-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TSY8cyypnCgrKk0l8TYD4b9N4iRVzUMH1E/hfmvGW6hA5kz0Co4MbOjQ/puBD8Pl o1+i8gQFq+aWlDrZgC2ONw== 0000950130-99-001819.txt : 19990402 0000950130-99-001819.hdr.sgml : 19990402 ACCESSION NUMBER: 0000950130-99-001819 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 13 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990331 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PANAMSAT CORP /NEW/ CENTRAL INDEX KEY: 0001037388 STANDARD INDUSTRIAL CLASSIFICATION: COMMUNICATION SERVICES, NEC [4899] IRS NUMBER: 954607698 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-22531 FILM NUMBER: 99579535 BUSINESS ADDRESS: STREET 1: ONE PICKWICK PLAZA CITY: GREENWICH STATE: CT ZIP: 06830 BUSINESS PHONE: 2036226664 MAIL ADDRESS: STREET 1: ONE PICKWICK PLAZA STREET 2: C/O PAN AM SAT CITY: GREENWICH STATE: CT ZIP: 06830 FORMER COMPANY: FORMER CONFORMED NAME: MAGELLAN INTERNATIONAL INC DATE OF NAME CHANGE: 19970408 10-K 1 FORM 10K - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------- FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998 COMMISSION FILE NO. 0-22531 ---------------- PANAMSAT CORPORATION (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) ---------------- DELAWARE 95-4607698 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.) INCORPORATION OR ORGANIZATION) ONE PICKWICK PLAZA, GREENWICH, CONNECTICUT 06830 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) ---------------- REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (203) 622-6664 SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: Common Stock, par value $.01 per share ---------------- Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.[_] As of March 25, 1999, the registrant had outstanding 149,244,362 shares of Common Stock. As of such date, the aggregate market value of voting stock held by non-affiliates of the registrant was approximately $613,190,264. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- DOCUMENTS INCORPORATED BY REFERENCE Certain information contained in the Proxy Statement for the Annual Meeting of Stockholders of PanAmSat Corporation, a Delaware corporation ("PanAmSat" or the "Company") scheduled to be held on May 5, 1999 (to be filed not later than 120 days after the end of the Company's fiscal year) is incorporated by reference into Part III hereof. CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 This Annual Report on Form 10-K contains certain forward-looking information under the captions "Item 1. Business" and "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations." The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for certain forward-looking statements so long as such information is identified as forward-looking and is accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those projected in the information. When used in this Annual Report on Form 10-K, the words "estimate," "project," "plan," "anticipate," "expect," "intend," "outlook," "believe," and other similar expressions are intended to identify forward-looking statements and information. Actual results may differ materially from anticipated results due to certain risks and uncertainties, including without limitation: (i) risks associated with technology (including without limitation delayed launches, launch failures and in-orbit failures), (ii) regulatory risks, (iii) risks associated with the year 2000 issue, and (iv) litigation. Such factors are more fully described under the caption "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations." PanAmSat cautions that the foregoing list of important factors is not exclusive. Further, PanAmSat operates in an industry sector where securities values may be volatile and may be influenced by economic and other factors beyond the Company's control. ITEM 1. BUSINESS OVERVIEW PanAmSat is the world's largest commercial provider of global satellite- based communications services. The Company commenced operations on May 16, 1997 upon the Merger (as defined below). Unless the context otherwise requires, the terms "Company" and "PanAmSat" are used to refer collectively to the parent company and the subsidiaries through which its various businesses are actually conducted, including PanAmSat International Systems, Inc., a Delaware corporation ("PanAmSat International"). The Company is a leading provider of satellite capacity for television program distribution to network, cable and other redistribution sources in the United States, Latin America, Africa, South Asia and the Asia-Pacific region. PanAmSat's global network of 19 satellites provides state-of-the-art video distribution and telecommunications services for customers worldwide. Currently, an aggregate of more than 125 million households worldwide are capable of receiving television programming carried by PanAmSat satellites. PanAmSat satellites also serve as the transmission platforms for six planned or operational direct-to-home ("DTH") services worldwide. The Company also provides satellite services and related technical support for live transmissions for news and special events coverage. In addition, PanAmSat provides satellite services to telecommunications carriers, corporations and Internet service providers ("ISPs") for the provision of satellite-based communications networks, including private corporate networks employing very small aperture terminals ("VSATs") and international access to the U.S. Internet backbone. Currently, more than 125,000 VSATs worldwide relay communications over PanAmSat satellites, and nearly 50 ISPs in non-U.S. countries access the U.S. Internet backbone via PanAmSat satellites. The Company operates its business as a single operating segment and maintains comprehensive and discrete financial information only for this single operating segment. However, the Company does compile summary revenue information by geographical region and for the three communications services areas that it serves, namely: video services, telecommunications services and other services, and has included such information herein for additional analysis. See "--Services" and Note 1 to the Consolidated Financial Statements. THE MERGER On May 16, 1997 PAS Merger Corp., a Delaware corporation, merged with and into PanAmSat International (then operating under its previous name, PanAmSat Corporation) and the Galaxy Satellite Services division ("Galaxy") of Hughes Communications, Inc. ("HCI") was contributed to PanAmSat, with the result that PanAmSat International became a wholly-owned subsidiary of PanAmSat (the "Merger"). The aggregate consideration paid to PanAmSat International stockholders consisted of approximately $1.5 billion in cash and approximately 42.5 million shares of PanAmSat Common Stock having an approximate value of $1.3 billion based upon a per share price of $30. Following the Merger, the shares of PanAmSat Common Stock owned by HCI constituted approximately 71.5% of the outstanding shares of PanAmSat Common Stock. On May 1, 1998, HCI increased its ownership of PanAmSat Common Stock to approximately 81% of the outstanding shares. At the time of the Merger, Galaxy was a leading provider of commercial satellite services in the United States, with a fleet consisting of ten satellites. PanAmSat International operated the world's first privately owned global (excluding domestic U.S.) satellite communications system, consisting of four satellites serving Latin America, the Caribbean, Europe, Asia, the Middle East and Africa. THE SATELLITES GENERAL PanAmSat operates the world's largest commercial network of geostationary earth orbit ("GEO") communications satellites. The Company's fleet currently consists of 19 satellites and is expected to consist of 24 satellites by the end of 2000, with the launch of six additional satellites planned for 1999 and 2000 and the retirement of one existing satellite. PanAmSat's fleet covers more than 98% of the world's population. The Company's satellite coverage falls into four regional categories--U.S. domestic, Atlantic Ocean Region ("AOR"), Pacific Ocean Region ("POR") and Indian Ocean Region ("IOR")--that comprise its global satellite network. Virtually complete global coverage and a comprehensive offering of end-to-end services including satellite capacity, teleport services and network services enable the Company to offer one-stop shopping for global communications customers. GEO satellites are located in orbit approximately 22,300 miles above earth and can blanket large geographic areas with signal coverage. GEO satellites can be accessed through an uplink station virtually anywhere within the satellite's footprint. Communications satellites typically are evaluated on (i) their coverage area, (ii) the quality of the signal transmitted to the coverage area and (iii) the availability of the transponders. Footprint is a measurement of the breadth of a satellite's coverage. A key measurement of signal quality is the intensity of transmission power in the coverage area. Higher power signal enables a customer to use smaller, lower-cost antennas on the ground. Availability is determined by considering a satellite's operational "lifetime" as well as the number of transponders capable of providing service. Each of the Company's satellites is custom-designed to provide high transmission power and comprehensive coverage over specific geographic areas. The Company's satellites under development are designed to provide greater power and carry larger payloads, including in most cases the ability to offer "hybrid" services in both the C and Ku-bands. C-band is a range of relatively low frequencies used for commercial satellite services. In the United States, C-band is used primarily for analog cable and broadcast distributions and in other regions of the world also is used for broadband networks and telecommunications. C-band requires the use of relatively large receive antennas on the ground. Ku-band is a range of relatively high frequencies used for commercial satellite communications. Ku-band is widely used for distribution of digital broadcast television and DTH services, as well as business communications, and allows the use of relatively small receive antennas. Each of the Company's new satellites has been constructed with a design life ranging from 12-15 years, although there can be no assurance that the contractual design life of any individual satellite will be met. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations--Spacecraft Developments" and "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations--Risk Factors--Risks Associated with Technology." The Company's launch and construction strategy is to replace existing satellites as they approach the end of their useful lives or encounter other reductions to their useful lives with technologically advanced satellites that meet customer needs. In addition, the Company seeks to expand the Company's global coverage, capacity and service offerings by deploying satellites into new orbital locations. In most instances, a "retired" satellite should be capable of continuing to offer services beyond the time that its replacement is deployed. In such case, the Company intends either to co-locate the older satellite with the new satellite or to move the older satellite to an interim location, in each case subject to applicable approvals. The exact location and intended use of each of PanAmSat's satellites is subject to various U.S. and non-U.S. governmental approvals, coordination issues and other regulatory risks. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations--Risk Factors--Regulatory Risks." U.S. FOCUSED FLEET PanAmSat is a leading provider of video satellite services in the United States. The Company's U.S. fleet provides cable and television broadcasting, business communications, and DTH capacity, including video and data communications applications. PanAmSat's current U.S. fleet consists of nine satellites. Four satellites, Galaxy I-R, Galaxy V, Galaxy VI and Galaxy IX, provide solely C-band video services and are dedicated to the cable sector, carrying most of the major television networks and full-time cable programming in the United States. SBS-4 has exceeded its design life and continues to provide services from an inclined orbit. SBS-5 provides solely Ku-band data services and is expected to be taken out of service in 1999. Galaxy VII is a "hybrid" satellite capable of providing both video and data services. Galaxy III-R is a hybrid satellite capable of providing video, data and DTH services. Galaxy VI provides C-band video and data services and currently serves as an interim in-orbit back-up satellite for Galaxy IV, which was declared a total loss in May 1998. See 2 "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations--Spacecraft Developments." With global coverage, PanAmSat can offer its large U.S. customers the ability to meet their geographically diverse programming needs. PanAmSat's first satellite, Galaxy I, was launched in 1983, becoming the first satellite to be dedicated solely to cable television programming distribution. The Company pioneered the "cable neighborhood" concept in the satellite services industry. The Company secured key cable programming for Galaxy I, which prompted cable operators to invest in ground equipment focused on Galaxy I's orbital position. Once a core group of cable operators had aligned their dishes with the satellite, Galaxy's incremental capacity could be sold at higher rates to new programmers that wanted to enter the market. This "cable neighborhood" concept continues to be a major business strategy for the Company, and PanAmSat has created cable neighborhoods on its other U.S. satellites, Galaxy I-R, Galaxy V, Galaxy VII and Galaxy IX. When deployed, the Company anticipates that a cable neighborhood will be created on Galaxy X-R. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations--Spacecraft Developments," "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations--Satellite Deployment Plan" and "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations--Risk Factors-- Risks Associated with Technology." PanAmSat's U.S. fleet also delivers telecommunications services for private business networks (VSATs) and Internet applications (ISPs). Carriers and network operators use PanAmSat's U.S. satellites as transmission pipelines for their customers' communications networks. INTERNATIONAL FLEET Outside of the United States, PanAmSat primarily provides satellite services in the video and telecommunications markets and, to a lesser extent, the long- distance telephony market. PanAmSat's current international fleet consists of PAS-1, PAS-3, PAS-5, PAS-6, PAS-6B and Galaxy VIII-i, providing coverage of the AOR, PAS-2 and PAS-8, providing coverage of the POR and PAS-4 and PAS-7, providing coverage of the IOR. PanAmSat has Ku-band DTH capacity on most of its non-U.S. satellites. The Company's international satellites contain C-band and Ku-band transponders, with the exception of PAS-6, PAS-6B and Galaxy VIII-i, which are Ku-band satellites dedicated to DTH services in Latin America. The Company has created cable neighborhoods on PAS-1, PAS-3 and PAS-5 for Latin America, PAS-2 for the Asia-Pacific region and PAS-4 for South Asia. The Company's international satellites also serve as platforms for current or planned DTH services in Latin America, South Africa and India. In addition, the Company's international satellites are used to provide carrier services to more than 35 countries and international Internet access to nearly 50 ISPs in non-U.S. countries. The coverage areas of the non-U.S. satellites are determined by the shape of the satellite beams, and with minor exception are not alterable after launch. PAS-5 has a movable beam that can be focused over different regions, and certain of its transponders may be transferred from one beam to another if market conditions warrant. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations--Spacecraft Developments" and "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations--Risk Factors--Risks Associated with Technology." PLANNED SATELLITES/SATELLITE DEPLOYMENT PLAN Over the past eighteen months, various technical issues have affected certain satellites (PAS-6, Galaxy VII, PAS-4, PAS-5 and Galaxy VIII-i) and resulted in the complete loss of one satellite in orbit (Galaxy IV) and one during launch (Galaxy X). For further information on these technical issues, see "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations--Spacecraft Developments." In response to these developments, the Company has modified its previously announced expansion and restoration strategy to provide additional support for its existing fleet and customers while also providing additional capacity (the "Satellite Deployment Plan"). See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations--Satellite Deployment Plan." Pursuant to the Satellite Deployment Plan, PanAmSat expects to launch six additional satellites by late 2000, consisting of three new satellites for Latin America (PAS-1R, PAS-9 and Galaxy III-C) and three new satellites 3 for the United States (Galaxy XI, Galaxy IV-R and Galaxy X-R) by the end of 2000. Each of these satellites, described further below, is expected to be a "hybrid" satellite capable of offering C-band and Ku-band services. In addition, certain of the Company's existing satellites will be relocated upon the commencement of service of certain of these new satellites. Galaxy XI. Galaxy XI will be an HS-702 model spacecraft, designed to serve both the U.S. market and Latin America. It is scheduled to be launched in the third quarter of 1999 from an Ariane 4 launch vehicle and is scheduled to be the first HS-702 placed into operation by any commercial satellite operator. As part of the Satellite Deployment Plan, the Company has modified the configuration of Galaxy XI to operate in several of PanAmSat's orbital slots covering the United States. Galaxy XI will ultimately be located at 91(degrees) W.L., replacing Galaxy VII, which will be moved to a location to be determined. PAS-1R. PAS-1R will be an HS-702 spacecraft. PAS-1R will be launched at the Company's option on either an Ariane 4 or Ariane 5 launcher. The Ariane 5 has not yet been used by any commercial satellite operator. The Company plans to use PAS-1R in the Americas, Europe and Africa. It is scheduled for launch in the third or fourth quarter of 1999. PAS-1R is intended to replace and significantly expand upon the capacity offered by PAS-1, which has reached the end of its design life but may be used to back up PAS-1R or moved to another orbital location to be determined. Galaxy X-R. Galaxy X-R, a replacement for Galaxy X, will be an HS-601 HP model spacecraft, designed to cover the United States. It is scheduled to be launched during the fourth quarter of 1999 aboard an Ariane 4 or Ariane 5 launch vehicle and to occupy an orbital position located at 123(degrees) W.L. Upon the commencement of Galaxy X-R operation, Galaxy IX, a C-band satellite temporarily operating at 123(degrees) W.L., will be relocated to 127(degrees) W.L. SBS-5 will then be taken out of service. Galaxy IV-R. Galaxy IV-R will be an HS-601 HP model spacecraft. It is scheduled for launch during the fourth quarter of 1999 on a Proton launch vehicle. Galaxy IV-R will serve at 99(degrees) W.L. as the replacement for Galaxy IV. 99(degrees) W.L. is the current location of Galaxy VI, which will then be moved to 74(degrees) W.L., where it will continue to provide back-up services. PAS-9 (formerly announced as an undesignated international satellite). This satellite will be an HS-601 HP, and will be located in the AOR. The Company anticipates that it will be launched aboard the Sea Launch launch vehicle in the first quarter of 2000, subject to certain conditions. The Sea Launch successfully completed a demonstration launch but has not been used by any governmental or commercial satellite operator. The orbital location of PAS-9 has not yet been determined. The Company's Mexico DTH customer which had contracted for service on PAS-5 instead has contracted to take service on PAS- 9. The Ku-band transponders on PAS-5 will not be resold on a full-time basis, and the Company anticipates that this will minimize potential disruptions to PAS 5's C-band customers related to the battery cell anomalies affecting PAS-5. Galaxy III-C (formerly known as PAS-9). This satellite will be an HS-702 spacecraft, designed to cover the United States and Latin America. It is scheduled to be launched in the third quarter of 2000 and to occupy an orbital position located at 95(degrees) W.L. Upon the commencement of operation of Galaxy III-C, the Company currently intends to move Galaxy III-R to another orbital location over the United States. One of the Company's existing satellites, SBS-5, has reached the end of its expected life, and is expected to be removed from service by mid-2000, resulting in a planned total fleet of 24 satellites, including multiple satellites in each ocean region worldwide and one in-orbit spare satellite (Galaxy VI) for the United States. Upon the successful transition of services from PAS-6 to PAS-6B, it is anticipated that the PAS-6 satellite will be used for backup or other services from a location to be determined. 4 The implementation of the plan is subject to regulatory approval by the Federal Communications Commission (the "FCC"). The Company expects that after the successful launch of the previously described satellites, the revenues attributable to the Galaxy VI, Galaxy VII, PAS-5 and PAS-6 satellites will be at reduced levels compared to the Company's other satellites. The Company has not yet determined whether revenue will be adversely impacted on Galaxy III-R after completion of the Satellite Deployment Plan. No assurance can be given that commercially suitable orbital locations will be obtained for all of these satellites. Successful implementation of the Satellite Deployment Plan is subject to risks attendant to the Company's business and the requirement of additional capital. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources" and "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations--Risk Factors." For a discussion of the technological and regulatory risks associated with the Company's planned satellites, see "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations--Risk Factors." There can be no assurance that the Company will successfully implement the Satellite Deployment Plan. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources." SATELLITE PROCUREMENT AND LAUNCH ARRANGEMENTS Satellite Procurement. The Company currently has six satellites under construction and development. The Company has agreements with Hughes Space and Communications Company ("HSC"), an affiliate of the Company, for construction of Galaxy XI, Galaxy IV-R, Galaxy X-R, PAS-1R, Galaxy III-C and PAS-9. In addition, the Company has an option to order up to three additional satellites from HSC on an expedited delivery schedule, anticipated to be seven months from exercise of the option (subject to certain conditions). The normal delivery time for a satellite is approximately 12 to 24 months. These agreements generally require the Company to pay the majority of the total contract price for each satellite during the period of the satellite's construction, with the remainder of such contract price to be paid in the form of incentive payments based on orbital performance over the design life of the satellite following launch. The contracts also provide for price reductions or payments in the event of late delivery due to the fault of the manufacturer. Each contract provides for a limited warranty. The satellite construction contracts contain provisions that would enable the Company to terminate such contracts both with and without cause. If terminated without cause, the Company would be subject to substantial termination liabilities that escalate with the passage of time. If terminated for cause, the Company would be entitled to recover any payments it made under the contracts and certain additional damages as specified in such contracts. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" generally and "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations--Risk Factors--Risks Associated with Technology." For a discussion of the Company's Satellite Deployment Plan, see "--The Satellites," "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations--Satellite Deployment Plan" and "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources." Launch Arrangements. The Company has entered into launch contracts for the launch of both specified and unspecified future satellites. Each of the Company's launch contracts provides that the Company may terminate such contract at its option, subject to payment by the Company of a specified termination liability that increases in magnitude as the applicable launch date approaches. In addition, in the event of the failure of any launch, the Company may exercise the right to obtain a replacement launch within a specified period following the Company's request for relaunch. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations--Risk Factors--Risks Associated with Technology." CONTROL OF SATELLITES AFTER LAUNCH Once a satellite is placed at its orbital location, ground stations control it until the end of its in-orbit lifetime. PanAmSat generally provides TT&C services for its own satellites, as well as for certain satellites owned or operated by other entities. 5 INSURANCE Launch Insurance. PanAmSat generally maintains launch insurance with respect to its satellites in an amount approximately equal to the unamortized construction, launch and launch insurance costs for each of such satellites at the initial date of coverage. Coverage under PanAmSat's launch insurance includes claims arising from occurrences up to three years after launch, except for PAS-6 and Galaxy VIII- i. Such coverage includes not only catastrophic loss of a satellite during launch, but also the failure of a satellite to obtain proper orbit, or to perform in accordance with design specifications once in orbit. The terms of the policies generally provide for payment of the full insured amount if 50% or more of a satellite's communications capacity is lost within such three- year period, and, subject to certain deductibles, partial payment for losses of less than 50% of the satellite's communications capacity within such period. Such insurance policies include standard commercial launch insurance provisions and customary exclusions including (i) military or similar actions, (ii) laser, directed-energy or nuclear anti-satellite devices, (iii) insurrection and similar acts or governmental action to prevent such acts, (iv) governmental confiscation, (v) nuclear reaction or radiation contamination, (vi) willful or intentional acts of PanAmSat or its contractors, (vii) loss of market, loss of revenue, extra expenses, incidental and consequential damages, and (viii) third-party claims against PanAmSat. In November 1997, the Company negotiated an extension of the launch insurance policy for PAS-6 to extend the period of coverage from 181 days from the launch date to one year plus 181 days from the launch date. In February 1998, the Company filed a proof of loss totaling approximately $29 million with its launch insurance underwriters based on certain anomalies discovered in the solar panels on PAS-6 prior to February 5, 1998. The Company received payment from the insurers pursuant to the proof of loss in the second quarter of 1998. In connection with the extension of the launch insurance policy for PAS-6, the Company has agreed to forego any further claims for partial loss due to subsequent anomalies involving the spacecraft's solar panels but the endorsement to PAS-6's launch insurance policy does not otherwise affect the Company's ability to claim a total constructive launch failure to the spacecraft for any reason (other than normal policy exclusions). The launch insurance policy for Galaxy VIII-i includes claims arising from occurrences up to two years after launch. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations--Spacecraft Developments" and "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations--Risk Factors--Risks Associated with Technology." The Company has not yet obtained launch insurance for any of its planned launches. There can be no assurance that the Company will be able to obtain insurance for its future satellites on terms comparable to its existing satellites. Insurance may not be available for conditions detected in a policy period that do not result in losses during the policy period. In-orbit Insurance. PanAmSat typically obtains in-orbit insurance in advance of the expiration of the relevant launch insurance policy, and coverage thereunder commences upon expiration of such launch insurance policy. Under the 1997 program, typical in-orbit insurance periods run for three years. PanAmSat generally obtains in-orbit insurance with respect to its satellites in an initial amount approximately equal to the unamortized construction, launch and insurance costs for each of such satellites. The amount of in-orbit insurance in force with respect to each of PanAmSat's satellites generally decreases over time, typically based on a declining book value for such satellite. PanAmSat generally does not insure against lost revenues in the event of a total or partial loss of the communications capacity of a satellite. The Company does, however, purchase insurance to cover revenues from a satellite when revenues have been recognized in connection with an outright sale, sales- type lease or other arrangement with performance warranty provisions. Coverage under PanAmSat's in-orbit insurance policies includes claims arising from occurrences after the expiration of the relevant launch insurance policy. The insurance coverage includes the failure of a satellite to continue to perform in accordance with design specifications. Payments in respect of losses of communications capacity are calculated in the same manner as under the launch insurance policies. Partial failures or anomalies which occur during a policy period that do not give rise to a claim may be excluded in renewal policies. PanAmSat's in-orbit policies typically include similar customary commercial satellite insurance exclusions as those contained in its launch policies. 6 SALE-LEASEBACK ARRANGEMENTS The Company entered into sale-leaseback arrangements with respect to certain transponders on Galaxy VII and Galaxy III-R in September 1993 and February 1996, respectively. Pursuant to such arrangements, Galaxy sold 16 Ku-band and 14 C-band transponders on Galaxy VII and 24 Ku-band transponders on Galaxy III-R. Concurrently with such sales, Galaxy agreed to lease back such transponders on terms that required it to make scheduled semiannual lease payments and operate and maintain such transponders and the applicable satellites for terms of 11 years and 6.9 years, respectively. At the end of each lease's initial term, the Company has the option to renew such lease through the end of the applicable satellite's useful life. The Company's obligations under each sale-leaseback arrangement are guaranteed by General Motors Corporation ("GM") (as successor-in-interest to Hughes Electronics Corporation ("Hughes Electronics")). In connection with the Merger, the Company agreed to pay and indemnify GM for performing any of its obligations under such guarantees. The Company has options under the sale-leaseback arrangements to repurchase the transponders prior to the end of the respective lease terms. In January 1999, the Company repurchased 12 C-band and 10 Ku-band transponders on the satellite for approximately $141.3 million (including a make-whole premium of $2.7 million) pursuant to such an option. The Company has the right to repurchase the remaining transponders on Galaxy VII and the transponders on Galaxy III-R in July 1999 for approximately $57.3 million and $170.3 million, respectively, plus a make-whole premium (on the Galaxy VII transaction only) in the event notes issued by the owners of the transponders are prepaid by the Company rather than assumed at the time of repurchase. In the event that the notes related to Galaxy VII are assumed, the Company's purchase price for the transponders on Galaxy VII will be paid by (i) cash payment of $32.8 million and (ii) assumption of 6.90% notes with a final maturity of July 2002 in an aggregate principal amount of $24.5 million. In the event that the notes related to Galaxy III-R are assumed, the Company's purchase price for the transponders on Galaxy III-R will be paid by (i) cash payment of $46.2 million and (ii) assumption of floating rate notes with a final maturity of January 2002 in an aggregate principal amount of $124.1 million. Each of the sale-leaseback arrangements imposes limits on the Company's ability to move the applicable satellite to a different orbital location other than in certain specified situations and imposes limitations on the Company's ability to consolidate or merge with another entity unless certain circumstances are satisfied. The Company is also required under the terms of each such lease to maintain in-orbit insurance on the applicable satellite. In addition, upon the loss of one or more transponders, the Company is required either to pay a specified loss amount or provide replacement transponder capacity to the relevant lessor. SERVICES The Company operates its business as a single operating segment and maintains comprehensive and discrete financial information only for this single operating segment. However, the Company does compile summary revenue information by geographical region and for the three communications services areas that it serves, namely: video services, telecommunications services and other services, and has included such information herein for additional analysis. In the years ended December 31, 1998 and December 31, 1997, PanAmSat's revenues of $767.3 million and pro forma revenues of $756.0 million, respectively, were derived from such service areas as follows:
PERCENTAGE PERCENTAGE OF 1998 OF 1997 SERVICES REVENUES REVENUES - -------- ---------- ---------- Video Services............................................ 73% 80% Telecommunications Services............................... 21% 16% Other Services............................................ 6% 4% --- --- Total..................................................... 100% 100%
Revenues derived from Hughes Electronics and its affiliates comprised approximately 16% of PanAmSat's revenues in 1998, making Hughes Electronics and its affiliates the Company's largest customer. 7 See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations--Results of Operations." VIDEO SERVICES PanAmSat's Video Services provide long-term, full-time, part-time and occasional satellite services for the transmission of news, sports, entertainment and educational programming worldwide. PanAmSat's Video Services are comprised of four categories: (i) video distribution services, (ii) DTH services, (iii) special events services and (iv) contribution services. Video Distribution Services. PanAmSat's primary video distribution service is the full-time transmission of television programming to cable systems, network affiliates and other redistribution systems. Certain PanAmSat satellites contain broad C-band beams that deliver dozens of television channels to these redistribution systems. PanAmSat generally provides video distribution services under long-term contracts for full or partial transponder usage and digital channels. The Company also offers bundled, value-added services that include satellite capacity, digital encoding of video channels and, if required, uplinking and downlinking services to PanAmSat satellites from the Company's teleport facilities. PanAmSat currently operates satellites for the distribution of television programming to cable and other redistribution systems in the United States, Latin America, Africa, South Asia and the Asia-Pacific region. The Company creates "video neighborhoods" (an extension of the cable neighborhood concept) on these satellites with dozens of popular television channels. Cable and other redistribution systems then install antennas to access the popular channels for their subscribers. Several of the Company's Galaxy satellites deliver television programming to virtually all of the United States' 11,500 cable systems, consisting of approximately 70 million cable television households, as well as nearly two million households using C-band backyard dishes. The Ku-band beams on several of the Company's U.S. and international satellites are also used for video distribution to cable systems and network affiliates. PanAmSat customers for full-time video distribution services include the BBC, Disney, Doordarshan (India), China Central Television, Cisneros Group (Venezuela), ESPN, NBC, Fox, Sony, Tele-Communications, Inc., Turner Broadcasting and Viacom. U.S. law has mandated that television broadcasters begin to broadcast their signals both conventionally and in High Definition Television ("HDTV") format. HDTV provides a higher quality video and audio signal than conventional analog broadcasts and requires special television and decoder equipment to be viewed. The Company anticipates that as HDTV becomes more prevalent, its satellites will be used for the full-time distribution of HDTV signals to cable systems, network affiliates, DTH customers and other redistribution systems. DTH Services. PanAmSat creates high-power Ku-band transmission beams on several satellites that serve as platforms for the delivery of multiple television channels for household reception using 60-90 centimeter antennas. PanAmSat believes there is significant demand for digital DTH services because of limited available terrestrial television channels or cable television service in many international markets, and in the United States, limited ethnic or niche programming. PanAmSat's customers for DTH services include DIRECTV, Galaxy Latin America, MultiChoice/Orbicom, Sky Latin America and South African Broadcasting Corp./Sentech. PanAmSat has arrangements with customers to operate platforms on five satellites for six current or planned DTH services in Latin America, South Africa, India and the United States. PanAmSat also designs many of these platforms to facilitate DTH service expansion through the launch of multiple satellites in the same orbital location. Special Events Services. PanAmSat provides broadcasters with satellite transmission services for the timely broadcast of news, sports and events coverage on a short-term basis. This service is designed to enable broadcasters to conduct on-the-scene transmissions using small, portable antennas and to receive the transmissions at their broadcast centers or affiliate stations. PanAmSat conducted approximately 24,000 hours of total special events transmissions in 1998. In early 1998, the Company transmitted hundreds of hours of coverage and more than 500 video feeds of the Winter Olympic Games in Nagano, Japan, for more than 30 broadcasters and news agencies. The Company offered C-band and Ku-band satellite capacity worldwide and access to a state-of-the-art production and transmission facility in Nagano for compressed digital video and other transmission 8 services. PanAmSat customers during the Olympics included CBS, CNN, ESPN, Organizacion de la Television Iberoamericana (the Latin American broadcast union representing more than 20 countries), Premier Sports Australia, Reuters and Televisa (Mexico). In addition to short-term services for special events coverage, PanAmSat has long-term transponder service agreements with certain satellite brokers in the United States. These customers package domestic U.S. transponder capacity for their broadcast, business, educational and government users. Contribution Services. PanAmSat provides broadcasters with satellite transmission services for the full-time transmission of news, sports and entertainment segments to their network affiliates or broadcast centers within the United States or around the world. PanAmSat's full-time contribution service customers include Australian Broadcasting Corporation, CBS, CNN, NBC and NHK (Japan). TELECOMMUNICATIONS SERVICES PanAmSat's Telecommunications Services support satellite-based networks that relay voice, video and data communications within individual countries, throughout regions and around the world. PanAmSat has designed virtually all of its satellites for high-power, bandwidth-intensive applications that relay large amounts of digital information among multiple sites using small, cost- effective antennas. PanAmSat's Telecommunications Services are comprised of four categories: (i) carrier services, (ii) private business networks (VSATs), (iii) Internet access (ISPs) and (iv) telephony. Carrier Services. PanAmSat provides satellite services to telecommunications carriers licensed by one or more countries to provide voice, video and data communications networks for businesses, governments and other users. The Company's high-power satellites, which facilitate high information throughput and the ability to use VSATs on the ground, have enabled emerging carriers to introduce competitive new telecommunications services in Latin America, Africa and Asia. In addition, PanAmSat offers value-added satellite services for telecommunications customers that include satellite capacity and teleport services that connect customers to U.S. terrestrial networks. PanAmSat's carrier service customers include ImpSat, MCI-Worldcom, Microspace, Pagenet, Sprint and Telstra (Australia). Private Business Networks. PanAmSat provides satellite services directly to network suppliers and businesses for the development and operation of private business networks in the United States, Latin America, Europe, Africa and Asia. These rooftop-to-rooftop VSAT networks provide dedicated, proprietary one-way and two-way communications links among multiple business sites. VSAT network customers include retail chains for rapid credit card authorization and inventory control, banks for the connection of automated teller machines with processing computers and news agencies for the timely dissemination of news and financial information. More than 125,000 VSAT antennas worldwide currently relay communications over PanAmSat satellites. The Company's largest single telecommunications customer is Hughes Network Systems, Inc. ("HNS"), an affiliate of the Company, which uses the equivalent of more than 22 U.S. domestic satellite transponders to create and operate VSAT networks for its business customers. Other PanAmSat private business network customers include the Associated Press, Citicorp, GMAC, IBM, Reuters and the University of Southern California. In addition, PanAmSat provides satellite services directly to businesses. These include value-added satellite communications services, such as the purchase and installation of on-site antennas and the design, integration, management, operation and maintenance of business networks. These services are provided via PanAmSat's teleports in the United States or through subcontractors. Internet Access. PanAmSat provides satellite services for the full-time delivery of Internet information from the United States and other countries to various locations around the world. PanAmSat's customers consist of educational organizations, ISPs and companies providing direct-to-consumer Internet applications. PanAmSat believes that its high-power domestic U.S. and international satellites are well-suited for Internet service because of the tremendous demand for reliable, high-speed access to the U.S. Internet backbone, where approximately 80 percent of all Internet data currently resides. In many cases, PanAmSat's satellites are capable of delivering 9 Internet data internationally at nearly 20 times the speed of traditional telephone links. PanAmSat currently provides Internet services to nearly 50 non-U.S. ISPs. PanAmSat's Internet services customers include HNS, Microcom Systems (Nigeria) and Planet Internet (New Zealand). PanAmSat also provides SPOTbytes SM, a value-added, bundled Internet service, that offers an integrated package of services including international satellite capacity, uplinking services from a PanAmSat teleport and dedicated links from the teleport to the U.S. Internet backbone. PanAmSat's SPOTbytes SM service is marketed primarily to non-U.S. ISPs and corporations that require high-speed access to the U.S. Internet backbone. The service is configured in a variety of ways to provide easily scaleable, cost-effective Internet access. The Company also is pursuing the development of shared carrier and multiple channel services which are designed to use Internet-protocol ("IP") based broadcasting platforms to deliver broadband IP and video services to regional users as well as specially addressed user groups. Telephony. The Company provides domestic and international satellite services for public switched telephone network ("PSTN") transmissions. PanAmSat currently offers international satellite based telephony services to and from Latin America. These services include (i) delivering calls from Latin America via a PanAmSat satellite to a U.S. telephone carrier that routes the call to its final destination within or outside of the United States, and (ii) delivering calls delivered to PanAmSat from U.S. telephone carriers to their final destinations within Latin America via a PanAmSat satellite. In addition, PanAmSat has implemented a secondary telephony service platform which is based on Demand-Assigned-Multiple Access ("DAMA") technology to terminate more efficiently voice traffic by routing the traffic to its intended destination directly from the satellite, rather than a PanAmSat teleport. The Company provides this service primarily to customers who deliver traffic to a wide variety of locations and have relatively low volume between any two points. The Company believes that DAMA provides customers with low cost routing of their telephone calls. PanAmSat intends to extend these services from Latin America to Europe and other regions of the world, especially in locations where traditional telephone networks are limited. The Company believes that its international satellites are particularly well-suited for thin-route PSTN applications in developing countries or remote areas where fiber-optic telephone systems are not feasible or cost-effective. PanAmSat charges on a per minute basis for these services. The Company believes competition for long-distance services and significant deregulation in several countries could create new service opportunities. PanAmSat's ability to provide domestic and international PSTN services is restricted by various telecommunications regulations in most countries. See "--Government Regulation." OTHER SERVICES Telemetry, Tracking and Control. PanAmSat provides TT&C services for 20 satellites owned by PanAmSat and other satellite operators. PanAmSat personnel maintain proper orbital location and attitude, monitor on-board housekeeping systems, adjust transponder levels and remotely "rewire" satellites, if necessary, to bring back-up systems on-line in the event of a subsystem failure. The necessary TT&C satellite commands are initiated from PanAmSat's operations control center in Long Beach, California and are transmitted to the satellites from PanAmSat teleport facilities located in New York, Florida, Georgia, Colorado and California. Galaxy Backup Capacity. As part of its video distribution service on certain Galaxy satellites, PanAmSat offered its customers a premium service that included back-up C-band capacity on the Galaxy VI satellite. Generally, subject to the terms of individual contracts, these customers are entitled to replacement capacity on Galaxy VI if a transponder failure occurs and no spare amplifier or reserved transponder capacity were available on their current satellite. As a result of the failure of Galaxy IV, certain customers on that satellite became entitled to the use of Galaxy VI as a back-up satellite. Shortly after the failure of Galaxy IV, the Company obtained special temporary authority from the FCC to move Galaxy VI from its original location to 99(degrees) W.L., the former location of Galaxy IV. Galaxy VI now provides C- band transponder capacity to customers that previously used Galaxy IV. Galaxy VI served as an in-orbit spare because the previous Galaxy VI customers 10 were subject to preemption if their capacity was required to serve as a back- up transponder. In connection with the failure of Galaxy IV, all of the Company's existing customers on Galaxy VI were preempted and most were provided capacity on other PanAmSat satellites to use until a new back-up satellite becomes available. Currently, these customers are not required to pay for the backup service until Galaxy XI is launched and Galaxy VI becomes available as a back-up satellite. PanAmSat intends to return Galaxy VI to its status as an in-orbit spare satellite upon the launch of Galaxy XI to 99(degrees) W.L. during the third quarter of 1999. For a discussion of the recent developments affecting Galaxy IV and Galaxy VI, see "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations--Spacecraft Developments." For a discussion of the Company's Satellite Deployment Plan, see "--The Satellites," "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations-- Satellite Development Plan" and "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources." STRATEGY PanAmSat's business strategy is based on more than 15 years of experience providing satellite-based communications services and the Company's ongoing analysis of expected worldwide market demand for its services. PanAmSat's strategy is based on five key elements: A global satellite network; One-stop shopping; Value-added services; Satellite broadcasting and telecommunications franchises; and Long-term customer relationships. Global Satellite Network PanAmSat has created a global satellite communications network that provides broadcast and telecommunications services worldwide. The network currently consists of 19 satellites, seven teleport or TT&C facilities and more than 555 PanAmSat professionals on five continents. In addition, teleports operated by third parties in Europe, Latin America, the United States and Asia also provide access to PanAmSat satellites. PanAmSat's global satellite network is focused on the point-to-multipoint communications market, which includes the distribution of television channels to cable and other redistribution systems, DTH, private business networks and Internet-related services. PanAmSat's core resources are its global fleet of satellites and its experienced staff of professionals. The Company has designed many of its satellites to provide high-power transmissions that reflect specific market demographics and customer service requirements. The Company intends to launch six additional satellites by late 2000. These new satellites are designed to provide replacement and additional transmission capacity, higher power, expanded coverage and/or extended operational life. Satellites are subject to significant risks related to delayed and failed launches and in-orbit failures. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations--Spacecraft Developments" and "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations--Risk Factors--Risks Associated With Technology." For a discussion of the Company's Satellite Deployment Plan, see "--The Satellites," "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations--Satellite Development Plan" and "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources." PanAmSat's geostationary C-band and/or Ku-band satellites each provide coverage over specific geographic areas, such as in the United States or across ocean regions. To facilitate continued network expansion, PanAmSat has received authorization from the FCC to use additional orbital slots for C-band and/or Ku-band satellites and nine slots for Ka-band satellites. The Company also has requested authorization for 12 V-band slots and six additional Ka- band slots. There can be no assurance that the Company will be successful in obtaining authorizations to operate at all or a portion of the locations for which applications have been submitted. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations--Risk Factors-- Regulatory Risks." 11 Programmers and broadcasters that use PanAmSat satellites for their global transmission requirements include the BBC, China Central Television, Discovery Communications, NHK, Time Warner and Viacom. The Company may seek to expand its global service offerings through corporate acquisitions, joint ventures and other strategic transactions. One-Stop Shopping While PanAmSat has designed each satellite to reflect specific market requirements, its global satellite network serves as a single resource for a customer's worldwide transmission requirements. PanAmSat customers can send their information to virtually any area on the planet using solely PanAmSat satellites. PanAmSat is the only commercial company that offers global satellite services on a one-stop-shopping basis. Value-Added Services The Company employs its satellites, teleports and professional staff to provide value-added services that are market-driven and responsive to customer needs. In addition to satellite transmission capacity, PanAmSat's service offerings include: Network design and systems engineering; Transmission of video channels and management of private business network traffic from PanAmSat teleports; The provision of broadcast studios for video preparation and transmission to PanAmSat satellites from major sporting and special events sites; and Development of new service applications. PanAmSat's value-added services also include bundled packages of PanAmSat resources. In an effort to provide cost-effective digital video services particularly for smaller programmers, for instance, PanAmSat offers a multi- channel per carrier service in which several television channels are digitally encoded and transmitted from a PanAmSat teleport to a specific cable television market. In addition, the Company's SPOTbytes SM bundled Internet service offers international satellite transmission capacity and uplinking services from a PanAmSat teleport and dedicated links from the teleport to the U.S. Internet backbone. Satellite Broadcasting and Telecommunications Neighborhoods A key element of PanAmSat's strategy is the creation of service franchises that enable the Company to maintain and build its customer base. The neighborhoods attract large numbers of ground antennas that depend on the PanAmSat satellite for the delivery of their television programming or communications traffic. The resulting infrastructure of ground antennas creates a premium value for satellite transmission capacity. PanAmSat neighborhoods include the distribution of premier television channels to cable systems and network affiliates; DTH television services to subscriber households; and private business networks to multiple corporate sites. PanAmSat initially enters into service agreements with several key programmers that serve as anchor tenants offering popular television channels on the satellite's cable television neighborhood. A popular anchor tenant will draw many cable head-ends to point their receive dishes at a satellite. This attracts additional programmers that want to join the programming neighborhood with knowledge that many cable head-ends will be capable of receiving their signal with the same dish used for the anchor tenant. Long-Term Customer Relationships PanAmSat builds long-term relationships with its customers by understanding their business objectives and providing long-term solutions to their satellite transmission needs. Most of PanAmSat's revenues result from long-term contracts with its customers. In many cases, programmers, corporations and ISPs have incrementally increased usage of PanAmSat satellites based on their service experience. 12 SALES AND MARKETING PanAmSat's sales and marketing activities are separated into three general service areas: full-time program distribution; part-time and ad hoc broadcast; and business communications and long-distance telephony. PanAmSat's Greenwich headquarters has a sales and marketing department for each service area. PanAmSat and its subsidiaries also have sales and marketing offices in Long Beach, California, Coral Gables, Florida, Sydney, Australia, London, England, Tokyo, Japan, Johannesburg, South Africa, Seoul, Korea and a representative office in Mexico City, Mexico, which provide integrated sales and marketing for all three service areas in their respective regions. The senior executive officers of PanAmSat have been directly involved in marketing to key broadcasting and business communications customers. COMPETITION PanAmSat primarily competes with companies and organizations that own or utilize satellite or terrestrial transmission facilities. OTHER SATELLITE OPERATORS PanAmSat's satellite competitors are divided among three categories: (i) global competitors; (ii) companies that intend to create global satellite systems; and (iii) regional or domestic satellite operators. PanAmSat's principal global competitor is Intelsat, an international treaty organization of over 140 member nations based in Washington, D.C. that provides global satellite capacity primarily through its members, called "signatories." Comsat Corporation ("Comsat") is the U.S. signatory and is the only company permitted to provide Intelsat satellite capacity in the United States. Intelsat's mandate is to provide international satellite capacity on a non- discriminatory basis to countries around the world. Since its formation in 1964, Intelsat's primary business has been the provision of satellite capacity for long-distance telephony circuits. In recent years, Intelsat has launched higher-powered satellites that are capable of providing video distribution, DTH and private business network services. According to Intelsat's 1997 annual report, video services comprised 29 percent of Intelsat's operating revenue. Intelsat traditionally has provided capacity directly to its signatories, which then market such capacity to their customers. Over 95 countries, however, now permit some form of direct access to the Intelsat system and the FCC has proposed permitting direct access, rather than through Comsat, in the United States. In March 1998, Intelsat approved the creation of an affiliate company that would market satellite services directly to end users. In November 1998, Intelsat transferred to this affiliate, known as New Skies Satellites N.V. ("New Skies"), five operating satellites plus a sixth satellite that was under construction. Although ostensibly independent of Intelsat, New Skies is owned by Intelsat and Intelsat's signatories. In light of this common ownership and other continuing connections between the two organizations, PanAmSat has asked the FCC to evaluate whether New Skies satisfies the FCC's requirements for entry to the U.S. market by affiliates of Intelsat. In May 1998, the FCC granted in part and denied in part a request by Comsat to be regulated as a non-dominant carrier. The FCC reclassified Comsat as non- dominant in the provision of full-time video and earth station services. The FCC determined, however, that Comsat retains market power and should continue to be regulated as dominant in the provision of switched voice and private line service to 63 countries and in the provision of occasional-use video services to 142 markets. In February 1999, the FCC changed the manner in which it regulates Comsat's pricing for these dominant carrier markets, switching from rate of return regulation to an incentive-based pricing policy. On May 5, 1998, the U.S. House of Representatives passed H.R. 1872, the Communications Satellite Competition and Privatization Act of 1997. The legislation, sponsored by Reps. Thomas Bliley (R-VA) and 13 Edward Markey (D-MA), sets specific parameters and timetables to ensure the pro-competitive privatization of Intelsat and deregulation of Comsat. The legislation was supported by PanAmSat as part of the Company's belief that the pro-competitive privatization of Intelsat would benefit the satellite industry. While the bill may benefit the Company by opening certain markets, it is not essential to successful implementation of the Company's business plan. There can be no assurance that similar legislation will be passed by the U.S. Senate or a that final bill, if approved by House and Senate, will be signed into law by President Clinton. In addition to Intelsat, PanAmSat experiences competition from companies that have announced plans to create global satellite systems, primarily through acquisitions, partnerships or equity interests in domestic or regional satellite systems. These companies include Loral Space and Communications Ltd. ("Loral"), GE American Communications, Inc. ("GE Americom") and Lockheed Martin Corp. ("Lockheed Martin"). For instance, Loral acquired AT&T Skynet (a domestic U.S. satellite operator) in 1997, acquired Orion Network Systems (a transatlantic satellite operator with plans to launch additional international satellites in other regions) in 1998 and entered into a strategic partnership to own and operate Satelites Mexicanos, S.A. de C.V. (a Mexican satellite system that provides satellite capacity in Latin America) in 1997. An application has been filed requesting the FCC's approval for Lockheed Martin to acquire up to 49 percent of Comsat's stock. PanAmSat has opposed the application, arguing that the proposed transaction would, among other things, violate the Communications Satellite Act, give Lockheed Martin de facto control of Comsat, and lessen competition. Comsat and Lockheed Martin also are seeking changes to the Communications Satellite Act that would enable Lockheed Martin to purchase the remaining 51 percent of Comsat's stock. PanAmSat also experiences competition from numerous companies and/or governments that operate domestic or regional satellite systems in the United States, Latin America, Europe, the Middle East, Africa and Asia. Competition from these satellite operators is limited to service within one country or region, depending on the operator's satellite coverage and market activities. In the United States, GE Americom, Loral and Comsat all currently provide fixed satellite services on a regional or domestic basis, and are the Company's primary competitors in such market. PROPOSED SATELLITE SYSTEMS Other companies have announced plans to operate regional or transoceanic satellite systems. Entry into the international satellite communication industry can be expensive and difficult. The construction and launch of a satellite comparable to PanAmSat's new satellites typically takes approximately three or more years and costs approximately $200 million to $250 million or more. In addition, there are a limited number of orbital slots. The operation of an international satellite communications system also requires approvals from national telecommunications authorities and Intelsat and, in certain cases, from regional satellite authorities. See "--Government Regulation." While the trend around the world is to liberalize these regulatory requirements, at present obtaining the necessary licenses involves significant time, expense and expertise. The Company believes that non-geostationary systems under development, such as Globalstar and Iridium, are not currently competitors of PanAmSat. These non-geostationary systems are designed primarily for mobile telephony and data services and are not expected to serve the fixed point-to-multipoint video and telecommunications markets. Certain other non-geostationary systems under development, such as Skybridge and Teledesic/Celestri, are also not expected to be direct competitors of PanAmSat. However, because these systems are designed to offer fixed satellite services such as data and Internet access, they may compete with services offered or planned to be offered by the Company. Skybridge, Teledesic/Celestri, and other proposed non-geostationary systems are designed to use frequencies that are already in use by geostationary satellites, including PanAmSat's satellites. Although the proponents of these systems claim that they will not interfere with geostationary systems, the interference issue is under review by the FCC and the International Telecommunications Union (the "ITU"), and there can be no assurance that the standards for sharing frequencies that ultimately are adopted will adequately protect geostationary operations such as PanAmSat's. 14 SERVICE PROVIDERS In some cases, PanAmSat experiences competition for its value-added satellite services from companies that also provide value-added services. These companies typically lease large amounts of satellite capacity from satellite operators and then use that capacity to provide value-added communications networks for their customers. For instance, several carriers operate VSAT networks for businesses that PanAmSat also could provide as a value-added service. In addition, brokers in the United States provide value- added special events services to broadcasters, businesses and educational institutions that also could be provided by PanAmSat. Many of these value- added service providers and brokers are PanAmSat customers for their satellite capacity. OPTICAL FIBER CABLES Optical fiber cables generally do not compete with PanAmSat's current services. The primary use of optical fiber cables is to carry high-volume telephony communications on a point-to-point basis. Transcontinental and intercontinental optical fiber cables currently carry video traffic, but this service is largely for point-to-point traffic (e.g., New York to London). Optical fiber cables are not readily usable for point-to-multipoint broadcast applications or for the transmission of ad hoc events which require transportable uplink earth stations. When PanAmSat begins to offer Internet- related services on a larger scale, it may encounter competition from companies offering optical fiber cable services, including Quest Communications and Global Crossing. GOVERNMENT REGULATION As an operator of a privately-owned global satellite system, PanAmSat is subject to: (i) the regulatory authority of the U.S. government; (ii) the regulatory authority of other countries in which PanAmSat operates; (iii) the Intelsat consultation process; and (iv) the frequency coordination process of the ITU. U.S. REGULATION The ownership and operation of PanAmSat's satellite system is regulated by the FCC. PanAmSat is subject to the FCC's jurisdiction primarily for: (i) the licensing of satellites and earth stations; (ii) avoidance of interference with other radio stations; and (iii) compliance with FCC rules governing U.S.- licensed satellite systems. Violations of the FCC's rules can result in various sanctions including fines, loss of authorizations, or the denial of applications for new authorizations or to renew existing authorizations. PanAmSat is not regulated as a common carrier and, therefore, is not subject to rate regulation or the obligation not to discriminate among customers, and operates with minimal governmental scrutiny of its business decisions. PanAmSat must pay FCC filing fees in connection with its space station and earth station applications; must pay annual regulatory fees that are intended to defray the FCC's regulatory expenses; and, to the extent PanAmSat is deemed to be providing interstate telecommunications, must contribute to funds used to support universal service. Authorization to Launch and Operate Satellites. The FCC grants authorizations to satellite operators that meet its legal, technical and financial qualification requirements. Under the FCC's financial qualification rules, an applicant must demonstrate that it has sufficient funds to construct, launch, and operate for one year each requested satellite. Licenses are issued for an initial ten-year term and the FCC gives licensees a "replacement expectancy" with respect to the replacement of their satellites. At the end of a ten-year license term, a satellite that has not been replaced, or that has been relocated to another orbital location following its replacement, may be able to continue operating under a grant of special temporary authority. Such operations, however, are secondary, and there can be no assurance that the satellite will be permitted to continue operating after the expiration of the initial ten-year license term. The FCC's rules and policies limit the number of expansion satellite authorizations that may be granted for the same frequency band at one time. PanAmSat has final FCC authorization for seventeen satellites operating in the C-band, the Ku-band, or both bands. PanAmSat has final FCC authorization for one additional satellite, but the authorization does not cover certain design changes that are the subject of a pending modification application. PanAmSat has special temporary authority to operate the satellite as modified on an interim basis. In addition, PanAmSat has a final authorization to operate nine satellites in the Ka-band (one AOR, to be located at 58(degrees) W.L.; two POR, to be 15 located at 149(degrees) E.L. and 173(degrees) E.L.; four IOR, to be located at 36(degrees) E.L., 40(degrees) E.L., 48(degrees) E.L., and 124.5(degrees) E.L.; and two U.S., to be located at l03(degrees) W.L. and 125(degrees) W.L.). PanAmSat has also requested authority to operate five of these satellites in the BSS band, and to operate six other satellites exclusively in the BSS band, but FCC processing of PanAmSat's requests must await the resolution of issues concerning the ITU's BSS band plan. In addition to the above final authorizations, PanAmSat has a conditional authorization for an IOR satellite, to be located at 72(degrees) E.L. In order to finalize this authorization, PanAmSat must make a full financial showing and complete its consultation with Intelsat for the satellite. Except as noted, none of PanAmSat's final or conditional authorizations is subject to further administrative or judicial reconsideration or review. The FCC reserves the right to require a satellite to be relocated to a different orbital location if it determines that such a change is in the public interest, but the FCC has rarely used this authority. PanAmSat operates additional satellites under interim or special temporary authority. PanAmSat operates PAS-7 at 68.5(degrees) E. L. pursuant to a grant of special temporary authority. PanAmSat is authorized to operate only the Ku- band transponders on the satellite. Brasilsat Al previously was providing U.S. domestic service from 79(degrees) W.L. under an interim authorization that expired on December 31, 1997. PanAmSat has requested, but has not yet received, an extension of this authority. Pursuant to a grant of special temporary authority, the Company has relocated Brasilsat A1 to 144(degrees) W.L. and it is operating there. The Company also has amended its request for an extension of interim authority to specify the 144(degrees) W.L. orbital location. Another satellite, SBS-4, exceeded its regular license term in 1994 and, since that time, has operated at 77(degrees) W.L. under successive grants of special temporary authority. SBS-4 must be relocated once the U.S. satellite assigned to 77(degrees) W.L. is launched. There can be no assurance that SBS-4 will be authorized to operate at another orbital location. PanAmSat also has requested a license modification or special temporary authority to continue operating PAS-1 beyond the conclusion of its license term. In addition, following the loss of Galaxy IV, the FCC granted the Company special temporary authority to relocate Galaxy VI from 74(degrees) W.L. to 99(degrees) W.L., to provide replacement C-band capacity. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations-- Spacecraft Developments" and "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations--Risk Factors--Risks Associated with Technology." PanAmSat has filed the following applications for additional or replacement satellites in the C-band and/or the Ku-band: (1) applications for two hybrid C/Ku-band satellites (in the U.S.), (2) an application for a hybrid C/Ku-band satellite to replace its separate C-band and Ku-band satellites at 74(degrees) W.L.; and (3) an application to replace PAS-1 with PAS-1R. In order to grant two of the U.S. additional satellite applications, the FCC would have to assign different orbital locations than those requested by PanAmSat (79(degrees) W.L. and 93(degrees) W.L.) because, after PanAmSat's applications were filed, the FCC assigned these orbital locations to other entities. PanAmSat has requested that the 79(degrees) W.L. application be associated with the 83(degrees) W.L. orbital location as a C-band only satellite. In 1996, the FCC modified its rules for processing international satellite system applications. Under the new rules, FCC action on one IOR application and one U.S. application would be substantially delayed. PanAmSat has requested a waiver of these rules. PanAmSat has filed applications for six additional Ka-band satellites (two AOR, two POR and two IOR), which will be processed in the second Ka-band satellite processing round. Finally, PanAmSat has applied for twelve V-band satellites (two AOR, six IOR and four U.S.), but the FCC has not yet accepted these applications for filing. Under the FCC's rules, unless an applicant has received an authorization to launch and operate, it must notify the FCC in writing prior to commencing satellite construction, and any construction engaged in is at the applicant's own risk. While PanAmSat therefore may proceed with the construction of planned satellites without prior FCC approval, it must accept the risk that the FCC may not grant the application, may not assign the satellite to its proposed orbital location, or otherwise may act in a manner that limits or eliminates some or all of the value of the construction previously done on the satellite. 16 Other FCC Authorizations. Under the FCC's rules, an entity that provides international telecommunications services on a common carrier basis must first receive authorization, pursuant to Section 214 of the Communications Act of 1934, as amended, to provide such services. The FCC has granted PanAmSat Carrier Services, Inc. ("PCSI") and PanAmSat Communications Carrier Services, Inc. ("PCCS"), wholly owned subsidiaries of the Company, Section 214 authority to provide international private line and public switched services. As common carriers, PCSI and PCCS are subject to rate regulation, tariffing and nondiscrimination requirements. Scope of Services Authorized. In 1996, the FCC eliminated the regulatory distinction between U.S. domestic satellites and U.S.-licensed international satellites. As a result, each of PanAmSat's satellites may be used, to the extent technically feasible, to provide both U.S. domestic and international services. Due to a restriction in the FCC's rules, however, the transponders on PAS-5 that operate in the 10.7-11.7 GHz and 12.75-13.25 GHz frequency bands may be used solely for international service. PanAmSat has requested a waiver of this restriction. Coordination Requirements. The FCC requires applicants to demonstrate that their proposed satellites would be compatible with the operations of adjacent satellites. The FCC expects adjacent satellite operators to coordinate with one another to minimize frequency conflicts, and it does not become involved unless the operators are unable to resolve their conflicts. FCC involvement is rare. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations--Risk Factors--Regulatory Risks" generally and for a description of certain frequency coordination issues affecting PAS-6, PAS-7, and Galaxy VIII-i. REGULATION BY NON-U.S. NATIONAL TELECOMMUNICATIONS AUTHORITIES Foreign laws and regulatory practices governing the provision of satellite services to licensed entities and directly to end users vary substantially. Most countries in which PanAmSat operates are signatories of Intelsat and, as a result, may require PanAmSat to confirm that it has successfully completed technical consultation with Intelsat before providing services on a given satellite. See "--Intelsat Consultation." In addition, PanAmSat may be subject to national communications and/or broadcasting laws with respect to its provision of international satellite service. While these vary from country to country, national telecommunications authorities, with limited exceptions, typically have not required satellite operators to obtain licenses or regulatory authorizations in order to provide space segment capacity to licensed entities. "Space segment capacity" consists solely of capacity on a given satellite without any uplink, downlink or other value-added services. Many countries--particularly in Latin America and, increasingly, in Europe, Africa and Asia--have liberalized their regulations to permit multiple entities to seek licenses to provide voice, data or video services for their own use or for third-party use; to own and operate private earth station equipment; and to choose a provider of satellite capacity. This trend should accelerate with the commitments by many World Trade Organization ("WTO") members, in the context of the WTO Agreement on Basic Telecommunications Services, to open their satellite markets to competition. Many countries allow licensed radio and television broadcasters and cable television providers to own their own transmission broadcast facilities and purchase satellite capacity without restriction. In such environments, customer access to PanAmSat's services can be a relatively simple procedure. Other countries, however, have maintained strict monopoly regimes. In such markets, a single entity (often the government-owned Posts, Telephone and Telegraph authority) may hold a monopoly on the ownership and operation of facilities or on the provision of communications and/or broadcasting services to, from, and within the country, including via satellite, rendering the provision of service from PanAmSat and other U.S.-licensed satellites more complicated. Most countries permit satellite carriers to provide space segment capacity without any prior licensing or authorization. In others, however, a license is required for provision of space segment capacity. PanAmSat has obtained such licenses in Argentina, Colombia, Ecuador and Pakistan. Additionally, the Company has sought 17 service-type licenses, in order to provide certain space segment capacity directly to end users. PanAmSat has obtained such licenses in Australia, France, Germany Japan and the United Kingdom. Notwithstanding the wide variety of regulatory regimes extant in the countries in which PanAmSat provides service, PanAmSat believes that it and its customers are in compliance in all material respects with all applicable laws and regulations. Intelsat Consultation. In connection with its international satellite services, PanAmSat must complete a consultation process with Intelsat under Article XIV of the Intelsat Agreement to assure that use of any new satellite will not cause Intelsat technical harm. To provide domestic satellite services in any country, PanAmSat must complete a technical consultation. The FCC is responsible for ensuring that PanAmSat has undergone the necessary consultations and that it operates in accordance with the technical parameters forming the basis for each Article XIV consultation. If PanAmSat changes the terms (either technical or service) of its operation in a significant way, it may need to consult with Intelsat. The ITU Frequency Coordination Process. Each ITU member nation is required to register its proposed use of orbital slots with the ITU's Radio Regulations Board. Other nations then may give notice of any use or intended use of the radio spectrum that would conflict with the proposal. The nations then are obligated to seek to coordinate the proposed uses and resolve interference concerns. If all disputes are resolved, the ITU "notifies" the proposed use which, at least theoretically, protects it from subsequent or nonconforming interfering uses. The ITU Radio Regulations Board has no dispute resolution or enforcement mechanisms, however, and international law provides no clear remedies if this voluntary process fails. While the right to use most frequencies is determined on a "first-come, first-served" basis, the ITU has "planned" the use of certain frequency bands in a manner that effectively reserves for various countries the right to use those frequencies in accordance with certain technical parameters at a given orbital location. PanAmSat's proposed use of BSS frequencies on eleven satellites is subject to unresolved issues concerning the ITU's BSS band plan. All of the registrations for PanAmSat's satellites are or will be subject to the ITU coordination process. Certain entities have filed notices of intended use with respect to certain orbital slots which conflict with PanAmSat's registered orbital slots for PAS-2, PAS-4, PAS-7 and PAS-8. Such filings may delay the receipt of final registration of such orbital slots with the ITU Radio Regulations Board. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations--Risk Factors--Regulatory Risks." EMPLOYEES At December 31, 1998, PanAmSat had approximately 555 full-time employees. PanAmSat believes that its relations with its employees are good. ITEM 2. PROPERTIES PanAmSat's executive offices are located in Greenwich, Connecticut. PanAmSat leases its executive offices pursuant to a lease that will expire on March 31, 2003. PanAmSat currently operates seven teleports and operations centers in conjunction with its global satellite network. PanAmSat operates its primary teleport in Ellenwood, Georgia and operates regional teleports in Castle Rock, Colorado; Fillmore, California; Homestead, Florida; Long Beach, California; Napa, California; and Spring Creek, New York. PanAmSat's operations centers located in Ellenwood and Long Beach provide other services, such as customer service support, in addition to teleport operations. PanAmSat owns its Ellenwood, Georgia; Homestead, Florida; Spring Creek, New York; Napa, California; and Fillmore, California teleports. PanAmSat leases its Castle Rock, Colorado teleport. The 18 Company owns its teleport in Long Beach, California and leases offices in Long Beach where its network operations center is located. PanAmSat also leases office space for its sales and marketing offices in Washington, D.C.; Coral Gables, Florida; Sydney, Australia; Johannesburg, South Africa; London, England; Tokyo, Japan; Seoul, Korea; and Mexico City, Mexico. PanAmSat's leases for its foreign offices have been entered into upon terms that PanAmSat believes to be reasonable and customary. ITEM 3. LEGAL PROCEEDINGS On or about October 25, 1996, an action was commenced by Comsat against PanAmSat, News Corporation Limited ("News") and Grupo Television, S.A. ("Televisa") in the United States District Court for the Central District of California. The Complaint alleges that News wrongfully terminated an agreement with Comsat for the lease of transponders on an Intelsat satellite over the term of a five-year lease, breached certain alleged promises related to such agreement, and breached its alleged obligations under a tariff filed by Comsat with the FCC. As to PanAmSat, the complaint alleges that PanAmSat, alone and in conspiracy with Televisa, intentionally interfered with the alleged agreement and with Comsat's economic relationship with News. Comsat had previously filed a similar action in the United States District Court for the District of Maryland. By order dated October 10, 1996, the Maryland District Court dismissed without prejudice the complaint in that action on the ground that the court lacked personal jurisdiction over all of the defendants. The complaint in the present action seeks actual and consequential damages, and punitive or exemplary damages in an amount to be determined at trial. Following the completion of pretrial discovery, all defendants moved for summary judgment dismissing the case. These motions are awaiting decision. PanAmSat believes this action is without merit. It intends to vigorously contest this matter although there can be no assurance that PanAmSat will prevail. If PanAmSat were not to prevail, the amounts involved could be material to PanAmSat. On May 21, 1998, a class action was commenced by Ullman Electric Company and others similarly situated against Paging Network, Inc., Paging Network of Ohio, Inc. (the "Paging Companies") and the Company in the Court of Common Pleas for Cuyahoga County, Ohio. The complaint alleges breach of contract against the Paging Companies relating to a disruption of paging services provided by the Paging Companies to the plaintiffs. As to the Company, the complaint alleges that PanAmSat was negligent as to the plaintiffs in its operation of the Galaxy IV satellite, which provided satellite capacity to the Paging Companies. For a discussion of recent developments involving Galaxy IV, see "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations--Spacecraft Developments." The Company has filed a motion to dismiss the case for lack of personal jurisdiction, which is pending with the court. The complaint seeks compensatory damages in an amount not to exceed $70,000 per plaintiff. The Company believes that the foregoing action is frivolous and without merit, and PanAmSat intends to vigorously contest this matter although there can be no assurance that PanAmSat will prevail. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS During the fourth quarter of fiscal 1998, no matters were submitted to a vote of stockholders through the solicitation of proxies or otherwise. 19 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS PanAmSat Common Stock is listed on the Nasdaq National Market and commenced trading on May 19, 1997 under the symbol "SPOT". The following table sets forth, for the calendar periods indicated, the high and low closing sales price per share for PanAmSat Common Stock, as reported by the Nasdaq National Market and the Dow Jones News Retrieval Service.
1997 HIGH LOW ---- ---- ----- Second Quarter (from May 19, 1997)........................... $30 3/8 $ 27 1/2 Third Quarter................................................ $44 1/2 $ 29 1/4 Fourth Quarter............................................... $46 1/4 $ 36 7/8 1998 ---- First Quarter................................................ $60 7/8 $ 37 7/16 Second Quarter............................................... $64 7/8 $ 51 Third Quarter................................................ $57 7/8 $ 35 1/8 Fourth Quarter............................................... $42 $ 28 7/8
At March 25, 1999, there were approximately 105 holders of record of PanAmSat Common Stock. To date, the Company has not declared or paid cash dividends on PanAmSat Common Stock. The Company presently intends to retain future earnings to support the growth of its business and, therefore, does not anticipate paying cash dividends in the near future. The payment of any future dividends on PanAmSat Common Stock will be determined by the Company's Board of Directors in light of conditions then existing, including the Company's earnings, financial condition and capital requirements, restrictions in financing agreements, business conditions and other factors. 20 ITEM 6. SELECTED FINANCIAL DATA The following selected financial data as of December 31, 1996, 1995 and 1994 and for each year of the three year period ended December 31, 1996 have been derived from the audited financial statements of Galaxy (which changed its name to PanAmSat Corporation concurrent with its May 1997 acquisition of PanAmSat International). The selected financial data as of December 31, 1998 and 1997 and for each year of the two year period ended December 31, 1998 have been derived from the audited consolidated financial statements of PanAmSat appearing elsewhere in this Annual Report, and should be read in conjunction with such consolidated financial statements and notes related thereto and "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations."
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, 1998 1997(1) 1996 1995 1994 ---------- ----------- ---------- ---------- --------- (DOLLARS IN THOUSANDS) STATEMENT OF INCOME DA- TA: Total revenues.......... $ 767,263 $ 629,939 $ 482,770 $ 386,126 $ 328,243 ---------- ----------- ---------- ---------- --------- Costs and expenses Cost of outright sales and sales-type leases.. -- 20,476 52,969 49,616 45,747 Leaseback expense, net of deferred gain....... 47,223 61,907 59,927 36,597 36,617 Depreciation and amorti- zation................. 234,945 149,592 58,523 76,522 54,126 Direct operating costs.. 96,510 61,199 34,794 29,931 33,627 Selling, general & ad- ministrative........... 70,251 42,561 34,119 30,146 51,595 ---------- ----------- ---------- ---------- --------- Operating income........ 318,334 294,204 242,438 163,314 106,531 Interest expense, net(2)................. (97,788) (30,973) (4,903) (5,828) (6,826) Other income............ -- 385 2,184 7,892 3,885 ---------- ----------- ---------- ---------- --------- Income before taxes, minority interest and extraordinary item..... 220,546 263,616 239,719 165,378 103,590 Income tax expense...... 95,940 117,325 89,895 62,017 38,846 Minority interest....... -- 12,819 -- -- -- Extraordinary item(3)... -- 20,643 -- -- -- ---------- ----------- ---------- ---------- --------- Net income.............. $ 124,606 $ 112,829 $ 149,824 $ 103,361 $ 64,744 ========== =========== ========== ========== ========= OTHER FINANCIAL DATA: EBITDA (4).............. $ 553,279 $ 444,181 $ 303,145 $ 247,728 $ 164,542 EBITDA margin (4)....... 72% 71% 63% 64% 50% Net cash provided by op- erating activities..... $ 568,173 $ 121,476 $ 151,238 $ 83,690 $ 110,490 Net cash used in invest- ing activities......... (576,518) (1,639,972) (42,122) (270,396) (109,560) Net cash provided by (used in) financing activities............. 94,148 1,610,206 (109,122) 186,720 (1,126) Capital expenditures.... 678,593 541,879 294,122 280,543 114,660 Total assets............ 5,890,497 5,682,434 1,275,516 1,137,978 868,408 Total long-term obliga- tions.................. 3,058,480 3,016,680 394,187 290,963 319,620 Total stockholders' eq- uity................... 2,688,415 2,560,836 -- -- --
- -------- (1) 1997 results include financial data for PanAmSat International from May 16, 1997 (the effective date of the Merger). See "Item 1. Business-- Overview--The Merger" for a description of the Merger. (2) Net of capitalized interest of $59.9 million, $80.5 million, $14.6 million, $10.1 million, and $5.1 million for the years ended December 31, 1998, 1997, 1996, 1995 and 1994, respectively, and net of interest income of $10.4 million and $28.0 million in 1998 and 1997, respectively. (3) Represents loss on early extinguishment of debt, net of tax. (4) Represents earnings before net interest expense, income tax expense, depreciation and amortization. EBITDA is commonly used in the telecommunications industry to analyze companies on the basis of operating performance, leverage and liquidity. EBITDA should not be considered as a measure of profitability or liquidity as determined in accordance with generally accepted accounting principles in the statements of income and cash flows. 21 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis should be read in conjunction with the Company's consolidated financial statements and the notes thereto and the pro forma financial information appearing elsewhere in this Annual Report. RESULTS OF OPERATIONS The Company's results of operations as reported incorporate PanAmSat International's activity commencing May 16, 1997, the effective date of the Merger. Since this represents only seven and one-half months of activity for PanAmSat International in 1997, management has determined that for comparative purposes, it would be more meaningful to present the information shown below on a "pro forma" basis reflecting the Merger as though it had occurred at the beginning of the respective periods presented (excluding the impact of PanAmSat International's $225 million gain on the sale of its direct-to-home television rights in certain foreign markets to an affiliate concurrent with the Merger, as well as certain professional and advisory fees and other expenses incurred in connection with the Merger totaling $31.6 million, both of which are nonrecurring items that are not indicative of the Company's ordinary course of business). The pro forma results are not necessarily indicative of the combined results that would have occurred had the Merger actually occurred at the beginning of 1996.
PRO FORMA AS REPORTED (UNAUDITED) ------------------------------ ------------------- YEAR YEAR YEAR YEAR YEAR ENDED ENDED ENDED ENDED ENDED 1998 1997 1996 1997 1996 --------- --------- --------- --------- -------- (IN THOUSANDS, EXCEPT PER SHARE DATA) REVENUES Operating leases, satel- lite services and oth- er..................... $ 736,624 $ 558,622 $ 319,084 $ 684,663 $566,027 Outright sales and sales-type leases...... 30,639 71,317 163,686 71,317 163,686 --------- --------- --------- --------- -------- Total revenue......... 767,263 629,939 482,770 755,980 729,713 --------- --------- --------- --------- -------- COSTS AND EXPENSES Cost of outright sales and sales-type leases.. -- 20,476 52,969 20,476 52,969 Leaseback expense, net of deferred gain....... 47,223 61,907 59,927 61,907 59,927 Direct operating and SG&A costs............. 166,761 l03,760 68,913 130,076 136,116 Depreciation and amorti- zation................. 234,945 149,592 58,523 197,116 181,100 --------- --------- --------- --------- -------- Total................. 448,929 335,735 240,332 409,575 430,112 --------- --------- --------- --------- -------- Income from operations.. 318,334 294,204 242,438 346,405 299,601 Interest expense, net... 97,788 30,973 4,903 68,981 125,308 Other income............ -- (385) (2,184) (385) (2,184) --------- --------- --------- --------- -------- Income before income taxes, minority inter- est and extraordinary item................... 220,546 263,616 239,719 277,809 176,477 Income tax expense...... 95,940 117,325 89,895 134,343 92,549 --------- --------- --------- --------- -------- Income before minority interest and extraordi- nary item.............. 124,606 146,291 149,824 143,466 83,928 Minority interest, sub- sidiary preferred stock dividend............... -- 12,819 -- 24,838 28,474 --------- --------- --------- --------- -------- Income before extraordi- nary item.............. 124,606 133,472 149,824 118,628 55,454 Extraordinary item: loss on extinguishment of debt, net of tax....... -- 20,643 -- 20,643 -- --------- --------- --------- --------- -------- Net income.............. $ 124,606 $ 112,829 $ 149,824 $ 97,985 $ 55,454 ========= ========= ========= ========= ======== Net income per share-- basic and diluted...... $ 0.83 N/A N/A $ 0.66 $ 0.37
22 CONSOLIDATED RESULTS 1998 (AS REPORTED) COMPARED TO 1997 (PRO FORMA AND AS REPORTED) The following discussion of 1998 versus 1997 performance is primarily based on pro forma results. Pro forma results for 1997 and as reported results since the Merger date reflect the impact of the acquisition of PanAmSat International, including the use of purchase accounting. Comparisons of as reported results reflect significant increases in amortization of intangible assets, interest expense, the effective income tax rate and shares outstanding arising from the Merger. Revenues. Revenues increased $11.3 million, or 1%, to $767.3 million for the year ended December 31, 1998 from $756.0 million for the same pro forma period in 1997. Video services revenues were $560.7 million for the year ended December 31, 1998, a decrease of 8% from the same pro forma period in 1997. The decrease was primarily due to less sales and sales-type lease activity as compared to the same pro forma period in 1997. Telecommunications services revenues were $159.1 million for the year ended December 31, 1998, an increase of 29% from the same pro forma period in 1997. The increase was due primarily to the growth in data and Internet-related service agreements. Revenue results can also be analyzed based on the type of agreement. Revenues from sales and sales-type leases decreased to $30.6 million for the year ended December 31, 1998, from $71.3 million for the same pro forma period in 1997. The decrease is attributable to a lower volume in 1998 relative to 1997 of outright sales and sales-type leases. Revenues from operating leases of transponders, satellite services and other increased $51.9 million, or 8%, to $736.6 million for the year ended December 31, 1998, from $684.7 million for the same pro forma period in 1997. The increase was primarily due to the commencement of commercial service on two new satellites, PAS-5 and Galaxy VIII-i, which were launched in the latter part of 1997 and generated a full year of operating lease revenues in 1998. As reported revenues increased $137.3 million, or 22%, to $767.3 million in 1998 from $629.9 million in 1997, primarily due to the impact of the Merger, and also due to increased service agreements associated with available transponder capacity. Cost of Outright Sales and Sales-type Leases of Transponders. The Company recorded no cost of outright sales and sales-type leases of transponders for the year ended December 31, 1998, as compared to $20.5 million for the same pro forma period in 1997. The pro forma cost of outright sales and sales-type leases of transponders for the year ended December 31, 1997 are related to several outright sales and sales-type leases executed during that period. Leaseback Expense, Net of Deferred Gain. Leaseback expense, net of deferred gain, decreased $14.7 million, or 24%, to $47.2 million for the year ended December 31, 1998, from $61.9 million for the same pro forma period in 1997. The decrease was primarily attributable to the exercise by the Company of early buy-out opportunities on sale-leaseback agreements during 1998. Direct Operating and Selling, General and Administrative Costs. Direct operating and selling, general and administrative costs increased $36.7 million, or 28%, to $166.8 million for the year ended December 31, 1998, from $130.1 million for the same pro forma period in 1997. The increase primarily was due to direct costs associated with additional satellites placed in service and operating costs associated with the normal growth of the Company attributable to the growth in the size of the satellite fleet. Depreciation and Amortization. Depreciation and amortization increased $37.8 million, or 19%, to $234.9 million for the year ended December 31, 1998 from $197.1 million for the same pro forma period in 1997, due primarily to depreciation expense associated with additional satellites placed in service. As reported depreciation and amortization increased $85.3 million, or 57%, to $234.9 million in 1998, from $149.6 million in 1997. In addition to the impact of the Merger, the increase was a result of depreciation expense associated with additional transponder capacity placed in service. 23 Income from Operations. Income from operations decreased $28.1 million, or 8%, to $318.3 million for the year ended December 31, 1998 from $346.4 million for the same pro forma period in 1997. The decrease was primarily due to increased depreciation and direct operating costs associated with the Company's expanded satellite fleet, offset by increased revenue generated by the expanded satellite fleet. Interest Expense, Net. Interest expense, net increased $28.8 million, or 42%, to $97.8 million for the year ended December 31, 1998 from $69.0 million for the same pro forma period in 1997. The increase was due primarily to higher average borrowing levels during 1998 as well as less interest income earned as a result of the Company's smaller investment portfolio and a lower amount of capitalized interest cost for the satellites under construction resulting from the lower borrowing rate in 1998. Income Tax Expense. Income tax expense decreased $38.4 million, or 29%, to $95.9 million for the year ended December 31, 1998 from $134.3 million for the same pro forma period in 1997. The decrease was due to the decrease in income before income taxes as well as to a lower effective tax rate in 1998 principally as a result of utilization of foreign sales corporation tax benefits. Minority Interest. Minority interest, representing preferred stock dividends of PanAmSat International, were $0 for the year ended December 31, 1998 as compared to $24.8 million for the same pro forma period in 1997. The decrease was due to the conversion of PanAmSat International's 12 3/4% Mandatorily Exchangeable Senior Redeemable Preferred Stock due 2005 into 12 3/4% Senior Subordinated Notes due 2005 in the third quarter of 1997 and the related termination of dividend payment obligations. Approximately 99% of the 12 3/4% Senior Subordinated Notes were subsequently retired in connection with the tender offer and restructuring program described above. Extraordinary Item. The Company recorded an extraordinary charge of $20.6 million ($34.3 million before taxes) during 1997 related to the early extinguishment of certain indebtedness of PanAmSat's subsidiaries. The charge principally represented the excess of the price paid for the debt over its carrying value, net of any deferred financing costs and fair value adjustments recognized in connection with the Merger. 1997 COMPARED TO 1996 (PRO FORMA AND AS REPORTED) The following discussion of 1997 versus 1996 performance is primarily based on pro forma results. Pro forma results for 1997 and 1996 and as reported results since the Merger date reflect the impact of the acquisition of PanAmSat International, including the use of purchase accounting. Comparisons of as reported results reflect significant increases in amortization of intangible assets, interest expense, the effective income tax rate and shares outstanding arising from the Merger. Revenues. Pro forma revenues increased $26.3 million, or 4%, to $756.0 million in 1997 from $729.7 million in 1996. Pro forma video services revenues increased $88.4 million, or 17%, to $607.6 million in 1997 from $519.2 million in 1996, principally as a result of increased service agreements associated with available transponder capacity, increased ad hoc revenue associated with significant international news events and increased revenues associated with DTH services. Pro forma telecommunications services revenues decreased $43.1 million, or 26%, to $123.2 million in 1997 from $166.3 million in 1996. The decrease was primarily due to less outright sales and sales-type lease activity during 1997. Pro forma satellite services and other revenues decreased $19.0 million, or 43%, to $25.2 million in 1997 from $44.2 million in 1996 principally due to a decrease in ground services sales. The pro forma revenue increase can also be analyzed based on the type of agreement. Pro forma revenues from sales and sales-type leases decreased to $71.3 million in 1997 from $163.7 million in 1996. The decrease was attributable to a lower volume in 1997 relative to 1996 of outright sales and sales-type leases. Pro forma revenues from operating leases of transponders, satellite services and other increased $118.7 million, or 21%, to $684.7 million in 1997 from $566.0 million in 1996, due primarily to additional transponder capacity placed in service. 24 As reported revenues increased $147.1 million, or 30%, to $629.9 million in 1997 from $482.8 million in 1996, primarily due to the impact of the Merger, and also due to increased service agreements associated with available transponder capacity. Cost of Outright Sales and Sales-Type Leases of Transponders. Pro forma cost of outright sales and sales-type leases of transponders decreased $32.5 million, or 61%, to $20.5 million in 1997 from $53.0 million in 1996, due to the decrease in outright sales and sales-type leases. Leaseback Expense, Net of Deferred Gain. Pro forma leaseback expense, net of deferred gain, increased $2.0 million, or 3%, to $61.9 million in 1997 from $59.9 million in 1996. Direct Operating and Selling, General and Administrative Costs. Pro forma direct operating and selling, general and administrative costs decreased $6.0 million, or 4%, to $130.1 million in 1997 from $136.1 million in 1996. Depreciation and Amortization. Pro forma depreciation and amortization increased $16.0 million, or 9%, to $197.1 million in 1997, from $181.1 million in 1996, due primarily to depreciation expense associated with additional transponder capacity placed in service. As reported depreciation and amortization increased $91.1 million, or 156%, to $149.6 million in 1997, from $58.5 million in 1996. In addition to the impact of the Merger, the increase was a result of depreciation expense associated with additional transponder capacity placed in service. Income from Operations. Pro forma income from operations increased $46.8 million, or 16%, to $346.4 million in 1997, from $299.6 million in 1996. The increase was primarily due to the increase in revenues and the decrease in cost of outright sales and sales-type leases. Interest Expense, Net. Pro forma interest expense, net decreased $56.3 million, or 45%, to $69.0 million in 1997, from $125.3 million in 1996. The decrease in pro forma interest expense, net was due to increased interest income earned on marketable securities coupled with reduced interest expense reflecting larger amounts of interest capitalized on satellites under construction which are expected to be launched in 1998 and 1999. Income Tax Expense. Pro forma income tax expense increased $41.8 million, or 45%, to $134.3 million in 1997, from $92.5 million in 1996. The increase in pro forma income tax expense was principally due to the increase in taxable income. The pro forma tax rates for 1997 and 1996 of 48% and 52%, respectively, are higher than the statutory rate due to the fact that goodwill amortization attributable to the Merger is not deductible for tax purposes. Minority Interest. Pro forma minority interest, representing preferred stock dividends of PanAmSat International, decreased $3.7 million to $24.8 million in 1997 from $28.5 million in 1996. The decrease was due to the conversion of PanAmSat International's 12 3/4% Mandatorily Exchangeable Senior Redeemable Preferred Stock due 2005 into 12 3/4% Senior Subordinated Notes due 2005 in the third quarter of 1997 and the related termination of dividend payment obligations. Extraordinary Item. The Company recorded an extraordinary charge of $20.6 million ($34.3 million before taxes) during 1997 related to the early extinguishment of certain indebtedness of PanAmSat's subsidiaries. The charge principally represented the excess of the price paid for the debt over its carrying value, net of any deferred financing costs and fair value adjustments recognized in connection with the Merger. SPACECRAFT DEVELOPMENTS PAS-7 and PAS-8 were launched during the second half of 1998 and cover the IOR and POR, respectively. PAS-6B was launched during the fourth quarter of 1998 and is located in the AOR. As a result of technical problems that occurred on certain of the Company's satellites in the last 18 months, the Company has modified its previously announced expansion and restoration strategy to support its existing 25 fleet and customers and provide additional capacity. The following recent technical events have affected PanAmSat's satellite fleet: Following the launch of PAS-6 in late 1997, an anomaly was detected in its solar arrays. The satellite experienced several circuit failures in its solar arrays and may experience additional failures in the future. The circuit failures require the Company to forego the use of some transponders initially and to turn off additional transponders in later years. The Company submitted an insurance claim for this partial loss and $29.1 million was received during 1998. The ability of transponders to provide transmission power for DTH signal reception using 60-centimeter dishes is not affected. During 1998, three of the Company's satellites experienced what is believed to be a related anomaly in their on-board SCPs. On May 19, 1998, all customer services on Galaxy IV were permanently lost when the satellite experienced an SCP failure that caused the satellite to rotate and lose its fixed orientation with the Earth. The spare SCP was unavailable due to an earlier unrelated event that had not been previously detected. The Company submitted an insurance claim for this loss and received $162.5 million in 1998. For non- pre-emptable customers, service was restored with the use of capacity on other Company satellites, including capacity previously used by certain customers whose service was subject to preemption and terminated in accordance with their agreements. Subsequently, two other satellites (Galaxy VII and PAS-4) had primary SCP failures but are operating normally on back-up systems. An investigation of the anomaly, conducted by HSC, the manufacturer of the three affected satellites, identified electrical short circuits involving tin- plated relay switches as the most probable cause of the SCP failures. The report concluded that the short circuits can occur only when several factors are concurrently present. Of the 14 satellites owned by PanAmSat that were constructed by HSC, five satellites (including PAS-4 and Galaxy VII) are the same model spacecraft as the affected satellites, and have tin-plated relay switches similar to the switches on the failed SCPs. No assurance can be given that additional SCP failures will not occur. On August 26, 1998, the Company's Galaxy X satellite was destroyed during the inaugural launch of the Boeing Delta III rocket which exploded shortly after liftoff. The Company plans to launch a replacement for Galaxy X, Galaxy X-R, by the fourth quarter of 1999. The Company received $250 million in insurance proceeds as a result of the failure. In March 1998, two cells failed in the battery system of PAS-5. The batteries' sole purpose is to power the payload and spacecraft operations during the daily eclipse periods (having a duration of one minute to a maximum of 75 minutes per day) which occur during two 40-day periods around each of March 21 and September 21. During the autumn eclipse season in 1998, additional full and partial cell failures occurred on the satellite. In future eclipse seasons, service to one or more existing full-time customers may be interrupted for brief periods which, depending upon their extent, could result in a claim by affected customers for termination of their agreements. The Company intends to submit an insurance claim for this partial loss. The Company intends to use PAS-9, an international satellite scheduled for launch in January 2000, to migrate its largest Ku-band customer from PAS-5. This will result in fewer transponders being utilized on a full-time basis on PAS-5. The Company believes that this will reduce the likelihood that full-time C-band customers on PAS-5 will experience service interruptions during upcoming eclipse seasons, although there can be no assurance that additional battery cell failures will not occur in the future. Also in the autumn eclipse season of 1998, a battery problem similar to the PAS-5 anomaly was detected on Galaxy VIII-i, which is the same model satellite as PAS-5. The incident resulted in the shut-off of a substantial number of transponders for brief periods during the eclipses. The Company intends to submit an insurance claim for this loss. There can be no assurance that additional battery cell failures will not occur in future eclipse seasons. The Company plans to monitor the battery cells on PAS-5 and Galaxy VIII-i during future eclipse seasons to determine whether the condition has stabilized. Following the launch of the Company's PAS-8 satellite, an error of the satellite's manufacturer was discovered that affected the geographical coverage or flexibility of all of the Ku-band transponders on the satellite. The impact of the error is being evaluated by the Company, and it is currently believed that certain of 26 the transponders will not be marketable for their intended purpose, although the affected transponders may be capable of generating revenue at a reduced rate. The power of the transponders is not affected. The Company anticipates making an insurance claim for its losses. The C-band beams have not been affected by the error. As a result of the foregoing, the Company's satellite deployment plan has been modified to serve as an expansion, restoration and back-up plan. SATELLITE DEPLOYMENT PLAN PanAmSat's Satellite Deployment Plan is intended to enable the Company to provide back-up and replacement capacity as well as expanded satellite services on an expedited basis in the United States and worldwide. PanAmSat modified its expansion plan to accommodate the back-up and restoration needs of its largest customers in light of the unforeseen technical problems that occurred during 1998 described in the previous section. PanAmSat expects to launch six additional satellites by late 2000, consisting of three new satellites for Latin America (PAS-1R, PAS-9 and Galaxy III-C) and three new satellites for the United States (Galaxy-XI, Galaxy IV-R and Galaxy X-R). Galaxy III-C will carry a payload capable of supporting services for both Latin America and the United States. One of the Company's existing satellites, SBS-5, which has reached the end of its expected life, is expected to be removed from service by mid-2000, resulting in a planned total fleet of 24 satellites, including multiple satellites in each ocean region worldwide and one in-orbit spare satellite (Galaxy VI) for the United States. The Company also will have options to procure three ground spare satellites for launch on an expedited basis. PanAmSat's U.S. strategy anticipates that it will launch Galaxy XI in the third quarter of 1999. Initially, Galaxy XI will be located at 99(degrees) W.L., Galaxy VI's current location. This will permit Galaxy VI to return to its original intended service as a back-up for the Company's U.S. customers. It is anticipated that Galaxy VI will be located initially at 91(degrees) W.L., where it will be co-located with Galaxy VII, and due to frequency interference, will not be capable of offering services simultaneously with Galaxy VII. Galaxy IV-R, which is expected to be launched in late 1999, will be deployed at 99(degrees) W.L. for permanent service. Upon the successful deployment of Galaxy IV-R, Galaxy-XI will be moved to 91(degrees) W.L. and Galaxy VII (which is currently located at 91(degrees) W.L.) will be moved to a new orbital location to be determined. Galaxy VI will be moved to 74(degrees) W.L. where it will continue to provide back-up services. Also in late 1999, the Company anticipates that it will launch Galaxy X-R, which will be permanently located at 123(degrees) W.L., enabling Galaxy IX to be relocated at 127(degrees) W.L. SBS-5 will then be taken out of service. In mid-2000, the Company plans to launch Galaxy III-C, which is expected to be deployed at 95(degrees) W.L. for services to the domestic U.S. and Latin America. Galaxy III-R would be moved for service at a new orbital location to be determined. The Company expects that PAS-9 will be launched during 2000 and will be located in the AOR. The Company's Mexico DTH customer which had contracted for service on PAS-5 instead has contracted to take service on PAS-9. The Ku-band transponders on PAS-5 will not be resold on a full-time basis, and the Company anticipates that this will minimize the disruption to PAS-5's C-band customers as a result of its battery problems. In the second half of 1999, the Company expects to launch PAS-1R, which is intended to replace and significantly expand upon the capacity offered by PAS-1, which may be used to back up PAS-1R or moved to another orbital location not yet determined. Upon the successful transition of services from PAS-6 to PAS-6B, it is anticipated that the PAS-6 satellite will be used for backup or other services from a location to be determined. The implementation of the plan is subject to regulatory approval by the FCC. The Company expects that after the successful launch of the previously described satellites, the revenues attributable to the Galaxy VI, Galaxy VII, PAS-5 and PAS-6 satellites will be at a reduced level compared to the Company's other satellites. The Company has not yet determined whether revenue will be adversely impacted on Galaxy III-R after the completion of the Satellite Deployment Plan. No assurance can be given that commercially suitable orbital locations will be obtained for all of these satellites. Successful implementation of the Satellite Deployment Plan 27 is subject to risks attendant to the Company's business and the requirement of additional capital. See "--Liquidity and Capital Resources." LIQUIDITY AND CAPITAL RESOURCES Pursuant to the Merger, aggregate consideration paid to PanAmSat International stockholders consisted of approximately $1.5 billion in cash and approximately 42.5 million shares of PanAmSat Common Stock. In connection with the Merger, the Company obtained a term loan in the amount of $1.725 billion (the "Hughes Term Loan") from Hughes Electronics, an affiliate of the Company. In addition to the Hughes Term Loan, at December 31, 1998 the Company also had long-term indebtedness of $750 million of the Notes (as defined below). The significant cash outlays for the Company will continue to be primarily capital expenditures related to the construction and launch of satellites, debt service costs and potential acquisitions. The Company now has six satellites under various stages of development for which the Company has budgeted capital expenditures. See "--Risk Factors." The Company will require approximately $650 million to complete the construction, insure, and launch such satellites. In addition to funding the construction and launch of new satellites, the Company may choose to exercise certain remaining early buy-out options under certain satellite sale-leaseback transactions entered into in prior years. During 1998, the Company funded outlays of approximately $155.5 million in connection with the exercise of early buy-out options relating to transponders on SBS-6. In addition, if the Company were to elect to exercise its remaining early buy-out options under certain sale-leaseback transactions, it would be required to fund outlays of approximately $366 million in 1999 (including an early buy-out option for $141.3 million (including a make-whole premium of $2.7 million) relating to 22 transponders on Galaxy VII that was exercised by the Company in January 1999). On January 16, 1998, PanAmSat completed a private placement pursuant to Rule 144A under the Securities Act of 1933 for $750 million aggregate principal amount of debt securities (the "Offering"). The net proceeds from the Offering were used to repay bank loans incurred partially to finance a tender offer for certain debt securities of PanAmSat's subsidiaries, as well as for general corporate purposes. In August 1998, the Company converted the private securities to public debt (the "Notes") by means of a registered exchange offer. In connection with the Offering, the Company executed a Credit Agreement (the "Credit Agreement") with certain lenders and Citicorp USA, Inc. as administrative agent. The Credit Agreement amends and restates the credit agreement among the parties dated December 24, 1997 (the "Original Credit Agreement"). The Original Credit Agreement provided the Company with up to $500 million of revolving credit loans (the "Revolving Credit Loans") for five years, and up to $300 million in short-term loans maturing on April 30, 1998 (the "Term Loans"). The Credit Agreement amended the Original Credit Agreement to terminate the short-term loan facility. The Company currently has $500 million of Revolving Credit Loans available to it under the Credit Agreement less any amounts outstanding under the Commercial Paper Program as described below. On July 27, 1998, the Company initiated a $500 million commercial paper program (the "Commercial Paper Program"). Borrowings under the Credit Agreement and the Commercial Paper Program are limited to $500 million in the aggregate and are expected to be used to fund the Company's satellite construction program. As of March 17, 1999, the Company had approximately $75 million of notes outstanding under the Commercial Paper Program. The Hughes Term Loan is subordinate to the notes issued in connection with the Offering, the Revolving Credit Loans and the notes issued under the Commercial Paper Program. PanAmSat believes that, in addition to the Commercial Paper Program, Credit Agreement, vendor financing, future cash flow from operations (assuming satellites in development are successfully launched and commence service on the schedule currently contemplated) and cash on hand, it will need additional financing of up to $200 million to fund its operations, its anticipated exercise of certain early buy-out options on certain satellite sale- 28 leaseback transactions and its remaining costs for the construction and launch of satellites currently under development for the next twelve months. The Company intends to obtain such additional financing by increasing its current borrowing facilities or from other financing sources which may become available. There can be no assurance, however, that PanAmSat's assumptions with respect to future construction and launch costs will be correct, or that additional vendor financing, satellite insurance proceeds, PanAmSat's future cash flow from operations and borrowings under the Commercial Paper Program and/or Credit Agreement will be sufficient to cover any shortfall in funding for future launches caused by launch failures, cost overruns, delays or other unanticipated expenses. In addition, if the Company were to consummate any strategic transactions or undertake any other projects requiring significant capital expenditures, it may be required to seek additional financing. If circumstances were to require PanAmSat to incur additional indebtedness, the ability of PanAmSat to incur any such additional indebtedness would be subject to the terms of PanAmSat's outstanding indebtedness. The failure to obtain such financing could have a material adverse effect on PanAmSat's operations and its ability to accomplish its business plan. Net cash provided by operating activities increased to $568.2 million in 1998, from $121.5 million in 1997, a decrease from $151.2 million in 1996. The increase in 1998 was primarily attributable to increased operating results, proceeds from insurance claims and reductions in non-cash working capital as compared to 1997. The decrease in 1997 was primarily attributable to payment of various liabilities acquired in the Merger. Net cash used in investing activities decreased to $576.5 million in 1998, from $1,640.0 million in 1997, an increase from $42.1 million in 1996. The decrease in 1998 was primarily attributable to the acquisition of PanAmSat International during the same period in 1997, coupled with proceeds from insurance claims received during 1998. The increase in 1997 was primarily attributable to the net cash paid in connection with the Merger and additional capital expenditures for satellite systems under development, offset by proceeds from the sale of marketable securities. Net cash provided by financing activities decreased to $94.1 million in 1998 from $1,610.2 million in 1997, an increase from $(109.1) million in 1996. The decrease in 1998 was primarily due to obtaining the Hughes Term Loan during the same period in 1997. The increase in 1997 was primarily due to new borrowings (including the Hughes Term Loan), offset by repayments of long-term debt in connection with the tender offer for certain debt securities of the Company's subsidiaries. MARKET RISKS From time to time the Company is exposed to market risks relating to interest rate changes. The Company does not enter into derivatives or other financial instruments for trading or speculative purposes. At December 31, 1997, in connection with its debt refinancing activities, the Company entered into certain U.S. Treasury rate lock contracts to reduce its exposure to fluctuations in interest rates. The aggregate nominal value of these contracts was $375 million and these contracts were accounted for as hedges because they were applied to a specific refinancing plan that was consummated shortly after December 31, 1997. The fair value of these financial instruments at December 31, 1997 approximated their contract value. The cost to unwind these instruments in 1998 was $9.1 million and this amount has been deferred and is being amortized to interest expense over the term of the related debt securities to which such hedges were applied. YEAR 2000 READINESS DISCLOSURE Many of the world's computer systems currently use a two-digit format, as opposed to a four digit format, to indicate the year. If not modified, these computer systems will be unable to properly recognize dates beyond the year 1999, which could lead to system failures and business disruption in the U.S. and internationally. PanAmSat's Year 2000 Plan ("Y2K Plan") addresses Year 2000 issues in the following phases: (i) identification of the Company's systems, equipment and suppliers that may be vulnerable to Year 2000 issues; 29 (ii) assessment of the areas identified to determine risks associated with their failure to be Year 2000 compliant and corrective actions that would be necessary to prevent such failure; (iii) correction of affected systems and equipment; (iv) testing of systems and equipment to determine if Year 2000 compliant; and (v) contingency planning for reasonably likely worst-case scenarios. PanAmSat commenced its Y2K Plan in 1997. A project team, consisting of members of the engineering, operations, and software development groups meets regularly and is in charge of plan scheduling and implementation. Identification of susceptible systems and assessment of the corrective actions has been completed by all functional areas. None of the Company's primary assets, the in-orbit satellites, have date- dependent processing and therefore they are not at substantial risk due to Year 2000 issues. Station-keeping operations for the Company's satellites are not date-dependent and no real-time commands will be required at the time of the date of change. Correction of the TT&C software for HSC-manufactured satellites is the most significant component of the Y2K Plan. Updating the control software represents the largest element of the Y2K Plan (approximately 80% in terms of both cost and time), and of this portion approximately 60% of the update effort was assigned to a single third-party software vendor and Y2K solutions provider (The Raytheon Company). In the fall of 1998, the Company hired an additional Y2K solutions provider to expedite the modification of the control software. The Company also has dedicated in-house software staff to begin making certain necessary upgrades and modifications. While the vast majority of the software modifications and testing will be complete by mid-1999, installation of the modified software at remote TT&C sites and final testing of the entire system is not expected to be complete until the fourth quarter of 1999. Modification of software used to provide communications services to customers (other than satellite control software) is on schedule for mid-1999 completion. Except with respect to the third-party activities relating to satellite control software, all project coordination and systems modifications are being performed by internal personnel. Compliance verification requests have been sent to all identified third- party equipment and system suppliers. Over 80% of such suppliers have responded to the Company's verification requests with approximately 75% of them indicating that the systems they provided are Year 2000 compliant. PanAmSat's Y2K Plan team is working with such suppliers to correct all non- compliant systems. Updates of compressed digital video systems and Loral TT&C equipment are expected to be complete by the end of the first quarter of 1999. It is expected that all of these critical systems will be Year 2000 compliant by mid-1999. The Company has also completed an evaluation of the various management information systems used by the Company for financial and administrative functions and has determined that such systems are largely Y2K compliant. Upgrades are planned for all non-compliant elements, and existing back-up procedures can be used to perform normal Company financial and administrative functions in the event of potentially uncorrected problems. The Company has identified the potential loss of real-time satellite control software functionality as a reasonably likely worst case scenario. Preliminary contingency plans are being developed involving the use of back-dated processors to operate the satellite control systems, which would result in slightly higher operation costs until any remaining Year 2000 problems are corrected. In addition, satellite control may be handled manually. The Company is confident that either of these methods would provide adequate satellite control, but the Company has not completed its evaluation of the risks associated with these station-keeping methods. The Company expects to complete the preparation of formal contingency plans by mid-1999. 30 Internal efforts on Y2K projects have had a minimal impact on other non-Y2K IT and non-IT projects. Any transition of activities currently being performed by third-party Y2K solutions providers to internal resources could delay some internal software projects. The Y2K Plan is funded from cash flows from the Company's operations and is currently in line with budgeted amounts. Approximately $450,000 has been incurred to date in connection with the Y2K Plan. Of this amount, approximately $250,000 was incurred in 1998 and $200,000 during 1997. The total remaining cost through completion of the Y2K Plan is expected to be approximately $2.1 million, including anticipated third-party costs. If additional Y2K solutions providers become necessary for remediation of satellite control software, the cost of the Y2K Plan will increase. Based on its current assessment efforts, the Company does not believe that Year 2000 issues will have a material adverse effect on the financial condition or results of operations of the Company. The Company's Year 2000 issues, however, and any potential business interruption, costs, damages, or losses related thereto, are also dependent upon the Year 2000 compliance of third parties, both domestic and international, such as governmental agencies, vendors and suppliers. As a result, the Company is unable to determine at this time whether Year 2000 issues for third parties will materially affect the Company. RISK FACTORS Risks Associated with Technology. Satellites are subject to significant risks related to delayed and failed launches and in-orbit failures. Of the 29 satellite launches by PanAmSat or its predecessors since 1983, the Company has experienced four launch failures and one in-orbit failure. Each of these satellites was insured in an amount sufficient to substantially recover the Company's investment therein. A significant delay in the delivery or launch of any future satellite would adversely affect the Company's marketing plan for such satellite. Delays can result from the construction of satellites and launch vehicles, launch failures, the periodic unavailability of reliable launch opportunities and possible delays in obtaining regulatory approvals. If satellite construction schedules are not met, there can be no assurance that a launch opportunity will be available at the time a satellite is ready to be launched. The occurrence of a launch failure results in a significant delay in the deployment of a particular satellite because of the need both to construct a replacement satellite and obtain another launch opportunity. A significant delay in the launch of any of PanAmSat's satellites could enable customers who pre-purchased or agreed to lease capacity of such satellites to terminate their contracts. Certain launch vehicles present special risks to the Company. Certain launch vehicles scheduled to be used by PanAmSat have unproven track records and are susceptible to certain risks associated with new launch vehicles. For example, Sea Launch is a launcher that may be used by PanAmSat to launch satellites within the next year. Sea Launch is a joint venture among Boeing, Kvaerner A.S., RSC-Energia and the NPO-Yuzhnoye space concern. This launch will utilize a three-stage launch vehicle launched from a new semi-submersible launch platform in the Pacific Ocean near the equator. The first two stages of the Sea Launch vehicle will be based upon prior generations of NPO-Yuzhnoye's Zenit launch vehicle, and the third stage will be based upon prior generations of the fourth stage of RSC Energia's Proton launch vehicle. Although a successful demonstration launch was completed in March 1999, this launcher has no commercial launch history, which poses heightened risks, including potential launch delays and failures. There can be no assurance that PanAmSat's planned launches will be successful or will occur on schedule. See "--Satellite Deployment Plan" and "Item 1. Business--The Satellites" for a discussion of the Company's Satellite Deployment Plan and related launch schedule. A trade agreement between the United States and Russian governments limits the number of satellites manufactured in the United States which may be launched aboard Russian launch vehicles through the end of the year 2000, which could impact PanAmSat launches on Russian rockets. Although PanAmSat's Russian launch provider has informed the Company that it is seeking to have the limit raised or eliminated, there can be no assurance that such modification will be achieved, which could result in a launch delay or increased launch costs. In addition, Congress is currently investigating certain foreign launches of U.S.- manufactured satellites. Although the Company does not believe that any of its launch providers have been implicated in the investigation, there can be no assurance that future launches by non-U.S. providers 31 will not be adversely affected by this investigation, including the possibility of significant launch delays. All of the Company's planned launches are scheduled to occur on non-U.S. launchers. The failure to implement the Satellite Deployment Plan on schedule could have a material adverse affect on the Company's business. Satellites are also subject to risks after they have been properly deployed and put into operation. The likelihood of in-orbit failure may be heightened by PanAmSat's use on certain of its satellites of new technology. Galaxy XI, Galaxy III-C and PAS-1R are scheduled to be Hughes-manufactured HS-702 model spacecraft. The HS-702 model has an unproven track record and may be susceptible to certain risks related to its new technology. There can be no assurance that PanAmSat's planned use of HS-702 model spacecraft will be successful. Although the Company obtains launch insurance policies designed to cover the cost to construct, launch and insure replacement satellites, there is a risk that certain losses may not be covered by the Company's policies. Typically, PanAmSat's launch policies are effective for three years from the date of a satellite launch. During that time, if a covered malfunction occurs, but no loss is incurred until after the expiration of the policy, the launch insurance policy will not cover the loss, and a subsequent in-orbit policy obtained may either exclude losses related to the known event or impose deductibles that exceed the loss associated with the event. See "Item 1. Business--The Satellites--Insurance." For a detailed discussion of certain spacecraft health issues which affect the Company's satellite fleet and the Company's related Satellite Deployment Plan, see "--Spacecraft Developments," "--Satellite Deployment Plan," and "Item 1. Business--The Satellites." The implementation of the Satellite Deployment Plan is subject to regulatory approval by the FCC. The Company expects that after the completion of the Satellite Deployment Plan, the revenues attributable to the Galaxy VI, Galaxy VII, PAS-5 and PAS-6 satellites will be at reduced levels compared to the Company's other satellites. The Company has not yet determined whether revenue will be adversely impacted on Galaxy III-R after completion of the Satellite Deployment Plan. No assurance can be given that commercially suitable orbital locations will be obtained for these satellites. Successful implementation of the Satellite Deployment Plan is subject to risks attendant to the Company's business and the requirement of additional capital. See "--Liquidity and Capital Resources" and "--Regulatory Risks." Regulatory Risks. The satellite industry is highly regulated both in the United States and internationally. PanAmSat is subject to the regulatory authority of the U.S. government (primarily the FCC) and the national communications authorities of the countries in which it operates. The business prospects of PanAmSat could be adversely affected by the adoption of new laws, policies, regulations, or changes in the interpretation or application of existing laws, policies or regulations, that modify the present regulatory environment. While PanAmSat has generally been successful in obtaining necessary licenses, there can be no assurance that PanAmSat will obtain all requisite regulatory approvals for the construction, launch and operation of any of PanAmSat's future satellites and for the orbital slots planned for these satellites or, if obtained, that such licenses will not impose operational restrictions on PanAmSat. Nor can there be any assurance that PanAmSat will succeed in coordinating any or all of its future satellites internationally. PanAmSat's successful implementation of the Satellite Deployment Plan depends upon the Company's ability to obtain regulatory authorization to operate its satellites at certain locations. No assurance can be made that PanAmSat will obtain all of the authorizations necessary for the completion of the Satellite Deployment Plan. The failure to implement the Satellite Deployment Plan on schedule could have a material adverse affect on the Company's business. See "Item 1. Business--Government Regulation." Regulatory schemes in countries in which PanAmSat operates may impose impediments to the Company's operations. PanAmSat, its customers or companies with which PanAmSat does business must have authority from each country in which PanAmSat provides services or its customers use its satellites. Although PanAmSat believes that it, its customers and/or companies with which it does business presently hold the requisite licenses and approvals for the countries in which it currently provides services, the regulatory schemes in each country are different and thus there may be instances of noncompliance of which PanAmSat is not aware. In addition, portions of PanAmSat's present and future satellites are designed to provide service to countries in which regulatory impediments exist. Although PanAmSat believes these regulatory schemes will not prevent it from 32 pursuing its business plan, there can be no assurance that any current regulatory approvals held by PanAmSat are, or will remain, sufficient in the view of foreign regulatory authorities, or that any additional necessary approvals will be granted on a timely basis, or at all, in all jurisdictions in which the Company wishes to operate its new satellites or that restrictions applicable thereto will not be unduly burdensome. See "Item 1. Business-- Government Regulation." Certain of the frequencies that are intended to be used to uplink to PAS-7, PAS-6 and Galaxy VIII-i must be coordinated with the U.S. government on an earth-station-by-earth-station basis to ensure that harmful interference to government operations is minimized. PanAmSat has undertaken such coordination and believes that it will either be able to coordinate successfully with federal government users or to institute operational solutions that will mitigate the problem, but there can be no assurance that PanAmSat's efforts will be successful. PanAmSat has received conditional regulatory approval for the orbital slot of 72(degrees) E.L. from the FCC, which approval is subject to a full financial showing and demonstration of consultation with Intelsat. It is unlikely that PAS-7 will be permitted to operate its C-band transponders until certain coordination issues are resolved with the Russian Federation. Certain of the Ku-band downlink beams on PAS-8 include coverage, at very low power levels, of the west coast of the United States and of Hawaii. Because the Ku- band frequencies on these beams are allocated in the United States to the BSS, PanAmSat's coverage of the United States is on a "non-conforming use" basis, requiring that PanAmSat not interfere with, and accept interference from, any authorized users in the United States. The FCC gives a "replacement expectancy" with respect to the use of the same orbital location at the same frequencies for replacement satellites. This replacement expectancy may increase the likelihood that PanAmSat will be able to use PAS-1R to expand the frequencies or coverages employed by PAS-1 at 45(degrees) W.L.; however, no assurance can be given that the Company will be successful at expanding such frequencies and coverages. SBS-4's FCC license expired in 1994, and the satellite is operated pursuant to grants of special temporary authority that are renewed periodically. Following the failure of Galaxy IV, the FCC granted the Company special temporary authority to relocate Galaxy VI from 74(degrees) W.L. to 99(degrees) W.L. to provide replacement C- band capacity. Currently, the Company anticipates relocating Galaxy VI to 91(degrees) W.L., subject to applicable regulatory approvals. Once slots have been identified, the Company plans to apply for temporary authority to operate at such locations until other satellites are authorized for, and commence operations at, such slots. The Company has received special temporary authority to relocate Brasilsat A1 from 79(degrees) W.L. to 144(degrees) W.L. and to operate Brasilsat A1 at the new orbital location. Litigation. See "Item 3. Legal Proceedings." ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations--Market Risks." 33 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE ---- Independent Auditors' Report.............................................. 35 Consolidated Statements of Income for Each of the Three Years Ended Decem- ber 31, 1998............................................................. 36 Consolidated Balance Sheets--December 31, 1998 and 1997................... 37 Consolidated Statements of Changes in Stockholders' Equity for Each of the Three Years Ended December 31, 1998...................................... 39 Consolidated Statements of Cash Flows for Each of the Three Years Ended December 31, 1998........................................................ 40 Notes to Consolidated Financial Statements................................ 41
34 INDEPENDENT AUDITORS' REPORT To the Board of Directors of PanAmSat Corporation We have audited the accompanying consolidated balance sheets of PanAmSat Corporation and subsidiaries as of December 31, 1998 and 1997, and the related consolidated statements of income, changes in stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1998. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of PanAmSat Corporation and subsidiaries as of December 31, 1998 and 1997 and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1998 in conformity with generally accepted accounting principles. Deloitte & Touche LLP Stamford, Connecticut January 15, 1999 35 PANAMSAT CORPORATION CONSOLIDATED STATEMENTS OF INCOME YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (IN THOUSANDS EXCEPT PER SHARE DATA)
1998 1997 1996 -------- -------- -------- REVENUES: Operating leases, satellite services and other.. $736,624 $558,622 $319,084 Outright sales and sales-type leases............ 30,639 71,317 163,686 -------- -------- -------- Total revenues................................. 767,263 629,939 482,770 -------- -------- -------- OPERATING COSTS AND EXPENSES: Cost of outright sales and sales-type leases.... -- 20,476 52,969 Leaseback expense, net of deferred gains........ 47,223 61,907 59,927 Depreciation and amortization................... 234,945 149,592 58,523 Direct operating costs.......................... 96,510 61,199 34,794 Selling, general and administrative expenses.... 70,251 42,561 34,119 -------- -------- -------- Total operating costs and expenses............. 448,929 335,735 240,332 -------- -------- -------- INCOME FROM OPERATIONS........................... 318,334 294,204 242,438 INTEREST EXPENSE--Net............................ (97,788) (30,973) (4,903) OTHER INCOME..................................... -- 385 2,184 -------- -------- -------- INCOME BEFORE INCOME TAXES, MINORITY INTEREST AND EXTRAORDINARY ITEM.............................. 220,546 263,616 239,719 INCOME TAXES..................................... 95,940 117,325 89,895 -------- -------- -------- INCOME BEFORE MINORITY INTEREST AND EXTRAORDINARY ITEM............................................ 124,606 146,291 149,824 MINORITY INTEREST--Subsidiary preferred stock dividend........................................ -- 12,819 -- -------- -------- -------- INCOME BEFORE EXTRAORDINARY ITEM................. 124,606 133,472 149,824 EXTRAORDINARY ITEM--LOSS ON EXTINGUISHMENT OF DEBT, NET OF TAX................................ -- 20,643 -- -------- -------- -------- NET INCOME....................................... $124,606 $112,829 $149,824 ======== ======== ======== EARNINGS PER COMMON SHARE--Basic and diluted..... $ 0.83 ======== Weighted average common shares outstanding....... 149,564 ========
See notes to consolidated financial statements. 36 PANAMSAT CORPORATION CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1998 AND 1997 (IN THOUSANDS)
1998 1997 ---------- ---------- ASSETS CURRENT ASSETS: Cash and cash equivalents.............................. $ 177,542 $ 91,739 Accounts receivable--net............................... 63,326 41,030 Net investment in sales--type leases................... 22,595 27,757 Prepaid expenses and other............................. 38,692 77,891 Deferred income taxes.................................. 36,438 46,940 ---------- ---------- Total current assets................................. 338,593 285,357 ---------- ---------- SATELLITES AND OTHER PROPERTY AND EQUIPMENT--Net......... 2,895,191 2,506,082 NET INVESTMENT IN SALES--TYPE LEASES..................... 173,382 324,689 GOODWILL--Net of amortization............................ 2,433,538 2,498,498 DEFERRED CHARGES......................................... 49,793 67,808 ---------- ---------- TOTAL ASSETS............................................. $5,890,497 $5,682,434 ========== ==========
See notes to consolidated financial statements. 37 PANAMSAT CORPORATION CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1998 AND 1997 (IN THOUSANDS, EXCEPT PER SHARE DATA)
1998 1997 ---------- ---------- LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable and accrued liabilities............... $ 88,005 $ 43,226 Deferred gains on sale-leasebacks...................... 34,303 42,870 Deferred revenues...................................... 21,294 18,822 ---------- ---------- Total current liabilities............................ 143,602 104,918 ---------- ---------- DUE TO AFFILIATES (PRINCIPALLY MERGER RELATED INDEBTED- NESS)................................................... 1,788,353 1,802,195 LONG-TERM DEBT........................................... 750,056 609,116 DEFERRED GAINS ON SALE-LEASEBACKS........................ 121,477 191,882 DEFERRED INCOME TAXES.................................... 231,373 179,267 DEFERRED CREDITS AND OTHER (PRINCIPALLY CUSTOMER DEPOSITS AND DEFERRED REVENUE)................................... 111,239 134,036 ACCRUED OPERATING LEASEBACK EXPENSE...................... 55,982 100,184 ---------- ---------- TOTAL LIABILITIES........................................ 3,202,082 3,121,598 ---------- ---------- COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY: Common stock, $0.01 par value--400,000,000 shares authorized; 149,231,121 and 149,135,654 outstanding at December 31, 1998 and 1997, respectively....................... 1,492 1,491 Additional paid-in-capital............................. 2,504,316 2,501,344 Retained earnings...................................... 182,607 58,001 ---------- ---------- Total stockholders' equity........................... 2,688,415 2,560,836 ---------- ---------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY............... $5,890,497 $5,682,434 ========== ==========
See notes to consolidated financial statements. 38 PANAMSAT CORPORATION CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998 (IN THOUSANDS, EXCEPT SHARE DATA)
COMMON STOCK PAR VALUE ------------------ PARENT ADDITIONAL COMPANY'S PAID-IN RETAINED NET INVESTMENT SHARES AMOUNT CAPITAL EARNINGS -------------- ----------- ------ ---------- -------- BALANCE, JANUARY 1, 1996................... $ 761,391 Net distribution to Par- ent.................... (109,122) Net income.............. 149,824 ----------- BALANCE, DECEMBER 31, 1996................... 802,093 ----------- Net income prior to Merger................. 54,828 $(54,828) Net contributions from Parent................. 370,424 -- Capitalization in con- nection with Merger.... (1,227,345) 149,122,807 $1,491 $2,500,854 -- Additional issuance of common stock........... -- 12,847 -- 490 -- Net income.............. -- -- -- -- 112,829 ----------- ----------- ------ ---------- -------- BALANCE, DECEMBER 31, 1997................... -- 149,135,654 1,491 2,501,344 58,001 ----------- ----------- ------ ---------- -------- Additional issuance of common stock........... -- 95,467 1 2,972 -- Net income.............. -- -- -- -- 124,606 ----------- ----------- ------ ---------- -------- BALANCE, DECEMBER 31, 1998................... $ -- 149,231,121 $1,492 $2,504,316 $182,607 =========== =========== ====== ========== ========
See notes to consolidated financial statements. 39 PANAMSAT CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (IN THOUSANDS)
1998 1997 1996 ----------- ----------- --------- CASH FLOWS PROVIDED BY OPERATING ACTIVI- TIES: Net income............................... $ 124,606 $ 112,829 $ 149,824 Adjustments to reconcile net income to net cash provided by operating activi- ties: Cost of outright sales................... -- -- 14,523 Gross profit on sales--type leases....... -- (33,180) (51,802) Depreciation and amortization............ 234,945 149,592 58,523 Deferred income taxes.................... 62,608 129,065 (21,399) Amortization of gains on sale-leasebacks. (36,140) (42,870) (41,559) Amortization of debt issuance costs...... 6,105 3,600 -- Provision for uncollectible receivables.. (4,943) -- 1,315 Interest expense capitalized............. (59,947) (80,468) (14,613) Insurance proceeds (net of $257.6 million of satellite costs)..................... 184,026 -- -- Minority interest........................ -- 12,819 -- Extraordinary item....................... -- 20,643 -- Changes in assets and liabilities, net of acquired assets and liabilities: Collections on investments in sales-type leases................................. 43,139 21,978 31,204 Operating lease and other receivables... (20,103) (8,086) (6,053) Prepaid expenses and other assets....... 48,296 (23,683) 1,725 Accounts payable and accrued liabili- ties................................... 21,066 (119,428) (935) Accrued operating leaseback expense..... (17,079) (7,657) 38,738 Deferred revenues and other............. (18,406) (13,678) (8,253) ----------- ----------- --------- Net cash provided by operating activi- ties.................................. 568,173 121,476 151,238 ----------- ----------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of PanAmSat International, net of cash acquired.................... -- (1,486,266) -- Capital expenditures..................... (678,593) (541,879) (294,122) Proceeds from sale-leaseback of satellite transponders............................ -- -- 252,000 Proceeds from sales of marketable securi- ties.................................... -- 388,173 -- Early buy-out of sale-leaseback.......... (155,530) -- -- Net book value of satellites recovered through insurance....................... 257,605 -- -- ----------- ----------- --------- Net cash used in investing activities.. (576,518) (1,639,972) (42,122) ----------- ----------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: New borrowings (including acquisition borrowings of $1.725 billion in 1997)... 1,165,000 2,349,336 -- Net contributions from (distributions to) parent company.......................... -- -- (109,122) Parent company contributions prior to the Merger.................................. -- 370,424 -- Repayments of long-term debt............. (1,024,060) (1,082,952) -- Repayments of incentive obligations...... (30,632) (9,842) -- Debt issuance costs...................... (19,132) (17,250) -- Stock issued to 401(k) plan.............. 2,972 490 -- ----------- ----------- --------- Net cash provided by (used in) financ- ing activities........................ 94,148 1,610,206 (109,122) ----------- ----------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.............................. 85,803 91,710 (6) CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR..................................... 91,739 29 35 ----------- ----------- --------- CASH AND CASH EQUIVALENTS, END OF YEAR.... $ 177,542 $ 91,739 $ 29 =========== =========== =========
See notes to consolidated financial statements 40 PANAMSAT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 1. BASIS OF PRESENTATION AND DESCRIPTION OF BUSINESS BASIS OF PRESENTATION--Effective May 16, 1997, PanAmSat Corporation (the "Company") acquired the business of PanAmSat International Systems, Inc. (then operating under its previous name, PanAmSat Corporation) ("PanAmSat International"). In connection with the acquisition, the net assets of the Galaxy Business of Hughes Communications, Inc. (the "Galaxy Business") were contributed to the Company. (As used herein, the Company refers to the business and operations of PanAmSat International Systems, Inc., formerly known as PanAmSat Corporation, and the Galaxy Business, its predecessor entity.) The consideration paid to PanAmSat International's common stockholders consisted of $1.5 billion in cash and 42.5 million shares of common stock of the Company having an estimated value of $1.3 billion. The acquisition of PanAmSat International was accounted for as a purchase and its operating results have been consolidated from the date of acquisition. The purchase price exceeded the estimated fair value of PanAmSat International's net assets (principally satellites) by approximately $2.5 billion, which has been allocated to goodwill and is being amortized on a straight-line basis over forty years. In a separate but related transaction, as a condition precedent to the merger, the Company redeemed 7.5 million shares of its common stock that was received by a PanAmSat International stockholder for $225 million in cash, and these proceeds were used by the former PanAmSat International stockholder to acquire the Company's rights to equity interests in certain direct-to-home businesses in Latin America and the Iberian Peninsula (the "DTH Rights"). In connection with the transactions described above, the Company borrowed $1.725 billion from Hughes Electronics Corporation ("Hughes"), a wholly-owned subsidiary of General Motors Corporation ("GM"), which then owned 71 1/2% of the Company's common stock. The Hughes borrowings initially had a term of three years, a floating interest rate of London Interbank Offered Rate ("LIBOR") plus 2% and quarterly principal payments of $50 million which commenced in August 1998. (See Note 7 for a description of certain modifications made to the terms of these borrowings.) As a result of the merger transactions described above (the "Merger"), the Company acquired the indebtedness of PanAmSat International consisting primarily of 9 3/4% Senior Secured Notes due 2000 and 11 3/8% Senior Subordinated Discount Notes due 2003, as well as its 12 3/4% Mandatorily Exchangeable Senior Redeemable Preferred Stock due 2005 (the "Preferred Stock"). During the third quarter of 1997, PanAmSat International exchanged the Preferred Stock into 12 3/4% Senior Subordinated Notes due 2005. These debt instruments are collectively referred to as the "Old Notes." (See Note 5 for a discussion of the refinancing of the Old Notes.) The principal components of the Merger were as follows (in millions): Fair value of assets acquired (excluding goodwill)................... $1,955 Goodwill............................................................. 2,470 Fair value of liabilities assumed (including the Old Notes).......... (1,425) Fair value of common stock issued.................................... (1,275) Subtotal-debt issued in connection with the Merger................... 1,725 Less: Cash acquired.................................................. (239) ------ Net cash paid in connection with the Merger.......................... $1,486 ======
41 PANAMSAT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Unaudited pro forma summary results of operations as if PanAmSat International had been acquired at the beginning of 1996 are presented below (in thousands, except per share data):
1997 1996 -------- -------- Revenues.................................................. $755,980 $729,713 Income before extraordinary items......................... $118,628 $ 55,454 Net income................................................ $ 97,985 $ 55,454 Income before extraordinary item per share--basic and di- luted.................................................... $ 0.80 $ 0.37 Net income per share--basic and diluted................... $ 0.66 $ 0.37
The unaudited pro forma results of operations include adjustments to reflect the issuance of certain indebtedness related to the Merger, fair value adjustments and the recognition of goodwill associated with the transaction. The unaudited pro forma results exclude the impact of PanAmSat International's $225 million pre-tax gain on the sale of the DTH Rights, as well as certain professional and advisory fees and other expenses incurred by PanAmSat International in connection with the Merger totaling $31.6 million, both of which are nonrecurring items which are not indicative of the Company's ordinary course of business. The pro forma earnings per share amounts for the years ended December 31, 1997 and 1996 are calculated on a basic and diluted basis using the pro forma average number of common shares assumed to be outstanding during the periods. On May 1, 1998, Hughes increased its beneficial ownership of the Company from approximately 71.5% to approximately 81% through the purchase of approximately 11.2 million shares of common stock from the shareholder that previously acquired the DTH Rights, and 2.9 million shares of common stock from a group of founding shareholders of PanAmSat International, which included certain officers of the Company. These shares were purchased for an aggregate amount of $851.0 million or $60 per share. DESCRIPTION OF THE BUSINESS--PanAmSat is the world's largest commercial provider of satellite-based communications services through its global network of 19 satellites that provide state-of-the-art telecommunications services for customers worldwide. The Company is a leading provider of satellite capacity for television program distribution to network, cable and other redistribution sources in the United States, Latin America, Africa, South Asia and the Asia- Pacific region. The Company also provides satellite services and related technical support for live transmissions for news and special events coverage. In addition, PanAmSat provides satellite services to telecommunications carriers, corporations and Internet service providers for the provision of satellite-based communications networks, including private corporate networks employing very small aperture antennas and international access to the U.S. Internet backbone. Prior to the Merger, the Galaxy Business was an operating division of a wholly-owned subsidiary of Hughes and its financial information for these periods was derived from the historical financial statements of the subsidiary based upon assumptions that the Company's management believes represent a reasonable basis for presenting results of operations and financial position. Financial data for these periods also included the allocation of certain corporate expenses of Hughes and its wholly-owned subsidiary based upon a systematic allocation process that was uniformly applied to similar operating business units of Hughes. 2. SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION--The consolidated financial statements include the accounts of the Company and its domestic and foreign subsidiaries. All significant intercompany balances and transactions have been eliminated. USE OF ESTIMATES--The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect amounts reported 42 PANAMSAT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) therein. Due to the inherent uncertainty involved in making estimates, actual results reported in future periods may be based upon amounts that differ from those estimates. REVENUE RECOGNITION--The Company enters into contracts to provide satellite capacity and related services. Revenues are generated from outright sale, sales-type lease and operating lease contracts with customers to provide satellite transponders and transponder capacity and, in certain cases, earth station and teleport facilities, for periods typically ranging from one year to the life of the satellite. Virtually all contracts stipulate payment terms in U.S. dollars. Pursuant to an outright sale contract, all rights and title to a transponder may be purchased. In connection with an outright sale, the Company recognizes the sale amount as revenue and the cost basis of the transponder is removed and charged to cost of sales. Contracts for the sale of transponders include a telemetry, tracking and control ("TT&C") service agreement with the customer. Lease contracts qualifying for capital lease treatment (typically based on the term of the lease) are accounted for as sales-type leases. For sales-type lease transactions, the Company recognizes as revenue the net present value of the future minimum lease payments. The cost basis of the transponder is removed and charged to cost of sales. During the life of the lease, the Company recognizes as revenue in each respective period, that portion of each periodic lease payment deemed to be attributable to interest income. The balance of each periodic lease payment, representing principal repayment, is recognized as a reduction of the net investment in sales-type leases. Interest income from sales-type leases of approximately $31 million, $38 million and $41 million is included in sales-type lease revenues for the years ended December 31, 1998, 1997 and 1996, respectively. Lease contracts that do not qualify as sales-type leases are accounted for as operating leases. Operating lease revenues are recognized on a straight- line basis over the lease term. Differences between operating lease payments received and revenues recognized are deferred as, or amortized from, operating lease receivables. Revenues for occasional services are recognized as services are performed and billed. The Company has certain obligations, including providing spare or substitute capacity if available, in the event of satellite service failure under certain long-term agreements. If no spare or substitute capacity is available, the agreements may be terminated. Except for certain deposits, the Company is not obligated to refund operating lease payments previously made. The Company has entered into sale-leaseback agreements for the sale of certain of its satellite transponders that are subject to operating leases. Gains resulting from such transactions are deferred and amortized over the leaseback period. Leaseback expense is recorded using the straight-line method over the term of the lease, net of amortization of the deferred gains. Differences between operating leaseback payments made and expense recognized are deferred and included in accrued operating leaseback expense. Future cash payments expected from customers under all long-term arrangements described above aggregate approximately $6.3 billion as of December 31, 1998, including approximately $400 million relating to agreements on satellites that are under construction at December 31, 1998 and are expected to be launched within twelve months. FAIR VALUE OF FINANCIAL INSTRUMENTS--The carrying amounts of cash, accounts receivable, accounts payable and accrued liabilities approximate their fair values generally due to the short maturity of these items. The carrying amount of the net investment in sales-type leases approximates fair value based on the interest rates implicit in the leases. At December 31, 1997, in connection with its debt refinancing activities, the Company entered into certain U.S. Treasury rate lock contracts to reduce its exposure to fluctuations in interest rates. The aggregate nominal value of these contracts was $375 million and these contracts were accounted for as hedges because they were 43 PANAMSAT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) applied to a specific refinancing plan that was consummated shortly after December 31, 1997. The fair value of these financial instruments at December 31, 1997 approximated their contract value. The cost to unwind these instruments in 1998 was $9.1 million and this amount has been deferred and is being amortized to interest expense over the terms of the related debt securities. CONCENTRATION OF CREDIT RISK--The Company provides satellite transponders and related services and extends credit to a large number of customers in the commercial satellite communications market. Management monitors its exposure to credit losses and maintains allowances for anticipated losses which are charged to selling, general and administrative expenses. The currency in which the majority of the contracts are denominated is the U.S. dollar. Revenues derived from affiliates of Hughes comprised approximately 16% of total revenues in 1998. No unaffiliated customer provides the Company with revenues in excess of 10% of total revenues. CASH AND CASH EQUIVALENTS--Cash and cash equivalents consists of cash on hand and highly liquid investments with maturities at date of acquisition of three months or less. Supplemental cash flow information for 1998 and 1997 (the years in which the Company was a separate operating company) is as follows (in thousands):
1998 1997 -------- -------- Cash received for interest................................ $ 13,364 $ 22,229 ======== ======== Cash paid for interest.................................... $138,678 $109,858 ======== ======== Cash paid for taxes....................................... $ 3,425 $105,218 ======== ========
ACCOUNTS RECEIVABLE--Accounts receivable include amounts earned under service agreements and occasional services which are billable as performed. An allowance for doubtful accounts is maintained in the amount of approximately $6.0 million and $1.0 million at December 31, 1998 and 1997, respectively. SATELLITES AND OTHER PROPERTY AND EQUIPMENT--Satellites and other property and equipment are stated at historical cost, or in the case of satellites acquired from PanAmSat International, the fair value at the date of acquisition. The capitalized cost of satellites includes all construction costs, incentive obligations, launch costs, launch insurance, direct development costs, and capitalized interest. Substantially all other property and equipment consists of the Company's teleport facilities. Depreciation and amortization are provided using the straight-line method over the estimated useful lives of the respective assets as follows:
ESTIMATED LIVES (YEARS) --------------- Satellite systems under development.......................... -- Satellites in service........................................ 13-15 Communications equipment..................................... 7 General support equipment.................................... 5-10 Buildings.................................................... 25
The estimated useful lives of the satellites are determined by an engineering analysis performed at the initial in-service dates. As the telecommunications industry is subject to rapid technological change, the Company may be required to revise the estimated useful lives of its satellites and communications equipment or to adjust their carrying amounts. Accordingly, the estimated useful lives are periodically reviewed using current TT&C data provided by various service providers. If a significant change in the estimated useful lives is identified, the Company accounts for such changes on a prospective basis. 44 PANAMSAT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) EVALUATION OF LONG-LIVED ASSETS--The Company periodically evaluates potential impairment loss relating to long-lived assets, including goodwill, by assessing whether the unamortized carrying amount can be recovered over the remaining life through undiscounted future expected cash flows generated by the underlying assets. DEBT ISSUANCE COSTS--Included in Deferred Charges in the accompanying balance sheet are debt issuance costs of $29.9 million and $17. 3 million at December 31, 1998 and 1997, respectively. These costs are being amortized to interest expense on a straight line basis over the life of the related indebtedness and the accumulated amortization at December 31, 1998 and 1997 amounted to $8.6 million and $3.6 million, respectively. GOODWILL--Goodwill is primarily related to the acquisition of PanAmSat International and is being amortized over 40 years. Accumulated amortization was $142.8 million and $77.8 million at December 31, 1998 and 1997, respectively. DEFERRED REVENUES--The Company enters into agreements with its customers under which they make prepayments for services to be rendered over a specific period. Payments received are deferred and amortized over the periods of performance. TRANSPONDER INSURANCE--The Company accrues an obligation for the present value of estimated in-orbit performance insurance costs on transponder sales, sales-type leases and other agreements with performance warranty provisions, concurrently with the recognition of the related revenue. The Company also purchases insurance for the replacement value of its owned satellite transponders. Premiums paid relative to such insurance are amortized to expense over the insurance policy terms, which are typically one to three years. INCOME TAXES--The provision for income taxes is based upon reported income before income taxes. Deferred income tax assets and liabilities reflect the impact of temporary differences between the amounts of assets and liabilities recognized for financial reporting purposes and such amounts recognized for tax purposes, as measured by applying currently enacted tax rates. Beginning in 1998, the Company and its subsidiaries joined with Hughes and GM in filing a consolidated U.S. Federal income tax return. Under the tax sharing agreement with Hughes, the portion of the Hughes consolidated tax liability recorded by PanAmSat is generally equivalent to the liability it would have incurred on a separate return basis. From the Merger date in 1997 and up to the date upon which Hughes became an 81% shareholder in PanAmSat, the Company and its domestic subsidiaries filed a separate consolidated U.S. Federal income tax return. Prior to the Merger, Hughes Communications, Inc. (which owned the Galaxy Business), along with other Hughes subsidiaries, joined with GM in filing a consolidated U.S. Federal tax return. Current and deferred income taxes were computed by Hughes and allocated to the Company in accordance with principles established by Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes." Hughes paid the Company's share of the consolidated income tax liability. The income taxes that would have been paid by the Company if it were a separate taxpayer but were not paid under the Hughes policy resulted in an increase in the parent company's net investment. EARNINGS PER SHARE--The Company reports its earnings per share in accordance with SFAS No. 128, Earnings Per Share, which supersedes Accounting Principles Board Opinion No. 15, Earnings Per Share, and modifies the presentation of earnings per share ("EPS") on the face of the income statement. As the Company was an operating division of Hughes for all periods prior to the Merger, EPS data for the years ended December 31, 1997 and 1996 have not been presented. STOCK-BASED COMPENSATION--As permitted by SFAS No. 123, Accounting for Stock-Based Compensation, the Company accounts for stock-based awards to employees using the intrinsic value method in accordance with Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees. 45 PANAMSAT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) BUSINESS SEGMENTS AND GEOGRAPHIC INFORMATION--As indicated in Note 1, the Company operates in a single industry segment which is to provide satellite- based telecommunications services to customers on a worldwide basis. Substantially all of the Company's operations are in the United States. The geographic distribution of the Company's revenues for 1998 and 1997 was as follows:
1998 1997 ---- ---- United States...................................................... 59% 72% Latin America...................................................... 21% 13% Asia............................................................... 11% 5% Other.............................................................. 9% 10%
Prior to the Merger, substantially all of the Company's revenues were derived from U.S. customers. NEW ACCOUNTING PRONOUNCEMENTS--In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133 requires all derivatives to be recorded as either assets or liabilities and the instruments to be measured at fair value. Gains or losses resulting from changes in the values of those derivatives are to be recognized immediately or deferred depending on the use of the derivative and whether or not it qualifies as a hedge. PanAmSat will adopt SFAS No. 133 by January 1, 2000, as required. Management is currently assessing the impact of this statement on PanAmSat's operations and financial position. RECLASSIFICATION--Certain prior period amounts have been reclassified to conform with the current year's presentation. 3. NET INVESTMENT IN SALES-TYPE LEASES The components of the net investment in sales-type leases are as follows (in thousands):
DECEMBER 31, -------------------- 1998 1997 --------- --------- Total minimum lease payments........................... $ 301,878 $ 662,453 Allowance for doubtful accounts........................ (10,562) (12,897) Less unearned interest income.......................... (95,339) (297,110) --------- --------- Total net investment in sales-type leases.............. 195,977 352,446 Less current portion................................... (22,595) (27,757) --------- --------- $ 173,382 $ 324,689 ========= =========
Future minimum payments due from customers under sales-type leases and related service agreements (primarily TT&C and in-orbit performance protection) as of December 31, 1998 are as follows (in thousands):
MINIMUM SERVICE LEASE AGREEMENT PAYMENTS PAYMENTS -------- --------- 1999...................................................... $ 46,134 $ 4,520 2000...................................................... 44,727 5,700 2001...................................................... 45,811 5,700 2002...................................................... 44,919 5,700 2003...................................................... 43,391 5,700 2004 and thereafter....................................... 76,896 10,445 -------- ------- $301,878 $37,765 -------- -------
46 PANAMSAT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 4. SATELLITES AND OTHER PROPERTY AND EQUIPMENT--NET The Company's principal operating assets consist of satellites in service, summarized as follows (in thousands):
DECEMBER 31, ----------------------- 1998 1997 ----------- ---------- Satellite transponders under lease.................. $ 2,142,710 $1,713,409 Satellite systems under development................. 1,088,861 1,038,886 Buildings and leasehold improvements................ 44,253 42,078 Machinery and equipment............................. 171,642 136,989 Other............................................... 14,307 11,406 ----------- ---------- 3,461,773 2,942,768 Less accumulated depreciation....................... (566,582) (436,686) ----------- ---------- $ 2,895,191 $2,506,082 =========== ==========
At December 31, 1998, the Company had contracts for the construction and development of six satellites with Hughes. Satellite contracts typically require the Company to make progress payments during the period of the satellite's construction and orbital incentive payments (plus interest) over the orbital life of the satellite. The incentive obligations are subject to reduction or refund if the satellite fails to meet specific technical operating standards. The satellite construction contracts contain provisions that would enable the Company to terminate the contracts both with and without cause. If terminated without cause, the Company would forfeit its progress payments and be subject to termination payments that escalate with the passage of time. If terminated for cause, the Company would be entitled to recover any payments it made under the contracts and certain liquidated damages as specified in the contracts. The Company has entered into launch contracts for the launch of both specified and unspecified future satellites. Each of the Company's launch contracts provide that the Company may terminate such contract at its option, subject to payment by the Company of a specified termination liability that increases in magnitude as the applicable launch date approaches. In addition, in the event of a failure of any launch, the Company may exercise the right to obtain a replacement launch within a specified period following the Company's request for relaunch. The Company has experienced various technical incidents on a number of its in-orbit satellites. These incidents generally have resulted in one or more of the following: (i) a limitation or total loss of the satellite's ability to provide the full complement of services that it was designed to provide, (ii) material reduction to the satellite's expected orbital life, or (iii) a reduction in certain of the satellite's on-board redundant systems making it more exposed to potential damage in the event of an additional incident. In May 1998, the Company experienced the total loss of its Galaxy IV spacecraft when a system aboard the spacecraft failed, and a redundant onboard system failed to take control of the spacecraft because it had been rendered inoperable as a result of a prior undetected failure of this component. Additionally, in August 1998, the Company experienced the total loss of its Galaxy X satellite that it was attempting to launch when the launch vehicle carrying the satellite failed and exploded. Whenever the Company experiences a satellite anomaly or failure, management conducts an investigation of the cause of the event and determines the effects that the anomaly may have on the carrying value of its satellite and other assets and liabilities. The Company has insurance coverage that generally reimburses the Company for all or a substantial portion of the carrying value of the net assets that are affected by the anomaly. During 1998, the Company received insurance proceeds of 47 PANAMSAT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) $441.6 million resulting from insurance claims and disposed of the carrying value of the related assets as follows (in millions):
DISPOSITION NET BOOK VALUE OF: ------------------------------------- EXCESS/ OTHER (DEFICIENCY) OF INSURANCE NET INVESTMENT IN ASSETS OR PROCEEDS OVER NET PROCEEDS SATELLITE SALES-TYPE LEASES LIABILITIES BOOK VALUE --------- --------- ----------------- ----------- ----------------- Galaxy IV............... $ 162.5 $ 56.8 $72.2 $39.8 $(6.3) Galaxy X................ 250.0 171.7 43.8 28.4 6.1 PAS 6................... 29.1 -- -- -- -- ------- $ 441.6 =======
The insurance proceeds relating to the PAS-6 anomaly were recorded as a reduction in the carrying value of the PAS-6 satellite. Future minimum lease payments due from customers under non-cancelable operating leases on completed satellites, exclusive of sublease payments reported below are as follows (in thousands):
DECEMBER 31, 1998 MINIMUM LEASE PAYMENTS ----------------- 1999....................................................... $ 656,867 2000....................................................... 577,565 2001....................................................... 556,538 2002....................................................... 541,796 2003....................................................... 531,727 2004 and thereafter........................................ 2,336,018 ----------- $ 5,200,511 -----------
In February 1996, the Company entered into a sale-leaseback agreement for certain transponders on Galaxy III-R with General Motors Acceptance Corporation ("GMAC"), a subsidiary of GM. Proceeds from the sale were $252 million and the sale resulted in a deferred gain of $109.0 million which was deferred and is being amortized over the seven year leaseback period. In prior years, the Company entered into sale-leaseback agreements for the sale of certain transponders on SBS-6 and Galaxy VII, resulting in deferred gains which are being amortized over the expected term of the leaseback periods. The Company's obligations under each sale-leaseback arrangement are guaranteed by GM (as successor-in-interest to Hughes). In connection with the Merger, the Company agreed to pay and indemnify GM for performing any of its obligations under such guarantees. In 1998, the Company exercised its early buy-out options for certain transponders on the SBS-6 transaction and repurchased the transponders for total payments of $155.5 million. In January 1999, the Company exercised an early buy-out option for $141.3 million (including a make-whole premium of $2.7 million) related to certain transponders on Galaxy VII, and has remaining early buy-out options of approximately $227 million on Galaxy III-R and Galaxy VII (plus a make-whole premium (on the Galaxy VII transaction only) in the event notes issued by the owners of the transponders are prepaid by the Company rather than assumed at the time of repurchase) that can be exercised later in 1999. 48 PANAMSAT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) As of December 31, 1998, the future minimum lease amounts payable to lessors under the sale-leaseback agreements and the future minimum payments due from sublessees under noncancelable subleases are as follows (in thousands):
DECEMBER 31, 1998 ------------------ LEASEBACK SUBLEASE AMOUNTS PAYMENTS --------- -------- 1999...................................................... $ 90,891 $ 91,865 2000...................................................... 120,261 88,365 2001...................................................... 71,864 79,008 2002...................................................... 110,897 70,238 2003...................................................... 26,630 44,100 2004 and thereafter....................................... -- -- --------- -------- $ 420,543 $373,576 ========= ========
5. LONG-TERM DEBT As of December 31, 1998 and 1997, long-term debt consisted of the following (in thousands):
1998 1997 -------------------- -------------------- BOOK FAIR MARKET BOOK FAIR MARKET VALUE VALUE VALUE VALUE -------- ----------- -------- ----------- 6% Notes due 2003................ $200,000 $196,310 $ -- $ -- 6 1/8% Notes due 2005............ 275,000 268,076 -- -- 6 3/8% Notes due 2008............ 150,000 146,253 -- -- 6 7/8% Notes due 2028............ 125,000 118,080 -- -- Borrowings under bank agreement.. -- -- 600,000 600,000 Other............................ 56 56 9,116 9,116 -------- -------- -------- -------- 750,056 728,775 609,116 609,116 Less current maturities (included in accounts payable and accrued liabilities).................... -- -- -- -- -------- -------- -------- -------- $750,056 $728,775 $609,116 $609,116 ======== ======== ======== ========
Fair value amounts were determined based on quoted market prices for the Notes or on current rates available to the Company for debt with similar maturities and similar terms. In December 1997, the Company completed a debt tender offer and restructuring program (the "Program") for the Old Notes. In connection with the Program, the Company purchased approximately 99% of the principal amount of each class of the Old Notes then outstanding. The Company also entered into a bank borrowing agreement (the "Bank Agreement") that provided for bridge loans of up to $300 million (terminating in April 1998) and loans of up to $500 million under a five-year revolving credit facility (the "Revolving Credit Loans"). Using $600 million in borrowings under the Bank Agreement (including $100 million under the bridge loans) and available cash (including cash from the liquidation of certain marketable securities), the Company retired Old Notes having a principal value of approximately $1.1 billion. The debt refinancing Program resulted in the recognition of an extraordinary charge of $20.6 million ($34.3 million before taxes) related principally to the excess of the price paid for the debt over its carrying value, net of any deferred financing costs and fair value adjustments recognized in connection with the Merger. In January 1998, the Company borrowed an additional $125 million under the Bank Agreement principally for the purpose of exercising an early buy-out option on a sale-leaseback agreement. Also in January 1998, the 49 PANAMSAT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Company completed a private placement debt offering for five, seven, ten and thirty year notes aggregating $750 million (the "Notes Offering"), the proceeds of which were used to retire all of the outstanding borrowings under the Bank Agreement. As a result of the Notes Offering, the bridge loan under the Bank Agreement terminated, and the five year revolving credit facility remains in place to be used for future borrowings, or as a back-up facility for a commercial paper program. In August 1998, the Company converted the private placement debt to public debt by means of a debt exchange offer. In July 1998, the Company launched a $500 million Commercial Paper program to provide for short-term borrowings that the Company can refinance on a long- term basis with the Revolving Credit Loans. Borrowings under the Revolving Credit Loans and the Commercial Paper program are limited to $500 million in the aggregate. Commercial paper borrowings of up to $190.0 million were made during the year at interest rates ranging from 5.75% to 5.85%. At December 31, 1998 there were no borrowings outstanding under the program. The Hughes Term Loan is subordinate to the notes issued in connection with the Notes Offering, the Revolving Credit Loans and the notes issued under the commercial paper program. Annual maturities of long-term debt are as follows (in thousands):
YEAR ENDING DECEMBER 31, ------------ 1999............................................................ $ -- 2000............................................................ -- 2001............................................................ -- 2002............................................................ -- 2003............................................................ 200,000 2004 and thereafter............................................. 550,056 --------- $ 750,056 =========
Interest expense for 1998 and 1997 is presented net of interest income of $5.8 million and $19.6 million, respectively. 6. INCOME TAXES The income tax provision consisted of the following (in thousands):
1998 1997 1996 ------- -------- -------- Taxes currently payable (receivable) U.S. fed- eral and state................................. $33,331 $(11,740) $111,294 Deferred tax liabilities (assets)--net U.S. fed- eral and state................................. 62,609 129,065 (21,399) ------- -------- -------- Total income tax provision...................... $95,940 $117,325 $ 89,895 ======= ======== ========
The income tax provision was different than the amount computed using the U.S. statutory income tax rate for the reasons set forth in the following table (in thousands):
1998 1997 1996 ------- -------- ------- Expected U.S. statutory income tax rate......... $77,191 $ 92,266 $83,902 U.S. state and local income tax rates--net of federal income tax effect...................... 10,035 12,900 14,479 Foreign sales corporation tax benefit........... (14,000) (9,485) (9,589) Non-deductible goodwill amortization............ 22,582 14,527 -- Other........................................... 132 7,117 1,103 ------- -------- ------- Total income tax provision...................... $95,940 $117,325 $89,895 ======= ======== =======
50 PANAMSAT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Temporary differences which give rise to deferred tax assets and liabilities are as follows (in thousands):
1998 1997 ------------------------ -------------------- DEFERRED DEFERRED DEFERRED TAX DEFERRED TAX TAX ASSETS TAX LIABILITIES ASSETS LIABILITIES -------- --------------- -------- ----------- Sale-leasebacks................ $ 65,428 $ -- $ 85,780 $ -- Depreciation................... -- 235,390 -- 238,476 Launch insurance costs......... -- 103,070 -- 41,175 Customer deposits.............. 17,798 -- 23,854 -- Accruals and advances.......... 27,343 -- 29,969 -- Tax credit carryforward........ 13,894 -- -- -- Other.......................... 24,440 5,378 14,275 6,554 -------- -------- -------- -------- Total deferred taxes........... $148,903 $343,838 $153,878 $286,205 ======== ======== ======== ========
At December 31, 1998, the Company had non-current deferred tax liabilities of $343,838 thousand and deferred tax assets of $148,903 thousand, of which $36,438 thousand was current in nature. At December 31, 1997, the Company had non-current deferred tax liabilities of $286,205 thousand and deferred tax assets of $153,878 thousand, of which $46,940 thousand was current in nature. 7. RELATED PARTY TRANSACTIONS AND BORROWINGS The Company purchases certain of its satellites and launch services from a subsidiary of Hughes and has provided services to several subsidiaries of Hughes. The Company also reimburses Hughes for the allocated costs of certain expense items it jointly incurs with Hughes, principally relating to administrative and other expenses. The aggregate amounts of related party transactions in 1998 are summarized below (in thousands):
1998 1997 1996 -------- -------- -------- Satellite Purchases.............................. $267,133 $345,546 $196,400 Satellite Services Revenues: Operating lease revenues....................... 105,663 87,235 72,043 Other satellite services....................... 17,791 5,363 11,397 Allocations of Expenses: Administrative and other expenses.............. 3,211 9,005 11,016 Interest Expense............................... 108,288 91,020 19,475
Interest expense for 1998 and 1997 is presented net of $4.6 million and $8.4 million of interest income, respectively. The following table provides summary information relative to the Company's accounts receivable and borrowings from Hughes and its affiliates (in thousands):
DECEMBER 31, ---------------------- 1998 1997 ---------- ---------- Due from affiliates................................. $ 31,115 $ 27,574 ========== ========== Due to affiliates: Merger-related borrowings......................... $1,725,000 $1,725,000 Incentive obligations............................. 67,368 80,819 Other............................................. -- 204 ---------- ---------- 1,792,368 1,806,023 Less current portion of incentive obligations (in- cluded in accounts payable and accrued liabili- ties)............................................ (4,015) (3,828) ---------- ---------- Total due to affiliates........................... $1,788,353 $1,802,195 ========== ==========
51 PANAMSAT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) In connection with the Notes Offering described in Note 5, the Company also modified the terms of its indebtedness with Hughes so that the maturity of the borrowings was extended to June 24, 2003, the mandatory principal payments were eliminated (however, prepayments of principal are permitted under certain circumstances depending upon the level of cash flow from operations), the interest rate on the debt was adjusted to be a floating rate equal to that of the Bank Agreement, and the debt became subordinated to the Bank Agreement and the Notes Offering. In addition, subsequent to May 16, 2000 (the original maturity of the indebtedness), Hughes has the right to request that the Company use its best efforts to replace the credit facility with another credit facility on terms that may then be available to the Company. Annual maturities of amounts due to affiliates are as follows (in thousands):
YEAR ENDING DECEMBER 31, ------------ 1999.............................................................. $ 4,015 2000.............................................................. 4,895 2001.............................................................. 5,394 2002.............................................................. 5,943 2003.............................................................. 1,731,548 2004 and thereafter............................................... 40,573 ---------- $1,792,368 ==========
8. RETIREMENT AND INCENTIVE PLANS EMPLOYEE BENEFIT PLANS: DEFINED CONTRIBUTION PLANS 401(K) PLAN--The Company has a 401(k) plan for qualifying employees. A portion of employee contributions is matched by the Company with shares of its common stock. The number of shares contributed to the plan and the respective market values were 23,681 and 12,847 shares and $1.1 million and $0.5 million for 1998 and 1997, respectively. DEFERRED COMPENSATION PLAN--The Company has a Restoration and Deferred Compensation Plan (the "Deferred Compensation Plan") for eligible employees. Under the Deferred Compensation Plan, executives and other highly compensated employees of the Company are entitled to defer a portion of their compensation to future years. The annual amount that can be deferred is subject to certain limitations, and a portion of the employee's contribution may be matched by the Company if the employee elected to defer in the 401(k) Plan the maximum amount permissible under the Deferred Compensation Plan and the Internal Revenue Code of 1986, as amended. The maximum annual Company match under both the 401(k) Plan and the Deferred Compensation Plan is limited to an aggregate level of 4% of annual compensation. The Company matched portion of the Deferred Compensation Plan consists of "credits" which vest when awarded. Contributions that receive employer matching are required to be deferred until termination of employment, and any nonmatched contributions may be deferred over a period selected by the employee. In addition, the Company, at its discretion, may make contributions to the Plan for the benefit of any participant as supplemental compensation. The Deferred Compensation Plan is an unfunded plan, and the deferrals and matching credits will receive earnings based upon rates set by the Compensation Committee of the Board of Directors (the "Compensation Committee"), but in no event will these amounts earn less than 100% of the Moody's Corporate Bond Index Rate. 1997 STOCK INCENTIVE PLAN--On May 5, 1997, the Company's Board of Directors adopted the PanAmSat Corporation Long-Term Stock Incentive Plan established in 1997 (the "Stock Plan"), which provides for the 52 PANAMSAT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) granting of nonqualified stock options, incentive stock options, alternate appreciation rights, restricted stock, performance units and performance shares to executive officers, other employees, directors and independent contractors of the Company. Restricted stock, performance units and performance shares may be granted at the discretion of the Compensation Committee on such terms as such committee may decide. The maximum number of shares of common stock which may be issued under the Stock Plan is 7,456,140 and the maximum number of shares of common stock which may be issued to any grantee pursuant to the Stock Plan is 2,000,000. The Stock Plan is administered by the Compensation Committee. As of December 31, 1998, nonqualified options for 1,493,319 shares of common stock (net of options expired or terminated) have been granted under the Stock Plan. Such options are exercisable at a price equal to 100% of the fair market value at the date of grant and generally vest ratably over three years. Activity in the Company's Stock Plan during 1998 and 1997 is summarized below:
NUMBER OF WEIGHTED AVERAGE EXERCISE PRICE SHARES EXERCISE PRICE RANGE --------- ---------------- -------------- Options granted.................. 584,890 $ 29.09 $29.00-$ 38.25 Options exercised................ -- -- -- Options expired or terminated.... -- -- -- --------- ------- -------------- Outstanding at December 31, 1997. 584,890 $ 29.09 $29.00-$ 38.25 --------- ------- -------------- Options granted.................. 1,037,719 39.81 35.06-59.75 Options exercised................ (63,059) 29.00 29.00 Options expired or terminated.... (129,290) 33.57 29.00-59.75 --------- ------- -------------- Outstanding at December 31, 1998. 1,430,260 $ 36.48 $29.00-$ 59.75 --------- ------- -------------- --------- ------- -------------- Options exercisable at December 31, 1998............... 113,590 $ 29.09 $ 29.00-$38.13 --------- ------- --------------
As permitted by SFAS No. 123, Accounting for Stock Based Compensation, the Company has applied the recognition and measurement principles of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued To Employees, to its stock options and other stock-based compensation awards and, accordingly, no compensation expense has been recognized on options granted to date. Had compensation expense for stock options granted been determined based on the fair value of the options at the grant dates (consistent with the provisions of SFAS 123), the Company's net income would have been reduced by approximately $6.7 million, or $0.04 per basic and diluted share, in 1998, and $2.0 million in 1997. The Company uses the Black-Scholes model for estimating the fair value of its compensation instruments. The estimated fair value of options granted in 1998 was $21.85 and the weighted average assumptions used for calculation of the value were as follows: risk-free interest rate of 5.7%; dividend yield 0%; expected life of ten years; and stock volatility of 30.7%. The estimated fair value of options granted in 1997 was $16.80 and the weighted average assumptions used for calculation of the value were as follows: risk-free interest rate of 6.7%; dividend yield 0%; expected life of ten years; stock volatility of 30%. Beginning in 1998, directors who are not full-time employees of the Company receive their annual retainers in shares of restricted Common Stock of the Company under the Stock Plan. The shares are issued each year after the Company's annual meeting, vest quarterly over the course of the year served, and may not be sold for a period of six months after vesting, subject to the Company's trading policies. Directors also receive meeting fees in shares of restricted Common Stock of the Company. The shares are issued after each in- person or telephonic board or committee meeting attended, and may not be sold for a period of six months following the date of grant, subject to the Company's trading policies. As a group, non-employee directors received 5,284 shares with a 53 PANAMSAT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) weighted average fair value of $50.64 in 1998. Directors also were granted non-qualified stock options for 4,284 shares at an average price of $53.09 under the Stock Plan (as described above) upon their election in 1998. Director stock option grants vest over a six month period from the date of grant and none of the options were exercisable in 1998. COMPENSATION PLANS--On May 16, 1997, the Company assumed the certain obligations of PanAmSat International with respect to its General Severance Policy, Employee Separation Plan and an Executive Severance Pay Program. These plans allow for benefits to be paid to the former employees of PanAmSat International who became employees of the Company as a result of the Merger under certain circumstances relating to a termination of employment. The benefits provided under these programs expire at various dates through May 1999. During 1998, payments made under these programs were approximately $2.6 million. During 1997, there were no material payments made under these programs. 9. COMMITMENTS AND CONTINGENCIES The Company has commitments for operating leases primarily relating to equipment and its executive office facilities in Greenwich, Connecticut and various other locations. These leases contain escalation provisions for increases as a result of increases in real estate taxes and operating expenses. Minimum annual rentals of all leases, exclusive of potential increases in real estate taxes and operating assessments, are as follows (in thousands): 1999................................................................ $ 2,667 2000................................................................ 2,417 2001................................................................ 2,238 2002................................................................ 1,937 2003................................................................ 837 2004 and thereafter................................................. 3,265 -------- $ 13,361 ========
In October 1996, Comsat Corporation ("Comsat") initiated an action seeking unspecified actual, consequential and punitive or exemplary damages against PanAmSat International, Televisa and News Corporation ("News"). The complaint alleges that the Company interfered with the alleged termination by News of an alleged contract between Comsat and News. Although the Company believes this action is without merit and intends to vigorously contest this matter, it is unable to predict the final outcome of this action at this time. The Company is involved in other litigation in the normal course of its operations. Management does not believe the outcome of such matters will have a material effect on the consolidated financial statements. 10. QUARTERLY FINANCIAL INFORMATION--UNAUDITED Summary financial information on a quarterly basis for the Company in 1998 and 1997 follows (in thousands, except per share data):
THREE MONTHS ENDED ---------------------------------------------- MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, 1998 1998 1998 1998 --------- --------- ------------- ------------ Revenues..................... $ 193,025 $ 191,080 $ 186,540 $ 196,618 Operating income............. 84,876 73,569 78,327 81,562 Net income................... 35,348 27,757 29,925 31,576 Net income per share--basic and diluted................. 0.24 0.19 0.20 0.21
54 PANAMSAT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
THREE MONTHS ENDED -------------------------------------------- MARCH JUNE 30, SEPTEMBER 30, DECEMBER 31, 31, 1997 1997 1997 1997 -------- -------- ------------- ------------ Revenues....................... $127,553 $134,192 $170,315 $197,879 Operating income............... 67,511 62,098 70,766 93,829 Income before extraordinary item.......................... 41,853 19,902 27,416 44,301 Net income..................... 41,853 19,902 27,416 23,658 Income before extraordinary item per common share--basic and diluted...... -- -- 0.18 0.30 Net income per share--basic and diluted........................ -- -- 0.18 0.16
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 55 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT See the information set forth under the captions "Election of Directors" and "Executive Officers of the Company" contained in the Company's Proxy Statement (to be filed not later than 120 days after the end of the Company's fiscal year) for the 1999 Annual Meeting of Stockholders, which information is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION See the information set forth under the caption "Executive Compensation" (up to but not including the subcaption "Report of the Compensation Committee") contained in the Company's Proxy Statement (to be filed not later than 120 days after the end of the Company's fiscal year) for the 1999 Annual Meeting of Stockholders, which information is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT See the information set forth under the caption "Security Ownership of Certain Beneficial Owners and Management" contained in the Company's Proxy Statement (to be filed not later than 120 days after the end of the Company's fiscal year) for the 1999 Annual Meeting of Stockholders, which information is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS See the information set forth under the subcaptions "Compensation Committee Interlocks and Insider Participation" and "Certain Transactions" under the caption "Executive Compensation" contained in the Company's Proxy Statement (to be filed not later than 120 days after the end of the Company's fiscal year) for the 1999 Annual Meeting of Stockholders, which information is incorporated herein by reference. 56 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (A)1.FINANCIAL STATEMENTS See Index to Financial Statements on page 34. 2.FINANCIAL STATEMENT SCHEDULES Financial statement schedules are omitted because of the absence of the conditions under which they are required, or because the information is set forth in the financial statements or notes thereto. (B)REPORTS ON FORM 8-K During the last quarter of 1998, the Company did not file any Current Reports on Form 8-K with the Securities and Exchange Commission. (C)EXHIBITS 2.1 Agreement and Plan of Reorganization, dated September 20, 1996, among Hughes Communications, Inc., Hughes Communications Galaxy, Inc., Hughes Communications Satellite Services, Inc., Hughes Communications Services, Inc., Hughes Communications Carrier Services, Inc., Hughes Communications Japan, Inc., PanAmSat Corporation (formerly known as Magellan International, Inc. ("PanAmSat")) and PanAmSat International Systems, Inc. (formerly known as PanAmSat Corporation and successor corporation to PanAmSat, L.P. ("PanAmSat International")) is incorporated herein by reference to Exhibit 2.3 to PanAmSat International's Quarterly Report on Form 10-Q for the period ended June 30, 1996. 2.2 Amendment to Agreement and Plan of Reorganization dated as of April 4, 1997 constituting Exhibit 2.1 hereto is incorporated herein by reference to Appendix AA to the Proxy Statement/Prospectus (the "Proxy Statement/Prospectus") contained in PanAmSat's Registration Statement on Form S-4 (Reg. No. 333-25293) filed on April 16, 1997 (the "Registration Statement"). 2.3 Agreement and Plan of Merger, dated as of April 4, 1997, among PanAmSat International, PAS Merger Corp. and PanAmSat is incorporated herein by reference to Appendix B to the Proxy Statement/Prospectus. 2.4 Assurance Agreement, dated September 20, 1996, between Hughes Electronics Corporation, PanAmSat International, Satellite Company, L.L.C. and PanAmSat is incorporated herein by reference to Appendix K to the Proxy Statement/Prospectus. 2.5 Principal Stockholders Agreement, dated September 20, 1996, among Hughes Communications, Inc., Hughes Communications Galaxy, Inc., Satellite Company, L.L.C., Univisa Satellite Holdings, Inc., the holders of Class A Common Stock of PanAmSat International and the Trustees of that certain Voting Trust of certain holders of Class A Common Stock of PanAmSat International is incorporated herein by reference to Appendix L to the Proxy Statement/Prospectus. 2.6 Stock Contribution and Exchange Agreement, dated September 20, 1996, among Grupo Televisa, S.A., Satellite Company, L.L.C., PanAmSat and Hughes Communications, Inc. is incorporated herein by reference to Exhibit 2.4 to the Registration Statement. 3.1 Restated Certificate of Incorporation of PanAmSat is incorporated herein by reference to Exhibit 3.1 to PanAmSat's Annual Report on Form 10-K for the fiscal year ended December 31, 1997.
57 3.2 Restated Bylaws of PanAmSat. 4.1.1 Amended and Restated Stockholder Agreement, dated as of May 16, 1997, by and among PanAmSat, Hughes Communications, Inc., Satellite Company, LLC and the former holders of Class A Common Stock of PanAmSat International is incorporated herein by reference to Appendix M to the Proxy Statement/Prospectus. 4.1.2 Letter Agreement dated February 26, 1999 among PanAmSat, Hughes Communications, Inc. and the former holders of Class A Common Stock of PanAmSat International. 4.2 Amended and Restated Registration Rights Agreement, dated as of May 16, 1997, by and among PanAmSat, Hughes Communications, Inc., Hughes Communications Galaxy, Inc., Hughes Communications Satellite Services, Inc., Satellite Company, LLC and the former holders of Class A Common Stock of PanAmSat International is incorporated herein by reference to Appendix N to the Proxy Statement/Prospectus. 4.3.1 Loan Agreement, dated May 15, 1997, between Hughes Network Systems, Inc. and PanAmSat is incorporated by reference to Exhibit 4.3 to PanAmSat's Current Report on Form 8-K dated June 5, 1997. 4.3.2 First Amendment to Loan Agreement, constituting Exhibit 4.3.1 hereto, dated as of December 23, 1997, between Hughes Electronics Corporation and PanAmSat is incorporated herein by references to Exhibit 4.3.2 to PanAmSat's Annual Report on Form 10-K for the fiscal year ended December 31, 1997. 4.3.3 Subordination and Amendment Agreement, dated as of February 20, 1998, among Hughes Electronics Corporation, PanAmSat and Citicorp USA, Inc., as administrative agent is incorporated herein by references to Exhibit 4.3.3 to PanAmSat's Annual Report on Form 10- K for the fiscal year ended December 31, 1997. 4.3.4 Subordination Agreement dated as of January 16, 1998 between Hughes Electronics and PanAmSat is incorporated herein by reference to Exhibit 4.3.4 to PanAmSat's Quarterly Report on Form 10-Q for the period ended September 30, 1998. 4.4 Indenture, dated as of January 16, 1998, between PanAmSat and The Chase Manhattan Bank, as Trustee is incorporated herein by reference to Exhibit 4.1 to PanAmSat's Annual Report on Form 10-K for the fiscal year ended December 31, 1997. 4.5 Agreement dated as of May 1, 1998 by and among PanAmSat and the former holders of Class A Common Stock of PanAmSat International is incorporated herein by reference to Exhibit 4.2.2 to PanAmSat's Registration Statement on Form S-4 (Registration No. 333-56227). 4.6 Registration Rights Agreement dated as of January 16, 1998 among PanAmSat, Morgan Stanley & Co. Incorporated, Donaldson, Lufkin & Jenrette Securities Corporation, Salomon Brothers Inc, Citicorp Securities, Inc., BancAmerica Robertson Stephens and J.P. Morgan Securities Inc. is incorporated herein by reference to Exhibit 4.5 to PanAmSat's Current Report on Form 8-K dated July 21, 1998. 4.7 Letter Agreement dated July 22, 1998 between Hughes Electronics Corporation and PanAmSat is incorporated herein by reference to Exhibit 4.3.4 to PanAmSat's Quarterly Report on Form 10-Q for the period ended June 30, 1998. 10.1 Participation Agreement, dated as of December 27, 1991, among Satellite Transponder Leasing Corporation, GM Hughes Electronics Corporation, Security Pacific Equipment Leasing, Inc., Wilmington Trust Company, State Street Bank and Trust Company of Connecticut, National Association ("State Street") and Goldman, Sachs & Co. is incorporated herein by reference to Exhibit 10.1 to the Registration Statement.
58 10.2 Lease Agreement, dated as of December 27, 1991, among GM Hughes Electronics Corporation, Satellite Transponder Leasing Corporation and Wilmington Trust Company is incorporated herein by reference to Exhibit 10.2 to the Registration Statement. 10.3 Participation Agreement, dated as of December 27, 1991, among Satellite Transponder Leasing Corporation, GM Hughes Electronics Corporation, Student Loan Marketing Association, Wilmington Trust Company, State Street and Goldman Sachs & Co. is incorporated herein by reference to Exhibit 10.3 to the Registration Statement. 10.4 Lease Agreement, dated as of December 27, 1991, among GM Hughes Electronics Corporation, Satellite Transponder Leasing Corporation and Wilmington Trust Company is incorporated herein by reference to Exhibit 10.4 to the Registration Statement. 10.5.1 Participation Agreement and Purchase Agreement, dated as of August 21, 1992, among Hughes Communications Galaxy, Inc., Orion One, Inc., State Street, Wilmington Trust Company, Hughes Communications, Inc. and BT Securities Corporation, as agent is incorporated herein by reference to Exhibit 10.5.1 to the Registration Statement. 10.5.2 First Amendment to Participation Agreement and Purchase Agreement, constituting Exhibit 10.5.1 hereto, dated as of December 24, 1992, among Hughes Communications Galaxy, Inc., Orion One, Inc., State Street, Hughes Communications, Inc., Wilmington Trust Company, BT Securities Corporation, as agent, and the other participants to the Transponder Purchase Agreement is incorporated herein by reference to Exhibit 10.5.2 to the Registration Statement. 10.5.3 Second Amendment to Participation Agreement and Purchase Agreement, constituting Exhibit 10.5.1 hereto, dated as of June 18, 1993, among Hughes Communications Galaxy, Inc., Orion One, Inc., State Street, CIBC Inc., Internationale Nederlanden Lease Structured Finance B.V., Wilmington Trust Company and BT Securities Corporation, as agent is incorporated herein by reference to Exhibit 10.5.3 to the Registration Statement. 10.6.1 Lease Agreement, dated as of December 31, 1992, by and between Hughes Communications Galaxy, Inc. and State Street is incorporated herein by reference to Exhibit 10.6.1 to the Registration Statement. 10.6.2 First Amendment to Lease Agreement constituting Exhibit 10.6.1, dated as of June 18, 1993, by and between Hughes Communications Galaxy, Inc. and State Street is incorporated herein by reference to Exhibit 10.6.2 to the Registration Statement. 10.7 Schedule identifying certain agreements that have been omitted on the basis that such agreements are substantially identical to the agreements filed as Exhibits 10.5.1, 10.5.2, 10.5.3, 10.6.1 and 10.6.2 hereto is incorporated herein by reference to Exhibit 10.7 to the Registration Statement. 10.8.1 Launch Services Agreement No. 9411-002, dated November 14, 1994, between Lockheed-Khrunichev-Energia International, Inc. and PanAmSat International is incorporated herein by reference to Exhibit 10.10 to Amendment No. 3 to PanAmSat International's Registration Statement on Form S-1 (Reg. No. 33-84836), dated March 9, 1995. (1) 10.8.2 First Amendment to Launch Services Agreement No. 9411-002 constituting Exhibit 10.8.1 hereto, dated March 30, 1995, between Lockheed-Khrunichev-Energia International, Inc. and PanAmSat International is incorporated herein by reference to Exhibit 10.10.2 to Amendment No. 1 to PanAmSat International's Registration Statement on Form S-1 (Reg. No. 33-95396), dated August 17, 1995. (1)
59 10.8.3 Second Amendment to Launch Services Agreement No. 9411-002 constituting Exhibit 10.8.1 hereto, dated June 9, 1995, between Lockheed-Khrunichev-Energia International, Inc. and PanAmSat International is incorporated herein by reference to Exhibit 10.10.3 to Amendment No. 1 to PanAmSat International's Registration Statement on Form S-1 (Reg. No. 33-95396), dated August 17, 1995. (1) 10.8.4 Amendment Number 3 to Launch Services Agreement No. 9411-002 constituting Exhibit 10.8.1 hereto, dated August 23, 1996, between Lockheed-Khrunichev-Energia International, Inc. and PanAmSat International is incorporated herein by reference to Exhibit. 10.10.4 to PanAmSat International's Quarterly Report on Form 10-Q for the period ended September 30, 1996. (1) 10.9.1 Agreement for the Launching into Geostationary Transfer Orbit of the PanAmSat 6 Satellite by an Ariane Launch Vehicle, No. 94.5.918, dated November 21, 1994, between PanAmSat International and Arianespace S.A. is incorporated herein by reference to Exhibit 10.12 to Amendment No. 4 to PanAmSat International's Registration Statement on Form S-1 (Reg. No. 33-84836), dated March 29, 1995. (1) 10.9.2 Amendment No. 1 to Agreement for the Launching into Geostationary Transfer Orbit of the PanAmSat 6 Satellite by an Ariane Launch Vehicle, No. 94.5.918 constituting Exhibit 10.9.1 hereto, dated May 1995, between PanAmSat International and Arianespace S.A. is incorporated herein by reference to Exhibit 10.12.2 to Amendment No. 1 to PanAmSat International's Registration Statement on Form S-1 (Reg. No. 33-95396), dated August 17, 1995. (1) 10.9.3 Amendment No. 2 to Agreement for the Launching into Geostationary Transfer Orbit of the PanAmSat 6 Satellite by an Ariane Launch Vehicle, No. 94.5.918 constituting Exhibit 10.9.1 hereto, dated as of April 29, 1996, between PanAmSat International and Arianespace S.A. is incorporated herein by reference to Exhibit S-1 to PanAmSat International's Quarterly Report on Form 10-Q for the period ended March 31, 1996. 10.9.4 Amendment No. 3 to Agreement for the Launching into Geostationary Transfer Orbit of the PanAmSat 6 Satellite by an Ariane Launch Vehicle, No. 94.5.918 constituting Exhibit 10.9.1 hereto, dated December 31, 1996, between PanAmSat International and Arianespace S.A. is incorporated herein by reference to Exhibit 10.12.8 to PanAmSat International's Annual Report on Form 10-K for the fiscal year ended December 31, 1996. (1) 10.9.5 Side Letter dated as of March 9, 1998 to Agreement for Launching into Geostationary Transfer Orbit of the PanAmSat 6 Satellite by an Ariane Launch Vehicle, No. 94.5.918, between PanAmSat International and Arianespace S.A. constituting Exhibit 10.9.1 hereto, is incorporated herein by reference to Exhibit 10.9.5 to PanAmSat's Quarterly Report on Form 10-Q for the period ended March 31, 1998. (1) 10.10.1 Memorandum of Understanding, dated as of March 27, 1995, between Grupo Televisa, S.A. and PanAmSat International is incorporated herein by reference to Exhibit 10.13 to Amendment No. 4 to PanAmSat International's Registration Statement on Form S-1 (Reg. No. 33-84836), dated March 29, 1995. (1) 10.10.2 Revised DTH System in Latin America Memorandum of Understanding, dated as of September 20, 1996, between PanAmSat International and Grupo Televisa, S.A. is incorporated herein by reference to Exhibit 10.13.2 to PanAmSat International's Quarterly Report on Form 10-Q for the period ended September 30, 1996. 10.11.1 Satellite Purchase Contract, dated as of March 31, 1995, between Hughes Aircraft Company and PanAmSat International is incorporated by reference to Exhibit 10.14 to Amendment No. 5 to PanAmSat International's Registration Statement on Form S-1 (Reg. No. 33- 84836), dated April 13, 1995. (1)
60 10.11.2 Amendment No. 1 to Satellite Purchase Contract constituting Exhibit 10.11.1 dated as of September 3, 1996, between Hughes Aircraft Company and PanAmSat International is incorporated herein by reference to Exhibit 10.14.1 to PanAmSat's Quarterly Report on Form 10-Q for the period ended September 30, 1996. (1) 10.12 Galaxy IX Satellite and Services Contract, No. 95-HCG-001, dated August 7, 1995, between Hughes Communications Galaxy, Inc. and Hughes Space and Communications Company is incorporated herein by reference to Exhibit 10.12 to the Registration Statement. (1) 10.13 Letter Agreement, dated November 29, 1995, between Hughes Communications Galaxy, Inc. and Hughes Space and Communications Company regarding the construction of Galaxy X and Galaxy XI is incorporated herein by reference to Exhibit 10.13 to the Registration Statement. (1) 10.14 Galaxy VIII-i Satellite and Services Contract (95-HCG-002), dated October 31, 1995, between Hughes Communications Galaxy, Inc. and Hughes Space and Communications Company is incorporated herein by reference to Exhibit 10.14 to the Registration Statement. (1) 10.15.1 Agreement for the Launching into Geostationary Transfer Orbit of PanAmSat Satellites by an Ariane Launch Vehicle, No. 95.5.933, dated as of December 20, 1995, between PanAmSat International and Arianespace S.A. is incorporated herein by reference to Exhibit 10.12.3 to PanAmSat International's Quarterly Report on Form 10-Q of the Registrant for the period ended March 31, 1996. (1) 10.15.2 Side Letter to Agreement for Launching into Geostationary Transfer Orbit of PanAmSat Satellites by an Ariane Launch Vehicle, No. 95.5.933, dated as of December 20, 1995, between PanAmSat International and Arianespace S.A., constituting Exhibit 10.15.1 hereto, is incorporated herein by reference to Exhibit 10.12.4 to PanAmSat International's Quarterly Report on Form 10-Q for the period ended March 31, 1996. (1) 10.15.3 Amendment No. 1 to Agreement for Launching into Geostationary Transfer Orbit of PanAmSat Satellites by an Ariane Launch Vehicle, No. 95.5.933, dated as of April 29, 1996, between PanAmSat International and Arianespace S.A., constituting Exhibit 10.15.1 hereto, is incorporated herein by reference to Exhibit 10.12.5 to PanAmSat International's Quarterly Report on Form 10-Q for the period ended March 31, 1996. 10.15.4 Amendment No. 2 to Agreement for Launching into Geostationary Transfer Orbit of PanAmSat Satellites by an Ariane Launch Vehicle, No. 95.5.933, dated December 31, 1996, between PanAmSat International and Arianespace S.A., constituting Exhibit 10.15.1 hereto, is incorporated herein by reference to Exhibit 10.12.6 to PanAmSat International's Annual Report on Form 10-K for the fiscal year ended December 31, 1996. (1) 10.15.5 Amendment No. 3, dated as of January 8, 1998, to Agreement for Launching into Geostationary Orbit of PanAmSat Satellites by an Ariane Launch Vehicle, No. 95.5.933, between PanAmSat International and Arianespace S.A., constituting Exhibit 10.15.1 hereto, is incorporated herein by reference to Exhibit 10.15.5 to PanAmSat's Quarterly Report on Form 10-Q for the period ended March 31,1998. (1) 10.15.6 Amendment No. 1, dated as of January 8, 1998, to Side Letter to Agreement for Launching into Geostationary Transfer Orbit of PanAmSat Satellites by an Ariane Launch Vehicle, No. 95.5.933, between PanAmSat International and Arianespace S.A. constituting Exhibit 10.15.2 hereto, is incorporated herein by reference to Exhibit 10.15.6 to PanAmSat's Quarterly Report on Form 10-Q for the period ended March 31, 1998. (1)
61 10.15.7 Amendment No. 4, dated as of March 9, 1998, to Agreement for Launching into Geostationary Transfer Orbit of PanAmSat Satellites by an Ariane Launch Vehicle, No. 95.5.933, between PanAmSat and Arianespace S.A. constituting Exhibit 10.15.1 hereto, is incorporated herein by reference to Exhibit 10.15.7 to PanAmSat's Quarterly Report on Form 10-Q for the period ended March 31, 1998. (1) 10.15.8 Side Letter No. 2, dated as of March 9, 1998, to Agreement for Launching into Geostationary Transfer Orbit of PanAmSat Satellites by an Ariane Launch Vehicle, No. 95.5.933, between PanAmSat International and Arianespace S.A. constituting Exhibit 10.15.1 hereto, is incorporated herein by reference to Exhibit 10.15.8 to PanAmSat's Quarterly Report on Form 10-Q for the period ended March 31, 1998. (1) 10.15.9 Amendment No. 5, dated as of October 12, 1998, to Agreement for Launching into Geostationary Orbit of PanAmSat Satellites by an Ariane Launch Vehicle, No. 95.5.933, between PanAmSat and Arianespace S.A. constituting Exhibit 10.15.1 hereto. (2) 10.15.10 Side Letter No. 3, dated as of October 12, 1998, to Agreement for Launching into Geostationary Orbit of PanAmSat Satellites by an Ariane Launch Vehicle, No. 95.5.933, between PanAmSat and Arianespace S.A. constituting Exhibit 10.15.1 hereto. (2) 10.16 Participation Agreement, dated as of February 7, 1996, among Hughes Communications Galaxy, Inc., General Motors Acceptance Corporation, Wilmington Trust Company, Chemical Bank and the lending institutions listed as loan participants in Schedule I to the Agreement is incorporated herein by reference to Exhibit 10.16 to the Registration Statement. 10.17 Lease Agreement, dated as of February 7, 1996, by and between Wilmington Trust Company and Hughes Communications Galaxy, Inc. is incorporated herein by reference to Exhibit 10.17 to the Registration Statement. 10.18.1 Letter Agreement, dated February 29, 1996, among The News Corporation Limited, Globo Participacoes, Ltd., Grupo Televisa, S.A., and PanAmSat International is incorporated herein by reference to Exhibit 10.17.1 to PanAmSat International's Quarterly Report on Form 10-Q/A for the period ended March 31, 1996. (1) 10.18.2 Amendment to Letter Agreement, dated November 4, 1996, constituting Exhibit 10.18.1 hereto, among News Corporation Limited, Globo Participacoes, Ltd., Grupo Televisa, S.A., and PanAmSat International is incorporated herein by reference to Exhibit 10.17.2 to PanAmSat International's Annual Report on Form 10-K for the fiscal year ended December 31, 1996. 10.18.3 Amendment, dated as of March 5, 1998, to Letter Agreement between News Corporation Limited, Globo Comunicacoes e Participacoes, S.A., Grupo Televisa, S.A. and PanAmSat International constituting Exhibit 10.18.3 hereto, is incorporated herein by reference to Exhibit 10.18.3 to PanAmSat's Quarterly Report on Form 10-Q for the period ended March 31, 1998. (1) 10.19.1 Amended and Restated Contract for PanAmSat Program dated May 2, 1996 between PanAmSat International and Space Systems/Loral, Inc. is incorporated herein by reference to Exhibit 10.7.3 to PanAmSat's International's Quarterly Report on Form 10-Q for the period ended March 31, 1996. (1) 10.19.2 Second Amended and Restated Contract for PanAmSat Program dated April 1, 1998 between PanAmSat International and Space Systems/Loral, Inc. is incorporated herein by reference to Exhibit 10.19.2 to PanAmSat's Registration Statement on Form S-4 (Registration No. 333-56227). (1) 10.20 Letter Agreement, dated June 10, 1996, between Hughes Communications Galaxy, Inc. and Hughes Space and Communications Company regarding the construction of Galaxy XI is incorporated herein by reference to Exhibit 10.20 to the Registration Statement. (1)
62 10.21 Letter Agreement, dated August 12, 1996, between Hughes Communications Galaxy, Inc. and Hughes Space and Communications Company regarding the construction of Galaxy XII is incorporated herein by reference to Exhibit 10.21 to the Registration Statement. (1) 10.22 Letter Agreement, dated August 12, 1996, between Hughes Communications Galaxy, Inc. and Hughes Space and Communications Company regarding the construction of Galaxy XIII, XIV, XV and XVI is incorporated herein by reference to Exhibit 10.22 to the Registration Statement. (1) 10.23 Letter Agreement, dated August 21, 1996, between Hughes Communications Galaxy, Inc. and Hughes Space and Communications Company regarding the construction of Galaxy XI is incorporated herein by reference to Exhibit 10.23 to the Registration Statement. (1) 10.24 DTH Option Purchase Agreement, dated September 20, 1996, between PanAmSat International, Grupo Televisa, S.A. and Satellite Company, L.L.C. is incorporated herein by reference to Exhibit 10.13.1 to PanAmSat International's Quarterly Report on Form 10-Q for the period ended September 30, 1996. 10.25.1 Full-Time Transponder Service Agreement From PAS-3 (European Beam), dated as of September 20, 1996, between PanAmSat International and Televisa, S.A. is incorporated herein by reference to Exhibit 10.16 to PanAmSat International's Quarterly Report on Form 10-Q for the period ended September 30, 1996. (1) 10.25.2 Amendment, dated as of March 5, 1998, to Full-Time Transponder Service Agreement From PAS-3 (European Beam) between PanAmSat International and Televisa S.A. constituting Exhibit 10.25.1 hereto, is incorporated herein by reference to Exhibit 10.25.1 to PanAmSat's Quarterly Report on Form 10-Q for the period ended March 31, 1998. (1) 10.26 Transponder Purchase and Sale Agreement, dated as of June 26, 1996, between PanAmSat International and Net Sat Servicos Ltda. is incorporated herein by reference to Exhibit 10.2 to Net Sat Servicios Ltda.'s Registration Statement on Form F-4 (Reg. No. 333-6318), dated January 21, 1997. (1) 10.27.1 Amended and Restated Transponder Purchase and Sale Agreement, dated as of June 26, 1996, between PanAmSat International and Net Sat Servicos Ltda. is incorporated herein by reference to Exhibit 10.2.1 to Net Sat Servicios Ltda.'s Registration Statement on Form F-4 (Reg. No. 333-6318), dated January 21, 1997. (1) 10.27.2 Second Amended and Restated Transponder Purchase and Sale Agreement dated as of March 5, 1998 between PanAmSat International and Net Sat Servicos Ltda. is incorporated herein by reference to Exhibit 10.27.2 to PanAmSat's Quarterly Report on Form 10-Q for the period ended March 31, 1998. (1) 10.28.1 Amended and Restated Launch Services Agreement, dated as of January 17, 1997, between Hughes Communications Galaxy, Inc. and Hughes Space and Communications International, Inc. is incorporated herein by reference to Exhibit 10.28 to the Registration Statement. (1) 10.28.2 Letter Agreement, dated as of October 9, 1998, betweeen PanAmSat and Hughes Space and Communications Company International, Inc., regarding Amended and Restated Launch Services Agreement between Hughes Communications Galaxy, Inc. and Hughes Space and Communications International, Inc. constituting Exhibit 10.28.1 hereto. (2) 10.29 Galaxy X Spacecraft, Related Services and Documentation Contract (96-HCG-001), dated March 20, 1997, between Hughes Communications Galaxy, Inc. and Hughes Space and Communications Company is incorporated herein by reference to Exhibit 10.29 to the Registration Statement. (1)
63 10.30 Employment Agreement between PanAmSat and Frederick A. Landman, dated as of May 15, 1997, is incorporated herein by reference to Exhibit 10.30 to PanAmSat's Quarterly Report on Form 10-Q for the period ended June 30, 1997.* 10.31.1 Amended and Restated Collateral Trust Agreement, dated as of May 16, 1997 by and among PanAmSat, Hughes Communications, Inc., Satellite Company, LLC, Grupo Televisa, S.A. and IBJ Schroder Bank & Trust Company is incorporated herein by reference to Exhibit 10.31 to PanAmSat's Quarterly Report on Form 10-Q for the period ended June 30, 1997. 10.31.2 First Amendment, dated April 30, 1998, to Amended and Restated Collateral Trust Agreement by and among PanAmSat, Hughes Communications, Inc., Satellite Company, LLC, Grupo Televisa, S.A. and IBJ Schroder Bank & Trust Company constituting Exhibit 10.31.1 hereto, is incorporated herein by reference to Exhibit 3 to Amendment No. 1 to the Schedule 13D filed by Hughes Communications, Inc. on May 1, 1998. 10.32 Pledge and Security Agreement, dated as of May 16, 1997, by and among Satellite Company, LLC, Grupo Televisa, S.A., in favor of IBJ Schroder Bank & Trust Company is incorporated herein by reference to Exhibit 10.30 to PanAmSat's Quarterly Report on Form 10-Q for the period ended June 30, 1997. 10.33 PanAmSat Corporation Long Term Incentive Plan established in 1997 is incorporated herein by reference to Exhibit 10.33 to PanAmSat's Quarterly Report on Form 10-Q for the period ended June 30, 1997.* 10.34 PanAmSat Corporation Annual Incentive Plan, effective January l, 1997, is incorporated herein by reference to Exhibit 10.34 to PanAmSat's Quarterly Report on Form 10-Q for the period ended June 30, 1997.* 10.35 Intellectual Property Cross License Agreement, dated as of May 16, 1997, by and between PanAmSat and Hughes Electronics Corporation is incorporated herein by reference to Exhibit 10.35 to PanAmSat's Quarterly Report on Form 10-Q for the period ended June 30, 1997. 10.36 Leveraged Lease Guaranty Indemnification Agreement, dated as of May 16, 1997 by and between PanAmSat and Hughes Electronics Corporation incorporated herein by reference to Exhibit 10.36 to PanAmSat's Quarterly Report on Form 10-Q for the period ended June 30, 1997. 10.37.1 Fixed Price Contract between Hughes Communications Galaxy, Inc. and Hughes Space & Communications Company for Galaxy XI HS702, Spacecraft, Related Services and Documentation, Contract No. 96- HCG-002, executed May 1997 is incorporated herein by reference to Exhibit 10.37 to PanAmSat's Quarterly Report on Form 10-Q for the period ended June 30, 1997. (1) 10.37.2 Amendment No. 1, dated as of November 30, 1999, to Fixed Price Contract between Hughes Communications Galaxy, Inc. and Hughes Space and Communications Company for Galaxy XI HS702 Spacecraft, Related Services and Documentation constituting Exhibit 10.37.1 hereto. (2) 10.38 Fixed Price Contract for PAS 1R and PAS 9 HS-702 Spacecraft, Related Services and Documentation--Contract No. 97-HCG-001, dated as of August 15, 1997, between Hughes Space and Communications Company, Inc. and PanAmSat is incorporated herein by reference to Exhibit 10.38 to PanAmSat's Annual Report on Form 10-K for the fiscal year ended December 31, 1997. (1) 10.39 Transponder Sublease Agreement for Galaxy III-R between Hughes Communications Galaxy, Inc. and California Broadcast Center, LLC, dated April 21, 1997 is incorporated herein by reference to Exhibit 10.39 to PanAmSat's Quarterly Report on Form 10-Q for the period ended June 30, 1997. (1)
64 10.40 Transponder Lease Agreement for Galaxy VIII-i between Hughes Communications Galaxy, Inc. and California Broadcast Center, LLC, dated April 21, 1997 is incorporated herein by reference to Exhibit 10.40 to PanAmSat's Quarterly Report on Form 10-Q for the period ended June 30, 1997. (1) 10.41.1 Form of Indemnity Agreement between PanAmSat and each of its directors and executive officers is incorporated herein by reference to Exhibit 10.41 to PanAmSat's Quarterly Report on Form 10-Q for the period ended June 30, 1997.* 10.41.2 Schedule identifying substantially identical agreements to the Indemnity Agreement constituting Exhibit 10.41.1 hereto in favor of Charles H. Noski, Frederick A. Landman, Patrick J. Costello, Steven D. Dorfman, Dennis F. Hightower, James M. Hoak, Joseph R. Wright, Jr., Michael T. Smith, Carl A. Brown, Kenneth N. Heintz, Robert A. Bednarek, James W. Cuminale, David P. Berman, Roxanne S. Austin, Tig H. Krekel, Stephen R. Kahn and R. Douglas Kahn.* 10.42 Credit Agreement, dated February 20, 1998, among PanAmSat, certain lenders and Citicorp USA, Inc., as administrative agent is incorporated herein by reference to Exhibit 10.42 to PanAmSat's Annual Report on Form 10-K for the fiscal year ended December 31, 1997. 10.43 Agreement, dated as of May 15, 1996, between PanAmSat International and Patrick J. Costello is incorporated herein by reference to Exhibit 10.11.19 to PanAmSat's Quarterly Report on Form 10-Q for the period ended June 30, 1996.* 10.44 Agreement, dated as of March 21, 1997, between PanAmSat and Patrick J. Costello is incorporated herein by reference to Exhibit 10.44 to PanAmSat's Annual Report on Form 10-K for the fiscal year ended December 31, 1997.* 10.45.1 Agreement, dated as of May 15, 1996, between PanAmSat International and Frederick A. Landman is incorporated herein by reference to Exhibit 10.11.16 to PanAmSat International's Quarterly Report on Form 10-Q for the period ended June 30, 1996.* 10.45.2 Amendment dated as of March 6, 1998 to the Agreement between PanAmSat International and Frederick A. Landman constituting Exhibit 10.45.1 hereto is incorporated herein by reference to Exhibit 10.45.1 to PanAmSat's Quarterly Report on Form 10-Q for the period ended March 31, 1998.* 10.45.3 Amendment dated as of August 31, 1998 to the Agreement dated as of May 15, 1996 between PanAmSat International and Frederick A. Landman, as amended, constituting Exhibits 10.45.1 and 10.45.2 hereto, is incorporated herein by reference to Exhibit 10.44.3 to PanAmSat's Quarterly Report on Form 10-Q for the period ended September 30, 1998.* 10.45.4 Amendment dated November 20, 1998 to the Agreement dated as of May 15, 1996 between PanAmSat International and Frederick A. Landman, as amended, constituting Exhibits 10.45.1, 10.45.2 and 10.45.3 hereto.* 10.46 Agreement, dated as of May 15, 1996, between PanAmSat International and Robert A. Bednarek is incorporated herein by reference to Exhibit 10.11.18 to PanAmSat International's Quarterly Report on Form 10-Q for the period ended June 30, 1996.* 10.47 Agreement, dated as of May 15, 1996, between PanAmSat International and James W. Cuminale is incorporated herein by reference to Exhibit 10.11.20 to PanAmSat International's Quarterly Report on Form 10-Q for the period ended June 30, 1996.* 10.48 Agreement, dated as of May 15, 1996, between PanAmSat International and David P. Berman incorporated herein by reference to Exhibit 10.11.21 to PanAmSat International's Quarterly Report on Form 10-Q for the period ended June 30, 1996.*
65 10.49 Agreement, dated April 7, 1997, between PanAmSat and Hughes Electronics Corporation, regarding the terms of assignment of Kenneth N. Heintz to PanAmSat is incorporated here in by reference to Exhibit 10.50 to PanAmSat's Annual Report on Form 10-K for the fiscal year ended December 31, 1997.* 10.50 Fixed Price Contract for PAS 6B HS601HP Spacecraft, Related Services and Documentation--Contract No. 98-PAS-001, dated as of March 9, 1998, between PanAmSat International and Hughes Space and Communications Company, is incorporated herein by reference to Exhibit 10.51 to PanAmSat's Quarterly Report on Form 10-Q for the period ended March 31, 1998. (1) 10.51 Transponder Service Agreement dated as of March 5, 1998 between PanAmSat International and Sky Multi-Country Partners, is incorporated herein by reference to Exhibit 10.52 to PanAmSat's Quarterly Report on Form 10-Q for the period ended March 31, 1998. (1) 10.52 Agreement dated as of July 10, 1998 between PanAmSat and Robert A. Bednarek is incorporated herein by reference to Exhibit 10.46 to PanAmSat's Registration Statement on Form S-4 (Registration No. 333-56227).* 10.53 Agreement dated as of July 10, 1998 between PanAmSat and James W. Cuminale is incorporated herein by reference to Exhibit 10.47 to PanAmSat's Registration Statement on Form S-4 (Registration No. 333-56227).* 10.54 Transponder Service Agreement dated as of April 30, 1998 between PanAmSat International and Corporacion de Radio y Television del Norte de Mexico, S.A. de C.V., is incorporated herein by reference to Exhibit 10.52 to PanAmSat's Registration Statement on Form S-4 (Registration No. 333- 56227). (1) 10.55 Fixed Price Contract for DOMSAT 1, DOMSAT 2, and Option Spacecraft, Related Services and Documentation--Contract No. 98- PAS-002, dated as of October 9, 1998, between PanAmSat and Hughes Space and Communications Company. (2) 21.1 Subsidiaries of PanAmSat is incorporated herein by reference to Exhibit 21.1 to PanAmSat's Annual Report on Form 10-K for the fiscal year ended December 31, 1997. 23.1 Consent of Deloitte & Touche LLP. 24.l Powers of Attorney. 27.1 Financial Data Schedule.
- -------- (1) Portions of this Exhibit have been omitted pursuant to an order of the Securities and Exchange Commission granting confidential treatment with respect thereto. (2) Portions of this Exhibit have been omitted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Exhibits indicated with a * symbol are an executive contract or compensatory plan or arrangement filed pursuant to Item 14 of Form 10-K. In lieu of filing certain instruments with respect to long-term debt of the kind described in Item 601(b)(4) of Regulation S-K, Registrant agrees to furnish a copy of such instruments to the Securities and Exchange Commission upon request. A copy of any of the exhibits included in this Annual Report on Form 10-K, other than those as to which confidential treatment is pending or has been granted by the Securities and Exchange Commission, upon payment of a fee to cover the reasonable expenses of furnishing such exhibits, may be obtained by written request to the Company, at the address set forth on the front cover, attention General Counsel. 66 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized, in the Town of Greenwich, State of Connecticut. PanAmSat Corporation By: /s/ James W. Cuminale __________________________________ James W. Cuminale Senior Vice President, General Counsel and Secretary March 30, 1999 Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
NAME TITLE DATE * Chairman of the Board of March 30, 1999 _____________________________________ Directors MICHAEL T. SMITH * President and Chief Executive Officer (principal executive officer) and Director March 30, 1999 _____________________________________ FREDERICK A. LANDMAN * Director March 30, 1999 _____________________________________ ROXANNE S. AUSTIN * Director March 30, 1999 _____________________________________ PATRICK J. COSTELLO * Director March 30, 1999 _____________________________________ STEVEN D. DORFMAN * Director March 30, 1999 _____________________________________ DENNIS F. HIGHTOWER * Director March 30, 1999 _____________________________________ JAMES M. HOAK * Director March 30, 1999 _____________________________________ STEPHEN R. KAHN * Director March 30, 1999 _____________________________________ CHARLES H. NOSKI * Director March 30, 1999 _____________________________________ JOSEPH R. WRIGHT, JR. /s/ Kenneth N. Heintz Executive Vice President and March 30, 1999 _____________________________________ Chief Financial Officer KENNETH N. HEINTZ (principal financial officer and principal accounting officer) *By: /s/ James W. Cuminale _____________________________________ (JAMES W. CUMINALE, ATTORNEY-IN- FACT)
67 EX-3.2 2 RESTATED BYLAWS OF PANAMSAT Exhibit 3.2 RESTATED BYLAWS OF PANAMSAT CORPORATION ARTICLE I Stockholders SECTION 1.1. Annual Meetings. An annual meeting of stockholders shall be held for the election of directors at such date, time and place, either within or without the State of Delaware, as may be designated by resolution of the Board of Directors from time to time. Any other proper business may be transacted at the annual meeting. SECTION 1.2. Special Meetings. Special meetings of stockholders for any purpose or purposes may be called at any time by the Board of Directors, or by a committee of the Board of Directors that has been duly designated by the Board of Directors and whose powers and authority, as provided in a resolution of the Board of Directors, include the power to call such meetings, but such special meetings may not be called by any other person or persons. SECTION 1.3. Notice of Meetings. Whenever stockholders are required or permitted to take any action at a meeting, a written notice of the meeting shall be given that shall state the place, date and hour of the meeting and, in the case of a special meeting, the purpose or purposes for which the meeting is called. Unless otherwise provided by law, the certificate of incorporation or these Bylaws, the written notice of any meeting shall be given not less than ten (10) nor more than sixty (60) days before the date of the meeting to each stockholder entitled to vote at such meeting. If mailed, such notice shall be deemed to be given when deposited in the United States mail, postage prepaid, directed to the stockholder at his address as it appears on the records of the Corporation. SECTION 1.4. Adjournments. Any meeting of stockholders, annual or special, may adjourn from time to time to reconvene at the same or some other place, and notice need not be given of any such adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting the Corporation may transact any business which might have been transacted at the 1 original meeting. If the adjournment is for more than thirty (30) days, or if after the adjournment a new record date is fixed for the adjourned meeting, notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. SECTION 1.5. Quorum. Except as otherwise provided by law, the certificate of incorporation or these Bylaws, at each meeting of stockholders the presence in person or by proxy of the holders of shares of stock having a majority of the votes which could be cast by the holders of all outstanding shares of stock entitled to vote at the meeting shall be necessary and sufficient to constitute a quorum. Where a separate vote by a series, class or classes is required, a majority of the outstanding shares of stock of such class or classes on any particular issue, present in person or represented by proxy, shall be necessary and sufficient to constitute a quorum for purposes of such issue. In the absence of a quorum, the stockholders so present may, by majority vote, adjourn the meeting from time to time in the manner provided in Section 1.4 of these Bylaws until a quorum shall attend. Shares of its own stock belonging to the Corporation or to another corporation, if a majority of the shares entitled to vote in the election of directors of such other corporation is held, directly or indirectly, by the Corporation, shall neither be entitled to vote nor be counted for quorum purposes; provided, however, that the foregoing shall not limit the right of the Corporation to vote stock, including but not limited to its own stock, held by it in a fiduciary capacity. SECTION 1.6. Organization. Meetings of stockholders shall be presided over by the Chairman of the Board, if any, or in his absence by the President, or in his absence by an Executive Vice President, or in the absence of the foregoing persons by a chairman designated by the Board of Directors, or in the absence of such designation by a chairman chosen at the meeting. The Secretary shall act as secretary of the meeting, but in his absence the chairman of the meeting may appoint any person to act as secretary of the meeting. The chairman of the meeting shall announce at the meeting of stockholders the date and time of the opening and the closing of the polls for each maker upon which the stockholders will vote. SECTION 1.7. Voting; Proxies. Each stockholder entitled to vote at any meeting of stockholders shall be entitled to one vote for each share of stock held by such stockholder which has voting power upon the matter in question. At all meetings of stockholders for the election of directors, a plurality of the votes cast shall be sufficient to elect a director. All other elections and questions shall, unless otherwise provided by law, the certificate of incorporation, these Bylaws or the rules or regulations of any stock exchange applicable to the Corporation, be decided by the affirmative vote of the holders of shares of stock having a majority of the votes present in person or represented by proxy and entitled to vote thereon. Each stockholder entitled to vote at a meeting of 2 stockholders may authorize another person or persons to act for him by proxy, but no such proxy shall be voted or acted upon after three years from is date, unless the proxy provides for a longer period. A proxy shall be irrevocable if it states that it is irrevocable and if, and only as long as, it is coupled with an interest sufficient in law to support an irrevocable power. A stockholder may revoke any proxy which is not irrevocable by attending the meeting and voting in person or by filing an instrument in writing revoking the proxy or by delivering a proxy in accordance with applicable law bearing a later date to the Secretary of the Corporation. Voting at meetings of stockholders need not be by written ballot. SECTION 1.8. Fixing Date for Determination of Stockholders of Record. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors and which record date: (i) in the case of determination of stockholders entitled to vote at any meeting of stockholders or adjournment thereof, shall, unless otherwise required by law, not be more than sixty nor less than ten (10) days before the date of such meeting; and (ii) in the case of any other action, shall not be more than sixty (60) days prior to such other action. If no record date is fixed: (i) the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held; and (ii) the record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjured meeting. SECTION 1.9. List of Stockholders Entitled to Vote. The Secretary shall prepare and make, at least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or if not so 3 specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof and may be inspected by any stockholder who is present. SECTION 1.10. Stock Ledger. The stock ledger of the Corporation shall be the only evidence as to who are the stockholders entitled to examine the stock ledger, the list required by Section 1.9 of this ARTICLE I, or to vote in person or by proxy at any meeting of stockholders. SECTION 1.11. Conduct of Meetings. The Board of Directors of the Corporation may adopt by resolution such rules and regulations for the conduct of the meeting of stockholders as it shall deem appropriate. Except to the extent inconsistent with such rules and regulations as adopted by the Board of Directors, the chairman of any meeting of stockholders shall have the right and authority to prescribe such rules, regulations and procedures and to do all such acts as, in the judgment of such chairman, are appropriate for the proper conduct of the meeting. Such rules, regulations or procedures, whether adopted by the Board of Directors or prescribed by the chairman of the meeting, may include, without limitation, the following: (i) the establishment of an agenda or order of business for the meeting; (ii) rules and procedures for maintaining order at the meeting and the safety of those present; (iii) limitations on attendance at or participation in the meeting to stockholders of record of the Corporation, their duly authorized and constituted proxies or such other persons as the chairman of the meeting shall determine: (iv) restrictions on entry to the meeting after the time fixed for the commencement thereof; and (v) limitations on the time allotted to questions or comments by participants. Unless and to the extent otherwise determined by the Board of Directors or the chairman of the meeting, meetings of stockholders shall not be required to be held in accordance with the rules of parliamentary procedure. SECTION 1.12. Advance Notice of Stockholder Nominations and Business. (A) Annual Meetings of Stockholders. (1) Nominations of persons for election to the Board of Directors and the proposal of business to be considered by the stockholders may be made at an annual meeting of stockholders (a) pursuant to the Corporation's notice of meeting, (b) by or at the direction of the Board of Directors or (c) by any stockholder of the Corporation who was a stockholder of record at the time of giving of notice provided for in this Bylaw, who is entitled to vote at the meeting and complies with the notice procedures set forth in this Bylaw. 4 (2) For nominations or other business to be properly brought before an annual meeting by a stockholder pursuant to clause (c) of paragraph (A)(l) of this Bylaw, the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation and such other business must otherwise be a proper matter for stockholder action. To be timely, a stockholder's notice shall be delivered to the Secretary at the principal executive offices of the Corporation not later than the close of business on the 60th day nor earlier than the close of business on the 90th day prior to the first anniversary of the preceding year's annual meeting; provided, however, that in the event that the date of the annual meeting is more than thirty (30) days before or more than sixty (60) days after such anniversary date, notice by the stockholder to be timely must be so delivered not earlier than the close of business on the 90th day prior to such annual meeting and not later than the close of business on the later of the 60th day prior to such annual meeting or the 10th day following the day on which public announcement of the date of such meeting is first made by the Corporation. In no event shall the public announcement of an adjournment of an annual meeting commence a new time period for the giving of a stockholder's notice as described above. Such stockholder's notice shall set forth (a) as to each person whom the stockholder proposes to nominate for election or re-election as a director all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors in an election contest, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the "Exchange Act") and Rule 14a-11 thereunder (including such person's written consent to being named in the proxy statement as a nominee and to serving as a director if elected); (b) as to any other business that the stockholder proposes to bring before the meeting, a brief description of the business desired to be brought before the meeting, the reasons for conducting such business at the meeting and any material interest in such business of such stockholder and the beneficial owner, if any, on whose behalf the proposal is made; and (c) as to the stockholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made (i) the name and address of such stockholder, as they appear on the Corporation's books, and of such beneficial owner, (ii) the class and number of shares of the Corporation which are owned beneficially and of record by such stockholder and such beneficial owner, and (iii) whether the proponent intends or is part of a group which intends to solicit proxies from other stockholders in support of such proposal or nomination. (3) Notwithstanding anything in the second sentence of paragraph (A)(2) of this Bylaw to the contrary, in the event that the number of directors to be elected to the Board of Directors of the Corporation is increased 5 and there is no public announcement by the Corporation naming all of the nominees for director or specifying the size of the increased Board of Directors at least seventy (70) days prior to the first anniversary of the preceding year's annual meeting, a stockholder's notice required by this Bylaw shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it shall be delivered to the Secretary at the principal executive offices of the Corporation not later than the close of business on the 10th day following the day on which such public announcement is first made by the Corporation. (B) Special Meetings of Stockholders. Only such business shall be conducted at a special meeting of stockholders as shall have been brought before the meeting pursuant to the Corporation's notice of meeting. Nominations of persons for election to the Board of Directors may be made at a special meeting of stockholders at which directors are to be elected pursuant to the Corporation's notice of meeting (a) by or at the direction of the Board of Directors or (b) provided that the Board of Directors has determined that directors shall be elected at such meeting, by any stockholder of the Corporation who is a stockholder of record at the time of giving of notice provided for in this Bylaw, who shall be entitled to vote at the meeting and who complies with the notice procedures set forth in this Bylaw. In the event the Corporation calls a special meeting of stockholders for the purpose of electing one or more directors to the Board of Directors, any such stockholder may nominate a person or persons (as the case may be) for election to such position(s) as specified in the Corporation's notice of meeting, if the stockholder's notice required by paragraph (A)(2) of this Bylaw shall be delivered to the Secretary at the principal executive offices of the Corporation not earlier than the close of business on the 90th day prior to such special meeting and not later than the close of business on the later of the 60th day prior to such special meeting, or the 10th day following the day on which public announcement is first made of the date of the special meeting and of the nominees proposed by the Board of Directors to be elected at such meeting. In no event shall the public announcement or an adjournment of a special meeting commence a new time period for the giving of a stockholder's notice as described above. (C) General. (1) Only such persons who are nominated in accordance with the procedures set forth in this Bylaw shall be eligible to serve as directors and only such business shall be conducted at a meeting of stockholders as shall have been brought before the meeting in accordance with the procedures set forth in this Bylaw. Except as otherwise provided by law, the certificate of incorporation or these Bylaws, the chairman of the meeting shall have the power and duty to determine whether a nomination or any business proposed to be brought before 6 the meeting was made or proposed, as the case may be, in accordance with the procedures set forth in this Bylaw and, if any proposed nomination or business is not in compliance with this Bylaw, to declare that such defective proposal or nomination shall be disregarded. (2) For purposes of this Bylaw, "public announcement" shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable national news service or in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act. (3) Notwithstanding the foregoing provisions of this Bylaw, a stockholder shall also comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth in this Bylaw. Nothing in this Bylaw shall be deemed to affect any rights (i) of stockholders to request inclusion of proposals in the Corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act or (ii) of the holders of any series of Preferred Stock to elect directors under specified circumstances. SECTION 1.13. Stockholder Action. Any action required or permitted to be taken by any stockholders of the Corporation must be effected at a duly called annual or special meeting of such stockholders and may not be effected by any consent in writing by such stockholders. Except as otherwise required by law, special meetings of stockholders of the Corporation may be called only by the Board of Directors pursuant to a resolution approved by a majority of the entire Board of Directors. SECTION 1.14. Inspectors of Election. The Corporation shall, in advance of any meeting of stockholders, appoint one or more inspectors of election, who may be employees of the Corporation, to act at the meeting or any adjournment thereof and to make a written report thereof. The Corporation may designate one or more persons as alternate inspectors to replace any inspector who fails to act. In the event that no inspector so appointed or designated is able to act at a meeting of stockholders, the person presiding at the meeting shall appoint one or more inspectors to act at the meeting. Each inspector, before entering upon the discharge of his or her duties, shall take and sign an oath to execute faithfully the duties of inspector with strict impartiality and according to the best of his or her ability. The inspector or inspectors so appointed or designated shall (i) ascertain the number of shares of capital stock of the Corporation outstanding and the voting power of each such share, (ii) determine the shares of capital stock of the Corporation represented at the meeting and the validity of proxies and ballots, (iii) count all votes and ballots, (iv) determine and retain for a reasonable period a record of the 7 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. 8 SECTION 2.4. Special Meetings. Special meetings of the Board of Directors may be held at any time or place within or without the State of Delaware whenever called by the President, any Vice President, the Secretary, or by any member of the Board of Directors. Notice of a special meeting of the Board of Directors shall be given by the person or persons calling the meeting at least twenty-four hours before the special meeting. SECTION 2.5. Telephonic Meetings Permitted. Members of the Board of Directors, or any committee designated by the Board of Directors, may participate in a meeting thereof by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to this Bylaw shall constitute presence in person at such meeting. SECTION 2.6. Quorum; Vote Required for Action. At all meetings of the Board of Directors a majority of the whole Board of Directors shall constitute a quorum for the transaction of business. The vote of a majority of the directors present at a meeting at which a quorum is present shall be the act of the Board of Directors. SECTION 2.7. Organization. Meetings of the Board of Directors shall be presided over by the Chairman of the Board, if any, or in his absence by the President, or in their absence by a chairman chosen at the meeting. The Secretary shall act as secretary of the meeting, but in his absence the chairman of the meeting may appoint any person to act as secretary of the meeting. SECTION 2.8. Informal Action by Directors. Unless otherwise restricted by the certificate of incorporation or these Bylaws, any action required or permitted to be taken at any meeting of the Board of Directors, or of any committee thereof, may be taken without a meeting if all members of the Board of Directors or such committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board of Directors or such committee. ARTICLE III Committees SECTION 3.1. Committees. The Board of Directors shall appoint the committees provided for in these Bylaws in Sections 3.2 and 3.3 and may, by resolution passed by the Board of Directors, designate one or more additional committees, each committee to consist of one or more of the directors of the Corporation. The Board of 9 Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of the committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in place of any such absent or disqualified member. Any such committee, to the extent permitted by law and to the extent provided in the resolution of the Board of Directors, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it. SECTION 3.2. Compensation Committee. (a) At each annual meeting of the Board of Directors, the Board of Directors shall, by a resolution adopted by the Board of Directors, designate and appoint from its members a Compensation Committee consisting of three or more directors, each of whom shall be a "disinterested" person. (b) The Compensation Committee shall have the powers and responsibilities designated by the Board of Directors from time to time. (c) Action taken by the Compensation Committee or at meetings duly called shall require the affirmative vote of at least a majority of its members. SECTION 3.3. Audit Committee. (a) At each annual meeting of the Board of Directors, the Board of Directors shall, by a resolution adopted by the Board of Directors, designate and appoint from its members an Audit Committee consisting of three or more directors, none of whom is an officer or employee of the Corporation. (b) The Audit Committee shall have the powers and responsibilities as designated by the Board of Directors from time to time. SECTION 3.4. Committee Rules. Unless the Board of Directors otherwise provides, each committee designated by the Board of Directors may make, alter and repeal rules for the conduct of its business. In the absence of such rules each committee shall conduct its business in the same manner as the Board of Directors conducts its business pursuant to ARTICLE 11 of these Bylaws. 10 ARTICLE IV Officers SECTION 4.1. Executive Officers; Election; Qualifications; Term of Office; Resignation; Removal; Vacancies. The Board of Directors shall elect a President and Secretary, and it may, if it so determines, choose a Chairman of the Board from among its members. The Board of Directors may also choose a Chief Operating Officer, one or more Executive Vice Presidents, one or more Senior Vice Presidents, one or more Assistant Secretaries, a Treasurer and one or more Assistant Treasurers. Each such officer shall hold office until the first meeting of the Board of Directors after the annual meeting of stockholders next succeeding his election, and until his successor is elected and qualified or until his earlier resignation or removal. Any officer may resign at any time upon written notice to the Corporation. The Board of Directors may remove any officer with or without cause at any time, but such removal shall be without prejudice to the contractual rights of such officer, if any, with the Corporation. Any number of offices may be held by the same person. Any vacancy occurring in any office of the Corporation by death, resignation, removal or otherwise may be filled for the unexpired portion of the term by the Board of Directors at any regular or special meeting. SECTION 4.2. Powers and Duties of Executive Officers. The officers of the Corporation shall have such powers and duties in the management of the Corporation as may be prescribed in a resolution by the Board of Directors and, to the extent not so provided, as generally pertain to their respective offices, subject to the control of the Board of Directors. SECTION 4.3. Chairman of the Board. The Chairman of the Board shall be a member of the Board of Directors. He shall preside at each meeting of the Board of Directors or the stockholders. Unless the Chairman also holds another office described in these Bylaws, he shall be a non-executive officer of the Corporation. SECTION 4.4. The President. The President shall be the chief executive officer of the Corporation. He shall, in the absence of the Chairman of the Board, preside at each meeting of the Board of Directors or the stockholders. The President shall be responsible for the general supervision and control of the business and affairs of the Corporation, subject to the direction of the Board of Directors. The President may sign or countersign certificates, contracts, agreements and other documents and instruments in the name and on behalf of the Corporation, unless and except to the extent that any document or instrument is required by law or by the Board of Directors to be signed or countersigned by another officer of the Corporation. The President may appoint 11 additional officers that are not executive officers described in these Bylaws (unless such appointments are approved by the Board of Directors), and such additional officers shall serve the Corporation at the discretion of the President. The President shall perform all duties incident to the office of the President, and such other duties as may from time to time be assigned to him by the Board of Directors. SECTION 4.5. Chief Operating Officer. The Chief Operating Officer shall report to the President and shall be responsible for day-to-day management of the sales, operations and strategic activities of the Corporation and such other duties as may from time to time be assigned to him by the President or the Board of Directors. At the request of the President, or in his absence or in the event of his inability or refusal to act, the Chief Operating Officer shall perform the duties of the President, and when so acting, shall have the powers of and be subject to the restrictions placed upon the President in respect of the performance of such duties. SECTION 4.6. Executive Vice President. Each Executive Vice President shall perform all such duties as from time to time may be assigned to him by the Board of Directors or the President. At the request of the President or the Chief Operating Officer or in his absence or in the event of his inability or refusal to act, the Executive Vice President, or if there shall be more than one, the Executive Vice Presidents in the order determined by the Board of Directors (or if there be no such determination, then the Executive Vice Presidents in the order of their appointment), shall perform the duties of the Chief Operating Officer, and when so acting, shall have the powers of and be subject to the restrictions placed upon the Chief Operating Officer in respect of the performance of such duties. SECTION 4.7. Senior Vice President. Each Senior Vice President shall perform all such duties as from time to time may be assigned to him by the Board of Directors or the President. Each Senior Vice President shall perform all duties incident to the office of such Senior Vice President, and such other duties as may from time to time be assigned to him by the Board of Directors. SECTION 4.8. Chief Financial Officer. The Chief Financial Officer shall be responsible for the financial affairs of the Corporation and shall be the chief accounting officer for public securities purposes. If the Chief Financial Officer is not also the Treasurer of the Corporation, he shall be responsible for the supervision of the Treasurer. He shall perform all duties incident to the office of Chief Financial Officer, and such other duties as may from time to time be assigned to him by the Board of Directors. 12 SECTION 4.9. Treasurer. The Treasurer shall: (a) have charge and custody of, and be responsible for, all the funds and securities of the Corporation; (b) keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation; (c) deposit all moneys and other valuables to the credit of the Corporation in such depositaries as may be designated by the Board of Directors or pursuant to its direction; (d) receive, and give receipts for, moneys due and payable to the Corporation from any source whatsoever; (e) disburse the funds of the Corporation and supervise the investments of its funds; (f) render to the Board of Directors, whenever the Board of Directors may require, an account of the financial condition of the Corporation; and (g) in general, perform all duties incident to the office of Treasurer and such other duties as from time to time may be assigned to him by the Board of Directors. In the event that any officer of the Corporation other than the Treasurer shall be designated as the Corporation's chief financial officer, the Treasurer shall share the foregoing powers and duties with such chief financial officer, and all references in these Bylaws to the Treasurer shall be deemed to include such chief financial officer of the Corporation. SECTION 4.10. Secretary. The Secretary shall: (a) keep or cause to be kept in one or more books provided for the purpose, the minutes of all meetings of the Board of Directors, the committees of the Board of Directors and the stockholders; (b) see that all notices are duly given in accordance with the provisions of these Bylaws and as required by law; (c) be custodian of the records and the seal of the Corporation and affix and attest the seal to all certificates for shares of the Corporation and affix and attest the seal to all other documents to be executed on behalf of the Corporation under its seal; 13 (d) see that the books, reports, statements, certificates and other documents and records required by law to be kept and filed are properly kept and filed; and (e) in general, perform all duties incident to the office of Secretary and such other duties as from time to time may be assigned to him by the Board of Directors. SECTION 4.11. Assistant Secretaries. During the absence or disability of the Secretary, the Assistant Secretary shall have and may exercise all of the powers and shall discharge all of the duties of the Secretary. Each Assistant Secretary shall also perform all such other duties as are incident to his office or are properly requested by the President, the Secretary or the Board of Directors. SECTION 4.12. Assistant Treasurers. During the absence or disability of the Treasurer, the Assistant Treasurer shall have and may exercise all of the powers and shall discharge all of the duties of the Treasurer. Each Assistant Treasurer shall also perform all such other duties as are incident to his office or are properly requested by the President, the Treasurer or the Board of Directors. SECTION 4.13. Additional Officers. The Board of Directors may appoint such other officers and agents as it may deem appropriate, and such other officers and agents shall hold their offices for such terms and shall exercise such powers and perform such duties as may be determined from time to time by the Board of Directors. The Board of Directors may from time to time delegate to any officer or agent the power to appoint subordinate officers or agents and to prescribe their respective rights, terms of office, authorities and duties. Any such officer or agent may remove any such subordinate officer or agent appointed by him, for or without cause. ARTICLE V Stock SECTION 5.1. Certificates. Every holder of stock shall be entitled to have a certificate signed by or in the name of the Corporation by the Chairman or the President or an Executive Vice President, and by the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary of the Corporation, certifying the number of shares owned by him in the Corporation. Any of or all the signatures on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the 14 Corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issue. SECTION 5.2. Lost, Stolen or Destroyed Stock Certificates; Issuance of New Certificates. The Corporation may issue a new certificate of stock in the place of any certificate theretofore issued by it alleged to have been lost, stolen or destroyed, and the Corporation may require the owner of the lost, stolen or destroyed certificate, or his legal representative, to give the Corporation a bond sufficient to indemnify it against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate. ARTICLE VI Miscellaneous SECTION 6.1. Fiscal Year. The fiscal year of the Corporation shall be determined by resolution of the Board of Directors. SECTION 6.2. Seal. The corporate seal shall have the name of the Corporation inscribed thereon and shall be in such form as may be approved from time to time by the Board of Directors. SECTION 6.3. Waiver of Notice of Meetings of Stockholders, Directors and Committees. Any written waiver of notice, signed by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at nor the purpose of any regular or special meeting of the stockholders, directors or members of a committee of directors need be specified in any written waiver of notice. SECTION 6.4. Manner of Notice. Except as otherwise provided herein, notices to directors and stockholders shall be in writing and delivered personally or mailed to the directors or stockholders at their addresses appearing on the books of the Corporation. Notice to directors may be given by telegram, telecopier, telephone or other means of electronic transmission. SECTION 6.5. Interested Directors; Quorum. No contract or transaction between the Corporation and one or more of its directors or officers, or between the 15 Corporation and any other corporation, partnership, association or other organization in which one or more of its directors or officers are directors or officers, or have a financial interest, shall be void or voidable solely for this reason, or solely because the director or officer is present at or participates in the meeting of the Board of Directors or committee thereof which authorizes the contract or transaction, or solely because his or their votes are counted for such purpose, if: (i) the material facts as to his relationship or interest and as to the contract or transaction are disclosed or are known to the Board of Directors or the committee, and the Board of Directors or committeve in good faith authorizes the contract or transaction by the affirmative votes of a majority of the disinterested directors, even though the disinterested directors be less than a quorum; or (ii) the material facts as to his relationship or interest and as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the stockholders; or (iii) the contract or transaction is fair as to the Corporation as of the time it is authorized, approved or ratified, by the Board of Directors, a committee thereof, or the stockholders. Common or interested directors may be counted in determining the presence of a quorum at a meeting of the Board of Directors or of a committee which authorizes the contract or transaction. SECTION 6.6. Form of Records. Any records maintained by the Corporation in the regular course of its business, including its stock ledger, books of account and minute books, may be kept on, or be in the form of, punch cards, magnetic tape, photographs, microphotographs, or any other information storage device, provided that the records so kept can be converted into clearly legible form within a reasonable time. SECTION 6.7. Amendment of Bylaws. These Bylaws may be altered or repealed, and new bylaws made, by the Board of Directors, but the stockholders may make additional bylaws and may alter and repeal any Bylaws whether adopted by them or otherwise. 16 EX-4.1.2 3 LETTER AGREEMENT AMONG PANAMSAT AND FORMER HOLDERS Exhibit 4.1.2 February 26, 1999 PanAmSat Corporation One Pickwick Plaza Greenwich, Connecticut 06830 Attention: James W. Cuminale, Esq. Hughes Communications, Inc. c/o Michael T. Smith Hughes Electronics Corporation 200 North Sepulveda P.O. Box 956 El Segundo, California 90245 Dear Sirs: Pursuant to Section 3(a) of the Amended and Restated Stockholder Agreement, dated as of May 16, 1997, between PanAmSat Corporation (the "Company"), Hughes Communications, Inc. ("HCI") and certain other parties (the "Agreement"), the Board of Directors of the Company may not have more than ten members. Terms used herein and not otherwise defined shall take the meaning given them in the Agreement. The Company desires to increase the size of its Board of Directors to eleven members to allow Frederick A. Landman to remain on the Board, notwithstanding his resignation as President and Chief Executive Officer of the Company, effective on March 31, 1999. The stockholders of the Company signatory below have beneficial ownership of 66-2/3% of the Shares held by Minority Stockholders and accordingly have the right pursuant to Section 8(l) of the Agreement to allow the Board of Directors of the Company to increase in size. We agree that notwithstanding the limitation contained in the first sentence of Section 3(a) of the Agreement, when Frederick A. Landman ceases to be Chief Executive Officer of the Company, the number of members of the Board of Directors of the Company may be increased to eleven, solely to allow Frederick A. Landman to serve, as one of HCI's designees, as the eleventh member of the Board of Directors of the Company. The consent and waiver contained in this letter shall remain in effect only for so long as Frederick A. Landman remains a member of the Board of Directors of the Company as a designee of HCI. Other than as expressly set forth above, the Agreement remains unchanged and in full force and effect. Yours very truly, CLASS A HOLDERS Mary Anselmo ------------------------------------------------------- Name: Mary Anselmo, individually and as a trustee of the Article VII Trust created by the RENE ANSELMO REVOCABLE TRUST DATED JUNE 10, 1994 and as a successor trustee under the Voting Trust Agreement dated as of February 28, 1995 and as a co-trustee of the RAYCE ANSELMO TRUST DATED DECEMBER 23, 1991 2 EX-10.15.9 4 AMENDMENT #5 TO AGREEMENT FOR LAUNCHING Exhibit 10.15.9 Page 1 "This Amendment #5 to the Launch Services Agreement 95.5.933 is entered into between: ARIANESPACE S.A., a company organized under the laws of France and having its principal office at Boulevard de l'Europe, 91006 EVRY, France. AND PanAmSat Corporation a company organized under the laws of the State of Delaware with principal offices located at One Pickwick Plaza, Greenwich, Connecticut, U.S.A. (hereinafter referred to as "PanAmSat Corporation" or under this Amendment, "Customer") and PanAmSat International a company organized under the laws of the State of Delaware with principal offices located at One Pickwick Plaza, Greenwich, Connecticut, U.S.A. (hereinafter referred to as "PanAmSat International") Reference is made to the Launch Services Agreement 95.5.933 executed between PanAmSat Corporation and ARIANESPACE on December 20, 1995 for the Launch of up to four PanAmSat Satellites as amended (said agreement being hereinafter referred to as the "Agreement"). The Parties hereby amend the Agreement in order to provide for three additional Firm Launches: Firm Launch #4 (Galaxy 11, which Launch shall be for the benefit of PanAmSat Corporation, Firm Launch #5 (Galaxy 4R, which Launch shall be for the benefit of PanAmSat Corporation, Firm Launch #6 which shall be for the benefit of PanAmSat Corporation and modify certain terms of the Agreement in the manner provided for hereafter: ARTICLE 1 FIRM LAUNCH #4, FIRM LAUNCH #5 AND FIRM LAUNCH #6 A) Three Firm Launches are hereby added to the Agreement for the Galaxy 11 Satellite (Firm Launch #4), the Galaxy 4R Satellite (Firm Launch #5) and a Satellite to be designated by Customer in writing to ARIANESPACE no later than 1 June 1999 (Firm Launch #6) during the following Launch Periods: Page 2 i) Firm Launch #4 From 1 March 1999 up to and including 31 May 1999. Notwithstanding the terms of the Agreement, it is agreed that, for Firm Launch #4, under the terms of Article 6 of the Agreement, the Launch Slot shall be determined no later than L-4 months (Paragraph 6.2) and the Launch Day shall be determined no later than L-2 1/2 months (Paragraph 6.3). ii) Firm Launch #5 From 1 October 1999 up to and including 31 December 1999. Notwithstanding the terms of the Agreement, it is agreed that, for Firm Launch #5, under the terms of Article 6 of the Agreement, the Launch Slot shall be determined no later than L-6 months (Paragraph 6.2). iii) Firm Launch #6 From 1 January 2000 up to and including 31 March 2000. Notwithstanding the terms of the Agreement, it is agreed that, for Firm Launch #6, under the terms of Article 6 of the Agreement, the Launch Slot shall be determined no later than L-6 months (Paragraph 6.2). B) The Launch Services Price for Firm Launch #4, Firm Launch #5 and Firm Launch #6 under Paragraph 8.1.1. of the Agreement and the corresponding payment plans under Paragraph 10.1.1 of the Agreement shall be as follows: i) for Firm Launch #4: a) Price The price shall be [************************************************************ ************************ ] for a mass of 4500 kg. b) Mass / Launch Vehicle [************************************************************************** ******************************************************************************** ******************************************************************************** ******************************************************************************** ******************************************************************]. [***] Filed separately with the Commission pursuant to a request for confidential treatment. Page 3 [******************************************************************************* *****************************************************************************]. [******************************************************************************* ************************]. c) Payment Plan The Launch Services Price for Firm Launch #4 shall be paid by Customer as follows: Date Percentage of Launch Services Price under a) - [**********] [***]* - [**********] [***] less Pr** - [**********] [***] - [**********] [***] - [**********] [***] * This amount shall have been received by ARIANESPACE on 15 October 1998 or ten days after execution of the present amendment to the Agreement, whichever is the latest notwithstanding the provisions of Paragraph 10.3.1. of the Agreement. ** At the date of execution of this amendment, the price reduction under Paragraph 8.1.1.D) of the Agreement equals [***********]. The applicable price reduction shall be deducted from this payment. ii) for Firm Launch #5: a) Price The price shall be [************************************] for a mass of 3475 kg (lift off mass for standard GTO orbit on a dedicated Ariane 4). This price shall not be subject to any Price Reduction under the terms of the Agreement. b) Mass / Launch Vehicle The following provisions shall apply to Firm Launch #5 and Firm Launch #6: [************************************************************************** ******************************************************************************** ******************************************************************************** ******************************************************************************** ******************************************************************]. [***] Filed separately with the Commission pursuant to a request for confidential treatment. Page 4 Customer shall have the following rights: x) Notwithstanding the terms of the terms of the Agreement, until L-6 months, Customer shall have the option to increase the mass of the Satellite to 3800 kg (without adaptor, standard GTO orbit). The price for this mass increase shall be a price of [***********] ("the Mass Increase Fee"), which shall be paid upon exercise of the option under this paragraph x). For greater certainty, its is specified that this mass increase shall not be subject to the price reduction under Paragraph 8.1.1.D) of the Agreement. Provided that, further to Customer's exercise of the option under this Paragraph x), the Launch is not delayed by an aggregate duration in excess of [*****] months (including both Customer and ARIANESPACE related delays), the Launch will be performed by way of a dedicated Ariane [***] Launch Vehicle. Customer shall have the right to cancel the mass increase hereunder by written notice received by ARIANESPACE no later than L-[***] months. In this case, if Customer has paid to ARIANESPACE the Mass Increase Fee, the Mass Increase Fee shall be credited to the next payment due for any Launch under this Agreement. xx) Starting from the date of execution of this Amendment up until the earlier of i) 1 April 1999 for Firm Launch #5 and 1 July 1999 for Firm Launch #6 or ii) until Customer has exercised its option under a) hereabove, the Parties agree to discuss all injection strategies that may be used to optimize the Launch of the Satellite on a dedicated Ariane 42L Launch Vehicle while increasing the Satellite lift off mass up to a mass between 3650 and 3700 kg. It is understood that such increase in the Satellite mass means a higher probability of a final orbit below the standard GTO orbit as defined in the Annexes to the Agreement. The final decision in this respect (i.e. trade off between increase of the lift off mass and the final orbit) shall be taken by Customer taking into consideration the Launch Vehicle's technical constraints. xxx) In all cases where the Launch is performed by way of a dedicated Ariane 4 Launch Vehicle, Customer shall be entitled to exercise its rights under Paragraph 8.1.3.A) iii) of the Agreement. xxxx) If ARIANESPACE notifies to Customer that the Launch will be performed as a Shared Launch, clauses x), xx) and xxx) shall no longer be applicable and if Customer has paid to ARIANESPACE the Mass Increase Fee, the Mass Increase Fee shall be credited to the next payment due for any Launch under this Agreement or reimbursed to Customer if a credit cannot be made. Furthermore, the baseline mass shall be increased to [************************] and Customer shall have the right to further increase the Satellite up to a mass of 3650 kg (without adaptor, standard GTO orbit) no later than ten (10) days after ARIANESPACE's notification under Paragraph 4.2.1 of the Agreement (but in no event shall Customer's decision be required earlier than L-[***] months). The price for this mass increase shall be a price of [*****] per kilogram, which shall be paid upon exercise of the option under this paragraph d). For greater certainty, its is [***] Filed separately with the Commission pursuant to a request for confidential treatment. Page 5 specified that this mass increase shall not be subject to the price reduction under Paragraph 8.1.1.D) of the Agreement. Customer shall also be entitled to exercise the rights under Paragraph 8.1.3.A) iv). c) Payment Plan The Launch Services Price for Firm Launch #5 shall be paid by Customer as follows: Date Percentage of Launch Services Price under a) - [***] [***]* - [***] [***] - [***] [***] - [***] [***] - [***] [***] - [***] [***] - [***] [***] - [***] [***] - [***] [***] - [***] [***] - [***] [***] - [***] [***] * This amount shall have been received by ARIANESPACE on 15 October 1998 or ten days after execution of the present amendment to the Agreement, whichever is the latest notwithstanding the provisions of Paragraph 10.3.1. of the Agreement. iii) for Firm Launch #6: a) Price The price shall be [************************************************************ **************] for a mass of 3475 kg (lift off mass for standard GTO orbit on a dedicated Ariane 4). This price shall not be subject to any Price Reduction under the terms of the Agreement. b) Mass / Launch Vehicle The provisions of Paragraph ii)b) hereabove shall also apply to Firm Launch #6. [***] Filed separately with the Commission pursuant to a request for confidential treatment. Page 6 c) Payment Plan The Launch Services Price for Firm Launch #6 shall be paid by Customer as follows: Date Percentage of Launch Services Price under a) - [***] [***]* - [***] [***] - [***] [***] - [***] [***] - [***] [***] - [***] [***] - [***] [***] - [***] [***] * This amount shall have been received by ARIANESPACE on 15 October 1998 or ten days after execution of the present amendment to the Agreement, whichever is the latest notwithstanding the provisions of Paragraph 10.3.1. of the Agreement. d) Termination Fees Notwithstanding the provisions of Paragraph 18 of the Agreement, the Parties agree that, for Firm Launch #6, until 1 June 1999, the basic termination liability under Paragraph 18.2.1 of the Agreement shall be limited to a sum of [*************************************** ******************************************************************************** **]. ARTICLE 2 PRICE REDUCTIONS UNDER PARAGRAPH 8.1.1.D) OF THE AGREEMENT Paragraph 8.1.1.D) of the Agreement is hereby replaced by the following: D) The Launch Services Prices stated under Paragraphs A), B), and C) under Subparagraph 13.2.2. hereafter above shall be subject to a price reduction as follows: i) For Firm Launch #1: [********************************************************************** *] ii) For Firm Launch #2: [********************************************************************** **********************] [***] Filed separately with the Commission pursuant to a request for confidential treatment. Page 7 iii) For Firm Launch #3 [*********************************************************************** *******************] iv) For Firm Launch #4 [********************************************************************] v) For Firm Launch #5 The Parties agree that no price reduction shall apply to this Launch. vi) For Firm Launch #6 The Parties agree that no price reduction shall apply to this Launch. vii) For Optional Launch #1: a) if the Launch Option is exercised on or prior to 1 October 1999: [***] of the Launch Services Price under Subparagraph 8.1.1.C) i) or ii) (as increased for the initial Launch Period of Optional Launch #1), as applicable, or b) if the Launch Option is exercised after 1 October 1999: [***] of the Launch Services Price under Subparagraph 8.1.1.C) i) or ii) (as increased for the initial Launch Period of Optional Launch #1), as applicable. viii) For Optional Launch #2: a) if Optional Launch #1 has been exercised or a Replacement Launch has been ordered on or prior to 1 October 1999, at the date of exercise of Optional Launch #2 and provided Optional Launch is exercised on or prior to 1 October 2000: the percentage applicable to Optional Launch #1 under Subparagraph vi) above or, if applicable, to the Replacement Launch, plus [***] times the Launch Services Price under Subparagraph 8.1.1.C) i) or ii) as applicable (as increased for the initial Launch Period of Optional Launch #2), or b) in all other cases: [***] of the Launch Services Price under Subparagraph 8.1.1.C) i) or ii) (as applicable and as increased for the initial Launch Period of Optional Launch #2). [***] Filed separately with the Commission pursuant to a request for confidential treatment. Page 8 ix) For Replacement Launches ordered under this Agreement: Provided that the Replacement Launch is ordered no later than 31 December 2001, the percentage applicable to the last Launch ordered under this Agreement to which a price reduction under the terms of this Paragraph 8.1.1.D) applies (including Replacement Launches) plus [***] times the applicable Launch Services Price under Article 13. Further, if a Replacement Launch is ordered on or prior to 1 October 1999, any further option(s) exercised hereunder shall be subject to a price reduction determined under Subparagraph 8.1.1.D)vi) above. The price reduction as calculated under this Sub-paragraph 8.1.1.D) shall be deducted from the payment due at L-9 months and, if the price reduction exceeds this payment, the excess price reduction shall be deducted equally from the payments at L-8 months and at L-10 months under Paragraph 10.1.1. A), B) or C) as applicable. Notwithstanding the foregoing, for Firm Launch #3, the price reduction shall be deducted from the payment due on 1 August 1998 and for Firm Launch #4, the price reduction shall be deducted from the payment due on 1 November 1998. Furthermore, notwithstanding the foregoing, in the event a Launch ordered under this Agreement (and subject to a price reduction under this Paragraph 8.1.1.D)) is terminated, the Price Reduction of the other Launches ordered shall be recalculated to take into account such termination by deducting [***] from all Launches ordered after the date of order of the Launch terminated. Notwithstanding the foregoing, the price reduction under this Sub- paragraph 8.1.1.D) may not in any case exceed [***] of the relevant Launch Services Price under Paragraph 10.1.1A), B) or C); for Firm Launch #3, under the provisions of Article 2 of Amendment #4 to the Agreement or Firm Launch #4 under the provisions of Article 1 of this Amendment for any Launch under this Agreement ARTICLE 4 PRICE ESCALATION FORMULA The Parties agree to discuss in good faith no later than five weeks after execution of this Amendment the precise index to be applied for the application of Index 0 under Paragraphs 9.1.A) and B) of the Agreement. ARTICLE 5 REPLACEMENT LAUNCH - ACCELERATION A) [*************************************************************** **************************************************************** **************************************************************** **************************************************************** ***************************************] [***] Filed separately with the Commission pursuant to a request for confidential treatment. Page 9 B) The Parties agree that the provisions of Paragraph 11.5 of the Agreement shall not apply until the actual date of the last Firm Launch under this Agreement. ARTICLE 6 This Amendment #4 constitutes an amendment to the Agreement within the meaning of its Paragraph 20.6. Executed this 12th day of October 1998 For ARIANESPACE For PanAmSat Corporation: By: /s/ J. M. Luton By: /s/ Frederick A. Landman Title: President-Directeur General Title: President and CEO For PanAmSat International By: /s/ Frederick A. Landman Title: President EX-10.15.10 5 SIDE LETTER #3 TO THE LAUNCH SVCS. AGREEMENT Exhibit 10.15.10 Page 1 This Side Letter #3 to the Launch Services Agreement 95.5.933 between the Parties is entered into between: ARIANESPACE S.A., a company organized under the laws of France and having its principal office at Boulevard de l'Europe, 91006 EVRY, France. AND PanAmSat Corporation a company organized under the laws of the State of Delaware with principal offices located at One Pickwick Plaza, Greenwich, Connecticut, U.S.A. (hereinafter referred to as "PanAmSat Corporation") and PanAmSat International a company organized under the laws of the State of Delaware with principal offices located at One Pickwick Plaza, Greenwich, Connecticut, U.S.A. (hereinafter referred to as "PanAmSat International") (the two entities being also referred to as "Customer" with respect to the Launches for their benefit) Reference is made to Amendment #1 to the Side Letter to Launch Services Agreement 95.5.933 executed between PanAmSat Corporation and ARIANESPACE on December 20, 1995, for the Launch of PanAmSat Satellites (said Agreement as amended being hereinafter referred to as the "Agreement" and the Launches covered under said Agreement being hereafter referred to as the "Launches" and said Amendment #1 to the Side Letter dated 8 January 1998 being hereinafter referred to as "Side Letter #1") and to Side Letter #2 to the Agreement dated 9 March 1998 (hereinafter referred to as Side Letter #2). All capitalized terms herein shall have the same meaning as under the Agreement. On this day, the Parties have entered into Amendment #5 to the Agreement in order to add Firm Launch #4, Firm Launch #5 and Firm Launch #6 to the Agreement. The Parties agree that the conditions listed hereafter shall be applicable notwithstanding the terms of the Agreement or of the Side Letter #1. Unless otherwise indicated, words defined under the Agreement shall have the same meaning in the present Side Letter. ARTICLE 1 SPECIAL PROVISIONS FOR FIRM LAUNCH #4 Page 2 The provisions of Articles I. to IV. of the Side Letter #1 shall not apply to Firm Launch #4 under the Agreement and said Firm Launch #4 shall not be taken into consideration for the application of said provisions. [*********************************************************************** *********************************************************************** *****************************************************************]. [*********************************************************************** *********************************************************************** *************]. [*********************************************************************** *********************************************************************** *********************************************************************** *******************] a) [******************************************************** *********************************************************** **********]. b) [******************************************************** *********************************************************** *********************************************************** ****************************]. c) [******************************************************** *********************************************************** *********************************]. ARTICLE 2 [*********************************************************************** *********************************************************************** *********************************************************************** ***************************************************************]. [*********************************************************************** *********************************************************************** *********************************************************************** ****************************]. [***] Filed separately with the Commission pursuant to a request for confidential treatment. Page 3 ARTICLE 3 This Side Letter constitutes an amendment to the Agreement within the meaning of its Paragraph 20.6 as well as an amendment to the Side Letter #1 and the terms of this Side Letter shall prevail in the event of any inconsistency with the terms of the Agreement or with the terms of Side Letter #1. This Side Letter shall remain confidential and unless indicated expressly otherwise, authorization to disclose the Agreement shall not include authorization to disclose this Side Letter. Executed this 12th day of October, 1998. FOR ARIANESPACE FOR PANAMSAT CORPORATION /s/ J. M. Luton /s/ Frederick A. Landman President-Directeur General President and CEO FOR PANAMSAT INTERNATIONAL /s/ Frederick A. Landman President FOR PANAMSAT INTERNATIONAL EX-10.28.2 6 LETTER AGREEMENT BETW. PANAMSAT AND HUGHES SPACE Exhibit 10.28.2 PanAmSat Via Facsimile: (310) 364-6677 October 7, 1998 Mr. Harold McDonnell Vice President Hughes Space and Communications Company Bldg S10, M/S S329 P.O. Box 92919 Los Angeles, CA 90009 Re: Sea Launch Arrangements ----------------------- Dear Hal: I received your letter today and believe that for the sake of clarity it would be best to set our agreement out in one document, which we have done below. 1. There shall be a demonstration launch of the Sea Launch system using a dummy payload. The total cost of this demonstration launch shall be [**********] of which [***********************************] and PanAmSat shall contribute [************************************************ ******************************************************************************** ***********] 2. The Sea Launch service originally designated for Galaxy XI will be reassigned to a launch period of the fourth quarter of 1999 for an HS601HP. The monies already paid by PanAmSat shall be credited to the price for this fourth quarter HS601HP launch. Remaining payments will be resumed following a successful demonstration launch. The total price for this launch shall be [*********************** ****************************************************************************] In addition, PanAmSat shall pay [**********] in costs for the integration effort unique to the Sea Launch of this PanAmSat HS601HP. 3.[***************************************************************************** ******************************************************************************** ******************************************************************************** ******************************************************************************** *** [***] Filed separately with the Commission pursuant to a request for confidential treatment. PanAmSat Corporation ONE PICKWICK PLAZA . GREENWICH, CONNECTICUT 06830 . USA . TELEPHONE 1/203/622/6664 . FAX 1/203/622/9163 Page 2 ************************************************************************* ************************************************************************* *****.] 4. PanAmSat understands that the existing long term agreement ("LTA") between HSCI and Sea Launch does not provide for a free re-flight in the event of a launch failure. HSCI is currently in negotiation with Boeing on this subject. In the event that HSCI negotiates a free or reduced rate re-flight (whether or not pursuant to the LTA), or HSCI negotiates with Boeing for a free or reduced rate re-flight under the LTA, then PanAmSat shall be entitled to the same general re-flight right. 5. [**************************************************************************** ******************************************************************************** ******************************************************************************** ******************************************************************************** ******************************************************************************** ******************************************************************************** ******************************************************************************** ******************************************************************************** ******************************************************************************** ******************************************************************************** ******************************************************************************** ******************************************************************************** ******************************************************************************** ******************************************************************************** **************************************************************.] 6. PanAmSat shall enjoy the benefit of all rights to which HSCI is entitled with respect to the applicable launch service, including, without limitation, rights of postponement, termination and communication with the launch providers. However, in no respect will the rights and obligations of HSCI under its contract with Sea Launch serve to limit or modify PanAmSat's rights as HSCI and PanAmSat have expressly agreed herein. By way of example, PanAmSat shall have the right to postpone its right to use the Sea Launch service on the same terms that HSCI has the right to postpone under the LTA. 7. PanAmSat is encouraged to make and maintain direct communication with Sea Launch and its partners concerning the PanAmSat Sea Launch service(s). [***] Filed separately with the Commission pursuant to a request for confidential treatment. Page 3 All prices referred to above are all-inclusive of all services, hardware, software and facilities (not including those items to be supplied by HSC under the applicable spacecraft construction contract). The terms of this letter will serve as the basis for amending the terms of that certain Amended and Restated Launch Services Agreement dated as of January 21, 1997 between PanAmSat Corporation (as assignee of Hughes Communications Galaxy, Inc. ("HCG")) and Hughes Space and Communications Company International, Inc. ("HSCI"), as supplemented by that certain letter agreement dated as of May 15, 1997. Please indicate HSCI's acknowledgment and agreement with the foregoing by signing below and returning this letter to me. Very truly yours, /s/ Robert A. Bednarek Robert A. Bednarek Chief Technology Officer cc: Mr. Frederick Landman ACKNOWLEDGED AND AGREED TO: HUGHES SPACE AND COMMUNICATIONS COMPANY INTERNATIONAL, INC. By: /s/ Harold E. McDonnell -------------------------- Name: Harold E. McDonnell ------------------------ Title: Executive Vice President ------------------------ Date: 9 October 1998 ------------------------ EX-10.37.2 7 AMENDMENT #1 TO FIXED PRICE CONTRACT Exhibit 10.37.2 AMENDMENT No. 1 TO FIXED PRICE CONTRACT BETWEEN PANAMSAT CORPORATION AND HUGHES SPACE AND COMMUNICATIONS COMPANY FOR GALAXY XI HS702 SPACECRAFT, RELATED SERVICES AND DOCUMENTATION AMENDMENT No. 1 TO FIXED PRICE CONTRACT FOR GALAXY XI HS702 SPACECRAFT, RELATED SERVICES AND DOCUMENTATION This AMENDMENT No. 1 (the "Amendment"), entered into as of November __, 1998, by and between PanAmSat Corporation (as assignee of Hughes Communications Galaxy, Inc.), a Delaware corporation ("Buyer"), having a principal place of business at One Pickwick Plaza, Suite 270, Greenwich, Connecticut 06830, and Hughes Space and Communications Company, a Delaware corporation ("Contractor"), having a principal place of business at 909 North Sepulveda Boulevard, El Segundo, California 90245, amends that certain Fixed Price Contract For Galaxy XI HS702 Spacecraft, Related Services And Documentation dated as of May 7, 1997 (Contract No. 96-HCG-002) (the "Agreement"). R E C I T A L S WHEREAS, Buyer (as assignee of Hughes Communications Galaxy, Inc.) and Contractor are party to the Agreement, providing for Buyer to purchase and Contractor to provide the Galaxy XI Spacecraft, Documentation, and Related Services as therein specified; WHEREAS, the Parties now desire to amend the Agreement; A G R E E M E N T NOW, THEREFORE, the Parties hereby agree to amend and restate Amendment as follows: 1. All references in the Agreement to "HCG" are hereby amended to read "Buyer". 2. Exhibit A, entitled "Galaxy XI Statement of Work," and Exhibit B, entitled "Galaxy XI Spacecraft Specification," are hereby amended and restated in their entirety in the forms attached to this Amendment. 3. ARTICLE 1. EXHIBITS AND INCORPORATIONS, Paragraphs 1.1, 1.2 and 1.3 are hereby amended and restated in their entirety to read as follows: "1.1 Exhibit A - Galaxy XI Statement of Work - executed on October 30, 1998. 1.2 Exhibit B - Galaxy XI Spacecraft Specification - executed on November, 1998." 1 4. ARTICLE 4. DELIVERABLES AND SCHEDULE is hereby amended as follows: (a) Section 4.1. The Table in Section 4.1 is replaced in its entirety with ----------- the following: Date of Shipment, Integration Delivery Delivery or Location and Deliverable(s) Performance Performance Place 1. One Spacecraft March 31, 19991 - Shipment from (the "Spacecraft") ("Shipment Date") Contractor's Facility - Delivery to Launch Site 2. Launch Support, In Accordance with - Launch Site Mission Operations and Exhibit A - Fillmore, California In-Orbit Testing - Castle Rock, Colorado (the "Related Services") - El Segundo, California 3. Documentation In Accordance with 1500 Hughes Way, Pod B (the "Documentation") Exhibit A Long Beach, California /1/ Contractor represents and warrants that shipment from Contractor's facility will support a launch of the Spacecraft thirty (30) days after the Shipment Date. [**************** ***************************************************************] (b) Section 4.2. Section 4.2 (including all subsections thereof) is hereby ----------- deleted in its entirety and indicated as "[Reserved]." 5. ARTICLE 5. PRICE is hereby amended as follows: ----------- ----- (a) Section 5.1. Section 5.1 is hereby amended by replacing [************ ----------- **************************************] with [********************* **********************************************] (b) Section 5.3. The third-to-last sentence in Section 5.3 is hereby ------------ amended to read in its entirety as follows, and an additional sentence is hereby inserted: "Thereafter, the Contract Price shall mean [********************** ***************************************] Buyer and Contractor agree that such a delay has occurred, and that Buyer is therefore excused from paying such [***********************] amount." [***] Filed separately with the Commission pursuant to a request for confidential treatment. 2 6. ARTICLE 6. PAYMENTS is hereby amended as follows: ---------- -------- (a) Section 6.3. Table 6.3 is hereby amended to read as follows beginning after the [**********] payment: [*********************] [***] [*****] [******] [***] [*****] [******] [***] [*****] [******] [***] [*****] [******] [***] [*****] [******] [***] [*****] [******] [***] [*****] [************* *****************] [***] [*****] [********************* **********************] [***] [*****] [******************** ******************** ****************** *****************] [***] [*****] [**************** *****************] [***] [*****] 1 [*********************************************************************** ******************] 2 [*********************************************************************** *************************************************************************** ****** *************************************************************************** ******] (b) Section 6.4 Payment Schedule Revision. Section 6.4 is hereby amended -------------------------------------- and restated in its entirety to read as follows: "The payment plan established in Paragraph 6.3 above is based upon a Launch Slot between May 1, 1999 and May 31, 1999. If the Launch Date established in accordance with Article 7, Paragraph 7.1.2 is later than May 31, 1999, the payment plan in Paragraph 6.3 of this Article shall be revised by mutual agreement of the Parties to reflect the established Launch Date." (c) Section 6.6. The address for submission of invoices to Buyer in ----------- Section 6.6.1 is hereby amended and restated to read in its entirety as follows: "PanAmSat Corporation One Pickwick Plaza Greenwich, CT 06830 [***] Filed separately with the Commission pursuant to a request for confidential treatment. 3 Attention: Robert Bednarek, Senior Vice President and Chief Technology Officer cc: James Frownfelter, Vice President -- Space Systems Stephen G. Salem, Senior Counsel (by fax to 310-525-5800)" 7. ARTICLE 7. SPACECRAFT LAUNCH DATE is hereby amended as follows: ---------------------------------- (a) Section 7.1. Section 7.1 is hereby amended and restated to read in its ----------- entirety as follows: "This Contract is written on the basis that the Spacecraft supplied hereunder will be launched on an Ariane 4 or 5 launch vehicle within the Launch Slot set forth below and within which a Launch Date and Launch Window shall be established in accordance with Paragraphs 7.1.2 and 7.1.3 below: Spacecraft Launch Vehicle Launch Slot ---------- -------------- ----------- Galaxy XI Ariane 4 or 5 May 1, 1999 through May 31, 1999 (b) Section 7.1.1. Section 7.1.1 is hereby amended and restated to read ------------- in its entirety as follows: "Launch Slot Definition. A thirty (30) day period of time ---------------------- during which the Launch will occur. The initial Launch Slot shall be as specified in Paragraph 7.1.1." 8. ARTICLE 9. INSPECTION AND ACCEPTANCE is hereby amended as follows: ------------------------------------- (a) Section 9.5. A new Section 9.5 is hereby added to read in its ----------- entirety as follows: "9.5 Until there has been a launch of the Spacecraft that does not result in a Total Failure, Total Constructive Failure or Partial Failure, (as defined in the applicable launch insurance contract) prior to the completion of the Related Services, Contractor shall [***************************** *********************************************] and shall [*********************************************************** ************] The Parties agree that the foregoing shall not apply to the following [************************************************** ******************************************************************** ***************] [***] Filed separately with the Commission pursuant to a request for confidential treatment. 4 9. ARTICLE 26. NOTICES AND AUTHORIZED COMPANY REPRESENTATIVES is hereby ------------------------------------------------------------ amended as follows: (a) The information for Buyer is hereby deleted and replaced with the following: "1. PanAmSat Corporation One Pickwick Plaza Greenwich, Connecticut 06830 Attention: Robert Bednarek, Vice President and Chief Technology Officer cc: James Frownfelter Vice President - Space Systems and cc: Stephen G. Salem Catherine Sanchez PanAmSat Corporation 1500 Hughes Way Long Beach, California 90810 Authorized Representative(s): Frederick Landman, President and Chief Executive Officer Robert Bednarek Senior Vice President and Chief Technology Officer James Frownfelter Vice President - Space Systems" (b) The information for Contractor is hereby amended by adding "Dr. William L. Ballhaus, Assistant Program Manager" to the list of individuals to whom a copy of notices should be sent, and by adding "Michael S. Hersman, Customer Executive" as an Authorized Representative of Contractor. 5 10. ARTICLE 33. ASSIGNMENT is hereby amended by amending the second sentence ------------------------ of Paragraph 33.1 to read as follows: "In addition, notwithstanding anything in this Article 33 to the contrary, the consent of Contractor shall not be required for, and Paragraph 33.2 shall not apply to any assignment by Buyer of its rights, duties and/or obligations hereunder as security for any indebtedness of Buyer or its subsidiaries or affiliates." 11. ARTICLE 36. LIQUIDATED DAMAGES FOR LATE SHIPMENT -------------------------------------------------- A new Article 36, entitled "Liquidated Damages for Late Shipment" is hereby added to read in its entirety as follows: "36.1 In the event that the shipment of the Spacecraft is delayed due to the fault of Contractor and not shipped on or before the Shipment Date identified under Article 4 (as such date may be adjusted by mutual agreement of the Parties), Contractor shall pay to Buyer liquidated damages equal to [*************************************] for the [**********] of delay. In the event of any delay of a partial month, the amount specified in the preceding sentence shall be pro rated on a day-for-day manner based upon the number of days in such month. 36.2 Contractor shall pay to Buyer the liquidated damages owed pursuant to Paragraph 36.1 within thirty (30) days of invoice from Buyer. 36.3 The Parties understand and agree that the liquidated damages provided under this Article 36 shall be in lieu of all other remedies of any kind except for Buyer's rights and remedies under Article 11. The reduction in Contract Price shall constitute liquidated damages for such late shipment and shall not constitute a penalty. The Parties acknowledge and agree that such liquidated damages are believed to represent a genuine estimate of the losses that would be suffered by reason of any such delay (which losses would be difficult or impossible to calculate with certainty). 36.4 The maximum reduction in Contract Price under this Article 36 may equal but shall not exceed [******************************** *********]" 12. Each capitalized term used but not defined in this Amendment shall have the meaning ascribed to such term in the Agreement. Except as amended by this Amendment, the Agreement shall continue in full force and effect. This Amendment may be signed in one or more counterparts, each of which shall constitute an original and together which shall constitute one and the same instrument. [***] Filed separately with the Commission pursuant to a request for confidential treatment. 6 IN WITNESS WHEREOF, Buyer and Contractor have executed this Amendment to become effective upon the 30th day of November, 1998. HUGHES SPACE & COMMUNICATIONS COMPANY - ------------------------------------- SIGNATURE: /s/ Michael S. Hersman ---------------------- NAME: Michael S. Hersman --------------------------------- TITLE: PanAmSat Customer Executive --------------------------- DATE: December 1, 1998 ------------------------------ PANAMSAT CORPORATION - -------------------- SIGNATURE: /s/ Robert A. Bednarek ---------------------- NAME: Robert A. Bednarek --------------------------------- Senior Vice President and TITLE: Chief Technology Officer ------------------------ DATE: December 3, 1998 ------------------------------ 7 EX-10.41.2 8 SCHEDULE OF INDEMNITY AGREEMENTS EXHIBIT 10.41.2 Schedule identifying substantially identical agreements by PanAmSat Corporation ("PanAmSat") in favor of each of the following persons, to the form of Indemnity Agreement constituting Exhibit 10.41.1 to the Annual Report on Form 10-K of PanAmSat for the Fiscal Year ended December 31, 1998 - ------------------------------------------------------------ Name ---- Charles H. Noski Frederick A. Landman Patrick J. Costello Steven D. Dorfman Dennis F. Hightower James M. Hoak Joseph R. Wright, Jr. Michael T. Smith Carl A. Brown Kenneth N. Heintz Robert A. Bednarek James W. Cuminale David P. Berman Roxanne S. Austin Tig H. Krekel Stephen R. Kahn R. Douglas Kahn EX-10.45.4 9 AMEND. TO AGR. BETWEEN F. LANDMAN AND PANAMSAT Exhibit 10.45.4 PanAmSat Corporation One Pickwick Plaza Greenwich, Connecticut 06830 November 20, 1998 Mr. Frederick A. Landman President and Chief Executive Officer PanAmSat Corporation One Pickwick Plaza Greenwich, Connecticut 06830 Re: Modification of Employment Agreement ------------------------------------ Dear Fred: Reference is made to that certain Employment Agreement, dated May 15, 1997, as modified (the "Agreement"), between you and PanAmSat Corporation. This letter will confirm our mutual agreement to the following amendment: The first sentence of paragraph 7(d) on page 8 is amended and restated in its entirety as follows: "The Executive may voluntarily resign his employment hereunder (i) at any time on or before March 31, 1999 (the "First Date"), for any reason or no reason, upon no more than 90 and no fewer than 30 days prior written notice to the Board of Directors and (ii) during the portion of the Employment Term following the First Date, (A) upon written notice to the Board of Directors given at any time with immediate effect, for "Good Reason" (as defined immediately below) or (B) upon no more than 90 and no fewer than 60 days prior written notice to the Board of Directors given at any time, for any reason or no reason, specifying in each case, whether resignation is pursuant to subsection (A) or (B) above." Except as amended hereby, the Agreement remains in full force and effect. If the foregoing is acceptable to you, please indicate your agreement to this amendment by signing and returning the enclosed copy of this letter. Sincerely, PanAmSat Corporation By: Michael T. Smith ----------------------------- Michael T. Smith Chairman of the Board Agreed to: Frederick A. Landman -------------------------- Frederick A. Landman 2 EX-10.55.1 10 FIXED PRICE CONTRACT BETW. PANAMSAT & H. SPACE Exhibit 10.55 FIXED PRICE CONTRACT BETWEEN PANAMSAT CORPORATION AND HUGHES SPACE AND COMMUNICATIONS COMPANY FOR DOMESTIC 1, DOMESTIC 2 AND OPTION SPACECRAFT, RELATED SERVICES AND DOCUMENTATION CONTRACT No. 98-PAS-002 This Contract (including Exhibits) contains information that is proprietary to PanAmSat Corporation and Hughes Space and Communications Company. All information contained herein is deemed to be Proprietary Information (as such term is defined in Article 22 of this Contract) of both Parties, and disclosure thereof is governed by Article 22. TABLE OF CONTENTS ----------------- PAGE ---- ARTICLE 1. EXHIBITS AND INCORPORATIONS 2 ARTICLE 2. ORDER OF PRECEDENCE 3 ARTICLE 3. SPACECRAFT, DOCUMENTATION AND RELATED SERVICES ("DELIVERABLES") 4 ARTICLE 4. DELIVERABLES AND SCHEDULE 7 ARTICLE 5. PRICE 11 ARTICLE 6. PAYMENTS 13 ARTICLE 7. SPACECRAFT LAUNCH DATE 35 ARTICLE 8. BUYER-FURNISHED ITEMS 37 ARTICLE 9. INSPECTION AND ACCEPTANCE 41 ARTICLE 10. ACCESS TO WORK IN PROCESS 45 ARTICLE 11. TERMINATION FOR DEFAULT; LIMITATION OF LIABILITY 46 ARTICLE 12. EXCUSABLE DELAYS 50 ARTICLE 13. AMENDMENTS 52 ARTICLE 14. TERMINATION FOR CONVENIENCE 53 ARTICLE 15. TITLE AND RISK OF LOSS 58 ARTICLE 16. SPACECRAFT WARRANTY 62 ARTICLE 17. INDEMNIFICATION 64 ARTICLE 18. SPACECRAFT NOT LAUNCHED WITHIN SIX MONTHS AFTER ACCEPTANCE 65 ARTICLE 19. PATENT/COPYRIGHT INDEMNITY 66 PANAMSAT AND HUGHES PROPRIETARY INFORMATION SUBJECT TO RESTRICTIONS ON CONTRACT TITLE PAGE ARTICLE 20. RIGHTS IN INVENTIONS 70 ARTICLE 21. INTELLECTUAL PROPERTY RIGHTS 73 ARTICLE 22. FURNISHED DATA AND INFORMATION, DISCLOSURE AND USE 74 ARTICLE 23. PUBLIC RELEASE OF INFORMATION 77 ARTICLE 24. TAXES 78 ARTICLE 25. GOVERNING LAW 80 ARTICLE 26. TITLES 81 ARTICLE 27. NOTICES AND AUTHORIZED REPRESENTATIVES 82 ARTICLE 28. INTEGRATION 84 ARTICLE 29. CHANGES 85 ARTICLE 30. EFFECTS OF STORAGE ON BATTERIES 91 ARTICLE 31. INTER-PARTY WAIVER OF LIABILITY 92 ARTICLE 32. SPACECRAFT STORAGE 93 ARTICLE 33. DISPUTES 94 ARTICLE 34. ASSIGNMENT 97 ARTICLE 35. LIMITATION OF LIABILITY 99 ARTICLE 36. CORRECTIVE MEASURES; OPERATIONAL DEFICIENCIES 100 ARTICLE 37. LIQUIDATED DAMAGES FOR LATE PERFORMANCE 102 ARTICLE 38. OPTION SPACECRAFT 104 ARTICLE 39. NO THIRD PARTY RIGHTS 108 ARTICLE 40. INDEX OF DEFINED TERMS 109 ARTICLE 41. EFFECTIVE DATE OF CONTRACT 112 PANAMSAT AND HUGHES PROPRIETARY INFORMATION SUBJECT TO RESTRICTIONS ON CONTRACT TITLE PAGE This FIXED PRICE CONTRACT (the "Contract") is entered into as of the 9th day of October, 1998, by and between PANAMSAT CORPORATION (herein called "Buyer"), a Delaware corporation having a place of business at One Pickwick Plaza, Greenwich, Connecticut 06830, and HUGHES SPACE AND COMMUNICATIONS COMPANY (herein called "Contractor"), a Delaware corporation having a place of business at 909 North Sepulveda Boulevard, El Segundo, California 90245. WITNESSETH: WHEREAS, the Parties now desire to enter into this Contract for Buyer to purchase and Contractor to manufacture, deliver and perform (as applicable) the Domestic 1 & Domestic 2 Spacecraft, Documentation and Related Services with options for additional Spacecraft, Documentation and Related Services, as provided and defined herein below; NOW, THEREFORE, the Parties hereby agree as follows: PANAMSAT AND HUGHES PROPRIETARY INFORMATION SUBJECT TO RESTRICTIONS ON CONTRACT TITLE PAGE 1 ARTICLE 1. EXHIBITS AND INCORPORATIONS The following documents are hereby incorporated and made a part of this Contract with the same force and effect as though set forth herein: 1.1 Exhibit A - Statement of Work - dated October 9, 1998. 1.2A Exhibit B1 - Domestic 1 Spacecraft Specification - dated October 9, 1998. 1.2B Exhibit B2 - Domestic 2 Spacecraft Specification - dated October 9, 1998 (subject to completion in accordance with Paragraph 8.6). 1.3 Exhibit C - Spacecraft Integration Test Plan - dated October 9, 1998 1.4 Exhibit D - Product Assurance Plan - dated October 9, 1998. 1.5 Exhibit E - Maximum Termination Liability Schedule. 1.6 Exhibit F - Option Spacecraft Payment Plan. 1.7 Exhibit G - Sample Incentives Obligations Payment Schedule. 1.8 Exhibit H - Certain Documentation. [***]FILED SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT. PANAMSAT AND HUGHES PROPRIETARY INFORMATION SUBJECT TO RESTRICTIONS ON CONTRACT TITLE PAGE 2 ARTICLE 2. ORDER OF PRECEDENCE In the event of any conflict or inconsistency among the provisions of this document and the exhibits attached and incorporated into this Contract, such conflict or inconsistency shall be resolved by giving precedence to this document, and then to the attached and incorporated exhibits in the order listed in Article 1 herein, entitled "Exhibits and Incorporations." PANAMSAT AND HUGHES PROPRIETARY INFORMATION SUBJECT TO RESTRICTIONS ON CONTRACT TITLE PAGE 3 ARTICLE 3. SPACECRAFT, DOCUMENTATION AND RELATED SERVICES ("DELIVERABLES") 3.1 Contractor shall sell and provide, and Buyer shall purchase, the items and services referred to in Section 4.1. Contractor shall provide the necessary personnel, material, services and facilities to design, fabricate, test and deliver two (2) Spacecraft. One (1) HS601HP type Spacecraft for Domestic 1 (hereinafter referred to as "Domestic 1" or the "Spacecraft") and One (1) HS601HP type Spacecraft for Domestic 2 (hereinafter referred to as "Domestic 2" or as the "Spacecraft"), including Documentation and Related Services (as defined in Article 4) in accordance with the provisions of this Contract and in the manner specified under Exhibits A, B, C and D hereto. 3.2 All materials and services specified in Exhibit A, "Statement of Work," shall meet the requirements of the Exhibit B, entitled "Spacecraft Specification," for the applicable Spacecraft. 3.3 If Contractor has not made delivery [***************************** *********************************************************] or if, prior to the Launch Date, [***************************** **************************************************] Buyer may at its election: [***************************************************** *************************************************** *************************************************** **********] [***]FILED SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT. PANAMSAT AND HUGHES PROPRIETARY INFORMATION SUBJECT TO RESTRICTIONS ON CONTRACT TITLE PAGE 4 [***************************************************** ************************************************** ************************************************** ************************************************** ************************************************** ************************************************** ************************************************** ************************************************** ************************************************** ************************************************** **********************************] Any such election shall be made by Buyer in writing. [************* ************************************************************ ************************************************************ ************************************************************ ************************************************************ ************************************************************ ***************************************************] 3.4 [*********************************************************** ******************************************] in accordance with: (i) current directives and instructions in the Hughes Spacecraft Operators Handbook, utilized at Buyer's Operations Control Center (OCC); and (ii) any other Documentation utilized, including that Documentation which takes into consideration the unique or special characteristics of such Spacecraft. [************************************************ ************************************************************ *********************************************************** [***]FILED SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT. PANAMSAT AND HUGHES PROPRIETARY INFORMATION SUBJECT TO RESTRICTIONS ON CONTRACT TITLE PAGE 5 ************************************************************ **************************************************] Buyer has responsibility and liability for the Operations Control Center and its associated ground station(s). 3.5 Spacecraft, Documentation and Related Services described above shall be delivered to Buyer at the indicated locations on the dates set forth in Article 4 entitled, "Deliverables and Schedule" herein. [***]FILED SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT. PANAMSAT AND HUGHES PROPRIETARY INFORMATION SUBJECT TO RESTRICTIONS ON CONTRACT TITLE PAGE 6 ARTICLE 4. DELIVERABLES AND SCHEDULE 4.1 The following deliverables to be furnished under this Contract shall be furnished at the designated location(s) on or before the dates specified below:
Date of Shipment Location of Shipment Delivery Delivery or Deliverables or Performance Performance - -------------------------------------------------------------------------------------------------------------- 1A. One Domestic 1 Spacecraft September 25, 1999 (the . Shipped from Contractor's "Shipment Date")/1/ facility. . Delivery Site at Launch Site/2/. - -------------------------------------------------------------------------------------------------------------- 1B. One Domestic 2 Spacecraft October 25, 1999 (the . Shipped from Contractor's "Shipment Date")/1/ facility. . Delivery Site at Launch Site/2/. - -------------------------------------------------------------------------------------------------------------- 2A. Launch Support, Mission Operations In Accordance with Exhibit A . Performance Site to be and In-Orbit Testing for Domestic 1 determined pursuant to ("Related Services") Paragraph 4.2. . Fillmore, California . Castle Rock, Colorado . El Segundo, California - -------------------------------------------------------------------------------------------------------------- 2B. Launch Support, Mission Operations In Accordance with Exhibit A . Performance Site to be and In-Orbit Testing for Domestic 2 determined pursuant to ("Related Services") Paragraph 4.2. . Fillmore, California . Castle Rock, Colorado . El Segundo, California - -------------------------------------------------------------------------------------------------------------- 3A. Documentation for Domestic 1 In Accordance with Exhibit A 1500 Hughes Way ("Documentation") Long Beach, California - -------------------------------------------------------------------------------------------------------------- 3B. Documentation for Domestic 2 In Accordance with Exhibit A 1500 Hughes Way ("Documentation") Long Beach, California - --------------------------------------------------------------------------------------------------------------
/1/Contractor agrees to ship the Spacecraft from its facility on or before such date as may be necessary to support the launch of the Spacecraft on the Launch Date in accordance with the requirements of this Contract and the Exhibits hereto. [******************************************************************* *************************************************************************** *****************]. Notwithstanding anything herein to the contrary, Contractor shall not be required to ship any Spacecraft earlier than its applicable Shipment Date (as such Shipment Date may be adjusted by mutual agreement of the Parties). /2/Delivery Site to be the Launch Integration Facility (Port of Long Beach) in the event Buyer uses Sea Launch. [***]FILED SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT. PANAMSAT AND HUGHES PROPRIETARY INFORMATION SUBJECT TO RESTRICTIONS ON CONTRACT TITLE PAGE 7 4.2 Designation of Launch Vehicle. 4.2.1 Buyer shall designate a Spacecraft's Launch Vehicle on or before [*****] months prior to the scheduled Launch Date for such Spacecraft, in which event the Contract Price shall be increased or decreased by the applicable amount specified in Paragraph 5.3. If, subsequent to the date that is [*******] months prior to such Launch Date, Buyer requests a change in the Launch Vehicle or Approved Storage Facility for such Spacecraft, such request shall be dealt with as a Change Order Request of Buyer under Article 29. 4.2.2 Contractor shall not be obligated to spend in excess of a total cumulative amount of [*************************** ***********************************************] In the event that (i) Buyer has designated [********************* ***********************************************] and (ii) [***************************************************** ***************************************************** ********] then the Parties shall negotiate (a) [*********** ***************************************************** *******************] or (b) responsibility for any additional costs to make such Spacecraft [*********************** *******] 4.2.3 Buyer shall pay the costs of delivering each Spacecraft to the Launch Site, which costs are included in the Contract Price. [***]FILED SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT. PANAMSAT AND HUGHES PROPRIETARY INFORMATION SUBJECT TO RESTRICTIONS ON CONTRACT TITLE PAGE 8 Contractor shall arrange and provide transportation required for the deliverables specified in Section 4.1. 4.3 Contractor shall be responsible for obtaining: (i) all U.S. Government export licenses to enable export of each Spacecraft, related test and support equipment to the Launch Site and disclosure of information reasonably requested by Buyer's foreign insurers and (ii) all authorizations required for Contractor to perform this Contract. Notwithstanding the foregoing, (i) the failure or refusal of the U.S. Government to issue a required export license or (ii) the authorization by the U.S. Government of the export (a) of only a portion of the information requested by Buyer's foreign insurers or (b) to fewer than all of Buyer's foreign insurers (provided in the case of both (i) and (ii) that Contractor has used its reasonable best efforts to obtain such export license) shall be deemed under Paragraph 12.1 to be an act beyond the control of Contractor and therefore shall constitute a Force Majeure Event. PANAMSAT AND HUGHES PROPRIETARY INFORMATION SUBJECT TO RESTRICTIONS ON CONTRACT TITLE PAGE 9 ARTICLE 5. PRICE 5.1 The total price (the "Contract Price") for Contractor to provide the Spacecraft, Documentation and Related Services shall be as follows: (a) For Domestic 1, [***********************************************] (b) For Domestic 2, [***********************************************] 5.2 Buyer shall pay Contractor the Contract Price stated in Paragraph 5.1 above in accordance with Article 6, Paragraph 6.2 of this Contract. 5.3 The Contract Price for a Spacecraft shall be adjusted in accordance with the following table, based upon the Launch Vehicle designated by Buyer for such Spacecraft pursuant to Paragraph 4.2.1. If Buyer changes the designated Launch Vehicle for the Spacecraft in accordance with Paragraph 4.2.1 (as opposed to Article 29), the Contract Price shall be adjusted in accordance with the following table: Table 5.3.1 ----------- Adjustment to Contract Price ---------------------------- Launch Vehicle Adjustment --------------------------------------------------------------- Sea Launch [*********] --------------------------------------------------------------- Delta III [*********] --------------------------------------------------------------- Atlas IIAS/IIAR/III [*********] --------------------------------------------------------------- Ariane 4/5 [*********] --------------------------------------------------------------- Proton [*********] --------------------------------------------------------------- Note: Price adjustments are applicable to Domestic 1 and/or Domestic 2. 5.4 Any adjustment to the Contract Price under Paragraph 5.3 shall be allocated pro rata over the entire Payment Plan for such Spacecraft [***]FILED SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT. PANAMSAT AND HUGHES PROPRIETARY INFORMATION SUBJECT TO RESTRICTIONS ON CONTRACT TITLE PAGE 10 (including In-Orbit Performance Incentive Obligations). Adjustments allocated to payments already made shall be promptly paid by Buyer or refunded by Contractor, as the case may be. 5.5 In the event that [*************************************** ************************************************************ ************************************************************ ************************************************************ *******************************] Buyer agrees to pay to Contractor a delivery incentive (the "Delivery Incentive") as follows: 5.5.1 [**************************************************** **************] Buyer shall pay to Contractor a Delivery Incentive equal to: (i) with respect to Domestic 1 or Domestic 2, [****** *****************************] and (ii) with respect to any other Spacecraft purchased under this Contract, [********************* **************] and 5.5.2 [**************************************************** *******************************************] Buyer shall pay to Contractor an additional Delivery Incentive equal to: (i) with respect to Domestic 1 or Domestic 2, [***** ********************************] and [***]FILED SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT. PANAMSAT AND HUGHES PROPRIETARY INFORMATION SUBJECT TO RESTRICTIONS ON CONTRACT TITLE PAGE 11 (ii) with respect to any other Spacecraft purchased under this Contract, [********************* ***************] 5.6 Contractor shall submit an invoice for any Delivery Incentive after such amount is earned under Paragraph 5.5, and Buyer shall pay such Delivery Incentive within thirty (30) days of receipt by Buyer of such invoice. In the event of [**************************************] the amounts specified in Paragraphs 5.5.1 and 5.5.2 shall be [*************** ********************************************] The Parties agree that the provisions of Paragraph 5.5 shall apply separately to each Spacecraft, and that the maximum Delivery Incentive for a Spacecraft under Paragraph 5.5 is: (i) with respect to Domestic 1 or Domestic 2, [*** ************************************************] and (ii) with respect to any other Spacecraft purchased under this Contract, [****** **************************************] [***]FILED SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT. PANAMSAT AND HUGHES PROPRIETARY INFORMATION SUBJECT TO RESTRICTIONS ON CONTRACT TITLE PAGE 12 ARTICLE 6. PAYMENTS 6.1 Pursuant to the terms set forth in this Article 6, and subject to Buyer's rights, defenses and remedies as expressly stated in this Contract, Buyer shall pay to Contractor the Contract Price as stated in Article 5 herein for the applicable Spacecraft, Documentation, and Related Services under this Contract. 6.2 Invoices shall be prepared and submitted by Contractor for each Spacecraft in a form reasonably acceptable to Buyer. Payments to Contractor for such Spacecraft shall be made according to the following payment plans: [**********] ------------ [************************] --------------------------
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(1) [*******************************************] [***]FILED SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT. PANAMSAT AND HUGHES PROPRIETARY INFORMATION SUBJECT TO RESTRICTIONS ON CONTRACT TITLE PAGE 13 [**********] ------------ [************************] --------------------------
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(1) [*******************************************] 6.3 Incentives Obligations. 6.3.1 The following definitions are applicable to this Section 6.3: 6.3.1.1 "Specified Operation Lifetime" means fifteen (15) years. 6.3.1.2 "Successfully Operating Payload." Each Spacecraft shall be equipped with one or more Payloads, as specified in Exhibit B. Each Payload shall be deemed to be Successfully Operating if at least that number of Transponders that is one more than one-half of the total number of Transponders within such Payload are Successfully Operating Transponders (as defined below). [***]FILED SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT. PANAMSAT AND HUGHES PROPRIETARY INFORMATION SUBJECT TO RESTRICTIONS ON CONTRACT TITLE PAGE 14 6.3.1.3 "Successfully Operating Transponder". A Successfully Operating Transponder is a Transponder which meets either or both of the following two criteria: (a) The Transponder meets or exceeds the performance specifications set forth in Exhibit B. For the avoidance of doubt, if the Spacecraft is placed into inclined orbit, then the Transponders shall be deemed not to meet the criteria stated in this Paragraph 6.3.1.3(a) at such time as the Spacecraft would have ceased to have a Useful Commercial Life, (as mutually determined by the Parties) had it not been placed in such an orbit. (b) The Transponder, while not meeting or exceeding the performance specifications, provides Buyer with no material loss in its commercial value. A Transponder shall also be deemed to be a Successfully Operating Transponder if it meets the performance specifications through use of any redundant or spare equipment not already in use by another Transponder. [***************************************** ***************************************** ****************************************** [***]FILED SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT. PANAMSAT AND HUGHES PROPRIETARY INFORMATION SUBJECT TO RESTRICTIONS ON CONTRACT TITLE PAGE 15 ****************************************** ****************************************** ****************************************** ****************************************** ****************************************** ****************************************** ****************************************** ****************************************** ****************************************** ****************************************** ****************************************** ****************************************** ****************************************** ****************************************** ****************************************** ****************************************** ****************************************** ****************************************** ****************************************** ****************************************** ****************************************** ****************************************** ****************************************** ****************************************** ****************************************** ****************************************** ****************************************** ****************************************** [***]FILED SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT. PANAMSAT AND HUGHES PROPRIETARY INFORMATION SUBJECT TO RESTRICTIONS ON CONTRACT TITLE PAGE 16 ****************************************** ***************************************] 6.3.1.4 "Useful Commercial Life". The Useful Commercial Life of a Spacecraft means the period beginning on the Commencement Date and ending on the earlier to occur of (i) the date on which there is just sufficient fuel remaining on board the Spacecraft only to eject the Spacecraft from its geostationary orbital location or (ii) the date on which at least one-half of the Transponders on each Payload are not Successfully Operating Transponders. 6.3.1.5 "Successfully Injected Spacecraft". A Launched Spacecraft shall be deemed to be a Successfully Injected Spacecraft if: (a) The transfer orbit/spacecraft attitude meets the following required criteria: (1) Perigee altitude error is less than or equal to +-3 sigma; (2) Apogee Altitude error is less than or equal to +-3 sigma; (3) Inclination error is less than or equal to +-3 sigma; [***]FILED SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT. PANAMSAT AND HUGHES PROPRIETARY INFORMATION SUBJECT TO RESTRICTIONS ON CONTRACT TITLE PAGE 17 (4) Argument of perigee error is less than or equal to +-3 sigma; and (5) The Spacecraft has been separated with attitude rate errors of less than or equal to +-3 sigma and (b) The Spacecraft has not suffered physical damage which resulted from Launch Vehicle malfunction. The calculated amount of Useful Commercial Life (the "Calculated Operational Lifetime") shall be mutually determined by Buyer and Contractor, based on standard engineering practices, using measured actuals of the Spacecraft, existing at the time of the operational hand-off of the Spacecraft to Contractor from the Launch Vehicle provider. If the attained transfer orbit/Spacecraft attitude does not meet the criteria stated in this Section, but the Calculated Operational Lifetime is greater than or equal to the Specified Operational Lifetime for the Spacecraft, then the Spacecraft shall be deemed to have been a Successfully Injected Spacecraft. If, on the other hand, the attained transfer orbit/Spacecraft attitude does not meet the criteria stated above, and the Calculated Operational Lifetime is less than the Specified Operational Lifetime, then the Spacecraft shall be deemed not to be a Successfully Injected Spacecraft. If Buyer and Contractor cannot agree on the Calculated Operational Lifetime, then the Parties PANAMSAT AND HUGHES PROPRIETARY INFORMATION SUBJECT TO RESTRICTIONS ON CONTRACT TITLE PAGE 18 shall resolve such disagreement in acceptance with the dispute resolution procedures set forth in Article 33. During such dispute resolution procedure, Buyer shall commence all payments under Section 6.3.2 to Contractor based on Contractor's calculation of such Calculated Operational Lifetime, except only the disputed amount(s) which shall be paid by Buyer in escrow as set forth in Section 29.4, and the prevailing party shall be entitled to interest as provided therein. 6.3.1.6 "Incentives Interest Rate". The Incentives Interest Rate shall be the lesser of (i) the prime rate of Chase Manhattan, New York, as calculated on the first business day of each month for which interest is calculated [************] [***********************] or (ii) [************] [***************] 6.3.1.7 "Commencement Date". The Commencement Date shall be the date on which Buyer receives written certification from Contractor that, based upon the results of completed in- orbit performance tests, at least one Payload is a Successfully Operating Payload. 6.3.2 Buyer shall pay to Contractor the Incentives Obligations and the Change Order Profit Component (if applicable), as follows: 6.3.2.1 Incentives Obligations and Change Order Profit Component. Subject to Section 6.3.2.3 through 6.3.2.6, [***]FILED SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT. PANAMSAT AND HUGHES PROPRIETARY INFORMATION SUBJECT TO RESTRICTIONS ON CONTRACT TITLE PAGE 19 Buyer shall be obligated to pay to Contractor the Incentives Obligation and any Change Order Profit Component (if applicable), as follows: Buyer shall pay Contractor equal monthly payments that, when summed on a net present value basis to the Commencement Date using the Incentives Interest Rate, equals the total amount of Incentives Obligations plus Change Order Profit Component due hereunder. For example, if the Domestic 1 Spacecraft is a Successfully Injected Spacecraft and on the Commencement Date all Transponders on such Spacecraft are and continue to be Successfully Operating Transponders for fifteen (15) years, assuming the maximum [*****] [*********************] for the entire period, the monthly Incentives Obligations payment would be [***********] (the "Nominal Payment"). If the Incentives Interest Rate is less than [**********************] for any given month, the Incentives Obligations payment will be less than the Nominal Payment. In such circumstances, the amount of each month's payment will be calculated on a net present value basis to the date of the last month's payment using the remaining unpaid principal as the new principal, the Incentives Interest Rate, and a term equal to the number of months remaining in the Incentives period. [*******************] of the total Incentives Obligations shall be payable for the C-Band Payload, and [*******] [****] of the total Incentives Obligations shall be payable for the Ku-Band Payload. The Incentives [***]FILED SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT. PANAMSAT AND HUGHES PROPRIETARY INFORMATION SUBJECT TO RESTRICTIONS ON CONTRACT TITLE PAGE 20 Obligations, identified above, shall be payable in 180 equal and consecutive monthly installments over a fifteen (15) year life of the Spacecraft, except as may be adjusted as set forth herein. Except as provided in Paragraph 6.3.4, the first installment of each Incentives Obligations shall be paid on the Spacecraft's Commencement Date. A sample schedule matrix showing Incentives Obligations payments for fifteen years, assuming fully successful operation, and with a hypothetical interest rate will be attached to this Contract as Exhibit G. The foregoing notwithstanding: (a) If the Spacecraft is not a Successfully Injected Spacecraft pursuant to Section 6.3.1.4 but is successfully placed into its on-station orbit by Hughes during the "Transfer Period" (defined as the period from separation of the Launch Vehicle through on- station acquisition) then, subject to Section 6.3.2.3, Buyer shall pay the Incentives Obligations for the Spacecraft in equal and consecutive monthly installments over a period of the Spacecraft's On Station Operational Lifetime (defined at Section 6.3.2.1(b)). (b) If the Spacecraft is Successfully Injected, but is not successfully placed into its on-station orbit by Contractor during the Transfer Period, then the total PANAMSAT AND HUGHES PROPRIETARY INFORMATION SUBJECT TO RESTRICTIONS ON CONTRACT TITLE PAGE 21 amount of the Incentives Obligations for the Spacecraft shall be multiplied by a percentile equal to (i) the On-Station Operational Lifetime divided by (ii) the Calculated Operational Lifetime, which percentile shall, in no event, be greater than one. Subject to Section 6.3.2.3, Buyer shall pay such Incentives Obligations for the Spacecraft in equal and consecutive monthly installments over a period of the Spacecraft's On-Station Operational Lifetime. The "On Station Operational Lifetime" shall be mutually determined by Buyer and Contractor, based on standard engineering practices, using measured actuals of the Spacecraft, existing at the end of the Transfer Period. However, should the Spacecraft continue to operate successfully beyond the On-Station Operational Lifetime, Contractor will continue to earn Incentives Obligations at the same monthly rate up to the Specified Operational Lifetime. (c) Finally, if the Spacecraft is not a Successfully Injected Spacecraft and, in addition, is not successfully placed into its on-station orbit during the Transfer Period, then the total amount of the Incentives Obligations shall be multiplied by the sum of (A)(i) the Specified Operational Lifetime, plus (ii) the On-Station Operational Lifetime, minus (iii) the Calculated Operational Lifetime, divided by PANAMSAT AND HUGHES PROPRIETARY INFORMATION SUBJECT TO RESTRICTIONS ON CONTRACT TITLE PAGE 22 (B) the Specified Operational Lifetime, which percentile shall, in no event, be greater than one. Subject to Section 6.3.2.3, Buyer shall pay such Incentives Obligations for the Spacecraft in equal and consecutive monthly installments over a period of the Spacecraft's On-Station Operational Lifetime. For purposes of any provision of this Contract, if the Incentives Obligations or related payment periods are to be recalculated, the monthly installments due shall be recalculated to reflect the imputed interest element that is reflected in the payment plans specified above. 6.3.2.2 Notwithstanding the foregoing, if at any time Buyer continues to utilize for revenue-producing purposes any Transponder that is not a Successfully Operating Transponder, then Buyer shall pay a pro rated amount of the Incentives Obligation attributable to such Transponder that is proportionate to the partial benefit that Buyer derives from such Transponder (the "Partial Incentive Payment"), all as mutually agreed upon by the Parties in good faith. 6.3.2.3 Except for any Change Order Profit Component (which is non-contingent), and except as provided in Paragraph 6.3.2.2, payment of any Incentives Obligation shall be contingent upon the Transponders being Successfully PANAMSAT AND HUGHES PROPRIETARY INFORMATION SUBJECT TO RESTRICTIONS ON CONTRACT TITLE PAGE 23 Operating Transponders, as set forth herein, on the applicable Payload and shall be pro-rated, therefore, on a Transponder equivalent-by-Transponder equivalent basis over the duration of the applicable term of such Obligation; provided, however, that beginning on the date, if any, that any one or more of the Payloads are no longer a Successfully Operating Payload, as and when ascertained pursuant to Section 6.3.2.4 (the "Degraded Payload"), then Buyer's then- remaining Incentives Obligations for such Payload(s) (exclusive of any Change Order Profit Component, as applicable) shall be deemed extinguished. 6.3.2.4 Whether any Transponder is not Successfully Operating shall be mutually determined by Buyer and Contractor, based on relevant technical data, reports and analyses, and each Party will make available to the other Party for its review upon reasonable request all data used in making such determination. Any disagreements between the Parties shall be resolved in accordance with the dispute resolution procedure set forth in Article 33. 6.3.2.5 If the Spacecraft has not been, or is not being, Properly Operated by the Buyer, and any Transponders thereof are not Successfully Operating Transponders, then the Transponders of the Spacecraft which were Successfully Operating prior to such improper operation of the Spacecraft shall be deemed to be Successfully Operating Transponders for purposes of Contractor's entitlement to PANAMSAT AND HUGHES PROPRIETARY INFORMATION SUBJECT TO RESTRICTIONS ON CONTRACT TITLE PAGE 24 payment of any applicable Incentives Obligations for such period as such Transponders would have reasonably been predicted to continue to be Successfully Operating had the Spacecraft and transponder thereon been Properly Operated by Buyer; provided, however, that if the failure is the result of a defect in the deliverable software (except to the extent that such defect was caused solely by a modification to such software by Buyer) or if Buyer demonstrates that the failure of any Transponder to be Successfully Operating was not caused primarily, directly or indirectly, by any act or omission of Buyer, its agents, Subcontractors, Consultants or representatives of any kind, then the foregoing provision shall not apply with respect to such Transponder. 6.3.2.6 Buyer may prepay any portion of the Incentives Obligations or the Change Order Profit Component pursuant to the schedule matrix attached as Exhibit G. Any remaining Incentives Obligations so prepaid shall be subject to refund by Contractor to Buyer, in any instance and to the extent that Buyer's obligation to make such payments is relieved pursuant to this Article 6, as outlined in the last sentence of Section 6.3.4.1 hereof. 6.3.3 "Spacecraft Retirement Payment". At any time following the Spacecraft's Delivery, Buyer may, at its option, cease to utilize the Spacecraft for any purpose; provided, however, that if Buyer does cease using the Spacecraft (or if the Spacecraft is rendered a total PANAMSAT AND HUGHES PROPRIETARY INFORMATION SUBJECT TO RESTRICTIONS ON CONTRACT TITLE PAGE 25 loss by virtue of Buyer's failure to Properly Operate the Spacecraft), then, upon the exercise date of such option or the declaration of the Spacecraft as a total loss as applicable, all remaining Incentives Obligations payments for any Transponder (and any Change Order Profit Component, if applicable) (subject to the provisions of Section 6.3.2.3 through 6.3.2.5) shall become immediately due and payable, all relative to the Spacecraft; and Buyer shall pay to Contractor such amounts, in immediately available funds, along with the outstanding balance of principal and accrued interest on any other outstanding payment obligations with respect to the Spacecraft, if any, as of such date. In determining the amount of principal and interest due, present value analysis discounted at the Incentives Interest Rate per annum shall be done for any scheduled payment stream previously created by the Parties hereunder. Notwithstanding the foregoing, Buyer shall have the right to cease using the Spacecraft and remove it from its orbital location at any time following the expiration of the Spacecraft's Useful Commercial Life, without payment of such Spacecraft Retirement Payment. 6.3.4 Incentive Obligations and Launch Delay 6.3.4.1 If the Spacecraft has not been launched by the 181st day after the earlier of (i) the actual date of shipment of the Spacecraft by Contractor or (ii) Buyer's Preliminary Acceptance of the Spacecraft, then, except as set forth in Paragraph 6.3.4.2, the first of the equal and consecutive monthly installment payments for Incentive Obligations on PANAMSAT AND HUGHES PROPRIETARY INFORMATION SUBJECT TO RESTRICTIONS ON CONTRACT TITLE PAGE 26 the Spacecraft shall be due and payable and the fifteen year period shall be deemed to have begun for purposes of this Paragraph 6.3 and such payments shall commence (the "Pre- Launch Incentive Payments"). If upon the Commencement Date or at any time thereafter, any Transponder ceases to be a successfully Operating Transponder or a Payload becomes a Degraded Payload, then Contractor shall deliver to Buyer a refund of that portion of the Pre-Launch Incentive Payment attributable to such Transponder or Payload (plus interest thereon calculated at the Incentives Interest Rate), taking into account the amount of such time such Transponder or Payload met the performance specifications, and Buyer's subsequent Incentives Obligations shall be reduced thereafter on a pro rata basis; provided, if applicable, Buyer shall receive a credit to the extent of any Pre-Launch Incentive Payments, to be applied as an offset against Buyer's consecutive monthly installment payments for the Incentives Obligations otherwise due and payable for the months immediately following the Commencement Date. 6.3.4.2 If the Spacecraft has not been Launched due primarily to (1) Contractor's fault after shipment or (2) Contractor's failure to timely meet the Spacecraft's scheduled Shipment Date (where such failure in shipment is not caused by Buyer's actions or inactions) (or a combination of clauses (1) and (2) immediately above), then the first of the equal and consecutive monthly installments of the Incentives PANAMSAT AND HUGHES PROPRIETARY INFORMATION SUBJECT TO RESTRICTIONS ON CONTRACT TITLE PAGE 27 Obligations on the Spacecraft shall be due and payable on, and interest shall not accrue until, the earlier to occur of (i) the Commencement Date or (ii) one year after the earlier of (a) the actual date of shipment of the Spacecraft by Contractor or (b) Buyer's Preliminary Acceptance of the Spacecraft. If upon the Commencement Date, or at any time thereafter, any Transponder on the Spacecraft (which has been subject to a Launch delay under this Paragraph 6.3.4.2) ceases to be a Successfully Operating Transponder or a Payload becomes a Degraded Payload, then Contractor shall deliver to Buyer a refund (plus interest thereon calculated at the Incentives Interest Rate) of that portion of the Pre- Launch Incentives Payments attributable to such Transponder or Payload, taking into account the amount of time such Transponder or Payload met the performance specifications, and Buyer's subsequent Incentives Obligation for the affected Payload on the Spacecraft shall be reduced thereafter on a pro rata basis; provided, however, that Buyer shall receive a credit to the extent of any Pre-Launch Incentive Payments, such credit to be applied as an offset against Buyer's consecutive monthly installment payments for the Incentives Obligations otherwise due and payable for the months immediately following the Commencement Date. 6.3.4.3 If, for any reason other than primarily Contractor's Fault, the Spacecraft has not been Launched within 24 months following the Spacecraft's actual date of shipment, then the PANAMSAT AND HUGHES PROPRIETARY INFORMATION SUBJECT TO RESTRICTIONS ON CONTRACT TITLE PAGE 28 full amount of the Incentives Obligations (and any Change Order Profit Component, if applicable) (including principal and accrued interest, if any) shall become immediately due and payable upon the last day of such 24th month. If, however, the Spacecraft is subsequently Launched within 54 months of its actual date of shipment and any Transponder of the Spacecraft ceases to be a Successfully Operating Transponder or a Payload becomes a Degraded Payload, then Buyer shall be entitled to a proportionate refund (plus interest thereon calculated at the Incentives Interest Rate) for any Incentives Obligations (and any Change Order Profit, if applicable) paid for such Transponder or Payload, taking into account the amount of time such Transponder or Payload met the performance specifications. If, for any reason, the Spacecraft has not been Launched prior to the third anniversary of its actual date of shipment (the "Third Anniversary"), then Buyer shall have an option (the "LOPS/MOPS Option"), exercisable in writing received by Contractor on or before the Third Anniversary, to extend its right to utilize the Related Services for the Spacecraft to the fifth anniversary of the Spacecraft's actual date of shipment (the "Extension Period"). If Buyer does not timely exercise the LOPS/MOPS Option, then Buyer shall pay Contractor the portion of the "Related Services Price" (as defined below) for the Spacecraft expended by the Contractor. If Buyer timely exercises the LOPS/MOPS Option, then the Related Services Price for the Spacecraft during the Extension PANAMSAT AND HUGHES PROPRIETARY INFORMATION SUBJECT TO RESTRICTIONS ON CONTRACT TITLE PAGE 29 Period, shall be increased by a [***************] beginning on the Third Anniversary. Buyer shall be obligated to pay such escalation amount within 30 days of receipt of invoice from Contractor. In any case, Contractor's obligation to provide such services shall terminate on the date which is fifty-four (54) months (or as early as thirty-six (36) months) from the actual date of shipment of the Spacecraft. If Contractor's obligation to provide Related Services is terminated under the immediately preceding sentence, then Buyer shall pay the portion of the Related Services Price expended by the Contractor. For purposes of this Paragraph 6.3.4.3, "Related Services Price" shall mean the amount payable upon completion of the Related Services pursuant to Paragraph 6.2. 6.3.4.4 If, for any reason, other than Contractor's fault, a Launch failure occurs between the time of Launch and the Commencement Date (or if no Commencement occurs), then the full amount of the Incentives Obligations (and any Change Order Profit Component, if applicable) (the "Recoverable Amount(s)") shall become immediately due and payable upon the date of such Launch failure. Contractor shall be entitled to obtain payment of such Recoverable Amounts from the proceeds of the launch insurance obtained by Buyer and shall be entitled to a priority in obtaining such proceeds over Buyer and all other parties or claims; provided, however, that nothing herein [***]FILED SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT. PANAMSAT AND HUGHES PROPRIETARY INFORMATION SUBJECT TO RESTRICTIONS ON CONTRACT TITLE PAGE 30 shall relieve Buyer of its obligations to pay to Contractor all such Recoverable Amounts, as set forth herein. Buyer agrees to name Contractor as a loss payee under Buyer's launch insurance policy to the extent Contractor is entitled to payment of Recoverable Amounts. During the six (6) months immediately following such Launch failure, Buyer shall use best reasonable efforts to obtain the proceeds of its launch insurance to pay Contractor the Recoverable Amounts, hereunder. However, if Contractor does not receive all such Recoverable Amounts from the proceeds of Buyer's launch insurance within such six (6) month period, then Buyer shall be obligated immediately to compensate Contractor for, and Contractor may also look to Buyer directly for satisfaction of, all such Recoverable Amounts. For the purposes of this Paragraph 6.3.4.4, "Launch" shall mean intentional ignition of any first stage engine of the Launch Vehicle. 6.4 Contractor shall not be obligated to deliver the Spacecraft to the Launch Site if there are any outstanding Delinquent Payments owed by Buyer to Contractor with respect to such Spacecraft under this Contract one month prior to shipment of such Spacecraft from the Contractor facility. "Delinquent Payments" are defined as those payments not received by Contractor within thirty (30) days of the dates due as defined in Paragraphs 6.2.1 and 6.2.2 above. Once Buyer has paid Contractor for any "Delinquent Payments" and any interest accrued in accordance with Paragraph 6.6 below, Contractor shall use its reasonable best efforts to ship such Spacecraft to the Launch Site so as to enable launch on the PANAMSAT AND HUGHES PROPRIETARY INFORMATION SUBJECT TO RESTRICTIONS ON CONTRACT TITLE PAGE 31 scheduled Launch Date and in any event to make shipment as soon as practicable and no later than sixteen (16) weeks after payment by Buyer of such Delinquent Payments. Buyer will be responsible for and will pay to Contractor any reasonable costs and [***] profit on such costs that Contractor may incur as a result of a delay in delivery due to Buyer's Delinquent Payments. Notwithstanding the foregoing, this Section 6.4 shall not relieve Contractor of its obligation to deliver a Spacecraft, and no "Delinquent Payment" shall be deemed to have occurred, due to any non-payment by Buyer on account of an alleged breach by Contractor or other dispute as to such payment. In such event, Buyer shall, within thirty (30) days of the date such payment is due, pay the full amount of such payment into an interest-bearing escrow account to be established at Bank of America, Concord, California. Upon settlement of the dispute as to such payment and alleged breach in accordance with Article 33, the Party entitled to the amount in escrow shall receive such amount together with all accrued interest thereon and the other Party shall pay all costs and fees associated with the escrow of such amount. 6.5 Invoice 6.5.1 Invoices submitted to Buyer for payment shall contain a cross- reference to the Contract number and the date specified in the Payment Plan of Paragraph 6.2. Contractor shall submit one (1) original invoice for the Spacecraft in each instance to: PanAmSat Corporation One Pickwick Plaza Greenwich, CT 06830 PANAMSAT AND HUGHES PROPRIETARY INFORMATION SUBJECT TO RESTRICTIONS ON CONTRACT TITLE PAGE 32 Attention: Robert Bednarek, Senior Vice President and Chief Technology Officer cc: James Frownfelter, Vice President -- Space Systems Stephen G. Salem, Senior Counsel (by fax to 310-525-5800) 6.5.2 Invoice amounts, as specified in Paragraph 6.2, provide for billings to be submitted by the 15th day of each month and shall be paid by Buyer within thirty (30) days upon receipt of the invoice by Buyer. 6.6 Late Payments In the event of a failure by the Buyer or the Contractor to make a payment required pursuant to this Contract, the delinquent Party shall pay interest at the rate of [********************] on the overdue amount for the number of days that the payment is overdue, commencing on the date payment is due and terminating on the date the overdue amount is paid in full. Notwithstanding the foregoing, this Section 6.6 shall not apply to any payment made into escrow in accordance with Section 29.4. [***]FILED SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT. PANAMSAT AND HUGHES PROPRIETARY INFORMATION SUBJECT TO RESTRICTIONS ON CONTRACT TITLE PAGE 33 ARTICLE 7. SPACECRAFT LAUNCH DATE 7.1.1 "Launch Date" Defined. The calendar date during which a Launch will occur. The Launch Date shall be notified by Buyer to Contractor no later than three (3) months prior to the first day of the applicable Launch month and once established, shall become an express term of this Contract, subject to change in accordance with this Article 7. 7.1.2 "Launch Window" Defined. A period of time within the Launch Date during which a Launch can occur and meet mission requirements. The Launch Window shall be established by mutual agreement of Buyer and Contractor no later than forty-five (45) days prior to the Launch Date and once established, shall become an express term of this Contract. 7.1.3 Adjustment of dates. The time periods as delineated in Sections 7.1.1 and 7.1.2 shall be adjusted to reflect applicable launch provider contracts, consistent with ordinary practices of such providers as familiar to the Parties. 7.2 The Contract Price set forth in Paragraph 5.1 includes Contractor furnished launch support services, post launch support services, in- orbit test support services, and post title transfer monitoring and command of the Spacecraft if Buyer invokes the remedial provisions of Article 3, Paragraph 3.3. PANAMSAT AND HUGHES PROPRIETARY INFORMATION SUBJECT TO RESTRICTIONS ON CONTRACT TITLE PAGE 34 7.3 If a Spacecraft Launch Date is postponed for any reason other than the primary fault of Contractor (and/or any of its subcontractors or suppliers), excluding any postponement due to an Excusable Delay as defined in Article 12, the Parties shall negotiate in good faith to determine an equitable adjustment to the price and affected terms of this Contract, if any. If the cost of supplies or materials made obsolete or excess as a result of such postponement is included in the equitable adjustment, Buyer shall have the right to prescribe the manner of disposition of such supplies or materials. Costs included in the equitable adjustment shall include but not be limited to: support personnel standby; extra travel expenses; transport termination or rescheduling fees and a profit rate of [*****************] 7.4 Notwithstanding the foregoing, if a Spacecraft Launch Date is postponed by either Party due to an Excusable Delay, as defined in Paragraph 12.1 herein, the terms of Article 12 herein shall govern such postponement. [***]FILED SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT. PANAMSAT AND HUGHES PROPRIETARY INFORMATION SUBJECT TO RESTRICTIONS ON CONTRACT TITLE PAGE 35 ARTICLE 8. BUYER-FURNISHED ITEMS 8.1 The following facilities, equipment, and services ("Buyer-Furnished Items") shall be furnished by Buyer at no cost to Contractor, in a timely manner, so as to enable Contractor to perform the work described herein. 1) Reservation and procurement of launch services, launch insurance (Contractor to be named a loss payee as provided in Paragraph 6.3.4.2), and associated services and facilities as described in the applicable Launch Vehicle users' manual. 2) Storage of a Spacecraft and related test equipment for all Force Majeure Events which prevent Buyer from supplying Buyer-Furnished Items and/or Launch Vehicle delays. 3) Earth station facilities for IOT including appropriate RF facilities, but not specialized test equipment. Contractor will provide preliminary requirements of Item 1 above to Buyer no later than two (2) months after the Effective Date of this Contract to assist Buyer's compliance with this Article, which shall be consistent with what Contractor has generally required Buyer to secure for previous launches with the same launch provider. Subject to the confidentiality requirements of the applicable agreements, Contractor will be allowed to review the list of services which Buyer has procured in Buyer's contract(s) for launch services. PANAMSAT AND HUGHES PROPRIETARY INFORMATION SUBJECT TO RESTRICTIONS ON CONTRACT TITLE PAGE 36 In the event that the Buyer-Furnished Items set forth above are not provided in a timely manner, excluding any excusable delay as defined in Article 12 herein, then Buyer shall be liable to Contractor for all applicable costs which shall include but not be limited to: procurement or rental of suitable substitutes for such Buyer Furnished Items at no higher than market prices, with title and possession of all such procured items reverting to Buyer after Contractor's use under this Contract; support personnel standby; extra travel expenses; transport termination or rescheduling fees; and installation/de- installation of communication links to the Launch Site and a profit rate of [****************] In the event that the Buyer-Furnished Items are not provided in a timely manner and the Contractor must procure or rent suitable substitutes, and the foregoing process has materially affected the Contractor's ability to ship the Spacecraft on or prior to the applicable Shipment Date, the parties agree to adjust such Shipment Date to account for any delay resulting from the non- suitability or non-timely provision of such Buyer-Furnished Items. 8.2 Contractor shall maintain a system to ensure the adequate control and protection of Buyer's Property. For the purposes of this Article, Buyer Property shall be defined as any item which Buyer provides to the Contractor or directs Contractor to maintain in storage or an inventory account under this Contract. Upon receipt of notification from Buyer, the Contractor shall complete and return within fifteen (15) working days a Property System Certification describing the system that will be used to control Buyer's Property. Additionally, upon prior notice to Contractor Buyer's representative may, at its option and at no additional cost to Buyer, conduct surveillance of the Contractor's Property Control System [***]FILED SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT. PANAMSAT AND HUGHES PROPRIETARY INFORMATION SUBJECT TO RESTRICTIONS ON CONTRACT TITLE PAGE 37 during normal business hours as Buyer deems necessary to assure compliance with the terms and conditions of this Article. 8.3 Contractor shall, commencing with its receipt and during its custody or the use of any Buyer's Property, accomplish the following: A. Establish and maintain inventory records and make such records available for review upon Buyer's request; B. Provide the necessary precautions to guard against damage from handling and deterioration during storage; C. Perform periodic inspection to assure adequacy of storage conditions; and D. Ensure that Buyer's Property is used only for performing this Contract, unless otherwise provided in this Article or approved by Buyer. 8.4 Contractor shall not modify, add-on, or replace any Buyer Property without Buyer's prior written authorization. Contractor shall immediately report to Buyer's contract representative the loss of any Buyer Property or any such property found damaged, malfunctioning, or otherwise unsuitable for use. The Contractor shall determine and report the probable cause and necessity for withholding such property from use. 8.5 Upon termination or completion of this Contract, and upon request by Buyer, the Contractor shall perform a physical inventory, adequate for accountability and disposition purposes, of all Buyer's Property applicable to such terminated or completed agreement and shall cause its subcontractors and suppliers at every tier to do likewise. PANAMSAT AND HUGHES PROPRIETARY INFORMATION SUBJECT TO RESTRICTIONS ON CONTRACT TITLE PAGE 38 8.6 If Buyer does not approve [*****************************] for Domestic 1 on or before October 9, 1998 or Domestic 2 on or before November 2, 1998, then the Parties shall agree upon a mutually acceptable delay to the Shipment Date for the applicable Spacecraft; provided, that such -------- Shipment Date shall not be delayed by more than day-for-day for each day of delay by Buyer in approving [***********************] [***] for the applicable Spacecraft; provided, further, that Buyer shall have -------- ------- the option to subsequently change [**********************] [**********] of Domestic 2 on or before December 1 with no adjustment in Contract Price and with the Parties to agree upon a mutually acceptable delay to the Shipment Date for the applicable Spacecraft not to exceed one month of delay. Contractor shall reasonably and promptly respond to Buyer's requests for information and assistance in preparing and submitting to Buyer such [**************************] 8.7 The use of Buyer's TT&C ground systems at Fillmore (for C-Band Programs) or Castlerock (for K-Band programs) shall be provided at no cost to the Contractor for transfer orbit services. [***]FILED SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT. PANAMSAT AND HUGHES PROPRIETARY INFORMATION SUBJECT TO RESTRICTIONS ON CONTRACT TITLE PAGE 39 ARTICLE 9. INSPECTION AND ACCEPTANCE 9.1 Inspection of all Hardware, documentation and Contractor's services provided hereunder shall take place in accordance with the terms of Article 10, entitled "Access to Work in Process," herein. 9.2 "Preliminary Acceptance" of the Spacecraft shall occur when all in- plant tests required to be performed by Contractor for the Spacecraft and other deliverable Hardware have been completed and the Contractor has demonstrated at the pre-ship review that the Spacecraft and other deliverable Hardware and contract deliverables meet the requirements of this Contract, at which time Buyer shall accept the Spacecraft and other deliverable Hardware on a Preliminary basis in writing within five (5) business days. If the Spacecraft or other deliverable Hardware is unacceptable, Contractor shall promptly and at its expense, rectify the unsatisfactory Hardware and resubmit such Hardware for acceptance by Buyer as provided above. In either case, such Hardware shall be deemed accepted upon failure of Buyer to notify Contractor in writing within the above five (5) business days that it is accepted, rejected or that in Buyer's opinion further corrective action must be taken by the Contractor. In the event that Buyer has not given Preliminary Acceptance of the Spacecraft, Contractor shall not ship the Spacecraft from Contractor's facility without Buyer's prior written consent. Any such Preliminary Acceptance shall not constitute a "Consent to Fuel" nor a "Final Acceptance", which shall occur pursuant to Paragraphs 9.3 and 9.4, respectively. 9.3 Buyer shall have access to Launch Integration Facility and/or Launch Site test results during the launch campaign in accordance with the provisions PANAMSAT AND HUGHES PROPRIETARY INFORMATION SUBJECT TO RESTRICTIONS ON CONTRACT TITLE PAGE 40 of Article 10, Paragraph 10.1 "Access to Work in Process." Contractor shall not fuel Spacecraft at the Launch Site until Buyer has given its written "Consent to Fuel" notice after satisfactory completion and Buyer's review of successful launch site test data upon completion of Launch Integration Facility and/or Launch Site tests specified in Exhibit C, Spacecraft Integration Test Plan. 9.4 Final Acceptance of the Spacecraft shall occur upon the earlier to occur of (i) the completion of In-orbit Testing in accordance with Exhibit A, or (ii) immediately before a Partial Failure, Total Failure or Total Constructive Failure (as each such term is defined in the applicable Launch Insurance Contract or successor contract), which occurs at or after Intentional Ignition. 9.5 With respect to deliverable Hardware which Buyer orders Contractor to store, the Hardware shall be stored at a location to be negotiated and Final Acceptance shall occur at the end of the [**********] warranty period as set forth in Article 16 herein, entitled "Spacecraft Warranty," or such other event mutually agreed upon between the Parties. 9.6 Non-Conforming Products. 9.6.1 If (i) the Spacecraft does not meet its weight requirements and as a result such Spacecraft cannot achieve the Specified Operational Lifetime on an Ariane 42L Launch Vehicle and (ii) Buyer will be required to pay for additional weight from the launch provider in order to achieve the Specified Operational Lifetime without delaying the placing of the Spacecraft in its orbital location by [***]FILED SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT. PANAMSAT AND HUGHES PROPRIETARY INFORMATION SUBJECT TO RESTRICTIONS ON CONTRACT TITLE PAGE 41 more than fifteen (15) additional days, then Contractor shall reimburse Buyer for such additional payments up to a maximum of [****************************] 9.6.2 Any Preliminary Acceptance or Final Acceptance by Buyer of a Spacecraft that does not conform to the requirements of this Contract (whether or not related to weight) shall not affect the Parties rights and obligations under Paragraph 6.3 ("Incentive Obligations") with respect to the Spacecraft or other deliverable that does not perform to the specifications of this Contract. 9.6.3 In the event that (i) Contractor makes a reimbursement to Buyer with respect to a Spacecraft pursuant to Paragraph 9.6.1, and (ii) the Useful Commercial Life of such Spacecraft continues beyond the Specified Operational Lifetime, then Buyer shall pay to Contractor each month that the Useful Commercial Life of such Spacecraft continues (not to exceed thirty-six months beyond the Specified Operational Lifetime) an amount equal to the lesser of (a)[******************************************* ********] or (b) [********************************* ****************************************************** ****************] All amounts payable by Buyer pursuant to this Paragraph 9.6.3 shall include interest on the amount payable by Buyer, calculated at the Incentives Interest Rate from the date that Contractor reimbursed Buyer pursuant to Paragraph 9.6.1 until the date of the applicable payment by Buyer. [************** ***************************************************** ***********************************] [***]FILED SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT. PANAMSAT AND HUGHES PROPRIETARY INFORMATION SUBJECT TO RESTRICTIONS ON CONTRACT TITLE PAGE 42 9.7 Until there has been a launch of the Spacecraft that does not result in a Total Failure, Total Constructive Failure or Partial Failure, (as defined in the applicable launch insurance contract) prior to the completion of the Related Services, Contractor shall [**************************** *********************************************] and shall [****] [*********************************************************** **********] [***]FILED SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT. PANAMSAT AND HUGHES PROPRIETARY INFORMATION SUBJECT TO RESTRICTIONS ON CONTRACT TITLE PAGE 43 ARTICLE 10. ACCESS TO WORK IN PROCESS 10.1 Contractor shall afford Buyer access to work in progress being performed at Contractor's plants and (subject to the Buyer's launch vehicle contract) at the Launch Integration Facility and/or Launch Site pursuant to this Contract, including technical data, documentation, and hardware, at all times, subject to Contractor's approval not to be unreasonably withheld, during the period of Contract performance, provided such access does not unreasonably interfere with such work or require the disclosure of Contractor's proprietary information to third Parties and subject to (i) Contractor's Security Procedures and (ii) U.S. or foreign government laws, rules and regulations. 10.2 To the extent that the Contractor's major subcontracts permit, Contractor shall afford Buyer access to work being performed pursuant to this Contract in subcontractor's plants during normal business hours in the company of Contractor's representatives. Contractor shall exert reasonable effort in subcontracting to obtain permission for Buyer access to those major subcontractors' plants. Major subcontracts are defined as those subcontracts in excess of [******] [****************************] 10.3 Buyer shall have the right to witness on a non-interference basis all system and subsystem tests scheduled by Contractor in connection with the performance of work under this Contract. If the system or subsystem tests are performed by a subcontractor of Contractor, Contractor shall take all reasonable steps to secure Buyer's access to the subcontractor's facility or [***]FILED SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT. PANAMSAT AND HUGHES PROPRIETARY INFORMATION SUBJECT TO RESTRICTIONS ON CONTRACT TITLE PAGE 44 facilities. Buyer's right to witness testing shall be on a non- interference basis with the subcontractor's activities and subject to (i) any subcontractor security procedures and (ii) U.S. or foreign government laws, rules, and regulations. PANAMSAT AND HUGHES PROPRIETARY INFORMATION SUBJECT TO RESTRICTIONS ON CONTRACT TITLE PAGE 45 ARTICLE 11. TERMINATION FOR DEFAULT; LIMITATION OF LIABILITY 11.1 Subject to provisions of Article 3 entitled "Spacecraft, Documentation and Related Services," Article 5 entitled "Price" and Article 12 entitled "Excusable Delays" and the final sentence of Paragraph 4.3, Buyer may issue a written notice of default with respect to a particular Spacecraft to Contractor if: (i) Contractor fails [**************************** *********************************************************] as confirmed in writing by the Contractor's and Buyer's Senior Executives and such failure may result in a delay in delivery of more than [****** *****]; or (ii) the delivery of such Spacecraft or Contractor's performance of any material obligation under the Contract has been delayed for more than [************] other than due to the primary fault of Buyer or a Force Majeure Event. Subsequent to the issuance of said notice, the Buyer may terminate this Contract with respect to such Spacecraft and thereafter elect remedies as identified in Paragraph 11.2 below. 11.2 If Buyer terminates this Contract, in whole or in part, as provided in Paragraph 11.1 herein, Buyer, at its sole option, shall either: (i) take title to all deliverable hardware, all hardware in process which ultimately would have been deliverable by Contractor and all drawings and data produced by Contractor which ultimately would have been deliverable by Contractor, the cost of which has been charged or becomes chargeable to any work terminated plus all reasonable reprocurement costs up to a maximum amount per Spacecraft of: (a) [*********************] ****************] in the event of a termination of this Contract solely with respect to Documentation and/or Related Services for such Spacecraft [***]FILED SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT. PANAMSAT AND HUGHES PROPRIETARY INFORMATION SUBJECT TO RESTRICTIONS ON CONTRACT TITLE PAGE 46 or (b) [************************] with respect to a complete termination of the Contract with respect to such Spacecraft; or (ii) receive a refund of all payments submitted to Contractor by the Buyer for performance of this Contract for the portion terminated by Buyer, plus [*********************************************************** *********************************************************** **********************************************] and Contractor shall retain title and possession to all terminated Hardware which ultimately would have been deliverable by Contractor. 11.3 Notwithstanding the other provisions of this Article, there will be no termination for default after Intentional Ignition of the Launch Vehicle for the applicable Spacecraft. 11.4 If, after termination of this Contract (or portion thereof) under the provisions of this Article, a final determination is made pursuant to Article 33, entitled "Disputes," that Contractor was not in default under the provisions of this Article, or that the default was excusable under the provision of Article 12 entitled "Excusable Delays," the rights and obligations of the Parties shall be the same as if notice of termination had been issued pursuant to Article 14, entitled "Termination for Convenience," or pursuant to Article 12, Paragraph 12.4, as the case may be. 11.5 Except as otherwise provided in the Contract, the rights and remedies of the Parties provided in this Article shall be in lieu of any other rights and remedies provided by law or in equity in the event Contractor fails to meet its obligations under this Contract. Buyer shall have no other rights or [***]FILED SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT. PANAMSAT AND HUGHES PROPRIETARY INFORMATION SUBJECT TO RESTRICTIONS ON CONTRACT TITLE PAGE 47 remedies for late delivery of the Spacecraft, Documentation and Related Services under this Contract except for those rights and remedies expressly provided for in this Contract. PANAMSAT AND HUGHES PROPRIETARY INFORMATION SUBJECT TO RESTRICTIONS ON CONTRACT TITLE PAGE 48 ARTICLE 12. EXCUSABLE DELAYS 12.1 If either Party or a subcontractor of either Party is delayed by act of God, or of the public enemy, fire, flood, earthquake, epidemic, quarantine restriction, strike, walkout, freight embargo, or any other event which is beyond their control or does not arise from the acts or omissions of either Party or its respective subcontractors, said delay shall constitute an excusable delay ("Force Majeure Events"). In the event of an excusable delay, there shall be an equitable adjustment to the time of delivery and/or performance stated in this Contract. The affected Party shall give notice in writing to the other Party within 10 working days that an excusable delay condition exists after learning of such delay. Such notification shall include the cause of the excusable delay, the expected length of the excusable delay, and alternate plans to mitigate the effect of the excusable delay. 12.2 If the affected Party, as defined in Paragraph 12.1 above, requests or experiences, on a cumulative basis, excusable delay(s) greater than [***] [***] days, the Parties shall enter into good faith negotiations to develop a mutual course of action and/or an equitable adjustment to the affected terms of this Contract. 12.3 Notwithstanding the foregoing, if the Launch Date for the Spacecraft defined in Paragraph 7.1 herein is delayed due to a Force Majeure event affecting Buyer's ability to furnish any item to be supplied by it under Article 8 hereof, Buyer shall reimburse Contractor for all reasonable expenses incurred as a result, including without limitation expenses for: [***]FILED SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT. PANAMSAT AND HUGHES PROPRIETARY INFORMATION SUBJECT TO RESTRICTIONS ON CONTRACT TITLE PAGE 49 support personnel standby; extra travel expenses; and transport termination or rescheduling fees. 12.4 Notwithstanding anything herein to the contrary, in the event that a Force Majeure Event occurs and continues to delay or prevent performance by Contractor of its obligations as to either or both Spacecraft for a period of [************] or longer from the initial occurrence of such Force Majeure Event, then Buyer shall have the right to terminate this Contract with respect to the affected Spacecraft upon thirty (30) days written notice. In the event of a termination under this Paragraph 12.4, Buyer shall be entitled to a refund of [*********************************** *********************************************************** ************************************************************ **********] and Contractor shall retain title to all Deliverables produced by Contractor under this Contract with respect to the affected Spacecraft. [***]FILED SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT. PANAMSAT AND HUGHES PROPRIETARY INFORMATION SUBJECT TO RESTRICTIONS ON CONTRACT TITLE PAGE 50 ARTICLE 13. AMENDMENTS The terms and provisions of this Contract shall not be amended or modified without specific written provision to that effect, signed by the Authorized Representative(s) of both Parties. These Authorized Representative(s) are identified in Article 27, "Notices and Authorized Representative(s)." No oral statement of any person shall in any manner or degree modify or otherwise affect the terms and provisions of this Contract. PANAMSAT AND HUGHES PROPRIETARY INFORMATION SUBJECT TO RESTRICTIONS ON CONTRACT TITLE PAGE 51 ARTICLE 14. TERMINATION FOR CONVENIENCE 14.1 Buyer may terminate all or any portion of the work to be performed pursuant to this Contract upon five (5) days written notice to Contractor. Buyer shall pay Contractor, in the event of such termination, termination liability equaling all Costs (as defined in Paragraph 14.7 below) expended by Contractor for all work done up to the date of termination on the terminated portion of the Contract, settlements with subcontractors for work performed prior to termination on the terminated portion of the Contract, and Contractor's reasonable costs related to termination which would not otherwise have been incurred plus a [***] profit for the applicable termination costs and charges, but in no event more than the maximum termination liability for the applicable Spacecraft that is set forth in Exhibit F hereto, as of the date of termination, less amounts previously paid by Buyer to Contractor pursuant to Article 6; provided that the Parties agree that Exhibit F sets forth the maximum termination liability if the entire Contract is terminated under this Article 14 with respect to the applicable Spacecraft, and that the maximum termination liability shall be reduced pro rata appropriately in the event of a termination under this Article 14 of less than all the work to be performed by Contractor. Buyer shall pay the unpaid balance of such termination liability within thirty (30) days of Buyer's receipt of certification of Contractor's costs. In the event that Buyer has paid to Contractor any amount in excess of such termination liability, then Contractor shall refund such excess amount to Buyer within thirty (30) days of certification of costs. In no event shall the termination liability for a Spacecraft exceed either the Contract Price defined in Article 5 herein or the amount specified in Exhibit F for such Spacecraft. [***]FILED SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT. PANAMSAT AND HUGHES PROPRIETARY INFORMATION SUBJECT TO RESTRICTIONS ON CONTRACT TITLE PAGE 52 14.2 In the event of termination by Buyer hereunder, and upon payment in full of all amount due (if any) under 14.1 above (or, if any amount is in dispute, payment of such amount into escrow in the manner set forth in Paragraph 6.4), all tangible work in process inventories generated under this Contract, with respect to the terminated work, shall become the property of Buyer. Buyer shall direct disposition of such property within sixty (60) days from date of termination (which disposition may include requesting Contractor to undertake mitigation efforts in accordance with Paragraph 14.6 below) or such other date as agreed to by the Parties. Final acceptance and transfer of title for all tangible work in process inventories to be delivered to the Buyer in the event of termination shall be the subject of separate negotiations between Buyer and Contractor and shall be subject to applicable U.S. Government Export Regulations. The expense of disposition shall be borne by Buyer. 14.3 In the event of a termination pursuant to this Article 14 of either (but not both) Domestic 1 or Domestic 2, then the Contract Price for the non-terminated Spacecraft (Domestic 1 or Domestic 2) shall be [****** *********************************************************** *******************] and the Contract Price for the first Option Spacecraft exercised under Article 38 shall be [****************** *********************************************************** ***********************************] 14.4 In the event that both Domestic 1 and Domestic 2 are terminated pursuant to this Article 14 and: [***]FILED SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT. PANAMSAT AND HUGHES PROPRIETARY INFORMATION SUBJECT TO RESTRICTIONS ON CONTRACT TITLE PAGE 53 a) the Option had been exercised for one Option Spacecraft, then the Contract Price for such Option Spacecraft shall be [********************************************** **********] b) the Option had been exercised for two Option Spacecraft, then the Contract Price for such Option Spacecraft shall be [********************************************** ***************] 14.5 [********************************************************* ********************************************************** ******************] In addition, in such event the termination liability of Buyer for the terminated Spacecraft under this Article 14 shall not include any non-recurring Costs (or profit thereon) mutually beneficial to both the terminated Spacecraft and the non-terminated Spacecraft. 14.6 At Buyer's request, Contractor shall use reasonable best efforts to identify an alternate use (i.e. sale to third Parties and/or internal utilization) for any Hardware affected by a termination under this Article 14. The Contractor shall submit a proposal to Buyer, which, at a minimum, defines (i) the applicable Hardware, (ii) the intended use of the Hardware, (iii) the original acquisition cost/value of the applicable Hardware, as available, and (iv) the sale/transfer payment(s) to be received by Buyer. Contractor shall use its reasonable best efforts to obtain fair market value for the applicable Hardware. Buyer, at its sole option, may accept or reject the proposal submitted by Contractor. In the event that Buyer accepts the proposal submitted by Contractor, payment by Contractor to Buyer of the agreed upon payment value shall occur within thirty (30) days of the [***]FILED SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT. PANAMSAT AND HUGHES PROPRIETARY INFORMATION SUBJECT TO RESTRICTIONS ON CONTRACT TITLE PAGE 54 sale/transfer of the applicable Hardware, or such other payment period as mutually accepted between the Parties. If the Contractor's proposal is rejected by Buyer, and if Contractor is unable to find any alternative use within two (2) years of being requested to do so or if Buyer so directs, then Title to the applicable Hardware shall be vested as stated in Paragraph 14.2 above. 14.7 As used in this Article 14, Contractor's "Costs" shall mean costs actually incurred by Contractor in performing its obligations hereunder (including G&A costs not to exceed [******************] of such costs) all such costs to be determined in accordance with Contractor's normal accounting practices. Contractor shall provide to Buyer an invoice certified by a financial officer of the company stating Contractor claim for costs properly includes only the costs specified in this paragraph. In the event Buyer desires independent verification of claim, Buyer may request to have independent certified public accountants (CPA) audit costs incurred by Contractor and report to the Parties. The CPA to perform such audit shall be selected by the Buyer, subject to the approval of the Contractor, which approval shall not be unreasonably withheld (and in any event shall not be withheld if Buyer selects a "Big Six" accounting firm). Contractor shall cooperate with such CPA and shall provide all data and records reasonably requested by such CPA. Such audit shall be at Buyer's expense unless such audit shows Contractor's costs to have been overstated (in which event Contractor shall bear the audit expense). Such audit shall constitute a final determination of actual costs notwithstanding the provision of Article 33; provided that, if the costs determined by such report exceed the amount of Contractor's termination claim, Buyer shall only be obliged to pay the amount of Contractor's termination claim. [***]FILED SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT. PANAMSAT AND HUGHES PROPRIETARY INFORMATION SUBJECT TO RESTRICTIONS ON CONTRACT TITLE PAGE 55 14.8 Contractor shall use its reasonable best efforts to include in its subcontracts for work hereunder on terms that will enable Contractor to terminate such subcontracts with a goal of minimizing termination costs in a manner consistent with this Article 14. 14.9 This Article 14 and Buyer's rights under this Article 14 shall not be applicable to any Option Spacecraft for which the [*****************] [*********************************************************** ********] [***]FILED SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT. PANAMSAT AND HUGHES PROPRIETARY INFORMATION SUBJECT TO RESTRICTIONS ON CONTRACT TITLE PAGE 56 ARTICLE 15. TITLE AND RISK OF LOSS 15.1 Title and risk of loss or damage in respect of all items to be delivered under this Contract shall pass from Contractor to Buyer as follows: 15.1.1 Risk of loss of the Spacecraft and title shall pass from Contractor to Buyer upon the earlier to occur of: (i) the completion of In-orbit Testing in accordance with Exhibit A; or (ii) immediately before a Partial Failure, Total Failure or Total Constructive Failure (as each such term is defined in Buyer's applicable Launch Insurance Contract) which occurs at or after Intentional Ignition. 15.1.2 In respect to a Spacecraft which Buyer directs Contractor to store, title and risk of loss shall remain with the Contractor until Final Acceptance as specified in Article 9.5 herein. 15.1.3 "Risk of Loss" for purposes of this Article 15 is limited to the responsibility and liability for a Partial Failure, Total Failure or Total Constructive Failure (as each such term is defined in Buyer's applicable Launch Insurance Contract). Responsibility and liability for the Spacecraft prior to intentional ignition is with the Contractor. 15.2 In the event of damage to or destruction of Hardware when Contractor shall have risk of loss, Contractor shall repair or replace (subject to Buyer's consent, not to be unreasonably withheld) said Hardware. PANAMSAT AND HUGHES PROPRIETARY INFORMATION SUBJECT TO RESTRICTIONS ON CONTRACT TITLE PAGE 57 15.3 Insurance Provided By Contractor. The Contractor shall, at its own expense, provide and maintain the following insurance: 15.3.1 "All Risk" Insurance (i) The Policy for "All Risks" insurance shall insure the Contractor and name Buyer as additional insured and Loss Payee as their interest may appear. (ii) The insurance shall cover the Spacecraft while in or about the Contractor's and subcontractors' plants, while at other premises which may be used or operated by the Contractor for construction or storage purposes, while in transit, or while at the Designated Launch Site until Intentional Ignition, or while Spacecraft is stored by the Contractor at Buyer's direction until Final Acceptance as specified in Article 9.4. (iii) Such insurance shall be sufficient to cover the full replacement value or selling price of the Spacecraft and may be issued with deductibles, for which losses shall be borne by the Contractor. (iv) This "All Risk" insurance shall be in force from the time of the Effective Date of this Contract and shall continue in effect until Contractor's liabilities have expired at intentional ignition. PANAMSAT AND HUGHES PROPRIETARY INFORMATION SUBJECT TO RESTRICTIONS ON CONTRACT TITLE PAGE 58 15.3.2 Third Party Liability Insurance (i) The Policy(s) for Third Party Liability insurance shall be written on forms the Buyer may review and shall include Buyer as additional insured. (ii) This Third Party Liability insurance shall be in force from the time of the Effective Date of this Contract and shall continue in effect until Contractor's liabilities have expired at intentional ignition. (iii) The Policy(s) may be issued with deductibles, for which losses shall be borne by the Contractor. 15.4 General Insurance Requirements (i) The Contractor shall, upon request, provide to the Buyer certificates of the Insurance Policy(s) issued by an agent of the Contractor's Insurer(s) for coverage which the Contractor is required to provide pursuant to the provisions of these Articles. (ii) All Policies of insurance to be provided and maintained pursuant to these Articles shall require the insurer(s) or its authorized agent(s) to give each insured not less than thirty (30) days prior written notice in the event of cancellation or any proposed material change in such policies, except for PANAMSAT AND HUGHES PROPRIETARY INFORMATION SUBJECT TO RESTRICTIONS ON CONTRACT TITLE PAGE 59 ten (10) days prior written notice in the event of cancellation due to non-payment of premium. (iii) The Contractor may also acquire and maintain, at its own expense, other insurance for amounts and perils, and upon such terms, conditions and deductibles as it may deem advisable or necessary to cover any loss or damage to persons or property that may occur as a result of the performance of this Contract. PANAMSAT AND HUGHES PROPRIETARY INFORMATION SUBJECT TO RESTRICTIONS ON CONTRACT TITLE PAGE 60 ARTICLE 16. SPACECRAFT WARRANTY 16.1 Contractor warrants that the Spacecraft, upon successful completion of Spacecraft in plant Tests pursuant to Article 9 herein, shall be free from any defects in material or workmanship and shall conform to the applicable specifications and drawings, as evidenced by the acceptance criteria in Exhibits A-D herein. 16.2 This warranty shall start from the date of Preliminary Acceptance of the Spacecraft as stated in Article 9 herein, entitled "Inspection and Acceptance," and continue for a period of [********] or until the "Intentional Ignition" (defined herein as the Intentional Ignition of any rocket motor on the first stage of the Launch Vehicle) of the applicable Launch Vehicle, whichever is earlier. [*********************** ************************************************************ ************************************************************ ************************************************************ ************************************************] ("Warranty Time Period"). Contractor shall not be liable in Contract or in Tort for any incidental, special, contingent, or consequential damages. 16.3 Buyer shall have the right at any time during the Warranty Time Period to reject any goods not conforming to this warranty and require that Contractor, at its expense, correct or replace (at Contractor's option) such goods with conforming goods. If any time during the Warranty Time Period Contractor fails to correct or replace such defective goods and fails to initiate reasonable efforts to correct or replace such defective goods within a reasonable period after written notification and authorization from [***]FILED SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT. PANAMSAT AND HUGHES PROPRIETARY INFORMATION SUBJECT TO RESTRICTIONS ON CONTRACT TITLE PAGE 61 Buyer, Buyer may then, by contract or otherwise, correct or replace such defective goods and equitably adjust the price. 16.4 Except as otherwise expressly agreed upon in this Contract, Contractor shall have no liability, or responsibility in Contract or in Tort with respect to the Spacecraft after Intentional Ignition (as defined in Paragraph 16.2) of the Launch Vehicle. 16.5 THE ABOVE WARRANTY IS IN LIEU OF ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING FITNESS FOR PARTICULAR PURPOSE OR MERCHANTABILITY AND THE REMEDY PROVIDED HEREIN IS THE SOLE REMEDY FOR FAILURE BY CONTRACTOR TO FURNISH A SPACECRAFT THAT IS FREE FROM MATERIAL DEFECTS IN MATERIAL OR WORKMANSHIP AS SET FORTH IN PARAGRAPH 16.1 ABOVE. ALL OTHER WARRANTIES OR CONDITIONS IMPLIED BY ANY OTHER STATUTORY ENACTMENT OR RULE OF LAW WHATSOEVER ARE EXPRESSLY EXCLUDED AND DISCLAIMED. CONTRACTOR AND ITS SUBCONTRACTORS SHALL HAVE NO LIABILITY IN CONTRACT OR IN TORT (INCLUDING NEGLIGENCE) OR IN ANY OTHER MANNER WHATSOEVER FOR A SPACECRAFT AFTER INTENTIONAL IGNITION OTHER THAN AS EXPRESSLY PROVIDED IN THIS CONTRACT. 16.6 Any limitations on warranties, liability or requests for indemnification from liability for the malfunction of delivered items which are imposed upon the Contractor by its various equipment suppliers shall be passed on directly to Buyer provided, however, nothing therein shall decrease or PANAMSAT AND HUGHES PROPRIETARY INFORMATION SUBJECT TO RESTRICTIONS ON CONTRACT TITLE PAGE 62 invalidate the rights of the Buyer during, or the length of, the Warranty Time Period as stated in this Article. ARTICLE 17. INDEMNIFICATION 17.1 Each Party shall indemnify and hold the other and/or all its officers, agents, servants, subsidiaries, affiliates, parent companies and employees, or any of them, harmless from any liability or expense in connection herewith on account of damage to property (excepting other Spacecraft in flight) and injuries, including death, to all persons including but not limited to employees of the Parties, and their subcontractors, and of all other persons performing any part of the work hereunder, arising from any occurrence caused by a negligent act or omission of the indemnifying Party or its subcontractors, or any of them in connection with the work to be performed by such Party under this Contract. The indemnifying Party shall have the right, but not the obligation, to participate in any legal or other proceedings concerning claims for which it is indemnifying under this Article 17 and to direct the defense of such claims. However, with respect to such legal or other proceedings, the indemnifying Party shall pay all expenses (including attorneys fees incurred by the indemnified Party in connection with such legal or other proceedings) and satisfy all judgments, costs or other awards which may be incurred by or rendered against the indemnified Party. The indemnifying Party shall not settle any such claim, legal or other proceeding without first giving thirty (30) days prior written notice of the Terms and Conditions of such settlement and obtaining the consent of the indemnified Party, which consent shall not be unreasonably withheld or delayed. 17.2 Notwithstanding the foregoing, neither the Contractor nor its subcontractors shall have any liability in Contract or in Tort, for damages [***]FILED SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT. PANAMSAT AND HUGHES PROPRIETARY INFORMATION SUBJECT TO RESTRICTIONS ON CONTRACT TITLE PAGE 63 to or caused by the Spacecraft after Intentional Ignition (as defined in Paragraph 16.2), and Buyer shall obtain waivers of subrogation rights from Buyer's insurers against Contractor, and affiliates and subcontractors of Contractor. ARTICLE 18. SPACECRAFT NOT LAUNCHED WITHIN SIX MONTHS AFTER ACCEPTANCE 18.1 If the Spacecraft is not launched within six (6) months after its Preliminary Acceptance per Article 9, entitled "Inspection and Acceptance," and is subsequently ordered to be launched within [*******] following its Preliminary Acceptance, it is agreed that the Spacecraft shall be returned at Contractor's option and at Contractor's expense, to Contractor's facility for inspection and refurbishment. Any inspection and refurbishment undertaken by Contractor to meet the requirements of Article 16 entitled, "Spacecraft Warranty," shall be at Contractor's expense, including Spacecraft transit insurance. After completion of inspection and refurbishment, Contractor shall not re-ship such Spacecraft without the consent of Buyer, which shall be governed by Paragraph 9.2. 18.2 If the Spacecraft is not launched within six (6) months after its Preliminary Acceptance and is subsequently ordered to be launched later than [***] [***] following its Preliminary Acceptance, it is agreed that the Spacecraft shall be returned, at Buyer's expense, to Contractor's facility for inspection and refurbishment. An equitable adjustment to Contract price for such inspection and refurbishment, to include a [***] profit component shall be negotiated by the Parties unless the fact that the launch is scheduled for later than [*********] is due to Contractor's negligent acts or omissions. After completion of inspection and refurbishment, [***]FILED SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT. PANAMSAT AND HUGHES PROPRIETARY INFORMATION SUBJECT TO RESTRICTIONS ON CONTRACT TITLE PAGE 64 Contractor shall not re-ship such Spacecraft without the consent of Buyer, which shall be governed by Paragraph 9.2. 18.3 If the Spacecraft is returned to Contractor's facility for inspection and refurbishment per the terms of Paragraph 18.2 above, all charges to return the Spacecraft to the Launch Site shall be borne by Buyer. 18.4 If the Spacecraft has not been launched within [******] after its preliminary Acceptance, neither Party shall be further obligated to the other with respect to the Spacecraft. Disposition of the Spacecraft shall be at the option of Buyer with costs of such disposition to be borne by Buyer. [***]FILED SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT. PANAMSAT AND HUGHES PROPRIETARY INFORMATION SUBJECT TO RESTRICTIONS ON CONTRACT TITLE PAGE 65 ARTICLE 19. PATENT/COPYRIGHT INDEMNITY 19.1 Contractor shall indemnify and hold Buyer harmless against any liability or expense as a result of claims, actions, or proceedings against Buyer alleging the infringement of any trademarks, United States Copyright or mask work, United States Letters Patent, any other intellectual property rights, by any article fabricated by Contractor and delivered to Buyer pursuant to this Contract as set forth below. 19.2 Contractor agrees to defend at its own expense any claim, action, proceeding or request for royalty payments or any claim for equitable relief or damages against Buyer, its subsidiaries, and the officers, employees, consultants and advisors of Buyer and its subsidiaries (each such party entitled to indemnification being referred to herein as a "Buyer Indemnitee") based on an allegation that the manufacture of any item under this Contract or the use, lease, or sale thereof infringes any United States Letters Patent trademark, United States Copyright or mask work or any other intellectual property right, and to pay any royalties and other costs related to the settlement of such claim, action, proceeding or request and to pay the costs and damages, including reasonable attorney's fees finally awarded as the result of any claim, action or proceeding based on such request, provided that Contractor is given prompt written notice of such request or claim by Buyer and given authority and such assistance and information as is available to Buyer for resisting such request or for the defense of such claim, action or proceeding, and provided that such Buyer Indemnitee has not intentionally done and shall not intentionally do anything to prejudice materially the defense of such claim, action or PANAMSAT AND HUGHES PROPRIETARY INFORMATION SUBJECT TO RESTRICTIONS ON CONTRACT TITLE PAGE 66 proceeding. Any such assistance or information which is furnished by Buyer at the written request of Contractor is to be at Contractor's expense. 19.3 In the event that, as a result of any such claim, action, proceeding or request: a) prior to delivery, the manufacture of any item is enjoined; or b) after delivery, the use, lease or sale thereof is enjoined, Contractor agrees to utilize its best effort to either: (1) negotiate a license or other agreement with plaintiff so that such item is no longer infringing; or (2) modify such item suitably or substitute a suitable item therefore, which modified or substituted item is not subject to such injunction, and to extend the provisions of this Article thereto. In the event that neither of the foregoing alternatives is suitably accomplished by Contractor, Contractor shall be liable to Buyer for Buyer's additional costs and damages arising as a result of such injunction; provided however, that in no event shall Contractor's entire liability under this Article exceed [*********************] [******] for each Spacecraft. The existence of one or more claims, actions, proceedings or lawsuits shall not extend such amount. 19.4 The foregoing indemnity shall not apply to any infringement resulting from a modification or addition, by other than Contractor, to an item after delivery. 19.5 To the extent that an infringement of an intellectual property right results solely from the compliance by Contractor with an express direction of Buyer in a Change Order Request to employ a particular design not provided in the original Spacecraft Specification for such Spacecraft, then Buyer shall defend or settle, at its expense, any such suit against Contractor, subject to the same conditions, liability cap and other [***]FILED SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT. PANAMSAT AND HUGHES PROPRIETARY INFORMATION SUBJECT TO RESTRICTIONS ON CONTRACT TITLE PAGE 67 limitations provided in this Article 19 that are applicable to Contractor's indemnification obligations. 19.6 The foregoing constitutes the Parties' entire obligation with respect to claims for infringement described in this Article 19. PANAMSAT AND HUGHES PROPRIETARY INFORMATION SUBJECT TO RESTRICTIONS ON CONTRACT TITLE PAGE 68 ARTICLE 20. RIGHTS IN INVENTIONS 20.1 As used in this Contract, "Program Invention" shall mean any invention, discovery or improvement conceived of and first reduced to practice in the performance of Work under this Contract. Information relating to Inventions shall be treated as proprietary information in accordance with the provisions of this Contract. Rights to inventions conceived solely by Contractor or its employees shall vest completely with Contractor. 20.2 Contractor shall be the owner of all Program Inventions invented solely by Contractor. Contractor grants Buyer a royalty-free, nonexclusive license in Program Inventions to use Program Inventions solely for the purposes of maintenance and operation of the Spacecraft and delivered Equipment. Contractor agrees that it will not revoke such license if Buyer is in compliance with the terms of the license. 20.2.1 In the case of joint Program Inventions, that is, inventions conceived jointly by one or more employees of both Parties hereto, each Party shall have an equal, undivided one-half interest in and to such joint Program Inventions, as well as in and to patent applications and patents thereon in all countries. 20.2.2 In the case of such joint Program Inventions, Contractor shall have the first right of election to file patent applications in any country, and Buyer shall have a second right of election. Each Party in turn shall make its election at the earliest practicable time, and shall notify the other Party of its decision. PANAMSAT AND HUGHES PROPRIETARY INFORMATION SUBJECT TO RESTRICTIONS ON CONTRACT TITLE PAGE 69 20.2.3 The expenses for preparing, filing and securing each joint Program Invention patent application, and for issuance of the respective patent shall be borne by the Party which prepares and files the application. The other Party shall furnish the filing Party with all documents or other assistance that may be necessary for the filing and prosecution of each application. Where such joint Program Invention application for patent is filed by either Party in a country which requires the payment of taxes, annuities, maintenance fees or other charges on a pending application or on an issued patent, the Party which files the application shall, prior to filing, request the other Party to indicate whether it will agree to pay one-half of such taxes, annuities, maintenance fees or other charges. If within sixty (60) days of receiving such request, the non-filing Party fails to assume in writing the obligation to pay its proportionate share of such taxes, annuities, maintenance fees or other charges, or if either Party subsequently fails to continue such payments within sixty (60) days of demand, it shall forthwith relinquish to the other Party, providing that said other Party continues such payments, its interest in such application and patent and the Invention disclosed therein, subject, however, to retention of a paid-up, non-exclusive, non-assignable license in favor of the relinquishing Party, its parent, and any subsidiary thereof to make, use, lease and sell the apparatus and/or methods under said application and patent. 20.3 Each owner of a jointly-owned patent application or patent resulting therefrom shall, provided that it shall have fulfilled its obligation, if any, to pay its share of taxes, annuities, maintenance fees and other charges on PANAMSAT AND HUGHES PROPRIETARY INFORMATION SUBJECT TO RESTRICTIONS ON CONTRACT TITLE PAGE 70 such pending application or patent, have the right to grant non- exclusive licenses thereunder and to retain any consideration that it may receive therefor without obligation to account therefor to the other Party. In connection therewith, each of the Parties hereby consents to the granting of such non-exclusive licenses by the other Party and also agrees not to assert any claim with respect to the licensed application or patent against any licensee of the other Party thereunder during the term of any such license. 20.4 No sale or lease hereunder shall convey any license by implication, estoppel or otherwise, under any proprietary or patent rights of Contractor, to practice any process with such product or part, or, for the combination of such product or part with any other product or part. PANAMSAT AND HUGHES PROPRIETARY INFORMATION SUBJECT TO RESTRICTIONS ON CONTRACT TITLE PAGE 71 ARTICLE 21. INTELLECTUAL PROPERTY RIGHTS Except as provided in Article 20, neither Party shall acquire any rights with respect to any patent, trademark, trade secret, or any other intellectual property developed or used by the other Party in the performance of this Contract. PANAMSAT AND HUGHES PROPRIETARY INFORMATION SUBJECT TO RESTRICTIONS ON CONTRACT TITLE PAGE 72 ARTICLE 22. FURNISHED DATA AND INFORMATION, DISCLOSURE AND USE "Proprietary Information" shall mean any data and information received by one Party from the other Party, which is identified as proprietary in accordance with either of the following methods: (i) if in writing, it shall be marked by the disclosing Party with an appropriate proprietary legend, or (ii) if disclosed orally, it shall be presented by the disclosing Party as Proprietary at the time of disclosure and shall be confirmed by the disclosing Party as Proprietary Information in writing within thirty (30) days of its initial oral disclosure. 22.1 The receiving Party agrees to protect such data and information with the same degree of care which the receiving Party uses to protect its own confidential data and information; 22.2 The receiving Party shall not disclose or have disclosed to third Parties, in any manner or form, or otherwise publish such data and information so long as it remains proprietary without the express written authorization of the other Party or except as otherwise permitted in this Article 22; 22.3 The receiving Party agrees that it shall use such data and information solely in connection with the performance of Work under this Contract, unless otherwise expressly authorized in writing by or on behalf of the other Party with the designation of specific data and information and use; 22.4 The foregoing obligations with regard to such data and information shall exist unless and until such time as: PANAMSAT AND HUGHES PROPRIETARY INFORMATION SUBJECT TO RESTRICTIONS ON CONTRACT TITLE PAGE 73 22.4.1 Such data and information are previously known to the receiving Party or otherwise publicly available prior to its receipt by the receiving Party without the default of the receiving Party; or 22.4.2 Such data and information have been lawfully disclosed to the receiving Party by a Third Party which has the right to disclose such data; or 22.4.3 Such data and information are shown by written record to have been independently developed by the receiving Party; or 22.4.4 Such data and information are otherwise available in the public domain without breach of this Contract by the receiving Party; or 22.4.5 Such data and information are disclosed by or with the permission of the disclosing Party to a Third Party without restriction; or 22.4.6 Such data and information are disclosed by the receiving Party as required by law or government regulation or order (as long as the receiving Party provides reasonable notice to the disclosing Party prior to such disclosure); or 22.4.7 Such data and information are released for disclosure in writing by or with the express written permission of the disclosing Party. 22.5 Providing Buyer shall obtain from the recipient a nondisclosure agreement at least as restrictive as this Article 22, Buyer may disclose any proprietary information on a need to know basis to its customer(s), contractors, PANAMSAT AND HUGHES PROPRIETARY INFORMATION SUBJECT TO RESTRICTIONS ON CONTRACT TITLE PAGE 74 insurers, consultants, advisors, counsel and actual or prospective lenders, investors, or successors in interest. In no event shall either Party disclose any proprietary information of the other Party to any competitor of the other Party without first obtaining written consent from the other Party. 22.6 Any copyrighted material belonging to a Party to this Contract may be copied by the other Party as necessary to enable the receiving Party to perform its obligations under this Contract, provided always that the copyright legend is retained on the material. PANAMSAT AND HUGHES PROPRIETARY INFORMATION SUBJECT TO RESTRICTIONS ON CONTRACT TITLE PAGE 75 ARTICLE 23. PUBLIC RELEASE OF INFORMATION Neither Party shall issue news releases, articles, brochures, advertisements, prepared speeches, and other information releases concerning the work performed or to be performed under this Contract by Contractor or its subcontractors, or any employee or consultant of either, which contains new information not previously disclosed as permitted under the Contract, without first obtaining the prior written approval of the other Party concerning the content and timing of such release which approval shall not be unreasonably withheld. The initiating Party shall provide such releases to the other Party for review within a reasonable time prior to the desired release date and the other Party shall be required to respond within said time period. PANAMSAT AND HUGHES PROPRIETARY INFORMATION SUBJECT TO RESTRICTIONS ON CONTRACT TITLE PAGE 76 ARTICLE 24. TAXES 24.1 The price which shall be paid by Buyer for Spacecraft, Documentation and Related Services [****************************] any U.S. (federal, state or local) sales or use taxes, or fees or other U.S. taxes against real or personal property, however designated, which may be levied or assessed against Contractor. Buyer shall be responsible for the payment of all personal property taxes, if any, with regard to goods which are levied upon subsequent to the date of delivery to Buyer. Buyer shall be responsible for any inventory taxes, state taxes or any other taxes that are assessed to Contractor as a result of storage of a Spacecraft in accordance with Article 32. 24.2 In the event Contractor in the performance of this Contract is required to pay non-U.S. customs, import duties, value-added or sales taxes, commercial card fees, port fees, harbor maintenance tax, other charges, or taxes, or fees, (collectively, "Assessments") however designated (except for (i) any Assessment based on Contractor's income and (ii) any Assessment incurred as a result of or associated with Contractor's manufacture of a Spacecraft), then Buyer will reimburse Contractor for such Assessments within thirty (30) days of written notification by Contractor of payment; provided, however that, Contractor shall use its reasonable best efforts to obtain waivers, exemptions and/or relief from such Assessments when practicable, and Buyer shall not be required to pay any Assessment to the extent any such waiver, exemption or relief is pending or has been obtained. Notification shall then be supported by an invoice and attachment(s) evidencing such payment having been made by Contractor. [***]FILED SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT. PANAMSAT AND HUGHES PROPRIETARY INFORMATION SUBJECT TO RESTRICTIONS ON CONTRACT TITLE PAGE 77 ARTICLE 25. GOVERNING LAW This Contract shall be deemed made in the State of California and shall be construed in accordance with the laws of the State of California without resort to its conflicts of law principles. PANAMSAT AND HUGHES PROPRIETARY INFORMATION SUBJECT TO RESTRICTIONS ON CONTRACT TITLE PAGE 78 ARTICLE 26. TITLES Titles given to the Articles herein are inserted only for convenience and are in no way to be construed as part of this Contract or as a limitation of the scope of the particular article to which the title refers. PANAMSAT AND HUGHES PROPRIETARY INFORMATION SUBJECT TO RESTRICTIONS ON CONTRACT TITLE PAGE 79 ARTICLE 27. NOTICES AND AUTHORIZED REPRESENTATIVES Any notice or request required or desired to be given or made hereunder shall be in writing and shall be effective if delivered in person or sent by mail or by facsimile as indicated below: 1. PanAmSat International Systems, Inc. One Pickwick Plaza Greenwich, Connecticut 06830 Attention: Robert Bednarek, Senior Vice President and Chief Technology Officer cc: James Frownfelter Vice President - Space Systems and cc: Stephen G. Salem Senior Counsel 1500 Hughes Way Long Beach, California 90810 Authorized Representative(s): Frederick Landman, President and Chief Executive Officer Robert Bednarek Senior Vice President and Chief Technology Officer James Frownfelter Vice President - Space Systems 2. Hughes Space and Communications Company Post Office Box 92919, Airport Station Bldg. S41, M/S A374 Los Angeles, California 90009 Attention: Samuel C. Tricoli, Contracts Manager cc: Bernie Bienstock, Program Manager PANAMSAT AND HUGHES PROPRIETARY INFORMATION SUBJECT TO RESTRICTIONS ON CONTRACT TITLE PAGE 80 Authorized Representative(s): Harold McDonnell Vice President Mark Shahriary Vice President or in each case as a Party may direct by notice to the other Party in accordance with this Article 27. PANAMSAT AND HUGHES PROPRIETARY INFORMATION SUBJECT TO RESTRICTIONS ON CONTRACT TITLE PAGE 81 ARTICLE 28. INTEGRATION This document, with Exhibits, constitutes the entire understanding between the Parties with respect to the subject matter of this Contract and supersedes all previous oral and/or written negotiations, commitments, and understandings of the Parties, including that certain Authorization to Proceed dated as of August 25, 1998 (the "ATP") between the Parties. [***]FILED SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT. PANAMSAT AND HUGHES PROPRIETARY INFORMATION SUBJECT TO RESTRICTIONS ON CONTRACT TITLE PAGE 82 ARTICLE 29. CHANGES Subject to Paragraphs 4.2.1 and 5.3: 29.1 Any changes requested by Contractor during the performance of this Contract, within the general scope of this Contract, which will add or delete work, stop work, affect the design of the Spacecraft, change the method of shipment or packing, or the place or time of delivery, or will affect any other requirement of this Contract, shall be submitted in writing ("Change Proposal") to Buyer [***************] days prior to the proposed effective date of the change. If such Contractor requested change causes an increase or decrease in the total price or other terms of this Contract, Contractor shall submit a proposal to Buyer detailing the impact of such change. 29.2 Buyer shall notify Contractor in writing within ten (10) calendar days after receipt of the requested change and price adjustment (downward or upward), if any, whether or not it agrees with and accepts such Change Proposal. If Buyer agrees with and accepts the Contractor requested Change Proposal, Contractor shall proceed with the performance of the Contract as changed or in the case of a stop work order, suspend the performance of this Contract, and an amendment to the Contract reflecting the Change Proposal shall be incorporated into the Contract. If Buyer does not agree with the Contractor requested Change Proposal, the Parties shall attempt to reach agreement on such Change Proposal. If the Parties are unable to agree on the requested change and price adjustment, then the Parties shall proceed with the performance of this Contract, as unchanged. In the event the Parties are able to reach agreement on the change, but not [***]FILED SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT. PANAMSAT AND HUGHES PROPRIETARY INFORMATION SUBJECT TO RESTRICTIONS ON CONTRACT TITLE PAGE 83 on the price adjustment component, then the Parties shall elevate such dispute to the Senior Executives of the respective companies for resolution. If resolution cannot be achieved within a reasonable period of time under the circumstances, Buyer may make a qualified acceptance of the Change Proposal, accepting all matters other than price adjustment, and the issue of price adjustment shall be submitted for resolution by arbitration in accordance with the provisions of Paragraph 33.2 hereof. Pending such resolution of the price issue, the Parties shall perform their obligations under the Contract, or in the case of a Stop work order, suspend their obligations, as if the Change Proposal had been accepted; provided, however, that Buyer shall pay any disputed amount of the price adjustment into an escrow account in accordance with Paragraph 29.4 hereof on the date such amount would have been due and payable had the Change Proposal been accepted, or if the Change Proposal could result in a downward adjustment in the Contract Price in excess of the amount remaining to be paid by the Buyer, Contractor shall deposit the disputed amount of such excess into an escrow account in accordance with Paragraph 29.4 hereof. 29.3 Buyer may submit to Contractor in writing (a "Change Order Request") [****************] days prior to the proposed effective date of the change detailing any changes requested by Buyer during the performance of this Contract, within the general scope of the Contract, which will add or delete work, stop work, affect the design of the Spacecraft, change the method of shipment or packing, or the place or time of delivery, or will affect any other requirement of this Contract. Contractor shall respond to such Change Order Request in writing to Buyer within [************] days after such request. If Contractor determines that the change requested [***]FILED SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT. PANAMSAT AND HUGHES PROPRIETARY INFORMATION SUBJECT TO RESTRICTIONS ON CONTRACT TITLE PAGE 84 by Buyer is feasible and can be made at no additional cost and with no associated delays, then Contractor shall so notify, Buyer and Contractor shall commence implementing such change. If the Contractor determines otherwise, then, Contractor shall submit to Buyer, a proposal detailing the impact of such change and the price adjustment (downward or upward), if any, (the "Change Order Offer"). Buyer shall notify Contractor in writing, within ten (10) calendar days after receipt of Contractor's Change Order Offer, whether or not it agrees with and accepts Contractor's Change Order Offer. If Buyer agrees with and accepts Contractor's Change Order Offer, Contractor shall immediately proceed with the performance of the Contract as changed, or in the case of a stop work order, suspend the performance of this Contract, and an amendment to the Contract reflecting such change shall be incorporated into the Contract. If Buyer does not agree with the Contractor's Change Order Offer, the Parties shall attempt to reach agreement on such Change Order Offer. In the event the Parties are able to reach agreement on the change, but not on the price adjustment component, then the Parties shall elevate such dispute to the Senior Executives of the respective companies for resolution. If resolution cannot be achieved within a reasonable period of time under the circumstances, Buyer may make a qualified acceptance of the Change Order Offer, accepting all matters other than price, and the issue of price shall be submitted for resolution by arbitration in accordance with the provisions of Paragraph 33.2 hereof. Pending such resolution of the price issue, the Parties shall perform their obligations under the Contract, or in the case of a Stop work order, suspend their obligations, as if the Change Order Offer had been accepted; provided however, that the Buyer shall pay any disputed amount of the price adjustment into an escrow account in accordance with Paragraph 29.4 hereof on the date such amount would PANAMSAT AND HUGHES PROPRIETARY INFORMATION SUBJECT TO RESTRICTIONS ON CONTRACT TITLE PAGE 85 have been due and payable had the Change Order Offer been accepted, or if the Change Order Request could result in a downward adjustment in the Contract Price in excess of the amount remaining to be paid by Buyer, Contractor shall deposit the disputed amount of such excess into an escrow account in accordance with Paragraph 29.4 hereof. The dispute shall then be resolved by arbitration under the provisions of Article 33, entitled "Disputes." 29.4 Escrow Provisions - Disputed Amounts Disputed amounts with respect to any change under this Article 29 shall be paid into an interest bearing escrow account to be established at Bank of America, Concord, California. Upon settlement of the dispute as to such payment and alleged breach in accordance with Article 33, the Party entitled to the amount or part thereof in escrow, shall receive such amount together with all accrued interest thereon and the other Party shall pay all costs and fees associated with the escrow of said amount. The placement of disputed amounts into an escrow account shall not relieve either Party of its remaining obligations under this contract. 29.5 Determination of Price Adjustment of Change The Parties agree that the change order price adjustment (downward or upward) for any change shall be equal to the sum of (i) the "Change Order Cost" plus (ii) the "Change Order Profit Component". The "Change Order Cost" shall mean those additional or reduced recurring and non- recurring costs to Contractor to implement such change (or which are not required to be implemented), as determined in accordance with Contractor's normal accounting practices, including those general and administrative costs ("G&A Costs") of such change, as determined in accordance with PANAMSAT AND HUGHES PROPRIETARY INFORMATION SUBJECT TO RESTRICTIONS ON CONTRACT TITLE PAGE 86 Contractor's normal accounting practices, [*********************] [****] of Contractor's costs for such change. The "Change Order Profit Component" shall be equal to [**************] of the Change Order Cost. The Total Change Order Cost shall be payable in accordance with the payment plan agreed by the Parties or, if applicable, by the Arbitrator. Unless otherwise agreed by the Parties, the Change Order Profit Component shall be payable in equal monthly installments at the same time as the monthly installments of Incentives Obligations; provided, however, that payment of the Change Order Profit Component -------- ------- shall not be conditioned upon performance of the Spacecraft or any component thereof. 29.6 If Contractor makes any improvements to the generic HS601HP Spacecraft design, then Contractor shall provide reports to Buyer concerning such improvements. Buyer may request that any improvement to the HS601HP Spacecraft design reported to Buyer be incorporated into the Spacecraft, and such improvements shall be considered a Change and shall be dealt with in accordance with the Change Order process in this Article 29. The foregoing shall not apply to any changes to the generic HS601HP Spacecraft design, to correct or mitigate the impact of anomalies with respect to such design, made by Contractor on its own accord or as necessary in Contractor's reasonable engineering judgment, which changes shall not relieve Contractor of its obligations to meet the technical specifications for each Spacecraft, as set forth in the applicable Exhibit B, hereto. Contractor shall notify Buyer on a periodic basis or as requested by Buyer from time to time of any anomalies with respect to such HS601HP Spacecraft design. [***]FILED SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT. PANAMSAT AND HUGHES PROPRIETARY INFORMATION SUBJECT TO RESTRICTIONS ON CONTRACT TITLE PAGE 87 29.7 The Change Order Price shall be allocated and payable as follows: The Change Order Profit Component shall be an independent payment obligation not contingent upon performance of the Spacecraft and shall be payable at the same time as the monthly installments of the Incentives Obligations for the Spacecraft as set forth in Paragraph 6.3.4 and, in any case, the then-remaining Change Order Profit Component for the Spacecraft shall be paid in full with the last Incentives Obligations Payment. The Total Change Order Cost shall be payable as agreed by the Parties. 29.8 To the extent that (i) any change agreed under this Article 29 deletes any Hardware already produced by Contractor, then the provisions of Paragraphs 14.2 and 14.6 shall apply to the disposition of such Hardware. 29.9 The Spacecraft shall be designed to support the Launch Vehicle interface requirements issued by the Launch Vehicle provider (as to Ariane 4 and 5, Proton, Delta III, Atlas IIAS, IIAR and III, and Sea Launch Launch Vehicles) existing at the time of the date on which a Launch Vehicle designation is made under Paragraph 4.2.1. If there are any material changes to such interface requirements thereafter, then any such change shall be deemed to be a Change Order Request by Buyer, and the Change Order process set forth in Section 29.3 shall apply. PANAMSAT AND HUGHES PROPRIETARY INFORMATION SUBJECT TO RESTRICTIONS ON CONTRACT TITLE PAGE 88 ARTICLE 30. EFFECTS OF STORAGE ON BATTERIES For Spacecraft batteries to provide the required minimum fifteen (15) years of in-orbit services per Exhibit B, it is understood that launch must occur within three (3) years from the date of activation of the first battery cell. In the event Buyer directs Contractor to store any deliverable Spacecraft and the period of such storage causes a launch later than three (3) years from the date of activation of that Spacecraft's first battery cell, and Buyer upon its election to either: (i) install replacement batteries or (ii) recondition batteries, so directs Contractor, Buyer shall pay Contractor its costs plus a [***] profit rate. In either case (i) or (ii), the batteries shall meet a fifteen (15) year in-orbit service requirement. [***]FILED SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT. PANAMSAT AND HUGHES PROPRIETARY INFORMATION SUBJECT TO RESTRICTIONS ON CONTRACT TITLE PAGE 89 ARTICLE 31. INTER-PARTY WAIVER OF LIABILITY 31.1 Buyer and Contractor each agree not to make a claim against the other for an event that occurs at the Launch Integration Facility and/or Launch Site premises involving damage to, loss of, or loss of use of their property or the property of others in their possession, caused by the fault or negligence of the other Party to this Contract, or otherwise caused by any defect in any product manufactured or sold by the other Party to this Contract. Such claims are waived and each Party will bear its own losses. Buyer will include a comparable clause in each of its contracts with vendors, subcontractors or customers for services or benefits expected as a result of the launch or orbiting of the Spacecraft. Such comparable clause shall include a requirement to flow the clause down to lower-tier contractors. 31.2 Notwithstanding any other provisions of this Contract, prior to the time any Party, associated with launch activities at the Launch Integration Facility and/or Launch Site, shall enter the Launch Integration Facility and/or Launch Site, such Parties shall be required to sign an Inter-Party Waiver of Liability consistent with that between Buyer and the Contractor as incorporated herein under Paragraph 31.1 of this provision or other similar agreement as may be required by the launch agency. Each Party shall have the responsibility to assure that all the Parties associated with the launch of the Spacecraft (for which they have control or privity of Contract with hereunder) have executed said Inter-Party Waiver of Liability. PANAMSAT AND HUGHES PROPRIETARY INFORMATION SUBJECT TO RESTRICTIONS ON CONTRACT TITLE PAGE 90 ARTICLE 32. SPACECRAFT STORAGE 32.1 Buyer may, at its option, order Contractor to store, in accordance with the provisions of Exhibit B Spacecraft Specification, the deliverable Spacecraft (including separate storage of Batteries, if needed) for a period of up to two (2) years from the date of their delivery to Buyer. Buyer shall provide written notice to the Contractor not later than six (6) months prior to the scheduled delivery of the Spacecraft. Contractor's price for providing storage shall be provided to Buyer in accordance with Article 29, "Changes," (and such price shall be deemed a "Change Proposal" for purposes of Article 29) within 30 days after receipt of Buyer's notice to store the Spacecraft and Contractor shall arrange for such storage facilities. If such storage facilities are unavailable, Contractor and Buyer shall hold discussions to determine a mutually agreed storage arrangement. 32.2 No later than six (6) months and three (3) months prior to a stored Spacecraft's scheduled Launch Month and Launch Date, Buyer shall notify Contractor in writing of such Launch Month and Launch Date, respectively. Contractor shall take such steps as may be necessary to remove such Spacecraft from storage and ship it to the Launch Site designated by Buyer so as to support such Launch Date. PANAMSAT AND HUGHES PROPRIETARY INFORMATION SUBJECT TO RESTRICTIONS ON CONTRACT TITLE PAGE 91 ARTICLE 33. DISPUTES 33.1 Disputes 33.1.1 In the event any dispute arises between the Contractor and the Buyer relating to this Contract, either Party may give written notice to the other of its objections and reasons therefore. The Contractor and Buyer shall consult in an effort to reach a mutual agreement to resolve such dispute. In the event a mutual agreement cannot be reached within fifteen (15) days after receipt of this notice, the respective positions of the Parties shall be forwarded to Contractor and Buyer's respective Executive Offices for discussions and they shall attempt to reach a mutual agreement to resolve such dispute within another fifteen (15) day period. 33.2 Arbitration of Disputes 33.2.1 Grounds for Arbitration and Notice Requirement. Any dispute, ---------------------------------------------- disagreement, controversy or claim arising out of or relating to this Contract or the interpretation thereof or any arrangements relating thereto, or the validity or enforceability thereof, or contemplated therein or the breach, termination or invalidity thereof which is not settled to the mutual satisfaction of the Parties in accordance with Paragraph 33.1 above, then it shall be settled exclusively and finally by binding arbitration, after written notice by either Party. Arbitration of such disputes in accordance with this Article 33 shall be the Parties' exclusive remedy. PANAMSAT AND HUGHES PROPRIETARY INFORMATION SUBJECT TO RESTRICTIONS ON CONTRACT TITLE PAGE 92 33.2.2 Administration and Rules. Arbitration proceedings in ------------------------ connection with the Contract shall be administered by the American Arbitration Association in accordance with its then in effect Commercial Arbitration Rules, together with any relevant supplemental rules including but not limited to its Supplementary Procedures for Large, Complex Disputes, as modified by the terms and conditions of the Contract. With respect to the selection of arbitrators, arbitration proceedings in connection with this Contract shall be conducted before a panel of three (3) arbitrators. Within fifteen (15) days after the commencement of arbitration, each Party shall select from a list of qualified persons one person to serve as an arbitrator on the panel, and within ten (10) days of their selection, the two arbitrators shall select a third arbitrator who is listed as an active member of the American Arbitration Association at the time that arbitration proceedings commence. If the two arbitrators selected by the respective Parties are unable or fail to agree upon the third arbitrator in the allotted time, then the third arbitrator shall be selected by the American Arbitration Association. 33.2.3 Place of Arbitration. The place of arbitration shall be in Los -------------------- Angeles, California, U.S.A. 33.2.4 Discovery. The arbitrators shall have the discretion to order --------- a pre-hearing exchange of information by the Parties, including without limitation, production of requested documents, exchange of PANAMSAT AND HUGHES PROPRIETARY INFORMATION SUBJECT TO RESTRICTIONS ON CONTRACT TITLE PAGE 93 summaries of testimony of proposed witnesses, and examination by deposition of the Parties. 33.2.5 Award and Judgment. The arbitrators shall have no authority to ------------------ award punitive damages, and may not, in any event, make any ruling, finding or award that does not conform to the terms and conditions of this Contract. Subject to the foregoing, the Parties agree that the judgment of the arbitrators shall be final and binding upon the Parties and that the judgment upon the award rendered by the arbitrators may be entered in any court having jurisdiction thereof. 33.2.6 Confidentiality. No Party or arbitrator may disclose the --------------- existence, content, or results of any arbitration proceedings in connections with this Contract without prior written consent of all Parties to the arbitration proceeding. 33.2.7 Fee and Expenses. All fees and expenses of any arbitration ---------------- proceedings in connection with this Contract shall be borne by the losing Party. However, each Party shall bear the expense of its own counsel, experts, witnesses, and preparation and presentation of evidence. 33.2.8 Performance. Contractor and Buyer shall continue with ----------- performance under this Contract during any disagreement, negotiation, or arbitration. PANAMSAT AND HUGHES PROPRIETARY INFORMATION SUBJECT TO RESTRICTIONS ON CONTRACT TITLE PAGE 94 ARTICLE 34. ASSIGNMENT 34.1 Neither Party shall assign, or transfer this Contract or any of its rights, duties or obligations thereunder to any person or entity, in whole or part without the prior written consent of the other Party except that either Party may assign or transfer any of its rights, duties or obligations under this Contract, either in whole or in part, to its parent company, subsidiary or affiliate./1/ In addition, notwithstanding anything in this Article 34 to the contrary, the consent of Contractor shall not be required for, and Paragraph 34.2 shall not apply to any assignment by Buyer of its rights, duties and/or obligations hereunder as security for any indebtedness of Buyer or its subsidiaries or affiliates. Neither Party shall unreasonably withhold consent to any assignment or transfer providing that the requesting Party can demonstrate to the other Party's satisfaction prior to such assignment that: (1) its successor or assignee possesses the financial resources to fulfill the obligations of this Contract; and (2) any such assignment or transfer shall not jeopardize any data rights or competitive position, or violate laws related to export or technology transfer, or otherwise increase the other Party's risks or obligations. If the requesting Party cannot so demonstrate, both Parties agree to negotiate in good faith suitable modifications and new provisions to this Contract which would mitigate the above risks and/or bring this Contract into conformance with applicable laws. As used in this Agreement, PANAMSAT AND HUGHES PROPRIETARY INFORMATION SUBJECT TO RESTRICTIONS ON CONTRACT TITLE PAGE 95 "Affiliate" of, or a person "affiliated" with, a specified person, shall mean a person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, the person specified. 34.2 The Parties agree that in the event that the ownership or control of Buyer or Contractor is changed, the Parties reserve the right to negotiate in good faith suitable modifications and new provisions to this Contract which would mitigate any additional risks, financial or otherwise, which may be brought about by such change in ownership or control. 34.3 This Contract shall be binding upon the Parties hereto and their successors and permitted assigns. PANAMSAT AND HUGHES PROPRIETARY INFORMATION SUBJECT TO RESTRICTIONS ON CONTRACT TITLE PAGE 96 ARTICLE 35. LIMITATION OF LIABILITY 35.1 The Parties to this Contract expressly recognize that commercial space ventures involve substantial risks and recognize the commercial need to define, apportion and limit contractually such risks associated with this commercial space venture. The payments and other remedies expressly set forth in this Contract fully reflect the Parties' negotiations, intentions and bargained-for allocation of such risks associated with commercial space ventures. 35.2 In no event shall the Parties be liable for any direct, indirect, incidental, special, contingent or consequential damages (including, but not limited to, lost revenues or profits), except as expressly provided for in this Contract. This Article shall survive the expiration or termination of this Contract for whatever cause. PANAMSAT AND HUGHES PROPRIETARY INFORMATION SUBJECT TO RESTRICTIONS ON CONTRACT TITLE PAGE 97 ARTICLE 36. CORRECTIVE MEASURES; OPERATIONAL DEFICIENCIES 36.1 Without limiting the obligations of Contractor under other provisions of this Contract, if the data available from another satellite manufactured or under manufacture or design by Contractor (a "Contractor Satellite") indicates that there is or may be a material deficiency in the design or manufacture of such Contractor Satellite which, in the reasonable opinion of Contractor, will or may adversely affect the Spacecraft produced under this Contract, or the operations of such Spacecraft, then Contractor shall notify Buyer of any such material deficiency. Contractor shall promptly take appropriate corrective measures, at Contractor's expense, with respect to the Spacecraft so as to satisfactorily eliminate from such Spacecraft prior to its shipment all the material deficiencies discovered in Contractor Satellite(s), subject to the provisions of Paragraph 36.5. 36.2 In the event that the corrective measures performed pursuant to this Article 36 cause a delay, then: (i) Contractor shall [***********] [**********************] in accordance with Paragraph 4.1; (ii) the time periods provided in Paragraph 5.5 and 37.1 [*************] and (iii) Buyer and Contractor shall discuss the impact (if any) to the construction and delivery of the Spacecraft. 36.3 If Contractor, in performing corrective measures in accordance with this Article 36, replaces any equipment or part determined to be deficient, such deficient equipment or part shall remain or become the property of Contractor. [***]FILED SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT. PANAMSAT AND HUGHES PROPRIETARY INFORMATION SUBJECT TO RESTRICTIONS ON CONTRACT TITLE PAGE 98 36.4 Contractor shall disclose to Buyer sufficient technical and operational information regarding a material deficiency [***********************] to enable Buyer to make an informed decision regarding the taking of corrective measures. Notwithstanding the foregoing, Contractor shall not be obligated by this Article 36 to disclose the identity (or any identifying information) of any such satellite, or the owners or customers of such Contractor Satellite, on which a material deficiency is discovered. 36.5 Contractor shall be obligated to notify Buyer promptly if Contractor proposes to resolve technical deficiencies (arising during the design and/or manufacturing process of the Spacecraft) through the imposition of operational constraints. The Parties agree promptly to enter into good faith negotiations to resolve any such deficiency and, if appropriate, agree to adjust equitably the Contract Price and/or schedule, subject to Paragraph 36.2. In the event that the Parties cannot reach an agreement within five (5) business days as to the resolution of such deficiency or its adjustment (if any) to Contract Price and/or schedule, then the unresolved issues shall be submitted to the Contractor's and Buyer's senior executives for resolution. If such senior executives cannot reach agreement within ten (10) business days thereafter, then the remaining unresolved issues shall be submitted for resolution by arbitration pursuant to Paragraph 33.2. [***]FILED SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT. PANAMSAT AND HUGHES PROPRIETARY INFORMATION SUBJECT TO RESTRICTIONS ON CONTRACT TITLE PAGE 99 ARTICLE 37. LIQUIDATED DAMAGES FOR LATE PERFORMANCE 37.1 In the event that (i) the shipment of a Spacecraft is delayed due to the fault of Contractor (and/or Contractor's subcontractors or suppliers) and is not shipped on or before the applicable Shipment Date identified under Article 4 (as such date may be adjusted by mutual agreement of the Parties) or (ii) Contractor does not timely deliver the Exhibit H Certain Documentation required to be delivered prior to launch, Contractor shall pay liquidated damages for such Spacecraft as follows: 37.1.1 For [************] of delay, Contractor shall pay to Buyer liquidated damages equal to: (i) with respect to Domestic 1 or Domestic 2, [***** ********************************] and (ii) with respect to any other Spacecraft purchased under this Contract, [********************* **************] and 37.1.2 For each of the next [**************************] of delay, Contractor shall pay to Buyer additional liquidated damages equal to: (i) with respect to Domestic 1 or Domestic 2 [***** *********************************] and (ii) with respect to any other Spacecraft purchased under this Contract, [********************** **************] [***]FILED SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT. PANAMSAT AND HUGHES PROPRIETARY INFORMATION SUBJECT TO RESTRICTIONS ON CONTRACT TITLE PAGE 100 37.2 In the event of any delay of a partial month, the amounts specified in Paragraphs 37.1.1 and 37.1.2, as applicable, shall be pro rated on a day-for-day manner based upon the number of days in such month. 37.3 Contractor shall pay to Buyer the liquidated damages owed pursuant to Paragraphs 37.1.1 and 37.1.2 within thirty (30) days of invoice from Buyer. 37.4 The Parties understand and agree that the liquidated damages provided under this Article 37 shall be in lieu of all other remedies of any kind except for Buyer's rights and remedies under Articles 11 and 14. The amounts presented in Paragraph 37.1 shall constitute liquidated damages for such late shipment and shall not constitute a penalty. The Parties acknowledge and agree that such liquidated damages are believed to represent a genuine estimate of the losses that would be suffered by reason of any such delay (which losses would be difficult or impossible to calculate with certainty). 37.5 The Parties agree that the provisions of this Article 37 shall apply separately to each Spacecraft, and that the maximum liquidated damages for a Spacecraft under this Article 37 is: (i) with respect to Domestic 1 or Domestic 2, [**********************************************]; and (ii) with respect to any other Spacecraft purchased under this Contract, [***********************************************] [***]FILED SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT. PANAMSAT AND HUGHES PROPRIETARY INFORMATION SUBJECT TO RESTRICTIONS ON CONTRACT TITLE PAGE 101 ARTICLE 38. OPTION SPACECRAFT 38.1 Buyer shall have the option (the "Option") to purchase from Contractor additional HS601HP spacecraft (the "Option Spacecraft") in accordance with this Article 38. Buyer shall exercise this Option by written notice to Contractor, and shall approve [*************************] for such Option Spacecraft on or before the later to occur of (i) the date of Option exercise or (ii) the date that is [****************] prior to the applicable Shipment Date. Upon Buyer's exercise of the Option for an Option Spacecraft, Contractor shall construct and deliver such Option Spacecraft, perform all Related Services and deliver all Documentation therefor, in accordance with the terms and provisions of this Contract (except as expressly provided otherwise in this Article 38 and subject to Paragraph 14.9, to the extent applicable), and all references in the Contract to "Spacecraft" shall thereafter be deemed to include such Option Spacecraft. 38.2 Subject to the last sentence of this Paragraph 38.2, the "Shipment Date" for an Option Spacecraft purchased by Buyer shall be the date that is [**] [*********] after the later to occur of: (a) Exercise by Buyer of the Option for such Option Spacecraft; or (b) As applicable, (i) With respect to the first Option Spacecraft, [**] [*******] (ii) With respect to the second Option Spacecraft, [*********] (iii) With respect to the third Option Spacecraft, the date that is [******] after the exercise of the Option to [***]FILED SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT. PANAMSAT AND HUGHES PROPRIETARY INFORMATION SUBJECT TO RESTRICTIONS ON CONTRACT TITLE PAGE 102 purchase the first Option Spacecraft, but in no event earlier than [*********] or (iv) With respect to the fourth Option Spacecraft, the date that is [********] after the exercise of the Option to purchase the second Option Spacecraft, but in no event earlier than [***********] Notwithstanding the foregoing, in the event that the Option is exercisable for one or two Option Spacecraft on the date that is [****] after the completion of in-orbit testing of the last Spacecraft purchased by Buyer under this Contract [********] then the Option shall remain exercisable for such number of Option Spacecraft subject to Paragraph 38.3, and upon exercise the Shipment Date for such Spacecraft shall be the date that is seven months after the later to occur of (i) exercise by Buyer of the Option for such Option Spacecraft or (ii) the date that is [********] after [********] 38.3 The Options shall expire upon the earlier to occur of (i) the exercise of the Option for a fourth Option Spacecraft, (ii) [*********] or (iii) the termination pursuant to Article 14 of both Domestic 1 and Domestic 2. 38.4 Upon exercise of the Option to purchase an Option Spacecraft, the Option shall continue to be an Option to purchase two Option Spacecraft, up to a maximum of six spacecraft purchased under this Contract (including Domestic 1 and Domestic 2). By way of example: (i) if Buyer has exercised the Option to purchase a total of two Option Spacecraft, the Option may be exercised for two additional Option Spacecraft; (ii) if Buyer has exercised the Option to purchase a total of three Option Spacecraft, the Option may only be exercised for one additional Option [***]FILED SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT. PANAMSAT AND HUGHES PROPRIETARY INFORMATION SUBJECT TO RESTRICTIONS ON CONTRACT TITLE PAGE 103 Spacecraft; and (iii) if Buyer has exercised the Option to purchase a total of four Option Spacecraft, the Option shall expire. 38.5 The Contract Price for the first Option Spacecraft and the second Option Spacecraft shall be [****************************************** *********************] each, subject to adjustment in accordance with Paragraphs 14.3 and 14.4. The Contract Price for all other Option Spacecraft purchased under this Contract shall be [**************** **************************************************] each. The Contract Price shall include all Related Services and Documentation, and shall be based upon use of an Ariane 4 or 5 Launch Vehicle. For any Option Spacecraft purchased by Buyer, the Contract Price will be paid in accordance with the payment plan attached hereto as Exhibit F (subject to pro rata adjustment in the event of a change in the Contract Price). [**** *********************************************************** ************************************************************ *****************] 38.6 In the event that a Spacecraft suffers a launch failure or one or more Payloads are not Successfully Operating Payloads on the Commencement Date, then the total number of Option Spacecraft for which the Option is exercisable over the life of this Contract shall be increased by one. In such event: (a) the Shipment Date for such additional Option Spacecraft shall be determined in the same manner as the Shipment Date for the third and fourth Option Spacecraft under Paragraph 38.2; (b) the number of Option Spacecraft upon which expiration of the Option may occur under clause (i) of Paragraph 38.3 shall be increased by one; (c) the date in clause (ii) of Paragraph 38.3 shall be extended to [*******] and (d) the maximum [***]FILED SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT. PANAMSAT AND HUGHES PROPRIETARY INFORMATION SUBJECT TO RESTRICTIONS ON CONTRACT TITLE PAGE 104 number of Spacecraft that may be purchased by Buyer under Paragraph 38.4 shall be increased by one and the examples in Paragraph 38.4 shall be deemed to be adjusted accordingly. Notwithstanding the foregoing, the Option shall not be exercisable for more than two (2) Option Spacecraft simultaneously. 38.7 In the event that Buyer terminates either (but not both) Domestic 1 or Domestic 2 pursuant to Article 14, then the total number of Option Spacecraft for which the Option is exercisable over the life of this Contract shall be increased by one. In such event: (a) the Shipment Date for such additional Option Spacecraft shall be determined in the same manner as the Shipment Date for the third and fourth Option Spacecraft under Paragraph 38.2; (b) the number of Option Spacecraft upon which expiration of the Option may occur under clause (i) of Paragraph 38.3 shall be increased by one; (c) the date in clause (ii) of Paragraph 38.3 shall be extended to [***********] and (d) the maximum number of Spacecraft that may be purchased by Buyer under Paragraph 38.4 shall be increased by one and the examples in Paragraph 38.4 shall be deemed to be adjusted accordingly. Notwithstanding the foregoing, the Option shall not be exercisable for more than two Option Spacecraft simultaneously. [***]FILED SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT. PANAMSAT AND HUGHES PROPRIETARY INFORMATION SUBJECT TO RESTRICTIONS ON CONTRACT TITLE PAGE 105 ARTICLE 39. NO THIRD PARTY RIGHTS 39.1 Contractor represents and warrants that neither Contractor nor any third party has any continuing rights or obligations with respect to any Deliverable under this Contract (except as to Contractor as expressly provided herein) or with respect to any parts or materials incorporated into any such Deliverable. Contractor agrees to indemnify Buyer for, and hold Buyer harmless from, any and all liability, loss, claim or damage to which Buyer or its affiliates (or any director, officer, employee or agent of Buyer or one of its affiliates) may become subject, arising from any claim by any such third party or any breach of the representations and warranties made by Contractor in this Article 39. 39.2 This Article shall survive delivery of the Spacecraft and the Documentation, the performance of the Related Services, and any termination of this Contract. PANAMSAT AND HUGHES PROPRIETARY INFORMATION SUBJECT TO RESTRICTIONS ON CONTRACT TITLE PAGE 106 ARTICLE 40. INDEX OF DEFINED TERMS Each of the following capitalized terms has the meaning ascribed to such term in the applicable Paragraph. Defined Terms Paragraph ------------- --------- Affiliate 34 Assessments 24.2 Authorized Representatives 27 Buyer Introduction Buyer-Furnished Items 8.1 Buyer Indemnitee 19.2 Calculated Operational Lifetime 6.3.1.5 Certain Documentation Exhibit E Change Order Cost 29.5 Change Order Offer 29.3 Change Order Profit Component 29.5 Change Order Request 29.3 Change Proposal 29.1 Commencement Date 6.3.1.7 Contract Introduction Contract Price 5.1 Contractor Introduction Contractor Satellite 36.1 Costs 14.7 Degraded Payload 6.3.2.3 Delinquent Payments 6.4 Deliverables 3 PANAMSAT AND HUGHES PROPRIETARY INFORMATION SUBJECT TO RESTRICTIONS ON CONTRACT TITLE PAGE 107 Documentation 4.1 Effective Date 42 Extension period 6.3.4.3 G&A Costs 29.5 Incentive Interest Rate 6.3.2.2 Intentional Ignition 16.2 Launch Date 7.1.1 Launch Vehicle 4.2.1 Launch Window 7.1.2 OCC 3.3 On-Station Operational Lifetime 6.3.2.1(b) Pre-Launch Incentives Payment 6.3.4.1 Program Invention 20.1 Properly Operated 3.4 Proprietary Information 22 Recoverable Amount 6.3.4.4 Related Services 4.1 Related Services Price 6.3.4.3 Risk of Loss 15.1.4 Shipment Date 4.1 Spacecraft 3.1 Spacecraft Retirement Payment 6.3.3 Specified Operational Lifetime 6.3.1.1 Successfully Injected Spacecraft 6.3.1.5 Successfully Operating Payload 6.3.1.2 Successfully Operating Transponder 6.3.1.3 Third Anniversary 6.3.4.3 Useful Commercial Life 6.3.1.4 Warranty Time Period 16.2 PANAMSAT AND HUGHES PROPRIETARY INFORMATION SUBJECT TO RESTRICTIONS ON CONTRACT TITLE PAGE 108 ARTICLE 41. EFFECTIVE DATE OF CONTRACT The "Effective Date" of this Contract No. 98-PAS-002 shall be October 9, 1998. PANAMSAT AND HUGHES PROPRIETARY INFORMATION SUBJECT TO RESTRICTIONS ON CONTRACT TITLE PAGE 109 IN WITNESS WHEREOF, the Parties hereto have executed this Contract No. 98-PAS- 002 to become effective upon the date specified in Article 41, herein entitled, "Effective Date of Contract." HUGHES SPACE & COMMUNICATIONS COMPANY SIGNATURE: /s/ Iradj Shahriary ------------------------------------- NAME: Iradj Shahriary --------------------------------------- TITLE: Executive Vice President ------------------------------------- DATE: October 9, 1998 -------------------------------------- PANAMSAT CORPORATION SIGNATURE: /s/ Frederick A. Landman ----------------------------------- NAME: Frederick A. Landman -------------------------------------- TITLE: President and Chief Executive Officer ------------------------------------- DATE: October 12, 1998 -------------------------------------- PANAMSAT AND HUGHES PROPRIETARY INFORMATION SUBJECT TO RESTRICTIONS ON CONTRACT TITLE PAGE 110 EX-23.1 11 CONSENT OF DELOITTE & TOUCHE LLP Exhibit 23.1 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statement No. 333- 51855 on Form S-8 and in Registration Statement No. 333-28253 on Form S-8 of our report dated January 15, 1999, appearing in the Annual Report on Form 10-K of PanAmSat Corporation for the year ended December 31, 1998. DELOITTE & TOUCHE LLP Stamford, Connecticut March 30, 1999 EX-24.1 12 POWERS OF ATTORNEY Exhibit 24.1 POWER OF ATTORNEY The undersigned, acting in the capacity or capacities with respect to PanAmSat Corporation stated with their respective names below, hereby constitute and appoint Kenneth N. Heintz and James W. Cuminale, each acting alone, the attorneys-in-fact of the undersigned with full power to them and each of them to sign for and in the name of the undersigned in the capacities indicated below (a) the Annual Report on Form 10-K of PanAmSat Corporation for the fiscal year ended December 31, 1998, and (b) any and all amendments and supplements thereto, but subject to the prior approval of PanAmSat's Annual Report on Form 10-K for the fiscal year ended December 31, 1998 by a majority of the Board of Directors of PanAmSat:
Signature Date Michael T. Smith March 25, 1999 - ------------------------------------- Michael T. Smith Chairman of the Board of Directors Frederick A. Landman March 25, 1999 - ------------------------------------- Frederick A. Landman President, Chief Executive Officer (principal executive officer) and Director Roxanne S. Austin March 25, 1999 - ------------------------------------- Roxanne S. Austin Director Patrick J. Costello March 25, 1999 - ------------------------------------- Patrick J. Costello Director Steven D. Dorfman March 22, 1999 - ------------------------------------- Steven D. Dorfman Director Dennis F. Hightower March 25, 1999 - ------------------------------------- Dennis F. Hightower Director
James M. Hoak March 25, 1999 - ------------------------------------- James M. Hoak Director Stephen R. Kahn March 26, 1999 - ------------------------------------- Stephen R. Kahn Director Charles H. Noski March 25, 1999 - ------------------------------------- Charles H. Noski Director Joseph R. Wright, Jr. March 19, 1999 - ------------------------------------- Joseph R. Wright, Jr. Director March , 1999 - ------------------------------------- Kenneth N. Heintz Executive Vice President and Chief Financial Officer (principal financial officer and principal accounting officer) EX-27.1 13 FINANCIAL DATA SCHEDULE
5 THIS FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AND RELATED STATEMENT OF INCOME AS OF DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 12-MOS DEC-31-1998 JAN-01-1998 DEC-31-1998 177,542 0 85,921 5,967 0 338,593 3,461,773 566,582 5,890,497 143,602 56 0 0 1,492 2,686,923 5,890,497 0 767,263 0 448,929 0 0 97,788 220,546 95,940 124,606 0 0 0 124,606 0.83 0.83
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