1
EXHIBIT 2.2
PEGASUS COMMUNICATIONS CORPORATION
5 RADNOR CORPORATE CENTER
000 XXXXXXXXXX XXXX, XXXXX 000
XXXXXX, XX 00000
November 5, 1997
Digital Television Services, Inc.
c/o Columbia Capital Corporation
000 Xxxxx Xxxxx Xxxxxx, Xxxxx 000
Xxxxxxxxxx, XX 00000
Attention: Xxxxx X. Xxxxxx, III
Re: Merger of Digital Television Services, Inc. ("DTS") with
Pegasus Communications Corporation ("PCC")
Gentlemen:
This letter confirms the agreement of the undersigned for the merger of
DTS with a newly created subsidiary ("Merger Sub") of PCC ("Merger
Transaction").
1. Transaction Structure; Definitive Agreement; Consideration.
(a) PCC and Pegasus Communications Holdings, Inc. ("PCH")
and Pegasus Capital, L.P. (together with PCH, "PCC
Shareholders"), and DTS and the undersigned
shareholders of DTS ("DTS Shareholders") will
negotiate in good faith a definitive agreement
("Definitive Agreement") as soon as reasonably
practicable, containing terms consistent with the
terms of this letter, and other customary and
mutually agreeable covenants, representations and
warranties, indemnities, closing conditions and other
terms customary in transactions of this nature. The
Definitive Agreement will provide that at the closing
of the Merger Transaction ("Closing"), DTS will merge
with Merger Sub by means of a forward or reverse (as
agreed by the parties) triangular merger intended to
be a tax deferred reorganization under Section
368(a)(2)(D) or (E) of the Internal Revenue Code, and
in consideration therefor, all of the issued and
outstanding shares of DTS capital stock will be
converted into 5,500,000 shares of
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Class A Common Stock of PCC ("Class A Common Stock").
In the alternative, if agreed by all of the parties
hereto, the transaction may be structured as a
voluntary exchange of all the issued and outstanding
shares of the capital stock of DTS for the Class A
Common Stock in a transaction designed to qualify as
a tax deferred reorganization under Section
368(a)(1)(B).
The number of shares of Class A Common Stock to be
issued in the Merger Transaction will be reduced as
described in Schedule 1 on account of outstanding DTS
options and warrants and on account of severance
arrangements between DTS and certain of its employees
and consultants.
(b) At the Closing, (i) DTS, (ii) Columbia Capital
Corporation, Columbia DBS, Inc., Columbia DBS
Investors, L.P., Columbia DBS Class A Investors, LLC,
the Columbia Principals (as defined below), and
certain of their affiliates as agreed by the parties,
and (iii) X. X. Xxxxxxx Equity Partners LLC, Whitney
Equity Partners, L.P. and certain of their affiliates
as agreed by the parties, will enter into
noncompetition agreements with PCC prohibiting them
for a period of three years after the Closing from
owning, controlling, managing or being financially
interested in, directly or indirectly, (1) any
DirecTV Distribution Business (as defined below) in
any C or D county in the United States as determined
by X. X. Xxxxxxx Company; or (2) any direct-to-home
multichannel satellite service that is substantially
similar to any service offered by DirecTV, Inc. as of
the Closing Date in any geographic area served by
members and affiliates of the National Rural
Telecommunications Cooperative ("NRTC"). "DirecTV
Distribution Business" means the distribution of any
service transmitted using the frequencies licensed to
Xxxxxx Communications Galaxy, Inc. or its successors
at the 101 degrees West orbital location. The
noncompetition agreements will not prohibit the
ownership of any interest in PCC or the ownership of
a less than one-percent interest in any publicly held
company. "Columbia Principals" means Xxxxx Xxxxxx,
Xxxxx Mixer, Xxxx Xxxxxx, Xxxxxx Blow, Xxxx Xxxxxxx,
Xxxxx Xxxxxx, Xxxxxx Xxxxxx, Xxxx Xxxxx, Xxxxxx
Xxxxxxxxx and Xxxxx Xxxxxxx; and the term includes
any holder of Class A Common Stock issued in the
Merger Transaction that is a family member of any
such individual, a trust for the benefit of any
family member of any such individual, or a
partnership, limited liability company or other
entity substantially all of the equity interests of
which are owned by such individuals, family members
or trusts. In addition, DTS shall use commercially
reasonable efforts to cause Xxxxxxx X. Xxxxxxxx, Xxxx
X. XxxXxxxxx, and Xxxxxx X. Xxxxxxx (together, "DTS
Senior Management")
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to enter into noncompetition agreements in
substantially the same form as the agreements
described in the foregoing sentence, except that
their activities other than in areas served by
members and affiliates of the NRTC shall be
restricted only until September 1, 1998 (the "Senior
Management Noncompetes").
(c) Each of the DTS Shareholders, each of the Columbia
Principals and certain of their affiliates as agreed
by the parties will enter into confidentiality
agreements restricting them from disclosing to third
parties proprietary and confidential information of
PCC or using such information in any way adverse to
the interests of PCC.
2. Preparation of Definitive Agreement.
(a) Immediately after the execution of this letter, the
parties and their representatives will jointly
prepare the Definitive Agreement and will use good
faith and commercially reasonable efforts to execute
the Definitive Agreement by no later than 5:00 p.m.
(New York City time) on December 19, 1997 (the
"Execution Deadline"). The Definitive Agreement will
provide for the Closing to occur promptly after the
consents of NRTC and DirecTV, Inc. ("DirecTV") are
received and the other Closing conditions are
satisfied. The Definitive Agreement will contain
provisions reasonably acceptable to PCC and the DTS
Shareholders concerning matters arising under Section
16 of the Securities Exchange Act of 1934, as
amended.
(b) The parties and their representatives shall also
jointly prepare a registration statement on Form S-4
under the Securities Act of 1933, as amended,
covering the shares of Class A Common Stock to be
issued to DTS's stockholders in the Merger
Transaction (or share exchange) (the "Registration
Statement") and shall cause the Registration
Statement to be filed not later than three business
days after the execution of the Definitive
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Agreement; and PCC shall prepare and file,
simultaneously with the filing of the Registration
Statement, a proxy statement with respect to the PCC
stockholder vote on the Definitive Agreement. DTS and
PCC shall use good faith and commercially reasonable
efforts to cause the Registration Statement to become
effective, the PCC shareholder vote to occur, the
closing conditions to be satisfied, and the Closing
to occur on or before February 28, 1998.
(c) The Definitive Agreement will require each DTS
Shareholder, each Columbia Principal and those
members of DTS Senior Management who agree
(collectively, the "Holders") to execute at the
Closing an agreement not to sell, transfer or
otherwise dispose of any shares of Class A Common
Stock so received within twelve months after the date
of this Agreement.
3. Corporate Governance.
(a) Board of Directors. So long as the Voting Agreement
described below is in effect, the Board of Directors
of PCC will consist of that number of directors
provided in the Voting Agreement described below,
except in the case of a Voting Rights Triggering
Event as defined in the Certificate of Designation
(the "Certificate of Designation") of the 12 3/4 %
Series A Cumulative Exchangeable Preferred Stock of
PCC (the "Preferred Stock").
(b) Voting Agreement. The Definitive Agreement will
provide that at the Closing, the PCC Shareholders,
and the DTS Shareholders will enter into a Voting
Agreement with respect to all 4,581,900 shares of
Class B Common Stock held by the PCC Shareholders and
all shares of Class A Common Stock to be held by the
DTS Shareholders and the Columbia Principals after
the Closing, pursuant to the terms summarized on
Schedule 2 attached hereto.
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(c) Bylaws; Certificate of Incorporation. The Bylaws and
Certificate of Incorporation (if necessary) of PCC
will be amended effective the Closing to the extent
necessary to reflect the terms of the Definitive
Agreement.
4. Registration Rights. A Registration Rights Agreement will
provide that:
(a) Underwritten Demand Registrations. The Holders will
be entitled to two demand registrations, each
covering sales of Class A Common Stock in an
underwritten public offering through a qualified
underwriter selected by the selling DTS stockholders
and acceptable to PCC. Each such demand registration
right may be exercised not earlier than twelve months
after the date of this Agreement, and not later than
the fifth anniversary of the Closing date by Holders
requesting to include in the registration not less
than 10% of the shares of Class A Common Stock issued
in the Merger Transaction. If PCC offers to include
shares of Class A Common Stock held by the Holders in
any registration statement proposed to be filed by
PCC for an underwritten public offering for the
account of PCC to close after the later of February
10, 1998 or the Closing of the Merger Transaction,
and if the Holders elect to include in such
registration statement fewer than 10% of the shares
of Class A Common Stock issued in the Merger
Transaction, no demand registration described in this
paragraph may be initiated until 360 days after the
effective date of PCC's registration statement,
unless (i) all shares that the Holders request to be
included are not included and sold because of the
exercise of "cut-back" or similar rights or (ii) in
the case of a registration statement filed before the
first anniversary of the date of this agreement, the
offering price per share is less than $30. Any such
demand registration shall be on Form S-3 or its
equivalent, or on such other registration form
available to PCC as permits the greatest extent of
incorporation by reference of materials filed by PCC
under the Securities Exchange Act of 1934.
(b) S-3 Shelf Registrations. The Holders will be entitled
to shelf registrations covering open market sales or
negotiated block trades of their shares of
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November 5, 1997
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Class A Common Stock on Form S-3 or its equivalent.
Each request for a shelf registration may be
exercised not earlier than twelve months after the
date of this Agreement, and not later than the fifth
anniversary of the Closing Date, by Holders
requesting to include not fewer than 100,000 shares
of Class A Common Stock. No shelf registration
statement shall be required to remain effective for
more than 90 days. No shelf registration may be
requested earlier than 90 days after the expiration
of the immediately preceding shelf registration. PCC
will have liberal "blackout" rights to require
suspension of the use of any shelf registration
statement.
(c) Piggyback Registrations. The Holders will be entitled
to customary piggyback registration rights, which
will be pari passu with existing holders of piggyback
registration rights with respect to "cut-back" and
similar provisions.
(d) Expenses. PCC will bear all registration expenses,
including the fees and expenses of a single counsel
to the selling stockholders, except that the selling
stockholders shall bear their allocable portion of
underwriting compensation, brokers' commissions and
similar selling expenses.
5. Conduct of Business of PCC. Unless PCC shall have obtained the
prior written consent of DTS, during the period from the date
hereof until the earlier of the termination of this letter in
accordance with its terms or the execution of the Definitive
Agreement, PCC and each of its subsidiaries will, and the PCC
Shareholders will cause PCC and each of its subsidiaries to:
(a) conduct its business in the ordinary course (for
purposes hereof, acquisitions of media and
communications businesses, including issuances of
securities in connection therewith, sales or
extraordinary transactions involving cable systems
and public offerings of equity and debt securities
will be deemed conduct of business in the ordinary
course);
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(b) use its commercially reasonable efforts to maintain
its business, assets and operations, and its
relationships with employees, subscribers, and others
with whom it has significant business relationships,
as an ongoing business in accordance with past
practice and custom; and
(c) not enter into any material transaction with an
affiliated person except on terms not less favorable
to PCC than could have been obtained with
unaffiliated parties.
6. Conduct of Business of DTS. Unless DTS shall have obtained the
prior written consent of PCC, during the period from the date
hereof until the earlier of the termination of this letter in
accordance with its terms or the execution of the Definitive
Agreement, DTS and each of its subsidiaries will:
(a) conduct its business in the ordinary course (for
purposes hereof, acquisitions of DirecTV Distribution
Businesses permitted under paragraph 6(c), including
the issuance of securities in connection therewith,
and the consummation of DTS's exchange offer for its
12 1/2 % Senior Subordinated Notes (the "DTS Notes")
shall be deemed conduct of business in the ordinary
course);
(b) use its commercially reasonable efforts to maintain
its business, assets and operations, and its
relationships with employees, subscribers, and others
with whom it has significant business relationships,
as an on-going business in accordance with past
custom and practice;
(c) not engage in any acquisition unless (i) the
acquisition is of a DirecTV Distribution Business;
(ii) the acquisition is funded solely out of DTS's
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November 5, 1997
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cash on hand as of the date hereof, borrowings under
DTS's existing $90 million credit facility (the "DTS
Credit Facility"), debt incurred to sellers, and
equity contributions from DTS's shareholders; (iii)
on a pro forma basis, after giving effect to the
acquisition and any debt incurred in connection
therewith, DTS would be in compliance with the DTS
Credit Facility (including any amendments thereto
permitted hereby) and the indenture relating to the
DTS Notes, and DTS shall have furnished PCC with
satisfactory evidence to that effect; (iv) on a
projected basis, after giving effect to the
acquisition and any debt incurred in connection
therewith, DTS's cash resources (including available
credit under the DTS Credit Facility) will be
sufficient to satisfy its future cash requirements as
reflected in the financial projections furnished to
PCC on November 5, 1997 (the "DTS Model"), as updated
to reflect such proposed acquisition (other than the
two pending acquisitions reflected in the DTS Model),
including, without limitation, to fund acquisitions
of DTH Businesses that have been completed or are
pending at the time of the acquisition and to fund
operating expenses, working capital, debt service and
capital expenditures (other than the Offer to
Purchase, as hereinafter defined) (it being
acknowledged that the DTS Model reflects certain
covenant noncompliance, and it being expressly
understood that neither DTS nor any DTS Shareholder
is making any representation or warranty with respect
to any DTS financial projection), and such updated
projection shall show no worsening in any of the
foregoing matters, including the extent of covenant
noncompliance; and
(d) not (i) amend the DTS Credit Facility to increase the
amount of credit available thereunder or, except as
provided in paragraph 9(d), otherwise amend the DTS
Credit Facility; (ii) declare or pay any dividends or
make any other distributions to the DTS Shareholders;
(iii) redeem or repurchase any stock (other than
stock of employees in connection with termination of
their employment and other than with respect to the
shareholder notes as described on Schedule 1); (iv)
issue additional stock or options or warrants to
acquire stock (except in connection with the exercise
of outstanding options and warrants or acquisitions
permitted by paragraph 6(c), and except for
additional options to DTS Senior Management the cost
of which will be borne by the stockholders of DTS in
the Merger Transaction as provided in Schedule 1);
(v) incur any
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material debt (except in connection with acquisitions
permitted by paragraph 6(c), draw-downs on the DTS
Credit Facility, and other obligations incurred in
the ordinary course of business); or (vi) make any
loans other than in the ordinary course of business;
provided, however, that DTS may sell additional
shares of common stock for cash to some or all of its
existing shareholders if the proceeds are used solely
to pay cash dividends to the holders of its preferred
stock.
7. Covenants. PCC and the PCC Shareholders agree and covenant
that they will, and DTS and DTS Shareholders agree and
covenant that they will, use good faith and commercially
reasonable efforts to (a) satisfy each of the conditions set
forth in paragraphs 8 and 9 below; (b) execute the Definitive
Agreement no later than the Execution Deadline and file the
Registration Statement and proxy materials by no later than
three business days after the execution of the Definitive
Agreement; and (c) subject to the conditions set forth in this
letter agreement, consummate the transactions contemplated by
this letter agreement. The PCC Shareholders and the DTS
Shareholders each agree that they will vote all their shares
in PCC and DTS, respectively, in favor of the Definitive
Agreement as executed by each of the parties hereto. The
parties agree that the requisite filings under the Xxxx-Xxxxx-
Xxxxxx Antitrust Improvements Act of 0000 (xxx "XXX Xxx"), as
amended, shall be made as soon as possible following the
execution of this letter agreement. Upon the Closing, PCC
shall cause DTS to notify the holders of the DTS Notes of the
occurrence of the Closing and shall, within the time required
by the indenture relating to the DTS Notes, cause DTS to make
an offer to purchase with respect to the DTS Notes at a
purchase price in cash equal to 101% of the aggregate
principal amount thereof, plus accrued and unpaid interest
(including Additional Interest, if any) thereon, as required
pursuant to the indenture pursuant to which DTS Notes were
issued (the "Offer to Purchase").
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8. DTS's Closing Conditions. The obligation of DTS Shareholders
and DTS to close the Merger Transaction is conditioned upon:
(a) execution of the Definitive Agreement (and other
related agreements) by PCC and the PCC Shareholders
effecting the terms of the Merger Transaction;
(b) accuracy in all material respects as of the Closing
of the representations and warranties of PCC and the
PCC Shareholders contained in the Definitive
Agreement and compliance by PCC and the PCC
Shareholders in all material respects with the
covenants contained in the Definitive Agreement;
(c) obtaining all requisite governmental consents and
approvals, the consents of DirecTV and the NRTC and
all other required third party consents other than
those agreed by the parties not to be material;
(d) obtaining consent of lenders under its existing $90
million credit facility ("DTS Credit Facility");
(e) DTS and each of the DTS Shareholders being satisfied
with its due diligence investigations and review of
PCC performed by its attorneys, accountants and other
representatives as of the date of the execution of
the Definitive Agreement (including without
limitation review of the substantive terms of PCC's
Viewstar acquisition relative to the terms hereof);
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(f) absence of material adverse change prior to Closing
in PCC's assets or financial condition;
(g) the approval of the Merger Transaction by the Board
of Directors of PCC and by the shareholders of PCC as
required by NASDAQ;
(h) there shall be no injunction or court order
restraining consummation of the Merger Transaction
and there shall be no pending or threatened action or
proceeding by or before a court or governmental body
seeking to restrain or invalidate all or a portion of
the Merger Transaction; and
(i) the DTS Shareholders shall have received an opinion
from their counsel in form reasonably satisfactory to
them that the receipt of the Class A Common Stock in
the Merger Transaction is tax-deferred under the
Internal Revenue Code of 1986, as amended.
9. PCC's and the PCC Shareholders' Closing Conditions. The
obligation of PCC and the PCC Shareholders to close the Merger
Transaction is conditioned upon:
(a) the execution of the Definitive Agreement (and other
related agreements) by DTS Shareholders and DTS
effecting the terms of the Merger Transaction;
(b) accuracy in all material respects as of the Closing
of the representations and warranties of DTS
Shareholders and DTS contained in the Definitive
Agreement and compliance by DTS and the DTS
Shareholders in all material respects with the
covenants contained in the Definitive Agreement;
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(c) obtaining all necessary governmental consents and
approvals, the consents of DirecTV and the NRTC and
all other required third party consents other than
those agreed by the parties not to be material;
(d) DTS's obtaining consent of lenders under, or an
amendment of, the DTS Credit Facility permitting the
Merger Transaction to be completed, and such consent
or amendment not being conditional on any reduction
of the amount of credit available thereunder below
the amount necessary to satisfy the standard
described in paragraph 6(c)(iv) or on the imposition
of additional materially burdensome covenants or
conditions to borrowings thereunder;
(e) PCC being satisfied with its due diligence
investigations and review of DTS (including without
limitation pending and completed acquisitions)
performed by its attorneys, accountants and other
representatives as of the date of the execution of
the Definitive Agreements;
(f) absence of material adverse change prior to Closing
in DTS's assets or financial condition;
(g) the approval of the Merger Transaction by the Board
of Directors of DTS, by the DTS Shareholders, and by
the shareholders of PCC as required by NASDAQ;
(h) there shall be no injunction or court order
restraining consummation of the Merger Transaction
and there shall be no pending or threatened action or
proceeding by or before a court of governmental body
seeking to restrain or invalidate all or a portion of
the Merger Transaction; and
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(i) DTS Senior Management shall have executed the Senior
Management Noncompetes.
10. Certain Representations and Agreements.
(a) Each of PCC and PCC Shareholders, severally but not
jointly, represents, warrants and agrees that (i) to
its knowledge (it being understood that it has not
conducted a detailed review of all agreements to
which it or its subsidiaries is a party), except for
governmental consents (including under the HSR Act)
and the consents of DirecTV and the NRTC, neither the
execution, delivery and performance of the Definitive
Agreement nor the consummation of the Merger
Transaction, will require any consent or approval of,
filing or taking of any other action with, or notice
to, any individual, partnership, corporation, limited
liability company, unincorporated organization,
association, joint venture or other entity (a
"Person") or result in a breach, constitute a default
under or give rise to an offer to repurchase under
any contract, agreement, incentive, instrument or
other arrangement to which either is a party or by
which either of them or any of their assets is bound,
(ii) PCC's Annual Report on Form 10-K for the year
ended December 31, 1996, and its quarterly reports on
Form 10-Q for the periods ended March 31 and June 30,
1997, have been filed with the Securities and
Exchange Commission (the "Commission") under the
Securities Exchange Act of 1934 (the "Exchange Act"),
conformed in all material respects to the
requirements of the Exchange Act and the rules and
regulations as in effect as of the date such reports
were filed with the Commission and did not at those
times (and PCC's Offering Memorandum dated October
15, 1997 (the "PCC Offering Memorandum") relating to
PCC's 9-5/8% Senior Notes did not, as of its date)
contain any untrue statement of any material fact or
omit to state a material fact required to be stated
therein or necessary to make the statements therein,
in light of the circumstances under which they were
made, not misleading, and (iii) through the date of
the Closing PCC shall file all reports required to be
filed by it under the Exchange Act and by NASDAQ as
in effect as of the date such reports are required to
be filed, and such reports shall contain no untrue
statement of material fact or omit to state a
material fact required
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to be stated therein necessary to make the statements
therein, and in light of the circumstances under
which they were made, not misleading.
(b) Each of DTS and DTS Shareholders, severally but not
jointly, represents and warrants that (i) to its
knowledge (it being understood that it has not
conducted a detailed review of all agreements to
which it or its subsidiaries is a party), except for
governmental consents (including under the HSR Act),
the consents of DirecTV and the NRTC, and the consent
of the lenders party to the DTS Credit Facility,
lenders under seller paper secured by letters of
credit under the DTS Credit Facility and the Offer to
Purchase, neither the execution, delivery or
performance of the Definitive Agreement nor the
consummation of the transactions contemplated hereby,
will require any consent or approval of, filing or
taking of any other action with, or notice to, any
Person or result in a breach, constitute a default
under or give rise to an offer to repurchase under
any contract, agreement, indenture, instrument or
other arrangement to which either is a party or by
which either of them or any of their assets is bound;
(ii) the Offering Memorandum dated July 25, 1997 of
Digital Television Services, L.L.C. and DTS Capital,
Inc. did not, as of its date, contain, and DTS's
exchange offer registration statement on XXX Xxxx
X-0, filed September 24, 1997, did not, as of that
date, and such registration statement as amended as
of its effective date will not, as of the effective
date, contain, any untrue statement of a material
fact or omit to state a material fact required to be
stated therein or necessary to make the statements
therein not misleading; (iii) the DTS Credit Facility
is adequate, to the extent evidenced by the DTS
Model, to satisfy all future cash requirements of
DTS, including but not limited to capital
expenditures, working capital and debt service
(excluding the Offer to Purchase); and (iv) each of
the undersigned DTS Shareholders is an "accredited
investor" within the meaning of Rule 501 under the
Securities Act of 1933, and not more than 35 persons
to whom shares of Class A Common Stock will be issued
in the Merger Transaction are not "accredited
investors."
11. Fees and Expenses. DTS and the DTS Shareholders, on the one
hand, and PCC and the PCC Shareholders, on the other hand,
will each pay their respective
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expenses (including fees and expenses of legal counsel,
investment bankers or other representatives or consultants)
incurred in connection with the transaction contemplated
hereby.
12. Investigation. After the signing of this letter agreement, PCC
will provide DTS Shareholders and DTS and their accounting and
legal representatives reasonable access at reasonable times to
all things related to the assets, personnel and affairs of PCC
and its subsidiaries. After the signing of this letter
agreement, DTS Shareholders and DTS will (a) provide PCC and
its accounting and legal representatives reasonable access at
reasonable times to all things related to the assets,
personnel and affairs of DTS and its subsidiaries, and (b)
furnish PCC with such financial statements of DTS and of
companies it has acquired as PCC may require in connection
with preparing the Registration Statement and proxy materials
and its reporting and disclosure obligations under federal and
state securities laws and use its best efforts to obtain
consents and comfort letters from the accountants auditing
such financial statements as required by such laws or by
underwriters of any public offering by PCC.
13. No Solicitation - DTS. DTS and the DTS Shareholders agree that
neither DTS, the DTS Shareholders nor any of their affiliates,
nor any of their respective directors, officers, employees,
representatives or agents, shall directly or indirectly,
solicit or initiate any discussions, submissions of proposals
or offers or negotiations with, or, subject to any fiduciary
obligations under applicable law after taking into account the
advice of counsel with respect thereto, participate in any
negotiations or discussions with, or provide any information
or data of any nature whatsoever, to, or otherwise cooperate
in any other way with, or assist or participate in, facilitate
or encourage any effort or attempt by, any person, other than
PCC and its shareholders, employees, representatives, agents
and affiliates, concerning any merger, consolidation, sale of
substantial assets, sale of shares of capital stock or other
equity securities or similar transaction involving DTS or any
of its subsidiaries (all such transactions being referred to
herein as "DTS Alternative Transactions"); provided, however,
that the term "DTS Alternative Transactions" shall not be
deemed to include, and the foregoing shall not prohibit (i)
acquisitions permitted under paragraph 6(c) hereof, excluding
any business affiliated with Golden Sky Systems, Inc. ("GSS"),
(ii) the consummation of DTS'
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exchange offer for the DTS Notes, and (iii) other transactions
expressly permitted under this Agreement. DTS shall
immediately notify PCC if any proposal, offer, inquiry or
other contact is received by, and information is requested
from, or any discussions or negotiations are sought to be
initiated or continued with, DTS or the DTS Shareholders in
respect of a DTS Alternative Transaction, and shall, in any
such notice to PCC, indicate the identity of the offeror.
14. No Solicitation - PCC. PCC and the PCC Shareholders agree that
neither PCC, the PCC Shareholders nor any of their affiliates,
nor any of their respective directors, officers, employees,
representatives or agents, shall directly or indirectly,
solicit or initiate any discussions, submissions of proposals
or offers or negotiations with, or, subject to any fiduciary
obligations under applicable law after taking into account the
advice of counsel with respect thereto, participate in any
negotiations or discussions with, or provide any information
or data of any nature whatsoever to, or otherwise cooperate in
any other way with, or assist or participate in, facilitate or
encourage any effort or attempt by, any Person, other than DTS
and its shareholders, employees, representatives, agents and
affiliates, concerning any merger, consolidation, sale of
substantial assets, sale of shares of capital stock or other
equity securities or similar transaction involving PCC or any
of its subsidiaries (all such transactions being referred to
as "PCC Alternative Transactions"); provided, however, that
the term "PCC Alternative Transactions" shall not be deemed to
include, and the foregoing shall not prohibit (i) acquisitions
of media and communications businesses (including issuances of
securities in connection therewith), other than any businesses
affiliated with GSS; (ii) sales or other extraordinary
transactions relating to PCC's cable systems; and (iii) a
public offering of equity securities. PCC shall immediately
notify DTS if any proposal, offer, inquiry or other contact is
received by, any information is requested from, or any
discussions or negotiations are sought to be initiated or
continued with, PCC in respect of a PCC Alternative
Transaction, and shall, in any such notice to DTS, indicate
the identity of the offeror.
15. Press Release. All press releases and other public
announcements relating to this transaction will be prepared
jointly by DTS and PCC and will not be released or issued
without the consent of DTS and PCC, except as may be required
by law or by obligations pursuant to any listing agreement
with any NASDAQ; provided, however, the parties will jointly
announce the execution of this letter within 72 hours after
such execution.
17
Digital Television Services, Inc.
November 5, 1997
Page -17-
16. Termination.
(a) Any party may terminate this letter agreement if (i)
PCC's Board of Directors determines in the exercise
of its fiduciary obligations under applicable law,
after taking into account the advice of counsel and
financial advisors, not to approve the terms of the
Definitive Agreement prior to the Execution Deadline,
which determination may be based in whole or part on
its inability to receive an opinion from an
investment banking firm to the effect that the terms
of the Definitive Agreement are fair from a financial
point of view to PCC or its public stockholders, (ii)
if such party's due diligence investigation
contemplated hereby is not satisfactory to it, (iii)
if the Definitive Agreement is not executed by the
Execution Deadline, (iv) if the Registration
Statement and proxy materials are not filed within
three business days after the execution of the
Definitive Agreement, or (v) if the other party
breaches in any material respect any of its
representations, warranties or obligations hereunder.
(b) DTS may terminate this Agreement if any of the
following occurs:
(i) PCC makes any acquisition of or investment
in any business in any single transaction or
series of related transactions for total
consideration in excess of $25,000,000,
other than of a DirecTV Distribution
Business;
(ii) PCC disposes of any of its assets out of the
ordinary course of business or any of its
businesses, in either case, in any single
transaction or series of related
transactions for consideration in excess of
$25,000,000, other than its New England
cable operations;
(iii) PCC issues equity securities or securities
convertible into or exchangeable for equity
securities in any single transaction or
series of related transactions at an
offering price that is both greater than
$25,000,000 in the aggregate and less than
$25 per share, other than in connection with
acquisitions and other than under existing
employee benefit plans;
18
Digital Television Services, Inc.
November 5, 1997
Page -18-
(iv) PCC incurs indebtedness in excess of
$15,000,000 in the aggregate other than in
connection with acquisitions (including
increases in the letter of credit posted in
favor of NRTC) and other than under the New
Credit Facility (as defined in the PCC
Offering Memorandum) or its existing $50
million credit facility; or
(v) PCC declares or pays any dividend or other
distribution on its capital stock or redeems
or repurchases any of its capital stock,
other than regularly scheduled dividend
payments on PCC's Series A Preferred Stock
and other than redemptions or repurchase of
shares of employees in connection with the
termination of their employment.
(c) PCC may terminate this Agreement if DTS enters into
any agreement to make an acquisition of or investment
in any business permitted by paragraph 6(c) for
consideration in excess of $15,000,000.
(d) Upon termination, all obligations under this letter
agreement shall cease except obligations under
paragraph 11; provided, however, that any termination
shall not affect any rights any party has with
respect to the breach of this letter agreement by
another party prior to such termination or any rights
any party has pursuant to the Confidentiality
Agreement between (DTS, as successor by merger to
Digital Television Services, L.L.C.) and PCC dated
April 10, 1997 (the "Confidentiality Agreement")
(which shall not be deemed to be merged herein).
17. Binding Effect; Counterparts; Miscellaneous. This letter
agreement is intended to be a binding agreement between the
parties hereto, subject only to the conditions set forth
herein, and will inure to the benefit of their successors and
assigns. This letter may be signed in two or more
counterparts, any one of which need not contain the signature
of more than one party, but all such counterparts taken
together will constitute one and the same agreement. This
agreement may not be assigned without the prior written
consent of the other parties hereto. This agreement and the
Confidentiality Agreement express the entire understanding of
the parties concerning the subject matter hereof and thereof
and supersede all prior negotiations, proposals,
understandings, and agreements with respect to such subject
matter.
19
Digital Television Services, Inc.
November 5, 1997
Page -19-
If you are in agreement with the terms of this letter, please sign in
the space provided below and return by courier a signed copy. We shall then
immediately implement our plans for consummating the transaction as
expeditiously as possible.
Very truly yours,
PEGASUS COMMUNICATIONS CORPORATION
By: /s/ Xxx X. Lodge
------------------------------------------
Xxx X. Lodge, Senior Vice President
PEGASUS CAPITAL, L.P.
By: PEGASUS CAPITAL, LTD., General Partner
By: /s/ Xxx X. Lodge
------------------------------------------
Xxx X. Lodge, Senior Vice President
PEGASUS COMMUNICATIONS HOLDINGS, INC.
By: /s/ Xxx X. Lodge
------------------------------------------
Xxx X. Lodge, Senior Vice President
Agreed and accepted the 7th day of November, 1997:
DIGITAL TELEVISION SERVICES, INC.
By: /s/ Xxxxxx X. Xxxxxxx
------------------------------------------
Title: Vice President and Chief Financial Officer
20
Digital Television Services, Inc.
November 5, 1997
Page -20-
WHITNEY EQUITY PARTNERS, L.P.
By: X. X. Xxxxxxx Equity Partners LLC
Its General Partner
By: /s/ Xxxxxxx X. Xxxxxx
-------------------------------------
Title: Managing Member
FLEET VENTURE RESOURCES, INC.
By: /s/ Xxxxxxx X. Xxxxx
-------------------------------------
Title: Senior Vice President
FLEET EQUITY PARTNERS VI, L.P.
By: Fleet Growth Resources II, Inc.
Its General Partner
By: /s/ Xxxxxxx X. Xxxxx
-------------------------------------
Title: Senior Vice President
XXXXXXXX PARTNERS III, L.P.
By: Silverado III L.P., its general partner
By: Silverado III Corp., its general partner
By: /s/ Xxxxxxx X. Xxxxx
-------------------------------------
Title: Senior Vice President
XXXXXXX PLAZA PARTNERS
By: /s/ Xxxxxxx X. Xxxxx
-------------------------------------
Title: General Partner
21
COLUMBIA DBS CLASS A INVESTORS, LLC
By: /s/ Xxxx X. Xxxxxx
-------------------------------------
Title: Member
COLUMBIA DBS INVESTORS, L.P.
By: Columbia Capital Corporation
Its General Partner
By: /s/ Xxxxx X. Xxxxxx, III
-------------------------------------
Title: Vice President
COLUMBIA DBS, INC.
By: /s/ Xxxxx X. Xxxxxx, III
-------------------------------------
Title: President
