-----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, ArW5Bo6ufcy+rV4KppCkz8kBaUL9NcLRneyUFFAJKttLfmG4Qts8z0Rwgww+StDk JyOUv4MoVvrjG52DBY+fBw== 0000950116-98-001124.txt : 19980515 0000950116-98-001124.hdr.sgml : 19980515 ACCESSION NUMBER: 0000950116-98-001124 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980514 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PEGASUS COMMUNICATIONS CORP CENTRAL INDEX KEY: 0001015629 STANDARD INDUSTRIAL CLASSIFICATION: TELEVISION BROADCASTING STATIONS [4833] IRS NUMBER: 510374669 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-21389 FILM NUMBER: 98621382 BUSINESS ADDRESS: STREET 1: 5 RADNOR CORPORATE CTR STE 454 STREET 2: 100 MATSONFORD RD CITY: RADNOR STATE: PA ZIP: 19087 BUSINESS PHONE: 6103411801 MAIL ADDRESS: STREET 1: 1345 CHESTNUT ST STREET 2: 1345 CHESTNUT ST CITY: PHILADELPHIA STATE: PA ZIP: 19107-3496 FORMER COMPANY: FORMER CONFORMED NAME: PEGASUS COMMUNICATIONS & MEDIA CORP DATE OF NAME CHANGE: 19960530 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the quarterly period ended March 31, 1998 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the transition period from__________ to __________ Commission File Number 0-21389 PEGASUS COMMUNICATIONS CORPORATION ------------------------------------------------------ (Exact name of registrant as specified in its charter) Delaware 51-0374669 -------- ---------- (State or other jurisdiction of (IRS Employer incorporation or organization) Identification Number) c/o Pegasus Communications Management Company; 5 Radnor Corporate Center, Suite 454, Radnor, PA 19087 - ------------------------------------------------ ----- (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code: (888) 438-7488 -------------- 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___ Number of shares of each class of the registrant's common stock outstanding as of May 8, 1998: Class A, Common Stock, $0.01 par value 11,295,003 Class B, Common Stock, $0.01 par value 4,581,900 PEGASUS COMMUNICATIONS CORPORATION Form 10-Q Table of Contents For the Quarterly Period Ended March 31, 1998
Page Part I. Financial Information ---- Item 1 Consolidated Financial Statements Consolidated Balance Sheets December 31, 1997 and March 31, 1998 3 Consolidated Statements of Operations Three months ended March 31, 1997 and 1998 4 Consolidated Statements of Cash Flows Three months ended March 31, 1997 and 1998 5 Notes to Consolidated Financial Statements 6 Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations 11 Item 3 Quantitative and Qualitative Disclosures About Market Risk 16 Part II. Other Information Item 5 Other Information 17 Item 6 Exhibits and Reports on Form 8-K 17 Signature 18
2 Pegasus Communications Corporation Consolidated Balance Sheets
December 31, March 31, 1997 1998 ------------------ ------------------ ASSETS (unaudited) Current assets: Cash and cash equivalents $ 44,049,097 $ 23,012,116 Restricted cash 1,220,056 2,091,333 Accounts receivable, less allowance for doubtful accounts of $319,000 and $218,000, respectively 13,819,571 11,953,860 Program rights 2,059,346 1,782,617 Inventory 974,920 1,134,410 Deferred taxes 2,602,453 2,602,453 Prepaid expenses and other 788,669 928,751 ------------ ------------ Total current assets 65,514,112 43,505,540 Property and equipment, net 27,686,646 27,545,516 Intangible assets, net 284,774,027 295,001,551 Program rights 2,262,299 1,937,299 Deposits and other 624,629 2,624,629 ------------ ------------ Total assets $380,861,713 $370,614,535 ============ ============ LIABILITIES AND TOTAL EQUITY Current liabilities: Current portion of long-term debt $ 6,357,320 $ 1,948,549 Accounts payable 10,240,615 7,620,193 Accrued interest 8,177,261 7,727,972 Accrued expenses 6,973,297 5,510,865 Amounts due seller -- 2,261,790 Current portion of program rights payable 1,418,581 1,106,673 ------------ ------------ Total current liabilities 33,167,074 26,176,042 Long-term debt, net 201,997,811 210,634,091 Program rights payable 1,416,446 1,101,446 Deferred taxes 2,652,454 2,727,454 ------------ ------------ Total liabilities 239,233,785 240,639,033 Commitments and contingent liabilities -- -- Minority interest 3,000,000 3,000,000 Series A preferred stock 111,264,424 114,841,277 Common stockholders' equity: Class A common stock 57,399 57,734 Class B common stock 45,819 45,819 Additional paid-in capital 64,034,687 61,164,680 Deficit (36,774,401) (49,134,008) ------------ ------------ Total common stockholders' equity 27,363,504 12,134,225 ------------ ------------ Total liabilities and stockholders' equity $380,861,713 $370,614,535 ============ ============
See accompanying notes to consolidated financial statements 3 Pegasus Communications Corporation Consolidated Statements of Operations
Three Months Ended March 31, ---------------------------------- 1997 1998 ---------- ----------- (unaudited) Revenues: Basic and satellite service $7,791,653 $18,026,471 Premium services 923,365 2,808,766 Broadcasting revenue, net of agency commissions 5,277,104 5,342,118 Barter programming revenue 1,450,800 1,459,500 Other 359,839 1,146,837 ----------- ----------- Total revenues 15,802,761 28,783,692 Operating expenses: Programming 3,928,419 10,211,256 Barter programming expense 1,450,800 1,459,500 Technical and operations 955,141 1,063,121 Marketing and selling 1,947,647 6,386,799 General and administrative 2,302,044 4,940,123 Incentive compensation 279,851 409,205 Corporate expenses 406,461 685,266 Depreciation and amortization 4,898,331 9,930,584 ---------- ----------- Loss from operations (365,933) (6,302,162) Interest expense (3,154,466) (5,975,738) Interest income 447,435 345,747 Other expenses, net (28,557) (352,454) Gain on sale of cable system 4,534,300 -- ---------- ----------- Income (loss) before income taxes 1,432,779 (12,284,607) Provision for income taxes -- 75,000 ---------- ----------- Net income (loss) 1,432,779 (12,359,607) Preferred stock dividends 2,125,000 3,576,853 ---------- ----------- Net loss applicable to common shares ($692,221) ($15,936,460) ========== =========== Basic and diluted earnings per common share: Net loss ($0.07) ($1.54) ========== =========== Weighted average shares outstanding 9,554,897 10,332,436 ========== ===========
See accompanying notes to consolidated financial statements 4 Pegasus Communications Corporation Consolidated Statements of Cash Flows
Three Months Ended March 31, ---------------------------------- 1997 1998 ---------- ----------- (unaudited) Cash flows from operating activities: Net income (loss) $ 1,432,779 ($12,359,607) Adjustments to reconcile net income (loss) to net cash used by operating activities: Depreciation and amortization 4,898,331 9,930,584 Program rights amortization 376,883 601,129 Accretion on discount of bonds 98,376 98,853 Gain on sale of cable system (4,534,300) -- Bad debt expense 216,492 272,379 Change in assets and liabilities: Accounts receivable 1,460,467 1,697,397 Inventory 312,601 (159,490) Prepaid expenses and other (671,393) (140,082) Accounts payable and accrued expenses (789,672) (3,541,844) Accrued interest (2,960,407) (449,289) Capitalized subscriber acquisition costs (1,240,309) -- Amounts due seller -- 2,261,790 Deposits and other (292,976) (2,000,000) ---------- ----------- Net cash used by operating activities (1,693,128) (3,788,180) ---------- ----------- Cash flows from investing activities: Acquisitions, net of cash acquired (34,103,080) (7,777,494) Cash acquired from acquisitions 146,703 -- Capital expenditures (3,357,453) (1,502,066) Purchase of intangible assets (1,479,302) (1,063,812) Payments of programming rights (736,738) (626,308) Proceeds from sale of cable system 7,028,250 -- ---------- ----------- Net cash used for investing activities (32,501,620) (10,969,680) ---------- ----------- Cash flows from financing activities: Repayments of long-term debt (44,081) (5,353,852) Borrowings on revolving credit facilities 526,250 -- Repayments of revolving credit facilities (30,126,250) -- Restricted cash -- (871,277) Capital lease repayments (107,643) (53,992) Proceeds from issuance of Series A preferred stock 100,000,000 -- Underwriting and preferred offering costs (4,187,920) -- ---------- ----------- Net cash provided (used) by financing activities 66,060,356 (6,279,121) ---------- ----------- Net increase (decrease) in cash and cash equivalents 31,865,608 (21,036,981) Cash and cash equivalents, beginning of year 8,582,369 44,049,097 ---------- ----------- Cash and cash equivalents, end of period $40,447,977 $23,012,116 =========== ===========
See accompanying notes to consolidated financial statements 5 PEGASUS COMMUNICATIONS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. The Company: Pegasus Communications Corporation ("Pegasus" or together with its subsidiaries stated below, the "Company"), is a diversified media and communications company, incorporated under the laws of the State of Delaware in May 1996, and is a direct subsidiary of Pegasus Communications Holdings, Inc. ("PCH" or the "Parent"). Pegasus' direct subsidiaries are Pegasus Media & Communications, Inc. ("PM&C"), Pegasus Development Corporation ("PDC"), Pegasus Towers, Inc. ("Towers") and Pegasus Communications Management Company ("PCMC"). PM&C is a diversified media and communications company whose subsidiaries provide direct broadcast satellite television ("DBS") services to customers in certain rural areas which encompass portions of twenty-seven states, own and operate cable television ("Cable") systems that provide service to individual and commercial subscribers in New England and Puerto Rico, own and operate broadcast television ("TV") stations affiliated with the Fox Broadcasting Company ("Fox") and operate, pursuant to local marketing agreements, stations affiliated with United Paramount Network ("UPN") and The WB Television Network ("WB"). PDC provides capital for various satellite initiatives such as subscriber acquisitions costs. Towers owns and operates transmitting towers located in Pennsylvania and Tennessee. PCMC provides certain management and accounting services for the Company. In January 1997, Pegasus completed a unit offering (the "Unit Offering") in which it sold 100,000 shares of 12.75% Series A Cumulative Exchangeable Preferred Stock (the "Series A Preferred Stock") and warrants to purchase 193,600 shares of Class A Common Stock at an exercise price of $15 per share to the public at a price of $1,000 per unit, resulting in net proceeds to the Company of $95.8 million. 2. Basis of Presentation: The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. The financial statements include the accounts of Pegasus and all of its subsidiaries or affiliates. All intercompany transactions and balances have been eliminated. The unaudited consolidated financial statements reflect all adjustments consisting of normal recurring items which are, in the opinion of management, necessary for a fair presentation, in all material respects, of the financial position of the Company and the results of its operations and its cash flows for the interim period. 6 PEGASUS COMMUNICATIONS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) 3. Common Stock:
At December 31, 1997 common stock consists of the following: Pegasus Class A common stock, $0.01 par value; 30.0 million shares authorized; 5,739,842 issued and outstanding .................... $ 57,399 Pegasus Class B common stock, $0.01 par value; 15.0 million shares authorized; 4,581,900 issued and outstanding .................... 45,819 -------- Total common stock............................................. $103,218 ======== At March 31, 1998 common stock consists of the following: Pegasus Class A common stock, $0.01 par value; 30.0 million shares authorized; 5,773,333 issued and outstanding ................... $ 57,734 Pegasus Class B common stock, $0.01 par value; 15.0 million shares authorized; 4,581,900 issued and outstanding .................... 45,819 -------- Total common stock ............................................. $103,553 ========
The Company's ability to pay dividends on its Common Stock is subject to certain restrictions (see footnote 4 - Redeemable Preferred Stock and footnote 5 - Long-Term Debt). 4. Redeemable Preferred Stock: As a result of the Unit Offering and dividends subsequently declared on the Series A Preferred Stock, the Company has outstanding approximately 112,215 shares of Series A Preferred Stock with a liquidation preference of $1,000 per share (the "Liquidation Preference"). Cumulative dividends, at a rate of 12.75% are payable semi-annually on January 1 and July 1. Dividends may be paid, occurring on or prior to January 1, 2002, at the option of the Company, either in cash or by the issuance of additional shares of Series A Preferred Stock. Subject to certain conditions, the Series A Preferred Stock is exchangeable in whole, but not in part, at the option of the Company, for Pegasus' 12.75% Senior Subordinated Exchange Notes due 2007 (the "Exchange Notes"). The Exchange Notes would contain substantially the same redemption provisions, restrictions and other terms as the Series A Preferred Stock. Pegasus is required to redeem all of the Series A Preferred Stock outstanding on January 1, 2007 at a redemption price equal to the Liquidation Preference thereof, plus accrued dividends. The carrying amount of the Series A Preferred Stock is periodically increased by amounts representing dividends not currently declared or paid but which will be payable under the mandatory redemption features. The increase in carrying amount is effected by charges against retained earnings, or in the absence of retained earnings, by charges against paid-in capital. Under the terms of the Series A Preferred Stock, Pegasus' ability to pay dividends on its Common Stock is subject to certain restrictions. At December 31, 1997 and March 31, 1998, 5.0 million shares of Series A Preferred Stock are authorized and 105,490 and 112,215 shares are issued and outstanding, respectively. Basic earnings per share amounts are based on net income after deducting preferred stock dividend requirements divided by the weighted average number of Class A and Class B Common shares outstanding during the period. 7 PEGASUS COMMUNICATIONS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) 4. Redeemable Preferred Stock (continued): For the three months ended March 31, 1997 and 1998, net loss per common share was determined by dividing net income (loss), as adjusted by the aggregate amount of dividends on the Company's Series A Preferred Stock, approximately $2.1 million and $3.6 million, respectively, by applicable shares outstanding. 5. Long-Term Debt:
Long-term debt consists of the following : December 31, March 31, 1997 1998 ---------------- ---------------- Series B Notes payable by PM&C, due 2005, interest at 12.5%, payable semi-annually in arrears on January 1 and July 1, net of unamortized discount of $3,018,003 and $2,919,150 as of December 31, 1997 and March 31, 1998, respectively................................ $ 81,981,997 $ 82,080,850 Series A Senior Notes payable by Pegasus, due 2005, interest at 9.625%, payable semi-annually in arrears on April 15 and October 15, commencing on April 15, 1998........... 115,000,000 115,000,000 Senior six-year $180.0 million revolving credit facility, payable by PM&C, interest at the Company's option at either the bank's base rate plus an applicable margin or LIBOR plus an applicable margin................................. -- -- Mortgage payable, due 2000, interest at 8.75%....................... 477,664 472,174 Note payable, due 1998, interest at 10%............................. 3,050,000 -- Sellers' notes, various maturities and interest rates............... 7,171,621 14,397,259 Capital leases and other............................................ 673,849 632,357 ------------ ------------ 208,355,131 212,582,640 Less current maturities............................................. 6,357,320 1,948,549 ------------ ------------ Long-term debt...................................................... $201,997,811 $210,634,091 ============ ============
In December 1997, PM&C entered into a $180.0 million six-year senior revolving credit facility (the "New Credit Facility"), which is collateralized by substantially all of the assets of PM&C and its subsidiaries. Interest on the New Credit Facility is, at the Company's option, at either the bank's base rate plus an applicable margin or LIBOR plus an applicable margin. The New Credit Facility is subject to certain financial covenants as defined in the loan agreement, including a debt to adjusted cash flow covenant. The New Credit Facility will be used to finance future acquisitions and for working capital, capital expenditures and general corporate purposes. There were no borrowings outstanding at December 31, 1997 and March 31, 1998. The Company's indebtedness contain certain financial and operating covenants, including restrictions on the Company's ability to incur additional indebtedness, create liens and pay dividends. 8 PEGASUS COMMUNICATIONS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) 6. Net Loss Per Common Share: Calculation of Basic and Diluted Earnings Per Common Share: The following table sets forth the computation of the number of shares used in the computation of basic and diluted earnings per common share:
March 31, March 31, 1997 1998 ------------- ------------- Net loss applicable to common shares ($692,221) ($15,936,460) ============= ============= Weighted average common shares outstanding 9,554,897 10,332,436 ============= =============
For the three months ended March 31, 1997 and 1998, net loss per common share was determined by dividing net loss, as adjusted by the aggregate amount of dividends on the Company's Series A Preferred Stock, approximately $2.1 million and $3.6 million, respectively, by applicable shares outstanding. The total shares used for the calculation of diluted net loss per common share were not adjusted for securities that have not been issued as they are antidulitive. 7. Acquisitions: As of January 7, 1998, the Company acquired, from an independent DIRECTV(R) ("DIRECTV") provider, the rights to provide DIRECTV programming in certain rural areas of Minnesota and the related assets in exchange for total consideration of approximately $1.9 million, which consisted of $1.8 million in cash and $32,000 in assumed liabilities. As of March 9, 1998, the Company acquired, from two independent DIRECTV providers, the rights to provide DIRECTV programming in certain rural areas of Nebraska and Texas and the related assets in exchange for total consideration of approximately $15.6 million, which consisted of $5.9 million in cash, $105,000 in assumed liabilities, a $9.4 million note, payable over four years; and $75,000 in cash and a $150,000 obligation, payable over two years, for consultancy and non-compete agreements. The following unaudited summary, prepared on a pro forma basis, combines the results of operations as if the above DBS territories had been acquired as of the beginning of the periods presented, after including the impact of certain adjustments, such as the Company's payments to related parties, amortization of intangibles, interest expense, preferred stock dividends and related income tax effects. The pro forma information does not purport to be indicative of what would have occurred had the acquisitions been made on those dates or of results which may occur in the future. This pro forma information does not include any acquisitions that occurred subsequent to March 31, 1998. 9 PEGASUS COMMUNICATIONS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) 7. Acquisitions (continued):
Three Months Ended March 31, (in thousands, except earnings per share) (unaudited) 1997 1998 ---- ---- Net revenues ....................................... $24,886 $29,928 ------- ------- Operating loss ..................................... ($5,375) ($6,453) ------- ------- Net loss ........................................... ($10,793) ($12,511) Less: Preferred stock dividends ..................... (3,577) (3,577) ------- ------- Net loss applicable to common shares ............ ($14,370) ($16,088) ======= ======= Net loss per common share ........................ ($1.40) ($1.55) ======= =======
8. Commitments and Contingent Liabilities: Legal Matters: From time to time the Company is involved with claims that arise in the normal course of business. In the opinion of management, the ultimate liability with respect to these claims will not have a material adverse effect on the consolidated operations, liquidity, cash flows or financial position of the Company. 9. Other Events: In January 1998, the Company entered into an agreement to sell its remaining New England cable systems for a purchase price of at least $28 million and not more than $31 million, based on the systems' location cash flow for the trailing 12 months prior to closing, multiplied by nine. The Company anticipates this transaction to close in the third quarter of 1998. The Company expects to report a nonrecurring gain relating to this transaction. As of April 9, 1998, the Company acquired, from two independent DIRECTV providers, the rights to provide DIRECTV programming in certain rural areas of New Mexico and Texas and the related assets in exchange for total consideration of approximately $14.2 million, which consisted of $13.3 million in cash and 37,304 shares of the Company's Class A Common Stock (amounting to $900,000 at the time of issuance). On April 27, 1998, the Company acquired, from Digital Television Services, Inc. ("DTS"), the rights to provide DIRECTV programming in certain rural areas of California, Colorado, Georgia, Indiana, Kansas, Kentucky, New Hampshire, New Mexico, New York, South Carolina and Vermont and the related assets and liabilities in exchange for total consideration of approximately $320.8 million, which consisted of approximately 5.5 million shares of the Company's Class A Common Stock (amounting to $118.8 million at a price of $21.71 per share) and approximately $202.0 million of assumed net liabilities (as of March 31, 1998). 10 Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations This Report contains certain forward-looking statements (as such term is defined in the Private Securities Litigation Reform Act of 1995) and information relating to the Company that are based on the beliefs of the management of the Company, as well as assumptions made by and information currently available to the Company's management. When used in this Report, the words "estimate," "project," "believe," "anticipate," "intend," "expect" and similar expressions are intended to identify forward-looking statements. Such statements reflect the current views of the Company with respect to future events and are subject to risks and uncertainties that could cause actual results to differ materially from those contemplated in such forward-looking statements. For a discussion of such risks, see the information contained in the section captioned "Risk Factors" (pages 12-21) of Pegasus' Proxy Statement/Prospectus dated April 14, 1998, filed as part of Pegasus' Registration Statement in Form S-4, File No. 333-44929 (the "Proxy Statement/Prospectus"), which section is incorporated by reference herein. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as the date hereof. The Company does not undertake any obligation to publicly release any revisions to these forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. Unless otherwise defined, all defined terms used herein have the same meaning as in the footnotes to the Consolidated Financial Statements included herein. General The Company is a diversified company operating in growing segments of the media and communications industries: multichannel television and broadcast television. Pegasus Multichannel Television includes DBS and cable businesses. As of March 31, 1998, the Company's DBS operations consisted of providing DIRECTV services to approximately 154,000 subscribers in certain rural areas of 27 states in which the Company holds the exclusive right to provide such services. Its cable operations consist of systems in New England (Connecticut and Massachusetts) and Puerto Rico. The Company sold its New Hampshire cable system effective January 31, 1997. On January 16, 1998, the Company entered into an agreement to sell its remaining New England cable systems. Pegasus Broadcast Television owns and operates five TV stations affiliated with Fox and operates one affiliated with UPN and another affiliated with WB. It has entered into an agreement to operate two additional TV stations, which will be affiliated with WB and will commence operations in 1998. On April 27, 1998, the Company acquired (the "DTS Acquisition") Digital Television Services, Inc. (DTS). Upon completion of the DTS Acquisition, DTS became a wholly owned subsidiary of Pegasus. As of March 31, 1998, DTS' operations consisted of providing DIRECTV services to approximately 144,000 subscribers in certain rural areas of 11 states in which DTS holds the exclusive right to provide such services. Multichannel revenues are derived from monthly customer subscriptions, pay-per-view services, subscriber equipment rentals, home shopping commissions, advertising time sales and installation charges. Broadcast revenues are derived from the sale of broadcast airtime to local and national advertisers. The Company's location operating expenses consist of (i) programming expenses, (ii) marketing and selling costs, including advertising and promotion expenses, local sales commissions, and ratings and research expenditures, (iii) technical and operations costs, (iv) general and administrative expenses, and (v) expensed subscriber acquisition costs. Multichannel programming expenses consist of amounts paid to program suppliers, digital satellite system or DSS(R) ("DSS") authorization charges and satellite control fees, each of which is paid on a per subscriber basis, and DIRECTV royalties which are equal to 5% of DBS program service revenues. Broadcast programming expenses include the amortization of long-term program rights purchases, music license costs and "barter" programming expenses which represent the value of broadcast air time provided to television program suppliers in lieu of cash. 11 The Company no longer requires new DBS customers to sign a one-year programming contract and, as a result, subscriber acquisition costs ("SAC"), which were being capitalized and amortized over a twelve-month period, are currently being charged to operations in the period incurred. This change became effective October 1, 1997. Subscriber acquisition costs charged to operations are excluded from pre-SAC location operating expenses. Results of Operations Three months ended March 31, 1998 compared to three months ended March 31, 1997 The Company's net revenues increased by approximately $13.0 million or 82% for the three months ended March 31, 1998 as compared to the same period in 1997. Multichannel Television net revenues increased $12.9 million or 144% and Broadcast Television net revenues increased $94,000 or 1%. The net revenues increased as a result of (i) a $12.5 million or 253% increase in DBS revenues of which $2.0 million or 16% was due to the increased number of DBS subscribers in territories owned at the beginning of 1997 and $10.6 million or 84% resulted from acquisitions made in 1997 and 1998, (ii) a $366,000 or 9% increase in Cable revenues which was the net result of a $499,000 or 13% increase in same system revenues due primarily to rate increases and a $133,000 reduction due to the sale of the Company's New Hampshire cable system effective January 31, 1997, (iii) a $86,000 or 1% increase in TV revenues which was the net result of a $230,000 or 3% decrease in same station revenues, primarily as a result of revenues generated by the Super Bowl in the first quarter of 1997, and a $316,000 increase due to the two new stations launched on August 1, 1997 and October 17, 1997, and (iv) a $8,000 increase in Tower rental income. The Company's total location operating expenses, as described above, before DBS subscriber acquisition costs increased by approximately $9.7 million or 95% for the three months ended March 31, 1998 as compared to the same period in 1997. Multichannel Television pre-SAC location operating expenses increased $9.0 million or 162% and Broadcast Television location operating expenses increased $646,000 or 14%. The pre-SAC location operating expenses increased as a result of (i) a $8.8 million or 255% increase in operating expenses generated by the Company's DBS operations due to a same territory increase in programming and other operating costs totaling $1.3 million (resulting from the increased number of DBS subscribers in territories owned at the beginning of 1997) and a $7.4 million increase attributable to territories acquired in 1997 and 1998, (ii) a $268,000 or 13% increase in Cable operating expenses as the net result of a $334,000 or 16% increase in same system operating expenses due primarily to increases in programming costs and a $66,000 reduction due to the sale of the Company's New Hampshire cable system effective January 31, 1997, (iii) a $649,000 or 14% increase in TV operating expenses as the result of a $106,000 or 2% increase in same station operating expenses and a $543,000 increase attributable to the two new stations launched on August 1, 1997 and October 17, 1997, and (iv) a $3,000 reduction in Tower administrative expenses. DBS subscriber acquisition costs, which consist of regional sales costs, advertising and promotion, and commissions and subsidies, totaled $4.2 million or $283 per gross subscriber addition for the three months ended March 31, 1998. Incentive compensation, which is calculated from increases in pro forma Location Cash Flow, increased by approximately $129,000 or 46% for the three months ended March 31, 1998 as compared to the same period in 1997. Corporate expenses increased by $279,000 or 69% for the three months ended March 31, 1998 as compared to the same period in 1997 primarily due to increased staffing as a result of internal and acquisition related growth, enhanced public relations activities and additional public reporting requirements for the Company. 12 Depreciation and amortization expense increased by approximately $5.0 million or 103% for the three months ended March 31, 1998 as compared to the same period in 1997 as the Company increased its fixed and intangible asset base as a result of twenty-five completed acquisitions during 1997 and three completed acquisitions in the first quarter of 1998. As a result of these factors, the Company's loss from operations increased by $5.9 million for the three months ended March 31, 1998 as compared to the same period in 1997. Interest expense increased by approximately $2.8 million or 89% for the three months ended March 31, 1998 as compared to the same period in 1997 as a result of an increase in debt associated with the Company's acquisitions. The Company reported a net loss of $12.4 million for the three months ended March 31, 1998 as compared to net income of approximately $1.4 million for the same period in 1997. The $13.8 million change was the net result of an increase in the loss from operations of $5.9 million, an increase in interest expense of $2.8 million, an increase in the provision for income taxes of $75,000, an increase in other expenses of approximately $425,000 and a nonrecurring gain on the sale of the New Hampshire cable system of approximately $4.5 million during the first quarter of 1997. The Company's preferred stock dividends, payable by issuing shares of Series A Preferred Stock, increased $1.5 million for the three months ended March 31, 1998 as compared to the same period in 1997. Liquidity and Capital Resources The Company's primary sources of liquidity have been the net cash provided by its TV and cable operations, credit available under its credit facilities and proceeds from public and private offerings. The Company's principal use of its cash has been to fund acquisitions, to meet debt service obligations, to fund investment in its TV and cable technical facilities and to fund DBS subscriber acquisition costs. Pre-SAC Location Cash Flow increased by $3.3 million or 59% for the three months ended March 31, 1998 as compared to the same period in 1997. Multichannel Television Pre-SAC Location Cash Flow increased $3.9 million or 114% and Broadcast Television Location Cash Flow decreased $552,000 or 25%. Pre-SAC Location Cash Flow increased as a result of (i) a $3.8 million or 250% increase in DBS Pre-SAC Location Cash Flow of which $657,000 or 17% was due to an increase in same territory Pre-SAC Location Cash Flow and $3.1 million or 83% was attributable to territories acquired in 1997 and 1998, (ii) a $98,000 or 5% increase in Cable Location Cash Flow which was the net result of a $165,000 or 9% increase in same system Location Cash Flow and a $67,000 reduction due to the sale of the Company's New Hampshire cable system effective January 31, 1997, (iii) a $563,000 or 26% decrease in TV Location Cash Flow as a result of a $336,000 or 15% decrease in same station Location Cash Flow, primarily as a result of the cash flow generated by the Super Bowl in the first quarter of 1997, and a $227,000 decrease attributable to the two new stations launched on August 1, 1997 and October 17, 1997, and (iv) a $11,000 increase in Tower Location Cash Flow. During the three months ended March 31, 1998, $44.0 million of cash on hand was used to fund operating activities of $3.8 million, investing activities of $11.0 million and financing activities of $6.3 million. Investing activities consisted of (i) the acquisition of DBS assets from three independent DIRECTV providers during the first quarter of 1998 for approximately $7.8 million, (ii) broadcast television transmitter, tower and facility upgrades totaling approximately $981,000, (iii) payments of programming rights amounting to $626,000, and (iv) maintenance and other capital expenditures and intangibles totaling approximately $1.6 million. Financing activities consisted of the repayment of approximately $5.4 million of long-term debt and placing $871,000 in restricted cash to collateralize letters of credit. As of March 31, 1998, the Company's cash on hand approximated $23.0 million. 13 As defined in the Certificate of Designation, Preferences and Relative, Participating, Optional and Other Special Rights thereof (the "Certificate of Designation") governing the Series A Preferred Stock and the indenture governing the Senior Notes (the "Senior Indenture"), the Company is required to provide Adjusted Operating Cash Flow data for Pegasus and its Restricted Subsidiaries on a consolidated basis, where Adjusted Operating Cash Flow is defined as "for the four most recent fiscal quarters for which internal financial statements are available, Operating Cash Flow of such Person and its Restricted Subsidiaries, less DBS Cash Flow (Satellite Segment Operating Cash Flow) for the most recent four-quarter period, plus DBS Cash Flow for the most recent quarterly period multiplied by four." Operating Cash Flow is income from operations before income taxes, depreciation and amortization, interest expense, extraordinary items and non-cash charges. Although Adjusted Operating Cash Flow is not a measure of performance under generally accepted accounting principles, the Company believes that Location Cash Flow, Operating Cash Flow and Adjusted Operating Cash Flow are accepted within the Company's business segments as generally recognized measures of performance and are used by analysts who report publicly on the performance of companies operating in such segments. Restricted Subsidiaries carries the same meaning as in the Certificate of Designation. Pro forma for the three completed DBS acquisitions occurring in the first quarter of 1998, as if such acquisitions occurred on January 1, 1998, Adjusted Operating Cash Flow would have been approximately $36.7 million, as follows:
Four Quarters Ended (in thousands) March 31, 1998 -------------- Revenues $123,456 Direct operating expenses, excluding depreciation, Amortization and other non-cash charges 84,188 -------- Income from operations before incentive compensation, corporate expenses, depreciation, amortization and other non-cash charges 39,268 Corporate expenses 2,535 -------- Adjusted operating cash flow $ 36,733 ========
The Company is restricted by the Senior Notes Indenture from paying dividends on the Series A Preferred Stock in cash prior to July 1, 2002. Additionally, the indenture governing the PM&C Notes (the "PM&C Notes Indenture") and the New Credit Facility contain certain financial and operating covenants, including restrictions on PM&C's ability to incur additional indebtedness, create liens and pay dividends. Pre-SAC Location Cash Flow is defined as net revenues less location operating expenses before subscriber acquisition costs. Location Cash Flow is defined as net revenues less location operating expenses. Although Pre-SAC Location Cash Flow and Location Cash Flow are not measures of performance under generally accepted accounting principles, the Company believes that Pre-SAC Location Cash Flow and Location Cash Flow are accepted within the Company's business segments as generally recognized measures of performance and are used by analysts who report publicly on the performance of companies operating in such segments. Nevertheless, these measures should not be considered in isolation or as a substitute for income from operations, net income, net cash provided by operating activities or any other measures for determining the Company's operating performance or liquidity which is calculated in accordance with generally accepted accounting principles. 14 The Company believes that it has adequate resources to meet its working capital, maintenance capital expenditure and debt service obligations. The Company engages in discussions with respect to acquisition opportunities in media and communications businesses on a regular basis. The Company believes that cash on hand, together with available borrowings under the New Credit Facility and future indebtedness which may be incurred by the Company and its subsidiaries will give the Company the ability to fund acquisitions and other capital requirements in the future. However, there can be no assurance that the future cash flows of the Company will be sufficient to meet all of the Company's obligations and commitments. The Company closely monitors conditions in the capital markets to identify opportunities for the effective and prudent use of financial leverage. In financing its future expansion and acquisition requirements, the Company would expect to avail itself of such opportunities and thereby increase its indebtedness, which could result in increased debt service requirements. There can be no assurance that such debt financing can be completed on terms satisfactory to the Company or at all. The Company may also issue additional equity to fund its future expansion and acquisition requirements. Capital Expenditures The Company's capital expenditures aggregated $9.9 million in 1997. The Company expects recurring renewal and refurbishment capital expenditures to total approximately $2.0 million per year. In addition to these maintenance capital expenditures, the Company's 1998 capital projects include (i) DBS facility upgrades of approximately $500,000 and (ii) approximately $2.6 million of TV expenditures for broadcast television transmitter, tower and facility constructions and upgrades. The Company commenced the programming of two new TV stations, WPME on August 1, 1997 and WGFL on October 17, 1997 and its plans are to commence programming of two additional stations in 1998. There can be no assurance that the Company's capital expenditure plans will not change in the future. Effective October 1, 1997, the Company no longer requires new DBS customers to sign a one-year programming contract and, as a result, subscriber acquisition costs, which were being capitalized through September 30, 1997 and amortized over a twelve-month period, will be charged to operations in the period incurred. The Company's policy is to capitalize subscriber acquisition costs directly related to new subscribers, such as commissions and equipment subsidies, who sign a programming contract. These costs are amortized over the life of the contract. The Company expenses its subscriber acquisition costs when no new contract is obtained. The Company currently does not require new DBS customers to sign programming contracts and, as a result, subscriber acquisition costs are currently being charged to operations in the period incurred. Other The Company has reviewed all of its system as to the Year 2000 issue. The Company has in the past three years replaced or upgraded, or is in the process of replacing or upgrading, all of its TV traffic systems, cable billing systems and corporate accounting systems. All of these new systems will be in place by the third quarter of 1998. The Company relies on outside vendors for the operation of its DBS satellite control and billing systems, including DIRECTV, the NRTC and their respective vendors. The Company has established a policy to ensure that its vendors are currently in compliance with the Year 2000 issue or have a plan in place to be in compliance with the Year 2000 issue by the first quarter of 1999. Costs to be incurred beyond March 31, 1998 relating to the Year 2000 issue are not expected to be significant. On January 16, 1998, the Company entered into an agreement to sell its remaining New England cable systems to Avalon Cable of New England, LLC for a purchase price of at least $28 million and not more than $31 million. 15 On April 27, 1998, the Company acquired DTS for total consideration of approximately $320.8 million, which consisted of approximately 5.5 million shares of the Company's Class A Common Stock (amounting to $118.8 million at a price of $21.71 per share) and approximately $202.0 million of assumed net liabilities (as of March 31, 1998). Upon completion of the DTS Aquisition, DTS became a wholly owned subsidiary of Pegasus. As of March 31, 1998, DTS' operations consisted of providing DIRECTV services to approximately 144,000 subscribers in certain rural areas of 11 states in which DTS holds the exclusive right to provide such services. As a holding company, Pegasus' ability to pay dividends is dependent upon the receipt of dividends from its direct and indirect subsidiaries. Under the terms of the PM&C Notes Indenture, PM&C is prohibited from paying dividends prior to July 1, 1998. Under the terms of the New Credit Facility, PM&C is restricted from paying dividends. In addition, Pegasus' ability to pay dividends and Pegasus' and its subsidiaries' ability to incur indebtedness are subject to certain restrictions contained in the Senior Notes Indenture and the Certificate of Designation governing the Series A Preferred Stock. PM&C's ability to incur additional indebtedness is limited under the terms of the PM&C Notes Indenture and the New Credit Facility. These limitations take the form of certain leverage ratios and are dependent upon certain measures of operating profitability. Under the terms of the New Credit Facility, capital expenditures and business acquisitions in excess of certain agreed upon levels will require lender consent. The Company's revenues vary throughout the year. As is typical in the broadcast television industry, the Company's first quarter generally produces the lowest revenues for the year and the fourth quarter generally produces the highest revenues for the year. The Company's operating results in any period may be affected by the incurrence of advertising and promotion expenses that do not necessarily produce commensurate revenues in the short-term until the impact of such advertising and promotion is realized in future periods. The Company believes that inflation has not been a material factor affecting the Company's business. In general, the Company's revenues and expenses are impacted to the same extent by inflation. Substantially all of the Company's indebtedness bears interest at a fixed rate. The Company has adopted the provisions of Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share". The Company has reviewed the provisions of SFAS No. 130, "Reporting Comprehensive Income" and SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information", and the implementation of the above standards is not expected to have any significant impact on its consolidated financial statements. Item 3: Quantitative and Qualitative Disclosures About Market Risk Not Applicable 16 Part II. Other Information Item 5: Other Information On April 27, 1998, a special meeting of Pegasus' stockholders was held. At this meeting, votes were cast to approve: (i) the merger agreement relating to the DTS Acquisition and the transactions contemplated thereby, (ii) the proposal to amend the Pegasus Restricted Stock Plan to increase the number of shares of Class A Common Stock that may be issued thereunder from 270,000 to 350,000, (iii) the proposal to amend the Pegasus Communication 1996 Stock Option Plan to increase the number shares of Class A Common Stock that may be issued thereunder from 450,000 to 970,000 and to increase the maximum number of shares of Class A Common Stock that may be issued under options granted to any executive officer from 275,000 to 550,000, (iv) the proposal to amend the provision of the Certificate of Designation relating to the Series A Preferred Stock relating to the incurrence of indebtedness, and (v) the proposal to amend the definition of a change of control under the Certificate of Designation relating to the Series A Preferred Stock. All of the proposals were approved by 46,002,740 votes cast in favor of them with the exception of items (ii) and (iii) above for which 45,999,840 votes were cast in favor and 2,900 votes were cast against. Item 6: Exhibits and Reports on Form 8-K (a) Exhibits Exhibit 3.1 By-laws of Pegasus Communications Corporation (As amended and restated effective as of January 1, 1998). Exhibit 27.1 Financial Data Schedule. (b) Reports on Form 8-K On January 12, 1998, Pegasus filed a Current Report on Form 8-K dated December 10, 1997 reporting under Item 5 the following events: (i) the completion of DBS acquisitions made during 1997, (ii) information relating to certain pending DBS Acquisitions, including the DTS Acquisition, (iii) the entering into the $180.0 million New Credit Facility by PM&C, and (iv) the entering into a letter of intent to sell Pegasus' New England cable systems. The Form 8-K includes under Item 7 certain financial statements relating to the completed and pending DBS acquisitions and pro forma consolidated financial information giving effect to, among other things, the completed and pending DBS acquisitions and the sale of the New England cable systems. On March 3, 1998, Pegasus filed a Current Report on Form 8-K dated January 16, 1998 reporting under Item 5 that the Company had entered into a definitive agreement to sell its New England cable systems to Avalon Cable of New England, LLC. No financial statements were filed with the Form 8-K. 17 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Pegasus Communications Corporation Date May 14, 1998 By /s/ Robert N. Verdecchio ------------ -------------------------------- Robert N. Verdecchio Senior Vice President, Chief Financial Officer, Assistant Secretary and Director (Principal Financial and Accounting Officer) 18 EXHIBIT INDEX Exhibit 3.1 By-laws of Pegasus Communications Corporation (As amended and restated effective as of January 1, 1998). Exhibit 27.1 Financial Data Schedule. EX-3.1 2 BYLAWS BYLAWS of PEGASUS COMMUNICATIONS CORPORATION (a Delaware corporation) (As amended and restated effective January 1, 1998) ARTICLE 1 OFFICES Section 1.01. Offices. The Corporation may have offices at such places both within and without the State of Delaware as the Board of Directors may from time to time determine or the business of the Corporation may require. ARTICLE 2 MEETINGS OF STOCKHOLDERS Section 2.01. Place of Meeting. Meetings of the stockholders shall be held at such place, within the State of Delaware or elsewhere, as may be fixed from time to time by the Board of Directors. If no place is so fixed for a meeting, it shall be held at the Corporation's then principal executive office. Section 2.02. Annual Meeting. The annual meeting of stockholders shall be held, unless the Board of Directors shall fix some other hour or date therefor, at 10:00 A.M. on the third Tuesday of April in each year, if not a legal holiday under the laws of Delaware, and, if a legal holiday, then on the next succeeding secular day not a legal holiday under the laws of Delaware, at which the stockholders shall elect by plurality vote a Board of Directors, and transact such other business as may properly be brought before the meeting. Section 2.03. Notice of Annual Meetings. Written notice of the annual meeting stating the place, date and hour of the meeting shall be given to each stockholder entitled to vote at such meeting not less than 10 days nor more than 60 days before the date of the meeting. Section 2.04. List of Stockholders. The officer who has charge of the stock ledger of the Corporation shall prepare and make, at least 10 days before every meeting of stockholders, a complete list of 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 10 days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be so specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. Section 2.05. Special Meetings. [Amended December 18, 1997] Special meetings of the stockholders, for any purpose or purposes, unless otherwise prescribed by statute or by the Certificate of Incorporation, may be called by the Chairman of the Board or the President and shall be called by the President or Secretary at the request in writing of a majority of the Board of Directors or of stockholders holding voting stock of the Company with twenty percent or more of the votes eligible to be cast in the election of directors. Such request shall state the purpose or purposes of the proposed meeting. Business transacted at any special meeting of stockholders shall be limited to the purposes stated in the notice. Section 2.06. Notice of Special Meetings. Written notice of a special meeting stating the place, date and hour of the meeting and the purpose or purposes for which the meeting is called, shall be given to each stockholder entitled to vote at such meeting not less than 10 days nor more than 60 days before the date of the meeting. Section 2.07. Quorum; Voting. The holders of a majority of the stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business except as otherwise provided by statute or by the Certificate of Incorporation. If, however, such quorum shall not be present or represented at any meeting of the stockholders, the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented. At such adjourned meeting at which a quorum shall be present or represented any business may be transacted which might have been transacted at the meeting as originally notified. If the adjournment is for more than thirty days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. When a quorum is present at any meeting, except for elections of directors, which shall be decided by plurality vote, the vote of the holders of a majority of the stock having voting power present in person or represented by proxy shall decide any question brought before -2- such meeting, unless the question is one upon which by express provision of statute or of the Certificate of Incorporation, a different vote is required, in which case such express provision shall govern and control the decision of such question. Unless otherwise provided in the Certificate of Incorporation, each stockholder shall at every meeting of stockholders be entitled to one vote in person or by proxy for each share of the capital stock having voting power held by such stockholder, but no shares shall be voted pursuant to a proxy more than three years after the date of the proxy unless the proxy provides for a longer period. Section 2.08. Action Without a Meeting. Unless otherwise restricted by the Certificate of Incorporation, any action required or permitted to be taken at any annual or special meeting of stockholders may be taken without a meeting, without prior notice and without a vote, if a consent or consents in writing setting forth the action so taken shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted and shall be delivered to the Corporation by delivery to its registered office in the State, its principal place of business, or an officer or agent of the Corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to the Corporation's registered office shall be by hand or by certified or registered mail, return receipt requested. Every written consent shall bear the date of signature of each stockholder who signs the consent and no written consent shall be effective to take the corporate action referred to therein unless, within sixty days after the earliest dated consent delivered in the manner required by this Section to the Corporation, written consents signed by a sufficient number of stockholders to take action are delivered in the manner required by this Section to the Corporation. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing. ARTICLE 3 DIRECTORS Section 3.01. Number and Term of Office. The number of directors of the Corporation shall be such number as shall be designated from time to time by resolution of the Board of Directors and initially shall be two. The directors shall be elected at the annual meeting of the stockholders, except as provided in Section 3.02 hereof. Each director elected shall hold office for a term of one year and shall serve until his successor is elected and qualified or until his earlier death, resignation or removal. Directors need not be stockholders. -3- Section 3.02. Vacancies. Vacancies and newly created directorships resulting from any increase in the authorized number of directors may be filled by a majority of the directors then in office, though less than a quorum, or by a sole remaining director, and the directors so chosen shall hold office until the next annual election and until their successors are duly elected and shall qualify, unless sooner displaced. If there are no directors in office, then an election of directors may be held in the manner provided by statute. If, at the time of filling any vacancy or any newly created directorship, the directors then in office shall constitute less than a majority of the whole board (as constituted immediately prior to any such increase), the Court of Chancery may, upon application of any stockholder or stockholders holding at least 10 percent of the total number of the shares at the time outstanding having the right to vote for such directors, summarily order an election to be held to fill any such vacancies or newly created directorships, or to replace the directors chosen by the directors then in office. Section 3.03. Resignations. Any director may resign at any time by giving written notice to the Board of Directors, the Chairman of the Board, if there is one, the President, or the Secretary. Such resignation shall take effect at the time of receipt thereof or at any later time specified therein; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. Section 3.04. Direction of Management. The business of the Corporation shall be managed under the direction of its Board of Directors, which may exercise all such powers of the Corporation and do all such lawful acts and things as are not by statute or by the Certificate of Incorporation or by these Bylaws directed or required to be exercised or done by the stockholders. Section 3.05. Place of Meetings. The Board of Directors of the Corporation may hold meetings, both regular and special, either within or without the State of Delaware. Section 3.06. Annual Meeting. Immediately after each annual election of directors, the Board of Directors shall meet for the purpose of organization, election of officers, and the transaction of other business, at the place where such election of directors was held or, if notice of such meeting is given, at the place specified in such notice. Notice of such meeting need not be given. In the absence of a quorum at said meeting, the same may be held at any other time and place which shall be specified in a notice given as hereinafter provided for special meetings of the Board of Directors, or as shall be specified in a written waiver signed by the directors, if any, not attending and participating in the meeting. -4- Section 3.07. Regular Meetings. [Amended December 18, 1997] Regular meetings of the Board of Directors shall be held at least four times in each fiscal year of the Company and may be held without notice at such time and place as shall from time to time be determined by the Board. Section 3.08. Special Meetings. [Amended December 18, 1997] Special meetings of the Board of Directors may be called by the Chairman of the Board, if there is one, or the President on 2 days' notice to each director, either personally (including telephone), or in the manner specified in Section 4.01; special meetings shall be called by the Chairman of the Board, if there is one, or the President or the Secretary on 10 days' notice given in like manner to each director on the written request of one-third or more of all the directors. Section 3.09. Quorum; Voting. At all meetings of the Board, a majority of the directors shall constitute a quorum for the transaction of business; and at all meetings of any committee of the Board, a majority of the members of such committee shall constitute a quorum for the transaction of business. The act of a majority of the directors present at any meeting of the Board of Directors or any committee thereof at which there is a quorum present shall be the act of the Board of Directors or such committee, as the case may be, except as may be otherwise specifically provided by statute or by the Certificate of Incorporation. If a quorum shall not be present at any meeting of the Board of Directors or committee thereof, the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present. Section 3.10. Action Without a Meeting. 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 or 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 or committee. Section 3.11. Participation in Meetings. One or more directors may participate in any meeting of the Board or committee thereof by means of conference telephone or similar communications equipment by which all persons participating can hear each other. Section 3.12. Committees of Directors. The Board of Directors may, by resolution passed by a majority of the whole Board, designate one or more committees, each committee to consist of one or more of the directors of the Corporation. The Board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member -5- at any meeting of the committee. Any such committee, to the extent provided in the resolution, shall have and may exercise all of the powers and authority of the Board of Directors and may authorize the seal of the Corporation to be affixed to all papers which may require it, but no such committee shall have the power or authority in reference to amending the Certificate of Incorporation (except that a committee may, to the extent authorized in the resolution providing for the issuance of shares of stock adopted by the Board of Directors, fix any preferences or rights of such shares relating to dividends, redemption, dissolution, any distribution of assets of the Corporation or the conversion into, or the exchange of such shares for, shares of any other class or classes or any other series of the same or any other class or classes of stock of the Corporation), adopting an agreement of merger or consolidation, recommending to the stockholders the sale, lease or exchange of all or substantially all of the Corporation's property and assets, recommending to the stockholders a dissolution of the Corporation or a revocation of a dissolution, or amending the Bylaws of the Corporation; and, unless the resolution expressly so provides, no such committee shall have the power or authority to declare a dividend, to authorize the issuance of stock, or to adopt a certificate of ownership and merger. Such committee or committees shall have such name or names as may be determined from time to time by resolution adopted by the Board of Directors. Each committee shall keep regular minutes of its meetings and report the same to the Board of Directors when requested. Section 3.13. Compensation of Directors. Each director shall be entitled to receive such compensation, if any, as may from time to time be fixed by the Board of Directors. Members of special or standing committees may be allowed like compensation for attending committee meetings. Directors may also be reimbursed by the Corporation for all reasonable expenses incurred in traveling to and from the place of each meeting of the Board or of any such committee or otherwise incurred in the performance of their duties as directors. No payment referred to herein shall preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. ARTICLE 4 NOTICES Section 4.01. Notices. Whenever, under the provisions of law or of the Certificate of Incorporation or of these Bylaws, notice is required to be given to any director or stockholder, such requirement shall not be construed to necessitate personal notice. Such notice may in every instance be effectively given by depositing a writing in a post office or letter box, in a postpaid, sealed wrapper, or by dispatching a prepaid telegram, cable, telecopy or telex or by delivering a writing in a sealed wrapper prepaid to a courier service guaranteeing delivery within -6- 2 business days, in each case addressed to such director or stockholder, at his address as it appears on the records of the Corporation in the case of a stockholder and at his business address (unless he shall have filed a written request with the Secretary that notices be directed to a different address) in the case of a director. Such notice shall be deemed to be given at the time it is so dispatched. Section 4.02. Waiver of Notice. Whenever, under the provisions of law or of the Certificate of Incorporation or of these Bylaws, notice is required to be given, a waiver thereof in writing, signed by the person or persons entitled to said notice, whether before or after the time of the event for which notice is to be given, shall be deemed equivalent thereto. Neither the business nor the purpose of any meeting need be specified in such a waiver. ARTICLE 5 OFFICERS Section 5.01. Number. The officers of the Corporation shall be a President, a Secretary and a Treasurer, and may also include a Chairman of the Board, one or more Vice Presidents, one or more Assistant Secretaries and Assistant Treasurers, and such other officers as may be elected by the Board of Directors. Any number of offices may be held by the same person. Section 5.02. Election and Term of Office. The officers of the Corporation shall be elected by the Board of Directors. Officers shall hold office at the pleasure of the Board. Section 5.03. Removal. Any officer may be removed at any time by the Board of Directors. Any vacancy occurring in any office of the Corporation may be filled by the Board of Directors. Section 5.04. Chairman of the Board. The Chairman of the Board, if there is one, shall preside at all meetings of the Board of Directors and shall perform such other duties, if any, as may be specified by the Board from time to time. Section 5.05. President. The President shall be the chief executive officer of the Corporation and shall have overall responsibility for the management of the business and operations of the Corporation and shall see that all orders and resolutions of the Board are carried into effect. In the absence of the Chairman of the Board he shall preside over meetings of the Board of Directors. In general, he shall perform all duties incident to the office of President, and such other duties as from time to time may be assigned to him by the Board. -7- Section 5.06. Vice Presidents. The Vice Presidents shall perform such duties and have such authority as may be specified in these Bylaws or by the Board of Directors or the President. In the absence or disability of the President, the Vice Presidents, in order of seniority established by the Board of Directors or the President, shall perform the duties and exercise the powers of the President. Section 5.07. Secretary. The Secretary shall attend all meetings of the Board of Directors and all meetings of the stockholders and record all the proceedings of the meetings of the stockholders and of the Board of Directors in a book to be kept for that purpose and shall perform like duties for the standing committees when required. He shall give, or cause to be given, notice of all meetings of the stockholders and special meetings of the Board of Directors, and shall perform such other duties as may be prescribed by the Board of Directors or the President. He shall have custody of the corporate seal of the Corporation and he, or an Assistant Secretary, shall have authority to affix the same to any instrument, and when so affixed it may be attested by his signature or by the signature of such Assistant Secretary. The Board of Directors may give general authority to any other officer to affix the seal of the Corporation and to attest the affixing by his signature. Section 5.08. Assistant Secretaries. The Assistant Secretary or Secretaries shall, in the absence or disability of the Secretary, perform the duties and exercise the authority of the Secretary and shall perform such other duties and have such other authority as the Board of Directors or the President may from time to time prescribe. Section 5.09. Treasurer. The Treasurer shall have the custody of the corporate funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation and shall deposit all monies and other valuable effects in the name and to the credit of the Corporation in such depositories as may be designated by the Board of Directors. He shall disburse the funds of the Corporation as may be ordered by the Board of Directors or the President or the Chief Financial Officer, taking proper vouchers for such disbursements, and shall render to the Board of Directors when the Board so requires, an account of all his transactions as Treasurer and of the financial condition of the Corporation. Section 5.10. Assistant Treasurers. The Assistant Treasurer or Treasurers shall, in the absence or disability of the Treasurer, perform the duties and exercise the authority of the Treasurer and shall perform such other duties and have such other authority as the Board of Directors may from time to time prescribe. -8- ARTICLE 6 INDEMNIFICATION OF DIRECTORS AND OFFICERS Section 6.01. Indemnification. Any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that such person is or was a director or officer of the Corporation, or is or was serving while a director or officer of the Corporation at the request of the Corporation as a director, officer, employee, agent, fiduciary or other representative of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, shall be indemnified by the Corporation against expenses (including attorneys' fees), judgments, fines, excise taxes and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding to the full extent permissible under Delaware law. Section 6.02. Advances. Any person claiming indemnification within the scope of Section 6.01 shall be entitled to advances from the Corporation for payment of the expenses of defending actions against such person in the manner and to the full extent permissible under Delaware law. Section 6.03. Procedure. On the request of any person requesting indemnification under Section 6.01, the Board of Directors or a committee thereof shall determine whether such indemnification is permissible or such determination shall be made by independent legal counsel if the Board or committee so directs or if the Board or committee is not empowered by statute to make such determination. Section 6.04. Other Rights. The indemnification and advancement of expenses provided by this Article 6 shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any insurance or other agreement, vote of shareholders or disinterested directors or otherwise, both as to actions in their official capacity and as to actions in another capacity while holding an office, and shall continue as to a person who has ceased to be a director or officer and shall inure to the benefit of the heirs, executors and administrators of such person. Section 6.05. Insurance. The Corporation shall have power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee, agent, fiduciary or other representative of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, against any liability asserted against him and incurred by him in any -9- such capacity, or arising out of his status as such, whether or not the Corporation would have the power to indemnify him against such liability under the provisions of these Bylaws. Section 6.06. Modification. The duties of the Corporation to indemnify and to advance expenses to a director or officer provided in this Article 6 shall be in the nature of a contract between the Corporation and each such director or officer, and no amendment or repeal of any provision of this Article 6 shall alter, to the detriment of such director or officer, the right of such person to the advancement of expenses or indemnification related to a claim based on an act or failure to act which took place prior to such amendment, repeal or termination. ARTICLE 7 CERTIFICATES OF STOCK Section 7.01. Stock Certificates. Every holder of stock in the Corporation shall be entitled to have a certificate in the form prescribed by the Board of Directors signed on behalf of the Corporation by the Chairman of the Board or the President or a Vice President and by the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary of the Corporation, representing the number of shares owned by him in the Corporation. Any or all signatures on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if such person were such officer, transfer agent, or registrar at the date of issue. Section 7.02. Lost Certificates. The Board of Directors may direct a new certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the Corporation alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen or destroyed. When authorizing such issue of a new certificate or certificates, the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate or certificates, or his legal representative, to advertise the same in such manner as it shall require and/or to give the Corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the Corporation with respect to the certificate alleged to have been lost, stolen or destroyed. Section 7.03. Transfers of Stock. Upon surrender to the Corporation or the transfer agent of the Corporation of a certificate for shares duly endorsed or accompanied by proper -10- evidence of succession, assignment or authority to transfer, it shall be the duty of the Corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. Section 7.04. Fixing Record Date. The Board of Directors of the Corporation may fix a record date for the purpose of determining the stockholders entitled to notice of, or to vote at, any meeting of stockholders or any adjournment thereof, or to consent to corporate action in writing without a meeting, or to receive payment of any dividend or other distribution or allotment of any rights, or to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action. Such record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors and such record date shall not be (i) in the case of such a meeting of stockholders, more than 60 nor less than 10 days before the date of the meeting of stockholders, or (ii) in the case of consents in writing without a meeting, more than 10 days after the date upon which the resolution fixing the record date is adopted by the Board of Directors, or (iii) in other cases, more than 60 days prior to the payment or allotment or change, conversion or exchange or other action. 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 unless the Board of Directors fixes a new record date for the adjourned meeting. Section 7.05. Registered Stockholders. The Corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of stock to receive dividends and to vote as such owner, and shall be entitled to hold liable for calls and assessments a person registered on its books as the owner of stock, and shall not be bound to recognize any equitable or other claim to, or interest in, such stock on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware. ARTICLE 8 AMENDMENTS Section 8.01. Amendments. These Bylaws may be altered, amended or repealed, and new Bylaws may be adopted, by the stockholders or by the Board of Directors at any regular meeting of the stockholders or of the Board of Directors or at any special meeting of the stockholders or of the Board of Directors if notice of such alteration, amendment, repeal or adoption of new Bylaws be contained in the notice of such special meeting. -11- EX-27 3 EXHIBIT 27
5 This schedule contains summary financial information extracted from the consolidated balance sheets of Pegasus Communication Corporation as of December 31, 1997 and March 31, 1998 (unaudited) and the related consolidated statements of operations and cash flows for the three months ended March 31, 1997 (unaudited) and March 31, 1998 (unaudited). This information is qualified in its entirety by reference to such financial information. 1 3-MOS DEC-31-1998 MAR-31-1998 23,012,116 0 12,171,860 218,000 1,134,410 43,505,540 53,785,870 26,240,354 370,614,535 26,176,042 82,080,850 114,841,277 3,000,000 103,553 12,030,672 370,614,535 28,783,692 28,783,692 0 35,085,854 6,707 0 5,975,738 (12,284,607) 75,000 (12,359,607) 0 0 0 (12,359,607) (1.54) (1.54)
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