived, transferred, permitted to lapse, or
failed to preserve any Galaxy Permit issued by the FCC, any Galaxy Permit
relating to the construction, launch or operation of the Galaxy Satellites
or Galaxy Ground Stations, or any Galaxy Permit authorizing the provision
of broadcasting or communications services in such a manner as is likely to
have a material adverse effect on the Galaxy Business or the assets related
thereto.
6.11 Insurance. Each of the Contributed Entities maintains reasonably
adequate insurance with respect to its properties and business related to the
Galaxy Business against loss or damage of the kinds customarily insured
against by corporations of established reputation engaged in the same or
similar businesses and similarly situated, of such types and in such amounts
as are customarily carried under similar circumstances by such other
corporations. A description of all launch and in-orbit satellite insurance
policies is set forth on Schedule 6.11.
6.12 Intellectual Property. Schedule 6.12 sets forth a listing and
description of all material domestic, foreign, common law, registered and
pending applications for patents, trademarks, service marks, logos, slogans,
designs, copyrights, trade names, and all material licenses running to or from
the Contributed Entities relating to the Galaxy Business. Unless expressly set
forth otherwise on Schedule 6.12, the Contributed Entities own (or where
indicated on Schedule 6.12 have a right to use), free and clear of any liens,
security interests, encumbrances or claims of others, all patents, trademarks,
service marks, logos, slogans, designs, copyrights, trade names, design
registrations, and other intellectual property listed on Schedule 6.12 and any
trade secrets, know-how, confidential information, material computer programs
(including any source code), documentation, engineering and technical
drawings, processes, methodologies, trade dress, and technology utilized in or
incidental to the Galaxy Business (all of the foregoing items collectively
referred to as the "Galaxy Intellectual Property"). Except as set forth on
Schedule 6.12, (a) no proceedings are pending or, to the knowledge of the
Hughes Parties, threatened in writing, which challenge the validity of the
ownership by the Contributed Entities of the Galaxy Intellectual Property; (b)
none of the Hughes Parties has any knowledge of any infringement or infringing
use of any of the Galaxy Intellectual Property or licenses by any person or
entity, and the Contributed Entities have, and as of the Closing Date Newco
will have, good and valid title to all the Galaxy Intellectual Property that
is owned by the Contributed Entities, and their licenses and other rights to
use will be adequate for conducting the Galaxy Business and enforceable in
accordance with their terms; (c) to the Contributed Entities' knowledge, no
infringement of any material intellectual property right or other proprietary
right of any third party has occurred or will result in any way from the
conduct of the Galaxy Business or from the signing and execution of this
Agreement or the Related Agreements or the consummation of any or all of the
transactions contemplated hereby or thereby, and no written claim has been
made by any third party based upon an allegation of any such infringement; (d)
the Galaxy Intellectual Property is valid and in full force and effect and no
aspect thereof is subject to any outstanding order, ruling, decree, judgment
or stipulation by or with any court, arbitrator or
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administrative agency; and (e) there are no restrictions on the direct or
indirect transfer of any license, or any interest therein, held by the Galaxy
Business in respect of the Galaxy Intellectual Property.
6.13 Environmental Matters.
(a) The operations of each of the Contributed Entities relating to the
Galaxy Businesses are in substantial compliance with all Environmental Laws
with respect to its conduct of the Galaxy Business. Except as set forth on
Schedule 6.13(a), none of the Contributed Entities have received any written
notice with respect to any of its assets of any material violation of any
Environmental Law with respect to the Galaxy Business.
(b) Except as set forth on Schedule 6.13(b), there are no conditions
associated with assets of the Galaxy Business, the operation of the Galaxy
Business or owned or, to each Contributed Entity's Knowledge, leased real
property that relate to the Galaxy Business as currently operated that would
under applicable Environmental Law require or could reasonably be expected to
require any of the Contributed Entities to (i) undertake any action that would
materially impair the ability of such entity to use the material owned and
leased real property that relate to the Galaxy Business as currently operated
or the material assets of the Galaxy Business as currently used, (ii) incur
material expenditures or (iii) undertake remedial obligations at any real
property that is owned, operated or leased by any of the Contributed Entities
or that is adjacent to real property owned, operated or leased by such entity
in connection with the Galaxy Business which would cost individually in excess
of $1.0 million.
(c) Except as set forth on Schedule 6.13(c), as of the date hereof, none of
the Contributed Entities is subject to any outstanding orders, agreements or
contracts with any Government Entity or other person respecting (i) violations
of Environmental Laws, (ii) Remedial Action or (iii) any Release or threatened
Release of a Hazardous Material, in either case which could be expected to
have a material adverse effect on the Galaxy Business.
6.14 Investment Banking Fees and Commissions. Except for Greenhill & Co.,
LLC and Donaldson, Lufkin & Jenrette Securities Corporation (copies of whose
engagement letters with HE have been furnished to PAS), no person or entity is
entitled to receive from the Hughes Parties or any of their Subsidiaries or
any of their directors, officers or employees any investment banking,
brokerage or finder's fee or fees for financial consulting or other advisory
services in connection with this Agreement or the transactions contemplated
hereby based upon arrangements made by or on behalf of the Hughes Parties, nor
is any person or entity entitled to receive reimbursement from the Hughes
Parties or any of their Subsidiaries for any such services or any legal fees
and expenses.
6.15 Material Contracts.
(a) HCI has provided or made available to PAS or its independent auditors
and/or legal counsel (i) true and complete copies of all written Material
Contracts relating to the Galaxy Business, or (ii) with respect to such
Material Contracts that have not been reduced to writing, a written
description thereof, each of which is listed on Schedule 6.15(a). Except as
set forth on Schedule 6.15(a), none of the Contributed Entities has received
any notice or has any knowledge that any other party is, in default in any
respect under any such Material Contract, other than payment defaults under
transponder lease agreements which are not more than 90 days past due. Each of
the Material Contracts relating to the Galaxy Business is in full force and
effect and constitutes a valid, legal and binding agreement of the parties
thereto, enforceable in accordance with its terms except for the Bankruptcy
Exception.
(b) Except as set forth on Schedule 6.15(b), none of the Hughes Parties is a
party, as of the date hereof, to any contract, agreement, commitment,
arrangement, lease (including with respect to personal property), policy or
other instrument that is not subject to termination by such Hughes Party upon
less than six months written notice to the other party thereto which
materially restricts or limits the right of any Hughes Party or, which would,
on or after the Closing Date, materially restrict or limit Newco's or any of
its Affiliates' right to conduct its business or compete, including without
limitation, any restriction on its ability to sell, lease or otherwise provide
services from available transponder capacity to any person or entity for any
purpose at any orbital location and in any frequency band, any geographical,
market segment, product line or other industry limitation,
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or any exclusive or sole supply or vendor arrangement or agreement. Nothing in
this Section 6.15(b) shall preclude or require disclosure on Schedule 6.15(b)
of most favored nations provisions, options for additional services or
capacity, rights of negotiation, or similar provisions agreed to in the
ordinary course of business (including, without limitation, of the kind set
forth in the agreements referenced on Schedule 6.15(a)).
(c) As of June 30, 1996, the contracts, agreements, commitments,
arrangements, leases (including with respect to personal property) that
represent obligations of third parties to make payments to any Hughes Party in
exchange for the sale or lease of transponder capacity, have an aggregate
stated amount of unpaid payments owing to the Hughes Parties of $3,394,000,000
over the remaining stated term of such contracts, after allowance for doubtful
accounts or other allowances or deductions known as of such date which are
ordinary and customary in the conduct of the Galaxy Business (the "Galaxy
Backlog"). The Galaxy Backlog represents amounts that, assuming the due
performance by each party of its obligations under each contract and the
occurrence of no event that would permit termination of a contract without
liability to the terminating party, will be due for, and will arise out of,
bona fide sales and delivery of goods, performance of services and other
business transactions, unless the underlying contract thereto is properly
terminated in accordance with the terms thereof. Except as set forth on
Schedule 6.15(c), there are no refunds, discounts or other adjustments payable
by any Hughes Party with respect to any portion of the Galaxy Backlog, and to
the knowledge of Galaxy, there are no defenses, rights of setoff,
counterclaims, assignments, restrictions, encumbrances, or conditions
enforceable by any third parties on or affecting any portion of the Galaxy
Backlog. Except as set forth on Schedule 6.15(c), none of the Hughes Parties
is, or has received any notice or has any knowledge that any other party is,
in default in any material respect under any contract representing any portion
of the Galaxy Backlog, other than (i) payment defaults under transponder lease
agreements which are not more than 90 days past due (ii) defaults under
contracts representing the Galaxy Backlog that do not have a stated backlog in
excess of $500,000 in the aggregate for the stated contract term, and (iii)
defaults or terminations under transponder lease agreements that are promptly
replaced by contracts providing for reasonably equivalent or superior backlog
payments.
6.16 Personal Property. The Contributed Entities have, and immediately after
the Closing Newco will have, good and valid title to all personal property and
assets (whether tangible or intangible) related to the Galaxy Business
reflected on the consolidated balance sheet of the Galaxy Business as of June
30, 1996 or acquired after June 30, 1996, except for property and assets sold
since June 30, 1996 in the ordinary course of business and except for
satellite systems under development by the Galaxy Business, with respect to
which title will not be taken, other than as provided in the applicable
contract therefor provided that except as disclosed on Schedule 6.16 there are
no material Liens with respect to any satellites under development. Except as
set forth on Schedule 6.16, none of such properties or assets (whether real or
personal) is subject to any Liens, except:
(i) Liens disclosed on the Galaxy Balance Sheet; or
(ii) any Permitted Liens.
6.17 Real Property.
(a) Schedule 6.17(a) sets forth a complete description of all real property
owned by the Contributed Entities that relate to the Galaxy Business (the
"Galaxy Owned Real Property"), together with a description of such ownership
and the identity of the entity that owns such property. The Contributed
Entities have good and valid title to the Galaxy Owned Real Property and
otherwise own the Galaxy Owned Real Property free and clear of all liens,
security interests, claims and other charges and encumbrances, except for (i)
Permitted Liens and (ii) encumbrances, if any, which do not materially impair
the existing use of the property.
(b) Schedule 6.17(b) sets forth a list of all of the land, buildings and
other real property leased or sub-leased by the Contributed Entities in
connection with the Galaxy Business (the "Galaxy Leased Real Property"). The
Contributed Entities have a good and valid leasehold interest in and right to
peaceful quiet possession as against each landlord with respect to each Galaxy
Leased Real Property. True and complete copies of all leases of the Galaxy
Leased Real Property have been made available for review to PAS. Such leases
are in full force and effect according to their terms, constitute the legal,
valid and binding obligations of the Contributed Entity that is a party
thereto and, to the Contributed Entities' knowledge, such leases have not been
amended or modified
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except as disclosed in writing to PAS. None of the Contributed Entities is in
material default with respect to any of the leases of the Galaxy Leased Real
Property, nor has any event occurred which with the passage of time, the
giving of notice, or both, would constitute an event of default or otherwise
would place such Contributed Entity in material default under any of such
leases; none of the Contributed Entities have received any notice of any such
default or event; and, to the Contributed Entities' knowledge, no landlord is
in default under any of such leases, and no event has occurred which with the
passage of time, the giving of notice, or both, would constitute an event of
default or otherwise place any landlord in default thereunder.
(c) The Galaxy Owned Real Property and the Galaxy Leased Real Property,
together with facilities furnished under contract with others, comprise
substantially all of the real estate used in, or necessary to conduct, the
Galaxy Business, and such use and occupancy is in conformance in all material
respects with all applicable laws, rules and regulations, including but not
limited to, applicable zoning, subdivision and other land use rules and
regulations, the violation of which is likely to have a material adverse
effect on the Galaxy Business.
(d) To the Contributed Entities' knowledge, other than the Contributed
Entities, there are no parties in possession of any portion of the Galaxy
Leased Real Property or the Galaxy Owned Real Property, whether as lessees or
sublessees thereof, or tenants at sufferance, trespassers or otherwise, except
as disclosed on Schedule 6.17(d). The location, construction, occupancy,
operation or use of the Galaxy Owned Real Property and, to the best knowledge
of the Contributed Entities, the Galaxy Leased Real Property (including the
buildings, improvements, fixtures and equipment located thereon) do not
contravene any laws, rules or regulations, or any restrictive covenant or deed
restriction (recorded or otherwise), or any Galaxy Permit, affecting any of
such property the contravention of which is likely to have a material adverse
effect on the Galaxy Business. There are no pending or, to the best knowledge
of the Contributed Entities, threatened condemnation proceedings with respect
to any Galaxy Leased Real Property, lease, or the Galaxy Owned Real Property,
or litigation or administrative actions relating thereto. All buildings,
improvements, fixtures and equipment used in connection with the Galaxy
Business are located on the Galaxy Owned Real Property and the Galaxy Leased
Real Property and do not encroach on any adjoining property, and, to the best
knowledge of the Hughes Parties, no buildings or improvements encroach upon
the Galaxy Owned Real Property or the Galaxy Leased Real Property which is
likely to have a material adverse effect on the Galaxy Business.
6.18 Certain Assets and Agreements.
(a) Ground Stations. Each ground station, including, without limitation, the
related broadcasting facility assets (consisting of land, building, fixtures,
improvements and telemetry, tracking and control equipment) that is owned or
leased by any of the Contributed Entities in connection with the Galaxy
Business is listed on Schedule 6.18(a) (the "Galaxy Ground Stations"). Except
as otherwise set forth on Schedule 6.18(a), with respect to each such ground
station, the improvements thereto and all components used in connection
therewith, including, without limitation, transmission/reception systems and
programming and data broadcasting systems, if any, (i) are in good operating
condition and repair and are suitable for their intended purposes and (ii) are
supported by a back-up, fuel-powered electricity generator capable of
generating power sufficient to meet the requirements of the operations
conducted at the ground station. The transmission/reception systems and
programming and data broadcasting systems at each such ground station have the
redundancies that are set forth on Schedule 6.18(a).
(b) Satellites and Transponders. Set forth on Schedule 6.18(b) are the
following: (i) a complete and accurate list, by orbital location, of each
satellite and transponder thereon owned or leased in connection with the
Galaxy Business (each a "Galaxy Satellite"), (ii) a true and correct copy of a
satellite loading chart listing each transponder on each Galaxy Satellite,
along with the type of transponder (C-band, Ku-band or other) and the customer
or group of related customers that have leased or purchased capacity on such
transponder and the amount of such capacity, (iii) the most recent "Health
Status Report," summarizing all spacecraft related incidents and anomalies
known to the Galaxy Business as well as the current status, to the best
knowledge of the Contributed Entities, of the subsystems on the Galaxy
Satellites (power, telemetry and command, reaction control, communications and
antenna), and (iv) a list of all satellites under construction, all satellites
that have
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been constructed but not launched, including describing the status of launch
insurance, the coverage thereunder and the premium to be paid in connection
therewith. For each Galaxy Satellite, true, correct and complete copies of the
foregoing will be delivered or made available to PAS (all such data, records,
tapes, information, lists and reports are collectively referred to herein as
the "Galaxy Data") prior to the Closing Date. Such Galaxy Data represent, to
the best knowledge of the Contributed Entities, all relevant and material
information relating to the operating condition and repair of the Galaxy
Satellites, and the fuel life expectancies of the Galaxy Satellites. The
information contained in the Galaxy Data is, to the best knowledge of the
Contributed Entities, accurate and complete records (except as to only those
informational gaps disclosed to PAS) of the subject matters covered therein;
however, such parties make no representation or warranty as to the accuracy of
any conclusion expressed as to fuel life expectancies of the Galaxy
Satellites. Such Galaxy Satellites are to the best knowledge of each of the
Hughes Parties, subject to the Health Status Reports, in good condition.
Except as specifically provided herein, no representation or warranty, express
or implied, is made with respect to the Galaxy Satellites.
(c) Tracking, Telemetry and Control Equipment. Except as otherwise set forth
on Schedule 6.18(c), to the best knowledge of the Contributed Entities, the
tracking, telemetry and control equipment (on the ground) used by third party
contractors to provide tracking, telemetry and control services related to
each Galaxy Satellite is (i) in good operating condition and repair, ordinary
wear and tear excepted, and (ii) not in need of maintenance or repairs except
for ordinary, routine maintenance and repairs.
(d) ITU Frequency Registration. Schedule 6.18(d) contains a summary, by
orbital location, of the status of frequency registration at the International
Telecommunications Union, of each Galaxy Satellite, including the identity of
the sponsoring administration and the frequency bands covered.
(e) Satellite Coordination. Except as set forth on Schedule 6.18(e), to the
best knowledge of the Contributed Entities, no person or entity has asserted
that it has rights to operate a spacecraft in a manner that would result in
interference with respect to any Galaxy Satellite or any Satellite to be used
in connection with the Galaxy Business for which a Contributed Entity has
applied for a Permit. Except as set forth on Schedule 6.18(e), none of the
Contributed Entities is aware of any asserted dispute with respect to such
entity's continued ability to utilize any Galaxy Satellite substantially in
the manner that such Galaxy Satellite has been used in connection with the
Galaxy Business to date. Schedule 6.18(e) also contains a list of all
satellite coordination agreements to which any of the Contributed Entities or
their Affiliates is a party, a summary of all operational or technical
limitations set forth therein and a summary of all coordination discussions
with other persons or entities, domestic or foreign, with regard to the Galaxy
Satellites or any Satellite to be used in connection with the Galaxy Business
for which a Contributed Entity has applied for a Permit in which any of the
Contributed Entities or their Affiliates has been engaged in the past three
years.
6.19 IGO Determinations. Schedule 6.19 contains a list of all IGO
Determinations with respect to the Galaxy Satellites that are needed to
operate Galaxy Business as it is now being conducted. Except as set forth on
Schedule 6.19, none of the Contributed Entities is aware of any difficulties
in obtaining any other IGO Determinations with respect to the Galaxy
Satellites or any Satellite to be used in connection with the Galaxy Business
for which a Contributed Entity has applied for a Permit.
Article VII
Covenants
7.1 Interim Operations of PAS. Except as expressly contemplated or permitted
by this Agreement or any of the Related Agreements, or to the extent that HCI
shall otherwise consent in writing, during the period from the date of this
Agreement and continuing until the Closing Date, PAS agrees as to PAS and its
Subsidiaries that:
(a) Ordinary Course. PAS and its Subsidiaries shall carry on their
businesses in the usual, regular and ordinary course in substantially the
same manner as heretofore conducted, and shall use commercially
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reasonable efforts and, to the extent necessary to conduct normal
operations, cause each of its Subsidiaries to use commercially reasonable
efforts to preserve intact its present business organizations, to keep
available the services of its current officers and employees and to
preserve its relationships with customers, suppliers and others having
business dealings with it to the end that its goodwill and ongoing business
shall not be impaired in any material respect at the Closing Date. For the
avoidance of doubt, it is understood that, subject to the limitations on
investment, disposition and incurrence of indebtedness in subsections (f),
(g) and (k) below, the pursuit of and consummation by PAS of strategic
partnerships, joint ventures, acquisitions and similar activities and
investments shall be considered to be in the "ordinary course" for PAS if,
in each case, such activities and investments are ancillary to the sale or
lease of, or the provision of service or capacity via, transponders by PAS.
(b) Dividends; Changes in Capital Stock. PAS shall not, and shall not
permit any of its Subsidiaries to: (i) declare, set aside or pay any
dividends on or make other distributions (whether in cash, securities or
property or any combination thereof) in respect of any class or series of
its capital stock, except for non-cash dividends in respect of PAS
Preferred Stock, or cash dividends or distributions paid on or with respect
to the capital stock of a wholly owned Subsidiary; (ii) split, combine,
subdivide or reclassify any of its capital stock or issue or authorize or
propose the issuance of any other securities in respect of, in lieu of or
in substitution for shares of its capital stock; or (iii) repurchase,
redeem or otherwise acquire, or permit any Subsidiary to purchase or
otherwise acquire, any shares of the capital stock or other securities of
PAS or any of its Affiliates.
(c) Issuance of Securities. Other than as provided or allowed herein and
except as set forth on Schedule 7.1(c) or pursuant to the exercise of
Options, PAS shall not, and shall not permit any of its Subsidiaries to,
issue, pledge or sell, or authorize the issuance, pledge or sale of
additional shares of capital stock of any class, or securities convertible
into capital stock of any class, or any rights, warrants or options to
acquire any convertible securities or capital stock, or any other
securities in respect of, in lieu of, or in substitution for, shares of
common stock outstanding on the date hereof or (ii) amend, waive or
otherwise modify any of the terms of any option, warrant or stock option
plan of it or any of its Subsidiaries.
(d) Governing Documents. PAS shall not, and shall not permit any of its
Subsidiaries to, amend or propose to amend their respective Certificates of
Incorporation or Bylaws.
(e) No Solicitation. From the date hereof through the Closing Date or the
earlier termination of this Agreement, PAS shall not, and shall not permit
any of its Subsidiaries, or any of its or their officers, directors,
employees, representatives, agents or Affiliates (including, without
limitation, any investment banker, attorney or accountant retained by PAS
or any of its Subsidiaries) to, directly or indirectly, enter into,
solicit, initiate or continue any discussions or negotiations with, or
encourage or respond to any inquiries or proposals by, or participate in
any negotiations with, or provide any information to, or otherwise
cooperate in any other way with, any corporation, partnership, person or
other entity or group (each, a "Person") (other than HCI, Galaxy or any of
their Affiliates or representatives), concerning any offer or proposal
which constitutes or is reasonably likely to lead to any Acquisition
Proposal; provided that the Board of Directors of PAS may, in the event of
an unsolicited Acquisition Proposal, engage in negotiations or discussions
with, or provide information or data to, any Person relating to an
Acquisition Proposal if (x) the Acquisition Proposal is a bona fide fully-
financed written offer submitted to PAS' Board of Directors and such Board
of Directors, after consulting with a nationally recognized investment
bank, determines that such Acquisition Proposal is economically superior to
the transactions contemplated by this Agreement and the Related Agreements
(a "Superior Acquisition Proposal"), and (y) PAS' Board of Directors
determines, after having received the written opinion of outside legal
counsel to PAS, that the failure to engage in such negotiations or
discussions or provide such information would result in a breach of the
fiduciary duties of the Board of Directors of PAS under applicable law.
Then, in such event, the Board of Directors may withdraw or modify its
approval or recommendation of the Merger or this Agreement, approve or
recommend the Superior Acquisition Proposal or terminate this Agreement
pursuant to Section 9.1(g) hereof. HCI shall have the right to match any
such Superior Acquisition Proposal, and have such matching proposal
immediately accepted by PAS, for five (5) business days after HCI is
informed of the necessary
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determinations in clauses (x) and (y) of the preceding sentence with
respect to such Superior Acquisition Proposal. Any information furnished to
any Person in connection with an Acquisition Proposal shall be provided
pursuant to a confidentiality agreement in customary form on terms not more
favorable to such Person than the terms contained in the Confidentiality
Agreement (as defined in Section 7.6). Subject to all of the foregoing
requirements, PAS will immediately notify HCI orally and in writing if any
discussions or negotiations are sought to be initiated, any inquiry or
proposal is made, or any information is requested by any Person with
respect to any Acquisition Proposal or which could lead to an Acquisition
Proposal and immediately notify HCI of all material terms of any proposal
which it may receive in respect of any such Acquisition Proposal, including
the identity of the Person making the Acquisition Proposal or the request
for information, if known, and thereafter shall inform HCI on a timely,
ongoing basis of the status and content of any discussions or negotiations
with such a third party, including immediately reporting any material
changes to the terms and conditions thereof. PAS shall, and shall cause its
Subsidiaries and Affiliates, and will use its best efforts to ensure their
respective officers, directors, employees, investment bankers, attorneys,
accountants and other agents to, immediately cease and cause to be
terminated all discussions and negotiations that have taken place prior to
the date hereof, if any, with any Persons conducted heretofore with respect
to any Acquisition Proposal. As used in this Agreement, "Acquisition
Proposal" shall mean any of the following (other than the transactions
contemplated hereunder) involving PAS or any of its Subsidiaries: (i) any
merger, consolidation, share exchange, recapitalization, business
combination, or other similar transaction; (ii) any sale, lease exchange,
mortgage, pledge, transfer or other disposition of 10% or more of the
assets of PAS and its Subsidiaries, taken as a whole, in a single
transaction or series of transactions; (iii) any tender offer or exchange
for or other purchase of 10% or more of the outstanding shares of the
capital stock of PAS or the filing of a registration statement under the
Securities Act in connection therewith; or (iv) any public announcement of
a proposal, plan or intention to do any of the foregoing. Nothing contained
in this Section 7.1(e) shall prohibit PAS or its Board of Directors from
taking and disclosing to its stockholders a position with respect to a
tender offer by a third party pursuant to Rules 14d-9 and 14e-2(a)
promulgated under the Exchange Act or making such disclosure as may be
required by applicable law.
(f) No Spacecraft Acquisitions, Investments or Capital
Expenditures. Except as listed on Schedule 7.1(f), PAS shall not, and shall
not permit any of its Subsidiaries to (i) acquire or agree to acquire any
satellite or other spacecraft which PAS has not, on the date of this
Agreement, previously agreed in writing to acquire, or (ii) make one or
more investments or capital expenditures exceeding $35,000,000 in the
aggregate in any twelve month period for all such investments or
expenditures that occur from the date hereof; provided, however, that PAS
may (A) replace any satellite lost in a launch or in orbit, (B) continue
capital programs now underway as described on Schedule 7.1(f), plus
additional expenses solely for change orders of up to 10% of the progress
payments on each satellite remaining to be paid as of the date hereof, and
(C) purchase such terrestrial equipment as necessary to supply customers in
the ordinary course in connection with leases of transponder capacity by
such customers. Notwithstanding the foregoing, PAS shall not, and shall not
permit any of its Subsidiaries to provide financing for, make any
additional investment in, or make any capital expenditure for the benefit
of, any business engaged in DTH Services unless such financing, investment
or expenditure is ancillary to the sale or lease of, or other provision of
service or capacity via, transponders. As used in this Agreement, "DTH
Services" means any video, audio, data or other information services
provided by satellite and intended for direct reception by the general
public.
(g) No Dispositions. Other than as contemplated hereby and other than
dispositions in the ordinary course of business consistent with past
practice which are not material in the aggregate to PAS and its
Subsidiaries, taken as a whole, PAS shall not, and shall not permit any of
its Subsidiaries to, sell, pledge, lease, dispose of, encumber or otherwise
authorize the sale, disposition, grant, encumbrance, lease (whether such
lease is an operating or capital lease) of any of its assets.
(h) No Dissolution, Etc. Except as otherwise permitted or contemplated by
this Agreement, PAS shall not authorize, recommend, propose or announce an
intention to adopt a plan of complete or partial liquidation or dissolution
of PAS or any of its Significant Subsidiaries. As used in this Agreement,
the term "Significant Subsidiary" has the meaning assigned to it in
Regulation S-X under the Exchange Act.
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(i) Other Actions. PAS will not voluntarily take, and will not permit any
of its Subsidiaries voluntarily to take or agree or commit voluntarily to
take, any action that results in any of PAS' representations or warranties
hereunder being untrue in any material respect or in any of PAS' covenants
hereunder or any other conditions to the Asset Contribution, the Univisa
Contribution or the Merger not being satisfied in all material respects.
Notwithstanding the foregoing, no action permitted by this Section 7.1 or
contemplated by this Agreement shall be construed to have caused a breach
of a representation or warranty contained herein.
(j) Certain Employee Matters. Except as described on Schedule 7.1(j), PAS
and its Subsidiaries shall not: (A) grant any increases in the compensation
or fringe benefits of any of its directors, officers, or key employees; (B)
pay or agree to pay any pension, retirement allowance, severance,
termination or other employee benefit not required or contemplated by any
of the existing PAS ERISA Plans or PAS Benefit Arrangements as in effect on
the date hereof to any such director, officer or key employee, whether past
or present; (C) other than with respect to new hires consistent with past
practice enter into any new, or materially amend any existing, employment
or severance or termination agreement with any such director, officer or
key employee; or (D) establish, adopt, enter into, or amend any collective
bargaining, bonus, profit sharing, thrift, compensation, stock option,
restricted stock, pension, retirement, savings, welfare, deferred
compensation, employment, termination, severance or other employee benefit
plan, agreement, trust, fund, policy or arrangement for the benefit or
welfare of any directors, officers or current or former employees, except
in each case (i) to the extent required by applicable law or regulation,
(ii) pursuant to collective bargaining agreements as in effect on the date
of this Agreement, (iii) for cash bonuses in lieu of options not to exceed
$5,000,000 in the aggregate, (iv) normal bonuses and normal increases to
officers and key employees consistent with past practice or other
agreements which PAS believes are necessary for the continued conduct of
PAS' business in the ordinary course, or (v) for amendments to PAS ERISA
Plan(s) or PAS Benefits Arrangement(s) which have been disclosed to HCI
prior to the execution of this Agreement or which would not materially
increase the cost of benefits to PAS and its Subsidiaries, taken as a
whole, in the aggregate.
(k) Indebtedness. Except as set forth on Schedule 7.1(k), and except for
borrowing in the ordinary course of business consistent with past practices
under its existing credit facilities or arrangements, PAS shall not, and
shall not permit any of its Subsidiaries to, assume, incur or pre-pay any
indebtedness for borrowed money or guarantee any such indebtedness or issue
or sell any debt securities or warrants or rights to acquire any debt
securities of such party or any of its Subsidiaries or guarantee any debt
securities of others or enter into any lease other than in the ordinary
course (whether such lease is an operating or capital lease), or create any
mortgages, liens, security interests or other encumbrances on the property
of PAS or any of its Subsidiaries in connection with any indebtedness
thereof, or enter into any "keep well" or other agreement or arrangement to
maintain the financial condition of another person; provided that PAS may
enter into any such "keep well" agreement or arrangement if the payment of
the full amount of the obligation represented by such agreement could then
be made as an investment under Section 7.1(f).
(l) Agreements. Except as permitted by Section 7.1(f) or as otherwise
contemplated by this Agreement, PAS shall not, and shall not permit any of
its Subsidiaries to, enter into, materially modify, rescind, terminate,
waive, release or otherwise amend any of the terms or provisions of any
Material Contract, other than in the ordinary course of business consistent
with past practice.
(m) Accounting. PAS shall not, and shall not permit any of its
Subsidiaries to, take any action, other than in the ordinary course of
business, consistent with past practice or as required by the SEC or by
law, to effect any material change in any of its current accounting
policies, procedures and practices.
(n) Payment of Claims. PAS shall not, and shall not permit any of its
Subsidiaries to, pay, discharge or satisfy any material claims, liabilities
or obligations (absolute, accrued, asserted, unasserted, contingent or
otherwise), other than such payment, discharge or satisfaction in the
ordinary course of business and consistent with past practice.
(o) Waivers and Payments. PAS shall not, and shall not permit any of its
Subsidiaries to, other than in the ordinary course of business and
consistent with past practice, waive any rights of substantial value or
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make any payment, direct or indirect, of any material liability before the
same comes due in accordance with its terms, except to the extent (and only
to the extent) to which PAS receives fair value in exchange for such waiver
or payment.
(p) Insurance. PAS shall not and shall not permit any of its Subsidiaries
to, fail to maintain its existing insurance coverage of all types in effect
or, in the event any such coverage shall be terminated or lapse, to the
extent available at reasonable cost, procure substantially similar
substitute insurance policies which in all material respects are in at
least such amounts and against such risks as are currently covered by such
policies. Notwithstanding the foregoing, PAS shall not renew any spacecraft
insurance policy other than at the best available rate after competitive
bidding.
(q) Affiliate Transactions. PAS shall not, and shall not permit any of
its Subsidiaries to, engage in any transaction with, or enter into any
agreement, arrangement, or understanding with, directly or indirectly, any
of such entity's affiliates (as defined in Rule 12(b)-2 under the Exchange
Act) which involves the transfer of consideration or has a financial impact
on such entity, other than pursuant to such agreements, arrangements, or
understandings (i) existing on the date of this Agreement (all of which
such agreements are considered to be Material Contracts for purposes of
Section 5.16), (ii) which are done on terms that the Board of Directors of
PAS determines in good faith to be equal to, or more favorable to PAS, than
the terms that PAS would be able to obtain from third parties in similar
transactions and/or for similar goods or services or (iii) which are
permitted by Section 7.1(o) hereof including PAS and any of its
Subsidiaries.
(r) PAS Permits. Except for Permits which lapse or expire due to ordinary
course changes in the business of PAS, PAS shall not surrender, allow to
expire or be terminated, modify adversely, forfeit, or fail to renew or
extend under regular terms any of the PAS Permits issued by the FCC (other
than those related to PAS Ground Stations) or give the FCC or other
Government Entity with jurisdiction any grounds to institute any proceeding
for the revocation, suspension, or adverse modification of any PAS Permit
issued by the FCC. Should the FCC or other Government Entity with
jurisdiction institute any proceedings for the suspension, revocation or
adverse modification of any of such PAS Permits, PAS shall use commercially
reasonable efforts to promptly contest such proceedings and to seek to have
such proceedings terminated in a manner that is favorable to PAS.
(s) Construction Permits and Applications. PAS will use commercially
reasonable efforts to maintain each FCC construction Permit (if any) listed
on Schedule 5.6 in effect until the applicable construction projects are
complete and will not, by act or omission, cause, or fail to use
commercially reasonable efforts to avoid having, any pending FCC
application listed on Schedule 5.6 to be dismissed or denied, except where
(i) the loss of such Permit or pending application would not have a
material adverse effect on PAS and its Subsidiaries, taken as a whole or
(ii) the maintenance of any such Permit would require an expenditure which
would be in violation of subsection (f) above.
(t) Interference. PAS shall use commercially reasonable efforts to
protect the transmissions to and from the PAS Satellites and the PAS Ground
Stations from interference from other radio communications facilities
(existing or proposed), to the extent that such interference is prohibited
by FCC Rules or inconsistent with rights accorded the PAS Satellites under
the ITU's Radio Regulations and shall promptly notify HCI of any actual or
threatened interference. As used in this Agreement, "FCC Rules" means,
collectively, the Communications Act of 1934, as amended, or any successor
statute, and the rules, regulations, orders and policies of the FCC
promulgated thereunder.
(u) No Restrictive Agreements. Neither PAS nor any of its Subsidiaries
shall enter into any contract, agreement, commitment, arrangement, lease
(including with respect to personal property), policy or other instrument
that (i) does not expire by the later of one (1) year after the date hereof
or six (6) months after the Closing or (ii) is not subject to termination
by PAS upon less than six months written notice to the other party thereto,
which in either case materially restricts or limits PAS' or such
Subsidiary's right to conduct its business or compete, including, without
limitation, any restriction on its ability to sell, lease or otherwise
provide services from available transponder capacity to any person or
entity for any purpose at any orbital location and in any frequency band,
any geographical market segment, product line or other industry limitation,
or any exclusive or sole supply or vendor arrangement or agreement. Nothing
in this Section
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7.1(u) shall preclude or require PAS or any of its Subsidiaries from
entering into agreements containing most favored nation provisions, options
for additional services or capacity, rights of negotiation, or similar
provisions, in each case in the ordinary course of business.
(v) Certain Other Agreements. PAS shall not, and shall not permit any of
its Subsidiaries to, enter into any contract, commitment or arrangement,
whether written or oral, to do any of the acts prohibited by this Section
7.1 or to authorize, recommend, propose or announce an intention to do the
same. Notwithstanding the foregoing, PAS may enter into an agreement with
the landlord of the part of the PAS Leased Property located in Greenwich,
Connecticut to increase the square footage of such leased space by
approximately 9,000 square feet on commercially reasonable terms and
conditions, and PAS may enter into the lease agreement described on
Schedule 5.18(d) on commercially reasonable terms and conditions.
7.2 Interim Operations of the Galaxy Business. Except as expressly
contemplated or permitted by this Agreement or any of the Related Agreements,
or to the extent that PAS shall otherwise consent in writing, during the
period from the date of this Agreement and continuing until the Closing Date,
HCI and Galaxy agree as to the Galaxy Business that:
(a) Ordinary Course. HCI shall cause each of the Contributed Entities to
carry on the Galaxy Business in the usual, regular and ordinary course in
substantially the same manner as heretofore conducted and to use
commercially reasonable efforts, to the extent necessary to conduct normal
operations, to preserve intact its present business organizations, to keep
available the services of its current officers and Galaxy Employees and to
preserve its relationships with customers, suppliers and others having
business dealings with it to the end that its goodwill and ongoing business
shall not be impaired in any material respect at the Closing Date. For the
avoidance of doubt, it is understood that, subject to the limitations on
investment, dispositions and incurrence of indebtedness in subsections (f),
(g) and (k) below, the pursuit of and consummation by the Contributed
Entities of strategic partnerships, joint ventures, acquisitions and
similar activities and investments shall be considered to be in the
"ordinary course" for the Contributed Entities if, in each case, such
activities and investments are ancillary to the sale or lease of, or the
provision of service or capacity via, transponders by the Contributed
Entities.
(b) Dividends; Changes in Capital Stock. None of the Contributed Entities
shall: (i) declare, set aside or pay any dividends on or make other
distributions (whether in cash, securities or property or any combination
thereof) in respect of any class or series of its capital stock, except for
non-cash dividends in respect of preferred stock, or cash dividends or
distributions paid on or with respect to the capital stock of a wholly
owned Subsidiary; (ii) split, combine, subdivide or reclassify any of its
capital stock or issue or authorize or propose the issuance of any other
securities in respect of, in lieu of or in substitution for shares of its
capital stock; or (iii) repurchase, redeem or otherwise acquire, or permit
any Subsidiary to purchase or otherwise acquire, any shares of the capital
stock or other securities of HCI or any of its Affiliates.
(c) Issuance of Securities. Other than as provided or allowed herein and
except as set forth on Schedule 7.2(c) or pursuant to the exercise of
Options, none of the Contributed Entities shall issue, pledge or sell, or
authorize the issuance, pledge or sale of additional shares of capital
stock of any class, or securities convertible into capital stock of any
class, or any rights, warrants or options to acquire any convertible
securities or capital stock, or any other securities in respect of, in lieu
of, or in substitution for, shares of common stock outstanding on the date
hereof or (ii) amend, waive or otherwise modify any of the terms of any
option, warrant or stock option plan of it. Except as otherwise
contemplated hereby, HCI will make no transfer of the capital stock of any
of the Contributed Entities, whether to an Affiliate or otherwise.
(d) Governing Documents. None of the Contributed Entities shall amend or
propose to amend their respective Certificates or Articles of Incorporation
or Bylaws.
(e) No Spacecraft Acquisitions, Investments or Capital
Expenditures. Except as listed on Schedule 7.2(e), none of the Contributed
Entities shall (i) acquire or agree to acquire any satellite or other
spacecraft which a Contributed Entity has not, on the date of this
Agreement, previously agreed in writing to acquire, or (ii) except as
required pursuant to Section 7.24, make one or more investments or capital
expenditures exceeding $35,000,000 in the aggregate in any twelve month
period for all such investments or expenditures
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that occur from the date hereof; provided, however, that any Contributed
Entity may replace any satellite lost in a launch or in orbit.
(f) No Dispositions. Other than as contemplated hereby and other than
dispositions in the ordinary course of business consistent with past
practice which are not material in the aggregate to the Galaxy Business,
HCI shall not, and shall not permit any of its Subsidiaries to, sell,
pledge, lease, dispose of, encumber or otherwise authorize the sale,
disposition, grant, encumbrance, lease (whether such lease is an operating
or capital lease) of any of the assets related to the Galaxy Business.
(g) No Dissolution, Etc. Except as otherwise permitted or contemplated by
this Agreement, HCI shall not authorize, recommend, propose or announce an
intention to adopt a plan of complete or partial liquidation or dissolution
of any of HCI or any of the Contributed Entities.
(h) Other Actions. None of the Hughes Parties will voluntarily take, or
permit any of their Subsidiaries voluntarily to take or agree or commit
voluntarily to take, any action that results in any of the Hughes Parties'
representations or warranties hereunder being untrue in any material
respect or in any of the Hughes Parties' covenants hereunder or any other
conditions to the Asset Contribution, the Univisa Contribution or the
Merger not being satisfied in all material respects. Notwithstanding the
foregoing, no action permitted by this Section 7.2 or contemplated by this
Agreement shall be construed to have caused a breach of a representation or
warranty contained herein.
(i) Certain Employee Matters. Except as described on Schedule 7.2(i), HCI
shall not permit any of the Contributed Entities or any of their
Subsidiaries to: (A) grant any increases in the compensation or fringe
benefits of any of its directors, officers, or key employees; (B) pay or
agree to pay any pension, retirement allowance, severance, termination or
other employee benefit not required or contemplated by any of the existing
Galaxy ERISA Plans or Galaxy Benefit Arrangements as in effect on the date
hereof to any such director, officer or key employee, whether past or
present; (C) other than with respect to new hires consistent with past
practice enter into any new, or materially amend any existing, employment
or severance or termination agreement with any such director, officer or
key employee; or (D) establish, adopt, enter into, or amend any collective
bargaining, bonus, profit sharing, thrift, compensation, stock option,
restricted stock, pension, retirement, savings, welfare, deferred
compensation, employment, termination, severance or other employee benefit
plan, agreement, trust, fund, policy or arrangement for the benefit or
welfare of any directors, officers or current or former employees, except
in each case (i) to the extent required by applicable law or regulation,
(ii) pursuant to collective bargaining agreements as in effect on the date
of this Agreement, (iii) for normal increases and bonuses to officers and
key employees consistent with past practice or other agreements which HCI
believes are necessary for the continued conduct of the Galaxy Business in
the ordinary course, or (iv) for amendments to Galaxy ERISA Plan(s) or
Galaxy Benefit Arrangement(s) which have been disclosed to PAS prior to the
execution of this Agreement or which would not materially increase the cost
of benefits to the Galaxy Business, in the aggregate.
(j) Indebtedness. Except (i) as set forth on Schedule 7.2(j) and (ii) as
incurred, guaranteed or created in connection with financing the
transactions contemplated hereby, HCI shall not permit any of the
Contributed Entities or any of their Subsidiaries to assume, incur or pre-
pay any indebtedness for borrowed money or guarantee any such indebtedness
or issue or sell any debt securities or warrants or rights to acquire any
debt securities of such party or any of its Subsidiaries or guarantee any
debt securities of others or enter into any lease other than in the
ordinary course (whether such lease is an operating or capital lease), or
create any mortgages, liens, security interests or other encumbrances on
the property of the Galaxy Business in connection with any indebtedness
thereof, or enter into any "keep well" or other agreement or arrangement to
maintain the financial condition of another person; provided that any of
the Contributed Entities may enter into any such "keep well" agreement or
arrangement if the payment of the full amount of the obligation represented
by such agreement could then be made under Section 7.2(e).
(k) Agreements. Except as permitted by Section 7.2(e) or as otherwise
contemplated by this Agreement, HCI shall not permit any of the Contributed
Entities or any of their Subsidiaries to enter into, materially modify,
rescind, terminate, waive, release or otherwise amend any of the terms or
provisions of any Material Contract, other than in the ordinary course of
business consistent with past practice.
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(l) Accounting. HCI shall not permit any of the Contributed Entities or
any of their Subsidiaries to take any action, other than in the ordinary
course of business, consistent with past practice or as required by the SEC
or by law, to effect any material change in any of its current accounting
policies, procedures and practices.
(m) Payment of Claims. HCI shall not permit any of the Contributed
Entities or any of their Subsidiaries to pay, discharge or satisfy any
material claims, liabilities or obligations (absolute, accrued, asserted,
unasserted, contingent or otherwise), other than such payment, discharge or
satisfaction in the ordinary course of business and consistent with past
practice.
(n) Waivers and Payments. HCI shall not permit any of the Contributed
Entities or any of their Subsidiaries to, other than in the ordinary course
of business and consistent with past practice, waive any rights of
substantial value or make any payment, direct or indirect, of any material
liability before the same comes due in accordance with its terms, except to
the extent (and only to the extent) to which HCI or any of the Contributed
Entities receives equivalent value in exchange for such waiver or payment.
(o) Insurance. HCI shall not permit any of the Contributed Entities or
any of their Subsidiaries to fail to maintain its existing insurance
coverage of all types in effect with respect to the Galaxy Business or, in
the event any such coverage shall be terminated or lapse, to the extent
available at reasonable cost, procure substantially similar substitute
insurance policies which in all material respects are in at least such
amounts and against such risks as are currently covered by such policies.
Notwithstanding the foregoing, HCI shall not permit any of the Contributed
Entities to renew any spacecraft insurance policy other than at the best
available rate after competitive bidding.
(p) Affiliate Transactions. Except as set forth on Schedule 7.2(p), HCI
shall not permit any of the Contributed Entities or any of their
Subsidiaries to engage in any transaction with, or enter into any
agreement, arrangement, or understanding relating to the Galaxy Business
with, directly or indirectly, any of such entity's affiliates (as defined
in Rule 12(b)-2 under the Exchange Act) which involves the transfer of
consideration or has a financial impact on such entity, other than pursuant
to such agreements, arrangements, or understandings (i) existing on the
date of this Agreement (all of which such agreements are considered to be
Material Contracts for purposes of Section 6.15) (ii) which are done on
terms that the Board of Directors of the relevant Contributed Entity
determines in good faith to be equal to, or more favorable to such
Contributed Entity, than the terms such entity would be able to obtain from
third parties in similar transactions and/or for similar goods or services
or (iii) which are permitted by Section 7.2(n) hereof involving HCI or any
of the Contributed Entities and any of their respective Subsidiaries.
(q) Galaxy Permits. Except for (i) Permits listed on Schedule 6.6(b)
which are indicated on such schedule to be subject to termination by the
FCC upon the launch of another satellite into the location where certain
Galaxy Satellites now are operating, and (ii) Permits which lapse or expire
due to ordinary course changes in the Galaxy Business, HCI shall not permit
any of the Contributed Entities or any of their Subsidiaries to surrender,
allow to expire or be terminated, modify adversely, forfeit, or fail to
renew or extend under regular terms any of the Galaxy Permits issued by the
FCC (other than those related to Galaxy Ground Stations), or give the FCC
or other Government Entity with jurisdiction any grounds to institute any
proceeding for the revocation, suspension, or adverse modification of any
Galaxy Permit issued by the FCC. Should the FCC or other Government Entity
with jurisdiction institute any proceedings for the suspension, revocation
or adverse modification of any such Galaxy Permits, HCI shall cause the
Contributed Entity to use commercially reasonable efforts to promptly
contest such proceedings and to seek to have such proceedings terminated in
a manner that is favorable to such entities.
(r) Construction Permits and Applications. HCI shall cause the
Contributed Entity to use commercially reasonable efforts to maintain each
FCC construction Permit (if any) listed on Schedule 6.6(b) in effect until
the applicable construction projects are complete and will use commercially
reasonable efforts to avoid having any pending FCC application listed on
Schedule 6.6(b) be dismissed or denied, except where (i) the loss of such
Permit or pending application would not have a material adverse effect on
the Galaxy Business or (ii) the maintenance of any such Permit would
require an expenditure which would be in violation of subsection (e) above;
provided, however, that Galaxy may, prior to or in connection with the
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Closing, amend the applications currently pending before the FCC for the
Galaxy/Spaceway system in order to (i) make HCI or one of its Affiliates
the applicant for Ka-band satellites at the following orbital locations:
49(degrees)W, 99(degrees)W, 101(degrees)W, 25(degrees)E, 54(degrees)E,
101(degrees)E, 111(degrees)E and 164(degrees)E, and (ii) make Newco the
applicant for the rest of the BSS and Ka-band satellites sought in such
application.
(s) Interference. HCI shall cause the Contributed Entities to use their
commercially reasonable efforts to protect the transmissions to and from
the Galaxy Satellites and the Galaxy Ground Stations from interference from
other radio communications facilities (existing or proposed), to the extent
that such interference is prohibited by FCC Rules or inconsistent with
rights accorded the Galaxy Satellites under the ITU's Radio Regulations and
shall promptly notify PAS of any actual or threatened interference.
(t) No Restrictive Agreements. None of the Contributed Entities shall
enter into any contract, agreement, commitment, arrangement, lease
(including with respect to personal property), policy or other instrument
that (i) does not expire by the later of one (1) year after the date hereof
or six (6) months after the Closing or (ii) is not subject to termination
by such entity upon less than six months written notice to the other party
thereto, which in either case materially restricts or limits such entity's
ability to conduct its business or compete, including, without limitation,
any restriction on its right to sell, lease or otherwise provide services
from available transponder capacity to any person or entity for any purpose
at any orbital location and in any frequency band, any geographical, market
segment, product line or other industry limitation, or any exclusive or
sole supply or vendor arrangement or agreement. Nothing in this Section
7.2(t) shall preclude or require any Contributed Entity from entering into
agreements containing most favored nation provisions, options for
additional services or capacity, rights of negotiation, or similar
provisions, in each case in the ordinary course of business.
(u) Additional Property. HCI shall cause one of the Contributed Entities
to acquire a leasehold interest, for a term of at least 30 years and
otherwise on commercially reasonable terms and conditions, in and to the
real property on which are located the ground station and other
improvements currently owned by HCSS located off of East Garton Road in
Castle Rock, Colorado. In addition, such lease shall provide that any
domestic or international satellite arc shall not be blocked by any
improvement or structure on any adjoining land owned or controlled by HCSS,
its successors and assigns. HCI shall cause one of the Contributed Entities
to continue to negotiate, on commercially reasonable terms, for the
acquisition of the fee interest of Texaco Exploration and Production, Inc.
in and to approximately 752 acres located off Telegraph Road in Fillmore,
California. In connection with the above mentioned acquisitions, PAS and
its counsel shall be delivered copies of any draft agreements and, from
time to time, shall be advised of the status of these matters. HCSS shall
use best efforts (not involving the payment of money) to obtain customary
non-disturbance agreements from the superior lessors of the lease described
in item #2 of Schedule 6.17(b). Notwithstanding the foregoing, HCSS may
enter into the lease agreement described on Schedule 6.17(d) on
commercially reasonable terms and conditions.
(v) Certain Other Agreements. HCI shall not and shall not permit any of
the Contributed Entities or any of their Subsidiaries to enter into any
contract, commitment or arrangement, whether written or oral, to do any of
the acts prohibited by this Section 7.2 or to authorize, recommend, propose
or announce an intention to do the same.
7.3 Interim Operations of Newco.
(a) Except as contemplated by this Agreement, or with the prior written
consent of PAS, during the period from the date of this Agreement to the
Closing Date, Newco will conduct no operations and will preserve intact its
business organization. Without limiting the generality of the foregoing and
except as otherwise contemplated by this Agreement or in connection with the
financing of the cash portion of the consideration payable in the Univisa
Contribution and the Merger or the refinancing of indebtedness of Newco,
Galaxy or PAS, Newco will not, prior to the Closing Date, without the prior
written consent of PAS:
(i) adopt any amendment to its Certificate of Incorporation or Bylaws;
provided, that on or prior to the Closing Newco shall amend its Certificate
of Incorporation in form and substance reasonably satisfactory to PAS, to
provide for the protections set forth in Section 9.4(b) herein;
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(ii) issue, pledge or sell, or authorize the issuance, pledge or sale of
additional shares of capital stock of any class, or securities convertible
into capital stock of any class, or any rights, warrants or options to
acquire any convertible securities or capital stock, or any other
securities in respect of, in lieu of, or in substitution for, shares of
common stock outstanding on the date hereof;
(iii) declare, set aside or pay any dividend or other distribution
(whether in cash, securities or property or any combination thereof) in
respect of any class or series of its capital stock;
(iv) authorize, recommend, propose or announce an intention to adopt a
plan of complete or partial liquidation or dissolution;
(v) take, or agree to commit to take, any action that would make any
representation or warranty contained in Article VI hereof inaccurate in any
respect at, or as of any time prior to, the Closing Date; or
(vi) enter into a contract, commitment or arrangement to do any of the
foregoing, or to authorize, recommend, propose or announce an intention to
do any of the foregoing.
7.4 Control of Galaxy and PAS. During the period from the date of this
Agreement and continuing until the Closing Date (the "Interim Period"),
control of the operations of PAS and its Subsidiaries shall remain with PAS
and control of the Galaxy Business shall remain with HCI and the Contributed
Entities. HCI agrees that neither it nor any of its Subsidiaries shall
control, direct, supervise, or attempt to control, direct or supervise, the
operations of PAS during this period. Likewise, the parties agree that neither
PAS nor any of its Subsidiaries shall control, direct, supervise, or attempt
to control, direct or supervise, the operations of the Galaxy Business during
the Interim Period. Notwithstanding anything in this Agreement to the
contrary, no action shall be taken hereunder constituting an assignment or
transfer of control of an FCC license, permit, authorization or application
requiring the prior consent or approval of the FCC without first obtaining
such consent or approval.
7.5 Registration Statement and Proxy Statement/Prospectus. Promptly
following the date of this Agreement, HCI, Galaxy, Newco and PAS shall
cooperate and prepare, and PAS shall file with the SEC, the proxy statement
with respect to the meeting of the stockholders of PAS in connection with the
PAS Merger (the "Proxy Statement/Prospectus"), and HCI shall cause Newco to
file with the SEC one or more Registration Statements on appropriate forms
under the Securities Act and the Exchange Act with respect to the securities
of Newco issuable in connection with the Merger or in connection with the
financing of the cash portion of the consideration payable in the Univisa
Contribution and the Merger or the refinancing of indebtedness of Newco, the
Contributed Entities or PAS (each, a "Registration Statement"). The Proxy
Statement/Prospectus will be included in the Registration Statement filed with
respect to the shares of Newco Common Stock issuable in connection with the
Merger. The respective parties will cause the Proxy Statement/Prospectus and
each Registration Statement to comply as to form in all material respects with
the applicable provisions of the Securities Act, the Exchange Act and the
rules and regulations thereunder. Newco shall use commercially reasonable
efforts, and each of the Contributed Entities and PAS will cooperate with
Newco, to have each Registration Statement declared effective by the SEC as
promptly as practicable and to keep each Registration Statement effective as
long as is necessary to consummate the transactions contemplated hereunder.
The respective parties shall, as promptly as practicable, provide copies of
any written comments received from the SEC with respect to the Proxy
Statement/Prospectus and/or each Registration Statement to each other and
advise each other of any verbal comments with respect thereto received from
the SEC. Newco shall use commercially reasonable efforts to obtain, prior to
the effective date of each Registration Statement, all necessary state
securities law or "blue sky" permits or approvals required to carry out the
transactions contemplated by such Registration Statement and will pay all
expenses incident thereto. Newco agrees that the Proxy Statement/Prospectus
and each amendment or supplement thereto at the time of mailing thereof and at
the time of the meeting of stockholders of PAS, or, in the case of a
Registration Statement and each amendment or supplement thereto, at the time
it is filed and becomes effective, will not include 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, in light of the circumstances
under which they were made, not misleading; provided, however, that the
foregoing shall not apply to the extent that any such untrue statement of a
material fact or omission to state a material fact was made by Newco in
reliance upon and in conformity with written information concerning PAS
furnished to
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Newco by PAS, specifically for use in the Proxy Statement/Prospectus. PAS
agrees that the written information concerning PAS provided by it for
inclusion in the Proxy Statement/Prospectus and each amendment or supplement
thereto, at the time of mailing thereof and at the time of the meeting of
stockholders of PAS, or, in the case of written information concerning PAS
provided by PAS for inclusion in a Registration Statement or any amendment or
supplement thereto, at the time it is filed and becomes effective, will not
include 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, in light of the circumstances under which they were made, not
misleading. No amendment or supplement to the Proxy Statement/Prospectus will
be made by PAS or Newco without the approval of the other parties hereto,
which shall not be unreasonably withheld. Newco will advise PAS, promptly
after it receives notice thereof, of the time when a Registration Statement
has become effective or any supplement or amendment has been filed, the
issuance of any stop order, the suspension of the qualification of the Newco
Common Stock issuable in connection with the transactions contemplated hereby
for offering or sale in any jurisdiction, or any request by the SEC for
amendment of the Proxy Statement/Prospectus or a Registration Statement or
comments thereon and responses thereto or requests by the SEC for additional
information.
7.6 PAS Stockholders' Meeting. PAS will, as soon as practicable following
the date of this Agreement, take all action necessary in accordance with
applicable law and its Certificate of Incorporation and Bylaws to promptly
call, give notice of, convene and hold a PAS stockholders meeting for the
purpose of voting on this Agreement and the transactions contemplated hereby.
The Board of Directors of PAS shall, subject to its fiduciary duties,
recommend this Agreement's approval by its stockholders and PAS shall take all
lawful reasonable action to solicit such approval, including, without
limitation, timely mailing of the Proxy Statement/Prospectus, subject to the
provisions of Section 7.1(e); provided, however, that nothing in this sentence
shall modify or eliminate PAS' absolute obligations in the prior sentence.
7.7 Access to Information.
(a) Each party (but as to the Hughes Parties, only in connection with the
Galaxy Business) shall (and shall cause each of its Subsidiaries to) afford to
the officers, employees, accountants, counsel, financing sources and other
representatives of each other party reasonable access, during normal business
hours during the period prior to the Closing Date, to all its properties,
books, contracts, commitments and records and those of its Subsidiaries
(including any tax returns or other tax related information pertaining to the
party providing such information and its Subsidiaries) and, during such
period, each party shall (and shall cause each of its Subsidiaries to) (but as
to the Hughes Parties, only in connection with the Galaxy Business) furnish
promptly to each other party (i) a copy of each report, schedule, registration
statement and other document filed or received by such party or any such
Subsidiary during such period pursuant to requirements of federal securities
laws and (ii) all other information concerning the business, properties and
personnel of such party or any such Subsidiary as any other party may
reasonably request (including any tax returns or other tax related information
pertaining to any party or its Subsidiaries, as the case may be); provided
that, as to competitively sensitive information such as pricing or customer
specific information, each party shall make such sensitive information
available only to the other parties' advisers, lawyers and accountants (who
shall maintain the confidentiality of such information consistent with the
past practices of the parties to this Agreement) but not to the other parties,
and, with respect to information protected by the attorney-client privilege,
neither party shall be obligated to make such information available to the
other party or its representatives. Each party agrees that it will not, and
will cause its representatives not to, use any information obtained pursuant
to this Section 7.7 for any purpose unrelated to the consummation of the
transactions contemplated by this Agreement.
(b) A Confidentiality Agreement, dated as of July 19, 1996 between PAS and
HE (the "Confidentiality Agreement"), shall apply with respect to information
furnished thereunder or hereunder and any other activities contemplated
thereby.
7.8 Confidentiality.
(a) Preservation of Confidentiality. In connection with the negotiation of
this Agreement, the preparation for the consummation of the transactions
contemplated hereby and the performance of obligations hereunder,
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each party acknowledges that it will have access to confidential information
relating to the other parties. The parties shall treat such information as
confidential, preserve the confidentiality thereof and not disclose such
information, except to their respective advisors and consultants in connection
with the transactions contemplated hereby. Each of the parties agrees to
maintain in confidence, and not to disclose to any third party, any ideas,
methods, developments, inventions, improvements and business plans and
information which are the confidential information of any other party. If,
however, confidential information is disclosed, the disclosing party shall
immediately notify each of the other parties in writing and take all steps
required to prevent further disclosure.
(b) Property Right in Confidential Information. Until the Closing Date, all
confidential information shall remain the property of the party who originally
possessed such information. In the event of the termination of this Agreement
for any reason whatsoever, each party shall return to the other parties all
documents, work papers and other material (including all copies thereof)
obtained from such parties in connection with the transactions contemplated
hereby and will use commercially reasonable efforts, including, without
limitation, instructing its employees and others who have had access to such
information, to keep confidential and not to use any such information, unless
such information is now, or is hereafter disclosed, through no act or omission
of such party, in any manner making it available to the general public. If any
party is required by any Law or order to disclose any confidential
information, it shall provide the other parties with prompt notice of such
request so that such other parties may seek an appropriate protective order or
other appropriate remedy and/or waive compliance with the provisions of this
Agreement. If, in the absence of a protective order or other remedy or the
receipt of such a waiver, a party is nonetheless compelled by Law or order to
disclose confidential information, then such party may disclose that portion
of the confidential information which such Law or order requires to be
disclosed, provided that such party uses its reasonable efforts to preserve
the confidentiality of the information, whereupon such disclosure shall not
constitute a breach of this Agreement.
(c) Termination of Agreement. Subject to any Law, each party hereto shall,
and shall cause their Subsidiaries, Affiliates and representatives who obtain
such information to, hold in confidence all such non-public information until
such time as such information is otherwise publicly available, and, if this
Agreement is terminated and if so requested by another party, each party and
its Affiliates will, and will cause their Subsidiaries, Affiliates and
representatives who obtain such information to, deliver to such other party
all documents, work papers and other material (including copies extracts and
summaries thereof) obtained by or on behalf of any of them directly or
indirectly as a result of this Agreement or in connection herewith, whether so
obtained before or after the execution hereof.
7.9 Legal Conditions, Filings and Consents.
(a) Each of the Hughes Parties and PAS will (i) cooperate with one another
in determining whether any actions or filings are required in connection with
obtaining any Government Entity approvals required to consummate the
transactions contemplated by this Agreement and the Univisa Contribution
Agreement (together with the "Collateral Agreements" thereunder), the
Principal Stockholders Agreement, the Newco Stockholders Agreement, the
Registration Rights Agreement, the Assurance Agreement, the Income Tax
Indemnification and Allocation Agreement and the DTH Option Purchase Agreement
(together, the "Related Agreements") (including, without limitation,
furnishing all information required under the HSR Act), (ii) cooperate with
one another in determining whether any actions, consents, approvals or waivers
are required to be obtained from any corporate or equivalent governing body of
any party, any of their Subsidiaries, or any stockholder of the foregoing, or
whether any actions, consents, approvals or waivers are required to be
obtained from any third parties, such as parties to any material contracts, in
connection with the consummation of the transactions contemplated by this
Agreement and the Related Agreements, (iii) endeavor in good faith to take all
such actions or make any such filings, furnish information required in
connection therewith, and seek in a timely manner to obtain any such actions,
consents, approvals or waivers and (iv) promptly cooperate with and furnish
information to each other in connection with any such requirements imposed
upon any of them or any of their Subsidiaries in connection with the Univisa
Share Contribution and the Merger and the other transactions contemplated by
this Agreement and the Related Agreements. Without limiting the generality or
effect of the foregoing, each of
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the Hughes Parties and PAS will, and will cause its Subsidiaries to, take all
commercially reasonable actions necessary to obtain (and will cooperate with
each other in obtaining) in a timely manner any consent, authorization, order
or approval of, or any exemption by, any Government Entity or other public or
private third party, required to be obtained or made by such entity in
connection with the Asset Contribution, the Univisa Contribution, the Merger,
this Agreement, any Related Agreement or the taking of any action contemplated
hereby or thereby. Notwithstanding the foregoing, none of the parties shall be
obligated hereby to enter into any consent decree or settlement agreement in
order to resolve any such action.
(b) Without limiting the generality of the foregoing, each party will, and
each such party will cause their respective Subsidiaries to, diligently take
or cooperate in the taking of all steps reasonably necessary or desirable and
proper to prosecute expeditiously all requisite applications of HCI, the
Contributed Entities and PAS to the FCC and all similar foreign agencies
seeking their consent to the transactions contemplated by this Agreement and
to obtain a determination by the FCC that the grant of the applications made
by HCI, the Contributed Entities and/or PAS to the FCC including those
described in Section 7.9(c) below will serve the public interest, convenience
and necessity. Each party will use commercially reasonable efforts to resolve
such objections, if any, which may be asserted with respect to the
transactions contemplated hereby and by all Related Agreements under any law.
In the event an administrative proceeding or suit is instituted challenging
the transactions contemplated hereby, each party will use commercially
reasonable efforts to resist or resolve such proceeding or suit consistent
with the terms of this Agreement. Each party will use commercially reasonable
efforts to take such action as may be required (i) by any Government Entity in
order to resolve such objections as it may have to the transactions
contemplated hereby or (ii) by any federal or state court of the United
States, in any suit brought by a private party or Government Entity
challenging the transactions contemplated hereby, in order to avoid the entry
of any order which has the effect of preventing the consummation of the
transactions contemplated hereby on terms consistent with the terms of this
Agreement to take any action that is likely to have a material adverse effect
on it.
(c) Within fifteen (15) days after the date hereof, the parties will file
one or more requisite applications with the FCC requesting its written consent
to the transactions contemplated by this Agreement (collectively, the "FCC
Consent Application"). To the extent that any pending applications for Permits
have not been granted by the Closing Date, PAS, HCI or a Contributed Entity,
as the case may be, will immediately after closing, file all necessary
documents with the FCC or equivalent agencies to amend those pending
applications to reflect the consummation of the Asset Contribution, the
Univisa Contribution and the Merger. In addition, to the extent that the Asset
Contribution, the Univisa Contribution and the Merger will result in a change
in ownership or control of an applicant for a Galaxy FCC Permit or a PAS FCC
Permit that requires, under FCC Rules, that a major amendment be filed by that
applicant after the Closing Date, within fifteen (15) days after the date
hereof, HCI, a Contributed Entity or PAS, as appropriate, will file or cause
to be filed by one of its Affiliates all appropriate documents requesting that
the FCC exempt such a major amendment from any applicable "cut off" date and
will also file such requests for any other required waivers of the FCC's rules
and policies as to which the parties may agree. HCI, the Contributed Entities
and PAS shall coordinate with each other prior to making any filings
contemplated by this Section 7.9(c).
(d) If and to the extent that any lease, license, contract, commitment or
other agreement, including, without limitation, transponder lease agreements,
which would otherwise be included within the definition of "Galaxy Assets," or
any claim, right or benefit arising thereunder or resulting therefrom, is not
capable of being transferred or conveyed to Newco in the Asset Contribution
without the approval, consent or waiver of the other party thereto, and such
approval, consent or waiver has not been obtained prior to the Closing, or if
such transfer or conveyance would constitute a breach thereof, Galaxy or HCSS,
as the case may be, shall hold such asset for the exclusive benefit of PAS and
shall either obtain such consent or approval or provide PAS with the rights
and benefits of the affected lease, license, contract, commitment, or other
agreement for the term of such lease, license, contract, commitment or other
agreement; provided that PAS shall assume the obligations and burdens
thereunder.
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7.10 Indemnification and Insurance for Directors and Officers.
(a) From and after the Closing Date all rights to indemnification now
existing in favor of individuals who at or prior to the Closing Date were
directors or officers of any of the Contributed Entities, Newco or PAS or any
of their respective Subsidiaries as set forth in their respective
organizational documents shall survive the Asset Contribution, the Univisa
Contribution and the Merger with respect to matters existing or occurring at
or prior to the Closing Date and shall continue in full force and effect for a
period of five years following the Closing Date.
(b) Each of HCI, the Contributed Entities, Newco and PAS shall, and from and
after the Closing Date, Newco shall indemnify, defend and hold harmless each
person who is now, or has been at any time prior to the date hereof or who
becomes prior to the Closing Date, an officer or director of HCI, any
Contributed Entity, Newco or PAS or any of their respective Subsidiaries (each
individually an "Indemnified Person" and, collectively, the "Indemnified
Persons") against all losses, claims, damages, costs, expenses (including
attorneys' fees and expenses), liabilities or judgments or amounts that are
paid in settlement with the approval of the Indemnified Person (which approval
shall not be unreasonably withheld) as a result of or in connection with any
threatened or actual claim, action, suit, proceeding or investigation based in
whole or in part on or arising in whole or in part out of the fact that such
person is or was a director or officer of HCI, any Contributed Entity, Newco
or PAS or any of their respective Subsidiaries or out of or in connection with
activities in such capacity, whether pertaining to any matter existing or
occurring at or prior to the Closing Date and whether asserted or claimed
prior to, or at or after, the Closing Date ("Indemnified Liabilities"),
including all Indemnified Liabilities based in whole or in part on, or arising
in whole or in part out of, or pertaining to this Agreement or the
transactions contemplated hereby, in each case to the full extent a
corporation is permitted under the corporate law of the state in which it is
incorporated to indemnify any such person and, without limiting the generality
or effect of the foregoing, to the fullest extent provided in the respective
organizational documents of HCI, the Contributed Entities, Newco and PAS and
their respective Subsidiaries as in effect on the date hereof. Newco will pay
expenses in advance of the final disposition of any such action or proceeding
to each Indemnified Person to the fullest extent permitted by law and, without
limiting the generality or effect of the foregoing, to the fullest extent
provided in the respective organizational documents of HCI, the Contributed
Entities, Newco and PAS and their respective Subsidiaries as in effect on the
date hereof. Without limiting the generality or effect of the foregoing, in
the event any such claim, action, suit, proceeding or investigation is brought
against any Indemnified Persons (whether arising before or after the Closing
Date), (i) the Indemnified Persons may retain counsel reasonably satisfactory
to HCI or PAS, or from and after the Closing, Newco, and HCI or PAS shall, or
from and after the Closing, Newco shall, pay all fees and expenses of such
counsel for the Indemnified Persons promptly as statements therefore are
received and (ii) HCI or PAS shall, or from and after the Closing, Newco shall
use all reasonable efforts to assist in the vigorous defense of any such
matter, provided that none of HCI or PAS, or from and after the Closing, Newco
shall be liable for any settlement effected without its prior written consent,
which consent shall not unreasonably be withheld. Any Indemnified Party
wishing to claim indemnification under this Section 7.10, upon learning of any
such claim, action, suit, proceeding or investigation, shall notify HCI or
PAS, or from and after the Closing, Newco (but the failure so to notify shall
not relieve a party from any liability which it may have under this Section
7.10 except and only to the extent such failure materially prejudices such
party), and shall deliver to HCI or PAS, or from and after the Closing, Newco,
any undertaking contemplated or required by the corporate law of its state in
which it is incorporated. The Indemnified Persons as a group may retain only
one law firm to represent them with respect to each such matter unless there
is, in the opinion of counsel to an Indemnified Person, under applicable
standards of professional conduct, a conflict on any significant issue between
the positions of any two or more Indemnified Persons or unless different
defenses may exist. Each of HCI, the Contributed Entities, Newco and PAS
agrees that all rights to indemnification, including provisions relating to
advances of expenses incurred in defense of any action or suit, existing in
favor of the Indemnified Persons with respect to matters occurring through the
Closing Date, shall survive the Asset Contribution, the Univisa Contribution
and the Merger and shall continue in full force and effect for a period of not
less than four years from the Closing Date; provided, however, that all rights
to indemnification in respect of any Indemnified Liabilities asserted or made
within such period shall continue until the disposition of such Indemnified
Liabilities.
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(c) For a period of five years after the Closing Date, Newco will maintain
in effect or replace with equivalent policies of directors' and officers'
liability insurance as maintained by HCI, the Contributed Entities, Newco or
PAS, as the case may be, and their respective Subsidiaries with respect to
matters arising before the Closing Date, provided that Newco shall not be
required to pay an annual premium for such insurance in excess of 175% of the
last annual premium paid by HCI, a Contributed Entity, Newco or PAS, as the
case may be, prior to the date hereof, but in such case shall purchase as much
coverage as possible for such amount.
(d) The provisions of this Section 7.10 are intended to be for the benefit
of, and shall be enforceable by, each Indemnified Person, his or her heirs and
personal representatives and shall be binding on HCI, each Contributed Entity,
Newco, PAS and on all successors and assigns thereof. In the event that Newco
or any of its successors or assigns (i) reorganizes or consolidates with or
merges into any other person and is not the resulting, continuing or surviving
corporation or entity in such consolidation or merger or (ii) liquidates,
dissolves or transfers all or substantially all of its properties and assets
to any person, then, and in each such case, proper provision will be made so
that the successors and assigns of such surviving corporations assume the
obligations set forth in this Section 7.10.
7.11 Indemnification for Excluded and Contributed Liabilities.
(a) HCI agrees to indemnify, defend and hold harmless Newco and each of its
Subsidiaries and their respective successors-in-interest against any losses,
claims, damages or liabilities, joint or several, arising out of or in
connection with any loss, claim, damage or liability against or pertaining to
any Hughes Party and/or their Affiliates (other than Newco and its
Subsidiaries) other than the Galaxy Liabilities, and HCI shall reimburse
Newco, each such Subsidiary and each such successor-in-interest (each, a
"Newco Indemnified Party") for any legal or any other expenses reasonably
incurred by any of them in connection with investigating or defending any such
loss, claim, damage or liability.
(b) Newco agrees to indemnify, defend and hold harmless each of HCI and
Galaxy and their Subsidiaries after the Closing, and their respective
successors-in-interest against any losses, claims, damages or liabilities,
joint or several, arising out of or in connection with the Galaxy Liabilities
assumed by Newco pursuant to the terms hereof, and Newco shall reimburse HCI
or Galaxy, as the case may be, and each of their Subsidiaries and each such
successor-in-interest (each, a "Hughes Indemnified Party") for any legal or
any other expenses reasonably incurred by any of them in connection with
investigating or defending any such loss, claim, damage, liability or action.
(c) Whenever any claim shall arise for indemnification under this Section
7.11, the Newco Indemnified Party or the Hughes Indemnified Party, as the case
may be (in either case, an "Indemnified Party"), shall promptly notify the
other party providing such indemnification (an "Indemnifying Party") in
writing of such claim and, when known, the facts constituting the basis for
such claim (in reasonable detail). Failure by any Indemnified Party to so
notify the Indemnifying Party shall not relieve such Indemnifying Party of any
liability hereunder except to the extent that such failure materially
prejudices such Indemnifying Party.
(d) After the notice required by Section 7.11(c), if the Indemnifying Party
undertakes to defend any such claim, then the Indemnifying Party shall be
entitled, if it so elects, to take control of the defense and investigation
with respect to such claim and to employ and engage attorneys of its own
choice to handle and defend the same, at the Indemnifying Party's cost, risk
and expense, upon written notice to the Indemnified Party of such election,
which notice acknowledges such Indemnifying Party's obligation to provide
indemnification hereunder. The Indemnifying Party shall not settle any third-
party claim that is the subject of indemnification without the written consent
of the Indemnified Party, which consent shall not be unreasonably withheld;
provided, however, that the Indemnifying Party may settle a claim without the
Indemnified Party's consent if such settlement (i) makes no admission or
acknowledgement of liability or culpability with respect to such Indemnified
Party, (ii) includes a complete release of the Indemnified Party and (iii)
does not require the Indemnified Party to make any payment or forego or take
any action. The Indemnified Party shall cooperate in all reasonable respects
with the Indemnifying Party and its attorneys in the investigation, trial and
defense of any lawsuit or action with respect
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to such claim and any appeal arising therefrom (including the filing in the
Indemnified Party's name of appropriate cross-claims and counterclaims). The
Indemnified Party may, at its own cost, participate in any investigation,
trial and defense of such lawsuit or action controlled by the Indemnifying
Party and any appeal arising therefrom.
(e) If, after receipt of a claim notice pursuant to Section 7.11(c), the
Indemnifying Party does not undertake to defend any such claim, the
Indemnified Party may, but shall have no obligation to, contest any lawsuit or
action with respect to such claim and the Indemnifying Party shall be bound by
the result obtained with respect thereto by the Indemnified Party (including,
without limitation, the settlement thereof without the consent of the
Indemnifying Party). If there are one or more legal defenses available to the
Indemnified Party that conflict with those available to the Indemnifying
Party, the Indemnified Party shall have the right at the expense of the
Indemnifying Party to assume the defense of the lawsuit or action; provided,
however, that the Indemnified Party may not settle such lawsuit or action
without the consent of the Indemnifying Party, which consent shall not be
unreasonably withheld.
(f) At any time after the commencement of defense of any lawsuit or action,
the Indemnifying Party may request the Indemnified Party to agree in writing
to the abandonment of such contest or to the payment or compromise by the
Indemnifying Party of such claim, whereupon such action shall be taken unless
the Indemnified Party determines that the contest should be continued and so
notifies the Indemnifying Party in writing within 15 days of receipt of such
request from the Indemnifying Party. If the Indemnified Party determines that
the contest should be continued, the Indemnifying Party shall be liable
hereunder only to the extent of the lesser of (i) the amount which the other
party(ies) to the contested claim had agreed to accept in payment or
compromise as of the time the Indemnifying Party made its request therefor to
the Indemnified Party or (ii) such amount for which the Indemnifying Party may
be liable with respect to such claim by reason of the provisions hereof.
7.12 Notices of Certain Events.
HCI and PAS shall promptly notify each other of:
(i) any notice or other communication from any person alleging that the
consent of such person is or may be required in connection with the
transactions contemplated by this Agreement;
(ii) any notice or other communication from any Government Entity in
connection with the transactions contemplated by this Agreement;
(iii) any actions, suits, claims, investigations or proceedings commenced
or, to the actual knowledge of the executive officers of the notifying
party, threatened against, relating to or involving or otherwise affecting
such party or any of its Subsidiaries;
(iv) an administrative or other order or notification relating to any
material violation or claimed violation of Law;
(v) any facts of which it becomes aware relating to it that would cause
the FCC to withhold or adversely determine any consent or ruling that the
parties will be seeking pursuant to Section 7.9(c) hereof;
(vi) the occurrence or non-occurrence of any event the occurrence or non-
occurrence of which would cause any representation or warranty contained in
this Agreement to be untrue or inaccurate in any material respect at or
prior to the Closing Date;
(vii) any facts of which it becomes aware with respect to any spacecraft
related incidents or anomalies in connection with any Galaxy Satellite or
any PAS Satellite; and
(viii) any material failure of any party to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied by it
hereunder;
provided, however, that the delivery of any notice pursuant to this Section
7.12 shall not limit or otherwise affect the remedies available hereunder to
the party receiving such notice.
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7.13 Publicity. So long as this Agreement is in effect, the parties will
consult with each other and will mutually agree prior to the issuance of any
press release or public announcement pertaining to this Agreement or the
Related Agreements or the transactions contemplated hereby or thereby,
including the Merger and the Asset Contribution, and shall not issue any such
press release or make any such public announcement or permit any of their
Subsidiaries to do the same prior to such consultation and agreement, except
as may be required by applicable law or by obligations pursuant to any listing
agreement with a national securities exchange (including the Nasdaq National
Market), in which case the party proposing to issue such press release or make
such public announcement shall use reasonable efforts to consult in good faith
with the other party before issuing any such press release or making any such
public announcement, except for the FCC filings and HSR filings contemplated
herein.
7.14 Rule 145 Affiliates. At least 30 days prior to the Closing Date, PAS
shall deliver to Galaxy a letter identifying, to the best of PAS' knowledge,
all persons who PAS expects will be, at the time of PAS' stockholder's meeting
to consider the transactions contemplated by this Agreement, deemed to be
"affiliates" of PAS for purposes of Rule 145 under the Securities Act ("PAS
Affiliates"). PAS shall use its reasonable best efforts to cause each person
or entity who is identified as a PAS Affiliate to deliver to HCI on or prior
to the Closing Date an agreement substantially in the form of Exhibit H to
this Agreement.
7.15 Supplemental Disclosure Schedules. Each of HCI, Galaxy and PAS shall
supplement their respective Schedules delivered in connection with this
Agreement as of the Closing Date to the extent necessary to reflect matters
permitted by, or consented to by, the other parties under this Agreement. In
addition, from time to time prior to the Effective Time, each of HCI and PAS
will promptly deliver to the other parties such amended or supplemental
Schedules as may be necessary to make the Schedules accurate and complete in
all material respects as of the Closing Date; provided, however, that updating
the information contained on the Schedules shall not be deemed an amendment of
this Agreement unless the new information added to any such schedule reflects
changes or actions taken since the date of this Agreement that are permitted
under Section 7.1 (with respect to PAS) and Section 7.2 (with respect to
Galaxy). If not deemed an amendment, such supplement shall not have any effect
for the purpose of determining the satisfaction of the conditions set forth in
Article VIII of this Agreement.
7.16 Newco Employee Benefits Arrangements.
(a) Replacement of Retirement Plan.
(i) The accrued benefits and liabilities, and assets attributable to such
accrued benefits and liabilities, under the HE Non-Bargaining Retirement
Plan, and the trust related thereto (the "HE Retirement Plan"), of
participants in such plan who are actively employed by the Galaxy Business
immediately prior to the Effective Time, who have not retired under the HE
Retirement Plan as of the Effective Time and who become employees of Newco
effective as of the Effective Time or within 90 days thereafter (the
"Transferred Retirement Plan Participants") shall, unless otherwise agreed
to by PAS and HE, be transferred to a new trust under a separate plan
established by Newco for the Transferred Retirement Plan Participants and
other Newco employees, as hereinafter set forth. Newco shall, with the
cooperation of HE, use its best efforts to accomplish the transfer of the
foregoing assets and liabilities.
(ii) Effective as of the Effective Time, Newco shall, unless otherwise
agreed to by PAS and HE, establish a separate plan (the "Newco Retirement
Plan") which shall be qualified under Section 401(a) of the Code and a
trust related thereto which shall be exempt from taxation under Section
501(a) of the Code. The Newco Retirement Plan shall be a defined benefit
cash balance plan, or other type of retirement plan agreed to by PAS and
HE. To the extent permitted by applicable law, credit for past service with
the Galaxy Business or PAS prior to the Effective Time shall be given under
the Newco Retirement Plan for the purposes of vesting and eligibility to
participate. The Newco Retirement Plan shall, unless otherwise agreed to by
PAS and HE, contain provisions for future contributions at a rate of 3-3
1/2% of the compensation of the participating Newco employees after the
Effective Time.
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(iii) The transfer of assets and liabilities from the HE Retirement Plan
to the Newco Retirement Plan shall be conditioned upon the receipt of
requisite governmental approvals. Newco shall submit to the Internal
Revenue Service a request for a determination letter as to the tax
qualification and exempt status of the Newco Retirement Plan. Upon receipt
by Newco and HE of such determination letter, or an opinion of counsel
reasonably acceptable to HE and PAS, that the Newco Retirement Plan is tax
qualified and exempt, HE and Newco shall file promptly with the Internal
Revenue Service any required notice on Forms 5310-A regarding the transfer
of assets and liabilities relating to the Transferred Retirement Plan
Participants from the HE Retirement Plan to the Newco Retirement Plan.
After proper notice has been given on Forms 5310-A without receiving an
adverse response from the appropriate governmental agencies, the assets of
the HE Retirement Plan transferable to such Newco Retirement Plan as
provided herein shall be so transferred, but in no event later than 90 days
after the Forms 5310-A have been filed with the Internal Revenue Service.
(iv) No assets and liabilities shall be transferred unless the
requirements of Section 414(l) of the Code are met with respect to the
transfer. Assets to be transferred from the HE Retirement Plan to the Newco
Retirement Plan shall be in cash. After the transfer of assets and
liabilities, the payment of benefits accrued under the HE Retirement Plan
prior to the Effective Time and payable to the Transferred Retirement Plan
Participants shall be the sole responsibility of Newco.
(v) The amount of plan assets to be transferred from the HE Retirement
Plan to the Newco Retirement Plan shall be an amount determined by
subtracting (B) from (A), where (A) as of the Effective Time equals the
actuarially computed present value of all accrued benefits attributable to
the Transferred Pension Plan Participants, determined on an ongoing plan
basis employing the same actuarial assumptions as were used in determining
plan funding for the most recently completed plan year, and where (B) is
any benefit payment attributable to accrued benefits to be transferred to
and assumed under the Newco Retirement Plan, made after the Effective Time
and prior to the transfer of plan assets and accompanying liabilities. The
transferred assets shall exclude any receivable contributions. The amount
of assets transferred in connection with the foregoing accrued benefits and
liabilities shall not be less than the assets necessary to fund the accrued
benefits and liabilities that would be transferred using the appropriate
plan termination assumptions of the Pension Benefit Guaranty Corporation
("PBGC") under Section 414(l) of the Code.
(vi) The amount of the accrued benefits and liabilities and assets
attributable thereto to be transferred from the HE Retirement Plan to the
Newco Retirement Plan in accordance with this Section 7.3(b) shall be
jointly determined by actuaries selected by Newco and HE. In the event of
dispute between the actuaries selected by Newco and HE as to whether the
actuarial calculations so determined are calculated in accordance with this
Section 7.3(b), Newco and HE shall jointly select a third actuarial firm of
national repute to review the calculation and the determination of the
third actuarial firm shall be final and binding. In the event that Newco
and HE are unable to select a third actuarial firm, an arbitrator shall
appoint a third actuarial firm to make such determination, which
appointment and determination shall be final and binding upon HE and Newco.
Such arbitrator shall be appointed in accordance with the Commercial
Arbitration Rules of the Los Angeles, California office of the American
Arbitration Association. Newco shall pay the cost of the Newco's actuaries,
HE shall pay the cost of HE's actuaries and, to the extent necessary, the
cost of the third actuarial firm and arbitrator shall be shared equally
between Newco and HE.
(b) Replacement of Savings Plan.
(i) The accounts and account balances and liabilities under the HE
Salaried Employees' Thrift and Savings Plan and the trust related thereto
(the "HE Savings Plan") and the Advantage Benefits Consultants Inc.
Regional Prototype Defined Contribution Plan and Trust (the "PAS Savings
Plan") of active participants of such plans who become employees of Newco
as of the Effective Time or within 90 days thereafter and former
participants of the PAS Savings Plan, including without limitation retired
participants and former participants entitled to deferred vested benefits
and beneficiaries thereof under the PAS Savings Plan ("Transferred Savings
Plan Participants"), shall, unless otherwise agreed to by PAS and HE, be
transferred to a new trust under a separate plan established by Newco for
the Transferred Savings Plan
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Participants and other Newco employees effective as of the Effective Time,
either in a direct trust-to-trust transfer or in participant directed
rollover distributions as hereinafter set forth. Newco shall, with the
cooperation of HE, use its best efforts to accomplish the transfer of the
foregoing assets and liabilities.
(ii) Effective as of the Effective Time, Newco shall establish a defined
contribution pension plan (the "Newco Savings Plan") which shall be
qualified under Sections 401(a) and (k) of the Code and a trust related
thereto which shall be exempt from taxation under Section 501(a) of the
Code. The Newco Savings Plan shall contain provisions comparable to and no
less favorable in the aggregate than the HE Savings Plan (other than the
investment in GMH stock and matching contribution features) and, subject to
applicable law, shall, unless otherwise agreed to by PAS and HE, provide
for employer matching contributions at a rate of 4% of compensation, which
may, in the discretion of Newco, be made in common stock of Newco, if the
stock of Newco is publicly traded. To the extent permitted by applicable
law, credit for past service with PAS and the Galaxy Business prior to the
Effective Time shall be given under the Newco Savings Plan for the purposes
of vesting and eligibility to participate.
(iii) The transfer of assets and liabilities from the HE Savings Plan and
the PAS Savings Plan to the Newco Savings Plan shall be conditioned upon
the receipt of requisite governmental approvals. Newco shall submit to the
Internal Revenue Service a request for a determination letter as to the tax
qualification and exempt status of the Newco Savings Plan. Upon receipt by
Newco and HE of a determination letter from the Internal Revenue Service,
or an opinion of counsel reasonably acceptable to HE and PAS, that the
Newco Savings Plan is qualified under Section 401(a) and (k) of the Code,
the assets of the PAS Savings Plan and HE Savings Plan that are
transferable to the Newco Savings Plan as provided herein shall be so
transferred, but in no event later than 90 days after receipt by Newco and
HE of such determination letter, whichever occurs later.
(iv) No assets and liabilities shall be transferred in a direct trust-to-
trust transfer unless the requirements of Section 414(l) of the Code are
met with respect to the transfer. After the transfer of assets and
liabilities, the payment of benefits to the Transferred Savings Plan
Participants accrued under the HE Savings Plan and PAS Savings Plan shall
be the sole responsibility of Newco.
(c) Newco Stock Options. Newco shall provide stock options to certain
employees from and after the time that Newco's stock is publicly held. As soon
as practicable after execution of the Merger Agreement, a committee shall be
established which shall be composed of representatives of PAS and HCI (the
"Joint Committee"). The Joint Committee shall make recommendations to the
Board of Directors of Newco with regard to such stock options including, but
not limited to, the following: (i) the form of stock option offered, which may
be incentive stock options, nonqualified stock options, or a combination
thereof; (ii) eligibility requirements to receive such stock options; (iii)
vesting requirements; (iv) term of the stock options; (v) exercise price; and
(vi) the maximum number of shares to be offered through stock options, if
required by law. The Joint Committee shall make such recommendations, and take
all other actions necessary to carry out the requirements of this provision,
by the Effective Time. Any stock options issued by Newco shall be registered
with the applicable governmental agencies and shall comply with all applicable
securities laws. The Board of Directors of Newco shall act upon such
recommendations and, if necessary, obtain stockholder approval for the
issuance of Newco stock pursuant to the options described herein.
(d) Retiree Medical Benefits. As soon as practicable after the Effective
Time, HCI or one of its Affiliates shall pay to all Galaxy Employees who are
being transferred to Newco, who have not retired under a Galaxy retiree
medical plan and who would be entitled to receive medical benefits upon
retirement under a Galaxy ERISA Plan (as defined in Section 6.9(c)(i)) or any
other plan or policy maintained by the Galaxy Business, HCI or one of its
Affiliates, an amount of cash to be determined by HCI, after consultation with
PAS, but in no case shall such cash amount paid to each employee be less than
the cash amount to which the employee is legally entitled, if any.
(e) PAS ERISA Plans and PAS Benefits Arrangements. Prior to the Effective
Time, PAS shall take all actions which are reasonably necessary or appropriate
to correct any material defects with respect to the
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compliance of each PAS ERISA Plan and PAS Benefit Arrangement with all Laws,
including any actions which are reasonably necessary or appropriate to qualify
any PAS ERISA Plan that is intended to be tax qualified under Section 401(a)
of the Code.
(f) HCI Indemnification. HCI agrees to indemnify, defend and hold harmless
Newco and each of its Subsidiaries and their respective successor(s)-in-
interest against any losses, claims, damages or liabilities, joint or several,
arising from the Galaxy Business' participation in a controlled group, as
defined in Section 414(b), (c), (m), and (o) of the Code, prior to the
Effective Time except with respect to any losses, claims, damages or
liabilities relating to the Galaxy Employees, who will be employed by Newco as
of the Effective Time, the Galaxy ERISA Plans or the Galaxy Benefit
Arrangements.
(g) PAS Indemnification. PAS agrees to indemnify, defend and hold harmless
Newco and each of its Subsidiaries and their respective successor(s)-in-
interest against any losses, claims, damages or liabilities, joint or several,
arising from PAS' participation in a controlled group as defined in Section
414(b), (c), (m) and (o) of the Code prior to the Effective Time except with
respect to any losses, claims, damages or liabilities relating to PAS'
employees who will be employed by Newco as of the Effective Time, the PAS
ERISA Plans or the PAS Benefit Arrangements.
7.17 Further Action. Each party hereto shall, subject to the fulfillment at
or before the Closing Date of each of the conditions of performance set forth
herein or the waiver thereof, perform such further acts and execute such
documents as may be reasonably required to effect the transactions
contemplated by this Agreement. Without limiting the generality of the
foregoing, if the consummation period for consummating the Asset Contribution,
the Univisa Contribution and the Merger pursuant to consents granted by the
FCC expires prior to the date established for the Closing Date, then each
party will use its commercially reasonable efforts to obtain one or more
extensions of the effectiveness of such consents so as to permit the
consummation of the transactions contemplated by this Agreement in accordance
with this Agreement. Each party hereto also agrees to cooperate with the other
parties hereto in connection with communicating with Government Entities in
connection with obtaining approvals of such entity required to effectuate the
transactions contemplated hereby.
7.18 Documentation of Intercompany Agreements. On or prior to the Closing
Date, each Contributed Entity shall enter into written agreements to document
all previously undocumented arrangements with Affiliates of the Contributed
Entities for material goods or services provided to the Galaxy Business, which
new agreements shall be in form reasonably satisfactory to PAS and in
substance consistent with the description of such arrangements set forth on
Schedule 6.15.
7.19 Listing Application. Following execution of the Agreement, Newco shall
prepare and submit to the New York Stock Exchange or the Nasdaq National
Market a listing application covering the shares of Newco Common Stock
issuable in the Asset Contribution and the Merger, and shall use reasonable
efforts to obtain, prior to the Closing Date, approval for the listing of such
Newco Common Stock, subject to official notice of issuance.
7.20 Leveraged Lease Guarantee. Promptly following the Closing, Newco shall
enter into a customary agreement to pay and indemnify HE for obligations
arising under existing guarantees provided by HE of leveraged leases of
transponders used in the Galaxy Business.
7.21 Disposition of Assets. During the period from the date of this
Agreement and continuing until the Closing Date, HCI shall cause all proceeds
from any source with respect to the disposition (whether voluntary or
involuntary) of any asset or group of assets disposed of in related
transactions valued in excess of $60,000 (other than for satellites under
construction) included in the Galaxy Business (net of (i) all taxes that are
paid prior to the Closing as a result of such disposition if the Contributed
Entity owning such asset or assets was a stand-alone company, (ii) any
liabilities related to such asset or assets to the extent they no longer
remain with the Galaxy Business and were not already netted from the proceeds
of such disposition, and (iii) any and all reasonable transaction expenses
(except normal recurring and operating expenses of the Galaxy Business)
related to such
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disposition) to be separately identified and retained within the Closed System
(as defined in Section 7.24) (the "Proceeds").
7.22 Related Agreements. Each of the Parties to this Agreement shall, and
shall cause each of its Subsidiaries to, enter into and take all actions
necessary to consummate the transactions contemplated by each of the Related
Agreements to which it is a party, subject in each case to the terms and
conditions of each such Related Agreement.
7.23 Standstill Restriction. For five years following the Closing, none of
the Hughes Parties or their affiliates shall acquire, or come to hold,
beneficially or otherwise, whether by purchase, exchange or otherwise,
individually or in the aggregate more than eighty-one percent (81%) of the
outstanding equity interests in Newco, except (i) pursuant to a merger which
is approved by the holders of majority of the shares of Newco Common Stock not
owned directly or indirectly by HE or any of its affiliates, (ii) pursuant to
a tender offer recommended by the Disinterested Directors of Newco and second-
step merger which offers the same per share consideration to all holders of
Newco Common Stock and in which more than half the outstanding Newco Common
Stock not owned by HCI and its affiliates at the inception of the transaction
is either tendered or voted in favor of the transaction, and (iii) except
pursuant to such other transaction as shall provide for parity of treatment of
holders of Newco Common Stock and is approved by the holders of a majority of
the shares of Common Stock not owned by HCI and its affiliates and by a
majority of the Disinterested Directors of Newco. As used in this Agreement,
"Disinterested Director" means a director of Newco that is not an existing or
retired employee of Newco or any of its affiliates. As used in this Section
7.23, "affiliate" shall have the meaning set forth in Rule 12b-2 under the
Securities Exchange Act of 1934, as amended.
7.24 Capital Expenditures and the Closed System for Cash
Management. Commencing as of July 1, 1996, HE will cause the Galaxy Business
to operate as a separate stand-alone entity with respect to all aspects of its
cash management including retention of the cash receipts and proceeds from all
sources of the business together with the payment of all necessary operating
expenses of the business (excluding non-cash outlays for expenses such as
depreciation and amortization) and capital outlays (including those expenses
and capital outlays that are directly attributable to the business but which
may, for convenience purposes, be paid by HE and redistributed to the Galaxy
Business). The Galaxy Business will also be responsible for the payment of all
properly allocated costs of the Galaxy Business, including its allocated share
of corporate and sector "General & Administrative" costs consistent with the
past accounting practices of the Galaxy Business. The Galaxy Business will
compute an income tax provision for the taxable earnings of the business in
accordance with GAAP and will provide for the appropriate income taxes of the
business including the determination and recognition of necessary deferred tax
amounts (which deferred tax amounts may not be deducted as cash expenses). The
aforementioned practices will constitute a "Closed System" of cash management.
It is explicitly understood that HCI will be required to use cash proceeds
retained in the business (other than Proceeds which may not be used for such
purpose and which shall be part of the "Galaxy Assets" at the Closing) to fund
additions to its "Capital Expenditures for Satellites Under Construction"
accounts. For purposes of this Agreement, "Capital Expenditures for Satellites
Under Construction" shall include manufacturing, launch and launch insurance,
progress payments and capitalized interest amounts. HCI, with the assistance
of HE, will continue to manage and pursue its capital expenditures program for
the construction and development of satellites during the period from July 1,
1996 through the Closing as it deems necessary in the ordinary course of its
business and consistent with prudent business practices. To the extent that
additions to HCI's "Capital Expenditures for Satellites Under Construction"
accounts as determined on a consistent basis and in accordance with GAAP and
HCI's historical accounting practices and procedures, during the period from
July 1, 1996 through the Closing of the Merger do not equal or exceed $575
million in the aggregate, HE shall be obligated to make up any difference in
cash at the Closing.
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Article VIII
Conditions
8.1 Conditions to Each Party's Obligation to Effect the Asset Contribution,
the Univisa Contribution and the Merger. The respective obligations of each
party to effect the Asset Contribution, the Univisa Contribution and the
Merger shall be subject to the satisfaction on or prior to the Closing Date
(or, if permissible, waiver by the party for whose benefit such conditions
exist) of the following conditions:
(a) No Order. No Government Entity shall have enacted, issued,
promulgated, enforced or entered any statute, rule, regulation or order
(whether temporary, preliminary or permanent) which is in effect and which
materially restricts, prevents or prohibits consummation of the
transactions contemplated by this Agreement or any of the Related
Agreements; provided, however, that the parties shall use their
commercially reasonable efforts to cause any such decree, judgment,
injunction or other order to be vacated or lifted.
(b) Stockholder Approval. This Agreement and the transactions
contemplated hereby shall have been approved in the manner required by
applicable law or by the applicable regulations of any stock exchange or
other regulatory body, as the case may be, of the holders of the issued and
outstanding shares of common stock of PAS.
(c) HSR Act. Any waiting period applicable to the consummation of the
transactions contemplated hereby under the HSR Act shall have expired or
been terminated, and no action shall have been instituted by the Department
of Justice or the Federal Trade Commission challenging or seeking to enjoin
the consummation of the transactions contemplated hereby, which action
shall not have been withdrawn by the party instituting such action or
dismissed or terminated pursuant to a final, non-appealable judgment of a
United States federal court.
(d) FCC Consents. (i) The FCC shall have granted by Final Order the FCC
Consent Application, without conditions, qualifications or other
restrictions that are likely to have a material adverse effect immediately
after the Closing Date, on Newco or any of its Subsidiaries (other than the
loss of pending applications at the FCC for Permits), whether imposed by
the FCC or any other Government Entity; and (ii) except for Permits which
lapse, expire or are terminated due to ordinary course changes in the
business of PAS and the Galaxy Business, as the case may be, except as
otherwise contemplated by this Agreement, each of the PAS Permits and the
Galaxy Permits issued by the FCC shall be in full force and effect,
unimpaired by any acts or omissions of Galaxy, PAS or their officers,
directors, employees or agents. As used in this Agreement, the term "Final
Order" means an order, action or decision of a Government Entity that has
not been reversed, stayed or enjoined and as to which the time to appeal,
petition for certiorari or seek reargument or rehearing or administrative
reconsideration or review has expired and as to which no appeal,
reargument, petition for certiorari or rehearing or petition for
reconsideration or application for review is pending or as to which any
right to appeal, reargue, petition for certiorari or rehearing or
reconsideration or review has been waived in writing by each party having
such a right or, if any appeal, reargument, petition for certiorari or
rehearing or reconsideration or review thereof has been sought, the order
or judgment of the court or agency has been affirmed by the highest court
(or the administrative entity or body) to which the order was appealed or
from which the argument or rehearing or reconsideration or review was
sought, or certiorari has been denied, and the time to take any further
appeal or to seek certiorari or further reargument or rehearing, or
reconsideration or review, has expired. Notwithstanding the foregoing, HCI
shall have the unilateral right within 60 days after public notice of such
order, action or decision by the FCC to elect to waive this condition if
HCI determines, in its sole discretion, that any pending appeal is not
likely to have a material adverse effect on Newco and its Subsidiaries,
taken as a whole, following the Asset Contribution, the Univisa
Contribution and the Merger; provided that, if HCI fails to waive this
condition within such 60-day period, then either party shall have the right
to terminate this Agreement.
(e) Other Satellite Approvals. Each Government Entity other than the FCC
that has issued to PAS or any of its Subsidiaries (i) any Permit with
respect to the operation of or transmission to or from a PAS
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Satellite or a ground station that communicates with a PAS Satellite (ii)
any Permit with respect to the provision of broadcasting or communications
services shall have, where required by applicable Law, approved the
transfer of control or assignment, as applicable, of all such Permits as a
result of the Merger without any material qualifications, restrictions or
limitations and such approval shall have become a Final Order. Each
Government Entity that has issued to any of the Contributed Entities (i)
any Permit with respect to the operation of or transmission to or from a
Galaxy Satellite or a ground station that communicates with a Galaxy
Satellite, or (ii) any Permit with respect to the provision of broadcasting
or communications services shall have, where required by applicable Law,
approved the transfer of control or assignment, as applicable, of all such
permits as a result of the Asset Contribution without any material
qualifications, restrictions or limitations and such approval shall have
become a Final Order.
(f) Other Approvals. All other approvals or orders by Government Entities
required to be obtained, and all filings, notices or declarations required
to be made before any Government Entity (other than the FCC), by any party
prior to the consummation of the transactions contemplated hereunder shall
have been obtained from, and made with, all required Government Entities
except for such authorizations, consents, waivers, orders, approvals,
filings, notices or declarations, the failure to obtain or make which would
not be likely to have a material adverse effect at or after the Closing
Date, on Newco or any of its Subsidiaries.
(g) Registration Statement. The Registration Statement with respect to
the shares of Newco Common Stock issuable in connection with the Merger
shall have become effective and shall be effective at the Effective Time,
and no stop order suspending effectiveness of such Registration Statement
shall have been issued, no action, suit, proceeding or investigation by the
SEC to suspend the effectiveness thereof shall have been initiated and be
continuing, or, to the knowledge of HCI or PAS, threatened, and all
necessary approvals under state securities laws relating to the issuance or
trading of the shares of Newco Common Stock to be issued in connection with
the Merger shall have been received.
(h) Related Agreements. Each of the Related Agreements shall have been
executed, delivered and, to the extent required to be performed by such
agreements on or prior to the Closing Date, performed (or capable of being
performed concurrently with consummation of the transactions contemplated
hereby) by the parties thereto.
(i) Listing Application. The shares of Newco Common Stock issuable in the
Merger shall have been approved, upon official notice of issuance, for
listing on either the New York Stock Exchange or the Nasdaq National
Market.
8.2 Additional Conditions to Obligations of PAS. The obligation of PAS to
effect the transactions contemplated hereby is subject to the satisfaction of
the following conditions, any or all of which may be waived in whole or in
part by PAS:
(a) Representations and Warranties. Each of the representations and
warranties of the Hughes Parties set forth in this Agreement shall be true
and correct in all material respects (without regard to any materiality
limitations contained in any such representation or warranty, except that,
subject to the next sentence below, the representation of HCI set forth in
the last sentence of Section 6.4 shall be true and correct in all respects)
as of the date of this Agreement (except to the extent such representations
and warranties speak as of an earlier date or have been amended pursuant to
Section 7.15 and, other than with respect to the representation of HCI set
forth in the last sentence of Section 6.4, except for inaccuracies or
omissions having or reasonably likely to have, individually or in the
aggregate, an economic impact or consequence (or diminution in value) on
the Galaxy Business of less than $50,000,000. A breach of the last sentence
of Section 6.4 shall not be considered a failure of this condition
precedent, provided any deficiency is cured by the Closing Date. PAS shall
have received certificates of each of the Chief Executive Officer and the
Chief Financial Officer of HCI to that effect.
(b) Performance of Obligations. Each of the Hughes Parties and HE shall
have performed in all material respects (other than the obligations of the
Hughes Parties and HE pursuant to Sections 7.21 and 7.24, which shall be
performed as agreed herein without regard to materiality) all obligations
required to be performed by it under this Agreement and the Related
Agreements to which it is a party on or before the
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Closing Date. PAS shall have received certificates of the Chief Executive
Officer and Chief Financial Officer of HCI to that effect. Notwithstanding
the foregoing, the obligations of PAS to effect the transactions
contemplated by this Agreement shall not be relieved by the failure of any
of the foregoing conditions if such failure is the result, directly or
indirectly, of any breach by PAS of any of its material obligations under
this Agreement.
(c) Material Adverse Change. Since the date of this Agreement, there
shall have been no change, occurrence or circumstance (or series of
changes, occurrences or circumstances) in the business, operations,
properties, assets, condition (financial or otherwise) or the results of
operations or prospects of the assets of the Galaxy Business having or
reasonably likely to have, individually or in the aggregate, an adverse
economic impact or consequence (including diminution in value) of more than
$200,000,000. Notwithstanding the foregoing, for purposes of this Section
8.2(c) none of the following shall be deemed to be a "change," "occurrence"
or "circumstance": (i) the loss, denial or dismissal of any pending
application for a Galaxy Permit that has been filed with the FCC or (ii) a
loss, to the extent caused by or related to (A) a mere delay in the receipt
of revenue, as opposed to the cancellation or modification of a contract,
and the consequent loss of revenue related to such delay or (B) the launch
or in-orbit failure of any Galaxy Satellite, to the extent such loss is
covered by insurance.
8.3 Additional Conditions to Obligations of the Hughes Parties. The
obligations of the Hughes Parties to effect the transactions contemplated
hereby are subject to the satisfaction of the following conditions, any or all
of which may be waived in whole or in part by HCI:
(a) Representations and Warranties. Each of the representations and
warranties of PAS set forth in this Agreement shall be true and correct in
all material respects (without regard to any materiality limitations
contained in any such representation or warranty) as of the date of this
Agreement (except to the extent such representations and warranties speak
as of an earlier date or have been amended pursuant to Section 7.15),
except for inaccuracies or omissions having or reasonably likely to have,
individually or in the aggregate, an economic impact or consequence (or
diminution in value) on PAS and its Subsidiaries taken as a whole of less
than $50,000,000. HCI shall have received certificates of the Chief
Financial Officer and Chief Executive Officer of PAS to that effect.
(b) Performance of Obligations. PAS shall have performed in all material
respects all obligations required to be performed by it under this
Agreement and the Related Agreements to which it is a party on or before
the Closing Date. HCI shall have received certificates of the Chief
Executive Officer and Chief Financial Officer of PAS to that effect.
Notwithstanding the foregoing, the obligations of HCI to effect the
transactions contemplated by this Agreement shall not be relieved by the
failure of any of the foregoing conditions if such failure is the result,
directly or indirectly, of any breach by any Hughes Party of any of their
material obligations under this Agreement.
(c) Material Adverse Change. Since the date of this Agreement, there
shall have been no change, occurrence or circumstance (or series of
changes, occurrences or circumstances) in the business, operations,
properties, assets, condition (financial or otherwise) or the results of
operations or prospects of the assets of PAS having or reasonably likely to
have, individually or in the aggregate, an adverse economic impact or
consequence (including diminution in value) of more than $200,000,000.
Notwithstanding the foregoing, for purposes of this Section 8.3(c) none of
the following shall be deemed to be a "change," "occurrence" or
"circumstance": (i) the loss, denial or dismissal of any pending
application for a PAS Permit that has been filed with the FCC or (ii) a
loss, to the extent caused by or related to (A) a mere delay in the receipt
of revenue, as opposed to the cancellation or modification of a contract,
and the consequent loss of revenue related to such delay or (B) the launch
or in-orbit failure of any PAS Satellite, to the extent such loss is
covered by insurance.
(d) Termination of Options. PAS shall have delivered to HCI written
evidence of the agreement by each holder of Options to terminate such
Options on or before the Effective Time.
(e) Termination of DTH Equity Obligations. PAS shall have delivered to
HCI evidence satisfactory to HCI that PAS will, as of the Closing Date,
terminate all of its obligations under that certain Memorandum
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of Understanding, dated as of March 27, 1995, between PAS and Televisa, and
the oral agreement between such parties regarding an equity interest in a
DTH venture in the Iberian Peninsula.
(f) Resignation of PAS Directors. PAS shall have delivered to HCI a
letter of resignation from each person that is a director of PAS
immediately prior to the Closing, which resignation shall be effective as
of the Effective Time.
Article IX
Termination and Amendment
9.1 Termination. This Agreement may be terminated and the Asset
Contribution, the Univisa Contribution and the Merger may be abandoned at any
time prior to the Closing Date, whether before or after stockholder approval
of the Merger:
(a) by mutual written consent of HCI and PAS or by mutual actions of
their respective Boards of Directors;
(b) by either PAS or HCI, so long as such party is not in breach of its
obligations hereunder, if the Asset Contribution, the Univisa Contribution
and the Merger shall not have been consummated on or before that date which
is fifteen (15) months from the date of this Agreement; provided, however,
that the right to terminate this Agreement under this Section 9.1(b) shall
not be available to HCI or PAS if failure to fulfill any obligation under
this Agreement by a Hughes Party (in the case of HCI) or PAS (in the case
of PAS) has been the cause of or resulted in the failure of either the
Asset Contribution, the Univisa Contribution or the Merger to occur on or
before such date, but the non-breaching party of the Hughes Parties or PAS
that desires to proceed with the transactions contemplated hereby shall
consummate such transactions as promptly as practicable;
(c) by either PAS or HCI upon a breach of any representation, warranty,
covenant or agreement on the part of PAS (with respect to HCI) or a Hughes
Party (with respect to PAS) contained in this Agreement; or if any
representation or warranty of PAS (with respect to HCI) or a Hughes Party
(with respect to PAS) shall have become inaccurate or incomplete, in any
case such that the conditions set forth in Sections 8.2 or 8.3, as the case
may be, would be incapable of being satisfied on the Closing Date;
provided, that in any case, a willful or reckless breach shall be deemed to
cause such conditions to be incapable of being satisfied for purposes of
this Section 9.1;
(d) by either HCI or PAS if any injunction or order of a court or other
competent authority preventing the consummation of any of the Asset
Contribution, the Univisa Contribution or the Merger shall have become
permanent, final and non-appealable;
(e) By either of PAS or HCI, if this Agreement and the Merger shall fail
to receive the requisite vote for approval and adoption by the stockholders
of PAS;
(f) By HCI, if (i) the Board of Directors of PAS shall withdraw, modify
or change its recommendation of this Agreement in a manner adverse to any
of the Hughes Parties or shall have resolved to do any of the foregoing,
(ii) the Board of Directors of PAS shall have recommended to the
stockholders of PAS any Acquisition Proposal or (iii) a tender offer or
exchange offer for 15% or more of the outstanding shares of PAS Common
Stock is commenced, and the Board of Directors of PAS recommends that the
holders of such stock tender their shares in such tender or exchange offer;
or
(g) By PAS' Board of Directors if, in the exercise of its good faith
judgment as to fiduciary duties owed to its stockholders imposed by law,
and, provided that PAS' Board of Directors shall have complied with each of
the requirements set forth in Section 7.1(e), PAS' Board of Directors
adopts a Superior Acquisition Proposal.
9.2 Effect of Termination. In the event of termination of this Agreement by
HCI or PAS as provided in Section 9.1, (a) written notice thereof shall
forthwith be given to the other parties specifying the provision hereof
pursuant to which such termination is made and (b) this Agreement shall
forthwith become void and there shall
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be no liability or obligation on the part of any party or their respective
Subsidiaries, Affiliates, officers, directors or stockholders except to the
extent that such termination results from the willful or reckless breach by
any party hereto of any of its representations or warranties, or of any of its
covenants or agreements, in each case, as set forth in this Agreement. The
last sentence of Section 7.7(a) and the provisions of Sections 7.8 and 9.3
shall survive any termination of this Agreement, unless otherwise agreed by
HCI and PAS. Moreover, in the event of termination of this Agreement pursuant
to Sections 9.1(c), 9.1(f) or 9.1(g), nothing herein shall prejudice the
ability of the terminating party (with respect to a termination pursuant to
Section 9.1(c)) or HCI (with respect to a termination pursuant to Section
9.1(f) or 9.1(g)) from seeking damages from any other party for any willful
breach of this Agreement, including, without limitation, attorney's fees, and
the right to pursue any remedy at law or in equity.
9.3 Termination Fee. PAS agrees that if this Agreement shall be terminated
pursuant to (i) Section 9.1(b) hereof at any time when (a) an Acquisition
Proposal shall have been made by a third party but shall not have been
rejected by PAS and (b) PAS or any of its Subsidiaries or PAS' stockholders
shall thereafter consummate or agree to consummate a transaction which would
constitute an Acquisition Proposal with any person within twelve (12) months
from the date of such termination, (ii) Section 9.1(e) (with respect to the
failure to obtain the requisite vote by the stockholders of PAS) and there
shall have been made and not withdrawn or rejected an Acquisition Proposal,
(iii) Section 9.1(f), or (iv) Section 9.1(g), then in any such event PAS shall
pay to HCI an amount equal to $80,000,000 (the "Termination Fee"), payable (x)
in the case of termination under clause (i) above upon signing of a definitive
agreement relating to such Acquisition Proposal referred to in clause (i) of
this Section 9.3, or, if no such agreement is executed, then at the closing
(and as a condition to the Closing) of such Acquisition Proposal, and (y)
within one business day of termination of this Agreement upon any termination
of this Agreement described in clauses (ii), (iii), or (iv) above. In any case
in which a Termination Fee is payable by PAS under this Section 9.3, PAS also
shall assume and pay or reimburse HCI for all reasonable fees and expenses
incurred by HCI and its Affiliates (including the fees and expenses of their
counsel, accountants, financial advisors and funding sources) which are
specifically related to the matters contemplated by this Agreement and the
Related Agreements, but not to exceed $7,500,000 in the aggregate, payable
concurrently with the payment of the Termination Fee. PAS acknowledges that
the agreements contained in this Section 9.3 hereof are an integral part of
the transactions contemplated by this Agreement. Accordingly, if PAS shall
fail to pay when due any amounts which shall become due under Section 9.3
hereof, PAS shall in addition hereto pay to HCI all costs and expenses
(including fees and disbursements of counsel) incurred in collecting such
overdue amounts, together with interest on such overdue amounts from the date
such payment was required to be made until the date such payment is received
at a rate per annum equal to the "reference rate" as announced from time to
time by Bank of America NT&SA. Any payment required to be made pursuant to
Section 9.3 shall be made when due by wire transfer of immediately available
funds to an account designed by HCI.
9.4 Amendment.
(a) Subject to applicable law, this Agreement may be amended, modified or
supplemented only by written agreement of the parties at any time prior to the
Effective Date with respect to any of the terms contained herein; provided,
however, that, after this Agreement is adopted by PAS' stockholders, no such
amendment or modification shall reduce the amount or change the form of
consideration to be delivered to the holders of Shares or adversely affect the
rights of such holders of Shares without the consent of PAS' stockholders duly
obtained. In addition, HCI agrees not to amend, modify or terminate any of the
Univisa Contribution Agreement, the Collateral Trust Agreement or the Pledge
and Security Agreement without the prior written approval of PAS.
(b) In the enforcement, interpretation or amendment of any provisions herein
or under the Related Agreements by Newco affecting the rights and obligations
of HE or its Affiliates following the Closing, Newco shall be represented by a
committee of the Board of Directors of Newco comprised solely of Disinterested
Directors.
9.5 Extension; Waiver. At any time prior to the Effective Time, and subject
to applicable law, the parties hereto, by action taken or authorized by their
respective Boards of Directors, may, to the extent legally allowed:
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(i) extend the time for the performance of any of the obligations or other
acts of the other parties hereto; (ii) waive any inaccuracies in the
representations and warranties contained herein or in any document delivered
pursuant hereto; and (iii) waive compliance with any of the agreements or
conditions contained herein. Any agreement on the part of a party hereto to
any such extension or waiver shall be valid only if set forth in a written
instrument signed on behalf of such party. The failure of any party hereto to
assert any of its rights hereunder shall not constitute a waiver of such
rights.
Article X
General Provisions
10.1 Nonsurvival of Representations, Warranties and Agreements. None of the
representations, warranties, covenants and agreements in this Agreement or in
any instrument delivered pursuant to this Agreement shall survive the
Effective Time, except for the agreements contained in Sections 7.10 and 7.11
hereof and for those other covenants and agreements specifically requiring
performance following the Closing. The Confidentiality Agreement shall survive
the execution and delivery of this Agreement, and the provisions of the
Confidentiality Agreement shall apply to all information and material
delivered by any party hereunder.
10.2 Expenses. Whether or not the Asset Contribution, the Univisa
Contribution and the Merger are consummated, all costs and expenses incurred
in connection with this Agreement and the transactions contemplated hereby
shall be paid by the party incurring such expenses except as expressly
provided herein and except that (a) the filing fees in connection with the HSR
Act filing, (b) the filing fees in connection with the filing of the Proxy
Statement/Prospectus and the Registration Statements with the SEC, (c) the
filing fees in connection with necessary applications to the FCC and similar
foreign agencies, (d) the expenses incurred in connection with printing and
mailing the Registration Statement and the Proxy Statement/Prospectus and (e)
fees and expenses related to any expert consultants (excluding attorneys and
accountants) retained in connection with or related to any of the applications
or filings otherwise contemplated by this Section 10.2, shall be shared
equally by the Hughes Parties, on the one hand, and PAS, on the other hand.
10.3 Notices. All notices, requests, demands and other communications which
are required or may be given under this Agreement shall be in writing and
shall be deemed to have been duly given when received if personally delivered;
when transmitted if transmitted by telecopy, electronic or digital
transmission method; the day after it is sent, if sent for next day delivery
to a domestic address by recognized overnight delivery service (e.g., Federal
Express); and upon receipt, if sent by certified or registered mail, return
receipt requested. In each case notice shall be sent to:
(a) if to any of the Hughes Parties, to:
Hughes Electronics Corporation
7200 Hughes Terrace
Los Angeles, California 90045
Attention: Kenneth N. Heintz
Telephone: (310) 568-7600
Telecopy: (310) 568-6774
and
Hughes Electronics Corporation
7200 Hughes Terrace
Los Angeles, California 90045
Attention: Robert Hall
Telephone: (310) 568-7600
Telecopy: (310) 568-7834
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with a copy to:
Latham & Watkins
633 West Fifth Street, Suite 4000
Los Angeles, California 90071
Attention: Bruce R. Lederman, Esq.
Telephone: (213) 485-1234
Telecopy: (213) 891-8763
(b) if to PAS, to:
PanAmSat Corporation
One Pickwick Plaza
Greenwich, Connecticut 06830
Attention: Frederick A. Landman
Telephone: (203) 622-6664
Telecopy: (203) 622-9163
with a copy to:
Chadbourne & Parke LLP
30 Rockefeller Plaza
New York, New York 10112
Attention: Dennis J. Friedman, Esq.
Telephone: (212) 408-5200
Telecopy: (212) 541-5369
10.4 Interpretation. When a reference is made in this Agreement to Sections,
such reference shall be to a Section of this Agreement unless otherwise
indicated. The table of contents and headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Whenever the word "include", "includes" or
"including" are used in this Agreement, they shall be deemed to be followed by
the words "without limitation." The phrase "made available" in this Agreement
shall mean that the information referred to has been made available if
requested by the party to whom such information is to be made available. This
Agreement shall not be construed for or against either party by reason of the
authorship or alleged authorship of any provision hereof or by reason of the
status of the respective parties.
10.5 Entire Agreement; No Third-Party Beneficiaries; Rights of
Ownership. This Agreement (together with the Related Agreements and any other
documents and instruments referred to herein, including exhibits and
schedules) constitutes the entire agreement and supersedes all prior
agreements and understandings, both written and oral, among the parties with
respect to the subject matter hereof and, except as provided in Section 7.10
(which is intended to be for the benefit of the persons referred to therein
and their beneficiaries, and may be enforced by them as third-party
beneficiaries), is not intended to confer upon any person other than the
parties hereto any rights or remedies hereunder.
10.6 Assignment. Neither this Agreement nor any of the rights, interests,
obligations hereunder shall be assigned by either of the parties hereto
(whether by operation of law or otherwise) without the prior written consent
of the other party. Subject to the preceding sentence, this Agreement will be
binding upon, inure to the benefit of and be enforceable by the parties and
their respective successors and assigns.
10.7 Governing Law. This Agreement shall be construed, interpreted and the
rights of the parties determined in accordance with the laws of the State of
Delaware (without reference to the choice of law provisions), except with
respect to matters of law concerning the internal corporate affairs of any
corporate entity which is a party to or the subject of this Agreement, and as
to those matters the law of the jurisdiction under which the respective entity
derives its powers shall govern.
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10.8 Severability. Each party agrees that, should any court or other
competent authority hold any provision of this Agreement or part hereof to be
null, void or unenforceable, or order any party to take any action
inconsistent herewith or not to take an action consistent herewith or required
hereby, the validity, legality and enforceability of the remaining provisions
and obligations contained or set forth herein shall not in any way be affected
or impaired thereby, unless the foregoing inconsistent action or the failure
to take an action constitutes a material breach of this Agreement or makes the
Agreement impossible to perform, in which case this Agreement shall terminate
pursuant to Article IX hereof. Upon any such holding that any provision of
this Agreement is null, void or unenforceable, the parties will negotiate in
good faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible in an acceptable manner to the end that the
transactions contemplated by this Agreement are consummated to the extent
possible. Except as otherwise contemplated by this Agreement, to the extent
that a party hereto took an action inconsistent herewith or failed to take
action consistent herewith or required hereby pursuant to an order or judgment
of a court or other competent authority, such party shall incur no liability
or obligation unless such party did not in good faith seek to resist or object
to the imposition or entering of such order or judgment.
10.9 Injunctive Relief. The parties acknowledge that it will be impossible
to measure in money the damages that would be suffered if the parties fail to
comply with any of the obligations herein imposed on them and that in the
event of any such failure, an aggrieved person or entity will be irreparably
damaged and will not have an adequate remedy at law. Any such person or entity
shall, therefore, be entitled to injunctive relief, including specific
performance, to enforce such obligations, and if any action should be brought
in equity to enforce any of the provisions of this Agreement, none of the
parties shall raise the defense that there is an adequate remedy at law.
10.10 Attorneys' Fees. If any party to this Agreement brings an action to
enforce its rights under this Agreement, the prevailing party shall be
entitled to recover its costs and expenses, including without limitation
reasonable attorneys' fees, incurred in connection with such action, including
any appeal of such action.
10.11 Cumulative Remedies. All rights and remedies of either party hereto
are cumulative of each other and of every other right or remedy such party may
otherwise have at law or in equity, and the exercise of one or more rights or
remedies shall not prejudice or impair the concurrent or subsequent exercise
of other rights or remedies.
10.12 Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same instrument and
shall become effective when executed and delivered by each of the parties.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement and Plan
of Reorganization to be signed by their respective officers thereunto duly
authorized, all as of the date first written above.
Hughes Communications, Inc.
/s/ Jerald F. Farrell
By: _________________________________
Name: Jerald F. Farrell
Title: President
Hughes Communications Galaxy, Inc.
/s/ Jerald F. Farrell
By: _________________________________
Name: Jerald F. Farrell
Title: President
Hughes Communications Satellite
Services, Inc.
/s/ Jerald F. Farrell
By: _________________________________
Name: Jerald F. Farrell
Title: President
Hughes Communications Services, Inc.
/s/ Jerald F. Farrell
By: _________________________________
Name: Jerald F. Farrell
Title: President
Hughes Communications Carrier
Services, Inc.
/s/ Jerald F. Farrell
By: _________________________________
Name: Jerald F. Farrell
Title: President
Hughes Communications Japan, Inc.
/s/ Jerald F. Farrell
By: _________________________________
Name: Jerald F. Farrell
Title: President
Magellan International, Inc.
/s/ Charles H. Noski
By: _________________________________
Name: Charles H. Noski
Title: President
Panamsat Corporation
/s/ Frederick A. Landman
By: _________________________________
Name: Frederick A. Landman
Title: President
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SCHEDULE 1.1
EXCLUDED ASSETS
1.SPACEWAY BUSINESS
a. All rights under Contracts primarily related to the Spaceway Business,
including Contracts with partners or potential partners or investors,
local operators or system developers and Contracts related to the
provision of office space, equipment, furniture, administrative and
maintenance services. "Spaceway Business" means the business of HCI and
its subsidiaries to construct and maintain a global or regional network
of satellites that have processor payloads and multiple spot beams.
"Contracts" means any agreement, contract, lease, note, loan, evidence
of indebtedness, purchase, order, letter of credit, indenture, security
or pledge agreement, franchise agreement, undertaking, practice,
covenant not to compete, employment agreement, license, instrument,
obligation or commitment to which a person is a party or is bound,
whether oral or written.
b. All employees employed primarily in connection with the Spaceway
Business.
c. All Galaxy Intellectual Property primarily related to or generated by
the Spaceway Business.
d. All Permits held or applied for primarily in connection with the
Spaceway Business, including, without limitation, applications filed
with the Federal Communications Commission for Ka-band satellites at the
following orbital locations: 49(degrees)W, 99(degrees)W, 101(degrees)W,
25(degrees)E, 54(degrees)E, 101(degrees)E, 111(degrees)E and
164(degrees)E.
e. All furniture, office equipment and other assets related primarily to
the Spaceway Business.
f. All other information and documentation related primarily to the
Spaceway Business.
2.MOBILE BUSINESS
a. All rights under Contracts (to which one or more of Galaxy, HCSS, HCS,
HCCS and HCJ is or are a party or parties) that are related to primarily
the Mobile Business, including Contracts with partners or potential
partners, local operators, system developers and Contracts related to
the provision of office space, equipment, furniture, administrative and
maintenance services. "Mobile Business" means the business presently
being developed by HCI and its subsidiaries primarily to provide mobile
telecommunications services through satellite delivery.
b. All employees employed primarily in connection with the Mobile
Business.
c. All Galaxy Intellectual Property related primarily to or generated by
the Mobile Business.
d. All Permits held or applied for primarily in connection with the Mobile
Business.
e. All furniture, office equipment and other assets related primarily to
the Mobile Business.
f. All other information and documentation related primarily to the Mobile
Business.
3. AMERICAN MOBILE SATELLITE CORPORATION ("AMSC")
a. All capital stock or warrants, options or other rights to acquire
capital stock held by HCI or any of its Subsidiaries of AMSC.
b. All rights under Contracts (to which one or more of Galaxy, HCSS, HCS,
HCCS and HCJ is or are a party or parties) that are related primarily
to the oversight or financing of AMSC, including Contracts related to
office space, equipment, furniture, administrative and maintenance
services.
c. All employees employed primarily to oversee AMSC.
d. All Galaxy Intellectual Property related primarily to or generated by
AMSC.
e. All other information and documentation related primarily to AMSC.
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4.ICO GLOBAL COMMUNICATIONS ("ICO")
a. All capital stock or warrants, options or other rights to acquire
capital stock held by HCI or any of its Subsidiaries of ICO.
b. All rights under Contracts (to which one or more of Galaxy, HCSS, HCS,
HCCS and HCJ is or are a party or parties) that are related primarily to
the oversight or financing of ICO or entered into with ICO, including
Contracts related to office space, equipment, furniture, administrative
and maintenance services.
c. All employees employed primarily to oversee ICO.
d. All Galaxy Intellectual Property related primarily to or generated by
HCI or any of its Subsidiaries related to ICO.
e. All other information and documentation related primarily to ICO.
5.LITIGATION
a. All rights of Galaxy, HCSS, HCS, HCCS and HCJ in connection with the
lawsuit known as Hughes Communications Galaxy, Inc. v. United States of
America, Case No. 91-1032C.
6.INSURANCE POLICIES--All insurance policies except those listed on Schedule
6.11.
7.REAL ESTATE
a. Castle Rock Land: Castle Rock, Colorado
b. Schiller Park Asset: Schiller Park, Illinois
c. California Broadcast Center (Building and Land): Long Beach, California
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<PAGE>
APPENDIX AA
AMENDMENT
TO
AGREEMENT AND PLAN OF REORGANIZATION
This AMENDMENT TO AGREEMENT AND PLAN OF REORGANIZATION ("Amendment"), dated
as of April 4, 1997, is entered into by and among Hughes Communications, Inc.,
a California corporation ("HCI"), Hughes Communications Galaxy, Inc., a
California corporation, Hughes Communications Satellite Services, Inc., a
California corporation, Hughes Communications Services, Inc., a California
corporation, Hughes Communications Carrier Services, Inc., a California
corporation, Hughes Communications Japan, Inc., a California corporation,
Magellan International, Inc., a Delaware corporation ("Newco"), and PanAmSat
Corporation, a Delaware corporation ("PAS").
RECITALS
A. The parties hereto have entered into the Agreement and Plan of
Reorganization ("Reorganization Agreement") dated as of September 20, 1996,
which provides for the combination of PAS with the Galaxy Business. All terms
used herein that are not otherwise defined herein shall have the meaning
ascribed to them in the Reorganization Agreement.
B. The Reorganization Agreement contemplates that on or prior to the Closing
Date certain parties will enter into the Registration Rights Agreement and the
Stockholder Agreement, in the forms attached as Exhibits F and G,
respectively, to the Reorganization Agreement.
C. The parties desire to make certain revisions to the Reorganization
Agreement, Registration Rights Agreement and the Stockholder Agreement.
In consideration of the foregoing and the mutual promises herein and for
other good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, the parties hereto, intending to be legally bound, hereby
agree as follows:
ARTICLE I
AMENDMENT
1.1. Recital G is hereby amended to delete the words "a Registration Rights
Agreement" where such words occur on the third line thereof and to insert in
their place the words "an amended and restated registration rights agreement."
1.2. Exhibit F to the Reorganization Agreement is hereby amended (i) to
rename such agreement the "Amended and Restated Registration Rights Agreement"
in the title, in the heading and in the last sentence of such agreement and
(ii) to delete the definition of "Class A Holder" and insert the following in
its place:
"Class A Holder" means a Holder whose Common Stock was received in the
Transactions in respect of the Class A Common Stock or common stock of
PanAmSat Corporation into which such Class A Common Stock has been
converted."
1.3. Recital H is hereby amended to delete the words "a stockholder
agreement" where such words occur on the third line thereof and to insert in
their place the words "an amended and restated stockholder agreement."
1.4. Exhibit G to the Reorganization Agreement is hereby amended (i) to
rename such agreement the "Amended and Restated Stockholder Agreement" in the
title, in the heading and in the last sentence of such agreement, (ii) to
delete the amount "$1.5 billion," as such amount appears in subpart (y) to the
proviso of Section 2(b) thereof and to insert in its place the amount "$1.725
billion" and (iii) to add the following sentence at the end of Section 3(a):
"Any vacancy of an available A Group or B Group director position will be
filled
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promptly without holding a meeting of stockholders of the Company at the
request of the A Group or B Group, as applicable, with their designee;
provided that the A Group or B Group, as applicable, shall beneficially own a
number of shares greater than the Director Minimum Shares at the time of
filling such vacancy."
1.5. Pursuant to Section 4.3(g) of the Reorganization Agreement, the parties
may require that holders making elections as to the Merger Consideration
respond prior to the Merger, upon such additional terms and conditions as may
be agreed to by the parties. The parties have agreed that the Election Forms
shall be submitted to the Exchange Agent by holders of record of the Shares on
the Record Date (as defined below) by 5:00 p.m. (Eastern Standard Time) on May
2, 1997; provided however, that if the date of the special meeting of
stockholders of PAS held to approve the Merger (the "Special Meeting") is
postponed or adjourned, then the Election Forms shall be submitted to the
Exchange Agent by 5 p.m. (Eastern Standard Time) on the day immediately
preceding the date of the Special Meeting and hereby agree that, in order to
effect such result, the Exchange Agent shall mail the Letter of Transmittal to
each holder of record of Shares on the record date for the Special Meeting
(the "Record Date") simultaneously with the mailing of the proxy with respect
to such meeting (not as soon as reasonably practicable after the Effective
Time, as currently provided in Section 4.3(c)), with instructions to return
the Election Form to the Exchange Agent by 5:00 p.m. (Eastern Standard Time)
on May 2, 1997; provided however, that if the date of the Special Meeting is
postponed or adjourned, then the Election Forms shall be submitted to the
Exchange Agent before 5 p.m. (Eastern Standard Time) on the day immediately
preceding the date of the Special Meeting (such time and date shall be the
"Election Deadline"). Holders of Shares that have been transferred following
the Record Date or that fail to make an effective election will be deemed to
have made a Standard Election with respect to such Shares.
1.6. Subsection (iii) of Section 4.6 of the Reorganization Agreement is
hereby deleted and the following inserted in its place:
"(iii) the aggregate amount of cash, and shares of Newco Common Stock, if
any, received by holders on account of Shares for which Cash Elections or
Stock Elections had been made shall be adjusted in accordance with Section
4.4 first to distribute the additional cash made available because of the
adjustment described in subsection (ii) above with respect to Shares for
which a Cash Election had been made but for which sufficient cash was not
available and second to distribute the additional shares of Newco Common
Stock made available because of such reallocation of cash with respect to
Shares for which Stock Elections had been made but for which sufficient
shares of Newco Common Stock were not available."
1.7. Section 5.2, sentence 6 of the Reorganization Agreement is hereby
amended to insert after the words "Stock Option Plans" the following words
"and from the conversion of 19,228,017 shares of Class A Common Stock into
19,228,017 shares of PAS Common Stock."
1.8. In accordance with Section 7.1 of the Reorganization Agreement, and
notwithstanding Section 7.1(b), (c) and (d) of the Reorganization Agreement
and anything to the contrary in the Principal Stockholders Agreement, the
parties hereto hereby consent to (i) the conversion of 19,228,017 shares of
PAS Class A Common Stock and the issuance by PAS of 19,228,017 shares of PAS
Common Stock therefor and (ii) the amendments to the Certificate of
Incorporation and Bylaws of PAS attached as exhibits to the Proxy
Statement/Prospectus confidentially submitted to the Securities and Exchange
Commission on March 18, 1997, as the same may be amended prior to filing of
the Proxy Statement/Prospectus with the Securities and Exchange Commission.
ARTICLE II
GENERAL PROVISIONS
2.1. Counterparts. This Amendment may be executed in two or more
counterparts, all of which shall be considered one in the same instrument and
shall become effective when executed and delivered by each of the parties.
2.2. No Other Changes. Other than as expressly amended in Section 1 above,
the Agreement remains unmodified and in full force and effect.
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IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
signed by their respective officers thereunto duly authorized, all as of the
date first written above.
Hughes Communications, Inc.
/s/ Jerald F. Farrell
By: _________________________________
Name: Jerald F. Farrell
Title: President
Hughes Communications Galaxy, Inc.
/s/ Jerald F. Farrell
By: _________________________________
Name: Jerald F. Farrell
Title: President
Hughes Communications Satellite
Services, Inc.
/s/ Jerald F. Farrell
By: _________________________________
Name: Jerald F. Farrell
Title: President
Hughes Communications Services, Inc.
/s/ Jerald F. Farrell
By: _________________________________
Name: Jerald F. Farrell
Title: President
Hughes Communications Japan, Inc.
/s/ Jerald F. Farrell
By: _________________________________
Name: Jerald F. Farrell
Title: President
Magellan International, Inc.
/s/ Charles H. Noski
By: _________________________________
Name: Charles H. Noski
Title: President
Panamsat Corporation
/s/ Frederick A. Landman
By: _________________________________
Name: Frederick A. Landman
Title: President
CONSENTED TO:
Satellite Company
/s/ Jorge Suarez Barbosa
By: _________________________________
Name: Jorge Suarez Barbosa
Title: Authorized Signatory
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<PAGE>
CLASS A STOCKHOLDERS
/s/ Mary Anselmo
By: _________________________________
MARY ANSELMO, individually and
as a trustee of the Article VII
Trust created by the RENE
ANSELMO REVOCABLE TRUST DATED
JUNE 10, 1994, as a successor
trustee of the RAYCE ANSELMO
TRUST DATED DECEMBER 23, 1991
and as a successor trustee under
the Voting Trust Agreement dated
as of February 28, 1995
/s/ Frederick A. Landman
By: _________________________________
FREDERICK A. LANDMAN,
individually and as a trustee of
the Article VII Trust created by
the RENE ANSELMO REVOCABLE TRUST
DATED JUNE 10, 1994 and as a
successor trustee under the
Voting Trust Agreement dated as
of February 28, 1995
/s/ Lourdes Saralegui
By: _________________________________
LOURDES SARALEGUI, individually
and as a trustee of the Article
VII Trust created by the RENE
ANSELMO REVOCABLE TRUST DATED
JUNE 10, 1994 and as a successor
trustee under the Voting Trust
Agreement dated as of February
28, 1995
/s/ Pier Landman
By: _________________________________
PIER LANDMAN, individually and
as the sole trustee of the CHLOE
LANDMAN TRUST DATED JUNE 10,
1988 and the sole trustee of the
RISSA LANDMAN TRUST DATED JUNE
10, 1988
/s/ Patrick J. Costello
By: _________________________________
PATRICK J. COSTELLO, as trustee
of the FREDERICK A. LANDMAN
IRREVOC- ABLE TRUST DATED
DECEMBER 22, 1995 and as a
successor trustee of the RAYCE
ANSELMO TRUST DATED DECEMBER
23, 1991
/s/ Reverge Anselmo
By: _________________________________
REVERGE ANSELMO, individually
and as a trustee of the Article
VII Trust created by the RENE
ANSELMO REVOCABLE TRUST DATED
JUNE 10, 1994 and as a successor
trustee under the Voting Trust
Agreement dated as of February
28, 1995
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<PAGE>
APPENDIX B
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (the "Merger Agreement"), dated as of April 4,
1997, by and among PanAmSat Corporation, a Delaware corporation ("PAS"), and
PAS Merger Corp., a Delaware corporation and a wholly-owned subsidiary of
Newco ("Merger Sub"), and Magellan International, Inc., a Delaware corporation
("Newco").
This Merger Agreement is being entered into pursuant to an Agreement and
Plan of Reorganization, dated as of September 20, 1996 (as amended or modified
from time to time, the "Reorganization Agreement"), by and between PAS, Newco,
Hughes Communications, Inc., a California corporation, Hughes Communications
Galaxy, Inc., a California corporation, Hughes Communications Satellite
Service, Inc., a California corporation, Hughes Communications Services, Inc.,
a California corporation, Hughes Communications Carrier Services, Inc., a
California corporation and Hughes Communications Japan, Inc., a California
corporation. All defined terms that are used herein which are not otherwise
defined shall have the meaning ascribed to such terms in the Reorganization
Agreement.
The number of authorized shares of Class A Common Stock, par value $.01 per
share, of PanAmSat (the "Class A Common Stock") is One Hundred Million
(100,000,000) and the number of issued and outstanding shares of Class A
Common Stock is Twenty-One Million Two Hundred Thirty-One Thousand Four
Hundred Fifteen (21,231,415). The number of authorized shares of Common Stock,
par value $.01 per share, of PanAmSat (the "PAS Common Stock") is Four Hundred
Million (400,000,000) and the number of issued and outstanding shares of PAS
Common Stock is Thirty-Eight Million Three Hundred Twenty Thousand Seven
Hundred Seventy-Four (38,320,774). The number of authorized shares of Common
Stock, par value $.01 per share, of Merger Sub (the "Merger Sub Common Stock")
is One Thousand (1,000) and the number of issued and outstanding shares of
Merger Sub Common Stock is One Thousand (1,000).
NOW, THEREFORE, in consideration of the premises and the representations,
warranties, covenants and agreements contained herein, the parties hereto,
intending to be legally bound hereby, agree as follows:
ARTICLE I
THE MERGER
SECTION 1.1. The Merger. In accordance with the provisions of this Merger
Agreement and Section 251 of the Delaware General Corporation Law (the
"DGCL"), at the Closing (as defined in Section 1.5 hereof), Merger Sub shall
be merged with and into PAS (the "Merger") and the separate corporate
existence of Merger Sub shall cease. PAS shall be the surviving corporation in
the Merger (hereinafter sometimes referred to as the "Surviving Corporation")
and shall continue its corporate existence under the laws of the State of
Delaware. The name of the Surviving Corporation shall be "PanAmSat
International Systems, Inc." From and after the effective time of the Merger,
the Surviving Corporation shall possess all the rights, privileges, powers and
franchises of a public as well as of a private nature and be subject to all
the restrictions, disabilities, and duties of each of PAS and Merger Sub; and
all and singular rights, privileges, powers and franchises of each of PAS and
Merger Sub, and all property, real, personal and mixed, and all debts due to
each of PAS and Merger Sub on whatever account, as well as for stock
subscriptions and all other things in action or belonging to each of PAS and
Merger Sub, shall be vested in the Surviving Corporation; and all property,
rights, privileges, powers and franchises, and all and every other interest
shall be thereafter as effectually the property of the Surviving Corporation
as they were of PAS and Merger Sub, and the title to any real estate vested by
deed or otherwise, in each of PAS and Merger Sub shall not revert or be in any
way impaired; but all rights of creditors and all liens upon any property of
either PAS or Merger Sub shall thenceforth attach to the Surviving
Corporation, and may be enforced against it to the same extent as if said
debts and liabilities had been incurred by it.
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SECTION 1.2. Certificate of Incorporation and Bylaws. The Certificate of
Incorporation and Bylaws of PAS in effect at the Effective Time shall be the
Certificate of Incorporation and Bylaws of the Surviving Corporation until
duly amended in accordance with the terms thereof and the DGCL; provided, that
the Certificate of Incorporation of PAS shall be amended, effective prior to
the Univisa Contribution, as set forth on Exhibit A.
SECTION 1.3. Directors. The directors of Merger Sub immediately prior to the
Effective Time shall resign as directors of Merger Sub and be the directors of
the Surviving Corporation as of the Effective Time and until their successors
are duly appointed or elected in accordance with applicable law.
SECTION 1.4. Officers. The officers of Merger Sub immediately prior to the
Effective Time shall be the officers of the Surviving Corporation as of the
Effective Time and until their successors are duly appointed or elected in
accordance with applicable law.
SECTION 1.5. Closing; Effective Time. Unless the Reorganization Agreement
shall have been terminated and the transactions therein contemplated shall
have been abandoned in accordance with its terms, the closing of the Merger
shall take place at 10:00 a.m. on the seventh business day following
satisfaction or waiver of the conditions set forth in Article VIII of the
Reorganization Agreement (the "Closing Date"), at the offices of Chadbourne &
Parke LLP, New York City, unless another date, time or place is agreed to in
writing by the parties hereto and the parties to the Reorganization Agreement
and the Univisa Contribution Agreement (the "Closing"). The Merger shall
become effective at the time and date which is (i) the later of the date and
time of the filing of the certificate of merger relating to the Merger with
the Secretary of State of the State of Delaware or (ii) such other time and
date as the parties hereto may agree (such time and date is herein referred to
as the "Effective Time") as is set forth in such certificate of merger.
ARTICLE II
CONVERSION OF SHARES
SECTION 2.1. Merger Sub Common Stock. At the Effective Time, the shares of
Merger Sub Common Stock outstanding immediately prior to the Effective Time
shall be converted into and shall become (i) the number of shares of Class A
Common Stock of the Surviving Corporation that is equal to the number of
shares of, and having terms identical in all respects to, the Class A Common
Stock outstanding immediately prior to the Merger and (ii) the number of
shares of Common Stock of the Surviving Corporation that is equal to the
number of shares of, and having terms identical in all respects to, PAS Common
Stock outstanding immediately prior to the Merger.
SECTION 2.2. Conversion of PAS Shares. (a) Except as otherwise provided in
Section 2.4 and subject to Sections 2.2(c) and 2.2(d) hereof, at the Effective
Time, each issued and outstanding share, other than, to the fullest extent
permitted by law, any share owned by Newco or any wholly-owned Subsidiary of
Newco, of PAS Common Stock and Class A Common Stock (collectively, the
"Shares") shall be converted into, at the election of the holder thereof, one
of the following (as may be adjusted pursuant to Sections 2.4 and 2.6, the
"Merger Consideration"):
(i) for each such Share with respect to which an election to receive a
combination of Newco Common Stock and cash has been effectively made and
not revoked or lost pursuant to Sections 2.3(c), (d) and (e) (a "Standard
Election"), the right to receive (x) an amount in cash equal to one-half of
the Standard Cash Consideration plus (y) one-half (0.5) share of Newco
Common Stock (collectively, the "Standard Consideration"). The "Standard
Cash Consideration" means an amount in cash equal to thirty dollars
($30.00), provided that, if the Closing shall not have occurred on or prior
to the first anniversary of this Agreement, the Standard Cash Consideration
shall be increased at a rate equal to 9% per annum from and including the
first anniversary date to but excluding the Closing Date; or
(ii) for each such Share with respect to which an election to receive
solely Newco Common Stock has been effectively made and not revoked or lost
pursuant to Sections 2.3(c), (d) and (e) (a "Stock Election"), the right to
receive one (1) share of Newco Common Stock (the "Stock Consideration"); or
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(iii) for each such Share with respect to which an election to receive
solely cash has been effectively made and not revoked or lost pursuant to
Sections 2.3(c), (d) and (e) (a "Cash Election"), the right to receive the
Standard Cash Consideration.
(b) As a result of the Merger and without any action on the part of the
holder thereof, at the Effective Time, (i) all Shares shall cease to be
outstanding and shall be cancelled and retired and shall cease to exist, and
each such holder of Shares shall thereafter cease to have any rights with
respect to such Shares, except the right to receive, without interest, the
Merger Consideration and cash in lieu of fractional shares of Newco Common
Stock in accordance with Section 2.5(c) hereof upon the surrender of a
certificate representing such Shares (a "Share Certificate") except that
Shares, if any, held by Newco (or any wholly-owned Subsidiary of Newco) shall
continue to be outstanding to the fullest extent permitted by law and (ii) all
outstanding shares of Class B Common Stock and the Preferred Stock shall not
be converted in the Merger and shall continue to be outstanding.
(c) Notwithstanding anything contained in this Section 2.2 to the contrary,
each Share issued and held in PAS' treasury immediately prior to the Effective
Time shall, by virtue of the Merger, cease to be outstanding and shall be
cancelled and retired without payment of any consideration therefor.
(d) Notwithstanding anything in this Section 2.2 to the contrary, Shares
which are issued and outstanding immediately prior to the Effective Time and
which are held of record by stockholders who have not voted such shares in
favor of the Merger and who shall have properly exercised their rights of
appraisal for such shares in the manner provided by the DGCL (the "Dissenting
Shares") shall be deemed to have made a Cash Election for purposes of Section
2.4 hereof, and shall not be converted into the right to receive the Merger
Consideration, unless and until such holder shall have failed to perfect or
shall have effectively withdrawn or lost its right to appraisal and payment,
as the case may be. If such holder shall have so failed to perfect its
appraisal right or shall have effectively withdrawn or lost such right, its
shares shall thereupon be deemed to have been converted into and to have
become exchangeable for, at the Effective Time, the right to receive the
Standard Consideration, without any interest thereon. PAS shall give Newco
prompt notice of any Dissenting Shares (and shall also give Newco prompt
notice of any withdrawals of such demands for appraisal rights) and Newco
shall have the right to direct all negotiations and proceedings with respect
to any such demands. Neither PAS nor the Surviving Corporation surviving the
Merger shall, except with the prior written consent of Newco, voluntarily make
any payment with respect to, or settle or offer to settle, any such demand for
appraisal rights.
(e) At the Effective Time, each holder of a then-outstanding option to
purchase Shares under PAS' Long-Term Stock Investment Plan and the Option
Agreements between PAS and certain of its executive officers and other
employees (collectively, the "Stock Option Plans"), whether or not then
exercisable (the "Options"), shall, in settlement thereof, receive for each
Share subject to such Option an amount (subject to any applicable withholding
tax) in cash equal to the difference between (i) the Standard Cash
Consideration and (ii) the per Share exercise price of such Option to the
extent such difference is a positive number (such amount being hereinafter
referred to as the "Option Consideration"); provided, however, that with
respect to any person subject to Section 16(b) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), any such amount shall be paid as
soon as practicable after the first date payment can be made without liability
to such person under Section 16(b) of the Exchange Act. Upon receipt of the
Option Consideration, the Option shall be canceled. The surrender of an Option
to the Surviving Corporation in exchange for the Option Consideration shall be
deemed a release of any and all rights the holder had or may have had in
respect of such Option. Prior to the Effective Time, PAS shall obtain all
necessary consents or releases from holders of Options under the Stock Option
Plans and take all such other lawful action as may be necessary to give effect
to the transactions contemplated by this Section 2.2(e) (except for any such
action that may require the approval of PAS' stockholders). Except as
otherwise agreed to by the parties, (i) the Stock Option Plans shall terminate
as of the Effective Time and the provisions in any other plan, program or
arrangement providing for the issuance or grant of any other interest in
respect of the capital stock of PAS or any Subsidiary thereof, shall be
canceled as of the Effective Time, and (ii) PAS shall assure that following
the Effective Time no participant in the Stock Option Plans or other plans,
programs or arrangements shall have any right thereunder to acquire equity
securities of the Surviving Corporation, the corporation surviving the Merger
or any Subsidiary thereof and to terminate all such plans at the Effective
Time.
B-3
<PAGE>
SECTION 2.3. Elections by Holders of Shares.
(a) Each person who, at the Effective Time, is a record holder of Shares
(other than holders of Shares to be cancelled as set forth in Section 2.2(c)
or Dissenting Shares) shall have the right to submit an Election Form (as
defined in Section 2.3(c)) specifying the number of Shares that such person
desires to have converted into the right to receive Newco Common Stock and
cash pursuant to the Standard Election, the number of Shares that such person
desires to have converted into the right to receive Newco Common Stock
pursuant to a Stock Election and the number of Shares that such person desires
to have converted into the right to receive cash pursuant to a Cash Election.
(b) Promptly after the Allocation Determination (as defined in Section
2.3(d)), Newco shall deposit (or cause to be deposited) with a bank or trust
company to be designated by HCI and reasonably acceptable to PAS (the
"Exchange Agent"), for the benefit of the holders of Shares and S Company, for
exchange in accordance with this Article II and the Univisa Contribution
Agreement, (i) cash in the amount sufficient to pay the aggregate cash portion
of the Merger Consideration and the consideration payable in the Univisa
Contribution and (ii) certificates representing the shares of Newco Common
Stock ("Newco Certificates") for exchange in accordance with this Article II
and the Univisa Contribution Agreement (the cash and shares deposited pursuant
to clauses (i) and (ii) being hereinafter referred to as the "Exchange Fund").
Newco Common Stock into which Shares shall be converted pursuant to the Merger
shall be deemed to have been issued at the Effective Time.
(c) As soon as reasonably practicable after the Effective Time, the Exchange
Agent shall mail to each holder of record of Shares immediately prior to the
Effective Time (excluding any Shares which will be cancelled pursuant to
Section 2.2(c) or Dissenting Shares) (A) a letter of transmittal (the "Letter
of Transmittal") (which shall specify that delivery shall be effected, and
risk of loss and title to Share Certificates shall pass, only upon delivery of
such Share Certificates to the Exchange Agent and shall be in such form and
have such other provisions as Newco shall specify), (B) instructions for use
in effecting the surrender of Share Certificates in exchange for the Merger
Consideration with respect to the Shares formerly represented thereby and (C)
an election form (the "Election Form") providing for such holders to make the
Standard Election, the Stock Election or the Cash Election. As of the Election
Deadline (as defined in Section 2.3(d)), all holders of Shares immediately
prior to the Effective Time that shall not have submitted to the Exchange
Agent or shall have properly revoked an effective, properly completed Election
Form shall be deemed to have made a Standard Election.
(d) Any Standard Election, Stock Election or Cash Election shall have been
validly made only if the Exchange Agent shall have received by 5:00 p.m. New
York time on a date (the "Election Deadline") to be mutually agreed upon by
HCI, Newco and PAS, an Election Form properly completed and executed (with the
signature or signatures thereof guaranteed to the extent required by the
Election Form) by such holder accompanied by such holder's Share Certificates,
or by an appropriate guarantee of delivery of such Share Certificates from a
member of any registered national securities exchange or of the National
Association of Securities Dealers, Inc. or a commercial bank or trust company
in the United States as set forth in such Election Form. Any holder of Shares
who has made an election by submitting an Election Form to the Exchange Agent
may, at any time prior to the Election Deadline, change such holder's election
by submitting a revised Election Form, properly completed and signed that is
received by the Exchange Agent prior to the Election Deadline. Any holder of
PAS Common Stock may at any time prior to the Election Deadline revoke his
election and withdraw his Share Certificates deposited with the Exchange Agent
by written notice to the Exchange Agent received by the close of business on
the day prior to the Election Deadline. As soon as practicable after the
Election Deadline, the Exchange Agent shall determine the allocation of the
cash portion of the Merger Consideration and the stock portion of the Merger
Consideration and shall notify Newco of its determination (the "Allocation
Determination").
(e) Upon surrender of a Share Certificate for cancellation to the Exchange
Agent, together with the Letter of Transmittal duly executed, and such other
documents as Newco or the Exchange Agent shall reasonably request, the holder
of such Share Certificate shall be entitled to receive promptly after the
Allocation
B-4
<PAGE>
Determination in exchange therefor (A) a certified or bank cashier's check in
the amount equal to the cash, if any, which such holder has the right to
receive pursuant to the provisions of this Article II (including any cash in
lieu of fractional shares of Newco Common Stock pursuant to Section 2.5(c)),
and (B) a Newco Certificate representing that number of shares of Newco Common
Stock, if any, which such holder has the right to receive pursuant to this
Article II (in each case less the amount of any required withholding taxes),
and the Share Certificate so surrendered shall forthwith be cancelled. Until
surrendered as contemplated by this Section 2.3(e), each Share Certificate
shall be deemed at any time after the Effective Time to represent only the
right to receive the Merger Consideration with respect to the Shares formerly
represented thereby.
(f) Newco shall have the right to make reasonable rules, not inconsistent
with the terms of this Merger Agreement, governing the validity of the
Election Forms, the manner and extent to which Standard Elections, Stock
Elections or Cash Elections are to be taken into account in making the
determinations prescribed by Section 2.4, the issuance and delivery of
certificates for Newco Common Stock into which Shares are converted in the
Merger, and the payment of cash for Shares converted into the right to receive
cash in the Merger.
(g) Notwithstanding the foregoing provisions of this Section 2.3, the
parties hereto may decide to distribute Election Forms to PAS' stockholders
and require that holders making such elections respond prior to the Merger,
upon such additional terms and conditions as may be agreed to by the parties.
SECTION 2.4. Proration.
(a) As is more fully set forth below and except as may be paid pursuant to
Section 2.5 or otherwise in respect of Dissenting Shares, the aggregate amount
of cash to be paid in the Merger and in the Univisa Contribution Agreement
(other than the cash payment of $225 million provided for in the last sentence
of Section 1.2(a) of the Univisa Contribution Agreement) shall not exceed the
product of (x) one-half ( 1/2) of the Standard Cash Consideration and (y) the
aggregate number of shares of PAS Common Stock, Class A Common Stock and Class
B Common Stock issued and outstanding immediately prior to the Effective Time
(such product, the "Maximum Cash Amount").
(b) In the event that the sum of the aggregate amount of cash represented by
the Cash Elections hereunder (including Cash Elections deemed to have been
made with respect to Dissenting Shares) and under the Stock Contribution and
Exchange Agreement dated as of September 20, 1996 (the "Univisa Contribution
Agreement") received by the Exchange Agent (such sum, the "Requested Cash
Amount") exceeds the Maximum Cash Amount minus the aggregate amount of cash
payable on account of all Standard Elections made or deemed to have been made
hereunder or under the Univisa Contribution Agreement (such difference, the
"Cash Cap"), each holder making a Cash Election hereunder or under the Univisa
Contribution Agreement shall receive, for each Share or Value Unit (as defined
in the Univisa Contribution Agreement), as the case may be, with respect to
which a Cash Election has been made hereunder or under the Univisa
Contribution Agreement, (x) cash in an amount equal to the Prorated Cash
Amount and (y) a number of shares of Newco Common Stock equal to a fraction,
the numerator of which is equal to the Standard Cash Consideration minus the
Prorated Cash Amount and the denominator of which is the Standard Cash
Consideration. The term "Prorated Cash Amount" means the greater of (i) one-
half ( 1/2) of the Standard Cash Consideration and (ii) the product of the
Standard Cash Consideration and a fraction, the numerator of which is the Cash
Cap and the denominator of which is the Requested Cash Amount.
(c) The aggregate number of shares of Newco Common Stock that may be issued
pursuant to Stock Elections hereunder and under the Univisa Contribution
Agreement is not subject to any maximum. In the event that the Requested Cash
Amount is less than the Cash Cap, each holder making a Stock Election
hereunder or under the Univisa Contribution Agreement shall receive, at the
option of Newco, for each Share or Value Unit, as the case may be, with
respect to which a Stock Election has been made hereunder or under the Univisa
Contribution Agreement, (x) not more than the Stock Consideration and not less
than a number of shares of Newco Common Stock equal to a fraction the
numerator of which is the Requested Stock Amount minus the difference between
the Cash Cap and the Requested Cash Amount, and the denominator of which is
the
B-5
<PAGE>
Requested Stock Amount (such whole or fractional share, the "Prorated Stock
Amount") and (y) cash in an amount equal to the product of (A) the Standard
Cash Consideration and (B) one minus the Prorated Stock Amount. The term
"Requested Stock Amount" means the product of the aggregate number of shares
of Newco Common Stock represented by Stock Elections hereunder or under the
Univisa Contribution Agreement received by the Exchange Agent and the Standard
Cash Consideration.
SECTION 2.5. Dividends, Fractional Shares, Etc.
(a) Notwithstanding any other provisions of this Agreement, no dividends or
other distributions declared after the Effective Time on Newco Common Stock
shall be paid with respect to any Shares which, prior to the Effective Time,
were represented by a Share Certificate until such Share Certificate is
surrendered for exchange as provided herein. Subject to the effect of
applicable Laws, following surrender of any such Share Certificate, there
shall be paid to the holder of the Newco Certificates issued in exchange
therefor, without interest, (i) at the time of such surrender, the amount of
dividends or other distributions with a record date after the Effective Time
theretofore payable with respect to such whole shares of Newco Common Stock
and not paid, less the amount of any withholding taxes which may be required
thereon, and (ii) at the appropriate payment date, the amount of dividends or
other distributions with a record date after the Effective Time but prior to
surrender and a payment date subsequent to surrender payable with respect to
such whole shares of Newco Common Stock, less the amount of any withholding
taxes which may be required thereon.
(b) At or after the Effective Time, there shall be no transfers on the stock
transfer books of the Surviving Corporation of the Share Certificates which
were outstanding immediately prior to the Effective Time. If, after the
Effective Time, certificates formerly representing any such Shares are
presented to the Surviving Corporation, they shall be cancelled and exchanged
for certificates for the consideration, if any, deliverable in respect thereof
pursuant to this Merger Agreement in accordance with the procedures set forth
in this Article II. Share Certificates surrendered for exchange by any person
constituting an "affiliate" of PAS for purposes of Rule 145(c) under the
Securities Act of 1933, as amended, shall not be exchanged until Newco has
received a written agreement from such person as provided in Section 7.14 of
the Reorganization Agreement.
(c) No fractional shares of Newco Common Stock shall be issued pursuant to
the Merger or the Univisa Contribution. In lieu of the issuance of any
fractional share of Newco Common Stock pursuant to the Merger or the Univisa
Contribution, cash adjustments will be paid to holders in respect of any
fractional share of Newco Common Stock that would otherwise be issuable, and
the amount of such cash adjustment shall be equal to the product of such
fractional amount and the Standard Cash Consideration.
(d) Any portion of the Exchange Fund (including the proceeds of any
investments thereof and any shares of Newco Common Stock) that remains
unclaimed by the former stockholders of PAS six months after the Effective
Time shall be delivered to Newco. Any former stockholder of PAS who has not
theretofore complied with this Article II shall thereafter look only to Newco
for payment of the consideration payable on account of the Univisa
Contribution or the Merger, as the case may be, cash in lieu of fractional
shares and unpaid dividends and distributions on the Newco Common Stock
deliverable in respect of each share such stockholder holds as determined
pursuant to this Agreement, in each case without any interest thereon.
(e) None of HCI, its Affiliates, PAS, Newco, the Exchange Agent or any other
person shall be liable to any former holder of Shares or shares of Class B
Common Stock for any amount properly delivered to a public official pursuant
to applicable abandoned property, escheat or similar laws.
(f) In the event that any Share Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
such Share Certificate to be lost, stolen or destroyed and, if required by
Newco, the posting by such person of a bond in such reasonable amount as Newco
may direct as indemnity against any claim that may be made against it with
respect to such Share Certificate, the Exchange Agent will issue in exchange
for such lost, stolen or destroyed Share Certificate the applicable Merger
Consideration, cash in lieu of fractional shares, and unpaid dividends and
distributions on Shares as provided in this Section 2.5, deliverable in
respect thereof pursuant to this Merger Agreement.
B-6
<PAGE>
SECTION 2.6. Certain Additional Prorations. In the event that the aggregate
number of shares of Newco Common Stock for which Value Units were to be
exchanged pursuant to Section 1.2(a) of the Univisa Contribution Agreement
would otherwise be less than seven million five hundred thousand (7,500,000)
(after giving effect to the any prorations pursuant to Section 2.4, if
applicable), then notwithstanding anything to the contrary contained in this
Merger Agreement or in the Univisa Contribution Agreement, (i) a number of
Value Units equal to seven million five hundred thousand (7,500,000) minus the
aggregate number of shares of Newco Common Stock for which Value Units would
otherwise be exchanged pursuant to Section 1.2(a) of the Univisa Contribution
Agreement (after giving effect to any prorations pursuant to Section 2.4(a),
if applicable) (such difference, the "SPOT Difference") shall be exchanged for
Newco Common Stock (after giving effect to any prorations pursuant to Section
2.4, if applicable), (ii) the aggregate amount of cash for which Value Units
were otherwise to be exchanged pursuant to Section 1.2(a) of the Univisa
Contribution Agreement (after giving effect to any prorations pursuant to
Section 2.4, if applicable) shall be reduced by an amount equal to the product
of the SPOT Difference and the Standard Cash Consideration, and (iii) the
aggregate amount of cash, and shares of Newco Common Stock, if any, received
by holders on account of Shares for which Cash Elections or Stock Elections
had been made shall be adjusted in accordance with Section 2.4 first to
distribute the additional cash made available because of the adjustment
described in subsection (ii) above with respect to Shares for which a Cash
Election had been made but for which sufficient cash was not available and
second to distribute the additional shares of Newco Common Stock made
available because of such reallocation of cash with respect to Shares for
which Stock Elections had been made but for which sufficient shares of Newco
Common Stock were not available.
ARTICLE III
TERMINATION AND AMENDMENT
SECTION 3.1. Termination. Notwithstanding the approval and adoption of this
Merger Agreement by the stockholders of PAS and Merger Sub, respectively, this
Merger Agreement shall terminate forthwith in the event that the
Reorganization Agreement shall be terminated as therein provided. In the event
of the termination of this Merger Agreement as provided above, this Merger
Agreement shall forthwith become void and there shall be no liability on the
part of any of the parties hereto except as otherwise provided in the
Reorganization Agreement.
SECTION 3.2. Amendment. This Merger Agreement shall not be amended other
than pursuant to an amendment to the Reorganization Agreement approved in the
manner therein provided. If any such amendment to the Reorganization Agreement
is so approved, to the fullest extent permitted by law any amendment to this
Merger Agreement required by such amendment to the Reorganization Agreement
shall be effected by the parties hereto by action taken by their respective
Boards of Directors.
ARTICLE IV
MISCELLANEOUS
SECTION 4.1. Governing Law. This Merger Agreement shall be governed by the
laws of the State of Delaware.
SECTION 4.2. Counterparts. This Merger Agreement may be executed in two or
more counterparts, each of which shall be deemed to be an original, but all of
which shall constitute one and the same agreement.
SECTION 4.3. Necessary Filings and Acts. PAS and Merger Sub agree that they
will cause to be executed and filed and recorded any document or documents
prescribed by the laws of the State of Delaware (and, if necessary, the laws
of any other State), and that they will cause to be performed all necessary
acts within the State of Delaware and elsewhere to effectuate the Merger.
SECTION 4.4. Authorization. The Board of Directors and the proper officers
of Merger Sub and of PAS are hereby authorized, empowered and directed to do
any and all acts and things, and to make, execute, deliver, file, and record
any and all instruments, papers and documents which shall be or become
necessary, proper or convenient to carry out or put into effect any provisions
of this Merger Agreement.
B-7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Merger Agreement to
be signed by their respective officers thereunto duly authorized as of the
date first written above.
PANAMSAT CORPORATION
By:
/s/ Frederick A. Landman
----------------------------------
Name: Frederick A. Landman
Title: President
PAS MERGER CORP.
By:
/s/ Charles H. Noski
----------------------------------
Name: Charles H. Noski
Title: President
MAGELLAN INTERNATIONAL, INC.
By:
/s/ Charles H. Noski
----------------------------------
Name: Charles H. Noski
Title: President
B-8
<PAGE>
APPENDIX C
- --------------------------------------------------------------------------------
STOCK CONTRIBUTION AND EXCHANGE AGREEMENT
BY AND AMONG
GRUPO TELEVISA, S.A.
AS "PARENT"
AND
SATELLITE COMPANY, LLC
AS "CONTRIBUTOR"
AND
MAGELLAN INTERNATIONAL, INC.
AS "NEWCO"
AND
HUGHES COMMUNICATIONS, INC.
AS "HCI"
DATED AS OF SEPTEMBER 20, 1996
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
ARTICLE I
<C> <S> <C>
Contribution and Exchange of Stock...................................... C-2
1.1 Contribution and Exchange of Stock............................... C-2
1.2 Consideration for Stock.......................................... C-2
ARTICLE II
Closing................................................................. C-3
2.1 Closing.......................................................... C-3
2.2 Documents to be Delivered........................................ C-3
ARTICLE III
Representations and Warranties of the Contributing Group................ C-3
3.1 Organization, Standing and Power................................. C-3
3.2 Capital Structure................................................ C-4
3.3 Authority; No Violations; Consents and Approvals................. C-5
3.4 Univisa Financial Statements..................................... C-6
3.5 Parent Financial Statements...................................... C-6
3.6 No Adverse Change................................................ C-7
3.7 Compliance with Laws............................................. C-7
3.8 Litigation....................................................... C-7
3.9 Taxes............................................................ C-7
3.10 Material Contracts............................................... C-8
ARTICLE IV
Representations and Warranties of the Newco Group....................... C-8
4.1 Organization, Standing and Power................................. C-8
4.2 Authority; No Violation Consents and Approvals................... C-9
4.3 Certain Representations.......................................... C-10
ARTICLE V
Covenants Between Signing and Closing................................... C-10
5.1 Interim Operations of Univisa and the Subsidiaries............... C-10
5.2 Interim Operations of the Newco Group............................ C-11
5.3 Access to Information............................................ C-11
5.4 Legal Conditions, Filings and Consents........................... C-11
5.5 Notices of Certain Events........................................ C-12
5.6 Publicity........................................................ C-12
5.7 Further Action................................................... C-12
5.8 Rights to "Univisa" Name......................................... C-12
5.9 Statement of Liabilities......................................... C-12
5.10 Trustee.......................................................... C-14
ARTICLE VI
Conditions.............................................................. C-14
6.1 Conditions to Each Party's Obligation to Effect the Univisa
Contribution.................................................... C-14
6.2 Additional Conditions to Obligations of the Contributing Group... C-14
6.3 Additional Conditions to Obligations of the Newco Group.......... C-15
</TABLE>
C-i
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
ARTICLE VII
<C> <S> <C>
Actions by the Contributing Group and the Newco Group After the Closing... C-16
7.1 Books and Records.................................................. C-16
7.2 Further Assurances................................................. C-17
7.3 Tax Reporting of Univisa Contribution.............................. C-17
7.4 No Dissolution, Etc; Capital Structure............................. C-17
7.5 Confidentiality.................................................... C-17
ARTICLE VIII
Indemnification........................................................... C-18
8.1 Survival and Time Limitations...................................... C-18
8.2 Indemnification.................................................... C-18
ARTICLE IX
Termination and Amendment................................................. C-22
9.1 Termination........................................................ C-22
9.2 Effect of Termination.............................................. C-23
9.3 Amendment.......................................................... C-23
9.4 Extension; Waiver.................................................. C-23
ARTICLE X
General Provisions........................................................ C-23
10.1 Termination of Confidentiality Agreement........................... C-23
10.2 Expenses........................................................... C-23
10.3 Notices............................................................ C-24
10.4 Interpretation..................................................... C-25
10.5 Entire Agreement................................................... C-25
10.6 Assignment......................................................... C-25
10.7 Governing Law...................................................... C-25
10.8 Severability....................................................... C-25
10.9 Service of Process; Consent to Jurisdiction........................ C-26
10.10 Injunctive Relief.................................................. C-26
10.11 Arbitration........................................................ C-26
10.12 Attorneys' Fees.................................................... C-26
10.13 Cumulative Remedies................................................ C-26
10.14 Counterparts....................................................... C-27
10.15 Investment Representations......................................... C-27
</TABLE>
C-ii
<PAGE>
DEFINITION CROSS-REFERENCE TABLE
<TABLE>
<CAPTION>
TERM SECTION
- ---- ----------
<S> <C>
Agreement........................................................... Preamble
Asset Contribution.................................................. Recitals
Balance Sheet....................................................... 3.4
Balance Sheet Date.................................................. 3.4
Bankruptcy Exception................................................ 3.3(a)
Cash Election....................................................... 1.2(a)(iii)
Claim............................................................... 8.2(f)
Claim Notice........................................................ 8.2(f)
Class B Common Stock................................................ Recitals
Closing............................................................. 2.1
Closing Date........................................................ 2.1
Collateral Agreements............................................... 1.2(b)
Collateral Trust Agreement.......................................... 1.2(b)
Contributing Group.................................................. Preamble
Contributing Group Violation........................................ 3.3(b)
Contributor......................................................... Preamble
Contributor's Refund................................................ 8.2(e)
Code................................................................ Recitals
Damages............................................................. 8.2(a)(i)
Distributed Assets.................................................. 5.1(c)
Distributees........................................................ 5.1(c)
Distribution Agreements............................................. 5.1(c)
Distributions....................................................... 5.1(c)
Exchange Act........................................................ 3.3(c)
FCC................................................................. 3.7(a)
Financial Statements................................................ 3.4
GAAP................................................................ 3.4
Galaxy.............................................................. Recitals
Governmental Entity................................................. 3.3(c)
HCI................................................................. Preamble
HSR Act............................................................. 3.3(c)
Hughes Parties...................................................... Recitals
JAMS................................................................ 10.11
Known Liabilities Estimate.......................................... 5.9(a)
Law................................................................. 3.7(a)
Liability........................................................... 5.1(b)
Liens............................................................... 1.1
Material Contract................................................... 3.10
Merger.............................................................. Recitals
Merger Sub.......................................................... Recitals
Mexican GAAP........................................................ 3.5
Newco............................................................... Preamble
Newco Group......................................................... Preamble
Newco Group Violation............................................... 4.2(b)
PanAmSat............................................................ Recitals
Parent.............................................................. Preamble
Parent Balance Sheet................................................ 3.5
Parent Balance Sheet Date........................................... 3.5
Parent Distributees................................................. 5.1(c)
</TABLE>
C-iii
<PAGE>
<TABLE>
<CAPTION>
TERM SECTION
- ---- ---------
<S> <C>
Parent Financial Statements.......................................... 3.5
Permits.............................................................. 3.7(b)
Pledge Agreement..................................................... 1.2(b)
Post Closing Periods................................................. 8.2(c)
Pre-Closing Portion of a Straddle Period............................. 8.2(c)
Pre-Closing Periods.................................................. 8.2(a)(ii)
Principal Stockholders Agreement..................................... 3.2(c)
Reorganization Agreement............................................. Recitals
Required Expenditures................................................ 5.1(c)
SEC.................................................................. 3.2(c)
Securities Act....................................................... 10.15(b)
Standard Cash Consideration.......................................... 1.2(a)(i)
Standard Election.................................................... 1.2(a)(i)
Statement of Liabilities............................................. 5.9(a)
Stock Election....................................................... 1.2(a)(ii)
Straddle Periods..................................................... 8.2(c)
Subsidiary........................................................... 3.2(f)
Tax Matter........................................................... 8.2(g)(ii)
Transaction Liabilities.............................................. 5.1(d)
Trustee.............................................................. 1.2(b)
Trust Holdback....................................................... 1.2(b)
Univisa.............................................................. Recitals
Univisa Contribution................................................. 1.1
Univisa Stock........................................................ 3.2(a)
USHI................................................................. Recitals
USHI Stock........................................................... 3.2(b)
Value Unit........................................................... 1.1(a)
Value Unit Consideration............................................. 1.2(a)
</TABLE>
C-iv
<PAGE>
STOCK CONTRIBUTION AND EXCHANGE AGREEMENT
This STOCK CONTRIBUTION AND EXCHANGE AGREEMENT (this "Agreement"), dated as
of September 20, 1996, is entered into by and among Grupo Televisa, S.A., a
corporation (sociedad anonima) organized under the laws of Mexico ("Parent"),
and Satellite Company, LLC, a Nevada limited liability company ("Contributor,"
and together with Parent, the "Contributing Group"), and Magellan
International, Inc., a Delaware corporation ("Newco") and Hughes
Communications, Inc., a California corporation ("HCI," and together with
Newco, the "Newco Group").
RECITALS
A. The respective Boards of Directors of HCI, Hughes Communications Galaxy,
Inc., a California corporation ("Galaxy") and certain other subsidiaries of
HCI (together with HCI and Galaxy, the "Hughes Parties") and PanAmSat
Corporation, a Delaware corporation ("PanAmSat"), have approved, and deem it
advisable and in the best interests of their respective companies and
stockholders to consummate the reorganization provided for pursuant to an
Agreement and Plan of Reorganization dated as of the date hereof by and
between, among others, Galaxy and PanAmSat (the "Reorganization Agreement").
B. As a condition and inducement to the Hughes Parties and PanAmSat to enter
into the Reorganization Agreement (and effect the transactions contemplated
thereby), concurrently with the execution and delivery thereof, each member of
the Contributing Group and the Newco Group are entering into this Agreement.
C. Pursuant to the Reorganization Agreement, Newco will acquire the business
of Galaxy and the business of PanAmSat by: (i) HCI causing the contribution of
assets and liabilities comprising the business of Galaxy to Newco in exchange
for shares of common stock of Newco (the "Asset Contribution"), (ii)
Contributor contributing its capital stock of Univisa, Inc., a Delaware
corporation ("Univisa"), which owns all of the outstanding stock of Univisa
Satellite Holdings, Inc., a Delaware corporation ("USHI"), which owns all of
the Class B Common Stock, par value $.01 per share, of PanAmSat (the "Class B
Common Stock"), to Newco in exchange for the consideration set forth in
Section 1.2 and (iii) the merger of a Delaware corporation ("Merger Sub"),
with and into PanAmSat, with PanAmSat remaining as the surviving corporation
(the "Merger").
D. For federal income tax purposes, it is intended that the Asset
Contribution, the Univisa Contribution (as defined in Section 1.1) and the
Merger, together qualify as an exchange under the provisions of Section 351 of
the United States Internal Revenue Code of 1986, as amended (the "Code").
E. In addition to the common stock of USHI, Univisa owns other assets and
Subsidiaries (as defined in Section 3.2), and as a condition to the
consummation of the transactions contemplated hereby, has agreed to distribute
all of its assets, Subsidiaries and Liabilities (as defined in Section 5.1(b))
(other than the stock of USHI, the Class B Common Stock and cash to pay
certain costs, expenses and Liabilities allocated to Univisa under this
Agreement) prior to the Closing (as defined in Section 2.1).
F. As a condition to the consummation of the transactions contemplated
hereby, the Contributing Group has agreed to indemnify forever the Newco Group
against any and all Liabilities to be distributed prior to the Closing.
C-1
<PAGE>
AGREEMENT
In consideration of the foregoing and the mutual promises contained herein
and for other good and valuable consideration, the receipt and adequacy of
which are hereby acknowledged, the parties hereto, intending to be legally
bound, hereby agree as follows:
Article I
Contribution and Exchange of Stock
1.1 Contribution and Exchange of Stock. Upon the terms and subject to the
conditions contained herein, Contributor will contribute, convey, transfer,
assign and deliver to Newco, and Newco will acquire on the Closing Date, all
of the outstanding Univisa Stock (as defined in Section 3.2(a)), free and
clear of any claim, lien, pledge, option, charge, security interest,
encumbrance or other rights of third parties of any nature whatsoever
("Liens") (the "Univisa Contribution").
1.2 Consideration for Stock.
(a) Upon the terms and subject to the conditions contained herein, as
consideration for the Univisa Contribution, promptly after the Allocation
Determination, Newco shall, subject to Section 1.2(c), distribute to
Contributor consideration with an aggregate value deemed by the parties as of
the date hereof to be equal to the product of $30 multiplied by the number of
shares of Class B Common Stock owned by USHI immediately prior to the
Effective Time (the "Value Unit Consideration"), which shall be divided into
units with a deemed value of $30 each (each such unit, a "Value Unit"), each
such Value Unit to be exchanged at the election of Contributor for one of the
following (subject to Section 4.6 of the Reorganization Agreement):
(i) for each Value Unit with respect to which a written election to
receive a combination of Newco Common Stock and cash has been delivered by
Contributor to Newco no later than the Election Deadline (a "Standard
Election"), the right to receive (x) an amount in cash equal to one-half (
1/2) of the Standard Cash Consideration plus (y) one-half ( 1/2) share of
Newco Common Stock; or
(ii) except as otherwise provided in Section 4.4 of the Reorganization
Agreement, for each such Value Unit with respect to which a written
election to receive solely Newco Common Stock has been delivered by
Contributor to Newco no later than the Election Deadline (a "Stock
Election"), the right to receive one (1) share of Newco Common Stock; or
(iii) except as otherwise provided in Section 4.4 of the Reorganization
Agreement, for each such Value Unit with respect to which a written
election to receive solely cash has been delivered by Contributor to Newco
no later than the Election Deadline (a "Cash Election"), the right to
receive the Standard Cash Consideration.
(b) Immediately upon the receipt of the consideration specified in Section
1.2, (a) seven million five hundred thousand (7,500,000) shares of Newco
Common Stock received by Contributor shall be repurchased by Newco for $225
million in cash.
(c) The Trust Holdback shall be deducted from the Value Unit Consideration.
For purposes of this Section 1.2, the "Trust Holdback" shall be an amount in
cash equal to the sum of (i) an amount equal to the Known Liabilities Estimate
(as defined in Section 5.9) and (ii) $25 million, and five million (5,000,000)
shares of Newco Common Stock, provided, however, that if the Contributor shall
have received less than twelve million five hundred thousand (12,500,000)
shares of Newco Common Stock as consideration for the Univisa Contribution,
the Trust Holdback shall include all of the shares of Newco Common Stock
received by Contributor after giving effect to the repurchase of shares of
Newco Common Stock pursuant to Section 1.2(b) and the amount of cash shall be
increased by an amount equal to the product of (a) the difference between five
million (5,000,000) and the number of shares of Newco Common Stock received by
the Contributor after giving effect to the repurchase of shares of Newco
Common Stock pursuant to Section 1.2(b) and (b) the Standard Cash
Consideration. At the
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time the Contributor receives the Value Unit Consideration, Newco shall,
pursuant to a Collateral Trust Agreement substantially in the form attached
hereto as Exhibit A (the "Collateral Trust Agreement") and a Pledge and
Security Agreement substantially in the form attached hereto as Exhibit B (the
"Pledge Agreement," and together with the Collateral Trust Agreement, the
"Collateral Agreements"), assign and deliver the Trust Holdback to the trustee
named therein (the "Trustee"), pending the determination of Parent's and
Contributor's indemnification obligations, if any, as set forth in Section
8.2. Capitalized terms used in this Section 1.2 without meaning shall have the
meanings assigned to such terms in the Reorganization Agreement.
Article II
Closing
2.1 Closing. Unless this Agreement shall have been terminated and the
transactions herein contemplated shall have been abandoned pursuant to Article
IX, the closing of the Univisa Contribution shall occur immediately after the
consummation of the Asset Contribution and immediately before, and on the same
day as, the consummation of the Merger (the "Closing Date"), at the offices of
Chadbourne & Parke LLP, 30 Rockefeller Plaza, New York, NY 10112, unless
another date, time or place is agreed to in writing by the parties hereto (the
"Closing").
2.2 Documents to be Delivered. To effect the Univisa Contribution,
Contributor and Newco shall, on the Closing Date, deliver the following:
(a) Contributor shall deliver to Newco certificate(s) evidencing all of
the outstanding shares of the Univisa Stock, free and clear of any Liens,
duly endorsed in blank for transfer or accompanied by stock powers duly
executed in blank.
(b) Each party shall each deliver all documents required to be delivered
pursuant to Article VI.
(c) All instruments and documents executed and delivered to Newco
pursuant hereto shall be in form and substance, and shall be executed in a
manner, reasonably satisfactory to Newco. All instruments and documents
executed and delivered to Contributor pursuant hereto shall be in form and
substance, and shall be executed in a manner, reasonably satisfactory to
Contributor.
Article III
Representations and Warranties of the Contributing Group
Each member of the Contributing Group represents and warrants as of the date
hereof, on a joint and several basis, to each member of the Newco Group as
follows:
3.1 Organization, Standing and Power. Each member of the Contributing Group,
Univisa and each Subsidiary (as defined in Section 3.2) of Univisa is duly
organized, validly existing and (if applicable) in good standing under the
laws of its respective jurisdiction of formation, has all requisite power and
authority necessary to own, lease and operate its properties and to carry on
its business as now being conducted, and is duly qualified, and in good
standing to own, lease and operate its properties and to conduct business in
each jurisdiction, domestic and foreign, in which the business it is
conducting, or the operation, ownership or leasing of its properties, makes
such qualification necessary, other than in such jurisdictions where the
failure so to qualify or be in good standing would not have a material adverse
economic impact on the assets or business of such member of the Contributing
Group, Univisa and the Subsidiaries of Univisa, taken as a whole, or impair
the right or ability of the parties hereto to consummate the transactions
contemplated hereby. Each member of the Contributing Group, Univisa and each
Subsidiary of Univisa has heretofore made available true, complete and correct
copies of its Certificate of Incorporation and Bylaws (or other organizational
documents, as appropriate) as currently in effect together with all amendments
thereto. No resolution has been adopted to amend any of such Certificates of
Incorporation or Bylaws (or other organizational documents, as appropriate)
except as
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expressly called for by this Agreement. No member of the Contributing Group,
Univisa nor any Subsidiary of Univisa (i) has been dissolved, adopted
resolutions to dissolve or acted in any way to accomplish, request or approve
such dissolution, (ii) is a party to any merger or (iii) has been declared
bankrupt, and, to each such entity's knowledge, no action or request is
pending to declare it bankrupt. Contributor has made available to Newco minute
books for each of Univisa and its Subsidiaries which contain complete and
accurate records in all material respects of all meetings, or consents in lieu
thereof, of the shareholders and the Board of Directors (including committees
thereof) of each such entity since its date of formation.
3.2 Capital Structure.
(a) Univisa has authorized 100 shares of Common Stock, $1.00 par value per
share, 100 shares of which are issued and outstanding (some of which may be
redeemed by Univisa prior to the Closing) (the "Univisa Stock"), and no shares
of preferred stock. All of the outstanding shares of Univisa Stock are owned
by Contributor of record and beneficially, free and clear of any Liens.
(b) USHI has authorized 100 shares of Common Stock, $1.00 par value per
share, 10 shares of which are issued and outstanding (the "USHI Stock"), and
no shares of preferred stock. All of the outstanding shares of USHI Stock are
owned by Univisa of record and beneficially, free and clear of any Liens.
(c) All of the shares of the Univisa Stock and the USHI Stock are validly
issued, fully paid and nonassessable and no such shares are subject to
preemptive or other similar rights. Other than the Subsidiaries set forth on
Schedule 3.2(e), USHI and the Class B Common Stock, neither Univisa nor USHI
(i) beneficially owns any capital shares or has any other record or beneficial
equity or other ownership or interest in any corporation, partnership, joint
venture, association or other entity or business enterprise or (ii) has any
commitment to contribute to the capital of, make loans to, or share the losses
of any person or entity. Except as set forth in Sections 3.2(a) or (b), there
are outstanding: (i) no shares of capital stock or other voting securities of
Univisa or USHI authorized, issued or outstanding; (ii) no securities
convertible into, or exchangeable or exercisable for, shares of capital stock
or other voting securities of Univisa or USHI; and (iii) no options, warrants,
calls, rights (including preemptive rights), commitments or agreements
obligating either member of the Contributing Group, Univisa or any Subsidiary
of Univisa to issue, deliver, sell, purchase, redeem or acquire, or cause to
be issued, delivered, sold, purchased, redeemed or acquired, additional shares
of capital stock or other voting securities of Univisa or USHI, or obligating
Univisa or USHI to grant, extend or enter into any such option, warrant, call,
right, convertible security, commitment or agreement. Except as set forth on
Schedule 3.2(c), there are not any stockholder agreements, voting trusts or
other agreements or understandings to which either member of the Contributing
Group, Univisa or any Subsidiary of Univisa is a party or by which it is bound
relating to the voting of any shares of the capital stock of Univisa or USHI.
There are no restrictions on Univisa to vote the stock of USHI other than the
Principal Stockholders Agreement dated as of the date hereof, by and between
HCI, Galaxy, Contributor, the holders of Class A Common Stock of PanAmSat and
the Trustee of the Voting Trust of certain holders of Class A Common Stock of
PanAmSat (the "Principal Stockholders Agreement"). No person or entity has any
rights to cause either member of the Contributing Group, Univisa or any
Subsidiary of Univisa to register with the United States Securities and
Exchange Commission (the "SEC") any securities of Univisa or USHI.
(d) USHI is the record and beneficial owner of 100% of the issued and
outstanding shares of Class B Common Stock, free and clear of any Liens. As of
the date hereof, there is a total of 40,459,431 shares of Class B Common Stock
issued and outstanding. All of the shares of Class B Common Stock owned by
USHI are validly issued, fully paid and nonassessable and no such shares are
subject to preemptive or other similar rights. Except as set forth in this
Section 3.2(d), there are outstanding: (i) no securities of either member of
the Contributing Group, Univisa or any Subsidiary of Univisa convertible into,
or exchangeable or exercisable for, shares of Class B Common Stock; and (ii)
no options, warrants, calls, rights (including preemptive rights), commitments
or agreements to which either member of the Contributing Group, Univisa or any
Subsidiary of Univisa is a party or by which it is bound, in any case
obligating either member of the Contributing Group, Univisa or any Subsidiary
of Univisa to deliver, sell, purchase, redeem or acquire, or cause to be
delivered, sold,
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purchased, redeemed or acquired, additional shares of Class B Common Stock, or
obligating either member of the Contributing Group, Univisa or any Subsidiary
of Univisa to grant, extend or enter into any such option, warrant, call,
right, convertible security, commitment or agreement. Except as set forth in
the Principal Stockholders Agreement, there are not any stockholder
agreements, voting trusts or other agreements or understandings to which
either member of the Contributing Group, Univisa or any Subsidiary of Univisa
is a party or by which it is bound relating to the voting of any shares of the
Class B Common Stock. Except for the Principal Stockholders Agreement, there
are no restrictions on USHI to vote the shares of the Class B Stock. No person
has any rights to cause either member of the Contributing Group, Univisa or
any Subsidiary of Univisa to register with the SEC any shares of the Class B
Common Stock. All of the outstanding shares of Class B Common Stock are owned
by USHI free and clear of any Liens. The execution and delivery of this
Agreement will not cause, directly or indirectly, any of the shares of the
Class B Common Stock to be converted into any other capital stock of PanAmSat.
(e) Schedule 3.2(e) sets forth a complete and accurate list of each
Subsidiary of Univisa as of the date hereof, each of which is, as of the date
hereof, directly or indirectly, wholly-owned by Univisa, free and clear of any
Liens. Schedule 3.2(e) also contains the jurisdiction of incorporation or
organization of each Subsidiary of Univisa as of the date hereof, each
jurisdiction in which such Subsidiary is qualified to do business and the
number of shares of such Subsidiary outstanding.
(f) As used in this Agreement, the word "Subsidiary," with respect to any
party, means, as of any date of determination, any corporation, partnership,
joint venture or other organization, whether incorporated or unincorporated,
of which, as of such date of determination: (i) such party or any other
Subsidiary of such party is a general partner; (ii) voting power to elect a
majority of the Board of Directors or others performing similar functions with
respect to such corporation, partnership, joint venture or other organization
is held by such party or by any one or more of its Subsidiaries, or by such
party and any one or more of its Subsidiaries; or (iii) more than 50% of all
classes of equity securities is, directly or indirectly, owned or controlled
by such party or by any one or more of its Subsidiaries, or by such party and
any one or more of its Subsidiaries.
3.3 Authority; No Violations; Consents and Approvals.
(a) Each member of the Contributing Group has all requisite power and
authority to execute and deliver this Agreement and the Collateral Agreements
and to perform its obligations hereunder and thereunder and to effect the
transactions contemplated hereby and thereby. The execution, delivery and
performance of each of this Agreement and the Collateral Agreements and the
consummation of the transactions contemplated hereby and thereby have been
duly authorized by all necessary action on the part of each member of the
Contributing Group. This Agreement has been, and each of the Collateral
Agreements, will be, duly executed and delivered by each member of the
Contributing Group, and assuming that each of this Agreement and the
Collateral Agreements constitutes the valid and binding agreement of each
member of the Newco Group, and assuming the consents, approvals,
authorizations or permits and filings or notifications referred to in
paragraph (c) of this Section 3.3 are duly and timely obtained or made,
constitutes (or, with respect to each of the Collateral Agreements, will
constitute when executed and delivered) a valid and binding obligation of each
member of the Contributing Group enforceable in accordance with its terms
except that the enforcement hereof and thereof may be limited by (a)
bankruptcy, insolvency, reorganization, moratorium or other similar laws now
or hereafter in effect relating to creditors' rights generally and (b) general
"principles of equity" (regardless of whether enforceability is considered in
a proceeding at law or in equity) (the foregoing exception, the "Bankruptcy
Exception").
(b) The execution, delivery and performance by each member of the
Contributing Group of each this Agreement and the Collateral Agreements does
not, and the consummation by each member of the Contributing Group of the
transactions contemplated hereby and thereby will not, (x) conflict with, or
result in any violation of, or default (with or without notice or lapse of
time, or both) under, or give rise to a right of termination, cancellation or
acceleration of any obligation or the loss of a material benefit under, or the
creation of a material Lien on assets or property, or right of first refusal
with respect to any material asset or property (any such conflict, violation,
default, right of termination, cancellation or acceleration, loss, creation or
right of first refusal,
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a "Contributing Group Violation"), pursuant to any provision of the respective
Certificate of Incorporation or Bylaws or equivalent constituent document of
either member of the Contributing Group or, (y) except as to which requisite
waivers or consents have been obtained and, except as set forth on Schedule
3.3(b) hereto and assuming the consents, approvals, authorizations or permits
and filings or notifications referred to in paragraph (c) of this Section 3.3
are duly and timely obtained or made, result in any Contributing Group
Violation of any material loan or credit agreement, note, mortgage, indenture,
lease, or other material agreement, obligation, instrument, Permit (as defined
in Section 3.7(b)), judgment, order, decree or Law applicable to either member
of the Contributing Group or any of their respective properties or assets;
provided, however, that nothing in this Section 3.3 will be deemed to
constitute a representation or warranty by either member of the Contributing
Group as to any antitrust law or requirement.
(c) No consent, approval, order or authorization of, or registration,
declaration or filing with, notice to, or permit from any legislative,
executive, judicial, regulatory or other governmental or quasi-governmental
authority, instrumentality or body, whether domestic or foreign, local, state,
federal or other, including any administrative agency, commission or court
("Governmental Entity"), is required by or with respect to either member of
the Contributing Group in connection with the execution and delivery by either
member of the Contributing Group of this Agreement or any of the Collateral
Agreements, or the consummation by either member of the Contributing Group of
the transactions contemplated hereby and thereby, which if not obtained or
made would have a material adverse economic impact on the assets or business
of such member, or a member of the Newco Group, or would have a material
adverse effect on either member of the Contributing Group's ability to
consummate the transactions contemplated hereby, except for: (A) the filing of
a premerger notification and report form by the Contributing Group under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended and the rules
and regulations thereunder (the "HSR Act") and the expiration or termination
of the applicable waiting period thereunder; (B) the filing with the SEC of
such reports under and such other compliance with the Securities Exchange Act
of 1934, as amended, and the rules and regulations thereunder (the "Exchange
Act"), as may be required in connection with this Agreement and the Collateral
Agreements and the transactions contemplated hereby and thereby; and (C) such
filings and approvals as may be required by any applicable state securities
or, "blue sky" laws.
3.4 Univisa Financial Statements. The Financial Statements have been
prepared from, and are in accordance with, the books and records of Univisa
and its consolidated Subsidiaries and were prepared in accordance with United
States generally accepted accounting principles ("GAAP") applied on a
consistent basis during the periods involved (except as may be indicated in
the notes thereto) and present fairly, in all material respects, in accordance
with applicable requirements of GAAP the consolidated financial position of
Univisa and its consolidated Subsidiaries as of their respective dates and the
consolidated results of operations and the consolidated cash flows of Univisa
and its consolidated Subsidiaries for the periods presented therein. The books
and all other financial records of Univisa and each of its Subsidiaries are
complete and correct in all material respects. "Financial Statements" shall
mean the audited Balance Sheet, Consolidated Statements of Income and
Consolidated Statements of Stockholder's Equity for Univisa and its
consolidated Subsidiaries for the three year period ended as of the Balance
Sheet Date, together with the notes thereon and the related unqualified report
of Coopers & Lybrand, Univisa's certified public accountants, previously
delivered to each member of the Newco Group. "Balance Sheet" shall mean the
Consolidated Balance Sheet of Univisa as of December 31, 1995, previously
delivered to each member of the Newco Group. "Balance Sheet Date" shall mean
December 31, 1995.
3.5 Parent Financial Statements. The Parent Financial Statements have been
prepared from, and are in accordance with, the books and records of Parent and
its consolidated Subsidiaries and were prepared in accordance with Mexican
generally accepted accounting principles ("Mexican GAAP") applied on a
consistent basis during the periods involved (except as may be indicated in
the notes thereto) and present fairly, in all material respects, in accordance
with applicable requirements of Mexican GAAP the consolidated financial
position of Parent and its consolidated Subsidiaries as of their respective
dates and the consolidated results of operations and the consolidated cash
flows of Parent and its consolidated Subsidiaries for the periods presented
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therein. The books and all other financial records of Parent and each of its
Subsidiaries are complete and correct in all material respects. "Parent
Financial Statements" shall mean the audited Parent Balance Sheet,
Consolidated Statements of Income, Consolidated Statements of Changes in
Stockholder's Equity and Consolidated Statements of Changes in Financial
Position for Parent and its consolidated Subsidiaries for the three year
period ended as of the Parent Balance Sheet Date, together with the notes
thereon and the related unqualified report of Coopers & Lybrand Despacho
Roberto Casas Alatriste, Parent's certified public accountants, previously
delivered to each member of the Newco Group. "Parent Balance Sheet" shall mean
the Consolidated Balance Sheet of Parent as of December 31, 1995, previously
delivered to each member of the Newco Group. "Parent Balance Sheet Date" shall
mean December 31, 1995.
3.6 No Adverse Change. Since the Parent Balance Sheet Date to the date
hereof, there has been no change in the financial condition, results of
operation, business or assets of Parent which materially adversely affects the
ability of Parent to perform its obligations under this Agreement or any of
the Collateral Agreements.
3.7 Compliance with Laws.
(a) The businesses of Univisa and its Subsidiaries have not been and are not
being conducted in material violation of any Law. No material investigation or
review by any Governmental Entity with respect to Univisa, any of its
Subsidiaries or their respective businesses is pending or, to the knowledge of
the Contributing Group, threatened and neither Univisa nor any of its
Subsidiaries has received any written citation or notification alleging any
material violation of any Law or Permit with respect to which all necessary
corrective action has not been taken. "Law" shall mean any applicable domestic
or foreign, federal, state or local laws, statutes, regulations, rules, codes,
ordinances, orders and governmental licenses, franchises, permits and
governmental authorizations enacted, adopted, issued or promulgated by any
Governmental Entity (including those pertaining to communications,
broadcasting, consumer protection, building, zoning, environmental and
occupational safety and health requirements and all requirements of the
Communications Act of 1934, as amended, or any successor statute, and the
rules and regulations of the Federal Communication Commission (the "FCC")) or
common law.
(b) Univisa and its Subsidiaries possess, as of the date hereof, all
material permits, licenses, franchises, approvals, certificates, concessions,
privileges, immunities, consents or other authorizations issued or authorized
or required to be issued by any Governmental Entity (collectively, "Permits")
necessary to allow Univisa and its Subsidiaries to own or lease their assets
and to lawfully conduct their respective businesses.
(c) Neither Univisa or its Subsidiaries, nor any of their respective
employees are officials or officers of any Governmental Entity or any
political party, and neither Univisa nor any of its Subsidiaries or affiliates
has taken, is taking or will take, or has allowed or will allow on its behalf
to be taken, any action which violated or would violate the United States
Foreign Corrupt Practices Act of 1977, the U.S. Export Administration Act, as
amended, or any laws of any jurisdiction to which such party or person is
subject, relating in each case to payments for the purpose of influencing an
act or decision of a government agency or official; provided, however, that
nothing in this sentence shall be deemed to subject any party or person to any
law to which such party or person would not otherwise be subject. Each of
Univisa and its Subsidiaries is in material compliance with all domestic and
foreign laws restricting or regulating the export of technology to foreign
countries.
3.8 Litigation. Except as disclosed on Schedule 3.8, there is no suit,
action or proceeding pending or, to either member of the Contributing Group's
knowledge, threatened against or affecting Univisa or any of its Subsidiaries,
nor is there any written judgment, decree, injunction, rule or order of any
Governmental Entity or arbitrator outstanding against Univisa or any of its
Subsidiaries.
3.9 Taxes. Each of Univisa and its Subsidiaries has timely filed (or has
obtained timely extensions for) all tax returns required to be filed by such
party completely and accurately in all material respects and has timely paid
(or Univisa has paid on behalf of any such Subsidiary), or has established an
adequate reserve for the
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payment of, all material taxes which are required to be paid in respect of the
taxable period reflected in such returns or for periods since the most recent
date on which a return was filed. All taxes shown to be due on the tax returns
that have been filed by Univisa and each of its Subsidiaries have been timely
paid. Except as provided on Schedule 3.9, neither Univisa nor any of its
Subsidiaries has waived any statute of limitations in respect of taxes of
Univisa or any of its Subsidiaries. Except as set forth in Schedule 3.9, none
of the tax returns filed by Univisa or any of its Subsidiaries has been
examined by any taxing authority, and no audit, action, proceeding or
assessment is pending or, to either member of the Contributing Group's
knowledge, threatened by any taxing authority against Univisa or any of its
Subsidiaries. All material taxes which Univisa or any of its Subsidiaries is
required by law to withhold or to collect for payment have been duly withheld
and collected, and have been paid or accrued, reserved against and entered on
the books of Univisa. There are no material Liens for taxes (other than for
current taxes not yet due and payable) on the assets of Univisa or any of its
Subsidiaries. Neither Univisa nor any of its Subsidiaries has any gains from
intercompany transactions (within the meaning of the consolidated return
regulations of the Code) which will be recognized after the Closing Date.
Univisa has previously delivered or made available true and complete copies of
its federal income tax returns for each of the fiscal years ended December 31,
1992 through December 31, 1995. Except as set forth on Schedule 3.9, neither
Univisa nor any of its Subsidiaries is a party to or bound by any agreement
providing for the allocation or sharing of taxes with any entity which is not,
either directly or indirectly, a Subsidiary of Univisa. Neither Univisa nor
any of its Subsidiaries has filed or is required to file a consent pursuant to
or agreed to the application of Section 341(f) of the Code. Univisa is not a
"United States real property holding corporation" as defined in Section
897(c)(2) of the Code during the applicable period specified in Section
897(c)(1)(A)(ii) of the Code. For the purpose of this Agreement, the term
"tax" (and, with correlative meaning, the terms "taxes" and "taxable") shall
include all federal, state, local and foreign income, profits, franchise,
gross receipts, payroll, sales, employment, use, property, withholding, excise
and other taxes, duties or assessments of any nature whatsoever, together with
all interest, penalties and additions imposed with respect to such amounts.
3.10 Material Contracts. Univisa has provided or made available to each
member of the Newco Group or its independent auditors (i) true and complete
copies of all Material Contracts, or (ii), with respect to such Material
Contracts that have not been reduced to writing, a written description
thereof, each of which is listed on Schedule 3.10. Except as set forth on
Schedule 3.10, neither Univisa nor any of its Subsidiaries is, or has received
any notice that, nor does the Contributing Group have any knowledge that, any
other party is in default in any respect under any such Material Contract. As
used in this Agreement, the term "Material Contract" means, as to any person
or entity, all written contracts, agreements, commitments, arrangements,
leases (including with respect to personal property), policies and other
instruments to which it or any of its Subsidiaries is a party or by which it
or any such Subsidiary is bound (other than intercompany arrangements which
will be cancelled, and for which mutual releases will be granted with respect
thereto, prior to the Closing) which, when assuming that all options to renew
or extend are exercised, (x) require payments to be made, individually or in
the aggregate, in excess of $1,000,000 per year for goods and/or services, or
(y) do not by their terms expire and are not subject to termination within six
months from the date of the execution and delivery thereof and require
payments to be made, individually or in the aggregate, in excess of
$1,000,000.
Article IV
Representations and Warranties of the Newco Group
Each member of the Newco Group represents and warrants as of the date
hereof, on a joint and several basis, to each member of the Contributing Group
as follows:
4.1 Organization, Standing and Power. Each member of the Newco Group is a
corporation duly organized, validly existing and in good standing under the
laws of its jurisdiction of incorporation, has all requisite corporate power
and authority necessary to own, lease and operate its properties and to carry
on its business as now being conducted, and is duly qualified, and in good
standing to own, lease and operate its properties and to conduct business in
each jurisdiction, domestic and foreign, in which the business it is
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conducting, or the operation, ownership or leasing of its properties, makes
such qualification necessary, other than in such jurisdictions where the
failure so to qualify or be in good standing would not have a material adverse
economic impact on the assets or business of either member of the Newco Group
or impair the right or ability of the parties hereto to consummate the
transactions contemplated hereby. Each member of the Newco Group has
heretofore made available true, complete and correct copies of its Certificate
of Incorporation and Bylaws as currently in effect together with all
amendments thereto. No resolution has been adopted to amend any of such
Certificates of Incorporation or Bylaws except as expressly called for by this
Agreement. No member of the Newco Group (i) has been dissolved, adopted
resolutions to dissolve or acted in any way to accomplish, request or approve
such dissolution, (ii) is a party to any merger and (iii) has been declared
bankrupt, and, to each member of the Newco Group's knowledge, no action or
request is pending to declare it bankrupt. Newco has made available minute
books which contain complete and accurate records in all material respects of
all meetings, or consents in lieu thereof, of the shareholders and the Board
of Directors (including committees thereof) since its date of formation.
4.2 Authority; No Violations; Consents and Approvals.
(a) Each member of the Newco Group has all requisite corporate power and
authority to execute and deliver each of this Agreement and the Collateral
Agreements to which it is a party to perform its obligations hereunder and
thereunder and to effect the transactions contemplated hereby and thereby. The
execution, delivery and performance of each of this Agreement and the
Collateral Agreements to which it is party and the consummation of the
transactions contemplated hereby and thereby have been duly authorized by all
necessary corporate action on the part of each member of the Newco Group. This
Agreement has been, and each of the Collateral Agreements to which it is a
party will be, duly executed and delivered by each member of the Newco Group
and assuming that each of this Agreement and the Collateral Agreements to
which it is a party constitutes the valid and binding agreement of the other
parties thereto, and assuming the consents, approvals, authorizations or
permits and filings or notifications referred to in paragraph (c) of this
Section 4.2 are duly and timely obtained or made, constitutes (or, with
respect to each of the Collateral Agreements to which it is a party, will
constitute when executed and delivered) a valid and binding obligation of each
member of the Newco Group enforceable in accordance with its terms except that
the enforcement hereby may be limited by the Bankruptcy Exception.
(b) The execution, delivery and performance by each member of the Newco
Group of each of this Agreement and the Collateral Agreements to which it is a
party does not, and the consummation by each member of the Newco Group of the
transactions contemplated hereby and thereby will not, (x) conflict with or
result in any violation of, or default (with or without notice or lapse of
time, or both) under, or give rise to a right of termination, cancellation or
acceleration of any obligation or the loss of a material benefit under, or the
creation of a material Lien on assets or property, or right of first refusal
with respect to any material asset or property (any such conflict, violation,
default, right of termination, cancellation or acceleration, loss, creation or
right of first refusal, a "Newco Group Violation"), pursuant to any provision
of the Certificate of Incorporation or Bylaws of either member of the Newco
Group or, (y) except as to which requisite waivers or consents have been
obtained and, except as set forth on Schedule 4.2(b) hereto and assuming the
consents, approvals, authorizations or permits and filings or notifications
referred to in paragraph (c) of this Section 4.2 are duly and timely obtained
or made, result in any Newco Group Violation of any material loan or credit
agreement, note, mortgage, indenture, lease, or other material agreement,
obligation, instrument, permit, judgment, order, decree or Law applicable to
either member of the Newco Group or its properties or assets; provided,
however, that nothing in this Section 4.2 will be deemed to constitute a
representation or warranty by either member of the Newco Group as to any
antitrust law or requirement.
(c) No consent, approval, order or authorization of, or registration,
declaration or filing with, notice to, or permit from any Governmental Entity,
is required by or with respect to either member of the Newco Group in
connection with the execution and delivery by each member of the Newco Group
of each of this Agreement and the Collateral Agreements to which it is a party
or the consummation by each member of the Newco Group of the transactions
contemplated hereby and thereby, which if not obtained or made would have a
material adverse economic impact on the assets or business of such member, or
a member of the Contributing Group, or would
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have a material adverse effect on either member of the Newco Group's ability
to consummate the transactions contemplated hereby or thereby, except for: (A)
the filing of a premerger notification and report form by the Newco Group
under the HSR Act and the expiration or termination of the applicable waiting
period thereunder; (B) the filing with the SEC of such reports under and such
other compliance with the Exchange Act and the rules and regulations
thereunder, as may be required in connection with this Agreement and the
Collateral Agreements and the transactions contemplated hereby and thereby;
(C) such filings and approvals as may be required by any applicable state
securities or "blue sky" laws; and (D) such other consents, approvals, orders,
authorizations, registrations, declarations, filings, notices and Permits set
forth in Schedule 4.2(c).
4.3 Certain Representations. No member of the Newco Group has any plan or
intention to (and no such member has any plan or intention to cause or permit
Univisa, USHI or PanAmSat to) liquidate (completely or partially) or dissolve
Univisa or USHI, or merge, consolidate or combine Univisa or USHI with or into
Newco, PanAmSat or any other entity, other than a merger of USHI into Univisa
qualifying as a tax-free liquidation under Section 332 of the Code.
Article V
Covenants Between Signing and Closing
5.1 Interim Operations of Univisa and the Subsidiaries. During the period
from the date of this Agreement and continuing until the Closing Date, each
member of the Contributing Group agrees for itself and for its Subsidiaries
that:
(a) New Business. Neither Univisa nor any of its Subsidiaries shall
engage in or enter into any new business activities unrelated to their
business activities as of the date hereof.
(b) Payment of Liabilities. Univisa shall, and shall cause its
Subsidiaries to, pay, discharge and satisfy any direct or indirect
liability, indebtedness, obligation, commitment, expense, claim,
deficiency, guaranty or endorsement of any type, whether accrued, absolute,
contingent, matured, unmatured, known or unknown or otherwise ("Liability")
that becomes due on or before the Closing.
(c) Required Distributions. On or prior to the Closing Date and pursuant
to agreements reasonably satisfactory to HCI (the "Distribution
Agreements"), Univisa and its Subsidiaries shall, in redemption of a
portion of the Univisa Stock, distribute and transfer (the "Distributions")
to Parent, Contributor and their designees (other than Univisa or USHI)
(collectively, Parent, Contributor and such distributees are referred to
herein as the "Parent Distributees") all of Univisa's right, title and
interest in any and all assets of Univisa and its Subsidiaries (or the
proceeds of the disposition thereof), whether tangible or intangible and
whether fixed, contingent or otherwise, including the stock of all of
Univisa's Subsidiaries (the "Distributed Assets"); provided, however, that
neither Univisa nor its Subsidiaries shall distribute or otherwise transfer
(i) any shares of the USHI Stock, (ii) except as permitted under the
Principal Stockholders Agreement, any shares of the Class B Common Stock
and (iii) cash sufficient to pay all costs, liabilities and expenses
(including taxes) incurred by Univisa or USHI in connection with the
transactions contemplated by this Agreement that are the responsibility of
Univisa which have not been paid prior to the Closing (collectively, the
"Required Expenditures"). Such Distribution Agreements shall provide for,
among other things, indemnification, on a joint and several basis, by the
Parent Distributees in favor of Newco substantially similar to the
indemnities provided by the Contributing Group in favor of Newco in Article
VIII.
(d) Assumption and Release of Liabilities. Prior to the Closing Date and
pursuant to the Distribution Agreements, the Contributing Group shall
assume, and shall cause the Parent Distributees to assume, any and all
Liabilities of Univisa and USHI arising out of, or relating to, or
connected with, occurrences, operations or events prior to, at or as of and
through the last date the transactions contemplated by this Agreement and
the Reorganization Agreement are consummated (including any Liabilities set
forth on the Schedules hereto or on the Statement of Liabilities), or
arising out of, or relating to, the Distributed Assets or other former
assets of Univisa or USHI either prior to, at, as of, or after the Closing
(the "Transaction Liabilities"). Concurrently with the Distributions, the
Contributing Group shall, and shall cause its
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Subsidiaries and affiliates, to the extent legally permissible, to, (i)
release Univisa and USHI from any and all Transaction Liabilities or other
Liabilities owing to such entities and (ii) use its reasonable best efforts
to have Univisa and USHI released from any and all Transaction Liabilities
owing to all other persons or entities.
(e) Other Actions. Each member of the Contributing Group shall not take,
and shall not permit any of its Subsidiaries to take or agree or commit to
take, any action that results in any condition to the Closing not being
satisfied in all material respects.
5.2 Interim Operations of the Newco Group. During the period from the date
of this Agreement and continuing until the Closing Date, each member of the
Newco Group agrees that it will not take any action that results in any
condition to the Closing not being satisfied in all material respects.
5.3 Access to Information. Each member of the Contributing Group shall (and
shall cause each of its Subsidiaries to) afford to the officers, employees,
accountants, counsel, financing sources and other representatives of each
member of the Newco Group reasonable access, during normal business hours
during the period prior to the Closing Date, to all of Univisa's properties,
books, contracts, commitments and records and those of Univisa's Subsidiaries
(including any tax returns or other tax related information pertaining to
Univisa and its Subsidiaries and including any information to be included in
any registration statement to be filed by Newco with respect to the Newco
Common Stock issued in connection with the transactions contemplated by this
Agreement and the Reorganization Agreement) and, during such period, each
member of the Contributing Group shall (and shall cause each of its
Subsidiaries to) furnish promptly to each member of the Newco Group all other
information concerning the business, properties and personnel of Univisa or
any Subsidiary as either member of the Newco Group may reasonably request
(including any tax returns or other tax related information pertaining to
Univisa or its Subsidiaries, as the case may be and including any information
to be included in any registration statement to be filed by Newco with respect
to the Newco Common Stock issued in connection with the transactions
contemplated by this Agreement and the Reorganization Agreement). Each member
of the Newco Group shall not, and shall cause its representatives not to, use
any information obtained pursuant to this Section 5.3 for any purpose
unrelated to the consummation of the transactions contemplated by this
Agreement.
5.4 Legal Conditions, Filings and Consents. During the period from the date
of this Agreement and continuing until the Closing Date:
(a) Each party will (i) cooperate with one another in determining whether
any actions or filings are required in connection with obtaining any
Governmental Entity approvals required to consummate the transactions
contemplated by this Agreement (including, without limitation, furnishing
all information required under the HSR Act), (ii) cooperate with one
another in determining whether any actions, consents, approvals or waivers
are required to be obtained from any corporate or equivalent governing body
of any party, any of their subsidiaries, or any stockholder of the
foregoing, or whether any actions, consents, approvals or waivers are
required to be obtained from any third parties, such as parties to any
material contracts, in connection with the consummation of the transactions
contemplated by this Agreement, (iii) endeavor in good faith to take all
such actions or make any such filings, furnish information required in
connection therewith, and seek in a timely manner to obtain any such
actions, consents, approvals or waivers and (iv) promptly cooperate with
and furnish information to each other in connection with any such
requirements imposed upon any of them or any of their subsidiaries in
connection with the Univisa Contribution and the other transactions
contemplated by this Agreement. Without limiting the generality or effect
of the foregoing, each party will take all commercially reasonable actions
necessary to obtain (and will cooperate with each other in obtaining) in a
timely manner any consent, authorization, order or approval of, or any
exemption by, any Governmental Entity or other public or private third
party, required to be obtained or made by such party in connection with the
Univisa Contribution, this Agreement or the taking of any action
contemplated hereby.
(b) The parties acknowledge that the transactions described in this
Agreement are an integral part of transactions contemplated by the
Reorganization Agreement, that those transactions require the prior written
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consent of the FCC, that this Agreement will not be consummated prior to
the Closing of the Asset Contribution, and, to the extent applicable to any
of the stockholders of PanAmSat, that the obligations contained in Section
5.4(a) apply with respect to any and all applications and filings made with
Governmental Entities pursuant to Section 7.9 of the Reorganization
Agreement.
5.5 Notices of Certain Events.
During the period from the date of this Agreement and continuing until the
Closing Date, each party shall promptly notify the other parties hereto of:
(i) any notice or other communication from any person alleging that the
consent of such person is or may be required in connection with such
party's consummation of the transactions contemplated by this Agreement;
(ii) any notice or other communication from any Governmental Entity in
connection with such party's consummation of the transactions contemplated
by this Agreement;
(iii) any actions, suits, claims, investigations or proceedings commenced
or, to the actual knowledge of the executive officers of the notifying
party, threatened against, relating to or involving or otherwise affecting
such party or any of its subsidiaries;
(iv) an administrative or other order or notification relating to any
violation or claimed violation of Law by such party;
(v) the occurrence or non-occurrence of any event the occurrence or non-
occurrence of which would cause any representation or warranty of such
party contained in this Agreement to be untrue or inaccurate in any
material respect at or prior to the Closing Date; and
(vi) any material failure of such party to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied by it
hereunder;
provided, however, that the delivery of any notice pursuant to this Section
5.5 shall not limit or otherwise affect the remedies available hereunder to
the party receiving such notice.
5.6 Publicity. During the period from the date of this Agreement and
continuing until the Closing Date, the parties will consult with each other
and will mutually agree prior to the issuance of any press release or public
announcement pertaining to this Agreement or the transactions contemplated
hereby, and shall not issue any such press release or make any such public
announcement or permit any of their Subsidiaries to do the same prior to such
consultation and agreement, except as may be required by applicable Law or the
applicable rules of any securities exchange (including the Nasdaq National
Market) or except as otherwise permitted by the Reorganization Agreement, in
which case the party proposing to issue such press release or make such public
announcement shall use reasonable efforts to consult in good faith with the
other party before issuing any such press release or making any such public
announcement and except for the FCC filings and HSR filings contemplated
herein.
5.7 Further Action. During the period from the date of this Agreement and
continuing until the Closing Date, each party hereto shall, subject to the
fulfillment at or before the Closing Date of each of the conditions of
performance set forth herein or the waiver thereof, perform such further acts
and execute such documents as may be reasonably required to effect the
transactions contemplated by this Agreement.
5.8 Rights to "Univisa" Name. Prior to the Closing Date, the names of
"Univisa, Inc." and "Univisa Satellite Holdings, Inc." shall be changed such
that Univisa shall not be included in such names. After the Closing, Parent
and its Subsidiaries shall retain all right, title and interest in and to the
name "Univisa".
5.9 Statement of Liabilities.
(a) Contributor shall prepare and deliver to HCI, at least 90 days prior to
the anticipated Closing Date, a statement of all of the Liabilities of each of
Univisa and USHI estimated or projected as of the Closing Date
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(such statement, as it may be revised pursuant to Section 5.9(b), is referred
to herein as the "Statement of Liabilities"). Within 30 days of such date of
delivery, HCI shall be entitled to verify the accuracy of the Statement of
Liabilities and shall determine in good faith the amount reasonably necessary
to satisfy in full all of the Liabilities set forth on such Statement,
including the amount reasonably necessary to satisfy on and after the Closing,
in full, all taxes for all taxable years and other periods ending on or before
or including (for the Pre-Closing Portions of any Straddle Periods (as defined
in Section 8.2(c)) the Closing Date, including, any and all such taxes
attributable to any and all distributions of assets by Univisa made in
contemplation of the transactions contemplated by this Agreement or the
Reorganization Agreement, including the distribution of the Distributed Assets
by Univisa to the Parent Distributees (such amount, as it may be revised
pursuant to Section 5.9(b), is referred to herein as the "Known Liabilities
Estimate"). During such 30 day period, HCI and its representatives shall have
access to the management, employees and counsel for Univisa and its
Subsidiaries and to such documents and other information relating to such
Statement as it shall reasonably request. Within five days of the expiration
of such 30 day period, HCI shall notify Contributor of any dispute with
respect to the Statement of Liabilities, and Contributor shall notify HCI of
any dispute with respect to the Known Liabilities Estimate, and any such
dispute(s) which cannot be resolved after good faith negotiations and in any
event within five days from the date Contributor or HCI, as the case may be,
is so notified, shall be referred to an arbitrator pursuant to Section 10.11,
whose determination on such matters shall be made within 30 days of such
referral and shall be final and binding on the parties and whose fees and
expenses shall be paid by the party who does not prevail in such action,
unless the arbitrator determines another method is more equitable.
(b) Contributor shall prepare and deliver to HCI, at least 10 days before
the anticipated Closing Date, an amendment to the Statement of Liabilities,
setting forth any changes that have occurred (or are expected to occur) from
the period beginning on the date when the Statement of Liabilities was
provided to HCI and ending on the Closing Date. Within five days of such date
of delivery, HCI shall be entitled to verify the accuracy of the amended
Statement of Liabilities and shall determine in good faith whether the Known
Liabilities Estimate should be revised to satisfy in full all of the
Liabilities set forth on such amended Statement. During such five day period,
HCI and its representatives shall have access to the management, employees and
counsel for Univisa and its Subsidiaries and to such documents and other
information relating to such Statement as it shall reasonably request.
Immediately after the expiration of such five day period, HCI shall notify
Contributor of any dispute with respect to such amended Statement, and
Contributor shall notify HCI of any dispute with respect to any revisions to
the Known Liabilities Estimate, and any such dispute(s) which cannot be
resolved after good faith negotiations prior to the Closing, shall be referred
to an arbitrator pursuant to Section 10.11, whose determination on such
matters shall be made as promptly as practicable (either before or after the
Closing, however, such arbitration shall in no way delay the Closing if all
other conditions to the Closing set forth in Article VI have been satisfied or
waived by the party for whose benefit such conditions exist) and shall be
final and binding on the parties and whose fees and expenses shall be paid by
the party who does not prevail in such action, unless the arbitrator
determines another method is more equitable. Any adjustments that are required
as a result of such arbitration shall be made as promptly as practicable after
such determination.
(c) Notwithstanding the failure to include any Liability on the Schedule of
Liabilities, or the inclusion of an amount different from the actual amount
needed to satisfy in full any Liability set forth on the Schedule of
Liabilities, or any determination of an arbitrator under Section 10.11, the
actual amount of all Transaction Liabilities shall remain and be the
responsibility of the Contributing Group, and the Contributing Group shall
indemnify and save and hold harmless in full the Newco Group with respect to
any such Transaction Liabilities to the extent set forth in Section
8.2(a)(ii).
(d) When making any determinations under this Section 5.9, the arbitrator
may consider the following: the reasonable likelihood of future claims of the
type or class of claims which is the subject of dispute, the Contributing
Group's ability to satisfy current and future claims and the availability of
insurance. No amounts will be required to be allocated to the Known
Liabilities Estimate with respect to Univisa's obligations under its
licensing/distribution agreements to distribute Parent's programming (although
other obligations under or related to such agreements could be allocated to
the Known Liabilities Estimate, for example, Liabilities associated with
indemnification obligations under such contracts).
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5.10 Trustee.
(a) Each party acknowledges that the Collateral Agreements have not been
reviewed by any Trustee, and that upon the designation of such Trustee, such
Trustee may request that certain revisions be made to such agreements. Each
party will cooperate with one another in good faith to reach mutual agreement
on such revisions.
(b) Prior to the Closing and pursuant to the Collateral Agreements, the
parties shall select a Trustee with respect to the Collateral Agreements which
Trustee shall be a bank or trust company in good standing, organized under the
laws of the United States of America or any State, doing business in or having
a correspondent relationship with a bank or trust company doing business in
the Borough of Manhattan, City of New York, State of New York, and having a
capital and surplus (including subordinated capital notes and earned surplus)
aggregating at least $500,000,000. If the parties are unable to find a bank or
trust company that satisfies the foregoing conditions and that is willing to
serve as the Trustee, then each of the parties shall use its reasonable best
efforts to find another qualified entity that is reasonably acceptable to each
other and that is willing to serve as the Trustee.
Article VI
Conditions
6.1 Conditions to Each Party's Obligation to Effect the Univisa
Contribution. The respective obligations of each party to effect the Univisa
Contribution shall be subject to the satisfaction on or prior to the Closing
Date (or, if permissible, waiver by each party for whose benefit such
conditions exist) of the following conditions:
(a) No Order. No Governmental Entity shall have enacted, issued,
promulgated, enforced or entered any statute, rule, regulation or order
(whether temporary, preliminary or permanent) which is in effect and which
materially restricts, prevents or prohibits consummation of the
transactions contemplated by this Agreement; provided, however, that the
parties shall use their commercially reasonable efforts to cause any such
decree, judgment, injunction or other order to be vacated or lifted.
(b) HSR Act. Any waiting period applicable to the consummation of the
transactions contemplated hereby under the HSR Act shall have expired or
been terminated, and no action shall have been instituted by the Department
of Justice or the Federal Trade Commission challenging or seeking to enjoin
the consummation of the transactions contemplated hereby, which action
shall not have been withdrawn by the party instituting such action or
dismissed or terminated pursuant to a final, non-appealable judgment of a
United States federal court.
(c) Other Approvals. All other approvals or orders by Governmental
Entities required to be obtained, and all filings, notices or declarations
required to be made before any Governmental Entity, by any party prior to
the consummation of the transactions contemplated hereunder shall have been
obtained from, and made with, all required Governmental Entities, except
for such authorizations, consents, waivers, orders, approvals, filings,
notices or declarations, the failure to obtain or make would not be likely
to have a material adverse effect at or after the Closing Date, on Newco
and its Subsidiaries taken as a whole, or on Univisa and its Subsidiaries
taken as a whole.
(d) No Conversion or Exchange. The Certificate of Incorporation of
PanAmSat shall have been amended so that the consummation of the
transactions contemplated by this Agreement shall not cause the shares of
Class B Common Stock outstanding as of the date hereof to be converted or
exchanged into any other shares of the capital stock of PanAmSat.
6.2 Additional Conditions to Obligations of the Contributing Group. The
obligations of each member of the Contributing Group to effect the
transactions contemplated hereby is subject to the satisfaction of the
following conditions, any or all of which may be waived in whole or in part by
Contributor:
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(a) Reorganization Agreement. All of the conditions to the obligations of
PanAmSat (other than the execution, delivery and performance of this
Agreement) under the Reorganization Agreement shall have been satisfied or
waived by PanAmSat.
(b) Representations and Warranties. Each of the representations and
warranties of each member of the Newco Group set forth in this Agreement
shall be true and correct in all material respects as of the date of this
Agreement and (except to the extent such representations and warranties
speak as of an earlier date) as of the Closing Date. Contributor shall have
received certificates of each of the President or a Vice President and the
Chief Financial Officer of each member of the Newco Group to that effect.
(c) Performance of Obligations. Each member of the Newco Group shall have
performed in all material respects all material obligations required to be
performed by it under this Agreement on or before the Closing Date.
Contributor shall have received certificates of the President or a Vice
President and the Chief Financial Officer of each member of the Newco Group
to that effect. Notwithstanding the foregoing, the obligations of the
Contributing Group to effect the transactions contemplated by this
Agreement shall not be relieved by the failure of the foregoing conditions
if such failure is the result, directly or indirectly, of any material
breach by either member of the Contributing Group of any of its material
obligations under this Agreement.
(d) Ancillary Agreements. Each member of the Newco Group shall have
executed and delivered the Collateral Trust Agreement, Newco shall have
executed and delivered the Registration Rights Agreement and each of Newco
and HCI shall have executed and delivered the Stockholder Agreement, each
of which shall be in full force and effect.
(e) Legal Opinion. Contributor shall have received opinions addressed to
each member of the Contributing Group of counsel to each member of the
Newco Group, dated the Closing Date, with respect to the due authorization,
execution and delivery by each member of the Newco Group of each of this
Agreement and the Collateral Agreements to which it is a party, and the
enforceability of each of this Agreement and the Collateral Agreements to
which it is a party against each member of the Newco Group, with such
exceptions and qualifications as are customary and reasonable under the
laws of the applicable jurisdiction. In rendering such opinion, such
counsel may rely upon certificates of public officers and, as to matters of
fact, upon certificates of duly authorized representatives of either member
of the Newco Group; provided, that copies of such certificates still be
contemporaneously delivered to Contributor.
6.3 Additional Conditions to Obligations of the Newco Group. The obligations
of each member of the Newco Group to effect the transactions contemplated
hereby are subject to the satisfaction of the following conditions, any or all
of which may be waived in whole or in part by HCI:
(a) Reorganization Agreement. All of the conditions to the obligations of
HCI (other than the execution, delivery and performance of this Agreement)
under the Reorganization Agreement shall have been satisfied or waived by
HCI.
(b) Representations and Warranties. Each of the representations and
warranties of each member of the Contributing Group set forth in this
Agreement shall be true and correct in all material respects as of the date
of this Agreement and (except for the representations and warranties set
forth in Sections 3.8, 3.9 and 3.10) as of the Closing Date. HCI shall have
received certificates of the President or a Vice President and the Chief
Financial Officer of each member of the Contributing Group to that effect.
(c) Performance of Obligations. Each member of the Contributing Group
shall have performed in all material respects all material obligations
required to be performed by it under this Agreement on or before the
Closing Date. HCI shall have received certificates of the President or a
Vice President and the Chief Financial Officer of each member of the
Contributing Group to that effect. Notwithstanding the foregoing, the
obligations of the Newco Group to effect the transactions contemplated by
this Agreement shall not be relieved by the failure of the foregoing
conditions if such failure is the result, directly or indirectly, of any
material breach by either member of the Newco Group of any of its material
obligations under this Agreement.
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(d) Ancillary Agreements. Each of Parent and Contributor shall have
executed and delivered the Collateral Trust Agreement and the Pledge
Agreement, and Contributor shall have executed and delivered the
Registration Rights Agreement and the Stockholder Agreement, each of which
shall be in full force and effect.
(e) Legal Opinions.
(i) HCI shall have received opinions addressed to each member of the
Newco Group of Fried, Frank, Harris, Shriver & Jacobson and Mexican
counsel to each member of the Contributing Group, dated the Closing
Date, with respect to the due authorization, execution and delivery by
each member of the Contributing Group of each of this Agreement and the
Collateral Agreements, and the enforceability of each of this Agreement
and the Collateral Agreements against each member of the Contributing
Group, and the validity and perfection of the security interests
created under the Collateral Agreements, with such exceptions and
qualifications as are customary and reasonable under the laws of the
applicable jurisdiction. In rendering such opinion, such counsel may
rely upon certificates of public officers and, as to matters of fact,
upon certificates of duly authorized representatives of either member
of the Contributing Group; provided, that copies of such certificates
still be contemporaneously delivered to HCI.
(ii) HCI shall have received an opinion addressed to each member of
the Newco Group of Fried, Frank, Harris, Shriver & Jacobson, dated as
of the Closing Date, substantially in the form of Exhibit C attached
hereto, to the effect that neither Univisa nor USHI will recognize any
taxable gain or loss for United States federal income tax purposes with
respect to the Class B Common Stock held by USHI as a result of the
consummation in accordance with their terms of the transactions
required to be effected pursuant to this Agreement or the
Reorganization Agreement, including the consummation of the Asset
Contribution, the Univisa Contribution and the Merger.
(f) Subsidiary and Assets at Closing. At the Closing Date, Univisa's sole
Subsidiary will be USHI, and Univisa's sole assets will consist of (i) all
of the USHI Stock, which stock shall be owned of record and beneficially by
Univisa, free and clear of any Liens, and (ii) cash sufficient to pay all
Required Expenditures. At the Closing Date, USHI's sole asset will be all
of the issued and outstanding shares of the Class B Common Stock, all of
which will be owned of record and beneficially by USHI, free and clear of
any Liens.
(g) Liabilities. At the Closing Date, except for the Liabilities set
forth on the Statement of Liabilities, neither Univisa nor USHI shall have
any Liabilities.
(h) Known Liabilities Estimate. The Known Liabilities Estimate shall be
equal to or less than $150 million.
(i) Employee and Director Matters. Neither Univisa nor USHI shall have
any employees at Closing. All members of the respective Boards of Directors
of Univisa and USHI shall resign from such boards effective as of the
Closing.
(j) Material Changes. Since the date hereof, there has been no change in
the financial condition, results of operation, business or assets of Parent
which materially adversely affects the ability of Parent to perform its
obligations under this Agreement or any of the Collateral Agreements.
Article VII
Actions by the Contributing Group and the Newco Group After the Closing
7.1 Books and Records. Each member of the Contributing Group and the Newco
Group agree that so long as any books, records and files relating to the
business, properties, assets or operations of Univisa and USHI, to the extent
that they pertain to the Univisa Stock prior to the Closing Date, remain in
existence and available, each party (at its expense) shall have the right to
inspect and to make copies of the same at any time during
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business hours for any proper purpose. Each of the parties hereto agrees to
maintain any such books, records and files in its possession for a period of
seven years after the Closing Date.
7.2 Further Assurances. On and after the Closing Date, each member of the
Contributing Group and the Newco Group will take all appropriate action and
execute all documents, instruments or conveyances of any kind which may be
reasonably necessary or advisable to (i) carry out any of the provisions
hereof, and (ii) prepare, file with and have declared effective by the SEC any
applicable registration statement with respect to the Newco Common Stock to be
issued in connection with the transactions contemplated by this Agreement and
the Reorganization Agreement.
7.3 Tax Reporting of Univisa Contribution. Each of Parent, HCI, Contributor
and Newco agrees to record and report for all federal, state and local tax
purposes the Univisa Contribution solely as an acquisition of Univisa Stock by
Newco in exchange for the consideration set forth in Section 1.2, and neither
Parent, HCI, Contributor nor Newco shall make, or cause or permit to be made,
a Code Section 338 election or similar election under a provision of any law
with respect to the acquisition of Univisa Stock.
7.4 No Dissolution, Etc; Capital Structure. For a period of two years from
the Closing Date, neither member of the Newco Group shall (and neither shall
cause or permit Univisa, USHI or PanAmSat to):
(i) liquidate (completely or partially), dissolve, merge, consolidate or
combine Univisa or USHI with or into Newco, PanAmSat or any other entity;
(ii) recapitalize in any way the classes of Class A Common Stock, Class B
Common Stock and Common Stock of PanAmSat as they exist on the Closing
Date;
(iii) liquidate (partially or completely), dissolve, merge, consolidate
or combine PanAmSat with or into (a) Univisa or USHI, (b) Newco or (c) any
other person, except in the case of clause (c), a merger, consolidation or
combination of which PanAmSat is the survivor; or
(iv) distribute or otherwise transfer Class B Common Stock to Newco or
any other person, or contribute or otherwise transfer the Class A Common
Stock of PanAmSat or the Common Stock of PanAmSat to Univisa or USHI.
7.5 Confidentiality.
(a) Preservation of Confidentiality. In connection with the negotiation of
this Agreement, the preparation for the consummation of the transactions
contemplated hereby and the performance of obligations hereunder, each party
acknowledges that it will have access to confidential information relating to
the other parties. The parties shall treat such information as confidential,
preserve the confidentiality thereof and not disclose such information, except
to their respective affiliates, Subsidiaries, advisors, representatives and
consultants in connection with the transactions contemplated hereby, and
except as required by Law or the applicable rules of any securities exchange.
Each of the parties agrees to maintain in confidence, and not to disclose to
any third party, any ideas, methods, developments, inventions, improvements
and business plans and information which are the confidential information of
any other party, except to their respective affiliates, Subsidiaries,
advisors, representatives and consultants in connection with the transactions
contemplated hereby, and except as required by Law or the applicable rules of
any securities exchange. If, however, confidential information is disclosed,
the disclosing party shall immediately notify each of the other parties in
writing and take all steps required to prevent further disclosure.
(b) Property Right in Confidential Information. Until the Closing Date, all
confidential information shall remain the property of the party who originally
possessed such information. In the event of the termination of this Agreement
for any reason whatsoever, each party shall return to the other parties, all
documents, work papers and other material (including all copies thereof)
obtained from such parties in connection with the transactions contemplated
hereby and will use commercially reasonable efforts, including, without
limitation, instructing its employees and others who have had access to such
information, to keep confidential and not to use any such information, unless
such information is now, or is hereafter disclosed, through no act or omission
of such party, in any manner making it available to the general public. If any
party is required by any Law or the applicable
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rules of any securities exchange to disclose any confidential information, it
shall provide the other parties with prompt notice of such request so that
such other parties may seek an appropriate protective order or other
appropriate remedy and/or waive compliance with the provisions of this
Agreement. If, in the absence of a protective order or other remedy or the
receipt of such a waiver, a party is nonetheless compelled by Law or the
applicable rules of any securities exchange to disclose confidential
information, then such party may disclose that portion of the confidential
information which such Law or rule requires to be disclosed, provided that
such party uses its reasonable efforts to preserve the confidentiality of the
information, whereupon such disclosure shall not constitute a breach of this
Agreement.
(c) Termination of Agreement. Subject to any Law, each party hereto shall,
and shall cause their Subsidiaries, affiliates, advisors, representatives and
consultants who obtain such information to, hold in confidence all such non-
public information until such time as such information is otherwise publicly
available, except as required by Law or the applicable rules of any securities
exchange, and, if this Agreement is terminated and if so requested by another
party, each party and its affiliates will, and will cause their Subsidiaries,
affiliates, advisors, representatives and consultants who obtain such
information to, deliver to such other party all documents, work papers and
other material (including copies extracts and summaries thereof) obtained by
or on behalf of any of them directly or indirectly as a result of this
Agreement or in connection herewith, whether so obtained before or after the
execution hereof.
Article VIII
Indemnification
8.1 Survival and Time Limitations.
(a) Representations and Warranties. All statements contained in the
Schedules hereto or in any certificate or instrument of conveyance delivered
by or on behalf of the parties pursuant to this Agreement or in connection
with the transactions contemplated hereby shall be deemed to be
representations and warranties by the parties hereunder. The representations
and warranties of each party contained herein or made hereunder shall survive
until the expiration of all applicable statutes of limitations (including,
without limitation, all periods of extension, whether automatic or
permissive), without regard to any investigation made by any of the parties
hereto. All claims for indemnification under Sections 8.2(a)(i)(m) or
8.2(b)(i) (other than any claim for indemnification solely with respect to a
breach of the representation in Section 4.3) must be asserted on or prior to
the date of termination of the foregoing survival periods. If a claim for
indemnification under Sections 8.2(a)(i)(m) or 8.2(b)(i) (other than any claim
for indemnification solely with respect to a breach of the representation in
Section 4.3) is made before the expiration of the applicable survival period
referred to above, then (notwithstanding the expiration of such survival
period) the representation or warranty applicable to such claim shall survive
until, but only for purposes of, the resolution of such claim.
(b) Covenants. All of the covenants and agreements of each party contained
herein or made hereunder shall survive indefinitely. Claims for
indemnification under Sections 8.2(a)(i)(n), 8.2(b)(i) (solely with respect to
a breach of the representation in Section 4.3) or 8.2(b)(ii) shall survive
indefinitely and may be asserted indefinitely.
(c) General Indemnity. Claims may be made for general indemnity and to be
saved and held harmless under Section 8.2(a)(ii) at any time, and from time to
time, no matter when the claim, or the event or act giving rise to the claim,
occurs or arises.
8.2 Indemnification.
(a) By Parent and Contributor.
(i) Parent and Contributor, jointly and severally, shall indemnify, save
and hold harmless each member of the Newco Group, its affiliates and
Subsidiaries, and its and their respective representatives, successors and
assigns, from and against any and all costs, losses (including diminution
in value), taxes, Liabilities,
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obligations, damages, lawsuits, deficiencies, claims, demands, and expenses
(whether or not arising out of third-party claims), including interest,
penalties, costs of mitigation, losses in connection with any Environmental
Law (including any clean-up or remedial action), lost profits and other
losses (including consequential damages), damages to the environment,
reasonable attorneys' fees and all amounts paid in investigation, defense
or settlement of any of the foregoing (collectively, "Damages"), incurred
in connection with, arising out of, resulting from or incident to (m) any
breach of any representation or warranty or the inaccuracy of any
representation, made by either member of the Contributing Group in or
pursuant to this Agreement and (n) any breach of any covenant or agreement
made by either member of the Contributing Group in or pursuant to this
Agreement.
(ii) In addition, without duplication, and as a condition to the
consummation of the transactions contemplated hereby by each member of the
Newco Group, Parent and Contributor, jointly and severally, shall
indemnify, save and hold harmless each member of the Newco Group, its
affiliates and Subsidiaries, and its and their respective representatives,
successors and assigns from and against any and all Damages incurred in
connection with, arising out of, resulting from or incident to (o)
administering either of the Collateral Agreements, (p) any and all
Transaction Liabilities, excluding any and all tax Liabilities, (q) any and
all taxes of Univisa or USHI (or any other entity that is or was at any
time a Subsidiary or other affiliate of Univisa or USHI or either of them)
for all taxable years and other periods ending on or before or including
(for the Pre-Closing Portions of any Straddle Periods) the Closing Date
("Pre-Closing Periods"), including any and all such taxes attributable to
any and all distributions of assets by Univisa or its Subsidiaries made in
contemplation of the transactions contemplated by this Agreement or the
Reorganization Agreement, including the distribution of the Distributed
Assets by Univisa or its Subsidiaries to the Parent Distributees, (r) any
and all taxes imposed on taxable income or gain recognized by Univisa or
USHI for United States federal, state or local income tax purposes with
respect to the Class B Common Stock held by USHI solely with respect to the
Asset Contribution, the Univisa Contribution, the Merger and/or the
consummation of any other agreement expressly provided for in this
Agreement or the Reorganization Agreement, in each case in accordance with
their respective terms, but not with respect to any income or gain
recognized on the sale, exchange or other disposition of the Class B Common
Stock after the Closing Date, (s) any and all Liabilities imposed upon
either member of the Newco Group by reason of Newco's status as transferee
of the Univisa Stock and (t) any and all taxes of either member of the
Newco Group imposed on the actual or constructive receipt of indemnity
payments in respect of Damages under this Section 8.2(a) to the extent
necessary to make the after-tax amount of such payments equal to the amount
of such Damages incurred by the Newco Group; provided, however, that
notwithstanding the foregoing, Parent and Contributor shall not be
responsible for payment of, and shall not be required to indemnify, save or
hold harmless any member of the Newco Group, its affiliates or Subsidiaries
or its or their respective representatives, successors or assigns from or
against, any and all Damages incurred in connection with, arising out of,
resulting from or incident to (1) any breach of any representation,
warranty, covenant or agreement, or the inaccuracy of any representation,
warranty, covenant or agreement, in any case, made by either member of the
Newco Group in Sections 4.3, 7.3 or 7.4 of this Agreement, or (2) any
transactions consummated after the Closing on the Closing Date, other than
transactions required to be effected on the Closing Date pursuant to this
Agreement or the Reorganization Agreement.
(iii) Payments by a member of the Newco Group, its affiliates and
Subsidiaries, and its and their respective representatives, successors and
assigns, of amounts for which indemnification is sought hereunder, shall
not be a condition precedent to recovery hereunder.
(iv) Notwithstanding the foregoing, neither HCI, nor its affiliates or
Subsidiaries (other than Newco) shall be entitled to be indemnified for
Damages under this Section 8.2 to the extent that (A) such Damages arise
out of or result from HCI's ownership of Newco Common Stock and (B) Newco
is being fully indemnified hereunder with respect to such Damages.
(b) By the Newco Group. Newco and HCI, jointly and severally, shall
indemnify and save and hold harmless Parent, Contributor, their respective
affiliates and subsidiaries, and their respective representatives,
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successors and assigns from and against any and all Damages incurred in
connection with, arising out of, resulting from or incident to (i) any breach
of any representation or warranty or the inaccuracy of any representation,
made by either member of the Newco Group in or pursuant to this Agreement; or
(ii) any breach of any covenant or agreement made by either member of the
Newco Group in or pursuant to this Agreement.
Payments by Parent, Contributor, their respective affiliates and
Subsidiaries, and their respective representatives, successors and assigns, of
amounts for which indemnification is sought hereunder, shall not be a
condition precedent to recovery hereunder.
(c) Straddle Periods. Responsibility for payment of any and all taxes which
are reported on tax returns which cover both Pre-Closing Periods and periods
after the Closing ("Post-Closing Periods") (collectively, "Straddle Periods")
shall be apportioned, subject to and except as set forth in Section
8.2(a)(ii), between Contributor, on the one hand, and Univisa, on the other
hand, based on the actual operations and transactions of Univisa and USHI (and
any entity that is or was at any time during a Straddle Period a Subsidiary or
other affiliate of Univisa) during the portion of such Straddle Period ending
on the Closing Date, including the consummation of the Univisa Contribution,
the Asset Contribution, the Merger and the other transactions required to be
effected pursuant to this Agreement and the Reorganization Agreement, in
accordance with their respective terms (the "Pre-Closing Portion of a Straddle
Period"), and the portion thereof beginning on the day after the Closing Date.
Each such period shall be deemed to be a separate taxable period.
(d) Filings. All tax returns of Univisa and USHI (and any entity that is or
was at any time during a relevant taxable period a Subsidiary or other
affiliate of Univisa) for Pre-Closing Periods and Straddle Periods shall be
prepared at Contributor's cost and expense, and under the direction and
control of Contributor; provided, however, that any portion of any Straddle
Period return for which Univisa has liability hereunder shall be subject to
the review and consent of Univisa, which consent shall not be unreasonably
withheld.
(e) Refunds. Any refunds or credits of any and all taxes received by or
credited to Univisa or USHI (or any entity that is or was at any time during a
Pre-Closing Period a Subsidiary or other affiliate of Univisa) attributable to
Pre-Closing Periods ("Contributor's Refunds") shall be for the benefit of
Contributor, and Newco and HCI shall use reasonable efforts to obtain and
promptly pay over to Contributor any Contributor's Refunds.
(f) Defense of Claims. If a claim for Damages (other than a claim for
Damages pursuant to clauses (q), (r), (s) or (t) of Section 8.2(a)(ii) which
shall be governed solely by the provisions of Section 8.2(g)(ii)) (a "Claim")
is to be made by a party entitled to indemnification hereunder against the
indemnifying party, the party claiming such indemnification shall give written
notice (a "Claim Notice") to the indemnifying party as soon as practicable
after the party entitled to indemnification becomes aware of any fact,
condition or event which may give rise to Damages for which indemnification
may be sought under this Section 8.2. If any lawsuit or enforcement action is
filed against any party entitled to the benefit of indemnity hereunder,
written notice thereof shall be given to the indemnifying party as promptly as
practicable (and in any event within 15 calendar days after the service of the
citation or summons). The failure of any indemnified party to give timely
notice hereunder shall not affect rights to indemnification hereunder, except
to the extent that the indemnifying party demonstrates actual damage caused by
such failure. After such notice, if the indemnifying party shall acknowledge
in writing to the indemnified party that the indemnifying party shall be
obligated under the terms of its indemnity hereunder in connection with such
lawsuit or action and so long as the indemnifying party has not committed a
Make-Whole Breach (as such term is defined in the Collateral Trust Agreement),
then the indemnifying party shall be entitled, if it so elects at its own
cost, risk and expense, (i) to take control of the defense and investigation
of such lawsuit or action, (ii) to employ and engage attorneys of its own
choice and reasonably satisfactory to the indemnified party to handle and
defend the same unless the named parties to such action or proceeding include
both the indemnifying party and the indemnified party and the indemnified
party has been advised in writing by counsel that there may be one or more
legal defenses available to such indemnified party that are different from or
additional to those available to the indemnifying party, in which event the
indemnified party shall be entitled, at the indemnifying party's cost, risk
and expense, to separate counsel of its own choosing, and (iii) to compromise
or settle such claim, which compromise or settlement can be made without the
written consent of
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the indemnified party, so long as such compromise or settlement solely
provides for monetary relief and includes an unconditional release of each
indemnified party from all Liabilities arising out of such claim, and in other
instances will require the written consent of the indemnified party, such
consent not to be unreasonably withheld; provided, however, if such lawsuit or
action involves a breach of the representations and warranties set forth in
Section 3.2, (with respect to the ownership of Univisa or USHI), then,
notwithstanding the foregoing, the indemnified party shall be entitled to
control such remediation or resolution, including to take control of the
defense and investigation of such lawsuit or action, to employ and engage
attorneys of its own choice to handle and defend the same, at the indemnifying
party's cost, risk and expense, and to compromise or settle such Claim;
provided, further, however, that such Claim shall not be compromised or
settled without the written consent of the indemnifying party, which consent
shall not be unreasonably withheld. If the indemnifying party fails to assume
the defense of such claim within 15 calendar days after receipt of the Claim
Notice, the indemnified party against which such claim has been asserted will
(upon delivering notice to such effect to the indemnifying party) have the
right to undertake, at the indemnifying party's cost and expense, the defense,
compromise or settlement of such claim on behalf of and for the account and
risk of the indemnifying party. The indemnifying party shall reimburse, as an
interim measure during the pendency of any Claim, the indemnified party on a
monthly basis for all reasonable legal or other expenses incurred in
connection with investigating or defending any such Claim. Any such interim
reimbursement payments which are not made within 30 days of a request for
reimbursement, shall bear interest at the rate of 9% per annum from the date
of such request. In the event the indemnified party assumes the defense of the
claim, the indemnified party will keep the indemnifying party reasonably
informed of the progress of any such defense, compromise or settlement. The
indemnifying party shall be liable for any settlement of any action effected
pursuant to and in accordance with this Section 8.2 and for any final judgment
(subject to any right of appeal), and the indemnifying party agrees to
indemnify and hold harmless an indemnified party from and against any Damages
by reason of such settlement or judgment.
The indemnified party shall cooperate in all reasonable respects with the
indemnifying party and such attorneys in the investigation, trial and defense
of such lawsuit or action and any appeal arising therefrom; provided, however,
that the indemnified party may, at its own cost, participate in the
investigation, trial and defense of such lawsuit or action and any appeal
arising therefrom. The parties shall cooperate with each other in any
notifications to insurers.
(g) Cooperation in Tax Matters.
(i) Each member of the Contributing Group and the Newco Group shall (a)
each provide one another (and its counsel) with such assistance, and
cooperate fully with one another, as and to the extent reasonably requested
by any of them in connection with the preparation or filing of any tax
return for Pre-Closing Periods and Straddle Periods, any Contributor's
Refund or any defense or settlement of any Tax Matter (including, without
limitation, in the case of Newco, by providing any necessary powers of
attorney in respect of Univisa or USHI in connection with any Tax Matter
relating to any tax Liability for which Parent and Contributor would be
liable under Section 8.2(a)(ii)), relating to any tax Liability of Univisa,
USHI or any of their respective Subsidiaries or affiliates, (b) retain and
provide one another with any records or other information that may be
relevant to any such tax return, Contributor's Refund or Tax Matter, and
(c) provide one another with any final determination of any audit or
examination, proceeding, or determination that affects any amount required
to be shown on any such tax return of the other(s) (or any Subsidiary or
affiliate of Univisa) for any period. Without limiting the generality of
the foregoing, each member of the Contributing Group and the Newco Group
shall each retain, until the applicable statutes of limitations (including
any extensions) have expired, copies of all tax returns, supporting work
schedules, and other records or information that may be relevant to any
such tax return, Contributor's Refund or Tax Matter and shall not destroy
or otherwise dispose of any such records without first providing the other
party with a reasonable opportunity to review and copy the same.
(ii) Newco and HCI shall promptly notify Parent and Contributor in
writing upon receipt by Newco, HCI or any of their respective affiliates or
Subsidiaries (including Univisa and USHI) of notice of any pending or
threatened tax audits or assessments which may affect the tax Liabilities
of Univisa or USHI (or
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any entity that is or was at any time a Subsidiary or other affiliate of
Univisa or USHI) for which Parent and Contributor would be liable under
clauses (q), (r), (s) or (t) of Section 8.2(a)(ii), and Parent and
Contributor shall promptly notify Newco and HCI in writing upon receipt by
Parent, Contributor or any of their respective affiliates of notice of any
pending or threatened tax audits or assessments which may affect the tax
Liabilities of Univisa or USHI (or any entity that is or was at any time a
Subsidiary or other affiliate of Univisa) for which Newco and HCI would be
liable under this Agreement. The failure of any indemnified party to give
timely notice hereunder shall not affect rights to indemnification
hereunder, except to the extent that the indemnifying party demonstrates
actual damage caused by such failure. Contributor shall have the right to
represent and control Univisa's and USHI's and any of their respective
affiliates' or Subsidiaries' interests in any audit or proceeding,
including any audit, examination, assessment, notice of deficiency or other
adjustment or proposed adjustment, or administrative or judicial
proceeding, the settlement of any of the foregoing, any waiver or extension
of the statute of limitations, or the filing of any amended return (a "Tax
Matter"), involving a tax Liability for which Contributor and Parent would
be liable under Section 8.2(a)(ii) and to employ counsel of its choice at
its expense; provided, however, Newco shall represent and control the
interests of Univisa and USHI if Contributor commits a Make-Whole Breach.
Newco and HCI shall have the right to represent and control Univisa's and
USHI's (and any of their respective affiliates' or Subsidiaries') interests
in any Tax Matter involving a tax Liability for which Newco and HCI would
be liable under this Agreement and to employ counsel of their choice at
their expense. With respect to any Tax Matter in which Contributor
exercises its right to represent and control the interests of Univisa and
USHI, Contributor and Newco shall fully cooperate with one another and
shall, except as they may otherwise agree, jointly attend all meetings and
proceedings and jointly prepare all protests, briefs and other documents.
(h) Brokers and Finders. Pursuant to the provisions of this Section 8.2,
each member of the Newco Group, on the one hand, and each member of the
Contributing Group, on the other hand, shall indemnify, hold harmless and
defend one another from the payment of any and all broker's and finder's
expenses, commissions, fees or other forms of compensation which may be due or
payable from or by the indemnifying party, or may have been earned by any
third party acting on behalf of the indemnifying party in connection with the
negotiation and execution hereof and the consummation of the transactions
contemplated hereby.
(i) Treatment of Indemnity Payments. Newco, HCI and Contributor agree to
treat all indemnity payments made pursuant to this Agreement as adjustments to
the consideration for the Univisa Contribution set forth in Section 1.2.
(j) Holdback Amount. As security for the due and punctual payment of each
and all present and future indemnities, Liabilities and obligations of every
type and description of either member of the Contributing Group at any time
arising under, pursuant to, or in respect of this Article VIII, at the
Closing, each member of the Contributing Group shall duly execute and deliver
each of the Collateral Agreements and all assignments, financing statements
and other instruments required thereunder or pursuant thereto. Each of the
parties hereto agrees and acknowledges that the Trust Holdback shall not be
the exclusive source of indemnification for the Newco Group from Contributor
and Parent pursuant to this Article VIII, but that the Newco Group may proceed
directly against Contributor and Parent at law, equity or otherwise.
Article IX
Termination and Amendment
9.1 Termination. This Agreement may be terminated at any time prior to the
Closing Date:
(a) by mutual written consent of Contributor and HCI;
(b) by Contributor or HCI, so long as such party is not in material
breach of its material obligations hereunder, if the Univisa Contribution
shall not have been consummated on or before the date that is 15 months
from the date of this Agreement;
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(c) by Contributor, if the conditions set forth in Section 6.2 shall not
have been complied with or performed on or prior to the Closing Date and
Contributor shall not have materially breached any of its material
representations, warranties, covenants or agreements contained herein, and
such noncompliance or nonperformance shall not have been cured or
eliminated (or by its nature cannot be cured or eliminated) on or before
the Closing Date;
(d) by HCI, if the conditions set forth in Section 6.3 shall not have
been complied with or performed on or prior to the Closing Date and HCI
shall not have materially breached any of its material representations,
warranties, covenants or agreements contained herein, and such
noncompliance or nonperformance shall not have been cured or eliminated (or
by its nature cannot be cured or eliminated) on or before the Closing Date;
(e) by Contributor or HCI if any injunction or order of a court or other
competent authority preventing the consummation of the Univisa Contribution
shall have become permanent, final and non-appealable; or
(f) by Contributor or by HCI if for any reason the Reorganization
Agreement shall have been terminated; provided, however, that the right to
terminate this Agreement under this Section 9.1(f) shall not be available
to Contributor if the Reorganization Agreement shall have been terminated
by PanAmSat pursuant to either Section 9.1(e), Section 9.1(f) or Section
9.1(g) thereof.
9.2 Effect of Termination. In the event of termination of this Agreement by
any party as provided in Section 9.1, (a) written notice thereof shall
forthwith be given to the other parties specifying the provision hereof
pursuant to which such termination is made and (b) this Agreement shall
forthwith become void and there shall be no Liability on the part of any party
hereto or their respective Subsidiaries, affiliates, officers, directors or
stockholders, except to the extent that such termination results from the
willful or reckless breach by a party hereto of any of its representations or
warranties, or of any of its covenants or agreements, in each case, as set
forth in this Agreement. The provisions of Sections 7.5 and 10.2 shall survive
any termination of this Agreement, unless otherwise agreed by the parties.
9.3 Amendment. Subject to applicable law, this Agreement may be amended,
modified or supplemented only by written agreement of the parties at any time
prior to the Closing Date with respect to any of the terms contained herein.
9.4 Extension; Waiver. At any time prior to the Closing Date, and subject to
applicable law, the parties hereto, by action taken or authorized by their
respective Boards of Directors, may, to the extent legally allowed: (i) extend
the time for the performance of any of the obligations or other acts of the
other parties hereto; (ii) waive their rights with respect to any inaccuracies
in the representations and warranties of the other parties contained herein or
in any document delivered pursuant hereto; and (iii) waive their rights with
respect to compliance with any of the agreements of the other parties or
conditions contained herein to their respective obligations. Any agreement on
the part of a party hereto to any such extension or waiver shall be valid only
if set forth in a written instrument signed on behalf of such party. The
failure of any party hereto to assert any of its rights hereunder shall not
constitute a waiver of such rights.
Article X
General Provisions
10.1 Termination of Confidentiality Agreement. The Confidentiality Agreement
by and between Hughes Electronics Corporation and Univisa dated September 4,
1996 shall terminate and be of no further force and effect upon execution and
delivery of this Agreement.
10.2 Expenses. Whether or not the Univisa Contribution is consummated, all
costs and expenses incurred in connection with this Agreement and the
transactions contemplated hereby shall be paid by the party incurring such
expenses except as expressly provided herein or in the Collateral Agreements
and except that Univisa shall reimburse each member of the Newco Group for the
following fees and out-of-pocket expenses, only to the
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extent that such fees and out-of-pocket expenses are incurred incident to the
preparation of this Agreement (including all exhibits and schedules hereto)
and the consummation of the transactions contemplated hereby and not incident
to the preparation of the Reorganization Agreement and the transactions
contemplated thereby: (a) the reasonable fees and disbursements of counsel for
each member of the Newco Group, including any opinions to be rendered by such
counsel; (b) the fees and disbursements of the certified public accountants
for each member of the Newco Group; (c) all out-of-pocket expenses incurred by
any member of the Newco Group; and (d) without duplication, all out-of-pocket
costs and expenses incurred by any member of the Newco Group or any of its
Subsidiaries in complying with Section 7.4; provided, however, that the
aggregate of all the fees, disbursements and expenses described in clauses
(a), (b) and (c) shall not exceed $500,000.
10.3 Notices. All notices, requests, demands and other communications which
are required or may be given under this Agreement shall be in writing and
shall be deemed to have been duly given when received if personally delivered;
when transmitted if transmitted by telecopy, electronic or digital
transmission method; the day after it is sent, if sent for next day delivery
to a domestic address by recognized overnight delivery service (e.g., Federal
Express); and upon receipt, if sent by certified or registered mail, return
receipt requested. In each case notice shall be sent to:
(a) if to Newco, to:
Magellan International, Inc.
c/o Hughes Communications, Inc.
P.O. Box 9712
Long Beach, CA 90810-9928
Attention: President
Telephone: (310) 525-5010
Telecopy: (310) 525-5015
and if to HCI, to:
Hughes Communications, Inc.
P.O. Box 9712
Long Beach, CA 90810-9928
Attention: President
Telephone: (310) 525-5010
Telecopy: (310) 525-5015
in each case, with a copy to:
Latham & Watkins
633 West Fifth Street, Suite 4000
Los Angeles, California 90071
Attention: Bruce R. Lederman, Esq.
Telephone: (213) 485-1234
Telecopy: (213) 891-8763
(b) if to Parent, to:
Grupo Televisa, S.A.
Avenida Chapultepec No. 28
5th Piso
Colonia Doctores
Mexico D.F. 06724
Attention: Chief Financial Officer
Telephone: 011-525-709-3333
Telecopy: 011-525-224-5629
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<PAGE>
and if to Contributor, to:
Satellite Company, LLC
Fonovisa Centroamerica, S.A.
De Popa de Curridabat 25 Mts. Este
Edificio Galerias del Este
Local 8
San Jose, Costa Rica
Attention: Oscar Aldana
Telephone: 011-506-253-0758
Telecopy: 011-506-224-0836
in each case, with a copy to:
Fried, Frank, Harris, Shriver & Jacobson
One New York Plaza
New York, New York 10004
Attention: Joseph A. Stern, Esq.
Telephone: (212) 859-8000
Telecopy: (212) 859-4000
10.4 Interpretation. When a reference is made in this Agreement to Sections
or Articles, such reference shall be to a Section or Article of this Agreement
unless otherwise indicated. The table of contents and headings contained in
this Agreement are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement. Whenever the word "include",
"includes" or "including" are used in this Agreement, they shall be deemed to
be followed by the words "without limitation". The phrase "made available" in
this Agreement shall mean that the information referred to has been made
available if requested by the party to whom such information is to be made
available. This Agreement shall not be construed for or against either party
by reason of the authorship or alleged authorship of any provision hereof or
by reason of the status of the respective parties.
10.5 Entire Agreement. This Agreement (together with any documents and
instruments referred to herein, including exhibits and schedules) constitutes
the entire agreement and supersedes all prior agreements and understandings,
both written and oral, among the parties with respect to the subject matter
hereof and is not intended to confer upon any person other than the parties
hereto any rights or remedies hereunder.
10.6 Assignment. Except for assignments by a member of the Holding Group to
any affiliate or Subsidiary of such member with respect of some or all of its
rights under Article VIII (which assignment can be made without the written
consent of Contributor), neither this Agreement nor any of the rights,
interests, obligations hereunder shall be assigned by any of the parties
hereto (whether by operation of law or otherwise) without the prior written
consent of HCI, in the event of an assignment by either member of the
Contributing Group, or Contributor, in the event of an assignment by either
member of the Newco Group. Subject to the preceding sentence, this Agreement
will be binding upon, inure to the benefit of and be enforceable by the
parties and their respective successors and assigns.
10.7 Governing Law. This Agreement shall be construed, interpreted and the
rights of the parties determined in accordance with the laws of the State of
New York (without reference to the choice of law provisions), except with
respect to matters of law concerning the internal corporate affairs of any
corporate entity which is a party to or the subject of this Agreement, and as
to those matters the law of the jurisdiction under which the respective entity
derives its powers shall govern.
10.8 Severability. Each party agrees that, should any court or other
competent authority hold any provision of this Agreement or part hereof to be
null, void or unenforceable, or order any party to take any action
inconsistent herewith or not to take an action consistent herewith or required
hereby, the validity, legality and enforceability of the remaining provisions
and obligations contained or set forth herein shall not in any way be
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<PAGE>
affected or impaired thereby, unless the foregoing inconsistent action or the
failure to take an action constitutes a material breach of this Agreement or
makes the Agreement impossible to perform, in which case this Agreement shall
terminate pursuant to Article IX. Upon any such holding that any provision of
this Agreement is null, void or unenforceable, the parties will negotiate in
good faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible in an acceptable manner to the end that the
transactions contemplated by this Agreement are consummated to the extent
possible. Except as otherwise contemplated by this Agreement, to the extent
that a party hereto took an action inconsistent herewith or failed to take
action consistent herewith or required hereby pursuant to an order or judgment
of a court or other competent authority, such party shall incur no Liability
unless such party did not in good faith seek to resist or object to the
imposition or entering of such order or judgment.
10.9 Service of Process; Consent to Jurisdiction.
(a) Service of Process. Each of the parties hereto irrevocably consents
to the service of any process, pleading, notices or other papers by the
mailing of copies thereof by registered, certified or first class mail,
postage prepaid, to such party at such party's address set forth herein, or
by any other method provided or permitted under New York law. Additionally,
each member of the Contributing Group hereby appoints Univisa, Inc., 767
Fifth Ave., New York, N.Y. 10153 as agent for service of process in New
York and each member of the Newco Group hereby appoints C T Corporation
System, 1633 Broadway, New York, NY 10019 as agent for service of process
in New York.
(b) Consent and Jurisdiction. Each party irrevocably and unconditionally
agrees and consents that any suit, action or other legal proceeding arising
out of or related to this Agreement shall be brought and heard in the
Borough of Manhattan, State of New York and each party irrevocably consents
to personal jurisdiction in any and all tribunals in said Borough.
10.10 Injunctive Relief. The parties acknowledge that it will be impossible
to measure in money the damages that would be suffered if the parties fail to
comply with any of the obligations herein imposed on them and that in the
event of any such failure, an aggrieved person or entity will be irreparably
damaged and will not have an adequate remedy at law. Any such person or entity
shall, therefore, be entitled to injunctive relief, including specific
performance, to enforce such obligations, and if any action should be brought
in equity to enforce any of the provisions of this Agreement, none of the
parties shall raise the defense that there is an adequate remedy at law.
10.11 Arbitration. Notwithstanding anything herein to the contrary, in the
event that there shall be a dispute among the parties arising out of or
relating to Section 5.9, Article VIII or the Collateral Trust Agreement, the
parties agree that such dispute shall be resolved by final and binding
arbitration in Los Angeles, California, administered by Judicial Arbitration &
Mediation Services, Inc. ("JAMS"), in accordance with JAMS' rules of practice
then in effect or such other procedures as the parties may agree to prior to
the Closing. Depositions may be taken and other discovery may be obtained
during such arbitration proceedings to the same extent as authorized in civil
judicial proceedings. Any award issued as a result of such arbitration shall
be final and binding between the parties thereto, and shall be enforceable by
any court having jurisdiction over the party against whom enforcement is
sought. The fees and expenses of such arbitration (including reasonable
attorneys' fees) or any action to enforce an arbitration award shall be paid
by the party that does not prevail in such arbitration, unless the arbitrator
determines another method is more equitable.
10.12 Attorneys' Fees. Subject to Section 10.11, if any party to this
Agreement brings an action to enforce its rights under this Agreement, the
prevailing party shall be entitled to recover its costs and expenses,
including reasonable attorneys' fees, incurred in connection with such action,
including any appeal of such action.
10.13 Cumulative Remedies. All rights and remedies of each party hereto are
cumulative of each other and of every other right or remedy such party may
otherwise have at law or in equity, and the exercise of one or more rights or
remedies shall not prejudice or impair the concurrent or subsequent exercise
of other rights or remedies.
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<PAGE>
10.14 Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same instrument and
shall become effective when executed and delivered by each of the parties.
10.15 Investment Representations.
(a) Contributor is acquiring the Newco Common Stock with its own funds or
property for investment, for its own account, and not as a nominee or agent
for any other person, firm or corporation, and not with a view to the sale
or distribution of all or any part thereof, and Contributor has no present
intention of selling, granting participation in, or otherwise distributing
any of the Newco Common Stock. Contributor does not have any contract,
undertaking, agreement or arrangement with any person, firm or corporation
to sell, transfer or grant participation to such person, firm or
corporation, with respect to any of the Newco Common Stock.
(b) Contributor understands and agrees that (i) the Newco Common Stock
will not be registered under the Securities Act of 1933, as amended (the
"Securities Act"), in part based upon an exemption from the registration
predicated on the accuracy and completeness of its representations and
warranties appearing herein and (ii) Contributor shall not sell, transfer
or assign any shares of the Newco Common Stock until they are registered
under the Act or an exemption from the registration and prospectus delivery
requirements of the Act is available, and (iii) there is no assurance that
such an exemption from registration will ever be available or that the
Newco Common Stock will ever be able to be sold.
(c) By reason of its net worth, Contributor is an "accredited investor"
(as defined in Regulation D promulgated under the Securities Act).
Contributor was not formed for the specific purpose of acquiring the stock
issued pursuant to this Agreement. Contributor's purchase is directed by a
sophisticated person as described in Regulation D promulgated under the
Securities Act.
(d) Contributor understands and acknowledges that each certificate
representing the Newco Common Stock issued to Contributor in the Univisa
Contribution will bear a legend to the following effect:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. SUCH
SECURITIES MAY NOT BE OFFERED, SOLD, OR OTHERWISE TRANSFERRED,
PLEDGED OR HYPOTHECATED EXCEPT PURSUANT TO (I) A REGISTRATION
STATEMENT WITH RESPECT TO SUCH SECURITIES, WHICH IS EFFECTIVE
UNDER SUCH ACT, OR (II) ANY EXEMPTION FROM REGISTRATION UNDER
SUCH ACT RELATING TO THE DISPOSITION OF SECURITIES, INCLUDING
RULE 144, PROVIDED AN OPINION OF COUNSEL IS FURNISHED,
REASONABLY SATISFACTORY IN FORM AND SUBSTANCE TO MAGELLAN
INTERNATIONAL, INC., THAT AN EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF SUCH ACT IS AVAILABLE."
Contributor hereby agrees not to offer, sell or otherwise transfer the shares
of Newco Common Stock in violation of the foregoing legend.
[signature page to follow]
C-27
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Stock Contribution
and Exchange Agreement to be signed by their respective officers thereunto
duly authorized, all as of the date first written above.
GRUPO TELEVISA, S.A.
/s/ Guillermo Canedo White
By: _________________________________
Name: Guillermo Canedo White
Title: Executive Vice President
SATELLITE COMPANY, L.L.C.
/s/ Guillermo Canedo White
By: _________________________________
Name: Guillermo Canedo White
Title: Authorized Signatory
MAGELLAN INTERNATIONAL, INC.
/s/ Charles H. Noski
By: _________________________________
Name: Charles H. Noski
Title: President
HUGHES COMMUNICATIONS, INC.
/s/ Jerald F. Farrell
By: _________________________________
Name: Jerald F. Farrell
Title: President
C-28
<PAGE>
CLASS A COMMON STOCKHOLDER CONSENT
The undersigned holders of the shares of the Class A Common Stock of
PanAmSat Corporation hereby consent to the foregoing Stock Contribution and
Exchange Agreement on this 19th day of September, 1996.
/s/ Mary Anselmo
__________________________________________
Name: MARY ANSELMO, individually, and as
a trustee of the Article VII Trust
created by the RENE ANSELMO
REVOCABLE TRUST DATED JUNE 10, 1994
and as a successor trustee under the
Voting Trust Agreement dated as of
February 28, 1995 and as a trustee
of the RAYCE ANSELMO TRUST DATED
DECEMBER 23, 1991
/s/ Frederick A. Landman
__________________________________________
Name: FREDERICK A. LANDMAN, individually
and as a trustee of the Article VII
Trust created by the RENE ANSELMO
REVOCABLE TRUST DATED JUNE 10, 1994
and as a successor trustee under the
Voting Trust Agreement dated as of
February 28, 1995
/s/ Lourdes Saralegui
__________________________________________
Name: LOURDES SARALEGUI, individually and
as a trustee of the Article VII
Trust created by the RENE ANSELMO
REVOCABLE TRUST DATED JUNE 10, 1994
and as a successor trustee under the
Voting Trust Agreement dated as of
February 28, 1995
/s/ Pier Landman
__________________________________________
Name: PIER LANDMAN, individually and as
the sole trustee of the CHLOE
LANDMAN TRUST DATED JUNE 10, 1988
and the sole trustee of the RISSA
LANDMAN TRUST DATED JUNE 10, 1988
/s/ Edward J. Landau
__________________________________________
Name: EDWARD J. LANDAU, as co-trustee of
the FREDERICK A. LANDMAN IRREVOCABLE
TRUST DATED DECEMBER 22, 1995
C-29
<PAGE>
/s/ Patrick J. Costello
__________________________________________
Name: PATRICK J. COSTELLO, as co-trustee
of the FREDERICK A. LANDMAN
IRREVOCABLE TRUST DATED DECEMBER 22,
1995
/s/ Reverge Anselmo
__________________________________________
Name: REVERGE ANSELMO, individually
C-30
<PAGE>
APPENDIX D
[Letterhead of Morgan Stanley & Co.]
April 16, 1997
Board of Directors
PanAmSat Corporation
One Pickwick Plaza
Greenwich, CT 06830
Members of the Board:
We understand that PanAmSat Corporation ("PanAmSat" or the "Company"),
Hughes Communications, Inc. ("HCI"), Magellan International, Inc. ("Newco")
and certain other affiliates of HCI have entered into an Agreement and Plan of
Reorganization (the "Agreement") and certain related agreements, including the
Stock Contribution and Exchange Agreement (as defined below), each dated
September 20, 1996 pursuant to which Newco will acquire (a) the Galaxy
Business (as defined in the Agreement) of HCI and its affiliates by HCI
causing the contribution of the assets and liabilities comprising the Galaxy
Business, other than certain assets and liabilities, to Newco (the "Asset
Contribution") in exchange for 106,622,807 shares of common stock of Newco,
par value $0.01 per share ("Newco Common Stock"), and (b) PanAmSat by (i)
Satellite Company, L.L.C. ("S Company"), a subsidiary of Grupo Televisa, S.A.
("Televisa"), contributing all of the outstanding capital stock of Univisa,
Inc. ("Univisa"), which indirectly owns all of the shares of Class B common
stock of PanAmSat, par value $0.01 per share ("PAS Class B Common Stock"), to
Newco (the "Univisa Share Exchange") in exchange for consideration with a
deemed aggregate value equal to the product of $30.00 multiplied by the number
of shares of PAS Class B Common Stock indirectly owned by Univisa immediately
prior to the effective time of the Merger (as defined below), which
consideration will be divided into units with a deemed value of $30.00 each,
with each such unit to be exchanged at the election of S Company, subject to
proration and the Trust Holdback (as defined in the Stock Contribution and
Exchange Agreement) for (A) one share of Newco Common Stock (the "Stock
Consideration"), (B) $30.00 in cash, subject to upward adjustment if the
Closing (as defined in the Agreement) has not occurred by September 20, 1997
(the "Standard Cash Consideration") or (C) one-half share of Newco Common
Stock and one-half of the amount of the Standard Cash Consideration (the
"Standard Consideration") and (ii) a subsidiary of Newco merging with and into
PanAmSat (the "Merger", and together with the Univisa Share Exchange, the
"Transactions").
At the effective time of the Merger pursuant to the terms of the Agreement,
the holder of each issued and outstanding share of common stock of PanAmSat,
par value $0.01 per share ("PAS Common Stock"), and each issued and
outstanding share of Class A common stock of PanAmSat, par value $0.01 per
share ("PAS Class A Common Stock" and, together with PAS Common Stock and PAS
Class B Common Stock, "PanAmSat Common Stock"), will have the right to elect
to receive, subject to proration, the Stock Consideration, the Standard Cash
Consideration or the Standard Consideration. The aggregate amount of cash to
be paid in the Merger and the Univisa Share Exchange will not exceed the
product obtained by multiplying one-half of the amount of the Standard Cash
Consideration by the aggregate number of shares of PanAmSat Common Stock
outstanding immediately prior to the effective time of the Merger.
We also understand that, in separate but related transactions, (i)
immediately upon completion of the Transactions and the Asset Contribution and
receipt of the consideration described above, 7,500,000 shares of Newco Common
Stock received by S Company will be repurchased by Newco in exchange for
$225,000,000 in
D-1
<PAGE>
[Letterhead of Morgan Stanley & Co.]
cash (the "Share Redemption") and (ii) immediately thereafter, pursuant to the
terms of the DTH Option Purchase Agreement among PanAmSat, Televisa and S
Company dated September 20, 1996, PanAmSat will sell to Televisa, S Company or
their designee(s) its interest in the Direct-to-Home business of Televisa (the
"DTH Sale") in exchange for $225,000,000 in cash. We have not assisted in the
negotiations with respect to the Share Redemption or the DTH Sale and
understand that Salomon Brothers Inc has acted for PanAmSat in connection with
the DTH Sale and is providing an opinion to PanAmSat that the consideration to
be paid by Televisa concerning the DTH Sale represents fair value from a
financial point of view.
The terms and conditions of the Asset Contribution and the Merger are more
fully set forth in the Agreement. The terms and conditions of the Univisa
Share Exchange and the Share Redemption are more fully set forth in the Stock
Contribution and Exchange Agreement (the "Stock Contribution and Exchange
Agreement") dated as of September 20, 1996 among Televisa, S Company, Newco
and HCI.
On September 20, 1996, we delivered a written opinion to the Board of
Directors of PanAmSat that (i) the consideration in the aggregate to be
received by the holders of shares of PanAmSat Common Stock pursuant to the
Transactions was fair from a financial point of view to such holders and (ii)
the consideration to be paid in the Share Redemption is fair from a financial
point of view to Newco, and you have now asked us to reconfirm our earlier
opinion.
For purposes of the opinion set forth herein, we have:
(i) analyzed certain publicly available financial statements of PanAmSat
and other publicly available information relating to PanAmSat and the
Galaxy Business;
(ii) analyzed certain internal financial statements and other financial and
operating data concerning PanAmSat and the Galaxy Business prepared by
the respective managements of PanAmSat and HCI and discussed certain
of this data with senior executives of PanAmSat and HCI;
(iii) analyzed certain financial projections of PanAmSat and the Galaxy
Business prepared by the respective managements of PanAmSat and HCI;
(iv) discussed the past and current operations and financial condition and
the prospects of PanAmSat and the Galaxy Business with senior
executives of PanAmSat and HCI, respectively;
(v) reviewed the reported prices and trading activity for PanAmSat Common
Stock;
(vi) analyzed the estimated pro forma impact of the Transactions and the
Asset Contribution on Newco's financial ratios;
(vii) reviewed and considered the financial and other information prepared
by members of senior management of PanAmSat and HCI relating to the
relative contributions of PanAmSat and the Galaxy Business to the
combined company;
(viii) participated in discussions and negotiations among representatives
of PanAmSat, HCI and certain other parties and their financial and
legal advisors;
(ix) reviewed the Agreement, the Stock Contribution and Exchange Agreement
and certain related documents; and
(x) performed such other analyses as we have deemed appropriate.
We have assumed and relied upon without independent verification the
accuracy and completeness of the information reviewed by us for the purposes
of this opinion. With respect to the financial projections, we have assumed
that they have been reasonably prepared on bases reflecting the best currently
available estimates and judgments of the future financial performance of
PanAmSat and the Galaxy Business, respectively. We have not made any
independent valuation or appraisal of the assets or liabilities of PanAmSat or
the Galaxy Business, nor have we been furnished with any such appraisals. We
have assumed that the Transactions, the Asset Contribution and the Share
Redemption will be consummated in accordance with the terms set forth in the
Agreement, the
D-2
<PAGE>
[Letterhead of Morgan Stanley & Co.]
Stock Contribution and Exchange Agreement and certain related agreements. Our
opinion is necessarily based on economic, market and other conditions as in
effect on, and the information made available to us as of, the date hereof. We
have assumed that the Transactions and the Asset Contribution together will be
treated as a tax-free exchange, pursuant to the Internal Revenue Code of 1986,
as amended. We have also assumed that in connection with the receipt of all
necessary regulatory approvals for the Transactions and the Asset
Contribution, no restrictions will be imposed that would have a material
adverse effect on the contemplated benefits expected to be derived in the
proposed Transactions and the Asset Contribution.
We have acted as financial advisor to the Board of Directors of PanAmSat in
connection with the Transactions and will receive a fee for our services. In
the past, Morgan Stanley & Co. Incorporated ("Morgan Stanley") and its
affiliates have provided financial advisory and financing services for
PanAmSat, Televisa and HCI and certain of their affiliates and have received
fees for the rendering of these services. As part of such services, Morgan
Stanley acted as lead underwriter in connection with the initial public
offering of PAS Common Stock in September 1995. In addition, concurrent with
the negotiation of the Transactions and the Asset Contribution and at the
request of Televisa, certain principal investing funds affiliated with Morgan
Stanley have been in preliminary discussions with Televisa concerning the
potential acquisition or financing of some or all of the Newco Common Stock
from Televisa and/or certain of its affiliates.
We express no opinion and make no recommendation as to whether the holders
of PanAmSat Common Stock should elect to receive the Standard Consideration,
the Stock Consideration or the Standard Cash Consideration.
It is understood that this letter is for the information of the Board of
Directors of PanAmSat and may not be used for any other purpose without our
prior written consent, except that this opinion may be included in its
entirety in any filing made by PanAmSat in respect of the Transactions with
the Securities and Exchange Commission. In addition, this opinion does not in
any manner address the prices at which the shares of Newco Common Stock will
trade following consummation of the Transactions, the Asset Contribution and
the Share Redemption, and Morgan Stanley expresses no opinion or
recommendation as to how the stockholders of PanAmSat Common Stock should vote
at the stockholders' meeting held in connection with the Transactions.
Based on the foregoing, we are of the opinion on the date hereof that (i)
the consideration in the aggregate to be received by the holders of shares of
PanAmSat Common Stock pursuant to the Transactions is fair from a financial
point of view to such holders and (ii) the consideration to be paid in the
Share Redemption is fair from a financial point of view to Newco.
Very truly yours,
MORGAN STANLEY & CO. INCORPORATED
/s/ Paul J. Taubman
By___________________________________
Name: Paul J. Taubman
Title: Managing Director
D-3
<PAGE>
APPENDIX E
LOGO
September 19, 1996
Board of Directors
PanAmSat Corporation
One Pickwick Plaza
Greenwich, CT 06830
Members of the Board:
You have advised us that Grupo Televisa, S.A. or one of its affiliates
("Televisa") will pay $225,000,000 in cash to PanAmSat Corporation (the
"Company") to acquire the Company's options (the "Options") to purchase
49%, 15%, 12%, 14% and 10% of certain direct-to-home satellite television
broadcasting businesses (collectively, the "Business") conducted by
Televisa and other entities in Spain, Mexico, the United States, South
America (excluding Argentina, Brazil and Chile) and Argentina and Chile,
respectively. You have requested our opinion as to the fairness to the
Company of the consideration to be paid by Televisa to acquire the
Options. The purchase of the Options will be made in connection with the
combination (the "Merger") of the Company with certain businesses owned by
Hughes Electronics Corporation ("Hughes").
In connection with rendering our opinion, we have reviewed certain
publicly available information concerning the Company and certain other
financial information concerning the Company and the Business, including
financial forecasts, that were provided to us by the Company. We have
discussed the business operations and financial condition of the Business,
as well as other matters we believe relevant to our inquiry, with certain
officers and employees of the Company, Televisa and the Business. We also
considered such other information, financial studies, analyses,
investigations and financial, economic and market criteria that we deemed
relevant.
In our review and analysis and in arriving at our opinion, we have
assumed and relied upon the accuracy and completeness of the financial and
other information reviewed by us, and we have not assumed any
responsibility for independent verification of such information. With
respect to the financial forecasts of the Business, we have assumed that
they have been reasonably prepared on bases reflecting the best currently
available estimates and judgments of the management of the Business as to
the future financial performance of the Business, and we express no
opinion with respect to such forecasts or the assumptions on which they
are based. We have not made or obtained or assumed any responsibility for
making or obtaining any independent evaluations or appraisals of any of
the assets (including properties and facilities) or liabilities of the
Business. We were not asked to, and did not, solicit other proposals for
the acquisition of the Options.
E-1
<PAGE>
BOARD OF DIRECTORS
LOGO
PANAMSAT CORPORATION
SEPTEMBER 19, 1996
PAGE 2
Our opinion is necessarily based upon conditions as they exist and can be
evaluated on the date hereof. Our opinion does not address the Company's
underlying business decision to sell the Options to Televisa in connection
with the Merger. Our opinion does not address the fairness of the Merger.
Our opinion is directed only to the consideration to be paid by Televisa to
acquire the Options and does not constitute a recommendation concerning how
any holder of the Company's securities should vote with respect to the
Merger.
We have acted as financial advisor to the Company and will receive a fee
for our services, a portion of which is payable upon delivery of this
opinion and a portion of which is conditioned upon consummation of a sale by
the Company of the Options. In the ordinary course of business, we may
actively trade the securities of the Company, Televisa and Hughes for our
own account and for the accounts of customers and, accordingly, may at any
time hold a long or short position in such securities.
Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the consideration to be paid by Televisa to acquire the Options
represents fair value for the Options from a financial point of view.
Very truly yours,
/s/ Salomon Brothers Inc
______________________________________
SALOMON BROTHERS INC
E-2
<PAGE>
APPENDIX F
RESTATED CERTIFICATE OF INCORPORATION
OF
MAGELLAN INTERNATIONAL, INC.
Magellan International, Inc., a corporation organized and existing under the
laws of the State of Delaware, hereby certifies as follows:
FIRST. (a) The present name of the corporation is Magellan
International, Inc.
(b) The date of the filing of its original Certificate of Incorporation
with the Secretary of State of the State of Delaware was September 18, 1996
under the name Magellan International, Inc.
SECOND. This Restated Certificate of Incorporation has been duly adopted
pursuant to and in accordance with Sections 228, 242 and 245 of the General
Corporation Law of the State of Delaware (the "General Corporation Law"),
and restates and amends the provisions of the existing Certificate of
Incorporation of Magellan International, Inc.
THIRD. The Certificate of Incorporation of Magellan International, Inc. is
hereby amended and restated so as to read in its entirety as follows:
ARTICLE ONE
NAME
The name of the corporation is PANAMSAT CORPORATION (the "Corporation").
ARTICLE TWO
REGISTERED OFFICE
The address of the registered office of the Corporation in the State of
Delaware is 1209 Orange Street, in the City of Wilmington, County of New
Castle 19801, and the name of the registered agent at such address is The
Corporation Trust Company.
ARTICLE THREE
PURPOSES
The nature of the business or purposes of the Corporation is to engage in
any lawful act or activity for which corporations may be organized under the
General Corporation Law, and by such statement all lawful acts and activities
shall be within the purposes of the Corporation, except for express
limitations, if any.
ARTICLE FOUR
CAPITAL STRUCTURE
4.1. The total number of shares of stock which the Corporation shall have
authority to issue is 450,000,000 shares of all classes of stock, consisting
of 400,000,000 shares of Common Stock, par value $.01 per share, and
50,000,000 shares of Preferred Stock, par value $.01 per share.
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4.2. Shares of Preferred Stock may be issued from time to time in one or
more series as may from time to time be determined by the Board of Directors,
each of said series to be distinctly designated. The voting powers,
preferences and relative, participating, optional and other special rights,
and the qualifications, limitations or restrictions thereof, if any, of each
such series may differ from those of any and all other series of Preferred
Stock at any time outstanding, and the Board of Directors is hereby expressly
granted authority to fix or alter, by resolution or resolutions, the
designation, number, voting powers, preferences and relative, participating,
optional and other special rights, and the qualifications, limitations and
restrictions thereof, of each such series, including but without limiting the
generality of the foregoing, the following:
(a) The distinctive designation of, and the number of shares of Preferred
Stock that shall constitute, such series, which number (except where
otherwise provided by the Board of Directors in the resolution establishing
such series) may be increased or decreased (but not below the number of
shares of such series then outstanding) from time to time by like action of
the Board of Directors;
(b) The rights in respect of dividends, if any, of such series of Preferred
Stock, the extent of the preference or relation, if any, of such dividends
to the dividends payable on any other class or classes or on any other
series of the same or other class or classes of capital stock of the
Corporation and whether such dividends shall be cumulative or
noncumulative;
(c) The right, if any, of the holders of such series of Preferred Stock to
convert the same into, or exchange the same for, shares of any other class
or classes or of any other series of the same or any other class or classes
of capital stock of the Corporation, and the terms and conditions of such
conversion or exchange;
(d) Whether or not shares of such series of Preferred Stock shall be subject
to redemption, and the redemption price or prices and the time or times at
which, and the terms and conditions on which, shares of such series of
Preferred Stock may be redeemed;
(e) The rights, if any, of the holders of such series of Preferred Stock
upon the voluntary or involuntary liquidation, dissolution or winding-up of
the Corporation or in the event of any merger or consolidation of or sale
of assets by the Corporation;
(f) The terms of any sinking fund or redemption or repurchase or purchase
account, if any, to be provided for shares of such series of Preferred
Stock;
(g) The voting powers, if any, of the holders of any series of Preferred
Stock generally or with respect to any particular matter, which may be less
than, equal to or greater than one vote per share, and which may, without
limiting the generality of the foregoing, include the right, voting as a
series by itself or together with the holders of any other series of
Preferred Stock or all series of Preferred Stock as a class, to elect one
or more directors of the Corporation generally or under such specific
circumstances and on such conditions, as shall be provided in the
resolution or resolutions of the Board of Directors adopted pursuant
hereto, including, without limitation, in the event there shall have been a
default in the payment of dividends on or redemption of any one or more
series of Preferred Stock; and
(h) Such other powers, preferences and relative, participating, optional and
other special rights, and the qualifications, limitations and restrictions
thereof, as the Board of Directors shall determine.
ARTICLE FIVE
DIRECTORS
5.1. The initial Board of Directors shall consist of 10 directors. Such
number may be changed in such manner as provided in the bylaws of the
Corporation.
5.2. Unless and except to the extent that the bylaws of the Corporation
shall so require, the election of directors of the Corporation need not be by
written ballot.
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ARTICLE SIX
LIMITATION ON LIABILITY
A director of the Corporation shall not be liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except to the extent such exemption from liability or limitation thereof is
not permitted under the General Corporation Law as the same exists or may
hereafter be amended. Any amendment, modification or repeal of the foregoing
sentence shall not adversely affect any right or protection of a director of
the Corporation hereunder in respect of any act or omission occurring prior to
the time of such amendment, modification or repeal.
ARTICLE SEVEN
INDEMNIFICATION
SECTION 7.1. Right to Indemnification. The Corporation shall indemnify and
hold harmless, to the fullest extent permitted by applicable law as it
presently exists or may hereafter be amended, any person who was or is made or
is threatened to be made a party or is otherwise involved in any action, suit
or proceeding, whether civil, criminal, administrative or investigative (a
"proceeding") by reason of the fact that he, or a person for whom he is the
legal representative, is or was a director or officer of the Corporation or is
or was serving at the request of the Corporation as a director, officer,
employee or agent of another Corporation or of a partnership, joint venture,
trust, enterprise or nonprofit entity, including service with respect to
employee benefit plans, against all liability and loss suffered and expenses
(including attorneys' fees) incurred by such person. Except as provided in
Section 7.3, the Corporation shall not be required to indemnify a person in
connection with a proceeding (or part thereof) initiated by such person unless
the proceeding (or part thereof) was authorized by the Board of Directors of
the Corporation.
SECTION 7.2. Advancement of Expenses. The Corporation shall pay the expenses
(including attorneys' fees) of any person referred to in Section 7.1 of this
ARTICLE SEVEN incurred in defending any proceeding in advance of its final
disposition; provided, however, that the advancement 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 this ARTICLE SEVEN
or otherwise.
SECTION 7.3. Claims. If a claim for indemnification or advancement of
expenses under this ARTICLE SEVEN is not paid in full within sixty (60) days
after a written claim therefor has been received by the Corporation (except in
the case of a claim for advancement of expenses, in which case the applicable
period shall be twenty (20) days), the claimant may file suit to recover the
unpaid amount of such claim. If successful in whole in such an action, the
claimant shall be entitled to be paid the expense of prosecuting such claim;
if successful in part in such an action, the claimant shall be entitled to be
paid the expense of prosecuting each successfully resolved claim, issue or
matter. In any such action the Corporation shall have the burden of proving
that the claimant was not entitled to the requested indemnification or
advancement of expenses under applicable law.
SECTION 7.4. Non-Exclusivity of Rights. The rights conferred on any person
by this ARTICLE SEVEN shall not be exclusive of any other rights which such
person may have or hereafter acquire under any statute, provision of this
Restated Certificate of Incorporation, provision of the bylaws, agreement,
vote of stockholders or disinterested directors or otherwise.
SECTION 7.5. Other Indemnification. The Corporation's obligation, if any, to
indemnify any person who was or is serving at its request as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust, enterprise or nonprofit entity shall be reduced by any amount such
person would be entitled to retain as indemnification from such other
corporation, partnership, joint venture, trust, enterprise or nonprofit
enterprise.
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SECTION 7.6. Amendment or Repeal. Any repeal or modification of the
foregoing provisions of this ARTICLE SEVEN shall not adversely affect any
right or protection hereunder of any person in respect of any act or omission
occurring prior to the time of such repeal or modification.
ARTICLE EIGHT
AMENDMENT OF CERTIFICATE
From time to time and at any time, any provision contained in this Restated
Certificate of Incorporation may be amended, altered, changed or repealed by
the Corporation, and other provisions authorized by the laws of the State of
Delaware at the time in force may be added or inserted, in the manner now or
hereafter prescribed by law; and all rights, preferences and privileges of
whatsoever nature conferred upon stockholders, directors or any other persons
whomsoever by and pursuant to this Restated Certificate of Incorporation in
its present form or as hereafter amended are granted subject to the rights
reserved in this ARTICLE EIGHT.
ARTICLE NINE
AMENDMENT OF BYLAWS
In furtherance and not in limitation of the powers conferred by the laws of
the State of Delaware, the Board of Directors of the Corporation is expressly
authorized to make, alter and repeal the bylaws of the Corporation.
ARTICLE TEN
STOCKHOLDER ACTION
Any action required or permitted to be taken by any stockholders of the
Corporation must be effected at a duly called annual or special meeting of
such stockholders and may not be effected by any consent in writing by such
stockholders. Except as otherwise required by law, special meetings of
stockholders of the Corporation may be called only by the Board of Directors
pursuant to a resolution approved by a majority of the entire Board of
Directors.
ARTICLE ELEVEN
BUSINESS COMBINATIONS
The Corporation expressly elects not to be governed by Section 203 of the
General Corporation Law.
IN WITNESS WHEREOF, the Corporation has caused this Restated Certificate of
Incorporation to be executed by Kenneth N. Heintz, the Treasurer of the
Corporation, this day of , 1997.
Magellan International, Inc.
_____________________________________
Kenneth N. Heintz
Treasurer
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APPENDIX G
RESTATED BYLAWS
OF
PANAMSAT CORPORATION
ARTICLE I
STOCKHOLDERS
SECTION 1.1. Annual Meetings. An annual meeting of stockholders shall be
held for the election of directors at such date, time and place, either within
or without the State of Delaware, as may be designated by resolution of the
Board of Directors from time to time. Any other proper business may be
transacted at the annual meeting.
SECTION 1.2. Special Meetings. Special meetings of stockholders for any
purpose or purposes may be called at any time by the Board of Directors, or by
a committee of the Board of Directors that has been duly designated by the
Board of Directors and whose powers and authority, as provided in a resolution
of the Board of Directors, include the power to call such meetings, but such
special meetings may not be called by any other person or persons.
SECTION 1.3. Notice of Meetings. Whenever stockholders are required or
permitted to take any action at a meeting, a written notice of the meeting
shall be given that shall state the place, date and hour of the meeting and,
in the case of a special meeting, the purpose or purposes for which the
meeting is called. Unless otherwise provided by law, the certificate of
incorporation or these Bylaws, the written notice of any meeting shall be
given not less than ten (10) nor more than sixty (60) days before the date of
the meeting to each stockholder entitled to vote at such meeting. If mailed,
such notice shall be deemed to be given when deposited in the United States
mail, postage prepaid, directed to the stockholder at his address as it
appears on the records of the Corporation.
SECTION 1.4. Adjournments. Any meeting of stockholders, annual or special,
may adjourn from time to time to reconvene at the same or some other place,
and notice need not be given of any such adjourned meeting if the time and
place thereof are announced at the meeting at which the adjournment is taken.
At the adjourned meeting the Corporation may transact any business which might
have been transacted at the original meeting. If the adjournment is for more
than thirty (30) days, or if after the adjournment a new record date is fixed
for the adjourned meeting, notice of the adjourned meeting shall be given to
each stockholder of record entitled to vote at the meeting.
SECTION 1.5. Quorum. Except as otherwise provided by law, the certificate of
incorporation or these Bylaws, at each meeting of stockholders the presence in
person or by proxy of the holders of shares of stock having a majority of the
votes which could be cast by the holders of all outstanding shares of stock
entitled to vote at the meeting shall be necessary and sufficient to
constitute a quorum. Where a separate vote by a series, class or classes is
required, a majority of the outstanding shares of stock of such class or
classes on any particular issue, present in person or represented by proxy,
shall be necessary and sufficient to constitute a quorum for purposes of such
issue. In the absence of a quorum, the stockholders so present may, by
majority vote, adjourn the meeting from time to time in the manner provided in
Section 1.4 of these Bylaws until a quorum shall attend. Shares of its own
stock belonging to the Corporation or to another corporation, if a majority of
the shares entitled to vote in the election of directors of such other
corporation is held, directly or indirectly, by the Corporation, shall neither
be entitled to vote nor be counted for quorum purposes; provided, however,
that the foregoing shall not limit the right of the Corporation to vote stock,
including but not limited to its own stock, held by it in a fiduciary
capacity.
SECTION 1.6. Organization. Meetings of stockholders shall be presided over
by the Chairman of the Board, if any, or in his absence by the President, or
in his absence by an Executive Vice President, or in the
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absence of the foregoing persons by a chairman designated by the Board of
Directors, or in the absence of such designation by a chairman chosen at the
meeting. The Secretary shall act as secretary of the meeting, but in his
absence the chairman of the meeting may appoint any person to act as secretary
of the meeting. The chairman of the meeting shall announce at the meeting of
stockholders the date and time of the opening and the closing of the polls for
each matter upon which the stockholders will vote.
SECTION 1.7. Voting; Proxies. Each stockholder entitled to vote at any
meeting of stockholders shall be entitled to one vote for each share of stock
held by such stockholder which has voting power upon the matter in question.
At all meetings of stockholders for the election of directors, a plurality of
the votes cast shall be sufficient to elect a director. All other elections
and questions shall, unless otherwise provided by law, the certificate of
incorporation, these Bylaws or the rules or regulations of any stock exchange
applicable to the Corporation, be decided by the affirmative vote of the
holders of shares of stock having a majority of the votes present in person or
represented by proxy and entitled to vote thereon. Each stockholder entitled
to vote at a meeting of stockholders may authorize another person or persons
to act for him by proxy, but no such proxy shall be voted or acted upon after
three years from its date, unless the proxy provides for a longer period. A
proxy shall be irrevocable if it states that it is irrevocable and if, and
only as long as, it is coupled with an interest sufficient in law to support
an irrevocable power. A stockholder may revoke any proxy which is not
irrevocable by attending the meeting and voting in person or by filing an
instrument in writing revoking the proxy or by delivering a proxy in
accordance with applicable law bearing a later date to the Secretary of the
Corporation. Voting at meetings of stockholders need not be by written ballot.
SECTION 1.8. Fixing Date for Determination of Stockholders of Record. In
order that the Corporation may determine the stockholders entitled to notice
of or to vote at any meeting of stockholders or any adjournment thereof, or
entitled to receive payment of any dividend or other distribution or allotment
of any rights, or entitled to exercise any rights in respect of any change,
conversion or exchange of stock or for the purpose of any other lawful action,
the Board of Directors may fix a record date, which record date shall not
precede the date upon which the resolution fixing the record date is adopted
by the Board of Directors and which record date: (i) in the case of
determination of stockholders entitled to vote at any meeting of stockholders
or adjournment thereof, shall, unless otherwise required by law, not be more
than sixty nor less than ten (10) days before the date of such meeting; and
(ii) in the case of any other action, shall not be more than sixty (60) days
prior to such other action. If no record date is fixed: (i) the record date
for determining stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the day next preceding the
day on which notice is given, or, if notice is waived, at the close of
business on the day next preceding the day on which the meeting is held; and
(ii) the record date for determining stockholders for any other purpose shall
be at the close of business on the day on which the Board of Directors adopts
the resolution relating thereto. A determination of stockholders of record
entitled to notice of or to vote at a meeting of stockholders shall apply to
any adjournment of the meeting; provided, however, that the Board of Directors
may fix a new record date for the adjourned meeting.
SECTION 1.9. List of Stockholders Entitled to Vote. The Secretary shall
prepare and make, at least ten (10) days before every meeting of stockholders,
a complete list of the stockholders entitled to vote at the meeting, arranged
in alphabetical order, and showing the address of each stockholder and the
number of shares registered in the name of each stockholder. Such list shall
be open to the examination of any stockholder, for any purpose germane to the
meeting, during ordinary business hours, for a period of at least ten (10)
days prior to the meeting, either at a place within the city where the meeting
is to be held, which place shall be specified in the notice of the meeting, or
if not so specified, at the place where the meeting is to be held. The list
shall also be produced and kept at the time and place of the meeting during
the whole time thereof and may be inspected by any stockholder who is present.
SECTION 1.10. Stock Ledger. The stock ledger of the Corporation shall be the
only evidence as to who are the stockholders entitled to examine the stock
ledger, the list required by Section 1.9 of this ARTICLE I, or to vote in
person or by proxy at any meeting of stockholders.
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SECTION 1.11. Conduct of Meetings. The Board of Directors of the Corporation
may adopt by resolution such rules and regulations for the conduct of the
meeting of stockholders as it shall deem appropriate. Except to the extent
inconsistent with such rules and regulations as adopted by the Board of
Directors, the chairman of any meeting of stockholders shall have the right
and authority to prescribe such rules, regulations and procedures and to do
all such acts as, in the judgment of such chairman, are appropriate for the
proper conduct of the meeting. Such rules, regulations or procedures, whether
adopted by the Board of Directors or prescribed by the chairman of the
meeting, may include, without limitation, the following: (i) the establishment
of an agenda or order of business for the meeting; (ii) rules and procedures
for maintaining order at the meeting and the safety of those present; (iii)
limitations on attendance at or participation in the meeting to stockholders
of record of the Corporation, their duly authorized and constituted proxies or
such other persons as the chairman of the meeting shall determine; (iv)
restrictions on entry to the meeting after the time fixed for the commencement
thereof; and (v) limitations on the time allotted to questions or comments by
participants. Unless and to the extent otherwise determined by the Board of
Directors or the chairman of the meeting, meetings of stockholders shall not
be required to be held in accordance with the rules of parliamentary
procedure.
SECTION 1.12. Advance Notice of Stockholder Nominations and Business.
(A) Annual Meetings of Stockholders.
(1) Nominations of persons for election to the Board of Directors and the
proposal of business to be considered by the stockholders may be made at an
annual meeting of stockholders (a) pursuant to the Corporation's notice of
meeting, (b) by or at the direction of the Board of Directors or (c) by any
stockholder of the Corporation who was a stockholder of record at the time
of giving of notice provided for in this Bylaw, who is entitled to vote at
the meeting and complies with the notice procedures set forth in this
Bylaw.
(2) For nominations or other business to be properly brought before an
annual meeting by a stockholder pursuant to clause (c) of paragraph (A)(1)
of this Bylaw, the stockholder must have given timely notice thereof in
writing to the Secretary of the Corporation and such other business must
otherwise be a proper matter for stockholder action. To be timely, a
stockholder's notice shall be delivered to the Secretary at the principal
executive offices of the Corporation not later than the close of business
on the 60th day nor earlier than the close of business on the 90th day
prior to the first anniversary of the preceding year's annual meeting;
provided, however, that in the event that the date of the annual meeting is
more than thirty (30) days before or more than sixty (60) days after such
anniversary date, notice by the stockholder to be timely must be so
delivered not earlier than the close of business on the 90th day prior to
such annual meeting and not later than the close of business on the later
of the 60th day prior to such annual meeting or the 10th day following the
day on which public announcement of the date of such meeting is first made
by the Corporation. In no event shall the public announcement of an
adjournment of an annual meeting commence a new time period for the giving
of a stockholder's notice as described above. Such stockholder's notice
shall set forth (a) as to each person whom the stockholder proposes to
nominate for election or re-election as a director all information relating
to such person that is required to be disclosed in solicitations of proxies
for election of directors in an election contest, or is otherwise required,
in each case pursuant to Regulation 14A under the Securities Exchange Act
of 1934, as amended (the "Exchange Act") and Rule 14a-11 thereunder
(including such person's written consent to being named in the proxy
statement as a nominee and to serving as a director if elected); (b) as to
any other business that the stockholder proposes to bring before the
meeting, a brief description of the business desired to be brought before
the meeting, the reasons for conducting such business at the meeting and
any material interest in such business of such stockholder and the
beneficial owner, if any, on whose behalf the proposal is made; and (c) as
to the stockholder giving the notice and the beneficial owner, if any, on
whose behalf the nomination or proposal is made (i) the name and address of
such stockholder, as they appear on the Corporation's books, and of such
beneficial owner, (ii) the class and number of shares of the Corporation
which are owned beneficially and of record by such stockholder and such
beneficial owner, and (iii) whether the proponent intends or is part of a
group which intends to solicit proxies from other stockholders in support
of such proposal or nomination.
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(3) Notwithstanding anything in the second sentence of paragraph (A)(2)
of this Bylaw to the contrary, in the event that the number of directors to
be elected to the Board of Directors of the Corporation is increased and
there is no public announcement by the Corporation naming all of the
nominees for director or specifying the size of the increased Board of
Directors at least seventy (70) days prior to the first anniversary of the
preceding year's annual meeting, a stockholder's notice required by this
Bylaw shall also be considered timely, but only with respect to nominees
for any new positions created by such increase, if it shall be delivered to
the Secretary at the principal executive offices of the Corporation not
later than the close of business on the 10th day following the day on which
such public announcement is first made by the Corporation.
(B) Special Meetings of Stockholders. Only such business shall be conducted
at a special meeting of stockholders as shall have been brought before the
meeting pursuant to the Corporation's notice of meeting. Nominations of
persons for election to the Board of Directors may be made at a special
meeting of stockholders at which directors are to be elected pursuant to the
Corporation's notice of meeting (a) by or at the direction of the Board of
Directors or (b) provided that the Board of Directors has determined that
directors shall be elected at such meeting, by any stockholder of the
Corporation who is a stockholder of record at the time of giving of notice
provided for in this Bylaw, who shall be entitled to vote at the meeting and
who complies with the notice procedures set forth in this Bylaw. In the event
the Corporation calls a special meeting of stockholders for the purpose of
electing one or more directors to the Board of Directors, any such stockholder
may nominate a person or persons (as the case may be) for election to such
position(s) as specified in the Corporation's notice of meeting, if the
stockholder's notice required by paragraph (A)(2) of this Bylaw shall be
delivered to the Secretary at the principal executive offices of the
Corporation not earlier than the close of business on the 90th day prior to
such special meeting and not later than the close of business on the later of
the 60th day prior to such special meeting, or the 10th day following the day
on which public announcement is first made of the date of the special meeting
and of the nominees proposed by the Board of Directors to be elected at such
meeting. In no event shall the public announcement of an adjournment of a
special meeting commence a new time period for the giving of a stockholder's
notice as described above.
(C) General.
(1) Only such persons who are nominated in accordance with the procedures
set forth in this Bylaw shall be eligible to serve as directors and only
such business shall be conducted at a meeting of stockholders as shall have
been brought before the meeting in accordance with the procedures set forth
in this Bylaw. Except as otherwise provided by law, the certificate of
incorporation or these Bylaws, the chairman of the meeting shall have the
power and duty to determine whether a nomination or any business proposed
to be brought before the meeting was made or proposed, as the case may be,
in accordance with the procedures set forth in this Bylaw and, if any
proposed nomination or business is not in compliance with this Bylaw, to
declare that such defective proposal or nomination shall be disregarded.
(2) For purposes of this Bylaw, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service or in a document
publicly filed by the Corporation with the Securities and Exchange
Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act.
(3) Notwithstanding the foregoing provisions of this Bylaw, a stockholder
shall also comply with all applicable requirements of the Exchange Act and
the rules and regulations thereunder with respect to the matters set forth
in this Bylaw. Nothing in this Bylaw shall be deemed to affect any rights
(i) of stockholders to request inclusion of proposals in the Corporation's
proxy statement pursuant to Rule 14a-8 under the Exchange Act or (ii) of
the holders of any series of Preferred Stock to elect directors under
specified circumstances.
SECTION 1.13. Stockholder Action. Any action required or permitted to be
taken by any stockholders of the Corporation must be effected at a duly called
annual or special meeting of such stockholders and may not
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be effected by any consent in writing by such stockholders. Except as
otherwise required by law, special meetings of stockholders of the Corporation
may be called only by the Board of Directors pursuant to a resolution approved
by a majority of the entire Board of Directors.
SECTION 1.14. Inspectors of Election. The Corporation shall, in advance of
any meeting of stockholders, appoint one or more inspectors of election, who
may be employees of the Corporation, to act at the meeting or any adjournment
thereof and to make a written report thereof. The Corporation may designate
one or more persons as alternate inspectors to replace any inspector who fails
to act. In the event that no inspector so appointed or designated is able to
act at a meeting of stockholders, the person presiding at the meeting shall
appoint one or more inspectors to act at the meeting. Each inspector, before
entering upon the discharge of his or her duties, shall take and sign an oath
to execute faithfully the duties of inspector with strict impartiality and
according to the best of his or her ability. The inspector or inspectors so
appointed or designated shall (i) ascertain the number of shares of capital
stock of the Corporation outstanding and the voting power of each such share,
(ii) determine the shares of capital stock of the Corporation represented at
the meeting and the validity of proxies and ballots, (iii) count all votes and
ballots, (iv) determine and retain for a reasonable period a record of the
disposition of any challenges made to any determination by the inspectors, and
(v) certify their determination of the number of shares of capital stock of
the Corporation represented at the meeting and such inspectors' count of all
votes and ballots. Such certification and report shall specify such other
information as may be required by law. In determining the validity and
counting of proxies and ballots cast at any meeting of stockholders of the
Corporation, the inspectors may consider such information as is permitted by
applicable law. No person who is a candidate for an office at an election may
serve as an inspector at such election.
ARTICLE II
BOARD OF DIRECTORS
SECTION 2.1. Number; Qualifications. The Board of Directors shall consist of
one or more members, the number thereof to be determined from time to time by
resolution of the Board of Directors. Directors need not be stockholders.
SECTION 2.2. Election; Resignation; Removal; Vacancies. At the first annual
meeting of stockholders and at each annual meeting thereafter, the
stockholders shall elect directors each of whom shall hold office for a term
of one year or until his successor is elected and qualified. The number of
directors constituting the initial Board of Directors shall be ten. Subject to
the rights of holders of any series of Preferred Stock to elect directors
under specified circumstances, the number of directors may be modified from
time to time exclusively by the Board of Directors pursuant to a resolution
adopted by a majority of the total number of directors which the Corporation
would have if there were no vacancies. Any director may resign at any time
upon written notice to the Corporation. Any newly created directorship or any
vacancy occurring in the Board of Directors for any cause may be filled by a
majority of the remaining members of the Board of Directors, although such
majority is less than a quorum, or by a plurality of the votes cast at a
meeting of stockholders, and each director so elected shall hold office until
the expiration of the term of office of the director whom he has replaced or
until his successor is elected and qualified.
SECTION 2.3. Regular Meetings. Regular meetings of the Board of Directors
may be held at such places within or without the State of Delaware and at such
times as the Board of Directors may from time to time determine, and if so
determined notices thereof need not be given.
SECTION 2.4. Special Meetings. Special meetings of the Board of Directors
may be held at any time or place within or without the State of Delaware
whenever called by the President, any Vice President, the Secretary, or by any
member of the Board of Directors. Notice of a special meeting of the Board of
Directors shall be given by the person or persons calling the meeting at least
twenty-four hours before the special meeting.
SECTION 2.5. Telephonic Meetings Permitted. Members of the Board of
Directors, or any committee designated by the Board of Directors, may
participate in a meeting thereof by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation in a meeting pursuant to this
Bylaw shall constitute presence in person at such meeting.
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SECTION 2.6. Quorum; Vote Required for Action. At all meetings of the Board
of Directors a majority of the whole Board of Directors shall constitute a
quorum for the transaction of business. The vote of a majority of the
directors present at a meeting at which a quorum is present shall be the act
of the Board of Directors.
SECTION 2.7. Organization. Meetings of the Board of Directors shall be
presided over by the Chairman of the Board, if any, or in his absence by the
President, or in their absence by a chairman chosen at the meeting. The
Secretary shall act as secretary of the meeting, but in his absence the
chairman of the meeting may appoint any person to act as secretary of the
meeting.
SECTION 2.8. Informal Action by Directors. Unless otherwise restricted by
the certificate of incorporation or these Bylaws, any action required or
permitted to be taken at any meeting of the Board of Directors, or of any
committee thereof, may be taken without a meeting if all members of the Board
of Directors or such committee, as the case may be, consent thereto in
writing, and the writing or writings are filed with the minutes of proceedings
of the Board of Directors or such committee.
ARTICLE III
COMMITTEES
SECTION 3.1. Committees. The Board of Directors shall appoint the committees
provided for in these Bylaws in Sections 3.2 and 3.3 and may, by resolution
passed by the Board of Directors, designate one or more additional committees,
each committee to consist of one or more of the directors of the Corporation.
The Board of Directors may designate one or more directors as alternate
members of any committee, who may replace any absent or disqualified member at
any meeting of the committee. In the absence or disqualification of a member
of the committee, the member or members thereof present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in place of any such absent or disqualified member. Any such
committee, to the extent permitted by law and to the extent provided in the
resolution of the Board of Directors, shall have and may exercise all the
powers and authority of the Board of Directors in the management of the
business and affairs of the Corporation, and may authorize the seal of the
Corporation to be affixed to all papers which may require it.
SECTION 3.2. Compensation Committee.
(a) At each annual meeting of the Board of Directors, the Board of Directors
shall, by a resolution adopted by the Board of Directors, designate and
appoint from its members a Compensation Committee consisting of three or more
directors, each of whom shall be a "disinterested" person.
(b) The Compensation Committee shall have the following powers and
responsibilities:
(1) to review and recommend to the Board of Directors compensation
levels, bonus amounts and stock option grants of officers and compensation
and benefit plans recommended by management for other employees;
(2) to request and review reports from the corporation's management on
the scope, competence, performance and motivation of management employees;
(3) to develop, review and recommend to the Board of Directors incentive,
bonus, stock option and similar incentive plans or programs and retirement
and welfare plans or programs for officers and key managers;
(4) to interpret incentive, bonus, stock option and similar incentive
plans; and
(5) to develop, review and recommend to the Board of Directors changes of
major benefit programs.
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(c) Action taken by the Compensation Committee or at meetings duly called
shall require the affirmative vote of at least a majority of its members.
SECTION 3.3. Audit Committee.
(a) At each annual meeting of the Board of Directors, the Board of Directors
shall, by a resolution adopted by the Board of Directors, designate and
appoint from its members an Audit Committee consisting of three or more
directors, none of whom is an officer or employee of the Corporation.
(b) The Audit Committee shall have the powers and responsibilities as
designated by the Board of Directors from time to time.
SECTION 3.4. Committee Rules. Unless the Board of Directors otherwise
provides, each committee designated by the Board of Directors may make, alter
and repeal rules for the conduct of its business. In the absence of such rules
each committee shall conduct its business in the same manner as the Board of
Directors conducts its business pursuant to ARTICLE II of these Bylaws.
ARTICLE IV
OFFICERS
SECTION 4.1. Executive Officers; Election; Qualifications; Term of Office;
Resignation; Removal; Vacancies. The Board of Directors shall elect a
President and Secretary, and it may, if it so determines, choose a Chairman of
the Board from among its members. The Board of Directors may also choose one
or more Executive Vice Presidents, one or more Senior Vice Presidents, one or
more Assistant Secretaries, a Treasurer and one or more Assistant Treasurers.
Each such officer shall hold office until the first meeting of the Board of
Directors after the annual meeting of stockholders next succeeding his
election, and until his successor is elected and qualified or until his
earlier resignation or removal. Any officer may resign at any time upon
written notice to the Corporation. The Board of Directors may remove any
officer with or without cause at any time, but such removal shall be without
prejudice to the contractual rights of such officer, if any, with the
Corporation. Any number of offices may be held by the same person. Any vacancy
occurring in any office of the Corporation by death, resignation, removal or
otherwise may be filled for the unexpired portion of the term by the Board of
Directors at any regular or special meeting.
SECTION 4.2. Powers and Duties of Executive Officers. The officers of the
Corporation shall have such powers and duties in the management of the
Corporation as may be prescribed in a resolution by the Board of Directors
and, to the extent not so provided, as generally pertain to their respective
offices, subject to the control of the Board of Directors.
SECTION 4.3. Chairman of the Board. The Chairman of the Board shall be a
member of the Board of Directors. He shall preside at each meeting of the
Board of Directors or the stockholders. Unless the Chairman also holds another
office described in these Bylaws, he shall be a non-executive officer of the
Corporation.
SECTION 4.4. The President. The President shall be the chief executive
officer of the Corporation. He shall, in the absence of the Chairman of the
Board, preside at each meeting of the Board of Directors or the stockholders.
The President shall be responsible for the general supervision and control of
the business and affairs of the Corporation, subject to the direction of the
Board of Directors. The President may sign or countersign certificates,
contracts, agreements and other documents and instruments in the name and on
behalf of the Corporation, unless and except to the extent that any document
or instrument is required by law or by the Board of Directors to be signed or
countersigned by another officer of the Corporation. The President may appoint
additional officers that are not executive officers described in these Bylaws
(unless such appointments are approved by the Board of Directors), and such
additional officers shall serve the Corporation at the discretion of the
President. The President shall perform all duties incident to the office of
the President, and such other duties as may from time to time be assigned to
him by the Board of Directors.
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SECTION 4.5. Executive Vice President. Each Executive Vice President shall
perform all such duties as from time to time may be assigned to him by the
Board of Directors or the President. At the request of the President or in his
absence or in the event of his inability or refusal to act, the Executive Vice
President, or if there shall be more than one, the Executive Vice Presidents
in the order determined by the Board of Directors (or if there be no such
determination, then the Executive Vice Presidents in the order of their
appointment), shall perform the duties of the President, and when so acting,
shall have the powers of and be subject to the restrictions placed upon the
President in respect of the performance of such duties.
SECTION 4.6. Senior Vice President. Each Senior Vice President shall perform
all such duties as from time to time may be assigned to him by the Board of
Directors or the President. Each Senior Vice President shall perform all
duties incident to the office of such Senior Vice President, and such other
duties as may from time to time be assigned to him by the Board of Directors.
SECTION 4.7. Chief Financial Officer. The Chief Financial Officer shall be
responsible for the financial affairs of the Corporation and shall be the
chief accounting officer for public securities purposes. If the Chief
Financial Officer is not also the Treasurer of the Corporation, he shall be
responsible for the supervision of the Treasurer. He shall perform all duties
incident to the office of Chief Financial Officer, and such other duties as
may from time to time be assigned to him by the Board of Directors.
SECTION 4.8. Treasurer. The Treasurer shall:
(a) have charge and custody of, and be responsible for, all the funds and
securities of the Corporation;
(b) keep full and accurate accounts of receipts and disbursements in
books belonging to the Corporation;
(c) deposit all moneys and other valuables to the credit of the
Corporation in such depositaries as may be designated by the Board of
Directors or pursuant to its direction;
(d) receive, and give receipts for, moneys due and payable to the
Corporation from any source whatsoever;
(e) disburse the funds of the Corporation and supervise the investments
of its funds;
(f) render to the Board of Directors, whenever the Board of Directors may
require, an account of the financial condition of the Corporation; and
(g) in general, perform all duties incident to the office of Treasurer
and such other duties as from time to time may be assigned to him by the
Board of Directors.
In the event that any officer of the Corporation other than the Treasurer
shall be designated as the corporation's chief financial officer, the
Treasurer shall share the foregoing powers and duties with such chief
financial officer, and all references in these Bylaws to the Treasurer shall
be deemed to include such chief financial officer of the Corporation.
SECTION 4.9. Secretary. The Secretary shall:
(a) keep or cause to be kept in one or more books provided for the
purpose, the minutes of all meetings of the Board of Directors, the
committees of the Board of Directors and the stockholders;
(b) see that all notices are duly given in accordance with the provisions
of these Bylaws and as required by law;
(c) be custodian of the records and the seal of the Corporation and affix
and attest the seal to all certificates for shares of the Corporation and
affix and attest the seal to all other documents to be executed on behalf
of the Corporation under its seal;
(d) see that the books, reports, statements, certificates and other
documents and records required by law to be kept and filed are properly
kept and filed; and
(e) in general, perform all duties incident to the office of Secretary
and such other duties as from time to time may be assigned to him by the
Board of Directors.
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SECTION 4.10. Assistant Secretaries. During the absence or disability of the
Secretary, the Assistant Secretary shall have and may exercise all of the
powers and shall discharge all of the duties of the Secretary. Each Assistant
Secretary shall also perform all such other duties as are incident to his
office or are properly requested by the President, the Secretary or the Board
of Directors.
SECTION 4.11. Assistant Treasurers. During the absence or disability of the
Treasurer, the Assistant Treasurer shall have and may exercise all of the
powers and shall discharge all of the duties of the Treasurer. Each Assistant
Treasurer shall also perform all such other duties as are incident to his
office or are properly requested by the President, the Treasurer or the Board
of Directors.
SECTION 4.12. Additional Officers. The Board of Directors may appoint such
other officers and agents as it may deem appropriate, and such other officers
and agents shall hold their offices for such terms and shall exercise such
powers and perform such duties as may be determined from time to time by the
Board of Directors. The Board of Directors may from time to time delegate to
any officer or agent the power to appoint subordinate officers or agents and
to prescribe their respective rights, terms of office, authorities and duties.
Any such officer or agent may remove any such subordinate officer or agent
appointed by him, for or without cause.
ARTICLE V
STOCK
SECTION 5.1. Certificates. Every holder of stock shall be entitled to have a
certificate signed by or in the name of the Corporation by the Chairman or the
President or an Executive Vice President, and by the Treasurer or an Assistant
Treasurer, or the Secretary or an Assistant Secretary of the Corporation,
certifying the number of shares owned by him in the Corporation. Any of or all
the signatures on the certificate may be a facsimile. In case any officer,
transfer agent or registrar who has signed or whose facsimile signature has
been placed upon a certificate shall have ceased to be such officer, transfer
agent or registrar before such certificate is issued, it may be issued by the
Corporation with the same effect as if he were such officer, transfer agent or
registrar at the date of issue.
SECTION 5.2. Lost, Stolen or Destroyed Stock Certificates; Issuance of New
Certificates. The Corporation may issue a new certificate of stock in the
place of any certificate theretofore issued by it alleged to have been lost,
stolen or destroyed, and the Corporation may require the owner of the lost,
stolen or destroyed certificate, or his legal representative, to give the
Corporation a bond sufficient to indemnify it against any claim that may be
made against it on account of the alleged loss, theft or destruction of any
such certificate or the issuance of such new certificate.
ARTICLE VI
MISCELLANEOUS
SECTION 6.1. Fiscal Year. The fiscal year of the Corporation shall be
determined by resolution of the Board of Directors.
SECTION 6.2. Seal. The corporate seal shall have the name of the Corporation
inscribed thereon and shall be in such form as may be approved from time to
time by the Board of Directors.
SECTION 6.3. Waiver of Notice of Meetings of Stockholders, Directors and
Committees. Any written waiver of notice, signed by the person entitled to
notice, whether before or after the time stated therein, shall be deemed
equivalent to notice. Attendance of a person at a meeting shall constitute a
waiver of notice of such meeting, except when the person attends a meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at nor the purpose of any
regular or special meeting of the stockholders, directors or members of a
committee of directors need be specified in any written waiver of notice.
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SECTION 6.4. Manner of Notice. Except as otherwise provided herein, notices
to directors and stockholders shall be in writing and delivered personally or
mailed to the directors or stockholders at their addresses appearing on the
books of the Corporation. Notice to directors may be given by telegram,
telecopier, telephone or other means of electronic transmission.
SECTION 6.5. Interested Directors; Quorum. No contract or transaction
between the Corporation and one or more of its directors or officers, or
between the Corporation and any other corporation, partnership, association or
other organization in which one or more of its directors or officers are
directors or officers, or have a financial interest, shall be void or voidable
solely for this reason, or solely because the director or officer is present
at or participates in the meeting of the Board of Directors or committee
thereof which authorizes the contract or transaction, or solely because his or
their votes are counted for such purpose, if: (i) the material facts as to his
relationship or interest and as to the contract or transaction are disclosed
or are known to the Board of Directors or the committee, and the Board of
Directors or committee in good faith authorizes the contract or transaction by
the affirmative votes of a majority of the disinterested directors, even
though the disinterested directors be less than a quorum; or (ii) the material
facts as to his relationship or interest and as to the contract or transaction
are disclosed or are known to the stockholders entitled to vote thereon, and
the contract or transaction is specifically approved in good faith by vote of
the stockholders; or (iii) the contract or transaction is fair as to the
Corporation as of the time it is authorized, approved or ratified, by the
Board of Directors, a committee thereof, or the stockholders. Common or
interested directors may be counted in determining the presence of a quorum at
a meeting of the Board of Directors or of a committee which authorizes the
contract or transaction.
SECTION 6.6. Form of Records. Any records maintained by the Corporation in
the regular course of its business, including its stock ledger, books of
account and minute books, may be kept on, or be in the form of, punch cards,
magnetic tape, photographs, microphotographs, or any other information storage
device, provided that the records so kept can be converted into clearly
legible form within a reasonable time.
SECTION 6.7. Amendment of Bylaws. These Bylaws may be altered or repealed,
and new bylaws made, by the Board of Directors, but the stockholders may make
additional bylaws and may alter and repeal any Bylaws whether adopted by them
or otherwise.
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APPENDIX H
DTH OPTION PURCHASE AGREEMENT
This DTH Option Purchase Agreement (this "Agreement"), dated September 20,
1996, between PanAmSat Corporation, a Delaware corporation ("PAS"), Grupo
Televisa, S.A., a Mexican corporation ("Televisa") and Satellite Company,
L.L.C., a Nevada Limited Liability Company ("S Company").
A. PAS and Televisa have entered into a DTH System in Latin America
Memorandum of Understanding dated as of March 27, 1995 (the "Original MOU"),
as revised pursuant to a Revised DTH System in Latin America Memorandum of
Understanding of even date herewith (the "Revised MOU"). Pursuant to Section
2.4.1 of the Original MOU and Section 1.1 of the Revised MOU, and pursuant to
oral understandings, PAS has obligations or rights to purchase (such
agreements or options to purchase, the "DTH Options"), subject to fulfillment
of its indenture obligations, equity ownership in a company or companies
formed to sell program services to consumers in the Americas and the Iberian
peninsula.
B. Concurrently with the execution and delivery of this Agreement, PAS is
entering into an Agreement and Plan of Reorganization (the "Reorganization
Agreement") with Hughes Communications, Inc. ("HCI"), Hughes Communications
Galaxy, Inc., Hughes Communications Satellite Services, Inc., Hughes
Communications Services, Inc., Hughes Communications Carrier Services, Inc.,
Hughes Communications Japan, Inc. and Magellan International, Inc. ("Newco"),
pursuant to which, among other things, Newco will acquire the existing
businesses of certain subsidiaries of HCI that together comprise the Galaxy
Business (as defined in the Reorganization Agreement) and the business of PAS.
C. It is a condition to the closing under the Reorganization Agreement that
PAS dispose of the DTH Options.
In consideration of the foregoing premises and the agreements, covenants and
conditions set forth below, the parties agree as follows:
1. SALE OF DTH OPTION.
1.1 Upon the terms and subject to the conditions contained herein, at a
closing (the "Closing") occurring substantially concurrently with the payment
by Newco of consideration pursuant to Section 1.2 of the Stock Contribution
and Exchange Agreement of even date herewith between Televisa, S Company,
Newco and Hughes Communications, Inc., PAS will sell, convey, transfer, assign
and deliver (i) unless the proviso to Section 1.3 hereof is applicable, at
Televisa's option, to Televisa and/or a designee or designees of Televisa, or
(ii) only if the proviso to Section 1.3 hereof is applicable, at S Company's
option, to S Company and/or a designee or designees of S Company, all of PAS's
right, title and interest in and to the DTH Options (collectively, the "PAS
DTH Option Sale").
1.2 Upon the terms and subject to the conditions contained herein, at the
Closing, as consideration for the PAS DTH Option Sale, subject to Section 1.3
hereof, Televisa shall pay and/or cause to be paid to PAS the sum of U.S.
$225,000,000 (the "DTH Option Amount").
1.3 To effect the PAS DTH Option Sale, at the Closing (a) PAS shall assign,
convey, transfer and sell (i) unless the proviso to this Section 1.3 is
applicable, at Televisa's option, to Televisa and/or a designee or designees
of Televisa, or (ii) only if the proviso to this Section 1.3 is applicable, at
S Company's option, to S Company and/or a designee or designees of S Company,
the DTH Options free and clear of any claim, lien, pledge, option, charge,
security interest, encumbrance or other rights of third parties of any nature
whatsoever, and (b) Televisa shall pay and/or caused to be paid an amount in
cash equal to the DTH Option Amount to PAS by wire transfer of immediately
available funds to an account designated by PAS; provided, that if Televisa is
otherwise unable to pay and/or caused to be paid the DTH Option Amount to PAS
at the Closing, then
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S Company shall acquire and/or cause to be acquired by a designee or designees
of S Company the DTH Options, and S Company shall pay and/or caused to be paid
by a designee or designees of S Company the DTH Option Amount to PAS.
1.4 (a) In the event that the proviso to Section 1.3 hereof is not
applicable, unless otherwise provided in a written notice by Televisa to PAS
at the Closing, PAS shall sell, convey, transfer, assign and deliver the DTH
Options to Televisa at the Closing.
(b) Only in the event that the proviso to Section 1.3 hereof is applicable,
unless otherwise provided in a written notice by S Company to PAS at the
Closing, PAS shall sell, convey, transfer, assign and deliver the DTH Options
to S Company at the Closing.
2. REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS.
2.1 PAS hereby represents and warrants to Televisa, S Company and their
designees, and each of Televisa and S Company (on behalf of each of them and
their designees, if any) hereby represents and warrants to PAS, that (i) such
party has all requisite corporate power and authority to execute and deliver
this Agreement and to perform its obligations hereunder and to effect the
transactions contemplated hereby, (ii) the execution, delivery and performance
of this Agreement and the consummation of the transactions contemplated hereby
have been duly authorized by all necessary corporate action on the part of
such party, (iii) this Agreement has been duly executed and delivered by such
party, and assuming that this Agreement constitutes the valid and binding
agreement of the other party hereto, constitutes a valid and binding
obligation of such party enforceable in accordance with its terms except that
the enforcement hereby may be limited by bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium or other similar laws now or hereafter in
effect relating to creditors' rights generally and general principles of
equity (regardless of whether enforceability is considered in a proceeding at
law or in equity), (iv) no consent, approval, order or authorization of, or
registration, declaration or filing with, notice to, or permit from any
legislative, executive, judicial, regulatory or other governmental or quasi-
governmental authority, instrumentality or body, whether domestic or foreign,
local, state, federal or other, including, without limitation, any
administrative agency, commission or court, or other public or private third
party, is required by or with respect to such party in connection with the
execution and delivery by such party of this Agreement or the consummation by
such party of the transactions contemplated hereby.
2.2 Each of the parties hereto hereby agrees that it will cooperate with one
another and endeavor in good faith to take all actions required in connection
with the consummation of the transactions contemplated by this Agreement.
3. BINDING EFFECT.
This Agreement is a binding agreement between the parties, and may be
amended or modified only by a written instrument executed by the parties. This
Agreement constitutes the entire understanding and agreement of the parties
with respect to the matters described herein and all prior agreements and
understandings, whether written or oral related thereto, are merged herein and
superseded hereby, except as set forth in Section 9 below.
4. NO THIRD PARTY BENEFICIARIES.
Nothing contained in this Agreement is intended to confer on any person or
entity, other than the parties hereto, any rights, remedies or obligations.
5. GOVERNING LAW.
This Agreement will be governed by and construed in accordance with the laws
of the State of New York, without giving effect to principles of conflicts of
laws.
6. COUNTERPARTS.
This Agreement may be executed in one or more counterparts, each of which
shall constitute an original agreement.
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7. TERMINATION.
This Agreement may be terminated at any time prior to the Closing by PAS or
Televisa (the date of such termination being referred to as a "Termination
Date") if for any reason the Reorganization Agreement shall have been
terminated in accordance with its terms. In the event of the termination of
this Agreement as provided in the preceding sentence, written notice thereof
shall forthwith be given to the other party and this Agreement shall forthwith
become void and there shall be no liability on the part of either party hereto
except to the extent that such termination results from the breach by such
party hereto of any of its representations or warranties, or of any of its
covenants or agreements, in each case, as set forth in this Agreement.
8. FURTHER RIGHTS.
Notwithstanding anything contained herein to the contrary, upon the
termination of this Agreement pursuant to Section 7, Televisa may extend this
Agreement for a period of up to 12 months following the Termination Date (the
"Extension Period") by written notice to PAS given within the Extension
Period. Upon such extension, the transactions contemplated herein shall close
prior to the expiration of the Extension Period, as the same may be further
extended as provided in clause (b) below, on the terms and conditions set
forth herein, provided that (a) the $225 million purchase price specified
herein shall be increased by an amount equal to interest at the rate of 10%
per annum from the Termination Date until the payment of the purchase price,
and (b) if PAS enters into an agreement to effect a business combination
within the Extension Period and if Televisa has committed to purchase the DTH
Options in connection with such business combination, the closing of the
purchase and sale may be adjourned, at Televisa's option, until the
consummation of such business combination.
9. TERMINATION OF AGREEMENTS.
Upon the consummation of the purchase by Televisa or its designee of the DTH
Options as provided herein, all rights and obligations of the parties under
the Original MOU and the Revised MOU shall, except as expressly provided
below, be terminated and extinguished and neither party shall have any further
obligation to the other. Notwithstanding the immediately preceding sentence,
the provisions of Section 2 of the Revised MOU shall not be terminated or
extinguished and shall remain in full force and effect.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the day and year first above written.
Grupo Televisa, S.A.
/s/ Guillermo Canedo White
By: _________________________________
Name: Guillermo Canedo White
Title:Executive Vice President
Satellite Company, L.L.C.
/s/ Guillermo Canedo White
By: _________________________________
Name: Guillermo Canedo White
Title:Authorized Signatory
Panamsat Corporation
/s/ Frederick A. Landman
By: _________________________________
Name: Frederick A. Landman
Title:President and Chief
Executive Officer
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APPENDIX I
DELAWARE GENERAL CORPORATION LAW
SECTION 262 APPRAISAL RIGHTS.--(a) Any stockholder of a corporation of this
State who holds shares of stock on the date of the making of a demand pursuant
to subsection (d) of this section with respect to such shares, who
continuously holds such shares through the effective date of the merger or
consolidation, who has otherwise complied with subsection (d) of this section
and who has neither voted in favor of the merger or consolidation nor
consented thereto in writing pursuant to (S) 228 of this title shall be
entitled to an appraisal by the Court of Chancery of the fair value of his
shares of stock under the circumstances described in subsections (b) and (c)
of this section. As used in this section, the word "stockholder" means a
holder of record of stock in a stock corporation and also a member of record
of a nonstock corporation; the words "stock" and "share" mean and include what
is ordinarily meant by those words and also membership or membership interest
of a member of a nonstock corporation; and the words "depository receipt" mean
a receipt or other instrument issued by a depository representing an interest
in one or more shares, or fractions thereof, solely of stock of a corporation,
which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to
be effected pursuant to (S) 251 (other than a merger effected pursuant to
subsection (g) of Section 251), 252, 254, 257, 258, 263 or 264 of this title:
(1) Provided, however, that no appraisal rights under this section shall
be available for the shares of any class or series of stock, which stock,
or depository receipts in respect thereof, at the record date fixed to
determine the stockholders entitled to receive notice of and to vote at the
meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the holders of the surviving corporation as
provided in subsection (f) of (S) 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to (S)(S)
251, 252, 254, 257, 258, 263 and 264 of this title to accept for such stock
anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect
thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock or depository receipts at the
effective date of the merger or consolidation will be either listed on
a national securities exchange or designated as a national market
system security on an interdealer quotation system by the National
Association of Securities Dealers, Inc. or held of record by more than
2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this
paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under (S) 253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall
be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all
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or substantially all of the assets of the corporation. If the certificate of
incorporation contains such a provision, the procedures of this section,
including those set forth in subsections (d) and (e) of this section, shall
apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting,
shall notify each of its stockholders who was such on the record date for
such meeting with respect to shares for which appraisal rights are
available pursuant to subsections (b) or (c) hereof that appraisal rights
are available for any or all of the shares of the constituent corporations,
and shall include in such notice a copy of this section. Each stockholder
electing to demand the appraisal of his shares shall deliver to the
corporation, before the taking of the vote on the merger or consolidation,
a written demand for appraisal of his shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of his shares. A proxy or vote against the merger or
consolidation shall not constitute such a demand. A stockholder electing to
take such action must do so by a separate written demand as herein
provided. Within 10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become
effective; or
(2) If the merger or consolidation was approved pursuant to (S) 228 or
(S) 253 of this title, each constituent corporation, either before the
effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of
stock of such constituent corporation who are entitled to appraisal rights
of the approval of the merger or consolidation and that appraisal rights
are available for any or all shares of such class or series of stock of
such constituent corporation, and shall include in such notice a copy of
this section; provided that, if the notice is given on or after the
effective date of the merger or consolidation, such notice shall be given
by the surviving or resulting corporation to all such holders of any class
or series of stock of a constituent corporation that are entitled to
appraisal rights. Such notice may, and, if given on or after the effective
date of the merger or consolidation, shall, also notify such stockholders
of the effective date of the merger or consolidation. Any stockholder
entitled to appraisal rights may, within twenty days after the date of
mailing of such notice, demand in writing from the surviving or resulting
corporation the appraisal of such holder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of such holder's shares. If such notice did not notify
stockholders of the effective date of the merger or consolidation, either
(i) each such constituent corporation shall send a second notice before the
effective date of the merger or consolidation notifying each of the holders
of any class or series of stock of such constituent corporation that are
entitled to appraisal rights of the effective date of the merger or
consolidation or (ii) the surviving or resulting corporation shall send
such a second notice to all such holders on or within 10 days after such
effective date; provided, however, that if such second notice is sent more
than 20 days following the sending of the first notice, such second notice
need only be sent to each stockholder who is entitled to appraisal rights
and who has demanded appraisal of such holder's shares in accordance with
this subsection. An affidavit of the secretary or assistant secretary or of
the transfer agent of the corporation that is required to give either
notice that such notice has been given shall, in the absence of fraud, be
prima facie evidence of the facts stated therein. For purposes of
determining the stockholders entitled to receive either notice, each
constituent corporation may fix, in advance, a record date that shall be
not more than 10 days prior to the date the notice is given; provided that,
if the notice is given on or after the effective date of the merger or
consolidation, the record date shall be such effective date. If no record
date is fixed and the notice is given prior to the effective date, the
record date shall be the close of business on the day next preceding the
day on which the notice is given.
(e) Within 120 days after the effective date of the merger or consolidation,
the surviving or resulting corporation or any stockholder who has complied
with subsections (a) and (d) hereof and who is otherwise
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entitled to appraisal rights, may file a petition in the Court of Chancery
demanding a determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw his demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the
merger or consolidation, any stockholder who has complied with the
requirements of subsections (a) and (d) hereof, upon written request, shall be
entitled to receive from the corporation surviving the merger or resulting
from the consolidation a statement setting forth the aggregate number of
shares not voted in favor of the merger or consolidation and with respect to
which demands for appraisal have been received and the aggregate number of
holders of such shares. Such written statement shall be mailed to the
stockholder within 10 days after his written request for such a statement is
received by the surviving or resulting corporation or within 10 days after
expiration of the period for delivery of demands for appraisal under
subsection (d) hereof, whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a copy
thereof shall be made upon the surviving or resulting corporation, which shall
within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the
addresses therein stated. Such notice shall also be given by 1 or more
publications at least 1 week before the day of the hearing, in a newspaper of
general circulation published in the City of Wilmington, Delaware or such
publication as the Court deems advisable. The forms of the notices by mail and
by publication shall be approved by the Court, and the costs thereof shall be
borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled
to appraisal rights. The Court may require the stockholders who have demanded
an appraisal for their shares and who hold stock represented by certificates
to submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as
to such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any
element of value arising from the accomplishment or expectation of the merger
or consolidation, together with a fair rate of interest, if any, to be paid
upon the amount determined to be the fair value. In determining such fair
value, the Court shall take into account all relevant factors. In determining
the fair rate of interest, the Court may consider all relevant factors,
including the rate of interest which the surviving or resulting corporation
would have had to pay to borrow money during the pendency of the proceeding.
Upon application by the surviving or resulting corporation or by any
stockholder entitled to participate in the appraisal proceeding, the Court
may, in its discretion, permit discovery or other pretrial proceedings and may
proceed to trial upon the appraisal prior to the final determination of the
stockholder entitled to an appraisal. Any stockholder whose name appears on
the list filed by the surviving or resulting corporation pursuant to
subsection (f) of this section and who has submitted his certificates of stock
to the Register in Chancery, if such is required, may participate fully in all
proceedings until it is finally determined that he is not entitled to
appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to
the stockholders entitled thereto. Interest may be simple or compound, as the
Court may direct. Payment shall be so made to each such stockholder, in the
case of holders of uncertificated stock forthwith, and the case of holders of
shares represented by certificates upon the surrender to the corporation of
the certificates representing such stock. The Court's decree may be enforced
as other decrees in the Court of Chancery may be enforced, whether such
surviving or resulting corporation be a corporation of this State or of any
state.
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(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection
(d) of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation);
provided, however, that if no petition for an appraisal shall be filed within
the time provided in subsection (e) of this section, or if such stockholder
shall deliver to the surviving or resulting corporation a written withdrawal
of his demand for an appraisal and an acceptance of the merger or
consolidation, either within 60 days after the effective date of the merger or
consolidation as provided in subsection (e) of this section or thereafter with
the written approval of the corporation, then the right of such stockholder to
an appraisal shall cease. Notwithstanding the foregoing, no appraisal
proceeding in the Court of Chancery shall be dismissed as to any stockholder
without the approval of the Court, and such approval may be conditioned upon
such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the shares
of such objecting stockholders would have been converted had they assented to
the merger or consolidation shall have the status of authorized and unissued
shares of the surviving or resulting corporation. (Last amended by Ch. 349, L.
'96, eff. 7-1-96.)
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APPENDIX J
CHARTER AMENDMENT
RESOLVED, that the Amended and Restated Certificate of Incorporation of
PanAmSat Corporation be, and it hereby is, amended as set forth below:
ARTICLE ONE is restated in its entirety to read as follows:
NAME
The name of the Corporation is PANAMSAT INTERNATIONAL SYSTEMS,
INC. (the "Corporation").
ARTICLE FIVE, paragraph 5.8(a) is restated in its entirety to read as
follows:
5.8. Conversion Rights. (a) Automatic Conversion. Each share of
Class A Common Stock and Class B Common Stock shall convert
automatically into one fully paid and non-assessable share of Common
Stock (i) upon its sale, gift, or other transfer, voluntary or
involuntary, unless such sale, gift or other transfer is (A) to a
Permitted Transferee (as such term is defined below), or (B) in
accordance with Paragraph 5.9 herein or (ii) if such conversion is
required under the applicable rules and regulations of the Federal
Communication Commission or applicable law; provided, however, that
no such conversion shall occur as a result of the consummation of
any of the transactions contemplated by the Stock Contribution and
Exchange Agreement, dated as of September 20, 1996 (as the same may
be amended or otherwise modified pursuant to the terms thereof, the
"Stock Contribution and Exchange Agreement"), by and among Grupo
Televisa, S.A., a corporation organized under the laws of Mexico,
Satellite Company, L.L.C., a Nevada limited liability company,
Magellan International, Inc., a Delaware corporation ("Magellan"),
and Hughes Communications, Inc., a California corporation ("HCI"),
the Agreement and Plan of Reorganization, dated as of September 20,
1996 (as the same may be amended or otherwise modified pursuant to
the terms thereof, the "Reorganization Agreement"), among HCI,
Hughes Communications Galaxy, Inc., a California corporation, Hughes
Communications Satellite Services, Inc., a California corporation,
Hughes Communications Services, Inc., a California corporation,
Hughes Communications Carrier Services, Inc., a California
corporation, Hughes Communications Japan, Inc., a California
corporation, Magellan and the Corporation, or the Agreement and Plan
of Merger dated as of April 4, 1997 (as the same may be amended or
otherwise modified pursuant to the terms thereof, the "Merger
Agreement") by and among the Corporation, PAS Merger Corp., a
Delaware corporation ("Merger Sub"), and Magellan, entered into in
connection with the Reorganization Agreement, and the related
agreements thereto. Each event of automatic conversion shall be
referred to hereinafter as an Event of Automatic Conversion.
For purposes of this Paragraph 5.8, a Permitted Transferee shall
be:
(a) (A) any past or present officer or employee of the
Corporation or any of its subsidiaries, or any of their
respective predecessors from time to time (an "Employee"); (B)
the estate of an Employee; (C) the spouse or the former spouse
of an Employee; (D) any lineal descendent of an Employee, any
spouse of any such lineal descendent, an Employee's grandparent,
parent, brother or sister, or an Employee's spouse's brother or
sister; (E) any guardian or custodian (including a custodian for
purposes of the Uniform Gift to Minors Act or Uniform Transfers
to Minors Act) for, or any conservator or other legal
representative of, one or more Permitted Transferees; or (F) any
trust or savings or retirement account, including an individual
retirement account for purposes of federal income tax laws,
whether or not involving a trust, principally for the benefit of
one or more Permitted Transferees, including any trust in
respect of which a Permitted Transferee has any general or
special testamentary power of appointment or general or special
non-testamentary power of appointment which is limited to any
other Permitted Transferee;
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(b) the Corporation;
(c) subject to compliance with applicable rules and
regulations of the Federal Communications Commission, Grupo
Televisa, S.A. and its direct and indirect wholly-owned
subsidiaries (including subsidiaries that have issued directors
qualifying shares), including Univisa Satellite Holdings, Inc.
("USHI");
(d) any employee benefit plan or trust thereunder sponsored by
the Corporation or any of its subsidiaries;
(e) any trust principally for the benefit of one or more of
the individuals, persons, firms or entities ("Persons") referred
to in (a) through (d) above;
(f) any corporation, partnership or other entity if all of the
beneficial ownership is held by one or more of the Persons
referred to in (a) through (e) above;
(g) any successor to any of the Persons referred to in (a)
through (f) above pursuant to a merger, consolidation, transfer
of all or substantially all of such Person's assets or other
similar transaction; and
(h) any voting trust for the benefit of one or more of the
Persons referred to in (a) through (g) above.
Notwithstanding anything to the contrary set forth herein, any
holder of Class A Common Stock or Class B Common Stock may pledge
his or its shares of Class A Common Stock or Class B Common Stock to
a pledgee pursuant to a bona fide pledge of such shares as
collateral security for indebtedness due to the pledgee, provided
that such shares may not be transferred to or registered in the name
of the pledgee unless such pledgee is a Permitted Transferee. In the
event of foreclosure or other similar action by a pledgee who is not
a Permitted Transferee, such pledged shares of Class A Common Stock
or Class B Common Stock shall convert automatically, without any act
or deed on the part of the Corporation or any other person, into
shares of Common Stock as provided in this Paragraph 5.8, unless
within five business days after such foreclosure or similar event
such converted shares are returned to the pledgor or transferred to
a Permitted Transferee.
ARTICLE FIVE, paragraph 5.10 is restated in its entirety to read as
follows:
5.10. Consideration on Merger, Consolidation, etc. In any merger,
consolidation, or business combination, the consideration to be
received per share by the holders of Class A Common Stock, Class B
Common Stock and Common Stock must be identical for each class of
stock, except that in any such transaction in which shares of common
equity are to be distributed, such shares may differ as to voting
rights to the extent that voting rights differ among the Class A
Common Stock, the Class B Common Stock and the Common Stock as
provided in this Amended and Restated Certificate of Incorporation;
provided, however, that neither this Paragraph 5.10 nor any other
provision of this ARTICLE FIVE shall in any way limit, prevent or
restrict the Corporation from entering into, consummating or
performing, or otherwise apply to, the transactions contemplated by
the Stock Contribution and Exchange Agreement, the Reorganization
Agreement or the Merger Agreement and the agreements related
thereto, including the consummation of the merger of Merger Sub into
the Corporation contemplated thereby.
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APPENDIX K
ASSURANCE AGREEMENT
This ASSURANCE AGREEMENT (this "Agreement"), dated September 20, 1996, is
entered into by and between HUGHES ELECTRONICS CORPORATION, a Delaware
corporation ("HE"), PANAMSAT CORPORATION, a Delaware corporation ("PAS"),
SATELLITE COMPANY, LLC, a Nevada limited liability company ("S Company") and
MAGELLAN INTERNATIONAL, INC., a Delaware corporation ("Newco").
RECITALS
A. Concurrently with the execution and delivery hereof, (i) PAS is entering
into an Agreement and Plan of Reorganization (the "Reorganization Agreement")
with Hughes Communications, Inc., a California corporation ("HCI"), Hughes
Communications Galaxy, Inc., a California corporation ("Galaxy"), Hughes
Communications Satellite Services, Inc., a California corporation ("HCSS"),
Hughes Communications Services, Inc., a California corporation ("HCS"), Hughes
Communications Carrier Services, Inc., a California corporation ("HCCS"),
Hughes Communications Japan, Inc., a California corporation ("HCJ"), and
Newco, and (ii) S Company is entering into a share exchange agreement (the
"Univisa Contribution Agreement") with Newco, pursuant to which agreements
Newco will acquire (i) the existing businesses of certain subsidiaries of HCI
that together comprise the Galaxy Business (as defined in the Reorganization
Agreement) and (ii) the business of PAS.
B. As a condition and inducement to PAS to enter into the Reorganization
Agreement (and effect the transactions contemplated thereby) and S Company to
enter into the Univisa Contribution Agreement (and effect the transactions
contemplated thereby) HE has agreed to enter into this Agreement and perform
its obligations contemplated hereby.
C. Capitalized terms used herein and not otherwise defined herein shall have
the meanings set forth in the Reorganization Agreement.
AGREEMENT
In consideration of the foregoing and the mutual promises contained herein
and in the Reorganization Agreement and for other good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged, the
parties hereto, intending to be legally bound, hereby agree as follows:
1. Provision or Arrangement of Financing. On or before the Closing Date, HE
will loan or arrange for one or more persons or entities that are not
affiliated with either PAS or HE (each such person or entity, an "Unaffiliated
Person") to loan to Newco and/or to one or more Subsidiaries of Newco (other
than PAS, Univisa, Merger Sub or any of their respective direct or indirect
Subsidiaries) one billion seven hundred twenty-five million dollars
($1,725,000,000), plus interest required under the Reorganization Agreement,
which loan shall be funded on the Closing Date or as needed by Newco to pay
the cash required by Newco to consummate the Univisa Contribution (including
Newco's repurchase of shares of Newco Common Stock contemplated thereby) and
the Merger; provided, however, that (i) HE's obligation to make or arrange any
such loan or loans shall be conditioned upon satisfaction of all conditions to
Closing contained in Sections 8.1 and 8.3 of the Reorganization Agreement; and
(ii) if any such loan or loans are provided by an Unaffiliated Person, HE
shall not be obligated to provide any form of guarantee or other credit
enhancement in support of any such loan or loans provided by one or more
Unaffiliated Persons. In the event HE makes any such loan or loans to Newco,
the terms of such loan or loans shall be commercially reasonable as determined
by Chase Manhattan Bank, Bank of America NT&SA and a third bank, if necessary
to decide matters upon which such banks have failed to agree, chosen by such
two banking institutions.
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2. Contribution of Galaxy Business. Subject to the terms and conditions set
forth in the Reorganization Agreement, HE shall cause its Subsidiaries to take
all actions necessary for Newco to own, upon consummation of the transactions
contemplated by the Reorganization Agreement, all right, title and interest in
and to the assets necessary to conduct the Galaxy Business, together with the
Galaxy Liabilities. HE represents and warrants that (i) the Galaxy Employees
are all of the employees who work primarily in the Galaxy Business, (ii) the
Galaxy Assets are all of the assets used in the Galaxy Business and (iii) the
Galaxy Business is conducted entirely through and by HCI and its subsidiaries,
Galaxy, HCSS, HCS, HCCS and HCJ.
3. Operation of Galaxy Business in Ordinary Course. Subject to the terms and
conditions set forth in the Reorganization Agreement, HE shall cause its
Subsidiaries to continue to operate the Galaxy Business in a manner consistent
with the operation of the Galaxy Business prior to the date hereof.
4. Performance Obligations. Subject to the terms and conditions set forth in
the Reorganization Agreement, HE shall cause its Subsidiaries, including HCI,
Galaxy, HCSS, HCS, HCCS, HCJ and Newco, to perform their respective
obligations under the Reorganization Agreement and the Related Agreements.
Within 45 days after the Closing Date, Newco shall provide HE with a
reasonably detailed statement regarding compliance by HCI and its Affiliates
with the funding requirements of the Reorganization Agreement, which statement
shall be accompanied by a request for payment of any funding deficiency or an
acknowledgment of any reimbursement of any overfunding that is owed. Promptly
following the giving of such notice, HE or Newco, as the case may be, shall
make the payment set forth in such notice. Without limiting the foregoing, HE
agrees that where in the Reorganization Agreement or the Related Agreements it
is stated that HE or its Affiliates will take or refrain from taking certain
actions, HE will, or will cause its relevant Affiliate to, take or refrain
from taking such action, as required by the pertinent provision.
5. Leveraged Lease Guaranty. Subsequent to the Closing Date, HE shall
continue to guaranty leveraged leases of transponders used in the Galaxy
Business entered into prior to the date of this Agreement.
6. Cross License of Intellectual Property. Prior to the Closing, HE shall,
and shall cause its Subsidiaries to, enter into negotiations with
representatives of PAS with the intent of executing and delivering at Closing
a non-exclusive, royalty-free, perpetual Cross License Agreement, with
standard terms and conditions mutually acceptable to HCI and PAS, whereby
Newco shall have the right to use any HE Licensed Intellectual Property that
was used in the Galaxy Business on or before the Closing and HE shall have the
right to use any Galaxy Licensed Intellectual Property that was used in the
Hughes Electronics businesses on or before the Closing. As used in this
Agreement, the phrase "HE Licensed Intellectual Property" shall refer to all
domestic, foreign, common law, registered and pending applications for
patents, copyrights, trade secrets, know-how, confidential information,
computer programs (including any source code), documentation, engineering and
technical drawings, processes, methodologies, and technology (excluding any
Intellectual Property owned and developed by Galaxy) of HE and its Affiliates
that was used in the Galaxy Business on or before Closing. As used in this
Agreement, the phrase "Galaxy Licensed Intellectual Property" shall mean all
Newco owned domestic, foreign, common law, registered and pending applications
for patents, copyrights, trade secrets, know-how, confidential information,
computer programs (including any source code), documentation, engineering and
technical drawings, processes, methodologies, and technology that are conveyed
to Newco pursuant to Section 1.1 of the Reorganization Agreement.
7. Miscellaneous.
(a) Termination. This Agreement and all obligations contained hereunder
shall terminate upon the date on which the Reorganization Agreement is
terminated; provided that HE shall remain liable for its obligations
hereunder if the termination of the Reorganization Agreement is pursuant to
Section 9.1(c) thereof.
(b) Expenses. All costs and expenses incurred in connection with this
Agreement and transactions contemplated hereby shall be paid by the party
incurring such expenses.
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(c) Interpretation. Headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Whenever the word "include," "includes"
or "including" are used in this Agreement, they shall be deemed to be
followed by the words "without limitation." This Agreement shall not be
construed for or against either party by reason of the authorship or
alleged authorship of any provision hereof or by reason of the status of
the respective parties.
(d) Entire Agreement; No Third-Party Beneficiaries. This Agreement
constitutes the entire agreement and supersedes all prior agreements and
understandings, both written and oral, among the parties with respect to
the subject matter hereof and is not intended to confer upon any person
other than the parties hereto any rights or remedies hereunder.
(e) Assignment. Neither this Agreement nor any of the rights, interests
or obligations hereunder shall be assigned by any of the parties hereto
whether by operation of law or otherwise without the prior written consent
of the other parties. Subject to the preceding sentence, this Agreement
will be binding upon and for the benefit of and be enforceable by the
parties and their respective successors and assigns.
(f) Governing Law. This Agreement shall be construed, interpreted and the
rights of the parties determined in accordance with the laws of the State
of Delaware (without reference to the choice of law provisions), except
with respect to matters of law concerning the internal corporate affairs of
any corporate entity which is a party to or the subject of this Agreement,
and as to those matters the law of the jurisdiction under which the
respective entity derives its powers shall govern.
(g) Severability. Each party agrees that, should any court or other
competent authority hold any provision of this Agreement or part hereof to
be null, void or unenforceable, or order any party to take any action
inconsistent herewith or not to take an action consistent herewith or
required hereby, the validity, legality and enforceability of the remaining
provisions and obligations contained or set forth herein shall not in any
way be affected or impaired thereby. Upon any such holding that any
provision of this Agreement is null, void or unenforceable, the parties
will negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible in an acceptable
manner to the end that the transactions contemplated by this Agreement are
consummated to the extent possible. Except as otherwise contemplated by
this Agreement, to the extent that a party hereto took an action
inconsistent herewith or failed to take action consistent herewith or
required hereby pursuant to an order or judgment of a court or other
competent authority, such party shall incur no liability or obligation
unless such party did not in good faith seek to resist or object to the
imposition or entering of such order or judgment.
(h) Injunctive Relief. The parties acknowledge that it will be impossible
to measure in money the damages that would be suffered if the parties fail
to comply with any of the obligations herein imposed on them and that in
the event of any such failure, an aggrieved person or entity will be
irreparably damaged and will not have an adequate remedy at law. Any such
person or entity shall, therefore, be entitled to injunctive relief,
including specific performance, to enforce such obligations, and if any
action should be brought in equity to enforce any of the provisions of this
Agreement, none of the parties shall raise the defense that there is an
adequate remedy at law.
(i) Attorneys' Fees. If any party to this Agreement brings an action to
enforce its rights under this Agreement, the prevailing party shall be
entitled to recover its costs and expenses, including without limitation
reasonable attorneys' fees, incurred in connection with such action,
including any appeal of such action.
(j) Cumulative Remedies. All rights and remedies of either party hereto
are cumulative of each other and of every other right or remedy such party
may otherwise have at law or in equity, and the exercise of one or more
rights or remedies shall not prejudice or impair the concurrent or
subsequent exercise of other rights or remedies.
(k) Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same instrument
and shall become effective when executed and delivered by each of the
parties.
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(l) Amendments, Waivers, Etc.
(i) This Agreement may not be amended, changed, supplemented, waived
or otherwise modified or terminated, except upon the execution and
delivery of a written agreement executed by the parties hereto.
(ii) In the enforcement, interpretation or amendment of any
provisions herein by Newco affecting the rights and obligations of HE
or its Affiliates following the Closing, Newco shall be represented by
a subcommittee of the Board of Directors of Newco comprised solely of
Disinterested Directors.
(iii) HE hereby agrees that no failure or delay by PAS, S Company or
Newco, as the case may be, in exercising any right or remedy that any
may have hereunder shall operate as a waiver of such right or remedy.
HE hereby waives notice or demand of performance in the acceptance of
its obligations hereunder. HE agrees that PAS, S Company or Newco may
at any time, without notice to or consent of HE, and without in any
manner affecting the liability of HE hereunder, amend, extend, modify,
supplement or waive any term or condition of the Reorganization
Agreement, and HE shall be bound by, and this Agreement shall
automatically extend to the Reorganization Agreement as so amended,
extended, modified, supplemented or waived without any action required
by HE. The liability and obligations of HE hereunder shall be primary,
direct and absolute and HE hereby waives any right to require that
resort be had against any other person.
IN WITNESS WHEREOF, the parties have executed this Assurance Agreement as of
the date first written above.
Hughes Electronics Corporation
/s/ Charles H. Noski
By: _________________________________
Name:Charles H. Noski
Title: Senior Vice President and
Chief Financial Officer
Panamsat Corporation
/s/ Frederick A. Landman
By: _________________________________
Name:Frederick A. Landman
Title:President and Chief
Executive Officer
Magellan International, Inc.
/s/ Charles H. Noski
By: _________________________________
Name:Charles H. Noski
Title: President
Satellite Company, L.L.C.
/s/ Guillermo Canedo White
By: _________________________________
Name:Guillermo Canedo White
Title:Authorized Signatory
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APPENDIX L
PRINCIPAL STOCKHOLDERS AGREEMENT
This PRINCIPAL STOCKHOLDERS AGREEMENT (this "Agreement"), dated September
20, 1996, is entered into by and among HUGHES COMMUNICATIONS, INC., a
California corporation ("HCI"), HUGHES COMMUNICATIONS GALAXY, INC., a
California corporation ("Galaxy"), SATELLITE COMPANY, L.L.C., a Nevada limited
liability company ("S Company"), UNIVISA SATELLITE HOLDINGS, INC., a Delaware
corporation which owns all of the outstanding Class B Common Stock of Panamsat
Corporation (the "Class B Holder"), the holders of Class A Common Stock of
Panamsat Corporation (the "Class A Holders"), and the Trustees of that certain
Voting Trust of certain holders of Class A Common Stock of Panamsat
Corporation (the "Class A Trustee," and together with S Company, the Class B
Holder, and the Class A Holders, the "Stockholders").
RECITALS
A. Immediately prior to the execution of this Agreement, Galaxy, HCI and
Panamsat Corporation have entered into an Agreement and Plan of Reorganization
(as such agreement may hereafter be amended from time to time, the
"Reorganization Agreement"), and HCI, Galaxy, S Company and Grupo Televisa,
S.A. have entered into a Stock Contribution and Exchange Agreement (as such
agreement may hereafter be amended from time to time, the "Univisa
Contribution Agreement").
B. As an inducement and a condition to entering into the Reorganization
Agreement and the Univisa Contribution Agreement, HCI and Galaxy have required
that the Stockholders agree, and the Stockholders have agreed, to enter into
this Agreement.
AGREEMENT
In consideration of the foregoing and the mutual promises contained herein
and for other good and valuable consideration, the receipt and adequacy of
which are hereby acknowledged, the parties hereto, intending to be legally
bound, agree as follows:
1. Certain Definitions. Capitalized terms used and not defined herein have
the respective meanings ascribed to them in the Reorganization Agreement. For
purposes of this Agreement:
"Beneficially Own" or "Beneficial Ownership" with respect to any
securities shall mean having "beneficial ownership" of such securities (as
determined pursuant to Rule 13d-3 under the Exchange Act), including
pursuant to any agreement, arrangement or understanding, whether or not in
writing. Without duplicative counting of the same securities by the same
holder, securities Beneficially Owned by a Person shall include securities
Beneficially Owned by all other Persons with whom such Person would
constitute a "group" within the meaning of Section 13(d) of the Exchange
Act.
"Common Stock" shall mean at any time the Class A Common Stock, par value
$.01 per share, the Class B Common Stock, $.01 per share, and the Common
Stock, par value $.01 per share, of Panamsat Corporation.
"Existing Shares" shall mean the shares of Common Stock owned by the
Stockholders on the date hereof.
"Permitted Transfer" means a sale, transfer, assignment or other
disposition to a Permitted Transferee.
"Permitted Transferee" means, as to the Class A Holders, any other Class
A Holder and any person who is (A) the spouse or former spouse of, or any
lineal descendent of, or any spouse of such lineal descendant of, or the
grandparent, parent, brother or sister of, or spouse of such brother or
sister of, a Class
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A Holder or Permitted Transferee; (B) upon the death of any Class A Holder
or any Permitted Transferee of such person, the executors of the estate of
such Class A Holder or such Permitted Transferee, and any of such Class A
Holder's or such Permitted Transferee's heirs, testamentary trustees,
devisees, or legatees; (C) any trust principally for the benefit of one or
more of the foregoing Class A Holders or Permitted Transferees; (D) upon
the disability of any Class A Holder or Permitted Transferee, any guardian
or conservator of such Class A Holder or such Permitted Transferee; or (E)
any corporation, partnership or other entity if all of the beneficial
ownership is held by Class A Holders or Permitted Transferees; provided
that in each case such transferee assumes and agrees to perform and becomes
a party to this Agreement, agrees not to make an Acquisition Proposal, and
agrees not to dissent in the Merger, all on terms reasonably acceptable to
HCI and Galaxy, and provided further that as a result of any such transfer
no Class A Common Stock is converted into Common Stock, par value $.01 per
share, of Panamsat Corporation. For purposes of this Agreement, when a
Permitted Transferee has acquired Shares in accordance herewith, such
person shall be deemed a "Stockholder" hereunder.
"Person" shall mean an individual, corporation, limited liability
company, partnership, joint venture, association, trust, unincorporated
organization or other entity.
"Shares" shall mean the Existing Shares and any shares of Common Stock
acquired by any Stockholder in any capacity after the date hereof and prior
to the termination of this Agreement. "Shares" shall include Shares
acquired upon the exercise of options, warrants or rights, the conversion
or exchange of convertible or exchangeable securities, or by means of
purchase, dividend, distribution, gift, bequest, inheritance or as a
successor in interest in any capacity or otherwise. In the event of a stock
dividend or distribution, or any change in the Common Stock by reason of
any stock dividend, split-up, recapitalization, reclassification,
combination, exchange of shares or the like, the term "Shares" shall be
deemed to refer to and include the Shares as well as all such stock
dividends and distributions and any shares into which or for which any or
all of the Shares may be changed, reclassified or exchanged and appropriate
adjustments shall be made to the terms and provisions of this Agreement.
"Shares" shall also include voting trust certificates issued in respect of
any Shares. Notwithstanding the foregoing, "Shares" shall not include
Common Stock issued upon exercise of Panamsat Corporation employee options
covering up to 200,000 shares, which options are outstanding on the date
hereof.
2. Voting of Shares; No Inconsistent Agreements.
(a) Each Stockholder hereby severally and not jointly and solely with
respect to the Shares held of record or Beneficially Owned by such
Stockholder, agrees that during the period commencing on the date hereof and
continuing until the termination of this Agreement in accordance with its
terms, at any meeting (whether annual or special and whether or not an
adjourned or postponed meeting) of the holders of Common Stock, however
called, or in connection with any written consent of the holders of Common
Stock, such Stockholder shall vote (or cause to be voted) the shares of Common
Stock held of record or Beneficially Owned by such Stockholder (i) in favor of
the Merger, the execution, delivery and performance of the Reorganization
Agreement and the approval and adoption of the terms thereof and each of the
other actions contemplated by the Reorganization Agreement and this Agreement
and any actions required in furtherance thereof and hereof (the "Subject
Transactions"); (ii) against any Acquisition Proposal and against any action
or agreement that would result in a breach in any respect of any covenant,
representation or warranty or any other obligation or agreement under the
Reorganization Agreement or the Univisa Contribution Agreement or this
Agreement; and (iii) except as otherwise agreed to in writing in advance by
HCI and Galaxy, and regardless of the status of the Merger and the
transactions contemplated by this Agreement, the Reorganization Agreement, or
the Univisa Contribution Agreement, against the following actions (other than
pursuant to the terms of this Agreement, the Reorganization Agreement, or the
Univisa Contribution Agreement): (A) any extraordinary corporate transaction,
such as a merger, consolidation or other business combination involving
Panamsat Corporation or any of its Subsidiaries; (B) any sale, lease or
transfer by Panamsat Corporation of a material amount of assets (including
stock) of Panamsat Corporation or any of its Subsidiaries, or a
reorganization, restructuring, recapitalization, special dividend, dissolution
or liquidation of Panamsat Corporation or any of its Subsidiaries; or (C)(1)
any change in a
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majority of the persons who constitute the board of directors of Panamsat
Corporation or any of its Subsidiaries; (2) any change in the present
capitalization of Panamsat Corporation or any of its Subsidiaries including
any proposal to sell a substantial equity interest in Panamsat Corporation or
any of its Subsidiaries; (3) any amendment of Panamsat Corporation or any of
its Subsidiaries' charters or By-laws; (4) any other change in Panamsat
Corporation or any of its Subsidiaries' corporate structure or business; or
(5) any other action which, in the case of each of the matters referred to in
clauses (C)(1), (2), (3) or (4), is intended, or could reasonably be expected,
to impede, interfere with, delay, postpone, or materially adversely affect the
Merger and the transactions contemplated by this Agreement, the Reorganization
Agreement and the Univisa Contribution Agreement.
(b) Each Stockholder severally and not jointly agrees that it shall not
enter into any agreement or understanding with any Person the effect of which
would be inconsistent with or violative of the provisions and agreements
contained herein, including in this Section 2. Further, each Stockholder
severally and not jointly agrees that it will, if the Board of Directors of
Panamsat Corporation fails or refuses (other than as a result of breach by HCI
or any of its Affiliates of the Reorganization Agreement or because HCI and
its Affiliates will not or cannot satisfy the conditions precedent thereto) to
submit the Subject Transactions to Panamsat Corporation stockholders, vote all
Shares held of record or Beneficially Owned by it to (i) call or cause to be
called a special meeting of stockholders of Panamsat Corporation (or effect a
written consent) to remove the directors of Panamsat Corporation who have so
failed or refused, or to increase the size of the Board of Directors and elect
a majority of new directors who will submit the Subject Transactions to the
stockholders of Panamsat Corporation for a vote, and (ii) use its reasonable
efforts to effect such removal and replacement, or increase and election, and
the submission of the Subject Transactions to the stockholders of Panamsat
Corporation; and (iii), at any time after initial approval by the stockholders
of Panamsat Corporation of the Subject Transactions, if so requested by HCI,
to approve all or any actions incident to the Subject Transactions or the
other matters referred to in this Section 2 by stockholder written consent.
3. Other Stockholder Covenants.
(a) Restriction on Transfer; Proxies and Non-interference. From the date
hereof through the Closing Date or the earlier termination of this Agreement
in accordance with its terms, and except for Permitted Transfers or as
expressly permitted herein or by the Reorganization Agreement or the Univisa
Contribution Agreement in connection with the transactions contemplated hereby
and thereby, each Stockholder severally and not jointly agrees that it shall
not directly or indirectly:
(i) offer for sale, sell, transfer, tender, pledge, encumber, assign or
otherwise dispose of, or enter into any contract, option or other
arrangement or understanding with respect to, or consent to the offer for
sale, sale, transfer, tender, pledge, encumbrance, assignment or other
disposition of (collectively, "transfer"), any or all of the Shares or any
interest therein; provided that nothing in this Agreement shall in any
manner restrict the ability of the Stockholders to pledge or encumber any
Shares in connection with one or more bona fide loans or advances to such
Stockholder by one or more institutional lenders, but only if and so long
as (A) each such lender expressly (on behalf of itself and any transferee
of the collateral) assumes and agrees to perform and becomes a party to
this Agreement, agrees not to make an Acquisition Proposal, and agrees not
to dissent in the Merger, which agreement shall be on terms reasonably
acceptable to HCI and Galaxy, (B) as a result of such pledge or encumbrance
the subject Shares are not converted into Common Stock, par value $ .01 per
share, of Panamsat Corporation, and (C), in the event of any foreclosure or
other sale or retention of Shares by such a lender, the subject Shares are
so converted (a loan or advance meeting such requirements being herein
called a "Loan");
(ii) grant any proxies or powers of attorney, deposit the Shares into a
voting trust or enter into a voting agreement with respect to the Shares;
provided that nothing in this Agreement shall in any manner restrict the
ability of any Stockholder to enter into any voting agreement in connection
with any Loan which is operative only upon default under such Loan and is
not inconsistent with this Agreement; or
(iii) take any action that would make any representation or warranty of
such Stockholder contained herein untrue or incorrect or would result in a
breach by such Stockholder of its obligations under this Agreement or a
breach by Panamsat Corporation of its obligations under the Reorganization
Agreement.
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Notwithstanding the foregoing, at any time or times prior to the Closing S
Company (and, indirectly, the Class B Holder), on the one hand, and the Class
A Holders as a group, on the other hand, and their respective Permitted
Transferees, shall each have the right to sell, directly or indirectly, up to
an aggregate of 2,500,000 Shares (i.e., up to an aggregate of 5,000,000 Shares
collectively); provided that, by mutual agreement between S Company and the
Class A Holders, the foregoing Share amounts may be increased to up to
5,000,000 Shares each (i.e., up to an aggregate of 10,000,000 Shares,
collectively). Except for Shares converted to Common Stock, par value $.01 per
share, of Panamsat Corporation and sold in a registered public offering or
pursuant to Rule 144 under the Securities Act (which shall upon such sale
cease to be subject to this Agreement), Shares transferred pursuant to the
next preceding sentence may be transferred only if the Shares upon transfer
are converted to Common Stock, par value $.01 per share, of Panamsat
Corporation, and, on terms reasonably acceptable to HCI and Galaxy, the
transferee assumes and agrees to perform and becomes a party to this
Agreement, agrees not to make an Acquisition Proposal, and not to dissent in
the Merger. Notwithstanding any of the foregoing, no transfer of Shares may be
made during a period of up to 30 days prior to the Closing commencing on such
date as HCI shall notify the Stockholders to cease transfers pursuant to this
sentence.
(b) No Solicitation.
(i) From the date hereof through the Closing Date or the earlier
termination of this Agreement in accordance with its terms, each
Stockholder severally and not jointly agrees that it shall not, and shall
not permit any of its Subsidiaries, or any of its or their officers,
directors, employees, representatives, agents or Affiliates (including,
without limitation, any investment banker, attorney or accountant retained
by any Stockholder) to, directly or indirectly, enter into, solicit,
initiate or continue any discussions or negotiations with, or encourage or
respond to any inquiries or proposals by, or participate in any
negotiations with, or provide any information to, or otherwise cooperate in
any other way with, any Person or group, other than HCI, Galaxy and their
Affiliates, concerning any Acquisition Proposal. Each Stockholder severally
and not jointly agrees that it will immediately notify HCI and Galaxy if
any discussions or negotiations are sought to be initiated, any inquiry or
proposal is made, or any information is requested with respect to any
Acquisition Proposal, and notify HCI and Galaxy of the terms of any
proposal which it may receive in respect of any such Acquisition Proposal,
including the identity of the prospective purchaser or soliciting party if
known.
(ii) Each Stockholder severally and not jointly further agrees to use its
best efforts as a stockholder to cause Panamsat Corporation not to,
directly or indirectly, solicit, initiate, seek, or encourage (including by
way of furnishing information or assistance), or take other action to
facilitate, any inquiries or the making of any proposal which constitutes
or may reasonably be expected to lead to, an Acquisition Proposal.
(iii) The provisions of this Section 3(b) shall not prohibit any director
of Panamsat Corporation from taking actions in his capacity as such which
are permitted or required under the Reorganization Agreement.
(c) Reliance. Each Stockholder understands and acknowledges that HCI and
Galaxy are entering into the Reorganization Agreement and the Univisa
Contribution Agreement in reliance upon each Stockholder's execution and
delivery of this Agreement.
(d) Further Assurances. From time to time, at HCI or Galaxy's request and
without further consideration, each Stockholder severally and not jointly
agrees that it shall execute and deliver such additional documents and take
all such further lawful action as may be necessary or desirable to consummate
and make effective, in the most expeditious manner practicable, the
transactions contemplated by this Agreement. Without limitation, each Class A
Holder which is a party thereto and the Class A Trustee agrees severally and
not jointly that it will cause the Voting Trust Agreement dated as of February
28, 1995 to be amended to the extent required (if any) to permit each and all
of them to enter into and perform this Agreement.
(e) Stockholder Termination Fee. In the event that the Reorganization
Agreement is terminated in circumstances under which the Termination Fee is
payable by Panamsat Corporation to HCI pursuant to Section 9.3 of the
Reorganization Agreement, and any Acquisition Proposal is consummated, then
each Stockholder shall pay to HCI one business day after determination of an
amount (the "Stockholder Termination Fee") equal to
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the product of (x) the number of Shares Beneficially Owned by such Stockholder
on the date hereof (as set forth on Exhibit A hereto), multiplied by (y) the
excess of (i) the per share value of consideration paid or payable in
consequence of consummation of the Acquisition Proposal (with the value of any
non-cash consideration being determined by agreement of HCI and such
Stockholder) over (ii) $30. In the event that the consideration paid or
payable in consequence of consummation of the Acquisition Proposal: (i)
consists solely of cash, then the Stockholder Termination Fee shall be payable
solely in cash, or (ii) consists of cash and other non-cash property, or
solely non-cash property, then the Stockholder Termination Fee shall be
payable in cash and such non-cash property in the same proportion as the cash
bears to the value of the non-cash property issued or issuable in consequence
of consummation of the Acquisition Proposal (as such value is determined
above).
If HCI and such Stockholder fail to agree promptly on the value of such non-
cash consideration, then the parties shall appoint an independent investment
banking firm reasonably acceptable to HCI and such Stockholder to act as
arbitrator (the "Arbitrator"). Upon the selection of the Arbitrator, HCI on
the one hand and such Stockholder on the other shall deliver to the Arbitrator
and to each other their last and final offer concurrently in writing (the
"Certified Offers"). The Certified Offers shall list one amount which the
submitting party asserts is the appropriate valuation of such non-cash
consideration as of the date of submittal. The Arbitrator's sole role shall be
to select which one of the two Certified Offers most closely approximates the
valuation the Arbitrator would have determined for such non-cash
consideration, taking into account current market valuations of any publicly
traded securities which constitute such non-cash consideration. The Arbitrator
shall notify the parties of such determination. The determination of the
Arbitrator shall be binding on the parties. All costs and expenses of the
Arbitrator shall be borne by the parties whose Certified Offer is not
selected.
Each Stockholder acknowledges that the agreements contained in this Section
3(e) are an integral part of the transactions contemplated by this Agreement
and the Reorganization Agreement. Accordingly, if the Stockholder shall fail
to pay when due any amounts which shall become due under Section 3(e) hereof,
the Stockholder shall in addition hereto pay to HCI all costs and expenses
(including fees and disbursements of counsel) incurred in collecting such
overdue amounts, together with interest on such overdue amounts from the date
such payment was required to be made until the date such payment is received
at a rate per annum equal to the "reference rate" as announced from time to
time by Bank of America, NT&SA. Any payment required to be made pursuant to
this Section 3(e) shall be made when due by wire transfer of immediately
available funds to an account designated by HCI.
4. Representations and Warranties of Stockholders. Each Stockholder hereby
severally and not jointly (and solely with respect to itself and the Shares
held of record or Beneficially Owned by such Stockholder) represents and
warrants to HCI and Galaxy as follows:
(a) Ownership of Shares. Such Stockholder is the record and/or Beneficial
Owner of the Existing Shares set forth on Exhibit A hereto. On the date
hereof, the Existing Shares constitute all of the Shares owned of record or
Beneficially Owned by such Stockholder. With respect to the number of
shares set forth opposite such Stockholder's name on Exhibit A hereto, and
with the exceptions noted thereon, such Stockholder has sole voting power
and sole power to issue instructions with respect to the matters set forth
in Sections 2 and 3 hereof, sole power of disposition, sole power of
conversion, sole power to demand appraisal rights and sole power to agree
to all of the matters set forth in this Agreement, in each case with
respect to all of the Existing Shares with no limitations, qualifications
or restrictions on such rights, subject to applicable securities laws and
the terms of this Agreement. The execution and delivery of this Agreement
does not cause an automatic conversion of the Shares.
(b) Due Authorization. Such Stockholder is, as applicable, duly
organized, validly existing and in good standing under the laws of its
jurisdiction of organization, and has all requisite capacity, power and
authority to execute and deliver this Agreement and perform its obligations
hereunder. The execution and delivery by such Stockholder of this Agreement
and the performance by such Stockholder of its obligations hereunder have
been duly and validly authorized by such Stockholder and no other
proceedings on the part of the such Stockholder are necessary to authorize
the execution, delivery or performance of this Agreement or the
consummation of the transactions contemplated hereby. This Agreement has
been duly and validly
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executed and delivered by such Stockholder and constitutes a valid and
binding agreement enforceable against such Stockholder in accordance with
its terms except to the extent (i) such enforcement may be limited by
applicable bankruptcy, insolvency or similar laws affecting creditors
rights and (ii) the remedy of specific performance and injunctive and other
forms of equitable relief may be subject to equitable defenses and to the
discretion of the court before which any proceeding therefor may be
brought.
(c) No Conflicts. Except for filings, authorizations, consents and
approvals contemplated by the Reorganization Agreement or the Univisa
Contribution Agreement and necessary for the consummation of the
transactions contemplated hereby and thereby, no filing with, and no
permit, authorization, consent or approval of, any state or federal public
body or authority is necessary for the execution of this Agreement by such
Stockholder and the consummation by such Stockholder of the transactions
contemplated hereby and (ii) none of the execution and delivery of this
Agreement by such Stockholder, the consummation by such Stockholder of the
transactions contemplated hereby or compliance by such Stockholder with any
of the provisions hereof shall (A) conflict with or result in any breach of
the organizational documents of such Stockholder, (B) result in a violation
or breach of, or constitute (with or without notice or lapse of time or
both) a default (or give rise to any third party right of termination,
cancellation, material modification or acceleration) under any of the
terms, conditions or provisions of any note, loan agreement, bond,
mortgage, indenture, license, contract, commitment, arrangement,
understanding, agreement or other instrument or obligation of any kind to
which such Stockholder is a party or by which such Stockholder or any of
its properties or assets may be bound, or (C) violate any order, writ,
injunction, decree, judgment, statute, rule or regulation applicable to
such Stockholder or any of its properties or assets.
(d) No Encumbrances. Except as set forth on Exhibit A, the Shares and the
certificates representing such Shares are now, and at all times during the
term hereof, will be, held by such Stockholder, or by a nominee, custodian
or trust for the benefit of such Stockholder, free and clear of all liens,
claims, security interests, proxies, voting trusts or agreements,
understandings or arrangements or any other encumbrances whatsoever, except
for any such arising hereunder.
(e) No Finder's Fees. No broker, investment banker, financial advisor or
other person is entitled to any broker's, finder's, financial adviser's or
other similar fee or commission in connection with the transactions
contemplated hereby based upon arrangements made by or on behalf of such
Stockholder.
5. Representations and Warranties of HCI and Galaxy. HCI and Galaxy jointly
and severally represent and warrant to the Stockholders as follows:
(a) Organization. Each of HCI and Galaxy is a corporation duly organized,
validly existing and in good standing under the laws of its state of
incorporation, and has all requisite corporate power or other power and
authority to execute and deliver this Agreement and perform its obligations
hereunder. The execution and delivery by HCI and Galaxy of this Agreement
and the performance by HCI and Galaxy of their obligations hereunder have
been duly and validly authorized by their respective Board of Directors
and, except as contemplated by the Reorganization Agreement, no other
corporate proceedings on the part of HCI or Galaxy are necessary to
authorize the execution, delivery or performance of this Agreement or the
consummation of the transactions contemplated hereby.
(b) Agreement. This Agreement has been duly and validly executed and
delivered by HCI and Galaxy and constitutes a valid and binding agreement
of HCI and Galaxy enforceable against HCI and Galaxy in accordance with its
terms, except that (i) such enforcement may be subject to applicable
bankruptcy, insolvency, or other similar laws, now or hereafter in effect,
affecting creditors' rights generally, and (ii) the remedy of specific
performance and injunctive and other forms of equitable relief may be
subject to equitable defenses and to the discretion of the court before
which any proceedings therefor may be brought.
(c) No Conflicts. Except for filings, authorizations, consents, and
approvals contemplated by the Reorganization Agreement or the Univisa
Contribution Agreement and necessary for the consummation of the
transactions contemplated hereby and thereby, (i) no filing with, and no
permit, authorization, consent or approval of, any state or federal public
body or authority is necessary for the execution of this Agreement by HCI
and Galaxy and the consummation by HCI and Galaxy of the transactions
contemplated hereby,
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and (ii) none of the execution and delivery of this Agreement by HCI and
Galaxy, the consummation by HCI and Galaxy of the transaction contemplated
hereby or compliance by HCI and Galaxy with any of the provisions hereof
shall (A) conflict with or result in any breach of the charter or bylaws of
HCI or Galaxy, (B) result in a violation or breach of, or constitute (with
or without notice or lapse of time or both) a default (or give rise to any
third-party right of termination, cancellation, material modifications or
acceleration) under any of the terms, conditions or provisions of any note,
loan agreement, bond, mortgage, indenture, license, contract, commitment,
arrangement, understanding, agreement or other instrument or obligation of
any kind to which HCI or Galaxy is a party or by which HCI or Galaxy of
their respective properties or assets may be bound, or (C) violate any
order, writ, injunction, decree, judgment, statute, rule or regulation
applicable to HCI or Galaxy or their respective properties or assets.
6. Legend.
(a) Each Stockholder severally and not jointly agrees with, and covenants
to, HCI and Galaxy that such Stockholder shall not request that Panamsat
Corporation register the transfer (by book-entry or otherwise) of any
certificate or uncertificated interest representing any of the Shares, unless
such transfer is in compliance with this Agreement.
(b) Each Stockholder severally and not jointly agrees that it shall promptly
after the date hereof surrender to Galaxy all certificates representing the
Shares held by such Stockholder, and Galaxy shall place the following legend
on such certificates, which legend, except as otherwise expressly provided in
this Agreement, shall remain on such certificates until the earliest of a sale
thereof in a registered public offering or pursuant to Rule 144 under the
Securities Act or the termination of this Agreement:
"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO AN
AGREEMENT, DATED AS OF SEPTEMBER 20, 1996 AMONG CERTAIN STOCKHOLDERS,
HUGHES COMMUNICATIONS, INC. AND HUGHES COMMUNICATIONS GALAXY, INC. THE
SHARES ARE SUBJECT TO RESTRICTIONS ON TRANSFER OR ENCUMBRANCE AND
VOTING. A COPY OF THIS AGREEMENT IS AVAILABLE AT THE PRINCIPAL OFFICE
OF THE COMPANY."
7. Termination. Subject to the next two sentences, this Agreement shall
terminate upon the earliest of (i) the Closing Date, (ii) termination of the
Reorganization Agreement in accordance with its terms, or (iii) termination of
the Univisa Contribution Agreement in accordance with its terms; provided that
the provisions of Section 3(e) and of Section 10 shall survive any termination
of this Agreement, and provided further that no such termination shall relieve
any party of liability for a breach hereof prior to termination. If the
Reorganization Agreement is terminated and a termination fee is payable
pursuant to Section 9.3 thereof, at the election of HCI and Galaxy, this
Agreement shall not terminate and the Stockholders will vote their Shares as
provided in Section 2(a). In any event, this Agreement shall terminate no
later than twenty-four (24) months after the date hereof. Any approval,
adoption or consent by any Stockholder pursuant to Section 3(a) shall be null
and void ab initio if the Reorganization Plan or the Univisa Contribution
Agreement is terminated other than pursuant to or as a result of Section 9.3
of the Reorganization Agreement.
8. Confidentiality and Public Announcements. The parties recognize that
successful consummation of the transactions contemplated by this Agreement may
be dependent upon confidentiality with respect to the matters referred to
herein. In this connection, pending public disclosure thereof, each of the
parties hereto severally and not jointly agrees not to disclose or discuss
such matters with anyone not a party to this Agreement (other than its
counsel, advisors, corporate parents and Affiliates) without the prior written
consent of the other parties hereto, except for filings required pursuant to
the Exchange Act and the rules and regulations thereunder or disclosures its
counsel advises are necessary in order to fulfill its obligations imposed by
law or the requirements of any securities exchange. At all times during the
term of this Agreement, the parties hereto will consult with each other before
issuing or making any reports, statements or releases to the public with
respect to this Agreement or the transactions contemplated hereby and will use
good faith efforts to agree on the text of public
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reports, statements or releases. For purposes of this Section, any
consultation or consent required of HCI or Galaxy may be obtained from either,
and any consultation or consent required from the Stockholders may be obtained
from (x) in respect of Class A Holders and the Class A Trustee, Mary Anselmo,
and (y) in respect of the Class B Holder and S Company, Lawrence Dam.
9. Voting Agreement. Each of HCI and Galaxy agrees that it shall vote (or
cause to be voted) all shares of Common Stock with respect to which HCI or
Galaxy has voting power in favor of the Merger, the execution and delivery of
the Reorganization Agreement and the Univisa Contribution Agreement and the
approval and adoption of the terms thereof and each of the other actions
contemplated by the Reorganization Agreement and the Univisa Contribution
Agreement and any action required in furtherance thereof.
10. General Provisions.
(a) Nonsurvival of Representations, Warranties and Agreements. Except as
provided in Section 7, none of the representations, warranties, covenants and
agreements in this Agreement shall survive the Closing Date.
(b) Expenses. Whether or not the transactions contemplated hereby are
consummated, all costs and expenses incurred in connection with this Agreement
and the transactions contemplated hereby shall be paid by the party incurring
such expenses, except as otherwise specifically noted herein or in the
Reorganization Agreement.
(c) Notices. All notices, requests, demands and other communications which
are required or may be given under this Agreement shall be in writing and
shall be deemed to have been duly given when received if personally delivered;
when transmitted if transmitted by telecopy, electronic or digital
transmission method; the day after it is sent, if sent for next day delivery
to a domestic address by recognized overnight delivery service (e.g., Federal
Express); and upon receipt, if sent by certified or registered mail, return
receipt requested. In each case notice shall be sent to:
(i)if to HCI or Galaxy, to:
Hughes Communications, Inc.
1500 Hughes Way
Long Beach, CA 90810-9928
Attention: Jerald F. Farrell, President
Telephone:(310) 525-5010
Telecopy:(310) 525-5015
with copies to:
Latham & Watkins
633 West Fifth Street, Suite 4000
Los Angeles, California 90071
Attention: Bruce R. Lederman, Esq.
Telephone:(213) 485-1234
Telecopy:(213) 891-8763
(ii)if to the Stockholders, to the respective addresses and with the
copies set forth on Exhibit A.
(d) Interpretation. When a reference is made in this Agreement to Sections,
such reference shall be to a Section of this Agreement unless otherwise
indicated. Headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement. Whenever the word "include", "includes" or "including" are used in
this Agreement, they shall be deemed to be followed by the words "without
limitation". This Agreement shall not be construed for or against either party
by reason of the authorship or alleged authorship of any provision hereof or
by reason of the status of the respective parties. All terms defined in this
Agreement in the singular shall have comparable meanings when used in the
plural, and vice versa, unless otherwise specified.
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(e) Entire Agreement; No Third-Party Beneficiaries. This Agreement
constitutes the entire agreement and supersedes all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof and is not intended to confer upon any person other than
the parties hereto any rights or remedies hereunder.
(f) Assignment. Except in connection with Permitted Transfers or as
permitted in Section 3(a), neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned (whether by operation of
law or otherwise) by any Stockholder without the consent of HCI and Galaxy, or
by HCI or Galaxy without the consent of the Stockholders holding 66 2/3% of
the Shares subject to this Agreement. Subject to the preceding sentence, this
Agreement will be binding upon, inure to the benefit of and be enforceable by
the parties and their respective successors and assigns.
(g) Governing Law. This Agreement shall be construed, interpreted and the
rights of the parties determined in accordance with the laws of the State of
Delaware (without reference to the choice of law provisions), except with
respect to matters of law concerning the internal corporate affairs of any
corporate entity which is a party to or the subject of this Agreement, and as
to those matters the law of the jurisdiction under which the respective entity
derives its powers shall govern.
(h) Severability. Each party agrees that, should any court or other
competent authority hold any provision of this Agreement or part hereof to be
null, void or unenforceable, or order any party to take any action
inconsistent herewith or not to take an action consistent herewith or required
hereby, the validity, legality and enforceability of the remaining provisions
and obligations contained or set forth herein shall not in any way be affected
or impaired thereby. Upon any such holding that any provision of this
Agreement is null, void or unenforceable, the parties will negotiate in good
faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible in an acceptable manner to the end that the
transactions contemplated by this Agreement are consummated to the extent
possible. Except as otherwise contemplated by this Agreement, to the extent
that a party hereto took an action inconsistent herewith or failed to take
action consistent herewith or required hereby pursuant to an order or judgment
of a court or other competent authority, such party shall incur no liability
or obligation unless such party did not in good faith seek to resist or object
to the imposition or entering of such order or judgment.
(i) Injunctive Relief. The parties acknowledge that it will be impossible to
measure in money the damages that would be suffered if the parties fail to
comply with any of the obligations herein imposed on them and that in the
event of any such failure, an aggrieved person or entity will be irreparably
damaged and will not have an adequate remedy at law. Any such person or entity
shall, therefore, be entitled to injunctive relief, including specific
performance, to enforce such obligations, and if any action should be brought
in equity to enforce any of the provisions of this Agreement, none of the
parties shall raise the defense that there is an adequate remedy at law.
(j) Attorneys' Fees. If any party to this Agreement brings an action to
enforce its rights under this Agreement, the prevailing party shall be
entitled to recover its costs and expenses, including without limitation
reasonable attorneys' fees, incurred in connection with such action, including
any appeal of such action.
(k) Cumulative Remedies. All rights and remedies of either party hereto are
cumulative of each other and of every other right or remedy such party may
otherwise have at law or in equity, and the exercise of one or more rights or
remedies shall not prejudice or impair the concurrent or subsequent exercise
of other rights or remedies.
(l) Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same instrument and
shall become effective when executed and delivered by each of the parties.
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(m) Amendments, Waivers, Etc. This Agreement may not be amended, changed,
supplemented, waived or otherwise modified or terminated, except upon the
execution and delivery of a written agreement executed by the parties hereto.
(n) Binding Agreement. Each Stockholder agrees that this Agreement and the
obligations hereunder shall attach to the Shares and, except as permitted in
Section 3(a), shall be binding upon any person or entity to which legal or
Beneficial Ownership of such shares shall pass, whether by operation of law or
otherwise, including, without limitation, such Stockholder's heirs,
distributees, guardians, administrators, executors, legal representatives, or
successors or other transferees (for value or otherwise) and any other
successors in interest. Notwithstanding any transfer of Shares, except as
provided in Section 3(a), the transferor shall remain liable for the
performance of all obligations under this Agreement of the transferor.
(o) Obligations of the Stockholders. The liabilities and obligations of each
Stockholder under any provision of this Agreement are several and not joint
and apply solely to such Stockholder and to the Shares held of record or
Beneficially Owned by such Stockholder. No Stockholder shall have any
liability or obligation under this Agreement for any act, omission or breach
by any other Stockholder.
(p) Service of Process. Each of the parties hereto irrevocably consents to
the service of any process, pleading, notices or other papers by the mailing
of copies thereof by registered, certified or first class mail, postage
prepaid, to such party at such party's address set forth herein, or by any
other method provided or permitted under Delaware law. Additionally, each
party hereby appoints RL&F Service Corp., One Rodney Square, Wilmington,
Delaware 19801 as agent for service of process in Delaware.
(q) Consent and Jurisdiction. Each party irrevocably and unconditionally
agrees and consents that any suit, action or other legal proceeding arising
out of or related to this Agreement shall be brought and heard in New Castle
County, State of Delaware and each party irrevocably consents to personal
jurisdiction in any and all tribunals in said County.
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IN WITNESS WHEREOF, the parties have executed this Principal Stockholders
Agreement as of the date first written above.
Hughes Communications, Inc.
/s/ Jerald F. Farrell
By: _________________________________
Name:Jerald F. Farrell
Title: President
Hughes Communications Galaxy, Inc.
/s/ Jerald F. Farrell
By: _________________________________
Name:Jerald F. Farrell
Title:President
Satellite Company, L.L.C.
/s/ Guillermo Canedo White
By: _________________________________
Name:Guillermo Canedo White
Title: Authorized Signatory
Univisa Satellite Holdings, Inc.
/s/ Lawrence W. Dam
By: _________________________________
Name:Lawrence W. Dam
Title:President
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CLASS A STOCKHOLDERS
/s/ Mary Anselmo
__________________________________________
Name: MARY ANSELMO, individually, and as
a trustee of the Article VII Trust
created by the RENE ANSELMO
REVOCABLE TRUST DATED JUNE 10, 1994
and as a successor trustee under the
Voting Trust Agreement dated as of
February 28, 1995 and as a trustee
of the RAYCE ANSELMO TRUST DATED
DECEMBER 23, 1991
/s/ Frederick A. Landman
__________________________________________
Name: FREDERICK A. LANDMAN, individually
and as a trustee of the Article VII
Trust created by the RENE ANSELMO
REVOCABLE TRUST DATED JUNE 10, 1994
and as a successor trustee under the
Voting Trust Agreement dated as of
February 28, 1995
/s/ Lourdes Saralegui
__________________________________________
Name: LOURDES SARALEGUI, individually and
as a trustee of the Article VII
Trust created by the RENE ANSELMO
REVOCABLE TRUST DATED JUNE 10, 1994
and as a successor trustee under the
Voting Trust Agreement dated as of
February 28, 1995
/s/ Pier Landman
__________________________________________
Name: PIER LANDMAN, individually and as
the sole trustee of the CHLOE
LANDMAN TRUST DATED JUNE 10, 1988
and the sole trustee of the RISSA
LANDMAN TRUST DATED JUNE 10, 1988
/s/ Edward J. Landau
__________________________________________
Name: EDWARD J. LANDAU, as co-trustee of
the FREDERICK A. LANDMAN IRREVOCABLE
TRUST DATED DECEMBER 22, 1995
/s/ Patrick J. Costello
__________________________________________
Name: PATRICK J. COSTELLO, as co-trustee
of the FREDERICK A. LANDMAN
IRREVOCABLE TRUST DATED DECEMBER 22,
1995
/s/ Reverge Anselmo
__________________________________________
Name: REVERGE ANSELMO, individually
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APPENDIX M
AMENDED AND RESTATED STOCKHOLDER AGREEMENT
This STOCKHOLDER AGREEMENT (this "Agreement"), dated as of , 199 , is
entered into by and among MAGELLAN INTERNATIONAL, INC., a Delaware corporation
("Holding Company" or the "Company"), HUGHES COMMUNICATIONS, INC., a
California corporation ("HCI"), the Class A Holders listed on the signature
page hereof (the "Class A Holders"), and SATELLITE COMPANY, L.L.C., a Nevada
limited liability company ("S Company").
RECITALS
A. Pursuant to that certain Agreement and Plan of Reorganization by and
among Panamsat Corporation, HCI and Hughes Communications Galaxy, Inc. and
certain other subsidiaries of HCI (as such agreement may be hereafter amended
from time to time, the "Reorganization Agreement"), HCI has organized Holding
Company to acquire Hughes Communications Galaxy, Inc. and cause a subsidiary
of Holding Company to merge with and into Panamsat Corporation in each case
upon the terms and conditions set forth in the Reorganization Agreement.
B. Pursuant to that certain Stock Contribution and Exchange Agreement by and
among HCI, Hughes Communications Galaxy, Inc., S Company and Grupo Televisa,
S.A. (as such agreement may be hereafter amended from time to time, the
"Univisa Contribution Agreement"), HCI and Hughes Communications Galaxy, Inc.
have agreed to cause Holding Company to acquire from S Company all of the
outstanding shares of capital stock of Univisa, Inc., a Delaware corporation
which indirectly owns all of the shares of Class B Common Stock, par value
$.01 per share, of Panamsat Corporation.
C. Pursuant to the Reorganization Agreement and the Univisa Contribution
Agreement, each of Panamsat Corporation and Hughes Communications Galaxy, Inc.
will become subsidiaries of Holding Company, and HCI, the Class A Holders and
S Company will become stockholders of Holding Company.
D. The parties desire to enter into this Agreement to regulate certain
aspects of their relationships with regard to each other and Holding Company.
AGREEMENT
In consideration of the foregoing and the mutual promises contained herein
and for other good and valuable consideration, the receipt and adequacy of
which are hereby acknowledged, the parties hereto, intending to be legally
bound thereby, agree as follows:
1. Certain Defined Terms. Capitalized terms used and not defined herein have
the respective meanings ascribed to them in the Reorganization Agreement. For
purposes of this Agreement:
"Affiliate" means with respect to any person or entity (i) any other
person or entity directly or indirectly controlling or controlled by or
under direct or indirect common control with that person or entity, (ii)
any spouse, immediate family member or other relative who has the same
principal residence of any person (in the case of an individual), (iii) any
trust in which any person or entity has a beneficial interest and (iv) any
corporation or other organization of which any such persons or entities
described in clause (i) or (ii) above collectively own more than 50% of the
equity of such entity.
"Closed Periods" means the total of (a) the number of days prior to
Closing during which PanAmSat Corporation Common Stock could not be sold as
a result of notices given by HCI pursuant to the last sentence of Section
3(a) of the Principal Stockholders Agreement, and (b) any Delay Periods,
Hold Back Periods or Interruption Periods (each as defined in the
Registration Rights Agreement) which occur after the Commencement Date (as
defined in Section 2(b)(i)) and result in a delay or suspension of a Demand
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Registration or a Piggyback Registration (as defined in the Registration
Rights Agreement) by the Minority Stockholders or their Permitted
Transferees.
"Ending Date" means the date when restrictions on the ability of HCI and
its Affiliates to sell or transfer Shares under Section 2(b) end. That date
shall be the earliest of (a) a Termination Event or (b) twelve (12) months
after the Commencement Date plus Closed Periods, if any.
"Exempt Transfer" means any transfer of Shares by HCI or its Affiliates
to any of its or their Affiliates (other than the Company or any of its
Subsidiaries).
"Holding Company Common Stock" means the common stock, $.01 par value, of
Holding Company.
"HCI Sale" means any sale, exchange or other disposition by HCI or its
Affiliates of Shares, other than an Exempt Transfer or a sale of Shares
pursuant to a registration statement under the Securities Act, which at the
time of determination represent more than 5% of the outstanding Holding
Company Common Stock. "HCI Sale" shall not include, in the case of Holding
Company or any of its Subsidiaries, any sale of Holding Company Common
Stock. Nothing in this Agreement shall limit any rights the Stockholders
may have to participate in any such offering under the Registration Rights
Agreements, nor shall the definition "HCI Sale" limit the restrictions
contained in Section 2(b) in any way.
"HCI Total Sale" means, as of any date of determination, the sale,
exchange or other disposition by HCI and each of its Affiliates other than
in an Exempt Transfer of 100% of their Shares.
"Low Ownership Event" means, as of any date of determination, any sale,
exchange or other disposition of Shares by the Minority Stockholders which
causes the Minority Stockholders to beneficially own, in the aggregate,
less than the Requisite Level.
"Minority Stockholders" means, each of the Class A Holders, S Company and
their respective Permitted Transferees, which collectively shall be the
"Minority Stockholders".
"Permitted Transfers" means a sale, transfer or assignment or other
disposition to a Permitted Transferee.
"Permitted Transferees" means, as to HCI, any transferee in an Exempt
Transfer or any Permitted Transferee; as to S Company, Grupo Televisa,
S.A., any controlled Affiliate of Grupo Televisa, S.A., or any Permitted
Transferee; as to the Class A Holders, (A) any other Class A Holder, (B)
any person who is the spouse or former spouse of, or any lineal descendent
of, or any spouse of such lineal descendant of, or the grandparent, parent,
brother or sister of, or spouse of such brother or sister of, a Class A
Holder or Permitted Transferee of such person; (C) upon the death of any
Class A Holder or any Permitted Transferee of such person, the executors of
the estate of such Class A Holder or Permitted Transferee, any of such
Class A Holder's or such Permitted Transferee's heirs, testamentary
trustees, devisees, or legatees; (D) any trust principally for the benefit
of one or more of the foregoing Class A Holders or Permitted Transferees;
(E) upon the disability of any Class A Holder or Permitted Transferee, any
guardian or conservator of such Class A Holder or Permitted Transferee; or
(F) any corporation, partnership or other entity if all of the beneficial
ownership is held by Class A Holders or any Permitted Transferees; and as
to any Stockholders, any person to whom a transfer may be made pursuant to
the provisions of Section 8(e); provided that in each of the foregoing
cases such transferee assumes and agrees to perform and becomes a party to
this Agreement.
"Registration Rights Agreement" means the agreement of that name of even
date among the parties.
"Requisite Level" means 5% or more of the number of shares of Holding
Company Common Stock outstanding immediately after the consummation of the
transactions contemplated by the Reorganization Agreement and the Univisa
Contribution Agreement and prior to any further issuances for refinancing
or other purposes, as such total number is adjusted to reflect stock
splits, combinations, stock dividends, recapitalizations,
reclassifications, and similar transactions.
"Shares" means the shares of Holding Company Common Stock owned by the
Stockholders at the time of determination.
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"Stockholders" means, collectively, HCI, and its Affiliates who own
Shares, the Class A Holders, S Company, and their respective Permitted
Transferees, each of which shall individually be a "Stockholder".
"Termination Event" means a Low Ownership Event or an HCI Total Sale.
2. Certain Restrictions on the Purchase and Sale of Shares.
(a) Take-Along Right. HCI on behalf of itself and its Affiliates hereby
agrees:
(i) With respect to any proposed HCI Sale, each Minority Stockholder
(each a "Take-Along Stockholder"), shall have the right (the "Take-Along
Right") to join in such sale and to sell a number of whole Shares equal to
the number derived by multiplying the total number of Shares proposed to be
transferred by a fraction, the numerator of which is the total number of
Shares owned by such Take-Along Stockholder and the denominator of which is
the total number of Shares owned by HCI and its Affiliates and all Take-
Along Stockholders proposing to so join.
(ii) Any Shares purchased from Take-Along Stockholders pursuant to this
Section 2(a) shall be paid for at the same price per Share and (to the
extent applicable) upon the same terms and conditions as such proposed
transfer by HCI and its Affiliates.
(iii) HCI shall (on its own behalf and on behalf of any of its Affiliates
effecting an HCI Sale), not less than 30 days prior to such proposed HCI
Sale, notify each Take-Along Stockholder in writing of such HCI Sale (the
"Sale Notice"). Such notice shall: (A) state the number of Shares proposed
to be transferred, (B) identify the proposed purchaser(s), (C) state the
proposed amount and form of consideration and terms and conditions of
payment, and (D) confirm that each proposed purchaser has been informed of
the Take-Along Right provided for in this Section 2(a) and has agreed to
purchase Shares in accordance with the terms thereof.
(iv) The Take-Along Right may be exercised by any Take-Along Stockholder
by delivery of a written notice to HCI proposing to sell Shares (the "Take-
Along Notice") within 30 days following the Sale Notice, which Take-Along
Notice shall state the amount of Shares that such Take-Along Stockholder
proposes to include in such transfer. If no Take-Along Notice is received
during such 30-day period, HCI and its Affiliates shall have the right, for
a 30-day period after the expiration of such 30-day period, to transfer the
Shares specified in the Sale Notice on terms and conditions no more
favorable than those stated in such notice.
(v) In the event that a purchaser refuses to purchase Shares from the
Take-Along Stockholders on the same terms and conditions as specified in
the Sale Notice, then HCI and its Affiliates shall not sell any Shares to
that purchaser in the HCI Sale.
(b) Certain Sale Restrictions.
(i) Neither HCI nor its Affiliates may, directly or indirectly, issue,
sell, exchange or otherwise dispose of, or offer or agree, directly or
indirectly, to issue, sell, exchange or otherwise dispose (including
through purchase by the Company or any of its Affiliates) of Shares or
common equity of the Company or any of its Subsidiaries, or any interest
therein, or securities convertible into or exercisable or exchangeable for
Shares or such common equity interests, or offer or enter into any
contract, option or other arrangement or understanding to effect any such
transactions, during the period (A) beginning on the Closing and (B) ending
on the Ending Date, provided, however, that restrictions on sales by the
Company shall not commence (the "Commencement Date") until the earlier of
(x) the first anniversary of the Closing (eighteen months following the
Closing in the event the Minority Stockholders or their Affiliates sell
more than five million Panamsat Shares (other than to Permitted
Transferees) between the date of the Reorganization Agreement and the
Closing) and (y) the date the Company shall notify the Minority
Stockholders that it has completed the refinancing of up to $1.725 billion
of indebtedness incurred by the Company in connection with the transactions
contemplated by the Reorganization Agreement and the Univisa Contribution
Agreement (it being agreed that the exemption from the restriction on sales
by the Company pursuant to this clause shall only apply to sales, the net
proceeds of which are entirely used to refinance such indebtedness); and
provided further that the foregoing restrictions shall not apply to
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reasonable issuances by the Company for employee plans, in acquisitions
from non-Affiliates, pursuant to a dividend reinvestment plan, or upon
exercise or conversion of previously issued options, warrants or
convertible securities.
(ii) Each of the Minority Stockholders agrees severally and not jointly
and solely with respect to itself and the Shares owned beneficially or of
record by it, not to offer, sell or transfer the Shares, or any interest
therein, or securities convertible into Shares, or offer or enter into any
contract, option or other arrangement or understanding to effect any sale
or transfer of Shares or interests therein or securities convertible into
or exercisable or exchangeable for Shares, to any person that is not a
Permitted Transferee, after the Closing and prior to the Commencement Date.
Notwithstanding the foregoing, Minority Stockholders may offer and sell or
transfer Shares, or interests therein, or securities convertible into or
exercisable or exchangeable for Shares, to persons other than Permitted
Transferees in private transactions with the consent of HCI, which consent
will be granted if, in HCI's reasonable judgment, such transfer will not
materially and adversely affect Holding Company's financing plans or on the
price of or demand for Holding Company Common Stock, and the purchaser
provides assurances satisfactory to HCI that it will not prior to the
Commencement Date sell any of such Shares at a time or with an effect which
may materially and adversely affect such financing plans of Holding Company
or the price of or demand for Holding Company Common Stock. Further
notwithstanding the foregoing, the Minority Stockholders may pledge their
Shares as collateral for a bona fide loan, provided that the lender, on
terms reasonably acceptable to HCI and the Company, agrees that upon
liquidation of such collateral the lender or any transferee will assume and
agree to perform this Agreement or, if requested by HCI or the Company,
waive all rights under this Agreement.
(c) Standstill Right. HCI agrees that HCI and its Affiliates shall not
acquire or come to hold beneficially or otherwise, whether by purchase,
exchange or otherwise, more than 81% of the outstanding common equity
interests in Holding Company, except (i) pursuant to a merger which is
approved by the holders of a majority of the shares of Holding Company Common
Stock not owned by HCI and its Affiliates, (ii) pursuant to a tender offer
recommended by a majority of the Disinterested Directors of the Holding
Company and second-step merger which offers the same per share consideration
to all holders of Holding Company Common Stock and in which more than half the
outstanding Holding Company Common Stock not owned by HCI and its Affiliates
at the inception of the transaction is either tendered or voted in favor of
the transaction, and (iii) except pursuant to such other transaction as shall
provide for parity of treatment of holders of Holding Company Common Stock and
is approved by the holders of a majority of the shares of Holding Company
Common Stock not owned by HCI and its Affiliates and by a majority of the
Disinterested Directors of Holding Company.
3. Governance and Business Operations.
(a) Board of Directors. The Stockholders, on behalf of themselves and their
Affiliates and Permitted Transferees, hereby agree to take all necessary
action (including, without limitation, voting the Common Stock of the Company
beneficially owned by them, calling special meetings of stockholders of the
Company and executing and delivering written consents) such that the Board of
Directors of the Company shall consist of ten (10) members designated as
herein provided. HCI shall designate all members of the Board of Directors not
designated by the Minority Stockholders. For so long as Mr. Frederick A.
Landman is Chief Executive Office of the Company, he shall be one of HCI's
designees. The Minority Stockholders shall be entitled to initially designate
two (2) directors of the Company, one (1) of whom may be designated by the
Class A Holders and one (1) of whom may be designated by S Company. For so
long as the Class A Holders and their Permitted Transferees, as a group (the
"A Group"), beneficially own a number of Shares which is greater than the
number of shares comprising 4% of the outstanding Common Stock of the Company
immediately after the consummation of the transactions contemplated by the
Reorganization Agreement and the Univisa Contribution Agreement and prior to
any further issuances for refinancing or other purposes (as such Shares may be
adjusted to reflect stock splits, combinations, stock dividends,
recapitalizations, reclassifications, and similar transactions, the "Director
Minimum Shares"), at each subsequent meeting of stockholders of the Company
(or action by consent in lieu thereof), the A Group shall be entitled to
designate one director, to be selected by a majority vote of the Shares
beneficially owned by the A Group. For so long as S Company and its Permitted
Transferees, as a group (the "B Group"), beneficially own a number of Shares
greater than the Director Minimum Shares, at each subsequent
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meeting of stockholders of the Company (or action by consent in lieu thereof),
the B Group shall be entitled to designate one director, to be selected by a
majority vote of the Shares beneficially owned by the B Group. Any vacancy of
an available A Group or B Group director position will be filled promptly
without holding a meeting of stockholder's of the Company at the request of
the A Group or B Group, as applicable, with their designee; provided that the
A Group or B Group, as applicable, shall beneficially own a number of shares
greater than the Director Minimum Shares at the time of filing.
(b) Transactions with Affiliates. HCI and its Affiliates (other than the
Company and its Subsidiaries) shall not propose or approve any loan, advance
or guarantee to, from, or for the benefit of, or sell, lease, transfer or
otherwise dispose of any of their properties or assets to, or for the benefit
of, or purchase or lease any property or assets from, or enter into or amend
any contract, agreement or understanding with, Holding Company or any
Subsidiary of Holding Company, except on terms that are no less favorable to
Holding Company or such Subsidiary than those (including, without limitation,
prices) ordinarily entered into in comparable transactions by HCI or the
relevant Affiliate on an arms' length basis with an unrelated party. All
material transactions (and all other transactions which the Chief Executive
Officer of the Holding Company may designate) between HCI and its Affiliates
on the one hand, and Holding Company or its Subsidiaries on the other, shall
be reviewed by a committee comprised of Disinterested Directors, and approval
of such transactions by such committee shall be conclusive evidence of
compliance with the provisions of this Section 3(b). Upon such approval,
unless required by such directors after due consideration, Holding Company or
such Subsidiaries may enter into and perform the approved transactions with
HCI and its Affiliates without competitive bidding or other special
procedures.
(c) HE Covenant Not to Compete. HCI agrees:
(i) Until the fifth anniversary after the Closing Date, HE and any entity
owned 50% or more by HE (excluding Holding Company and its Subsidiaries)
(the "Committing Companies") shall not compete with Holding Company or any
of its Subsidiaries after the Closing in the "Galaxy Business" (as defined
below) in any geographic area except as allowed under subsection (iii)
below.
(ii) As used herein, the "Galaxy Business" shall mean: (A) the sale or
lease of, or the provision of satellite services via, transponder capacity
on satellites operating in geostationary earth orbit in the C-band, Ka-band
and Ku-band frequencies for the transmission of video, audio and data
signals; and (B) the provision of telemetry, tracking and control services
for such satellites and for other satellites operating in geostationary
earth orbit in the C-band, Ka-band, Ku-band, L-band and UHF-band
frequencies or other frequency bands that may be utilized in the future;
but in each case excluding the sale or lease of transponder capacity and
telemetry, tracking and control services provided on or for any satellite
that has both (x) multiple (six or more) receive and transmit beams and (y)
an on-board satellite payload processor which can switch uplink signals in
one beam to a downlink signal in one of multiple beams.
(iii) The Committing Companies shall not be restricted from conducting
any business that falls within the following categories (the "Exclusivity
Exceptions"):
(A) All aspects of the direct-to-home satellite business, whether
done through Galaxy Latin America, DIRECTV International, Inc., DIRECTV
USA or any other entity owned 50% or more by HE including, but not
limited to, (x) the provision of services directly to consumers via
satellite; (y) the sale or lease of transponders or channels therein to
third parties engaging in the direct-to-home satellite business in
which any of the Committed Companies is involved (whether by ownership
of an interest in a satellite or any part of the capacity thereof or in
any related or associated business), whether in the FSS or BSS bands;
and (z) the provision of programming to cable head ends, which in each
of cases (y) and (z) is ancillary to any direct-to-home satellite
business in which the Committing Companies have an interest; provided
that if there is excess capacity available on a satellite used
primarily in the direct-to-home satellite business, the sale or lease
of such excess capacity shall not be precluded by the foregoing
restriction;
(B) All aspects of value added services, i.e., the sale of business
services which include the provision of transponder capacity that is
ancillary to the provision of such services by the Committing Companies
including, but not limited to, shared hub VSAT business or DIRECPC or
distance learning
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or any similar type of services that may now or in the future be
provided or developed by HE or any of its Affiliates (other than
Holding Company and its Subsidiaries);
(C) All aspects of the business of providing satellite or transponder
capacity or portions thereof of any type or kind to the United States
government, or any department or agency thereof;
(D) The provision by the Committing Companies of project financing,
or the acceptance by any of them of a minority equity position in any
other satellite operating or service company, as part of a satellite
sale;
(E) All aspects of the business of manufacturing and selling or
leasing satellites in their entirety, other than the sale or lease of
individual transponders or portions thereof (except with respect to
such sale or lease of transponders as otherwise provided for in this
Section (iii)); and
(F) As part of the acquisition of a third party where the competing
business is not a substantial part of such acquired business provided
that such competing business shall be disposed of in a commercially
reasonable manner as soon as commercially reasonable after such
acquisition.
(iv) The parties acknowledge that the Galaxy Business does not include,
and the Committing Companies are retaining, the following: all aspects of
the business of providing mobile satellite services and all aspects of the
satellite-based business commonly referred to by HE as the "Spaceway"
business.
(d) Holding Company's Covenant Not to Compete. Holding Company and its
controlled Affiliates shall not engage in any aspect of the direct broadcast
satellite business other than through the sale or lease of transponders or
channels therein or the provision of transponder services and the provision of
other value added services ancillary thereto to third parties engaged in the
direct broadcast satellite business, provided that Holding Company and its
Subsidiaries shall not be precluded from providing project financing to such
third parties or the acceptance of a minority equity position in a third party
in connection with the sale or lease of transponders or channels therein or
the provision of transponder services. For so long as Grupo Televisa, S.A. and
its controlled Affiliates own any Holding Company Common Stock, neither
Holding Company nor any of its controlled Affiliates will own an equity
interest in a direct-to-home enterprise offering predominantly Spanish
language programming in the Americas or the Iberian Peninsula.
(e) First Offer Rights. In the event that Holding Company determines to
launch a satellite with the following frequencies: Ku BSS frequencies (11.7-
12.5 Ghz in Region 1, 12.2-12.7 Ghz in Region 2 and 11.7-12.2 Ghz in Region 3)
(the "BSS Band") into any of the following orbital slots as such orbital slots
may be modified in the FCC authorization process, the ITU registration
process, or in the course of frequency coordination with other systems: East
Longitude: 36(degrees), 40(degrees), 48(degrees), 54(degrees), 101(degrees),
124.5(degrees), 132(degrees), 149(degrees), 164(degrees) and 173(degrees); and
West Longitude: 49(degrees) and 67(degrees) (the "BSS Satellites"), the
Company shall give HE or its designated Subsidiaries (referred to herein as
the "HE Designee") notice of such determination and the HE Designee shall have
the opportunity (the "First Opportunity") to enter into a full life service
agreement with respect to some or all, but not less than half of the available
capacity in the BSS Band on the applicable BSS Satellite, of the BSS
transponders (the "BSS Transponders") on the first BSS Satellite that the
Company intends to place into each such slot on terms and conditions to be
negotiated in good faith and consistent with normal business practice. The
negotiation period with respect to capacity on each such BSS Satellite shall
be for three months (the "Negotiation Period"). The Negotiation Period may be
initiated by either party on notice to the other at any time within the time
period set forth below. Applied separately to each BSS Satellite, the
Negotiation Period shall begin on the date on which the Company notifies the
HE Designee of a firm commitment to construct a BSS Satellite; and shall
commence not more than thirty months prior to the proposed launch of the BSS
Satellite and end not later than fifteen (15) months prior to the date that
the BSS Satellite is scheduled to be launched. If negotiations are not
initiated by either party by such date or successfully concluded with a
binding service agreement within the Negotiation Period, unless HE has given
Company a final offer (as defined below), neither party shall have any further
obligation pursuant to this Section 3(e), with respect to the BSS Satellite in
question. The conclusion or failure to conclude such an agreement as to one
orbital slot shall not, however, affect the parties' rights and obligations
hereunder as to the remaining BSS Satellites for other orbital slots
referenced in this Section, if still extant.
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At any time prior to the end of the applicable negotiation period specified
above, HE shall have the right to make to the Company HE's "best and final
offer" (a "Final Offer") of the price at which it is willing to enter into an
end of life service agreement for a stated number of BSS Transponders on the
BSS Satellite, which must be on terms and conditions that are otherwise
acceptable to the Company.
If HE makes the Final Offer, for as long as it is held open (i.e., that it
may be accepted by the Company without HE's subsequent right to withdraw it),
the Company will not, without first offering HE the opportunity to do so,
enter into a purchase or long term transponder service agreement for the same
number or fewer BSS Band transponders than proposed by HE at a lower price per
BSS Transponder (which, for the purposes of comparison, will be calculated on
a net present value basis as determined by the Company, but notified to HE so
that HE may make an adjustment in its offer to reflect this net present value)
than the price stated in the Final Offer. The Company may condition its offer
to HE on HE's acceptance of such other price, quantity, length of term and
other terms and conditions that the Company would offer a third party at the
time (the "Revised Offer"). HE shall have ten (10) days to accept the
Company's Revised Offer or it shall be deemed to have been rejected. For the
avoidance of doubt, the previous sentence shall not apply to the Company's
acceptance of the Final Offer, as to which no further acceptance or rejection
by HE is required or permitted. The Company shall also notify HE at such time
as the Company lowers its price for long term transponder agreements on the
applicable BSS satellite for the number of transponders and for the service
terms which had been included in the Final Offer, which notice shall be given
not fewer than ten (10) business days before the reduced price is offered to
any third party, during which period HE will have the right to accept such
revised offer. As used in this Section 3(e), "Company" or "Holding Company"
includes its Subsidiaries or any of them.
4. Representations and Warranties of Minority Stockholders. Each Minority
Stockholder hereby severally and not jointly (and solely with respect to
itself and the Shares owned of record or beneficially by such Stockholder)
represents and warrants to HCI and the Company as follows:
(a) Ownership of Shares. Such Minority Stockholder is the record and
beneficial owner of the Shares set forth on Exhibit A hereto, and such
shares constitute all of the Shares owned of record or beneficially by such
Minority Stockholder. With respect to the number of shares set forth
opposite such Minority Stockholder's name on Exhibit A hereto, and with the
exceptions noted thereon, such Minority Stockholder has sole voting power
and sole power to issue instructions with respect to the matters set forth
in Sections 2 and 3 hereof, sole power of disposition, sole power of
conversion, sole power to demand appraisal rights and sole power to agree
to all of the matters set forth in this Agreement, in each case with no
limitations, qualifications or restrictions on such rights, subject to
applicable securities laws and the terms of this Agreement.
(b) Due Authorization. Such Minority Stockholder is, as applicable, duly
organized, validly existing and in good standing under the laws of its
jurisdiction of organization, and has all requisite capacity, power and
authority to execute and deliver this Agreement and perform its obligations
hereunder. The execution and delivery by such Minority Stockholder of this
Agreement and the performance by such Minority Stockholder of its
obligations hereunder have been duly and validly authorized by such
Minority Stockholder and no other proceedings on the part of such Minority
Stockholder are necessary to authorize the execution, delivery or
performance of this Agreement or the consummation of the transactions
contemplated hereby. This Agreement has been duly and validly executed and
delivered by such Minority Stockholder and constitutes a valid and binding
agreement enforceable against such Stockholder in accordance with its terms
except to the extent (i) such enforcement may be limited by applicable
bankruptcy, insolvency or similar laws affecting creditors rights and (ii)
the remedy of specific performance and injunctive and other forms of
equitable relief may be subject to equitable defenses and to the discretion
of the court before which any proceeding therefor may be brought.
(c) No Conflicts. Except for filings, authorizations, consents and
approvals as contemplated by the Reorganization Agreement or the Univisa
Contribution Agreement and necessary for the consummation of the
transactions contemplated thereby which have been obtained, (i) no filing
with, and no permit, authorization, consent or approval of, any state or
federal public body or authority is necessary for the
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execution of this Agreement by such Minority Stockholder and the
consummation by such Minority Stockholder of the transactions contemplated
hereby and (ii) none of the execution and delivery of this Agreement by
such Minority Stockholder, the consummation by such Minority Stockholder of
the transactions contemplated hereby or compliance by such Minority
Stockholder with any of the provisions hereof shall (A) conflict with or
result in any breach of the organizational documents of such Minority
Stockholder, (B) result in a violation or breach of, or constitute (with or
without notice or lapse of time or both) a default (or give rise to any
third party right of termination, cancellation, material modification or
acceleration) under any of the terms, conditions or provisions of any note,
loan agreement, bond, mortgage, indenture, license, contract, commitment,
arrangement, understanding, agreement or other instrument or obligation of
any kind to which such Minority Stockholder is a party or by which such
Minority Stockholder or any of its properties or assets may be bound, or
(C) violate any order, writ, injunction, decree, judgment, statute, rule or
regulation applicable to such Minority Stockholder or any of its properties
or assets.
5. Representations and Warranties of HCI. The Company and HCI jointly and
severally represent and warrant to each Minority Stockholder as follows:
(a) Organization. Each such corporation is a corporation duly organized,
validly existing and in good standing under the laws of its jurisdiction of
incorporation, and has all requisite corporate power or other power and
authority to execute and deliver this Agreement and perform its obligations
hereunder. The execution and delivery by such corporation of this Agreement
and the performance by such corporation of its obligations hereunder have
been duly and validly authorized by all necessary corporate action of such
corporation.
(b) Agreement. This Agreement has been duly and validly executed and
delivered by such corporation and constitutes a valid and binding agreement
of such corporation enforceable against it in accordance with its terms,
except that (i) such enforcement may be subject to applicable bankruptcy,
insolvency, or other similar laws, now or hereafter in effect, affecting
creditors' rights generally, and (ii) the remedy of specific performance
and injunctive and other forms of equitable relief may be subject to
equitable defenses and to the discretion of the court before which any
proceedings therefor may be brought.
(c) No Conflicts. Except for filings, authorizations, consents, and
approvals as contemplated by the Reorganization Agreement or the Univisa
Contribution Agreement and necessary for the consummation of the
transactions contemplated thereby which have been obtained, (i) no filing
with, and no permit, authorization, consent or approval of, any state or
federal public body or authority is necessary for the execution of this
Agreement by such corporation and the consummation by such corporation of
the transactions contemplated hereby, and (ii) none of the execution and
delivery of this Agreement by such corporation, the consummation by such
corporation of the transaction contemplated hereby or compliance by such
corporation with any of the provisions hereof shall (A) conflict with or
result in any breach of the charter or bylaws of such corporation, (B)
result in a violation or breach of, or constitute (with or without notice
or lapse of time or both) a default (or give rise to any third-party right
of termination, cancellation, material modifications or acceleration) under
any of the terms, conditions or provisions of any note, loan agreement,
bond, mortgage, indenture, license, contract, commitment, arrangement,
understanding, agreement or other instrument or obligation of any kind to
which such corporation is a party or by which such corporation of its
properties or assets may be bound, or (C) violate any order, writ,
injunction, decree, judgment, statute, rule or regulation applicable to
such corporation or its properties or assets.
6. Legend.
(a) Each Stockholder severally and not jointly agrees that it will not
request Holding Company to register the transfer (by book-entry or otherwise)
of any certificate or uncertificated interest representing any of the Shares,
unless such transfer is made in compliance with this Agreement.
(b) Each Stockholder severally and not jointly agrees that it shall promptly
after the date hereof surrender to Holding Company all certificates
representing the Shares held by such Stockholder, and Holding Company shall
place the following legend on such certificates, which legend shall remain on
such certificates until the sale of such Shares to a person who is not a
Stockholder or the termination of this Agreement, whichever is earlier:
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"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO AN
AGREEMENT, DATED AS OF , 199 BETWEEN STOCKHOLDERS AND THE
COMPANY. THE SHARES ARE SUBJECT TO RESTRICTIONS ON TRANSFER AND
VOTING. A COPY OF SUCH AGREEMENT IS AVAILABLE AT THE PRINCIPAL
OFFICE OF THE COMPANY."
7. Term of Agreement. This Agreement has been entered into in connection
with the transactions contemplated by the Reorganization Agreement described
in Recital A and the Univisa Contribution Agreement described in Recital B and
shall become effective upon the Closing. This Agreement shall terminate upon
the earlier of (i) five years from the Closing Date, or (ii) the occurrence of
a Termination Event. Notwithstanding the foregoing, the provisions of Sections
2(c) (Standstill), 3(b) (Transactions with Affiliates), 3(c) and (d)
(covenants not to compete), 3(e) (first offer), and 8 (miscellaneous) shall
terminate five years after the Closing Date.
8. Miscellaneous.
(a) Expenses. All costs and expenses incurred in connection with this
Agreement and the transactions contemplated hereby shall be paid by the party
incurring such expenses.
(b) Notices. All notices, requests, demands and other communications which
are required or may be given under this Agreement shall be in writing and
shall be deemed to have been duly given when received if personally delivered;
when transmitted if transmitted by telecopy, electronic or digital
transmission method; the day after it is sent, if sent for next day delivery
to a domestic address by recognized overnight delivery service (e.g., Federal
Express); and upon receipt, if sent by certified or registered mail, return
receipt requested. In each case notice shall be sent to: [to come].
(c) Interpretation. When a reference is made in this Agreement to Sections,
such reference shall be to a Section of this Agreement unless otherwise
indicated. Headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement. Whenever the word "include", "includes" or "including" are used in
this Agreement, they shall be deemed to be followed by the words "without
limitation". This Agreement shall not be construed for or against either party
by reason of the authorship or alleged authorship of any provision hereof or
by reason of the status of the respective parties. All terms defined in this
Agreement in the singular shall have comparable meanings when used in the
plural, and vice versa, unless otherwise specified.
(d) Entire Agreement; No Third-Party Beneficiaries. This Agreement
constitutes the entire agreement and supersedes all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof and is not intended to confer upon any person other than
the parties hereto any rights or remedies hereunder.
(e) Assignment. Except to a Permitted Transferee, neither this Agreement nor
any of the rights, interests or obligations hereunder shall be assigned
(whether by operation of law or otherwise) by any Minority Stockholder without
the consent of HCI or by HCI or its Affiliates without the consent of Minority
Stockholders holding 66 2/3% of the Shares held by Minority Stockholders,
which consent may be granted or withheld in such party's discretion. Subject
to the preceding sentence, this Agreement will be binding upon, inure to the
benefit of and be enforceable by the parties and their respective successors
and assigns. No person who is not a Stockholder or Permitted Transferee who
acquires Shares shall have any rights under this Agreement except to the
extent that the assignment thereof has been approved as required by Section
8(e), nor any obligations hereunder except to the extent expressly assumed.
(f) Governing Law. This Agreement shall be construed, interpreted and the
rights of the parties determined in accordance with the laws of the State of
Delaware (without reference to the choice of law provisions), except with
respect to matters of law concerning the internal corporate affairs of any
corporate entity
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which is a party to or the subject of this Agreement, and as to those matters
the law of the jurisdiction under which the respective entity derives its
powers shall govern.
(g) Severability. Each party agrees that, should any court or other
competent authority hold any provision of this Agreement or part hereof to be
null, void or unenforceable, or order any party to take any action
inconsistent herewith or not to take an action consistent herewith or required
hereby, the validity, legality and enforceability of the remaining provisions
and obligations contained or set forth herein shall not in any way be affected
or impaired thereby. Upon any such holding that any provision of this
Agreement is null, void or unenforceable, the parties will negotiate in good
faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible in an acceptable manner to the end that the
transactions contemplated by this Agreement are consummated to the extent
possible. Except as otherwise contemplated by this Agreement, to the extent
that a party hereto took an action inconsistent herewith or failed to take
action consistent herewith or required hereby pursuant to an order or judgment
of a court or other competent authority, such party shall incur no liability
or obligation unless such party did not in good faith seek to resist or object
to the imposition or entering of such order or judgment.
(h) Injunctive Relief. The parties acknowledge that it will be impossible to
measure in money the damages that would be suffered if the parties fail to
comply with any of the obligations herein imposed on them and that in the
event of any such failure, an aggrieved person or entity will be irreparably
damaged and will not have an adequate remedy at law. Any such person or entity
shall, therefore, be entitled to injunctive relief, including specific
performance, to enforce such obligations, and if any action should be brought
in equity to enforce any of the provisions of this Agreement, none of the
parties shall raise the defense that there is an adequate remedy at law.
(i) Attorneys' Fees. If any party to this Agreement brings an action to
enforce its rights under this Agreement, the prevailing party shall be
entitled to recover its costs and expenses, including without limitation
reasonable attorneys' fees, incurred in connection with such action, including
any appeal of such action.
(j) Cumulative Remedies. All rights and remedies of either party hereto are
cumulative of each other and of every other right or remedy such party may
otherwise have at law or in equity, and the exercise of one or more rights or
remedies shall not prejudice or impair the concurrent or subsequent exercise
of other rights or remedies.
(k) Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same instrument and
shall become effective when executed and delivered by each of the parties.
(l) Amendments, Waivers, Etc. This Agreement may not be amended, changed,
supplemented, or otherwise modified or terminated, except upon the execution
and delivery of a written agreement executed by the parties hereto; provided
that performance hereof by any Minority Stockholder may be waived by HCI and
performance hereof by HCI, its Affiliates or the Company may be waived by
Minority Stockholders holding 66 2/3% of the Shares held by Minority
Stockholders.
(m) Obligations of Stockholders. The liabilities and obligations of each
Stockholder under any provision of this Agreement are several and not joint
and apply solely to such Stockholder and to the Shares held of record or
beneficially owned by such Stockholder. No Stockholder shall have any
liability or obligation under this Agreement for any act, omission or breach
by any other Stockholder.
(n) Service of Process. Each of the parties hereto irrevocably consents to
the service of any process, pleading, notices or other papers by the mailing
of copies thereof by registered, certified or first class mail, postage
prepaid, to such party at such party's address set forth herein, or by any
other method provided or permitted under Delaware law. Additionally, each
party hereby appoints RL&F Service Corp., One Rodney Square, Wilmington,
Delaware 19810, as agent for service of process in Delaware.
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(o) Consent and Jurisdiction. Each party irrevocably and unconditionally
agrees and consents that any suit, action or other legal proceeding arising
out of or related to this Agreement shall be brought and heard in New Castle
County, State of Delaware, and each party irrevocably consents to personal
jurisdiction in any and all tribunals in said County.
IN WITNESS WHEREOF, the parties have executed this Amended and Restated
Stockholder Agreement as of the date first above written.
Magellan International, Inc.
By: _________________________________
Name:
Title:
Hughes Communications, Inc.
By: _________________________________
Name:
Title:
Satellite Company, L.L.C.
By: _________________________________
Name:
Title:
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CLASS A STOCKHOLDERS
__________________________________________
Name: MARY ANSELMO, individually and as a
trustee of the Article VII Trust
created by the RENE ANSELMO
REVOCABLE TRUST DATED JUNE 10, 1994
and as a successor trustee under the
Voting Trust Agreement dated as of
February 28, 1995 and as co-trustee
of the RAYCE ANSELMO TRUST DATED
DECEMBER 23, 1991
__________________________________________
Name: FREDERICK A. LANDMAN, individually
and as a trustee of the Article VII
Trust created by the RENE ANSELMO
REVOCABLE TRUST DATED JUNE 10, 1994
and as a successor trustee under the
Voting Trust Agreement dated as of
February 28, 1995
__________________________________________
Name: LOURDES SARALEGUI, individually and
as a trustee of the Article VII
Trust created by the RENE ANSELMO
REVOCABLE TRUST DATED JUNE 10, 1994
and as a successor trustee under the
Voting Trust Agreement dated as of
February 28, 1995
__________________________________________
Name: PIER LANDMAN, individually and as
the sole trustee of the CHLOE
LANDMAN TRUST DATED JUNE 10, 1988
and the sole trustee of the RISSA
LANDMAN TRUST DATED JUNE 10, 1988
__________________________________________
Name: PATRICK J. COSTELLO, as trustee of
the FREDERICK A. LANDMAN IRREVOCABLE
TRUST DATED DECEMBER 22, 1995 and as
a successor trustee of the RAYCE
ANSELMO TRUST DATED DECEMBER 23,
1991
__________________________________________
Name: REVERGE ANSELMO, individually and
as a trustee of the Article VII
Trust created by the RENE ANSELMO
REVOCABLE TRUST DATED JUNE 10, 1994
and as a successor trustee under the
Voting Trust Agreement dated as of
February 28, 1995
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APPENDIX N
AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
This AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT (this "Agreement"),
dated as of , 199 , is entered into by and among MAGELLAN INTERNATIONAL,
INC., a Delaware corporation (the "Company"), and the persons listed on the
signature page hereof (the "Stockholders").
RECITALS
A. The Company and the Stockholders desire to enter into this Agreement for
the purpose of granting to the Stockholders certain rights with respect to
registering under the Securities Act of 1933, as amended, shares of Common
Stock, par value $.01 per share, of the Company.
B. The Common Stock is being acquired by the Stockholders pursuant to the
transactions (the "Transactions") contemplated by the Agreement and Plan of
Reorganization, dated as of September 20, 1996, among Panamsat Corporation,
Hughes Communications, Inc., and the Company, among others (the "Plan of
Reorganization"), and the Stock Contribution and Exchange Agreement, dated as
of September 20, 1996, among Satellite Company, L.L.C., Hughes Communications,
Inc., and the Company, among others (the "Exchange Agreement").
C. The Stockholders are also parties to a Stockholder Agreement of even date
(the "Stockholder Agreement").
AGREEMENT
In consideration of the Recitals and mutual promises contained herein, and
other good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, the parties, intending to be legally bound, hereby agree
as follows:
1. Definitions. As used in this Agreement, the following terms shall have
the following meanings:
"Advice" shall have the meaning set forth in Section 5 hereof.
"Affiliate" means, with respect to any specified person, any other person
directly or indirectly controlling or controlled by or under direct or
indirect common control with such specified person. For the purposes of this
definition, "control" when used with respect to any specified person, means
the power to direct the management and policies of such person, directly or
indirectly, whether through the ownership of voting securities, by contract or
otherwise; and the terms "controlling" and "controlled" have meanings
correlative to the foregoing.
"Business Day" means any day that is not a Saturday, a Sunday or a legal
holiday on which banking institutions in the State of New York are not
required to be open.
"Capital Stock" means, with respect to any person, any and all shares,
interests, participations or other equivalents (however designated) of
corporate stock issued by such person, including each class of common stock
and preferred stock of such person.
"Class A Holder" means a Holder whose Common Stock was received in the
Transactions in respect of the Class A Common Stock or common stock of
Panamsat Corporation into which such Class A Common Stock has been converted.
"Class B Holder" means a Holder whose Common Stock was received in the
Transactions pursuant to the Exchange Agreement.
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"Common Stock" means the Common Stock, par value $0.01 per share, of the
Company issued to any Holder named on the signature pages hereof in the
Transactions or any other shares of capital stock or other securities of the
Company into which such shares of Common Stock shall be reclassified or
changed, including, by reason of a merger, consolidation, reorganization or
recapitalization. If the Common Stock has been so reclassified or changed, or
if the Company pays a dividend or makes a distribution on the Common Stock in
shares of capital stock or subdivides (or combines) its outstanding shares of
Common Stock into a greater (or smaller) number of shares of Common Stock, a
share of Common Stock shall be deemed to be such number of shares of stock and
amount of other securities to which a holder of a share of Common Stock
outstanding immediately prior to such change, reclassification, exchange,
dividend, distribution, subdivision or combination would be entitled.
"Company" shall have the meaning set forth in the heading hereof.
"Delay Period" shall have the meaning set forth in Section 2(d) hereof.
"Demand Notice" shall have the meaning set forth in Section 2(a) hereof.
"Demand Registration" shall have the meaning set forth in Section 2(b)
hereof.
"Effectiveness Period" shall have the meaning set forth in Section 2(d)
hereof.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations of the SEC promulgated thereunder.
"Hold Back Period" shall have the meaning set forth in Section 4 hereof.
"Holder" means a person who owns Registrable Shares and is either (i) a
Stockholder or (ii) a Permitted Transferee.
"Inclusion Notice" shall have the meaning set forth in Section 2(a).
"Hughes Communications, Inc. Holder" means Hughes Communications, Inc. and
any Holder whose Common Stock was issued to Hughes Communications, Inc. in the
Transactions.
"Interruption Period" shall have the meaning set forth in Section 5 hereof.
"Permitted Assignee" means a Holder who acquires (a) more than $15 million
in value of Common Stock at the date of transfer from a Holder, or (b) Common
Stock from a Holder in a transfer in which consent to assignment of this
Agreement is granted pursuant to Section 10(e), in either case in a transfer
exempt pursuant to Rule "4(1-1/2)" (or any similar private transfer
exemption), provided that in each case the transferee assumes and agrees to
perform and becomes a party to this Agreement.
"Permitted Transferees" means, as to any Hughes Communications, Inc. Holder,
any controlled Affiliate of GM or any Permitted Transferee; as to S Company,
Grupo Televisa, S.A., any controlled Affiliate of Grupo Televisa, S.A., or any
Permitted Transferee; and as to the Class A Holders, (A) any other Class A
Holder, (B) any person who is the spouse or former spouse of, or any lineal
descendent of, or any spouse of such lineal descendant of, or the grandparent,
parent, brother or sister of, or spouse of such brother or sister of, a Class
A Holder or Permitted Transferee of such person; (C) upon the death of any
Class A Holder or any Permitted Transferee of such person, the executors of
the estate of such Class A Holder or Permitted Transferee, any of such Class A
Holder's or such Permitted Transferee's heirs, testamentary trustees,
devisees, or legatees; (D) any trust principally for the benefit of one or
more of the foregoing Class A Holders or Permitted Transferees; (E) upon the
disability of any Class A Holder or Permitted Transferee, any guardian or
conservator of such Class A Holder or Permitted Transferee; or (F) any
corporation, partnership or other entity if all of the beneficial ownership is
held by Class A Holders or any Permitted Transferees; and as to any
Stockholders, any person who
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is a Permitted Assignee; provided that in each case such transferee assumes
and agrees to perform and becomes a party to this Agreement.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
"Piggyback Registration" shall have the meaning set forth in Section 3
hereof.
"Prospectus" means the prospectus included in any Registration Statement
(including a prospectus that discloses information previously omitted from a
prospectus filed as part of an effective registration statement in reliance
upon Rule 430A), as amended or supplemented by any prospectus supplement, with
respect to the terms of the offering of any portion of the Registrable Shares
covered by such Registration Statement and all other amendments and
supplements to such prospectus, including post-effective amendments, and all
material incorporated by reference or deemed to be incorporated by reference
in such prospectus.
"Registrable Shares" means shares of Common Stock unless (i) they have been
effectively registered under Section 5 of the Securities Act and disposed of
pursuant to an effective Registration Statement, or (ii) all of such Common
Stock of a Holder can be freely sold and transferred without restriction under
Rule 144 or Rule 145 under the Securities Act or any successor rule such that,
after any such transfer referred to in this clause (ii), such securities may
be freely transferred without restriction under the Securities Act.
Notwithstanding the foregoing, any shares of Common Stock held by a
Stockholder shall be "Registrable Shares" until such Stockholder ceases to own
at least 1% of the then outstanding Common Stock, $.01 par value, of the
Company. Further, no Holder who is not a Stockholder shall be deemed to own
Registrable Shares after five years from the date hereof.
"Registration" means registration under the Securities Act of an offering of
Registrable Shares pursuant to a Demand Registration or a Piggyback
Registration.
"Registration Period" means, as to any Holder, the period beginning on the
date hereof and ending on the date when such Holder no longer owns any
Registrable Shares.
"Registration Statement" means any registration statement under the
Securities Act of the Company that covers any of the Registrable Shares
pursuant to the provisions of this Agreement, including the related
Prospectus, all amendments and supplements to such registration statement,
including pre- and post-effective amendments, all exhibits thereto and all
material incorporated by reference or deemed to be incorporated by reference
in such registration statement.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended, and the rules
and regulations of the SEC promulgated thereunder.
"Shelf Registration" shall have the meaning set forth in Section 2(b)
hereof.
"Stockholder Agreement" shall have the meaning set forth in Recital C.
"Transactions" shall have the meaning set forth in Recital B.
"Underwritten Registration or Underwritten Offering" means a registration
under the Securities Act in which securities of the Company are sold to an
underwriter for reoffering to the public.
2. Demand Registration.
(a) Subject to the last sentence of this Section 2(a), any Holder shall
have the right during the Registration Period, by written notice (the
"Demand Notice") given to the Company, to request the
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Company to register under and in accordance with the provisions of the
Securities Act all or any portion of the Registrable Shares designated by
such Holders; provided, however, that the aggregate value (at the
respective dates of such notices) of Registrable Shares requested to be
registered pursuant to any Demand Notice and pursuant to any related
Inclusion Notices received pursuant to the following sentence shall be at
least $100 million. Upon receipt of any such Demand Notice, the Company
shall promptly notify all other Holders of the receipt of such Demand
Notice and allow them the opportunity to include Registrable Shares held by
them in the proposed registration by submitting their own written notice to
the Company requesting inclusion of a specified number of such Holders'
Registrable Securities (the "Inclusion Notice"). In connection with any
Demand Registration in which more than one Holder participates, in the
event that such Demand Registration involves an underwritten offering and
the managing underwriter or underwriters participating in such offering
advise in writing the Holders of Registrable Shares to be included in such
offering that the total number of Registrable Shares to be included in such
offering exceeds the amount that can be sold in (or during the time of)
such offering without delaying or jeopardizing the success of such offering
(including the price per share of the Registrable Shares to be sold), then
the amount of Registrable Shares to be offered for the account of such
Holders shall be reduced pro rata on the basis of the number of Registrable
Shares to be registered by each such Holder; provided if the registration
of Registrable Shares held by Mary Anselmo is necessary in connection with
any payment of estate taxes by her estate, such registration by the estate
of Mary Anselmo shall have priority over any registration of Registrable
Shares by a Class B Holder or any Holder who acquired such securities
directly or indirectly from or through a Class B Holder. The Class A
Holders as a group and the Class B Holders as a group shall each be
entitled to three Demand Registrations pursuant to this Section 2; Hughes
Communications, Inc. shall be entitled to six Demand Registrations pursuant
to this Section 2; if any such Demand Registration does not become
effective or is not maintained for a period (whether or not continuous) of
at least 180 days (or such shorter period as shall terminate when all the
Registrable Shares covered by such Demand Registration (other than any
shares reserved for issuance upon exercise of the underwriters'
overallotment option) have been sold pursuant thereto), the affected
Holders will be entitled to an addition Demand Registration pursuant
hereto. It is agreed that the registration of Registrable Shares pursuant
to an Inclusion Notice shall not be deemed to be a Demand Registration.
Nothing in this Section 2(a) shall limit any rights pursuant to Section 3
hereof. Nothing in this Agreement shall limit the rights and obligations of
the parties under the Stockholder Agreement, including pursuant to Sections
2(a) and 2(b) thereof. Notwithstanding anything herein to the contrary, the
exercise of each Demand Registration under this Section 2(a) by the Class A
Holders shall require the approval of the Class A Holders, and their
Permitted Transferees, owning a majority of the Registrable Shares then
owned by all Class A Holders and their Permitted Transferees.
(b) The Company, within 45 days of the date on which the Company receives
a Demand Notice given by Holders in accordance with Section 2(a) hereof,
shall file with the SEC, and the Company shall thereafter use commercially
reasonable efforts to cause to be declared effective, a Registration
Statement on the appropriate form for the registration and sale, in
accordance with the intended method or methods of distribution, of the
total number of Registrable Shares specified by the Holders in such Demand
Notice, which may include a "shelf" registration (a "Shelf Registration")
pursuant to Rule 415 under the Securities Act (a "Demand Registration").
(c) The Company shall use commercially reasonable efforts to cause the
Registration Statement to be declared effective and to keep each
Registration Statement filed pursuant to this Section 2 continuously
effective and usable for the resale of the Registrable Shares covered
thereby (i) in the case of a Registration that is not a Shelf Registration,
for a period of 90 days from the date on which the SEC declares such
Registration Statement effective and (ii) in the case of a Shelf
Registration, for a period of 180 days from the date on which the SEC
declares such Registration Statement effective, in either case (x) until
all the Registrable Shares covered by such Registration Statement (other
than any shares reserved for issuance upon exercise of the underwriters'
overallotment option) have been sold pursuant to such Registration
Statement, and (y) as such period may be extended pursuant to this Section
2.
(d) The Company shall be entitled to postpone the filing of any
Registration Statement otherwise required to be prepared and filed by the
Company pursuant to this Section 2, or suspend the use of any
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effective Registration Statement under this Section 2, for a reasonable
period of time, but not in excess of 90 days (a "Delay Period"), if the
chief executive officer or chief financial officer of the Company
determines that in such executive officer's reasonable judgment and good
faith the registration and distribution of the Registrable Shares covered
or to be covered by such Registration Statement would materially interfere
with any pending material financing, acquisition or corporate
reorganization or other material corporate development involving the
Company or any of its subsidiaries or would require premature disclosure
thereof and promptly gives the Holders written notice of such
determination, containing a general statement of the reasons for such
postponement and an approximation of the period of the anticipated delay;
provided, however, that (i) the aggregate number of days included in all
Delay Periods during any consecutive 12 months shall not exceed the
aggregate of (x) 120 days minus (y) the number of days occurring during all
Hold Back Periods and Interruption Periods during such consecutive 12
months and (ii) a period of at least 60 days shall elapse between the
termination of any Delay Period, Hold Back Period or Interruption Period
and the commencement of the immediately succeeding Delay Period. If the
Company shall so postpone the filing of a Registration Statement, the
Holders of Registrable Shares to be registered shall have the right to
withdraw the request for registration by giving written notice from the
Holders of a majority of the Registrable Shares that were to be registered
to the Company within 45 days after receipt of the notice of postponement
or, if earlier, the termination of such Delay Period (and, in the event of
such withdrawal, such request shall not be counted for purposes of
determining the number of requests for registration to which the Holders of
Registrable Shares are entitled pursuant to this Section 2). The time
period for which the Company is required to maintain the effectiveness of
any Registration Statement shall be extended by the aggregate number of
days of all Delay Periods, all Hold Back Periods and all Interruption
Periods occurring during such Registration and such period and any
extension thereof is hereinafter referred to as the "Effectiveness Period."
The Company shall not be entitled to initiate a Delay Period unless it
shall (A) to the extent permitted by agreements with other security holders
of the Company, concurrently prohibit sales by such other security holders
under registration statements covering securities held by such other
security holders and (B) in accordance with the Company's policies from
time to time in effect, forbid purchases and sales in the open market by
senior executives of the Company.
(e) The Company shall not include any securities that are not Registrable
Shares in any Registration Statement filed pursuant to this Section 2
without the prior written consent of (i) the Class A Holders of a majority
in number of the Registrable Shares held by Class A Holders covered by such
Registration Statement, and (ii) the Class B Holder(s) of a majority in
number of the Registrable Shares held by such Class B Holders covered by
such Registration Statement, and (iii) Hughes Communications, Inc. Holders
with respect to Registrable Shares held by such Hughes Communications, Inc.
Holders covered by such Registration Statement.
(f) Holders of a majority in number of the Registrable Shares to be
included in a Registration Statement pursuant to this Section 2 may, at any
time prior to the effective date of the Registration Statement relating to
such Registration, revoke such request by providing a written notice to the
Company revoking such request. The Holders of Registrable Shares who revoke
such request shall reimburse the Company for all its out-of-pocket expenses
incurred in the preparation, filing and processing of the Registration
Statement; provided, however, that, if such revocation was pursuant to
Section 2(d) (for a postponement) or was based on the Company's failure to
comply in any material respect with its obligations hereunder, such
reimbursement shall not be required, and such registration shall not count
against the maximum number of Demand Registrations to which the applicable
Holders are entitled under Section 2(a). In addition, if pursuant to the
terms of this Section 2(f), the Holders reimburse the Company for its out
of pocket expenses incurred in the preparation, filing and processing of
any Registration Statement requested, and subsequently revoked by such
Holder(s), such registration shall not count against the maximum number of
Demand Registrations to which the applicable Holder(s) are entitled under
Section 2(a).
3. Piggyback Registration.
(a) Right to Piggyback. If at any time during the Registration Period the
Company proposes to file a registration statement under the Securities Act
with respect to a public offering of securities of the same
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type as the Registrable Shares pursuant to a firm commitment underwritten
offering solely for cash for its own account (other than a registration
statement (i) on Form S-8 or any successor forms thereto, or (ii) filed
solely in connection with a dividend reinvestment plan or employee benefit
plan of the Company or its Affiliates) or for the account of any holder of
securities of the same type as the Registrable Shares (to the extent that
the Company has the right to include Registrable Shares in any registration
statement to be filed by the Company on behalf of such holder), then the
Company shall give written notice of such proposed filing to the Holders at
least 15 days before the anticipated effective date. Such notice shall
offer the Holders the opportunity to register such amount of Registrable
Shares as they may request (a "Piggyback Registration"). Subject to Section
3(b) hereof, the Company shall include in each such Piggyback Registration
all Registrable Shares with respect to which the Company has received
written requests for inclusion therein within 10 days after notice has been
given to the Holders. Each Holder shall be permitted to withdraw all or any
portion of the Registrable Shares of such Holder from a Piggyback
Registration at any time prior to the effective date of such Piggyback
Registration; provided, however, that if such withdrawal occurs after the
filing of the Registration Statement with respect to such Piggyback
Registration, the withdrawing Holders shall reimburse the Company for the
portion of the registration expenses payable with respect to the
Registrable Shares so withdrawn.
(b) Priority on Piggyback Registrations. The Company shall permit the
Holders to include all such Registrable Shares on-the-same terms and
conditions as any similar securities, if any, of the Company included
therein. Notwithstanding the foregoing, if the Company or the managing
underwriter or underwriters participating in such offering advise the
Holders in writing that the total amount of securities requested to be
included in such Piggyback Registration exceeds the amount which can be
sold in (or during the time of) such offering without delaying or
jeopardizing the success of the offering (including the price per share of
the securities to be sold), then the amount of securities to be offered for
the account of the Holders and other holders of securities who have
piggyback registration rights with respect thereto shall be reduced (to
zero if necessary) pro rata on the basis of the number of common stock
equivalents requested to be registered by each such Holder or holder
participating in such offering.
(c) Right to Abandon. Nothing in this Section 3 shall create any
liability on the part of the Company to the Holders if the Company in its
sole discretion should decide not to file a registration statement proposed
to be filed pursuant to Section 3(a) hereof or to withdraw such
registration statement subsequent to its filing and prior to the later of
its effectiveness or the release of the Registrable Shares for public
offering by the managing underwriter, in the case of an underwritten public
offering, regardless of any action whatsoever that a Holder may have taken,
whether as a result of the issuance by the Company of any notice hereunder
or otherwise.
4. Holdback Agreement. If (i) the Company shall file a registration
statement with respect to the Common Stock or similar securities or securities
convertible into, or exchangeable or exercisable for, such securities and (ii)
the Company (in the case of a nonunderwritten public offering by the Company
pursuant to such registration statement) advises the Holders in writing that a
public sale or distribution of Registrable Shares would materially adversely
affect such offering or the managing underwriter or underwriters (in the case
of an underwritten public offering by the Company pursuant to such
registration statement) advises the Company in writing (in which case the
Company shall notify the Holders) that a public sale or distribution of
Registrable Shares would have material adverse impact on such offering, then
each Holder shall, to the extent not inconsistent with applicable law, refrain
from effecting any public sale or distribution of Registrable Shares during
the 10 days prior to the effective date of such registration statement and
until the earliest of (A) the abandonment of such offering, (B) 90 days from
the effective date of such registration statement and (C) if such offering is
an underwritten offering, the termination of any "hold back" period obtained
by the underwriter or underwriters in such offering from the Company in
connection therewith (each such period, a "Hold Back Period").
5. Registration Procedures. In connection with the registration obligations
of the Company pursuant to and in accordance with Sections 2 and 3 hereof (and
subject to Sections 2 and 3 hereof), the Company shall use commercially
reasonable efforts to effect such registration to permit the sale of such
Registrable Shares in
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accordance with the intended method or methods of disposition thereof, and
pursuant thereto the Company shall as expeditiously as possible (but subject
to Sections 2 and 3 hereof):
(a) At least ten (10) business days before filing a Registration
Statement or prospectus or any amendments or supplements thereto, furnish
to the Holders who are participating in such Registration Statement and the
underwriters, if any, copies of all such documents proposed to be filed,
which documents will be subject to the review of such Holders and such
underwriters (and their respective counsel), and, in the case of a Demand
Registration, the Company will not file any Registration Statement or
amendment thereto or any prospectus or any supplement thereof to which the
Registering Holders or the underwriters, if any, shall reasonably object;
(b) prepare and file with the SEC a Registration Statement for the sale
of the Registrable Shares on any form for which the Company then qualifies
or which counsel for the Company shall deem appropriate in accordance with
such Holders' intended method or methods of distribution thereof, subject
to Section 2(b) hereof, and, subject to the Company's right to terminate or
abandon a registration pursuant to Section 3(c) hereof, use commercially
reasonable efforts to cause such Registration Statement to become effective
and remain effective as provided herein;
(c) prepare and file with the SEC such amendments (including post-
effective amendments) to such Registration Statement, and such supplements
to the related Prospectus, as may be required by the rules, regulations or
instructions applicable to the Securities Act during the applicable period
in accordance with the intended methods of disposition specified by the
Holders of the Registrable Shares covered by such Registration Statement,
make generally available earnings statements satisfying the provisions of
Section 11(a) of the Securities Act (provided that the Company shall be
deemed to have complied with this clause if it has complied with Rule 158
under the Securities Act), and cause the related Prospectus as so
supplemented to be filed pursuant to Rule 424 under the Securities Act;
provided, however, that before filing a Registration Statement or
Prospectus, or any amendments or supplements thereto (other than reports
required to be filed by it under the Exchange Act), the Company shall
furnish to the Holders of Registrable Shares covered by such Registration
Statement and their counsel for review and comment, copies of all documents
required to be filed;
(d) notify the Holders of any Registrable Shares covered by such
Registration Statement promptly and (if requested) confirm such notice in
writing, (i) when a Prospectus or any Prospectus supplement or post-
effective amendment has been filed, and, with respect to such Registration
Statement or any post-effective amendment, when the same has become
effective, (ii) of any request by the SEC for amendments or supplements to
such Registration Statement or the related Prospectus or for additional
information regarding such Holders, (iii) of the issuance by the SEC of any
stop order suspending the effectiveness of such Registration Statement or
the initiation of any proceedings for that purpose, (iv) of the receipt by
the Company of any notification with respect to the suspension of the
qualification or exemption from qualification of any of the Registrable
Shares for sale in any jurisdiction or the initiation or threatening of any
proceeding for such purpose, and (v) of the happening of any event that
requires the making of any changes in such Registration Statement,
Prospectus or documents incorporated or deemed to be incorporated therein
by reference so that they will not contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading:
(e) use commercially reasonable efforts to obtain the withdrawal of any
order suspending the effectiveness of such Registration Statement, or the
lifting of any suspension of the qualification or exemption from
qualification of any Registrable Shares for sale in any jurisdiction in the
United States;
(f) furnish to the Holder of any Registrable Shares covered by such
Registration Statement, each counsel for such Holders and each managing
underwriter, if any, without charge, one conformed copy of such
Registration Statement, as declared effective by the SEC, and of each post-
effective amendment thereto, in each case including financial statements
and schedules and all exhibits and reports incorporated or deemed to be
incorporated therein by reference; and deliver, without charge, such number
of copies of the preliminary prospectus, any amended preliminary
prospectus, each final Prospectus and any post-
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effective amendment or supplement thereto, as such Holder may reasonably
request in order to facilitate the disposition of the Registrable Shares of
such Holder covered by such Registration Statement in conformity with the
requirements of the Securities Act;
(g) prior to any public offering of Registrable Shares covered by such
Registration Statement, use commercially reasonable efforts to register or
qualify such Registrable Shares for offer and sale under the securities or
Blue Sky laws of such jurisdictions as the Holders of such Registrable
Shares shall reasonably request in writing; provided, however, that the
Company shall in no event be required to qualify generally to do business
as a foreign corporation or as a dealer in any jurisdiction where it is not
at the time so qualified or to execute or file a general consent to service
of process in any such jurisdiction where it has not theretofore done so or
to take any action that would subject it to general service of process or
taxation in any such jurisdiction where it is not then subject;
(h) upon the occurrence of any event contemplated by paragraph 5(d)(v)
above, prepare a supplement or post-effective amendment to such
Registration Statement or the related Prospectus or any document
incorporated or deemed to be incorporated therein by reference and file any
other required document so that, as thereafter delivered to the purchasers
of the Registrable Shares being sold thereunder (including upon the
termination of any Delay Period), such Prospectus will not contain an
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading;
(i) use commercially reasonable efforts to cause all Registrable Shares
covered by such Registration Statement to be listed on each securities
exchange or automated interdealer quotation system, if any, on which
similar securities issued by the Company are then listed or quoted;
(j) use commercially reasonable efforts to comply with all applicable
rules and regulations of the SEC and any securities exchange or regulatory
body;
(k) on or before the effective date of such Registration Statement,
provide the transfer agent of the Company for the Registrable Shares with
printed certificates for the Registrable Shares covered by such
Registration Statement which are in a form eligible for deposit with The
Depository Trust Company;
(l) if such offering is an underwritten offering, make available for
inspection by any Holder of Registrable Shares included in such
Registration Statement, any underwriter participating in any offering
pursuant to such Registration Statement, and any attorney, accountant or
other agent retained by any such Holder or underwriter (collectively, the
"Inspectors"), such financial and other records and other information,
pertinent corporate documents and properties of any of the Company and its
subsidiaries and affiliates (collectively, the "Records"), as shall be
reasonably necessary to enable them to exercise their due diligence
responsibilities; provided, however, that the Records that the Company
determines, in good faith, to be confidential and which it notifies the
Inspector in writing are confidential shall not be disclosed to any
Inspector unless such Inspector signs a confidentiality agreement
reasonably satisfactory to the Company, which agreement shall permit the
disclosure of such Records in such Registration Statement or the related
Prospectus if either (i) the disclosure of such Records is necessary to
avoid or correct a misstatement or omission in such Registration Statement
or (ii) the release of such Records is ordered pursuant to a subpoena or
other order from a court of competent jurisdiction; provided however, that
(A) any decision regarding the disclosure of information pursuant to
subclause (i) shall be made only after consultation with counsel for the
applicable Inspectors and the Company and (B) with respect to any release
of Records pursuant to subclause (ii), each Holder of Registrable Shares
agrees that it shall, promptly after learning that disclosure of such
Records is sought in a court having jurisdiction, give notice to the
Company so that the Company, at the Company's expense, may undertake
appropriate action to prevent disclosure of such Records; and
(m) if such offering is an underwritten offering, enter into such
agreements (including an underwriting agreement in form, scope and
substance as is customary in underwritten offerings) and take all such
other appropriate and reasonable actions requested by the Holders of a
majority of the Registrable Shares being sold in connection therewith
(including those reasonably requested by the managing underwriters) in
order
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to expedite or facilitate the disposition of such Registrable Shares, and
in such connection, (i) use commercially reasonable efforts to obtain
opinions of counsel to the Company and updates thereof (which counsel and
opinions (in form, scope and substance) shall be reasonably satisfactory to
the managing underwriters and counsel to the Holders of the Registrable
Shares being sold), addressed to each selling Holder of Registrable Shares
covered by such Registration Statement and each of the underwriters as to
the matters customarily covered in opinions requested in underwritten
offerings and such other matters may be reasonably requested by such
counsel and underwriters, (ii) use commercially reasonable efforts to
obtain "cold comfort" letters and updates thereof from the independent
certified public accountants of the Company (and, if necessary, any other
independent certified public accountants of any subsidiary of the Company
or of any business acquired by the Company for which financial statements
and financial data are, or are required to be, included in the Registration
Statement), addressed to each selling Holder of Registrable Shares covered
by the Registration Statement (unless such accountants shall be prohibited
from so addressing such letters by applicable standards of the accounting
profession) and each of the underwriters, such letters to be in customary
form and covering matters of the type customarily covered in "cold comfort"
letters in connection with underwritten offerings (iii) if requested and if
an underwriting agreement is entered into, provide indemnification
provisions and procedures substantially to the effect set forth in Section
8 hereof with respect to all parties to be indemnified pursuant to said
Section. The above shall be done at each closing under such underwriting or
similar agreement, or as and to the extent required thereunder. In
addition, the Company agrees (i) not to effect any public sale or
distribution of its Common Stock, par value $.01 per share, or any
securities convertible into or exchangeable or exercisable for such
securities, during the 10 days prior to the effective date of any
underwritten Demand or Piggyback Registration and until the earliest of (A)
the abandonment of such offering, or (B) the termination of any "hold back"
period reasonably requested by the underwriters (with exceptions for
issuances pursuant to outstanding options, warrants, and convertible or
exchangeable securities, pursuant to employee and dividend reinvestment
plans, and such other exceptions as are customary or agreed with the
managing underwriter).
The Company may require each Holder of Registrable Shares covered by a
Registration Statement to furnish such information regarding such Holder and
such Holder's intended method of disposition of such Registrable Shares as it
may from time to time reasonably request in writing. If any such information
is not furnished within a reasonable period of time after receipt of such
request, the Company may exclude such Holder's Registrable Shares from such
Registration Statement.
Each Holder of Registrable Shares covered by a Registration Statement agrees
that, upon receipt of any notice from the Company of the happening of any
event of the kind described in Section 5(d)(ii), 5(d)(iii), 5(d)(iv) or
5(d)(v) hereof, that such Holder shall forthwith discontinue disposition of
any Registrable Shares covered by such Registration Statement or the related
Prospectus until receipt of the copies of the supplemented or amended
Prospectus contemplated by Section 5(h) hereof, or until such Holder is
advised in writing (the "Advice") by the Company that the use of the
applicable Prospectus may be resumed, and has received copies of any amended
or supplemented Prospectus or any additional or supplemental filings which are
incorporated, or deemed to be incorporated, by reference in such Prospectus
(such period during which disposition is discontinued being an "Interruption
Period") and, if requested by the Company, the Holder shall deliver to the
Company (at the expense of the Company) all copies then in its possession,
other than permanent file copies then in such holder's possession, of the
Prospectus covering such Registrable Shares at the time of receipt of such
request.
Each Holder of Registrable Shares covered by a Registration Statement
further agrees not to utilize any material other than the applicable current
preliminary prospectus or Prospectus in connection with the offering of such
Registrable Shares.
6. Registration Expenses. Whether or not any Registration Statement is filed
or becomes effective, the Company shall pay all costs, fees and expenses
incident to the Company's performance of or compliance with this Agreement,
including (i) all registration and filing fees, including NASD filing fees,
(ii) all fees and expenses of compliance with securities or Blue Sky laws,
including reasonable fees and disbursements of counsel in
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connection therewith, (iii) printing expenses (including expenses of printing
certificates for Registrable Shares and of printing preliminary and final
prospectuses if the printing of prospectuses is requested by the Holders or
the managing underwriter, if any), (iv) messenger, telephone and delivery
expenses, (v) fees and disbursements of counsel for the Company, (vi) fees and
disbursements of all independent certified public accountants of the Company
(including expense of any "cold comfort" letters required in connection with
this Agreement) and all other persons retained by the Company in connection
with this Agreement and the Registration Statement, and (vii) all other costs,
fees and expenses incident to the Company's performance or compliance with
this Agreement. Notwithstanding the foregoing, the fees and expenses of any
persons retained by any Holder, including counsel for such Holders, and any
discounts, commissions or brokers' fees or fees of similar securities industry
professionals and any transfer taxes relating to the disposition of the
Registrable Shares by a Holder, will be payable by such Holder and the Company
will have no obligation to pay any such amounts.
7. Underwriting Requirements.
(a) Subject to Section 7(b) hereof, any Holder giving a Demand Notice
shall have the right, by written notice, to request that any Demand
Registration provide for an underwritten offering.
(b) In the case of any underwritten offering pursuant to a Demand
Registration, the Holders of a majority of the Registrable Shares covered
by the Demand Notice to be disposed of in connection therewith shall select
the institution or institutions that shall manage or lead such offering,
which institution or institutions shall be reasonably satisfactory to the
Company. In the case of any underwritten offering pursuant to a Piggyback
Registration, the Company shall select the institution or institutions that
shall manage or lead such offering.
8. Indemnification.
(a) Indemnification by the Company. The Company shall, without limitation
as to time, indemnify and hold harmless, to the full extent permitted by
law, each Holder of Registrable Shares whose Registrable Shares are covered
by a Registration Statement or Prospectus, the officers, directors and
agents and employees of each of them, each Person who controls each such
Holder (within the meaning of Section 15 of the Securities Act or Section
20 of the Exchange Act) and the officers, directors, agents and employees
of each such controlling person, to the fullest extent lawful, from and
against any and all losses, claims, damages, liabilities, judgment, costs
(including, without limitation, costs of preparation and reasonable
attorneys' fees) and expenses (collectively, "Losses"), as incurred,
arising out of or based upon any untrue or alleged untrue statement of a
material fact contained in such Registration Statement or Prospectus or in
any amendment or supplement thereto or in any preliminary prospectus, or
arising out of or based upon any omission or alleged omission of a material
fact required to be stated therein or necessary to make the statements
therein not misleading, except insofar as the same are based upon
information furnished in writing to the Company by or on behalf of such
Holder expressly for use therein or by any underwriter in a Demand
Registration; provided, however, that the Company shall not be liable to
any such Holder to the extent that any such Losses arise out of or are
based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in any preliminary prospectus if (i) having
previously been furnished by or on behalf of the Company with copies of the
Prospectus, such Holder failed to send or deliver a copy of the Prospectus
with or prior to the delivery of written confirmation of the sale of
Registrable Shares by such Holder to the person asserting the claim from
which such Losses arise and (ii) the Prospectus would have corrected in all
material respects such untrue statement or alleged untrue statement or such
omission or alleged omission; and provided further, however, that the
Company shall not be liable in any such case to the extent that any such
Losses arise out of or are based upon an untrue statement or alleged untrue
statement or omission or alleged omission in the Prospectus, if (x) such
untrue statement or alleged untrue statement, omission or alleged omission
is corrected in all material respects in an amendment or supplement to the
Prospectus and (y) having previously been furnished by or on behalf of the
Company with copies of the Prospectus as so amended or supplemented, such
Holder thereafter fails to deliver such Prospectus as so amended or
supplemented, prior to or currently with the sale of Registrable Shares. In
connection with any Underwritten Offering, the Company will also indemnify
underwriters, selling brokers, dealer managers and
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similar securities industry professionals participating in the
distribution, their officers and directors and each Person who controls
such Persons (within the meaning of Section 15 of the Securities Act) to
the same extent as provided above with respect to Indemnification of
Holders of Registrable Shares, or on such other terms as are reasonable and
customary and requested by the managing underwriter.
(b) Indemnification by Holder of Registrable Shares. In connection with
any Registration Statement in which a Holder is participating, such Holder
shall furnish to the Company in writing such information as the Company
reasonably requests for use in connection with such Registration Statement
or the related Prospectus and agrees to indemnify, to the full extent
permitted by law, the Company, its directors, officers, agents or
employees, each Person who controls the Company (within the meaning of
Section 15 of the Securities Act and Section 20 of the Exchange Act) and
the directors, officers, agents or employees of such controlling Persons,
from and against all Losses arising out of or based upon any untrue or
alleged untrue statement of a material fact contained in such Registration
Statement or the related Prospectus or any amendment or supplement thereto,
or any preliminary prospectus, or arising out of or based upon any omission
or alleged omission of a material fact required to be stated therein or
necessary to make the statements therein not misleading, to the extent, but
only to the extent, that such untrue or alleged untrue statement or
omission or alleged omission is based upon any information so furnished in
writing by or on behalf of such Holder to the Company expressly for use in
such Registration Statement or Prospectus.
(c) If any Person shall be entitled to indemnity hereunder (an
"Indemnified Party"), indemnified party shall give prompt notice to the
party from which such indemnity is sought (the "Indemnifying Party") of any
claim or of the commencement of any proceeding with respect to indemnitee
party seeks indemnification or contribution pursuant hereto; provided,
however, that the delay or failure to so notify the indemnifying party
shall not relieve the indemnifying party from any obligation or liability
except to the extent that the indemnifying party has been prejudiced by
such delay or failure. The indemnifying party shall have the right,
exercisable by giving written notice to an indemnified party promptly after
the receipt of written notice from such indemnified party of such claim or
proceeding, to assume, at the indemnifying party's expense, the defense of
any such claim or proceeding, with counsel reasonably satisfactory to such
indemnified party; provided, however, that (i) an indemnified party shall
have the right to employ separate counsel in any such claim or proceeding
and to participate in the defense thereof, but the fees and expenses of
such counsel shall be at the expense of such indemnified party unless: (1)
the indemnifying party agrees to pay such fees and expenses; (2) the
indemnifying party fails promptly to assume the defense of such claim or
proceeding or fails to employ counsel reasonably satisfactory to such
indemnified party; or (3) the named parties to any proceeding (including
impleaded parties) include both such indemnified party and the indemnifying
party, and such indemnified party shall have been advised by counsel that
there may be one or more legal defenses available to it that are
inconsistent with those available to the indemnifying party or that a
conflict of interest is likely to exist among such indemnified party and
any other indemnified parties (in which case the indemnifying party shall
not have the right to assume the defense of such action on behalf of such
indemnified party); and (ii) subject to clause (3) above, the indemnifying
party shall not, in connection with any one such claim or proceeding or
separate but substantially similar or related claims or proceedings in the
same jurisdiction, arising out of the same general allegations or
circumstances, be liable for the fees and expenses of more than one firm of
attorneys (together with appropriate local counsel) at any time for all of
the indemnified parties, or for fees and expenses that are not reasonable.
Whether or not such defense is assumed by the indemnifying party, such
indemnified party shall not be subject to any liability for any settlement
made without its consent. The indemnifying party shall not consent to entry
of any judgment or enter into any settlement that does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
indemnified party of a release, in form and substance reasonably
satisfactory to the indemnified party, from all liability in respect of
such claim or litigation for which such indemnified party would be entitled
to indemnification hereunder.
(d) Contribution. If the indemnification provided for in this Section 8
is unavailable to an indemnified party in respect of any Losses (other than
in accordance with its terms), then each applicable indemnifying party, in
lieu of indemnifying such indemnified party, shall contribute to the amount
paid or payable by such indemnified party as a result of such Losses, in
such proportion as is appropriate to reflect
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the relative fault of the indemnifying party, on the one hand, and such
indemnified party, on the other hand, in connection with the actions,
statements or omissions that resulted in such Losses as well as any other
relevant equitable considerations. The relative fault of such indemnifying
party, on the one hand, and indemnified party, on the other hand, shall be
determined by reference to, among other things, whether any action in
question, including any untrue statement of a material fact or omission or
alleged omission to state a material fact, has been taken by, or relates to
information supplied by, such indemnifying party or indemnified party, and
the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent any such action, statement or omission.
The amount paid or payable by a party as a result of any Losses shall be
deemed to include any legal or other fees or expenses incurred by such
party in connection with any investigation or proceeding. The parties
hereto agree that it would not be just and equitable if contribution
pursuant to this Section 8(d) were determined by pro rata allocation or by
any other method of allocation that does not take account of the equitable
considerations referred to in the this Section 8(d). Notwithstanding the
provision of this Section 8(d), an indemnifying party that is a Holder
shall not be required to contribute any amount which is in excess of the
amount by which the total proceeds received by such Holder from the sale of
the Registrable Shares sold by such Holder (net of all underwriting
discounts and commissions) exceeds the amount of any damages that such
indemnifying party has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission. 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.
9. Rule 144. If the Company shall have filed a registration statement
pursuant to the requirements of Section 12 of the Exchange Act or a
registration statement pursuant to the requirements of the Securities Act, the
Company covenants that it will timely file the reports required to be filed by
it under the Securities Act or the Exchange Act (including but not limited to
the reports under Sections 13 and 15(d) of the Exchange Act referred to in
subparagraph (c)(1) of Rule 144 adopted by the SEC under the Securities Act)
and the rules and regulations adopted by the SEC thereunder (or if the Company
is not required to file such reports, the Company will, upon the request of
any Holder of Registrable Shares, make publicly available other information),
and will take such further action as any Holder of Registrable Shares may
reasonably request, all to the extent required from time to time to enable
such Holder of Registrable Shares to sell Registrable Shares within the
exemption provided by (i) Rule 144 under the Securities Act, as such Rule may
be amended from time to time, or (ii) any similar rule or regulation hereafter
adopted by the SEC. Upon the request of any Holder of Registrable Shares, the
Company will deliver to such Holder a written statement as to whether it has
complied with such requirements.
10. Miscellaneous.
(a) Termination. This Agreement and the obligations of the Company and
the Holders hereunder (other than Section 8 hereof) shall terminate on the
first date on which no Registrable Shares remain outstanding.
(b) Notices. All notices, requests, demands and other communications
which are required or may be given under this Agreement shall be in writing
and shall be deemed to have been duly given when received if personally
delivered; when transmitted if transmitted by telecopy, electronic or
digital transmission method; the day after it is sent, if sent for next day
delivery to a domestic address by recognized overnight delivery service
(e.g., Federal Express); and upon receipt, if sent by certified or
registered mail, return receipt requested. In each case notice shall be
sent to: [TO COME]
(c) Interpretation. When a reference is made in this Agreement to
Sections, such reference shall be to a Section of this Agreement unless
otherwise indicated. Headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation
of this Agreement. Whenever the word "include", "includes" or "including"
are used in this Agreement, they shall be deemed to be followed by the
words "without limitation". This Agreement shall not be construed for or
against either party by reason of the authorship or alleged authorship of
any provision hereof or by reason of the status of the respective parties.
All terms defined in this Agreement in the singular shall have the same
comparable meanings when used in the plural and vice versa, unless
otherwise specified.
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(d) Entire Agreement; No Third-Party Beneficiaries. This Agreement
constitutes the entire agreement and supersedes all prior agreements and
understandings, both written and oral, among the parties with respect to
the subject matter hereof and is not intended to confer upon any person
other than the parties hereto any rights or remedies hereunder.
(e) Assignment. Neither this Agreement nor any of the rights, interests,
or obligations hereunder shall be assigned (whether by operation of law or
otherwise) by any Holder without the consent of the Company, or by the
Company without the consent of Holders of at least a majority in number of
the Registrable Shares then outstanding provided that any Holder can assign
its rights hereunder to a Permitted Transferee or Permitted Assignee of $15
million or more in value of Common Stock without the consent of the
Company. Subject to the preceding sentence, this Agreement will be binding
upon, inure to the benefit of and be enforceable by the parties and their
respective successors and assigns. In no event shall any transferee of
Common Stock be entitled, solely as a result of such transfer, to any of
the benefits of this Agreement or to enforce the same.
(f) Governing Law. This Agreement shall be construed, interpreted and the
rights of the parties determined in accordance with the laws of the State
of Delaware (without reference to the choice of law provisions), except
with respect to matters of law concerning the internal corporate affairs of
any corporate entity which is a party to or the subject of this Agreement,
and as to those matters the law of the jurisdiction under which the
respective entity derives its powers shall govern.
(g) Severability. Each party agrees that, should any court or other
competent authority hold any provision of this Agreement or part hereof to
be null, void or unenforceable, or order any party to take any action
inconsistent herewith or not to take an action consistent herewith or
required hereby, the validity, legality and enforceability of the remaining
provisions and obligations contained or set forth herein shall not in any
way be affected or impaired thereby. Upon any such holding that any
provision of this Agreement is null, void or unenforceable, the parties
will negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible in an acceptable
manner to the end that the transactions contemplated by this Agreement are
consummated to the extent possible. Except as otherwise contemplated by
this Agreement, to the extent that a party hereto took an action
inconsistent herewith or failed to take action consistent herewith or
required hereby pursuant to an order or judgment of a court or other
competent authority, such party shall incur no liability or obligation
unless such party did not in good faith seek to resist or object to the
imposition or entering of such order or judgment.
(h) Injunctive Relief. The parties acknowledge that it will be impossible
to measure in money the damages that would be suffered if the parties fail
to comply with any of the obligations herein imposed on them and that in
the event of any such failure, an aggrieved person or entity will be
irreparably damaged and will not have an adequate remedy at law. Any such
person or entity shall, therefore, be entitled to injunctive relief,
including specific performance, to enforce such obligations, and if any
action should be brought in equity to enforce any of the provisions of this
Agreement, none of the parties shall raise the defense that there is an
adequate remedy at law.
(i) Attorneys' Fees. If any party to this Agreement brings an action to
enforce its rights under this Agreement, the prevailing party shall be
entitled to recover its costs and expenses, including without limitation
reasonable attorneys' fees, incurred in connection with such action,
including any appeal of such action.
(j) Cumulative Remedies. All rights and remedies of any party hereto are
cumulative of each other and of every other right or remedy such party may
otherwise have at law or in equity, and the exercise of one or more rights
or remedies shall not prejudice or impair the concurrent or subsequent
exercise of other rights or remedies.
(k) Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same instrument
and shall become effective when executed and delivered by each of the
parties.
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(l) Amendments and Waivers. Except as otherwise provided herein, the
provisions of this Agreement may not be amended, modified or supplemented,
and waivers or consents to departures from the provisions hereof may not be
given, unless the Company has obtained the written consent of Holders of at
least a majority in number of the Registrable Shares then outstanding, or
the Holders have obtained the written consent of the Company.
(m) Other Agreements. Without the approval of Holders owning at least
two-thirds in interest of each of the Hughes Communications, Inc. Holders,
the Class A Holders, and the Class B Holders of the Registrable Shares, the
Company shall not enter into any registration rights agreement ranking pari
passu or senior to this Agreement.
IN WITNESS WHEREOF, the parties have executed this Amended and Restated
Registration Rights Agreement as of the date first above written.
Magellan International, Inc.
By: _________________________________
Name:
Title:
STOCKHOLDERS
Hughes Communications, Inc.
By: _________________________________
Name:
Title:
Satellite Company, L.L.C.
By: _________________________________
Name:
Title:
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<PAGE>
CLASS A STOCKHOLDERS
__________________________________________
Name: MARY ANSELMO, individually and as a
trustee of the Article VII Trust
created by the RENE ANSELMO
REVOCABLE TRUST DATED JUNE 10, 1994
and as a successor trustee under the
Voting Trust Agreement dated as of
February 28, 1995 and as co-trustee
of the RAYCE ANSELMO TRUST DATED
DECEMBER 23, 1991
__________________________________________
Name: FREDERICK A. LANDMAN, individually
and as a trustee of the Article VII
Trust created by the RENE ANSELMO
REVOCABLE TRUST DATED JUNE 10, 1994
and as a successor trustee under the
Voting Trust Agreement dated as of
February 28, 1995
__________________________________________
Name: LOURDES SARALEGUI, individually and
as a trustee of the Article VII
Trust created by the RENE ANSELMO
REVOCABLE TRUST DATED JUNE 10, 1994
and as a successor trustee under the
Voting Trust Agreement dated as of
February 28, 1995
__________________________________________
Name: PIER LANDMAN, individually and as
the sole trustee of the CHLOE
LANDMAN TRUST DATED JUNE 10, 1988
and the sole trustee of the RISSA
LANDMAN TRUST DATED JUNE 10, 1988
__________________________________________
Name: PATRICK J. COSTELLO, as trustee of
the FREDERICK A. LANDMAN IRREVOCABLE
TRUST DATED DECEMBER 22, 1995 and as
a successor trust of the RAYCE
ANSELMO TRUST DATED DECEMBER 23,
1991
__________________________________________
Name: REVERGE ANSELMO, individually and
as a trustee of the Article VII
Trust created by the RENE ANSELMO
REVOCABLE TRUST DATED JUNE 10, 1994
and as a successor trustee under the
Voting Trust Agreement dated as of
February 28, 1995
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APPENDIX O
INCOME TAX INDEMNIFICATION AND ALLOCATION AGREEMENT
This AGREEMENT (this "Agreement"), dated as of , 199 , is entered into
by and between HUGHES ELECTRONICS CORPORATION, a Delaware corporation ("HE"),
and MAGELLAN INTERNATIONAL, INC., a Delaware corporation ("Newco").
RECITALS
A. HE, HCI, Galaxy, HCSS, HCS, HCCS, HCJ, PAS and Newco are parties to an
Agreement and Plan of Reorganization dated as of September 20, 1996 (the
"Reorganization Agreement"), pursuant to which (i) each of Galaxy and HCSS
will transfer certain of their assets, liabilities, business and operations to
Newco, (ii) HCI will transfer all of the stock of each of HCS, HCCS and HCJ to
Newco, and (iii) the common and Class A stockholders of PAS and S Company will
transfer, directly and indirectly, all of their stock in PAS to Newco.
B. The foregoing transfers pursuant to the Reorganization Agreement are
intended to comprise an integrated transaction subject to Section 351 of the
Internal Revenue Code of 1986, as amended (the "Code").
C. General Motors Corporation ("GM") is the common parent of an affiliated
group of corporations within the meaning of Section 1504(a) of the Code (the
"GM Group"), which, upon consummation of the Reorganization, will include HE,
HCI, Galaxy and HCSS.
D. Upon consummation of the Reorganization Agreement, Newco will be the
common parent of a separate affiliated group of corporations within the
meaning of Section 1504(a) of the Code (the "Newco Group"), which will include
HCS, HCCS, HCJ, Univisa, Univisa Satellite Holdings, Inc., PAS and the
subsidiaries of PAS.
E. HE has agreed to indemnify and hold harmless the Newco Group against all
federal, state and local income tax liabilities of Galaxy, HCSS, HCS, HCCS and
HCJ for taxable years and other periods ending on or before, or including, the
Closing Date, on the terms provided herein.
F. After the Closing Date, the parties will not treat the operations of HE
and its subsidiaries as being unitary, for state and local income tax
reporting purposes, with those of Newco and its subsidiaries, except as
determined by HE, in its reasonable judgment, based on applicable state or
local law, or as required by a state or local tax authority.
AGREEMENT
In consideration of the foregoing and the mutual promises contained herein
and for other good and valuable consideration, the receipt and adequacy of
which are hereby acknowledged, HE and Newco, intending to be legally bound,
agree as follows:
ARTICLE 1
DEFINITIONS
1.01 For purposes of this Agreement, the following terms shall have the
meanings ascribed to them below:
"Accounting Firm"--Deloitte & Touche, LLP.
"Affected Newco Group Member(s)"--with respect to an Overlap Group, the
member or members of the Newco Group included therein.
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"Closing Date"--the date on which the Reorganization Agreement is
consummated.
"Disaffiliation Year"--as to any member of the Newco Group, a taxable year
or other period in which such member is not included in an Overlap Group after
having been so included.
"Dispute Notice"--as defined in Section 2.2(f) hereof.
"Galaxy"--Hughes Communications Galaxy, Inc.
"GM Group"--as defined in the introductory paragraphs hereof.
"HCCS"--Hughes Communications Carrier Services, Inc.
"HCI"--Hughes Communications, Inc.
"HCJ"--Hughes Communications Japan, Inc.
"HCS"--Hughes Communications Services, Inc.
"HCSS"--Hughes Communications Satellite Services, Inc.
"HE Federal Adjustment"--any adjustment to federal Income Tax liability,
whether initiated by the Internal Revenue Service or by taxpayer, through a
claim for refund or otherwise, to any item of income, gain, loss, expense,
deduction or credit of Galaxy, HCSS, HCS, HCCS or HCJ included in a
consolidated federal income tax return of the GM Group for any taxable year
ending on or before the Closing Date, which adjustment has become final,
whether by judicial decision, settlement, closing agreement or otherwise.
"HE State Adjustment"--any adjustment to state Income Tax liability by a
state or local tax authority or by taxpayer, through a claim for refund or
otherwise, to any item of income, gain, loss, expense, deduction or credit of
Galaxy, HCSS, HCS, HCCS or HCJ included in a consolidated or combined state or
local income tax return of the GM Group or any component thereof, or in a
separate state or local income tax return, for any taxable year or period
ending on or before, or including, the Closing Date, which adjustment has
become final, whether by judicial decision, settlement, closing agreement or
otherwise.
"HE Subsidiaries"--as defined in Section 4.01.
"Income Taxes"--for purposes of this agreement, taxes imposed by any
federal, state, local or other taxing authority of or in the United States
which are on, based upon, measured by, or with respect to (A) net or gross
income of the taxpayer or (B) multiple bases (including, but not limited to,
corporate franchise, doing business or occupation Taxes) if one or more of the
bases upon which such Tax may be based upon, measured by, or calculated with
respect to, is described in clause (A) above.
"Newco Group"--as defined in the introductory paragraphs hereof.
"Newco Overlap Tax or Refund"--with respect to a taxable year (or other
period) of an Overlap Group, the hypothetical consolidated, combined or
separate state or local income tax liability or rights to refunds for such
taxable year or other period of the Affected Newco Group Members, calculated
as if such Affected Newco Group Members were a separate group of corporations
filing a consolidated or combined return (or, in the case of a single member,
a separate return) in accordance with applicable state or local law for all
taxable periods. The Newco Overlap Tax shall be determined annually, with
respect to each Overlap Group, in accordance with the following principles:
(1) loss and credit carryovers of the Affected Newco Group Members for
taxable years ending after the Closing Date, shall be taken into account,
to the extent permitted by applicable state or local law (on the
hypothetical basis referred to in the first sentence of this paragraph),
whether or not such carryovers
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were taken into account in computing the Overlap Group Tax Liability for a
preceding taxable year; provided, however, that to the extent that such
carryovers were taken into account in computing the Overlap Group Tax
Liability for a preceding taxable year, this provision shall be applied as
if there were no applicable limitation on the number of years to which the
applicable losses or credits may be carried;
(2) for purposes of clause (1), the first taxable year ending after the
Closing Date shall be deemed to have commenced on the day after the Closing
Date, based, to the extent practicable, on an interim closing of the books
of the GM Group members included in the Overlap Group, in accordance with
the principles of Treasury Regulation Section 1.1502-76, as if separate
returns had been filed for the HE Subsidiaries for such Pre-Closing Tax
Period and all prior taxable periods;
(3) items of income, gain, loss, expense, deduction and credit of the
Affected Newco Group Members shall be determined based on the elections and
methods of computation specified by HE and used in the Overlap Group's
consolidated or combined state or local income tax return for the taxable
year.
"Overlap Group"--as defined in the definition of "Parent."
"Overlap Group Tax Liability"--with respect to an Overlap Group, the
consolidated or combined state or local income tax liability of such Overlap
Group, as determined under applicable state or local law, for any taxable year
for which such Overlap Group files or is required to file a consolidated or
combined state or local income tax return.
"Parent"--GM or such other corporation which shall be the parent of, or
which shall be responsible for filing a consolidated or combined state or
local income tax return for, a group of corporations that includes at least
one member of the GM Group and at least one member of the Newco Group
("Overlap Group"). It is understood that both the identity of the Parent of an
Overlap Group and the membership of an Overlap Group may differ from one
jurisdiction to another.
"Separate Federal Income Tax Liability"--for any taxable year or other
period, the federal income tax liability of the Newco Group, calculated on a
consolidated basis.
"Separate State or Local Tax Liability"--for any taxable year or other
period and for each applicable state or local jurisdiction, the state or local
income tax liability of the Newco Group or any member or members thereof,
calculated on a separate, consolidated or combined basis, as applicable.
"Surviving NOL"--as defined in Section 3.06(c) hereof.
"Tax Changes"--as defined in Section 2.02(b) hereof.
"With (Without) Calculation"--as defined in Section 2.02(c) hereof.
ARTICLE 2
INDEMNITY
2.01 By HE. (a) Subject to Section 2.02 hereof, HE shall be responsible for
and shall indemnify and hold harmless the Newco Group against, and shall be
entitled to any refund of, Income Taxes (including interest, penalties and
other additions) of each of Newco, Galaxy, HCSS, HCS, HCCS and HCJ for all
taxable years or other periods ending on or before, or including (for the
portion of the taxable year ending at the close of business on), the Closing
Date, including, without limitation, Income Taxes of the HE Subsidiaries
relating to or arising out of the transfers by them pursuant to the
Reorganization Agreement. HE shall also indemnify and hold harmless the Newco
Group for all taxable years (or other periods) against any liability (as a
result of Treasury Regulation Section 1.1502-6(a) or otherwise) for Income
Taxes imposed with respect to HE or any other person (other than the HE
Subsidiaries) which is or has ever been affiliated with HE or the HE
Subsidiaries, or with
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whom HE or the HE Subsidiaries otherwise joins or has ever joined (or is or
has ever been required to join) in filing any consolidated, combined or
unitary tax return, prior to the Closing).
(b) Transfer taxes (such as license fees, registration fees, stamp duties,
documentation fees, sales taxes, property taxes and other similar taxes or
charges, together with any penalties, fines or interest thereon or other
additions thereto, but not including Income Taxes) applicable to the transfers
by HCI and the HE Subsidiaries pursuant to the Reorganization Agreement shall
be for the account of HE. HE shall indemnify and hold harmless Newco and the
other members of the Newco Group from and against all liability for such
transfer taxes.
2.02 Tax Benefits and Detriments
(a) If an HE Federal Adjustment or an HE State Adjustment results in a tax
benefit or detriment (as described below) to the Newco Group or any member
thereof, Newco will pay the amount of such tax benefit to HE, or HE will pay
the amount of such tax detriment to Newco, as such tax benefit or detriment is
realized, as hereinafter provided.
(b) HE will notify Newco promptly of any HE Federal Adjustment and any HE
State Adjustment that may result in a tax benefit or detriment to the Newco
Group or any member thereof. Each such notification (a "Change Notice") shall
be in writing and shall explain with reasonable specificity the change or
changes ("Tax Changes") to: (i) the federal income tax attributes of the
affected member or members of the Newco Group to be reflected in the
consolidated federal income tax returns, including amended returns with
respect to prior years, to be filed by the Newco Group; and (ii) the state and
local income tax attributes of the affected member or members of the Newco
Group to be reflected in the consolidated, combined or separate state and
local income tax returns, including amended returns with respect to prior
years, to be filed by the Newco Group or any member or members thereof.
(c) With respect to each taxable year ending after the Closing Date, Newco
will calculate the Separate Federal Income Tax Liability of the Newco Group,
first, by taking into account, to the extent permitted by applicable law, all
Tax Changes, as described in all current and prior year Change Notices (the
"With Calculation"); and, second, by disregarding all such Tax Changes (the
"Without Calculation"). If the Newco Group's Separate Federal Income Tax
Liability under the With Calculation exceeds its Separate Federal Income Tax
Liability under the Without Calculation, HE shall pay the amount of such
excess to Newco. If the Newco Group's Separate Federal Income Tax Liability
under the Without Calculation exceeds its Separate Federal Income Tax
Liability under the With Calculation, Newco shall pay the amount of such
excess to HE.
(d) With respect to each taxable year ending after the Closing Date, Newco
will calculate, for each applicable state and local jurisdiction, the Separate
State or Local Tax Liability of the Newco Group or the members thereof, on a
consolidated, combined or separate basis, as applicable, first, by taking into
account, to the extent permitted by applicable law, all Tax Changes, as
described in all current and prior year Change Notices (the "With
Calculation"); and, second, by disregarding all such Tax Changes (the "Without
Calculation"). If the Newco Group's Separate State or Local Tax Liability
under the With Calculation exceeds its Separate State or Local Tax Liability
under the Without Calculation, HE shall pay the amount of such excess to
Newco. If the Newco Group's Separate State or Local Tax Liability under the
Without Calculation exceeds its Separate State or Local Tax Liability under
the With Calculation, Newco shall pay the amount of such excess to HE.
(e) All calculations and payments required pursuant to this Section 2.02
with respect to a taxable year shall be made by the due date (including
extensions) of Newco's consolidated federal income tax return for such year.
Newco shall, at least 60 days before such due date, deliver to HE, for its
review, work papers setting forth with reasonable specificity the With and
Without Calculations and the Tax Changes taken into account for purposes of
such Calculations.
(f) If HE wishes to dispute any With and Without Calculations, it shall
deliver to Newco, within 30 days after receipt of Newco's work papers, a
notice ("Dispute Notice") specifying in recordable detail those items as to
which HE disagrees, the reasons for disagreement and its proposed adjustments
to the With and Without
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Calculations. If a Dispute Notice is delivered, HE and Newco shall use their
reasonable best efforts to reach agreement on the disputed items or amounts.
If HE and Newco cannot reach agreement within 10 days of the delivery of a
Dispute Notice, the disputed items will be submitted to the Accounting Firm
for determination, as provided herein. The Accounting Firm shall deliver to HE
and Newco, as promptly as practicable, a written report setting forth its
determination of the disputed items, which determination shall be final,
conclusive and binding on the parties and shall not be subject to appeal to
any court or tribunal. HE and Newco shall each bear its own expenses in
connection with the preparation of work papers, the issuance of Dispute
Notices and the submission of disputes to the Accounting Firm, except that the
fees and expenses of the Accounting Firm shall be shared equally by HE and
Newco.
ARTICLE 3
STATE AND LOCAL INCOME TAXES OF OVERLAP GROUPS
3.01 Applications. This Article 3 shall be applicable only to the extent
that HE determines, in its reasonable judgment, based on applicable state or
local law, or a state or local tax authority requires, that state or local
income tax returns should be filed with respect to an Overlap Group. The sole
obligations and rights to refunds of the Newco Group in respect of state and
local Income Taxes of an Overlap Group is as provided in this Article 3.
3.02 Estimated Tax Payments. Not less than fifteen (15) business days prior
to the date on which Parent is required to make payments of estimated tax on
behalf of an Overlap Group (including payments of tax due with a request for
an extension to file), Newco shall submit to HE a calculation of the separate
estimated tax liability of the Affected Newco Group Members, determined based
on the Newco Overlap Tax (with respect to such Overlap Group) for the taxable
year in question. Newco shall pay the amount so calculated to HE not later
than the due date of Parent's estimated tax payment. Newco shall also remit to
HE the amount of any interest, penalties or other additions to tax which would
have been due on such estimated payment, if Newco had made such payment
directly to the applicable tax authority.
3.03 Payment of Separate Group Tax Liability. For each taxable year (or
other period) of an Overlap Group, Newco, on behalf of the Affected Newco
Group Members, shall prepare and deliver to HE, within four months after the
end of the taxable year, a calculation of the Newco Overlap Tax (with respect
to such Overlap Group) for such taxable year (or other period). Not later than
the filing due date (including extensions) for the Overlap Group for such
taxable year, (a) Newco shall pay to HE the excess, if any, of the Newco
Overlap Tax for such taxable year (or applicable portion thereof) over the
estimated tax payments previously made by Newco to HE in respect thereof,
together with any interest, penalties or other additions to tax which would
have been due if Newco had made such payment directly to the applicable tax
authority, or (b) HE shall pay to Newco an amount equal to the excess, if any,
of such estimated tax payments previously made by Newco over such Newco
Overlap Tax, or (c) HE shall pay to Newco the amount of the Newco Overlap
Refund for such taxable year (or component thereof), if any, together with any
interest thereon which would have been receivable if Newco had received such
refund directly from the applicable taxing authority plus the amount of any
estimated tax payments previously made by Newco for such taxable year (or
portion thereof).
3.04 Subsequent Adjustments. If the Overlap Group Tax Liability of an
Overlap Group (or any item entering into the computation thereof) is adjusted
by a state or local tax authority, then, as such adjustments become final, by
judicial decision, settlement, closing agreement or otherwise, the Newco
Overlap Tax (with respect to such Overlap Group) shall be recomputed to the
extent necessary to reflect such adjustments, and Newco shall pay to HE any
increase, or HE shall pay to Newco any decrease, in the Newco Overlap Tax. Any
such payment shall be due not later than (i) five business days before the due
date for any additional payment of tax by the Parent, (ii) five business days
after the receipt of a refund by any member of the Overlap Group or (iii) five
business days after the adjustment in question becomes final, if such
adjustment does not result in a payment of additional tax or receipt of a
refund. Newco shall also pay to HE any interest, penalties or additions
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to tax which would have been due, if Newco had made such payment directly to
the applicable tax authority. The parties recognize that the Overlap Group Tax
Liability of an Overlap Group and the Newco Overlap Tax may be recomputed
under this Section 3.04 or Section 3.05 hereof more than once.
3.05 Other Recomputations. If an adjustment to the Overlap Group Tax
Liability of an Overlap Group, or to the related Newco Overlap Tax, is not
provided for in Section 3.04 hereof (such as a recomputation of amounts due
hereunder to reflect a carryback item or an erroneous calculation), then
either HE or Newco, as the case may be, shall make a payment to the other in
such amount and at such time as shall be determined in accordance with the
principles of Section 3.04 hereof.
3.06 Termination of Overlap Group. If an Overlap Group is terminated:
(a) HE and Newco shall consult with and provide each other with such
information as may relate to the prior inclusion of members of either Group
in the Overlap Group.
(b) Unless otherwise consented to by the Parent, neither the Newco Group
nor any member thereof shall elect to carry back to a taxable year of an
Overlap Group any losses or other tax attributes incurred in a
Disaffiliation Year, unless otherwise required by law.
(c) If net operating loss carryovers generated by an Affected Newco Group
Member while included in an Overlap Group have not been used, prior to the
first Disaffiliation Year, in calculating the related Newco Overlap Tax and
have not expired, but rather have been used by the GM Group in a
Disaffiliation Year or have otherwise been retained by the GM Group (the
"Surviving NOL"), HE shall pay to Newco the amount, if any, by which, for a
Disaffiliation Year, the state or local income tax liability of such
Affected Newco Group Members would be reduced if the Surviving NOL (net of
any portion hereof taken into account under this Section 3.06(c) in a prior
Disaffiliation Year), were an available net operating loss carryforward to
such Disaffiliation Year (subject to the expiration thereof or to any
limitation on the use thereof under applicable state or local law). HE
shall pay such amount to Newco not later than the date on which Newco is
required to satisfy such state or local income tax liability for such
Disaffiliation Year.
3.07 Disputes. If HE or Newco disputes any calculation of any tax liability
or required payment under this Article 3, such dispute shall be finally
resolved by the Accounting Firm using the dispute resolution procedures set
forth in Article 2 hereof.
ARTICLE 4
MISCELLANEOUS PROVISIONS
4.01 Preparation and Filing of Tax Returns. HE shall prepare and timely file
or shall cause to be prepared and timely filed all Federal, state and local
Income Tax returns in respect of Galaxy, HCSS, HCS, HCCS and HCJ (the "HE
Subsidiaries"), their assets or activities that (i) are required to be filed
on or before the Closing Date or (ii) are required to be filed after the
Closing Date and (A) are includable in the Income Tax returns of the GM Group
or (B) are with respect to Income Taxes and are required to be filed on a
separate tax return basis for any taxable year (or period thereof) ending on
or before the Closing Date. Newco shall prepare or cause to be prepared and
shall file or cause to be filed all other tax returns required of HCS, HCCS
and HCJ, or in respect of their assets or activities (or the assets and
activities of Galaxy and HCSS transferred to Newco). Any such tax returns
filed after the date of this Agreement shall be prepared on a basis consistent
with the last previous such tax returns filed in respect of the HE
Subsidiaries, unless HE or Newco, as the case may be, concludes that there is
no reasonable basis for such position.
4.02 Tax Sharing Agreements. From and after the Closing Date, neither the
Newco Group nor any member thereof shall be a party to or have any liability
under any tax sharing agreement or arrangement, other than this Agreement,
with any member of the GM Group.
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4.03 Carryforwards and Carrybacks. Newco shall cause HCS, HCCS and HCJ to
elect, where permitted by law, to carry forward any net operating loss,
charitable contribution or other item arising after the Closing Date that
could, in the absence of such an election, be carried back to a taxable period
of the GM Group ending on or before the Closing Date in which HCS, HCCS and
HCJ were included in a consolidated tax return of the GM Group. Newco, on its
own behalf and on behalf of its affiliates, hereby waives any right to use or
apply any net operating loss, charitable contribution or other item (other
than any net capital loss, foreign tax credit or research and development
credit which are not permitted by law to be carried forward) of HCS, HCCS and
HCJ for any tax year ending on any date following the Closing Date to any
period of HCS, HCCS, and HCJ ending on or before the Closing Date and reserves
the right to use or apply any such net capital loss, foreign tax credit or
research and development credit of HCS, HCCS, and HCJ for any tax year ending
on any date following the Closing Date to any period of HCS, HCCS or HCJ
ending on or before the Closing Date, provided, however, that if any such net
capital loss, foreign tax credit or research and development credit shall be
carried back to any such period, Newco shall indemnify HE and its affiliates
(other than HCS, HCCS and HCJ) for all reasonable costs and expenses incurred
by HE or any of such affiliates in filing such claims or in connection with
any audit of such claims.
4.04 Refunds. HE shall be entitled to retain, or receive immediate payment
from Newco or any of its subsidiaries or affiliates (including HCS, HCCS and
HCJ) of, any refund or credit with respect to Income Taxes (including, without
limitation, refunds and credits arising by reason of amended tax returns filed
after the Closing Date or otherwise) with respect to any tax period ending on
or before the Closing Date relating to the HE Subsidiaries; provided, however,
that (i) Newco, HCS, HCCS and HCJ shall be entitled to retain, or receive
immediate payment from HE of, any such refund or credit to the extent that
such refund or credit arises as a result of the use or application (as
provided in Section 4.03) of any net capital loss, foreign tax credit or
research and development credit of HCS, HCCS or HCJ for any tax year ending on
any date following the Closing Date to any period of HCS, HCCS or HCJ ending
on or before the Closing Date and (ii) to the extent that HE or any of its
affiliates (other than HCS, HCCS and HCJ) would, but for the carryback by HCS,
HCCS or HCJ of any such net capital loss, foreign tax credit or research and
development credit, be entitled to a refund or credit in respect of any net
capital loss, foreign tax credit or research and development credit of HE or
any of HE's affiliates (other than HCS, HCCS and HCJ), HE shall be entitled to
receive immediate payment from Newco of the amount of any such amount to the
extent Newco has previously received a refund or credit from a carryback to
HE's return. Newco and HCS, HCCS and HCJ shall be entitled to retain, or
receive immediate payment from HE of, any refund or credit with respect to
Income Taxes with respect to any taxable period beginning after the Closing
Date relating to HCS, HCCS and HCJ.
4.05 Method of Payment. Unless the parties otherwise agree, all payments by
a party pursuant to this Agreement shall be made by wire transfer to a bank
account designated from time to time by the other party. The paying party
shall also provide a notice of payment to the recipient.
4.06 Interest. If any payment hereunder is not timely paid, interest shall
accrue on the unpaid amount at the applicable federal, state or local rate, as
the case may be, for deficiencies. A payment will be deemed to be timely paid
only if actually received by the payee on or before the due date thereof.
4.07 Cooperation; Document Retention; Confidentiality.
(a) Upon the reasonable request, HE and Newco shall promptly provide (and
shall cause their respective subsidiaries to provide) the requesting party
with such cooperation and assistance, documents and other information, without
charge, as may be necessary or reasonably helpful in connection with (i) the
preparation and filing of any original or amended tax return, (ii) the conduct
of any audit or other examination or any judicial or administrative proceeding
involving to any extent taxes or tax returns within the scope of this
Agreement, or (iii) the verification by a party of an amount payable hereunder
to, or receivable hereunder from, another party. Such cooperation and
assistance shall include, without limitation: the provision on demand of
books, records, documentation or other information relating to any relevant
tax return; the execution of any document that may be necessary or reasonably
helpful in connection with the filing of any tax return by GM, Newco or any
member
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of the GM Group or Newco Group, or in connection with any audit, proceeding,
suit or action of the type generally referred to in the preceding sentence,
including, without limitation, the execution of powers of attorney and
extensions of applicable statutes of limitations; the prompt and timely filing
of appropriate claims for refund; and the use of reasonable best efforts to
obtain any documentation from a governmental authority or a third party that
may be necessary or helpful in connection with the foregoing. Each party shall
make its employees and facilities available on a mutually convenient basis to
facilitate such cooperation.
(b) HE and Newco shall retain or cause to be retained all tax returns, and
all books, records, schedules, workpapers and other documents relating
thereto, until the expiration of all applicable statutes of limitations
(including any waivers or extensions thereof). The parties hereto shall notify
each other in writing of any waivers, extensions or expirations of applicable
statutes of limitations, and shall provide at least thirty (30) days prior
written notice of any intended destruction of the documents referred to in the
preceding sentence. A party giving such a notification shall not dispose of
any of the foregoing materials without first obtaining the written approval
(which may not be unreasonably withheld) of the notified party.
(c) Except as required by law or with the prior written consent of the other
party, all tax returns, documents, schedules, workpapers and similar items
made available under this Section 4.03 or otherwise pursuant to this
Agreement, and all information contained in any of the foregoing shall be kept
confidential by the parties hereto and their representatives, shall not be
disclosed to any other person or entity and shall be used only for the
purposes provided herein.
4.08 Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of the respective successors and assigns of the parties hereto,
but no assignment (other than an assignment by HE of its rights and
obligations hereunder to another member of the GM Group to which HE shall have
assigned all of its right, title and interest in and to the Newco capital
stock then owned by HE or a subsidiary thereof) shall relieve any party's
obligations hereunder without the written consent of the other party.
4.09 Interpretation. Whenever reference in this Agreement is made to a
Section, such reference shall be to a Section hereof unless otherwise
indicated. The headings contained herein are for purposes of reference only
and shall not in any way affect the meaning and interpretation of this
Agreement. Whenever the words "include," "includes" or "including" are used
herein, they shall be deemed to be followed by the words "without limitation."
This Agreement shall not be construed for or against any party by reason of
the authorship or alleged authorship of any provision hereof or by reason of
the status of the respective parties.
4.10 Entire Understanding. This Agreement sets forth the entire
understanding of the parties hereto with respect to the subject matter hereof.
This Agreement may not be amended without the written consent of each of the
parties hereto.
4.11 Conflict of Law. The validity, interpretation and performance of this
Agreement shall be controlled by and construed under the laws of the State of
Delaware (without reference to the choice of law provisions).
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4.12 Notices. All notices, requests, demands, statements, bills and other
communications under this Agreement shall be in writing and shall be deemed to
have been duly given when received, if personally delivered; when transmitted,
if transmitted by telecopy; the day after it is sent, if sent for next day
delivery to a domestic address by a recognized overnight delivery service; and
upon receipt, if sent by certified or registered mail, return receipt
requested. In each case, notice shall be sent:
(a) To Hughes:
Director, Taxes
Hughes Electronics Corporation
7200 Hughes Terrace
P.O. Box 45066
Los Angeles, California 90045-0066
Telecopy: (310) 568-7096
(b) To Newco:
Robert Hall
Hughes Electronics Corporation
7200 Hughes Terrace
Los Angeles, California 90045-0066
Telecopy: (310) 568-7834
and
Kenneth N. Heintz
Hughes Electronics Corporation
7200 Hughes Terrace
Los Angeles, California 90045-0066
Telecopy: (310) 568-6774
4.13 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
4.14 Disputes. To the extent not otherwise provided herein, any dispute
between the parties shall be finally resolved by the Accounting Firm using the
dispute resolution procedures set forth in Article 2 hereof.
4.15 Effective Date. This Agreement shall be effective as of the Closing
Date.
IN WITNESS WHEREOF, the parties have executed this Income Tax
Indemnification and Allocation Agreement as of the day and year first above
written.
Hughes Electronics Corporation
By: _________________________________
Name:
Title:
Magellan International, Inc.
By: _________________________________
Name:
Title:
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