-----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, C6hu/2cpexXqdmk+XTK3pJZiDCj6T++X7htV6vQE8sSaa1ZE6VbTpehsP9XHeyDB 6oiZ3evkcs2SwN/5OZM87Q== 0000950131-00-002522.txt : 20000411 0000950131-00-002522.hdr.sgml : 20000411 ACCESSION NUMBER: 0000950131-00-002522 CONFORMED SUBMISSION TYPE: S-4/A PUBLIC DOCUMENT COUNT: 17 FILED AS OF DATE: 20000410 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GENERAL MOTORS CORP CENTRAL INDEX KEY: 0000040730 STANDARD INDUSTRIAL CLASSIFICATION: MOTOR VEHICLES & PASSENGER CAR BODIES [3711] IRS NUMBER: 380572515 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4/A SEC ACT: SEC FILE NUMBER: 333-30826 FILM NUMBER: 597904 BUSINESS ADDRESS: STREET 1: 300 RENAISSANCE CTR CITY: DETROIT STATE: MI ZIP: 48265-3000 BUSINESS PHONE: 3135565000 MAIL ADDRESS: STREET 1: 3044 W GRAND BOULEVARD CITY: DETROIT STATE: MI ZIP: 48202-3091 S-4/A 1 AMENDEMENT #2 As filed with the Securities and Exchange Commission on April 10, 2000 Registration No. 333-30826 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 -------------- AMENDMENT NO. 2 TO FORM S-4 REGISTRATION STATEMENT Under The Securities Act of 1933 -------------- General Motors Corporation (Exact name of registrant as specified in its charter) Delaware 7374 38-0572515 (State or other (Primary Standard (IRS Employer jurisdiction of Industrial Identification Number) incorporation or Classification Code organization) Number) 300 Renaissance Center Detroit, Michigan 48265- 3000 (313) 556-5000 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) -------------- Peter R. Bible Chief Accounting Officer General Motors Corporation 300 Renaissance Center Detroit, Michigan 48265-3000 (313) 556-5000 (Name, address, including zip code, and telephone number, including area code, of agent for service) -------------- Copies to: Warren G. Andersen General Motors Marcy J.K. Tiffany Corporation 300 Renaissance Hughes Electronics Corporation 200 CenterDetroit, Michigan 48265 (313) North Sepulveda Boulevard El Segundo, 665-4921 California 90245 (310) 662-9688 Joseph P. Frederick S. Green Francis J. Victor I. Lewkow Gromacki Michael E. Morison Sarah Cleary, Gottlieb, Kirkland & Lubowitz Weil, Beshar Davis Steen & Hamilton One Ellis 200 East Gotshal & Manges Polk & Wardwell Liberty Plaza New Randolph Drive LLP 767 Fifth 450 Lexington York, New York 10006 Chicago, Avenue New York, Avenue New York, (212) 225-2000 Illinois 60601 New York 10153 New York 10017 (312) 861-2000 (212) 310-8000 (212) 450-4000 -------------- Approximate date of commencement of proposed sale to public: As soon as practicable after this registration statement becomes effective and the other conditions to the commencement of the Exchange Offer described herein have been satisfied or waived. If any of the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box. [_] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] -------------- The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ +The information contained in this document is not complete and may be + +changed. We may not exchange these securities until the registration + +statement filed with the Securities and Exchange Commission is effective. + +This document is not an offer to sell these securities and is not a + +solicitation of an offer to buy these securities in any state where the offer + +or sale is not permitted. + ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ OFFERING CIRCULAR-PROSPECTUS (SUBJECT TO COMPLETION) ISSUED APRIL 10, 2000 General Motors Corporation Offer to Exchange Shares of Class H Common Stock for each share of $1 2/3 Par Value Common Stock ----------- THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON , 2000, UNLESS THE EXCHANGE OFFER IS EXTENDED. ----------- General Motors will issue shares of Class H common stock for each share of $1 2/3 par value common stock that is validly tendered and accepted by GM in the exchange offer. [The number of shares of Class H common stock to be issued for each share of $1 2/3 par value common stock that is validly tendered and accepted by GM in the exchange offer, which we sometimes refer to in this document as the "exchange ratio," will be determined by GM immediately prior to the commencement of the exchange offer. It is currently expected that such number of shares of Class H common stock will have a market value about 12 to 23 percent greater than the market value of the $1 2/3 par value common stock tendered, as measured by the relative trading prices of the Class H common stock and the $1 2/3 par value common stock at the time that GM determines the exchange ratio.] GM will accept up to shares of $1 2/3 par value common stock in the aggregate and will issue up to a total of shares of Class H common stock in the exchange offer. If more than shares of $1 2/3 par value common stock are validly tendered, GM will accept shares for exchange on a pro rata basis as described in this document. ----------- The terms and conditions of the exchange offer are described in this document, which you should read carefully. None of GM, Hughes, the dealer manager or the marketing manager or any of their officers or directors makes any recommendation as to whether or not you should tender your shares of $1 2/3 par value common stock in the exchange offer. You must make your own decision after reading this document and consulting with your advisors based on your own financial position and requirements. ----------- This is an offering of Class H common stock in exchange for $1 2/3 par value common stock. Class H common stock is a "tracking stock" of GM designed to provide holders with financial returns based on the financial performance of Hughes, which is a wholly-owned subsidiary of GM. GM's Class H common stock is listed on the New York Stock Exchange under the symbol "GMH." All persons holding $1 2/3 par value common stock are eligible to participate in the exchange offer if they tender their shares in a jurisdiction where the exchange offer is permitted under local law. ----------- Investing in the Class H common stock involves risks. See "Risk Factors" beginning on page 17. ----------- Salomon Smith Barney is the Marketing Manager for Hughes Electronics Corporation in the exchange offer. ----------- Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this document is truthful or complete. Any representation to the contrary is a criminal offense. ----------- GM has retained the services of Morrow & Co., Inc. as information agent to assist you in connection with the exchange offer. You may call Morrow to request additional documents and to ask any questions at (877) 816-5329 (toll free) in the United States or at (212) 754-8000 (collect) elsewhere. ----------- The Dealer Manager for the exchange offer is: MORGAN STANLEY DEAN WITTER Offering Circular-Prospectus dated , 2000 [PROSPECTUS COVER GATEFOLD INSIDE FRONT - PAGE 1] THE BUSINESSES OF HUGHES DIRECT-TO-HOME (DTH) ENTERTAINMENT 1999 REVENUES = $3.8B [DIRECTV Logo] [Graphic of family watching television] . Leading U.S. Multichannel Provider with Over 8M Subscribers - $58 Average Monthly Revenue per Subscriber . Leading Latin American Multichannel Provider with over 0.8M Subscribers - $36 Average Monthly Revenue per Subscriber SATELLITE DISTRIBUTION SERVICES 1999 REVENUES = $0.8B [PANAMSAT Logo] [Graphic of satellite in orbit around earth] . Leading Commercial Provider of Global Satellite Communications Services . 20 In-Orbit Satellites . "Blue-Chip" Global Customers . $6.1B Backlog BROADBAND SERVICES AND PRODUCTS 1999 REVENUES = $1.4B [HUGHES NETWORKS SYSTEMS Logo] [Graphic of person using a home computer] . Leading Global Supplier of Satellite-Based Private Business Networks (VSATs) . One of Two Largest Manufacturers of DIRECTV Subscriber Equipment . Provides DirecPC, a High-Speed Internet Access Service [PROSPECTUS COVER GATEFOLD INSIDE FRONT - PAGE 2 AND 3] Consumer Services [DIRECTV Logo] Television Entertainment [DirecPC Logo] Internet and Data Services [Graphic descriptions starting at lower right corner and moving counterclockwise . Communication control room . Transmission to satellite of various logos of television stations and DIRECTV packages, including: - ------------------------------------------------------------------------------------------------------ NBA League Pass TV Asia Black Entertainment Television MLS/ESPN Shootout NFL Sunday Ticket (BET) Headline News DIRECTV Sports Choice The Travel Channel TNT Bravo Encore True Stories ABC College Football Encore Westerns Cartoon Network ESPN2 Encore Mystery The Weather Channel TRIO MLB Extra Innings CNN Newsworld International Turner Classic Movies (TCM) Independent Film Channel (IFC) ESPN2 TBS Superstation The Learning Channel (TLC) The Nashville Network (TNN) SCI FI Channel USA Network Home Shopping Network (HSN) DIRECTV The Disney Channel Encore Action Major League Baseball NBA League Pass E! Entertainment Television Discovery Channel Fox Family Channel NHL Center Ice STARZ! Major League Baseball American Movie Classics (AMC) The History Channel Home & Garden Television CNN International CNBC (HGTV) Encore Love Stories ESPN GamePlan Playboy TV ESPN NFL Sunday Ticket Extra The Golf Channel NBA League Pass TNT Bloomberg Television Encore WAM! MuchMusic Direct Ticket A&E Network - ------------------------------------------------------------------------------------------------------
. Satellite broadcasting information to DIRECTV Satellite dish . Home with "cut-out" roof revealing family watching television and person using a home computer] TABLE OF CONTENTS
Page ---- Questions and Answers About the Exchange Offer..................... 1 Summary............................. 6 Risk Factors........................ 17 The Transactions.................... 26 The Exchange Offer.................. 31 Price Range and Dividends for $1 2/3 Par Value Common Stock............. 47 Price Range for Class H Common Stock.............................. 48 Capitalization of GM................ 49 Selected Historical Financial Data of Hughes.......................... 50 Management's Discussion and Analysis of Financial Condition and Results of Operations of Hughes............ 51 Unaudited Pro Forma Combined Condensed Financial Information of Hughes............................. 68 Notes to Unaudited Pro Forma Combined Condensed Financial Information of Hughes.............. 71
Page ---- Business of GM..................... 74 Business of Hughes................. 75 Management of Hughes............... 101 Board of Directors of Hughes....... 102 Shares Eligible for Future Sale.... 104 Overview of GM Capital Stock....... 107 Description of Class H Common Stock............................. 115 Comparison of Rights of $1 2/3 Par Value Stockholders and Class H Stockholders...................... 122 Material U.S. Federal Income Tax Consequences...................... 127 Legal Matters...................... 129 Experts............................ 129 Disclosure Regarding Forward- Looking Statements................ 130 Where You Can Find More Information....................... 131 Appendix A: Hughes Electronics Corporation Audited Financial Statements........................ A-1
---------------- You should rely only on the information contained in this document. We have not authorized anyone to provide you with information different from that contained in this document. We are offering to sell, and seeking offers to buy, the securities offered by this document only in jurisdictions where offers and sales are permitted under the laws of those jurisdictions. The information contained in this document is accurate only as of the date of this document regardless of the time of delivery or of any sale of the securities offered by this document. ---------------- This document incorporates important business, financial and other information about General Motors and Hughes that is not included in or delivered with this discount. See "Where You Can Find More Information" on page for a list of the documents that General Motors and Hughes have incorporated by reference into this document. Documents incorporated by reference are available from GM without charge, excluding all exhibits unless specifically incorporated by reference as exhibits in this document. You may obtain some of the documents incorporated by reference in this document at GM's Internet World Wide Web site, "http://www.gm.com" and selecting "The Company" and then selecting "Investor Information." Written and telephone requests for any of these documents should be directed to: Written requests for documents: GM Fulfillment Center MC 480-000-FC1 30200 Stephenson Hwy. Madison Heights, MI 48071 Telephone: (313) 667-1500 Telephone requests for documents: (313) 667-1500 Select Menu Option #2 If you would like to request copies of these documents, please do so by , 2000 in order to receive them before the expiration of the exchange offer. ---------------- AIReach(R), DirecDuo(TM), DirecPC(R), DIRECTV(R), DIRECTV Para Todos(TM), DirecWay(TM), Galaxy(R), NET/36(TM), PRIMESTAR(R), Spaceway(TM), SPOTbytes(R) and U.S. Satellite Broadcasting(R) are trademarks of Hughes Electronics Corporation or its subsidiaries. All other trademarks are properties of their respective owners. QUESTIONS AND ANSWERS ABOUT THE EXCHANGE OFFER Q1. Why did GM choose to conduct the exchange offer? A1. The exchange offer of up to about $9 billion of Class H common stock is an important element of our overall plan to restructure GM's economic interest in our Hughes subsidiary in order to realize some of the economic value arising from GM's ownership of Hughes. The other element consists of our anticipated contributions of about $7 billion of Class H common stock to certain of our employee benefit plans, which we explain further below in the response to Question 3. Assuming that the exchange offer is fully subscribed and that the contributions to the employee benefit plans are made as anticipated, we will issue a total of about new shares of Class H common stock, with an aggregate value of about $16 billion, based on the closing trading price of Class H common stock on , 2000. We expect that our plan will result in the following benefits to GM and its stockholders: . We will use the exchange offer to repurchase a substantial amount of $1 2/3 par value common stock, which we expect will significantly increase the earnings per share attributable to $1 2/3 par value common stock in the future. . The contributions to the employee benefit plans will reduce our annual pension expense and other post-retirement employee benefit expense and will strengthen GM's overall financial position. . The issuance of additional shares of Class H common stock in connection with these transactions will substantially increase the liquidity of that stock in the market, which we believe will benefit Class H stockholders over time. Q2. Is the exchange offer being utilized to separate Hughes from GM? A2. No. This exchange offer is not a split-off of Hughes from GM. Upon completion of the exchange offer, Hughes will remain a wholly-owned subsidiary of GM. The exchange offer will not affect the business operations of Hughes, and GM's automotive operations will continue to have direct access to the opportunities for strategic synergies with Hughes' rapidly growing communications services businesses. GM currently has no plans or intention to separate Hughes or any of its businesses from GM, whether by means of a spin-off, split-off or any other transaction. However, GM will continue to evaluate what Hughes ownership structure would be optimal for the two companies and GM's stockholders. As a result, GM may determine to pursue any number of future transactions involving Hughes, or no transaction at all. Q3. What are the contributions to the employee benefit plans? A3. We currently plan to contribute a total of about $7 billion of Class H common stock to: . our pension plan for the benefit of our hourly-rate employees; and . a dedicated account within our voluntary employees' beneficiary association trust, which was established to fund certain hourly retiree health care and life insurance benefits under some of our welfare plans, and which we sometimes refer to in this document as the "VEBA." Our contribution of Class H common stock to the pension plan will reduce our annual pension expense. In addition, our contribution of Class H common stock to the VEBA will reduce our expense relating to other post- retirement employee benefits for our employees. Although we reserve the right to modify the amount or timing of each contribution, or not to make either contribution at all, in the event that our board of directors determines that such a change would be in the best interests of GM and its stockholders, we currently expect to complete these contributions during the second quarter of 2000. 1 Q4. Will the issuance of Class H common stock in the exchange offer and the contributions to the employee benefit plans dilute the earnings per share attributable to the Class H common stock currently outstanding? A4. No. These transactions will not dilute the earnings per share attributable to the Class H common stock. GM's Class H common stock is a "tracking stock" to which we allocate a portion of the earnings of our Hughes subsidiary in order to determine earnings per share. The portion of Hughes' earnings allocated to the Class H common stock for this purpose increases proportionately upon the issuance of additional shares of Class H common stock in transactions such as the exchange offer and the proposed contributions to the employee benefit plans. Because the number of shares of Class H common stock and the earnings allocated to such stock will increase proportionately, there will be no dilution to the earnings per share of Class H common stock. Q5. How will these transactions affect the allocation of Hughes' earnings between the $1 2/3 par value common stock and the Class H common stock? A5. Our certificate of incorporation allocates Hughes' earnings between our two classes of common stock based on a fraction that we sometimes refer to in this document as the "Class H fraction." For more information about the Class H fraction and how we allocate Hughes' earnings in order to determine earnings per share, see "Summary--Class H Common Stock" on page . In order to illustrate the effect of the exchange offer and the contributions to the employee benefit plans on the Class H fraction, we have calculated the Class H fraction based on the number of shares of Class H common stock outstanding as of December 31, 1999 based on certain assumptions as of that date which give effect to the exercise of all outstanding options and the shares of Class H common stock issuable upon conversion of GM's Series H preference stock. Based on the Class H fraction as so calculated, about 37% of Hughes' earnings would have been allocable to the Class H common stock for purposes of determining earnings per share and amounts available for the payment of dividends. The remaining portion of Hughes' earnings, about 63%, would have been allocable to the $1 2/3 par value common stock. Giving effect to a fully-subscribed exchange offer, the Class H fraction calculated as of December 31, 1999 as described above would result in the allocation of about % of Hughes' earnings to the Class H common stock and the balance of about % to the $1 2/3 par value common stock. In addition, assuming that the exchange offer is fully subscribed and that GM completes the contributions to the employee benefit plans as anticipated, the Class H fraction as described above would allocate about % of Hughes' earnings to the Class H common stock and the balance of about % to the $1 2/3 par value common stock. Q6. How will the exchange offer affect me? A6. The exchange offer will provide you with an opportunity to increase your interest in the financial performance of Hughes by exchanging your shares of $1 2/3 par value common stock for shares of Class H common stock. This exchange will generally be free of any U.S. federal income tax. We explain the tax consequences further below in the response to Question 20. Pursuant to the exchange offer, you may tender some, all or none of your shares of $1 2/3 par value common stock in exchange for shares of Class H common stock. However, you will be affected by the exchange offer whether or not you tender any of your shares of $1 2/3 par value common stock. For more information, see "Risk Factors--Risk Factors Relating to the Exchange Offer--You Will Be Affected by the Exchange Offer Whether or Not You Tender Your Shares of $1 2/3 Par Value Common Stock" on page . Q7. May I participate in the exchange offer? A7. You may participate in the exchange offer if you hold shares of $1 2/3 par value common stock and you validly tender your shares during the exchange offer period in a jurisdiction where this exchange offer is permitted under the laws of that jurisdiction. 2 Q8. How many shares of Class H common stock will I receive for each share of $1 2/3 par value common stock that I tender? A8. You will receive shares of Class H common stock for each share of $1 2/3 par value common stock that you validly tender in the exchange offer that is accepted by GM. We sometimes refer to this number in this document as the "exchange ratio." No fractional shares of Class H common stock will be distributed in the exchange offer. Instead, you will be paid cash in exchange for any fractional share. Q9. When does the exchange offer expire? A9. The exchange offer period and withdrawal rights will expire at 12:00 midnight, New York City time, on , 2000, unless GM extends the exchange offer. We sometimes refer to this date and time in this document as the "expiration date." You must tender your shares of $1 2/3 par value common stock so that they are received by the exchange agent prior to the expiration date if you wish to participate in the exchange offer. Q10. How do I tender my shares in the exchange offer? A10. The procedures you must follow in order to tender your shares of $1 2/3 par value common stock in the exchange offer will depend upon whether you hold your shares of $1 2/3 par value common stock in certificated form, in book-entry form, through a bank or broker or through an employee benefit plan. In addition, you may need to follow certain special procedures if you tender your shares in a jurisdiction other than the United States. For instructions about how to participate in the exchange offer, see "Summary--Terms of the Exchange Offer--Procedures for Tendering" on page , "The Exchange Offer--Procedures for Tendering Shares of $1 2/3 Par Value Common Stock" on page and "The Exchange Offer--Special Procedures for Certain Jurisdictions Outside the United States" on page . Q11. Can I tender only a portion of my shares of $1 2/3 par value common stock in the exchange offer? A11. Yes. This is a voluntary exchange offer, which means that you may tender some, all or none of your shares of $1 2/3 par value common stock in the exchange offer. If you have a stock certificate that represents more than the number of shares of $1 2/3 par value common stock you wish to tender, you may specify on the letter of transmittal how many of your shares of $1 2/3 par value common stock are to be tendered and how many are to be returned to you. Any shares that you are not tendering but that are represented by stock certificates sent in to the exchange agent will be returned to you in book-entry form. For information about book-entry registration, please see our response to Question 21 below. If you own fewer than 100 shares of $1 2/3 par value common stock and wish to take advantage of the preferential treatment of odd-lot shares in the event that the exchange offer is oversubscribed, you must tender all of your shares in the exchange offer. For information on odd-lot shares, see "The Exchange Offer--Proration; Tenders for Exchange by Holders of Fewer than 100 Shares of $1 2/3 Par Value Common Stock" on page . Q12. What should I do if I want to retain my shares of $1 2/3 par value common stock? A12. Nothing, if you are not tendering any of your shares of $1 2/3 par value common stock in the exchange offer. However, if you are tendering some, but not all, of your shares of $1 2/3 par value common stock in the exchange offer, and the shares you wish to tender are represented by the same stock certificate as shares you wish to retain, you will need to give certain instructions to the exchange agent as provided for in the instructions to the letter of transmittal. Q13. Can I change my mind after I tender my shares of $1 2/3 par value common stock? A13. Yes. You may change your mind and withdraw tenders of your shares any time before the exchange offer expires. If you change your mind again, you can retender your shares of $1 2/3 par value common stock by 3 following the tender procedures again prior to the time the exchange offer expires. For information about the procedures for tendering and withdrawing tenders of your shares of $1 2/3 par value common stock, see "The Exchange Offer--Procedures for Tendering Shares of $1 2/3 Par Value Common Stock" on page and "--Withdrawal Rights" on page . Q14. Does the exchange offer involve a premium? A14. Based on the closing trading prices for shares of $1 2/3 par value common stock and Class H common stock on , 2000, the exchange ratio would result in a tendering $1 2/3 par value stockholder receiving shares of Class H common stock with a market value greater than the market value of the shares of $1 2/3 par value common stock tendered. However, the relative trading prices for Class H common stock and $1 2/3 par value common stock will fluctuate over the course of the exchange offer and any premium that you might receive as a tendering $1 2/3 par value stockholder will depend on the prices of shares of $1 2/3 par value common stock and Class H common stock at the time of the closing of the exchange offer. As a result, we cannot predict what the amount of the premium, if any, will be at the closing of the exchange offer or the prices at which shares of Class H common stock or $1 2/3 par value common stock will trade over time. You can calculate an indicated premium, expressed as a percentage, based on market values using the following formula: ( (Exchange Ratio) X (Price of one share of Class H common stock) ) ( --------------------------------------------------------------- 1 ) X 100 ( Price of one share of $1 2/3 par value common stock ) For example: Assume a price of $ for a share of $1 2/3 par value common stock and a price of $ for a share of Class H common stock, which were the closing trading prices on the NYSE for shares of $1 2/3 par value common stock and Class H common stock on , 2000. At an exchange ratio of shares of Class H common stock for one share of $1 2/3 par value common stock, the indicated premium would be about percent of the $1 2/3 par value common stock share price. Q15. Are there any conditions to GM's obligation to complete the exchange offer? A15. Yes. We do not have to complete the exchange offer unless all of the conditions outlined on pages to are satisfied. In particular, there is a condition that at least shares of the $1 2/3 par value common stock must be tendered in the exchange offer. This means that we will not be obligated to complete the exchange offer unless at least shares of $1 2/3 par value common stock are tendered so that at least percent of the shares of Class H common stock offered pursuant to the exchange offer can be exchanged. We sometimes refer to this condition in this document as the "minimum condition." GM may at any time waive any or all of the conditions to the exchange offer. Q16. What happens if the minimum condition is not satisfied? A16. If fewer than shares of $1 2/3 par value common stock are tendered in the exchange offer, the minimum condition will not be satisfied and we may choose not to complete the exchange offer. If we choose not to complete the exchange offer, we will promptly return any shares of $1 2/3 par value common stock that may have been tendered to us. In addition, if we choose not to complete the exchange offer, we will reevaluate our current plan with respect to realizing some of the economic value arising from our ownership of Hughes. Q17. What happens if the minimum condition is satisfied, but less than shares of $1 2/3 par value common stock are tendered? A17. If the minimum condition is satisified and all of the other conditions to the exchange offer have been satisfied or waived, GM would be obligated to complete the exchange offer as described in this document. 4 Under these circumstances, the exchange offer would not be fully subscribed and, as a result, we would issue fewer shares of Class H common stock than we would have if more shares of $1 2/3 par value common stock had been validly tendered. Q18. What happens if more than shares of $1 2/3 par value common stock are tendered? A18. If more than shares of $1 2/3 par value common stock are tendered in the exchange offer, all shares of $1 2/3 par value common stock that are validly tendered will be accepted for exchange on a pro rata basis. However, tenders by persons who own fewer than 100 shares of $1 2/3 par value common stock, which are sometimes referred to as "odd-lots," who tender all of the shares they own will not be subject to proration and will be accepted in full. Shares you own in a GM or GM affiliated savings plan are not eligible for the preferential treatment that odd-lot holders will receive. Proration will be based on the number of shares of $1 2/3 par value common stock that each $1 2/3 par value stockholder has tendered in the exchange offer, and not on that stockholder's aggregate ownership of $1 2/3 par value common stock. Any shares not accepted for exchange as a result of proration will be returned to tendering $1 2/3 par value stockholders in book-entry form. Q19. What happens if GM declares a quarterly dividend on $1 2/3 par value common stock during the exchange period and I have previously tendered my shares? A19. If a dividend is declared with a record date before the completion of the exchange offer, you will be entitled to that dividend even if you have previously tendered your shares. Tendering your shares of $1 2/3 par value common stock in the exchange offer is not a sale or transfer of the shares until they are accepted by GM for exchange upon completion of the exchange offer. Q20. Will I be taxed on the shares of Class H common stock that I receive in the exchange offer? A20. We currently anticipate receiving a tax opinion from Kirkland & Ellis to the effect that, for U.S. federal income tax purposes, the exchange of Class H common stock for $1 2/3 par value common stock pursuant to the exchange offer will be tax-free to GM and, except in connection with cash received instead of fractional shares, to $1 2/3 par value stockholders who participate in the exchange offer. We have conditioned our obligation to complete the exchange offer on our receipt of this opinion. The tax opinion will not address state, local or foreign tax consequences that may be applicable to $1 2/3 par value stockholders who participate in the exchange offer. We describe certain material tax considerations at "Material U.S. Federal Income Tax Consequences" on page . You should consult your tax advisor as to the particular tax consequences to you of your participation in the exchange offer. Q21. How does book-entry registration work? A21. Both Class H common stock and $1 2/3 par value common stock are registered in book-entry form through the direct registration system administered by GM's stock transfer agent and registrar, Fleet National Bank. Under this system, unless a stockholder requests a stock certificate representing his or her shares, ownership of Class H common stock and $1 2/3 par value common stock is represented by account statements periodically distributed to stockholders by Fleet, who holds the book-entry shares on behalf of stockholders. For more information about book-entry registration, see "The Exchange Offer--Book-Entry Accounts" on page . Q22. Who should I call if I have questions or want copies of additional documents? A22. You may call the information agent, Morrow, to ask any questions or to request additional documents at (877) 816-5329 (toll free) in the United States or at (212) 754-8000 (collect) elsewhere. You may also obtain free copies of other documents publicly filed by GM at the SEC's website at www.sec.gov or at GM's website at www.gm.com. See "Where You Can Find More Information" on page . 5 SUMMARY In this summary, we highlight information which we describe in greater detail elsewhere in this document. This summary may not contain all of the information that you should consider before deciding whether to participate in the exchange offer. We urge you to read this entire document carefully, including the "Risk Factors" section and the consolidated financial statements and the notes to those statements. As used in this document, unless the context requires otherwise, . "General Motors," "GM" or "we" means General Motors Corporation and its consolidated subsidiaries, including Hughes; and . "Hughes" means Hughes Electronics Corporation, its consolidated subsidiaries and its ownership interest in equity affiliates. Overview We will issue shares of our Class H common stock for each share of our $1 2/3 par value common stock that is validly tendered and accepted by us in the exchange offer, up to an aggregate of shares of Class H common stock. In addition, we currently plan to contribute about $7 billion of Class H common stock to certain of our employee benefit plans during the second quarter of 2000. We are using these transactions to implement our overall plan to restructure our economic interest in our Hughes subsidiary in order to realize some of the economic value arising from our ownership of Hughes. We expect that these transactions, if completed, will significantly increase the earnings per share attributable to $1 2/3 par value common stock in the future. General Motors General Motors is primarily engaged in the automotive and, through its wholly-owned Hughes subsidiary, the communications services industries. GM is the world's largest manufacturer of automotive vehicles. GM also has financing and insurance operations and, to a lesser extent, engages in other industries. Our principal executive offices are located at 300 Renaissance Center, Detroit, Michigan 48265-3000 and our telephone number is (313) 556-5000. Hughes Hughes is a leading global provider of digital entertainment, information and communications services and satellite-based private business networks. Let us tell you more about our Hughes subsidiary: . Hughes has been a pioneer in many aspects of the satellite and wireless communications industry, and its technologies have driven the creation of new services and markets and have established Hughes as a leader in each of the markets it serves. Hughes believes that its ability to identify, define and develop new markets early has provided it with a significant competitive advantage in building sustainable market leadership positions. . Hughes is focused on providing advanced communications services on a global basis and has developed a wide range of entertainment, information and communications services for both the home and business markets, including video, data, voice, multimedia and Internet services. Over the past two years, these services have comprised an increasingly significant portion of Hughes' revenues. Hughes believes that these services provide the potential for higher value through higher margins and higher growth than Hughes' traditional manufacturing businesses. 6 . Earlier this year, Hughes announced a strategy designed to focus its resources on its high-growth services businesses. As part of this strategy, Hughes is: . selling its satellite systems manufacturing businesses; . discontinuing several product lines in its wireless business to focus on its leading broadband wireless network business; and . realigning its marketing efforts to focus on its consumer and business enterprise customers. . Hughes' business includes: . DIRECTV. Hughes, through DIRECTV, is the world's leading digital multi-channel entertainment provider, based on the number of subscribers, with over 8 million subscribers worldwide. . PanAmSat. The PanAmSat subsidiary of Hughes has the largest commercial satellite fleet in the world, with 20 satellites capable of transmitting signals to geographic areas covering a substantial portion of the world's population. . Broadband Services and Products. Hughes is a leading provider of satellite and wireless communications ground equipment and business communications services, with a greater than 50% share of the global market for satellite-based private business networks. Hughes' business currently also includes Hughes Space and Communications, a leading satellite manufacturer. However, Hughes has recently agreed to sell its satellite systems manufacturing businesses to The Boeing Company. This sale of the most significant portion of its traditional manufacturing businesses is part of Hughes' strategy to focus its business on integrated entertainment, information and communications services. . Hughes' business objective is to enhance its position as a premier provider of integrated information, entertainment and communications services by leveraging its satellite and wireless communications systems expertise and by capitalizing on its competitive advantages. Hughes' core strategies for achieving this objective are to: . Lead the multi-channel entertainment market. Hughes intends to capitalize on favorable demand trends for multi-channel entertainment in the United States and select international markets, including by maintaining DIRECTV's leadership position in the United States through its premier brand of distinctive programming, leveraging its experience in the U.S. multi-channel entertainment market and brand name in international markets where Hughes believes significant growth opportunities exist and increasing average revenue per subscriber. . Capitalize on growth opportunities in the markets for Internet services and digital data. Hughes intends to capitalize on the growth of the Internet and the increased presence of digital data in the communications services industry by integrating a range of Internet- based and interactive technologies into DIRECTV programming and by developing an array of digital data, intranet and Internet services for the consumer and business enterprise markets. . Achieve sustainable market leadership positions. Hughes strives to achieve and sustain market leadership positions by identifying, defining and developing new markets and introducing innovative products and services to serve these markets. Hughes' principal executive offices are located at 200 North Sepulveda Boulevard, El Segundo, California 90245 and its telephone number is (310) 662- 9688. 7 Class H Common Stock General Motors has two classes of common stock: .$1 2/3 par value common stock; and .Class H common stock. GM's Class H common stock is a "tracking stock" designed to provide holders with financial returns based on the financial performance of Hughes. However, in the event of a GM liquidation, insolvency or similar event, Class H stockholders would have no direct claim against the assets of Hughes. Rather, Class H stockholders would only have rights in the assets of GM as common stockholders of GM. We determine the earnings per share and the amounts available for the payment of dividends on the Class H common stock by a fraction which reflects the portion of Hughes' earnings that is allocated to the Class H common stock. We sometimes refer to this fraction as the "Class H fraction." The numerator and denominator of the Class H fraction are determined at the end of each quarter, as follows: . The numerator of the Class H fraction is the weighted average number of shares of Class H common stock outstanding during the applicable period. . The denominator of the Class H fraction is the notional number of shares of Class H common stock which, if outstanding, would represent 100% of the tracking stock interest in the earnings of Hughes. We sometimes refer to the denominator of the Class H fraction as the "Class H dividend base." The Class H dividend base can be adjusted by the GM board of directors in specified circumstances, including to reflect contributions by GM to Hughes. The issuance of shares of Class H common stock in the exchange offer and the contributions to the employee benefit plans will increase the numerator of the Class H fraction without changing the denominator. Accordingly, such issuances will increase the portion of Hughes' earnings that is allocable to the Class H common stock and will reduce the portion that is allocable to the $1 2/3 par value common stock for purposes of determining earnings per share and amounts available for the payment of dividends. Assuming that the exchange offer is fully subscribed and that the contributions to the employee benefit plans are made as anticipated, the combined effect of these transactions would be to increase the tracking stock interest in Hughes' earnings represented by Class H common stock from about 37% to %, with a corresponding reduction of the portion of Hughes' earnings attributable to $1 2/3 par value common stock from about 63% to %. These percentages are provided for illustrative purposes only and are based on certain assumptions which we describe elsewhere in this document. For more information, see "Description of Class H Common Stock-- Detailed Calculation of Amount Available for Dividends on Class H Common Stock--Illustrative Calculation of Class H Fraction Following the Exchange Offer and the Contributions to the Employee Benefit Plans." Because the earnings of Hughes allocable to Class H common stock will increase proportionately with the increase in the number of shares of Class H common stock outstanding, these issuances will not dilute the earnings per share attributable to the Class H common stock. The payment of dividends on Class H common stock is determined by GM's board of directors. Since the completion in 1997 of a series of transactions that involved a restructuring of the predecessor of Hughes, which we sometimes refer to in this document as the "Hughes restructuring transactions," no dividends have been paid on the Class H common stock. We do not currently expect to pay dividends on the Class H common stock in the foreseeable future. 8 Terms of the Exchange Offer Terms of the exchange offer We are offering to exchange shares of Class H common (see page )................. stock for each share of $1 2/3 par value common stock validly tendered in the exchange offer, up to a maximum of shares of $1 2/3 par value common stock. This is a voluntary exchange offer, which means that you may tender all, some or none of your shares of $1 2/3 par value common stock in the exchange offer. All shares of $1 2/3 par value common stock validly tendered and not withdrawn and accepted by GM will be exchanged at the exchange ratio, on the terms and subject to the conditions of the exchange offer, including the proration provisions. The terms and conditions of the exchange offer are described in this document, the letter of transmittal and the accompanying instructions to the letter of transmittal. We will promptly return in book- entry form any shares of $1 2/3 par value common stock not accepted by GM for exchange following the expiration of the exchange offer and determination of the final proration factor. Expiration date; extension; The exchange offer and withdrawal rights will expire at termination (see pages 12:00 midnight, New York City time, on , 2000, unless and )...................... GM extends the exchange offer. You must validly tender your shares of $1 2/3 par value common stock so that they are received by the exchange agent prior to this date if you wish to participate in the exchange offer. We may also terminate the exchange offer in the circumstances described on page . Proration; odd-lots (see page If more than shares of $1 2/3 par value common stock )........................... are tendered, we will accept all shares validly tendered on a pro rata basis. We will announce the preliminary proration factor by press release promptly after the exchange offer expires. We expect to announce any final proration factor within about seven business days after the expiration date. If you hold fewer than 100 shares of $1 2/3 par value common stock, and tender all of these shares for exchange, all of your shares will be accepted for exchange without proration if the exchange offer is completed. Shares you own through a GM or GM affiliated savings plan are not eligible for this preferential treatment. Withdrawal rights You may withdraw tenders of your shares of $1 2/3 par (see page )................. value common stock at any time before the exchange offer expires and at other times under certain circumstances. If you change your mind prior to the expiration of the exchange offer, you may retender your shares of $1 2/3 par value common stock by following the tender procedures again and retendering prior to the expiration date.
9 Conditions for completion of The exchange offer is subject to various conditions, the exchange offer (see page including the condition that at least shares of $1 )........................... 2/3 par value common stock are validly tendered, which must be satisfied in order for us to be obligated to complete the exchange offer. No fractional shares (see page No fractional shares of Class H common stock will be )........................... distributed in the exchange offer. If you would otherwise be entitled to receive a fractional share of Class H common stock, you will be paid cash for the fractional share. Procedures for tendering shares If you hold certificates representing your shares of $1 of $1 2/3 par value common 2/3 par value common stock, you must complete and sign the stock (see pages to )..... letter of transmittal designating the number of shares of $1 2/3 par value common stock you wish to tender. Send the letter of transmittal, together with your $1 2/3 par value common stock certificates and any other documents required by the letter of transmittal and the instructions to the letter of transmittal, by registered mail, return receipt requested, so that it is received by the exchange agent at one of the addresses listed on the back cover of this document before the expiration of the exchange offer. If you hold shares of $1 2/3 par value common stock through a broker, you should receive instructions from your broker on how to participate. You will not need to complete the letter of transmittal. Please contact your broker directly if you have not yet received instructions. Some financial institutions may also effect tenders by book-entry transfer through The Depository Trust Company. If you hold certificates for shares of $1 2/3 par value common stock or if you hold shares of $1 2/3 par value common stock through a broker, you may also comply with the procedures for guaranteed delivery. If you hold shares of $1 2/3 par value common stock in book-entry form through the direct registration system, you should send the executed letter of transmittal indicating the number of shares to be tendered to the exchange agent by registered mail, return receipt requested, so that it is received by the exchange agent at one of the addresses listed on the back cover of this document before the expiration of the exchange offer. If you participate in a GM or a GM affiliated company savings plan listed on page , you will receive separate instructions from the plan trustees or administrator of the plan regarding how to tender these shares. You should follow those instructions, and you should not use the letter of transmittal to tender your shares held under any of these plans.
10 Delivery of shares of Class H common stock (see page ).... We will deliver shares of Class H common stock issued in the exchange offer by book-entry transfer and cash instead of fractional shares as soon as reasonably practicable after the expiration of the exchange offer, acceptance of shares of $1 2/3 par value common stock for exchange and determination of the proration factor. Comparative per share market price information (see pages and )...................... Shares of $1 2/3 par value common stock and Class H common stock are currently listed and traded on the NYSE. GM's $1 2/3 par value common stock is traded under the symbol "GM," and GM's Class H common stock is traded under the symbol "GMH." On January 31, 2000, the last trading day before the public announcement of the exchange offer, the closing trading price of $1 2/3 par value common stock on the NYSE was $80.56, and the closing trading price of Class H common stock was $112.50. On , 2000 the second to last trading day before the start of the exchange offer, the closing trading price of $1 2/3 par value common stock on the NYSE was $ , and the closing trading price of Class H common stock on the NYSE was $ . U.S. federal income tax consequences (see page )..... We currently anticipate receiving a tax opinion from Kirkland & Ellis to the effect that, for U.S. federal income tax purposes, the exchange of Class H common stock for $1 2/3 par value common stock pursuant to the exchange offer will be tax-free to GM and, except in connection with cash received instead of fractional shares, to $1 2/3 par value stockholders who participate in the exchange offer. Each $1 2/3 par value stockholder should consult his or her tax advisor as to the particular tax consequences of the exchange offer to him or her. IRS regulations require that, if you participate in the exchange offer, you include certain information in your U.S. federal income tax return for the year in which the exchange offer occurs. GM will provide this information to you after the exchange offer is completed. No appraisal rights............ No appraisal rights are available to stockholders of GM in connection with the exchange offer. Exchange agent................. Fleet National Bank Information agent.............. Morrow & Co., Inc. Dealer manager................. Morgan Stanley Dean Witter
11 Marketing manager for Hughes... Salomon Smith Barney Risk factors (see pages to You should read and consider carefully the matters )........................... described under the caption "Risk Factors," as well as the other information set forth in this document, before deciding whether to participate in the exchange offer. Determining whether to participate in the exchange None of General Motors, Hughes, the exchange agent, the offer......................... information agent, the dealer manager, the marketing manager or any of their respective officers or directors makes any recommendation as to whether you should tender your shares of $1 2/3 par value common stock in the exchange offer. You must make your own decision regarding whether to tender and, if so, how many shares to tender after reading this document and consulting with your advisors based on your own financial position and requirements and any other relevant considerations. We urge you to read this document and the accompanying documents very carefully. Regulatory issues.............. In order to complete the exchange offer, we must make certain filings and notifications and receive certain authorizations or exemptions from governmental agencies regulating securities law issues in foreign jurisdictions. We believe that no material foreign regulatory requirements remain to be complied with, and no further material approvals must be obtained.
12 Comparative Per Share Data We summarize in the tables below the historical and pro forma per share information for each of the two classes of GM common stock. We calculated book value per share based on the liquidation rights of each class, which are described at "Description of Class H Common Stock--Liquidation Rights." All earnings (loss) per share amounts set forth in this document are reported as diluted, unless otherwise noted. Historical Per Share Data
As of and for the year ended December 31, ----------------------------- 1998 1999 -------------- -------------- $1 2/3 Class H $1 2/3 Class H ------ ------- ------ ------- Book value per share............................. $20.00 $12.00 $27.02 $16.21 Cash dividends per share......................... 2.00 -- 2.00 -- Earnings (loss) per share from continuing operations attributable to common stock......... 4.32 0.68 8.53 (0.77)
Pro Forma Per Share Data This pro forma per share information gives effect to a fully-subscribed exchange offer. As a result of the exchange offer, the earnings (loss) per share calculation of the $1 2/3 par value common stock will reflect the lower number of outstanding shares of $1 2/3 par value common stock and the $1 2/3 par value stockholders' decreased interest in the available separate consolidated net income (loss) of Hughes. While there will be no change to the earnings per share of Class H common stock, the earnings per share calculation of the Class H common stock will reflect the Class H stockholders' increased interest in the available separate consolidated net income (loss) of Hughes and the proportionate increase in the number of shares of Class H common stock outstanding.
As of and for the year ended December 31, ---------------------------- 1998 1999 ------------- -------------- $1 2/3 Class H $1 2/3 Class H ----- ------- ------ ------- Book value per share.............................. $ $ $ $ Cash dividends per share.......................... 2.00 -- 2.00 -- Earnings (loss) per share from continuing operations attributable to common stock..........
13 Summary Historical Consolidated Financial Data of GM On May 28, 1999, GM completed the separation of Delphi Automotive Systems Corporation from GM. Prior to 1999, Delphi was a business segment of GM. The following statement of operations data for each of the three years in the period ended December 31, 1999 and the balance sheet data as of December 31, 1999 and 1998 have been derived from GM's consolidated financial statements, reflecting Delphi Automotive Systems Corporation as discontinued operations, which have been audited by Deloitte & Touche LLP, independent auditors. The statement of operations data for the years ended December 31, 1996 and 1995 and the balance sheet data as of December 31, 1997, 1996 and 1995 have been derived from the unaudited consolidated financial statements of GM, reflecting Delphi Automotive Systems Corporation as discontinued operations and, in the opinion of management, include all adjustments, consisting only of normal recurring items, necessary to present fairly such data. The following summary consolidated financial data also reflects Electronic Data Systems Corporation as discontinued operations for the periods presented prior to its June 7, 1996 split-off from GM. You should read the data below in conjunction with GM's consolidated financial statements (including the notes thereto) and Management's Discussion and Analysis of Financial Condition and Results of Operations in the GM 1999 Form 10-K, which is incorporated into this document by reference. Certain amounts for 1998 and prior years have been reclassified to conform with the 1999 classifications.
As of and for the year ended December 31, ---------------------------------------------- 1995 1996 1997 1998 1999 -------- -------- -------- -------- -------- (in millions, except per share amounts) Statement of Operations Data: Total net sales and revenues............... $154,954 $158,281 $172,580 $155,445 $176,558 Income from continuing operations before cumulative effect of accounting changes..... 4,726 4,100 6,483 3,049 5,576 Income (loss) from discontinued operations............. 2,207 863 215 (93) 426 Cumulative effect of accounting changes..... (52) -- -- -- -- -------- -------- -------- -------- -------- Net income............. $ 6,881 $ 4,963 $ 6,698 $ 2,956 $ 6,002 ======== ======== ======== ======== ======== Earnings Per Share: 1 2/3 par value common stock Basic earnings per share (EPS) from continuing operations............ $ 5.57 $ 5.08 $ 8.52 $ 4.40 $ 8.70 Basic earnings (loss) per share from discontinued operations............ 1.71 0.98 0.18 (0.14) 0.66 Diluted EPS from continuing operations............ 5.52 5.04 8.45 4.32 8.53 Diluted earnings (loss) per share from discontinued operations............ 1.69 0.98 0.17 (0.14) 0.65 Cash dividends declared per share.... 1.10 1.60 2.00 2.00 2.00 Class H common stock subsequent to the Hughes restructuring transactions Basic EPS from continuing operations.......... -- -- 0.02 0.68 (0.77) Diluted EPS from continuing operations.......... -- -- 0.02 0.68 (0.77) Class H common stock prior to the Hughes restructuring transactions Basic EPS from continuing operations.......... 1.39 1.83 2.30 -- -- Basic EPS from discontinued operations.......... 1.38 1.05 0.87 -- -- Diluted EPS from continuing operations.......... 1.39 1.83 2.30 -- -- Diluted EPS from discontinued operations.......... 1.38 1.05 0.87 -- -- Cash dividends declared per share.. 0.92 0.96 1.00 -- -- Class E common stock Basic EPS from discontinued operations.......... 1.96 0.04 -- -- -- Diluted EPS from discontinued operations.......... 1.96 0.04 -- -- -- Cash dividends declared per share.. 0.52 0.30 -- -- -- Balance Sheet Data: Total assets............ $209,520 $216,965 $221,767 $246,688 $274,730 Long-term debt.......... 4,100 5,352 5,669 7,118 7,415 GM-obligated mandatorily redeemable preferred securities of subsidiary trusts...... -- -- 222 220 218 Stockholders' equity.... 23,310 23,413 17,584 15,052 20,644
14 Earnings per share attributable to the Class H common stock are determined based on the relative amounts of Hughes net income available for the payment of dividends to holders of Class H common stock and to holders of $1 2/3 par value common stock. The manner in which this allocation is made is described further at "Description of Class H Common Stock--GM Certificate of Incorporation Provisions Regarding Dividends." The amounts for Class H common stock subsequent to its recapitalization, as part of the Hughes restructuring transactions, present the earnings attributable to Class H common stock subsequent to its recapitalization on December 17, 1997 related to Hughes, consisting principally of its digital entertainment services, satellite communications services and satellite-based private business networks businesses. The amounts for Class H common stock prior to its recapitalization, as part of the Hughes restructuring transactions, present the earnings attributable to Class H common stock prior to its recapitalization on December 17, 1997 related to Hughes, consisting principally of its defense electronics, automotive electronics and telecommunications and space business. Long-term debt totals are calculated from GM's automotive, communications services and other operations only. 15 Summary Historical Financial Data of Hughes The following summary historical financial data have been derived from, and should be read in conjunction with Hughes' financial statements, as well as the "Management's Discussion and Analysis of Financial Condition and Results of Operations of Hughes," and the "Unaudited Pro Forma Combined Condensed Financial Information of Hughes," and the "Notes to Unaudited Pro Forma Combined Condensed Financial Information of Hughes" sections of this document. The statement of operations data for each of the three years in the period ended December 31, 1999 and the balance sheet data as of December 31, 1999 and 1998 have been derived from Hughes' financial statements included elsewhere in and incorporated by reference into this document, which have been audited by Deloitte & Touche LLP, independent auditors. The statement of operations data for the years ended December 31, 1996 and 1995, and the balance sheet data as of December 31, 1997, 1996 and 1995 have been derived from Hughes' unaudited financial statements and in the opinion of management include all adjustments, consisting only of normal recurring items, necessary to present fairly such data. On December 17, 1997, Hughes' predecessor and GM completed the Hughes restructuring transactions, a series of transactions which restructured Hughes' predecessor and which were designed to address strategic challenges facing Hughes' three principal businesses. These transactions included: . the tax-free spin-off of Hughes' defense electronics business to holders of GM's $1 2/3 par value common stock and old Class H common stock; . the transfer of Delco Electronics Corporation, Hughes' automotive electronics business, to GM's Delphi Automotive Systems business sector, which is now a separate corporation; and . the recapitalization of the old Class H common stock into the Class H common stock that is currently outstanding. These transactions were followed immediately by the merger of the defense electronics business with Raytheon Company. In connection with the Hughes restructuring transactions, the telecommunications and space business of Hughes' predecessor, consisting principally of its digital direct-to-home broadcast, satellite services, network systems and satellite systems businesses, were contributed to the recapitalized Hughes. These telecommunications and space businesses, both before and after the recapitalization, are referred to as Hughes. The financial information presented for Hughes, unless otherwise noted, represents the financial information of the recapitalized Hughes. On January 13, 2000, Hughes announced that it had reached an agreement to sell its satellite systems manufacturing businesses to Boeing. As a result, the financial results for those businesses are treated as discontinued operations for all periods presented herein. Consequently, revenues, operating costs and expenses, and other non-operating results for the satellite systems manufacturing businesses are excluded from Hughes' results from continuing operations. 16
As of and for the years ended December 31, ----------------------------------------- 1995 1996 1997 1998 1999 ------ ------ ------- ------- ------- (in millions, except per share amounts) Statement of Operations Data: Total revenues.............. $1,554 $2,058 $ 2,838 $ 3,481 $ 5,560 Total operating costs and expenses................... 1,574 2,109 2,794 3,527 5,988 ------ ------ ------- ------- ------- Operating profit (loss)..... $ (20) $ (51) $ 44 $ (46) $ (428) ====== ====== ======= ======= ======= Income (loss) from continuing operations before extraordinary item and cumulative effect of accounting change.......... $ (30) $ 13 $ 237 $ 64 $ (391) Income (loss) from discontinued operations, net of taxes............... 36 150 171 196 100 Gain on sale of discontinued operations, net of taxes... -- -- 63 -- -- Extraordinary item, net of taxes...................... -- -- (21) -- -- Cumulative effect of accounting changes......... -- -- -- (9) -- ------ ------ ------- ------- ------- Net income (loss) .......... 6 163 450 251 (291) Adjustments to exclude the effect of GM purchase accounting adjustments..... 21 21 21 21 21 Preferred stock dividend.... -- -- -- -- (51) ------ ------ ------- ------- ------- Earnings (loss) used for computation of available separate consolidated net income (loss).............. $ 27 $ 184 $ 471 $ 272 $ (321) ====== ====== ======= ======= ======= Balance Sheet Data: Total assets................ $3,513 $3,861 $12,142 $12,617 $18,597 Long-term debt.............. -- -- 638 779 1,586 Owner's equity.............. 2,609 2,492 8,340 8,412 11,681 Other Data: EBITDA...................... $ 130 $ 113 $ 304 $ 342 $ 223 Capital expenditures........ 389 362 713 1,329 1,665
- -------- "EBITDA" is defined as operating profit (loss), plus depreciation and amortization. EBITDA is not presented as an alternative measure of operating results or cash flow from operations, as determined in accordance with generally accepted accounting principles. Hughes management believes it is a meaningful measure of performance and is commonly used by other large communications, entertainment and media service providers. EBITDA does not give effect to cash used for debt service requirements and thus does not reflect funds available for investment in the business of Hughes, dividends or other discretionary uses. In addition, EBITDA as presented herein may not be comparable to similarly titled measures reported by other companies. 17 RISK FACTORS You should carefully consider each of the following risks and uncertainties and all of the other information set forth in this document before deciding whether to participate in the exchange offer. The following risks and uncertainties relate principally to: . The exchange offer; . The business of Hughes; and . GM's dual-class common stock capital structure. The risks and uncertainties described below are not the only ones facing GM, Hughes and your investment in Class H common stock. You should carefully review the information set forth elsewhere in this document and in the other documents which are incorporated by reference into this document. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may also adversely affect GM, Hughes and your investment in Class H common stock. If any of the following risks and uncertainties develop into actual events, Hughes' business, financial condition or results of operations could be materially adversely affected. In such case, the trading price of the Class H common stock could decline, and you may lose all or part of your investment. This document contains forward-looking statements that involve risks and uncertainties. Hughes' actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including the risks and uncertainties faced by Hughes described below and elsewhere in this document. Risk Factors Relating to the Exchange Offer You Will Be Affected by the Exchange Offer Whether or Not You Tender Your Shares of $1 2/3 Par Value Common Stock Your investment in GM will be subject to different risks as a result of the exchange offer. As a holder of shares of $1 2/3 par value common stock, you will be affected by the exchange offer regardless of whether you tender all, some or none of your shares of $1 2/3 par value common stock in the exchange offer: . If you exchange all of your shares of $1 2/3 par value common stock for shares of Class H common stock in the exchange offer, you will have an increased interest in the financial performance of Hughes. However, you will no longer participate in any change in the value of the $1 2/3 par value common stock because you will no longer own any shares of $1 2/3 par value common stock. . If you exchange some, but not all, of your shares of $1 2/3 par value common stock in the exchange offer, you will generally have an increased interest in the financial performance of Hughes, and a diminished interest in the financial performance of GM's businesses other than Hughes, assuming that you exchange a greater percentage of your shares of $1 2/3 par value common stock than the percentage of all outstanding shares of $1 2/3 par value common stock that are exchanged in the exchange offer. . If you do not exchange any of your shares of $1 2/3 par value common stock in the exchange offer, you will continue to participate in any change in the value of $1 2/3 par value common stock. However, because the numerator of the Class H fraction will be increased by the number of shares of Class H common stock issued in the exchange offer, you will have a diminished interest in the financial performance of Hughes. 18 You May Not Receive Any Premium on the Issuance of Class H Common Stock in Exchange for $1 2/3 Par Value Common Stock We cannot predict whether or to what extent there will be a premium at the end of the exchange offer. As a result, if you tender your shares of $1 2/3 par value common stock in the exchange offer, you may not receive any premium. Any premium that you would receive through your participation in the exchange offer will depend on the market prices of shares of $1 2/3 par value common stock and Class H common stock at the time of the closing of the exchange offer, which we cannot predict. The Issuance of Class H Common Stock in the Exchange Offer and the Contributions to the Employee Benefit Plans May Adversely Affect the Market Price of Class H Common Stock The exchange offer will increase substantially the number of publicly held shares of Class H common stock and the number of Class H common stockholders. The shares of Class H common stock to be issued to the $1 2/3 par value stockholders in the exchange will generally be eligible for immediate resale in the open market. If a significant number of $1 2/3 par value stockholders who receive shares of Class H common stock in the exchange offer attempt to sell such shares of Class H common stock on the open market after the exchange offer, the market price of Class H common stock could be adversely affected. Similarly, the contributions will result in the issuance of a substantial number of shares of Class H common stock to the employee benefit plans. If the trustees of the employee benefit plans receiving shares of Class H common stock in the contributions were to sell a significant number of these shares after the contributions, the market price of Class H common stock could be adversely affected. The ability of the employee benefit plans to transfer their shares will, however, be subject to a registration rights agreement with GM, which will provide for certain restrictions on transfer. We cannot assure you that the Class H common stock trading prices will not fluctuate significantly after either or both of the exchange offer and the contributions to the employee benefit plans. GM's Failure to Complete the Contributions to the Employee Benefit Plans as Planned Could Affect the Market Price of $1 2/3 Par Value Common Stock If GM does not complete the contributions to the employee benefit plans substantially on the terms and within the time anticipated, the market price of $1 2/3 par value common stock could be adversely affected as a result of GM's failure to reduce its annual pension expense and its other post- retirement employee benefit expense and to strengthen GM's overall financial position. This exchange offer and GM's anticipated contributions are independent transactions. This means that GM could determine to complete the exchange offer, but not the contributions. Although we currently intend to make the contributions to the employee benefit plans, we are not obligated to do so and we cannot assure you as to whether, when or the terms on which such contributions will occur. Risk Factors Relating to the Business of Hughes Hughes Will Be Adversely Affected if It Fails to Maintain Leading Technological Capabilities The rapid technological changes and innovation that characterize the entertainment, information and communications services industry could cause the services and products offered by Hughes to become obsolete. If the new technologies on which Hughes is currently focusing its research and development investments fail to achieve acceptance in the marketplace, Hughes would suffer a material adverse effect on its future competitive position and results of operations. For example, competitors of Hughes could be the first to obtain proprietary technologies that are perceived by the market as being superior. In addition, after substantial research and development expenditures, one or more of the technologies under development by Hughes or any of its strategic partners could become obsolete prior to its introduction. 19 Hughes' operating results will depend to a significant extent on its ability to continue to introduce new products and services on a timely basis and to reduce costs of its existing products and services. We cannot assure you that Hughes will successfully identify new product or service opportunities or develop and market these opportunities in a timely or cost- effective manner. The success of new product development depends on many factors, including proper identification of customer needs, cost, timely completion and introduction, differentiation from offerings of competitors and market acceptance. Technological innovation is important to Hughes' success and depends, to a significant degree, on the work of technically skilled employees. Competition for the services of these types of employees is vigorous. We cannot assure you that Hughes will be able to attract and retain these employees. If Hughes were unable to attract and maintain technically skilled employees, its competitive position could be adversely affected. Hughes Could Have Inadequate Access to Capital for Growth Hughes may not be able to raise adequate capital to complete some or all of its business strategies or to react rapidly to changes in technology, products, services or the competitive landscape. Hughes believes that key success factors in the entertainment, information and communications services industry include superior access to capital and financial flexibility. Industry participants often face high capital requirements in order to take advantage of new market opportunities, respond to rigorous competitive pressures and react quickly to changes in technology. For example, as a result of the competitive environment in the multi-channel entertainment industry, DIRECTV may have to incur increased subscriber acquisition costs by making competitive offers in the future to maintain its market leadership. Hughes expects the global entertainment, information and communications services market to continue to grow due to the high demand for communications infrastructure and the opportunities created by industry deregulation. Many of Hughes' competitors are committing substantial capital and, in many instances, are forming alliances to acquire or maintain market leadership. Hughes' strategy is to be a leader in providing entertainment, information and communications products and services by building on its experience in satellite technology and by making acquisitions and establishing, maintaining and restructuring strategic alliances as appropriate. This strategy will require substantial investments of capital over the next several years. We cannot assure you that Hughes will be able to satisfy its capital requirements in the future, whether through lack of competitive access to capital markets, GM's overall financial condition, restrictions imposed by GM or otherwise. GM's ability to issue Class H common stock as a means of funding Hughes' capital requirements may be limited in the event of the enactment of changes in the tax law which would result in the imposition of a tax on certain issuances of stock such as Class H common stock. Neither GM nor Hughes can predict whether or when any such changes would occur. Hughes' Future Growth Depends Upon its Ability to Implement its Business Strategy Hughes' business strategy is focused on becoming a premier provider of integrated entertainment, information and communications services. As part of this strategy, Hughes recently implemented several new initiatives and entered into a strategic alliance with America Online, Inc. One of these new initatives is the sale by Hughes of its satellite systems manufacturing businesses to Boeing. This sale is subject to customary closing conditions as well as conditions relating to Hughes' export activities in China. For more information on conditions relating to Hughes' export activities in China, see "--Grand Jury Investigation/State Department Review Could Result in Sanctions" below. Another new initiative is Hughes' development of the Spaceway system, which is designed to capitalize on the emerging broadband communications services market. Spaceway is still under development and is subject to a number of risks and uncertainties. We cannot assure you that the introduction of the Spaceway system will not be delayed, or that the Spaceway system will ever be implemented, or, if implemented, will allow Hughes to successfully capitalize on the emerging broadband communications 20 services market. We cannot assure you that Hughes will be successful in implementing these new initiatives, or any other new initiatives, or that Hughes will realize the anticipated benefits of its alliance with AOL. Hughes Is Vulnerable to Satellite Failure DIRECTV, PanAmSat and other Hughes businesses own or utilize satellites in their businesses. Orbiting satellites are subject to the risk of failing prematurely due to, among other things, mechanical failure, a collision with objects in space or an inability to maintain proper orbit. Satellites are subject to the risk of launch delay and failure, destruction and damage while on the ground or during launch and failure to become fully operational once launched. Delays in the production or launch of a satellite or the complete or partial loss of a satellite, in-orbit or during launch, could have a material adverse impact on the operation of Hughes' businesses. With respect to both in-orbit and launch problems, insurance carried by PanAmSat and Hughes does not compensate for business interruption or loss of future revenues or customers. Hughes has, in the past, experienced technical anomalies on some of its satellites. We cannot assure you that Hughes will not experience further satellite anomalies in the future. Service interruptions caused by these anomalies, depending on their severity, could result in claims by affected customers for termination of their transponder agreements, cancellation of other service contracts or the loss of other customers. Hughes May Be Unable to Manage Effectively the Growth of its DIRECTV Businesses Hughes' ability to continue the planned expansion of its DIRECTV businesses and to increase its customer base while maintaining its price structure, reducing its churn rate and managing costs will depend upon, among other things, its ability to manage its growth effectively. To accomplish this, Hughes must continue to develop its internal and external sales force, installation capability and customer service representatives, maintain its relationships with third party vendors and implement procedures to mitigate subscriber credit risk. Hughes will also need to continue to grow, train and manage its employee base. If Hughes is unable to manage its growth effectively, it could experience an increase in subscriber churn and, as a result, its business could be adversely affected. In addition, subscriber acquisition costs may increase if DIRECTV offers additional incentives in order to respond to competition, to expand its businesses or for other reasons. If subscriber acquisition costs increase significantly, it could have a material adverse effect on Hughes' business. Hughes' Main Satellite Supplier Will No Longer Be an Affiliate of Hughes After the Sale of Hughes Space and Communications to Boeing Historically, Hughes has been able to fulfill most of its satellite needs from Hughes Space and Communications, one of its wholly-owned subsidiaries. Following the completion of the sale of Hughes Space and Communications to Boeing, Hughes will no longer manufacture satellites. Although DIRECTV and PanAmSat currently have contracts with Hughes Space and Communications designed to satisfy Hughes' satellite needs over the near term, Hughes will need to obtain new contracts with Hughes Space and Communications or with alternative suppliers for its future satellite needs. In addition, although Hughes believes that its current contracts with Hughes Space and Communications are on substantially arms' length terms, we cannot assure you that Hughes will be able to obtain contracts for the manufacture of new satellites from Hughes Space and Communications or from alternative suppliers on similar terms. Hughes Could Be Adversely Affected by its Customers' Inability to Obtain Financing Customers of Hughes are dependent from time to time upon third party equity or debt financing in order to pay for products and services purchased from Hughes. Collection of amounts due to Hughes from these customers may be adversely affected by their inability to obtain this third party financing. If these customers are unable to obtain, or are delayed in obtaining, third party financing, and are therefore unable to pay amounts due to Hughes in the future, Hughes may incur substantial losses related to costs it has incurred in excess of amounts collected to date from those customers. This could also have a negative effect on Hughes' future cash flows. 21 Hughes has contracts with ICO Global Communications (Operations), Ltd. to build the satellites and related components for ICO's global wireless communications system. ICO's parent company recently filed for bankruptcy protection under Chapter 11. If ICO's parent company is unable to confirm a plan of reorganization that provides for full payment to Hughes under these contracts, ICO may be unable to pay these amounts, which would result in a large pre-tax charge to Hughes' earnings. For more information about this matter, see "Management's Discussion and Analysis of Financial Condition and Results of Operations of Hughes." Hughes Is Subject to Domestic and Foreign Regulations Which Could Adversely Affect the Nature and Extent of the Services It Offers Hughes' businesses are subject to various regulations. DIRECTV is subject to substantial regulation by the U.S. Federal Communications Commission. FCC rules and regulations are subject to change in response to industry developments, new technology and political considerations. In addition, the satellite industry is highly regulated both in the United States and internationally. Hughes is subject to the regulatory authority of the U.S. Government and the national communications authorities of the countries in which it operates. These agencies regulate the construction, launch and operation of Hughes' satellites and the orbital slots planned for these satellites. Hughes is currently subject to an investigation regarding certain of its export compliance activities. Hughes, its customers or companies with which Hughes does business must have authority from each country in which Hughes provides services or provides its customers' use of its satellites. Although Hughes believes that its customers and/or companies with which Hughes does business presently hold the requisite licenses and approvals for the countries in which it currently provides services, regulations in each country are different and, as a result, there may be instances of noncompliance of which Hughes is not aware. Hughes' businesses could be adversely affected by the adoption of new laws, policies and regulations. We cannot assure you that Hughes will succeed in obtaining all requisite regulatory approvals for its operations without the imposition of restrictions on, or adverse consequences to, its businesses. We also cannot assure you that material adverse changes in regulations affecting the industries in which Hughes operates its businesses will not occur in the future. Hughes Is Subject to Other Risks Related to its International Operations About 21% of Hughes' revenues in 1999, excluding revenues from Hughes Space and Communications, were generated outside the United States. Hughes is currently evaluating expansion opportunities in select international markets. These international operations subject Hughes to many risks inherent in international business activities, including: . limitations and disruptions resulting from the imposition of government controls; . difficulty meeting export license requirements; . economic or political instability; . trade restrictions; . changes in tariffs; . currency fluctuations; . greater difficulty in safeguarding intellectual property; and . difficulties in managing overseas subsidiaries and international operations. These risks could have a material adverse affect on Hughes' business. Grand Jury Investigation/State Department Review Could Result in Sanctions There is a pending grand jury investigation into whether Hughes should be accused of criminal violations of the export control laws arising out of the participation of two of its employees on a committee formed to 22 review the findings of Chinese engineers regarding the failure of a Long March rocket in China in 1996. Hughes is also subject to the authority of the U.S. State Department to impose sanctions for non-criminal violations of the Arms Export Control Act. The possible criminal and/or civil sanctions could include fines as well as debarment from various export privileges and participation in government contracts. Hughes does not expect the grand jury investigation or State Department review to result in a material adverse effect upon its business. However, there can be no assurance as to those conclusions. As part of the sale of Hughes Space and Communications to Boeing, Hughes has agreed to indemnify Boeing for the full amount of any monetary fines and penalties, payable either prior to or after the closing of the transaction, resulting from Hughes' export control activities in China that were previously disclosed by Hughes and any other compliance matters related to exports by Hughes to China that may arise prior to the closing of the transaction. If Hughes were to enter into a settlement of this matter prior to the closing of the Boeing transaction that involves a debarment, as regards sales to the U.S. government, or a material suspension of Hughes' export licenses or other material limitation on projected business activities of the satellite systems manufacturing businesses, Boeing would not be obligated to complete the purchase of Hughes' satellite systems manufacturing businesses. We cannot assure you that the results of these investigations or any settlement entered into in connection with these investigations will not adversely impact Hughes' business and results of operations. In addition, a congressional committee chaired by Representative Cox released a report in May 1999 containing negative commentary about the compliance of U.S. satellite manufacturers, including Hughes Space and Communications, with U.S. export control laws. We are uncertain of the impact that this report will have on the satellite manufacturing and launching industries. Many of Hughes' satellite launches, including those of PanAmSat, are scheduled for non-U.S. launch providers. We cannot assure you that future satellite launches by non-U.S. launch providers will not be adversely affected by this investigation and report, including the possibility of significant launch delays. Compromise of Satellite Programming Signals Could Adversely Affect Hughes' Business The delivery of direct broadcast television programming requires the use of encryption technology to assure that only authorized subscribers can receive the programming. It is illegal to create, sell or otherwise distribute or use mechanisms or devices to circumvent that encryption. Theft of cable and satellite programming does occur and attempts have been made to circumvent Hughes' signal encryption. Hughes has implemented measures intended to reduce signal theft of its programming. If Hughes were unable to respond to any widespread compromise of its encryption technology, its business could be materially adversely affected. Disputes with Raytheon Regarding Former Defense Operations Could Result in a Material Payment from Hughes to Raytheon In connection with the 1997 spin-off of the defense electronics business of Hughes' predecessor as part of the Hughes restructuring transactions and the subsequent merger of that business with Raytheon, the terms of the merger and related agreements between Hughes and Raytheon provided processes for resolving disputes that might arise in connection with post-closing financial adjustments that were also called for by the terms of the merger agreement. These financial adjustments might require a cash payment from Raytheon to Hughes or vice versa. A dispute currently exists regarding the post-closing adjustments that Hughes and Raytheon have proposed to one another and related issues regarding the adequacy of disclosures made by Hughes to Raytheon in the period prior to consummation of the merger. Raytheon and Hughes are proceeding with the dispute resolution process. It is possible that the ultimate resolution of the post-closing financial adjustment and of related disclosure issues may result in Hughes making a payment to Raytheon that would be material to Hughes. However, the amount of any payment that either party might be required to make to the other cannot be determined at this time. Hughes intends to vigorously pursue resolution of the disputes through the arbitration process, opposing the adjustments proposed by Raytheon and seeking the payment from Raytheon that it has proposed. 23 Risk Factors Relating to GM's Dual-Class Common Stock Capital Structure Class H Stockholders Do Not Have Any Claims on the Assets of Hughes Class H stockholders are common stockholders of General Motors and, as a result, have rights in the equity and assets of GM rather than of Hughes. Although the net income of Hughes is allocated for accounting purposes to calculate the amounts which may be used to pay dividends on each class of GM common stock, this allocation does not result in a physical segregation of the assets of GM or Hughes, or the establishment of separate accounts or dividend or liquidation preferences. If a liquidation, insolvency or similar event occurred with respect to Hughes, creditors of Hughes, as well as GM as the sole stockholder of Hughes, would receive payment from the assets of Hughes. The holders of Class H common stock would not be entitled to any payment from the assets of Hughes. We Cannot Assure You That Cash Dividends Will Ever Be Paid on the Class H Common Stock We cannot assure you that cash dividends will ever be paid on the Class H common stock. If you wish to receive a dividend, Class H common stock may not be an appropriate investment for you. Unlike the $1 2/3 par value common stock, cash dividends are not currently paid on the Class H common stock. Since the completion of the Hughes restructuring transactions in late 1997, the GM board has not paid cash dividends on the Class H common stock. Further, the GM board does not currently intend to pay dividends on the Class H common stock in the foreseeable future. Similarly, since that time, Hughes has not paid dividends to GM on its common stock held by GM and does not intend to do so in the foreseeable future. Future earnings of Hughes are expected to be retained for the development of the business of Hughes. The GM board reserves the right to reconsider from time to time its policies and practices regarding dividends on the Class H common stock and to pay or not to pay, or increase or decrease the dividends paid on the Class H common stock, if any, on the basis of GM's consolidated financial position, including liquidity and other factors, such as the earnings and consolidated results of operations and financial condition of Hughes. The Interests of GM's $1 2/3 Par Value Stockholders May Conflict with the Interests of Class H Stockholders The holders of Class H common stock may have different interests than the holders of $1 2/3 par value common stock with respect to various intercompany transactions and other matters, and we cannot assure you as to how any conflicts between these interests will be resolved. Under Delaware law, the GM board owes fiduciary duties to all holders of GM common stock, regardless of class, and must act with due care and on an informed basis in the best interests of GM and all of its common stockholders. In carrying out their fiduciary duties to all of GM's stockholders, the officers and directors of GM may make decisions and pursue policies or transactions that are different from those that they would make or pursue if the Class H common stock were the only class of common stock of GM. The GM board, in the discharge of its fiduciary duties, oversees, principally through its capital stock committee, the policies, programs and practices of GM which may give rise to conflicts of interest between GM's two classes of common stock. Class H Stockholders Will Be Common Stockholders of GM and Will Be Subject to the Risks of an Investment in GM We cannot assure you that the market value of the Class H common stock will reflect the performance of Hughes as we intend. Class H stockholders will continue to be common stockholders of GM and, as such, will be subject to all risks of an investment in GM and all of its businesses, assets and liabilities. The Trading Price of Class H Common Stock Could Be Adversely Affected by GM's Results If GM were to experience a significant financial or other setback, this could have an adverse effect on the trading price of the Class H common stock as well as the $1 2/3 par value common stock. The trading prices of the Class H common stock and the $1 2/3 par value common stock are generally affected by different events. A transaction which is beneficial to the holders of $1 2/3 par value common stock may not positively affect the 24 trading price of the Class H common stock, which historically has, in general, been affected more by the results of Hughes rather than those of GM. GM Board Policies and Practices Relating to Class H Common Stock Can Be Adopted, Changed or Rescinded Without Stockholder Approval The GM board may adopt, change or rescind policies, practices or policy statements which could have a significant impact on the Class H common stock, in each case without the approval of GM's common stockholders, including the Class H stockholders. The GM board has adopted a policy statement governing certain matters relating to its dual-class common stock capital structure. This policy statement is subject to change at any time without stockholder approval. The policy statement sets forth certain principles to guide the board's actions relating to, among other things, transactions between GM and Hughes and the relationship between dividends, if any, to be paid by Hughes to GM and by GM to the Class H stockholders. Your Class H Common Stock May Be Converted into $1 2/3 Par Value Common Stock Without Your Consent All outstanding shares of Class H common stock are potentially subject to mandatory recapitalization into shares of $1 2/3 par value common stock under certain circumstances. Any recapitalization would significantly change both the form and nature of your investment in Class H common stock, without your consent. Any recapitalization can be effected at a 120% exchange ratio at any time after December 31, 2002 in the sole discretion of the GM board, or automatically, if GM disposes of 80% or more of the business of Hughes to a person, entity or group of which GM is not the majority owner. If we effect a recapitalization at a time when the Class H common stock is considered to be undervalued relative to the $1 2/3 par value common stock, any such recapitalization may be disadvantageous to Class H common stockholders. Additionally, any recapitalization would preclude Class H common stockholders from retaining their investment in a security that is intended to reflect separately the financial performance of Hughes. We cannot predict the impact on the market price of the $1 2/3 par value common stock that any exercise by GM of its recapitalization right would have. Consistent with GM's certificate of incorporation, applicable corporate law and the GM board policy statement referred to above, the GM board may submit from time to time to the GM common stockholders for their consideration and approval one or more alternative transactions on terms different from those provided for by these provisions concerning recapitalization of Class H common stock at a 120% exchange ratio. The Market Price of Class H Common Stock Will Fluctuate and Could Fluctuate Significantly We cannot predict the extent to which the market price of the Class H common stock will fluctuate following the exchange offer. The stock market has experienced extreme price and volume fluctuations. In the past, companies that have experienced volatility have sometimes been the object of securities class action litigation. Securities class action litigation may result in substantial costs and a diversion of management's attention and resources. In addition, GM has granted registration rights to certain persons in connection with the issuance of shares of Class H common stock and securities convertible into Class H common stock and intends to grant registration rights to the trustees of the employee benefit plans in connection with the anticipated contributions to these plans. For more information about these share issuances and the related registration rights, see "Shares Eligible for Future Sale." If these parties elect to sell their shares in the open market, it could adversely affect the market price of Class H common stock. Further, additional shares of Class H common stock may be issued by GM from time to time in connection with future acquisitions and strategic alliances. The sale of such shares, if any, also could adversely affect the market price of Class H common stock. Proposed Changes in the Tax Law Could Affect GM's Future Ability to Issue Shares of Class H Common Stock A proposal made by the Clinton administration in February 2000 would tax stockholders upon the receipt of tracking stock similar to Class H common stock, if the tracking stock was distributed by a corporation with 25 respect to, or in exchange for, its own stock for a reason other than to effectuate a stock split or similar transaction relating to the tracking stock. The proposal would also grant the Secretary of the Treasury authority to treat tracking stock as an instrument other than stock or as stock of another entity for U.S. federal income tax purposes. The proposal would not apply to an issuance of tracking stock if the underlying tracked assets could be distributed in a transaction that would qualify as a tax-free spin-off for U.S. federal income tax purposes. As proposed, this provision would apply to tracking stock issued on or after the date of the proposal's enactment by the U.S. Congress. If enacted at any time, the Clinton administration proposal or any similar proposal could limit our future ability to issue shares of Class H common stock to our stockholders in a manner free of U.S. federal income tax to those stockholders. Moreover, while the Clinton administration proposal does not appear to affect GM's ability to issue Class H common stock in exchange for cash or property other than stock of GM, including the ability to issue Class H common stock in capital-raising public offerings or in acquisitions of target companies, we cannot assure you that future legislative or regulatory action with respect to this or any similar proposal will not limit GM's ability to issue Class H common stock in such circumstances. We cannot predict whether the Clinton administration proposal will be enacted by the U.S. Congress, and, if enacted, whether it will be in the form proposed or whether it will apply to any future issuances of Class H common stock. 26 THE TRANSACTIONS Background and Purpose The exchange offer of up to $9 billion of Class H common stock is an important element of our overall plan to restructure GM's economic interest in its Hughes subsidiary in order to realize some of the economic value arising from GM's ownership of Hughes. The other element consists of our anticipated contributions of a total of about $7 billion of Class H common stock to certain of our employee benefit plans. Assuming that the exchange offer is fully subscribed and that the contributions to the employee benefit plans are made as anticipated, we will issue a total of about new shares of Class H common stock, with an aggregate value of about $16 billion, based on the closing trading price of Class H common stock on , 2000. We will use the exchange offer to repurchase a substantial amount of $1 2/3 par value common stock, which we expect will significantly increase the earnings per share attributable to $1 2/3 par value common stock in the future. In addition, the employee benefit plan contributions will reduce our annual pension expense and our expense relating to other post-retirement employee benefits and will strengthen GM's overall financial position. These transactions will not dilute the earnings per share attributable to the outstanding Class H common stock. As described further below at "--Effects of the Transactions," upon completion of a fully-subscribed exchange offer and the contributions, GM will retain about a %, or $ billion, economic interest in Hughes, based on the closing market price of Class H common stock on , 2000. The issuance of additional shares of Class H common stock in connection with these transactions will substantially increase the liquidity of that stock in the market, which we believe will benefit Class H stockholders over time. In recent years, stock repurchase programs relating to our $1 2/3 par value common stock have constituted an important part of our overall capital plan. Since 1997, we have used about $9 billion in cash in connection with these programs. These repurchases have reduced the number of shares of $1 2/3 par value common stock outstanding by about 18%, which has increased the earnings per share attributable to $1 2/3 par value common stock. The exchange offer will enable us to utilize a portion of GM's economic interest in Hughes to effect a substantial additional repurchase of $1 2/3 par value common stock without diluting the tracking stock interest in the earnings of Hughes that is currently held by existing holders of Class H common stock. We have also made substantial progress in recent years in addressing the underfunded status of our U.S. pension plans. During the last six years, we have contributed over $22 billion to our U.S. pension plans, including over $6 billion of GM Class E common stock, which was subsequently exchanged for EDS common stock. Additionally, since 1997, we have contributed over $6 billion to our VEBA trust. Based on the number of shares determined by the closing trading price of Class H common stock on , 2000, we would contribute a total of about shares of Class H common stock to the pension plan for the benefit of our hourly employees and to the VEBA. The contribution of a significant amount of Class H common stock to our pension plan would represent a further reduction in our pension plan funding obligations and would help to ensure that the pension plan continues to be fully funded, as determined in accordance with applicable accounting standards. The contribution of Class H common stock to our VEBA would reduce our expense relating to other post-retirement employee benefits. For more information, see "--Contributions to the Employee Benefit Plans" below. Upon completion of the exchange offer and the contributions to the employee benefit plans, Hughes will remain a wholly-owned subsidiary of GM. These transactions will not affect the business operations of Hughes, and GM's automotive operations will continue to have direct access to the opportunities for strategic synergies with Hughes' rapidly growing communications services businesses. GM currently has no plans or intention to separate Hughes or any of its businesses from GM, whether by means of a spin-off, split-off or any other transaction. However, GM will continue to evaluate what Hughes ownership structure would be optimal for the two companies and GM's stockholders. As a result, GM may determine to pursue any number of future transactions involving Hughes, or no transaction at all. After the exchange offer and the contributions, GM will continue to have the flexibility to use its remaining economic interest in Hughes in a variety of ways, including as a currency for additional repurchases of $1 2/3 par value common stock, for use in connection with acquisitions, for contributions to our employee benefit plans, to raise capital in a tax-efficient manner or for use in 27 implementing further corporate restructurings. See "Risk Factors--Risk Factors Relating to GM's Dual-Class Common Stock Capital Structure--Proposed Changes in the Tax Law Could Affect GM's Future Ability to Issue Shares of Class H Common Stock." Contributions to the Employee Benefit Plans We currently plan to contribute a total of about $7 billion of Class H common stock to our pension plan for the benefit of our hourly-rate employees and to our VEBA. Based on the number of shares determined by the closing trading price of Class H common stock on , 2000, these anticipated contributions would consist of about shares of Class H common stock. The contribution of a significant amount of that Class H common stock to the pension plan will help to ensure that the hourly pension plan will continue to be fully funded for the foreseeable future, as determined in accordance with the standards set forth in Statement of Financial Accounting Standards No. 87 issued by the Financial Accounting Standards Board. The contribution of a portion of that Class H common stock to the VEBA will reduce our liability for other post-retirement employee benefits. The expected return on the assets contributed to these two employee benefit plans will reduce our annual expenses associated with pension and other post-retirement employee benefits. Although we reserve the right to modify the amount or timing of each contribution, or not to make the contributions at all, in the event that our board of directors determines that such a change would be in the best interests of GM and its stockholders, we currently expect to complete the contributions to the pension plan and the VEBA, which may take the form of one or more separate contributions, during the second quarter of 2000. GM believes that its anticipated contributions of Class H common stock, having a market value of about $7 billion, to certain of its employee benefit plans during the second quarter of 2000 will have a significant favorable impact on GM's pre-tax income in the future. The specific amount of the impact of the contributions on GM's pre-tax income is not known at this time and will be based on, among other things, the size, timing and terms of the contributions as well as the value assigned by the trustees of the employee benefit plans to the Class H common stock that is contributed. In addition, the favorable effect of the contributions on GM's pre-tax income will be offset by several factors, including the terms of the 1999 labor contract, changes in health-care trend rates and higher levels of profit-sharing. Although GM currently expects to make the contributions substantially on the terms described in this document, GM is not obligated to do so. We cannot assure you as to whether, when or the terms on which such contributions will occur, or the actual amount of the impact on its pre-tax income. See "Risk Factors--Risk Factors Relating to the Exchange Offer--GM's Failure to Complete the Contributions to the Employee Benefit Plans as Planned Could Affect the Market Price of $1 2/3 Par Value Common Stock." Registration Rights and Transfer Restrictions The shares of Class H common stock to be contributed to the employee benefit plans will be subject to an agreement that will provide the plans with registration rights with respect to the shares of Class H common stock they will own as a result of the contributions. That agreement will also regulate the manner in which such shares may be transferred. The following description summarizes the material terms currently expected to be included in that agreement. This description does not purport to be complete and is qualified in its entirety by reference to the full text of the form of registration rights agreement to be entered into by GM and the employee benefit plans, which has been filed as an exhibit to the registration statement of which this document is a part. . The employee benefit plans will be permitted to transfer their shares of Class H common stock only in certain specified types of transactions and under certain circumstances, including public offerings and negotiated transactions, whether registered with the SEC or not, and certain transfers to other employee benefit plans maintained by GM and its subsidiaries. . The employee benefit plans will together have the right to require GM to register offerings of their shares of Class H common stock no more than two times in any twelve-month period during the first four years following the initial contribution and three times in any twelve-month period thereafter for the duration of the agreement. Subject to certain limitations, GM will have the right to postpone the filing or effectiveness of any such registration or the making of certain transfers at any time that GM determines 28 that such action would interfere with any proposal or plan by GM to engage in any material transaction or would require GM to make a public disclosure of material information which was previously non-public. . The employee benefit plans will be prohibited from making a negotiated transfer of Class H common stock to certain persons who are or who as a result of the transfer would become holders of more than 5% of the then outstanding Class H common stock or in blocks of more than 2% of the then outstanding Class H common stock. Additionally, the underwriters in any registered offerings of the employee benefit plans' shares will agree to use their reasonable best efforts to make a broad public distribution of those shares and not to sell those shares in blocks of more than 2% of the then outstanding Class H common stock. . Prior to GM registering any offering of shares of Class H common stock with the SEC, GM will be required to notify the employee benefit plans of its intent to do so and, subject to certain exceptions and volume limitations, add to that offering as many shares of Class H common stock held by the employee benefit plans as they request. . In the context of a third-party tender offer, the employee benefit plans will be restricted from selling their shares of Class H common stock under certain circumstances, and they will have the right to cause GM to purchase their shares of Class H common stock under certain circumstances. The agreement is also expected to provide that in the event that Class H common stock would be converted into or exchanged for securities of an issuer other than GM, that new issuer would succeed to all of the rights and obligations of GM under the agreement, except for certain indemnification provisions relating to prior offerings of Class H common stock under the agreement. Under such circumstances, all of the provisions of the agreement applicable to the Class H common stock held by the employee benefit plans would apply to the securities into which the Class H common stock is converted. An example of such a transaction would be the separation of Hughes from GM by means of a spin-off or split-off transaction. GM has no current plans or intention to separate Hughes or any of its businesses from GM, whether by means of a spin-off, split-off or any other transaction. It is also expected that, for a period that generally terminates on the second anniversary of certain possible corporate transactions involving Hughes, the employee benefit plans will each agree that they will vote against any transactions that would potentially limit a tax-free spin-off of Hughes. In addition, the employee benefit plans would be subject to certain transfer restrictions intended to preserve the tax-free status of certain possible corporate transactions involving Hughes. Effects of the Transactions Assuming that the exchange offer is fully subscribed and the contributions to the employee benefit plans are made as anticipated, and based on the number of shares of Class H common stock that would be subject to the contributions as determined by the closing trading price of Class H common stock on , 2000, the combined effect of the exchange offer and the contributions will be to increase the tracking stock interest in Hughes' earnings represented by Class H common stock from about 37% to %, with a corresponding reduction of the portion of Hughes' earnings attributable to $1 2/3 par value common stock from about 63% to %. These percentages are provided for illustrative purposes only and are based on certain assumptions which give effect to the exercise of outstanding stock options and the shares of Class H common stock issuable upon conversion of the Series H preference shares, as described further below at "Description of Class H Common Stock-- Detailed Calculation of Amount Available for Dividends on Class H Common Stock--Illustrative Calculation of Class H Fraction Following the Exchange Offer and the Contributions to the Employee Benefit Plans." The actual percentages will not be known until the actual number of shares of Class H common stock issued in the exchange offer and the contributions to the employee benefit plans have been determined. Although GM will have reduced its economic interest in Hughes as a result of these transactions, GM will continue to own 100% of the common stock of Hughes. Accordingly, we will continue to be able to realize the strategic benefits of owning and controlling Hughes and the financial benefits of consolidating Hughes' financial position and results in our financial statements and of consolidating Hughes for U.S. federal income tax purposes. 29 Exchange Offer The issuance of shares of Class H common stock in this exchange offer will increase the numerator of the Class H fraction by the number of shares issued in the exchange offer and will thereby reduce the interest of $1 2/3 par value stockholders in the financial performance of Hughes for earnings per share and dividend purposes. The exchange offer will provide $1 2/3 par value stockholders with an opportunity to increase, in a manner generally free of U.S. federal income tax, their interest in the financial performance of Hughes by exchanging shares of $1 2/3 par value common stock for shares of Class H common stock. Every $1 2/3 par value stockholder will be affected by these transactions, regardless of whether he or she participates in the exchange offer, as described below: . Tender of All of Your Shares of $1 2/3 Par Value Common Stock. If you tender all of your shares of $1 2/3 par value common stock for shares of Class H common stock in the exchange offer, provided all such shares are accepted for exchange, you will continue to have an ownership interest in General Motors, but you will have increased your interest in the financial performance of Hughes by virtue of your ownership of Class H common stock. However, you will no longer participate in any change in value of the $1 2/3 par value common stock because you will no longer own any shares of $1 2/3 par value common stock. . Tender of Some, But Not All, of Your Shares of $1 2/3 Par Value Common Stock. If you exchange some, but not all, of your shares of $1 2/3 par value common stock in the exchange offer, you will generally have an increased interest in the financial performance of Hughes, and a diminished interest in the financial performance of GM's businesses other than Hughes, assuming that you exchange a greater percentage of your shares of $1 2/3 par value common stock than the percentage of all outstanding shares of $1 2/3 par value common stock that are exchanged in the exchange offer. . Tender of None of Your Shares of $1 2/3 Par Value Common Stock. If you do not tender any of your shares of $1 2/3 par value common stock in the exchange offer, you will continue to own the same number of shares of $1 2/3 par value common stock and will thus continue to have an ownership interest in General Motors. You will continue to participate in any change in the value of the $1 2/3 par value common stock. However, as a result of the increase in the numerator of the Class H fraction described above, you will have a diminished interest in the financial performance of Hughes. All shares of $1 2/3 par value common stock acquired by General Motors in the exchange offer will become authorized and unissued shares of $1 2/3 par value common stock. This means that these shares will generally be available for issuance by GM without further stockholder action, except as may be required by applicable law or the rules of the NYSE, for general or other corporate purposes, including stock splits and dividends, acquisitions, the raising of additional capital for use in GM's businesses and pursuant to employee benefit plans. Contributions to the Employee Benefit Plans The issuance of shares of Class H common stock in the contributions to the employee benefit plans, assuming they are made as anticipated, will also increase the numerator of the Class H fraction by the number of shares issued in the contributions and will thereby reduce the interest of $1 2/3 par value stockholders in the financial performance of Hughes for earnings per share and dividend purposes. The contribution to the pension plan will reduce our annual pension expense and will help to ensure that the pension plan will continue to be fully funded, as determined in accordance with applicable accounting standards. Additionally, the contribution to the VEBA will reduce our expense relating to other post-retirement benefits for our employees. However, we cannot accurately predict the amount or timing of our pension funding obligations in the future or the related impact on our financial results and financial condition. These amounts may be affected by general economic conditions, including anticipated interest rates, the actual investment return on plan assets, including the value of the shares of Class H common stock contributed to the pension plan, the retirement rate of our employees, the attrition rate of our employees and other factors. In particular, following the contribution to the pension plan, so long as the pension plan holds any Class H common stock, any appreciation or depreciation in the value of Class H common stock will affect the level of GM's pension expense and unfunded pension liability, which are actuarially determined and computed in accordance with generally accepted accounting principles. 30 Following the contributions, subject to certain restrictions, the trustees of the employee benefit plans will have the authority and discretion to cause the employee benefit plans to hold the shares of Class H common stock contributed by GM or to sell all or any portion thereof from time to time as they deem appropriate. Significant sales of Class H common stock by the employee benefit plans could adversely affect the market price of Class H common stock. The employee benefit plans will be subject to agreements that will provide them with registration rights with respect to the shares of Class H common stock they receive pursuant to the contributions, but will also regulate the manner in which such shares may be sold. For more information, see "--Contributions to the Employee Benefit Plans--Registration Rights and Transfer Restrictions." No Appraisal Rights Appraisal is a statutory remedy available to corporate minority stockholders who object to extraordinary actions taken by their corporation. This remedy allows dissenting stockholders to require the corporation to repurchase their stock at a price equivalent to its value immediately prior to the extraordinary corporate action. No appraisal rights are available to $1 2/3 par value stockholders or Class H stockholders in connection with the exchange offer. Regulatory Approvals In order to complete the exchange offer, we must make certain filings and notifications and receive certain authorizations or exemptions from governmental agencies regulating securities law issues in foreign jurisdictions. We believe that no material foreign regulatory requirements remain to be complied with, and no further material approvals must be obtained. For more information, see "The Exchange Offer--Certain Matters Relating to Foreign Jurisdictions." No filings under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, are required in connection with the exchange offer generally. If a $1 2/3 par value stockholder decides to participate in the exchange offer and consequently acquires enough shares of Class H common stock to exceed any threshold stated in the regulations under this act, and if an exemption under those regulations does not apply, such $1 2/3 par value stockholder and GM could be required to make filings under this act, and the waiting period under the act would have to expire or be terminated before any exchanges of shares with such stockholder could be effected. A filing requirement could delay exchanges with that stockholder for several months or more. Accounting Treatment The shares of $1 2/3 par value common stock which we receive pursuant to the exchange offer will be recorded as a decrease in GM's stockholders' equity in an amount equal to the market value as of the expiration date of the Class H common stock issued in the exchange offer. This issuance of Class H common stock will be recorded as an equal and offsetting increase in GM's stockholders' equity. Accordingly, except for the direct costs of the transaction, the exchange offer will not affect the financial position or results of operations of GM. As a result of the exchange offer, basic and diluted earnings per share calculations for the $1 2/3 par value common stock subsequent to the expiration date will reflect the lower number of outstanding shares of $1 2/3 par value common stock and the $1 2/3 par value stockholders' decreased interest in the available separate consolidated net income of Hughes. While the earnings per share for Class H common stock will not change, basic and diluted earnings per share calculations for the Class H common stock subsequent to the expiration date will reflect the Class H stockholders' increased interest in the available separate consolidated net income of Hughes and the proportionate increase in the number of shares of Class H common stock outstanding. The contributions of Class H common stock to the employee benefit plans will be recorded at the value assigned to such Class H common stock by the trustees of the plans at the time of the contributions, with these respective amounts increasing GM's prepaid pension asset and reducing GM's liability for other post-retirement employee benefits. The expected return on these assets will reduce our annual pension expense and our annual expense associated with other post-retirement employee benefits. GM's issuance of shares of Class H common stock in the exchange offer and the contributions to the employee benefit plans will not, in and of itself, affect the financial position or results of operations of Hughes. 31 THE EXCHANGE OFFER Terms of the Exchange Offer General Motors is offering to exchange shares of Class H common stock for each share of $1 2/3 par value common stock held that is validly tendered on the terms and subject to the conditions described below by 12:00 midnight, New York City time, on , 2000. GM may extend this deadline for any reason, including under certain circumstances specified below. The last day on which tenders will be accepted, whether on , 2000 or any later date to which the exchange offer may be extended, is sometimes referred to in this document as the "expiration date." This is a voluntary exchange offer, which means that $1 2/3 par value stockholders may tender all, some or none of their shares in the exchange offer. All persons holding $1 2/3 par value common stock are eligible to participate in the exchange offer if they validly tender their shares during the exchange offer period in a jurisdiction where the exchange offer is permitted under the laws of that jurisdiction. GM will accept up to shares of $1 2/3 par value common stock for exchange and will issue up to shares of Class H common stock in the exchange offer. If more than shares of $1 2/3 par value common stock are validly tendered, the tendered shares will be subject to proration when the exchange offer expires. GM's obligation to complete the exchange offer is subject to important conditions that are described at "--Conditions for Completion of the Exchange Offer." In determining the exchange ratio, GM considered, among other things: . recent market prices on the NYSE for shares of $1 2/3 par value common stock and Class H common stock; and . advice from the dealer manager as to what exchange ratio might attract enough $1 2/3 par value stockholders to participate in the exchange offer. We are sending this document and related documents to all persons who held shares of $1 2/3 par value common stock on or about , 2000. As of December 31, 1999, there were about 617,437,531 shares of $1 2/3 par value common stock outstanding, which were held of record by about 499,809 stockholders. GM will furnish this document and related documents to brokers, banks and similar persons whose names or the names of whose nominees appear on GM's $1 2/3 par value stockholder list or, if applicable, who are listed as participants in a clearing agency's security position listing for subsequent transmittal to beneficial owners of shares of $1 2/3 par value common stock. The terms and conditions of this exchange offer are set forth in this document, the letter of transmittal and the instructions to the letter of transmittal. Each stockholder who tenders shares in the exchange offer will be agreeing to the terms and conditions of the exchange offer and will be making certain representations and warranties to, and agreements with GM, as described in these documents. We urge you to read these documents carefully before deciding whether to participate in the exchange offer. None of General Motors, Hughes, the exchange agent, the information agent, the dealer manager, the marketing manager or any of their respective officers or directors makes any recommendation as to whether you should participate in the exchange offer. Proration; Tenders for Exchange by Holders of Fewer than 100 Shares of $1 2/3 Par Value Common Stock If, upon the expiration date, $1 2/3 par value stockholders have validly tendered more than shares of $1 2/3 par value common stock so that more than shares of Class H common stock would be exchanged, we will accept on a pro rata basis all shares of $1 2/3 par value common stock validly tendered and not withdrawn, with appropriate adjustments to avoid the issuance of fractional shares of $1 2/3 par value common stock, except as described below. Except as otherwise provided in this paragraph, holders of an aggregate of less than 100 shares of $1 2/3 par value common stock who validly tender all of their shares will not be subject to proration if the exchange offer is oversubscribed. Shares of $1 2/3 par value common stock held in a GM or GM affiliated company savings plan 32 are not eligible for this preferential treatment. Beneficial holders of 100 or more shares of $1 2/3 par value common stock are not eligible for this preferential treatment, even if such holders have separate stock certificates or accounts representing fewer than 100 shares of $1 2/3 par value common stock. If you own fewer than 100 shares of $1 2/3 par value common stock and wish to take advantage of the preferential treatment of odd-lot shares in the event of proration, you must tender all of your shares in the exchange offer. We will announce preliminary results of the exchange offer by press release promptly after the expiration date. However, because of the difficulty in determining the number of shares of $1 2/3 par value common stock validly tendered for exchange, GM expects that the final results, including proration, if any, will not be determined until about seven business days after the expiration date. We will announce the final results of the exchange offer by press release promptly after such results have been determined. No Fractional Shares No fractional shares of Class H common stock will be distributed in the exchange offer. The exchange agent, acting as agent for holders of $1 2/3 par value common stock otherwise entitled to receive fractional shares of Class H common stock as a result of the exchange offer, will aggregate all fractional shares and sell them for the accounts of those stockholders after the exchange offer. The proceeds from these sales will be distributed, net of commissions, to those stockholders on a pro rata basis. These cash payments will be made instead of issuing fractional shares whether shares are tendered to the exchange agent or through the book-entry transfer facility. These cash payments will generally be taxable to you. See "Material U.S. Federal Income Tax Consequences." None of General Motors, Hughes, Fleet, Morrow, Morgan Stanley Dean Witter, Salomon Smith Barney or any soliciting dealer will guarantee any minimum proceeds from the sale of fractional shares of Class H common stock, and no interest will be paid on any of the proceeds. Exchange of Shares of $1 2/3 Value Common Stock If all of the conditions of the exchange offer are satisfied or waived, GM will exchange shares of Class H common stock for each validly tendered share of $1 2/3 par value common stock that was not properly withdrawn prior to the expiration date, except as described at "--Proration; Tenders for Exchange by Holders of Fewer Than 100 Shares of $1 2/3 Par Value Common Stock" and "--Extension of Tender Period; Termination; Amendment." GM may, subject to the rules under the Securities Exchange Act, delay accepting or exchanging any shares of $1 2/3 par value common stock in order to comply in whole or in part with any applicable law. For a description of GM's right to delay, terminate or amend the exchange offer, see "--Extension of Tender Period; Termination; Amendment." If GM notifies the exchange agent either orally or in writing that it has accepted the tenders of shares of $1 2/3 par value common stock for exchange, the exchange of these shares will be complete. Promptly following the announcement by GM of any final proration factor, the exchange agent will deliver the tendered shares of $1 2/3 par value common stock to GM. Simultaneously, the exchange agent, as agent for the tendering stockholders, will receive from GM, the shares of Class H common stock that correspond, based on the exchange ratio and taking into account proration, to the number of shares of $1 2/3 par value common stock tendered. The exchange agent will then credit such shares to book-entry accounts maintained by the transfer agent for the benefit of the holders. If any tendered shares of $1 2/3 par value common stock are not exchanged for any reason, or if fewer shares are exchanged due to proration, these unexchanged or untendered shares of $1 2/3 par value common stock will be credited to book-entry accounts for the shares maintained by GM's transfer agent for the benefit of the holders. As soon as reasonably practicable following the crediting of shares to your respective book-entry accounts, GM's transfer agent will send you an account statement evidencing your holdings. 33 GM will not pay interest under the exchange offer, regardless of any delay in making the exchange or crediting or delivering shares. No alternative, conditional or contingent tenders will be accepted in the exchange offer. Tendering stockholders waive any right to receive notice of the acceptance by GM of their shares of $1 2/3 par value common stock for exchange. Procedures for Tendering Shares of $1 2/3 Par Value Common Stock To tender your shares of $1 2/3 par value common stock, you must complete the following procedures before the expiration date: If you have stock certificates representing your shares of $1 2/3 par value common stock, you should send the following documents to the exchange agent by registered mail, return receipt requested, sufficiently in advance of the expiration date for them to be received by the exchange agent before the expiration date: . a properly completed and executed letter of transmittal indicating the number of shares of $1 2/3 par value common stock to be tendered and any other documents required by the instructions to the letter of transmittal; and . the actual stock certificates representing the shares of $1 2/3 par value common stock to be tendered. In addition, you must endorse your stock certificate or enclose an appropriate stock power if: . a stock certificate representing shares of $1 2/3 par value common stock is registered in the name of a person other than the signer of a letter of transmittal; . delivery of shares of Class H common stock is to be made to the exchange agent on behalf of a person other than the registered owner of the shares of $1 2/3 par value common stock being tendered; or . shares of $1 2/3 par value common stock not accepted for exchange are to be delivered to GM's transfer agent on behalf of a person other than the registered owner. The signature on the letter of transmittal must be guaranteed by an eligible institution unless the shares of $1 2/3 par value common stock tendered under the letter of transmittal are tendered in one of the following ways: . by the registered holder of the shares of $1 2/3 par value common stock tendered if such holder has not requested special issuance as described in "Special Issuance Instructions" of the instructions to the letter of transmittal; or . for the account of an eligible institution. An eligible institution is a member of a registered national securities exchange or a member of the National Association of Securities Dealers, Inc. or a commercial bank or trust company having an office or a correspondent in the United States. Most banks and financial institutions are eligible institutions. The exchange agent's addresses are set forth on the back cover of this document. If you hold your shares of $1 2/3 par value common stock through a broker, you should follow the instructions sent to you separately by your broker. You should not use the letter of transmittal to direct the tender of your shares of $1 2/3 par value common stock. Your broker must notify The Depository Trust Company and cause it to transfer the shares into the exchange agent's account in accordance with The Depository Trust Company's procedures. The broker must also ensure that the exchange agent receives an agent's message from The Depository Trust Company confirming the book-entry transfer of your shares of $1 2/3 par value common stock. An agent's message is a message, transmitted by The Depository Trust Company and received by the exchange agent, that forms a part of a book-entry confirmation, which states that The Depository Trust Company has received an express acknowledgment from the participant in The Depository Trust Company tendering the shares that such participant has received and agrees to be bound by the terms of the letter of transmittal and the accompanying instructions to the letter of transmittal. 34 If you are an institution which is a participant in The Depository Trust Company's book-entry transfer facility, you should follow the same procedures that are applicable to persons holding shares through a broker as described in the immediately preceding paragraph. If you hold your shares of $1 2/3 par value common stock as a participant in GM's Dividend and Cash Investment Plan or in book-entry form with the GM transfer agent through the direct registration system, you should send a properly completed and executed letter of transmittal indicating the number of shares to be tendered and any other documents required by the instructions to the letter of transmittal to the exchange agent by registered mail, return receipt requested, sufficiently in advance of the expiration date for them to be received by the exchange agent before the expiration date. If you tender all of your shares that you hold in GM's Dividend and Cash Investment Plan, that tender will constitute termination of your participation in GM's Dividend and Cash Investment Plan. If you hold your shares of $1 2/3 par value common stock as a participant in a GM or a GM affiliated company savings plan, you should follow the instructions sent to you separately by the plan trustees or administrator of the plan. You should not use the letter of transmittal to direct the tender of your shares of $1 2/3 par value common stock held in such a plan. The GM or GM affiliated company savings plans eligible to participate in the exchange offer include: . The General Motors Savings-Stock Purchase Program for Salaried Employees in the United States; . The Personal Savings Plan for Hourly-Rate Employees in the United States; . The Saturn Individual Savings Plan for Represented Members; . The General Motors Canadian Savings-Stock Purchase Program; . The GMAC Mortgage Group Savings Incentive Plan; and . General Motors of Canada Limited Group Retirement Savings Plan and Savings Plan for Hourly Employees. Also, employees of GM and its affiliates who hold shares of $1 2/3 par value common stock following the exercise of stock options are eligible to participate in the exchange offer. Holders of shares of $1 2/3 par value common stock that were acquired upon the exercise of an incentive stock option generally will not be taxed for U.S. federal income tax purposes at the time of tender of such shares, but rather generally will be taxed at the time of the disposition of the shares of Class H common stock that were acquired in exchange for such shares of $1 2/3 par value common stock. Each holder of $1 2/3 par value common stock subject to stock options should consult his or her tax advisor as to the particular tax consequences to that holder. Trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity who sign the letter of transmittal, notice of guaranteed delivery or any certificates or stock powers must indicate the capacity in which they are signing, and must submit evidence of their power to act in that capacity unless waived by GM. If you validly tender your shares of $1 2/3 par value common stock and such shares are accepted by GM, there will be a binding agreement between you and GM on the terms and subject to the conditions set forth in this document and in the letter of transmittal and the accompanying instructions to the letter of transmittal. A person who tenders shares of $1 2/3 par value common stock for his or her own account violates U.S. federal securities law unless the person owns: . such shares of $1 2/3 par value common stock; . other securities convertible into or exchangeable for such shares of $1 2/3 par value common stock and intends to acquire shares of $1 2/3 par value common stock for tender by conversion or exchange of such securities; or 35 . an option, warrant or right to purchase such shares of $1 2/3 par value common stock and intends to acquire shares of $1 2/3 par value common stock for tender by exercise of such option, warrant or right. U.S. federal securities law provides a similar restriction applicable to the tender or guarantee of a tender on behalf of another person. Do not send letters of transmittal, certificates representing shares of $1 2/3 par value common stock or other exchange offer documents to General Motors, Hughes, Morrow, Morgan Stanley Dean Witter, Salomon Smith Barney or any soliciting dealer. These materials must be submitted to Fleet, the exchange agent, at one of the addresses set forth on the back cover of this document as described above in order for you to participate in the exchange offer. It is up to you to decide how to deliver your shares of $1 2/3 par value common stock and all other required documents to the exchange agent. It is your responsibility to ensure that all necessary materials are received by the exchange agent prior to the expiration date. If the exchange agent does not receive all of the materials required by this section at one of the addresses set forth on the back cover of this document before the expiration date, your shares will not be validly tendered in the exchange offer. Special Procedures for Certain Jurisdictions Outside the United States If you wish to tender your shares of $1 2/3 par value common stock in a jurisdiction other than the United States, certain special procedures may need to be followed, depending on the laws of the particular jurisdiction in which you tender your shares. For example, the laws of some foreign jurisdictions require that a local bank or similar institution be engaged as a local exchange agent for that jurisdiction. In each case where special procedures are applicable to a jurisdiction outside the United States, we have included special instructions regarding such procedures with this document. If you wish to tender your shares of $1 2/3 par value common stock in a jurisdiction other than the United States, you should also read carefully the information applicable to you at "--Certain Matters Relating to Foreign Jurisdictions." If you have questions concerning these special procedures, or if you plan to tender your shares from a jurisdiction other than the one indicated by your mailing address, please contact our information agent, Morrow, at (877) 816- 5329 (toll free) in the United States or at (212) 754-8000 (collect) elsewhere. GM's Interpretations Are Binding GM will determine in its sole and absolute discretion all questions as to the form of documents, including notices of withdrawal, and the validity, form, eligibility, including time of receipt, and acceptance for exchange of any tender of shares of $1 2/3 par value common stock in the exchange offer. This determination will be final and binding on all tendering stockholders. GM reserves the absolute right to: . determine whether a tendering stockholder is eligible; . reject any and all tenders of any shares of $1 2/3 par value common stock not validly tendered or the acceptance of which, in the opinion of GM's counsel, may be unlawful; . waive any defects or irregularities in the tender of shares of $1 2/3 par value common stock or any conditions of the exchange offer either before or after the expiration date; and . request any additional information from any record or beneficial owner of shares of $1 2/3 par value common stock that GM deems necessary or appropriate. None of GM, Hughes, Fleet, Morrow, Morgan Stanley Dean Witter, Salomon Smith Barney, the soliciting dealers and any other person will be under any duty to notify tendering $1 2/3 par value stockholders of any defect or irregularity in tenders or notices of withdrawal. It is your responsibility to ensure that your shares of $1 2/3 par value common stock are validly tendered in accordance with the procedures described in this document and the related documents prior to the expiration date. 36 Lost, Destroyed, Mutilated or Stolen Certificates If your certificate representing shares of $1 2/3 par value common stock has been lost, destroyed, mutilated or stolen and you wish to tender your shares, please complete Box A of the accompanying letter of transmittal. You will need to enclose a check payable to the surety company in the amount needed to pay for a surety bond for your lost, destroyed, mutilated or stolen shares and any other applicable procedures. The surety bond amount will be $1.60 per share, with a minimum surety bond amount of $20.00 in all cases. Upon receipt of the surety bond payment and a properly completed letter of transmittal, including Box A, your shares will be included in the exchange offer. Guaranteed Delivery Procedures If you wish to tender your shares of $1 2/3 par value common stock but the shares are not immediately available, or time will not permit the shares or other required documentation to reach the exchange agent before the expiration date, you may still tender your shares of $1 2/3 par value common stock if: . the tender is made through an eligible institution; . the exchange agent receives from the eligible institution before the expiration date, a properly completed and duly executed notice of guaranteed delivery, substantially in the form provided by GM; and . the exchange agent receives the certificates for all physically tendered shares of $1 2/3 par value common stock, in proper form for transfer and a properly completed letter of transmittal, or a facsimile of a letter of transmittal and all other documents required by the letter of transmittal and the accompanying instructions to the letter of transmittal, within three NYSE trading days after the date of execution of the notice of guaranteed delivery. You may deliver the notice of guaranteed delivery by hand, facsimile transmission or mail to the exchange agent at the applicable address set forth on the back cover of this document and you must include a guarantee by an eligible institution in the form set forth in the notice of guaranteed delivery. Withdrawal Rights You may withdraw tenders of shares of $1 2/3 par value common stock at any time prior to the expiration date and, unless GM has accepted your tender as provided in this document and the accompanying documents, after the expiration of 40 business days from the commencement of the exchange offer. If GM: . delays its acceptance of shares of $1 2/3 par value common stock for exchange; . extends the exchange offer; or . is unable to accept shares of $1 2/3 par value common stock for exchange under the exchange offer for any reason, then, without prejudice to GM's rights under the exchange offer, the exchange agent may, on behalf of GM, retain shares of $1 2/3 par value common stock tendered, and such shares of $1 2/3 par value common stock may not be withdrawn except as otherwise provided in this document, subject to provisions under the Securities Exchange Act that provide that an issuer making an exchange offer shall either pay the consideration offered or return tendered securities promptly after the termination or withdrawal of the exchange offer. For a withdrawal to be effective, a written notice of withdrawal must be received by the exchange agent at one of its addresses set forth on the back cover of this document. The notice of withdrawal must: . specify the name of the person having tendered the shares of $1 2/3 par value common stock to be withdrawn; . identify the number of shares of $1 2/3 par value common stock to be withdrawn; and . specify the name in which physical $1 2/3 par value common stock certificates are registered, if different from that of the withdrawing holder. 37 If certificates representing the shares of $1 2/3 par value common stock have been delivered or otherwise identified to the exchange agent, then, before the release of such certificates, the withdrawing holder must also submit the serial numbers of the particular certificates to be withdrawn. If the shares of $1 2/3 par value common stock have been tendered pursuant to the procedures for book-entry transfer, any notice of withdrawal must specify the name and number of the account at The Depository Trust Company to be credited with the withdrawn shares and otherwise comply with the procedures of such facility. If the shares of $1 2/3 par value common stock have been tendered pursuant to the procedures applicable to participants in GM's Dividend and Cash Investment Plan or through book-entry transfer under the direct registration system, any notice of withdrawal must specify the name and number of the account with GM's transfer agent. Any shares of $1 2/3 par value common stock withdrawn will be deemed not to have been validly tendered for exchange for purposes of the exchange offer. Properly withdrawn shares may be retendered by following one of the procedures described at "--Procedures for Tendering Shares of $1 2/3 Par Value Common Stock" at any time on or before the expiration date. If you withdraw your tender of any shares of $1 2/3 par value common stock, such shares will be credited to a book-entry account maintained by GM's transfer agent on your behalf. However, any stockholder who wishes to receive a physical certificate evidencing his or her shares will be able to obtain a certificate at no charge by contacting GM's transfer agent. Except as otherwise provided above, any tender of shares of $1 2/3 par value common stock made under the exchange offer is irrevocable. Book-Entry Accounts Physical stock certificates representing shares of Class H common stock or $1 2/3 par value common stock will not be issued as a result of the exchange offer. Rather than issuing physical stock certificates representing either shares of $1 2/3 par value common stock returned due to proration or withdrawal or shares of Class H common stock issued in exchange for shares of $1 2/3 par value common stock tendered in the exchange offer, the exchange agent will credit such shares to book-entry accounts maintained by the GM transfer agent for the benefit of the respective holders. This method of holding stock eliminates the need for actual stock certificates to be issued and eliminates the requirements for physical movement of stock certificates at the time of sale. As soon as reasonably practicable following the crediting of shares to your respective book-entry accounts, you will receive an account statement from GM's transfer agent evidencing your holdings, as well as general information on the book-entry form of ownership through GM's direct registration system. For more information about the book-entry form of ownership under GM's direct registration system, see "Description of Class H Common Stock--Direct Registration System." You are not required to maintain a book-entry account and you may at any time obtain a physical stock certificate for all or a portion of your shares of Class H common stock received as part of the exchange offer at no cost to you. Instructions describing how you can obtain stock certificates will be included with the account statement mailed to you and can also be obtained upon request from GM's transfer agent. Extension of Tender Period; Termination; Amendment GM expressly reserves the right, in its sole and absolute discretion, for any reason, including the non-satisfaction of any of the conditions for completion set forth below, to extend the period of time during which the exchange offer is open or to amend the exchange offer in any respect, including changing the exchange ratio. GM also expressly reserves the right to extend the period of time during which the exchange offer is open in the 38 event the exchange offer is undersubscribed--that is, fewer than shares of $1 2/3 par value common stock are tendered. In any of these cases, GM will make a public announcement of the extension or amendment. If GM materially changes the terms of or information concerning the exchange offer, GM will extend the exchange offer. Depending on the substance and nature of such change, we will extend the offer for at least five to ten business days following the announcement if the exchange offer would have otherwise expired within such five to ten business days. If any condition for completion of the exchange offer described below is not satisfied, GM reserves the right to choose to delay acceptance for exchange of any shares of $1 2/3 par value common stock or to terminate the exchange offer and not accept for exchange any shares of $1 2/3 par value common stock. For more information, see "--Conditions for Completion of the Exchange Offer--Consequences of Unsatisfied Conditions." If GM extends the exchange offer, is delayed in accepting any shares of $1 2/3 par value common stock or is unable to accept for exchange any shares of $1 2/3 par value common stock under the exchange offer for any reason, then, without affecting GM's rights under the exchange offer, the exchange agent may, on behalf of GM, retain all shares of $1 2/3 par value common stock tendered. These shares of $1 2/3 par value common stock may not be withdrawn except as provided at "--Withdrawal Rights" above. GM's reservation of the right to delay acceptance of any shares of $1 2/3 par value common stock is subject to applicable law, which requires that GM pay the consideration offered or return the shares of $1 2/3 par value common stock deposited promptly after the termination or withdrawal of the exchange offer. Any shares of $1 2/3 par value common stock to be returned to you will be credited to a book-entry account in your name maintained by GM's transfer agent. However, any stockholder who wishes to receive a physical certificate evidencing his or her shares will be able to obtain a certificate at no charge by contacting GM's transfer agent. GM will issue a press release or other public announcement no later than 9:00 a.m., New York City time, on the next business day following any extension, amendment, non-acceptance or termination of the previously scheduled expiration date. Conditions for Completion of the Exchange Offer Minimum Condition GM will not be obligated to complete the exchange offer unless at least shares of $1 2/3 par value common stock are validly tendered and not withdrawn and all of the other conditions to the exchange offer described below have been satisfied. This condition, which we sometimes refer to in this document as the "minimum condition," is designed to ensure that at least shares of Class H common stock are issued under the exchange offer and represents about % of the outstanding shares of $1 2/3 par value common stock as of , 2000. Tax Opinions Condition GM's obligation to complete the exchange offer is also conditioned on GM's receipt of an opinion from its outside tax counsel, Kirkland & Ellis, to the effect that, for U.S. federal income tax purposes, the exchange of Class H common stock for $1 2/3 par value common stock pursuant to the exchange offer will not result in the recognition of gain or loss either by $1 2/3 par value stockholders who participate in the exchange offer, except in connection with any cash received instead of fractional shares, or by GM. The exchange offer will have these U.S. federal income tax consequences to $1 2/3 par value stockholders and GM only if Class H common stock is treated as stock of GM for U.S. federal income tax purposes. GM anticipates that it will also receive an opinion from Kirkland & Ellis to this effect, the receipt of which is also a condition to GM's obligation to complete the exchange offer. For more information, see "Risk Factors--Risk Factors Relating to GM's Dual-Class Common Stock Capital Structure--Proposed Changes in the Tax Law Could Affect GM's Future Ability to Issue Shares of Class H Common Stock" and "Material U.S. Federal Income Tax Consequences." 39 Other Conditions In addition, even if the minimum condition is satisfied and GM receives the tax opinions, GM may also choose not to accept shares for exchange and not to complete the exchange offer if: . any action, proceeding or litigation seeking to enjoin, make illegal or delay completion of the exchange offer or otherwise relating in any manner to the exchange offer is instituted or threatened; . any order, stay, judgment or decree is issued by any court, government, governmental authority or other regulatory or administrative authority and is in effect, or any statute, rule, regulation, governmental order or injunction shall have been proposed, enacted, enforced or deemed applicable to the exchange offer, any of which would or might restrain, prohibit or delay completion of the exchange offer or impair the contemplated benefits of the exchange offer to GM or Hughes; . any of the following occurs and the adverse effect of such occurrence shall, in the reasonable judgment of GM, be continuing: . any general suspension of trading in, or limitation on prices for, securities on any national securities exchange or in the over-the- counter market in the United States; . any extraordinary or material adverse change in U.S. financial markets generally, including, without limitation, a decline of at least twenty percent in either the Dow Jones Average of Industrial stocks or the Standard & Poor's 500 Index from , 2000; . a declaration of a banking moratorium or any suspension of payments in respect of banks in the United States; . any limitation, whether or not mandatory, by any governmental entity on, or any other event that would reasonably be expected to materially adversely affect, the extension of credit by banks or other lending institutions; . a commencement of a war or other national or international calamity directly or indirectly involving the United States, which would reasonably be expected to affect materially and adversely, or to delay materially, the completion of the exchange offer; or . if any of the situations described above exists at the time of commencement of the exchange offer, GM determines that the situation deteriorates materially subsequent to the time of commencement; . any tender or exchange offer, other than this exchange offer by GM, with respect to some or all of the outstanding Class H common stock or $1 2/3 par value common stock or any merger, acquisition or other business combination proposal involving GM or Hughes, shall have been proposed, announced or made by any person or entity; . any event or events occur that have resulted or may result, in GM's judgment, in an actual or threatened change in the business condition, income, operations, stock ownership or prospects of GM and its subsidiaries, taken as a whole, or of Hughes and its subsidiaries, taken as a whole; or . as the terms "group" and "beneficial owner" are used in Section 13(d) of the Securities Exchange Act and SEC rules thereunder, . any person, entity or group shall have become directly or indirectly the beneficial owner of more than five percent of the outstanding shares of $1 2/3 par value common stock or Class H common stock, other than a person, entity or group which had publicly disclosed such beneficial ownership by an appropriate filing with the SEC prior to , 2000; or . any such person, entity or group which had publicly disclosed such beneficial ownership prior to such date shall have become directly or indirectly the beneficial owner of additional $1 2/3 par value common stock and Class H common stock, the ownership of which was not publicly disclosed in such filing, constituting more than two percent of the outstanding shares of $1 2/3 par value common stock and Class H common stock; or 40 . any new group shall have been formed that beneficially owns more than five percent of the outstanding shares of $1 2/3 par value common stock or Class H common stock; or . any one or more of the foregoing events relating to beneficial ownership would occur as a result of the issuance of Class H common stock in exchange for any shares of $1 2/3 par value common stock that have been tendered in the exchange offer; the occurrence of which event, in the judgment of GM in any such case and regardless of the circumstances, makes it inadvisable to proceed with the exchange offer or with the acceptance of shares of $1 2/3 par value common stock tendered for exchange. Consequences of Unsatisfied Conditions If any condition to the exchange offer is not satisfied, GM may, in its sole and absolute discretion: . terminate the exchange offer and promptly return in book-entry form all tendered shares of $1 2/3 par value common stock to tendering stockholders; . delay acceptance for exchange of any shares of $1 2/3 par value common stock, extend the exchange offer and, subject to the withdrawal rights described at "--Withdrawal Rights," retain all tendered shares of $1 2/3 par value common stock until the extended exchange offer expires; . amend the terms and conditions of the exchange offer; or . waive the unsatisfied condition and, subject to any requirement to extend the period of time during which the exchange offer is open, complete the exchange offer. These conditions are for the sole and exclusive benefit of GM. GM may assert these conditions with respect to all or any portion of the exchange offer regardless of the circumstances giving rise to them. GM may waive any condition in whole or in part at any time in its sole and absolute discretion. GM's failure to exercise its rights under any of the conditions described above does not represent a waiver of these rights. Each right is an ongoing right which may be asserted at any time. Any determination by GM concerning the conditions described above will be final and binding upon all parties. If a stop order issued by the SEC is in effect at any time after the commencement of this exchange offer with respect to the registration statement of which this document is a part, GM will not accept any shares of $1 2/3 par value common stock tendered and will not exchange shares of Class H common stock for any shares of $1 2/3 par value common stock. Legal Limitation This document is not an offer to sell, and it is not soliciting any offer to buy, any Class H common stock in any jurisdiction in which the offer or sale is not permitted. Other than as described below under "--Matters Relating to Foreign Jurisdictions--Legal Restrictions Governing the Exchange Offer," General Motors is not currently aware of any jurisdiction where the making of the exchange offer or its acceptance would not be legal. If GM learns of any jurisdiction where making the exchange offer or its acceptance would not be permitted, GM intends to make a good faith effort to comply with the relevant law of such jurisdiction. If, after a good faith effort, GM cannot comply with such law, GM will determine whether the exchange offer will be made to, and whether tenders will be accepted from or on behalf of, persons who are holders of shares of $1 2/3 par value common stock residing in the jurisdiction. In any U.S. jurisdiction where the securities or blue sky laws require the exchange offer to be made by a licensed broker or dealer, the exchange offer shall be deemed to be made by Morgan Stanley & Co. Incorporated and, in other jurisdictions, may be made on GM's behalf by one or more registered brokers or dealers licensed under the laws of such jurisdiction. For information regarding legal restrictions governing the exchange offer in certain foreign jurisdictions, see "--Matters Relating to Foreign Jurisdictions--Legal Restrictions Governing the Exchange Offer." 41 Fees and Expenses Dealer Manager Morgan Stanley & Co. Incorporated is acting as the dealer manager in connection with the exchange offer. Morgan Stanley will receive a fee of $1.5 million for its services as dealer manager, in addition to being reimbursed by GM for its reasonable out-of-pocket expenses, including attorneys' fees, in connection with the exchange offer. The foregoing fees will be payable if and when the exchange offer is completed. Morgan Stanley has in the past provided and is currently providing investment banking services to GM and Hughes, including financial advisory services to GM in connection with the restructuring of GM's economic interest in Hughes, for which it has received and will receive customary compensation. GM has agreed to indemnify Morgan Stanley Dean Witter against specified liabilities related to this transaction, including civil liabilities under the U.S. federal securities laws, and to contribute to payments which Morgan Stanley Dean Witter may be required to make in respect thereof. However, it is the opinion of the SEC that indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. Morgan Stanley Dean Witter may from time to time hold shares of $1 2/3 par value common stock in its proprietary accounts, and to the extent it owns shares in these accounts at the time of the exchange offer, it may tender these shares in the exchange offer. Marketing Manager for Hughes Salomon Smith Barney Inc. is acting as marketing manager for Hughes in connection with the exchange offer. In its role as marketing manager for Hughes, Salomon Smith Barney will participate in the marketing efforts related to the transaction. Salomon Smith Barney will receive a fee of $1.5 million for its services as marketing manager, in addition to being reimbursed by Hughes for its reasonable out-of-pocket expenses, including attorneys' fees, in connection with the exchange offer. The foregoing fees will be payable when and if the exchange offer is completed. Salomon Smith Barney has in the past provided and is currently providing investment banking services to GM and Hughes, including financial advisory services to Hughes in connection with the restructuring of GM's economic interest in Hughes, for which it has received and will receive customary compensation. Hughes has agreed to indemnify Salomon Smith Barney against specified liabilities related to this transaction, including civil liabilities under the U.S. federal securities laws, and to contribute to payments which Salomon Smith Barney may be required to make in respect thereof. However, it is the opinion of the SEC that indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. Salomon Smith Barney may from time to time hold shares of $1 2/3 par value common stock in its proprietary accounts, and to the extent it owns shares in these accounts at the time of the exchange offer, it may tender these shares in the exchange offer. Soliciting Dealers GM will pay each soliciting dealer a solicitation fee of $0.75 per share, for up to 1,000 shares per tendering $1 2/3 par value stockholder, for each share of $1 2/3 par value common stock tendered and accepted for exchange under the exchange offer if that soliciting dealer has affirmatively solicited and obtained the tender. GM will not pay a solicitation fee in connection with a tender of $1 2/3 par value common stock by a $1 2/3 par value stockholder who tenders: . more than 10,000 shares of $1 2/3 par value common stock; or . from a country outside the United States. "Soliciting dealer" includes the following organizations: . any broker or dealer in securities that is a member of any national securities exchange in the United States or of the National Association of Securities Dealers, Inc.; or 42 . any bank or trust company located in the United States. In order for a soliciting dealer to receive a solicitation fee with respect to the valid tender of shares of $1 2/3 par value common stock held in registered form, the exchange agent must have received, by three NYSE trading days after the expiration date, a properly completed and duly executed letter of transmittal. If a letter of transmittal is not received by the exchange agent within three NYSE trading days after the expiration date, no solicitation fee will be paid to such soliciting dealer. In order for a soliciting dealer to receive a solicitation fee with respect to the valid tender of shares of $1 2/3 par value common stock held beneficially, the exchange agent must have received, by three NYSE trading days after the expiration date, an agent's message. If an agent's message is not received by the exchange agent within three NYSE trading days after the expiration date, no solicitation fee will be paid to such soliciting dealer. Under no circumstances shall a fee be paid to a soliciting dealer more than once with respect to any shares of $1 2/3 par value common stock. No soliciting dealer is required to make a recommendation to holders of shares of $1 2/3 par value common stock as to whether to tender or refrain from tendering in the exchange offer. Soliciting dealers should take care to ensure proper record-keeping to document their entitlement to any solicitation fee. GM and the exchange agent reserve the right to require additional information, as deemed warranted in their sole discretion. All questions as to the validity, form, and eligibility, including time of receipt of notices of solicited tenders will be determined by the exchange agent and GM, in their sole discretion, which determination will be final and binding. Neither GM, the exchange agent nor any other person will be under any duty to give notification of any defects or irregularities in a notice of solicited tender or incur any liability for failure to give such notification. GM will not pay a solicitation fee to a soliciting dealer who for any reason must transfer the fee to a tendering stockholder. Soliciting dealers are not entitled to a solicitation fee with respect to shares of $1 2/3 par value common stock beneficially owned by them or with respect to any shares that are registered in the name of a soliciting dealer unless the shares are held by such soliciting dealer as nominee and are tendered for the benefit of beneficial holders. No broker, dealer, bank, trust company or fiduciary shall be deemed to be the agent of GM, Hughes, Fleet, Morrow, Morgan Stanley Dean Witter or Salomon Smith Barney for purposes of the exchange offer. GM will not pay any fees or commissions to any broker or dealer or any other person, other than Morgan Stanley Dean Witter, Salomon Smith Barney and the soliciting dealers, for soliciting tenders of shares of $1 2/3 par value common stock under the exchange offer. Brokers, dealers, commercial banks and trust companies will, upon request made within a reasonable period of time, be reimbursed by GM for reasonable and necessary costs and expenses incurred by them in forwarding materials to their customers. Information Agent and Exchange Agent GM has retained Morrow & Co., Inc. to act as the information agent and Fleet National Bank to act as the exchange agent in connection with the exchange offer. Fleet also currently serves as GM's transfer agent. The information agent may contact holders of shares of $1 2/3 par value common stock by mail, telephone, facsimile transmission and personal interviews and may request brokers, dealers and other nominee stockholders to forward materials relating to the exchange offer to beneficial owners. The information agent and the exchange agent each will receive reasonable compensation for their respective services, will be reimbursed for reasonable out-of-pocket expenses and will be indemnified against liabilities in connection with their services. Neither the information agent nor the exchange agent has been retained to make solicitations or recommendations. The fees they receive will not be based on the number of shares of $1 2/3 par value common stock tendered under the exchange offer; however, the exchange agent will be compensated in part on the basis of the number of letters of transmittal received and the number of account statements distributed. 43 GM has retained certain other persons to serve as local exchange agents in connection with the exchange offer in jurisdictions outside the United States. These local exchange agents will receive reasonable compensation and other rights in connection with their services. Certain Matters Relating to Foreign Jurisdictions Legal Restrictions Governing the Exchange Offer As of December 31, 1999, there were $1 2/3 par value stockholders with addresses of record in more than 100 foreign jurisdictions throughout the world. As a result, GM is seeking to conduct the exchange offer on a global basis. However, GM is not offering to sell, and is not soliciting any offer to buy, any Class H common stock in any foreign jurisdiction in which the offer or sale is not permitted. GM is not currently aware of any foreign jurisdiction other than France or Japan where the making of the exchange offer to, or its acceptance by, current stockholders of record would not be legal. If GM learns of any other jurisdiction where making the exchange offer to, or its acceptance by, current stockholders of record would not be permitted without further action to be taken by GM, GM intends to make a good faith effort to comply with the relevant law of such jurisdiction. If, after a good faith effort, GM cannot comply with such law, GM will not extend the exchange offer to holders of shares of $1 2/3 par value common stock residing in that jurisdiction. In any jurisdiction where the securities or blue sky laws require the exchange offer to be made by a licensed broker or dealer, the exchange offer may be made on GM's behalf, but only with its prior written consent, by one or more registered brokers or dealers licensed under the laws of such jurisdiction. For more information, see "--Special Procedures for Certain Jurisdictions Outside the United States." Australia. This prospectus does not constitute a full disclosure document for the purposes of Australian law. Austria. No prospectus satisfying the requirements of Kapitalmarktgesetz, the Austrian Capital Markets Act, has been prepared in connection with the exchange offer. The exchange offer is therefore not a public offering under Austrian law, and each holder in Austria should retain independent tax advice to determine the tax consequences of participating in the exchange offer. Belgium. Upon approval by Commission bancaire et financiere/Commissie voor het Bank- en Financiewezen, the Belgian Commission for Banking and Finance, this document and other offering materials, and a Belgian supplement, in the French and Dutch languages, summarizing the principal terms and conditions of the exchange offer, will be available to the public at the head offices of BBL Bank at Avenue Marnix 24, 1000 Brussels. Brazil. The exchange offer has not been registered or approved and this prospectus has not been reviewed by the Comissao de Valores Mobiliarios in Brazil. The exchange offer is made to holders of $1 2/3 par value common stock as described in this document and is not available to the investing public in Brazil. General Motors will only issue shares of Class H common stock in exchange for shares of $1 2/3 par value common stock pursuant to the exchange offer in circumstances that do not constitute a public offering in Brazil and in accordance with applicable laws and regulations. GM reserves the right to reject shares of $1 2/3 par value common stock tendered in the exchange offer, as set forth elsewhere in this document. France. The exchange offer is not being conducted, directly or indirectly, in France. Therefore, this document may not be distributed in or forwarded to stockholders located in France. Any purported acceptance of or tender in this exchange offer that may be construed as violating these restrictions shall be null and void for all purposes. Germany. Upon approval by Bundesaufsichtsamt fur den Wertpapierhandel, the German Federal Securities Trading Authority, and publication in accordance with German law, this document and other offering materials, and a German supplement, summarizing the principal terms and conditions of the exchange offer, will be available to the public at the offices of Deutsche Bank AG, Taunusanlage 12, 60235 Frankfurt am Main. 44 Israel. GM has received an exemption from the prospectus requirements of the securities law of the State of Israel in connection with the exchange offer. You should not construe that exemption as certifying the accuracy, reliability or adequacy of the matters contained in this document or as to the investment quality of the securities offered by this document. Japan. The exchange offer is not being conducted, directly or indirectly, in Japan. Therefore, this document may not be distributed in or forwarded to stockholders located in Japan. Any purported acceptance of or tender in this exchange offer that may be construed as violating these restrictions shall be null and void for all purposes. Spain. Sin perjuicio de todo lo anterior, se advierte que la presente oferta esta asimismo condicionada en Espana a su previa verificacion y registro por parte de la Comision Nacional del Mercado de Valores, en los terminos previstos por los articulos 5 y 7 del Real Decreto 291/1992, de 27 de marzo, sobre Emisiones y Ofertas Publicas de Venta de Valores. En consecuencia, en el supuesto de que la referida verificacion y registro, que ya han sido solicitados del citado organismo, no tuvieran finalmente lugar con caracter previo al cierre de la oferta, esta no surtira efectos en Espana. Notwithstanding any other information contained in this document, GM's extension of the exchange offer in Spain is conditioned on the prior verification and registration by the Spanish National Stock Markets Commission, as provided for by articles 5 and 7 of Royal Decree 291/1992 of March 27, related to public issues and offerings of securities. GM has already requested that verification and registration; however, if it is not received prior to the closing of the exchange offer, the exchange offer shall not be effective in Spain and any tenders by $1 2/3 par value stockholders pursuant to the exchange offer in Spain will be rejected by GM. United Kingdom. A prospectus relating to the exchange offer has been prepared in accordance with the rules made pursuant to section 156A of the Financial Services Act 1986, will have been delivered for registration to the Registrar of Companies of England and Wales as required by section 149(1) of the Financial Services Act 1986 prior to its publication in accordance with the requirements of the Public Offers of Securities Regulations 1995 and will be made available to the public free of charge at the offices of Cleary, Gottlieb, Steen & Hamilton at City Place House, 55 Basinghall Street, London EC2V 5EH from the time shares of Class H common stock are offered to the public in the United Kingdom for the first time to the end of the period during which the exchange offer remains open. This document and other documents relating to the exchange offer may only be issued and passed on in the United Kingdom to a person who is of a kind described in Article 11(3) of the Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order 1996 as amended or is a person to whom such a document may otherwise lawfully be issued or passed on. Certain Other Foreign Jurisdictions. In certain other foreign jurisdictions, including Austria, Brazil, China, Ireland, Israel, Italy, Mexico, Norway, Spain, and Sweden, GM is conducting the exchange offer in reliance upon a private placement or other similar exemption or exception under the applicable laws of such jurisdictions. In the event that GM determines at any time that any such exemption or exception would not be available, GM reserves the right in its sole and absolute discretion to determine not to conduct the exchange offer in such jurisdiction and to reject any tenders in such jurisdictions. Income Tax Consequences in Certain Foreign Jurisdictions We briefly summarize below the tax consequences of the exchange offer for individual $1 2/3 par value stockholders residing in: . Australia; . Belgium; . Canada; . Germany; . The Netherlands; . Switzerland; and . The United Kingdom. 45 We do not intend this summary to be a comprehensive account of the rules applicable to individual $1 2/3 par value stockholders in any jurisdiction. In particular, we do not discuss the tax consequences for $1 2/3 par value stockholders who are subject to special tax rules. Moreover, this summary does not address the tax considerations relevant to the ownership and disposition of shares of Class H common stock, which are not expected to differ significantly from the considerations associated with holding shares of $1 2/3 par value common stock. As indicated below, the exchange will not be treated as a taxable event in some jurisdictions. In other jurisdictions, however, the exchange will be treated either as a taxable disposition of $1 2/3 par value common stock or as a dividend. Additional disclosure may be provided in supplemental materials as required by the law or practice of the relevant jurisdiction. Australia. The receipt of the Class H common stock and cash in exchange for the $1 2/3 par value common stock will be treated in part as a dividend for individual investors in Australia and the remainder will be treated as consideration received in respect of a taxable event, that is, the disposal of the $1 2/3 par value common stock. This taxable event may generate an assessable gain or loss. Belgium. The characterization of the exchange offer for Belgian tax purposes raises difficult issues. We believe that the exchange should be treated for Belgian tax purposes as a stock redemption by us in exchange for shares of another class of stock and, therefore, should not be a taxable transaction for individual $1 2/3 par value stockholders in Belgium. Further disclosure regarding the considerations relevant to Belgian holders of $1 2/3 par value common stock will be provided in the supplemental materials directed to those stockholders along with this document. The delivery of shares of Class H common stock in exchange for shares of $1 2/3 par value common stock may under certain circumstances be subject to stamp or similar taxes in Belgium, which we will not pay and for which each $1 2/3 par value stockholder tendering shares in the exchange offer in Belgium may be responsible. Canada. We summarize below the Canadian federal income tax consequences relating to $1 2/3 par value stockholders residing in Canada who tender their shares of $1 2/3 par value common stock and who hold their shares of $1 2/3 par value common stock as capital property for the purposes of the Income Tax Act (Canada), which we sometimes refer to in this document as the "Canadian Code." This summary is based upon the current provisions of the Canadian Code and the regulations issued thereunder, all specific proposals to amend the Canadian Code and the regulations publicly announced by the Canadian government prior to the date hereof and our understanding of the current administrative and assessing policies of the Canada Customs and Revenue Agency. This summary is not exhaustive of all possible Canadian federal income tax considerations and does not take into account any changes in law or administrative and assessing policies, whether by legislative, governmental or judicial decision or action, nor does it take into account or consider any other federal tax considerations or provincial, territorial or foreign tax considerations. For Canadian income tax purposes: . a $1 2/3 par value stockholder who is a resident of Canada and who exchanges pursuant to the exchange offer shares of $1 2/3 par value common stock which were held by the $1 2/3 par value stockholder as capital property immediately before the exchange for shares of Class H common stock to be held as capital property will not, solely by virtue of the exchange, realize a capital gain or loss in respect of the shares being exchanged for the purposes of the Canadian Code. . a $1 2/3 par value stockholder will be deemed to have acquired the shares of Class H common stock received as consideration for the shares being exchanged for a cost equal to the aggregate adjusted cost base of the shares being exchanged to the $1 2/3 par value stockholder immediately before the exchange. Under the published administrative practice of the Canada Customs and Revenue Agency, a holder who receives less than Cdn $200 cash instead of fractional shares on the exchange will have the option of either: . treating the cash received as the proceeds of disposition of the fractional shares for capital gains tax purposes; or 46 . treating the cash as a reduction in the cost to the holder of the Class H common stock received as consideration for the shares being exchanged. A holder who receives more than Cdn $200 cash instead of fractional shares must treat the cash as proceeds of disposition of the fractional shares for capital gains tax purposes. Germany. The exchange of $1 2/3 par value common stock for Class H common stock and cash should not be a taxable event for individual $1 2/3 par value stockholders in Germany who have held the $1 2/3 par value common stock as a private asset for more than one year. Otherwise, the exchange will be treated as a taxable disposition and $1 2/3 par value stockholders will recognize gain measured by the difference between their cost of acquisition for, or adjusted tax basis in, the $1 2/3 par value common stock and the value of the Class H common stock and cash received in exchange therefor. Individual $1 2/3 par value stockholders who have held $1 2/3 par value common stock as a private asset for not more than one year will only be subject to taxation if the aggregate amount of short-term capital gain realized during the calendar year is 1,000 German marks or more. The Netherlands. The receipt of Class H common stock and cash in exchange for $1 2/3 par value common stock will be treated as a dividend for individual $1 2/3 par value stockholders in the Netherlands, to the extent the fair market value of the Class H common stock exceeds the paid-in capital on the $1 2/3 par value common stock. Switzerland. The exchange of $1 2/3 par value common stock and cash for Class H common stock and cash will not be a taxable event for individual $1 2/3 par value stockholders in Switzerland for Swiss federal, Zurich cantonal and municipal income tax purposes, except to the extent cash is received instead of fractional share interests in Class H common stock. Other cantons are expected to apply a similar tax treatment. Individual Swiss resident $1 2/3 par value stockholders who hold the $1 2/3 par value common stock as part of their private property will also not be subject to taxation with respect to the cash they receive. The delivery of shares of Class H common stock in exchange for shares of $1 2/3 par value common stock may under certain circumstances be subject to a stamp duty in Switzerland, which we will not pay and for which each $1 2/3 par value stockholder tendering shares in the exchange offer in Switzerland may be responsible. United Kingdom. The exchange of $1 2/3 par value common stock for Class H common stock and cash will not be a taxable event for individual $1 2/3 par value stockholders in the United Kingdom, except that, under certain circumstances, U.K. resident $1 2/3 par value stockholders will be subject to taxation to the extent cash is received instead of fractional share interests in Class H common stock. All $1 2/3 par value stockholders should consult their own tax advisors concerning the tax consequences of the exchange offer in light of their particular circumstances in the countries in which they are subject to taxation. 47 PRICE RANGE AND DIVIDENDS FOR $1 2/3 PAR VALUE COMMON STOCK GM's $1 2/3 par value common stock is listed and traded on the NYSE under the symbol "GM." The following table contains, for the periods indicated, the high and low sale price per share of $1 2/3 par value common stock, not adjusted to account for the spin-off of Delphi which occurred during the second quarter of 1999, as reported on the NYSE composite tape, and the cash dividends paid per share of $1 2/3 par value common stock:
Cash Dividend Calendar Year High Low Per Share ------------- ------ ------ ------------- 1998 First Quarter............................... $74.25 $55.06 $0.50 Second Quarter.............................. 76.69 66.13 0.50 Third Quarter............................... 74.75 54.44 0.50 Fourth Quarter.............................. 74.94 47.06 0.50 1999 First Quarter............................... $93.88 $69.19 $0.50 Second Quarter.............................. 94.88 61.06 0.50 Third Quarter............................... 72.44 59.75 0.50 Fourth Quarter.............................. 79.06 60.69 0.50 2000 First Quarter............................... $88.13 $70.75 $0.50 Second Quarter (through April 7, 2000)...... 86.63 79.25 --
There were 499,809 holders of record of $1 2/3 par value common stock as of December 31, 1999. On January 31, 2000, the last full day of trading prior to the public announcement of the exchange offer, the closing trading price per share of $1 2/3 par value common stock as reported on the NYSE composite tape was $80.56. On , 2000, the second to last full day of trading prior to commencement of the exchange offer, the closing trading price of a share of $1 2/3 par value common stock as reported on the NYSE was $ . You should obtain current market quotations for the shares of $1 2/3 par value common stock before deciding whether to tender your shares of $1 2/3 par value common stock. We can give no assurance concerning the market price of $1 2/3 par value common stock in the future. If the GM board of directors declares a quarterly dividend on the $1 2/3 par value common stock after commencement of the exchange offer but prior to the expiration of the exchange offer period, it is possible that the record date for determining holders of $1 2/3 par value common stock entitled to receive the dividend would be a date before the expiration of the exchange offer period. Tendering your shares of $1 2/3 par value common stock in the exchange offer will not change your status as a record holder of $1 2/3 par value common stock, except with respect to those of your shares that are accepted for exchange upon completion of the exchange offer. This means that if you tender shares of $1 2/3 par value common stock before the record date for a dividend, you will continue to be the record holder of those shares on the record date and you will be entitled to receive payment of the dividend if the record date is a date prior to the expiration of the exchange offer period. In such event, the quarterly dividend would be paid to you in the normal manner and would be separate from any shares of Class H common stock, and cash instead of fractional shares, issued to you in the exchange offer. $1 2/3 par value stockholders who exchange shares of $1 2/3 par value common stock pursuant to this exchange offer will not be entitled to any dividends on those shares of $1 2/3 par value common stock with a record date after the date on which GM accepts such tendered shares. $1 2/3 par value stockholders will continue to receive the regular quarterly dividend with respect to any shares of $1 2/3 par value common stock that are not exchanged pursuant to the exchange offer. The GM board of directors may declare dividends on $1 2/3 par value common stock after considering many factors, including GM's competitive position, available cash, financial conditions, earnings and capital requirements. GM may choose not to pay dividends in the future. See "Comparison of Rights of $1 2/3 Par Value Stockholders and Class H Stockholders--Common Stock Dividends." 48 PRICE RANGE FOR CLASS H COMMON STOCK The Class H common stock is listed on the NYSE under the symbol "GMH." The following table contains, for the periods indicated, the high and low sale prices per share of Class H common stock, as reported on the NYSE composite tape.
Calendar Year High Low ------------- ------- ------- 1998 First Quarter.......................................... $ 48.00 $ 31.50 Second Quarter......................................... 57.88 42.75 Third Quarter.......................................... 50.81 35.00 Fourth Quarter......................................... 42.38 30.38 1999 First Quarter.......................................... $ 53.00 $ 38.50 Second Quarter......................................... 63.88 48.94 Third Quarter.......................................... 62.44 48.75 Fourth Quarter......................................... 97.63 55.94 2000 First Quarter.......................................... $141.00 $ 91.50 Second Quarter (through April 7, 2000)................. 124.75 106.00
There were 192,866 holders of record of Class H common stock as of December 31, 1999. On January 31, 2000, the last full day of trading prior to the public announcement of the exchange offer, the closing trading price per share of Class H common stock as reported on the NYSE composite tape was $112.50. On , 2000, the second to last full day of trading prior to commencement of the exchange offer, the closing trading price per share of Class H common stock as reported on the NYSE was $ . You should obtain current market quotations for the shares of Class H common stock before deciding whether to tender your shares of $1 2/3 par value common stock. We can give no assurance concerning the market price of Class H common stock in the future. Since the completion of the Hughes restructuring transactions in late 1997, GM has not paid dividends on the Class H common stock. The GM board does not currently expect to pay dividends on the Class H common stock in the foreseeable future. Future earnings of Hughes are expected to be retained for the development of the business of Hughes. For more information, see "Description of Class H Common Stock--Dividend Policy." 49 CAPITALIZATION OF GM The following table sets forth the capitalization of General Motors and its consolidated subsidiaries at December 31, 1999, and as adjusted to reflect consummation of a fully-subscribed exchange offer. The following table should be read in conjunction with GM's consolidated financial statements (including the notes thereto) and Management's Discussion and Analysis of Financial Condition and Results of Operations in the GM 1999 Form 10-K, which is incorporated into this document by reference. The pro forma information gives effect to a fully-subscribed exchange offer. As a result of the exchange offer, the earnings per share calculation of the $1 2/3 par value common stock will reflect the lower number of outstanding shares of $1 2/3 par value common stock and the $1 2/3 par value stockholders' decreased interest in the available separate consolidated net income of Hughes. While there will be no change to the earnings per share of Class H common stock, the earnings per share calculation of the Class H common stock will reflect the Class H stockholders' increased interest in the available separate consolidated net income of Hughes and the proportionate increase in the number of shares of Class H common stock outstanding.
As of December 31, 1999 ---------------------------------- Actual Adjustments Pro Forma ---------- ------------- --------- (in millions) Total debt (1)............................. $131,688 $ $ Minority interests......................... 596 General Motors--obligated mandatorily redeemable preferred securities of subsidiary trusts holding solely junior subordinated debentures of General Motors --Series D............................... 79 --Series G............................... 139 Stockholders' Equity Preference stocks........................ $ -- $ $ GM common stock $1 2/3 par value common stock.......... 1,033 Class H common stock................... 14 Capital surplus (principally additional paid-in capital)........................ 13,794 Retained earnings........................ 6,961 -------- -------- -------- Subtotal............................... 21,802 Accumulated foreign currency translation adjustments............................. (2,033) Net unrealized gains on securities....... 996 Minimum pension liability adjustment..... (121) -------- -------- -------- Total stockholders' equity............. 20,644 -------- -------- -------- Total capitalization................... $153,146 $ $ ======== ======== ======== Historical Adjustments Pro Forma ---------- ------------- --------- (in millions) Amount Available for the Payment of Dividends $1 2/3 par value common stock............ $ 13,704 $ $ Class H common stock..................... 5,377 -------- -------- -------- Total.................................. $ 19,081 $ $ ======== ======== ========
- -------- (1) Calculated as the sum of Loans payable and Long-term debt for Automotive, Communications Services and Other Operations plus Debt for Financing and Insurance Operations. 50 SELECTED HISTORICAL FINANCIAL DATA OF HUGHES The following selected historical financial data have been derived from, and should be read in conjunction with Hughes' financial statements, as well as the "Management's Discussion and Analysis of Financial Condition and Results of Operations of Hughes", and the "Unaudited Pro Forma Combined Condensed Financial Information of Hughes" and the "Notes to Unaudited Pro Forma Combined Condensed Financial Information of Hughes" sections of this document. The statement of operations data for each of the three years in the period ended December 31, 1999 and the balance sheet data as of December 31, 1999 and 1998 have been derived from Hughes' financial statements included elsewhere in and incorporated by reference into this document, which have been audited by Deloitte & Touche LLP, independent auditors. The statement of operations data for the years ended December 31, 1996 and 1995, and the balance sheet data as of December 31, 1997, 1996 and 1995 have been derived from Hughes' unaudited financial statements and in the opinion of management include all adjustments, consisting only of normal recurring items, necessary to present fairly such data.
As of and for the years ended December 31, ----------------------------------------- 1995 1996 1997 1998 1999 ------ ------ ------- ------- ------- (in millions, except per share amounts) Statement of Operations Data: Total revenues...................... $1,554 $2,058 $ 2,838 $ 3,481 $ 5,560 Total operating costs and expenses.. 1,574 2,109 2,794 3,527 5,988 ------ ------ ------- ------- ------- Operating profit (loss)............. (20) (51) 44 (46) (428) Other income (expense), net......... (38) 33 330 (56) (232) Income tax provision (benefit)...... (23) 22 162 (142) (237) Minority interests in losses of subsidiaries....................... 5 53 25 24 32 ------ ------ ------- ------- ------- Income (loss) from continuing operations before extraordinary item and cumulative effect of accounting change.................. (30) 13 237 64 (391) Income (loss) from discontinued operations, net of taxes........... 36 150 171 196 100 Gain on sale of discontinued operations, net of taxes........... -- -- 63 -- -- Extraordinary item, net of taxes.... -- -- (21) -- -- Cumulative effect of accounting changes............................ -- -- -- (9) -- ------ ------ ------- ------- ------- Net income (loss)................... 6 163 450 251 (291) Adjustments to exclude the effect of GM purchase accounting adjustments. 21 21 21 21 21 Preferred stock dividend............ -- -- -- -- (51) ------ ------ ------- ------- ------- Earnings (loss) used for computation of available separate consolidated net income (loss).................. $ 27 $ 184 $ 471 $ 272 $ (321) ====== ====== ======= ======= ======= Balance Sheet Data: Cash and cash equivalents........... $ 7 $ 6 $ 2,784 $ 1,342 $ 238 Current assets...................... 1,620 1,658 5,179 4,075 3,858 Total assets........................ 3,513 3,861 12,142 12,617 18,597 Current liabilities................. 478 692 1,008 1,346 2,642 Minority interests.................. -- 12 608 482 544 Long-term debt...................... -- -- 638 779 1,586 Owner's equity...................... 2,609 2,492 8,340 8,412 11,681 Other Data: EBITDA.............................. $ 130 $ 113 $ 304 $ 342 $ 223 Depreciation and amortization....... 150 164 260 388 651 Capital expenditures................ 389 362 713 1,329 1,665
"EBITDA" is defined as operating profit (loss), plus depreciation and amortization. EBITDA is not presented as an alternative measure of operating results or cash flow from operations, as determined in accordance with generally accepted accounting principles. Hughes management believes it is a meaningful measure of performance and is commonly used by other large communications, entertainment and media service providers. EBITDA does not give effect to cash used for debt service requirements and thus does not reflect funds available for investment in the business of Hughes, dividends or other discretionary uses. In addition, EBITDA as presented herein may not be comparable to similarly titled measures reported by other companies. 51 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF HUGHES General Business Overview The continuing operations of Hughes are comprised of the following segments: Direct-To-Home Broadcast, Satellite Services and Network Systems. The discontinued operations of Hughes consist of its satellite systems manufacturing businesses, which in January 2000, Hughes agreed to sell to The Boeing Company. Also included in discontinued operations for 1997 is the Avicom in-flight entertainment business, which was sold to Rockwell Collins, Inc. in December 1997. These transactions are discussed more fully below at "Liquidity and Capital Resources--Acquisitions, Investments and Divestitures." Hughes' financial information does not include the business of Delco Electronics Corporation or Hughes' defense electronics business. These businesses were divested as part of Hughes' recapitalization in December 1997, as more fully discussed in Note 1 to the financial statements included elsewhere in and incorporated by reference into this document. The Direct-To-Home Broadcast segment consists primarily of the United States and Latin America DIRECTV businesses, which provide digital multi- channel entertainment. The DIRECTV U.S. operations grew significantly during 1999 with Hughes' acquisition of the 2.3 million subscriber direct broadcast satellite medium-power business of PRIMESTAR in April 1999 and Hughes' acquisition of United States Satellite Broadcasting, a provider of premium subscription programming services, in May 1999. DIRECTV intends to continue to operate the medium-power PRIMESTAR business, PRIMESTAR by DIRECTV, through the end of 2000. During such time, the medium-power subscribers will continue to be offered the opportunity to transition to the high-power DIRECTV service. The acquisition of U.S. Satellite Broadcasting Company provided DIRECTV with 25 channels of video programming, including premium networks such as HBO, Showtime, Cinemax and The Movie Channel, which are now being offered to DIRECTV's subscribers. The results of operations for PRIMESTAR and U.S. Satellite Broadcasting Company have been included in Hughes' financial information since their dates of acquisition. See Note 17 to the financial statements included elsewhere in and incorporated by reference into this document and "Liquidity and Capital Resources--Acquisitions, Investments and Divestitures" below for further discussion of these transactions. In addition, DIRECTV U.S. launched local broadcast network services in the fourth quarter of 1999. Currently, DIRECTV is providing major local broadcast networks to 23 U.S. markets and plans to increase these markets to at least 25 in the first half of 2000. DIRECTV U.S. also launched foreign language programming in seven U.S. cities through its DIRECTV Para Todos(TM) service, which currently provides programming packages with up to 21 Spanish special interest channels combined with up to 77 English channels. DIRECTV expects to expand the DIRECTV Para Todos(TM) service nationwide in the first half of 2000 and to expand its programming in other languages. The launch of these services did not materially affect revenues in 1999, but is expected to result in increased revenues in 2000 and thereafter. The Latin America DIRECTV businesses are comprised of Galaxy Latin America, LLC, Hughes' 78% owned subsidiary that provides DIRECTV services to 27 countries in Latin America and the Caribbean Basin; SurFin Ltd., a company 75% owned by Hughes, that provides financing of subscriber receiver equipment to certain Galaxy Latin America operating companies; Grupo Galaxy Mexicana, S.R.L. de C.V., the exclusive distributor of DIRECTV in Mexico which was acquired in February 1999; and Galaxy Brasil, Ltda., the exclusive distributor of DIRECTV in Brazil, which was acquired in July 1999. The results of operations for SurFin, Grupo Galaxy Mexicana, and Galaxy Brasil have been included in Hughes' financial information since their dates of acquisition. See Note 17 to the financial statements included elsewhere in and incorporated by reference into this document and at "Liquidity and Capital Resources-- Acquisitions, Investments and Divestitures" below for further discussion of these transactions. 52 Also included as part of the non-operating results of the Direct-To-Home Broadcast segment is DIRECTV Japan, a company 42.2% owned by Hughes that provides DIRECTV services in Japan. On March 1, 2000, Hughes announced that DIRECTV Japan's operations would be discontinued and that its subscribers would migrate to SkyPerfecTV, a company in Japan providing direct-to-home satellite broadcasting. In connection with this transaction, Hughes will receive an ownership interest in SkyPerfecTV. See "Liquidity and Capital Resources--Acquisitions, Investments and Divestitures" below for further discussion. In June 1999, Hughes announced a new strategic alliance with AOL to develop and market digital entertainment and Internet services nationwide. This alliance is expected to accelerate subscriber growth and revenue per subscriber for DIRECTV, DirecPC(R) and eventually the new broadband services to be delivered via Spaceway(TM). As part of this alliance, Hughes and AOL plan to introduce two new enhanced TV and Internet-based interactive services in 2000. The first is a combination television receiver that will allow the consumer not only to receive DIRECTV's extensive programming, but also to access "AOL TV," a new service that will bring AOL's extensive interactive and Internet content to the consumer's television. The second is a high-speed Internet service called "AOL Plus via DirecPC" that will be delivered using Hughes Network Systems' DirecPC satellite network. Additionally, Hughes and AOL also plan to jointly develop new services and content for DIRECTV. The Satellite Services segment consists of PanAmSat, Hughes' 81% owned subsidiary. PanAmSat provides satellite services to its customers primarily through long-term operating lease contracts for the full or partial use of satellite transponder capacity. In May 1997, Hughes and PanAmSat Corporation merged their respective satellite service operations into a new publicly-held company, which retained the name PanAmSat Corporation. As a result of this merger, Hughes obtained a 71.5% ownership interest in PanAmSat. Since the date of the merger, Hughes has included PanAmSat's results of operations in its financial information. In May 1998, Hughes purchased an additional 9.5% interest in PanAmSat, increasing Hughes' ownership to 81%. See Note 17 to the financial statements included elsewhere in and incorporated by reference into this document and the "Liquidity and Capital Resources--Acquisitions, Investments and Divestitures" section below for further discussion of these transactions. The Network Systems segment consists of Hughes Network Systems, a manufacturer of DIRECTV receiver equipment and provider of satellite and wireless communications ground equipment and business communications services. In December 1999, Hughes Network Systems recorded a pre-tax non-operating gain of about $39.4 million resulting from the sale of securities of its 56.1% owned subsidiary, Hughes Software Systems Private Limited, in conjunction with Hughes Software Systems' initial public offering in India. In January 2000, Hughes announced the discontinuation of its mobile cellular and narrowband local loop product lines at Hughes Network System. As a result of this decision, Hughes Network Systems recorded a fourth quarter 1999 pre-tax charge to continuing operations of $272.1 million. The charge represents the write- off of receivables and inventories, licenses, software and equipment with no alternative use. The Network Systems segment was also affected in February 1999 by a notification received by Hughes from the Department of Commerce that it intended to deny a U.S. government export license that Hughes was required to obtain in connection with its contract with Asia-Pacific Mobile Telecommunications Satellite Pte. Ltd. for the provision of a satellite-based mobile telecommunications system. As a result, Asia-Pacific Mobile and Hughes terminated the contract on April 9, 1999, resulting in a pre-tax charge to Hughes' earnings of $92.0 million in the first quarter of 1999. Of the $92.0 million charge, $11.0 million was attributable to the Network Systems segment and the remainder to Hughes Space and Communications which is included in discontinued operations. The charge represented the write-off of receivables and inventory, with no alternative use, related to the contract. Satellite Fleet At December 31, 1999, Hughes had a fleet of 25 satellites, five owned by DIRECTV and 20 owned and operated by PanAmSat. The satellite fleet was expanded in the fourth quarter of 1999 with the launch of DTV-1R 53 and Galaxy-XI. DTV-1R was placed into service at DIRECTV's 101(degrees) west longitude orbital slot and an existing satellite, DBS-1, was moved to DIRECTV's 110(degrees) west longitude orbital slot. The DTV-1R satellite adds additional capacity for the basic programming and local network channels of DIRECTV U.S. Galaxy-XI will become an integral component of PanAmSat's Galaxy cable neighborhood and is expected to be operational in the first half of 2000. PanAmSat expects to add additional satellites as part of its comprehensive satellite expansion and restoration plan adopted in 1998. The additional satellites are intended to meet the expected demand for additional satellite capacity, replace capacity affected by satellite anomalies, and provide added backup to existing capacity. In connection with this plan, two satellites were successfully launched, Galaxy-XI in 1999 and Galaxy-XR in January 2000. In addition, five satellites are now under construction for PanAmSat by Hughes Space and Communications. PanAmSat expects to launch four of these satellites in 2000 and one in 2001. In the third quarter of 2000, DIRECTV U.S. expects to launch DIRECTV 5, which will replace the DIRECTV 4 satellite located at 119(degrees) west longitude. DIRECTV U.S. has also contracted with Hughes Space and Communications to build DIRECTV 4S, a high-powered spot-beam satellite that will provide additional capacity for new local channel service or other new services beginning in 2002. On March 17, 1999, Hughes announced its intention to make an initial investment of $1.4 billion in the Spaceway satellite system. The Spaceway system, when completed, will provide high-speed, two-way communications of video, voice and data directly to companies and individual consumers. Hughes expects that this initial investment will allow it to construct three high- powered satellites to provide broadband network services "on demand" for video-conferencing, data transfer and other purposes in North America by 2003. Hughes is currently assessing the possibility of providing Spaceway services to most of the world using high-orbit satellites as well as complementary services from a low-orbit system. These subsequent phases would require significant additional investments. Hughes' in-orbit satellites are subject to the risk of failing prematurely due to, among other things, mechanical failure, collision with objects in space or an inability to maintain proper orbit. Satellites are subject to the risk of launch delay and failure, destruction and damage while on the ground or during launch and failure to become fully operational once launched. Delays in the production or launch of a satellite or the complete or partial loss of a satellite, in-orbit or during launch, could have a material adverse impact on the operation of Hughes' businesses. With respect to both in-orbit and launch problems, insurance carried by PanAmSat and Hughes does not compensate for business interruption or loss of future revenues or customers. Hughes has, in the past, experienced technical anomalies on some of its satellites. Service interruptions caused by these anomalies, depending on their severity, could result in claims by affected customers for termination of their transponder agreements, cancellation of other service contracts or the loss of other customers. Results of Operations 1999 compared to 1998 Overall Revenues. Revenues increased 59.8% to $5,560.3 million in 1999 from $3,480.6 million in 1998. The Direct-To-Home Broadcast segment was the primary contributor to the growth in revenues resulting from record subscriber growth in both the U.S. and Latin America DIRECTV businesses and from additional revenues for the U.S. DIRECTV businesses from the PRIMESTAR and U.S. Satellite Broadcasting Company acquisitions. Also contributing to the growth in revenues were increased sales of DIRECTV(TM) receiver equipment at the Network Systems segment. Operating Costs and Expenses. Operating costs and expenses grew to $5,988.3 million in 1999 from $3,526.8 million in 1998. Broadcast programming and other costs increased $863.7 million during 1999 due primarily to the added costs for the PRIMESTAR by DIRECTV and premium channel services. Cost of products 54 sold increased $348.0 million in 1999 from 1998 due to the increased sales of DIRECTV receiver equipment discussed above and the write-off of $91.5 million of inventory associated with the discontinued wireless product lines at the Network Systems segment. Selling, general and administrative expenses increased by $987.0 million due primarily to increased costs at the Direct-To- Home Broadcast segment for subscriber acquisition costs and added costs for the PRIMESTAR by DIRECTV business and a charge of $180.6 million at the Network Systems segment resulting from the write-off of receivables, licenses and equipment associated with the discontinued wireless product lines. Depreciation and amortization increased $262.8 million in 1999 over 1998 due primarily to added goodwill, intangibles and property, plant and equipment resulting from the acquisitions discussed above, and additions to PanAmSat's satellite fleet. EBITDA. Earnings Before Interest, Taxes, Depreciation and Amortization is defined as operating profit (loss), plus depreciation and amortization. EBITDA is not presented as an alternative measure of operating results or cash flow from operations, as determined in accordance with generally accepted accounting principles. However, Hughes believes EBITDA is a meaningful measure of Hughes' performance and that of its business units. EBITDA is a performance measurement commonly used by other communications, entertainment and media service providers and therefore can be used to analyze and compare Hughes' financial performance to that of its competitors. EBITDA is also a measurement used for certain of Hughes' debt covenants and is used by rating agencies in determining credit ratings. EBITDA does not give effect to cash used for debt service requirements and thus does not reflect funds available for investment in the business of Hughes, dividends or other discretionary uses. EBITDA margin is calculated by dividing EBITDA by total revenues. EBITDA declined to $222.7 million in 1999 from $341.7 million in 1998. The decline was attributable to charges incurred at the Network Systems segment which included the $272.1 million charge related to the discontinued wireless product lines and the $11.0 million write-off related to the termination of the APMT contract. These declines were offset by an increase in EBITDA of $145.7 million at the Direct-To-Home Broadcast segment and $65.5 million at the Satellite Services segment. Operating Loss. Hughes' operating loss was $428.0 million in 1999, compared to $46.2 million in 1998. The increased operating loss resulted from the decrease in EBITDA, discussed above, and higher depreciation and amortization at the Direct-To-Home Broadcast segment resulting primarily from goodwill from recent acquisitions. Interest Income and Expense. Interest income declined to $27.0 million in 1999 compared to $112.3 million in 1998. This change resulted from a decline in cash and cash equivalents. Interest expense increased to $122.7 million in 1999 from $17.5 million in 1998. The increase in interest expense resulted from an increase in debt and interest associated with liabilities for above- market programming contracts assumed in the acquisitions of PRIMESTAR and U.S. Satellite Broadcasting Company. The changes in cash and cash equivalents and debt are discussed in more detail below at "Liquidity and Capital Resources." Other, Net. Other, net declined to a net expense of $136.3 million in 1999 from a net expense of $151.8 million in 1998. Other, net for 1999 included losses from equity method investments of $189.2 million of which $134.9 million related to DIRECTV Japan, offset by the gain of $39.4 million from the sale of securities in the HSS initial public offering and other miscellaneous items. Other, net for 1998 included losses from equity method investments of $128.3 million, of which $83.2 million related to DIRECTV Japan, and a provision of $34.5 million for estimated losses associated with the bankruptcy filings of two Network Systems segment customers. These losses were offset by the gains on the sale of property and investments of about $15.0 million. Income Taxes. Hughes recognized an income tax benefit of $236.9 million in 1999 compared to $142.3 million in 1998. The higher tax benefit in 1999 resulted primarily from higher losses from continuing operations. The income tax benefit in 1998 included a favorable adjustment relating to an agreement with the IRS regarding the treatment of research and experimentation credits for the years 1983 through 1995. 55 Income (Loss) From Continuing Operations. Hughes reported a loss from continuing operations in 1999 of $391.1 million compared with 1998 income from continuing operations of $63.5 million. Discontinued Operations. Revenues for the satellite systems manufacturing businesses decreased to $2,240.7 million for 1999 from revenues of $2,820.4 million for 1998. Revenues, excluding intercompany transactions, were $1,780.4 million for 1999 and $2,483.3 million for 1998. The decrease in revenues was principally due to contract revenue adjustments and delayed revenue recognition that resulted from increased development costs and schedule delays on several new product lines and decreased activity associated with the contract with ICO Global Communications (Operations) Ltd. The satellite systems manufacturing businesses reported an operating loss of $0.6 million for 1999 compared to operating profit of $286.3 million for 1998. The reported operating loss, excluding intercompany transactions, amounted to $10.4 million for 1999 compared to operating profit of $295.3 million for 1998. The 1999 operating loss included a pre-tax charge of $125.0 million that resulted from increased development costs and schedule delays on several new product lines, a one-time pre-tax charge of $81.0 million resulting from the termination of the Asia-Pacific Mobile contract and decreased activity associated with a contract with ICO Global Communications (Operations) Ltd. Hughes had maintained a lawsuit against the U.S. government since September 1973 regarding the U.S. government's infringement and use of a Hughes patent, which we sometimes refer to in this document as the "Williams patent," covering "Velocity Control and Orientation of a Spin Stabilized Body," principally satellites. On April 7, 1998, the U.S. Court of Appeals for the Federal Circuit reaffirmed earlier decisions in the patent case, including an award of $114.0 million in damages, plus interest. In March 1999, Hughes received a payment from the U.S. government as a final settlement of the suit and as a result, recognized as income from discontinued operations a pre-tax gain of $154.6 million. Accounting Changes. In 1998, Hughes adopted American Institute of Certified Public Accountants Statement of Position 98-5, Reporting on the Costs of Start-Up Activities. Statement of Position 98-5 requires that all start-up costs previously capitalized be written off and recognized as a cumulative effect of accounting change, net of taxes, as of the beginning of the year of adoption. On a prospective basis, these types of costs are required to be expensed as incurred. The unfavorable cumulative effect of this accounting change at January 1, 1998 was $9.2 million after-tax. Direct-To-Home Broadcast Segment Revenues for the Direct-To-Home Broadcast segment more than doubled to $3,785.0 million in 1999 from $1,816.1 million in 1998. Operating losses grew to $292.1 million in 1999 from $228.1 million in 1998 while EBITDA increased to $19.9 million in 1999 from negative $125.8 million in 1998. United States. The DIRECTV U.S. businesses reported revenues of $3,404.6 million in 1999, more than twice the reported revenues of $1,604.1 million in 1998. The increase in revenues resulted from an increase in subscribers for the high-power business and added revenues from PRIMESTAR by DIRECTV and premium channel services. Subscribers for the high-power DIRECTV business increased by 2.2 million subscribers (1.6 million excluding PRIMESTAR conversions and incremental subscribers from U.S. Satellite Broadcasting Company) during 1999 to 6.7 million subscribers at the end of 1999. Including PRIMESTAR by DIRECTV subscribers, there were over 8 million subscribers at the end of 1999. Average monthly revenue per subscriber for the high-power business increased to $58 for 1999 from $46 for 1998. This increase resulted primarily from the addition of the premium channel services in April of 1999. EBITDA was $151.2 million in 1999 compared to negative $17.9 million in 1998. The change in EBITDA resulted from the increased revenues that were partially offset by increased subscriber acquisition costs and added operating costs from the PRIMESTAR by DIRECTV and premium channel services. The DIRECTV U.S. 56 businesses reported an operating loss of $97.9 million in 1999 compared to $100.0 million in 1998. The decreased operating loss resulted from increased EBITDA which was generally offset by increased depreciation and amortization that resulted from the PRIMESTAR and U.S. Satellite Broadcasting Company acquisitions. Latin America. Revenues for the Latin America DIRECTV businesses increased 82.3% to $315.3 million in 1999 from $173.0 million in 1998. The increase in revenues reflects an increase in subscribers and the consolidation of the Grupo Galaxy Mexicana, Galaxy Brasil and SurFin businesses. Subscribers grew to 804,000 at the end of 1999 from 484,000 at the end of 1998. Average monthly revenue per subscriber decreased to $36 in 1999 from $41 in 1998. The decline in average revenue per subscriber resulted from currency devaluations in Brazil. EBITDA was negative $105.6 million in 1999 compared to negative $93.0 million in 1998. The change in EBITDA resulted primarily from additional losses from the consolidation of Grupo Galaxy Mexicana and Galaxy Brasil. The Latin America DIRECTV businesses incurred an operating loss of $168.4 million in 1999 compared to an operating loss of $113.2 million in 1998. The increased operating loss resulted from the decline in EBITDA and higher depreciation and amortization that resulted from the Grupo Galaxy Mexicana, Galaxy Brasil and SurFin transactions. Satellite Services Segment Revenues increased for the Satellite Services segment by $43.3 million to $810.6 million in 1999 from $767.3 million in 1998. This increase was primarily due to increased operating lease revenues, partially offset by a decrease in sales and sales-type lease revenues. Operating lease revenues, which reflect long-term satellite service agreements from which PanAmSat derives revenues over the duration of the contract, were 97% of total 1999 revenues and increased by 6.9% to $787.5 million from $736.7 million in 1998. Total sales and sales-type lease revenues were $23.1 million for 1999 compared to $30.6 million for 1998. EBITDA was $618.8 million compared to $553.3 million in 1998. The increase was principally due to higher revenue that resulted from the commencement of new service agreements on additional satellites placed into service in 1999 and lower leaseback expense resulting from the exercise of certain early buy- out opportunities under sale-leaseback agreements during 1999. Operating profit was $338.3 million in 1999, an increase of $20.0 million over 1998. The increase resulted from the higher EBITDA in 1999 offset by increased depreciation expense resulting from increased capital from additions to the satellite fleet. Backlog for the Satellite Services segment, which consists primarily of operating leases on satellite transponders, was $4,856.3 million in 1999 compared to $4,461.9 million in 1998. Network Systems Segment Revenues for the Network Systems segment increased 28.6% to $1,384.7 million in 1999 from $1,076.7 million in 1998. The higher revenues resulted from greater shipments of DIRECTV receiver equipment. Shipments of DIRECTV receiver equipment totaled about 2.1 million units in 1999 compared to about 0.7 million units in 1998. The Network Systems segment reported negative EBITDA of $178.1 million in 1999 compared to EBITDA of $52.6 million in 1998. The Network Systems segment incurred an operating loss of $227.3 million in 1999 compared to operating profit of $10.9 million in 1998. The decline in EBITDA and operating profit resulted from the $272.1 million charge related to the discontinuation of the wireless product lines, offset in part by the increased sales of DIRECTV receiver equipment. Backlog for the Network Systems segment, which consists primarily of private business networks and satellite-based mobile telephony equipment orders, was $996.0 million in 1999 compared to $1,333.4 million in 1998. 57 Eliminations and Other The elimination of revenues increased to $420.0 million in 1999 from $179.5 million in 1998 due primarily to increased manufacturing subsidies received by the Network Systems segment from the DIRECTV businesses which resulted from the increased DIRECTV receiver equipment shipments. Operating losses for "eliminations and other" increased to $246.9 million in 1999 from $147.3 million in 1998. The increase was primarily due to increases in eliminations of intercompany profit and corporate expenditures. The increased intercompany profit elimination resulted from the increased intercompany sales noted above and increased corporate expenditures resulted primarily from higher pension and other employee costs. 1998 compared to 1997 Overall Revenues. Revenues in 1998 increased 22.6% to $3,480.6 million compared with $2,838.3 million in 1997. Each of Hughes' business segments contributed to the growth in revenue, which included continued strong subscriber growth in the Direct-to-Home Broadcast segment, the effect of the PanAmSat merger and increased operating lease revenues for video, data and Internet-related services in the Satellite Services segment and increased sales of DIRECTV receiver equipment in the Network Systems segment. Operating Costs and Expenses. Operating costs and expenses increased to $3,526.8 million in 1998 from $2,794.8 million in 1997. Broadcast programming and other costs increased $299.1 million during 1998 due to increased programming costs at the Direct-To-Home Broadcast segment and the effects of a full year of costs from PanAmSat. The increase in costs of products sold of $68.2 million during 1998 resulted primarily from the costs related to the increased shipments of DIRECTV receiver equipment. Selling, general and administrative expenses increased $237.1 million in 1998 due primarily to increased marketing and subscriber acquisition costs in the Direct-to-Home Broadcast segment and increased expenditures to support the growth in the remaining business segments. The increase in depreciation and amortization expense of $127.6 million in 1998 resulted from increased goodwill amortization related to the PanAmSat transactions and increased capital expenditures in the Direct-to-Home Broadcast and Satellite Services segments. EBITDA increased slightly during 1998 to $341.7 million from $303.8 million in 1997. The increase in EBITDA resulted from the full year effects of PanAmSat and improved EBITDA at DIRECTV U.S. These EBITDA improvements were offset by higher corporate expenses, primarily related to pension and other employee costs, and a decline in EBITDA in 1998 at the Network Systems segment due principally to lower sales of wireless telephone systems and private business networks in the Asia-Pacific region and provisions for estimated losses associated with uncollectible amounts due from certain wireless customers. Operating Profit (Loss). Hughes incurred an operating loss of $46.2 million in 1998 compared with operating profit of $43.5 million in 1997. This decline resulted from increased goodwill amortization, resulting primarily from the PanAmSat transactions, which more than offset the improvement in EBITDA. Interest Income and Expense. Interest income increased to $112.3 million in 1998 compared to $33.0 million in 1997, due primarily to higher cash balances resulting from the recapitalization of Hughes. Interest expense decreased $73.5 million to $17.5 million in 1998 versus $91.0 million in 1997 resulting from the repayment of debt, arising from the PanAmSat merger, at the end of 1997. Other, net. Other, net for 1998 relates primarily to losses from unconsolidated subsidiaries of $128.3 million, attributable principally to equity investments, including American Mobile Satellite Corporation and DIRECTV Japan, and a provision for estimated losses associated with bankruptcy filings by two customers of the Network Systems segment. Other, net for 1997 includes a $489.7 million pre-tax gain recognized in connection with the May 1997 PanAmSat merger offset by losses from unconsolidated subsidiaries of $72.2 million. 58 Income Taxes. Hughes recorded a tax benefit of $142.3 million in 1998 compared to a tax provision of $162.0 million in 1997. Income taxes in 1998 benefited from the favorable adjustment relating to a fourth quarter 1998 agreement with the Internal Revenue Service regarding the treatment of research and experimentation costs for the years 1983 through 1995 and also reflect the tax benefit recorded for the losses incurred from continuing operations. Income (Loss) From Continuing Operations. Income from continuing operations was $63.5 million in 1998 compared with $236.9 million in 1997. Discontinued Operations and Extraordinary Item. On December 15, 1997, Hughes Avicom International, Inc. was sold to Rockwell Collins, Inc., resulting in an after-tax gain of $62.8 million. Hughes recorded an extraordinary after-tax charge of $20.6 million in 1997 related to the refinancing of PanAmSat's debt. For additional information see Note 8 to the financial statements included elsewhere in and incorporated by reference into this document. Also included in discontinued operations are the results of the satellite systems manufacturing businesses. Revenues for the satellite systems manufacturing businesses increased 13.2% in 1998 to $2,820.4 million from $2,491.9 million in 1997. Revenues, excluding intercompany sales, were $2,483.3 million in 1998 compared to $2,290.0 million in 1997. The increase in revenues resulted primarily from higher commercial satellite sales to customers such as Thuraya Satellite Telecommunications Company, PanAmSat, ICO Global Communications and Orion Asia Pacific Corporation. Operating profit for the satellite systems manufacturing businesses in 1998 was $286.3 million, an increase of 52.9% over $187.2 million in 1997. Operating profit, excluding intercompany transactions, was $295.3 million in 1998 compared to $241.9 million in 1997. The increase was primarily due to the higher commercial satellite sales noted above. Accounting Changes. In 1998, Hughes adopted American Institute of Certified Public Accountants Statement of Position 98-5, Reporting on the Costs of Start-Up Activities. Statement of Position 98-5 requires that all start-up costs previously capitalized be written off and recognized as a cumulative effect of accounting change, net of taxes, as of the beginning of the year of adoption. On a prospective basis, these types of costs are required to be expensed as incurred. The unfavorable cumulative effect of this accounting change at January 1, 1998 was $9.2 million after-tax. Direct-To-Home Broadcast Segment The Direct-to-Home Broadcast segment's revenues for 1998 increased 42.2% to $1,816.1 million from $1,276.9 million in 1997. EBITDA for the segment improved in 1998 to negative $125.8 million compared to negative $168.5 million in 1997. The operating loss for the segment declined to $228.1 million in 1998 from $254.6 million in 1997. United States. The DIRECTV U.S. business was the biggest contributor to the segment's revenue growth with revenues of $1,604.1 million for 1998, a 45.4% increase over prior year's revenues of $1,103.3 million. The large increase in revenues resulted primarily from an increase in subscribers. Subscribers grew to about 4.5 million at the end of 1998 compared to 3.3 million at the end of 1997. Average monthly revenue per subscriber also increased during 1998 to $46, compared to $44 for 1997. DIRECTV U.S. reported negative EBITDA of $17.9 million in 1998 compared to negative EBITDA of $68.0 million in 1997. The full-year 1998 operating loss for DIRECTV U.S. was $100.0 million compared with an operating loss of $137.0 million in 1997. The improvement in EBITDA and lower operating loss was principally due to increased subscriber revenues which more than offset increased sales and marketing expenditures. Latin America. Revenues for the Latin America DIRECTV businesses increased to $173.0 million in 1998 from $70.0 million in 1997. The increase in revenues resulted from an increase in subscribers to 484,000 at the end of 1998 from 300,000 at the end of 1997. 59 EBITDA was negative $93.0 million in 1998 compared to negative $96.5 million in 1997. The operating loss was $113.2 million in 1998 compared with an operating loss of $111.8 million in 1997. The increased operating loss resulted from higher sales and marketing expenditures and subscriber acquisition costs. Satellite Services Segment Revenues for the Satellite Services segment in 1998 increased 21.8% to $767.3 million from $629.9 million in 1997. The increase in revenues was due to the May 1997 PanAmSat merger and increased operating lease revenues from the commencement of service agreements for full-time video distribution, as well as short-term special events and an increase in data and Internet-related service agreements. The increase was partially offset by a decrease in sales and sales-type lease revenues. As a result of the increased revenues described above, the Satellite Services segment's EBITDA and operating profit improved. EBITDA increased to $553.3 million in 1998 from $438.1 million in 1997. Operating profit increased 8.7% to $318.3 million in 1998, compared with the prior year's operating profit of $292.9 million. Operating profit margin in 1998 declined to 41.5% from 46.5% in the prior year principally due to goodwill amortization associated with the PanAmSat merger, a provision for losses relating to the May 1998 failure of PanAmSat's Galaxy IV satellite and increased depreciation expense resulting from increased capital expenditures by PanAmSat. Backlog for the Satellite Services segment, which consists primarily of operating leases on satellite transponders, was $4,461.9 million in 1998 compared to $5,772.5 million in 1997. Network Systems Segment Revenues for the Network Systems segment in 1998 were $1,076.7 million compared with $1,011.3 million in 1997. The increase in revenues resulted from the growth in sales of DIRECTV receiver equipment and increased sales of private business networks and satellite-based mobile telephony equipment offset by lower international sales of wireless telephony systems and private business networks, primarily in the Asia-Pacific region. EBITDA was $52.6 million in 1998, a decrease of $53.5 million from 1997. Operating profit in 1998 was $10.9 million compared with $74.1 million in 1997 and operating profit margin declined to 1.0% from 7.3%. These decreases were primarily due to a $26.0 million provision for estimated losses associated with the bankruptcy filing by a customer, provision for uncollectible amounts due from certain wireless customers and lower international sales of wireless telephony systems and private business networks, primarily in the Asia Pacific region. Backlog for the Network Systems segment, which consists primarily of private business networks and satellite-based mobile telephony equipment orders, was $1,333.4 million in 1998 compared to $1,101.4 million in 1997. Eliminations and Other The elimination of revenues increased $99.7 million in 1998 to $179.5 million due primarily to increased intercompany activity resulting from the PanAmSat merger and increased manufacturing subsidies received by the Network Systems segment from DIRECTV that resulted from the increased shipment of DIRECTV receiver equipment. Operating losses for "eliminations and other" increased to $147.3 million in 1998 from $68.9 million in 1997. The increase was primarily due to increases in eliminations of intercompany profit and corporate expenditures. The increased intercompany profit elimination resulted from the increased intercompany sales 60 noted above and increased corporate expenditures resulted primarily from higher pension and other employee costs. Liquidity and Capital Resources Cash and Cash Equivalents. Cash and cash equivalents were $238.2 million at December 31, 1999 compared to $1,342.0 million at December 31, 1998. The decrease in cash resulted primarily from increased investing activities, offset in part by increased borrowings and the issuance of preferred stock. Cash provided by operating activities was $379.5 million in 1999, compared to $612.1 million in 1998 and $90.6 million in 1997. The change in 1999 from 1998 resulted primarily from increased cash requirements for working capital, offset by increased income from continuing operations excluding non-cash adjustments such as depreciation and amortization, the loss resulting from the discontinuation of the wireless product lines and deferred taxes. The change in 1998 from 1997 resulted primarily from increased income from continuing operations excluding non-cash adjustments and decreased working capital requirements. Cash used by investing activities was $3,941.8 million in 1999, compared to $2,128.5 million in 1998 and $2,115.6 million in 1997. The increase in 1999 investing activities reflects the acquisitions of PRIMESTAR and the related Tempo Satellite assets, U.S. Satellite Broadcasting Company, SurFin, Grupo Galaxy Mexicana and Galaxy Brasil. The 1999 increase is also due to investments in DIRECTV Japan convertible bonds, the early buy-out of satellite sale-leasebacks at PanAmSat and an increase in expenditures for property, compared to 1998. The increase in 1998 investing activities reflects the purchase of an additional 9.5% interest in PanAmSat, the early buy-out of satellite sale-leasebacks at PanAmSat and an increase in expenditures for satellites, compared to 1997, offset in part by proceeds from insurance claims for the full or partial loss of certain PanAmSat satellites. Cash provided by (used in) financing activities was $2,577.5 million in 1999, compared to $(63.6) million in 1998 and $5,014.0 million in 1997. 1999 financing activities reflect increased borrowings and proceeds from the issuance of preferred stock. 1998 financing activities include the payment to General Motors for the Delco post-closing price adjustment stemming from the Hughes restructuring transactions, offset in part by net long-term borrowings. 1997 financing activities reflect the impact of the PanAmSat merger, the Hughes restructuring transactions and cash contributions from GM. Cash provided by (used in) discontinued operations was $(119.0) million in 1999, compared to $138.3 million in 1998 and $(211.5) million in 1997. The decrease in 1999 was due to increased working capital, increased development costs, the termination of the Asia-Pacific Mobile contract and decreased activity associated with the ICO contract. The increase in 1998 compared to 1997 was due to a decrease in working capital requirements. Liquidity Measurement. As a measure of liquidity, the current ratio (ratio of current assets to current liabilities) at December 31, 1999 and 1998 was 1.46 and 3.03, respectively. Working capital decreased by $1,513.3 million to $1,215.9 million at December 31, 1999 from $2,729.2 million at December 31, 1998. The change in working capital resulted principally from the decrease in cash and cash equivalents discussed above. Property and Satellites. Property, net of accumulated depreciation, increased $540.0 million to $1,223.0 million in 1999 from $683.0 million in 1998. The increase in property resulted primarily from capital expenditures of about $506.4 million, additions resulting from acquisitions of about $281.6 million, offset by depreciation of $227.0 million. The increase in capital expenditures of $262.5 million in 1999 over 1998 was primarily due to an increase in subscriber leased DIRECTV receiver equipment used in the conversion of PRIMESTAR subscribers. Satellites, net of accumulated depreciation, increased $709.8 million to $3,907.3 million in 1999 from the $3,197.5 million reported in 1998. Capital expenditures, including expenditures related to satellites, increased to $1,665.3 million in 1999 from $1,328.8 million in 1998. 1999 capital expenditures 61 include $789.4 million for the construction of satellites and $369.5 million for the early buy-out of satellite sale-leasebacks. Common Stock Dividend Policy and Use of Cash. As discussed in Note 15 to the financial statements included elsewhere in and incorporated by reference into this document, since the completion of the recapitalization of Hughes in late 1997, the GM board has not paid, and does not currently intend to pay in the foreseeable future, cash dividends on its Class H common stock. Similarly, since such time, Hughes has not paid dividends on its common stock to GM and does not currently intend to do so in the foreseeable future. Future Hughes earnings, if any, are expected to be retained for the development of the businesses of Hughes. Hughes expects to have significant cash requirements in 2000 primarily due to capital expenditures of about $1.5 to $2.0 billion for satellites and property. In addition, Hughes expects to increase its investment in affiliated companies, primarily related to its international DIRECTV businesses. These cash requirements are expected to be funded from a combination of cash provided from operations, cash to be received upon completion of the Boeing transaction, amounts available under credit facilities and debt and equity offerings, as needed. Debt and Credit Facilities. Short-Term Borrowings. In October 1999, Hughes issued $500.0 million ($498.9 million net of unamortized discount) of floating rate notes to a group of institutional investors in a private placement. The notes bear interest at a variable rate which was 7.45% at December 31, 1999. Interest is payable quarterly and the notes are due and payable on October 23, 2000. Notes Payable. PanAmSat issued five, seven, ten and thirty-year notes totaling $750.0 million in January 1998. The outstanding principal balances and interest rates for the five, seven, ten and thirty-year notes as of December 31, 1999 were $200 million at 6.0%, $275 million at 6.125%, $150 million at 6.375% and $125 million at $6.875%, respectively. Principal on the notes is payable at maturity, while interest is payable semi-annually. In July 1999, in connection with the early buy-out of satellite sale- leasebacks, PanAmSat assumed $124.1 million of variable rate notes, all of which were outstanding at December 31, 1999. The notes bear interest at various rates. The weighted average interest rate on the notes was 6.75% at December 31, 1999. The notes mature on various dates through January 2, 2002. Revolving Credit Facilities. Hughes has three unsecured revolving credit facilities totaling $1.6 billion, consisting of a $750.0 million multi-year facility, a $350.0 million 364-day facility and a $500.0 million bridge facility. The multi-year credit facility provides for a commitment of $750.0 million through December 5, 2002 and borrowings bear interest at various rates, of which the weighted average rate at December 31, 1999 was 7.09%. The 364-day facility provides for a commitment of $350.0 million through November 22, 2000. These facilities also provide backup capacity for Hughes' commercial paper program. The bridge facility provides for a commitment of $500.0 million through the earlier of November 22, 2000 or the receipt of proceeds from the issuance of any debt securities of Hughes in a public offering. $500.0 million was outstanding under the multi-year facility at December 31, 1999. No amounts were outstanding under the commercial paper program, 364-day or bridge facilities at December 31, 1999. PanAmSat maintains a $500.0 million multi-year revolving credit facility that provides for short-term and long-term borrowings and a $500.0 million commercial paper program that provides for short-term borrowings. The multi- year revolving credit facility provides for a commitment through December 24, 2002. Borrowings under the credit facility and commercial paper program are limited to $500.0 million in the aggregate. No amounts were outstanding under either the multi-year revolving credit facility or the commercial paper program at December 31, 1999. At December 31, 1999, Hughes' 75% owned subsidiary, SurFin, had a total of $227.9 million outstanding under a $400.0 million unsecured revolving credit facility expiring in June 2002. Borrowings under the credit 62 facility bear interest at various rates of interest. The weighted average interest rate on these borrowings was 6.84% at December 31, 1999. Other. At December 31, 1999, Galaxy Brasil had a total of $24.3 million outstanding under variable rate notes bearing interest at various rates. The weighted average interest rate of the notes was 11.9% at December 31, 1999. Principal is payable in varying amounts at maturity in April and May 2002, and interest is payable monthly. Other long-term debt totaling $16.2 million and $28.9 million at December 31, 1999 and 1998, respectively, consisted primarily of notes bearing fixed rates of interest of 9.61% to 11.11%. Principal is payable at maturity in April 2007, while interest is payable semi-annually. As part of a debt refinancing program undertaken by PanAmSat in 1997, an extraordinary charge of $20.6 million ($34.4 million before taxes) was recorded that resulted from the excess of the price paid for the debt over its carrying value, net of deferred financing costs. Hughes has filed a shelf registration statement with the SEC with respect to an issuance of up to $2.0 billion of debt securities from time to time. No amounts have been issued as of December 31, 1999. Acquisitions, Investments and Divestitures. On March 1, 2000, Hughes announced that DIRECTV Japan's operations will be discontinued and that its subscribers would migrate to SkyPerfecTV. As a result of this transaction, Hughes will acquire about a 6.8% interest in SkyPerfecTV, which is expected to complete an initial public offering during its fiscal year ending March 31, 2001. Hughes will be required to fund a substantial portion of the costs to be incurred over the next six to nine months to exit the DIRECTV Japan business. Hughes will accrue such exit costs during the first quarter of fiscal 2000. The first quarter charge will be offset by the fair value of the SkyPerfectTV interest received; however, the amounts are not yet estimable. In addition, Hughes will continue to record its share of DIRECTV Japan's operating losses during 2000. On January 13, 2000, Hughes announced that it had reached an agreement to sell its satellite systems manufacturing businesses to Boeing for $3.75 billion in cash. The final transaction, which is subject to regulatory approval, is expected to close in the second or third quarter of 2000 and result in an after-tax gain in excess of $1 billion. The financial results for the satellite systems manufacturing businesses are treated as discontinued operations for all periods presented herein. Also on January 13, 2000, Hughes announced the discontinuation of its mobile cellular and narrowband local loop product lines at Hughes Network Systems. As a result of this decision, Hughes recorded a fourth quarter 1999 pre-tax charge to continuing operations of $272.1 million. The charge represents the write-off of receivables and inventories, licenses, software and equipment with no alternative use. In September and November of 1999, DIRECTV Japan raised a total of about $281 million through the issuance of bonds, convertible into common stock, to five of its major shareholders, including $244.7 million issued to Hughes. On July 28, 1999, Galaxy Latin America acquired Galaxy Brasil, the exclusive distributor of DIRECTV in Brazil, from Tevecap S.A. for about $114.0 million plus the assumption of debt. In connection with the transaction, Tevecap also sold its 10% equity interest in Galaxy Latin America to Hughes and The Cisneros Group of Companies, the remaining Galaxy Latin America partners, which increased Hughes' ownership interest in Galaxy Latin America to 77.8%. As part of the transaction, Hughes also increased its ownership interest in SurFin from 59.1% to 75.0%. The total consideration paid in the transactions amounted to about $101.1 million. On May 20, 1999, Hughes acquired by merger all of the outstanding capital stock of U.S. Satellite Broadcasting Company, a provider of premium subscription television programming via the digital broadcasting 63 system that it shares with DIRECTV. The total consideration of about $1.6 billion paid in July 1999, consisted of about $0.4 billion in cash and 22.6 million shares of Class H common stock. On April 28, 1999, Hughes completed the acquisition of PRIMESTAR's 2.3 million subscriber medium-power direct-to-home satellite business. The purchase price consisted of $1.1 billion in cash and 4.9 million shares of Class H common stock, for a total purchase price of $1.3 billion. As part of the agreement to acquire PRIMESTAR, Hughes agreed to purchase the high-power satellite assets and related orbital frequencies of Tempo Satellite Inc., a wholly-owned subsidiary of TCI Satellite Entertainment Inc. The purchase price for the Tempo Satellite assets consisted of $500 million in cash. Of this purchase price, $150 million was paid on March 10, 1999 for a satellite that has not yet been launched and the remaining $350 million was paid on June 4, 1999 for an in-orbit satellite and 11 related satellite orbital frequencies. In February 1999, Hughes acquired an additional ownership interest in Grupo Galaxy Mexicana, a Latin America local operating company which is the exclusive distributor of DIRECTV in Mexico, from Grupo MVS, S.R.L. de C.V. Hughes' equity ownership represents 49.0% of the voting equity and all of the non-voting equity of Grupo Galaxy Mexicana. In October 1998, Hughes acquired from Grupo MVS an additional 10.0% interest in Galaxy Latin America, increasing Hughes' ownership interest to 70.0%. Hughes also acquired an additional 19.8% interest in SurFin, a company providing financing of subscriber receiver equipment for certain local operating companies located in Latin America and Mexico, increasing Hughes' ownership percentage from 39.3% to 59.1%. The aggregate purchase price for these transactions was $197.0 million in cash. In May 1998, Hughes purchased an additional 9.5% interest in PanAmSat for $851.4 million in cash, increasing its ownership interest in PanAmSat to 81.0%. PanAmSat was originally acquired in May 1997, when Hughes and PanAmSat completed the merger of their respective satellite service operations into a new publicly-held company, which retained the name PanAmSat Corporation. Hughes contributed its Galaxy satellite services business in exchange for a 71.5% interest in the new company. Existing PanAmSat stockholders received a 28.5% interest in the new company and $1.5 billion in cash. Such cash consideration and other funds required to consummate the merger were funded by new debt financing totaling $1,725.0 million borrowed from GM, which was subsequently repaid in December 1997. The PanAmSat merger was treated as a partial sale of the Galaxy business by Hughes and resulted in a one-time pre- tax gain of $489.7 million ($318.3 million after-tax). The financial information included herein reflect the acquisitions discussed above from their respective dates of acquisition. The acquisitions were accounted for by the purchase method of accounting and, accordingly, the purchase price has been allocated to the assets acquired and the liabilities assumed based on the estimated fair values at the date of acquisition. The excess of the purchase price over the estimated fair values of the net assets acquired has been recorded as goodwill, resulting in goodwill additions of $3,612.4 million and $702.9 million for the years ended December 31, 1999 and 1998, respectively. The December 31, 1999 financial statements for the PRIMESTAR transaction reflect a preliminary allocation of the purchase price for the transaction based upon information currently available. Adjustments relating to the tangible assets, including equipment located on customer premises; intangible assets, including customer lists and dealer network; and accrued liabilities for programming contracts and leases with above-market rates are estimates pending the completion of independent appraisals currently in process. Additionally, the adjustment to recognize the benefit of net operating loss carryforwards of U.S. Satellite Broadcasting Company represents a preliminary estimate pending further review and analysis by Hughes management. The foregoing appraisals, review and analysis are expected to be completed by March 31, 2000. Accordingly, the final purchase price allocations may be different from the amounts reflected herein. As a result of the acquisitions of Grupo Galaxy Mexicana, SurFin and Galaxy Brasil, foreign currency risk, as more fully described at "Market Risk Disclosure," has increased for Hughes and may increase in the future. On December 15, 1997, Hughes sold substantially all of the assets and liabilities of the Hughes Avicom business to Rockwell Collins, Inc. for cash, which resulted in an after-tax gain of $62.8 million. Hughes Avicom is treated as a discontinued operation for all periods prior to its disposition. 64 Also, in December 1997, Hughes repurchased from AT&T for $161.8 million a 2.5% equity interest in DIRECTV, ending AT&T's marketing agreement to distribute the DIRECTV direct broadcast satellite television service and DIRECTV receiver equipment. New Accounting Standards. In September 1999, the Financial Accounting Standards Board issued Emerging Issues Task Force Issue 99-10, Percentage Used to Determine the Amount of Equity Method Losses. EITF 99-10 addresses the percentage of ownership that should be used to compute equity method losses when the investment has been reduced to zero and the investor holds other securities of the investee. EITF 99-10 requires that equity method losses should not be recognized solely on the percentage of common stock owned; rather, an entity-wide approach should be adopted. Under such an approach, equity method losses must be recognized based on the ownership level that includes other equity securities (e.g., preferred stock) and loans/advances to the investee or based on the change in the investor's claim on the investee's book value. Hughes adopted EITF 99-10 during the third quarter of 1999 which resulted in Hughes recording a higher percentage of DIRECTV Japan's losses subsequent to the effective date of September 23, 1999. The unfavorable impact of adopting EITF 99-10 was $39.0 million after-tax. In June 1998, the FASB issued Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133 requires all derivatives to be recorded as either assets or liabilities and the instruments to be measured at fair value. Gains or losses resulting from changes in the values of those derivatives are to be recognized immediately or deferred depending on the use of the derivative and whether or not it qualifies as a hedge. Hughes plans to adopt SFAS No. 133, as amended, by January 1, 2001, as required. Hughes does not expect that the adoption of SFAS No. 133 will have a material impact on Hughes' results of operations and financial position. Commitments and Contingencies Hughes may be required to make a cash payment to, or receive a cash payment from, Raytheon in connection with the merger of the defense electronics business of Hughes with Raytheon in 1997. The amount of any such cash payment to or from Raytheon, if any, is not determinable at this time. There is a pending grand jury investigation into whether Hughes should be accused of criminal violations of the export control laws arising out of the participation of two of its employees on a committee formed to review the findings of Chinese engineers regarding the failure of a Long March rocket in China in 1996. Hughes is also subject to the authority of the U.S. State Department to impose sanctions for non-criminal violations of the Arms Export Control Act. The possible criminal and/or civil sanctions could include fines as well as debarment from various export privileges and participating in government contracts. If Hughes were to enter into a settlement of this matter prior to the closing of the Boeing transaction that involves a debarment from sales to the U.S. government or a material suspension of Hughes' export licenses or other material limitation on projected business activities of the satellite systems manufacturing businesses, Boeing would not be obligated to complete the purchase of Hughes' satellite systems manufacturing businesses. Hughes does not expect the grand jury investigation or State Department review to result in a material adverse effect upon its business. However, there can be no assurance as to those conclusions. Hughes has contracts with ICO Global Communications (Operations), Ltd. to build the satellites and related components for ICO's global wireless communications system. ICO's parent company recently filed for bankruptcy protection under Chapter 11. If ICO's parent company is unable to confirm a plan of reorganization that provides for full payment to Hughes under these contracts, ICO may be unable to pay these amounts and the most likely outcome would be a liquidation proceeding. In the event that a liquidation becomes probable, Hughes would expect to record a pre-tax charge to income of up to about $350 million, of which $100 million would be attributable to continuing operations and $250 million would be attributable to discontinued operations. A portion of the purchase price to be paid by Boeing will be placed in escrow under certain circumstances if prior to completing this sale to Boeing, Hughes' contracts with ICO are not assumed by ICO with bankruptcy court approval or new similar contracts are not entered into with bankruptcy court approval. 65 At December 31, 1999, minimum future commitments under noncancelable operating leases having lease terms in excess of one year are primarily for real property and aggregated $250.8 million, payable as follows: $102.8 million in 2000, $52.3 million in 2001, $24.2 million in 2002, $17.8 million in 2003, $12.5 million in 2004 and $41.2 million thereafter. Certain of these leases contain escalation clauses and renewal or purchase options. Rental expenses under operating leases, net of sublease rental income, were $58.5 million in 1999, $82.7 million in 1998 and $89.1 million in 1997. Hughes is contingently liable under standby letters of credit and bonds in the amount of $222.0 million at December 31, 1999. In Hughes' past experience, no material claims have been made against these financial instruments. In addition, at December 31, 1999, Hughes has guaranteed up to $209.1 million of bank debt, including $105.0 million related to American Mobile Satellite Corporation. Of the bank debt guaranteed, $105.0 million matures in March 2003; $55.4 million matures in September 2007; and the remaining $48.7 million is due in variable amounts over the next five years. In connection with the direct-to-home broadcast businesses, Hughes has commitments related to certain programming agreements which are variable based upon the number of underlying subscribers and market penetration rates. Minimum payments over the terms of applicable contracts are anticipated to be about $1,000.0 million to $1,150.0 million. As part of a marketing agreement entered into with AOL on June 21, 1999, Hughes committed to increase its sales and marketing expenditures over the next three years by about $1.5 billion relating to DirecPC/AOL-Plus, DIRECTV, DIRECTV/AOL TV and DirecDuo. See Notes 20 and 21 to the financial statements included elsewhere in and incorporated by reference into this document for further discussion of the above matters and various legal proceedings and claims that could be material, individually or in the aggregate, to Hughes' continuing operations or financial position. Year 2000 A comprehensive, company-wide, Year 2000 program was initiated in 1996 to identify and remediate potential Year 2000 problems. The Year 2000 program was implemented in seven phases which included awareness, inventory, assessment, remediation, testing, implementation and contingency planning. Hughes incurred and expensed about $10.0 million during 1999, about $4.0 million during 1998 and about $1.0 million through 1997, related to the assessment of, and ongoing efforts in connection with, its Year 2000 program. Future spending for remaining system remediation and testing is currently estimated to be from $0.6 million to $1.0 million. As of the date of this report, Hughes has experienced no significant problems related to the Year 2000 conversion either domestically or in foreign locations. After extensive system verification and testing, all computerized information and process control systems are operating normally. The performance of critical customers and suppliers continues without notable change. Production and business activities are normal at all locations. Hughes also has not received any material complaints regarding any Year 2000 issues related to its products. However, Hughes cannot provide assurance that problems will not arise. Hughes continues to monitor the status of its operations, suppliers and distribution channels to ensure no significant business interruptions. In addition to the above, the satellite systems manufacturing businesses incurred expenditures related to the Year 2000 conversion of about $11.0 million and $5.0 million during 1999 and 1998, respectively. Future spending for the satellite systems manufacturing businesses is estimated at about $1.0 million. As of the date of this report, the satellite systems manufacturing businesses have experienced no significant problems related to the Year 2000 conversions, however, Hughes cannot provide assurance that problems will not arise. 66 Each Hughes operating company is funding its respective Year 2000 efforts with current and future operating cash flows. Security Ratings On January 14, 2000, subsequent to the announcement of the sale of Hughes' satellite systems manufacturing businesses to Boeing, Standard and Poor's Rating Services and Moody's Investors Service each affirmed its respective debt ratings for Hughes. S&P maintained its BBB-minus credit rating, which indicates the issuer has adequate capacity to pay interest and repay principal. S&P maintained the short-term corporate credit and commercial paper ratings at A-3. S&P revised its outlook to positive from negative. Moody's confirmed Hughes' Baa2 long-term credit and P-2 commercial paper ratings. While the outlook remains negative, Moody's ended its review for possible downgrade. The Baa2 rating for senior debt indicates adequate likelihood of interest and principal payment and principal security. The P-2 commercial paper rating is the second highest rating available and indicates that the issuer has a strong ability for repayment relative to other issuers. Debt ratings by the various rating agencies reflect each agency's opinion of the ability of issuers to repay debt obligations as they come due. Lower ratings generally result in higher borrowing costs. A security rating is not a recommendation to buy, sell, or hold securities and may be subject to revision or withdrawal at any time by the assigning rating organization. Each rating should be evaluated independently of any other rating. Market Risk Disclosure The following discussion and the estimated amounts generated from the sensitivity analyses referred to below include forward-looking statements of market risk which assume for analytical purposes that certain adverse market conditions may occur. Actual future market conditions may differ materially from such assumptions because the amounts noted below are the result of analyses used for the purpose of assessing possible risks and the mitigation thereof. Accordingly, the forward-looking statements should not be considered projections by Hughes of future events or losses. General Hughes' cash flows and earnings are subject to fluctuations resulting from changes in foreign currency exchange rates, interest rates and changes in the market value of its equity investments. Hughes manages its exposure to these market risks through internally established policies and procedures and, when deemed appropriate, through the use of derivative financial instruments. Hughes' policy is to not enter into speculative derivative instruments for profit or execute derivative instrument contracts for which there are no underlying exposures. Hughes does not use financial instruments for trading purposes and is not a party to any leveraged derivatives. Foreign Currency Risk Hughes generally conducts its business in U.S. dollars with a small amount of business conducted in a variety of foreign currencies and therefore is exposed to fluctuations in foreign currency exchange rates. Hughes' objective in managing the exposure to foreign currency changes is to reduce earnings and cash flow volatility associated with foreign exchange rate fluctuations. Accordingly, Hughes enters into foreign exchange-forward contracts to mitigate risks associated with future foreign currency firm commitments. Foreign exchange-forward contracts are legal agreements between two parties to purchase and sell a foreign currency, for a price specified at the contract date, with delivery and settlement in the future. At December 31, 1999, the impact of a hypothetical 10% adverse change in exchange rates on the fair values of foreign exchange-forward contracts and foreign currency denominated assets and liabilities would not be significant. 67 Investments Hughes maintains investments in publicly-traded common stock of unaffiliated companies and is therefore subject to equity price risk. These investments are classified as available-for-sale and, consequently, are reflected in the balance sheets at fair value with unrealized gains or losses, net of taxes, recorded as part of accumulated other comprehensive income (loss), a separate component of stockholder's equity. At December 31, 1999, the fair values of the investments in such common stock were $1,025.2 million. The investments were valued at the market closing prices at December 31, 1999. No actions have been taken by Hughes to hedge this market risk exposure. A 10% decline in the market price of these investments would cause the fair value of the investments in common stock to decrease by $102.5 million as of December 31, 1999. Interest Rate Risk Hughes is subject to interest rate risk related to its $2.1 billion of debt outstanding at December 31, 1999. As of December 31, 1999, debt consisted of Hughes' $500.0 million floating rate line of credit and a $498.9 million floating rate note, PanAmSat's fixed-rate borrowings of $750.0 million, and various other floating and fixed rate borrowings. Hughes is subject to fluctuating interest rates which may adversely impact its results of operations and cash flows for its variable rate bank borrowings. Fluctuations in interest rates may also adversely effect the market value of Hughes' fixed- rate borrowings. At December 31, 1999, outstanding borrowings bore interest at rates ranging from 6.00% to 11.11%. The potential fair value loss resulting from a hypothetical 10% decrease in interest rates related to Hughes' outstanding debt would be about $29.0 million as of December 31, 1999. Credit Risk Hughes is exposed to credit risk in the event of non-performance by the counterparties to its foreign exchange-forward contracts. While Hughes believes this risk is remote, credit risk is managed through the periodic monitoring and approval of financially sound counterparties. 68 UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION OF HUGHES The following unaudited pro forma combined condensed financial statements have been derived from the historical financial statements of Hughes, U.S. Satellite Broadcasting Company, PRIMESTAR and TCI Satellite Entertainment, the parent company of Tempo Satellite, to give effect to: . the merger of Hughes with U.S. Satellite Broadcasting Company that was completed as of May 20, 1999; . Hughes' acquisition of PRIMESTAR's direct broadcast satellite medium- power business and related high-power satellite assets of Tempo Satellite that was completed as of April 28, 1999; and . the proceeds from the issuance of Hughes Series A preferred stock that was completed as of June 24, 1999. The unaudited pro forma combined condensed statements of income (loss) from continuing operations reflect adjustments as if the transactions described above had each taken place at the beginning of the periods presented. The historical Hughes amounts reflect the satellite systems manufacturing businesses as discontinued operations. Accordingly, the results of those businesses have been excluded from the historical Hughes amounts included in the Unaudited Pro Forma Combined Condensed Financial Information presented herein. The historical U.S. Satellite Broadcasting Company amounts included in the unaudited pro forma combined condensed statement of income (loss) from continuing operations for the year ended December 31, 1999 are for the period January 1, 1999 through May 20, 1999, prior to the date of the merger. The historical PRIMESTAR/Tempo Satellite amounts included in the unaudited pro forma combined condensed statement of income (loss) from continuing operations for the year ended December 31, 1999 are for the period January 1, 1999 through April 28, 1999, prior to the date of the acquisition. Certain of the pro forma adjustments described in the accompanying notes are based on preliminary estimates and various assumptions that Hughes believes are reasonable under the circumstances. The unaudited pro forma combined condensed statements of income (loss) from continuing operations do not give effect to any cost savings that may be realized from the merger with U.S. Satellite Broadcasting Company and the PRIMESTAR/Tempo Satellite acquisition, which savings relate primarily to the reduction of duplicative operating, general and administrative expenses. Hughes' merger with U.S. Satellite Broadcasting Company and the acquisition of PRIMESTAR/Tempo Satellite have been accounted for as purchases. Under the purchase method of accounting, the purchase price is allocated to assets acquired and liabilities assumed based on their estimated fair values. Certain of the adjustments included in the unaudited pro forma combined condensed financial statements reflect a preliminary allocation of the purchase price for the PRIMESTAR transaction based upon information currently available. Adjustments relating to tangible assets, including equipment located on customer premises; intangible assets, including customer lists and dealer network; and accrued liabilities for programming contracts and leases with above-market rates are estimates pending the completion of independent appraisals currently in process. Additionally, the adjustment to recognize the benefit of net operating loss carryforwards of U.S. Satellite Broadcasting Company represents a preliminary estimate pending further review and analysis by Hughes management. These appraisals, valuations and studies are expected to be completed by March 31, 2000. Accordingly, the final purchase price allocations may be different from the amounts reflected herein. The unaudited pro forma combined condensed financial statements should be read in conjunction with Hughes' financial statements, including the respective notes thereto, as of and for the years ended December 31, 1999 and 1998, included elsewhere in and incorporated by reference into this document and the financial statements, including the respective notes thereto, of U.S. Satellite Broadcasting Company, PRIMESTAR, which following Hughes' acquisition of its direct broadcast satellite medium-power business, changed its name to Phoenixstar, Inc., and TCI Satellite Entertainment, each as of and for the year ended December 31, 1998 and each of which is incorporated by reference into this document. 69 HUGHES UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME (LOSS) FROM CONTINUING OPERATIONS For the Year Ended December 31, 1999
U.S. Satellite PRIMESTAR/ Historical Broadcasting Tempo U.S. Merger Pro Historical Acquisition Pro Series A Pro Historical Satellite Pro Forma Forma PRIMESTAR/ Pro Forma Forma Preferred Forma Hughes Broadcasting Adjustments Combined Tempo Adjustments Combined Stock Combined ---------- ------------ ------------ -------- ---------- ----------- -------- --------- -------- (in millions, except per share amounts) Revenues Direct broadcast, leasing and other services............ $4,550 $252 $ (7) (a) $4,795 $ 545 -- $5,340 -- $5,340 Product sales........ 1,010 -- -- 1,010 -- -- 1,010 -- 1,010 ------ ---- ----- ------ ----- ----- ------ ---- ------ Total Revenues..... 5,560 252 (7) 5,805 545 -- 6,350 -- 6,350 ------ ---- ----- ------ ----- ----- ------ ---- ------ Operating Costs and Expenses Cost of products sold................ 955 -- -- 955 -- -- 955 -- 955 Broadcast programming and other costs......... 2,075 149 37 (b) 2,216 267 $ 31 (l) 2,502 -- 2,502 (45) (d) (12) (o) Selling, general, and administrative expenses............ 2,308 134 (7) (a) 2,381 258 (31) (l) 2,517 -- 2,517 (37) (b) (91) (m) (17) (e) Depreciation and amortization........ 650 9 24 (g) 682 198 (5) (p) 722 -- 722 (1) (h) 1 (q) (154) (r) ------ ---- ----- ------ ----- ----- ------ ---- ------ Total operating costs and expenses.......... 5,988 292 (46) 6,234 723 (261) 6,696 -- 6,696 ------ ---- ----- ------ ----- ----- ------ ---- ------ Operating Profit (Loss)............... (428) (40) 39 (429) (178) 261 (346) -- (346) Interest income (expense), net....... (96) 1 (40) (d) (142) (57) (1) (o) (172) $ 28 (z) (144) (7) (i) (19) (s) 57 (t) (10) (u) Other, net............ (136) -- -- (136) 114 (114) (v) (136) -- (136) ------ ---- ----- ------ ----- ----- ------ ---- ------ Income (Loss) from Continuing Operations Before Income Taxes and Minority Interests............ (660) (39) (8) (707) (121) 174 (654) 28 (626) Income tax benefit (expense)............ 237 10 (j) 247 75 (75) (w) 225 (11) (aa) 214 (22) (x) Minority interests in net losses of subsidiaries......... 32 -- -- 32 -- -- 32 -- 32 ------ ---- ----- ------ ----- ----- ------ ---- ------ Income (Loss) from Continuing Operations........... (391) (39) 2 (428) (46) 77 (397) 17 (380) Adjustments to exclude the effect of GM purchase accounting related to Hughes Aircraft Company..... 3 -- -- 3 -- -- 3 -- 3 Preferred Dividends... (51) -- -- (51) -- -- (51) (48) (bb) (99) ------ ---- ----- ------ ----- ----- ------ ---- ------ Earnings (Loss) Used for Computation of Available Separate Consolidated Income (Loss) from Continuing Operations........... $ (439) $(39) $ 2 $ (476) $ (46) $ 77 $ (445) $(31) $ (476) ====== ==== ===== ====== ===== ===== ====== ==== ====== Available Separate Consolidated Income (Loss) from Continuing Operations Average number of shares of Class H common stock outstanding (in millions) (numerator)......... 124.7 9.0 (k) 133.7 1.5 (y) 135.2 135.2 Class H dividend base (in millions) (denominator)(1).... 418.5 9.0 (k) 427.5 1.5 (y) 429.0 429.0 Available Separate Consolidated Income (Loss) from Continuing Operations.......... $ (131) $ (149) $ (140) $ (150) ====== ====== ====== ======
- ------- (1) See discussion of Class H dividend base in the Notes to the Hughes financial statements included in and incorporated by reference into this document. The accompanying notes are an integral part of the unaudited pro forma combined condensed financial statements. 70 HUGHES UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME (LOSS) FROM CONTINUING OPERATIONS For the Year Ended December 31, 1998
U.S. Satellite PRIMESTAR/ Historical Broadcasting Tempo U.S. Merger Pro Historical Acquisition Pro Series A Pro Historical Satellite Pro Forma Forma PRIMESTAR/ Pro Forma Forma Preferred Forma Hughes Broadcasting Adjustments Combined Tempo Adjustments Combined Stock Combined ---------- ------------ ------------ -------- ---------- ----------- -------- --------- -------- (in millions, except per share amounts) Revenues Direct broadcast, leasing and other services............ $2,640 $551 $ (3) (a) $3,188 $ 1,290 -- $4,478 -- $4,478 Product sales........ 841 -- -- 841 -- -- 841 -- 841 ------ ---- ---- ------ ------- ------ ------ ---- ------ Total Revenues..... 3,481 551 (3) 4,029 1,290 -- 5,319 -- 5,319 ------ ---- ---- ------ ------- ------ ------ ---- ------ Operating Costs and Expenses Cost of products sold................ 607 -- -- 607 -- -- 607 -- 607 Broadcast programming and other costs......... 1,211 328 75 (b) 1,530 655 $ 85 (l) 2,234 -- 2,234 (84) (d) (36) (o) Selling, general, and administrative expenses............ 1,321 267 (3) (a) 1,487 486 (85) (l) 1,888 -- 1,888 (75) (b) (1) (c) (22) (f) Impairment of long- lived assets........ -- -- -- -- 950 (950) (n) -- -- -- Depreciation and amortization........ 388 17 58 (g) 460 543 (13) (p) 580 -- 580 (3) (h) 3 (q) (413) (r) ------ ---- ---- ------ ------- ------ ------ ---- ------ Total operating costs and expenses.......... 3,527 612 (55) 4,084 2,634 (1,409) 5,309 -- 5,309 ------ ---- ---- ------ ------- ------ ------ ---- ------ Operating Profit (Loss)............... (46) (61) 52 (55) (1,344) 1,409 10 -- 10 Interest income (expense), net....... 95 4 (75) (d) 7 (146) (4) (o) (84) $ 57 (z) (27) (17) (i) (57) (s) 146 (t) (30) (u) Other, net............ (152) -- -- (152) (8) -- (160) -- (160) ------ ---- ---- ------ ------- ------ ------ ---- ------ Income (Loss) from Continuing Operations Before Income Taxes and Minority Interests............ (103) (57) (40) (200) (1,498) 1,464 (234) 57 (177) Income tax benefit (expense)............ 142 -- 16 (j) 158 148 (148) (w) 171 (23) (aa) 148 13 (x) Minority interests in net losses of subsidiaries......... 25 -- -- 25 -- -- 25 -- 25 ------ ---- ---- ------ ------- ------ ------ ---- ------ Income (Loss) from Continuing Operations Before Cumulative Effect of Accounting Change............... 64 (57) (24) (17) (1,350) 1,329 (38) 34 (4) Adjustments to exclude the effect of GM purchase accounting related to Hughes Aircraft Company..... 3 -- -- 3 -- -- 3 -- 3 Preferred Dividends... -- -- -- -- -- -- -- (99) (bb) (99) ------ ---- ---- ------ ------- ------ ------ ---- ------ Earnings (Loss) Used for Computation of Available Separate Consolidated Income (Loss) from Continuing Operations Before Cumulative Effect of Accounting Change............... $ 67 $(57) $(24) $ (14) $(1,350) $1,329 $ (35) $(65) $ (100) ====== ==== ==== ====== ======= ====== ====== ==== ====== Available Separate Consolidated Income (Loss) from Continuing Operations Before Cumulative Effect of Accounting Change: Average number of shares of Class H common stock outstanding (in millions) (numerator)......... 105.3 22.6 (k) 127.9 4.9 (y) 132.8 132.8 Average Class H dividend base (in millions) (denominator)(1).... 399.9 22.6 (k) 422.5 4.9 (y) 427.4 427.4 Available Separate Consolidated Income (Loss) from Continuing Operations Before Cumulative Effect of Accounting Change... $ 18 $ (4) $ (11) $ (31) ====== ====== ====== ======
- ------- (1) See discussion of Class H dividend base in the Notes to the Hughes financial statements included in and incorporated by reference into this document. The accompanying notes are an integral part of the unaudited pro forma combined condensed financial statements. 71 NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION OF HUGHES Various reclassifications have been made to the historical financial statements of U.S. Satellite Broadcasting Company, PRIMESTAR and TCI Satellite Entertainment to conform to the unaudited pro forma combined condensed financial statement presentation. As more fully described in Note 3 to PRIMESTAR's 1998 consolidated financial statements, the historical operating results of PRIMESTAR reflect the operations of its predecessor, TCI Satellite Entertainment, prior to the restructuring transaction on April 1, 1998. U.S. Satellite Broadcasting Company Merger Pro Forma Adjustments The following adjustments, which are set forth in millions of dollars, give pro forma effect to the U.S. Satellite Broadcasting Company merger. (a) To eliminate intercompany transactions between Hughes and U.S. Satellite Broadcasting Company. (b) To reclassify certain amounts in the historical financial statements of U.S. Satellite Broadcasting Company to conform to Hughes' presentation. (c) To eliminate non-recurring expenses related to the merger. (d) To reflect the amortization of the accrued liability for programming contracts with above-market rates. The effective interest method was used to amortize the liability and to impute interest expense thereon. (e) To eliminate non-recurring fees recorded by U.S. Satellite Broadcasting Company during 1999 in connection with the merger. (f) To eliminate a non-recurring loss recorded by U.S. Satellite Broadcasting Company during 1998 and to provide for the termination of various contracts as specified in the U.S. Satellite Broadcasting Company merger agreement. (g) To reflect amortization of the intangible assets consisting of customer lists, licenses granted by the Federal Communications Commission and enterprise level goodwill. Amortization of the customer lists was calculated based on a five-year useful life, and the amortization of licenses granted by the Federal Communications Commission and enterprise level goodwill were calculated based on useful lives of 40 years. (h) To reflect reduced depreciation expense resulting from the write-down of fixed assets to fair values. (i) To reduce interest income on cash required for the U.S. Satellite Broadcasting Company merger. (j) Income taxes associated with the pro forma adjustments discussed above have been calculated at an assumed combined federal and state rate of 40%, excluding amortization of estimated goodwill which is not deductible for tax purposes. The unaudited pro forma combined condensed statements of income (loss) from continuing operations have also been adjusted to recognize a tax benefit, at an assumed combined federal and state rate of 40%, for U.S. Satellite Broadcasting Company's historical losses from continuing operations for the periods ended December 31, 1999 and 1998. This adjustment recognizes that, if the U.S. Satellite Broadcasting Company merger had taken place at the beginning of the periods presented, the tax benefit of U.S. Satellite Broadcasting Company's losses would have been realized in the consolidated federal tax return of General Motors. (k) In connection with the U.S. Satellite Broadcasting Company merger, General Motors contributed cash to the capital of Hughes, sufficient to enable Hughes to purchase from General Motors, for fair value as determined by the GM board, the 22.6 million shares of Class H common stock delivered to U.S. Satellite Broadcasting Company shareholders in the merger. In connection therewith, the GM board also increased the Class H dividend base by 22.6 million. For purposes of pro forma presentation, the historical GM Class H numerator and denominator have been adjusted to reflect the weighted-average 72 NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION OF HUGHES--Continued number of shares of Class H common stock that would have resulted if the U.S. Satellite Broadcasting Company merger had taken place at the beginning of each period presented. PRIMESTAR/Tempo Satellite Acquisition Pro Forma Adjustments The following adjustments, which are set forth in millions of dollars, give pro forma effect to the PRIMESTAR/Tempo Satellite acquisition: (l) To reclassify certain amounts in the historical financial statements of PRIMESTAR to conform to Hughes' presentation. (m) To eliminate non-recurring expenses related to the acquisition. (n) To eliminate a non-recurring impairment loss and related income tax benefit recorded by PRIMESTAR during 1998 to reduce the carrying amount of certain assets to their net realizable values. (o) To reflect the amortization of the accrued liability for programming contracts and leases with above-market rates. The effective interest method was used to amortize the liability and to calculate the accretion of interest expense. (p) To reflect amortization of the intangible assets consisting of customer lists, licenses granted by the Federal Communications Commission, dealer/install network, and enterprise level goodwill. Amortization of the customer lists was calculated based on a five-year useful life, and the amortization of the dealer/install network was calculated based upon a 15-year useful life. Amortization of licenses granted by the Federal Communications Commission and enterprise level goodwill was calculated based on useful lives of 40 years. (q) To record depreciation on the in-orbit satellite acquired by us in connection with the PRIMESTAR/Tempo Satellite acquisition over the estimated remaining useful life of 12 years. (r) To reflect reduced depreciation expense resulting from the write-down of fixed assets to fair values. (s) To reflect interest expense associated with the incremental debt incurred by Hughes to finance the PRIMESTAR/Tempo Satellite acquisition. (t) To reduce interest expense associated with PRIMESTAR debt not assumed by Hughes. (u) To reduce interest income on cash required for the PRIMESTAR acquisition assuming Hughes' historical interest income rate. (v) To eliminate a non-recurring net gain recorded by PRIMESTAR during 1999 in connection with the sale of certain assets and the retirement of debt as a result of the PRIMESTAR/Tempo Satellite acquisition. (w) To eliminate PRIMESTAR's historical income tax benefit recorded in connection with PRIMESTAR's restructuring consummated during 1998. (x) Income taxes associated with the pro forma adjustments discussed above have been calculated at an assumed combined federal and state rate of 40%. Because the PRIMESTAR/Tempo Satellite acquisition is a taxable transaction, amortization of goodwill is expected to be deductible over 15 years for income tax purposes. The unaudited pro forma combined condensed statements of income (loss) from continuing operations have also been adjusted to recognize a tax benefit, at an assumed combined federal and state rate of 40%, for PRIMESTAR's historical losses from continuing operations for the periods ended December 31, 1999 and 1998. This adjustment recognizes that, if the PRIMESTAR/Tempo Satellite acquisition had taken place at the beginning of the periods presented, the tax benefit of PRIMESTAR's and Tempo Satellite's losses would have been realized in the consolidated federal tax return of General Motors. 73 NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION OF HUGHES--Continued (y) Based on the PRIMESTAR asset purchase agreement, 4.9 million shares of Class H common stock were issued to effect the PRIMESTAR acquisition. Hughes acquired these shares from General Motors for a cash payment, which was funded with a cash capital contribution from General Motors. In connection therewith, the General Motors board also increased the Class H dividend base by about 4.9 million. For purposes of pro forma presentation, the historical GM Class H numerator and denominator have been adjusted to reflect the weighted-average number of shares of Class H common stock that would have resulted if the PRIMESTAR acquisition had taken place at the beginning of each period presented. Preferred Stock Issuance Adjustments The following adjustments, which are set forth in millions of dollars, give pro forma effect to the issuance of Hughes Series A preferred stock. (z) To reduce interest expense for the result of the pay down of short-term debt. (aa) To reflect the income tax effects of a reduction in interest expense that resulted from the pay down of short-term debt at an assumed combined federal and state tax rate of 40%. (bb) To record dividends and amortization of fees on the Hughes Series A preferred stock. 74 BUSINESS OF GM General General Motors is primarily engaged in the automotive and, through its wholly-owned Hughes subsidiary, the communications services industries. GM is the world's largest manufacturer of automotive vehicles. GM also has financing and insurance operations and, to a lesser extent, engages in other industries. GM's automotive segment is comprised of four regions: . GM North America; . GM Europe; . GM Asia/Pacific; and . GM Latin America/Africa/Mid-East. GM North America designs, manufacturers and markets vehicles primarily in North America under the following nameplates: .Chevrolet .GMC .Buick .Saturn .Pontiac .Oldsmobile .Cadillac GM's international operations meet the demands of customers outside North America with vehicles designed, manufactured and marketed under the following nameplates: .Opel .Holden .Saab .GMC .Buick .Vauxhall .Isuzu .Chevrolet .Cadillac GM participates in the communications services industry through its Hughes subsidiary, which is a leading global provider of digital entertainment services, satellite communications services and satellite-based private business networks. For more information about Hughes, see "Business of Hughes." GM's financing and insurance operations primarily relate to General Motors Acceptance Corporation, which provides a broad range of financing services, including consumer vehicle financing, full service leasing, mortgage services and vehicle and homeowner's insurance. GM's other industrial operations include the design, manufacturing and marketing of locomotives and heavy duty transmissions. Substantially all of GM's automotive-related products are marketed through retail dealers and through distributors and jobbers in the United States, Canada, and Mexico, and through distributors and dealers overseas. At December 31, 1999, there were about 8,100 GM vehicle dealers in the United States, 840 in Canada and 155 in Mexico. Additionally, there were a total of about 11,340 outlets overseas which include dealers and authorized sales, service and parts outlets on the same date. Recent Developments On March 13, 2000, GM and Fiat S.p.A. agreed to form a strategic industrial alliance, creating an important partnership for the companies in two of the world's largest automotive markets: Europe and Latin America. We expect that this alliance will provide significant opportunities to create value for both GM and Fiat stockholders through significant synergies between the companies in the areas of material cost reductions, leveraging of each company's powertrain activities, efficiency in financial service operations, sharing of automotive technologies and effective leveraging of each other's platforms. In connection with this alliance, GM will acquire about 20% of Fiat Auto in exchange for about $2.4 billion. In addition, GM will issue 32,053,422 shares of $1 2/3 par value common stock to Fiat for about $2.4 billion. Based on the number of shares to be issued to Fiat and the total number of outstanding shares of $1 2/3 par value common stock as of February 29, 2000 and giving effect to the exercise of all outstanding stock options for $1 2/3 par value common stock as of such date, Fiat would receive about 5.1% of the outstanding $1 2/3 par value common stock as of such date. However, this percentage will increase as a result of both the reduced number of shares of $1 2/3 par value common stock outstanding after the exchange offer and GM's planned $1.4 billion stock repurchase program, which is described further at "Overview of GM Capital Stock--Recent Developments Affecting GM's Capital Structure." It is currently anticipated that Fiat will be granted certain registration rights in connection with its acquisition of $1 2/3 par value common stock. This issuance of $1 2/3 par value common stock to Fiat is expected to be completed in 2000. 75 BUSINESS OF HUGHES Overview Hughes is a leading global provider of digital entertainment, information and communications services and satellite-based private business networks. Hughes has been a pioneer in many aspects of the satellite and wireless communications industry, and its technologies have driven the creation of new services and markets and have established Hughes as a leader in each of the markets it serves. Hughes believes that its ability to identify, define and develop new markets early has provided it with a significant competitive advantage in building sustainable market leadership positions. In January 2000, Hughes announced a strategy designed to accelerate the growth of its services businesses. In connection with this new focus on its services businesses, Hughes recently entered into an agreement to sell its satellite systems manufacturing businesses to Boeing for $3.75 billion in cash. In addition, Hughes has realigned its marketing efforts to focus on its two major customer groups: consumers and business enterprises. Hughes believes this marketing realignment will enable it to obtain the full benefit of the synergies between its various business units and more effectively reach its customers. Hughes provides advanced communications services on a global basis. Hughes has developed a range of entertainment, information and communications services for the home and business markets, including video, data, voice, multimedia and Internet services. Hughes believes that these services provide the potential for higher value through higher margins and higher growth than Hughes' traditional manufacturing businesses. For the years ended December 31, 1998 and 1999, multi-channel entertainment services, satellite transponder leasing and other services revenues represented about $2.6 billion, or 76%, of Hughes' total revenues and about $4.6 billion, or 82%, of Hughes' total revenues, respectively. This represents a 72% year-over-year growth in service revenues. These figures exclude revenues attributable to Hughes' satellite systems manufacturing businesses. We currently expect that Hughes' revenues from its services businesses as a percentage of total revenues will be even higher in 2000. Hughes' businesses include: . DIRECTV, the world's leading digital multi-channel entertainment service, based on the number of subscribers. DIRECTV includes businesses in the United States and Latin America, and constitutes Hughes' Direct-to-Home Broadcast segment. In 1999, DIRECTV gained a record 1.6 million net new subscribers in the United States, representing a 39% growth rate over 1998. As of December 31, 1999, average revenue per residential U.S. DIRECTV subscriber of $58 was the highest in the U.S. multi-channel entertainment industry. . PanAmSat, the owner and operator of the largest commercial satellite fleet in the world. PanAmSat, a publicly-held company of which Hughes owns 81%, constitutes Hughes' Satellite Services segment. PanAmSat owns and operates 20 satellites that are capable of transmitting signals to geographic areas covering a substantial portion of the world's population. PanAmSat provides satellite capacity for the transmission of cable and broadcast television programming from the content source to the consumer distribution point (the consumer's home or cable operator). PanAmSat satellites have the capability to reach over 125 million cable households around the world and serve as transmission platforms for six direct-to-home services worldwide. In addition, PanAmSat provides satellite services to telecommunications carriers, corporations and Internet service providers for the provision of satellite-based communications networks, including private corporate networks employing very small aperture terminals or "VSATs" and international access to the U.S. Internet backbone. . Broadband Services and Products, which includes Hughes Network Systems, a leading provider of satellite and wireless communications ground equipment and business communications services. Hughes Network Systems has more than a 50% share of the global market for VSAT private business networks and constitutes Hughes' Network Systems segment. Hughes Network Systems is also leading the development of Spaceway, a satellite-based broadband communications platform that is expected to provide customers with high-speed, two-way data communication on a more cost-efficient basis than 76 systems that are currently available. Spaceway is expected to launch service in North America in 2003 and currently is not a separately reported business segment. In addition, Hughes' business currently includes its satellite systems manufacturing businesses. Hughes Space and Communications, the largest component of Hughes' satellite systems manufacturing businesses, is the principal component of the discontinued operations captions in Hughes' financial statements because Hughes has agreed to sell Hughes Space and Communications and its related satellite systems manufacturing assets to Boeing as more fully described below at "--Hughes Space and Communications." Recent Developments There have been several recent developments affecting Hughes' businesses that Hughes believes will accelerate its growth as a premier provider of integrated entertainment, information and communications services: . New Corporate Focus. Hughes has undertaken several new initiatives designed to focus its resources and management attention on its high- growth entertainment, information and communications services businesses. Hughes has entered into an agreement with Boeing for the sale of Hughes' satellite systems manufacturing businesses. This sale of the most significant portion of Hughes' traditional manufacturing businesses is intended to accelerate Hughes' transformation into an entertainment, information and communications services business. Hughes also believes that Boeing, with its strong systems integration capabilities, will continue to provide Hughes with a reliable source of satellites in the future. For additional information on this transaction, see "--Hughes Space and Communications" below. In addition, Hughes' wireless communication equipment business, conducted through Hughes Network Systems, will focus solely on its leading broadband wireless access (point-to-multipoint) product line and will discontinue its mobile cellular and narrowband fixed wireless product lines. Hughes does not believe that it has the critical mass required to be competitive in the mobile cellular or narrowband markets. However, Hughes believes that it has superior technology and valuable experience in the broadband wireless access market and intends to use that expertise to increase its penetration in a market that is expected to experience rapid growth over the next several years. Finally, Hughes has realigned its marketing efforts to focus on its two major customer groups, as more fully described below. . New Marketing Initiative. As part of its new corporate focus, Hughes has created two new executive positions, each of which will have the primary responsibility for Hughes' two main customer groups: consumers and business enterprises. Hughes believes that its marketing realignment will enable it to obtain the full benefit of the synergies between its various business segments and to more effectively serve its customers. Hughes also believes that this new marketing initiative will allow it to better identify and capitalize on rapidly changing trends in these two markets. For more information on Hughes' marketing realignment, see "--Sales and Marketing" below. . Local Programming. Following the enactment of new legislation regarding the delivery of local programming in the United States, DIRECTV recently expanded its program offerings to include the major local broadcast networks and a national Public Broadcasting System feed in 23 U.S. markets. This legislation allows DIRECTV to compete more effectively with cable television providers who previously had the advantage because they could offer subscribers local channels. Now, DIRECTV can provide local channels to subscribers with digital-quality picture and sound. Many of DIRECTV's existing customers are able to receive this local programming using their existing receiver equipment. In addition, DIRECTV plans to deliver local programming in new markets in which customers will receive the local channels through a new dual-feed satellite dish. DIRECTV intends initially to introduce local programming in up to 25 markets, capable of reaching about 50 million U.S. television households. In the future, DIRECTV may expand its local programming markets to additional cities based on market demand. Hughes expects that DIRECTV's ability to deliver local programming will result in higher revenue per subscriber as well as new DIRECTV subscribers in the markets where DIRECTV offers local channels. 77 . DIRECTV Japan/SkyPerfecTV Transaction. On March 1, 2000, Hughes announced that DIRECTV Japan's operations would be discontinued and that its subscribers would migrate to SkyPerfecTV, a provider of direct-to-home satellite broadcasting in Japan. In connection with this transaction, Hughes will receive an ownership interest in SkyPerfecTV. For more information, see "Management's Discussion and Analysis of Financial Condition and Results of Operations of Hughes." . Strategic Alliance with America Online. In June 1999, Hughes announced a new strategic alliance with AOL to develop and market digital entertainment and Internet services nationwide. This alliance is expected to accelerate subscriber growth and revenue per subscriber for DIRECTV, DirecPC and eventually new broadband services to be delivered via Spaceway. As part of this alliance, Hughes and AOL plan to introduce two new enhanced TV and Internet-based interactive services later this year. The first is a combination television receiver that will allow the consumer to not only receive DIRECTV's extensive programming, but also to access "AOL TV," a new service that will bring AOL's extensive interactive and Internet content to the consumer's television. The second is a high-speed Internet service called "AOL Plus via DirecPC" that will be delivered using Hughes Network Systems' DirecPC satellite network. Hughes currently expects to achieve over one million subscribers to the AOL Plus via DirecPC service by the end of 2003. DirecPC is a satellite- based Internet service which uses a small receiver dish to provide access speeds up to 400 kilobits-per-second, which is substantially faster than traditional computer modems that use analog phone lines. Hughes and AOL also plan to jointly develop new services and content for DIRECTV. Hughes currently expects to spend about $1.5 billion in connection with the marketing of these and other services and products over the next three years. For more information about this alliance, see "--Broadband Services and Products" below. Industry Background Hughes' businesses provide equipment and services for the following industries: . digital entertainment and information; . satellite- and terrestrial-based communications; and . private business networking. These diverse businesses share a common focus on delivering media and multimedia content, data and voice traffic to a broad universe of consumer and business enterprise customers almost instantaneously and in a cost-effective manner. Consumer Entertainment and Information Services Traditionally, the consumer has received entertainment and information services from several different and unrelated industries. The consumer received phone service from a telephone company and television service from a broadcast or cable company, and more recently Internet service from an Internet service provider or "ISP", typically using traditional telephone lines as a means of access. Today's improved digital technologies can deliver all of these services faster and more efficiently, and these three industries are now competing with each other as well as forming alliances to meet the growing demands of consumers. Government deregulation and technological advances and innovations have contributed to this industry realignment. These factors have expanded industry capacity to provide an increasing variety of video, information and data at prices affordable to the consumer. They have also enabled new technologies such as satellites to compete for the same business. For example, DIRECTV's satellite fleet, is capable of distributing hundreds of digital entertainment channels to every television household in the contiguous United States. The rapid development of the Internet and the consumer's growing demand for entertainment and information has led to demand for rapid delivery of vast amounts of information through broadband 78 communications systems as opposed to traditional narrowband systems. These new broadband systems, including terrestrial-based fiber-optic and wireless systems and, when operational, satellite-based systems, such as Spaceway, enable entertainment and information providers to offer new services and products to satisfy customer demands. With the development of broadband delivery systems, such as Hughes' DirecDuo and DirecPC systems, the consumer can receive data and information from the Internet at speeds significantly faster than traditional methods. In addition, the capability of broadband platforms to deliver large amounts of data provides the incentive for companies to develop new and innovative services and offerings for the consumer. The ability to combine the delivery of a number of services, which is sometimes referred to as a "bundled offering," is the goal of many companies in the industry. Generally, a consumer purchases television and Internet services separately. Today, a single provider can offer more television programming than a traditional television service provider with higher quality picture and sound as well as higher speed Internet access than some ISPs at competitive prices. Additionally, the traditional television service is increasingly offering more interactivity and information to the television viewer. At the same time, entertainment services such as video streaming and music downloading are being delivered through the consumer's computer. Hughes' recent strategic alliance with AOL is just an example of the rapid convergence of the television and personal computer platforms. Hughes is an active participant in these important and rapidly growing industries through its DIRECTV, DirecPC and DirecDuo services. Hughes continues to be an industry leader through its integration and development of new technologies and products and its alliances with industry leaders such as AOL, TiVo, Inc. and Wink Communications. Enterprise Communications and Information Services Communications and information services for business enterprises have evolved rapidly over the last several years as the same technological advances fueling consumer media, communication and data demand have impacted business enterprises. Today, enterprises are demanding more reliable, faster two-way and one-way data and voice delivery to their various sites as well as to their customers. Corporations are setting up private networks, including voice communications, local and wide area data networks and intranets, as well as using public networks such as the Internet. With the rapid development of the Internet, business enterprises are focusing increasingly on their capabilities to deliver innovative products and services, such as e-commerce and broadband data communications. Due to the ubiquity of the Internet and its increasingly high level of security as a means of transmitting corporate data, business enterprises are dramatically increasing their use of private and public corporate networks on a regional and global basis. The infrastructure required to support this traffic is rapidly developing. Broadband networks using terrestrial-, wireless- and satellite-based technologies are replacing narrowband networks such as traditional public and private telephone networks. Additionally, consumer demand for entertainment and information is driving business enterprises' requirements for wholesale delivery of data, which can be repackaged and reformatted for consumers as well as enterprise customers. A wide variety of operators, including fiber-optic cable, terrestrial-based wireless and satellite operators provide wholesale transmission of data. PanAmSat currently is the largest commercial satellite services provider for the distribution of wholesale entertainment, data and information. Hughes Network Systems is a leader in providing private business networks via VSATs. Private business networks are high-speed, satellite-based enterprise communications networks. For example, individual gas 79 stations use VSATs to send customer credit card data to central processing locations and receive back payment approvals. These private networks often utilize satellite transponder capacity leased from PanAmSat. Hughes is also a leader in the development of terrestrial-based wireless systems known as broadband wireless access systems. This technology allows business enterprises to cost effectively transmit data at very high data-rates in areas where fiber-optic systems and satellite-based systems are not as cost effective. Hughes believes that the market for private business networks using VSATs will continue its strong growth trends and that the broadband wireless access market will grow significantly over the next several years. Hughes believes that the rapid expansion of enterprise communications networks and the bandwidth those networks require will increase exponentially over the next several years. Hughes believes that new broadband platforms with two-way traffic capabilities will lead the next generation of communications technology. Hughes has planned the Spaceway platform to provide its next generation of satellite-based broadband products and services beginning in 2003. The Spaceway satellite-based platform is expected to allow business enterprises to introduce a wide range of two-way, high data-rate services, such as distance learning, across a business enterprise's global locations simultaneously, by utilizing full motion streaming video. Hughes believes that the market for these services will also grow significantly in the future. Technology Overview Hughes has been a pioneer in the development of satellite-based technology, which currently serves as the basis for many of its products and services. Satellite technology includes two major components: the ground network and equipment and the satellite. Geosynchronous satellites orbit the earth from locations about 22,300 miles above the equator. At this altitude, the satellite remains in a fixed position above a specific location on the earth at all times. This allows business enterprises and consumers the ability to point their ground equipment at one spot in the sky and remain in constant contact with the satellite. This altitude also allows one satellite to provide service to a large portion of the world. Satellites are assigned orbital positions or "slots." These slots are designated by their location East or West of the zero meridian, measured in degrees of longitude, and comprise both a physical location and an assignment of broadcast spectrum. Broadcast spectrum is divided into "bands" or frequency ranges measured in hertz. Because these slots only exist along the equator, there are a finite number of available slots and frequencies. Through a Federal Communications Commission application process, Hughes obtains licenses for orbital slots which, following successful international coordination, are registered with the International Telecommunication Union. Typical geosynchronous satellite frequency bands include: . C-band--used as the traditional network and cable television programming distribution band; . Ku-band--used for many telecommunications services, including Internet access, and direct-to-home broadcast satellite television services; and . Ka-band--a high frequency band that can be used for new broadband, high- speed data and Internet service offerings. Typically, an individual satellite divides its assigned frequency bands into smaller channels that are often referred to as "transponders." Satellites are often described as having a certain number of transponders. By knowing the number of transponders and the amount of hertz allocated to each transponder, total satellite capacity can be calculated in terms of hertz. This capability can further be assessed in terms of its usage, such as digital TV channels or raw data throughput. For example, direct broadcast satellites over the United States currently provide up to 32 transponders from each of several orbital slots. Each transponder is allocated 24 megahertz of spectrum. Through digital compression algorithms and advanced ground equipment, satellites can currently place 80 anywhere from six to 10 television video channels on each transponder and still maintain excellent picture quality from the consumer's perspective. Geosynchronous satellites act as relay stations receiving information and data, amplifying it and then relaying it back to the ground. Future satellite systems, like Spaceway, will have powerful on-board processors to more efficiently direct the information to the appropriate end-user. The ground network consists of software and equipment to send or "uplink" data to the satellite as well as receive or "downlink" data from the satellite. Certain services, such as most VSATs, allow for the same equipment to be used to both send and receive data. These are also known as two-way or interactive systems. Other applications like digital direct-to-home broadcast satellite and DirecPC are currently one-way by satellite to the end user. In other words, the equipment only receives information. In this case, any outbound requests, such as requests to visit web sites, do not go out over the satellite but typically via the phone line. Hughes expects that as technology improves and the cost of equipment drops, two-way satellite systems affordable to the consumer will be available near the end of this year. Depending on the application, the frequency band, and the overall power of the satellite, different sized receive and send equipment is used. Typically, C-band ground equipment uses five-meter or larger dishes to send and receive, while Ku-band receive equipment used for digital direct-to-home broadcast satellite is only 18 inches in diameter. In addition to the dish, there is also indoor equipment used to translate the data that is received. In the case of a digital direct-to-home broadcast satellite system, the indoor unit takes the form of a set-top box which converts the digital signal into one used by standard televisions, by high definition televisions or "HDTV", or by computers. Strategy Hughes' business objective is to enhance its position as a premier provider of integrated information, entertainment and communications services by leveraging its satellite and wireless communications systems expertise and by capitalizing on its competitive advantages discussed below. Hughes' core strategies for achieving this objective are to: . Focus on high-value, high-growth entertainment and business communications services. Hughes' recent decisions to sell its satellite systems manufacturing businesses, to refocus its wireless network business and to realign its marketing efforts to focus on its consumer and business enterprise customers, were all designed to accelerate the growth of its services businesses. Each of these actions is intended to increase Hughes' focus on the needs of its customers and to devote significant resources to the integration of new broadband and interactive services with Hughes' existing multi-channel video programming. Hughes believes that these efforts will enable it to better identify and capitalize on rapidly changing trends in its industry to position Hughes as the leading provider of these products and services. . Lead the multi-channel entertainment market. Hughes intends to capitalize on favorable demand trends for multi-channel entertainment in the United States and select international markets. Hughes intends to maintain DIRECTV's leadership in the United States by providing a premier service with distinctive programming. This programming will include exclusive entertainment programming, HDTV programming and unique interactive, personal choice and Internet-based services, such as the TiVo Personal TV(TM) service which allows subscribers to create their own television program selection based upon personal preferences. Hughes is also leveraging its experience in the multi-channel entertainment market in the United States and brand name in select international markets where Hughes believes significant growth opportunities exist. In addition, Hughes' strategy in the multi-channel entertainment market includes initiatives to increase average revenue per subscriber. DIRECTV's average monthly revenue per residential U.S. DIRECTV subscriber was about $58 as of December 31, 1999, the highest in the U.S. multi-channel entertainment industry. With the recent introduction of local channels as well as new interactive services to be introduced in 2000, DIRECTV expects average revenue per subscriber to increase. 81 . Capitalize on growth opportunities in the markets for Internet services and digital data. Hughes believes that the growth of the Internet and the increased presence of digital data will have a major impact on the entertainment, information and communications services industry. Hughes has several initiatives in this area, including the following: . DIRECTV expects to integrate a range of Internet-based and interactive technologies into its service in the United States and Latin America later this year, such as AOL TV in the United States, which will allow a DIRECTV subscriber to access the Internet via the television. See "--Recent Developments--Strategic Alliance with America Online." . Hughes Network Systems has developed an array of digital data, intranet and Internet services for the consumer, such as DirecPC, and enterprise markets, such as DirecWay(TM), which it intends to aggressively market to its own customers and to customers of AOL. . PanAmSat has developed a range of Internet-related services, including SPOTbytes(R), a bundled Internet service that offers links from international locations to the U.S. Internet backbone via PanAmSat teleports, and a new service that provides the direct broadcast of Internet content to local computer servers in the United States and internationally. PanAmSat also recently announced the introduction of NET/36(TM), a high-speed, bandwidth-intensive network that will deliver popular video, audio and data content with high clarity to thousands of digital subscriber line providers, cable headends, ISPs and broadband wireless providers worldwide. . Beginning with the anticipated North American service launch in 2003, Hughes believes Spaceway will offer customers a wide range of high- speed, two-way, data communication services for which demand has been forecast to increase dramatically in the future. . Achieve sustainable market leadership positions. Hughes has achieved market leadership positions by identifying, defining and developing new markets and introducing innovative products and services to serve these markets. For example, PanAmSat's early development of a business model that involved the leasing of satellite transponder space has enabled Hughes and PanAmSat to capture a significant share of the world's limited supply of both satellite orbital slots and broadcast spectrum. Early entry into the digital direct-to-home broadcast satellite industry has provided Hughes with direct relationships with a large subscriber base to whom an expanded array of services can be offered and has created strong relationships with the programmers that provide content for its DIRECTV service. In addition, early entry into the market for accessing the Internet via satellites and DIRECTV's customer base of more than 8 million subscribers worldwide has positioned Hughes with key strategic partners such as AOL. Hughes believes that its leadership in technology and its consumer and business enterprise customer base will provide Hughes with a competitive advantage for the introduction of the Spaceway platform. Hughes has also pursued and will continue to pursue acquisitions and strategic alliances, such as its acquisitions of PRIMESTAR, Inc. and United States Satellite Broadcasting Company, Inc. and its alliance with AOL, to extend its leadership in core markets. In those markets where leadership cannot be attained, Hughes intends to divest or reposition its businesses, such as its recent decision to discontinue its mobile cellular and narrowband fixed wireless manufacturing product lines. For more information, see "--Acquisitions, Strategic Alliances and Divestitures. In this regard, Hughes from time to time participates and is currently participating in exploratory discussions regarding potential strategic alliances or business combinations. Hughes may continue to engage in discussions with other companies in the future. Those alliances or business combinations could involve companies engaged in a wide variety of businesses, including providing content or Internet services. We cannot assure you that any such transaction will be consummated or, if consummated, whether any such transaction would or would not have a material impact on Hughes' business. . Incentivize Management. Employee compensation programs are designed to help Hughes achieve its business objective and maximize long-term shareholder value. As part of this focus, most full-time employees of Hughes and its wholly-owned subsidiaries hold Class H common stock or options to purchase Class H common stock. In particular, more than half of the compensation of Hughes' top executives is composed of stock options, stock grants and other stock performance-based incentive compensation. 82 Competitive Advantages Hughes believes that it has several important competitive advantages in the industries in which it competes. Hughes believes these competitive advantages should enable it to achieve sustainable market leadership positions and accelerate revenue and EBITDA growth. These competitive advantages include: . DIRECTV Brand and Franchise. In the United States, DIRECTV has a leadership position in the U.S. multi-channel entertainment market, including: . One of the largest multi-channel entertainment providers. As of December 31, 1999, DIRECTV had over 8 million subscribers, making DIRECTV the third largest multi-channel entertainment provider in the United States. This market position provides DIRECTV with greater opportunity to obtain programming on favorable terms, secure unique and exclusive programming and introduce new services. . Substantial channel capacity. Currently, DIRECTV has capacity to deliver about 400 entertainment channels, including local channels, in 23 markets. DIRECTV expects its capacity to increase to about 500 channels by the end of 2000 and plans to offer local channels in additional markets. . A well-developed, robust distribution network. DIRECTV has a robust distribution network, based on retail points of sale, including national retailers such as Circuit City, Radio Shack and Best Buy, and several regional Bell telephone companies which provide installation, customer service and billing and the PRIMESTAR dealer network in small urban and rural markets. Hughes believes these factors, together with DIRECTV's strong brand name, provide it with significant competitive advantages over other U.S. multi- channel entertainment providers. Hughes also believes that DIRECTV's high-quality digital picture and sound, its increased variety of programming and its high quality customer service provide competitive advantages over traditional cable television. Hughes is also utilizing the DIRECTV brand name and U.S. leadership position to accelerate growth in select international markets. . Direct Digital Interactive and Broadband Links to Homes and Businesses. Hughes believes that its established relationships with both its consumer and business enterprise customers will become increasingly valuable as key markets in which to offer expanded services. Consumers and business enterprises are increasingly demanding the flow of greater amounts of data at higher speeds than can be provided by traditional computer modems using traditional phone lines. In many cases, satellite-based systems are well suited to address this need on a cost-effective basis. In meeting this demand, Hughes intends to capitalize on its existing customer relationships as well as new customer relationships created through strategic alliances. Hughes also intends to upgrade many of its existing corporate data network clients and satellite Internet customers, many of whom are Fortune 500 companies, and DirecPC subscribers to Spaceway. . Satellite Technology Advantages. Satellite-based service offerings have inherent competitive advantages over ground-based services for many applications. These include: . the ability to broadcast hundreds of channels economically to millions of recipients over very wide geographic areas with little incremental cost per end user; . the potential for low cost two-way communications to areas of low population density; . the ability to roll-out new infrastructure to a large number of customers quickly; and . the ability to deliver large amounts of information at high transmission speeds. Hughes believes that its ability to develop leading satellite technologies has helped Hughes become a leader in each of its businesses, and it intends to continue to develop new technologies to maintain these leadership positions. For example, Hughes developed, together with Thomson Consumer Electronics, the technology for the first set-top box receiver used by DIRECTV. Hughes continues to integrate and develop new technologies to maintain its multi-channel leadership, including set-top boxes that will provide interactive services. In addition, Hughes believes that the technology utilized in VSAT equipment 83 and signal compression technologies have enabled Hughes Network Systems and PanAmSat to maintain industry leadership positions. . Global Market Leader. Hughes believes that its global leadership positions in its target markets--digital multi-channel entertainment and information, satellite transponder leasing and private business networks--enable it to achieve economies of scale. The entertainment, information and communications services businesses generally are characterized by high fixed costs with relatively lower variable costs. A market leadership position enables some of the costs of developing expanded services, such as infrastructure, to be spread across a larger customer base. In addition, Hughes Network Systems has benefited from economies of scale resulting from its global leadership position in VSATs. . Comprehensive Portfolio of Global Satellite Services. Hughes believes that its presence in several major segments of the entertainment, information and communications services industry affords significant synergies and provides Hughes with the ability to respond to the latest industry growth trends. Historically, Hughes has leveraged its systems expertise to develop new service businesses such as DIRECTV, satellite transponder leasing and Spaceway. For example, Hughes Network Systems' ability to increase production of DIRECTV set-top boxes on short notice enabled DIRECTV to meet new subscriber demand and achieve record subscriber growth in 1999. In addition, Hughes' systems expertise was an important element in the formation of the strategic alliance with AOL and has enabled Hughes to respond quickly to the growth needs of its services businesses. Hughes believes that the breadth of its services and products positions it to capitalize on the convergence of entertainment, information and the Internet for both individual consumers and business enterprises. . Global Spectrum and Orbital Slots. Operation of an international satellite fleet requires significant international and U.S. regulatory approvals and Hughes considers its regulatory authorization to use desirable broadcast spectrum and its orbital slots to be a significant competitive advantage. For example, Hughes believes that PanAmSat's global transmission capability, especially its ability to transmit signals among many of the world's major regions, provides it with a significant advantage over commercial competitors who operate fleets limited to regional coverage. PanAmSat currently operates the largest commercial network of geosynchronous communications satellites and has the ability to transmit signals to a geographic area that includes a substantial portion of the world's population. PanAmSat is the only commercial entity that offers geosynchronous satellite services on a global, one-stop shopping basis. DIRECTV Introduced in June 1994, DIRECTV was one of the first digital multi-channel entertainment providers in North America. Currently, DIRECTV programming is available in the 48 contiguous United States and 27 countries in Latin America and the Caribbean basin via Galaxy Latin America. Hughes believes it can leverage the DIRECTV brand name and market leadership position in the United States and in select international markets. As a result, Hughes evaluates, on an ongoing basis, opportunities to expand DIRECTV to serve other international markets. There is often intense competition in the international markets in which Hughes expects to offer DIRECTV. In order to increase its customer base in these markets, DIRECTV may consider offering dealer and customer incentives which may result in increased subscriber acquisition costs. DIRECTV U.S. Highlights . More than 8 million DIRECTV U.S. subscribers as of December 31, 1999, which includes 1.4 million PRIMESTAR By DIRECTV subscribers . A record 1.6 million net new subscribers to its high-power service in 1999, compared to 1.2 million net new subscribers in 1998, representing a 39% growth rate 84 . Monthly revenue per residential U.S. DIRECTV subscriber of about $58 as of December 31, 1999, the highest in the United States multi-channel entertainment industry . Local channels available in 23 markets capable of reaching nearly 50 million households . Current capacity to provide about 400 entertainment channels, including local channels, in the United States, which is expected to increase to about 500 entertainment channels by the end of 2000 . A robust U.S. distribution network, with extensive retail points of sale Strategic Goals . Increase average revenue per subscriber . Minimize subscriber churn . Reduce subscriber acquisition cost in most distribution channels . Add new and innovative programming, including new interactive and Internet-based services and expand market availability of local programming . Further broaden and strengthen distribution channels In 1999, Hughes acquired the U.S. digital direct-to-home broadcast satellite medium-power business of PRIMESTAR and the related high-power satellite assets of Tempo Satellite and U.S. Satellite Broadcasting Company, a provider of premium movie services to households throughout the continental United States. Subscribers. As of December 31, 1999, DIRECTV, under the DIRECTV and PRIMESTAR By DIRECTV brands, had over 8 million subscribers, making it the third largest multi-channel entertainment provider in the United States. This includes about 1.5 million subscribers located primarily in rural areas of the contiguous United States who receive DIRECTV services under an arrangement with the National Rural Telecommunications Cooperative. DIRECTV expects to achieve a total of between 9.5 million and 10 million subscribers by the end of 2000. Through Hughes' acquisition of U.S. Satellite Broadcasting Company, DIRECTV gained a base of over two million customers subscribing to premium movie services, over 90% of which were already receiving DIRECTV programming. The integration of this business is complete. Through the PRIMESTAR acquisition, DIRECTV obtained a base of just under 2.3 million subscribers. As of December 31, 1999, about 470,000 of these subscribers had been converted to the DIRECTV service. DIRECTV expects to convert 70% of the acquired PRIMESTAR subscriber base to DIRECTV. DIRECTV expects this to occur by the end of 2000. DIRECTV's 1999 net subscriber churn rate was about 1.5% per month, compared to an average monthly churn rate of about 2.5% for the cable television industry. DIRECTV has implemented aggressive churn management programs designed to reduce subscriber turnover. DIRECTV's net subscriber churn for a given period is calculated by dividing the number of subscribers canceling service during the period by the total number of subscribers at the end of the period. See "Risk Factors--Risk Factors Relating to the Business of Hughes-- Hughes May Be Unable to Manage Effectively the Growth of its DIRECTV Business." DIRECTV's cost of acquiring new subscribers, including incentives paid to retailers, subsidies for receiver equipment and consumer promotions, is currently about $500 per subscriber. As part of Hughes' strategic alliance with AOL, DIRECTV expects to offer additional incentives to retailers to reduce the cost to the consumer of the receiver equipment necessary to receive the new interactive services and intends to offer additional consumer promotions designed to attract more subscribers. For a description of this new service, see "--Programming--AOL TV" below. In the future, subscriber acquisition costs will continue to be largely determined by the competitive environment. Programming. Currently, DIRECTV has the capacity to offer about 400 digital channels of television shows, premium movies, sports and pay-per-view events, including 36 digital music channels, and local channels. 85 DIRECTV currently expects capacity to increase to about 500 channels by the end of 2000. DIRECTV also provides premium sports and other premium programming such as THE NFL SUNDAY TICKET(R), which allows subscribers, subject to local restrictions, to view every National Football League game played each Sunday during the regular season. DIRECTV is the exclusive small dish provider of THE NFL SUNDAY TICKET through 2002. Hughes believes that DIRECTV's increased channel offerings, channel capacity and large subscriber base provides DIRECTV with a competitive advantage in acquiring subscribers, obtaining programming from leading content providers on favorable terms and, in the future, generating advertising revenue. With the recent passage of the Satellite Home Viewer Improvement Act of 1999, DIRECTV is now permitted to provide local television programming to its customers. DIRECTV currently provides the major local broadcast networks plus a national PBS feed to 23 markets. Initial plans call for the delivery of local channels to up to 25 markets, capable of reaching about 50 million U.S. television households. In most of these markets, DIRECTV subscribers can receive local programming with their existing receiver equipment. This legislation allows DIRECTV to compete more effectively with cable television providers who previously held an advantage over DIRECTV because they could offer subscribers local channels. DIRECTV believes that it has a competitive advantage in this area over cable television providers because of its ability to provide subscribers with local channels with digital-quality picture and sound. DIRECTV U.S. also provides foreign language programming through its new DIRECTV Para Todos(TM) service. This service was launched nationwide during the first quarter of 2000. DIRECTV Para Todos(TM) currently provides programming packages that provide over 20 Spanish special interest channels with up to 77 English language channels, including CNN en Espanol, UniVision, GalaVision, TV Chile and other special interest channels. In addition, DIRECTV has a dedicated Spanish-speaking customer call center for subscribers of this service. DIRECTV intends to introduce new enhanced TV and interactive service offerings later this year. These offerings will include: . AOL TV. In addition to its own programming, DIRECTV will offer subscribers access to a wealth of information through connected interactivity with certain AOL features, such as Internet access, instant messaging and buddy lists, and AOL members will be offered the ability to connect to a new AOL interactive service designed to enhance the television viewing experience. . DIRECTV/TiVo Combination Box. Through integration with the TiVo Personal TV(TM) service, DIRECTV subscribers that use a new combination DIRECTV/TiVo satellite digital receiver will be able to control the programming they watch by being able to pause live television and create their own television programming lineup based on their personal preferences. This service will provide DIRECTV customers with access to a wide variety of programming seamlessly integrated with the control, convenience and personalization that TiVo provides. DIRECTV owns about 8% of the equity of TiVo, Inc., the owner of the TiVo Personal TV(TM) service. . DIRECTV Interactive. These services will include data-enhanced programming, e-commerce and interactive advertising. Later this year, DIRECTV will introduce the Wink(R) service, which will enable DIRECTV subscribers to access data enhanced programming and perform e-commerce transactions via their television and remote control. This service will be free of charge to DIRECTV subscribers. DIRECTV owns about 4% of the equity of Wink Communications, the owner of the Wink(R) technology. Distribution Channels. The DIRECTV service is distributed to consumers through various channels. Both DIRECTV service and equipment are distributed through consumer electronics stores such as Circuit City, Radio Shack and Best Buy and satellite television dealers. In addition, Hughes has agreements with several regional Bell telephone companies to distribute DIRECTV programming and service by bundling it with local phone services. These arrangements typically provide that the telephone companies will provide installation, customer service and billing services. DIRECTV also distributes its services to rural and small urban areas through the newly-acquired PRIMESTAR dealer network, which has enhanced its presence in those markets. Finally, as part 86 of Hughes' strategic alliance with AOL, AOL will market DIRECTV to its on-line subscriber base, which as of January 31, 2000 totaled over 23 million subscribers. Satellite Fleet and Equipment. DIRECTV currently has a fleet of five satellites, three of which are located at 101(degrees) west longitude, one of which is located at 110(degrees) west longitude, and one of which is located at 119(degrees) west longitude. In the third quarter of 2000, DIRECTV expects to launch its sixth satellite, DIRECTV 5, which will replace DIRECTV 4 at 119(degrees) west longitude. DIRECTV 4 will then serve primarily as an in- orbit spare in the event of any problems on Hughes' other satellites. See "Risk Factors--Risk Factors Relating to the Business of Hughes--Hughes Is Vulnerable to Satellite Failure." DIRECTV has also contracted to build a seventh satellite, DIRECTV 4S, a high-powered spot-beam satellite to provide additional capacity for its new local channel service or other new services beginning in 2002. DIRECTV's signals originate from its broadcast facilities in Castle Rock, Colorado and in Los Angeles, California. Hughes believes that the frequencies DIRECTV is authorized to use for delivering digital television signals in the United States are significant assets. There are currently only three licensed United States orbital slots that provide the capability to deliver high-power digital television signals throughout the contiguous United States. These orbital slots have a total of 96 available frequencies and DIRECTV controls 46 of these frequencies. DIRECTV receiving equipment is manufactured by Hughes Network Systems and a number of name brand consumer electronics companies, including RCA/Thomson Consumer Electronics and Sony. Equipment prices paid by consumers have fallen steadily from the initial $699-$899 range in June 1994 to about $99-$249 today. The technology for the DIRECTV service is based, in part, on Hughes' satellite and satellite-based services experience and, in part, on the expertise of the consumer electronics manufacturers which produce the equipment. DIRECTV has outsourced many of the significant facets of consumer marketing, the operation of the related infrastructure and support services to vendors experienced in the respective fields. Galaxy Latin America Highlights . More than 800,000 subscribers in 27 countries throughout Latin America and the Caribbean basin, capable of reaching 97% of the potential market . Monthly revenue per subscriber of about $36 as of December 31, 1999 . Capacity to provide over 355 digital video and audio channels . New exclusive programming arrangements with affiliates of HBO and Disney . New subscriber acquisitions in the quarter ended December 31, 1999 nearly double that of any previous quarter Strategic Goals . Accelerate subscriber growth through aggressive marketing of the DIRECTV service . Broaden and strengthen distribution channels in Latin America and the Caribbean basin . Expand and continue to improve customer service . Minimize subscriber churn . Add new and exclusive programming, including new interactive and web- based services and expanding market availability of local programming Hughes currently provides DIRECTV service in 27 countries in Latin America and the Caribbean basin via Galaxy Latin America under the brand name "DIRECTV". Introduced in mid-1996, Galaxy Latin America was the first digital direct-to-home broadcast satellite television service available in Latin America and currently has 87 the capacity to provide over 300 digital video channels. Hughes owns about 78% of Galaxy Latin America, with The Cisneros Group of Companies of Venezuela holding the remaining ownership share. Galaxy Latin America, like other businesses of Hughes, may require significant capital to implement its strategic goals or react rapidly to changes in technology, products, services or the competitive landscape. Any such future capital needs may be funded through the issuance by Galaxy Latin America of equity or debt securities. Subscribers. As of December 31, 1999, DIRECTV had about 804,000 subscribers throughout Latin America, representing subscriber growth of about 74% compared to 1998. Galaxy Latin America added 136,000 net new subscribers in the fourth quarter of 1999, which nearly doubled the previous record set in the first quarter of 1999. These gains were primarily due to Galaxy Latin America's acquisition of operating control in Brazil and Mexico as well as a strong performance in Argentina. The average revenue per subscriber in the Latin American region is currently about $36 per month. Galaxy Latin America believes that about one-half of television households in Latin America, or about 50 million households, earn an income sufficient to afford multi-channel pay television services, but only a small fraction currently subscribes to such services. Hughes believes that this market has significant growth potential. To further accelerate subscriber growth, Galaxy Latin America and its local operating companies will continue to promote the service aggressively, will concentrate on superior customer service, will continue its strategy of adding new distribution and mitigating subscriber churn. In addition, in most instances, subscriber acquisition costs in Latin America generally have been much lower than in the United States. Distribution. Local operating companies in each country provide marketing, sales, distribution, customer service and other infrastructure services. Hughes believes that having an equity stake, and in some situations a controlling interest, in the local operating companies will help it to pursue a coordinated marketing and operating strategy throughout Latin America. In furtherance of this strategy, Hughes has recently increased its ownership of the local operating company in Mexico and now manages its day-to-day operations. Also, in July 1999, Galaxy Latin America acquired Galaxy Brasil, Ltda., the exclusive distributor of DIRECTV services in Brazil. Additionally, Hughes has purchased an interest in several local operating companies in other large Latin American markets, including Venezuela, Colombia, Argentina and Puerto Rico. These six markets represent over 90% of the current Latin American target pay television market. Programming. Galaxy Latin America provides a selection of international programming tailored to each of its particular markets. Galaxy Latin America's programming packages include multi-lingual programming, local programming and several sports and special events packages. Galaxy Latin America plans to supplement its current programming line-up with new popular local programming as well as introducing interactive service offerings. Galaxy Latin America recently announced new exclusive programming arrangements with HBO Latin America and Buena Vista International (Walt Disney). The two five-year arrangements with HBO Latin America provide Galaxy Latin America with the exclusive direct-to-home broadcast satellite television rights to HBO's three premium channels in Brazil and five premium channels in Argentina. The arrangement with Walt Disney provides Galaxy Latin America with exclusive direct-to-home broadcast satellite television rights to the Disney Channel in all Spanish-speaking Latin America, except for Puerto Rico. The Disney Channel is expected to launch in the second half of 2000. Galaxy Latin America plans to launch its initial offering of interactive services in the second half of 2000. Galaxy Latin America's initial offering of services is expected to include information services, interactive electronic program guides and transaction-based services. The main objective of these services are to enhance Galaxy Latin America's core programming service in order to attract new subscribers to these services, maintain a high level of loyalty among current subscribers and increase average revenue per subscriber. Galaxy Latin America plans to continue to improve the interactive services with enhanced programming content, synchronized advertising and e- commerce applications. 88 DIRECTV Japan The DIRECTV Japan service commenced commercial operations in December 1997, after competitor PerfecTV had already introduced a full service offering. DIRECTV Japan began full service in April 1998. A second competitior, Japan Sky Broadcasting had planned to initiate service in April 1998 as well. On May 1, 1998, PerfecTV and Japan Sky Broadcasting merged to form SkyPerfecTV. As of the end of 1999, DIRECTV Japan had about 386,000 subscribers and SkyPerfecTV had about 1.5 million subscribers. On March 1, 2000, Hughes announced that DIRECTV Japan's operations would be discontinued and that its subscribers would migrate to SkyPerfecTV. In connection with this transaction, Hughes will receive an ownership interest in SkyPerfecTV. For more information, see "Management's Discussion and Analysis of Financial Condition and Results of Operations of Hughes." PanAmSat Highlights . A leading commercial provider of global satellite communications services with: . Unique resources both in space and on the ground; and . ""Blue-chip" global customers . Global network of 20 satellites supported by seven teleport operations facilities in the United States . A unique one-stop provider of global satellite services through its global network of satellites capable of transmitting signals to a geographic area that includes a substantial portion of the world's population . About $6.1 billion in backlog at December 31, 1999 Strategic Goals . Expand satellite fleet . Continue to offer customers unique one-stop shopping for their national, regional or global satellite transmission needs on its own fleet of satellites . Obtain market leadership positions by identifying, defining and developing new markets early and expanding innovative value-added services and applications such as Internet distribution and transmission of HDTV PanAmSat currently operates the world's largest commercial network of geosynchronous communications satellites. PanAmSat is the only commercial entity that has a fleet of satellites that is capable of offering geosynchronous satellite services on a global, one-stop-shopping basis. PanAmSat has regulatory approval to operate its satellite fleet in the C- band, the traditional network and cable television distribution band and the Ku-band, the band used for many telecommunications services and direct-to-home television services. In addition, PanAmSat has obtained Federal Communications Commission authorization for licenses in the Ka-band, a high-powered frequency that can be used for broadband, high-speed data and Internet service offerings. PanAmSat seeks to obtain market leadership positions by identifying, defining and developing new markets early. In 1983, PanAmSat revolutionized the television industry by launching Galaxy I, the first satellite to be dedicated solely to cable television programming for the United States. PanAmSat pioneered the "cable neighborhood" concept in the satellite services industry by securing key cable programming for Galaxy I, which prompted a core group of cable operators to focus their ground antennas on Galaxy I's orbital position. Once a core group of cable operators had aligned their dishes with the satellite, subsequent transmission capacity on the satellite was sold at a premium. This "cable neighborhood" strategy continues to be a major business strategy for PanAmSat, and PanAmSat has created cable neighborhoods on its other U.S. and international satellites. 89 Additionally, in 1988, PanAmSat launched the PAS-1 Atlantic Ocean Region satellite, becoming the first private-sector international satellite service provider. In 1995, with the launch of the PAS-4 Indian Ocean satellite, PanAmSat became the world's first private-sector company to provide global satellite services. Services and Customers. Through its 81% interest in PanAmSat Corporation, Hughes offers comprehensive end-to-end satellite services. The entity currently known as PanAmSat, a publicly-held corporation traded on the Nasdaq National Market System under the symbol "SPOT," was created through the merger of Hughes' Galaxy satellite services operations and PanAmSat's satellite services operations in May 1997. Today, the PanAmSat network: . Distributes cable and broadcast television programming that reaches more than 125 million households each day for a wide variety of clients, including CNN, NBC, HBO, Disney, Fox, Sony, TCI, Viacom, Turner Broadcasting, ESPN, the British Broadcasting Corporation, NHK (Japan), CBS, Cisneros Group (Venezuela) and the Australian Broadcasting Corporation . Operates platforms for direct-to-home satellite broadcast services to Latin America, South Africa and Taiwan that together will broadcast more than 500 channels . Provides live transmission services for news, sports and special events coverage, and transmits news coverage for virtually every major news gathering organization in the world . Provides satellite services to more than 35 telecommunications carriers worldwide, including MCI WorldCom, Sprint, ImpSat, Microspace and Telstra (Australia) . Provides access to the U.S. Internet backbone to ISPs and other telecommunications providers in nearly 50 countries . Relays digital data via more than 125,000 VSATs predominantly through the private networks of clients of Hughes Network Systems and other customers of PanAmSat, including AG Edwards, the Associated Press, BP Amoco, Chevron, IBM, Kmart, Reuters, Toys "R" Us, the University of Southern California and Wal-Mart PanAmSat provides satellite services to its customers primarily through long-term operating lease contracts for the full or partial use of transponder capacity. PanAmSat also offers services to its customers through sales and sales-type lease contracts. PanAmSat currently provides service to hundreds of video distribution and telecommunications customers worldwide. As of December 31, 1999, PanAmSat had long-term arrangements for satellite services representing future payments of about $6.1 billion, including amounts due from affiliated companies, as well as about $250 million relating to arrangements on satellites that were under construction on December 31, 1999 and are expected to be in service by the end of 2000. In March 2000, PanAmSat announced the introduction of NET/36(TM), a high- speed, bandwidth-intensive network that will deliver popular video, audio and data content with high clarity to thousands of digital subscriber line providers, cable headends, ISPs and broadband wireless providers worldwide. Through the use of PanAmSat's global in-orbit satellite fleet as well as the deployment of satellite-enabled servers to last-mile Internet providers, NET/36 will circumvent thousands of miles of wires and multiple routers clogging the terrestrial Internet network. As part of this introduction, PanAmSat has entered into separate strategic alliances with U S WEST(R) and RealNetworks. U S WEST, one of the largest digital subscriber line service providers in the United States, will use NET/36 for Internet protocol content delivery to U S WEST's digital subscriber line and Internet subscribers. RealNetworks, a leader in streaming media delivery on the Internet, will provide RealSystem G2, which offers a scalable distribution architecture for the delivery of video and audio programming to large audiences worldwide. Additional alliances and agreements are expected as PanAmSat introduces this network. Satellite Fleet. In December 1999, PanAmSat launched its 20th satellite, Galaxy-XI, which is an HS-702 model spacecraft built by Hughes Space and Communications. Galaxy-XI contains 40 Ku-band and 24 C-band transponders and is the largest commercial communications satellite ever launched. Galaxy-XI will become an 90 integral component of the Galaxy cable neighborhood after reaching its orbital location at 91(degrees) west longitude and is expected to be operational in the first half of 2000. In January 2000, PanAmSat launched its 21st satellite, Galaxy-XR, which is a HS-601 HP model satellite built by Hughes Space and Communications. Galaxy- XR commenced service in March 2000. Galaxy-XR contains 24 Ku-band and 24 C- band transponders and has created the fifth orbital location in the Galaxy cable neighborhood, which Hughes believes is the premier platform for the distribution of cable programming throughout the United States. PanAmSat retired the SBS 5 Ku-band domestic U.S. satellite in March 2000. The SBS 5 satellite was retired because it reached the end of its useful life. Customers were transferred without disruption to Galaxy-XR, which is serving as the replacement satellite for SBS 5. With the retirement of SBS 5, PanAmSat's satellite fleet was reduced to 20 satellites. To maintain its competitive advantages, PanAmSat plans to expand its fleet from 20 satellites to 24 by mid-2001. This expansion will involve the launch of five additional satellites and the retirement of one additional existing satellite. These additional satellites are intended to meet the expected demand for additional transponder capacity, replace capacity affected by satellite anomalies and provide additional back-up to existing capacity. See "Risk Factors--Risk Factors Relating to the Business of Hughes--Hughes is Vulnerable to Satellite Failure." There can be no assurance that the schedule for PanAmSat's future satellite launches will be met. Delays in the production or timely and successful launch of these satellites could materially affect the ability of PanAmSat to deliver services and benefit from the opportunities it is currently pursuing. In addition, revenues attributable to satellites affected by anomalies could be at reduced levels. Broadband Services and Products Highlights . Hughes Network Systems is the world's leading supplier of satellite-based private business networks, based on an estimated worldwide market share of over 50% of the revenues of satellite-based private business networks products and services . Hughes Network Systems has shipped over 300,000 one-way and two-way VSATs to customers in 85 countries . Hughes Network Systems is one of the two largest manufacturers of DIRECTV subscriber equipment . Hughes Network Systems provides satellite-based high-speed access to the Internet through its DirecPC service at speeds of up to 400 kilobits-per- second, which is substantially faster than traditional computer modems . Hughes has committed about $1.4 billion for investment in Spaceway, a satellite-based broadband communications network for North America Strategic Goals . Maintain leadership in the private business networks market and establish a leading position in the broadband wireless access equipment market . Significantly expand production of DIRECTV subscriber equipment . Leverage products and technologies into service business opportunities . Aggressively market high-speed Internet access via DirecPC to consumers, including over 23 million AOL customers, and to ISPs . Lead the development of the emerging market for broadband communications services through the Spaceway broadband satellite platform: 91 . Become the first satellite-based broadband service in North America serving large businesses, telecommuters, small office/home office users and consumers upon service launch expected in 2003 . Upgrade a portion of Hughes Network Systems' existing extensive "blue-chip" business and DirecPC customer base to Spaceway and sell broadband services to DIRECTV subscribers . Work with global strategic partners to roll out additional geosynchronous systems in other regions as the markets develop Hughes Network Systems is a leading supplier of communications services and products. Hughes Network Systems designs, manufactures and installs advanced networking solutions for businesses and governments worldwide. As part of Hughes' overall strategy of focusing on its high-growth businesses, Hughes Network Systems' wireless equipment business resources will be focused solely in the broadband wireless access (point-to-multipoint) market and its mobile cellular and fixed wireless businesses will be discontinued. Hughes Network Systems is transforming itself into a premier broadband products and services company with particular emphasis on providing broadband access. As part of this transformation, Hughes Network Systems has developed a new marketing initiative in which it will align its services and products in four marketing groups: enterprise services and products, consumer services and products, carrier services and products and Spaceway. Enterprise Services and Products. Hughes Network Systems is the leading supplier, based on market share, of VSATs used in satellite-based private business networks. Hughes Network Systems has delivered or received orders for more than 300,000 of these terminals for use in the private networks of companies, government agencies, universities and research institutions. These include more than 9,000 terminals installed in the GM Pulsar network, currently the world's largest private business network. Since 1987, Hughes Network Systems has sold private business networks to a variety of customers worldwide, including DaimlerChrysler, Ford, Toyota, Chevron, Texaco, Mobil, Amoco, Wal-Mart, Toys "R" Us, Jusco (Japan) and France Telecom. Hughes is also a market leader in providing VSAT corporate data networking services and expects to be a leading provider of satellite broadband Internet services to businesses, many of which are Fortune 500 companies. Consumer Services and Products. Hughes Network Systems' consumer products and services business include the manufacture of set-top boxes for the DIRECTV, DirecPC and DirecDuo services and providing new applications and services to the customers of these services. Hughes Network Systems began manufacturing subscriber equipment for DIRECTV in 1996 and is now one of the two leading suppliers of this equipment in terms of volume. Hughes Network Systems was able, on short notice, to increase its production of DIRECTV receivers in 1999 to more than 2.1 million units, enabling DIRECTV to achieve record subscriber growth. Hughes Network Systems intends to continue its production of DIRECTV units, including the new dual- feed, dual-receive equipment for receiving local channels described above at "--DIRECTV," and expects its production to grow to over 3.0 million units in 2000. In addition, Hughes Network Systems will design and build the initial dual purpose set-top receivers for the DIRECTV/AOL interactive television and Internet service described above at "--DIRECTV." Other manufacturers may eventually build these receivers as well. Hughes Network Systems developed DirecPC, an information delivery service that uses a small antenna and high-speed digital transmission from a satellite to make Internet access, software, documents, desk-top video, games, news and other information accessible through personal computers. DirecPC allows consumers to download data and video at speeds of up to 400 kilobits-per- second while using their telephone lines to transmit information from their computers. Hughes currently expects to introduce a high-speed "two-way" DirecPC service for downloading data and video and transmitting information by the end of 2000. As part of Hughes' strategic alliance with AOL, Hughes Network Systems will make AOL service available nationwide through the DirecPC network. This service will provide consumers with high-speed access to AOL content and enable Hughes Network Systems to introduce new applications and services to the consumer. AOL has also acquired the right to purchase capacity on the new Spaceway platform to enable consumers to benefit from satellite 92 broadband Internet access. By migrating these existing and planned DirecPC customers to the Spaceway platform, Hughes expects to provide expanded capabilities to these customers while keeping end-user costs low enough to provide competitive advantages over ground-based and other satellite-based offerings. DirecDuo is a satellite receiving system that provides both DIRECTV service and the ability to obtain Internet access through DirecPC. This one satellite dish allows customers to receive both DIRECTV television entertainment and AOL and other internet services for the computer. Carrier Services and Products. Hughes believes that significant communications opportunities exist in utilizing digital ground-based technologies to provide broadband fiber-quality wireless access to businesses worldwide. For example, Hughes Network Systems has entered into agreements to provide competitive local exchange carriers Winstar Communications, Inc. and Teligent, Inc. with its AIReach(R) Broadband system. The AIReach Broadband system uses wireless technology to provide high-quality, high-speed communications access to buildings not reached by fiber optic cables. Hughes Network Systems believes that its technologies and extensive experience position it to become a leading provider of satellite-based mobile communications equipment and services. Hughes has been awarded several programs in recent years to provide satellite ground telecommunications networking equipment which has established Hughes Network Systems' presence in this sector. Spaceway. As part of its broadband strategy, Hughes intends to make an initial investment of $1.4 billion in Spaceway in North America. Spaceway will provide "bandwidth-on-demand" which will offer customers the ability to transmit and receive via satellite, referred to as "two-way communication," any combination of data, video, audio, and multimedia while paying only for the amount of bandwidth they need for their specific application. Utilizing its expertise in private business networks, the AOL alliance and advanced ground- based communications infrastructure, Hughes Network Systems plans to focus on offering new broadband services via the Spaceway platform to a wide range of customers, including its existing "blue-chip" customer base and its existing and planned DIRECTV and DirecPC customer base. Because of its early investments in broadband technology and its networking expertise, Hughes Network Systems believes it will be a leader in offering innovative broadband services to businesses, government agencies and individuals. In addition, Spaceway is expected to provide an overlay to current ground-based networks, providing network operators with a wireless extension of their existing capabilities. Hughes' advanced technologies and networking services expertise will be very important to Spaceway. The system will start with the construction and launch of three HS 702 spacecraft expected to be built by Hughes Space and Communications, and will utilize ground stations and very small satellite dishes designed by Hughes Network Systems. PanAmSat will provide expertise in satellite and network operations, and is expected to resell capacity in certain markets. DIRECTV plans to cross-sell the services to its extensive customer base. Hughes Network Systems and Hughes Space and Communications have negotiated a non-compete agreement in the Spaceway contract designed to protect Hughes' first-to-market advantage for the Spaceway broadband system. Hughes anticipates working with strategic global partners to roll out Spaceway systems in other regions, including Europe, Latin America, Africa and Asia. As these markets and the technology evolve, Hughes' strategy contemplates making additional investments to add a fleet of spacecraft in lower earth orbits that will support additional interactive broadband services, including services without a transmission delay, in high-traffic markets. See "Risk Factors--Risk Factors Relating to the Business of Hughes--Hughes' Future Growth Depends Upon its Ability to Implement its Business Strategy" for a discussion of risks and uncertainties in connection with Spaceway. Hughes Space and Communications As a result of the agreement to sell Hughes' satellite systems manufacturing businesses to Boeing, Hughes Space and Communications is the principal component of the discontinued operations captions in Hughes' 93 financial statements. Hughes Space and Communications designs and builds satellite systems for commercial customers worldwide and for the U.S. Department of Defense, NASA and other government agencies. About 75% of Hughes Space and Communications revenues in 1999 were from commercial customers. Boeing has agreed to purchase the satellite systems manufacturing businesses for $3.75 billion in cash. The purchase price payable by Boeing is subject to adjustment if the estimated closing net assets are greater than or less than a specified target number. In addition, Hughes will be required to deposit into escrow 40% of the estimated net asset value of all of Hughes' contracts with ICO unless prior to the closing of the transaction: . substantial consummation of a plan or reorganization has occurred in connection with which all ICO contracts are either assumed or replaced with new ICO contracts; or . all ICO contracts have been assumed or replaced with new contracts, and a bankruptcy or similar court has approved (1) such new assumption or replacement and (2) funding commitments from investors or lenders to ICO that provide for full payment of all amounts under those ICO contracts. The release of these funds from escrow depends on the type of post-closing resolution of the ICO bankruptcy. If within two years of the closing, no resolution of the ICO bankruptcy has occurred, the entire escrow amount will be paid to Boeing, subject to reduction by any amounts previously paid to Boeing that are attributable to the ICO contracts. The agreement with Boeing also provides that for a period of three years from the closing date of the transaction, Boeing will not develop, own or make any financial investments in any system that would be in direct competition with PanAmSat and/or the Spaceway systems, subject to limited exceptions. Hughes has also agreed to indemnify and hold Boeing harmless for the full amount of any monetary fines and penalties, payable before or after the close of the transaction, resulting from Hughes' export control activities in China that were previously disclosed by Hughes and any other compliance matters related to exports by Hughes to China that may arise prior to the close of the transaction. See "--Legal Proceedings--Grand Jury Investigation." The Boeing transaction is subject to regulatory approvals and other customary closing conditions. Either Hughes or Boeing can terminate the agreement if the sale has not been completed by October 31, 2000. In addition, Boeing will not be required to close the transaction if a "material adverse change" occurs. Under the terms of the agreement with Boeing, a material adverse change includes, among other things, a settlement by Hughes of the China investigation prior to closing that results in a debarment from sales to the U.S. government or a material suspension of Hughes' export licenses or other material limitation on the projected business activities of the satellite systems manufacturing businesses. If, however, any such settlement only involves a suspension of licenses or other limitation on business activities restricting sales to China or to any other customer or country for which material sales are not anticipated, Hughes would not be deemed to have suffered a material adverse change. Hughes expects this transaction to close in mid-2000. As of December 31, 1999, Hughes Space and Communications had outstanding orders to construct 36 communications satellites for companies and government agencies in several countries, representing over $4.8 billion in backlog. In 1999, seven satellites built by Hughes Space and Communications were launched and Hughes Space and Communications expects to exceed that number in 2000. Launch schedules are subject to a number of factors, some of which are beyond the control of Hughes Space and Communications, including weather, availability of launch vehicles, launch vehicle problems and governmental and political pressures. Launch difficulties and delays, as well as construction delays, can result in increased costs to Hughes Space and Communications. Since the launch of Hughes Space and Communications' first satellite in 1963, its satellites have accumulated over 1,000 years of in-orbit experience, with channel availability of about 98% on HS 376, HS 601 and other in-orbit commercial satellites. About 95% of Hughes Space and Communications' satellites have remained in service past their originally scheduled retirement dates. Hughes Space and Communications' technological capabilities have enhanced the power and capacity of its satellites and improved their cost effectiveness. These improvements strengthen the leadership position of 94 Hughes Space and Communications and expand the market for satellites as a whole. For example, Hughes Space and Communications has developed a family of satellite structures, electronics, propulsion and power systems which can be replicated at relatively low cost in a variety of commercial and government configurations. In addition, Hughes Space and Communications has applied signal compression and other methods to enhance the efficiency of transponders. The newest product in this family is the HS 702 satellite, which offer substantially higher power levels than those previously achieved in the industry. Advances in digital electronics, high-power amplifiers, antenna implementations and propulsion systems offer improved performance capabilities of satellites built by Hughes Space and Communications. Hughes has historically acted as a prime contractor or major subcontractor with respect to various U.S. government programs. Principally, this business is performed by Hughes Space and Communications. After the sale of the satellite systems manufacturing businesses to Boeing, Hughes' programs with the U.S. government will be substantially reduced and any future programs would only likely involve acting as a subcontractor. Any subcontracting work would be principally performed by Hughes Network Systems. As a result, after the closing of the Boeing transaction, a much smaller portion of Hughes' revenues will be derived from U.S. government programs. Net sales to the U.S. government in 1999 were about $561 million, substantially all of which is attributable to Hughes Space and Communications. Sales and Marketing As part of its new corporate focus, Hughes has realigned its sales and marketing efforts. Hughes has created two new executive positions each of which will have the primary responsibility for Hughes' two main customer groups: . consumers; and . business enterprises. Hughes believes that this marketing realignment will enable it to obtain the full benefit of the synergies between its various business segments and will focus management's attention on its high-growth entertainment, information and communications services businesses. Hughes believes that this approach will allow Hughes to better focus on its customers' needs and to better identify and capitalize on rapidly changing trends in their respective markets. The operations of DIRECTV U.S. and Galaxy Latin America, the consumer applications of products and services developed by Hughes Network Systems and Spaceway, and all AOL-related endeavors will be overseen by Mr. Eddy Hartenstein, the Corporate Senior Executive Vice President, Hughes Consumer Sector. The operations of PanAmSat, Hughes Network Systems, the enterprise applications of products and services developed by Hughes Network Systems and Spaceway, including the systems development for those products and related enterprise broadband products and services will be overseen by Mr. Jack Shaw, Corporate Senior Executive Vice President, Hughes Enterprise Sector. Other Hughes owns equity interests in other businesses in addition to those described above. These businesses are reported as part of the "Eliminations and Other" segment in Hughes' financial statements and the revenues of these businesses are not, in the aggregate, material to Hughes. Spaceway is currently reported as part of this segment in Hughes' financial statements. Competition Although Hughes has certain strengths which it believes help it compete in each of the markets in which it competes, each of these markets is highly competitive. Hughes faces competition from numerous other companies offering video, audio and data products and services. These include a broad range of companies 95 engaged in communications and entertainment, including other digital multi- channel entertainment providers, cable television operators, wireless cable television operators, television networks and local broadcasters, home video products companies and global and regional satellite and ground-based communications service companies, as well as companies developing new technologies. Some of Hughes' competitors in these markets have similar or better financial, technological and personnel resources than Hughes. Hughes believes technological capabilities and innovation and the ability to invest in new and developing businesses are critical to obtaining and maintaining leadership in the markets in which it participates and the communications industry in general. Hughes cannot assure you as to the effect that competition may have on its financial condition or results of operations. See "Risk Factors--Risk Factors Relating to the Business of Hughes--Hughes Will Be Adversely Affected if It Fails to Maintain Leading Technological Capabilities." DIRECTV. DIRECTV faces competition from local cable television operators as well as direct-to-home satellite system operators in each of its regional markets. DIRECTV believes that it can compete effectively with traditional cable television because DIRECTV combines higher quality digital picture and sound and greater programming variety with higher quality customer service. In addition, the enactment of new legislation regarding local programming will enable DIRECTV to compete directly with cable television providers in this market. DIRECTV expects to face increasing competition from digital cable television in the future because digital cable is capable of delivering high quality picture and sound and a broader range of programming than traditional cable television. Hughes believes that DIRECTV can compete effectively with direct-to-home satellite system operators through a combination of its broad range of programming, including exclusive programming, and well-developed distribution channels. Echostar Communications Corporation is the only other digital direct broadcast satellite service company in the multi-channel industry currently in operation in the United States. In 1999, Echostar acquired the satellites and orbital slots owned by The News Corporation Limited and MCI WorldCom, Inc. DIRECTV faces competition from other direct broadcast satellite service providers in major regions of Latin America. The DIRECTV service also competes with telephone companies, broadcast television and other entertainment services, including video rentals. As a result of this competitive environment, DIRECTV in the United States and internationally may consider increasing the subsidy on DIRECTV receiver equipment and increasing consumer marketing and promotions in order to compete effectively, which may result in increased subscriber acquisition costs. PanAmSat. PanAmSat primarily competes with companies and organizations that own or utilize satellite or ground-based transmission facilities. Satellite operators include: . global competitors such as Intelsat; . regional operators expanding globally, such as Loral Space and Communications, Ltd., GE Americom, Societe Europeenne des Satellites, New Skies Satellite N.V.; and . numerous other regional operators and governments. Broadband Services and Products. Hughes Network Systems faces global competition in the VSAT market from Gilat Satellite Networks Ltd. and in its wireless broadband access markets from firms such as Lucent Technologies Inc., Telefonaktiebolaget LM Ericsson, as well as other large telecommunications companies and the various regional Bell telephone companies. Hughes Network Systems faces competition from RCA/Thomson Consumer Electronics and Sony Corporation in the manufacturing of DIRECTV subscriber equipment. The Spaceway platform will face competition from companies that offer both ground-based and satellite-based broadband services. Companies offering ground-based broadband services include AT&T Corp., MCI WorldCom, Qwest Communications International, Inc., Time Warner Inc. and Bell Atlantic Corporation. 96 Companies who may offer satellite-based broadband services include Teledesic LLC, Skybridge LP and Loral Space & Communications Ltd.'s Cyberstar. Acquisitions, Strategic Alliances and Divestitures Due to rapid growth in the telecommunications and space industry, particularly internationally, and increasing competitive pressures, Hughes reviews its competitive position on an ongoing basis and from time to time considers various acquisitions, strategic alliances and divestitures in order to continue to compete effectively, improve its financial results, grow its business and allocate its resources efficiently. It is also important for Hughes to form strategic partnerships with other firms to bring together the necessary expertise, such as distribution, market knowledge and technology, to address competitive pressures and meet new market demands. Hughes has accomplished this in its DIRECTV businesses, such as the PRIMESTAR and U.S. Satellite Broadcasting Company acquisitions, its network systems businesses and through its recent alliance with AOL. See "Shares Eligible for Future Sale." Hughes also considers periodically making equity investments in companies with which Hughes can jointly provide services to its customers. Such investments by Hughes include equity investments in TiVo, Inc., Wink Communications, XM Satellite Radio and Thomson Multimedia. The aggregate market value of these investments as of February 15, 1999 was about $1 billion, the majority of which was related to Thomson Multimedia. In connection with Hughes' acquisitions of each of PRIMESTAR and U.S. Satellite Broadcasting Company, GM issued Class H common stock as part of the total consideration. In connection with Hughes' strategic alliance with AOL, GM issued a security convertible into Class H common stock. In the future, in connection with other acquisitions or strategic alliances, GM may decide to issue additional shares of Class H common stock, either alone or in combination with cash or other property. Although there is a proposal by the Clinton administration that, if enacted, would result in a tax on stockholders upon their receipt of tracking stock similar to Class H common stock under certain circumstances, this proposal does not appear to affect GM's ability, including on behalf of Hughes, to issue Class H common stock in exchange for cash or property other than GM stock, including the ability to issue Class H common stock in capital-raising public offerings or in acquisitions of target companies. However, proposed draft legislation for the Clinton administration's proposal has not been released, and it is possible that such draft legislation, or future legislative or regulatory action, if enacted, could restrict GM's ability to issue Class H common stock more than as described above. See "Risk Factors--Risk Factors Relating to GM's Dual-Class Common Stock Capital Structure--Proposed Changes in the Tax Law Could Affect GM's Future Ability to Issue Shares of Class H Common Stock." Regulation Various aspects of Hughes' businesses are subject to federal and state regulation. Noncompliance with these regulations could result in the suspension or revocation of Hughes' licenses or registrations at issue, the termination or loss of contracts at issue or the imposition of contractual damages, civil fines or criminal penalties. DIRECTV's business is subject to regulation by the U.S. Federal Communications Commission. These regulations govern, among other things, the authorization to license the use of orbital slots for the delivery of digital television signals. The satellite industry is highly regulated both in the United States and internationally. Hughes is generally subject to the regulatory authority of the U.S. government and the regulatory authority of other countries in which PanAmSat operates. The ownership and operation of PanAmSat's satellite system is regulated by the U.S. Federal Communications Commission primarily for: . the licensing of satellites and earth stations; . avoidance of interference with other radio stations; and . compliance with FCC rules governing U.S.-licensed satellite systems. 97 The FCC grants authorizations to satellite operators that meet its legal, technical and financial qualification requirements. Under the FCC's financial qualification rules, an applicant must demonstrate that it has sufficient funds to construct, launch, and operate each requested satellite for one year. Under the FCC's rules, unless an applicant has received an authorization to launch and operate a satellite, it must notify the FCC in writing prior to commencing satellite construction, and any construction engaged in is at the applicant's own risk. Under the FCC's rules, an entity such as PanAmSat that provides international telecommunications services on a common carrier basis must first receive authorization to provide such services. Foreign laws and regulatory practices governing the provision of satellite services to licensed entities and directly to end users vary substantially. Most countries in which PanAmSat operates are signatories of Intelsat and, as a result, may require PanAmSat to confirm that it has successfully completed technical consultation with Intelsat before providing services on a given satellite. In addition, Hughes may be subject to national communications and/or broadcasting laws with respect to its provision of international satellite service. Research and Intellectual Property The ability to continue to generate technological innovations is important to Hughes' long-term business strategy. See "Risk Factors--Risk Factors Relating to the Business of Hughes--Hughes Will Be Adversely Affected if It Fails to Maintain Leading Technological Capabilities." The continued development of new technologies may provide new and improved products which will continue to fuel business opportunities and product improvements which, among other things, will enable the extension of profitable production programs. Research and development is carried on in each of Hughes' business units in connection with ongoing product improvement efforts. In addition, HRL Laboratories LLC, a company of which Hughes owns 50%, conducts long-range applied research in the specialized fields of physics, chemistry, electronics and information sciences, primarily for the benefit of Hughes Space and Communications. As part of the Boeing transaction, Boeing expressed interest in obtaining Hughes' 50% interest in HRL, which requires the consent of Raytheon Company, which is the other member of HRL. Hughes utilizes a large number of patents and trademarks which are held by Hughes or its affiliates. Hughes believes that, in the aggregate, the rights existing under such patents, trademarks and licenses are important. Hughes believes that its competitive position is dependent on research, engineering and production capabilities. Hughes actively pursues patent and trademark protections of its technological and engineering innovations, and actively pursues enforcement of its intellectual property rights. Legal Proceedings Raytheon Purchase Price Adjustment Dispute. In connection with the 1997 spin-off of the defense electronics business of Hughes' predecessor as part of the Hughes restructuring transactions and the subsequent merger of that business with Raytheon Company, the terms of the merger agreement provided processes for resolving disputes that might arise in connection with post- closing financial adjustments that were also called for by the terms of the merger agreement. These financial adjustments might require a cash payment from Raytheon to Hughes or vice versa. A dispute currently exists regarding the post-closing adjustments which Hughes and Raytheon have proposed to one another and related issues regarding the adequacy of disclosures made by Hughes to Raytheon in the period prior to consummation of the merger. Hughes and Raytheon are proceeding with the dispute resolution process. It is possible that the ultimate resolution of the post-closing financial adjustment and of related disclosure issues may result in Hughes making a payment to Raytheon that would be material to Hughes. However, the amount of any payment that either party might be required to make to the other cannot be determined at this time. Hughes intends to vigorously pursue resolution of the disputes through the arbitration processes, opposing the adjustments proposed by Raytheon, and seeking the payment from Raytheon that Hughes has proposed. 98 National Rural Telecommunications Cooperative. On June 3, 1999, the National Rural Telecommunications Cooperative filed a lawsuit against DIRECTV, Inc. and Hughes Communications Galaxy, Inc., which we refer to together in this description as "DIRECTV", in the U.S. District Court for the Central District of California, alleging that DIRECTV has breached the DBS Distribution Agreement with the NRTC. The DBS Distribution Agreement provides the NRTC with certain rights, in certain specified portions of the United States, with respect to DIRECTV programming delivered over 27 of the 32 frequencies at the 101(degrees) west longitude orbital location. The NRTC claims that DIRECTV has wrongfully deprived it of the exclusive right to distribute programming formerly provided by U.S. Satellite Broadcasting Company over the other five frequencies at 101(degrees). DIRECTV denies that the NRTC is entitled to exclusive distribution rights to the former U.S. Satellite Broadcasting Company programming because, among other things, the NRTC's exclusive distribution rights are limited to programming distributed over 27 of the 32 frequencies at 101(degrees). The NRTC's complaint seeks, in the alternative, the right to distribute former U.S. Satellite Broadcasting Company programming on a non-exclusive basis and the recovery of related revenues from the date U.S. Satellite Broadcasting Company was acquired by Hughes. DIRECTV maintains that the NRTC's right under the DBS Distribution Agreement is to market and sell the former U.S. Satellite Broadcasting Company programming as its agent and the NRTC is not entitled to the claimed revenues. DIRECTV intends to vigorously defend the NRTC claims. DIRECTV has also filed a counterclaim against the NRTC seeking a declaration of the parties' rights under the DBS Distribution Agreement. On August 26, 1999, the NRTC filed a second lawsuit against DIRECTV alleging that DIRECTV has breached the DBS Distribution Agreement. In this lawsuit, the NRTC is asking the court to require DIRECTV to pay the NRTC a proportionate share of unspecified financial benefits that DIRECTV derives from programming providers and other third parties. DIRECTV denies that it owes any sums to the NRTC on account of the allegations in these matters and plans to vigorously defend itself against these claims. Pegasus Satellite Television, Inc. and Golden Sky Systems, Inc., the two largest NRTC affiliates, filed an action on January 11, 2000 against DIRECTV in the U.S. District Court in Los Angeles. The plaintiffs allege, among other things, that DIRECTV has interfered with their contractual relationship with the NRTC. The plaintiffs plead that their rights and damages are derivative of the rights and claims asserted by the NRTC in its two cases against DIRECTV. The plaintiffs also allege that DIRECTV has interfered with their contractual relationships with manufacturers and distributors by preventing those parties from selling receiving equipment to the plaintiffs' dealers. DIRECTV denies that it has wrongfully interfered with any of the plaintiffs' business relationships and will vigorously defend the lawsuit. On February 29, 2000, two NRTC members, North Central Telephone Cooperative and Northeast Rural Services, Inc., filed a class action lawsuit on behalf of themselves and the remaining NRTC members participating in DIRECTV's direct-to-home broadcast satellite business. The allegations in the class action suit are patterned on the allegations made by Pegasus and Golden Sky. Echostar. EchoStar Communications Corporation and others commenced an action in the U.S. District Court in Colorado on February 1, 2000 against DIRECTV, Hughes Network Systems and Thomson Consumer Electronics, Inc. seeking, among other things, injunctive relief and unspecified damages, including treble damages, in connection with allegations that the defendants have entered into agreements with retailers and program providers and engaged in other conduct that violates the antitrust laws and constitutes unfair competition. DIRECTV believes that the complaint is without merit and intends to vigorously defend against the allegations raised. DIRECTV and Hughes filed counterclaims against EchoStar, alleging that EchoStar tortiously interfered with DIRECTV's contract with Kelly Broadcasting Systems pursuant to which Kelly Broadcasting was to have provided DIRECTV with foreign language programming and related services. DIRECTV and Hughes also allege that EchoStar has misused the registered PRIMESTAR trademarks and conspired with dealers to mislead PRIMESTAR subscribers to switch to EchoStar service. Finally, DIRECTV and Hughes allege that EchoStar has engaged in false advertising and unfair competition by misleading consumers to believe that they were lawfully entitled to receive network programming and out-of-market National Football League games. Financing Contract Dispute. General Electric Capital Corporation and DIRECTV, Inc. entered into a contract on July 31, 1995, in which General Electric Capital Corporation agreed to establish and manage a private 99 label consumer credit program for consumer purchases of hardware and related DIRECTV programming. Under the contract, General Electric Capital Corporation agreed to provide certain related services to DIRECTV, including credit risk scoring, billing and collections services. DIRECTV agreed to act as a surety for loans complying with the terms of the contract. Hughes guaranteed DIRECTV's performance under the contract. A complaint and counterclaim have been filed by the parties in the U.S. District Court for the District of Connecticut concerning General Electric Capital Corporation's performance and DIRECTV's obligation to act as a surety. General Electric Capital Corporation claims damages from DIRECTV in excess of $140 million. DIRECTV is seeking damages from General Electric Capital Corporation in excess of $45 million. Hughes intends to vigorously contest General Electric Capital Corporation's allegations and pursue its own contractual rights and remedies. Pretrial discovery is completed. No specific trial date has been set, but a trial may be held in 2000. Grand Jury Investigation. There is a pending grand jury investigation into whether Hughes should be accused of criminal violations of the export control laws arising out of the participation of two of its employees on a committee formed to review the findings of Chinese engineers regarding the failure of a Long March rocket in China in 1996. Hughes is also subject to the authority of the State Department to impose sanctions for non-criminal violations of the Arms Export Control Act. The possible criminal and/or civil sanctions could include fines as well as debarment from various export privileges and participating in government contracts. If Hughes were to enter into a settlement of this matter prior to the closing of the Boeing transaction that involves a debarment from sales to the U.S. government or a material suspension of Hughes' export licenses or other material limitation on projected business activities of the satellite systems manufacturing businesses, Boeing would not be obligated to complete the purchase of Hughes' satellite systems manufacturing businesses. Hughes does not expect the grand jury investigation or State Department review to result in a material adverse effect upon its business. However, there can be no assurance as to such a favorable outcome. Personalized Media Patent Dispute. In November 1996, Personalized Media Communications, Inc. brought an International Trade Commission proceeding against DIRECTV, U.S. Satellite Broadcasting Company, Hughes Network Systems and other manufacturers of receivers for the DIRECTV system to prevent importation of certain receivers manufactured in Mexico, alleging infringement of one of its patents. During 1997, the International Trade Commission held for DIRECTV and other respondents on all claims at issue, finding each to be invalid. Personalized Media appealed these adverse rulings to the Court of Appeals for the Federal Circuit. During 1998, the Court of Appeals affirmed the lower court's holdings as to three of the claims, and remanded to the International Trade Commission for further deliberation on a remaining claim. Personalized Media then moved for dismissal of the proceeding, which was granted, terminating the action. Also in 1996, Personalized Media filed a related action in the U.S. District Court for the Northern District of California. This case has been stayed pending outcome of the International Trade Commission proceeding. The complaint alleges infringement and willful infringement of three Personalized Media patents, and seeks unspecified damages, trebling of damages, an injunction and attorneys' fees. Hughes denies that it engaged in acts of infringement of the asserted patents and intends to vigorously contest these claims. Employment Cases. In October 1994, a California jury awarded a total of about $90 million in damages against Hughes, which included about $10 million of actual damages and punitive damages of $40 million to each of two former Hughes employees, Lane (race discrimination/retaliation) and Villalpando (retaliation), based on claims of mistreatment and denials of promotions. The trial court granted Hughes' motion to set aside the verdicts because of insufficient evidence and ordered a new trial of the matter. On January 6, 1997, the Court of Appeals reversed the trial court's decision that had set aside the verdicts and ordered a new trial. The Court of Appeals also reinstated the jury verdicts, but reduced the two $40 million punitive damage awards to $5 million and about $3 million, resulting in an aggregate judgment of about $17 million. Hughes' petition for review by the California Supreme Court was granted in November 1997. On March 6, 2000, the California Supreme Court reversed the judgment of the Court of Appeals, remanding the case with instructions to set aside the verdicts as to actual and punitive damages and affirming the order of the trial court to proceed with a new trial. After the closing of the Hughes Space and Communications transaction, Boeing has agreed that Boeing will indemnify and hold Hughes harmless for any damages resulting from this action. 100 Environmental. Hughes is subject to the requirements of federal, state, local and foreign environmental and occupational safety and health laws and regulations. These include laws regulating air emissions, water discharge and waste management. Hughes has an environmental management structure designed to facilitate and support its compliance with these requirements. We cannot assure you, however, that Hughes is at all times in complete compliance with all such requirements. Although Hughes has made and will continue to make capital and other expenditures to comply with environmental requirements, we do not expect capital or other expenditures for environmental compliance to be material in 2000 and 2001. Environmental requirements are complex, change frequently and have become more stringent over time. Accordingly, we cannot assure you that these requirements will not change or become more stringent in the future in a manner that could have a material adverse effect on Hughes' business. Hughes is also subject to environmental laws requiring the investigation and cleanup of environmental contamination at facilities it formerly owned or operated or currently owns or operates or to which it sent hazardous wastes for treatment or disposal. Hughes is aware of contamination at certain of its sites. In addition, Hughes has been named as a potentially responsible party at several Superfund sites. Although Hughes believes its reserve is adequate to cover environmental investigation and cleanup, we cannot assure you that Hughes' environmental cleanup costs and liabilities will not exceed the current amount of its reserve. Properties As of December 31, 1999, Hughes had about 117 locations operating in 21 states and 55 cities in the United States and about 33 additional locations in 16 cities in about 13 countries outside the United States. At such date, Hughes owned about 3.2 million square feet of space and leased an additional 3.4 million square feet of space. If the sale of its satellite manufacturing business to Boeing is completed, Hughes will have about 54 locations operating in 17 states and 43 cities in the United States and about 29 additional locations in 12 cities in about 11 countries outside the United States. Hughes will own about 1.3 million square feet of space and lease an additional 1.4 million square feet of space. Employees As of December 31, 1999, Hughes employed about 17,300 persons. If the sale of its satellite manufacturing business to Boeing is completed, Hughes' work force will be reduced by about 8,600 persons. As of December 31, 1999, about 10% of Hughes' work force in the United States was represented by unions. A substantial portion of the 10% of Hughes' work force represented by unions consists of Hughes Space and Communications employees. Hughes has not experienced any significant labor problems in the past five years, and management considers its employee relations to be good. 101 MANAGEMENT OF HUGHES The principal executive officers and executives having primary responsibility for business units of Hughes include the following:
Name Age Positions ---- --- --------- Michael T. Smith 56 Chairman of the Board and Chief Executive Officer Jack A. Shaw 61 Corporate Senior Executive Vice President, Enterprise Sector Eddy W. Hartenstein 49 Corporate Senior Executive Vice President, Consumer Sector Roxanne S. Austin 39 Corporate Senior Vice President and Chief Financial Officer Pradman P. Kaul 53 Corporate Senior Vice President and Chairman and Chief Executive Officer, Hughes Network Systems Tig H. Krekel 46 Corporate Senior Vice President and President and Chief Executive Officer, Hughes Space and Communications Company Larry D. Hunter 50 Corporate Vice President and Chairman, DIRECTV Japan Management Inc. Kevin N. McGrath 47 Chairman, Galaxy Latin America LLC R. Douglas Kahn 47 President and Chief Executive Officer, PamAmSat Corporation Marcy J. K. Tiffany 50 Corporate Vice President and General Counsel
102 BOARD OF DIRECTORS OF HUGHES The Hughes board of directors is comprised of eleven members and includes the following individuals:
Name Age Position ---- --- -------- Michael T. Smith 56 Chairman of the Board James M. Cornelius 56 Director Thomas E. Everhart 68 Director J. Michael Losh 53 Director Peter A. Lund 59 Director Harry J. Pearce 57 Director Eckhard Pfeiffer 58 Director Alfred C. Sikes 60 Director John G. Smale 72 Director John F. Smith, Jr. 61 Director Bernee D.L. Strom 52 Director
The Hughes board of directors includes individuals who also serve as officers of GM or Hughes or directors of GM as well as individuals who are not officers or directors of GM. Hughes Management Director Set forth below is a description of the background of the individual serving on the Hughes board of directors who also serves as an officer of Hughes. Michael T. Smith. Chairman and Chief Executive Officer, Hughes Electronics Corporation; Former Vice-Chairman, Hughes Electronics Corporation; Former Chairman, Hughes Aircraft Company; Chairman, PanAmSat Corporation; Director, Alliant Techsystems, Inc.; Former Chairman, Aerospace Industries Association; Charter Member, Electronics Industries Foundation Leadership Council; Director, Los Angeles World Affairs Council; Trustee, Keck Graduate Institute of Applied Life Sciences at the Claremont Colleges; Trustee, Providence College. Non GM-Affiliated Directors Set forth below is a description of the backgrounds of the individuals serving on the Hughes board of directors who do not also serve as an officer of Hughes or GM or director of GM. James M. Cornelius. Chairman, Guidant Corporation; Former Director and Chief Financial Officer, Eli Lilly and Company; Director, Chubb Corporation, Lilly Industries and American United Life Insurance Company; Founding Board Member, National Bank of Indianapolis; Former Director, DowElanco, Indiana National Bank, Indiana Bell Telephone Company and CompuServe; Active in several Indianapolis civic organizations and the United Way of Central Indiana; Trustee, University of Indianapolis; Treasurer, Board of Governors of the Indianapolis Museum of Art. Peter A. Lund. Private investor and media consultant; Former President and Chief Executive Officer of CBS, Inc.; Former President and Chief Executive Officer, CBS Television and Cable; Director, Dreamlife, Inc., Lycos, Inc. and RespondTV, Inc.; Trustee, University of St. Thomas, the Central Park Conservancy and the Motion Picture and Television Foundation. Alfred C. Sikes. President, Hearst Interactive Media; Former Chairman, Federal Communications Commission; Director, New York's Center for Communication Inc., New York's Student/Sponsor Partnership, the School Choice Scholarships Foundation, and Odyssey cable television network; Chairman, The Student/Sponsor Partnership. 103 Bernee D.L. Strom. President, InfoSpace Ventures, LLC; Former Chief Executive Officer, Priceline.com; Former Principal and a founder of Gemstar International Group Ltd.; Former President and Chief Executive Officer of U.S.A. Digital Radio; Former President and Chief Executive Officer and Founder of MBS Technologies, Inc.; Director, InfoSpace.com, Polaroid Corporation and ImageX.com; Former Director, Walker Digital; Board of Advisors, J.L. Kellogg Graduate School of Management of Northwestern University; Trustee, National Public Radio Foundation. GM-Affiliated Directors Set forth below is a description of the backgrounds of the individuals serving on the Hughes board of directors who also serve as an officer or director of GM. Thomas E. Everhart. President Emeritus and Professor of Electrical Engineering and Applied Physics, California Institute of Technology, Pasadena, California; Director, General Motors Corporation, Saint-Gobain Company, Reveo, Inc., Raytheon Company and Agilent Technologies; Member of the Board of Trustees of California Institute of Technology; Member of the Board of Directors of Electric Power Research Institute and the Corporation for National Research Initiatives; Senior Scientific Advisor to the W.M. Keck Foundation; Member, National Academy of Engineering Council, Council on Competitiveness; Former Chairman of General Motors Science Advisory Committee; Member, Harvard College Board of Overseers. J. Michael Losh. Executive Vice President and Chief Financial Officer, General Motors Corporation; Director, The Quaker Oats Company and Cardinal Health Inc.; Former Group Executive in charge of North American Vehicle Sales, Service and Marketing, General Motors Corporation; Former General Manager of the Oldsmobile Division, General Motors Corporation, Former General Manager of Pontiac Division and Vice President, General Motors Corporation. Harry J. Pearce. Vice Chairman, General Motors Corporation; Former Executive Vice President, General Motors Corporation; Former Executive Vice President and General Counsel, General Motors Corporation; Director, Marriott International, Inc. and MDU Resources Group, Inc.; Member, U.S. Air Force Academy's Board of Visitors, Northwestern University School of Law's Law Board; Trustee, Northwestern University and Howard University; Member, The Conference Board. Eckhard Pfeiffer. Chairman, Intershop Communications AG/Inc. and ricardo.de AG; Former President and Chief Executive Officer, Compaq Computer Corporation; Director, Bell Atlantic Corporation and General Motors Corporation; Advisory Board, Deutsche Bank; Trustee, Southern Methodist University and Executive Board of the Cox School of Business-Southern Methodist University. John G. Smale. Former Chairman and Chief Executive Officer, The Procter & Gamble Company; Director, General Motors Corporation, Rand McNally and Florida Keys Land and Sea Trust. John F. Smith, Jr. Chairman and Chief Executive Officer, General Motors Corporation, Former President, General Motors Corporation; Director, The Procter & Gamble Company; Co-Chairman, The Business Roundtable; Member, The Business Council and U.S.-Japan Business Council; Chairman, Catalyst; Member, Chancellor's Executive Committee of the University of Massachusetts; Trustee, Boston University; Board Member, The Nature Conservancy. 104 SHARES ELIGIBLE FOR FUTURE SALE Exchange Offer Shares of Class H common stock issued to $1 2/3 par value stockholders pursuant to the exchange offer will be freely transferable, except for shares received by persons who may be deemed to be "affiliates" of GM under the Securities Act. Affiliates generally include individuals or entities that control, are controlled by, or are under common control with, GM. The directors and principal executive officers of GM, as well as significant stockholders of GM, will be affiliates. Affiliates of GM may sell their shares of Class H common stock only pursuant to an effective registration statement under the Securities Act or an exemption from the registration requirements of the Securities Act. Certain executive officers, directors and employees of GM and its subsidiaries hold $1 2/3 par value common stock, including through employee benefit plans. All holders of $1 2/3 par value common stock, including our executive officers, directors and employees, are eligible to participate in the exchange offer. Certain of our executive officers, directors and employees from time to time engage in transactions involving $1 2/3 par value common stock, including transactions occurring during the last 60 days and prior periods, and some or all of these persons may acquire shares of Class H common stock through their participation in the exchange offer. To the extent that any of such persons are not affiliates or otherwise restricted, these persons will generally be able to transfer such shares of Class H common stock without restriction. In connection with the exchange offer, GM and certain senior executive officers of GM and Hughes have agreed that, without the prior written consent of Morgan Stanley Dean Witter, they will not, during the period ending 90 days after the expiration date, sell or otherwise dispose of any shares of Class H common stock, subject to certain exceptions. These exceptions include, among other things: . the issuance of Class H common stock in exchange for $1 2/3 par value common stock pursuant to the exchange offer; . the issuance and contribution of Class H common stock by GM to the employee benefit plans pursuant to the contributions; . the issuance of Class H common stock upon the exercise of options or warrants exercisable for or the conversion of securities convertible into Class H common stock outstanding as of the date of this document; . the granting of stock options, warrants and/or restricted stock awards for Class H common stock under employee benefit plans and programs, provided that such options, warrants and awards do not become exercisable or vest during such lock-up period; . other issuances or transfers of Class H common stock under employee benefit plans and programs and dividend reinvestment plans; . the issuance and/or transfer of Class H common stock pursuant to the terms of any agreements in effect on the date of the initial filing of this document; . issuances of, or transactions involving, any other securities of GM, including $1 2/3 par value common stock; . the issuance of shares of Class H common stock to persons who become employed as senior executive officers of Hughes during such lock-up period, provided that those shares may not be sold or otherwise transferred by such persons during such lock-up period; . public or private mergers, acquisitions, strategic alliances, business combinations and other similar transactions involving the issuance of any GM securities, including Class H common stock, provided that the recipients of such shares agree in writing not to offer or sell such shares during such lock-up period; and 105 . the issuance of shares of Class H common stock to existing Class H stockholders for purposes of effecting the possible stock split described at "Overview of GM Capital Stock--Recent Development Affecting GM's Capital Structure." Contributions to the Employee Benefit Plans Following the contributions to the employee benefit plans, subject to certain restrictions, the trustees of the plans will have the authority and discretion to cause the plans to hold the shares of Class H common stock contributed by GM or to sell all or any portion thereof from time to time as they deem appropriate. Significant sales of Class H common stock by the employee benefit plans could adversely affect the market price of Class H common stock. The employee benefit plans will be subject to agreements that will provide them with registration rights with respect to the shares of Class H common stock they receive pursuant to the contributions, but will also regulate the manner in which such shares may be sold or transferred. For more information about these agreements and other aspects of the contributions, see "The Transactions--Contributions to the Employee Benefit Plans." America Online In connection with Hughes' strategic alliance with AOL in June 1999, AOL invested $1.5 billion in restricted shares of a new series of GM preference stock, the Series H preference shares, which would automatically convert, depending on the average closing trading price of Class H common stock during the 20 trading days prior to the mandatory conversion date, into between 21,529,255 and 26,696,330 shares of Class H common stock on the mandatory conversion date for the Series H preference shares, which is June 24, 2002. AOL also currently has the right to convert these shares into 21,529,255 shares of Class H common stock, subject to adjustment. General Motors invested the proceeds received from AOL in shares of a new Hughes preferred equity security, the Hughes Series A preferred stock, which is designed to correspond to the financial terms of the Series H preference shares. For more information, see "Overview of GM Capital Stock--Preference Stock." The following description summarizes the material terms of the stock purchase agreement between GM and AOL relating to transfer restrictions on the Series H preference shares as well as the material terms of the registration rights agreement between GM and AOL. This description does not purport to be complete and is qualified in its entirety by reference to the full text of such agreements, each of which has been filed as an exhibit to the registration statement of which this document is a part. The Series H preference shares held by AOL and the underlying Class H common stock are subject to transfer restrictions. AOL has agreed that, prior to June 21, 2002, it will not transfer or otherwise dispose of any of the Series H preference shares or the underlying Class H common stock, except for transfers to certain of its affiliates or as part of a merger or similar transaction involving AOL. This transfer restriction would lapse upon a sale of DIRECTV or the termination of certain of the transaction documents executed in connection with the AOL strategic alliance. See "Management's Discussion and Analysis of Financial Condition and Results of Operations of Hughes-- General" for a further discussion of this investment. In addition, AOL has agreed that, in connection with any underwritten offerings, other than on behalf of other stockholders, of Class H common stock or a security convertible into or exchangeable for Class H common stock before the first anniversary of the termination of the transfer restrictions, it would sign lock-up agreements which do not contain more burdensome restrictions than those agreed to by GM in connection with the offerings restricting the transfer of its shares during the pendency of the offering and for 90 days following the completion of each of such offerings. GM has agreed to provide AOL certain registration rights with respect to the shares of Class H common stock issuable upon conversion of the GM Series H preference shares. These rights become exercisable upon the earlier to occur of a sale of DIRECTV or the termination of certain of the transaction documents executed in connection with the strategic alliance. Once the rights are exercisable, AOL may demand on four occasions 106 registration of their shares of Class H common stock under the Securities Act. However, GM is not required to register any shares that can be sold publicly without registration. General Motors has the right to delay any required registration for up to 90 days in any 12-month period if that registration could interfere with its business activities or plans or if it would require disclosure of certain confidential information. In addition, GM is not required to register any shares for 30 days prior to the anticipated consummation of a public offering by General Motors of its securities and 90 days after the completion of the public offering where, in the good faith judgment of the managing underwriter(s), the registration would have an adverse effect on the offering or if registration would be prohibited by law. PRIMESTAR In connection with Hughes' acquisition of PRIMESTAR in April 1999, GM issued 4,871,448 shares of restricted Class H common stock to PRIMESTAR. After this acquisition, PRIMESTAR changed its name to Phoenixstar, Inc. These shares were not registered under the Securities Act and may not be transferred prior to April 28, 2000, except for limited transfers from Phoenixstar to its stockholders and certain related parties. Following Hughes' acquisition of PRIMESTAR, Phoenixstar granted stock appreciation rights in respect of the shares of Class H common stock it received in the transaction to certain holders of its outstanding debt. Each stock appreciation right entitles the holder thereof to receive a payment from Phoenixstar in the amount, if any, by which the fair market value per share of Class H common stock on May 5, 2000 exceeds $47.00 per share. "Fair market value" for purposes of this calculation is the average of the last sale price of Class H common stock (or if no last sale is reported, the average of the high bid and low asked prices) for each of the five trading days immediately preceding May 5, 2000. Phoenixstar is required to pay amounts in respect of these stock appreciation rights on May 10, 2000. According to Phoenixstar's most recent public filings, Phoenixstar does not appear to have a source of revenue from which to make these payments. Therefore, we believe that between April 28, 2000, the date on which the transfer restrictions on the Class H common stock expire, and May 9, 2000, it is likely that Phoenixstar may sell a substantial portion of its holdings of Class H common stock in order to fund the required payments. The following description summarizes the material terms of the registration rights agreement between GM and Phoenixstar and the related stock transfer agreement. This description does not purport to be complete and is qualified in its entirety by reference to the full text of such agreements, each of which has been filed as an exhibit to the registration statement of which this document is a part. Under an agreement with GM, Phoenixstar has the right to demand on two occasions registration under the Securities Act of the shares of Class H common stock issued to it by GM. However, General Motors is not required to register any shares that can be sold publicly without registration. We have the right to delay any required registration for up to 90 days in any 12-month period if that registration could materially interfere with our business activities or plans. In addition, GM is not required to register any shares for 30 days prior to the anticipated consummation of a public offering by General Motors of its securities and 90 days after the completion of the public offering where, in the good faith judgment of the managing underwriter(s), the registration would have an adverse effect on the offering or if registration is prohibited by law. U.S. Satellite Broadcasting Company In connection with Hughes' May 1999 acquisition of U.S. Satellite Broadcasting Company, GM issued 22,632,878 shares of restricted Class H common stock to the stockholders of U.S. Satellite Broadcasting Company. Prior to the first anniversary of the acquisition of those shares, a substantial portion of those shares may only be transferred in accordance with Rule 145 under the Securities Act, which generally imposes a limitation on the amount of these shares that may be sold in any three-month period. In addition, the holders of these restricted shares have agreed that, in connection with any underwritten offerings of Class H common stock prior to May 20, 2001, they will sign lock- up agreements with provisions, including as to the lock-up period, similar to those entered into by General Motors and/or other stockholders of General Motors. 107 OVERVIEW OF GM CAPITAL STOCK General General Motors is authorized to issue 2,706,000,000 shares of capital stock, consisting of: . 6,000,000 shares of preferred stock, without par value; . 100,000,000 shares of preference stock, $0.10 par value, 3,925,000 shares of which are designated as Series D 7.92% preference stock, 5,750,000 shares of which are designated as Series G 9.12% preference stock and 2,669,633 shares of which are designated as Series H 6.25% automatically convertible preference stock; and . 2,600,000,000 shares of GM common stock comprising two classes, which currently include 2,000,000,000 shares of $1 2/3 par value common stock and 600,000,000 shares of Class H common stock. As of December 31, 1999, the following shares of capital stock of GM were outstanding: . 753,663 shares of Series D 7.92% preference stock, represented by about 3,014,654 depositary shares; . 1,253,852 shares of Series G 9.12% preference stock, represented by about 5,015,410 depositary shares; . 2,669,633 shares of Series H 6.25% automatically convertible preference stock; . 617,437,531 shares of $1 2/3 par value common stock; and . 137,072,711 shares of Class H common stock. There are currently no outstanding shares of preferred stock. Recent Developments Affecting GM's Capital Structure On March 6, 2000, our board of directors approved an amendment to our certificate of incorporation to increase the number of authorized shares of Class H common stock from 600 million to 3.6 billion. The amendment is subject to approval by a majority vote of $1 2/3 par value stockholders and Class H stockholders, voting together as a single class based on their respective voting powers, and a majority vote of the Class H stockholders voting separately as a class. GM will solicit this approval at its annual meeting to be held on June 6, 2000. If the amendment is approved, we currently anticipate that the GM board of directors will authorize a stock split of Class H common stock, effected as a dividend of Class H common stock payable on outstanding shares of Class H common stock, shortly after the annual meeting. Whether to proceed with the stock split and, if so, the timing of the stock split and the ratio of shares to be issued as a dividend in connection with the stock split, remain at the discretion of our board of directors and will be determined in light of market prices and other conditions that may prevail at the time of determination. Further information about the proposed amendment to our certificate of incorporation and the possible stock split is set forth in the proxy statement being mailed to our stockholders in connection with the annual meeting. On March 6, 2000, our board of directors approved the redemption of all of the outstanding shares of Series D 7.92% preference stock and the related Series D depositary shares. The redemption of these shares will occur on May 2, 2000. On March 13, 2000, GM and Fiat S.p.A. agreed to form a strategic industrial alliance, creating an important partnership for the companies in two of the world's largest automotive markets: Europe and Latin America. For more information about this alliance, see "Business of GM--Recent Developments." In connection with the alliance, GM will acquire about 20% of Fiat Auto in exchange for about $2.4 billion. In addition, GM will issue 32,053,422 shares of $1 2/3 par value common stock to Fiat in exchange for about $2.4 billion. Based on the number of shares to be issued to Fiat and the total number of outstanding shares of $1 2/3 par value common stock as of February 29, 2000 and giving effect to the exercise of all outstanding stock options for $1 2/3 par value common stock as of such date, Fiat would receive about 5.1% of the outstanding $1 2/3 par value common stock as of such date. However, this percentage will increase as a result of both the reduced number of shares of $1 2/3 par value common stock outstanding after the exchange offer and GM's planned $1.4 billion stock repurchase program described below. It is currently anticipated that Fiat will be granted certain registration rights in connection with its acquisition of $1 2/3 par value common stock. This issuance of $1 2/3 par value common stock to Fiat is expected to be completed in 2000. 108 Also on March 13, 2000, GM announced its intention to repurchase for cash an additional $1.4 billion of $1 2/3 par value common stock. GM currently expects to complete this stock repurchase program by the end of 2000. At the same time, GM announced its decision to increase the amount of Class H common stock to be issued in this exchange offer from $8 billion to $9 billion, assuming it is fully subscribed. Both of these actions are designed to offset, in part, the effect of the issuance of $1 2/3 par value common stock to Fiat in connection with the strategic alliance. GM Preferred Stock GM's certificate of incorporation authorizes the GM board of directors to issue shares of preferred stock from time to time in distinctly designated series, with each series ranking equally and identical in all respects except as to the dividend rate and redemption price. There are currently no outstanding shares of preferred stock and GM's board of directors has no current intent to issue any preferred stock. If any preferred stock were issued, it would rank senior to preference stock and common stock with respect to payments of dividends and distributions in liquidation. Further, no cash dividends could be paid on any class of common stock or any series of preference stock if current assets of GM in excess of its current liabilities were less than $75 per share of any outstanding preferred stock. If any shares of preferred stock were issued, holders of such shares would not be entitled to vote except that: . they would vote together with the holders of common stock on the disposition of GM's assets as an entirety; . if GM has defaulted in paying dividends on preferred stock for six months, the holders of preferred stock, voting as a class, would be entitled to elect one-quarter of the directors; and . certain mortgaging or pledging of, or the placing of certain liens upon, GM's property would require the approval of the holders of three-fourths of any outstanding preferred stock. Preference Stock GM's certificate of incorporation authorizes the GM board to issue shares of preference stock from time to time in distinctly designated series, with the terms of each series fixed by GM's board in the resolutions providing for the issuance of such series. GM's preference stock ranks senior to its common stock and junior to its preferred stock, if any, with respect to payments of dividends and distributions in liquidation. GM currently has three series of preference stock outstanding: . Series D 7.92% preference stock; . Series G 9.12% preference stock; and . Series H 6.25% automatically convertible preference stock. The Series D and Series G preference shares are represented by Series D and Series G depositary shares, respectively, which are listed on the NYSE. Shares of GM's Series H 6.25% automatically convertible preference stock were issued to AOL in June 1999 in connection with AOL's $1.5 billion investment in and its strategic alliance with Hughes. AOL currently holds all of the outstanding Series H preference shares. The Series H preference shares will automatically convert into shares of Class H common stock on June 24, 2002, unless previously converted, as described further below 109 at "--Conversion." In connection with its issuance of the Series H preference shares to AOL, Hughes has issued to GM shares of its Series A preferred stock, which is designed to correspond to the financial terms of the Series H preference shares. For more information, see "Management's Discussion and Analysis of Financial Condition and Results of Operations of Hughes--General." Dividends Subject to the rights of the holders of preferred stock, if any were outstanding, dividends will be paid on the outstanding Series D, Series G and Series H preference shares when, as and if declared by GM's board out of GM's assets legally available for the payment of dividends. Dividends may be subject to restrictions contained in any future debt agreements of General Motors and to limitations contained in future series or classes of preferred stock or preference stock. Holders of preference shares are entitled to dividends as follows: . holders of Series D preference shares are entitled to receive cumulative cash dividends, at the annual rate of 7.92% of the per share stated value, which is equivalent to $7.92 per annum per Series D preference share; . holders of Series G preference shares are entitled to receive cumulative cash dividends, at the annual rate of 9.12% of the per share stated value, which is equivalent to $9.12 per annum per Series G preference share; and . holders of Series H preference shares are entitled to receive cumulative cash dividends, at an annual rate of 6.25% of the per share stated value, which is equivalent to $35.1172 per annum per Series H preference share. Dividends on the Series D, Series G and Series H preference shares are payable quarterly for each of the quarters ending March, June, September and December of each year, payable in arrears on the first day that is not a legal holiday of each succeeding May, August, November and February, respectively. Each such dividend will be paid to holders of record on each record date, which is a day not less than 10 nor more than 50 days preceding the payment date fixed by GM's board. Dividends on the Series D, Series G and Series H preference shares, whether or not declared, are cumulative from the respective dates of original issue of the Series D, Series G and Series H preference shares. The amount of dividends payable for any period shorter than a full quarterly dividend period will be determined on the basis of a 360-day year consisting of twelve 30-day months. Accrued but unpaid dividends do not bear interest. Preferential dividends accrue whether or not General Motors has earnings, whether or not there are funds legally available for the payment of such dividends and whether or not such dividends are declared. Dividends accumulate to the extent they are not paid on the dividend payment date following the calendar quarter for which they accrue. Accumulated preferential dividends do not bear interest. Unless the full preferred dividends accumulated on all outstanding Series D, Series G and Series H preference shares have been paid, GM may not: . pay dividends on any class of its common stock or other stock ranking junior to the Series D, Series G and Series H preference shares, other than a dividend payable in shares of any class of common stock; or . redeem, repurchase or otherwise acquire any shares of its common stock or other stock ranking junior to the Series D, Series G and Series H preference shares, other than a redemption or purchase of shares of common stock made in connection with employee incentive or benefit plans of General Motors or its subsidiaries. Dividends will not be declared on any series of preference stock for any prior dividend payment period unless there shall have been declared on all outstanding shares of preference stock ranking on a parity with such series, in respect of all dividend payment periods of such parity stock terminating with or before such prior dividend payment period, like proportionate dividends determined ratably in proportion to the respective preferential dividends accumulated to date on such series and the dividends accumulated on all such outstanding parity preference stock. 110 Conversion The Series D and Series G preference shares are not convertible into shares of any other class of capital stock of General Motors. The Series H preference shares are convertible into shares of Class H common stock. The Series H preference shares will automatically convert into shares of Class H common stock on June 24, 2002, the mandatory conversion date, based on a variable conversion factor linked to the Class H common stock price at the time of conversion, unless they have been converted earlier. Depending on the average closing trading price of Class H common stock during the 20 trading days prior to the mandatory conversion date, the Series H preference shares would convert into between 21,529,255 and 26,696,330 shares of Class H common stock on the mandatory conversion date. The Series H preference shares are also currently convertible at the option of the holder into 21,529,255 million shares of Class H common stock. We currently expect that, upon either mandatory or optional conversion of the Series H preference shares, the Class H dividend base will be adjusted so that it will be increased by the number of shares of Class H common stock issued to the holder of the Series H preference shares pursuant to the conversion. For more information, see "Description of Class H Common Stock--GM Certificate of Incorporation Provisions Regarding Dividends--Class H Dividend Base Adjustments." The Series H preference shares and the underlying Class H common stock are subject to transfer restrictions. See "Shares Eligible for Future Sale." Redemption In March 2000, GM issued notice of the redemption of all of the outstanding Series D preference shares and the related Series D depositary shares. The redemption of these shares will occur on May 2, 2000. GM will redeem the Series D preference shares at a price of $100 per share, plus accrued and unpaid dividends to and including the redemption date, for a total redemption price of $100.72 per Series D preference share, with the depositary shares being redeemed at a price of $25 per depositary share, plus accrued and unpaid dividends to and including the redemption date, for a total redemption price of $25.18 per depositary share. On or after January 1, 2001, General Motors may, at its option, on not less than 35 nor more than 60 days notice, redeem the Series G preference shares, as a whole or in part, at any time or from time to time, for cash in an amount equal to $100 per Series G preference share, as applicable, plus an amount equal to all dividends accrued and unpaid thereon to the date fixed for redemption. If less than all of the outstanding shares of the Series G preference shares are to be redeemed, shares to be redeemed will be selected by General Motors by lot or pro rata or by any other method determined by General Motors in its sole discretion to be equitable. Holders of Series G preference shares have no right to require redemption of such shares. The Series H preference shares are redeemable by GM or Hughes in certain limited circumstances generally involving changes in the U.S. law relating to income taxation. Depending on the circumstances giving rise to the redemption, the redemption price may be paid in cash, shares of Class H common stock, shares of Hughes common stock or by exchange of each Series H preference share for a share of automatically convertible preference stock of Hughes convertible into Hughes common stock. Liquidation Preference In the event of the liquidation, dissolution or winding up of the business of General Motors, whether voluntary or involuntary, the holders of Series D, Series G and Series H preference shares would be entitled to the liquidation preference described below, after the holders of preferred stock, if any were outstanding, received the full preferential amounts to which they are entitled and before any distribution to holders of common stock. 111 The liquidation preferences of the preference shares are as follows: . the holders of the Series D and Series G preference shares would be entitled to receive for each share $100, plus an amount equal to all dividends accrued and unpaid thereon to the date of final distribution to such holders; and . the holders of Series H preference shares would be entitled to receive for each share $561.875, plus an amount equal to all dividends accrued and unpaid thereon to the date of final distribution to such holders, subject to the right of the holders of record of any Series D, Series G or Series H preference share on a record date for payment of dividends thereon to receive a dividend payable on the date of final distribution, but such holders shall not be entitled to any further payment. If there are insufficient assets to permit full payment to holders of the Series D, Series G and Series H preference shares and the holders of all other series of preference stock on parity with the Series D, Series G and Series H preference shares as to liquidation rights, then the holders of the Series D, Series G and Series H preference shares and such other shares shall be paid ratably in proportion to the full distributable amounts to which holders of all such parity shares are respectively entitled upon such dissolution, liquidation or winding up. Voting The Series D, Series G and Series H preference shares do not entitle holders thereof to voting rights, except: . with respect to any amendment or alteration of any provision of the GM certificate of incorporation which would adversely affect the powers, preference or special rights of the Series D, Series G or Series H preference shares, which requires the prior approval of the holders of at least two-thirds of the outstanding Series D, Series G or Series H preference shares, as the case may be; . in the event General Motors fails to pay accumulated preferential dividends on the Series D, Series G or Series H preference shares in full for any six quarterly dividend payment periods, whether or not consecutive, and all such dividends remain unpaid; and . as required by law. In the event of a preferential dividend default as described above, the number of directors of General Motors will be increased by two and the holders of the outstanding Series D, Series G or Series H preference shares, as the case may be, voting together as a class with all other series of preference stock ranking junior to or on a parity with such preference shares and then entitled to vote on the election of such directors, will be entitled to elect such two additional directors until the full dividends accumulated on all outstanding Series D, Series G or Series H preference shares, as the case may be, have been paid. GM's Dual-Class Common Stock Capital Structure GM has two classes of common stock: . $1 2/3 par value common stock; and .Class H common stock. GM's certificate of incorporation restricts the power of the GM board to declare and pay dividends on either class of common stock. The amounts which may be declared and paid by the GM board as dividends on common stock are allocated to each separate class of common stock and are subject to the amount legally available for the payment of dividends by GM. For dividend purposes, this allocation serves to preserve for each class of GM common stockholders an interest in retained earnings that is not shared by the other class. This restriction does not require a physical segregation of the assets of GM on the one hand and of Hughes on the other hand. Nor does it require separate accounts or separate dividend or liquidation preferences of GM and Hughes assets for 112 the benefit of the holders of either of the separate classes of GM common stock. The holders of Class H common stock, like the holders of $1 2/3 par value common stock, have liquidation rights in the equity and assets of GM. For more information about GM's two classes of common stock, see "Description of Class H Common Stock" and "Comparison of Rights of $1 2/3 Par Value Stockholders and Class H Stockholders." The existence of two classes of common stock with separate dividend rights can give rise to potential divergences among the interests of the holders of the two classes of GM common stock concerning various intercompany transactions and other matters. The laws of Delaware govern the duties of the GM board with respect to these divergences. Under Delaware law, the GM board owes fiduciary duties to all holders of GM common stock, regardless of class, and must act with due care and on an informed basis in the best interests of GM and all its common stockholders, regardless of class. In this regard, the GM board, in the discharge of its fiduciary duties, principally through its capital stock committee, oversees the policies, programs and practices of GM which may impact the potentially divergent interests of the two classes of GM common stock. The capital stock committee is comprised entirely of independent directors of GM. The GM by-laws currently provide that the capital stock committee of the GM board is responsible for reviewing the policies and practices of GM with respect to matters in which the two classes of stockholders may have divergent interests, particularly as they relate to: . the business and financial relationships between GM and any of its units and Hughes; . dividends in respect of, disclosures to stockholders and the public concerning, and transactions by GM or any of its subsidiaries in, shares of Class H common stock; and . any matters arising concerning these items; all to the extent the capital stock committee may deem appropriate. The capital stock committee may also recommend changes in policies, programs and practices as it may deem appropriate. The capital stock committee's principal role is not to make decisions concerning matters referred to its attention, but rather to oversee the process by which decisions concerning these matters are made. The capital stock committee conducts its oversight with a view toward, among other things, assuring a process of fair dealing between GM and Hughes as well as fair consideration of the interests of all of GM's common stockholders in the resolution of these matters. GM Board Policy Statement In connection with its determination of the terms of the Class H common stock at the time of the Hughes restructuring transactions in December 1997, the GM board adopted a policy statement concerning GM's dual-class common stock structure. This policy statement may be modified or rescinded at any time and from time to time by the GM board. Also, notwithstanding the policy statement or the provisions concerning recapitalization of the Class H common stock into $1 2/3 par value common stock at a 120% exchange ratio as provided under certain circumstances in GM's certificate of incorporation, the GM board may propose to GM's common stockholders for their approval one or more transactions on terms different from those provided for by such provisions or by this policy statement. GM's board has no present intention to modify or rescind this policy statement or to propose a recapitalization of the Class H common stock. See "Risk Factors--Risk Factors Relating to GM's Dual-Class Common Stock Capital Structure--GM Board Policies and Practices Relating to Class H Common Stock Can Be Adopted, Changed or Rescinded Without Stockholder Approval." The policy statement is set forth below in its entirety. Terms which are defined in the GM board policy statement do not apply to the rest of this document. 113 GM Board Policy Statement Regarding Certain Capital Stock Matters (A) General Policy. It is the policy of the Board of Directors of General Motors Corporation (the "GM Board"): (1) that all material matters as to which the holders of the two classes of GM common stock may have potentially divergent interests shall be resolved in a manner which the GM Board determines to be in the best interests of General Motors Corporation and all of its common stockholders after giving fair consideration to the potentially divergent interests and all other relevant interests of the holders of the separate classes of GM common stock; and (2) that a process of fair dealing shall govern the relationship between GM and HEC and the means by which the terms of any material transaction between them shall be determined. (B) Additional Matters. In relation to the foregoing policy, it is the further policy of the GM Board that: (1) Quarterly Dividends. (a) In contemplation of the GM Board's duty periodically to consider an appropriate dividend policy and practice in relation to Class H Common Stock and its expectation that the Board of Directors of HEC (the "HEC Board") shall, at least annually, consider and determine a quarterly dividend policy with respect to the common stock of HEC (100% of which is held by GM), the GM Board shall, at least annually, determine a quarterly dividend policy with respect to the Class H Common Stock. (b) The quarterly dividend policy of the GM Board with respect to the Class H Common Stock shall be to declare and pay quarterly dividends on the Class H Common Stock in an amount equal to the product of (i) the aggregate amount of each quarterly dividend received by GM as a stockholder of HEC, if any, multiplied by (ii) the fraction used to determine the Available Separate Consolidated Net Income of Hughes (as such term is used in GM's Restated Certificate of Incorporation, as amended) at the time such dividend was declared by HEC. (c) GM's payment of a quarterly dividend on the Class H Common Stock shall be made as soon as practicable after receipt of the corresponding dividend payment from HEC. (2) Principles Governing Dividends and Distributions Other Than Quarterly Dividends. (a) Except as provided in paragraph (B)(2)(b) below, in the event that HEC directly or indirectly makes any transfer of material assets to GM or to GM's stockholders: (i) Transfers of HEC Assets to GM. If such transfer of assets by HEC is to GM, the GM Board shall as soon thereafter as practicable declare and pay a dividend or make other provision with respect to a distribution on the Class H Common Stock so that there shall be distributed to the holders of Class H Common Stock a portion of such assets transferred to GM that is not less than the fraction used to determine the Available Separate Consolidated Net Income of Hughes at the time of such transfer to GM; provided that, if the GM Board determines that it is not reasonably practicable or not in the best interests of the holders of Class H Common Stock for GM to distribute any such assets to the holders of Class H Common Stock, GM shall distribute to such holders cash or other noncash assets having an equivalent fair value; and (ii) Transfers of HEC Assets to GM's Stockholders. If such transfer of assets by HEC is to GM's stockholders, the portion of such assets transferred to the holders of Class H Common Stock shall be not less than the fraction used to determine the Available Separate Consolidated Net Income of Hughes at the time of such transfer. (b) Exceptions to Foregoing Principles. The provisions of paragraph (B)(2)(a) above shall not apply to any of the following asset transfers: (i) any transfer that results in the recapitalization of Class H Common Stock into $1 2/3 Par Value Common Stock pursuant to the provisions of paragraph (c) of Division I of Article Fourth of GM's Restated Certificate of Incorporation, as amended; 114 (ii) any transfer that is made pursuant to the quarterly dividend policy described in paragraph (B)(1) above; (iii) any transfer that is made in the ordinary course of HEC's business; (iv) any transfer for which HEC shall have received fair compensation as determined pursuant to this policy as described in paragraph (A) above, provided that, where required by paragraph (B)(3) below, stockholder consent to such transfer shall have been received; and (v) any transfer which shall have received the consent of the holders of a majority of the outstanding shares of Class H Common Stock, voting as a separate class, and $1 2/3 Par Value Common Stock, voting as a separate class. (3) Separate Class Votes of GM's Stockholders as a Condition to GM's Acquisition of a Significant Portion of HEC Assets. GM shall not acquire in one transaction or a series of related transactions a significant portion of the business of HEC for compensation without receiving the consent of the holders of a majority of the outstanding shares of Class H common stock, voting as a separate class, and $1 2/3 Par Value Common Stock, voting as a separate class. For purposes of this paragraph, "significant portion of the business of HEC" shall mean more than 33% of the business of HEC, based on the fair market value of the assets, both tangible and intangible, of HEC as of the time that the proposed transaction is approved by the GM Board. (4) Basis for Commercial Transactions Between GM and HEC. GM and HEC shall operate on the principle that all material commercial transactions between them shall be based on commercially reasonable terms. (C) Meaning of "GM" and "HEC" Within This Policy. For purposes of this policy, "GM" shall mean General Motors Corporation and its affiliates (other than HEC), and "HEC" shall mean Hughes Electronics Corporation, including any person controlled by Hughes Electronics Corporation. (D) Role of Capital Stock Committee Relating to This Policy. The Capital Stock Committee of the GM Board shall oversee the implementation of, and shall have authority to interpret, this policy. (E) Delegation. In administering this policy, the GM Board may, at its option, delegate its authority, including to the Capital Stock Committee, and may delegate to members of management the authority to implement any matter pursuant to this policy. (F) Fiduciary Obligations. In making any and all determinations in connection with this policy, either directly or by appropriate delegation of authority, the GM Board shall act in its fiduciary capacity and pursuant to legal guidance concerning its obligations under applicable law. (G) GM Board May Make Future Proposals to Stockholders for Recapitalization Transactions Which Would Be on Terms Different from Those in GM's Current Restated Certificate of Incorporation, as Amended. Consistent with the terms of both GM's Restated Certificate of Incorporation, as amended, and Delaware General Corporation Law, the GM Board may, in the future, propose recapitalization transactions to GM stockholders on terms different from those provided for under GM's Restated Certificate of Incorporation, as amended. (Such alternative proposals were utilized by GM's Board of Directors in connection with the split-off of Electronic Data Systems Corporation in 1996 and the spin-off of the defense electronics business of HEC in 1997.) (H) Interpretation, Amendments and Modifications of This Policy. This policy may at any time and from time to time be modified, rescinded and interpreted by the GM Board, and the GM Board may adopt additional or other policies or make exceptions with respect to the application of this policy in connection with particular facts and circumstances, all as the GM Board may determine, consistent with its fiduciary duties to General Motors Corporation and all of its common stockholders, to be in the best interests of General Motors Corporation and all of its common stockholders, and any such action may be taken with or without the approval of the stockholders of General Motors Corporation. * * * * * 115 DESCRIPTION OF CLASS H COMMON STOCK Introduction to the Class H Common Stock We describe generally below the material terms of the Class H common stock. In addition to this description, we urge you to refer to Article Fourth of GM's Restated Certificate of Incorporation, as amended, which we sometimes refer to in this document as our "certificate of incorporation," which sets forth in full the terms of the Class H common stock. For information regarding how you can find a copy of the full terms of the Class H common stock, see "Where You Can Find More Information." For more information about our Class H common stock and how it differs from our $1 2/3 par value common stock, see "Comparison of Rights of $1 2/3 Par Value Stockholders and Class H Stockholders." Class H common stock is a "tracking stock" designed to provide holders with financial returns based on the financial performance of Hughes. To further this objective: . GM's certificate of incorporation allocates earnings of GM attributable to Hughes between amounts available for the payment of dividends on Class H common stock and amounts available for the payment of dividends on the $1 2/3 par value common stock, which also permits a corresponding calculation of the earnings per share of GM attributable to the Class H common stock and the $1 2/3 par value common stock; and . the GM board adopts dividend policies and practices concerning the Class H common stock consistent with this design objective as more fully described below and at "Overview of GM Capital Stock." GM is the issuer of the Class H common stock. The GM board is free at any time to change its dividend policies and practices concerning the Class H common stock or the $1 2/3 par value common stock. See "Risk Factors--Risk Factors Relating to GM's Dual-Class Common Stock Capital Structure--GM Board Policies and Practices Relating to Class H Common Stock Can Be Adopted, Changed or Rescinded Without Stockholder Approval." GM Certificate of Incorporation Provisions Regarding Dividends Calculation of Amount Available for Dividends on Class H Common Stock The financial performance of Hughes determines the earnings per share of Class H common stock and the portion of GM's earnings out of which dividends on the Class H common stock may be paid. In order to determine what amount is available to pay dividends on the Class H common stock, the following steps are taken: . the net income of Hughes is determined for each quarterly accounting period; . the net income of Hughes determined for each quarter is divided into amounts allocated to the Class H common stock and the $1 2/3 par value common stock; and . the amount allocated to the Class H common stock, which we sometimes refer to in this document as the "available separate consolidated net income of Hughes," is accumulated from quarter to quarter, together with any surplus attributable to shares of Class H common stock issued from time to time, and is reduced by the amount of any dividends actually paid on the Class H common stock. GM Board's Discretion Regarding Payment of Dividends on Class H Common Stock After the amount available to pay dividends on the Class H common stock is determined as provided above, the GM board may decide to pay or not pay dividends on the Class H common stock in its sole discretion. This discretion is subject to the following restrictions: . The holders of GM preferred stock, if any, and GM preference stock, including the Series D, Series G and Series H preference shares, may have a higher priority claim on amounts that would otherwise be available to pay dividends on the Class H common stock, to the extent that dividends have been accumulated but not paid on GM's preferred or preference stock. 116 . Under Delaware law, GM can only pay dividends to the extent that it has surplus--the extent to which the fair market value of GM's net assets exceeds the amount of GM's capital--or the extent of GM's net profits for the then current and/or the preceding fiscal year. Due to these restrictions, it is possible that, even though the net income of Hughes is sufficient to permit the payment of a dividend on the Class H common stock, payment of a dividend on the Class H common stock would not be permitted because of the requirements for the payment of dividends on GM preferred or preference stock or the Delaware law surplus restriction described above. Any dividends declared or paid on each class of GM common stock from time to time will reduce the amount available for future payments of dividends on that class. The amount available for dividends on each class will also depend on any adjustments to GM's capital or surplus due to repurchases or issuances of shares of that class. In addition, as provided by Delaware law, the GM board may adjust for any reason it deems appropriate the amount of surplus, and therefore the amount available for dividends on each class. Delaware law also permits the board of directors to adjust in the exercise of its business judgment the total amount legally available for the payment of dividends to reflect a re-valuation of the corporation's assets and liabilities. Within the constraints mentioned above, the GM board can determine, in its sole discretion, the timing of declarations and payments, and the amounts, of dividends on each class of GM common stock. The GM board may, in its sole discretion, declare dividends payable exclusively to the holders of $1 2/3 par value common stock, exclusively to the holders of Class H common stock, or to the holders of both classes in equal or unequal amounts. The GM board may make its decision notwithstanding the respective amounts of surplus available for dividends to each class, the voting and liquidation rights of each class, the amount of prior dividends declared on each class or any other factor. However, the maximum amount declared as dividends on either class of GM common stock cannot exceed the amount available for dividends on each class of common stock under the GM certificate of incorporation. See "--Dividend Policy." As of December 31, 1999, based on the stockholders' equity of GM reflected in its consolidated balance sheet and subject to the GM board's authority to make adjustments, the cumulative amount available for payment of dividends on GM common stock was about $18.5 billion. Of this total amount, about $13.1 billion was available for dividends on the $1 2/3 par value common stock and about $5.4 billion was available for dividends on the Class H common stock. You should note that, since the completion of the Hughes restructuring transactions in late 1997, although payment of dividends on the Class H common stock has been permitted, the GM board has not paid cash dividends on Class H common stock. Further, the GM board does not intend to pay dividends on Class H common stock in the foreseeable future. Class H Dividend Base Adjustments Under the GM certificate of incorporation, the GM board may adjust the denominator of the Class H fraction that determines the net income of Hughes attributable to the Class H common stock--that is, the Class H dividend base, from time to time as the GM board deems appropriate to reflect the following: . subdivisions and combinations of the Class H common stock and stock dividends payable in shares of Class H common stock to holders of Class H common stock; . the fair market value of contributions of cash or property by GM to Hughes, or of cash or property of GM to or for the benefit of employees of Hughes for employee benefit plans or arrangements of GM, Hughes or other GM subsidiaries; . the contribution of shares of capital stock of GM to or for the benefit of employees of Hughes or its subsidiaries for benefit plans or arrangements of GM, Hughes or other GM subsidiaries; 117 . payments made by Hughes to GM of amounts applied to the repurchase by GM of shares of Class H common stock, so long as the GM board has approved the repurchase and GM applied the payment to the repurchase; and . the repurchase by Hughes of shares of Class H common stock that are no longer outstanding, so long as the GM board approved the repurchase. Detailed Calculation of Amount Available for Dividends on Class H Common Stock General In order to help you to understand GM's Class H common stock, we provide below a more detailed description of the method used to determine the amount of Hughes' earnings available for the payment of dividends on the Class H common stock--that is, the available separate consolidated net income of Hughes. The "available separate consolidated net income of Hughes" is the net income of Hughes, its subsidiaries and successors after December 17, 1997 on a consolidated basis, determined in accordance with generally accepted accounting principles, without giving effect to any adjustment which would result from accounting for the 1985 acquisition by GM of Hughes Aircraft Company, a predecessor of Hughes, using the purchase method of accounting, calculated for each quarterly accounting period and multiplied by a fraction, which we sometimes refer to in this document as the "Class H fraction." The Class H fraction reflects the derivative or "tracking stock" interests of each of GM's classes of common stock in the earnings of Hughes for dividend purposes. We determine the Class H fraction in the following manner: . The numerator of the Class H fraction is the weighted average number of shares of Class H common stock outstanding during any applicable accounting period. . The denominator of the Class H fraction is the weighted average number of shares of Class H common stock during any applicable accounting period which, if issued and outstanding, would represent 100% of the tracking stock interest in the earnings of Hughes. Thus, this "notional" number represents the full tracking stock interest in Hughes. The denominator is also referred to in the GM certificate of incorporation as the "Class H dividend base." . The Class H dividend base was initially established by the GM board in connection with the 1985 acquisition of Hughes Aircraft Company and the initial issuance of Class H common stock. The Class H dividend base was determined by negotiation between GM and the seller of Hughes Aircraft Company based on the value of Hughes immediately after the acquisition and the amount of Class H common stock the seller was to receive in the transaction. . The Class H dividend base has since been adjusted by the GM board in accordance with the GM certificate of incorporation to reflect various events, including a stock split in 1988, contributions by GM of Class H common stock to Hughes from time to time for use in connection with employee benefit plans and Hughes' acquisitions of PRIMESTAR/Tempo Satellite and U.S. Satellite Broadcasting Company as described elsewhere in this document. . The Class H dividend base is subject to future adjustment, as described below, including upon the conversion of the Series H preference stock into shares of Class H common stock. See "Overview of GM Capital Stock--Preference Stock--Conversion." The Class H dividend base will not be adjusted in connection with either the exchange offer or the contributions to the employee benefit plans. See "--Illustrative Calculation of the Class H Fraction Following the Exchange Offer and the Contributions to the Employee Benefit Plans." . All determinations of the available separate consolidated net income of Hughes are in the discretion of the GM board and are final and binding on all GM stockholders. The currently outstanding shares of Class H common stock do not represent a 100% tracking stock interest in the earnings of Hughes because GM has not yet issued the full number of shares of Class H common stock which can be issued under GM's certificate of incorporation, as determined by the Class H dividend base. 118 For illustrative purposes, we have calculated the Class H fraction based on the number of shares of Class H common stock outstanding as of December 31, 1999. For this purpose, we have assumed the exercise of all options for Class H common stock that were outstanding on such date and the conversion, based on the closing trading price of Class H common stock on such date, of GM's Series H preference stock into Class H common stock on its mandatory conversion date in 2002. Based on the fraction as so calculated, about 37% of Hughes' earnings would have been allocable to the Class H common stock for purposes of determining earnings per share and amounts available for the payment of dividends. The remaining portion of Hughes' earnings, about 63%, would have been allocable to the $1 2/3 par value common stock. To the extent that GM issues more Class H common stock, including pursuant to the exchange offer and the contributions, the percentage of the earnings of Hughes allocated to the Class H common stock would increase and the remaining tracking stock interest in the earnings of Hughes that would be allocated to the $1 2/3 par value common stock would proportionately decrease. This percentage will also be affected by any related adjustments to the Class H dividend base. At such time, if any, as GM has issued a number of shares of Class H common stock which causes the fraction to be equal to one, the holders of Class H common stock would have a 100% tracking stock interest in the earnings of Hughes and the holders of $1 2/3 par value common stock would have no tracking stock interest in Hughes' earnings. You may calculate the approximate earnings per share attributable to Class H common stock by dividing the quarterly earnings allocated to Class H common stock--that is, the available separate consolidated net income of Hughes, by the weighted average number of these shares outstanding during the quarter. The weighted average number of shares of Class H common stock outstanding is also the numerator of the fraction used to determine the available separate consolidated net income of Hughes. You may also calculate about the same amount by dividing the quarterly earnings--that is, net income, of Hughes used in computing the available separate consolidated net income of Hughes, by the Class H dividend base. Illustrative Calculation of Class H Fraction Following the Exchange Offer and the Contributions to the Employee Benefit Plans For illustrative purposes, based on the number of shares of Class H common stock outstanding as of December 31, 1999, the portion of Hughes' earnings allocable to the Class H common stock would have been about 37%, calculated as follows: Number of shares of Class H common stock outstanding 174,546,279 -------------------------------- ------------- = 37% Class H dividend base 468,312,855 For this purpose, we have assumed the exercise of all options for Class H common stock that were outstanding on such date and the conversion, based on the closing trading price of Class H common stock on such date, of GM's Series H preference stock into Class H common stock on its mandatory conversion date in 2002. This exchange offer and the anticipated contributions to the employee benefit plans each will affect the Class H fraction, as described below: . The exchange offer will affect the Class H fraction as follows: the numerator will be increased by about , the number of shares issued in the exchange offer, assuming that the exchange offer is fully subscribed. . The contributions to the employee benefit plans will affect the fraction as follows: the numerator will be increased by , the number of shares to be contributed to the employee benefit plans as determined based on the closing trading price of Class H common stock on , 2000, assuming that GM completes the contributions as anticipated. However, in both cases, the Class H dividend base will remain the same number. 119 Exchange Offer. Assuming that the exchange offer is fully subscribed, the Class H fraction calculated as of December 31, 1999 as described above would change as illustrated below: Number of shares of Class H common stock outstanding 174,546,279 + = % -------------------------------- ----------------------- Class H dividend base 468,312,855 Thus, based on these assumptions and other assumptions described in this document, after this exchange offer, about % of Hughes' earnings would be allocated to the Class H common stock for earnings per share and dividend purposes. The balance, about %, would be allocated to the $1 2/3 par value common stock. Exchange Offer and the Contributions to the Employee Benefit Plans. Assuming that the exchange offer is fully subscribed and that GM completes the contributions to the employee benefit plans as anticipated, based on an estimate of the number of shares that would be contributed as determined by the closing trading price of Class H common stock on , 2000, the Class H fraction calculated as of December 31, 1999 as described above would change as illustrated below: Number of shares of Class H common stock outstanding 174,546,279 + + = % -------------------------------- ----------------------------- Class H dividend base 468,312,855 Thus, based on these and other assumptions described in this document, after this exchange offer and the anticipated contributions to the employee benefit plans by GM, about % of Hughes' earnings would be allocated to the Class H common stock for earnings per share and dividend purposes. The balance, about %, would be allocated to the $1 2/3 par value common stock. These percentages are provided for illustrative purposes only. The actual percentages will not be known until the actual number of shares of Class H common stock issued in the exchange offer and the contributions have been determined. You should note that to the extent that the exchange offer is not fully subscribed or the contributions are not made as anticipated, the Class H fraction and other calculations described in this section will change. Dividend Policy GM's board of directors has adopted a policy statement which, among other things, provides that the GM board's quarterly dividend policy regarding the Class H common stock is to declare and pay quarterly dividends on the Class H common stock in an amount that will equal the product of the aggregate amount of each quarterly dividend GM receives as a stockholder of Hughes, if any, multiplied by the fraction used to determine the available separate consolidated net income of Hughes at the time the dividend is declared by Hughes. The policy statement expressly provides that GM will pay the quarterly dividend on the Class H common stock as soon as practicable after receipt of the corresponding dividend payment from Hughes. For the text of the GM board policy statement, see "Overview of GM Capital Stock--GM Board Policy Statement." Delaware law and the GM certificate of incorporation do not require the GM board to declare dividends on any class of GM common stock. The declaration of any dividend on either class is a matter to be acted upon by the GM board upon the recommendation of GM management. If and to the extent the GM board chooses to declare dividends on either or both of the classes of GM common stock, neither Delaware law nor the GM certificate of incorporation requires any proportionate or other fixed relationship between the amount of the dividends declared on the different classes of common stock. The GM board reserves the right to reconsider from time to time its policies and practices regarding dividends on GM common stock and to increase or decrease the dividends paid on GM common stock. The GM board may reconsider such matters on the basis of GM's consolidated financial position, which includes liquidity and other factors, and, with regard to Class H common stock, the earnings and consolidated financial position of Hughes. You may find information regarding GM and 120 its consolidated financial performance, including management's discussion and analysis of financial condition and results of operations, in the documents incorporated into this document by reference. Since the completion of the Hughes restructuring transactions in late 1997, GM has not paid dividends on the Class H common stock. Further, the GM board does not currently expect to pay dividends on the Class H common stock in the foreseeable future. Similarly, since that time, Hughes has not paid dividends to GM and does not intend to do so in the foreseeable future. We currently expect that the future earnings of Hughes will be retained for the development of the business of Hughes. Voting Rights GM's certificate of incorporation entitles holders of Class H common stock and $1 2/3 par value common stock to a fixed number of votes per share on all matters submitted to GM's common stockholders for a vote. Except as described below, holders of Class H common stock vote together as a single class with the holders of $1 2/3 par value common stock based on their respective voting rights described in the GM certificate of incorporation. The GM certificate of incorporation entitles each share of Class H common stock to 0.60 vote per share and each share of $1 2/3 par value common stock to one vote per share. The number of votes for each share of Class H common stock and $1 2/3 par value common stock is subject to adjustment as described below at "-- Subdivision or Combination." Class H common stock votes separately as a class only on any amendment to the GM certificate of incorporation which adversely affects the rights, powers or privileges of the Class H common stock or increases in the number of authorized shares of Class H common stock. Neither holders of Class H common stock nor holders of $1 2/3 par value common stock vote, either as a separate class or together, on any adjustment of the Class H dividend base or any other determination made in the calculation of the available separate consolidated net income of Hughes. Liquidation Rights In the event of the liquidation, dissolution or winding up of the business of GM, whether voluntary or involuntary, GM's certificate of incorporation provides that, after the holders of GM preferred stock and GM preference stock receive their full preferential amounts, holders of Class H common stock and holders of $1 2/3 par value common stock will receive the assets remaining for distribution to GM's stockholders on a per share basis in proportion to their respective per share liquidation units. Subject to adjustment as described below at "--Subdivision or Combination," each share of Class H common stock has liquidation units equal to its number of votes, that is, 0.60 liquidation unit, as described above at "--Voting Rights." Similarly, each share of $1 2/3 par value common stock has one liquidation unit. Holders of the Class H common stock have no direct rights in the equity or assets of Hughes, but rather have rights in the equity and assets of GM, which include 100% of the stock of Hughes. Subdivision or Combination If General Motors subdivides or combines the outstanding shares of the $1 2/3 par value common stock or the Class H common stock, GM will appropriately adjust the voting and liquidation rights of shares of Class H common stock relative to $1 2/3 par value common stock. In the event that GM issues shares of Class H common stock as a dividend on shares of $1 2/3 par value common stock, GM will adjust the liquidation rights of the applicable class of common stock so that the relative aggregate liquidation rights of each stockholder would not change as a result of the dividend. Recapitalization and Certain Other Transactions Under GM's certificate of incorporation, the GM board may recapitalize all outstanding shares of Class H common stock as shares of $1 2/3 par value common stock at any time after December 31, 2002 in the sole discretion of the GM board or automatically, if at any time GM, in one transaction or a series of related 121 transactions, disposes of substantially all of the business of Hughes to a person, entity or group of which GM is not a majority owner. For purposes of the recapitalization provisions of GM's certificate of incorporation, substantially all of the business of Hughes means at least 80% of the business of Hughes, based on the fair market value of the assets, both tangible and intangible, of Hughes as of the time of the proposed transaction. No automatic recapitalization will occur on a disposition in connection with the dissolution, liquidation and winding up of GM and the distribution of the net assets of GM to GM's common stockholders. In the event of any recapitalization, each holder of Class H common stock would be entitled to receive shares of $1 2/3 par value common stock having a market value as of the date provided in GM's certificate of incorporation equal to 120% of the market value of the holder's Class H common stock. Notwithstanding this provision of GM's certificate of incorporation or the policy statement adopted by GM's board, the GM board may propose to GM's common stockholders for their approval one or more transactions on terms different than those provided by this provision or by the GM board policy statement. See "Risk Factors--Risk Factors Relating to GM's Dual-Class Common Stock Capital Structure--GM Board Policies and Practices Relating to Class H Common Stock Can Be Adopted, Changed or Rescinded Without Stockholder Approval" and "Overview of GM Capital Stock--GM Board Policy Statement." GM would not issue any fractional shares of $1 2/3 par value common stock in the recapitalization. Instead of fractional shares, a holder of Class H common stock would receive cash equal to the product of the fraction of a share of $1 2/3 par value common stock which the holder would otherwise receive multiplied by the average market price per share of the $1 2/3 par value common stock on the valuation date, determined as provided in GM's certificate of incorporation. The GM board policy statement provides, among other things, that, subject to various exceptions, in the event that Hughes transfers any material assets to GM, the GM board shall declare and pay a dividend or make a distribution to holders of Class H common stock. In this event, these holders would receive a portion of the assets or cash or other assets having an equivalent fair value that is not less at the time of the transfer than the fraction used to determine the available separate consolidated net income of Hughes. The policy statement also provides that, subject to various exceptions, in the event that Hughes transfers any material assets to GM's stockholders, the portion of the assets transferred to the holders of Class H common stock will not be less at the time of the transfer than the fraction used to determine the available separate consolidated net income of Hughes. The exceptions to the provisions above include an exception for any transfer for which Hughes receives fair compensation. However, the policy statement provides that GM will not acquire in one transaction or a series of transactions a significant portion--that is, more than 33%, of the business of Hughes for compensation without receiving the consent of the holders of a majority of the outstanding shares of Class H common stock, voting as a separate class, and $1 2/3 par value common stock, voting as a separate class. See "Overview of GM Capital Stock--GM Board Policy Statement." Stock Exchange Listing Class H common stock is listed on the NYSE under the symbol "GMH." Application has been made to list on the NYSE the shares of Class H common stock offered pursuant to the exchange offer and such application has been granted subject to notice of issuance. Transfer Agent and Registrar Fleet National Bank currently serves as the transfer agent and registrar for the Class H common stock. Direct Registration System Class H common stock is registered in book-entry form through the direct registration system. Under this system, unless a Class H stockholder requests a stock certificate, ownership of Class H common stock is reflected in account statements periodically distributed to Class H stockholders by Fleet, GM's transfer agent and registrar, who holds the book-entry shares on behalf of Class H stockholders. 122 COMPARISON OF RIGHTS OF $1 2/3 PAR VALUE STOCKHOLDERS AND CLASS H STOCKHOLDERS If you exchange your shares of $1 2/3 par value common stock for shares of Class H common stock, you will remain a common stockholder of General Motors, but you will have different rights as a result of GM's dual-class common stock structure. For more information about our dual-class common stock structure and how it has the potential to affect each class of GM common stockholders differently, see "Overview of GM Capital Stock--GM's Dual-Class Common Stock Structure." The rights of holders of $1 2/3 par value common stock and holders of Class H common stock are defined and governed by the GM certificate of incorporation, the GM by-laws and the Delaware General Corporation Law, which we sometimes refer to in this document as the "DGCL". We summarize below the material differences between the rights of holders of $1 2/3 par value common stock and holders of Class H common stock. We do not intend for this summary to be a complete statement of the rights of holders of shares of Class H common stock or a comprehensive comparison with the rights of the holders of shares of $1 2/3 par value common stock, or a complete description of the specific provisions referred to in this summary. We do not intend that this identification of specific differences is to indicate that other equally or more significant differences do not exist. This summary is qualified in its entirety by reference to the DGCL, the GM certificate of incorporation and GM by-laws, to which holders of shares of $1 2/3 par value common stock are referred. Copies of the governing corporate instruments of GM have been filed with the SEC. For information about how to obtain copies, see "Where You Can Find More Information." Common Stock Dividends Under the GM certificate of incorporation, dividends may be paid on $1 2/3 par value common stock to the extent of the assets of GM legally available for the payment of dividends reduced by the sum of: . an amount determined by the GM board to be the paid-in surplus attributable to Class H common stock; plus . the portion of the net earnings of GM attributed to the Class H common stock in accordance with the GM certificate of incorporation. Because Class H common stock is a "tracking stock" designed to provide holders with financial returns based on the financial performance of Hughes, the GM certificate of incorporation allocates earnings of GM attributable to Hughes between amounts available for the payment of dividends on Class H common stock and amounts available for the payment of dividends on $1 2/3 par value common stock, in each case in accordance with their respective derivative interests in the financial performance of Hughes. For a description of the available dividend pool for Class H common stock, see "Description of Class H Common Stock--GM Certificate of Incorporation Provisions Regarding Dividends." For illustrative purposes, we have calculated the Class H fraction based on the number of shares of Class H common stock outstanding as of December 31, 1999. For this purpose, we have assumed the exercise of all options on Class H common stock that were outstanding on such date and the conversion, based on the closing trading price of Class H common stock on such date, of GM's Series H preference stock into Class H common stock on its mandatory conversion date in 2002. Based on the fraction as so calculated, about 37% of Hughes' earnings would have been allocable to the Class H common stock for purposes of determining earnings per share and amounts available for the payment of dividends. The remaining portion of Hughes' earnings, about 63%, would have been allocable to the $1 2/3 par value common stock. If dividends have been declared but not paid on shares of GM preferred stock or GM preference stock, dividends may not be paid on the Class H common stock or the $1 2/3 par value common stock until all declared but unpaid dividends on the GM preferred and preference stock have been paid. The DGCL and the GM certificate of incorporation do not require the GM board to declare dividends on either class of GM common stock. See "Description of Class H Common Stock--Dividend Policy" for a further explanation of the dividend policies of the GM board. 123 Unlike the $1 2/3 par value common stock, cash dividends are not currently paid on the Class H common stock. Since the completion of the Hughes restructuring transactions in late 1997, the GM board has not paid, cash dividends on the Class H common stock. Further, the GM board does not currently intend to pay dividends on the Class H common stock in the foreseeable future. For more information, see "Risk Factors--Risk Factors Relating to GM's Dual-Class Common Stock Capital Structure--We Cannot Assure You That Cash Dividends Will Ever Be Paid on the Class H Common Stock." Voting Rights Each holder of $1 2/3 par value common stock is entitled to one vote per share. Each holder of Class H common stock is entitled to 0.60 vote per share. The holders of $1 2/3 par value common stock vote together with the holders of Class H common stock, based on their respective voting powers, on all matters, except that: . holders of $1 2/3 par value common stock voting separately as a class are entitled to approve by majority vote of the shares outstanding any amendment to the GM certificate of incorporation which adversely affects the rights, powers or privileges of the $1 2/3 par value common stock; . holders of Class H common stock voting separately as a class are entitled to approve by majority vote of the shares outstanding any amendment to the GM certificate of incorporation which adversely affects the rights, powers or privileges of the Class H common stock; and . any increase in the number of authorized shares of Class H common stock must be approved by a majority vote of the holders of both classes of GM's common stock outstanding voting together, based on their respective voting powers, and by a majority vote of the holders of Class H common stock outstanding voting separately as a class. Liquidation Holders of $1 2/3 par value common stock and Class H common stock have liquidation rights in the assets and equity of GM. Upon a dissolution of GM, holders of GM preferred stock and GM preference stock have the right to receive all amounts paid to them before holders of $1 2/3 par value common stock and Class H common stock are entitled to receive anything. Thereafter, holders of $1 2/3 par value common stock have a liquidation right of one unit per share and holders of Class H common stock have a liquidation right of 0.60 unit per share in any remaining assets of GM. Amendments to the GM Certificate of Incorporation Under the DGCL, the affirmative vote of a majority of the outstanding shares entitled to vote is required to amend a corporation's certificate of incorporation. Under the DGCL, the holders of the outstanding shares of a class shall be entitled to vote as a class upon a proposed amendment, whether or not entitled to vote thereon by the certificate of incorporation, if the amendment would: . increase or decrease the aggregate number of authorized shares of such class; . increase or decrease the par value of the shares of such class; or . alter or change the powers, preferences, or special rights of the shares of such class so as to affect them adversely. If any proposed amendment would alter or change the powers, preferences, or special rights of one or more series of any class so as to affect them adversely, but shall not so affect the entire class, then only the shares of the series so affected by the amendment shall be considered a separate class for the purposes of the provision. As described above at "--Voting Rights," the GM certificate of incorporation expressly provides that $1 2/3 par value stockholders and Class H stockholders each are entitled to vote separately as a class with respect to certain amendments to the GM certificate of incorporation. 124 Under the GM certificate of incorporation, GM reserves the right to amend, alter, change or repeal any provision of its certificate of incorporation in the manner prescribed by statute, and all rights conferred on stockholders in its certificate of incorporation are granted subject to this reservation. Subject to differences in their respective voting rights as described above at "--Voting Rights," the rights of $1 2/3 par value stockholders and Class H stockholders are equivalent in this regard. Amendments to the GM By-Laws Under the DGCL, a corporation's by-laws may be amended by the action of the stockholders and, if the certificate of incorporation provides, the directors may amend the by-laws as well. GM's by-laws provide that GM's board of directors has the power to adopt, amend or repeal the by-laws at any regular or special meeting of the directors. The stockholders also have the power to adopt, amend or repeal the by-laws at any annual or special meeting if they comply with the notice provisions contained in the by-laws for stockholder business. Subject to differences in their respective voting rights as described above at "--Voting Rights," the rights of $1 2/3 par value stockholders and Class H stockholders are equivalent in this regard. Number of Directors The DGCL provides that a corporation's board of directors shall consist of at least one member and that the authorized number of directors may be fixed in the corporation's certificate of incorporation or by-laws. GM's by-laws provide that the number of directors shall be determined by resolution of the board of directors. The total number of directors shall not be less than twelve or more than twenty. There are currently sixteen members of the GM board of directors. The rights of $1 2/3 par value stockholders and Class H stockholders are equivalent in this regard. Classified Board of Directors Under the DGCL, the board of directors may be divided into one, two or three classes if the certificate of incorporation, initial bylaw or bylaw adopted by the vote of the stockholders so allows. The GM board is unclassified. The rights of $1 2/3 par value stockholders and Class H stockholders are equivalent in this regard. Removal of Directors Under the DGCL, the affirmative vote of a majority of the shares entitled to vote for the election of directors is required to remove directors, with or without cause. Furthermore, in the case of a classified board of directors, stockholders may effect such removal only for cause, unless the certificate of incorporation provides otherwise. Subject to differences in their respective voting rights as described above at "--Voting Rights," the rights of $1 2/3 par value stockholders and Class H stockholders are equivalent in this regard. Vacancies in the Board of Directors The DGCL generally provides that all vacancies on the board of directors, including vacancies caused by an increase in the number of authorized directors, may be filled by a majority of the remaining directors even if they constitute less than a quorum, unless otherwise provided in the certificate of incorporation or by-laws. GM's by-laws provide that any vacancy occurring in the board of directors for any cause may be filled by a majority of the remaining members of the board of directors, although such majority is less than a quorum. Subject to differences in their respective voting rights as described above at "--Voting Rights," the rights of $1 2/3 par value stockholders and Class H stockholders are equivalent in this regard. 125 Special Meetings of Stockholders Under the DGCL, a special meeting of the stockholders may be called by the board of directors or such other person as may be authorized in the certificate of incorporation or by-laws. Under GM's by-laws, special meetings of stockholders may be called by the board of directors or the chairman of the board of directors at such place, date and time and for such purpose or purposes as shall be set forth in the notice of such meeting. The rights of $1 2/3 par value stockholders and Class H stockholders are equivalent in this regard. Requirements for Notice of Stockholder Director Nominations and Stockholder Business If a GM common stockholder wishes to bring any business before an annual or special meeting or nominate a person for election to the board of directors, the GM by-laws contain certain procedures that must be followed in terms of the advance timing required for delivery of stockholder notice of such business and the information that such notice must contain. The information required in a stockholder notice includes general information regarding the stockholder, a description of the proposed business, and with respect to nominations for the board of directors, certain specified information regarding the nominee(s). In addition to the information required in a stockholder notice described above, the GM by-laws require a representation that the stockholder is a holder of GM's voting stock and intends to appear in person or by proxy at the meeting to make the nomination or bring up the matter specified in the notice. In terms of the timing of the stockholder notice, the GM by-laws require that the notice must be received by the secretary of GM: . in the case of an annual meeting, not more than 180 days and not less than 120 days in advance of the annual meeting; and . in the case of a special meeting, not later than fifteenth day following the day on which notice of the meeting is first mailed to stockholders. The rights of $1 2/3 par value stockholders and Class H stockholders are equivalent in this regard. Cumulative Voting in Certain Circumstances Under the DGCL, cumulative voting of stock applies only when the certificate of incorporation provides for cumulative voting. The GM certificate of incorporation does not provide for cumulative voting. The rights of $1 2/3 par value stockholders and Class H stockholders are equivalent in this regard. Indemnification and Limitation of Liability Under Section 145 of the DGCL, GM is empowered to indemnify its directors and officers in the circumstances provided under Section 145. As authorized by Section 102(b)(7) of the DGCL, GM's certificate of incorporation provides that a director of each company will not be personally liable to the company or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability imposed by law, as in effect from time to time: . for any breach of the director's duty of loyalty to the company or its stockholders; . for any act or omission not in good faith or which involved intentional misconduct or a knowing violation of law; . for unlawful payments of dividends or unlawful stock repurchases or redemptions as provided in Section 174 of the DGCL; or . for any transaction from which the director derived an improper personal benefit. 126 Under Article V of its by-laws, GM, subject to certain limitations, shall indemnify and advance expenses to every director and officer in the manner and to the full extent permitted by applicable law against any and all amounts reasonably incurred by or on behalf of such person in connection with any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, in which such director or officer was or is made or is threatened to be made a party or is otherwise involved by reason of the fact that such person is or was a director or officer of the company, or is or was serving at the request of the company as a director, officer, employee, fiduciary or member of any other corporation, partnership, joint venture, trust, organization or other enterprise. GM is insured against liabilities which it may incur by reason of Article V of its by-laws. In addition, directors and officers are insured, at GM's expense, against some liabilities which might arise out of their employment and not be subject to indemnification under Article V of GM's by-laws. The rights of $1 2/3 par value stockholders and Class H stockholders are equivalent in this regard. Business Combinations Generally, Section 203 of the DGCL prohibits a publicly held Delaware corporation from engaging in a "business combination" with an "interested stockholder" for a period of three years after the time such stockholder became an interested stockholder unless certain conditions are satisfied. GM is subject to Section 203 of the DGCL. Subject to differences in their respective voting rights as described above at "--Voting Rights," the rights of $1 2/3 par value stockholders and Class H stockholders are equivalent in this regard. 127 MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES All $1 2/3 par value stockholders should consult their own tax advisors concerning the tax consequences of the exchange offer in light of their particular circumstances in the countries in which they are subject to taxation. This summary is of a general nature only and is not intended to be, nor should it be construed to be, legal or tax advice to any particular investor. We summarize below the material U.S. federal income tax consequences relating to the exchange offer. The summary is based on the Code, the Treasury regulations promulgated thereunder and interpretations of the Code and Treasury regulations by the courts and the IRS, all as they exist as of the date of this document and all of which are subject to change at any time, possibly with retroactive effect. Any such change could alter the tax consequences to GM or the $1 2/3 par value stockholders as described below. See "Risk Factors--Risk Factors Relating to GM's Dual-Class Common Stock Capital Structure--Proposed Changes in the Tax Law Could Affect GM's Future Ability to Issue Shares of Class H Common Stock." This summary does not discuss all tax considerations that may be relevant to $1 2/3 par value stockholders in light of their particular circumstances, nor does it address the consequences to $1 2/3 par value stockholders subject to special treatment under the U.S. federal income tax laws, such as tax- exempt entities, non-resident alien individuals, foreign entities, foreign trusts and estates and beneficiaries thereof, persons who acquire such $1 2/3 par value common stock pursuant to the exercise of employee stock options or otherwise as compensation, insurance companies, and dealers in securities. In addition, this summary does not address the U.S. federal income tax consequences to $1 2/3 par value stockholders who do not hold their $1 2/3 par value common stock as a capital asset. This summary does not address any state, local or foreign tax consequences. Tax Opinions and U.S. Federal Income Tax Consequences We have conditioned our obligation to complete the exchange offer on our receipt of an opinion of GM's outside tax counsel, Kirkland & Ellis, to the effect that, for U.S. federal income tax purposes, the exchange of Class H common stock for $1 2/3 par value common stock pursuant to the exchange offer will not result in the recognition of gain or loss either by $1 2/3 par value stockholders who participate in the exchange, except in connection with cash received instead of fractional shares, or by GM. The exchange will have these U.S. federal income tax consequences to $1 2/3 par value stockholders and GM only if Class H common stock is treated as stock of GM for U.S. federal income tax purposes. GM currently anticipates that it will also receive an opinion from Kirkland & Ellis to this effect, the receipt of which is also a condition to GM's obligation to complete the exchange offer. GM will not be able to rely on the tax opinions if any factual representations made to counsel are incorrect or untrue in any material respect or any undertakings made to counsel are not complied with. Neither GM nor Hughes is aware of any facts or circumstances that would cause any such representations to be incorrect or untrue in any material respect or any such undertakings not to be complied with. An opinion of counsel is not binding on the IRS or the courts. If the exchange of Class H common stock for $1 2/3 par value common stock were held to be taxable, both GM and the $1 2/3 par value stockholders exchanging $1 2/3 par value common stock in the exchange offer potentially would incur material tax liabilities. Based on the foregoing opinions of counsel, subject to the discussion below relating to the receipt of cash instead of fractional shares, for U.S. federal income tax purposes: . no gain or loss will be recognized by, and no amount will be included in the income of, $1 2/3 par value stockholders upon their receipt of shares of Class H common stock in the exchange offer; . for those $1 2/3 par value stockholders that surrender all of their shares of $1 2/3 par value common stock in the exchange offer, the aggregate tax basis of the shares of Class H common stock received by the $1 2/3 par value stockholders pursuant to the exchange offer will be the same as the aggregate tax basis of the shares of $1 2/3 par value common stock exchanged in the exchange offer; . for those $1 2/3 par value stockholders that surrender some, but not all, of their $1 2/3 par value common stock in the exchange offer, the aggregate tax basis of the shares of $1 2/3 par value common stock retained 128 by such stockholders in the exchange offer will remain unchanged, and the aggregate tax basis of the shares of Class H common stock received by such stockholders in the exchange offer will be the same as the aggregate tax basis of the shares of $1 2/3 par value common stock exchanged in the exchange offer. . the holding period of the shares of Class H common stock received by the GM stockholders in the exchange offer will include the holding period of the shares of $1 2/3 par value common stock with respect to which the shares of Class H common stock were received; and . no gain or loss will be recognized by, and no amount will be included in the income of, GM upon issuance of the shares of Class H common stock in exchange for shares of $1 2/3 par value common stock in the exchange offer. The opinions will not specifically address tax basis issues with respect to holders of $1 2/3 par value common stock who have blocks of $1 2/3 par value common stock with different per share tax bases. Such holders are urged to consult their tax advisors regarding the possible tax basis consequences to them of the exchange offer. Receipt of Cash Instead of Fractional Shares Fractional shares of Class H common stock will not be distributed to $1 2/3 par value stockholders who participate in the exchange offer. All fractional shares of Class H common stock resulting from the exchange offer will be aggregated and sold by the exchange agent and the proceeds will be distributed to the owners of such fractional shares. See "The Exchange Offer--No Fractional Shares." Cash received by a participating $1 2/3 par value stockholder instead of a fractional share interest will be treated as having been received in exchange for such fractional share interest, and gain or loss will generally be recognized for U.S. federal income tax purposes. This gain or loss will be measured by the difference between the amount of cash received and the portion of such $1 2/3 par value stockholder's tax basis allocable to such fractional share interest. Such gain or loss will be treated as capital gain or loss. For taxpayers who are individuals, if their fractional share interest has a holding period for U.S. federal income tax purposes of more than one year, any gain will generally be subject to a stated maximum rate of 20%. In general, a person's holding period for a fractional share interest will include the period during which such person held the $1 2/3 par value common stock with respect to which such fractional share interest was received. Under the Code, as a holder of fractional share interests in Class H common stock you may be subject, under certain circumstances, to backup withholding at a 31% rate with respect to your fractional share interests unless you provide proof of an applicable exemption or a correct taxpayer identification number, and otherwise comply with applicable requirements of the backup withholding rules. The letter of transmittal provides instructions on how to provide us with information to prevent backup withholding. Any amounts withheld under the backup withholding rules are not an additional tax and may be refunded or credited against your U.S. federal income tax liability, provided you furnish the required information to the IRS. U.S. Federal Income Tax Consequences for Non-U.S. Persons Any capital gain realized by a non-U.S. person on the sale of the fractional shares of Class H common stock will be exempt from U.S. federal income and withholding tax, provided that: . the gain is not effectively connected with the conduct of a trade or business in the United States by the non-U.S. person; and . in the case of an individual, the non-U.S. person is not present in the United States for 183 days or more in the taxable year. U.S. information reporting requirements and backup withholding tax generally will not apply to a payment of cash instead of a fractional share interest effected outside the United States by a foreign office of a foreign broker. 129 LEGAL MATTERS Warren G. Andersen, Attorney, Legal Staff of General Motors Corporation, will pass upon the validity of Class H common stock being offered pursuant to the exchange offer. Mr. Andersen beneficially owns shares of each class of GM common stock, including shares subject to options. Certain legal matters with respect to the transaction will be passed upon for GM by Kirkland & Ellis. Davis Polk & Wardwell will represent the dealer manager. Cleary, Gottlieb, Steen & Hamilton will represent the marketing manager for Hughes. Kirkland & Ellis has in the past represented GM and Hughes and continues to represent GM and Hughes in connection with various matters. Davis Polk & Wardwell acts as counsel to the Executive Compensation Committee of the GM board of directors and has acted as counsel for GM and its subsidiaries in various matters. EXPERTS The consolidated financial statements and the related financial statement schedule of General Motors Corporation as of December 31, 1999 and 1998 and for each of the three years in the period ended December 31, 1999, included in the Annual Report on Form 10-K of General Motors Corporation for the year ended December 31, 1999 and incorporated by reference in this document, have been audited by Deloitte & Touche LLP, independent auditors, as stated in their report which is incorporated herein by reference, and have been so incorporated in reliance upon the report of such firm given upon their authority as experts in accounting and auditing. The financial statements and the related financial statement schedule of Hughes Electronics Corporation as of December 31, 1999 and 1998 and for each of the three years in the period ended December 31, 1999, included elsewhere in and incorporated by reference into this document, have been audited by Deloitte & Touche LLP, independent auditors, as stated in their reports which are included and incorporated by reference herein, and have been so included and incorporated in reliance upon the report of such firm given upon their authority as experts in accounting and auditing. The consolidated financial statements of U.S. Satellite Broadcasting Company as of December 31, 1998 and 1997, and for each of the three years in the period ended December 31, 1998, included in the Registration Statement on Form 10 of Hughes Electronics Corporation dated and filed with the Securities and Exchange Commission on August 13, 1999 and incorporated by reference herein have been audited by Arthur Andersen LLP, independent public accountants, as indicated in their report with respect thereto, and are incorporated by reference herein in reliance on the authority of Arthur Andersen LLP as experts in giving their report. The consolidated financial statements and schedules of PRIMESTAR, Inc. and subsidiaries as of December 31, 1998 and December 31, 1997, and for each of the years in the three-year period ended December 31, 1998, included in the Registration Statement on Form 10 of Hughes Electronics Corporation dated and filed with the Securities and Exchange Commission on August 13, 1999, have been incorporated by reference in this document in reliance upon the report of KPMG LLP, independent certified public accountants, incorporated by reference herein, and upon the authority of said firm as experts in accounting and auditing. The consolidated financial statements and schedule of TCI Satellite and subsidiaries as of December 31, 1998 and December 31, 1997, and for each of the years in the three-year period ended December 31, 1998, included in the Registration Statement on Form 10 of Hughes Electronics Corporation dated and filed with the Securities and Exchange Commission on August 13, 1999, have been incorporated by reference in this document in reliance upon the report of KPMG LLP, independent certified public accountants, incorporated by reference herein, and upon the authority of said firm as experts in accounting and auditing. 130 DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS This document includes forward-looking statements which may constitute "forward-looking statements" within the meaning of various provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934. All statements, other than statements of historical facts, included in this document that address activities, events or developments that we expect or anticipate will or may occur in the future, references to future success and other matters are forward-looking statements including statements preceded by, followed by or that include the words "believes," "expects," "intends" or "anticipates," or similar expressions, including, but not limited to, the subscriber projections discussed at "Business of Hughes" and other forward- looking information at "Management's Discussion and Analysis of Financial Condition and Results of Operations of Hughes." These statements are based on certain assumptions and analyses made in light of our experience and perception of historical trends, current conditions and expected future developments as well as other factors we believe are appropriate in the circumstances. However, whether actual future results and developments will conform with our expectations and predictions is subject to a number of risks and uncertainties, including the risks and uncertainties discussed in this document under the caption "Risk Factors" and elsewhere; and other factors such as the following, many of which are beyond our and our subsidiaries' control: . Changes in economic conditions, currency exchange rates or political stability in the major markets where GM procures material, components and supplies for the production of its principal products or where its products are produced, distributed or sold (i.e., North America, Europe, Latin America and Asia-Pacific). . Shortages of fuel or interruptions in transportation systems, labor strikes, work stoppages or other interruptions to or difficulties in the employment of labor in the major markets where GM purchases material, components and supplies for the production of its products or where its products are produced, distributed or sold. . Significant changes in the competitive environment in the major markets where GM purchases material, components and supplies for the production of its products or where its products are produced, distributed or sold. . Changes in the laws, regulations, policies or other activities of governments, agencies and similar organizations where such actions may affect the production, licensing, distribution or sale of GM's products, the cost thereof or applicable tax rates. . The ability of GM to achieve reductions in cost and employment levels, to realize production efficiencies and to implement capital expenditures, all at the levels and times planned by management. . With respect to Hughes, additional risk factors include: economic conditions, product demand and market acceptance, government action, local political or economic developments in or affecting countries where Hughes has operations, ability to obtain export licenses, competition, ability to achieve cost reductions, technological risk, limitations on access to distribution channels, the success and timeliness of satellite launches, in-orbit performance of satellites, ability of customers to obtain financing and Hughes' ability to access capital to maintain its financial flexibility. Additionally, Hughes and PanAmSat have experienced satellite anomalies in the past and may experience satellite anomalies in the future that could lead to the loss or reduced capacity of such satellites that could materially affect Hughes' operations. Consequently, all of the forward-looking statements made in this document are qualified by these cautionary statements and there can be no assurance that the actual results or developments we anticipate will be realized or, even if realized, that they will have the expected consequences to or effects on us and our respective subsidiaries or their business or operations. The cautionary statements contained or referred to in this section should be considered in connection with any subsequent written or oral forward-looking statements that we or persons acting on our behalf may issue. 131 WHERE YOU CAN FIND MORE INFORMATION GM files annual, quarterly and current reports, proxy statements and other information with the SEC. GM's filings include information relating to Hughes. Beginning in 1999, Hughes began filing its own annual, quarterly and current reports with the SEC. You may read and copy any reports, statements or other information that the companies file at the SEC's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. Please call the SEC at (800) SEC- 0330 for further information on the Public Reference Room. GM public filings are also available to the public from commercial document retrieval services and at the Internet World Wide Web site maintained by the SEC at "http://www.sec.gov." Reports, proxy statements and other information filed by GM are also available for inspection at the offices of the New York Stock Exchange, Inc., 20 Broad Street, New York, New York 10005. GM has filed a registration statement on Form S-4 to register with the SEC the Class H common stock offered pursuant to this exchange offer. This document constitutes a prospectus which is part of this registration statement. As allowed by the SEC rules, however, this prospectus does not contain all of the information you can find in the registration statement or the exhibits to the registration statement. The SEC allows GM to incorporate by reference information into this prospectus, which means that GM can disclose information to you by referring you to another document filed separately with the SEC. The information incorporated by reference is deemed to be part of this prospectus, except for any information superseded by information contained directly in the prospectus or in later filed documents incorporated by reference in the prospectus. This prospectus incorporates by reference the documents set forth below that GM and Hughes have previously filed with the SEC. These documents contain important information about GM, Hughes, U.S. Satellite Broadcasting Company, PRIMESTAR and TCI Satellite Entertainment, Inc. and their respective financial condition.
GM Filings (File No. 1-143) Period --------------------------- ------ Annual Report on Form 10-K....... Year ended December 31, 1999 Current Reports on Form 8-K...... Date of report: August 2, 1999, January 13, 2000, January 20, 2000, February 1, 2000, February 25, 2000, March 1, 2000, March 6, 2000, March 7, 2000, March 13, 2000 and March 31, 2000 Proxy Statement.................. Date filed: April 20, 1999. Description of the Class H common stock set forth in Article Fourth of GM's Restated Certificate of Incorporation, as amended, filed as Exhibit 3(i) to the Current Report on Form 8-K dated June 8, 1998 Hughes Filings (File No. 0-26035) Period --------------------------------- ------ Annual Report on Form 10-K....... Year ended December 31, 1999 Current Reports on Form 8-K...... Date of report: January 13, 2000(2), January 19, 2000 and March 1, 2000 Consolidated financial statements, including the notes thereto, for U.S. Satellite Broadcasting Company, PRIMESTAR, and TCI Satellite Entertainment, Inc. for Fiscal Year ended December 31, 1998, filed in the Registration Statement on Form 10, filed on August 13, 1999.
132 GM hereby incorporates by reference into this prospectus additional documents that it and Hughes may file with the SEC between the date of this prospectus and the termination of the exchange offer. These include periodic reports, such as Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, as well as proxy statements. You may have received some of the documents incorporated by reference, but you can obtain any of them through GM or the SEC or the SEC's Internet site described above. Documents incorporated by reference are available from GM without charge, excluding all exhibits unless specifically incorporated by reference as exhibits in this prospectus. You may obtain some of the documents incorporated by reference in this prospectus at GM's Internet World Wide Web site, "http://www.gm.com" and selecting "The Company" and then selecting "Investor Information." Written and telephone requests for any of these documents should be directed to: Written requests for documents: GM Fulfillment Center MC 480-000-FC1 30200 Stephenson Hwy. Madison Heights, MI 48071 Telephone: (313) 667-1500 Telephone requests for documents: (313) 667-1500 Select Menu Option #2 If you request any incorporated documents from us, we will mail them to you by first class mail, or other equally prompt means, within one business day of receipt of your request. 133 APPENDIX A HUGHES ELECTRONICS CORPORATION AUDITED FINANCIAL STATEMENTS
Index Page ----- ---- AUDITED FINANCIAL STATEMENTS AS OF DECEMBER 31, 1999 AND 1998 AND FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 AND INDEPENDENT AUDITORS' REPORT Independent Auditors' Report........................................... A-1 Statements of Operations and Available Separate Consolidated Net Income (Loss)................................................................ A-2 Balance Sheets......................................................... A-3 Statements of Changes in Stockholder's Equity.......................... A-4 Statements of Cash Flows............................................... A-5 Notes to Financial Statements.......................................... A-6
[THIS PAGE INTENTIONALLY LEFT BLANK] HUGHES ELECTRONICS CORPORATION INDEPENDENT AUDITORS' REPORT To the Board of Directors of Hughes Electronics Corporation: We have audited the accompanying Balance Sheets of Hughes Electronics Corporation (as more fully described in Note 1 to the financial statements) as of December 31, 1999 and 1998 and the related Statements of Operations and Available Separate Consolidated Net Income (Loss), Statements of Changes in Stockholder's Equity and Statements of Cash Flows for each of the three years in the period ended December 31, 1999. These financial statements are the responsibility of Hughes Electronics Corporation's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements present fairly, in all material respects, the financial position of Hughes Electronics Corporation at December 31, 1999 and 1998 and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1999 in conformity with generally accepted accounting principles. As discussed in Note 2 to the accompanying financial statements, effective January 1, 1998, Hughes Electronics Corporation changed its method of accounting for costs of start-up activities by adopting American Institute of Certified Public Accountants Statement of Position 98-5, Reporting on the Costs of Start-Up Activities. /s/ Deloitte & Touche LLP ------------------------------------- Deloitte & Touche LLP Los Angeles, California January 19, 2000 (March 1, 2000 as to Note 21) A-1 HUGHES ELECTRONICS CORPORATION STATEMENTS OF OPERATIONS AND AVAILABLE SEPARATE CONSOLIDATED NET INCOME (LOSS)
Years Ended December 31, ---------------------------- 1999 1998 1997 -------- -------- -------- (Dollars in Millions) Revenues Direct broadcast, leasing and other services... $4,550.1 $2,640.2 $1,984.7 Product sales.................................. 1,010.2 840.4 853.6 -------- -------- -------- Total Revenues................................... 5,560.3 3,480.6 2,838.3 -------- -------- -------- Operating Costs and Expenses Broadcast programming and other costs.......... 2,075.1 1,211.4 912.3 Cost of products sold.......................... 954.6 606.6 538.4 Selling, general and administrative expenses... 2,307.9 1,320.9 1,083.8 Depreciation and amortization.................. 647.4 384.6 257.0 Amortization of GM purchase accounting adjustments................................... 3.3 3.3 3.3 -------- -------- -------- Total Operating Costs and Expenses............... 5,988.3 3,526.8 2,794.8 -------- -------- -------- Operating Profit (Loss).......................... (428.0) (46.2) 43.5 Interest income................................ 27.0 112.3 33.0 Interest expense............................... (122.7) (17.5) (91.0) Other, net..................................... (136.3) (151.8) 388.6 -------- -------- -------- Income (Loss) From Continuing Operations Before Income Taxes, Minority Interests, Extraordinary Item and Cumulative Effect of Accounting Change. (660.0) (103.2) 374.1 Income tax provision (benefit)................. (236.9) (142.3) 162.0 Minority interests in net losses of subsidiaries.................................. 32.0 24.4 24.8 -------- -------- -------- Income (Loss) from continuing operations before extraordinary item and cumulative effect of accounting change............................. (391.1) 63.5 236.9 Income from discontinued operations, net of taxes......................................... 99.8 196.4 170.6 Gain on sale of discontinued operations, net of taxes......................................... -- -- 62.8 -------- -------- -------- Income (Loss) before extraordinary item and cumulative effect of accounting change........ (291.3) 259.9 470.3 Extraordinary item, net of taxes............... -- -- (20.6) Cumulative effect of accounting change, net of taxes......................................... -- (9.2) -- -------- -------- -------- Net Income (Loss)................................ (291.3) 250.7 449.7 Adjustments to exclude the effect of GM purchase accounting adjustments............... 21.0 21.0 21.0 -------- -------- -------- Earnings (Loss) excluding the effect of GM purchase accounting adjustments............... (270.3) 271.7 470.7 Preferred stock dividends...................... (50.9) -- -- -------- -------- -------- Earnings (Loss) Used for Computation of Available Separate Consolidated Net Income (Loss)......... $ (321.2) $ 271.7 $ 470.7 ======== ======== ======== Available Separate Consolidated Net Income (Loss) Average number of shares of General Motors Class H Common Stock outstanding (in millions) (Numerator)................................... 124.7 105.3 101.5 Average Class H dividend base (in millions) (Denominator)................................. 418.5 399.9 399.9 Available Separate Consolidated Net Income (Loss)........................................ $ (95.7) $ 71.5 $ 119.4 ======== ======== ========
Reference should be made to the Notes to Financial Statements. A-2 HUGHES ELECTRONIC CORPORATION BALANCE SHEETS
December 31, -------------------- ASSETS 1999 1998 ------ --------- --------- (Dollars in Millions) Current Assets........................................... Cash and cash equivalents.............................. $ 238.2 $ 1,342.0 Accounts and notes receivable, net of allowances of $92.9 and $23.9....................................... 960.9 764.6 Contracts in process................................... 155.8 179.0 Inventories............................................ 236.1 286.6 Net assets of discontinued operations.................. 1,224.6 1,005.8 Deferred income taxes.................................. 254.3 209.7 Prepaid expenses and other............................. 788.1 287.5 --------- --------- Total Current Assets................................... 3,858.0 4,075.2 Satellites, net........................................ 3,907.3 3,197.5 Property, net.......................................... 1,223.0 683.0 Net Investment in Sales-type Leases.................... 146.1 173.4 Intangible Assets, net................................. 7,406.0 3,185.9 Investments and Other Assets........................... 2,056.6 1,302.4 --------- --------- Total Assets......................................... $18,597.0 $12,617.4 ========= ========= LIABILITIES AND STOCKHOLDER'S EQUITY ------------------------------------ Current Liabilities...................................... Accounts payable....................................... $ 1,062.2 $ 691.8 Deferred revenues...................................... 130.5 43.8 Short-term borrowings and current portion of long-term debt.................................................. 555.4 156.1 Accrued liabilities and other.......................... 894.0 454.3 --------- --------- Total Current Liabilities................................ 2,642.1 1,346.0 --------- --------- Long-Term Debt........................................... 1,586.0 778.7 Other Liabilities and Deferred Credits................... 1,454.2 957.7 Deferred Income Taxes.................................... 689.1 641.1 Commitments and Contingencies............................ Minority Interests....................................... 544.3 481.7 Stockholder's Equity..................................... Capital stock and additional paid-in capital........... 9,809.5 8,146.1 Preferred stock........................................ 1,487.5 -- Retained earnings (deficit)............................ (84.4) 257.8 --------- --------- Subtotal Stockholder's Equity............................ 11,212.6 8,403.9 --------- --------- Accumulated Other Comprehensive Income (Loss).......... Minimum pension liability adjustment................. (7.3) (6.8) Accumulated unrealized gains on securities........... 466.0 16.1 Accumulated foreign currency translation adjustments. 10.0 (1.0) --------- --------- Accumulated other comprehensive income................. 468.7 8.3 --------- --------- Total Stockholder's Equity............................... 11,681.3 8,412.2 --------- --------- Total Liabilities and Stockholder's Equity............... $18,597.0 $12,617.4 ========= =========
Reference should be made to the Notes to Financial Statements. A-3 HUGHES ELECTRONICS CORPORATION STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY (Dollars in Millions)
Capital Stock Parent and Accumulated Company's Additional Retained Other Total Net Paid-in Preferred Earnings Comprehensive Stockholder's Comprehensive Investment Capital Stock (Deficit) Income (Loss) Equity Income ---------- ------------- --------- --------- ------------- ------------- ------------- Balance at December 31, 1996................... $2,497.0 $ (5.4) $ 2,491.6 Net contribution from Parent Company......... 1,124.2 1,124.2 Transfer of capital from Parent Company's net investment............. (4,063.8) $4,063.8 -- Capital contribution resulting from the Hughes Transactions.... 4,259.0 4,259.0 Minimum pension liability adjustment resulting from the Hughes Transactions.... (6.3) (6.3) Unrealized gains on securities resulting from the Hughes Transactions........... 21.4 21.4 Net income.............. 442.6 $ 7.1 449.7 $ 449.7 Foreign currency translation adjustments............ 0.6 0.6 0.6 ------- Comprehensive income.... $ 450.3 -------- -------- -------- ------- ------ --------- ======= Balance at December 31, 1997................... -- 8,322.8 -- 7.1 10.3 8,340.2 Net Income.............. 250.7 250.7 $ 250.7 Delco post-closing price adjustment............. (199.7) (199.7) Tax benefit from exercise of GM Class H common stock options... 23.0 23.0 Minimum pension liability adjustment... (0.5) (0.5) (0.5) Foreign currency translation adjustments............ 3.8 3.8 3.8 Unrealized gains on securities: Unrealized holding gains................. 1.8 1.8 1.8 Less: reclassification adjustment for gains included in net income................ (7.1) (7.1) (7.1) ------- Comprehensive income.... $ 248.7 -------- -------- -------- ------- ------ --------- ======= Balance at December 31, 1998................... -- 8,146.1 -- 257.8 8.3 8,412.2 Net Loss................ (291.3) (291.3) $(291.3) Preferred stock......... $1,487.5 1,487.5 Preferred stock dividends.............. (50.9) (50.9) Shares reacquired....... (11.1) (11.1) Stock options exercised. 114.4 114.4 Shares issued in connection with acquisitions........... 1,506.7 1,506.7 Tax benefit from exercise of GM Class H common stock options... 53.4 53.4 Minimum pension liability adjustment... (0.5) (0.5) (0.5) Foreign currency translation adjustments............ 11.0 11.0 11.0 Unrealized gains on securities............. 449.9 449.9 449.9 ------- Comprehensive income.... $ 169.1 -------- -------- -------- ------- ------ --------- ======= Balance at December 31, 1999................... $ -- $9,809.5 $1,487.5 $ (84.4) $468.7 $11,681.3 ======== ======== ======== ======= ====== =========
Reference should be made to the Notes to Financial Statements. A-4 HUGHES ELECTRONICS CORPORATION STATEMENTS OF CASH FLOWS
Years Ended December 31, ------------------------------- 1999 1998 1997 --------- --------- --------- (Dollars in Millions) Cash Flows from Operating Activities Income (Loss) from continuing operations before extraordinary item and cumulative effect of accounting change................. $ (391.1) $ 63.5 $ 236.9 Adjustments to reconcile income (loss) from continuing operations before extraordinary item and cumulative effect of accounting change to net cash provided by operating activities Depreciation and amortization.............. 650.7 387.9 260.3 Equity losses from unconsolidated affiliates................................ 189.2 128.3 72.2 Amortization of gains on sale-leasebacks... (10.8) (36.2) (42.9) Net gain on sale of investments and businesses sold........................... (30.0) (13.7) (489.7) Gross profit on sales-type leases.......... -- -- (33.6) Net loss on discontinuation of wireless product lines............................. 272.1 -- -- Net loss on disposal of assets............. 2.7 -- -- Deferred income taxes and other............ 271.1 99.6 220.5 Change in other operating assets and liabilities Accounts and notes receivable............ 35.0 (49.4) (246.2) Contracts in process..................... 23.2 1.7 (19.5) Inventories.............................. (38.7) 12.9 (39.9) Prepaid expenses and other............... (494.0) (91.6) (138.0) Collections of principal on net investment in sales-type leases......... 22.2 40.6 22.0 Accounts payable......................... 101.4 224.0 (183.9) Deferred revenues........................ (50.3) (34.0) (21.2) Accrued liabilities and other............ 59.6 (19.0) 207.3 Other.................................... (232.8) (102.5) 286.3 --------- --------- --------- Net Cash Provided by Operating Activities.. 379.5 612.1 90.6 --------- --------- --------- Cash Flows from Investing Activities Investment in companies, net of cash acquired.................................... (2,443.7) (1,231.0) (1,796.8) Investment in convertible bonds.............. (244.7) -- -- Expenditures for property.................... (506.4) (243.9) (137.4) Increase in satellites....................... (789.4) (929.4) (633.5) Early buy-out of satellites under sale and leaseback................................... (245.4) (155.5) -- Proceeds from sale of discontinued operations.................................. -- -- 155.0 Proceeds from disposal of property........... 15.8 20.0 55.1 Proceeds from sale of investments............ -- 12.4 242.0 Proceeds from insurance claims............... 272.0 398.9 -- --------- --------- --------- Net Cash Used in Investing Activities...... (3,941.8) (2,128.5) (2,115.6) --------- --------- --------- Cash Flows from Financing Activities Net increase in notes and loans payable...... 343.0 -- -- Long-term debt borrowings.................... 8,165.6 1,165.2 2,383.3 Repayment of long-term debt.................. (7,494.4) (1,024.1) (2,851.9) Net proceeds from issuance of preferred stock....................................... 1,485.0 -- -- Stock options exercised...................... 114.4 -- -- Purchase and retirement of GM Class H common stock....................................... (11.1) -- -- Preferred stock dividends paid to General Motors...................................... (25.0) -- -- Premium paid to retire debt.................. -- -- (34.4) Contributions from Parent Company............ -- -- 1,124.2 Payment to General Motors for Delco post- closing price adjustment.................... -- (204.7) -- Capital contribution resulting from Hughes Transactions................................ -- -- 4,392.8 --------- --------- --------- Net Cash Provided by (Used in) Financing Activities................................ 2,577.5 (63.6) 5,014.0 --------- --------- --------- Net cash provided by (used in) continuing operations.................................. (984.8) (1,580.0) 2,989.0 Net cash provided by (used in) discontinued operations.................................. (119.0) 138.3 (211.5) --------- --------- --------- Net increase (decrease) in cash and cash equivalents................................. (1,103.8) (1,441.7) 2,777.5 Cash and cash equivalents at beginning of the year........................................ 1,342.0 2,783.7 6.2 --------- --------- --------- Cash and cash equivalents at end of the year. $ 238.2 $ 1,342.0 $ 2,783.7 ========= ========= =========
Reference should be made to the Notes to Financial Statements. A-5 HUGHES ELECTRONICS CORPORATION Note 1: Basis of Presentation and Description of Business On December 17, 1997, Hughes Electronics Corporation ("Hughes Electronics") and General Motors Corporation ("GM"), the parent of Hughes Electronics, completed a series of transactions (the "Hughes Transactions") designed to address strategic challenges facing the three principal businesses of Hughes Electronics and unlock stockholder value in GM. The Hughes Transactions included the tax-free spin-off of the defense electronics business ("Hughes Defense") to holders of GM $1 2/3 par value and Class H common stocks, the transfer of Delco Electronics Corporation ("Delco"), the automotive electronics business, to GM's Delphi Automotive Systems unit and the recapitalization of GM Class H common stock into a new tracking stock, GM Class H common stock, that is linked to the remaining telecommunications and space business. The Hughes Transactions were followed immediately by the merger of Hughes Defense with Raytheon Company ("Raytheon"). For the periods prior to the consummation of the Hughes Transactions on December 17, 1997, Hughes Electronics, consisting of its defense electronics, automotive electronics and telecommunications and space businesses, is hereinafter referred to as former Hughes or Parent Company. In connection with the recapitalization of Hughes Electronics on December 17, 1997, the telecommunications and space business of former Hughes, consisting principally of its direct-to-home broadcast, satellite services, satellite systems and network systems businesses, was contributed to the recapitalized Hughes Electronics. Such telecommunications and space business, both before and after the recapitalization, is hereinafter referred to as Hughes. The accompanying financial statements and footnotes pertain only to Hughes and do not include balances of former Hughes related to Hughes Defense or Delco. Prior to the Hughes Transactions, the Hughes businesses were effectively operated as divisions of former Hughes. For the period prior to December 18, 1997, these financial statements include allocations of corporate expenses from former Hughes, including research and development, general management, human resources, financial, legal, tax, quality, communications, marketing, international, employee benefits and other miscellaneous services. These costs and expenses have been charged to Hughes based either on usage or using allocation methodologies primarily based upon total revenues, certain tangible assets and payroll expenses. Management believes the allocations were made on a reasonable basis; however, they may not necessarily reflect the financial position, results of operations or cash flows of Hughes on a stand-alone basis in the future. Also, prior to December 18, 1997, interest expense in the Statements of Operations and Available Separate Consolidated Net Income (Loss) included an allocated share of total former Hughes' interest expense. Revenues, operating costs and expenses, and other non-operating results for discontinued operations are excluded from Hughes' results from continuing operations for all periods presented herein. The financial results of these businesses are presented in Hughes' Statements of Operations and Available Separate Consolidated Net Income (Loss) in a single line item entitled "income from discontinued operations, net of taxes," the related assets and liabilities are presented in the balance sheets on a single line item entitled "net assets of discontinued operations" and the net cash flows as "net cash provided by (used in) discontinued operations." See further discussion in Note 17. The accompanying financial statements include the applicable portion of intangible assets, including goodwill, and related amortization resulting from purchase accounting adjustments associated with GM's purchase of Hughes in 1985, with certain amounts allocated to the satellite systems manufacturing businesses. Hughes is a leading provider of digital entertainment, information and communication services and satellite-based private business networks. Hughes is the world's leading digital multi-channel entertainment service provider with its programming distribution service known as DIRECTV(R), which was introduced in the U.S. in 1994 and was the first high-powered, all digital, direct-to-home ("DTH") television distribution service in North America. DIRECTV began service in Latin America in 1996. Hughes is also the owner and operator of the largest commercial satellite fleet in the world through its 81% owned subsidiary, PanAmSat. Hughes is also a leading provider of satellite wireless communications ground equipment and business communications services. A-6 HUGHES ELECTRONICS CORPORATION Note 1: Basis of Presentation and Description of Business--Continued Its equipment and services are applied in, among other things, data, video and audio transmission, cable and network television distribution, private business networks, digital cellular communications and DTH satellite broadcast distribution of television programming. Note 2: Summary of Significant Accounting Policies Principles of Combination and Consolidation Prior to December 18, 1997, the financial statements present, on a combined basis, the financial position, results of operations and cash flows of the telecommunications and space business owned and operated by former Hughes. Subsequent to the Hughes Transactions, the accompanying financial statements are presented on a consolidated basis. The financial statements include the accounts of Hughes and its domestic and foreign subsidiaries that are more than 50% owned or controlled by Hughes, with investments in associated companies in which Hughes owns at least 20% of the voting securities or has significant influence accounted for under the equity method of accounting. Use of Estimates in the Preparation of the Financial Statements The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect amounts reported therein. Due to the inherent uncertainty involved in making estimates, actual results reported in future periods may be based upon amounts which differ from those estimates. Revenue Recognition Revenues are generated from sales of DTH broadcast subscriptions, and the sale of transponder capacity and related services through outright sales, sales-type leases and operating lease contracts, and sales of communications equipment and services. Sales are generally recognized as products are shipped or services are rendered. DTH subscription revenues are recognized when programming is viewed by subscribers. Programming payments received from subscribers in advance of viewing are recorded as deferred revenue until earned. Satellite transponder lease contracts qualifying for capital lease treatment (typically based on the term of the lease) are accounted for as sales-type leases, with revenues recognized equal to the net present value of the future minimum lease payments. Upon entering into a sales-type lease, the cost basis of the transponder is charged to cost of products sold. The portion of each periodic lease payment deemed to be attributable to interest income is recognized in each respective period. Contracts for sales of transponders typically include telemetry, tracking and control ("TT&C") service agreements. Revenues related to TT&C service agreements are recognized as the services are performed. Transponder and other lease contracts that do not qualify as sales-type leases are accounted for as operating leases. Operating lease revenues are recognized on a straight-line basis over the respective lease term. Differences between operating lease payments received and revenues recognized are deferred and included in accounts and notes receivable or investments and other assets. A small percentage of revenues are derived from long-term contracts for the sale of large wireless communications systems. Sales under long-term contracts are recognized primarily using the percentage-of-completion (cost-to-cost) method of accounting. Under this method, sales are recorded equivalent to costs incurred plus a portion of the profit expected to be realized, determined based on the ratio of costs incurred to estimated total costs at completion. Profits expected to be realized on long-term contracts are based on estimates of total sales value and costs at completion. These estimates are reviewed and revised periodically throughout A-7 HUGHES ELECTRONICS CORPORATION Note 2: Summary of Significant Accounting Policies--Continued the lives of the contracts, and adjustments to profits resulting from such revisions are recorded in the accounting period in which the revisions are made. Estimated losses on contracts are recorded in the period in which they are identified. Hughes has from time to time entered into agreements for the sale and leaseback of certain of its satellite transponders. However, as a result of early buy-out transactions described in Note 4, no obligations under sale- leaseback agreements remain at December 31, 1999. Prior to the completion of the early buy-out transactions, the leasebacks were classified as operating leases and, therefore, the capitalized cost and associated depreciation related to satellite transponders sold were not included in the accompanying financial statements. Gains resulting from the sale and leaseback transactions were deferred and amortized over the leaseback period. Leaseback expense was recorded using the straight-line method over the term of the lease, net of amortization of the deferred gains. Differences between operating leaseback payments made and expense recognized were deferred and included in other liabilities and deferred credits. Cash Flows Cash equivalents consist of highly liquid investments purchased with original maturities of 90 days or less. Net cash from operating activities includes cash payments made for interest of $174.6 million, $53.2 million and $156.8 million in 1999, 1998 and 1997, respectively. Net cash refunds received by Hughes for prior year income taxes amounted to $197.2 million and $59.9 million in 1999 and 1998, respectively. Cash payments for income taxes amounted to $24.0 million in 1997. Certain non-cash transactions occurred in connection with the consummation of the Hughes Transactions on December 17, 1997, resulting in a contribution of a net liability of $133.8 million. In 1997, in a separate non-cash transaction, Hughes' subsidiary, PanAmSat Corporation ("PanAmSat"), converted its outstanding preferred stock into debt amounting to $438.5 million. Contracts in Process Contracts in process are stated at costs incurred plus estimated profit, less amounts billed to customers and advances and progress payments applied. Engineering, tooling, manufacturing, and applicable overhead costs, including administrative, research and development and selling expenses, are charged to costs and expenses when incurred. Amounts billed under retainage provisions of contracts are not significant, and substantially all amounts are collectible within one year. Advances offset against contract related receivables amounted to $114.5 million and $112.0 million at December 31, 1999 and 1998, respectively. Inventories Inventories are stated at the lower of cost or market principally using the average cost method. Major Classes of Inventories
(Dollars in Millions) 1999 1998 --------------------- ------ ------ Productive material and supplies........................... $ 59.1 $ 55.0 Work in process............................................ 67.0 118.6 Finished goods............................................. 110.0 113.0 ------ ------ Total.................................................... $236.1 $286.6 ====== ======
A-8 HUGHES ELECTRONICS CORPORATION Note 2: Summary of Significant Accounting Policies--Continued Property, Satellites and Depreciation Property and satellites are carried at cost. Satellite costs include construction costs, launch costs, launch insurance and capitalized interest. Capitalized satellite costs represent the costs of successful satellite launches. The proportionate cost of a satellite, net of depreciation and insurance proceeds, is written off in the period a full or partial loss of the satellite occurs. Depreciation is computed generally using the straight-line method over the estimated useful lives of the assets. Leasehold improvements are amortized over the lesser of the life of the asset or term of the lease. Intangible Assets Goodwill, which represents the excess of the cost over the net tangible and identifiable intangible assets of acquired businesses, and intangible assets are amortized using the straight-line method over periods not exceeding 40 years. Software Development Costs Other assets include certain software development costs capitalized in accordance with Statement of Financial Accounting Standards ("SFAS") No. 86, Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed. Capitalized software development costs at December 31, 1999 and 1998, net of accumulated amortization of $98.7 million and $70.6 million, respectively, totaled $70.4 million and $104.1 million. The software is amortized using the greater of the units of revenue method or the straight- line method over its estimated useful life, not in excess of five years. Software program reviews are conducted to ensure that capitalized software development costs are properly treated and costs associated with programs that are not generating revenues are appropriately written off. Valuation of Long-Lived Assets Hughes periodically evaluates the carrying value of long-lived assets to be held and used, including goodwill and other intangible assets, when events and circumstances warrant such a review. The carrying value of a long-lived asset is considered impaired when the anticipated undiscounted cash flow from such asset is separately identifiable and is less than its carrying value. In that event, a loss is recognized based on the amount by which the carrying value exceeds the fair value of the long-lived asset. Fair value is determined primarily using the anticipated cash flows discounted at a rate commensurate with the risk involved. Losses on long-lived assets to be disposed of are determined in a similar manner, except that fair values are reduced for the cost of disposal. Foreign Currency Substantially all of Hughes' foreign operations have determined the local currency to be their functional currency. Accordingly, these foreign entities translate assets and liabilities from their local currencies to U.S. dollars using year-end exchange rates while income and expense accounts are translated at the average rates in effect during the year. The resulting translation adjustment is recorded as part of accumulated other comprehensive income (loss), a separate component of stockholder's equity. Gains and losses resulting from remeasurement into the functional currency of transactions denominated in non-functional currencies are recognized in earnings. Net foreign currency transaction gains and losses included in operations were not material for all years presented. Financial Instruments and Investments Hughes maintains investments in equity securities of unaffiliated companies. These investments are considered available-for-sale and carried at current fair value with unrealized gains or losses, net of taxes, A-9 HUGHES ELECTRONICS CORPORATION Note 2: Summary of Significant Accounting Policies--Continued reported as part of accumulated other comprehensive income (loss), a separate component of stockholder's equity. Fair value is determined by market quotes, when available, or by management estimate. Market values of financial instruments, other than debt and derivative instruments, are based upon management estimates. Market values of debt and derivative instruments are determined by quotes from financial institutions. The carrying value of cash and cash equivalents, accounts and notes receivable, investments and other assets, accounts payable, amounts included in accrued liabilities and other meeting the definition of a financial instrument and debt approximated fair value at December 31, 1999. Hughes' derivative contracts primarily consist of foreign exchange-forward contracts. Hughes enters into these contracts to reduce its exposure to fluctuations in foreign exchange rates. Foreign exchange-forward contracts are accounted for as hedges to the extent they are designated as, and are effective as, hedges of firm foreign currency commitments. Gains and losses on foreign exchange-forward contracts designated as hedges of firm foreign currency commitments are recognized in income in the same period as gains and losses on the underlying transactions are recognized. Stock Compensation Hughes issues stock options to employees with grant prices equal to the fair value of the underlying security at the date of grant. No compensation cost has been recognized for options in accordance with the provisions of Accounting Principles Board ("APB") Opinion No. 25, Accounting for Stock Issued to Employees. See Note 12 for information regarding the pro forma effect on earnings of recognizing compensation cost based on the estimated fair value of the stock options granted, as required by SFAS No. 123, Accounting for Stock-Based Compensation. Compensation related to stock awards is recognized ratably over the vesting period and, where required, periodically adjusted to reflect changes in the stock price of the underlying security. Product and Service Related Expenses Advertising and research and development costs are expensed as incurred. Advertising expenses were $115.8 million in 1999, $130.0 million in 1998 and $74.2 million in 1997. Expenditures for research and development were $98.8 million in 1999, $92.6 million in 1998 and $81.9 million in 1997. Market Concentrations and Credit Risk Hughes provides services and extends credit to a number of wireless communications equipment customers and to a large number of DTH consumers. Management monitors its exposure to credit losses and maintains allowances for anticipated losses. Accounting Change In 1998, Hughes adopted American Institute of Certified Public Accountants Statement of Position ("SOP") 98-5, Reporting on the Costs of Start-Up Activities. SOP 98-5 requires that all start-up costs previously capitalized be written off and recognized as a cumulative effect of accounting change, net of taxes, as of the beginning of the year of adoption. On a prospective basis, these types of costs are required to be expensed as incurred. The unfavorable cumulative effect of this accounting change at January 1, 1998 was $9.2 million after-tax. A-10 HUGHES ELECTRONICS CORPORATION Note 2: Summary of Significant Accounting Policies--Concluded New Accounting Standards In September 1999, the Financial Accounting Standards Board ("FASB") issued Emerging Issues Task Force Issue 99-10 ("EITF 99-10"), Percentage Used to Determine the Amount of Equity Method Losses. EITF 99-10 addresses the percentage of ownership that should be used to compute equity method losses when the investment has been reduced to zero and the investor holds other securities of the investee. EITF 99-10 requires that equity method losses should not be recognized solely on the percentage of common stock owned; rather, an entity-wide approach should be adopted. Under such an approach, equity method losses must be recognized based on the ownership level that includes other equity securities (e.g., preferred stock) and loans/advances to the investee or based on the change in the investor's claim on the investee's book value. Hughes adopted EITF 99-10 during the third quarter of 1999 which resulted in Hughes recording a higher percentage of DIRECTV Japan's losses subsequent to the effective date of September 23, 1999. The unfavorable impact of adopting EITF 99-10 was $39.0 million after-tax. In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133, as amended, requires all derivatives to be recorded as either assets or liabilities and the instruments to be measured at fair value. Gains or losses resulting from changes in the values of those derivatives are to be recognized immediately or deferred depending on the use of the derivative and whether or not it qualifies as a hedge. Hughes will adopt SFAS No. 133 by January 1, 2001, as required. Hughes does not expect that the adoption of SFAS No. 133 will have a material impact on Hughes' results of operations or financial position. Reclassifications Certain reclassifications have been made to the prior year balances to conform to the 1999 presentation. Note 3: Property and Satellites, Net
Estimated Useful Lives (Dollars in Millions) (years) 1999 1998 - --------------------- --------- -------- -------- Land and improvements.............................. 7-25 $ 51.4 $ 32.5 Buildings and leasehold improvements............... 2-30 197.0 136.3 Machinery and equipment............................ 3-10 795.2 642.4 Equipment under operating lease.................... 6 333.1 -- Furniture, fixtures and office machines............ 3-13 92.3 67.7 Construction in progress........................... -- 363.4 206.6 -------- -------- Total.............................................. 1,832.4 1,085.5 Less accumulated depreciation...................... 609.4 402.5 -------- -------- Property, net...................................... $1,223.0 $ 683.0 ======== ======== Satellites......................................... 12-16 $4,683.1 $3,783.2 Less accumulated depreciation...................... 775.8 585.7 -------- -------- Satellites, net.................................... $3,907.3 $3,197.5 ======== ========
Hughes capitalized interest of $65.1 million, $55.3 million and $64.5 million during 1999, 1998 and 1997, respectively, as part of the cost of its satellites under construction. A-11 HUGHES ELECTRONICS CORPORATION Note 4: Leasing Activities Future minimum payments due from customers under sales-type leases and related service agreements, and noncancelable satellite transponder operating leases as of December 31, 1999 are as follows:
Sales-Type Leases ------------------ Minimum Service Lease Agreement Operating (Dollars in Millions) Payments Payments Leases --------------------- -------- --------- --------- 2000......................................... $ 42.0 $ 5.3 $ 702.0 2001......................................... 43.4 5.7 626.4 2002......................................... 43.4 5.7 575.0 2003......................................... 43.4 5.7 538.5 2004......................................... 39.7 5.2 503.1 Thereafter................................... 37.1 5.2 1,911.3 ------ ----- -------- Total.................................... $249.0 $32.8 $4,856.3 ====== ===== ========
The components of the net investment in sales-type leases are as follows:
(Dollars in Millions) 1999 1998 --------------------- ------ ------ Total minimum lease payments............................... $249.0 $301.9 Less unearned interest income and allowance for doubtful accounts.................................................. 81.1 106.0 ------ ------ Total net investment in sales-type leases.................. 167.9 195.9 Less current portion....................................... 21.8 22.5 ------ ------ Total.................................................. $146.1 $173.4 ====== ======
In 1996 and 1992, Hughes entered into sale-leaseback agreements for certain satellite transponders with other companies, including General Motors Acceptance Corporation ("GMAC"), a subsidiary of GM. Deferred gains from these sale-leaseback agreements are amortized over the expected term of the leaseback period. In 1998, PanAmSat exercised certain early buy-out options and repurchased a portion of the leased transponders for a total payment of $155.5 million. In 1999, PanAmSat exercised early buy-out options for the remaining transponders for $245.4 million in cash and $124.1 million of assumed debt. As a result of the above transactions, no deferred amounts remain outstanding at December 31, 1999. Note 5: Intangible Assets At December 31, 1999 and 1998, Hughes had $6,642.3 million and $3,184.6 million, respectively, of goodwill, net of accumulated amortization. Goodwill is amortized over 10 to 40 years. Hughes also had, net of accumulated amortization, $763.7 million and $1.3 million of intangible assets at December 31, 1999 and 1998, respectively, which are amortized over 2 to 40 years. Intangible assets consist mainly of FCC licenses, customer lists and dealer networks. Note 6: Investments Hughes has various investments that are accounted for under the equity method of accounting. Under the equity method of accounting, the investment is recorded at cost and adjusted for the appropriate share of the net earnings or losses of the investee. Investee losses are recorded up to the amount of the investment plus advances and loans made to the investee, and financial guarantees made on behalf of the investee. Aggregate investments in affiliated companies, including advances and loans, accounted for under the equity method at December 31, 1999 and 1998, amounted to $317.4 million and $57.1 million, respectively. Of these amounts, approximately $232.1 million and $55.9 million at December 31, 1999 and 1998, respectively, represent the investment in A-12 HUGHES ELECTRONICS CORPORATION Note 6: Investments--Concluded DIRECTV Japan, net of accumulated losses of $237.6 million and $102.7 million as of December 31, 1999 and 1998, respectively. Hughes' pre-tax share of losses of investees is disclosed in Note 13, Other Income and Expenses. Investments in marketable equity securities stated at current fair value and classified as available-for-sale totaled $1,025.2 million and $486.0 million at December 31, 1999 and 1998, respectively. Accumulated unrealized holding gains, net of taxes, recorded as part of accumulated other comprehensive income (loss), a separate component of stockholder's equity, were $466.0 million and $16.1 million as of December 31, 1999 and 1998, respectively. Note 7: Accrued Liabilities and other
(Dollars in Millions) 1999 1998 --------------------- ------ ------ Payroll and other compensation................................ $157.2 $ 93.5 Contract-related provisions................................... 82.3 38.5 Provision for consumer finance and rebate programs............ 107.3 93.0 Programming contract liabilities.............................. 82.6 -- Other......................................................... 464.6 229.3 ------ ------ Total..................................................... $894.0 $454.3 ====== ======
Included in other liabilities and deferred credits are long-term programming contract liabilities which totaled $627.1 million at December 31, 1999. Note 8: Short-Term Borrowings and Long-Term Debt Short-Term Borrowings In October 1999, Hughes issued $500.0 million ($498.9 million net of unamortized discount) of floating rate notes in a private placement with a group of institutional investors. The notes bear interest at a variable rate which was 7.45% at December 31, 1999. Interest is payable quarterly and the notes are due and payable on October 23, 2000. Long-Term Debt
Interest Rates at (Dollars in Millions) December 31, 1999 1999 1998 --------------------- ----------------- -------- ------ Notes payable............................. 6.00%-6.875% $ 874.1 $750.0 Revolving credit facilities............... 6.77%- 7.10% 727.9 155.9 Other debt................................ 11.69%-12.29% 40.5 28.9 ------------- -------- ------ Total debt................................ 1,642.5 934.8 Less current portion...................... 56.5 156.1 -------- ------ Total long-term debt.................. $1,586.0 $778.7 ======== ======
Notes payable. PanAmSat issued five, seven, ten and thirty-year notes totaling $750.0 million in January 1998. The outstanding principal balances and interest rates for the five, seven, ten and thirty-year notes as of December 31, 1999 were $200 million, $275 million, $150 million and $125 million, respectively. Principal on the notes is payable at maturity, while interest is payable semi-annually. In July 1999, in connection with the early buy-out of satellite sale- leasebacks, PanAmSat assumed $124.1 million of variable rate notes, all of which were outstanding at December 31, 1999. The notes mature on various dates through January 2, 2002. A-13 HUGHES ELECTRONICS CORPORATION Note 8: Short-Term Borrowings and Long-Term Debt--Concluded Revolving credit facilities. Hughes has three unsecured revolving credit facilities totaling $1.6 billion, consisting of a $750.0 million multi-year facility, a $350.0 million 364-day facility, and a $500.0 million bridge facility. The multi-year credit facility provides for a commitment of $750.0 million through December 5, 2002. The 364-day facility provides for a commitment of $350.0 million through November 22, 2000. These facilities also provide backup capacity for Hughes' commercial paper program. The bridge facility provides for a commitment of $500.0 million through the earlier of November 22, 2000 or the receipt of proceeds from the issuance of any debt securities of Hughes in a public offering. $500.0 million was outstanding under the multi-year facility at December 31, 1999. No amounts were outstanding under the commercial paper program, 364-day, or bridge facilities at December 31, 1999. Each of Hughes' credit facilities contain covenants that Hughes must comply with. The covenants require Hughes to maintain a minimum level of consolidated net worth and not exceed certain specified ratios. At December 31, 1999, Hughes was in compliance with all such covenants. PanAmSat maintains a $500.0 million multi-year revolving credit facility that provides for short-term and long-term borrowings and a $500.0 million commercial paper program that provides for short-term borrowings. The multi- year revolving credit facility provides for a commitment through December 24, 2002. Borrowings under the credit facility and commercial paper program are limited to $500.0 million in the aggregate. No amounts were outstanding under either the multi-year revolving credit facility or the commercial paper program at December 31, 1999. At December 31, 1999, Hughes' 75% owned subsidiary, SurFin Ltd. ("SurFin"), had a total of $227.9 million outstanding under a $400.0 million unsecured revolving credit facility expiring in June 2002. Other. At December 31, 1999, Galaxy Latin America, LLC's ("GLA") 100% owned subsidiary, Galaxy Brasil, Ltda. ("GLB"), had a total of $24.3 million outstanding under variable rate notes payable in varying amounts at maturity in April and May 2002. Other long-term debt at December 31, 1999 and 1998 consisted primarily of notes that are payable at maturity in April 2007. As part of a debt refinancing program undertaken by PanAmSat in 1997, an extraordinary charge of $20.6 million ($34.4 million before taxes) was recorded that resulted from the excess of the price paid for the debt over its carrying value, net of deferred financing costs. Hughes has filed a shelf registration statement with the Securities and Exchange Commission with respect to an issuance of up to $2.0 billion of debt securities from time to time. No amounts have been issued as of December 31, 1999. The aggregate maturities of long-term debt for the five years subsequent to December 31, 1999 are $56.5 million in 2000, $21.2 million in 2001, $798.8 million in 2002, $200.0 million in 2003 and $566.0 million in 2005 and thereafter. Note 9: Income Taxes The provision for income taxes is based on reported income from continuing operations before income taxes, minority interests, extraordinary item and cumulative effect of accounting change. Deferred income tax assets and liabilities reflect the impact of temporary differences between the amounts of assets and liabilities recognized for financial reporting purposes and such amounts recognized for tax purposes, as measured by applying currently enacted tax laws. A-14 HUGHES ELECTRONICS CORPORATION Note 9: Income Taxes--Continued Hughes and former Hughes (prior to December 18, 1997), and their domestic subsidiaries join with General Motors in filing a consolidated U.S. federal income tax return. The portion of the consolidated income tax liability or receivable recorded by Hughes is generally equivalent to the amount that would have been recorded on a separate return basis. Prior to December 18, 1997, income tax expense was allocated to Hughes as if Hughes filed a separate income tax return. The income tax provision (benefit) consisted of the following:
(Dollars in Millions) 1999 1998 1997 --------------------- ------- ------- ------ Taxes currently payable (refundable): U.S. federal...................................... $(406.5) $(201.9) $(51.9) Foreign........................................... 30.1 15.9 9.5 State and local................................... (24.2) (36.5) 7.7 ------- ------- ------ Total......................................... (400.6) (222.5) (34.7) ------- ------- ------ Deferred tax liabilities (assets): U.S. federal...................................... 185.0 50.8 181.9 State and local................................... (21.3) 29.4 14.8 ------- ------- ------ Total......................................... 163.7 80.2 196.7 ------- ------- ------ Total income tax provision (benefit).............. $(236.9) $(142.3) $162.0 ======= ======= ======
Income (loss) from continuing operations before income taxes, minority interests, extraordinary item and cumulative effect of accounting change included the following components:
(Dollars in Millions) 1999 1998 1997 --------------------- ------- ------- ------ U.S. income (loss)................................. $(519.0) $ (10.2) $415.3 Foreign loss....................................... (141.0) (93.0) (41.2) ------- ------- ------ Total.......................................... $(660.0) $(103.2) $374.1 ======= ======= ======
The combined income tax provision (benefit) was different than the amount computed using the U.S. federal statutory income tax rate for the reasons set forth in the following table:
(Dollars in Millions) 1999 1998 1997 --------------------- ------- ------- ------ Expected tax (refund) at U.S. federal statutory income tax rate.................................. $(231.0) $ (36.1) $131.0 Research and experimentation tax benefits and resolution of tax contingencies.................. (78.9) (172.9) (35.3) Foreign sales corporation tax benefit............. (13.6) (15.6) (13.0) U.S. state and local income taxes................. (29.5) (4.6) 14.6 Losses of equity method investees................. 60.3 36.7 25.3 Minority interests in losses of partnership....... 19.0 19.3 17.5 Non-deductible goodwill amortization.............. 31.0 20.0 9.7 Other............................................. 5.8 10.9 12.2 ------- ------- ------ Total income tax provision (benefit).......... $(236.9) $(142.3) $162.0 ======= ======= ======
A-15 HUGHES ELECTRONICS CORPORATION Note 9: Income Taxes--Continued Temporary differences and carryforwards which gave rise to deferred tax assets and liabilities at December 31 were as follows:
1999 1998 --------------------- -------------------- Deferred Deferred Deferred Deferred Tax Tax Tax Tax (Dollars in Millions) Assets Liabilities Assets Liabilities --------------------- -------- ----------- -------- ----------- Accruals and advances............. $ 106.1 $143.6 Sales and leasebacks.............. -- 65.4 Customer deposits, rebates and commissions...................... 44.1 $ 114.1 52.9 State taxes....................... 27.9 -- 38.8 Gain on PanAmSat merger........... -- 186.3 -- $191.1 Satellite launch insurance costs.. -- 136.8 -- 103.1 Depreciation and amortization..... -- 545.0 -- 437.5 Net operating loss and tax credit carryforwards.................... 287.3 -- 77.8 -- Programming contract liabilities.. 285.0 -- -- -- Unrealized gains on securities.... -- 318.6 -- 1.2 Write-off related to wireless product lines.................... 95.9 -- -- -- Other............................. 204.4 100.7 70.9 83.7 ------- -------- ------ ------ Subtotal.......................... 1,050.7 1,401.5 449.4 816.6 Valuation allowance............... (84.0) -- (64.2) -- ------- -------- ------ ------ Total deferred taxes.......... $ 966.7 $1,401.5 $385.2 $816.6 ======= ======== ====== ======
No income tax provision has been made for the portion of undistributed earnings of foreign subsidiaries deemed permanently reinvested that amounted to approximately $29.7 million and $18.5 million at December 31, 1999 and 1998, respectively. Repatriation of all accumulated earnings would have resulted in tax liabilities of $10.4 million in 1999 and $6.4 million in 1998. At December 31, 1999, Hughes has $84.0 million of deferred tax assets relating to foreign operating loss carryforwards expiring in varying amounts between 2000 and 2004. A valuation allowance was provided for all foreign operating loss carryforwards. At December 31, 1999, a Hughes subsidiary has $45.2 million of alternative minimum tax credits generated in separate filing years, which can be carried forward indefinitely. At December 31, 1999, Hughes' subsidiaries have $126.2 million of deferred tax assets relating to federal net operating loss carryforwards which will expire in varying amounts between 2009 and 2018. Hughes has $11.9 million of deferred tax assets relating to state net operating loss carryforwards which will expire in varying amounts between 2004 and 2018. Hughes also has $20 million of research and experimentation credits which will expire in 2019. Hughes has an agreement with Raytheon which governs Hughes' rights and obligations with respect to U.S. federal and state income taxes for all periods prior to the merger of Hughes Defense with Raytheon. Hughes is responsible for any income taxes pertaining to those periods prior to the merger, including any additional income taxes resulting from U.S. federal and state tax audits. Hughes is entitled to any U.S. federal and state income tax refunds relating to those years. The U.S. federal income tax returns of former Hughes have been examined through 1994. All years prior to 1986 are closed. Issues relating to the years 1986 through 1994 are being contested through various stages of administrative appeal. The Internal Revenue Service ("IRS") is currently examining former Hughes' U.S. federal tax returns for years 1995 through 1997. Management believes that adequate provision has been made for any adjustment which might be assessed for open years. A-16 HUGHES ELECTRONICS CORPORATION Note 9: Income Taxes--Concluded Hughes reached an agreement with the IRS regarding a claim for refund of U.S. federal income taxes related to the treatment of research and experimentation costs for the years 1983 through 1995. Hughes recorded a total of $172.9 million of research and experimentation tax benefits during 1998, a substantial portion of which related to the above noted agreement with the IRS and covered prior years. Hughes has taxes receivable from GM at December 31, 1999 and 1998, respectively, of approximately $610.6 million and $379.3 million of which $290.8 million and $45.1 million, respectively, are included in prepaid expenses and other in the balance sheets. Note 10: Retirement Programs and Other Postretirement Benefits Substantially all of Hughes' employees participate in Hughes' contributory and non-contributory defined benefit retirement plans. Benefits are based on years of service and compensation earned during a specified period of time before retirement. Additionally, an unfunded, nonqualified pension plan covers certain employees. Hughes also maintains a program for eligible retirees to participate in health care and life insurance benefits generally until they reach age 65. Qualified employees who elected to participate in the Hughes contributory defined benefit pension plans may become eligible for these health care and life insurance benefits if they retire from Hughes between the ages of 55 and 65. Prior to December 18, 1997, the pension related assets and liabilities and the postretirement benefit plans were maintained by former Hughes for its non- automotive businesses and were not included in the Hughes balance sheet. A portion of former Hughes' net pension expense and postretirement benefit cost was allocated to Hughes and is included in the Statements of Operations and Available Separate Consolidated Net Income (Loss). For 1997, the pension expense and post retirement benefit cost components were not determined separately for the Hughes participants. The 1997 information presented below is based on pro rata allocations from former Hughes for each pension and postretirement benefit component. A-17 HUGHES ELECTRONICS CORPORATION Note 10: Retirement Programs and Other Postretirement Benefits--Continued The components of the pension benefit obligation and the other postretirement benefit obligation, as well as the net benefit obligation recognized in the balance sheets, are shown below:
Other Pension Postretirement Benefits Benefits -------------- ---------------- (Dollars in Millions) 1999 1998 1999 1998 - --------------------- ------ ------ ------- ------- Change in Benefit Obligation Net benefit obligation at beginning of year.. $341.8 $316.4 $ 24.7 $ 19.5 Service cost................................. 14.5 13.6 0.6 0.5 Interest cost................................ 23.9 22.5 1.5 1.2 Plan participants' contributions............. 3.0 3.0 -- -- Actuarial (gain) loss........................ (31.3) 17.1 (2.7) 5.1 Benefits paid................................ (34.2) (30.8) (1.3) (1.6) ------ ------ ------- ------- Net benefit obligation at end of year........ 317.7 341.8 22.8 24.7 ------ ------ ------- ------- Change in Plan Assets Fair value of plan assets at beginning of year........................................ 346.6 337.0 -- -- Actual return on plan assets................. 69.6 30.3 -- -- Employer contributions....................... 3.0 4.3 (1.3) (1.6) Plan participants' contributions............. 3.0 3.0 -- -- Benefits paid................................ (34.2) (30.8) 1.3 1.6 Transfers.................................... 2.1 2.8 -- -- ------ ------ ------- ------- Fair value of plan assets at end of year..... 390.1 346.6 -- -- ------ ------ ------- ------- Funded status at end of year................. 72.4 4.8 (22.8) (24.7) Unamortized amount resulting from changes in plan provisions........................ (0.4) 1.9 -- -- Unamortized net amount resulting from changes in plan experience and actuarial assumptions............................... (38.7) 26.7 (1.4) 0.7 ------ ------ ------- ------- Net amount recognized at end of year......... $ 33.3 $ 33.4 $ (24.2) $ (24.0) ====== ====== ======= ======= Amounts recognized in the balance sheets consist of: Prepaid benefit cost....................... $ 43.0 $ 42.0 Accrued benefit cost....................... (24.6) (23.2) $ (24.2) $ (24.0) Intangible asset........................... 2.6 3.2 -- -- Deferred tax assets........................ 5.0 4.6 -- -- Accumulated other comprehensive loss....... 7.3 6.8 -- -- ------ ------ ------- ------- Net amount recognized at end of year......... $ 33.3 $ 33.4 $ (24.2) $ (24.0) ====== ====== ======= =======
Included in the pension plan assets at December 31, 1999 and 1998 are GM Class H common stock of $0.6 million and $0.4 million, GM $1 2/3 common stock of $0.3 million and $1.3 million and GMAC bonds of $0.5 million and $0.6 million, respectively.
Other Pension Postretirement Benefits Benefits ----------- ---------------- 1999 1998 1999 1998 ----- ----- ------- ------- Weighted-average assumptions as of December 31 Discount rate.................................... 7.75% 6.75% 7.50% 6.50% Expected return on plan assets................... 9.50% 9.50% N/A N/A Rate of compensation increase.................... 5.00% 5.00% N/A N/A
A-18 HUGHES ELECTRONICS CORPORATION Note 10: Retirement Programs and Other Postretirement Benefits--Concluded For measurement purposes, a 9.0% annual rate of increase per capita cost of covered health care benefits was assumed for 2000. The rate was assumed to decrease gradually 0.5% per year to 6.0% in 2006.
Other Postretirement Pension Benefits Benefits ------------------- --------------- (Dollars in Millions) 1999 1998 1997 1999 1998 1997 - -------------------- ----- ----- ----- ---- ---- ---- Components of net periodic benefit cost Benefits earned during the year.......... $14.5 $13.6 $11.4 $0.6 $0.5 $0.5 Interest accrued on benefits earned in prior years............................. 23.9 22.5 22.4 1.5 1.2 1.2 Expected return on assets................ (28.5) (26.3) (24.7) -- -- -- Amortization components Asset at date of adoption.............. -- (2.7) (3.0) -- -- -- Amount resulting from changes in plan provisions............................ 0.4 0.4 0.4 -- -- -- Net amount resulting from changes in plan experience and actuarial assumptions................. 4.7 2.7 2.0 -- (0.1) (0.2) ----- ----- ----- ---- ---- ---- Net periodic benefit cost................ $15.0 $10.2 $ 8.5 $2.1 $1.6 $1.5 ===== ===== ===== ==== ==== ====
The projected benefit obligation and accumulated benefit obligation for the pension plans with accumulated benefit obligations in excess of plan assets were $52.9 million and $42.4 million, respectively, as of December 31, 1999 and $49.8 million and $38.9 million, respectively, as of December 31, 1998. The pension plans with accumulated benefit obligations in excess of plan assets do not have any underlying assets. A one-percentage point change in assumed health care cost trend rates would have the following effects:
1-Percentage 1-Percentage (Dollars in Millions) Point Increase Point Decrease --------------------- -------------- -------------- Effect on total of service and interest cost components................................... $0.4 $(0.3) Effect on postretirement benefit obligation... 3.2 (2.8)
Hughes maintains 401(k) plans for qualified employees. A portion of employee contributions are matched by Hughes and amounted to $12.5 million, $10.6 million and $9.6 million in 1999, 1998 and 1997, respectively. Hughes has disclosed certain amounts associated with estimated future postretirement benefits other than pensions and characterized such amounts as "other postretirement benefit obligation." Notwithstanding the recording of such amounts and the use of these terms, Hughes does not admit or otherwise acknowledge that such amounts or existing postretirement benefit plans of Hughes (other than pensions) represent legally enforceable liabilities of Hughes. Note 11: Stockholder's Equity In connection with the Hughes Transactions, Hughes was recapitalized on December 17, 1997 at which time 1,000 shares of $1.00 par value common stock, representing all of the authorized and outstanding common stock of Hughes, were issued to GM. Prior to December 17, 1997, the equity of Hughes was comprised of Parent Company's net investment in its telecommunications and space business. A-19 HUGHES ELECTRONICS CORPORATION Note 11: Stockholder's Equity--Concluded The following represents changes in the components of accumulated other comprehensive income (loss), net of taxes, as of December 31:
1999 1998 1997 ----------------------- ----------------------- --------------------- Pre- Tax Pre- Tax Pre- tax (Credit) Net tax (Credit) Net tax Tax Net (Dollars in Millions) Amount Expense Amount Amount Expense Amount Amount Expense Amount - --------------------- ------ -------- ------ ------ -------- ------ ------ ------- ------ Minimum pension liability adjustments.. $ (0.8) $ (0.3) $ (0.5) $ (0.8) $(0.3) $(0.5) -- -- -- Foreign currency translation adjustments............ $ 11.0 -- $ 11.0 $ 3.8 -- $ 3.8 $0.6 -- $0.6 Unrealized gains on securities............. $767.3 $317.4 $449.9 $ 3.0 $ 1.2 $ 1.8 -- -- -- Reclassification adjustment for gains included in net income. -- -- -- $(11.8) $(4.7) $(7.1) -- -- --
Note 12: Incentive Plans Under the Hughes Electronics Corporation Incentive Plan ("the Plan"), as approved by the GM Board of Directors in 1999, shares, rights or options to acquire up to 77.6 million shares of GM Class H common stock on a cumulative basis were available for grant through December 31, 1999. The GM Executive Compensation Committee may grant options and other rights to acquire shares of GM Class H common stock under the provisions of the Plan. The option price is equal to 100% of the fair market value of GM Class H common stock on the date the options are granted. These nonqualified options generally vest over two to four years, expire ten years from date of grant and are subject to earlier termination under certain conditions. As part of the Hughes Transactions, the outstanding options of former Hughes employees who continued as Hughes employees were converted on December 18, 1997 into options to purchase recapitalized GM Class H common stock. Recognition of compensation expense was not required in connection with the conversion. Changes in the status of outstanding options were as follows:
Shares Under Weighted-Average GM Class H Common Stock Option Exercise Price ----------------------- ------------ ---------------- Outstanding at December 31, 1997............... 13,961,615 $29.08 Granted........................................ 4,180,525 51.02 Exercised...................................... (1,506,241) 23.22 Terminated..................................... (937,179) 31.79 ---------- ------ Outstanding at December 31, 1998............... 15,698,720 $35.32 Granted........................................ 5,004,275 48.23 Exercised...................................... (3,436,057) 29.84 Terminated..................................... (1,431,582) 40.46 ---------- ------ Outstanding at December 31, 1999............... 15,835,356 $39.84 ========== ======
A-20 HUGHES ELECTRONICS CORPORATION Note 12: Incentive Plans--Concluded The following table summarizes information about the Plan stock options outstanding at December 31, 1999:
Options Outstanding Options Exercisable -------------------------------------- -------------------------- Weighted- Average Remaining Range of Contractual Weighted- Weighted- Exercise Number Life Average Number Average Prices Outstanding (years) Exercise Price Exercisable Exercise Price - -------- ----------- ----------- -------------- ----------- -------------- $9.86 to $20.00 326,686 2.9 $15.06 326,686 $15.06 20.01 to 30.00 663,549 4.9 22.24 663,549 22.24 30.01 to 40.00 6,634,506 7.1 31.74 3,842,272 32.01 40.01 to 50.00 5,573,775 9.0 46.37 17,712 47.63 50.01 to 85.72 2,636,840 8.5 55.78 1,031,719 54.79 - -------- ---------- --- ------ --------- ------ $9.86 to $85.72 15,835,356 7.8 $39.84 5,881,938 $33.59 ======== ========== === ====== ========= ======
At December 31, 1999, 43.1 million shares were available for grant under the Plan subject to GM Executive Compensation Committee approval. On May 5, 1997, PanAmSat adopted a stock option incentive plan with terms similar to the Plan. As of December 31, 1999, PanAmSat had 3,455,832 options outstanding to purchase its common stock with exercise prices ranging from $29.00 per share to $59.75 per share. The options vest ratably over three to four years and have a remaining life ranging from seven years to nine years. At December 31, 1999, 439,420 options were exercisable at a weighted average exercise price of $36.46. The PanAmSat options have been considered in the following pro forma analysis. The following table presents pro forma information as if Hughes recorded compensation cost using the fair value of issued options on their grant date, as required by SFAS No. 123, Accounting for Stock Based Compensation:
(Dollars in Millions) 1999 1998 1997 --------------------- ------- ------ ------ Earnings (loss) used for computation of available separate consolidated net income (loss) as reported....................................... $(321.2) $271.7 $470.7 pro forma......................................... (384.9) 186.7 427.2
The pro forma amounts for compensation cost are not indicative of the effects on operating results for future periods. For stock options granted prior to the Hughes Transactions, the estimated compensation cost was based upon an allocation from former Hughes which was calculated using the Black-Scholes valuation model for estimation of the fair value of its options. The following table presents the estimated weighted- average fair value of options granted and the assumptions used for the 1999, 1998 and 1997 calculations (for 1998 and 1997, stock volatility was estimated based upon a three-year average derived from a study of a Hughes determined peer group):
1999 1998 1997 ------ ------ ------ Estimated fair value per option granted.............. $24.02 $22.78 $26.90 Average exercise price per option granted............ 48.23 51.02 31.71 Expected stock volatility............................ 38.0% 32.8% 32.5% Risk-free interest rate.............................. 5.2% 5.6% 5.9% Expected option life (in years)...................... 7.0 6.2 7.0
A-21 HUGHES ELECTRONICS CORPORATION Note 13: Other Income and Expenses
(Dollars in Millions) 1999 1998 1997 --------------------- ------- ------- ------ Equity losses from unconsolidated affiliates....... $(189.2) $(128.3) $(72.2) Gain on PanAmSat merger............................ -- -- 489.7 Gain from sale of common stock of an affiliate..... 39.4 -- -- Other.............................................. 13.5 (23.5) (28.9) ------- ------- ------ Total other, net............................... $(136.3) $(151.8) $388.6 ======= ======= ======
Equity losses from unconsolidated affiliates at December 31, 1999 are primarily comprised of losses at DIRECTV Japan, of which Hughes owns 42.2%, Hughes Ispat Limited, of which Hughes owns 45%, Galaxy Entertainment de Venezuela, C.A., of which Hughes owns 20% and American Mobile Satellite Corporation ("AMSC"). During the third quarter of 1999, AMSC issued new shares of its common stock, resulting in Hughes recording an increase in its investment in AMSC of $50.2 million with an offsetting adjustment to other comprehensive income (loss), a separate component of stockholder's equity. The issuance of the new shares diluted Hughes' ownership in AMSC to 14%. Since Hughes no longer exerted significant influence over AMSC's operations, the accounting for the AMSC investment was converted from the equity method to the cost basis of accounting. Note 14: Related-Party Transactions In the ordinary course of its operations, Hughes provides telecommunications services and sells electronic components to, and purchases sub-components from, related parties. The following table summarizes significant related-party transactions:
(Dollars in Millions) 1999 1998 1997 --------------------- ----- ----- ----- Revenues.................................................. $46.5 $40.5 $25.0 Costs and expenses Purchases............................................... 35.2 29.0 38.4 Allocation of corporate expenses........................ -- -- 57.9 Allocated interest...................................... -- -- 31.6
Note 15: Available Separate Consolidated Net Income (Loss) Holders of GM Class H common stock have no direct rights in the equity or assets of Hughes, but rather have rights in the equity and assets of GM (which includes 100% of the stock of Hughes). Amounts available for the payment of dividends on GM Class H common stock are based on the Available Separate Consolidated Net Income (Loss) ("ASCNI") of Hughes. The ASCNI of Hughes is determined quarterly and is equal to the separate consolidated net income (loss) of Hughes, excluding the effects of GM purchase accounting adjustments arising from GM's acquisition of Hughes and including the effects of preferred dividends paid and/or payable to GM (earnings (loss) used for computation of ASCNI), multiplied by a fraction, the numerator of which is equal to the weighted-average number of shares of GM Class H common stock outstanding during the period (124.7 million, 105.3 million and 101.5 million during 1999, 1998 and 1997, respectively) and the denominator of which is a number equal to the weighted-average number of shares of GM Class H common stock which, if issued and outstanding, would represent 100% of the tracking stock interest in the earnings of Hughes (Average Class H dividend base). The Average Class H dividend base was 418.5 million during 1999 and 399.9 million during 1998 and 1997. Upon conversion of the GM Series H preference stock into GM Class H common stock, both the numerator and the denominator used in the computation of ASCNI will increase by the number of shares of the GM Class H common stock issued (see further discussion in Note 16). In addition, the denominator used in determining the ASCNI of Hughes may be adjusted from time to time as deemed A-22 HUGHES ELECTRONICS CORPORATION Note 15: Available Separate Consolidated Net Income (Loss)--Concluded appropriate by the GM Board of Directors ("GM Board") to reflect subdivisions or combinations of the GM Class H common stock, certain transfers of capital to or from Hughes, the contribution of shares of capital stock of GM to or for the benefit of Hughes employees and the retirement of GM Class H common stock purchased by Hughes. The GM Board's discretion to make such adjustments is limited by criteria set forth in GM's Restated Certificate of Incorporation. In connection with the PRIMESTAR and USSB transactions (see further discussion in Note 17), GM contributed to Hughes an amount of cash sufficient to enable Hughes to purchase from GM, for fair value as determined by the GM Board, the number of shares of GM Class H common stock delivered by Hughes. In accordance with the GM certificate of incorporation, the Class H dividend base was increased to reflect that number of shares. The number of shares issued as part of the PRIMESTAR acquisition and the USSB merger have been included in the calculation of both the numerator and denominator of the fraction described above since the consummation dates of the transactions. Effective January 1, 1999, shares of Class H common stock delivered by GM in connection with the award of such shares to and the exercise of stock options by employees of Hughes increases the numerator and denominator of the fraction referred to above. Prior to January 1, 1999, the exercise of stock options did not affect the GM Class H dividend base (denominator). From time to time, in anticipation of exercises of stock options, Hughes purchases Class H common stock on the open market. Upon purchase, these shares are retired and therefore decrease the numerator and denominator of the fraction referred to above. Dividends may be paid on the GM Class H common stock only when, as, and if declared by GM's Board of Directors in its sole discretion. Dividends may be paid on GM Class H common stock to the extent of the amount initially determined to be available for the payment of dividends on GM Class H common stock, plus the portion of earnings of GM after the closing of the Hughes Transactions attributed to GM Class H common stock. The GM Board determined that the amount initially available for the payment of dividends on shares of the recapitalized GM Class H common stock was the cumulative amount available for the payment of dividends on GM Class H common stock immediately prior to the closing of the Hughes Transactions, reduced by a pro rata portion of the net reduction in GM's total stockholder's equity resulting from the Hughes Transactions. As of December 31, 1999, the amount available for the payment of dividends on GM Class H common stock was $5.4 billion. The GM Board does not currently intend to pay cash dividends on the recapitalized GM Class H common stock. Note 16: Hughes Series A Preferred Stock On June 24, 1999, as part of a strategic alliance with Hughes, America Online ("AOL") invested $1.5 billion in shares of GM Series H 6.25% Automatically Convertible Preference Stock ("GM Series H Preference Stock"). The GM Series H preference stock will automatically convert into GM Class H common stock in three years based upon a variable conversion factor linked to the GM Class H common stock price at the time of conversion, and accrues quarterly dividends at a rate of 6.25% per year. It may be converted earlier in certain limited circumstances. GM immediately invested the $1.5 billion received from AOL in shares of Hughes Series A Preferred Stock designed to correspond to the financial terms of the GM Series H preference stock. Dividends on the Hughes Series A Preferred Stock are payable to GM quarterly at an annual rate of 6.25%. These preferred stock dividends payable to GM will reduce Hughes' earnings used for computation of the ASCNI of Hughes, which will have an effect equivalent to the payment of dividends on the Series H preference stock as if those dividends were paid by Hughes. Upon conversion of the GM Series H preference stock into GM Class H common stock, Hughes will redeem the Series A Preferred Stock through a cash payment to GM equal to the fair market value of the GM Class H common stock issuable upon the conversion. Simultaneous with GM's receipt of the cash redemption proceeds, GM will make a capital contribution to Hughes of the same amount. In connection with this capital contribution, the denominator of the fraction used in the computation of the ASCNI A-23 HUGHES ELECTRONICS CORPORATION Note 16: Hughes Series A Preferred Stock--Concluded of Hughes will be increased by the corresponding number of shares of GM Class H common stock issued. Accordingly, upon conversion of the GM Series H preference stock into GM Class H common stock, both the numerator and denominator used in the computation of ASCNI will increase by the amount of the GM Class H common stock issued. Note 17: Acquisitions, Investments and Divestitures Acquisitions and Investments In September and November of 1999, DIRECTV Japan, Hughes' 42.2% owned affiliate, raised a total of approximately $281 million through the issuance of bonds, convertible into common stock, to five of its major shareholders, including $244.7 million issued to Hughes. On July 28, 1999, GLA acquired GLB, the exclusive distributor of DIRECTV services in Brazil, from Tevecap S.A. for approximately $114.0 million plus the assumption of debt. In connection with the transaction, Tevecap also sold its 10% equity interest in GLA to Hughes and The Cisneros Group of Companies, the remaining GLA partners, which increased Hughes' ownership interest in GLA to 77.8%. As part of the transaction, Hughes also increased its ownership interest in SurFin from 59.1% to 75.0%. The total consideration paid in the transactions amounted to approximately $101.1 million. On May 20, 1999, Hughes acquired by merger all of the outstanding capital stock of U.S. Satellite Broadcasting Company ("USSB"), a provider of premium subscription television programming via the digital broadcasting system that it shares with DIRECTV. The total consideration of approximately $1.6 billion paid in July 1999, consisted of approximately $0.4 billion in cash and 22.6 million shares of Class H common stock. On April 28, 1999, Hughes completed the acquisition of PRIMESTAR's 2.3 million subscriber medium-power direct-to-home satellite business. The purchase price consisted of $1.1 billion in cash and 4.9 million shares of Class H common stock, for a total purchase price of $1.3 billion. As part of the agreement to acquire PRIMESTAR, Hughes agreed to purchase the high-power satellite assets and related orbital frequencies of Tempo Satellite Inc., a wholly-owned subsidiary of TCI Satellite Entertainment Inc. The purchase price for the Tempo Satellite assets consisted of $500 million in cash. Of this purchase price, $150 million was paid on March 10, 1999 for a satellite that has not yet been launched and the remaining $350 million was paid on June 4, 1999 for an in-orbit satellite and 11 related satellite orbital frequencies. Hughes agreed, in connection with its acquisition of PRIMESTAR, to exit the medium-power business prior to May 1, 2001. Hughes formulated a detailed exit plan during the second quarter of 1999 and immediately began to migrate the medium-power customers to DIRECTV's high-power platform. Accordingly, Hughes accrued exit costs of $150 million in determining the purchase price allocated to the net assets acquired. The principal components of such exit costs include penalties to terminate assumed contracts and costs to remove medium- power equipment from customer premises. The timing of subscriber migration and exit of the medium-power business is currently estimated to occur by the end of 2000, but is subject to change pending final management determination, which could result in an adjustment to the amount of accrued exit costs. The amount of accrued exit costs remaining at December 31, 1999 was $123.9 million. In February 1999, Hughes acquired an additional ownership interest in Grupo Galaxy Mexicana, S.R.L. de C.V. ("GGM"), a Latin America local operating company which is the exclusive distributor of DIRECTV in Mexico, from Grupo MVS, S.R.L. de C.V. Hughes' equity ownership represents 49.0% of the voting equity and all of the non-voting equity of GGM. In October 1998, Hughes acquired from Grupo MVS an additional 10.0% interest in GLA, increasing Hughes' ownership interest to 70.0%. Hughes also acquired an additional 19.8% interest in SurFin, a company providing financing of subscriber receiver equipment for certain local operating A-24 HUGHES ELECTRONICS CORPORATION Note 17: Acquisitions, Investments and Divestitures--Continued companies located in Latin America and Mexico, increasing Hughes' ownership percentage from 39.3% to 59.1%. The aggregate purchase price for these transactions was $197.0 million in cash. In May 1998, Hughes purchased an additional 9.5% interest in PanAmSat for $851.4 million in cash, increasing its ownership interest in PanAmSat to 81.0%. PanAmSat was originally acquired in May 1997, when Hughes and PanAmSat completed the merger of their respective satellite service operations into a new publicly-held company, which retained the name PanAmSat Corporation. Hughes contributed its Galaxy satellite services business in exchange for a 71.5% interest in the new company. Existing PanAmSat stockholders received a 28.5% interest in the new company and $1.5 billion in cash. Such cash consideration and other funds required to consummate the merger were funded by new debt financing totaling $1,725.0 million borrowed from GM, which was subsequently repaid in December 1997. The PanAmSat merger was treated as a partial sale of the Galaxy business by Hughes and resulted in a one-time pre- tax gain of $489.7 million ($318.3 million after-tax). The financial information included herein reflects the acquisitions discussed above from their respective dates of acquisition. The acquisitions were accounted for by the purchase method of accounting and, accordingly, the purchase price has been allocated to the assets acquired and the liabilities assumed based on the estimated fair values at the date of acquisition. The excess of the purchase price over the estimated fair values of the net assets acquired has been recorded as goodwill, resulting in goodwill additions of $3,612.4 million and $702.9 million for the years ended December 31, 1999 and 1998, respectively. The December 31, 1999 financial statements reflect a preliminary allocation of the purchase price for the PRIMESTAR transaction based upon information currently available. Adjustments relating to the tangible assets, including equipment located on customer premises; intangible assets, including customer lists and dealer network; and accrued liabilities for programming contracts and leases with above-market rates are estimates pending the completion of independent appraisals currently in process. Additionally, the adjustment to recognize the benefit of net operating loss carryforwards of USSB represents a preliminary estimate pending further review and analysis by Hughes management. The foregoing appraisals, review and analysis are expected to be completed by March 31, 2000. Accordingly, the final purchase price allocations may be different from the amounts reflected herein. The following selected unaudited pro forma information is being provided to present a summary of the combined results of Hughes and USSB and PRIMESTAR for 1999 and 1998 as if the acquisitions had occurred as of the beginning of the respective periods, giving effect to purchase accounting adjustments. The pro forma data presents only significant transactions, is presented for informational purposes only and may not necessarily reflect the results of operations of Hughes had these companies operated as part of Hughes for each of the periods presented, nor are they necessarily indicative of the results of future operations. The pro forma information excludes the effect of non- recurring charges.
(Dollars in Millions) 1999 1998 --------------------- -------- -------- Total Revenues........................................... $6,350.3 $5,318.6 Income (loss) before extraordinary item and cumulative effect of accounting change............................. (297.1) 160.0 Net income (loss)........................................ (297.1) 150.8 Pro forma available separate consolidated net income (loss).................................................. (103.1) 53.4
Divestitures On January 13, 2000, Hughes announced that it had reached an agreement to sell its satellite systems manufacturing businesses to The Boeing Company ("Boeing") for $3.75 billion in cash. The final transaction, which is subject to regulatory approval, is expected to close in the second or third quarter of 2000. The financial A-25 HUGHES ELECTRONICS CORPORATION Note 17: Acquisitions, Investments and Divestitures--Concluded results for the satellite systems manufacturing businesses are treated as discontinued operations for all periods presented herein. On December 15, 1997, Hughes sold substantially all of the assets and liabilities of the Hughes Avicom business to Rockwell Collins, Inc. for cash, which resulted in an after-tax gain of $62.8 million. Hughes Avicom is treated as a discontinued operation for all periods prior to its disposition. Summarized financial information for the discontinued operations follows:
(Dollars in Millions) 1999 1998 1997 --------------------- -------- -------- -------- Revenues.......................................... $1,780.4 $2,483.3 $2,392.5 Income tax provision.............................. 42.9 97.6 74.7 Net income........................................ 99.8 196.4 170.6
Hughes also announced on January 13, 2000, the discontinuation of its mobile cellular and narrowband local loop product lines at Hughes Network Systems. As a result of this decision, Hughes recorded a fourth quarter 1999 pre-tax charge to continuing operations of $272.1 million. The charge represents the write-off of receivables and inventories, licenses, software and equipment with no alternative use. Also, in December 1997, Hughes repurchased from AT&T for $161.8 million, a 2.5% equity interest in DIRECTV, ending AT&T's marketing agreement to distribute the DIRECTV direct broadcast satellite television service and DIRECTV(TM) receiver equipment. Note 18: Derivative Financial Instruments and Risk Management In the normal course of business, Hughes enters into transactions that expose it to risks associated with foreign exchange rates. Hughes utilizes derivative instruments in an effort to mitigate these risks. Hughes' policy is to not enter into speculative derivative instruments for profit or execute derivative instrument contracts for which there are no underlying exposures. Instruments used as hedges must be effective at reducing the risk associated with the exposure being hedged and designated as a hedge at the inception of the contract. Accordingly, changes in market values of hedge instruments are highly correlated with changes in market values of the underlying transactions, both at the inception of the hedge and over the life of the hedge contract. Hughes primarily uses foreign exchange-forward contracts to hedge firm commitments denominated in foreign currencies. Foreign exchange-forward contracts are legal agreements between two parties to purchase and sell a foreign currency, for a price specified at the contract date, with delivery and settlement in the future. The total notional amounts of contracts afforded hedge accounting treatment at December 31, 1999 and 1998 were not significant. Hughes is exposed to credit risk in the event of non-performance by the counterparties to its foreign exchange-forward contracts. While Hughes believes this risk is remote, credit risk is managed through the periodic monitoring and approval of financially sound counterparties. Note 19: Segment Reporting Hughes' segments, which are differentiated by their products and services, include Direct-To-Home Broadcast, Satellite Services, and Network Systems. Direct-To-Home Broadcast is engaged in acquiring, promoting, selling and/or distributing digital entertainment programming via satellite to residential and commercial customers. Satellite Services is engaged in the selling, leasing and operating of satellite transponders and providing services for cable television systems, news companies, Internet service providers and private business networks. Network Systems is engaged in manufacturing DIRECTV receiver equipment and providing satellite wireless communications ground equipment and business communications services. Other includes the corporate office and other entities. A-26 HUGHES ELECTRONICS CORPORATION Note 19: Segment Reporting--Continued Selected information for Hughes' operating segments are reported as follows:
Direct- To-Home Satellite Network (Dollars in Millions) Broadcast Services Systems Other Eliminations Total - --------------------- --------- --------- -------- ------- ------------ -------- 1999 External Revenues....... $3,781.7 $ 673.6 $1,091.7 $ 13.3 -- $5,560.3 Intersegment Revenues... 3.3 137.0 293.0 2.5 $(435.8) -- -------- ------- -------- ------- ------- -------- Total Revenues.......... $3,785.0 $ 810.6 $1,384.7 $ 15.8 $(435.8) $5,560.3 -------- ------- -------- ------- ------- -------- Operating Profit (Loss). $ (292.1) $ 338.3 $ (227.3) $(143.8) $(103.1) $ (428.0) Depreciation and Amortization........... 312.0 280.5 49.2 20.8 (11.8) 650.7 Intangibles, net........ 4,308.5 2,368.6 46.9 682.0 -- 7,406.0 Segment Assets.......... 9,056.6 5,984.7 1,167.3 2,765.9 (377.5) 18,597.0 Capital Expenditures (1).................... 516.9 956.4 35.0 170.0 (13.0) 1,665.3 -------- ------- -------- ------- ------- -------- 1998 External Revenues....... $1,813.7 $ 643.8 $1,000.6 $ 22.5 -- $3,480.6 Intersegment Revenues... 2.4 123.5 76.1 1.4 $(203.4) -- -------- ------- -------- ------- ------- -------- Total Revenues.......... $1,816.1 $ 767.3 $1,076.7 $ 23.9 $(203.4) $3,480.6 -------- ------- -------- ------- ------- -------- Operating Profit (Loss). $ (228.1) $ 318.3 $ 10.9 $(114.2) $ (33.1) $ (46.2) Depreciation and Amortization........... 102.3 235.0 41.7 13.9 (5.0) 387.9 Intangibles, net........ -- 2,433.5 53.6 698.8 -- 3,185.9 Segment Assets.......... 2,190.4 5,890.5 1,299.0 3,470.6 (233.1) 12,617.4 Capital Expenditures (1).................... 230.8 921.7 40.0 3.3 133.0 1,328.8 -------- ------- -------- ------- ------- -------- 1997 External Revenues....... $1,276.9 $ 537.3 $ 998.3 $ 25.8 -- $2,838.3 Intersegment Revenues... -- 92.6 13.0 2.7 $(108.3) -- -------- ------- -------- ------- ------- -------- Total Revenues.......... $1,276.9 $ 629.9 $1,011.3 $ 28.5 $(108.3) $2,838.3 -------- ------- -------- ------- ------- -------- Operating Profit (Loss). $ (254.6) $ 292.9 $ 74.1 $ (63.7) $ (5.2) $ 43.5 Depreciation and Amortization........... 86.1 145.2 32.0 -- (3.0) 260.3 Intangibles, net........ -- 2,498.5 -- 63.6 -- 2,562.1 Segment Assets.......... 1,408.7 5,682.4 1,215.6 3,918.0 (83.2) 12,141.5 Capital Expenditures (1).................... 105.6 625.7 43.1 0.4 (62.1) 712.7 -------- ------- -------- ------- ------- --------
- -------- (1) Includes expenditures related to satellites in segments as follows: $136.0 million and $70.2 million in 1999 and 1998, respectively, for Direct-To- Home Broadcast segment; $532.8 million, $726.3 million and $606.1 million in 1999, 1998 and 1997, respectively, for Satellite Services segment. Satellite Services segment also includes $369.5 million and $155.5 million in 1999 and 1998, respectively, related to the early buy-out of satellite sale-leasebacks. A reconciliation of operating profit (loss) to income (loss) from continuing operations before income taxes, minority interests, extraordinary item and cumulative effect of accounting change, as shown in the Statement of Operations and Available Separate Consolidated Net Income (Loss), follows:
(Dollars in Millions) 1999 1998 1997 --------------------- ------- ------- ------ Operating profit (loss)........................... $(428.0) $ (46.2) $ 43.5 Interest income................................... 27.0 112.3 33.0 Interest expense.................................. (122.7) (17.5) (91.0) Other, net........................................ (136.3) (151.8) 388.6 ------- ------- ------ Income (loss) from continuing operations before income taxes, minority interests, extraordinary item and cumulative effect of accounting change.. $(660.0) $(103.2) $374.1 ======= ======= ======
A-27 HUGHES ELECTRONICS CORPORATION Note 19: Segment Reporting--Concluded The following table presents revenues earned from customers located in different geographic areas. Property is grouped by its physical location. All satellites are reported as United States assets.
1999 1998 1997 ------------------- ------------------- ------------------- Net Net Net Total Property & Total Property & Total Property & (Dollars in Millions) Revenues Satellites Revenues Satellites Revenues Satellites - --------------------- -------- ---------- -------- ---------- -------- ---------- North America United States......... $4,407.9 $4,891.8 $2,645.6 $3,830.6 $1,781.5 $3,178.6 Canada and Mexico..... 114.6 51.8 56.9 2.0 44.8 -- -------- -------- -------- -------- -------- -------- Total North America..... 4,522.5 4,943.6 2,702.5 3,832.6 1,826.3 3,178.6 -------- -------- -------- -------- -------- -------- Europe United Kingdom........ 175.2 10.5 111.3 14.1 25.8 10.4 Other................. 47.6 0.2 61.2 0.3 121.7 0.1 -------- -------- -------- -------- -------- -------- Total Europe............ 222.8 10.7 172.5 14.4 147.5 10.5 -------- -------- -------- -------- -------- -------- Latin America Brazil................ 157.7 151.1 150.9 4.6 102.1 -- Other................. 245.3 9.8 104.2 11.1 90.4 -- -------- -------- -------- -------- -------- -------- Total Latin America..... 403.0 160.9 255.1 15.7 192.5 -- -------- -------- -------- -------- -------- -------- Asia Japan................. 103.6 0.7 67.5 0.5 21.1 0.5 India................. 85.1 12.4 79.9 14.7 41.9 12.7 China................. 27.7 1.2 63.4 1.7 154.3 1.5 Other................. 108.5 0.5 65.5 0.6 359.9 0.4 -------- -------- -------- -------- -------- -------- Total Asia.............. 324.9 14.8 276.3 17.5 577.2 15.1 -------- -------- -------- -------- -------- -------- Total Middle East....... 11.9 -- 20.0 -- 47.2 -- Total Africa............ 75.2 0.3 54.2 0.3 47.6 -- -------- -------- -------- -------- -------- -------- Total............... $5,560.3 $5,130.3 $3,480.6 $3,880.5 $2,838.3 $3,204.2 ======== ======== ======== ======== ======== ========
Note 20: Commitments and Contingencies In connection with the 1997 spin-off of the defense electronics business of Hughes' predecessor as part of the Hughes restructuring transactions and the subsequent merger of that business with Raytheon Company, the terms of the merger agreement provided processes for resolving disputes that might arise in connection with post-closing financial adjustments that were also called for by the terms of the merger agreement. These financial adjustments might require a cash payment from Raytheon to Hughes or vice versa. A dispute currently exists regarding the post-closing adjustments which Hughes and Raytheon have proposed to one another and related issues regarding the adequacy of disclosures made by Hughes to Raytheon in the period prior to consummation of the merger. Hughes and Raytheon are proceeding with the dispute resolution process. It is possible that the ultimate resolution of the post-closing financial adjustment and of related disclosure issues may result in Hughes making a payment to Raytheon that would be material to Hughes. However, the amount of any payment that either party might be required to make to the other cannot be determined at this time. Hughes intends to vigorously pursue resolution of the disputes through the arbitration processes, opposing the adjustments proposed by Raytheon, and seeking the payment from Raytheon that Hughes has proposed. A-28 HUGHES ELECTRONICS CORPORATION Note 20: Commitments and Contingencies--Continued On June 3, 1999, the National Rural Telecommunications Cooperative ("NRTC") filed a lawsuit against DIRECTV, Inc. and Hughes Communications Galaxy, Inc., which Hughes refers to together in this description as "DIRECTV", in the U.S. District Court for the Central District of California, alleging that DIRECTV has breached the DBS Distribution Agreement with the NRTC. The DBS Distribution Agreement provides the NRTC with certain rights, in certain specified portions of the United States, with respect to DIRECTV programming delivered over 27 of the 32 frequencies at the 101(degrees) west longitude orbital location. The NRTC claims that DIRECTV has wrongfully deprived it of the exclusive right to distribute programming formerly provided by USSB over the other five frequencies at 101(degrees). DIRECTV denies that the NRTC is entitled to exclusive distribution rights to the former USSB programming because, among other things, the NRTC's exclusive distribution rights are limited to programming distributed over 27 of the 32 frequencies at 101(degrees). The NRTC's complaint seeks, in the alternative, the right to distribute former USSB programming on a non-exclusive basis and the recovery of related revenues from the date USSB was acquired by Hughes. DIRECTV maintains that the NRTC's right under the DBS Distribution Agreement is to market and sell the former USSB programming as its agent and the NRTC is not entitled to the claimed revenues. DIRECTV intends to vigorously defend against the NRTC claims. DIRECTV has also filed a counterclaim against the NRTC seeking a declaration of the parties' rights under the DBS Distribution Agreement. On August 26, 1999, the NRTC filed a second lawsuit against DIRECTV alleging that DIRECTV has breached the DBS Distribution Agreement. In this lawsuit, the NRTC is asking the court to require DIRECTV to pay the NRTC a proportionate share of unspecified financial benefits that DIRECTV derives from programming providers and other third parties. DIRECTV denies that it owes any sums to the NRTC on account of the allegations in these matters and plans to vigorously defend itself against these claims. Pegasus Satellite Television, Inc. and Golden Sky Systems, Inc., the two largest NRTC affiliates, filed an action on January 11, 2000 against DIRECTV in the U.S. District Court in Los Angeles. The plaintiffs allege, among other things, that DIRECTV has interfered with their contractual relationship with the NRTC. The plaintiffs plead that their rights and damages are derivative of the rights and claims asserted by the NRTC in its two cases against DIRECTV. The plaintiffs also allege that DIRECTV has interfered with their contractual relationships with manufacturers and distributors by preventing those parties from selling receiving equipment to the plaintiffs' dealers. DIRECTV denies that it has wrongfully interfered with any of plaintiffs' business relationships and will vigorously defend the lawsuit. Although an amount of loss, if any, cannot be estimated at this time, an unfavorable outcome could be reached in the NRTC and Pegasus litigation that could be material to Hughes' results of operations or financial position. General Electric Capital Corporation ("GECC") and DIRECTV, Inc. entered into a contract on July 31, 1995, in which GECC agreed to establish and manage a private label consumer credit program for consumer purchases of hardware and related DIRECTV programming. Under the contract, GECC also agreed to provide certain related services to DIRECTV, including credit risk scoring, billing and collections services. DIRECTV agreed to act as a surety for loans complying with the terms of the contract. Hughes guaranteed DIRECTV's performance under the contract. A complaint and counterclaim have been filed by the parties in the U.S. District Court for the District of Connecticut concerning GECC's performance and DIRECTV's obligation to act as a surety. GECC claims damages from DIRECTV in excess of $140 million. DIRECTV is seeking damages from GECC in excess of $45 million. Hughes intends to vigorously contest GECC's allegations and pursue its own contractual rights and remedies. Hughes does not believe that the litigation will have a material adverse impact on its results of operations or financial position. Pretrial discovery is completed. No specific trial date has been set, but a trial may be held in 2000. There is a pending grand jury investigation into whether Hughes should be accused of criminal violations of the export control laws arising out of the participation of two of its employees on a committee formed to review the findings of Chinese engineers regarding the failure of a Long March rocket in China in 1996. Hughes A-29 HUGHES ELECTRONICS CORPORATION Note 20: Commitments and Contingencies--Continued is also subject to the authority of the State Department to impose sanctions for non-criminal violations of the Arms Export Control Act. The possible criminal and/or civil sanctions could include fines as well as debarment from various export privileges and participating in government contracts. If Hughes were to enter into a settlement of this matter prior to the closing of the Boeing transaction that involves a debarment from sales to the U.S. government or a material suspension of Hughes' export licenses or other material limitation on projected business activities of the satellite systems manufacturing businesses, Boeing would not be obligated to complete the purchase of Hughes' satellite systems manufacturing businesses. Hughes does not expect the grand jury investigation or State Department review to result in a material adverse effect upon its business. Hughes Space and Communications International, a wholly owned subsidiary of Hughes Space and Communications Company, has certain contracts with ICO Global Communications Operations to build the satellites and related components for a global wireless communications system. Hughes owns approximately 2.6% of the equity in ICO's parent company (which Hughes has agreed to sell to Boeing as part of the sale of Hughes' satellite systems manufacturing businesses). On August 27, 1999, the ICO parent company filed for bankruptcy protection under Chapter 11 in U.S. Bankruptcy Court in Wilmington, Delaware. On December 3, 1999, the U.S. Bankruptcy Court in this case granted final approval of debtor- in-possession financing in the amount of $500 million to a group led by Craig McCaw, the Chairman of Teledesic LLC, a company establishing a global broadband Internet-in-the-Sky satellite communications network. In October 1999, McCaw and his group also agreed to provide an additional $700 million in financing upon the ICO parent's emergence from bankruptcy court protection, to the extent that this financing is not provided by other investors. This exit financing is expected to be completed in mid-2000, upon court approval and consummation of the ICO parent company reorganization plan. There can be no assurance when the consummation of the reorganization plan will occur or if the ICO parent company will be successful in confirming any plan of reorganization. If it is unable to do so the most likely outcome would be a liquidation proceeding. In the event that a liquidation becomes probable, Hughes would expect to record a pre-tax charge to income of up to approximately $350 million, of which $100 million would be attributable to continuing operations and $250 million would be attributable to discontinued operations. A portion of the purchase price to be paid by Boeing will be placed in escrow under certain circumstances if prior to completing this sale to Boeing, Hughes' contracts with ICO are not assumed by ICO with bankruptcy court approval or new similar contracts are not entered into with bankruptcy court approval. At December 31, 1999, minimum future commitments under noncancelable operating leases having lease terms in excess of one year are primarily for real property and aggregated $250.8 million, payable as follows: $102.8 million in 2000, $52.3 million in 2001, $24.2 million in 2002, $17.8 million in 2003, $12.5 million in 2004 and $41.2 million thereafter. Certain of these leases contain escalation clauses and renewal or purchase options. Rental expenses under operating leases, net of sublease rental income, were $58.5 million in 1999, $82.7 million in 1998 and $89.1 million in 1997. Hughes is contingently liable under standby letters of credit and bonds in the amount of $222.0 million at December 31, 1999. In Hughes' past experience, no material claims have been made against these financial instruments. In addition, at December 31, 1999 Hughes has guaranteed up to $209.1 million of bank debt, including $105.0 million related to American Mobile Satellite Corporation. Of the bank debt guaranteed, $105.0 million matures in March 2003; $55.4 million matures in September 2007; the remaining $48.7 million is due in variable amounts over the next five years. In connection with the DTH broadcast businesses, Hughes has commitments related to certain programming agreements which are variable based upon the number of underlying subscribers and market penetration rates. Minimum payments over the terms of applicable contracts are anticipated to be approximately $1,000.0 million to $1,150 million. A-30 HUGHES ELECTRONICS CORPORATION Note 20: Commitments and Contingencies--Concluded As part of a marketing agreement entered into with AOL on June 21, 1999, Hughes committed to increase its sales and marketing expenditures over the next three years by approximately $1.5 billion relating to DirecPC/AOL-Plus, DIRECTV, DIRECTV/AOL TV and DirecDuo. Hughes is subject to various claims and legal actions which are pending or may be asserted against it. The aggregate ultimate liability of Hughes under these claims and actions was not determinable at December 31, 1999. In the opinion of Hughes management, such liability is not expected to have a material adverse effect on Hughes' results of operations or financial position. Note 21: Subsequent Events On March 1, 2000, Hughes announced that DIRECTV Japan's operations will be discontinued and that its subscribers would migrate to SkyPerfecTV, a company in Japan providing direct-to-home satellite broadcasting. As a result of this transaction, Hughes will acquire about a 6.8% interest in SkyPerfecTV, which is expected to complete an IPO during its fiscal year ending March 31, 2001. Hughes will be required to fund a substantial portion of the costs to be incurred over the next six to nine months to exit the DIRECTV Japan business. Hughes will accrue such exit costs during the first quarter of fiscal 2000. The first quarter charge will be offset by the fair value of the SkyPerfecTV interest received; however the amounts are not yet estimable. In addition, Hughes will continue to record its share of DIRECTV Japan's operating losses during fiscal 2000. EchoStar Communications Corporation and others commenced an action in the U.S. District Court in Colorado on February 1, 2000 against DIRECTV, Hughes Network Systems and Thomson Consumer Electronics, Inc. seeking, among other things, injunctive relief and unspecified damages, including treble damages, in connection with allegations that the defendants have entered into agreements with retailers and program providers and engaged in other conduct that violates the antitrust laws and constitutes unfair competition. DIRECTV believes that the complaint is without merit and intends to vigorously defend against the allegations raised. Although an amount of loss, if any, cannot be estimated at this time, an unfavorable outcome could be reached that could be material to Hughes' results of operations or financial position. A-31 [PROSPECTUS COVER GATEFOLD INSIDE BACK] Enterprise Services [Graphic descriptions starting at the upper right corner and moving clockwise: . Cameraman covering a soccer game . Circuit City store . Mobil gas station, with closeup of a person using a pay-at-pump unit . Wal-Mart store . People using a home computer . Person using the Internet] [Overlay graphic of a globe surrounded marks reflecting various satellite orbited positions] The Hughes/PanAmSat Satellite Fleet [PANAMSAT Logo] Satellite Distribution Services [HUGHES NETWORK SYSTEMS Logo] Broadband Services and Products Manually signed facsimile copies of the letter of transmittal will be accepted. The letter of transmittal, certificates for shares of $1 2/3 par value common stock and any other required documents should be sent or delivered by each holder of $1 2/3 par value common stock or his or her broker, dealer, commercial bank, trust company or other nominee to the exchange agent prior to the expiration date as set forth below. The Exchange Agent for the Exchange Offer is: Fleet National Bank If delivered by Mail, If delivered by Hand, to: to: If delivered by Overnight Courier, to: Securities Transfer & Fleet National Bank Attn: Corporate Actions Reporting Services, Inc. Fleet National Bank P.O. Box 9573 Attn: Corporate Actions Boston, MA 02205-9573 c/o Fleet National 40 Campanelli Drive Bank/EquiServe 100 William Street Braintree, MA 02184 Galleria New York, NY 10038 Attn: Delivery Window If by facsimile transmission: (For eligible institutions only) (781) 575-4826 Facsimile confirmation number (781) 575-4816 You may direct any questions and requests for assistance to the information agent or the dealer manager at their respective addresses and telephone numbers and locations listed below. You can obtain additional copies of this Offering Circular-Prospectus, the letter of transmittal and other exchange offer materials from the information agent or the dealer manager listed below. You may also contact your broker, dealer, commercial bank or trust company for assistance concerning the exchange offer. The Information Agent for the Exchange Offer is: Morrow & Co., Inc. 445 Park Avenue 5th Floor New York, New York 10022 (877) 816-5329 (Toll-Free) for calls in the United States (212) 754-8000 (Collect) for calls outside the United States The Dealer Manager for the Exchange Offer is: MORGAN STANLEY DEAN WITTER Call (212) 761-0039 PART II INFORMATION NOT REQUIRED IN PROSPECTUS Item 20. Indemnification of Directors and Officers of General Motors Delaware General Corporation Law Under Section 145 of the Delaware General Corporation Law, General Motors is empowered to indemnify its directors and officers in the circumstances therein provided. Certain portions of Section 145 are summarized below: Section 145(a) of the Delaware General Corporation Law provides that a corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation) by reason of the fact that such person is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe such person's conduct was unlawful. Section 145(b) of the Delaware General Corporation Law provides that a corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that such person is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys' fees) actually and reasonably incurred by such person in connection with the defense or settlement of such action or suit if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the corporation and except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation unless and only to the extent that the Delaware Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Delaware Court of Chancery or such other court shall deem proper. Section 145(c) of the Delaware General Corporation Law provides that to the extent that a director, officer, employee or agent of a corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in Section 145(a) and (b), or in defense of any claim, issue or matter therein, such person shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by such person in connection therewith. Section 145(d) of the Delaware General Corporation Law provides that any indemnification under Section 145(a) and (b) (unless ordered by a court) shall be made by the corporation only as authorized in the specific case upon a determination that indemnification of the director, officer, employee or agent is proper in the circumstances because such person has met the applicable standard of conduct set forth in Section 145(a) and (b). Such determination shall be made (1) by a majority vote of the directors who were not parties to such action, suit or proceeding, even though less than a quorum, or (2) if there are no such directors, or if such directors so direct, by independent legal counsel in a written opinion, or (3) by the stockholders. Section 145(e) of the Delaware General Corporation Law provides that expenses (including attorneys' fees) incurred by an officer or director in defending any civil, criminal, administrative or investigative action, II-1 suit or proceeding may be paid by the corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such director or officer to repay such amount if it shall ultimately be determined that such person is not entitled to be indemnified by the corporation as authorized in Section 145. Such expenses (including attorneys' fees) incurred by other employees and agents may be so paid upon such terms and conditions, if any, as the board of directors deems appropriate. Section 145(f) of the Delaware General Corporation Law provides that the indemnification and advancement of expenses provided by, or granted pursuant to, Section 145 shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any bylaw, agreement, vote of stockholders or disinterested directors or otherwise. Section 145(g) of the Delaware General Corporation Law provides that a corporation shall have the power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against such person and incurred by such person in any such capacity, or arising out of such person's capacity as such, whether or not the corporation would have the power to indemnify such person against such liability under Section 145. Restated Certificate of Incorporation, As Amended The GM Restated Certificate of Incorporation, as amended, provides that no director of General Motors shall be personally liable to General Motors or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to General Motors or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174, or any successor provision thereto, of the Delaware General Corporation Law, or (iv) for any transaction from which the director derived an improper personal benefit. By-Laws Under Article V of the GM By-Laws, General Motors shall indemnify and advance expenses to every director and officer (and to such person's heirs, executors, administrators or other legal representatives) in the manner and to the full extent permitted by applicable law as it presently exists, or may hereafter be amended, against any and all amounts (including judgments, fines, payments in settlement, attorneys' fees and other expenses) reasonably incurred by or on behalf of such person in connection with any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, in which such director or officer was or is made or is threatened to be made a party or is otherwise involved by reason of the fact that such person is or was a director, officer, employee, fiduciary or member of any other corporation, partnership, joint venture, trust, organization or other enterprise. General Motors shall not be required to indemnify a person in connection with such action, suit or proceeding initiated by such person if it was not authorized by the GM Board of Directors. General Motors shall pay the expenses of directors and officers incurred in defending any actions or proceeding in advance of its final disposition; provided, however, that the payment of expenses incurred by a director or officer in advance of the final disposition of the proceeding shall be made only upon receipt of an undertaking by the director or officer to repay all amounts advanced if it should be ultimately determined that the director or officer is not entitled to be indemnified under Article V of the GM By-Laws or otherwise. If a claim for indemnification or advancement of expenses by an officer or director under Article V of the GM By-Laws is not paid in full within ninety days after a written claim therefor has been received by General Motors, the claimant may file suit to recover the unpaid amount of such claim and, if successful in whole or in part, shall be entitled to be paid the expense of prosecuting such claim. In any such action General Motors shall have the burden of proving that the claimant was not entitled to the requested indemnification or advancement of expenses under applicable law. The rights conferred on any person by Article V of the GM By-Laws shall not be exclusive of any other rights which such person may have or hereafter acquire under any statute, provision of the GM Restated Certificate of Incorporation, as amended, or the GM By-Laws, agreement, vote of stockholders or disinterested directors or otherwise. II-2 Insurance General Motors is insured against liabilities which it may incur by reason of Article V of the GM By-Laws. In addition, directors and officers are insured, at GM's expense, against liabilities which might arise out of their employment and not be subject to indemnification under Article V of the GM By- Laws. Pursuant to a resolution adopted by the GM board on December 1, 1975, General Motors to the fullest extent permissible under law will indemnify, and has purchased insurance on behalf of, directors or officers of General Motors, or any of them, who incur or are threatened with personal liability, including expense, under ERISA or any amendatory or comparable legislation or regulation thereunder. Item 21. Exhibits and Financial Statement Schedules (a) Exhibits
Exhibit Number Description ------- ----------- 1.1 Form of Dealer Manager Agreement.** 1.2 Form of Marketing Manager Agreement.*** 3.1 Restated Certificate of Incorporation, as amended, filed as Exhibit 3(i) to the Current Report on Form 8-K of General Motors Corporation dated June 24, 1999, and Amendment to Article Fourth of the Certificate of Incorporation--Division III--Preference Stock, by reason of the Certificates of Designations filed with the Secretary of State of the State of Delaware on September 14, 1987 and the Certificate of Decrease filed with the Secretary of State of the State of Delaware on September 29, 1987 (pertaining to the six series of Preference Stock contributed to the General Motors pension trusts), incorporated by reference to Exhibit 19 to the Quarterly Report on Form 10-Q of General Motors Corporation for the quarter ended June 30, 1990 in the Form SE of General Motors Corporation dated August 6, 1990; as further amended by the Certificate of Designations filed with the Secretary of State of the State of Delaware on June 28, 1991 (pertaining to Series A Conversion Preference Stock), incorporated by reference to Exhibit 4(a) to Form S-8 Registration Statement No. 33-43744 in the Form SE of General Motors Corporation dated November 1, 1991; as further amended by the Certificate of Designations filed with the Secretary of State of the State of Delaware on December 9, 1991 (pertaining to Series B 9 1/8% Preference Stock), incorporated by reference to Exhibit 4(a) to Form S-3 Registration Statement No. 33-45216 in the Form SE of General Motors Corporation dated January 27, 1992; as further amended by the Certificate of Designations filed with the Secretary of State of the State of Delaware on February 14, 1992 (pertaining to Series C Convertible Preference Stock), incorporated by reference to Exhibit 3(a) to the Annual Report on Form 10-K of General Motors Corporation for the year ended December 31, 1991 in the Form SE of General Motors Corporation dated March 20, 1992; as further amended by the Certificate of Designations filed with the Secretary of State of the State of Delaware July 15, 1992 (pertaining to Series D 7.92% Preference Stock), incorporated by reference to Exhibit 3(a)(2) to the Quarterly Report on Form 10-Q of General Motors Corporation for the quarter ended June 30, 1992 in the Form SE of General Motors Corporation dated August 10, 1992; and as further amended by the Certificate of Designations filed with the Secretary of State of the State of Delaware on December 15, 1992 (pertaining to Series G 9.12% Preference Stock), incorporated by reference to Exhibit 4(a) to Form S-3 Registration Statement No. 33-49309 in the Form SE of General Motors Corporation dated January 25, 1993, as further amended by the Certificate of Designations filed with the Secretary of State of the State of Delaware on June 24, 1999 (pertaining to Series H 6.25% Automatically Convertible Preference Stock), incorporated by reference to Exhibit 4(a) to Form S-8 Registration Statement No. 333-31846 in the Form SE of General Motors Corporation dated March 6, 2000.
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Exhibit Number Description ------- ----------- 3.2 By-Laws of General Motors Corporation, as amended, incorporated by reference to Exhibit 3(ii) to the Current Report on Form 8-K of General Motors Corporation dated March 2, 1998; as further amended, incorporated by reference to Exhibit 3(ii) to the Current Reports on Form 8-K of General Motors Corporation dated June 24, 1999, August 2, 1999 and March 6, 2000. 4.1 Specimen certificate for shares of Class H common stock.* 4.2 Form of Indenture relating to the $500,000,000 8 1/8% Debentures Due April 15, 2016 dated as of April 1, 1986 between General Motors Corporation and Citibank, N.A., Trustee, incorporated by reference to Exhibit 4 to Amendment No. 1 to Form S-3 Registration Statement No. 33-4452 and resolutions adopted by the Special Committee on April 15, 1986, incorporated by reference to Exhibit 4(a) to the Current Report on Form 8-K of General Motors Corporation, SEC file number 1-143, dated April 24, 1986. 4.3 Form of Indenture relating to the $700,000,000 9 5/8% Notes Due December 1, 2000 and the $1,400,000,000 Medium-Term Note Program dated as of November 15, 1990 between General Motors Corporation and Citibank, N.A., Trustee, incorporated by reference to Exhibit 4(a) to Form S-3 Registration Statement No. 33-37737. 4.4 Form of Indenture relating to the $377,377,000 7.75% Debentures Due March 15, 2036 dated as of December 7, 1995 between General Motors Corporation and Citibank, N.A., Trustee, filed as Exhibit 4(a) to Amendment No. 1 to Form S-3 Registration Statement No. 33- 64229. 4.5 Instruments defining the rights of holders of nonregistered debt of the Registrant have been omitted from this exhibit index because the amount of debt authorized under any such instrument does not exceed 10% of the total assets of the Registrant and its subsidiaries. The Registrant agrees to furnish a copy of any such instrument to the Commission upon request. 4.6 Amended and Restated Declaration of Trust of General Motors Capital Trust D, incorporated by reference to Exhibit 4(c)(i) to the Current Report on Form 8-K of General Motors Corporation dated July 1, 1997. 4.7 Amended and Restated Declaration of Trust of General Motors Capital Trust G, incorporated by reference to Exhibit 4(c)(ii) to the Current Report on Form 8-K of General Motors Corporation dated July 1, 1997. 4.8 Indenture between General Motors Corporation and Wilmington Trust Company, incorporated by reference to Exhibit 4(d)(i) to the Current Report on Form 8-K of General Motors Corporation dated July 1, 1997. 4.9 First Supplemental Indenture between General Motors Corporation and Wilmington Trust Company With Respect To The Series D Junior Subordinated Debentures, incorporated by reference to Exhibit 4(d)(ii) to the Current Report on Form 8-K of General Motors Corporation dated July 1, 1997. 4.10 Second Supplemental Indenture between General Motors Corporation and Wilmington Trust Company With Respect To The Series G Junior Subordinated Debentures, incorporated by reference to Exhibit 4(d)(iii) to the Current Report on Form 8-K of General Motors Corporation dated July 1, 1997. 4.11 Series D Preferred Securities Guarantee Agreement, General Motors Capital Trust D, incorporated by reference to Exhibit 4(g)(i) to the Current Report on Form 8-K of General Motors Corporation dated July 1, 1997. 4.12 Series G Preferred Securities Guarantee Agreement, General Motors Capital Trust G, incorporated by reference to Exhibit 4(g)(ii) to the Current Report on Form 8-K of General Motors Corporation dated July 1, 1997. 5 Opinion of Warren G. Andersen, Esq.** 8 Opinion of Kirkland & Ellis.** 10.1 General Motors 1997 Annual Incentive Plan, incorporated by reference to Exhibit B to the Proxy Statement of General Motors Corporation dated April 16, 1997.
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Exhibit Number Description ------- ----------- 10.2 General Motors 1997 Stock Incentive Plan, incorporated by reference to Exhibit B to the Proxy Statement of General Motors Corporation dated April 16, 1997. 10.3 General Motors 1997 Performance Achievement Plan, incorporated by reference to Exhibit B to the Proxy Statement of General Motors Corporation dated April 16, 1997. 10.4 Non-Employee Director Long-Term Stock Incentive Plan, incorporated by reference to Exhibit A to the Proxy Statement of General Motors Corporation, dated April 16, 1997. 21.1 Subsidiaries of GM, incorporated by reference to Exhibit 21 to the General Motors Corporation Form 10-K for the fiscal year ended December 31, 1999. 23.1 Consent of Deloitte & Touche LLP.** 23.2 Consent of KPMG LLP.** 23.3 Consent of KPMG LLP.** 23.4 Consent of Arthur Andersen LLP.** 23.5 Consent of Warren G. Andersen, Esq. (included in Exhibit 5). 23.6 Consent of Kirkland & Ellis (included in Exhibit 8). 24 Power of Attorney.* 99.1 Letter of Transmittal and Instructions to the Letter of Transmittal.** 99.2 Notice of Guaranteed Delivery.** 99.3 Letter to Brokers, Dealers, Commercial Banks, Trust Companies and other Nominees.** 99.4 Letter to Clients for use by Brokers, Dealers, Commercial Banks, Trust Companies and other Nominees.** 99.5 Guidelines for Certification of Taxpayer Identification Number of Substitute Form W-9.* 99.6 Letter from General Motors Corporation to holders of $1 2/3 par value common stock.** 99.7 Checklist For Participation in the Exchange Offer.** 99.8 Form of Information Agent Agreement.** 99.9 Form of Exchange Agent Agreement.** 99.10 Registration Rights Agreement, dated as of June 21, 1999, between General Motors Corporation and America Online, Inc.* 99.11 Purchase Agreement, dated as of June 21, 1999, by and among General Motors Corporation, Hughes Electronics Corporation and America Online, Inc.* 99.12 Registration Rights Agreement, dated as of April 28, 1999, between General Motors Corporation and PRIMESTAR, Inc.* 99.13 Stock Transfer Agreement, dated April 28, 1999, by and among General Motors Corporation, PRIMESTAR, Inc., TCI Satellite Entertainment, Inc. and Hughes Electronics Corporation.* 99.14 Form of Registration Rights Agreement, by and among General Motors Corporation and United States Trust Company of New York, as Trustee of the General Motors Hourly-Rate Employees Pension Plan and as a Trustee of a dedicated account within the General Motors Welfare Benefit Trust.** 99.15 Agreement and Plan of Merger among General Motors Corporation, Hughes Electronics Corporation and United States Satellite Broadcasting Company, Inc. dated December 11, 1998, incorporated by reference to Exhibit 2(a) to the Current Report on Form 8-K of General Motors Corporation filed December 17, 1998.
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Exhibit Number Description ------- ----------- 99.16 Shareholders Agreement dated December 11, 1998 among General Motors Corporation, Hughes Electronics Corporation, Hubbard Broadcasting, Inc., Stanley S. Hubbard, Stanley E. Hubbard and Robert W. Hubbard, incorporated by reference to Exhibit 2(b) to the Current Report on Form 8-K of General Motors Corporation filed December 17, 1998. 99.17 Asset Purchase Agreement among PRIMESTAR, Inc., PRIMESTAR Partners L.P., PRIMESTAR MDU, Inc., the stockholders of PRIMESTAR, Inc. and Hughes Electronics Corporation, dated as of January 22, 1999, incorporated by reference to Exhibit 99.1 to the Current Report on Form 8-K of General Motors Corporation filed February 2, 1999. 99.18 Asset Purchase Agreement among PRIMESTAR, Inc., PRIMESTAR Partners L.P., Tempo Satellite, Inc., the stockholders of PRIMESTAR, Inc. and Hughes Electronics Corporation, dated as of January 22, 1999, incorporated by reference to Exhibit 99.2 to the Current Report on Form 8-K of General Motors Corporation filed February 2, 1999. 99.19 Stock Purchase Agreement between The Boeing Company, Hughes Electronics Corporation and Hughes Telecommunications and Space Company for the purchase and sale of the outstanding capital stock of Hughes Space and Communications Company and certain additional outstanding capital stock, dated as of January 13, 2000, incorporated by reference to Exhibit 2.5 to the Annual Report on Form 10-K of Hughes Electronics Corporation for the fiscal year ended December 31, 1999. 99.20 Indenture by and between Hughes Electronics Corporation and The Bank of New York, as Trustee, dated October 22, 1999, incorporated by reference to Exhibit 4.2 to the Annual Report on Form 10-K of Hughes Electronics Corporation for the fiscal year ended December 31, 1999. 99.21 Form of Floating Rate Note, incorporated by reference to Exhibit 4.3 to the Annual Report on Form 10-K of Hughes Electronics Corporation for the fiscal year ended December 31, 1999. 99.22 Revolving Credit Agreement (364-day Facility), dated as of December 5, 1997 among Hughes Network Systems, Inc. to be renamed Hughes Electronics Corporation, the Banks named therein and Bank of America National Trust and Savings Association as Administrative Agent, Morgan Guaranty Trust Company of New York, as Syndication Agent, Citicorp US, Inc. and The Chase Manhattan Bank as Documentation Agents (the "364-day Facility"), incorporated by reference to Exhibit 10.1 to the Registration Statement on Form 10 of Hughes Electronics Corporation filed August 13, 1999. 99.23 First Amendment to the 364-day Facility, dated as of December 3, 1998, incorporated by reference to Exhibit 10.2 to the Registration Statement on Form 10 of Hughes Electronics Corporation filed August 13, 1999. 99.24 Revolving Credit Agreement (Multi-Year Facility), dated as of December 5, 1997 among Hughes Network Systems, Inc. to be renamed Hughes Electronics Corporation, the Banks named therein and Bank of America National Trust and Savings Association as Administrative Agent, Morgan Guaranty Trust Company of New York, as Syndication Agent, Citicorp USA, Inc. and The Chase Manhattan Bank as Documentation Agents (the "Multi-Year Facility"), incorporated by reference to Exhibit 10.3 to the Registration Statement on Form 10 of Hughes Electronics Corporation filed August 13, 1999. 99.25 First Amendment to the Multi-Year Facility, dated as of December 15, 1998, incorporated by reference to Exhibit 10.4 to the Registration Statement on Form 10 of Hughes Electronics Corporation filed August 13, 1999. 99.26 Second Amendment to the Multi-Year Facility, dated as of November 24, 1999, incorporated by reference to Exhibit 10.5 to the Annual Report on Form 10-K of Hughes Electronics Corporation for the fiscal year ended December 31, 1999.
II-6
Exhibit Number Description ------- ----------- 99.27 Credit Agreement, dated as of June 3, 1999 among SurFin Ltd., certain designated subsidiaries, the Banks named therein and Citicorp USA, Inc. as Administrative Agent, Bank of America NT & SA as Syndication Agent, Deutsche Bank A.G., New York and Cayman Islands Branches, as Documentation Agent, The Chase Manhattan Bank, the First National Bank of Chicago, Morgan Guaranty Trust Company of New York and Westdeutsche Landesbank Girozentrale, New York and Cayman Islands Branches, as Senior Managing Agents, incorporated by reference to Exhibit 10.6 to the Annual Report on Form 10-K of Hughes Electronics Corporation for the fiscal year ended December 31, 1999. 99.28 Revolving Credit Agreement (364-day Facility), dated as of November 24, 1999 among Hughes Electronics Corporation, the Banks named therein and Bank of America, N.A. as Administrative Agent, Citicorp USA, Inc. as Syndication Agent, Deutsche Bank A.G., New York Branch, as Documentation Agent (the "Revolving Credit Agreement--364-day Facility"), incorporated by reference to Exhibit 10.7 to the Annual Report on Form 10-K of Hughes Electronics Corporation for the fiscal year ended December 31, 1999. 99.29 First Amendment to Revolving Credit Agreement--364-day Facility, dated as of December 31, 1999, incorporated by reference to Exhibit 10.8 to the Annual Report on Form 10-K of Hughes Electronics Corporation for the fiscal year ended December 31, 1999. 99.30 Amended and Restated Revolving Credit Agreement (Multi-Year Facility), dated as of November 24, 1999 among Hughes Electronics Corporation, the Banks named therein and Bank of America, N.A. as Administrative Agent, Morgan Guaranty Trust Company of New York as Syndication Agent, Citicorp USA, Inc. and The Chase Manhattan Bank as Documentation Agents (the "Revolving Credit Agreement--Multi- Year Facility"), incorporated by reference to Exhibit 10.9 to the Annual Report on Form 10-K of Hughes Electronics Corporation for the fiscal year ended December 31, 1999. 99.31 First Amendment to Revolving Credit Agreement--Multi-Year Facility, dated as of December 31, 1999, incorporated by reference to Exhibit 10.10 to the Annual Report on Form 10-K of Hughes Electronics Corporation for the fiscal year ended December 31, 1999. 99.32 Revolving Credit Agreement (Bridge Facility), dated as of November 24, 1999 among Hughes Electronics Corporation, the Banks named therein and Bank of America, N.A., as Administrative Agent (the "Revolving Credit Facility--Bridge Facility"), incorporated by reference to Exhibit 10.11 to the Annual Report on Form 10-K of Hughes Electronics Corporation for the fiscal year ended December 31, 1999. 99.33 First Amendment to Revolving Credit Agreement--Bridge Facility, dated as of December 31, 1999, incorporated by reference to Exhibit 10.12 to the Annual Report on Form 10-K of Hughes Electronics Corporation for the fiscal year ended December 31, 1999. 99.34 DBS Distribution Agreement between Hughes Communications Galaxy, Inc. and National Rural Telecommunications Cooperative, dated April 10, 1992 (the "DBS Agreement"), incorporated by reference to Exhibit 10.5 to the Registration Statement on Form 10 of Hughes Electronics Corporation filed August 13, 1999.+ 99.35 Addendum I to the DBS Agreement, incorporated by reference to Exhibit 10.6 to the Registration Statement on Form 10 of Hughes Electronics Corporation filed August 13, 1999. 99.36 Amendment No. 1 to the DBS Agreement, dated May 11, 1992, incorporated by reference to Exhibit 10.7 to the Registration Statement on Form 10 of Hughes Electronics Corporation filed August 13, 1999. 99.37 Amendment No. 2 to the DBS Agreement, dated May 26, 1992, incorporated by reference to Exhibit 10.8 to the Registration Statement on Form 10 of Hughes Electronics Corporation filed August 13, 1999.
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Exhibit Number Description ------- ----------- 99.38 Amendment No. 3 to the DBS Agreement, Letter of Agreement, dated May 29, 1992, incorporated by reference to Exhibit 10.9 to the Registration Statement on Form 10 of Hughes Electronics Corporation filed August 13, 1999. 99.39 Amendment No. 4 to the DBS Agreement, dated December 1, 1992, incorporated by reference to Exhibit 10.10 to the Registration Statement on Form 10 of Hughes Electronics Corporation filed August 13, 1999. 99.40 Amendment No. 5 to the DBS Agreement, dated December 11, 1992, incorporated by reference to Exhibit 10.11 to the Registration Statement on Form 10 of Hughes Electronics Corporation filed August 13, 1999. 99.41 Amendment No. 6 to the DBS Agreement, dated December 23, 1992, incorporated by reference to Exhibit 10.12 to the Registration Statement on Form 10 of Hughes Electronics Corporation filed August 13, 1999. 99.42 Amendment No. 7 to the DBS Agreement, Letter of Agreement, dated July 9, 1993, incorporated by reference to Exhibit 10.13 to the Registration Statement on Form 10 of Hughes Electronics Corporation filed August 13, 1999. 99.43 Amendment No. 8 to the DBS Agreement, Letter of Agreement, dated February 14, 1994, incorporated by reference to Exhibit 10.14 to the Registration Statement on Form 10 of Hughes Electronics Corporation filed August 13, 1999.+ 99.44 Amendment No. 9 to the DBS Agreement, Letter of Agreement, dated June 22, 1994, incorporated by reference to Exhibit 10.15 to the Registration Statement on Form 10 of Hughes Electronics Corporation filed August 13, 1999. 99.45 Loan Agreement, dated May 15, 1997, between Hughes Network Systems, Inc. and PanAmSat Corporation, incorporated by reference to Exhibit 4.3 to the Current Report on Form 8-K of PanAmSat Corporation dated June 5, 1997. 99.46 First Amendment to Loan Agreement, dated December 23, 1997, incorporated by reference to Exhibit 4.3.2 to the Annual Report on Form 10-K of PanAmSat Corporation for the fiscal year ended December 31, 1997. 99.47 Subordination and Amendment Agreement, dated as of February 20, 1998, among Hughes Electronics Corporation, PanAmSat Corporation and Citicorp USA, Inc., as administrative agent, incorporated by reference to Exhibit 4.3.3 to the Annual Report on Form 10-K of PanAmSat Corporation for the fiscal year ended December 31, 1997. 99.48 Subordination Agreement, dated as of January 16, 1998, between Hughes Electronics and PanAmSat Corporation, incorporated by reference to Exhibit 4.3.4 to the Quarterly Report on Form 10-Q of PanAmSat Corporation for the quarter ended September 30, 1998. 99.49 Credit Agreement, dated February 20, 1998, among PanAmSat Corporation, certain lenders and Citicorp USA, Inc., as administrative agent, incorporated by reference to Exhibit 10.42 to the Annual Report on Form 10-K of PanAmSat Corporation for the fiscal year ended December 31, 1997.
- -------- *Filed previously. **Filed herewith. ***To be filed by amendment. +Confidential treatment received for certain portions of this exhibit pursuant to Rule 406 promulgated under the Securities Act. II-8 (b) Financial Statement Schedules Schedules have been omitted because the information required to be set forth therein is not applicable or is shown in the financial statements or notes thereto. Item 22. Undertakings. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrant pursuant to the provisions described in Item 20, or otherwise, the Registrant has been advised that in the opinion of the SEC, such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. The undersigned Registrant hereby undertakes to respond to requests for information that is incorporated by reference into the prospectus pursuant to Items 4, 10(b), 11 or 13 of this Form S-4, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of the registration statement through the date of responding to the request. The undersigned Registrant hereby further undertakes to supply by means of a post-effective amendment all information concerning a transaction and the company being acquired involved therein, that was not the subject of and included in the registration statement when it became effective. The undersigned Registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: (i) To include any prospectus required by Section 10(a)(3) of the Securities Act; (ii) To reflect in the prospectus any facts or events arising after the effective date of the Registration Statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the Registration Statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the SEC pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20 percent change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective Registration Statement; and (iii) To include any material information with respect to the plan of distribution not previously disclosed in the Registration Statement or any material change to such information in the registration statement. (2) That, for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. The undersigned Registrant hereby undertakes that, for purposes of determining any liability under the Securities Act, each filing of the Registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities II-9 Exchange Act of 1934, as amended (the "Exchange Act") (and, where applicable, each filing of an employee benefit plan's annual report pursuant to Section 15(d) of the Exchange Act) that is incorporated by reference in the Registration Statement shall be deemed to be a new Registration Statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide thereof. The undersigned Registrant hereby undertakes to deliver or cause to be delivered with the prospectus, to each person to whom the prospectus is sent or given, the latest annual report to security holders that is incorporated by reference in the prospectus and furnished pursuant to and meeting the requirements of Rule 14a-3 or Rule 14c-3 under the Exchange Act; and, where interim financial information required to be presented by Article 3 of Regulation S-X are not set forth in the prospectus, to deliver, or cause to be delivered to each person to whom the prospectus is sent or given, the latest quarterly report that is specifically incorporated by reference in the prospectus to provide such interim financial information. II-10 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Detroit, State of Michigan, on April 10, 2000. General Motors Corporation /s/ Warren G. Andersen By: _________________________________ Warren G. Andersen Assistant Secretary Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons on April 10, 2000 in the capacities indicated.
Signature Title --------- ----- * Chairman of the Board of ____________________________________ Directors and Chief John F. Smith, Jr. Executive Officer * Vice Chairman of the Board ____________________________________ of Directors Harry J. Pearce * President, Chief Operating ____________________________________ Officer and Director G. Richard Wagoner, Jr. * Executive Vice President and Principal ____________________________________ Chief Financial Officer Financial J. Michael Losh Officers * Vice President and Treasurer ____________________________________ Eric A. Feldstein
II-11 * Comptroller ) Principal ____________________________________ ) Accounting Wallace W. Creek ) Officers ) * Assistant Comptroller and ) ____________________________________ Chief Accounting Officer ) Peter R. Bible
* Director ____________________________________ John H. Bryan * Director ____________________________________ Thomas E. Everhart * Director ____________________________________ Charles T. Fisher, III * Director ____________________________________ George M.C. Fisher * Director ____________________________________ Nobuyuki Idei * Director ____________________________________ Karen L. Katen * Director ____________________________________ J. Willard Marriott, Jr. * Director ____________________________________ Eckhard Pfeiffer * Director ____________________________________ John G. Smale * Director ____________________________________ Louis W. Sullivan * Director ____________________________________ Dennis Weatherstone
* The undersigned, by signing his name hereto, does hereby execute this amendment to the registration statement on behalf of the officers and directors of the registrant listed above pursuant to the Powers of Attorney previously filed with the Commission. /s/ Warren G. Andersen - ------------------------------- Warren G. Andersen, Attorney in Fact II-12 EX-1.1 2 FORM OF DEALER MANAGER AGREEMENT Exhibit 1.1 DEALER MANAGER AGREEMENT _____ ___, 2000 Morgan Stanley & Co. Incorporated 1585 Broadway New York, NY 10036 Dear Sirs and Mesdames: 1. General. General Motors Corporation, a Delaware corporation (the "Company"), plans to make a tender offer (such tender offer, as it may be amended and supplemented, being the "Exchange Offer") for outstanding shares of the Company's Common Stock, par value $1-2/3 per share (the "Shares"), in exchange for shares of the Company's Class H Common Stock, par value $0.10 per share (the "Exchange Shares"), having an aggregate market value of up to about $9 billion at the time of commencement, on the terms and subject to the conditions set forth in the Exchange Offer Materials (as defined below). It is understood that the earnings per share and the amounts available for the payment of dividends of the Exchange Shares are determined by the financial performance of Hughes Electronics Corporation, a Delaware corporation and a wholly-owned subsidiary of the Company ("Hughes"). 2. Engagement as Dealer Manager. The Company hereby engages you as Dealer Manager in connection with the Exchange Offer. As Dealer Manager, you agree, in accordance with the Exchange Offer Materials and otherwise in accordance with your customary practice, to perform in connection with the Exchange Offer the services that are customarily performed by investment banking concerns in connection with similar tender offers, including, without limitation, soliciting the tender of Shares pursuant to the Exchange Offer and communicating generally regarding the Exchange Offer with brokers, dealers, commercial banks and trust companies and other persons, including the holders of Shares. You understand and agree that neither the Board of Directors of the Company nor the Board of Directors of Hughes is making any recommendation to holders of Shares as to whether to accept or participate in the Exchange Offer and therefore, as Dealer Manager, you will not be making any such recommendation. You further agree to be regarded as the broker-dealer that is making the Exchange Offer on behalf of the Company to holders of Shares in any state of the United States in which it is required that such offers be made by or through a registered or licensed broker-dealer, and you represent that you are a registered or licensed broker- dealer in each of such states. You have been engaged to act as sole Dealer Manager in connection with Exchange Offer and, in such capacity, you shall act as an independent contractor with duties solely to the Company. It is understood that Salomon Smith Barney has been appointed by Hughes as Marketing Manager for Hughes in the Exchange Offer (the "Marketing Manager") and you agree that you are not, and shall not be deemed to be, acting as an agent of the Company (other than in your capacity as Dealer Manager), Hughes or the Marketing Manager in connection with the Exchange Offer and that none of Hughes, the Marketing Manager or the Company shall be deemed to be acting as agent for you. 3. Solicitation of Tenders. You shall have no liability (in tort, contract or otherwise) to the Company or any other person related to the Company for any act or omission on the part of any securities broker or dealer (other than yourself), commercial bank or trust company that solicits tenders. In soliciting tenders, no securities broker or dealer, commercial bank or trust company shall be deemed to act as your agent of any other securities broker or dealer or of any commercial bank or trust company. 4. Exchange Offer Materials. (a) The Company has filed with the Securities and Exchange Commission (the "Commission") a registration statement on Form S-4 (File No. 333-30826) under the Securities Act of 1933, as amended (the "Securities Act"), in respect of the Exchange Shares and such registration statement and any post-effective amendment thereto has been declared effective by the Commission. The various parts of such registration statement, including all exhibits thereto and including the documents incorporated by reference into the prospectus contained in the registration statement at the time such part of the registration statement became effective, each as amended at the time such part of the registration became effective, are hereinafter called the "Registration Statement"; and the final prospectus, in the form included in the Registration Statement at the time it became effective, is hereinafter called the "Prospectus"; any reference herein to the Prospectus shall be deemed to refer to and include the documents incorporated by reference therein pursuant to Item 15 of Form S-4 under the Securities Act, as of the date of the Prospectus, as the case may be; and any reference to any amendment or supplement to the Prospectus shall be deemed to refer to and include any documents filed after the date of the Prospectus under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as of the date of such amendment or supplement, as the case may be, and incorporated by reference into the Prospectus. 2 (b) The Company agrees that not later than the Commencement Date (as defined herein) it will file with the Commission under the Exchange Act and the rules and regulations promulgated thereunder a Statement on Schedule TO with respect to the Exchange Offer (including the exhibits thereto and any documents incorporated by reference therein, and as amended from time to time, the "Schedule TO"). (c) Subject to the matters discussed in the Company's letter to the Commission in connection with the Exchange Offer dated , 2000, with respect to the jurisdictions set forth on Annex A (the "Foreign Jurisdictions"), the Company either is relying on a private placement or other similar exemption or exception under the securities laws of the applicable Foreign Jurisdiction or has filed, or agrees that it will file, with the applicable regulatory agencies for the Foreign Jurisdictions all materials and information in connection with the Exchange Offer as required to be filed by such jurisdictions and, in each case, in a manner consistent in all material respects with the Company's letter to the Commission in connection with the Exchange Offer dated , 2000. (d) The Prospectus and the related letter from the Company to brokers, securities dealers, commercial banks, trust companies and other nominees, letter to beneficial owners of the Shares, letter of transmittal to be used by holders tendering Shares pursuant to the Exchange Offer and the related instructions to the letter of transmittal (together, the "Letter of Transmittal"), notice of guaranteed delivery, and any newspaper announcements, press releases and other offering materials and information (including the materials and filings used in connection with paragraph (c) above) as the Company may use or prepare, approve or authorize for use in connection with the Exchange Offer, including the Schedule TO, each as amended or supplemented from time to time, are herein collectively referred to as the "Exchange Offer Materials". (e) The Company agrees to furnish or cause to be furnished to you as many copies as you may reasonably request upon reasonable notice to the Company of the Exchange Offer Materials to be furnished to security holders. The Company agrees that, a reasonable time prior to using, or filing with the Commission or with any other governmental or regulatory agency (each, an "Other Agency"), any of the Exchange Offer Materials, it will furnish to you copies of such material and will give reasonable consideration to your and your counsel's comments, if any, thereon. 3 5. Exchange Offer. (a) The Company intends to commence the Exchange Offer as soon as practicable after the execution and delivery hereof by mailing, or causing to be mailed on its behalf, copies of the Prospectus, the related Letter of Transmittal and such of the other Exchange Offer Materials as may be required or as the Company may elect to furnish to holders of record of the Shares (the date of the commencement of such distribution being herein called the "Commencement Date"). You understand and acknowledge that such mailing process is currently estimated to require four full days to complete. (b) The Company has approved the Exchange Offer Materials and authorizes you and any other securities dealer or any commercial bank or trust company you authorize to use the Exchange Offer Materials in connection with the solicitation of tenders in accordance with the terms and conditions of the Exchange Offer as described in the Exchange Offer Materials, and in accordance with all applicable legal requirements. Other than as provided for herein, you shall not have any right or obligation to cause any Exchange Offer Materials to be transmitted generally to the holders of the Shares. 6. Withdrawal. In the event that (i) the Company uses or permits the use of, or files with the Commission or any Other Agency, any Exchange Offer Materials (A) that have not been timely submitted to you previously for your and your counsel's comments or (B) that have been so submitted, and you have or your counsel has made material comments, but the Company has unreasonably failed to address such comments; (ii) the Company shall have breached, in any material respect, any of its representations, warranties, agreements or covenants herein; (iii) the Registration Statement shall not have become effective on or prior to the Commencement Date, or, at any time during the Exchange Offer prior to the expiration date thereof, a stop order suspending the effectiveness of the Registration Statement shall have been issued or a proceeding for that purpose shall have been instituted or shall be pending or threatened by the Commission, or a requirement by the Commission that additional information be provided shall not have been satisfied in all material respects; or there shall have been issued, at any time during the Exchange Offer, any temporary restraining order or injunction restraining or enjoining you from acting in your capacities as Dealer Manager, with respect to the Exchange Offer; (iv) Deloitte & Touche, independent public accountants to Hughes and to the Company, shall not have furnished to you on the Commencement Date, a letter dated the date of delivery thereof, in form and substance reasonably satisfactory to you and to Deloitte & Touche, containing statements and information of the type customarily included in accountants' 4 "comfort letters" with respect to the financial statements and certain financial information contained in or incorporated by reference into the Registration Statement or the Prospectus and confirming that they are independent accountants within the meaning of the Securities Act and the Exchange Act and the respective applicable rules and regulations thereunder adopted by the Commission; (v) the Exchange Shares shall not have received approval for listing on the New York Stock Exchange, provided, that this clause (v) shall not apply if the Exchange Shares have received approval for listing on the New York Stock Exchange subject only to official notice of issuance; (vi) on the Commencement Date you shall not have received a certificate of an executive officer of the Company dated as of the date of delivery thereof, to the effect that to the best of his knowledge, all representations and warranties of the Company contained herein are true and correct in all material respects as though expressly made at such time and the Company has performed in all material respects all of its obligations hereunder theretofore required to be performed as of such date; (vii) the "lock-up" agreements, each substantially in the form of Exhibit A hereto, between you and the senior executive officers of each of the Company and Hughes set forth on Exhibit A-1 relating to sales and certain other dispositions of shares of Class H Common Stock or certain other securities, shall not have been delivered to you and be in full force and effect on the Commencement Date; or (viii) a material adverse change, or any development that is reasonably likely to result in a material adverse change, has occurred in the condition of either (A) the Company and its subsidiaries, taken as a whole, or (B) Hughes and its subsidiaries taken as a whole, in each case, from that set forth in the Prospectus; then you shall be entitled, upon two business days' notice to the Company, to withdraw as Dealer Manager in connection with the Exchange Offer without any liability or penalty to you or any other Indemnified Person (as defined in Section 15 below) and without loss of any right to indemnification or contribution provided in Section 15 or to the payment of all fees and expenses payable under Sections 7 and 8 below which have accrued to the date of such withdrawal. 7. Fees. Pursuant to a letter agreement dated March 24, 2000 between the Company and you (the "Engagement Letter"), the Company has agreed, among other things, to compensate you for your services as Dealer Manager. You and the Company agree that $1.5 million of that compensation shall represent your fee for serving as Dealer Manager. 8. Reimbursement of Expenses, Etc. Whether or not any Shares are acquired pursuant to the Exchange Offer, the Company agrees (1) to reimburse all dealers and brokers (including yourselves), commercial banks, trust companies and nominees for their reasonable customary mailing and handling expenses incurred in forwarding the Exchange Offer Materials to their customers, in each case upon request made to the Company within a reasonable period of time after 5 the incurrence of such expenses, and (ii) to pay all other reasonable fees and expenses incurred in connection with the Exchange Offer, including without limitation, all expenses relating to the preparation, filing, printing, mailing and publishing of the Exchange Offer Materials, all reasonable fees and expenses of the Exchange Agent and the Information Agent (as each is defined in Section 9, subject to and in accordance with the Company's agreements with those parties). The Company agrees to reimburse your expenses as provided in the expense reimbursement provisions of the Engagement Letter. The foregoing provisions shall not apply to matters, including expenses, covered by Section 15 hereof. 9. The Exchange Agent and Information Agent. The Company has appointed, and authorizes you to communicate with, Fleet National Bank, in its capacity as exchange agent (the "Exchange Agent"), in connection with the Exchange Offer and Morrow & Co., Inc., in its capacity as information agent (the "Information Agent"), in connection with the Exchange Offer. The Company will arrange for the Exchange Agent to advise you daily as to the number of Shares which have been tendered and, if applicable, thereafter withdrawn pursuant to the Exchange Offer and, upon request, the names and addresses of the registered holders thereof. 10. Representations, Warranties and Certain Agreements of the Company. The Company represents and warrants to you, and agrees with you, that (except that the Company makes no representations or warranties as to you, any of your affiliates or any persons acting on your behalf): (a) The Company has the corporate power and authority to execute and deliver this Agreement, to perform its obligations hereunder and to consummate the Exchange Offer. (b) The Exchange Offer has been duly authorized by all necessary corporate action by the Company. (c) Each of this Agreement, the Engagement Letter and the Indemnity Letter (as defined herein) has been duly authorized, executed and delivered by the Company. (d) (i) The Registration Statement has become effective; no stop order suspending the effectiveness of the Registration Statement is in effect, and no proceedings for such purpose are pending before or, to its knowledge, threatened by the Commission; (ii) each document filed or to be filed pursuant to the Exchange Act and incorporated by reference into the Prospectus complied or will comply when so filed in all material respects with the Exchange Act and the rules and regulations of the 6 Commission thereunder, (iii) the Registration Statement, when it became effective, did not contain and, as amended or supplemented, if applicable, as of the effective date of any amendment or supplement, will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading; (iv) the Registration Statement and the Prospectus comply and, as amended or supplemented, if applicable, will comply in all material respects with all applicable requirements of the Securities Act and the rules and regulations of the Commission thereunder; and (v) the Prospectus, as of the date it bears, does not contain and, as amended or supplemented, if applicable (as of the date of such amendment or supplement), will not contain an untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, however, that no representation, warranty or agreement is made as to information relating to you furnished in writing by you or on your behalf specifically for inclusion in the Registration Statement or the Prospectus. (e) The Schedule TO, as originally filed and subsequently amended, and any amendments or supplements thereto and the information filed pursuant to Rule 425 of the Securities Act comply, or will comply, in all material respects with all applicable requirements of the Securities Act and the Exchange Act and the rules and regulations of the Commission thereunder; and none of the Schedule TO or any amendment or supplement thereto and the information filed pursuant to Rule 425 includes (as supplemented or amended, as applicable, and as of the date of filing or use of such information), or will include, any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, however, that no representation, warranty or agreement is made as to information relating to you furnished in writing by you or on your behalf specifically for inclusion in the Schedule TO or information filed pursuant to Rule 425. (f) The Company will accept Shares for exchange in accordance with and subject to the terms and conditions of the Exchange Offer; and the Company has caused the Exchange Agent to make appropriate arrangements with The Depository Trust Company and any other "qualified" registered securities depository to allow for the book-entry movement of exchanged Shares between depository participants and the Exchange Agent. 7 (g) No consent, approval, authorization or order of, or qualification with, any government body or agency is required in connection with the execution, delivery and performance of this Agreement, except such as have been obtained or as may be required by the securities or Blue Sky laws of the various states and the securities or other laws of applicable foreign jurisdictions in connection with the offer and sale of the Exchange Shares, except where the failure to obtain or make such consent, approval, authorization, order or qualification would not materially adversely affect the ability of the Company to execute, deliver and perform this Agreement. (h) Except as disclosed in the Prospectus, (i) the Exchange Offer and the execution and delivery of, and the consummation of the transactions contemplated in, this Agreement will comply in all material respects with all applicable requirements of law, including the Securities Act, the Exchange Act, the various state securities or "blue sky" laws and state "takeover" statutes (collectively, "State Statutes"), all applicable regulations of the Commission or any other governmental or regulatory agency and all applicable laws and regulations of all applicable foreign jurisdictions and (ii) the commencement and consummation by the Company of the Exchange Offer do not and will not require any consent, approval, authorization or permit of, filing with or notification to, the Commission or any other governmental or regulatory agency, except in each case (x) where the failure to comply with such laws and regulations and to obtain or make such consent, approval, authorization, or permit or other action or filing or notification would not materially adversely affect the ability of the Company to execute and deliver this Agreement or to consummate the Exchange Offer in accordance with its terms or to consummate the transactions contemplated by this Agreement or (y) for such consents, approvals, authorizations, or permits that have been granted and filings, notifications or any other appropriate action that have been made. (i) The Exchange Offer and the execution and delivery of, and the consummation of the transactions contemplated in, this Agreement do not and will not: (i) violate any provision of the certificate of incorporation or by-laws of the Company; (ii) result in a breach of any material agreement or other material instrument binding upon the Company or (iii) conflict with or violate in any material respect any judgment, order or decree of any governmental body, agency or court having jurisdiction over the Company, except in each case for any such conflicts, contraventions, violations, breaches or defaults which would not materially adversely affect the ability of the Company to execute and 8 deliver this Agreement or to consummate the Exchange Offer in accordance with its terms or to consummate the transactions contemplated by this Agreement. (j) The Exchange Shares to be issued by the Company pursuant to the terms of the Exchange Offer have been duly authorized and, when issued and delivered pursuant to the terms of the Exchange Offer, will be validly issued, fully paid and non-assessable, and the issuance of the Exchange Shares will not be subject to any preemptive or similar rights of any security holder of the Company. (k) The authorized capital stock of the Company, including the Class H common stock, conforms as to legal matters in all material respects to the description thereof contained in the Prospectus. 11. Opinions of Counsel. The following opinions have been delivered to you in a form reasonably satisfactory to you and your counsel: (a) Warren G. Andersen, Esq., Legal Staff of the Company, as to the matters set forth in Exhibit B. (b) Kirkland & Ellis, counsel to the Company, as to the matters set forth in Exhibit C. (c) Jennifer A. Smolker, Esq., Assistant General Counsel of Hughes, as to the matters set forth in Exhibit D. (d) Cleary, Gottlieb, Steen & Hamilton, special counsel to the Company, as to certain matters relating to the laws of specified foreign jurisdictions. (e) Osler, Hoskin & Harcourt, Canadian counsel to the Company, as to certain matters relating to the securities laws of certain provinces of Canada. (f) Davis Polk & Wardwell, counsel to the Dealer Manager, as to the matters agreed upon by you. 12. Covenants of the Company. (a) Until the consummation of the Exchange Offer, the Company will notify you, promptly after it receives notice thereof, (i) of the time when any post-effective amendment to the Registration Statement has 9 been filed or becomes effective, or any amendment or supplement to the Prospectus or any amendment to the Schedule TO or any amended or additional Exchange Offer Materials shall have been filed, (ii) of the receipt of any comments from the Commission relating to the Exchange Offer, (iii) of the issuance by the Commission of any stop order or of any order preventing or suspending the use of the Prospectus or any of the Exchange Offer Materials, (iv) of the suspension of the qualification of the Exchange Shares for offering in connection with the Exchange Offer in any jurisdiction, (v) of any request by the Commission to amend or supplement the Registration Statement, the Prospectus, the Schedule TO or the other Exchange Offer Materials or for additional information or (vi) of the institution or threatening of any proceedings for any such purpose. The Company will also inform you, promptly after it receives notice thereof (until the consummation of the Exchange Offer), of any litigation or other administrative proceeding with respect to the Exchange Offer. (b) The Company will cause all amendments and supplements of the Prospectus and the other Exchange Offer Materials filed with the Commission to be distributed to holders of the Shares as may be required by the Securities Act and the Exchange Act and the rules and regulations of the Commission thereunder. During the period referred to in the second sentence of paragraph (c) below, the Company will deliver to you, without charge, such number of copies of the Prospectus and the other Exchange Offer Materials (as supplemented or amended) as you may upon reasonable notice reasonably request. Before amending or supplementing the Registration Statement, the Prospectus, the Schedule TO or the other Exchange Offer Materials, or approving any other material for use in connection with the Exchange Offer, the Company will furnish you with a copy of each such proposed amendment or supplement or other material. (c) The Company will comply in all material respects with the applicable requirements of the Securities Act and the Exchange Act and the rules and regulations of the Commission thereunder in connection with the Exchange Offer and the transactions contemplated hereby. If at any time during the period when, in the opinion of your counsel, a Prospectus is required to be delivered by the Securities Act or the Exchange Act and the rules and regulations promulgated thereunder in connection with the Exchange Offer, any event shall occur as a result of which it is necessary to amend or supplement the Prospectus or any of the other Exchange Offer Materials in order to make the statements therein, in the light of the circumstances under which they were made when such Prospectus or other Exchange Offer Materials are delivered, not misleading, or if, in the opinion of your counsel, it shall be necessary for any other reason during 10 such period to amend or supplement the Registration Statement, the Schedule TO or the Prospectus or any of the other Exchange Offer Materials in order to comply in all material respects with applicable law, the Company will notify you and promptly prepare and furnish to you, at the Company's expense, and file with the Commission, if required, such amendment or supplement to the Prospectus or other Exchange Offer Materials, as may be necessary so that the statements in the Prospectus or the Exchange Offer Materials, as amended or supplemented, will not, in the light of the circumstances under which they were made when the Prospectus or the other Exchange Offer Materials are delivered, be misleading or so that the Registration Statement, the Prospectus, the Schedule TO or such other Exchange Offer Materials comply in all material respects with applicable law. (d) The Company will endeavor to qualify the Exchange Shares for offering and exchange under the securities or Blue Sky laws of such state jurisdictions as you shall reasonably request; provided that the Company will not be required to file a general consent to service of process, qualify as a foreign corporation or as a dealer in securities or subject itself to taxation in any such jurisdiction to the extent not otherwise required; and provided further that the Company will pay all expenses (including reasonable fees and disbursement of counsel) in connection therewith. (e) The Company will make generally available to its security holders as soon as practicable an earnings statement complying with Section 11(a) of the Securities Act and the rules and regulations of the Commission thereunder (including, at the option of the Company, Rule 158 under the Securities Act). (f) The Company shall promptly give you notice of any change of the expiration date of the Exchange Offer, or the occurrence of any event which would cause the Company to withdraw, rescind, modify or amend the Exchange Offer and of any consummation of the Exchange Offer. (g) Assuming that no Exchange Offer Materials are forwarded to beneficial holders located in those jurisdictions in which the Company conducts the Exchange Offer in reliance on a private placement or other similar exemption, the Company will comply in all material respects with all applicable securities rules, laws and regulations of the Foreign Jurisdictions and will conduct the Exchange Offer in a manner consistent 11 in all material respects with the terms of the Company's letter to the Commission in connection with the Exchange Offer dated , 2000. 13. Information Provided By Dealer Manager. The Company agrees and acknowledges that the only information relating to you and furnished or to be furnished by you or on your behalf for inclusion in the Registration Statement, the Prospectus, the Schedule TO or any of the other Exchange Offer Materials is the description of yourself and your relationship with the Company and Hughes to be included therein. 14. Lock-Up Arrangements. Neither the Company nor Hughes shall, without the prior written consent of the Dealer Manager, which consent shall not be unreasonably withheld, during the period commencing on the date hereof and ending 90 days after the date of the expiration of the Exchange Offer (the "Expiration Date") or such earlier date as the Exchange Offer may be abandoned, terminated or withdrawn, (i) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend, file a registration statement in respect of, or otherwise transfer or dispose of, directly or indirectly, any shares of Class H Common Stock or any securities convertible into or exercisable or exchangeable for Class H Common Stock, provided that this provision shall not apply to shares of the Company's Common Stock, par value $1-2/3 per share ("$1-2/3 Par Value Common Stock") or (ii) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the Class H Common Stock, whether any such transaction described in clause (i) or (ii) above is to be settled by delivery of Class H Common Stock or such other securities, in cash or otherwise. The foregoing sentence shall not apply to (A) the issuance of shares of Class H Common Stock to be exchanged for shares of $1-2/3 Par Value Common Stock pursuant to the Exchange Offer; (B) the issuance and contribution of the shares of Class H Common Stock by the Company to its voluntary employees' beneficiary association trust and its U.S. pension plan for hourly-rate employees; (C) the grant of options or warrants or restricted stock awards convertible into or exercisable for shares of Class H Common Stock pursuant to existing employee benefit plans, provided such options, warrants or awards are not exercisable and such units do not vest prior to the termination of the lock-up period referred to herein; (D) the issuance of shares of Class H Common Stock upon the exercise of an option or warrant or the conversion of a security outstanding on the date hereof of which the Dealer Manager has been advised in writing; (E) except as otherwise provided in (C), the issuance or transfer of shares of Class H Common Stock pursuant to the terms of existing employee benefit plans or dividend reinvestment plans of the Company or any subsidiary of the Company; (F) the issuance or transfer of shares of Class H Common Stock pursuant to the terms of any other agreement to issue shares of Class H Common 12 Stock (or any securities convertible into or exchangeable or exercisable for shares of Class H Common Stock) in effect on the date of the original filing of the Registration Statement; (G) the issuance of, or transactions involving, any securities of the Company other than Class H Common Stock, including, but not limited to, shares of $1-2/3 Par Value Common Stock; (H) the issuance of shares of Class H Common Stock to persons who become employees of Hughes as senior executive officers, provided such shares may not be sold or otherwise transferred by such senior executive officers prior to the termination of the lock-up period referred to herein; (I) any offer or sale of shares of Class H Common Stock (or securities convertible or exchangeable for such shares) as consideration in any merger, strategic alliance, consolidation, business combination or other similar transaction or in any acquisition by the Company or any subsidiary of the Company of the capital stock or a substantial portion of the assets of any other entity in a transaction that would, in each case, not constitute a "public offering" of such shares (or other such securities) within the meaning of the Securities Act, provided that the recipient of such shares (or such other securities) agrees in writing not to offer or sell such shares prior to the termination of the lock-up period referred to herein or (J) making any offer or sale of shares of Class H Common Stock (or securities convertible or exchangeable for such shares) as consideration in any merger, strategic alliance, consolidation, business combination or other similar transaction or in any acquisition by the Company or any subsidiary of the Company of the capital stock or a substantial portion of the assets of any other entity in a transaction that would, in each case, constitute a "public offering" of such shares (or other such securities) within the meaning of the Securities Act, provided that such entity and the officers, directors and affiliates of such entity that are the recipients of such shares (or such other securities) agree in writing not to offer or sell such shares prior to the termination of the lock-up period referred to herein and (K) the issuance of shares of Class H Common Stock to existing holders of such stock for the purposes of effecting the possible stock split referred to in the Prospectus. 15. Indemnification and Contribution; Settlement of Litigation; Release. (a) The provisions of the letter agreement dated , 2000 between the Company and you (the "Indemnity Letter") relating to indemnification and contribution, and to the settlement of claims and release of the Indemnified Persons (as defined in the Indemnity Letter) in the event of such settlement, are in full force and effect, and the Company agrees to indemnify and hold harmless you and the other Indemnified Persons, to contribute to amounts paid or payable by you and the other Indemnified Persons and to comply with such settlement and release provisions, in each case as provided in the Indemnity Letter. 13 (b) The Dealer Manager hereby agrees to indemnify and hold harmless the Company and Hughes, any director, officer, agent or employee of the Company or Hughes (the "Indemnitees") to the full extent lawful, from and against, and that the Indemnitees shall have no liability to you or your creditors or security holders for, any losses caused by any untrue statement or alleged untrue statement of any material fact in the Registration Statement, the Prospectus, the Schedule TO and information filed pursuant to Rule 425 or omitted statement of material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; provided, however, that this sentence shall only apply with respect to such statements and omissions that are made in such documents in reliance upon and in conformity with written information relating to you prepared by you or on your behalf and furnished by you or your behalf for inclusion in such document. 16. Full Force and Effect. The indemnification and contribution agreements contained in Section 15, the fee and expense reimbursement agreements contained in Sections 7 and 8, the representations, warranties and agreements contained in this Agreement and the waiver of the right to trial by jury contained in Section 25 shall remain operative and in full force and effect, regardless of (i) any failure to commence, or the withdrawal, termination, expiration or consummation of, the Exchange Offer or the termination or assignment of this Agreement, (ii) any investigation made by or on behalf of any Indemnified Person, (iii) any withdrawal by you pursuant the Section 6 and (iv) the completion of your services hereunder. 17. Severability. If any term of other provision of this Agreement is invalid, illegal or incapable of being enforced by and rule of law, or public policy, all other provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic and legal substance of the agreements contained herein is not affected in any manner adverse to any party. 18. Counterparts. This Agreement may be executed by the different parties hereto in one or more separate counterparts, each of which when executed shall be deemed an original, but all of which together shall constitute one and the same agreement. 19. Binding Effect. This Agreement shall be binding upon and inure solely to the benefit of each party hereto and the Indemnified Persons, and nothing in this Agreement, express or implied, is intended to or shall confer upon any other person any right, benefit or remedy. 14 20. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York applicable to contracts executed in and to be performed in that State. 21. Entire Agreement. This Agreement, the Engagement Letter and the Indemnity Letter constitute the entire agreement among the parties hereto with respect to the subject matter hereof and supersede all prior agreements and undertakings, both written and oral, among the parties, or any of them, with respect to the subject matter hereof. 22. Amendment. This Agreement may not be amended except in writing signed by each party to be bound thereby. 23. Notices. All notices and other communications required or permitted to be given under this Agreement shall be in writing and shall be deemed to have been duly given if delivered in person, by cable, telecopy, telegram or telex or by registered or certified mail (postage prepaid, return receipt requested) to the parties hereto as follows (or, as to each party, at such other address as shall be designated by such party in a written notice complying as to delivery with the terms of this paragraph): (a) If to you: Morgan Stanley & Co. Incorporated 1585 Broadway New York, New York 10036 Telecopy No.: (212) 761-5780 Attention of Equity Capital Markets With a copy to: Davis Polk & Wardwell 450 Lexington Avenue New York, New York 10017 Telecopy No.: (212) 450-4800 Attention of Francis J. Morison, Esq. 15 (b) If to the Company: General Motors Corporation 300 Renaissance Center Mailcode 482-C25-C22 P.O. Box 300 Detroit, Michigan 48265-3000 Telecopy No.: (313) 665-4978 Attention of Warren G. Andersen, Esq. With a copy to: Kirkland & Ellis 200 East Randolph Drive Chicago, Illinois 60601 Telecopy No.: (312) 861-2200 Attention of Joseph P. Gromacki, Esq. 24. Subheadings. The descriptive headings contained in this Agreement are included for convenience of reference only and shall not affect in any way the meaning or interpretation of this Agreement. 25. Waiver of Jury Trial. The provision of the Engagement Letter relating to the waiver by you and the Company of any right to trial by jury is incorporated herein by references as if restated herein in its entirety, and you and the Company agree to comply with your and its respective obligations under such provision as provided therein. 16 Please indicate your willingness to act as Dealer Manager on the terms set forth herein and your acceptance of the foregoing provisions by signing in the space provided below for that purpose and returning to us a copy of this letter, whereupon this letter and your acceptance shall constitute a binding agreement among us. Very truly yours, GENERAL MOTORS CORPORATION by: --------------------------------------- Name: Title: Accepted to and agreed as of the date first above written: MORGAN STANLEY & CO. INCORPORATED by: --------------------------------------- Name: Title: 17 ANNEX A ------- Australia Austria Belgium Brazil Canada Germany Ireland Israel Italy Mexico The Netherlands New Zealand Norway Singapore Spain Sweden Switzerland United Kingdom EXHIBIT A [FORM OF LOCK-UP LETTER] ____________, 2000 Morgan Stanley & Co. Incorporated c/o Morgan Stanley & Co. Incorporated 1585 Broadway New York, NY 10036 Dear Sirs and Mesdames: The undersigned understands that Morgan Stanley & Co. Incorporated ("Morgan Stanley") proposes to enter into a Dealer Manager Agreement (the "Dealer Manager Agreement") with General Motors Corporation, a Delaware corporation (the "Company"), in connection with the Company's proposed tender offer (such tender offer, as it may be amended and supplemented, the "Exchange Offer") for the outstanding shares of the Company's $1-2/3 Common Stock, par value $1-2/3 per share (the "$1-2/3 Par Value Common Stock"), in exchange for shares of the Company's Class H Common Stock, par value $.010 per share (the "Exchange Shares"). The undersigned hereby agrees that, without the prior written consent of Morgan Stanley, which consent shall not be unreasonably withheld, he, she or it will not, during the period commencing on the date hereof and ending 90 days after the date of the expiration of the Exchange Offer (the "Expiration Date") or such earlier date as the Exchange Offer may be abandoned, terminated or withdrawn, (1) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend or otherwise transfer or dispose of, directly or indirectly, any shares of Class H Common Stock or any securities convertible into or exercisable or exchangeable for Class H Common Stock, provided that this provision (1) shall not apply to shares of the $1-2/3 Par Value Common Stock or (2) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the Class H Common Stock, whether any such transaction described in clause (1) or (2) above is to be settled by delivery of Class H Common Stock or such other securities, in cash or otherwise. The foregoing sentence shall not apply to (a) the transfer of shares of Class H Common Stock pursuant to the Exchange Offer; (b) transactions relating to shares of Class H Common Stock or other securities acquired in open market transactions after the expiration of the Exchange Offer and (c) transactions involving any securities of the Company other than Class H Common Stock, including, but not limited to, shares of $1-2/3 Par Value Common Stock. In addition, the undersigned agrees that, without the prior written consent of the Dealer Manager, it will not, during the period commencing on the date hereof and ending 90 days after the Expiration Date or such earlier date as the Exchange Offer may be abandoned, terminated or withdrawn, make any demand for or exercise any right with respect to, the registration of any shares of Class H Common Stock or any security convertible into or exercisable or exchangeable for Class H Common Stock. Whether or not the Exchange Offer actually occurs depends on a number of factors, including market conditions. Any Exchange Offer will only be made pursuant to a Dealer Manager Agreement, the terms of which are subject to negotiation between the Company and the Dealer Manager. Very truly yours, (Name) (Address) A-2 EXHIBIT A-1 ----------- Executive Officers of General Motors - ------------------------------------ J. Michael Losh Harry J. Pearce John F. Smith, Jr. G. Richard Wagoner Ronald Zarrella Executive Officers of Hughes - ---------------------------- Roxanne S. Austin Eddy Hartenstein Jack A. Shaw Michael T. Smith [ ] A-3 EXHIBIT B Opinion of Warren G. Andersen, Esq., Attorney, Legal Staff of General Motors Corporation (the "Company") (a) The Company is a corporation validly existing and in good standing under the laws of the State of Delaware, is duly qualified to transact business and is in good standing in each jurisdiction in which the conduct of its business or its ownership or leasing of property requires such qualification and has all requisite corporate power and authority to own, lease and operate its properties and to carry on its business as now being conducted, except where the failure to be so qualified or in good standing would not have a material adverse effect on the financial position of the Company taken as a whole, and has the corporate power and authority to execute and deliver this Agreement, to perform its obligations hereunder and to consummate the Exchange Offer. (b) The authorized capital stock of the Company, including the Class H Common Stock, conforms as to legal matters in all material respects to the description thereof contained under the headings "Overview of GM Capital Stock" and "Description of Class H Common Stock." (c) Each of this Agreement, the Engagement Letter and the Indemnity Letter has been duly authorized, executed and delivered by the Company. (d) The Exchange Shares to be issued by the Company pursuant to the terms of the Exchange Offer have been duly authorized and, when issued and delivered pursuant to the terms of the Exchange Offer, will be validly issued, fully paid and non-assessable, and the issuance of the Exchange Shares will not be subject to any preemptive or, to such counsel's knowledge, other similar rights under the Delaware General Corporation Law, the Company's certificate of incorporation or bylaws or any contractual provision of which such counsel has knowledge. (e) The Exchange Offer has been duly authorized by all necessary corporate action by the Company. (f) The consummation of the Exchange Offer and the execution, delivery and performance of this Agreement will not contravene any provision of the certificate of incorporation or by-laws of the Company or any provisions of a material agreement or other material instrument known to counsel and binding upon the Company (provided that such counsel need express no opinion as to compliance with any financial test or cross-default provision in any such agreement), or conflict with or violate in any material respect any judgment, order or decree of any governmental body, agency or court having jurisdiction over the Company, except, in each case, for any such conflicts, contraventions, violations, breaches or defaults which would not materially adversely affect the ability of the Company to execute and deliver this Agreement or to consummate the Exchange Offer in accordance with its terms or consummate the transactions contemplated by this Agreement. (g) After reasonable inquiry, such counsel does not know of any legal or governmental proceeding or investigation pending or threatened to which the Company or any of its subsidiaries is a party or to which any of the properties of the Company is subject which is required to be described in the Registration Statement or the Prospectus and is not so described or of any contract or other document which is required to be described in the Registration Statement or the Prospectus or to be filed as an exhibit to the Registration Statement which is not described or filed as required. (h) The statements: (i) in Item 20 of the Registration Statement; (ii) in the Prospectus incorporated by reference to Item 3 of Part I of the Company's Annual Report of Form 10-K for the year ended December 31, 1999 and (iii) in the Prospectus under the captions "Overview of GM Capital Stock", "Description of Class H Common Stock" and "Comparison of Rights of $1-2/3 Par Value Stockholders and Class H Stockholders," in each case insofar as such statements constitute summaries of the legal matters, documents or proceedings referred to therein, in all material respects fairly present the information called for with respect to such legal matters, documents and proceedings and fairly summarize the matters referred to therein. Such counsel participated in the preparation of the Registration Statement and the Prospectus and the Schedule TO. During the course of such preparation, such counsel examined various documents, including those listed in such counsel's opinion, and participated in various conferences with representatives of and counsel for each of the Company and Hughes, and with representatives of the independent accountants for each of the Company and Hughes and representatives of and counsel for each of the Dealer Manager and the Marketing Manager, at which conferences the contents of the Registration Statement and the Prospectus (and the documents incorporated therein by reference) and the Schedule TO were reviewed and discussed. In addition, such counsel participated in discussions with the Staff of the Commission. Except as set forth in the opinion in paragraph (h) above, such counsel makes no representation that such counsel has independently verified the accuracy, completeness or fairness of the statements contained in the Registration Statement or the Prospectus. B-2 No fact came to such counsel's attention to cause him to conclude that (i) the Registration Statement, on its effective date, contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading or (ii) the Prospectus, the Schedule TO, as of their respective dates, or as of the date of this letter, contained or contains an untrue statement of a material fact or omitted or omits to state a material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading or (iii) as of the effective date of the Registration Statement, either the Registration Statement or the Prospectus appeared on its face not to be responsive in all material respects to the requirements of Form S-4, except for, in each case, financial statements and schedules and other financial and statistical data and information included therein or incorporated by reference or omitted therefrom, as to which such counsel expresses no opinion. B-3 EXHIBIT C Opinion of Kirkland & Ellis, Counsel to General Motors Corporation (the "Company") (a) The authorized capital stock of the Company, including the Class H common stock, conforms as to legal matters in all material respects to the description thereof contained under the headings "Overview of GM Capital Stock" and "Description of Class H Common Stock." (b) Each of this Agreement, the Engagement Letter and the Indemnity Letter has been duly authorized, executed and delivered by the Company. (c) The Exchange Shares to be issued by the Company pursuant to the terms of the Exchange Offer have been duly authorized and, when issued and delivered, pursuant to the terms of the Exchange Offer will be validly issued, fully paid and non-assessable, and the issuance of the Exchange Shares will not be subject to any preemptive or, to such counsel's knowledge, other similar rights under the Delaware General Corporation Law, the Company's certificate of incorporation or bylaws or any contractual provision of which such counsel has knowledge. (d) The statements in the Prospectus under the captions "Overview of GM Capital Stock", "Description of Class H Common Stock" and "Comparison of Rights of $1-2/3 Par Value Stockholders and Class H Stockholders", in each case insofar as such statements constitute summaries of the legal matters, documents or proceedings referred to therein, in all material respects fairly present the information called for with respect to such legal matters, documents and proceedings and fairly summarize the matters referred to therein. (e) The discussion set forth under the caption "Material U.S. Federal Income Tax Consequences" in the Registration Statement is based upon reasonable interpretations of existing law and fairly summarizes the U.S. federal income tax considerations that are likely to be material to a holder of GM Common Stock, $1-2/3 par value per share. The purpose of our professional engagement was not to establish factual matters, and preparation of the Registration Statement and the Prospectus and the Schedule TO involved many determinations of a wholly or partially nonlegal character. We make no representation that we have independently verified the accuracy, completeness or fairness of the Registration Statement or the Prospectus or the Schedule TO or that the actions taken in connection with the preparation of the Registration Statement or the Prospectus (including the actions described in the next paragraph) or the Schedule TO were sufficient to cause the Registration Statement or the Prospectus or the Schedule TO to be accurate, complete or fair. We are not passing upon and do not assume any responsibility for the accuracy, completeness or fairness of the Registration Statement or the Prospectus or the Schedule TO except to the extent otherwise explicitly indicated in paragraph (d) above. We can however confirm that we have participated in conferences with representatives of the Company and Hughes, representatives of the independent accountants for the Company and Hughes, representatives of and counsel for the Marketing Manager and your representatives and counsel, at which conferences the contents of the Prospectus and the Registration Statement and related matters were reviewed and discussed. In addition, we have participated in discussions with the Staff of the Commission. Based upon our participation in the conferences and discussions identified in the preceding paragraph, our understanding of applicable law and the experience we have gained in our practice thereunder and relying as to factual matters to the extent deemed appropriate by us upon the representations and statements of officers and other representatives of the Company and Hughes, we can, however, advise you that no fact came to our attention to cause us to conclude that (i) the Registration Statement, on its effective date, contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading or (ii) the Prospectus and the Schedule TO, as of their respective dates, or as of the date of this letter, contained or contains an untrue statement of a material fact or omitted or omits to state a material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading or (iii) as of the effective date of the Registration Statement, either the Registration Statement or the Prospectus appeared on its face not to be responsive in all material respects to the requirements of Form S-4, except for, in each case, financial statements and schedules and other financial and statistical data and information included therein or incorporated by reference or omitted therefrom, as to which we express no opinion. C-2 EXHIBIT D Opinion of Jennifer A. Smolker, Esq. Assistant General Counsel of Hughes Electronics Corporation Inc. ("Hughes") (a) Each of Hughes, Hughes Network Systems, PanAmSat and DirecTV is a corporation validly existing and in good standing under the laws of the jurisdiction of its incorporation, is duly qualified to transact business and is in good standing in each jurisdiction in which the conduct of its business or its ownership or leasing of property requires such qualification and has all requisite corporate power and authority to own, lease and operate its properties and to carry on its business as now being conducted, except where the failure to be so qualified or in good standing would not have a material adverse effect on the financial position of Hughes and its subsidiaries taken as a whole. (b) After reasonable inquiry, such counsel does not know of any legal or governmental proceeding or investigation pending or threatened to which Hughes or any of its subsidiaries is a party or to which any of the properties of Hughes is subject which is required to be described in the Registration Statement or the Prospectus and is not so described or of any contract or other document which is required to be described in the Registration Statement or the Prospectus or to be filed as an exhibit to the Registration Statement which is not described or filed as required. (c) The statements in the Prospectus under the caption "Business of Hughes--Legal Proceedings", in each case insofar as such statements constitute summaries of the legal matters, documents or proceedings referred to therein, in all material respects fairly present the information called for with respect to such legal matters, documents and proceedings and fairly summarize the matters referred to therein. Such counsel participated in the preparation of the Registration Statement and the Prospectus. During the course of such preparation, such counsel examined various documents, including those listed in such counsel's opinion, and participated in various conferences with representatives of and counsel for the Company and Hughes, and representatives of the independent accountants for the Company and Hughes, and representatives of and counsel for each of the Dealer Manager and the Marketing Manager, at which conferences the contents of the Registration Statement and the Prospectus (and the documents incorporated therein by reference) were reviewed and discussed. Except as set forth in the opinion in paragraph (c) above, such counsel makes no representation that such counsel has independently verified the accuracy, completeness or fairness of the statements contained in the Registration Statement or the Prospectus. No fact came to such counsel's attention to cause her to conclude that (i) the Registration Statement, on its effective date, contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading or (ii) the Prospectus, on the date it bears or as of the date of this letter, contained or contains an untrue statement of a material fact or omitted or omits to state a material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading or (iii) as of the effective date of the Registration Statement, either the Registration Statement or the Prospectus appeared on its face not to be responsive in all material respects to the requirements of Form S-4, except for, in each case, financial statements and schedules and other financial and statistical data and information included therein or incorporated by reference or omitted therefrom, as to which such counsel expresses no opinion. D-2 EX-5 3 OPINION OF WARREN G. ANDERSEN, ESQ. [GENERAL MOTORS LETTERHEAD] Exhibit 5 April 10, 2000 General Motors Corporation 300 Renaissance Center Detroit, Michigan 48265 Ladies and Gentlemen: In connection with the Registration Statement on Form S-4 (Registration No. 333-30826) (as amended, the "Registration Statement") filed by General Motors Corporation, a Delaware corporation (the "Corporation") under the Securities Act of 1933, as amended, relating to the shares of the Corporation's Class H Common Stock, par value of $0.10 per share (the "Shares"), to be offered in exchange for the Corporation's common stock, par value of $1 2/3 per share (the "$1 2/3 Par Value Common Stock"), I am rendering this opinion upon the validity of the shares of Class H Common Stock. At your request, this opinion is being furnished to you for filing as Exhibit 5 to the Registration Statement. In my capacity as attorney on the Legal Staff of the Corporation, I have examined originals or copies (certified or otherwise identified to my satisfaction) of such corporate records, agreements, documents and other instruments, and such certificates or comparable documents of public officials and of officers and representatives of the Corporation, and have made such inquiries of such officers and representatives, as I have deemed relevant and necessary as basis for the opinions hereinafter set forth. In such examination, I have assumed the genuineness of all signatures, the legal capacity of all natural persons, the authenticity of all documents submitted to me as originals, the conformity to original documents of all documents submitted to me as certified, conformed or photostatic copies and the authenticity of the originals of such latter documents. As to all questions of fact material to these opinions that have not been independently established, I have relied upon certificates or comparable documents or officers and representatives of the Corporation. As of the date of this opinion, the Board of Directors of the Corporation has taken action to approve the issuance and exchange of the Shares and has delegated to a committee of the Board of Directors (the "Committee") authority to determine and approve certain matters regarding the issuance and exchange of the Shares, including the determination of the maximum number of shares to be exchanged and the exchange ratio (such determination is referred to herein as the "Committee Action"). General Motors April 10, 2000 Page 2 Based upon and subject to the foregoing, I am of the opinion that: 1. The Corporation is a corporation validly existing and in good standing under the laws of the State of Delaware. 2. The issuance of the Shares has been duly authorized and, when the Registration Statement has become effective under the Securities Act of 1933, as amended (the "Act"), the Committee has taken the Committee Action and the Shares have been issued in exchange for shares of $1 2/3 Par Value Common Stock in accordance with the terms and conditions of the exchange offer, the Shares will be validly issued, fully paid and nonassessable. I express no opinion with respect to the laws of any jurisdiction other than the General Corporation Law of the State of Delaware and the federal laws of the United States. I do not find it necessary for the purposes of this opinion, and accordingly, I do not purport to cover herein the application of the securities or "Blue Sky" laws of the various states to the issuance of the Shares. I hereby consent to the filing of this opinion as Exhibit 5 to the Registration Statement, to the use of my name under the caption "Legal Matters" in the Offering Circular-Prospectus forming a part of the Registration Statement. In giving this consent, I do not admit that I am in the category of persons whose consent is required under Section 7 of the Act or the rules and regulations of the Securities and Exchange Commission. Very truly yours, /s/ Warren G. Andersen Warren G. Andersen 2 EX-8 4 OPINION OF KIRKLAND & ELLIS [KIRKLAND & ELLIS LETTERHEAD] Exhibit 8 April 10, 2000 General Motors Corporation 300 Renaissance Center Detroit, Michigan 48265 Attn: Anton H. Zidansek Re: Class H Common Stock Exchange Offer Dear Sirs: In connection with the proposal to offer (the "Exchange Offer") to exchange shares of General Motors Corporation ("GM") Class H Common Stock for shares of $1 2/3 Par Value Common Stock, as described in the Registration Statement on Form S-4 (Registration No. 333-30826) (the "Registration Statement"), you have requested our legal opinion concerning certain United States federal income tax consequences of the Exchange Offer. We have examined the Registration Statement and such other documents and such legal authorities as we have deemed relevant for purposes of expressing the opinions contained herein. Our opinion is based upon the applicable provisions of the Internal Revenue Code of 1986, as amended through the date hereof (the "Code"), Treasury regulations promulgated and proposed thereunder (the "Regulations"), current positions of the Internal Revenue Service (the "IRS") contained in published Revenue Rulings and Revenue Procedures and existing judicial decisions. In rendering this opinion, we have expressly assumed that the representations made by you and contained or described in the Registration Statement are true and correct. Based on the foregoing, and subject to the discussion set forth under the caption "Material U.S. Federal Income Tax Consequences" in the Registration Statement, our opinion as to the material U.S. federal income tax consequences of the Exchange Offer is as follows: The discussion set forth under the caption "Material U.S. Federal Income Tax Consequences" in the Registration Statement is based upon reasonable interpretations of General Motors Corporation April 10, 2000 Page 2 existing law and fairly summarizes the U.S. federal income tax considerations that are likely to be material to a holder of $1 2/3 Par Value Common Stock. The opinions set forth herein are based on relevant provisions of the Code, the Regulations, and interpretations of the Code and the Regulations by the courts and the IRS, all as they exist at the date of this letter. All such provisions of the Code, Regulations, judicial decisions, and administrative interpretations are subject to change at any time and, in some circumstances, with retroactive effect. Any such change could affect any or all of the conclusions set forth in this opinion. We hereby consent to the filing of this opinion as an exhibit to the Registration Statement. Very truly yours, /s/ Kirkland & Ellis Kirkland & Ellis EX-23.1 5 CONSENT OF DELOITTE & TOUCHE LLP. Exhibit 23.1 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in this Amendment No. 2 to the Registration Statement on Form S-4 of General Motors Corporation of our report dated January 20, 2000 (March 7, 2000 as to Note 27) appearing in the Annual Report on Form 10-K of General Motors Corporation for the year ended December 31, 1999. We also consent to the inclusion and incorporation by reference in this Amendment No. 2 to the Registration Statement on Form S-4 of General Motors Corporation of our report dated January 19, 2000 (March 1, 2000 as to Note 21) appearing in the Annual Report on Form 10-K of Hughes Electronics Corporation for the year ended December 31, 1999. We also consent to the references to us under the headings "Summary--Summary Historical Consolidated Financial Data of GM," "Summary--Summary Historical Financial Data of Hughes," "Selected Historical Financial Data of Hughes," and "Experts" in this Registration Statement. /s/ DELOITTE & TOUCHE LLP DELOITTE & TOUCHE LLP Detroit, Michigan April 10, 2000 EX-23.2 6 CONSENT OF KPMG LLP. Exhibit 23.2 CONSENT OF INDEPENDENT AUDITORS The Board of Directors Phoenixstar, Inc. (formerly Primestar, Inc.): We consent to the incorporation by reference in the Registration Statement on Form S-4 of General Motors Corporation of our report, dated April 15, 1999, relating to the consolidated balance sheets of Primestar, Inc. and subsidiaries as of December 31, 1998 and 1997, and the related consolidated statements of operations, equity (deficit) and cash flows for each of the years in the three-year period ended December 31, 1998 and the related consolidated financial statement schedule, included in Hughes Electronics Corporation's Form 10 filed August 13, 1999, and to the reference to our firm under the heading "Experts" in the Registration Statement. /s/ KPMG LLP KPMG LLP Denver, Colorado April 7, 2000 EX-23.3 7 CONSENT OF KPMG LLP. Exhibit 23.3 CONSENT OF INDEPENDENT AUDITORS The Board of Directors TCI Satellite Entertainment Inc.: We consent to the incorporation by reference in the Registration Statement on Form S-4 of General Motors Corporation of our report, dated April 15, 1999, relating to the consolidated balance sheets of TCI Satellite Entertainment Inc. and subsidiaries as of December 31, 1998 and 1997, and the related consolidated statements of operations, equity (deficit) and cash flows for each of the years in the three-year period ended December 31, 1998 and the related consolidated financial statement schedule, included in Hughes Electronics Corporation's Form 10 filed August 13, 1999, and to the reference to our firm under the heading "Experts" in the Registration Statement. /s/ KPMG LLP KPMG LLP Denver, Colorado April 7, 2000 EX-23.4 8 CONSENT OF ARTHUR ANDERSEN LLP. Exhibit 23.4 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation by reference in this registration statement of our report dated January 22, 1999 on the financial statements of United States Satellite Broadcasting Company, Inc. as of December 31, 1998 and 1997 and for each of the three years in the period ended December 31, 1998 included in Hughes Electronics Corporation's Form 10 filed August 13, 1999 and to all references to our Firm included in this registration statement. /s/ Arthur Andersen LLP ARTHUR ANDERSEN LLP Minneapolis, Minnesota, April 7, 2000 EX-99.1 9 LETTER OF TRANSMITTAL AND INSTRUCTIONS Exhibit 99.1 GENERAL MOTORS VOLUNTARY EXCHANGE OFFER LETTER OF TRANSMITTAL Shares of GM $1 2/3 par value common stock owned by you: (8)[BOX] Mark this box if your $1 2/3 par value common stock certificates which you wish to tender in (1) in certificate form: the Exchange Offer have been lost, destroyed, mutilated or stolen. Then, complete Box A on (2) in GM's Dividend and Cash Investment Plan or in book-entry form: the back of this Letter of Transmittal. Please refer to Instruction VI. (3) Total of (1) and (2) above: (9)[BOX] Mark this box to provide special issuance or (4) Tax ID Number: delivery instructions for the shares and/or cash to which you may be entitled and complete (5) If the Tax ID number listed above is incorrect, please provide pages 12 through 14, as applicable, of the your corrected Tax ID No. here:________________________ (Please Instructions to the Letter of Transmittal. refer to Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9 and, if applicable, complete Box B Under penalties of perjury, I certify that: on the back of this Letter of Transmittal) (i) The number shown in (4) above, or if corrected in (5) above, is my correct Taxpayer Identifi- (6)[BOX] Mark this box if you wish to tender all of your GM $1 2/3 par cation Number (or I am waiting for a Taxpayer value common stock in exchange for GM Class H stock. Identification Number to be issued to me); and Please refer to Instruction I. (ii) I am not subject to backup withholding (7)[BOX] Mark this box if you wish to tender some, but not all, of your either because I am exempt from backup with- shares. Indicate the number of shares of GM $1 2/3 par value holding or I have not been notified by the common stock you wish to tender:____________________. Internal Revenue Service ("IRS") that I am Please refer to Instruction I and Instruction II. subject to backup withholding as a result of a You must mark either Box (6) or (7) to participate in the Exchange Offer. failure to report all interest or dividends, or the IRS has notified me that I am no longer subject to backup withholding. The IRS does not require your consent to any provision of this document other than the certifications required to avoid backup withholding. You must cross out (ii) above if you have been notified by the IRS that you are subject to backup withholding because of underreporting interest or dividends on your tax return. However, if after being notified by the IRS that you were subject to backup withholding you received another notification from the IRS that you are no longer subject to backup withholding, do not cross out (ii). Required Information (Please refer to Instruction III and, if applicable, complete Box C on the back of this Letter of Transmittal): _______________________________________________ Signature of Owner (Date) _______________________________________________ Signature of Co-owner, if any (Date) ___________________________ _________________________ Daytime Telephone # Evening Telephone # - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Detach Form Before Mailing
Please read the Instructions to the Letter of Transmittal (blue pamphlet) before completing this form. By signing above: . I certify that I have read and understand the Instructions to the Letter of Transmittal. . I certify that all of the provisions set forth under "Representations, Warranties and Agreements By Tendering Stockholders" in the Instructions to the Letter of Transmittal are true and correct with respect to me or with respect to the beneficial owner of the shares tendered hereby, and that, by signing above, the tendering stockholder is making these representations and warranties to GM and agreeing to the terms and conditions of the Exchange Offer. . I certify that (i) I am eligible to participate in the Exchange Offer, and (ii) if I am tendering shares on behalf of a beneficial owner, to the best of my knowledge, such person is eligible to participate in the Exchange Offer. [Back of Letter of Transmittal] - -------------------------------------------------------------------------------- Box A LOST, DESTROYED, MUTILATED OR STOLEN $1 2/3 PAR VALUE COMMON STOCK CERTIFICATES By signing the front of this Letter of Transmittal I certify that I am the lawful owner of the shares described on the front of this Letter of Transmittal. If I have filled out the surety bond calculation below, I have made a diligent search for the certificate(s), and I have been unable to find it (them) or it (they) have been destroyed, mutilated or stolen. I hereby agree (for myself, my heirs, assigns and personal representatives), in consideration of the exchange of the shares represented by the certificate(s), to completely indemnify, protect and hold harmless SAFECO Surety Company (the "Surety"), EquiServe Trust Company, Fleet National Bank, General Motors and their respective affiliates (collectively, the "Obligees") from and against all losses, costs and damages which they may be subject to, or liable for, in respect to the cancellation and exchange of the certificate(s). I agree that this Letter of Transmittal is delivered to accompany Bond of Indemnity #5926165 underwritten by SAFECO Surety Company to protect the foregoing Obligees. I agree to surrender the certificate(s) for cancellation if I find it (them) or it (they) are otherwise recovered at any time. Surety Bond Calculation: X $1.60 = $ ------------------------ ------------------------------------------------ --------------------------- ----------------- (Minimum Premium of $20.00) # of Shares Lost, Destroyed, Mutilated or Stolen Insurance Premium per Share Total Premium Due Please make your check (minimum amount of $20.00) payable to SAFECO Surety Company and enclose with this Letter of Transmittal. We will not be able to complete your exchange without this premium. - ------------------------------------------------------------------------------------------------------------------------------------ Box B Box C Box D Certification of Payee Awaiting Medallion Signature Guarantee Guaranteed Delivery Taxpayer Identification Number (Please refer to Instruction III) (Please refer to Instruction I) (Please refer to Instruction IX) - ------------------------------------------------------------------------------------------------------------------------------------ I certify under penalties of perjury, that a For use by eligible institutions only. If tendered shares of $1 2/3 par Taxpayer Identification Number has not been Place Medallion Guarantee in space value common stock are being delivered issued to me, and that I mailed or delivered an below. pursuant to a notice of guaranteed application to receive a Taxpayer Identification delivery, provide the following Number to the appropriate IRS Center or Social information. Security Administration Office (or I intend to mail or deliver an application in the near future). I understand that if I do not provide a Taxpayer Identification Number within 60 days, 31% of all reportable payments made to me thereafter will be withheld until I provide a ------------------------------------- number. ------------------------------------- Name(s) of registered holder(s) -------------------------------------- ------------------------------------- (Signature of Current Owner) (Date) Date of execution of notice of guaranteed delivery - ------------------------------------------------- -------------------------------------- -------------------------------------- (Signature) (Date) (Signature of Co-Owner, if any) (Date) Name of institution that guaranteed delivery - ------------------------------------------------------------------------------------------------------------------------------------ Box E--Designation of Broker: If your broker has been instrumental in this tender, provide the following information. Name of your brokerage firm: ______________________________________ Your brokerage account #: _________________________________ (Please refer to Instruction VIII) - ------------------------------------------------------------------------------------------------------------------------------------ - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
If you elect to participate in the Exchange Offer and your shares of GM $1 2/3 par value common stock are held in certificate form, you must return the stock certificate(s) with your completed Letter of Transmittal and any other required documents to one of the addresses below. MAILING ADDRESSES By Mail: By Overnight Courier: By Hand: Fleet National Bank Fleet National Bank Securities Transfer & Reporting Attn: Corporate Actions Attn: Corporate Actions Services, Inc. P.O. Box 9573 40 Campanelli Drive c/o Fleet National Bank/Equiserve Boston, MA 02205-9573 Braintree, MA 02184 100 William Street, Galleria New York, NY 10038
Delivery of the Letter of Transmittal to an address other than as set forth above will not constitute a valid delivery to the Exchange Agent. If you send certificate(s) representing shares of $1 2/3 par value common stock tendered with the Letter of Transmittal by mail, it is recommended that you use registered mail insured for 2% of the market value ($20.00 minimum), return receipt requested. General Motors Corporation INSTRUCTIONS TO THE LETTER OF TRANSMITTAL - ------------------------------------------------------------------------------- THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON , , 2000, UNLESS OTHERWISE EXTENDED - ------------------------------------------------------------------------------- Each stockholder who signs the accompanying Letter of Transmittal agrees and acknowledges that he or she has received the Offering Circular-Prospectus dated , 2000 (the "Offering Circular-Prospectus") of General Motors Corporation, a Delaware corporation ("GM"), the one-page Letter of Transmittal (on white paper) and these Instructions to the Letter of Transmittal, which together constitute GM's offer (the "Exchange Offer") to exchange shares of Class H common stock for each share of $1 2/3 par value common stock validly tendered in the Exchange Offer, up to an aggregate of shares of $1 2/3 par value common stock validly tendered and exchanged. Capitalized terms used but not defined herein or in the Letter of Transmittal have the meanings given to them in the Offering Circular- Prospectus. Each stockholder who has completed, executed and delivered a Letter of Transmittal agrees that he or she has indicated therein the action such stockholder desires to take with respect to the Exchange Offer. These Instructions to the Letter of Transmittal consist of three principal parts: (1) certain representations, warranties and agreements that tendering stockholders will be making to GM; (2) instructions intended to assist tendering stockholders in completing the Letter of Transmittal and explain certain terms and conditions of the Exchange Offer; and (3) special issuance instructions to be issued to GM if tendering stockholders wish to have shares of Class H common stock, $1 2/3 par value common stock or cash instead of fractional shares either credited to someone other than the tendering stockholder and special delivery instructions to be issued to GM if tendering stockholders wish to have cash instead of fractional shares sent to a different address. You should read these Instructions to the Letter of Transmittal very carefully before you complete the Letter of Transmittal. - ------------------------------------------------------------------------------- DO NOT COMPLETE OR RETURN THE LETTER OF TRANSMITTAL IF YOUR SHARES ARE HELD IN AN ACCOUNT WITH A BROKER, DEALER, COMMERCIAL BANK, TRUST COMPANY, EMPLOYEE BENEFIT PLAN SPONSORED BY GM OR OTHER NOMINEE AND ARE NOT CERTIFICATED IN YOUR NAME. THIS LETTER OF TRANSMITTAL IS BEING SUPPLIED FOR YOUR INFORMATION ONLY BECAUSE IT CONTAINS IMPORTANT INFORMATION REGARDING THE EXCHANGE OFFER. THE INSTITUTION HOLDING YOUR SHARES WILL SUPPLY YOU WITH SEPARATE INSTRUCTIONS REGARDING THE TENDER OF YOUR SHARES. - ------------------------------------------------------------------------------- REPRESENTATIONS, WARRANTIES AND AGREEMENTS BY TENDERING STOCKHOLDERS The Offering Circular-Prospectus dated , 2000, of General Motors Corporation ("GM"), the Letter of Transmittal and these Instructions to the Letter of Transmittal together constitute GM's offer (the "Exchange Offer") to exchange up to shares of Class H common stock for shares of $1 2/3 par value common stock that are validly tendered by the Expiration Date (as defined below) and not withdrawn or deemed withdrawn, at an exchange ratio of shares of Class H common stock for each share of $1 2/3 par value common stock tendered, upon the terms and subject to the conditions set forth herein, in the Letter of Transmittal and in the Offering Circular-Prospectus. See "Summary" and "The Exchange Offer" in the Offering Circular-Prospectus. The Exchange Offer and withdrawal rights will expire at 12:00 Midnight, New York City time, on , 2000 (the "Expiration Date"), unless extended in accordance with applicable law and the terms of the Exchange Offer, in which event the term "Expiration Date" shall mean the latest time and date at which the Exchange Offer, as extended, shall expire. We sometimes refer to holders of shares of $1 2/3 par value common stock in this Letter of Transmittal as "stockholders." Each stockholder who tenders his or her shares in the Exchange Offer ("you"), whether pursuant to the letter of transmittal or otherwise, makes the following representations and warranties to GM and agrees to the following: A. Upon the terms and subject to the conditions of the Exchange Offer, you tender to GM the shares of $1 2/3 par value common stock described in Item O 6 or Item O 7 of the Letter of Transmittal. Subject to, and effective upon, the acceptance by GM for exchange of such tendered shares of $1 2/3 par value common stock, you hereby assign and transfer to GM, or upon its order, all right, title and interest in and to such shares. You irrevocably constitute and appoint Fleet National Bank (the "Exchange Agent") as your true and lawful agent and attorney-in-fact (with full knowledge that the Exchange Agent also acts as GM's agent) with respect to such tendered shares of $1 2/3 par value common stock, with full power of substitution (such power of attorney being deemed to be an irrevocable power coupled with an interest): (1) to deliver stock certificates representing such tendered shares of $1 2/3 par value common stock or transfer ownership of such shares on the account books maintained by The Depository Trust Company (the "Book-Entry Transfer Facility"), together, in any such case, with all accompanying evidences of transfer and authenticity, to you or upon your order, upon receipt by the Exchange Agent, as your agent, of shares of Class H common stock, to which you are entitled upon the acceptance by GM for exchange of such tendered shares of $1 2/3 par value common stock; (2) to present certificate(s) representing, or other evidence of ownership of, such tendered shares of $1 2/3 par value common stock for transfer on GM's stock transfer books; and (3) to receive all benefits and otherwise exercise all rights of beneficial ownership of such shares, all in accordance with the terms and conditions of the Exchange Offer. If your tendered shares of $1 2/3 par value common stock are accepted by GM for exchange, you will be entitled to receive book-entry credit representing shares of Class H common stock received in the exchange offer. B. You represent and warrant to GM that you have full power and authority to tender, assign and transfer the shares of $1 2/3 par value common stock that you have tendered and that when such shares are accepted by GM for exchange pursuant to the Exchange Offer, GM will acquire good, marketable and unencumbered title thereto, free and clear of all liens, restrictions, charges and encumbrances, and that none of such shares of $1 2/3 par value common stock will be subject to any adverse claim if and when GM accepts such shares for exchange. You will, upon request, execute and deliver any additional documents deemed by the Exchange Agent or GM to be necessary or desirable to complete the assignment and transfer of the shares of $1 2/3 par value common stock that you have tendered. All authority conferred or agreed to be conferred in the tender and these Instructions to the Letter of Transmittal and all of your obligations thereunder and hereunder shall be binding upon your successors, 2 assigns, heirs, executors, administrators, trustees in bankruptcy and legal representatives and shall not be affected by, and shall survive your death or incapacity. The tender made in the exchange offer may be withdrawn only in accordance with the procedures set forth in the Offering Circular-Prospectus and these Instructions to the Letter of Transmittal. C. You understand that the maximum number of shares of $1 2/3 par value common stock which will be accepted by GM for exchange will be that number of shares which, when multiplied by the exchange ratio, equals shares of Class H common stock. You also understand that if more than such maximum number of shares of $1 2/3 par value common stock are tendered at the exchange ratio, the Exchange Offer will be oversubscribed, and shares of $1 2/3 par value common stock tendered at the exchange ratio will be subject to proration in accordance with the terms set forth in the Offering Circular-Prospectus at "The Exchange Offer--Terms of the Exchange Offer," except for certain odd-lot tenders as described in the Offering Circular-Prospectus under "The Exchange Offer--Proration; Tenders for Exchange by Holders of Fewer Than 100 Shares of $1 2/3 Par Value Common Stock." You understand that, upon acceptance by GM of the shares of $1 2/3 par value common stock that you have tendered, you will be deemed to have accepted the shares of Class H common stock exchanged therefor and will be deemed to have relinquished all rights with respect to the shares of $1 2/3 par value common stock accepted by GM for exchange. D. You recognize that, under certain circumstances and subject to certain conditions to the Exchange Offer (which GM may waive in its sole and absolute discretion) set forth in the Offering Circular-Prospectus, GM may not be required to accept for exchange any of the shares of $1 2/3 par value common stock that you have tendered (including any shares of $1 2/3 par value common stock tendered after the Expiration Date). Your tender may be withdrawn only in accordance with the procedures set forth in the Offering Circular-Prospectus at "The Exchange Offer--Withdrawal Rights" and in these Instructions to the Letter of Transmittal. Shares of $1 2/3 par value common stock delivered to the Exchange Agent and not accepted by GM for exchange will be credited to you and a confirmation will be mailed to you as promptly as reasonably practicable following expiration or termination of the Exchange Offer at the address for you set forth on the front of the Letter of Transmittal. E. Unless otherwise indicated in the box entitled "Special Issuance Instructions" on page 12 of these Instructions to the Letter of Transmittal, you hereby request that GM credit or pay, as applicable (1) the shares of Class H common stock to which you are entitled, (2) if applicable, the shares of $1 2/3 par value common stock not tendered by you or any tendered shares that are not accepted by GM for exchange, and (3) if applicable, any cash received by you instead of fractional shares of Class H common stock, in each case in the name(s) of, or payable to, as applicable, the registered holder(s) set forth on the front of the Letter of Transmittal. If the box entitled "Special Issuance Instructions" on page 12 of these Instructions to the Letter of Transmittal is completed, you hereby request that GM credit in the name of or pay to, as applicable, the person(s) so indicated in such box, (1) the shares of Class H common stock to which you are entitled, (2) if applicable, the shares of $1 2/3 par value common stock not tendered by you or any tendered shares that are not accepted by GM for exchange, and (3) if applicable, any cash received instead of fractional shares of Class H common stock. You recognize that GM has no obligation pursuant to the "Special Issuance Instructions" to transfer any shares of $1 2/3 par value common stock from the name of the registered holder(s) if GM does not accept such shares for exchange. F. You recognize that the confirmation of shares of Class H common stock to which you are entitled and, if applicable, the confirmation of shares of $1 2/3 par value common stock not tendered by you or not accepted by GM for exchange will be sent to the address of the registered holder set forth on the front of the Letter of Transmittal. Unless otherwise indicated in the box entitled "Special Delivery Instructions" on page 14 of these Instructions to the Letter of Transmittal, you request that GM mail, if applicable, the payment of cash instead of fractional shares of Class H common stock to the address(es) of the registered holder(s) set forth on the front of the Letter of Transmittal. If the box entitled "Special Delivery Instructions" on page 14 of these Instructions to the Letter of Transmittal is 3 completed, you hereby request that GM mail any payment of cash instead of fractional shares of Class H common stock to the address that you indicate in such box. G. You understand that any shares of $1 2/3 par value common stock delivered by book-entry transfer that are not tendered or any shares tendered with the Letter of Transmittal that are delivered by book-entry transfer and are not accepted by GM for exchange, if applicable, will be credited to the applicable account at the Book-Entry Transfer Facility. H. By signing the Letter of Transmittal, you understand that the delivery and surrender of the shares of $1 2/3 par value common stock that you have tendered is not effective, and the risk of loss of the shares of $1 2/3 par value common stock (including shares of $1 2/3 par value common stock tendered herewith) does not pass to the Exchange Agent, until actual receipt by the Exchange Agent of the Letter of Transmittal (or a manually signed facsimile), duly completed and signed, or an agent's message (as defined in the Offering Circular-Prospectus at "The Exchange Offer--Procedures for Tendering Shares of $1 2/3 Par Value Common Stock") in connection with a book-entry transfer of shares, together with all accompanying evidences of authority in form satisfactory to GM and any other required documents. All questions as to the form of documents (including notices of withdrawal) and the validity, form, eligibility (including time of receipt) and acceptance by GM for exchange of any tender of shares of $1 2/3 par value common stock will be determined by GM in its sole and absolute discretion and such determination shall be final and binding upon all tendering holders of $1 2/3 par value common stock. I. You understand that a tender of shares of $1 2/3 par value common stock made pursuant to any method of delivery set forth in the Offering Circular-Prospectus and acceptance by GM for exchange of such shares pursuant to the procedures described in the Offering Circular-Prospectus at "The Exchange Offer--Procedures for Tendering Shares of $1 2/3 Par Value Common Stock" and in these Instructions to the Letter of Transmittal will constitute a binding agreement between you and GM upon the terms and subject to the conditions of the Exchange Offer, including your representation that (1) you own the shares of $1 2/3 par value common stock being tendered within the meaning of Rule 14e-4 promulgated under the Securities Exchange Act of 1934, as amended, (2) the tender of such shares of $1 2/3 par value common stock complies with Rule 14e-4, and (3) you have not received the Offering Circular-Prospectus or other materials related to the Exchange Offer in, and are not tendering your shares of $1 2/3 par value common stock from, France or Japan. For more information regarding matters relevant to holders in foreign jurisdictions, we urge you to read carefully "The Exchange Offer-- Certain Matters Relating to Foreign Jurisdictions" in the Offering Circular-Prospectus. J. You represent and warrant to GM that, if all of the shares of $1 2/3 par value common stock that you wish to tender in the Exchange Offer are accepted by GM in exchange for Class H common stock, (1) you will not beneficially own 5% or more of the total voting power or total value of the outstanding Class H common stock after the Exchange Offer is completed or (2) you have contacted General Motors Corporation, Stockholder Services, Mail Code 482-C38-B71, 300 Renaissance Center, P.O. Box 300 Detroit, MI 48265-3000 (telephone: (313) 667-1500) prior to the Expiration Date indicating that you will beneficially own 5% or more of the total voting power or total value of the outstanding Class H common stock after the Exchange Offer is completed. 4 INSTRUCTIONS FOR COMPLETING THE LETTER OF TRANSMITTAL Please Read All of These Instructions (Which Form Part of the Terms and Conditions of the Exchange Offer) Carefully Before Completing the Letter of Transmittal The Letter of Transmittal is to be used if: . you are forwarding certificate(s) representing shares of $1 2/3 par value common stock along with the Letter of Transmittal; . you are making tenders of shares of $1 2/3 par value common stock held in GM's Dividend and Cash Investment Plan or held on your behalf by GM's transfer agent in book-entry form under the Direct Registration System; . you are using guaranteed delivery procedures, according to the procedures set forth in the Offering Circular-Prospectus at "The Exchange Offer-- Guaranteed Delivery Procedures;"or . you are making tenders by book-entry transfer to the account maintained by the Exchange Agent at The Depository Trust Company, unless an agent's message is utilized. Delivery of documents to The Depository Trust Company does not constitute delivery to the Exchange Agent. You must follow these Instructions to the Letter of Transmittal in completing the Letter of Transmittal. Your broker can assist you in completing the Letter of Transmittal. Questions and requests for assistance or for additional copies of the Offering Circular-Prospectus, the Letter of Transmittal, these Instructions to the Letter of Transmittal, the Notice of Guaranteed Delivery or the Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9 may also be directed to Morrow & Co., Inc. (the "Information Agent") at (877) 816-5329 (toll free) in the United States or at (212) 754-8000 (collect) elsewhere. See Instruction XI. Important: The Letter of Transmittal or a manually signed facsimile copy thereof, together with shares of $1 2/3 par value common stock and all other required documents or a Notice of Guaranteed Delivery, must be received by the Exchange Agent on or prior to the Expiration Date. Instruction I: Delivery of the Letter of Transmittal and $1 2/3 Par Value Common Stock Certificate(s) or Book-Entry Confirmations BY SIGNING THE LETTER OF TRANSMITTAL AND DELIVERING IT AND, IF APPLICABLE, THE CERTIFICATE(S) FOR $1 2/3 PAR VALUE COMMON STOCK TO THE EXCHANGE AGENT ON OR PRIOR TO THE EXPIRATION DATE, YOU WILL BE DEEMED TO HAVE TENDERED THE SHARES OF $1 2/3 PAR VALUE COMMON STOCK INDICATED IN ITEM O 6 OR ITEM O 7 OF THE LETTER OF TRANSMITTAL. Who Should Complete the Letter of Transmittal You should complete the Letter of Transmittal if: . you are making tenders of shares of $1 2/3 par value common stock held in GM's Dividend and Cash Investment Plan or held on your behalf by GM's transfer agent in book-entry form under the Direct Registration System pursuant to the procedures set forth in the Offering Circular--Prospectus at "The Exchange Offer--Procedures for Tendering Shares of $1 2/3 Par Value Common Stock;" . you are tendering shares of $1 2/3 par value common stock pursuant to the guaranteed delivery procedures set forth in the Offering Circular-- Prospectus at "The Exchange Offer--Guaranteed Delivery Procedures;" or . you are tendering certificate(s) representing your shares of $1 2/3 par value common stock with the Letter of Transmittal or, unless an agent's message is utilized, if tenders are to be made pursuant to the procedures for book-entry transfer to the account maintained by the Exchange Agent at The Depository Trust Company set forth in the Offering Circular-- Prospectus at "The Exchange Offer--Procedures for Tendering Shares of $1 2/3 Par Value Common Stock." The certificate(s) representing shares of $1 2/3 par value common stock tendered with the Letter of Transmittal, or confirmation of any book-entry transfer into the Exchange Agent's account at the Book-Entry 5 Transfer Facility of shares of $1 2/3 par value common stock tendered electronically, as well as a properly completed and duly executed copy of the Letter of Transmittal or a manually signed facsimile copy thereof, or an agent's message, in connection with the book-entry transfer of shares, and any other documents required by the Letter of Transmittal or these Instructions to the Letter of Transmittal, must be received by the Exchange Agent at one of its addresses set forth above prior to the Expiration Date. Delivery of the Letter of Transmittal THE METHOD OF DELIVERY OF THE LETTER OF TRANSMITTAL, ANY CERTIFICATE(S) REPRESENTING SHARES OF $1 2/3 PAR VALUE COMMON STOCK TENDERED WITH THE LETTER OF TRANSMITTAL AND ANY OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND RISK OF THE TENDERING STOCKHOLDER, BUT, EXCEPT AS OTHERWISE PROVIDED BELOW, THE DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED OR CONFIRMED BY THE EXCHANGE AGENT. IF CERTIFICATE(S) REPRESENTING SHARES OF $1 2/3 PAR VALUE COMMON STOCK TENDERED WITH THE LETTER OF TRANSMITTAL ARE SENT BY MAIL, IT IS RECOMMENDED THAT TENDERING STOCKHOLDERS USE REGISTERED MAIL INSURED FOR 2% OF THE MARKET VALUE ($20.00 MINIMUM), RETURN RECEIPT REQUESTED, AND ALLOW SUFFICIENT TIME TO ENSURE TIMELY RECEIPT BY THE EXPIRATION DATE. DELIVERY OF DOCUMENTS TO THE BOOK-ENTRY TRANSFER FACILITY DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT. No Alternative, Conditional or Contingent Tenders No alternative, conditional or contingent tenders will be accepted for exchange in the Exchange Offer. All of you, as tendering stockholders, by execution of the Letter of Transmittal or a manually signed facsimile thereof, waive any right to receive any notice of the acceptance by GM of their shares of $1 2/3 par value common stock for exchange. Shares Held by Brokers, Dealers, Commercial Banks, Trust Companies or Employee Benefit Plans If your shares of $1 2/3 par value common stock are held in an account with a broker, dealer, commercial bank, trust company, employee benefit plans sponsored by GM (or a subsidiary) or other nominee and you wish to tender all or part of those shares, do not complete and return the Letter of Transmittal to the Exchange Agent. The institution holding your shares will supply you with separate instructions regarding the tender of your shares. If you have not received instructions regarding the tender of your shares, please contact the institution holding your shares. Guaranteed Delivery Procedures If the stock certificate(s) representing your shares of $1 2/3 par value common stock are not immediately available to you or you cannot complete the procedure for delivery by book-entry transfer on a timely basis or you cannot deliver your certificate(s), and all other required documents to the Exchange Agent prior to the Expiration Date, you may tender your shares of $1 2/3 par value common stock pursuant to the guaranteed delivery procedure set forth in the Offering Circular-Prospectus at "The Exchange Offer--Guaranteed Delivery Procedures." Pursuant to the guaranteed delivery procedure: (1) such tender must be made by or through a participant in the Security Transfer Agents Medallion Program (an "Eligible Institution"); (2) prior to the Expiration Date, the Exchange Agent must have received from such Eligible Institution a properly completed and duly executed Notice of Guaranteed Delivery substantially in the form provided by GM; if a form other than the one provided by GM is used, it must set forth the name and address of the holder and the number of shares of $1 2/3 par value common stock tendered, state that the tender is being made thereby and guaranteeing that, within three New York Stock Exchange trading days after the date of execution of the Notice of Guaranteed Delivery, the certificate(s) representing the shares of $1 2/3 par value common stock accompanied by all other documents required by this Letter of Transmittal will be deposited by the Eligible Institution with the Exchange Agent; and 6 (3) the certificate(s) representing the shares of $1 2/3 par value common stock tendered herewith (or a confirmation of a book-entry transfer of such shares of $1 2/3 par value common stock into the Exchange Agent's account at the Book-Entry Transfer Facility as described above), together with a properly completed and duly executed Letter of Transmittal (or a manually signed facsimile thereof) and any required signature guarantees, or an agent's message in connection with a book-entry transfer, and any other documents required hereby, must be received by the Exchange Agent within three New York Stock Exchange trading days after the date of execution of the Notice of Guaranteed Delivery, all as provided in the Offering Circular-Prospectus at "The Exchange Offer--Guaranteed Delivery Procedures." Validity, Form, Eligibility, Acceptance and Withdrawal of Tenders Determined in GM's Sole and Absolute Discretion All questions as to the validity, form, eligibility (including time of receipt), acceptance by GM and withdrawal of tendered shares of $1 2/3 par value common stock will be determined by GM in its sole and absolute discretion. GM's determination shall be final and binding on all tendering stockholders. GM reserves the right to reject any or all tenders of shares of $1 2/3 par value common stock determined by it not to be in proper form or the acceptance by GM of which may, in the opinion of GM's counsel, be unlawful. GM also reserves the right to waive any defect or irregularity in any tender of shares of $1 2/3 par value common stock. All tendering stockholders, by executing of the Letter of Transmittal (or a manually signed facsimile thereof), waive any right to receive notice of the acceptance by GM of their shares of $1 2/3 par value common stock for exchange. GM reserves the right to request any additional information from any registered or beneficial owner of shares of $1 2/3 par value common stock that GM in its sole and absolute discretion determines necessary or desirable. None of GM, Hughes, the Exchange Agent, the Information Agent, the Dealer Manager, the Marketing Manager or any other person shall be under any duty to give notification of any defect or irregularity in any tender, or incur any liability for failure to give any such notification. See "The Exchange Offer-- GM's Interpretations are Binding" in the Offering Circular-Prospectus. Instruction II: Partial Tenders; Withdrawals Partial Tenders If you wish to tender less than all the shares of $1 2/3 par value common stock represented by any certificate(s) or held in the Dividend and Cash Investment Plan or in book-entry form, you should check Item O 7 of the Letter of Transmittal and fill in the number of shares to be tendered in the space provided next to Item O 7 . Shares not tendered will be credited to a book-entry account maintained by the transfer agent for the tendering stockholder's benefit (or the benefit of the person indicated in the "Special Issuance Instructions" box of these Instructions to the Letter of Transmittal). Note that a new certificate for the remainder of the shares not tendered will not be sent to the person(s) signing the Letter of Transmittal (nor to anyone otherwise indicated in the "Special Issuance Instructions" box of these Instructions to the Letter of Transmittal). All shares represented by certificates delivered to the Exchange Agent will be deemed to have been tendered unless otherwise indicated. Any stockholder whose untendered shares are returned by book-entry credit has the right to request GM's transfer agent to deliver to them physical stock certificates representing such shares. To obtain a physical certificate for such shares, you should follow the instructions that will be set forth in a statement that will be mailed to you after the Exchange Offer. THE ENTIRE NUMBER OF SHARES OF $1 2/3 PAR VALUE COMMON STOCK REPRESENTED BY ANY CERTIFICATE(S) DELIVERED TO THE EXCHANGE AGENT WILL BE DEEMED TO HAVE BEEN TENDERED UNLESS OTHERWISE INDICATED. Withdrawal of Tenders Any tendering holder of shares of $1 2/3 par value common stock may withdraw the tender at any time prior to the Expiration Date, and may also withdraw such tender after the expiration of 40 business days from the 7 commencement of the Exchange Offer, unless theretofore accepted by GM for exchange as provided in the Offering Circular-Prospectus. To be effective, a written transmission notice of withdrawal must be timely received by the Exchange Agent at one of its addresses set forth on the Letter of Transmittal and must comply with the requirements set forth in the Offering Circular-Prospectus at "The Exchange Offer--Withdrawal Rights." Withdrawals may not be rescinded, and shares of $1 2/3 par value common stock withdrawn will thereafter be deemed not validly tendered for purposes of the Exchange Offer. However, withdrawn shares of $1 2/3 par value common stock may be retendered by again by following the procedures described in the Offering Circular-Prospectus at "The Exchange Offer--Procedures for Tendering Shares of $1 2/3 Par Value Common Stock." If you withdraw your tender of any shares of $1 2/3 par value common stock from the exchange offer, the withdrawn shares of $1 2/3 par value common stock will be returned to you by book-entry transfer. If you tendered all of the shares of $1 2/3 par value common stock that you held in GM's Dividend and Cash Investment Plan and you withdraw such tender, you will need to specifically instruct GM's transfer agent if you wish to hold such withdrawn shares in GM's Dividend and Cash Investment Plan. Instruction III: Signatures on the Letter of Transmittal; Stock Powers and Endorsements; Guarantee of Signatures Signatures by Registered Holders If the Letter of Transmittal is signed by the registered holder(s) of the shares of $1 2/3 par value common stock tendered thereby, the signature(s) on the front of the Letter of Transmittal must correspond exactly with the name(s) as written on the face of the certificate(s) representing the shares of $1 2/3 par value common stock without alteration, enlargement or any other change whatsoever. Joint Owners If any of the shares of $1 2/3 par value common stock tendered by the Letter of Transmittal are registered in the name of two or more joint owners, all such owners must sign on the front of the Letter of Transmittal. Tenders By Different Registered Holders If shares of $1 2/3 par value common stock to be tendered are registered in the names of different holders, it will be necessary to complete, sign and submit as many separate copies of the Letter of Transmittal as there are different registrations of certificates. If the Letter of Transmittal is signed by the registered holder(s) of the shares of $1 2/3 par value common stock tendered thereby, no endorsements of certificates or separate stock powers are required, unless shares of Class H common stock are to be issued, or any untendered shares of $1 2/3 par value common stock or any shares of $1 2/3 par value common stock not accepted for exchange are to be registered, in the name of a person other than the registered holder(s). In those cases, the stock certificate(s) evidencing the shares of $1 2/3 par value common stock tendered thereby must be endorsed or accompanied by appropriate stock power(s), in either case, signed exactly as the name(s) of the registered holder(s) appear(s) on such stock certificate(s). Signatures on such stock certificate(s) and stock power(s) must be guaranteed by an Eligible Institution. Signatures by Persons Other than Registered Holders If the Letter of Transmittal is signed by a person other than the registered holder(s) of the shares of $1 2/3 par value common stock tendered thereby, the certificate(s) representing such shares of $1 2/3 par value common stock must be endorsed or accompanied by appropriate stock powers, in either case signed exactly as the name(s) of the registered holder(s) appear(s) on such certificate(s), and such signatures must be guaranteed by an Eligible Institution. All signatures on the Letter of Transmittal must be medallion guaranteed by an Eligible Institution unless the shares of $1 2/3 par value common stock are tendered: (1) by a registered holder of such shares of $1 2/3 par value common stock (which term, for purposes of these Instructions to the Letter of Transmittal, shall include any participant in the Book- 8 Entry Transfer Facility whose name appears on a security position listing as the owner of shares of $1 2/3 par value common stock) who has not completed the box entitled "Special Issuance Instructions" on page 12 of these Instructions to the Letter of Transmittal; or (2) for the account of an Eligible Institution. Fiduciaries and Other Representatives If the Letter of Transmittal or any certificates or stock powers are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of a corporation or others acting in a fiduciary or representative capacity, such persons should so indicate and should set forth their full title when signing, and proper evidence satisfactory to GM of their authority to so act must be submitted with the Letter of Transmittal. Instruction IV: Special Issuance and Delivery Instructions Tendering holders should indicate in the boxes entitled "Special Issuance Instructions" or "Special Delivery Instructions" set forth on pages 12 and 14 of these Instructions to the Letter of Transmittal, as applicable, as described below: (1) Indicate in "Special Issuance Instructions" the name in which shares of Class H common stock issued in the exchange offer and/or shares of $1 2/3 par value common stock not tendered or accepted by GM for exchange are to be credited, or cash received instead of fractional shares of Class H common stock is to be made payable to, if different from the name of the person signing the Letter of Transmittal; and (2) Indicate in "Special Delivery Instructions" the address to which cash received instead of fractional shares of Class H common stock is to be sent if different from the address of the person signing the Letter of Transmittal. In the case of issuance of $1 2/3 par value common stock, Class H common stock or cash instead of fractional shares of Class H common stock in a different name, the employer identification or social security number of the person named must also be indicated and the Substitute Form W-9 set forth on page 13 of these Instructions to the Letter of Transmittal must be completed for the new owner. Instruction V: Stock Transfer Taxes GM will not be responsible for any stock transfer taxes payable on the transfer to it of shares of $1 2/3 par value common stock pursuant to the Exchange Offer or the transfer to tendering stockholders of shares of Class H common stock pursuant to the Exchange Offer. Instruction VI: Mutilated, Lost, Stolen or Destroyed Stock Certificates If any certificate representing shares of $1 2/3 par value common stock has been mutilated, destroyed, lost or stolen and you wish to tender all or some of your shares of $1 2/3 par value common stock in the Exchange Offer, you must . complete Box A of the Letter of Transmittal to determine the surety bond amount; . make out a check payable to SAFECO Surety Company for the calculated amount (which must not be less than the $20.00 minimum surety bond amount); and . enclose the check with the Letter of Transmittal. Instruction VII: Odd-Lots As described in the Offering Circular-Prospectus, if the Exchange Offer is over-subscribed and fewer than all shares of $1 2/3 par value common stock tendered on or prior to the Expiration Date are to be exchanged by GM, the shares of $1 2/3 par value common stock exchanged first will consist of all shares of $1 2/3 par value common stock validly tendered by any stockholder who owned beneficially and of record as of , 2000 an aggregate of less than 100 shares of $1 2/3 par value common stock and who validly tendered all of such shares of $1 2/3 par value common stock. If the Exchange Offer is completed, all odd-lot shares of $1 2/3 par value common stock will be accepted by GM for exchange and will not be subject to proration (except as provided below). 9 Shares of $1 2/3 par value common stock held in a GM or GM affiliated company savings plan are not eligible for this preferential treatment. Stockholders whose odd-lot shares are held by a broker for their account are requested to contact the broker directly to request this preferential treatment. Instruction VIII: Solicited Tenders GM will pay a solicitation fee of $0.75 per share, up to a maximum of 1,000 shares per tendering stockholder, for each share of $1 2/3 par value common stock validly tendered and accepted by GM for exchange pursuant to the Exchange Offer, covered by the Letter of Transmittal which designates, in Box E of the Letter of Transmittal entitled "Designation of Broker" as having solicited and obtained the tender, the name of: (1) any broker or dealer in securities which is a member of any national securities exchange in the United States or of the National Association of Securities Dealers, Inc.; or (2) any bank or trust company located in the United States (each, a "soliciting dealer"), except that no solicitation fee shall be payable in connection with a tender of $1 2/3 par value common stock by a stockholder (a) tendering more than 10,000 shares of $1 2/3 par value common stock or (b) tendering from a country outside of the United States. In addition, Soliciting Dealers are not entitled to a fee with respect to shares of $1 2/3 par value common stock beneficially owned by such soliciting dealer or with respect to any shares that are registered in the name of a soliciting dealer unless such shares are held by such soliciting dealer as nominee and are tendered for the benefit of beneficial holders identified in the Letter of Transmittal. No such fee shall be payable to a soliciting dealer if such Soliciting Dealer is required for any reason to transfer the amount of such fee to a tendering stockholder (other than itself). No broker, dealer, bank, trust company or fiduciary shall, by reason of its solicitation of tenders in the Exchange Offer, be deemed to be the agent of GM, Hughes, the Exchange Agent, the Information Agent, the Marketing Manager or the Dealer Manager in connection with the Exchange Offer. In order for a Soliciting Dealer to receive a solicitation fee with respect to shares of $1 2/3 par value common stock tendered pursuant to a Letter of Transmittal, the Exchange Agent must have received a properly completed and duly executed Letter of Transmittal (including a completed Box E of the Letter of Transmittal entitled "Designation of Broker") by three New York Stock Exchange trading days after the Expiration Date. The acceptance of compensation by the soliciting dealer listed in Box E of the Letter of Transmittal entitled "Designation of Broker" will constitute a representation by such soliciting dealer that: (1) it has complied with the applicable requirements of the Securities Exchange Act of 1934, as amended, and the applicable rules and regulations thereunder, in connection with such solicitation; (2) it is entitled to such compensation for such solicitation under the terms and conditions of the Offering Circular-Prospectus, the Letter of Transmittal and these Instructions to the Letter of Transmittal; (3) in soliciting tenders of shares of $1 2/3 par value common stock, it has used no soliciting materials other than those furnished by GM; and (4) it has complied with all instructions in the letter from GM to brokers, securities dealers, commercial banks, trust companies and other nominees. Instruction IX: Important Tax Information; Substitute Form W-9 U.S. federal income tax law requires that a holder whose tendered shares of $1 2/3 par value common stock are accepted for exchange must provide the Exchange Agent (as payer) with his or her correct taxpayer identification number ("TIN"), which, in the case of a holder who is an individual, is his or her social security number and make certain certifications as to such number in the Letter of Transmittal. If the Exchange Agent is not provided with the correct TIN or an adequate basis for exemption, the holder may be subject to a penalty imposed by the Internal Revenue Service ("IRS"). Exempt holders (including, among others, all corporations) are not subject to these backup withholding and reporting requirements. See the enclosed Guidelines for Certification of Taxpayer Identification Number on 10 Substitute Form W-9 for additional instructions. In order for a foreign individual to qualify as an exempt person, that individual must submit a statement, signed under penalty of perjury, attesting to that individual's exempt status. To prevent backup withholding, each tendering stockholder must verify his or her TIN set forth in Item O 5 of the Letter of Transmittal (or provide a corrected TIN in Item O 5 of the Letter of Transmittal), certifying that the TIN provided is correct (or that such holder is awaiting a TIN) and that: (1) the holder is exempt from backup withholding; (2) the holder has not been notified by the IRS that he or she is subject to backup withholding as a result of the failure to report all interest or dividends; or (3) the IRS has notified the holder that he or she is no longer subject to backup withholding. In addition, if you have completed the box entitled "Special Issuance Instructions" on page 14 of these Instructions to the Letter of Transmittal and are requesting that $1 2/3 par value common stock, Class H common stock or cash instead of fractional shares of Class H common stock be issued or paid, as applicable, in a different name than that of the tendering stockholder, the Substitute Form W-9 on page 13 of these Instructions to the Letter of Transmittal must be completed by the person to whom such shares and/or cash is to be issued or paid. In order to satisfy the Exchange Agent that a foreign individual qualifies as an exempt recipient, such holders must submit a statement signed under penalty of perjury attesting to such exempt status. Such statements may be obtained from the Exchange Agent. If the certificate(s) representing shares of $1 2/3 par value common stock are in more than one name or are not in the name of the actual owner, consult the enclosed guidelines for information on which TIN to report. If you do not have a TIN, consult the enclosed guidelines for instructions of applying for a TIN and complete the Certification of Payee Awaiting Taxpayer Identification Number in Box B of the Letter of Transmittal in order to avoid backup withholding. Whether or not there is a check in the box indicating that you have applied for and are awaiting receipt of your taxpayer identification number and the Certification of Awaiting Taxpayer Identification Number is completed, the Exchange Agent will withhold 31% of all reportable payments made prior to the time a properly certified TIN is provided to the Exchange Agent, and if the TIN is provided within 60 days, such amount will be refunded. Backup withholding is not an additional tax. Rather, the federal income tax liability of persons subject to backup withholding will be reduced by the amount of tax withheld. If backup withholding results in an overpayment of taxes, a refund may be obtained from the IRS. Holders of shares of $1 2/3 par value common stock who acquired their shares at different times may have different tax bases in their shares of $1 2/3 par value common stock, and should consult with their tax advisors as to the possibility of identifying the specific shares of $1 2/3 par value common stock surrendered in the Exchange Offer in order to establish the basis of the shares of Class H common stock issued in exchange for shares of $1 2/3 par value common stock surrendered. Instruction X: Waiver of Conditions GM reserves the absolute right to amend or waive any of the specified conditions to the Exchange Offer in the case of any shares of $1 2/3 par value common stock tendered. Instruction XI: Requests for Assistance or Additional Copies If you have questions relating to the procedure for tendering, or requests for additional copies of the Offering Circular-Prospectus, the Letter of Transmittal, these Instructions to the Letter of Transmittal, the Notice of Guaranteed Delivery and the Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9, you should contact Morrow & Co., Inc. at the address and telephone numbers indicated below. The Information Agent for the Exchange Offer is: Morrow & Co., Inc. 445 Park Avenue 5th Floor New York, NY 10022 (877) 816-5329 (Toll-Free) for calls in the United States (212) 754-8000 (Collect) for calls outside the United States 11 SPECIAL ISSUANCE AND SPECIAL DELIVERY INSTRUCTIONS SPECIAL ISSUANCE INSTRUCTIONS--Complete this box and return this page and the following page with your Letter of Transmittal ONLY if: . you want shares of Class H common stock issued in the exchange offer credited in the name of someone other than you; . you want shares of $1 2/3 par value common stock that are tendered but not accepted by GM for exchange to be credited in the name of someone other than you; and/or . you want cash received instead of fractional shares of Class H common stock payable to someone other than you. Note: If this box is completed, the signature on your Letter of Transmittal must be guaranteed by an Eligible Institution. If this box is not properly completed and returned with your Letter of Transmittal, shares of Class H common stock and/or shares of $1 2/3 par value common stock will be credited to, and/or cash will be paid to, the person(s) signing the Letter of Transmittal. - -------------------------------------------------------------------------------- SPECIAL ISSUANCE INSTRUCTIONS (See Instructions III And IV) To be completed ONLY if shares of Class H common stock and/or shares of $1 2/3 par value common stock tendered but not accepted by GM for exchange, if any, are to be CREDITED in the name of and/or cash received instead of fractional shares is to be payable to someone other than the person signing the Letter of Transmittal. - -------------------------------------------------------------------------------- Name(s) (Please Print): Issue: ------------------------------------ check appropriate box(es): ------------------------------------ [_] all of the following to: Address: ___________________________ [_] Class H common stock to: ------------------------------------ Zip Code [_] $1 2/3 par value common stock to: ------------------------------------ [_] cash instead of fractional shares Social Security No. or Employer of Class H common stock to: Identification No. (Also Complete and return Substitute Form W-9 on the following pages for above listed Person(s)) - -------------------------------------------------------------------------------- 12 The Substitute Form W-9 below must ONLY be completed in the case of issuance of $1 2/3 par value common stock, Class H common stock or cash instead of fractional shares of Class H common stock in a different name. For more information, see Instruction IV, Instruction IX and the enclosed Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9. - -------------------------------------------------------------------------------- Payer's Name: Fleet National Bank - -------------------------------------------------------------------------------- PAYER'S REQUEST FOR TAXPAYER IDENTIFICATION NUMBER AND CERTIFICATION - -------------------------------------------------------------------------------- SUBSTITUTE PLEASE PROVIDE YOUR Social Security Number or Form W-9 TAXPAYER IDENTIFICATION / / Department of the NUMBER IN THE BOX AT ------------------------- Treasury RIGHT AND CERTIFY BY Employer Identification Internal Revenue SIGNING AND DATING BELOW Number Service --------------------------------------------------- Payer's Request for Taxpayer Identification Number and Certification for Payees exempt from Please check the box at right if you have backup withholding. applied for and are awaiting receipt of your (See guidelines for taxpayer identification number. [_] certification of Taxpayer Identification Number on Substitute Form W-9) - -------------------------------------------------------------------------------- CERTIFICATION--Under penalties of perjury, I certify that: (1) The number shown on this form is my correct Taxpayer Identification Number (or I am waiting for a Taxpayer Identification Number to be issued to me) and (2) I am not subject to backup withholding either because I am exempt from backup withholding or I have not been notified by the Internal Revenue Service ("IRS") that I am subject to backup withholding as a result of a failure to report all interest or dividends, or the IRS has notified me that I am no longer subject to backup withholding. You must cross out item (2) above if you have been notified by the IRS that you are subject to backup withholding because of underreporting interest or dividends on your tax return. However, if after being notified by the IRS that you were subject to backup withholding you received another notification from the IRS that you are no longer subject to backup withholding, do not cross out item (2). PRINT YOUR NAME: __________________________________________________________ ADDRESS: __________________________________________________________________ SIGNATURE: _________________________________ DATE: ______________________ - -------------------------------------------------------------------------------- IF YOU CHECKED THE BOX ABOVE ON THE SUBSTITUTE FORM W-9 INDICATING THAT YOU ARE AWAITING RECEIPT OF YOUR TAXPAYER IDENTIFICATION NUMBER, YOU MUST SIGN AND DATE THE FOLLOWING CERTIFICATION: CERTIFICATION OF PAYEE AWAITING TAXPAYER IDENTIFICATION NUMBER - -------------------------------------------------------------------------------- I certify under penalties of perjury, that a Taxpayer Identification Number has not been issued to me, and that I mailed or delivered an application to receive a Taxpayer Identification Number to the appropriate IRS Center or Social Security Administration Office (or I intend to mail or deliver an application in the near future). I understand that if I do not provide a Taxpayer Identification Number within 60 days, 31% of all reportable payments made to me thereafter will be withheld until I provide a number. SIGNATURE: __________________________________________________________________ DATE: _______________________________________________________________________ - -------------------------------------------------------------------------------- 13 SPECIAL DELIVERY INSTRUCTIONS--Complete this box and return this page with your Letter of Transmittal ONLY if you want payment of cash received instead of fractional shares of Class H common stock to be mailed to an address other than the one printed on the front of the Letter of Transmittal or in the box entitled "Special Issuance Instructions." - -------------------------------------------------------------------------------- SPECIAL DELIVERY INSTRUCTIONS (See Instruction IV) To be completed ONLY if the payment of cash received instead of fractional shares of Class H common stock is to be MAILED to an address other than that printed on the front of the Letter of Transmittal or in the box entitled "Special Issuance Instructions" above, as applicable. - -------------------------------------------------------------------------------- [_] Mail cash instead of fractional Name(s) (Please Print):______________ shares of Class H common stock to: _____________________________________ Address: ____________________________ _____________________________________ Zip Code - -------------------------------------------------------------------------------- 14 [This Page Intentionally Left Blank] The Information Agent for the Exchange Offer is: Morrow & Co., Inc. 445 Park Avenue 5th Floor New York, NY 10022 (877) 816-5329 (Toll-Free) for calls in the United States (212) 754-8000 (Collect) for calls outside the United States EX-99.2 10 NOTICE OF GUARANTEED DELIVERY Exhibit 99.2 General Motors Corporation NOTICE OF GUARANTEED DELIVERY (NOT TO BE USED FOR SIGNATURE GUARANTEE) This Notice of Guaranteed Delivery or one substantially similar hereto must be used to participate in the Exchange Offer (as defined herein) of General Motors Corporation ("GM"), as set forth in the Offering Circular-Prospectus dated , 2000 (the "Offering Circular-Prospectus") and the accompanying Letter of Transmittal and the instructions thereto (collectively, the "Letter of Transmittal"), if (1) your stock certificate(s) representing shares of $1 2/3 par value common stock are not immediately available, (2) you cannot complete the procedure for book-entry transfer on a timely basis or (3) you cannot deliver the certificate(s) and all other required documents to Fleet National Bank (the "Exchange Agent") prior to the Expiration Date (as defined in the Offering Circular-Prospectus). You may deliver this Notice of Guaranteed Delivery by hand, telegram, facsimile transmission, overnight courier or mail to the Exchange Agent as set forth below. See "The Exchange Offer--Guaranteed Delivery Procedures" in the Offering Circular-Prospectus for further information. TO: FLEET NATIONAL BANK, EXCHANGE AGENT If delivered by Mail, to: If delivered by Hand, to: If delivered by Overnight Courier, to: Fleet National Bank Securities Transfer & Fleet National Bank Attn: Corporate Actions Reporting Services, Inc. Attn: Corporate Actions P.O. Box 9573 c/o Fleet National Bank/EquiServe 40 Campanelli Drive Boston, MA 02205-9573 100 William Street Braintree, MA 02184 Galleria New York, NY 10038 Attn: Delivery Window If by facsimile transmission: (For eligible institutions only) (781) 575-4826 Facsimile confirmation number (781) 575-4816 DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE TRANSMISSION TO A NUMBER OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. This Notice of Guaranteed Delivery is not to be used to guarantee signatures. If a signature on a Letter of Transmittal is required to be guaranteed by an "Eligible Institution" under the instructions thereto, such signature guarantee must appear in Box C of the Letter of Transmittal. Ladies and Gentlemen: I hereby tender to General Motors Corporation the shares of $1 2/3 par value common stock listed below, upon the terms of and subject to the conditions set forth in the Offering Circular-Prospectus and the related Letter of Transmittal, including the instructions thereto (which collectively constitute the "Exchange Offer"), receipt of which I hereby acknowledge, pursuant to the guaranteed delivery procedures set forth in the Offering Circular-Prospectus, as follows: Certificate No. Number of Shares - ------------------------------------- ------------------------------------- - ------------------------------------- ------------------------------------- - ------------------------------------- ------------------------------------- - ------------------------------------- ------------------------------------- The Book-Entry Transfer Facility Sign Here Account Number (if the shares of $1 2/3 par value common stock will be tendered by book-entry transfer) ------------------------------------- - ------------------------------------- ------------------------------------- Account Number Signature(s) - ------------------------------------- ------------------------------------- Number of Shares Number and Street or P.O. Box Dated: ______________________ , 2000 ------------------------------------- City, State, Zip Code ODD-LOTS This section is to be completed ONLY if shares of $1 2/3 par value common stock are being tendered by or on behalf of a person owning beneficially and of record an aggregate of less than 100 shares $1 2/3 par value common stock as of , 2000. (Check one): [_] I am the owner beneficially and of record of less than 100 shares $1 2/3 par value common stock in the aggregate as of , 2000, all of which are being tendered, or [_] I am a broker, dealer, commercial bank, trust company or other nominee who (1) is tendering, for the beneficial owners thereof, shares $1 2/3 par value common stock with respect to which I am the record owner, and (2) believes, based upon representations made to me by each such beneficial owner, that such owner owned beneficially and of record less than 100 shares $1 2/3 par value common stock as of , 2000, and is tendering all such shares. GUARANTEE (NOT TO BE USED FOR SIGNATURE GUARANTEE) The undersigned, a participant in the Security Transfer Agents Medallion Program, (a) represents and guarantees that the above-named person(s) "own(s)" the shares of $1 2/3 par value common stock tendered hereby within the meaning of Rule 14e-4 of the Securities Exchange Act of 1934, as amended, (b) represents and guarantees that the tender of such shares of $1 2/3 par value common stock complies with Rule 14e-4, and (c) guarantees delivery to the Exchange Agent of certificates representing the shares of $1 2/3 par value common stock tendered hereby, in proper form for transfer or delivery of such shares of $1 2/3 par value common stock pursuant to procedures for book-entry transfer, in either case with delivery of a properly completed and duly executed Letter of Transmittal (or manually signed facsimile thereof) and any other required documents, unless an Agent's Message is utilized, all within three NYSE trading days after the date hereof. _____________________________________ Firm Name (Print) _____________________________________ Authorized Signature _____________________________________ Address _____________________________________ City, State, Zip Code _____________________________________ Area Code and Telephone Number Date ____________________, 2000 DO NOT SEND CERTIFICATE(S) OR ANY OTHER REQUIRED DOCUMENTS WITH THIS FORM. THEY SHOULD BE SENT WITH THE LETTER OF TRANSMITTAL TO THE EXCHANGE AGENT (UNLESS A BOOK-ENTRY TRANSFER FACILITY IS USED). EX-99.3 11 LETTER TO BROKERS, DEALERS, COMMERCIAL BANKS Exhibit 99.3 General Motors Corporation OFFER TO EXCHANGE SHARES OF CLASS H COMMON STOCK FOR EACH SHARE OF $1 2/3 PAR VALUE COMMON STOCK UP TO AN AGGREGATE OF SHARES OF $1 2/3 PAR VALUE COMMON STOCK To Brokers, Securities Dealers, Commercial Banks, Trust Companies and Other Nominees: General Motors Corporation ("GM") is offering, upon the terms and subject to the conditions set forth in the enclosed Offering Circular-Prospectus dated , 2000 (the "Offering Circular-Prospectus") and the enclosed Letter of Transmittal and the instructions thereto (collectively, the "Letter of Transmittal" and, together with the Offering Circular-Prospectus, the "Exchange Offer"), to exchange shares of Class H common stock for each share of $1 2/3 par value common stock validly tendered up to an aggregate of shares of $1 2/3 par value common stock validly tendered and exchanged. We are asking you to contact your clients for whom you hold shares of $1 2/3 par value common stock registered in your name or in the name of your nominee. You will be reimbursed for customary mailing and handling expenses incurred by you in forwarding any of the enclosed materials to your clients, provided that you request such reimbursement from GM within a reasonable period of time. GM will not be responsible for any stock transfer taxes payable as a result of the transaction. As described in the Offering Circular-Prospectus, GM is not conducting the exchange offer in any jurisdiction where the exchange offer would not be legal under the laws of such jurisdiction. In addition, there are certain foreign jurisdictions where GM is relying on a private placement or other similar exemption or exception under the applicable laws of such jurisdictions in order to conduct the exchange offer in such jurisdictions. Accordingly, you are hereby instructed not to forward any of the enclosed materials to any clients for whom you hold shares of $1 2/3 par value common stock registered in your name or the name of your nominee, if such client is located in any of the following jurisdictions: Austria, Brazil, China, France, Ireland, Israel, Italy, Japan, Mexico, Norway, Spain, and Sweden. GM will pay to a Soliciting Dealer, as defined herein, a solicitation fee of $0.75 per share, up to a maximum of 1,000 shares per tendering stockholder, for each share of $1 2/3 par value common stock validly tendered and accepted for exchange pursuant to the Exchange Offer if such Soliciting Dealer has affirmatively solicited and obtained such tender, except that no solicitation fee shall be payable in connection with a tender of shares of $1 2/3 par value common stock by a stockholder (a) tendering more than 10,000 shares of $1 2/3 par value common stock or (b) tendering outside the United States. "Soliciting Dealer" includes (1) any broker or dealer in securities which is a member of any national securities exchange or of the National Association of Securities Dealers, Inc. or (2) any bank or trust company located in the United States. In order for a Soliciting Dealer to receive a solicitation fee with respect to the tender of shares of $1 2/3 par value common stock, the Exchange Agent must have received by three NYSE trading days after the expiration date a properly completed and executed form entitled "Notice of Solicited Tenders" as attached. Soliciting Dealers should take care to ensure proper record-keeping to document their entitlement to any solicitation fee. GM and the Exchange Agent reserve the right to require additional information, if deemed by GM to be warranted under the circumstances. All questions as to the validity, form and eligibility (including time of receipt) of Notices of Solicited Tenders will be determined by GM in its sole and absolute discretion, which determination will be final and binding. None of GM, the Exchange Agent or any other person will be under any duty to give notification of any defects or irregularities in any Notice of Solicited Tenders or incur any liability for failure to give such notification. Soliciting Dealers will include any of the organizations described in clauses (1) and (2) above even when the activities of such organizations in connection with the Exchange Offer consist solely of forwarding to clients material relating to the Exchange Offer, including the Offering Circular- Prospectus and the related Letter of Transmittal, including the instructions thereto, and validly tendering shares of $1 2/3 par value common stock as directed by beneficial owners thereof; provided that under no circumstances shall any fee be paid to Soliciting Dealers more than once with respect to any share of $1 2/3 par value common stock. No Soliciting Dealer is required to make any recommendation to holders of shares of $1 2/3 par value common stock as to whether to tender or refrain from tendering in the Exchange Offer. No assumption is made, in making payment to any Soliciting Dealer, that its activities in connection with the Exchange Offer included any activities other than those described above, and for all purposes noted in all materials relating to the Exchange Offer, the term "solicit" shall be deemed to mean no more than processing shares of $1 2/3 par value common stock tendered or forwarding to customers materials regarding the Exchange Offer. No fee shall be paid to a Soliciting Dealer with respect to shares of $1 2/3 par value common stock beneficially owned by such Soliciting Dealer or with respect to any shares that are registered in the name of a Soliciting Dealer unless such shares are held by such Soliciting Dealer as nominee and are validly tendered for the benefit of a beneficial holder. No such fee shall be payable to a Soliciting Dealer if such Soliciting Dealer is required for any reason to transfer the amount of such fee to a tendering holder (other than itself). No broker, dealer, bank, trust company or fiduciary shall, by reason of its solicitation of tenders in the Exchange Offer, be deemed to be the agent of GM, Hughes, the Exchange Agent, the Dealer Manager, the Marketing Manager or the Information Agent in connection with the Exchange Offer. Enclosed is a copy of each of the following documents: 1.The Offering Circular-Prospectus. 2.The Letter of Transmittal for your use and for the information of your clients. 3.The Instructions to the Letter of Transmittal for your use and for the information of your clients. 4.The Notice of Guaranteed Delivery. 5. A form of letter which may be sent to your clients for whose account you hold shares of $1 2/3 par value common stock registered in your name or the name of your nominee with space provided for obtaining the clients' instructions with regard to the Exchange Offer. 6.Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9. 7.Letter from GM to $1 2/3 par value stockholders. Your prompt action is requested. The Exchange Offer will expire at 12:00 midnight, New York City time, on , 2000, or if extended by GM, the latest date and time to which it is extended (the "Expiration Date"). Shares of $1 2/3 par value common stock validly tendered pursuant to the Exchange Offer may be withdrawn, subject to the procedures described in the Offering Circular-Prospectus, at any time prior to the Expiration Date and after , 2000, if not theretofore accepted for exchange. To participate in the Exchange Offer, certificates for shares of $1 2/3 par value common stock (or evidence of a book-entry delivery into the Exchange Agent's account at The Depository Trust Company) and a duly executed and properly completed Letter of Transmittal or a manually signed facsimile thereof together with any other required documents, or an agent's message in connection with a book-entry transfer, must be delivered to the Exchange Agent in accordance with the terms and conditions of the Exchange Offer. If holders of shares of $1 2/3 par value common stock wish to tender their shares, but it is impracticable for them to do so prior to the Expiration Date, a tender may be effected by following the guaranteed delivery procedures described in the Offering Circular-Prospectus at "The Exchange Offer--Guaranteed Delivery Procedures." Additional information concerning the Exchange Offer and additional copies of the enclosed material may be obtained from Morrow & Co., Inc. (the "Information Agent") at (877) 816-5329 (toll free) in the United States or at (212) 754-8000 (collect) elsewhere. NOTICE OF SOLICITED TENDERS ALL NOTICES OF SOLICITED TENDERS SHOULD BE RETURNED TO THE EXCHANGE AGENT WITHIN THREE NYSE TRADING DAYS AFTER THE EXPIRATION DATE TO THE ADDRESS SET FORTH ON THE BACK COVER OF THE OFFER. NOTICES MAY BE DELIVERED BY FACSIMILE TO THE EXCHANGE AGENT AT (781) 575-4826 (CONFIRM RECEIPT BY TELEPHONE (781) 575- 4816). Beneficial Owners Qualified for Odd-Lot Treatment
Number of DTC Number of Shares Beneficial Participant VOI Ticket VOI Ticket Requested for Owner(s) Number Number Total Payment Represented* - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
Beneficial Owners of 1,000 or less shares
Number of DTC Number of Shares Beneficial Participant VOI Ticket VOI Ticket Requested for Owner(s) Number Number Total Payment Represented* - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
Beneficial Owners of greater than 1,000 and not more than 10,000 shares
Number of DTC Number of Shares Beneficial Participant VOI Ticket VOI Ticket Requested for Owner(s) Number Number Total Payment Represented* - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
- -------- * Use attached sheet if ticket represents more than one Beneficial Owner. Beneficial Owners of greater than 1,000 and not more than 10,000 shares Beneficial Owner Breakdown Form DTC Participant Number:___________________ VOI Ticket Number:________________________ VOI Ticket Total:_________________________ --------------------------------------------------------------- Number of shares requested for payment per beneficial owner --------------------------------------------------------------- --------------------------------------------------------------- --------------------------------------------------------------- --------------------------------------------------------------- --------------------------------------------------------------- --------------------------------------------------------------- --------------------------------------------------------------- --------------------------------------------------------------- --------------------------------------------------------------- --------------------------------------------------------------- --------------------------------------------------------------- TOTAL --------------------------------------------------------------- The acceptance of compensation by such soliciting dealer will constitute a representation by it that: (1) it has complied with the applicable requirements of the Securities Exchange Act of 1934, as amended, and the applicable rules and regulations thereunder, in connection with such solicitation; (2) it is entitled to such compensation for such solicitation under the terms and conditions of the Offering Circular-Prospectus; (3) in soliciting tenders of shares of $1 2/3 par value common stock, it has used no soliciting materials other than those furnished by GM and (4) it has complied with all instructions from GM in this letter. Print Firm Name _______________________ Address _______________________________ Authorized Signature __________________ City, State, Zip Code _________________ Area Code and Telephone Number ________ Attention _____________________________ SOLICITATION FEE PAYMENT INSTRUCTIONS - -------------------------------------------------------------------------------- Issue check to: Firm _________________________________________________________________________ (Please Print) Attention ____________________________________________________________________ Address ______________________________________________________________________ ______________________________________________________________________________ (Include Zip Code) Phone Number _________________________________________________________________ Taxpayer Identification or Social Security No. _______________________________ Applicable VOI Number _________________ Number of Shares ____________________ - -------------------------------------------------------------------------------- If solicitation fees are to be paid to another Eligible Institution(s), please complete the following: - -------------------------------------------------------------------------------- Issue check to: Firm _________________________________________________________________________ (Please Print) Attention ____________________________________________________________________ Address ______________________________________________________________________ ______________________________________________________________________________ (Include Zip Code) Phone Number _________________________________________________________________ Taxpayer Identification or Social Security No. _______________________________ Applicable VOI Number _________________ Number of Shares ____________________ - -------------------------------------------------------------------------------- *NOTE: IF ADDITIONAL PAYMENT INSTRUCTIONS, PLEASE COPY AND ATTACH. Very truly yours, GENERAL MOTORS CORPORATION NOTHING HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU OR ANY OTHER PERSON AS AN AGENT OF GM, HUGHES, THE EXCHANGE AGENT, THE DEALER MANAGER, THE MARKETING MANAGER OR THE INFORMATION AGENT, OR AUTHORIZE YOU OR ANY OTHER PERSON TO MAKE ANY STATEMENTS ON BEHALF OF ANY OF THEM WITH RESPECT TO THE EXCHANGE OFFER, EXCEPT FOR STATEMENTS EXPRESSLY MADE IN THE OFFERING CIRCULAR-PROSPECTUS OR THE LETTER OF TRANSMITTAL, INCLUDING THE INSTRUCTIONS THERETO. EX-99.4 12 LETTER TO CLIENTS FOR USE BY BROKERS, DEALERS Exhibit 99.4 General Motors Corporation OFFER TO EXCHANGE SHARES OF CLASS H COMMON STOCK FOR EACH SHARE OF $1 2/3 PAR VALUE COMMON STOCK UP TO AN AGGREGATE OF SHARES OF $1 2/3 PAR VALUE COMMON STOCK To Our Clients: Enclosed for your consideration is an Offering Circular-Prospectus dated , 2000 (the "Offering Circular-Prospectus") and a form of Letter of Transmittal and the instructions thereto (collectively, the "Letter of Transmittal" and, together with the Offering Circular-Prospectus, the "Exchange Offer") relating to the offer by General Motors Corporation ("General Motors" or "GM") to exchange shares of GM's Class H common stock for each share of GM $1 2/3 par value common stock validly tendered up to an aggregate of shares of $1 2/3 par value common stock validly tendered and exchanged. These documents may not be used by you to tender shares of $1 2/3 par value common stock. The material is being forwarded to you as the beneficial owner of shares of $1 2/3 par value common stock carried by us in your account but not registered in your name. A tender of such shares of $1 2/3 par value common stock may only be made by us as the registered holder and pursuant to your instructions. Therefore, holders of shares of $1 2/3 par value common stock registered in the name of a broker, dealer, commercial bank, trust company or other nominee should contact such registered holder promptly if they wish to tender their shares of $1 2/3 par value common stock in the Exchange Offer. Accordingly, we request instructions from you as to whether you wish us to tender any or all such shares of $1 2/3 par value common stock held by us for your account pursuant to the terms and conditions set forth in the enclosed Offering Circular-Prospectus and the related Letter of Transmittal, including the instructions thereto. Your instructions to us should be forwarded as promptly as possible in order to permit us to tender shares of $1 2/3 par value common stock in accordance with the provisions of the Exchange Offer. The Exchange Offer will expire at 12:00 midnight, New York City time, on , , 2000, or if extended by GM, the latest date and time to which extended (the "Expiration Date"). Shares of $1 2/3 par value common stock tendered pursuant to the Exchange Offer may be withdrawn, subject to the procedures described in the Offering Circular-Prospectus, at any time prior to the Expiration Date and after , , 2000, if not theretofore accepted for exchange by GM. Your attention is directed to the following: 1. The Exchange Offer is for up to an aggregate of shares of $1 2/3 par value common stock. 2. GM's obligation to accept shares of $1 2/3 par value common stock validly tendered in the Exchange Offer is subject to certain conditions as specified in the Offering Circular-Prospectus. 3. GM will not be responsible for any stock transfer taxes payable as a result of the transaction. 4. If you owned beneficially as of the close of business on , 2000 an aggregate of fewer than 100 shares of $1 2/3 par value common stock and you instruct us to tender all of those shares on your behalf, all such shares will be accepted for exchange and will not be subject to proration if the Exchange Offer is oversubscribed. Shares of $1 2/3 par value common stock held in a GM or GM affiliated company savings plan are not eligible for this preferential treatment. If you wish to have us tender any or all of your shares of $1 2/3 par value common stock, please so instruct us by completing, executing and returning to us the instruction form which appears on the reverse side of this letter. INSTRUCTIONS I acknowledge receipt of your letter and the enclosed material referred to therein relating to the Exchange Offer of General Motors Corporation ("GM") of Class H common stock in exchange for $1 2/3 par value common stock. I understand, accept and agree to the terms and conditions of the Exchange Offer. This will instruct you to tender in the Exchange Offer the shares of $1 2/3 par value common stock indicated below (or, if no number is indicated below, all shares) held by you for my account, pursuant to the terms of and conditions set forth in the Offering Circular- Prospectus and the Letter of Transmittal, including the instructions thereto. Box 1 [_] Please tender all of my shares of $1 2/3 par value common stock held by you for my account. Box 2 [_] Please tender (number) of the shares of $1 2/3 par value common stock held by you for my account. ----------------------------------------------------------------------- ODD-LOTS [_]By checking this box, I represent that I owned beneficially and of record as of , 2000, an aggregate of less than 100 shares of $1 2/3 par value common stock and am tendering all such shares. ----------------------------------------------------------------------- SIGNATURE BY SIGNING BELOW, I HEREBY CERTIFY THAT I AM ELIGIBLE TO PARTICIPATE IN THIS EXCHANGE OFFER. Dated: ______________________________ ------------------------------------- ------------------------------------- Signature(s) ------------------------------------- ------------------------------------- Please Print Name(s) Here UNLESS A SPECIFIC CONTRARY INSTRUCTION IS GIVEN IN THE SPACE PROVIDED, YOUR SIGNATURE(S) HEREON SHALL CONSTITUTE AN INSTRUCTION TO US TO TENDER ALL OF YOUR SHARES OF $1 2/3 PAR VALUE COMMON STOCK. PLEASE RETURN THIS FORM TO THE BROKERAGE FIRM MAINTAINING YOUR ACCOUNT, NOT FLEET NATIONAL BANK, MORROW & CO., INC., MORGAN STANLEY DEAN WITTER, SALOMON SMITH BARNEY, GENERAL MOTORS CORPORATION OR HUGHES ELECTRONICS CORPORATION. EX-99.6 13 LETTER FROM GENERAL MOTORS CORPORATION Exhibit 99.6 [GM LOGO] , 2000 Dear $1 2/3 Par Value Stockholder, I am pleased to announce that General Motors Corporation is commencing a voluntary exchange offer in which you will have an opportunity to receive shares of Class H common stock in exchange for each share of $1 2/3 par value common stock which you validly tender in the exchange offer, up to an aggregate of shares of $1 2/3 par value common stock. Class H common stock is a "tracking stock" of GM designed to provide holders with financial returns based on the financial performance of Hughes Electronics Corporation, which is a wholly-owned subsidiary of GM. The exchange offer is an important element of our overall plan to restructure GM's economic interest in Hughes in order to realize some of the economic value arising from GM's ownership of Hughes. The exchange offer will provide you with an opportunity to increase, in a tax-efficient manner, your interest in the financial performance of Hughes by exchanging your shares of $1 2/3 par value common stock for shares of Class H common stock. If more than shares of $1 2/3 par value common stock are validly tendered for exchange in the exchange offer, we will accept shares for exchange on a pro rata basis, except that any holder with less than 100 shares of $1 2/3 par value common stock who validly tenders all such shares will generally not be subject to proration. If less than shares of $1 2/3 par value common stock are tendered in exchange for shares of Class H common stock in the exchange offer, we may choose not to complete the exchange offer. In such event, we may choose to reevaluate our current plan with respect to realizing some of the economic value arising from our ownership of Hughes. The terms and conditions of the exchange offer are contained in the enclosed Offering Circular-Prospectus and the Letter of Transmittal and the related instructions. We have included a "Questions and Answers" section in the Offering Circular-Prospectus that responds to many of the commonly asked questions about the exchange offer. We encourage you to read the enclosed material carefully before making any decisions with respect to the exchange offer. Neither GM nor the board of directors of GM makes any recommendation as to whether or not you should tender any shares of $1 2/3 par value common stock in the exchange offer. You must make your own decision whether to tender such shares and, if so, how many shares to tender. This exchange offer will expire, unless extended by GM, at 12:00 midnight, New York City time, on , 2000. GM has retained the services of Morrow & Co., Inc. as Information Agent to assist stockholders in connection with the exchange offer. If you have any questions concerning the exchange offer and how to participate, or if you need additional documents, please call Morrow at (877) 816-5329 (toll free) in the United States or at (212) 754-8000 (collect) elsewhere. I thank you for your continuing support of our corporation. Sincerely, /s/ John F. Smith, Jr. John F. Smith, Jr. Chairman of the Board of Directors and Chief Executive Officer EX-99.7 14 CHECKLIST FOR PARTICIPATION IN THE EXCHANGE OFFER Exhibit 99.7 CHECKLIST FOR PARTICIPATION IN THE EXCHANGE OFFER (1) Check Contents of Package: Before proceeding, please ensure that this package contains the following materials: . Letter from John F. Smith, Jr., Chairman of the Board of Directors and Chief Executive Officer of GM. . Letter of Transmittal (printed on white paper) pre-printed with your account number and address. . Instructions to the Letter of Transmittal (printed on blue paper). . Return envelope addressed to Fleet National Bank, the Exchange Agent for the Exchange Offer. . Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9 (printed on white paper). . Notice of Guaranteed Delivery (printed on yellow paper). . Offering Circular-Prospectus dated , 2000. (2) Review Materials Carefully Before Deciding to Participate: Please review all enclosed materials carefully before deciding to participate in the Exchange Offer. If your shares of $1 2/3 par value common stock are registered in your name and you decide to participate, you must continue with instructions #3 and #4 below. If your shares of $1 2/3 par value common stock are held for you by a broker, dealer, bank, trust company or employee benefit plan sponsored by GM and you decide to participate, you must contact such person and instruct them to tender your shares of $1 2/3 par value common stock on your behalf. (If you have so instructed or plan to instruct such person, you do not need to proceed with instructions #3 and #4 below). (3) Complete the Letter of Transmittal: You must do the following to complete the Letter of Transmittal: . Read the Instructions to the Letter of Transmittal. . Complete Box O 6 or O 7 , as applicable, on the Letter of Transmittal. . Sign and date the Letter of Transmittal. . Correct the Tax Identification Number, if necessary, using the space provided at O 5 on the Letter of Transmittal and, if applicable, complete, sign and date Box B on the Letter of Transmittal. . Some portions of the Letter of Transmittal should only be completed if applicable: . If your stock certificates have been lost, destroyed, mutilated or stolen, you should complete Box O 8 and Box A of the Letter of Transmittal and include a check for the applicable surety bond amount. . If you are tendering shares of $1 2/3 par value common stock and you are not the registered holder of those shares (and are not tendering those shares for the account of an Eligible Institution), Box C on the Letter of Transmittal must be completed. . If you cannot deliver your certificate(s) to the Exchange Agent before the Expiration Date, a broker must guarantee delivery of your shares of $1 2/3 par value common stock and you should complete Box D of the Letter of Transmittal. The broker must submit the separate document entitled "Notice of Guaranteed Delivery." . If your tender has been solicited by a broker, the name of the firm and your brokerage account number should be identified in Box E of the Letter of Transmittal. (4) Special Issuance or Delivery Instructions: If you would like to designate special issuance or delivery instructions for the shares of Class H common stock, shares of $1 2/3 par value common stock not tendered or not accepted by GM in the Exchange Offer or cash you may receive instead of fractional shares of Class H common stock, please mark Box O 9 of the Letter of Transmittal, complete the appropriate sections of pages 12 through 14 of the Instructions to the Letter of Transmittal and return those completed sections with your Letter of Transmittal in the envelope provided. (5) Mail $1 2/3 Par Value Common Stock Certificates, Signed Letter of Transmittal and any Other Documents Required by the Letter of Transmittal to the Exchange Agent: Send the Letter of Transmittal together with your certificate(s) representing $1 2/3 par value common stock to Fleet National Bank, as Exchange Agent, at the addresses shown on the Letter of Transmittal. Use of registered mail, return receipt requested, is recommended. If you have any questions, have not received the Letter of Transmittal or other documents pertaining to the Exchange Offer, or need other assistance in completing the Letter of Transmittal, please contact the Information Agent: Morrow & Co. Inc., 445 Park Avenue, 5th Floor, New York, New York 10022, (877) 816-5329 (toll-free) for calls in the United States or (212) 754-8000 (collect) for calls outside the United States. EX-99.8 15 FORM OF INFORMATION AGENT AGREEMENT [LETTERHEAD OF MORROW & CO., INC.] January 3, 2000 General Motors Corporation MC 482-C25-C22 300 Renaissance Center Detroit, MI 48265-3000 This letter will serve as the agreement under which you will retain us to act as Information Agent in connection with your Exchange Offer to stockholders of General Motors Corporation's 1 2/3 common stock. The services we will perform on your behalf will include the consultation and preparation in connection with this transaction, the delivery of General Motors material to brokers, banks, nominees and institutions, acting as Information Agent in connection with your Exchange Offer, and receiving calls from General Motors 1 2/3 common stockholders. For the above services our fee will be $75,000.00. An advance against disbursements of $200,000.00 is due upon the signing of this agreement. Additional disbursements, if any, incurred by us on your behalf will be billed periodically. Our charge for incoming telephone calls will be $3.50 per stockholder call; such charge includes all related telephone expense. This agreement covers the period from March 15, 2000 through May 19, 2000. This agreement may be extended by the consent of each party at a rate of $5,000.00 per week, or part thereof. You agree to indemnify and hold us harmless against any loss, damage, expense (including reasonable legal fees and expenses), liability or claim relating to or arising out of our performance of this agreement except where we, or our employees, fail to comply with this agreement; provided, however, that you shall not be obliged to indemnify us or hold us harmless against any such loss, damage, expense, liability, or claim which results from negligence, bad faith, or willful misconduct on our part or of any of our employees. General Motors Corporation January 3, 2000 Page Two At your election, you may assume the defense of any such action. We shall advise you in writing of any such liability or claim promptly after receipt of any notice of any action or claim for which we may be entitled to indemnification hereunder. This agreement shall be construed and enforced in accordance with the laws of the State of New York and shall inure to the benefit of, and the obligations created hereby shall be binding upon, the successors and assigns of the parties hereto. If any provision of this agreement shall be held illegal, invalid or unenforceable by any court, this agreement shall be construed and enforced as if that provision had not been contained herein and shall be deemed an agreement among us to the full extent permitted by applicable law. Please acknowledge receipt of this agreement and confirm the arrangements herein provided by signing and returning the enclosed copy to the undersigned, whereupon this agreement and your acceptance of the terms and conditions herein provided shall constitute a binding agreement among us. Accepted Very truly yours, General Motors Corporation MORROW & CO., INC. By: /s/ WARREN G. ANDERSEN By: /s/ GERALD J. MUCHA ------------------------ --------------------- Title: ASST SECRETARY & ATTORNEY Title: MANAGING DIRECTOR --------------------------- ------------------- Date: Jan. 3, 2000 ---------------------- EX-99.9 16 FORM OF EXCHANGE AGENT AGREEMENT Exhibit 99.9 EXCHANGE AGENT AGREEMENT This Exchange Agent Agreement (the "Agreement") is entered into as of this ___ day of April, 2000, between General Motors Corporation, a company organized and existing under the laws of the State of Delaware (the "Company"), and Fleet National Bank, a national banking association having its principal offices in Boston, Massachusetts (the "Bank"). WHEREAS, the Company is making an exchange offer (hereinafter referred to, together with any amendment or extensions thereof, as the "Exchange Offer") to exchange newly issued shares of its Class H Common Stock, par value $0.10 per share (the "Class H Common Stock"), having an aggregate market value of up to $9 billion at the time of commencement, for outstanding shares of its Common Stock, $1-2/3 par value per share (the "$1-2/3 Par Value Common Stock"), upon the terms and subject to the conditions set forth in the final Offering Circular-- Prospectus, (the "Offering Circular--Prospectus") included in the Registration Statement on Form S-4 (No. 333-30826), and in the related Letter of Transmittal including the Instructions to the Letter of Transmittal (the "Letter of Transmittal"); WHEREAS, the Bank is presently the Stock Transfer Agent and Registrar for the Company's various classes of stock; and WHEREAS, the Company desires that the Bank act as Exchange Agent in connection with the Exchange Offer, and the Bank (hereinafter referred to from time to time as the "Exchange Agent", the "Transfer Agent" or the "Registrar") has indicated its willingness to do so. NOW, THEREFORE, in consideration of the mutual covenants contained herein and in the Exchange Offer, the parties hereto agree as follows: 1. Appointment of Exchange Agent. The Company hereby appoints the Bank as Exchange Agent for the purpose of exchanging certificates representing (or other evidence of ownership of) shares of $1-2/3 Par Value Common Stock for certificates representing (or other evidence of ownership of) shares of Class H Common Stock in accordance with the terms and conditions of the Exchange Offer as set forth in the Offering Circular--Prospectus and the Letter of Transmittal. The Bank hereby agrees to serve as such, upon the terms and conditions set forth herein. In connection with such appointment, the Company has delivered to you a copy of the Offering Circular--Prospectus, dated April , 2000, a copy of the Letter of Transmittal, a copy of the letter from the Company to holders of $1-2/3 Par Value Common Stock, a copy of the checklist for participation in the Exchange Offer, a copy of the 1 Notice of Guaranteed Delivery, a copy of the letter to brokers, dealers, commercial banks, trust companies and other nominees, a copy of the letter to clients for use by brokers, dealers, commercial banks, trust companies and other nominees, a copy of the guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9, and certain other documents which the Company has elected to provide. 2. Notification and Processing. The Exchange Agent is hereby authorized and directed, and hereby agrees, to: A. Provide file containing the name and address of each holder of record of $1-2/3 Par Value Common Stock. The file for holders in certain foreign jurisdictions, which the Company will designate for the Exchange Agent shall be segregated from the file for all other holders. The Exchange Agent shall deliver such files, upon the Company's demand, to such person or entity as the Company shall designate. B. Accept and respond to all telephone requests for information relating to the exchange of shares pursuant to the Exchange Offer. C. Receive and examine all certificates representing shares of $1-2/3 Par Value Common Stock (the "Tendered Shares") tendered for exchange and accompanying Letters of Transmittal for proper execution in accordance with the terms thereof. Such examination shall include determination that such certificates representing Tendered Shares are in proper form for transfer on the share registry books of the Company, verification that no stop order has been issued against the Tendered Shares by reason of mutilation, loss, theft, destruction or other invalidity and that the certificates representing (or other evidence of ownership of) Tendered Shares otherwise comply with the Instructions to the Letter of Transmittal. In the event that any Letter of Transmittal has been improperly completed or executed, or the certificates representing (or other evidence of ownership of) the Tendered Shares are not in proper form for transfer (as required by the Instructions to the Letter of Transmittal), or if some other irregularity in connection with the exchange of such Tendered Shares exists, the Exchange Agent shall notify the stockholder of the deficiency in order to enable the stockholder to correct such irregularity. Determination of all questions as to the validity, form, eligibility (including timeliness of receipt) and acceptance of the Tendered Shares exchanged or tendered shall be determined by the Exchange Agent on behalf of the Company in the first instance, but final decisions on all such matters shall be made by the Company in its sole and absolute discretion. The Company reserves in the Exchange Offer the absolute right to reject any or all exchanges of any particular Tendered Shares not in the appropriate form or the acceptance of which would, in the opinion of the Company's counsel, be unlawful and to waive any of the conditions of the Exchange Offer or any defect or irregularity in the exchange of the Tendered Shares, and the Company's interpretation of the terms and conditions of the Exchange Offer will be final in all cases. 2 D. Exchange all Tendered Shares in accordance with the terms and conditions of the Exchange Offer, as such are set forth in the Offering Circular--Prospectus and the Letter of Transmittal. E. Make appropriate arrangements with The Depository Trust Company and any other "qualified" registered securities depository to allow for the book- entry movement of the Tendered Shares between depository participants and the Exchange Agent. F. An exchanging stockholder may withdraw its tender as set forth in the Offering Circular--Prospectus and the Letter of Transmittal, in which event, you shall as promptly as possible after notification of such withdrawal, return such Tendered Shares in accordance with the terms and conditions of the Exchange Offer. The Company may ask to review any Tender Share certificates, Letters of Transmittal, notices of withdrawal or other documents relating to the Exchange Offer. All questions as to the form and validity of notices of withdrawal, including timeliness of receipt, shall be determined by the Company in its sole and absolute discretion, whose determination shall be final and binding in all cases. G. On each business day up to and including the expiration date of the Exchange Offer (including any extensions thereof), you shall advise by facsimile transmission, not later than 5:00 p.m. Eastern Time, the Company and such other persons (including, without limitation, the Dealer Manager in the Exchange Offer) as it may direct, of the number of shares of $1-2/3 Par Value Common Stock which have been duly delivered on such day, stating separately the number of such shares delivered by Notices of Guaranteed Delivery, the number of such shares about which you have questions concerning validity, the number of Tendered Shares withdrawn and the cumulative number of such shares delivered by facsimile transmission. You shall also inform the aforementioned persons, and such other persons as any of them may designate, upon request of such other information as any of them may request, including, without limitation, the names and addresses of registered holders of exchanged shares of $1-2/3 Par Value Common Stock. H. Retain or return to stockholders (as applicable) those Tendered Shares and accompanying exchange documents evidencing some deficiency (and make reasonable attempts to inform such holders of $1-2/3 Par Value Common Stock of the need to correct such deficiency) and return to stockholders their Tendered Shares which are rejected by the Company due to proration of the Exchange Offer. I. Accept exchanges signed by persons acting in a fiduciary or representative capacity only if such capacity is shown on the Letter of Transmittal and proper evidence of their authority so to act has been submitted in accordance with the terms and conditions of the Exchange Offer. J. Accept exchanges from persons alleging loss, theft or destruction of their certificates if Box A on the Letter of Transmittal is properly completed and the appropriate payment for the corporate bond is provided. 3 K. Accept exchanges for Class H Common Stock to be issued other than in the name that appears on the certificates representing (or other evidence of ownership) Tendered Shares, to the extent such exchanges comply with the terms and conditions of the Exchange Offer as set forth in the Offering Circular-- Prospectus and the Letter of Transmittal. L. In accordance with the Exchange Agent's final report, which the Exchange Agent shall deliver to the Company no later than Eastern Time on the day which is four NYSE trading days following the expiration (including any extension thereof) of the Exchange Offer, shall provide to the Company the final number of shares of $1-2/3 Par Value Common Stock to be accepted and the final number of shares of Class H Common Stock to be distributed in the Exchange Offer based on the exchange ratio and proration set forth in the Offering Circular--Prospectus. M. Issue or otherwise record, as Stock Transfer Agent and Registrar for Company Common Stock, upon surrender of certificates representing (or other evidence of ownership of) Tendered Shares and properly executed Letters of Transmittal, such number of shares of Class H Common as is indicated by the exchange ratio (taking into account proration) as set forth in the Offering Circular--Prospectus, registered in such names as are appropriate pursuant to properly executed Letters of Transmittal, for every Tendered Share represented by such Certificate(s); provided that no fractional shares of Class H Common Stock shall be issued. N. Cancel, as Exchange Agent, all Tendered Shares accepted for exchange. O. Promptly deliver, in accordance with the Letter of Transmittal, evidence of Class H Common Stock issued as provided in paragraph H above. P. Pay such cash without earnings or interest (the "Cash Payments") to holders of Tendered Shares accepted for exchange instead of the issuance of fractional shares of Class H Common Stock as is provided for in the Exchange Offer. Q. Prepare and file with the appropriate governmental agency and stockholder Form 1099B in connection with the Exchange Offer. R. Comply with Internal Revenue Service regulations with respect to due diligence in obtaining a certified Tax Identification Number for each tendering stockholder. S. Cooperate in all respects with the Information Agent for the Exchange Offer, the Dealer Manager for the Exchange Offer, the financial advisors for the Company, the Company's counsel and any other agents of the Company in carrying out its duties. 4 T. Follow and act upon all instructions in connection with your duties as Exchange Agent in connection with the Exchange Offer which may be given to you by the Company or any other person it may authorize in writing. 3. Concerning the Exchange Agent. The Exchange Agent: A. shall have no duties or obligations other than those specifically set forth herein or as may subsequently be requested of the Exchange Agent by the Company or any other person it may authorize in connection with the Exchange Offer; B. may rely on and shall be held harmless by the Company in acting upon any certificate, instrument, opinion, notice, letter, facsimile transmission, telegram or other document, or any security delivered to it, and reasonably believed by it to be genuine and to have been signed by the proper party or parties; C. may rely on and shall be held harmless in acting upon written or oral instructions from the Company or such other persons it may authorize with respect to any matter relating to its acting as Exchange Agent specifically covered by this Agreement; and D. may, at its sole expense, consult with counsel satisfactory to it and shall be held harmless in relying on the written advice or opinion of such counsel in respect of any action taken, suffered or omitted by it hereunder in good faith and in accordance with such advice or opinion of such counsel. 4. Compensation of the Exchange Agent by the Company. The Company shall pay fees for the services rendered hereunder, as set forth in the attached Fee Schedule. The Exchange Agent shall also be entitled to reimbursement from the Company for all reasonable and necessary expenses paid or incurred by it in connection with the administration by the Exchange Agent of its duties hereunder. 5. Indemnification. The Company covenants and agrees to indemnify and to hold the Exchange Agent harmless against any costs, expenses (including reasonable fees of its legal counsel), losses or damages, which may be paid, incurred or suffered by or to which it may become subject, arising from or out of, directly or indirectly, any claims or liability resulting from its actions as Exchange Agent pursuant hereto; provided, that such covenant and agreement does not extend to, and the Exchange Agent shall not be indemnified or held harmless with respect to, such costs, expenses, losses and damages incurred or suffered by the Exchange Agent as a result of, or arising out of, its negligence, bad faith, or willful misconduct or any of its directors, officers, employees, agents or representatives. In no case will the 5 Company be liable under this Section 5 unless, promptly after the receipt by the Exchange Agent of notice of any demand or claim or the commencement of any action, suit, proceeding or investigation, the Exchange Agent shall, if a claim in respect thereof is to be made against the Company, notify the Company thereof in writing. The Company shall be entitled to participate as its own expense in the defense of any such claim or proceeding, and, if it so elects at any time after receipt of such notice, it may assume the defense of any suit brought to enforce any such claim or of any other legal action or proceeding. In the event the Company assumes the defense of any such suit, the Company may select counsel of its own choosing for such purpose and the company shall not be liable for the fees and expenses of any other additional counsel thereafter retained (or who continues thereafter to be retained) by the Exchange Agent. The Exchange Agent shall in no case confess any claim or make any compromise in any case in which the Company may be required to indemnify it without the Company's prior written consent. The Company, its subsidiaries and affiliates, and their respective directors, officers, employees, agents and representatives, shall be indemnified and held harmless by the Exchange Agent, from and against any and all reasonable expenses (including reasonable counsel fees and disbursements), or costs, losses or damages suffered, which any of them may pay, incur or suffer or to which any of them may become subject by reason of or arising out of the negligence, willful misconduct or bad faith of the Exchange Agent or any of its directors, officers, employees, agents or representatives, or out of any failure by the Exchange Agent to perform its obligations under this Agreement. The Company shall in no case confess any claim or make any compromise in any case in which the Exchange Agent may be required to indemnify it without the Exchange Agent's prior written consent. For the purposes of this Section 5, the term "expense or loss" means any amount paid to satisfy any claim, demand, action, suit or proceeding, and all reasonable costs and expenses, including, but not limited to, reasonable counsel fees and disbursements, paid or incurred in investigating or defending against any such claim, demand, action, suit, proceeding or investigation. 6. Further Assurance. From time-to-time and after the date hereof, the Company shall deliver or cause to be delivered to the Exchange Agent such further documents and instruments and shall do and cause to be done such further acts as the Exchange Agent shall reasonably request (it being understood that the Exchange Agent shall have no obligation to make any such request) to carry out more effectively the provisions and purposes of this Exchange Agent Agreement, to evidence compliance herewith or to assure itself that it is protected in acting hereunder. 7. Term. This Agreement shall remain in effect until such time as the Exchange Agent has completed all of its duties hereunder, or such earlier time as to which the parties shall mutually agree. 6 8. Notices. Until further notice in writing by either party hereto to the other party, all written reports, notices and other communications between the Exchange Agent and the Company required or permitted hereunder shall be delivered or mailed by first class mail, postage prepaid, addressed as follows: If to the Company, to: General Motors Corporation 300 Renaissance Center Mail Code 482-C25-C22 Detroit, Michigan 48265-3000 Attention: Warren G. Andersen If to the Exchange Agent, to: Fleet National Bank c/o EquiServe Limited Partnership 150 Royall Street Canton, MA 02021 Attn: Corporate Actions Department 9. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of The State of Delaware and shall inure to the benefit of and the obligations created hereby shall be binding upon the successors and assigns of the parties hereto. 10. Assignment A. Except as provided in Section 10(B) below, neither this Agreement nor any rights or obligations hereunder may be assigned by either party without the written consent of the other party. B. The Exchange Agent may, without further consent on the part of the Company, (i) subcontract for the performance hereof with EquiServe Limited Partnership or (ii) subcontract with other subcontractors for systems, processing, and telephone and mailing services as may be required from time to time; provided, however, that the Exchange Agent provides the Company at least ten business days' prior written notice thereof and shall be as fully responsible to the Company for the acts and omissions of any subcontractor as it is for its own acts and omissions. C. Except as explicitly stated elsewhere in this Agreement, nothing under this Agreement shall be construed to give any rights or benefits in this Agreement to anyone other than the Exchange Agent and the Company and the duties and responsibilities undertaken pursuant to this Agreement shall be for the sole and exclusive benefit of the Exchange Agent and the Company. This Agreement shall inure to the benefit of and be binding upon the parties and their respective permitted successors and assigns. 7 11. Amendment. Except as otherwise provided in this Agreement (including, without limitation pursuant to Section 3T hereof), this Agreement may not be changed orally or modified, amended or supplemented without an express written agreement executed by each of the parties hereto. 12. Counterparts. This Agreement may be executed in separate counterparts, each of which when executed and delivered shall be an original, but all such counterparts shall together constitute but one and the same instrument. 13. Third Party Beneficiaries. This Agreement does not constitute an agreement for a partnership or joint venture between the Exchange Agent and the Company. Neither party shall make any commitments with third parties that are binding on the other party without the other party's prior written consent. 15. Consequential Damages. Neither party to this Agreement shall be liable to the other party for any consequential, indirect, special or incidental damages under any provision of this Agreement or for any consequential, indirect, special or incidental damages arising out of any act or failure to act hereunder even if that party has been advised of or has foreseen the possibility of such damages. 16. Severability. If any provision of this Agreement shall be held invalid, unlawful, or unenforceable, the validity, legality, and enforceability of the remaining provisions shall not in any way be affected or impaired. 17. Confidentiality. The Exchange Agent and the Company agree that all books, records, information and data pertaining to the business of the other party which are exchanged or received pursuant to the negotiation or the carrying out of this Agreement including the fees for services set forth in the attached schedule shall remain confidential, and shall not be voluntarily disclosed to any other person, except as may be required by law. 18. Merger of Agreement. This Agreement constitutes the entire agreement between the parties hereto and supersedes any prior agreement with respect to the subject matter hereof, whether oral or written. * * * * * 8 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers, hereunto duly authorized, as of the day and year first above written. FLEET NATIONAL BANK GENERAL MOTORS CORPORATION By: ____________________________ By: ___________________________ Title: ____________________________ Title: ___________________________ Date: ____________________________ Date: ___________________________ 9 EX-99.14 17 FORM OF REGISTRATION RIGHTS AGREEMENT Exhibit 99.14 REGISTRATION RIGHTS AGREEMENT By and Among GENERAL MOTORS CORPORATION and UNITED STATES TRUST COMPANY OF NEW YORK as Trustee of THE GENERAL MOTORS HOURLY-RATE EMPLOYEES PENSION PLAN and as a Trustee of a dedicated account within THE GENERAL MOTORS WELFARE BENEFIT TRUST
TABLE OF CONTENTS 1. Contribution of Registrable Securities.............................. 2 2. Restrictions on Transfer............................................ 4 3. Demand Transfers....................................................12 4. Piggyback Registration..............................................18 5. Holdback Period.....................................................20 6. Other Registration Rights...........................................21 7. Demand, Piggyback and Shelf Registration Procedures.................24 8. Participation in Underwritten Transfers.............................27 9. Registration Expenses and Legal Counsel.............................27 10. Indemnification.....................................................27 11. Definitions.........................................................30 12. Miscellaneous.......................................................36
EXHIBITS -------- EXHIBIT A .................................... Form of Transfer Agreement EXHIBIT B ........................................ Interest Rate Schedule EXHIBIT C .................................. Form of Succession Agreement
i REGISTRATION RIGHTS AGREEMENT This Agreement is entered into on ________ __, 2000, by and among General Motors Corporation, a Delaware corporation (sometimes referred to herein as "Issuer"), and United States Trust Company of New York, as trustee (the "Pension Plan Trustee") of a trust established under the General Motors Hourly-Rate Employees Pension Plan (the "Pension Plan") for the account and on behalf of the Pension Plan (which shall thereby be deemed a party to this Agreement) and United States Trust Company of New York, as a trustee (the "VEBA Trustee" and, together with the Pension Plan Trustee, the "Trustees") of a dedicated account within the General Motors Welfare Benefit Trust, a voluntary employees' beneficiary association trust established to fund certain hourly retiree health care and life insurance benefits under the General Motors Health Care Program for Hourly Employees and other applicable welfare plans (the "VEBA"), for the account and on behalf of the VEBA (which shall thereby be deemed a party to this Agreement). Each of the Pension Plan and the VEBA are sometimes referred to herein as "Donee" or collectively as "Donees." The term "Donees" as used in Sections 3 through 12 hereof shall mean the Pension Plan and the VEBA jointly during any time period in which the VEBA continues to hold Registrable Securities and shall mean the Pension Plan individually during any other period in which the Pension Plan continues to hold Registrable Securities. Capitalized terms used and not otherwise defined herein shall have the respective meanings set forth in Section 11. WHEREAS, Issuer intends, subject to the satisfaction of certain regulatory and other conditions, to contribute approximately [___] million shares of Class H Common Stock to the Pension Plan and the VEBA; and WHEREAS, each of the Pension Plan and the VEBA is prepared to accept the Class H Common Stock that may be contributed to it as described herein and to hold and dispose of any such Class H Common Stock on the terms and conditions hereinafter stated; and WHEREAS, General Motors, the Pension Plan and the VEBA have entered into a Transfer Agreement, dated as of the date hereof, substantially in the form of Exhibit A attached hereto (as such agreement may be amended or modified from time to time, the "Transfer Agreement"), pursuant to which each of the Pension Plan and the VEBA has agreed to hold and dispose of the Class H Common Stock owned by it on the terms and conditions stated therein; and WHEREAS, the Trustee has been appointed by the named fiduciary of the Pension Plan (the "Pension Plan Named Fiduciary") (as determined in accordance with Section 402(a) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA")), to manage any shares of Class H Common Stock contributed to the Pension Plan as described herein and to exercise all rights, powers and privileges appurtenant to such shares (subject to the authority of the Pension Plan Named Fiduciary to terminate such appointment and appoint one or more other investment managers for any such shares); and WHEREAS, the Trustee has been appointed by the named fiduciary of the VEBA (the "VEBA Named Fiduciary") (as determined in accordance with Section 402(a) of ERISA), to manage any shares of Class H Common Stock contributed to the VEBA as described herein and to exercise all rights, powers and privileges appurtenant to such shares (subject to the authority of the VEBA Named Fiduciary to terminate such appointment and appoint one or more other investment managers for any such shares); and WHEREAS, the Trustees have full power and authority to execute and deliver this Agreement for the account and on behalf of each of the Pension Plan and the VEBA and to so bind the Pension Plan and the VEBA; NOW, THEREFORE, in consideration of the foregoing and the mutual agreements set forth herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Issuer, the Pension Plan and the VEBA agree as follows: 1. Contribution of Registrable Securities. -------------------------------------- (a) Issuer agrees that any contribution of Registrable Securities made by Issuer to the Pension Plan or the VEBA (each such contribution being hereinafter referred to as a "Contribution") shall be made only on such days as the New York Stock Exchange, Inc. ("NYSE") shall be open for trading (a "Business Day"). (b) The Pension Plan represents that it beneficially owns [__________] shares of Class H Common Stock as of the date hereof. The VEBA represents that it does not beneficially own any shares of Class H Common Stock as of the date hereof. (c) Issuer agrees that it shall give the Pension Plan Trustee and its valuation adviser or the VEBA Trustee and its valuation adviser, as applicable, notice by teleconference after the close of normal trading on the NYSE but no later than 5:00 p.m., New York time, on the Business Day prior to the Business Day on which Issuer contemplates making a Contribution to the Pension Plan or the VEBA, as applicable, that it contemplates making such a Contribution; provided, however, that such notice shall be revocable by Issuer at any time in its sole discretion prior to the conclusion of the teleconference referred to in Section 1(d). In such teleconference, Issuer shall state the date on which Issuer contemplates making the proposed Contribution and a range for the number of Registrable Securities which may be contributed, and the Pension Plan Trustee or the VEBA Trustee, as applicable, each together with its valuation adviser, will estimate a value per share, based on the closing price on the day of notice on the NYSE of Class H Common Stock, at various points within such range. (d) At any time after 4:30 p.m., New York time, but in any event prior to 8:00 p.m., New York time, on the day of the proposed Contribution, Issuer will give the Pension Plan Trustee and its valuation adviser or the VEBA Trustee and its valuation adviser, as 2 applicable, notice by teleconference of its continued interest, if any, in making a Contribution to the Pension Plan or the VEBA, as applicable. In such teleconference, Issuer will make one or more estimates of the specific number of Registrable Securities which Issuer may contribute, and the Pension Plan Trustee or the VEBA Trustee, as applicable, each together with its valuation adviser, will state the value per share it would assign for the Contribution based on each such estimate and based on the closing price on such date on the NYSE of Class H Common Stock. If Issuer so decides, it shall irrevocably commit itself in such teleconference to contribute a number of Registrable Securities equal to one of such estimates, and, as applicable, the Pension Plan Trustee's or the VEBA Trustee's valuation adviser shall be irrevocably committed to opine to the applicable value per share previously stated by it in such teleconference. The Contribution, if any, shall be effective at the end of such teleconference, and the value per share for purposes of such Contribution shall be such stated value. As soon as practicable after the teleconference in which a Contribution is made, Issuer shall deliver instructions to its transfer agent to issue the Registrable Securities so contributed (in the form described below) and to register such Registrable Securities in the name of the Pension Plan or the VEBA, as applicable, or their nominees, and Issuer shall confirm such Contribution by delivering copies of such transfer instructions to the Pension Plan Trustee or the VEBA Trustee, as applicable. As soon as practicable after the teleconference, the Pension Plan Trustee's or the VEBA Trustee's valuation adviser will deliver to the Pension Plan Trustee or the VEBA Trustee, as applicable, with a copy to Issuer, its written valuation opinion, confirming the valuation given in the teleconference. (e) Delivery of certificates representing (or other evidence of ownership of) the duly authorized, validly issued, fully paid and nonassessable shares of Class H Common Stock contributed in a Contribution shall be made to the Pension Plan or the VEBA at the offices of the Pension Plan Trustee or the VEBA Trustee, as applicable (or such other place as may be mutually agreed upon), in such form as shall permit, subject to the provisions of this Agreement, the Transfer of the Registrable Securities through normal means of settlement (subject to the proviso in the next following sentence), not later than 5:00 p.m., New York time, on the fourth full Business Day after such Contribution. Such certificates (or other evidence of ownership) shall be in due and proper form for delivery under applicable corporate law and shall be accompanied by such other documents and certificates as may be reasonably requested by the Pension Plan Trustee or the VEBA Trustee, as applicable, to confirm that the Pension Plan or the VEBA, upon receipt of such certificates (or other evidence of ownership), may, subject to the provisions of this Agreement, Transfer record and beneficial ownership of the shares of Class H Common Stock represented by such certificates (or other evidence of ownership thereof); provided, however, that, subject to Section 1(f) below, each certificate representing the Registrable Securities shall conspicuously bear legends in substantially the following form, and each uncertificated share of Registrable Securities shall have an appropriate designation made in the book-entry records relating thereto, to the following effect: "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN 3 REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAW AND, UNLESS SO REGISTERED, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS. THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A REGISTRATION RIGHTS AGREEMENT, DATED _________ __, 2000 (THE "REGISTRATION RIGHTS AGREEMENT"), BY AND AMONG THE ISSUER OF SUCH SECURITIES (THE "COMPANY") AND UNITED STATES TRUST COMPANY OF NEW YORK, AS TRUSTEE OF THE PENSION TRUST (AS DEFINED IN THE REGISTRATION RIGHTS AGREEMENT) AND UNITED STATES TRUST COMPANY OF NEW YORK, AS A TRUSTEE OF THE VEBA (AS DEFINED IN THE REGISTRATION RIGHTS AGREEMENT), THAT CONTAINS, AMONG OTHER THINGS, CERTAIN RESTRICTIONS ON THE TRANSFER OF SUCH SECURITIES. A COPY OF SUCH REGISTRATION RIGHTS AGREEMENT WILL BE FURNISHED WITHOUT CHARGE BY THE COMPANY TO THE HOLDER HEREOF UPON WRITTEN REQUEST." (f) Issuer will instruct its transfer agent that, upon Transfer, the legends or the book-entry designation set forth in Section 1(e) shall be removed from the certificates representing shares of Class H Common Stock (or the book- entry records relating to such shares) involved in any Transfer by the Pension Plan or the VEBA if such Transfer is made in accordance with all applicable provisions of this Agreement; provided, however, that if such Transfer is a Negotiated Transfer (as defined below) that is not registered under the Securities Act, the first legend shall remain on the certificates representing such shares and a book-entry designation with respect to such shares held in book-entry form shall remain until such time as the restrictions cease to be applicable. (g) Each of the Pension Plan and the VEBA, severally and not jointly, represents and warrants that it, together with its investment managers, has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of an investment in the Registrable Securities. Each of the Pension Plan and the VEBA understands and acknowledges that the Contributions have not been and will not be registered under the Securities Act or any state securities law and that the Registrable Securities may not be the subject of any Transfer except as expressly permitted by this Agreement. 2. Restrictions on Transfer. ------------------------ (a) Neither the Pension Plan nor the VEBA shall make any Transfer of any Registrable Securities other than in accordance with the terms and conditions of this 4 Agreement. Without limiting the foregoing, each of the Pension Plan and the VEBA agree not to make any such Transfer except pursuant to any one or more of the following transactions: (i) a Public Transfer (as defined below); (ii) a Negotiated Transfer (as defined below); (iii) a Transfer described in and permitted by subsection (d), (e), (f), (g) or (h) of this Section 2; (iv) a Transfer described in and permitted by Section 4 or Section 6 below; (v) from and after such time as the aggregate ownership of Registrable Securities by both Donees has been reduced to less than 20 million shares of Class H Common Stock, a Transfer pursuant to any provision of Rule 144 under the Securities Act or any successor rule thereto ("Rule 144"); provided that no Transfer under this clause (v) may be made to any one Person (or group of related Persons) (whether such Person (or group of related Persons) is buying for its own account or as a fiduciary on behalf of one or more accounts) of more than 2% of the Class H Common Stock then outstanding; (vi) solely in the case of the VEBA, from and after such time as the VEBA reduces its ownership of Registrable Securities to less than 2 million shares of Class H Common Stock, a Transfer by the VEBA pursuant to any provision of Rule 144; provided that no Transfer under this clause (vi) may be made to any one Person (or group of related Persons) (whether such Person (or group of related Persons) is buying for its own account or as a fiduciary on behalf of one or more accounts) of more than 2% of the Class H Common Stock then outstanding; (vii) a Transfer to Issuer or a wholly-owned direct or indirect subsidiary of Issuer pursuant to a self-tender offer or otherwise; and (viii) a Transfer pursuant to a merger or consolidation in which Issuer or a wholly-owned direct or indirect subsidiary of Issuer is a constituent corporation. Except as provided in Section 6(b), no Transfer described in clause (iii), (iv), (v), (vi), (vii) or (viii) above shall be considered a Demand Transfer (as defined below). (b) Neither the Pension Plan nor the VEBA shall make any Transfer of Registrable Securities pursuant to a Demand Registration Statement (as defined below), a Shelf Registration Statement (as defined below) or a registration statement pursuant to a Piggyback Registration (as defined below) or a Strategic Partner Demand Registration (as defined below) other than in accordance with the plan of distribution described therein. 5 (c) Neither the Pension Plan nor the VEBA shall make any Transfer of securities convertible into or exercisable or exchangeable for the Registrable Securities or any other securities the value of which is derived from the Registrable Securities without obtaining the prior written consent of Issuer to such Transfer. (d) Notwithstanding the provisions of this Agreement to the contrary, the Pension Plan or the VEBA may at any time deliver to Issuer a written notice that it proposes to make a Transfer of Registrable Securities to or for the benefit of an employee benefit plan maintained or contributed to by Issuer or any of its affiliates in connection with the satisfaction of ordinary course funding obligations or investment objectives with respect to such employee benefit plan. Each notice of a proposed Transfer pursuant to this Section 2(d) shall be delivered a reasonable period of time before such proposed Transfer and, in any event, not less than 30 days before such proposed Transfer. (e) Notwithstanding the provisions of this Agreement to the contrary, each of the Pension Plan and the VEBA may at any time effect a Transfer by tendering any or all of the Registrable Securities into an exchange offer, a tender offer or a request or invitation for tenders (as such terms are used in Sections 14(d) or 14(e) of the Exchange Act and the rules and regulations of the Commission thereunder) (collectively, a "tender offer")) for Class H Common Stock if (X) such Transfer is effected within the 24- hour period immediately prior to the then scheduled expiration time for such tender offer, and (Y) at the time the Pension Plan or the VEBA propose to effect such Transfer: (i) Issuer (A) does not have in effect a stockholders rights plan or (B) has in effect a stockholders rights plan but there has been a redemption, revocation or similar invalidation of the preferred stock or other rights issued under such stockholders rights plan (the "Rights"), in either case as a result of (X) action of the Board of Directors of Issuer (or any committee thereof) in connection with such tender offer (including as a result of a finding that such tender offer was a "permitted offer" under the terms of such stockholders rights plan) or (Y) a final and non-appealable order of a court of competent jurisdiction issued in connection with such tender offer in response to a challenge to the validity and/or effects of such stockholders rights plan or Rights; or (ii) Issuer (A) does not have in effect a stockholders rights plan or (B) has in effect a stockholders rights plan but there has been a redemption, revocation or similar invalidation of any Rights issued thereunder, in either case other than as a result of the matters described in clause (i) above and other than as a result of a court order of the type described in clause (i) above that has not become final and non-appealable, and (X) the Board of Directors of Issuer has not recommended rejection of such tender offer pursuant to Rule 14e-2(a) under the Exchange Act or any successor thereto ("Rule 14e-2(a)"), or (Y) at least half of the members of the Board of Directors of Issuer who are not officers or employees of Issuer and who are not representatives, nominees or affiliates of the bidder (as defined in Rule 14d-l(e) under the Exchange Act or any 6 successor thereto) (the "Bidder") making such tender offer (collectively, the "Independent Directors") did not recommend rejection of such tender offer when the Board of Directors of Issuer determined the position of Issuer with respect to such tender offer as contemplated by Rule 14e-2(a) or (Z) there are fewer than two members of the Board of Directors of Issuer that are Independent Directors at the time the Board of Directors of Issuer considers such tender offer; or (iii) Issuer (A) does not have in effect a stockholders rights plan or (B) has in effect a stockholders rights plan but there has been a redemption, revocation or similar invalidation of any Rights issued thereunder, in either case other than as a result of the matters described in clause (i) above and other than as a result of a court order of the type described in clause (i) above that has not become final and non-appealable and other than as a result of a proposal initiated, recommended, endorsed, supported or encouraged, directly or indirectly, publicly or privately, by the applicable Donee (it being understood that, for purposes of this subsection (iii), a vote by a Donee in favor of any such proposal shall constitute support of such Donee for such proposal), and both (X) the applicable Donee, after consultation with its legal counsel and financial advisors, has concluded in good faith that the Minimum Tender Condition with respect to such tender offer will likely be satisfied without giving effect to any shares of Class H Common Stock tendered or to be tendered into such tender offer by such Donee and (Y) after the date of the commencement of such tender offer and prior to the 24-hour period immediately prior to the then scheduled expiration time of such tender offer, Issuer has not given written notice to such Donee that such Transfer may not be made under this subsection (iii), which notice included the good faith determination of the Board of Directors of Issuer as to the Put Price as contemplated by Section 2(f)(iii) (or, if given, such notice has been withdrawn in writing). If, at any time after either Donee has made a Transfer by tendering Registrable Securities into a tender offer pursuant to this Section 2(e), the Bidder making such tender offer decreases the percentage or number of shares of Class H Common Stock being solicited for purchase, decreases the amount or changes the form of consideration offered to tendering stockholders or otherwise makes a material change or waives a material condition in the terms of such tender offer such that the then scheduled expiration date of such tender offer is extended, then such Donee shall, upon the request of Issuer, withdraw such Registrable Securities from such tender offer as promptly as practicable, subject to the such Donee's rights to tender Registrable Securities again as contemplated by this Agreement. If either Donee is not permitted to make a Transfer of Registrable Securities pursuant to Section 2(g), promptly (and in any event within one Business Day after any public announcement with respect thereto) after the Board of Directors of Issuer determines the position of Issuer with respect to any tender offer as contemplated by Rule 14e-2(a), Issuer shall give such Donee written notice of such position by the Board of Directors of Issuer and by the Independent Directors as described in subsection (ii) above. If there are fewer than 7 two members of the Board of Directors of Issuer that are Independent Directors at the time the Board of Directors of Issuer considers such tender offer, such notice shall so state. If, based on such positions by the Board of Directors of Issuer and the Independent Directors, a Transfer to be made by tendering into such tender offer would be permitted only by subsection (iii) of this Section 2(e) (excluding for purposes of such determination the conditions set forth in clauses (X) and (Y) of such subsection (iii)), Issuer shall promptly commence arranging financing so that it will be able to pay in full all amounts due in connection with any exercise of the Put Right (as defined below) in connection with such tender offer and shall use all commercially reasonable efforts to obtain such financing so as to pay all such amounts as and when due (it being understood that the obligation of Issuer to make payment at the Put Closing (as defined below) shall be absolute and that compliance with this sentence shall not relieve Issuer of its obligations under this Agreement or excuse performance hereunder). (f) (i) If either Donee in good faith desires to effect a Transfer of Registrable Securities by tendering into a tender offer and such Transfer would be permitted only by subsection (iii) of Section 2(e) (assuming that Issuer has not and will not give the notice described in such subsection (iii) that such Transfer may not be made thereunder) then the applicable Donee shall, no later than 96 hours prior to the then scheduled expiration time for such tender offer, deliver to Issuer a written notice (the "Tender Notice") of such proposed tender that specifies the number of shares of Registrable Securities proposed to be so tendered. If, after the delivery of such Tender Notice and prior to the then scheduled expiration time for such tender offer, the Bidder making such tender offer amends the terms thereof or another Bidder commences a tender offer for shares of Class H Common Stock, then each Donee may revoke such Tender Notice by delivering written notice thereof to Issuer at any time prior to the then scheduled expiration time for the tender offer that was the subject of such Tender Notice. No such revocation shall limit the Pension Plan's or the VEBA's rights to deliver a Tender Notice with respect to any tender offer, including any such amended tender offer or new tender offer. (ii) If (A) either Donee has delivered, and not revoked, a Tender Notice with respect to a tender offer, each in accordance with subsection (i), (B) Issuer has given (and not withdrawn) the notice described in subsection (iii) of Section 2(e) that such Transfer may not be made under such subsection (iii), (C) the Minimum Tender Condition with respect to such tender offer has been satisfied and shares required to satisfy such Minimum Tender Condition have been accepted for purchase and purchased pursuant to such tender offer and (D) effecting a Transfer of Registrable Securities to Issuer pursuant to an exercise of the Put Right would not violate the Transfer Agreement, then the applicable Donee shall have the right (the "Put Right") to require Issuer to purchase up to the number of shares of Registrable Securities specified in the Tender Notice multiplied by, if applicable, the proration fraction applied to determine the number of shares of Class H Common Stock purchased from each tendering 8 stockholder pursuant to such tender offer (the "Maximum Share Number"). The purchase price per share at which Issuer shall be required to purchase such Registrable Securities shall be equal to the price per share of Class H Common Stock paid in such tender offer (or, to the extent such tender offer price was paid in consideration other than cash, the cash equivalent of the fair market value thereof as of the expiration time of such tender offer determined as described below) (the "Put Price"). The applicable Donee may exercise the Put Right, in whole or in part, by delivering to Issuer a written notice (the "Exercise Notice") of such exercise that specifies the number of Registrable Securities to be purchased pursuant to such exercise (which number shall not exceed the Maximum Share Number). The delivery of the Exercise Notice shall constitute an agreement binding upon the Pension Plan and/or the VEBA, as applicable, to sell, and upon Issuer to purchase, such Registrable Securities. The term of the Put Right shall commence immediately after the Bidder making such tender offer accepts for purchase and purchases shares of Class H Common Stock tendered pursuant to such tender offer and shall terminate ten days after Issuer gives the applicable Donee notice that such purchase has occurred. (iii) If any portion of the tender offer price for any tender offer is payable in consideration other than cash: (A) any notice given by Issuer to the applicable Donee under subsection (iii) of Section 2(e) that a Transfer may not be made under such subsection (iii) shall include a good faith determination by the Board of Directors of Issuer as to the Put Price; (B) if the Put Right has become exercisable as described in subsection (ii) above in connection with such tender offer, within 24 hours after the expiration time for such tender offer, Issuer shall deliver to the applicable Donee a notice (the "Put Price Notice") confirming the (or, if necessary, setting forth a revised) good faith determination of Issuer's Board of Directors as to the Put Price; and (C) in the Exercise Notice, if any, the applicable Donee shall either agree to the Put Price as set forth in the Put Price Notice or set forth its own good faith determination as to the Put Price. Each such determination shall separately identify the value attributed to each component of the consideration offered in such tender offer. If the applicable Donee does not so agree to the Put Price as set forth in the Put Price Notice and Issuer and the applicable Donee, negotiating in good faith, are unable to reach an agreement on the Put Price within 15 days after delivery of an Exercise Notice, an investment banking firm shall be selected and instructed to determine the Put Price as contemplated herein and submit to Issuer and the applicable Donee promptly (and in any event no later than 30 days after the delivery of the Exercise Notice) a written report setting forth such determination. If Issuer and the applicable Donee are unable to agree on an investment banking firm within 15 days after delivery of an Exercise Notice, a firm shall be selected by lot (until a firm so selected has agreed to accept the engagement to determine the Put Price as contemplated herein) from the top eight New York-based investment banking firms, as determined in each case by dollar volume of equity offerings in which such firms acted as lead underwriters, on the basis of the most recently available information, after Issuer and the applicable Donee have each eliminated one such firm and after the 9 elimination of each such firm that represented the Bidder, Issuer, or the applicable Donee in connection with such tender offer or, within the 365- day period prior to the delivery of the Put Notice, otherwise performed substantial services for the Bidder. If, as a result of the selection process set forth in the preceding sentence, no such firm is eligible to be so selected or no such firm accepts the engagement, Issuer and the applicable Donee shall promptly agree on an alternative process to promptly select an investment banking firm to determine the Put Price as contemplated herein. In any case, the fees and expenses of such firm shall be borne by Issuer, and the determination of such firm shall be final and binding upon all parties; provided, that if such determination results in a Put Price greater than the Put Price set forth by the applicable Donee in the Exercise Notice, the Put Price determined by such firm shall be deemed to equal the Put Price set forth in the Exercise Notice for purposes hereof. Issuer and the applicable Donee shall cooperate and provide each other (and any such firm) with the information (in reasonable detail) used in making its determinations with respect to the Put Price. Issuer shall cooperate with any investment banking firm engaged to determine the Put Price hereunder, including providing information as reasonably requested by such firm in connection with such determination. (iv) The closing (the "Put Closing") of the purchase and sale of the Registrable Securities specified in the Exercise Notice shall occur no later than 90 days after the delivery of the Exercise Notice (or, if such day is not a Business Day, the immediately following Business Day) (the "Final Date"), at a time and place mutually agreeable to Issuer and the applicable Donee. If Issuer and the applicable Donee are unable to agree on a time and place for the Put Closing, the Put Closing shall be at 10:00 a.m. (local time) at the principal executive offices of Issuer on the Final Date; provided, that the Issuer may specify that the Put Closing occur on any Business Day prior to the Final Date by giving written notice to the applicable Donee, at least two Business Days prior to the date so specified. At the Put Closing, Issuer shall pay to the applicable Donee by wire transfer of immediately available funds to the account designated in writing by the applicable Donee, an amount (the "Base Purchase Price") equal to (Y) the Put Price, multiplied by (Z) the number of shares of Registrable Securities to be purchased, together with interest on the Base Purchase Price at the interest rate determined as set forth in Exhibit B attached hereto for the period from and including the fifth Business Day after the delivery of the Exercise Notice through but excluding the day the Base Purchase Price (and all accrued interest thereon) is paid in full (calculated on the basis of actual days elapsed and a 365-day year). At the Put Closing, the applicable Donee shall deliver to Issuer certificates representing (or other evidence of ownership of) the Registrable Securities to be sold to Issuer, together with duly executed stock powers endorsed in blank or other instruments of transfer, and shall execute and deliver such other certificates, agreements and instruments as Issuer may reasonably request to effect such sale (which shall include a representation and warranty of the applicable Donee that all Registrable Securities sold to Issuer pursuant to the Put Right are owned of record by the applicable Donee, free and clear of any liens, pledges, security interests, 10 encumbrances, equities, claims, options or limitations of whatever nature (other than those contemplated by this Agreement) but which shall not include any further representations and warranties from the applicable Donee). (g) Notwithstanding any provisions of this Agreement to the contrary, at any time that the Donees collectively own Registrable Securities that constitute 7.5% or less of the Class H Common Stock on a fully-diluted basis (calculated for such purpose without giving effect to options, warrants or other rights exercisable for the Class H Common Stock issued or issuable pursuant to any employee stock option or other benefit plan maintained by Issuer), either Donee may effect a Transfer by tendering any or all of the Registrable Securities into a tender offer for Class H Common Stock. (h) Nothing in this Agreement shall prohibit Issuer and the Pension Plan or the VEBA from at any time agreeing to effect or effecting a Transfer of Registrable Securities from the Pension Plan or the VEBA to Issuer or any of its consolidated subsidiaries. If Issuer or any of its consolidated subsidiaries, to the extent permitted by ERISA and other applicable laws and regulations, intends to purchase Class H Common Stock on the open market for or on behalf of any employee benefit plan maintained or contributed to by Issuer, any of its consolidated subsidiaries or any of their predecessors or successors, it shall make reasonable efforts to consult in good faith with the Donees with respect to the possibility of purchasing such shares from the Donees. Any such Transfer (and any other purchase, sale or exchange pursuant to any other provision of this Agreement) of Class H Common Stock from the Donees to the Issuer or other party in interest to such plans shall comply with the requirements of (S)408(e) of ERISA (or any successor provision thereto) unless it is established to the satisfaction of the Issuer that the purchase, sale and exchange are exempted from the prohibited transaction restrictions of (S)406 of ERISA and (S)4975 of the Internal Revenue Code of 1986, as amended (or any successor provisions thereto). The Pension Plan or the VEBA, as applicable, shall further establish, to the satisfaction of Issuer, that such proposed Transfer or any other Transfer is in compliance with ERISA, federal and state securities laws and regulations and other applicable laws and regulations. (i) Prior to making any Transfer of Registrable Securities pursuant to clause (v) or (vi) of Section 2(a), the applicable Donee shall deliver to Issuer an opinion of counsel reasonably satisfactory to Issuer to the effect that such Transfer may be made without registration under the Securities Act in reliance upon Rule 144. (j) No Transfer of Registrable Securities in violation of this Agreement shall be made or recorded on the books of Issuer and any such Transfer shall be void and of no effect. 11 3. Demand Transfers. (a) The Donees may from time to time deliver to Issuer a written notice that they propose to make a Transfer of Registrable Securities either (i) pursuant to an underwritten public offering reasonably designed to achieve a broad public distribution of the securities being offered (a "Public Transfer") or (ii) subject to Section 3(h), pursuant to a negotiated transaction or series of related transactions effected on the same date and at the same price per share with one or more transferees (each such transaction or series of related transactions described in this clause (ii), whether registered or not, being referred to herein collectively as a "Negotiated Transfer"). Public Transfers and Negotiated Transfers, whether made pursuant to a Demand Registration Statement, a Shelf Registration Statement or without a registration statement, are referred to herein collectively as "Demand Transfers." The Registrable Securities included by the Donees in any Demand Transfer shall be allocated between the Registrable Securities held by the Pension Plan and those held by the VEBA in accordance with the Donee Allocation Basis. Any Demand Transfer made jointly by both the Pension Plan and the VEBA shall count as a single Demand Transfer. Until the fourth anniversary of the initial Contribution pursuant to Section 1 hereof, the number of Public Transfers (including any Transfer considered a Public Transfer under Section 6(b)) and Negotiated Transfers that are registered under the Securities Act that may be effected by the Donees in any 12-month period shall not exceed two in the aggregate. From and after the fourth anniversary of the initial Contribution pursuant to Section 1 hereof, the number of Public Transfers (including any Transfer considered a Public Transfer under Section 6(b)) and Negotiated Transfers that are registered under the Securities Act that may be effected by the Donees in any 12-month period shall not exceed three in the aggregate; provided that two of such Transfers may be any type of registered Demand Transfer and the third such Transfer may only be a Negotiated Transfer of Registrable Securities having a fair market value (based upon the closing price of the Registrable Securities quoted on the securities exchange on which such Registrable Securities are listed on the trading day immediately preceding the date upon which the Donees deliver their written notice of such Negotiated Transfer to Issuer) not greater than $1 billion (it being agreed that there is no minimum dollar amount for any Negotiated Transfer made by Donees under this Agreement). Subject to the immediately following paragraph, there shall be no numerical limit hereunder on the number of Negotiated Transfers that may be effected by the Donees without registration under the Securities Act. From and after the first time at which an issuer other than General Motors shall become the Issuer pursuant to the succession provisions of Section 12(a), the Donees shall not (A) until the fourth anniversary of the initial Contribution pursuant to Section 1 hereof, effect more than two Demand Transfers (whether registered or unregistered and including any Transfer considered a Public Transfer under Section 6(b)) in any 12-month period and (B) from and after the fourth anniversary of the initial Contribution pursuant to Section 1 hereof, effect more than three Demand Transfers (whether registered or unregistered and 12 including any Transfer considered a Public Transfer under Section 6(b)) in any 12-month period; provided that two of such Transfers may be any type of Demand Transfer and the third such Demand Transfer may only be a Negotiated Transfer of Registrable Securities having a fair market value (based upon the closing price of the Registrable Securities quoted on the securities exchange on which such Registrable Securities are listed on the trading day immediately preceding the date upon which the Donees deliver their written notice of such Negotiated Transfer to Issuer) not greater than $1 billion (it being agreed that there is no minimum dollar amount for any Negotiated Transfer made by Donees under this Agreement). Issuer shall not be required to register under the Securities Act any Public Transfer (other than any Transfer considered a Public Transfer under Section 6(b)) unless the Donees have requested to sell at least the lesser of (A) 5 million shares of the Registrable Securities or (B) shares of Registrable Securities having a fair market value (based upon the closing price of the Registrable Securities quoted on the securities exchange on which such Registrable Securities are listed on the trading day immediately preceding the date upon which the Donees deliver their written notice of a Public Transfer to Issuer) of $500 million in such registration. For purposes of this Agreement, a registered Demand Transfer is deemed to be effected upon the earliest of (x) the date upon which a public announcement is made with respect to such Demand Transfer (provided that the Donees consent to such public announcement, which consent shall not be unreasonably withheld or delayed), (y) public selling efforts (including road shows) are commenced with respect to such Demand Transfer and (z) with respect to a registered Demand Transfer other than one effected pursuant to Shelf Registration Statement, the effective date of the Demand Registration Statement or, with respect to a Demand Transfer pursuant to a Shelf Registration Statement, the date a prospectus supplement is filed with the Securities and Exchange Commission. Notwithstanding the foregoing, a registered Demand Transfer shall not be deemed to have been effected if such Demand Transfer is not consummated as a result of (i) a breach by Issuer of its obligations hereunder, or (ii) Issuer exercising its rights under Section 3(f) and, in either case, after the Demand Transfer would otherwise have been deemed to have been effected pursuant to the preceding sentence. An unregistered Demand Transfer is deemed to be effected on the date of the consummation of such Demand Transfer. (b) So long as the Donees own not less than 10 million shares of Registrable Securities in the aggregate, the Donees may deliver to Issuer a written request that Issuer prepare and file with the Commission a registration statement on the appropriate form under the Securities Act (together with any amendments or supplements thereto, the "Shelf Registration Statement"), registering under the Securities Act up to the lesser of (i) 20 million shares of Registrable Securities or (ii) the amount of Registrable Securities that, if Transferred, would result in the Donees owning 10 million shares of Registrable Securities in the aggregate, in either case for offering and sale by the Donees in Public Transfers and 13 Negotiated Transfers from time to time pursuant to Rule 415 under the Securities Act or any successor thereto ("Rule 415"). Notwithstanding the foregoing, prior to the fourth anniversary of the date of the initial Contribution pursuant to Section 1, the Donees may not effect a registered Negotiated Transfer from the Shelf Registration Statement. Subject to Sections 3(f) and 12(a), as promptly as reasonably practicable after the receipt of the Donees' request for the filing of a Shelf Registration Statement, Issuer shall file a Shelf Registration Statement registering the number of shares of Registrable Securities so requested. Subject to Sections 3(f) and 12(a), at any time after Issuer has filed a Shelf Registration Statement and until such time as the Donees have reduced their ownership of Registrable Securities to less than 10 million shares of Class H Common Stock in the aggregate, if fewer than 10 million shares of Registrable Securities remain subject to the Shelf Registration Statement, Issuer shall, if and to the extent requested by the Donees, prepare and file with the Commission an additional Shelf Registration Statement (utilizing a combined prospectus as provided for by Rule 429 under the Securities Act or any successor thereto ("Rule 429")) as promptly as reasonably practicable after receipt of such request, registering under the Securities Act up to the number of shares of Registrable Securities equal to the lesser of (i) the difference between 20 million and the number of such shares remaining subject to the Shelf Registration Statement then in effect and (ii) the amount of such Registrable Securities that, if Transferred, would result in the Donees owning 10 million shares of Registrable Securities in the aggregate. (c) Notwithstanding any other provision of this Agreement, if (A) within 395 days following the delivery of a written request for a Demand Transfer by the Donees, such Demand Transfer has not been consummated, such request has not been withdrawn or a Liquidity Event has not occurred and (i) in the case of a Public Transfer, either Issuer has not filed the related registration statement or there has not been a period of at least 45 consecutive days following the date on which the Commission has completed its review, if any, of the related Demand Registration Statement (or, if a Shelf Registration Statement is then effective, following the date of such request) without the occurrence of a Blackout Period, (ii) in the case of a Negotiated Transfer that is to be registered under the Securities Act pursuant to this Agreement, either Issuer has not filed the related registration statement or there has not been a period of at least 20 consecutive days following the date on which the Commission has completed its review, if any, of the related Demand Registration Statement (or, if a Shelf Registration Statement is then effective, following the date of such request) without the occurrence of a Blackout Period, or (iii) in the case of a Negotiated Transfer that is not to be registered under this Agreement, there has not been a period of at least 20 consecutive days following the date of such request without the occurrence of a Blackout Period, then (B) the Donees may, at the end of such 395-day period, deliver to Issuer a written request for a Demand Transfer, and Issuer shall take all reasonable actions that are necessary to permit the Donees to effect such Demand Transfer, including, if such Demand Transfer is to be registered under the Securities Act pursuant to this Agreement, and a Shelf Registration Statement is not then effective, (i) preparing and filing a registration statement 14 for the Transfer of the Registrable Securities requested to be registered in connection with such Demand Transfer within a period of 30 days following the delivery of such request and (ii) providing the Donees with a period of at least 45 days following the date on which the Commission has completed its review, if any, of such registration statement, or, if such Demand Transfer is not to be registered under the Securities Act pursuant to this Agreement or a Shelf Registration Statement is then effective, the date of the delivery of such request, in either case, to allow for the marketing and Transfer of such Registrable Securities. Without limiting the generality of the foregoing, Issuer shall, within 60 days following the date of delivery of the request by the Donees, terminate any proposal or plan or make any public disclosure, that, in either case, would otherwise give rise to Issuer's right of postponement pursuant to Section 3(f). All of the Donees' rights and all of Issuer's obligations under this Section 3(c) shall terminate from and after the time the Donees have reduced their ownership of Registrable Securities to less than 10 million shares of Class H Common Stock in the aggregate. (d) Each notice of a proposed Demand Transfer shall be delivered a reasonable period of time before the proposed Transfer and, in any event, (i) in connection with a proposed Public Transfer pursuant to a Demand Registration Statement, not less than 30 days before the anticipated filing date of such Demand Registration Statement if Issuer is eligible to use Form S-3 or any successor form ("Form S-3") or 45 days before such date in the event Issuer is not eligible to use such form, (ii) in connection with a proposed Negotiated Transfer pursuant to a Demand Registration Statement, not less than 20 days before the anticipated filing date of such Demand Registration Statement if Issuer is eligible to use Form S-3 or 45 days before such date in the event Issuer is not eligible to use such form, (iii) in connection with a proposed Transfer pursuant to a Shelf Registration Statement, not less than 10 days before the proposed commencement of such proposed Transfer and (iv) in connection with a proposed Negotiated Transfer that is not to be registered under the Securities Act pursuant to this Agreement, not less than five days before the proposed consummation of such Negotiated Transfer. Each notice of a proposed Demand Transfer shall specify whether such Transfer will be a Public Transfer or a Negotiated Transfer, whether a Negotiated Transfer will be registered or unregistered, the approximate number of Registrable Securities proposed to be Transferred, the proposed timetable for the transaction and the anticipated per share price range for such Transfer. (e) Unless a Shelf Registration Statement is effective with respect to the full amount of shares proposed to be subject to a Demand Transfer, (i) each notice of a proposed Public Transfer shall constitute a request that Issuer register the proposed Transfer of the Registrable Securities under the Securities Act on the appropriate form and (ii) in connection with any notice of a proposed Negotiated Transfer, the Donees may request that Issuer register the proposed Transfer of the Registrable Securities; provided however, that if the Donees do not request that Issuer register such proposed Transfer of the Registrable Securities, the Donees shall establish, to the reasonable satisfaction of Issuer, that such Negotiated Transfer may be made without registration under applicable securities laws. In 15 the case of each request for registration pursuant to the foregoing sentence (a "Demand Registration"), Issuer shall file the requested registration statement (together with any amendments or supplements thereto, a "Demand Registration Statement") as promptly as reasonably practicable, subject to postponement as provided in Section 3(f); provided, however, that Issuer shall not be required to register a proposed Negotiated Transfer of the Registrable Securities if Issuer's legal counsel advises in writing that (i) such registration would not be permitted under applicable federal and state securities laws and regulations, (ii) if such Transfer is not so registered, the shares Transferred in such Transfer would not constitute "restricted securities" (as defined in Rule 144) in the hands of the transferee in such proposed Transfer or (iii) such registration is not required under applicable federal securities laws and Issuer and the Donees reasonably agree that the shares Transferred in such Transfer would constitute "restricted securities" in the hands of the transferee in such proposed transaction regardless of registration. (f) Subject to Section 3(c), Issuer may postpone the filing or effectiveness of any Demand Registration Statement, the initial filing or effectiveness of any Shelf Registration Statement or the making of any Demand Transfer, whether registered or not, at any time if Issuer determines, in its reasonable judgment, that (i) such action or proposed action would interfere with any proposal or plan by Issuer or any of its affiliates to engage in any material acquisition, merger, consolidation, tender offer, securities offering (including any proposal or plan to register or offer Class H Common Stock existing as of the time of the Donees' notice to Issuer of a proposed Demand Transfer) or other material transaction or (ii) would require Issuer to make a public disclosure of previously non-public material information and Issuer shall promptly notify the Donees of any postponement pursuant to this Section 3(f). Issuer agrees that it will terminate any such postponement as promptly as reasonably practicable and will promptly notify the Donees of such termination. In making any such determination to initiate or terminate a postponement, Issuer shall not be required to consult with or obtain the consent of the Donees or any investment manager therefor (including the Pension Plan Trustee and the VEBA Trustee), and any such determination shall be Issuer's responsibility alone, and neither the Donees nor any investment manager for the Donees (including the Pension Plan Trustee or the VEBA Trustee) shall be responsible or have any liability therefor. If any postponement pursuant to this paragraph is made with respect to a Demand Transfer which would otherwise, pursuant to Section 3(a) hereof, be deemed to be effected, such Demand Transfer shall not be deemed to have been effected if such Demand Transfer is not consummated as a result of Issuer's exercise of its rights under this Section 3(f). (g) The Donees may select the lead underwriter and, subject to the following paragraph, co-manager or co-managers to administer any Public Transfer of Registrable Securities from a list of eligible lead underwriters (the "Lead Underwriter List") and a list of eligible co-managers (the "Co-Manager List, and collectively with the Lead Underwriter List, the "Lists"), prepared for such purpose by Issuer and delivered to the Donees on the date hereof (as the Lists may be revised by Issuer from time to time). 16 Unless the Donees advise Issuer that the Public Transfer will be solely managed by the lead underwriter selected pursuant to the preceding paragraph, within 48 hours from Issuer's receipt from the Donees of a written request for registration of a Public Transfer, the Issuer may deliver to the Donees in writing its recommendation, together with a statement setting forth the bases for such recommendation, of the second most senior underwriter in connection with the Public Transfer, which may be any Person set forth on either of the Lists. Issuer agrees that in connection with its right hereunder to recommend the second most senior underwriter in any Public Transfer, Donees are not obligated to designate a "joint lead underwriter" or an underwriter who would serve as a "joint book runner" in connection with any Public Transfer. The Donees shall deliver to the Issuer in writing a notice, together with a statement setting forth the bases for their choice, indicating whether they choose to follow Issuer's recommendation (which choice shall not be unreasonably made). Within 48 hours of its receipt of any notice that any recommendation has not been accepted by the Donees, Issuer may deliver to the Donees in writing a subsequent recommendation, together with a statement setting forth the bases of its recommendation, which may be any Person set forth on either of the Lists. In response to any subsequent recommendation, the Donees shall deliver to the Issuer in writing a notice, together with a statement setting forth the bases for their choice, indicating whether they chooses to follow Issuer's recommendation (which choice shall not be unreasonably made). In accordance with the procedures set forth in this paragraph, Issuer may continue to make additional recommendations of the second most senior underwriter until the Donees choose to follow Issuer's recommendation; provided however that the second most senior underwriter ultimately chosen shall be a Person whose name is set forth on either of the Lists. The Lead Underwriter List shall contain the names of no fewer than three Persons and the Co-Manager List shall contain the name of no fewer than five Persons, each of which shall be an internationally recognized underwriting firm that has analyst coverage of Hughes Electronics Corporation (or any successor corporation thereto). The Donees shall have the right to request that Issuer add Persons to the Lists, provided that Issuer shall have no obligation to consent to any such request. No Person may serve as lead underwriter or co-manager unless such Person shall have agreed to use its reasonable best efforts to effect a broad public distribution of Registrable Securities to be sold in the Public Transfer and to use its reasonable best efforts not to sell to any one Person (or group of related Persons)(whether such Person (or group of related persons) is buying for its own account or as a fiduciary on behalf of one or more accounts) Registrable Securities constituting more than 2% of the Class H Common Stock then outstanding. The selection of counsel to such lead underwriter and co-manager or co-managers shall be subject to the consent of Issuer, which consent shall not be unreasonably withheld. (h) The Donees shall not make a Negotiated Transfer to (i) any one Person (or group of related Persons) (whether such Person (or group of related Persons) is buying for its own account or as a fiduciary on behalf of one or more accounts) of more than 2% of the 17 Class H Common Stock then outstanding or (ii) any one Person (or group of related Persons) if such Person (or group of related Persons) is then required to file, or has filed, or as a result of such Negotiated Transfer will be required to file (to the knowledge of the Donees after reasonable inquiry) a Schedule 13D under the Exchange Act (or any successor thereto) with respect to the Class H Common Stock. If the Registrable Securities subject to any Negotiated Transfer are not to be registered under the Securities Act, the Donees shall, prior to effecting such Negotiated Transfer, cause each transferee in such Negotiated Transfer to represent and warrant to, and covenant and agree with, the Donees and Issuer in writing that (i) such transferee is acquiring such Registrable Securities for its own account, or for one or more accounts, as to each of which such transferee exercises sole investment discretion, for investment purposes only and not with a view to, or for resale in connection with, any distribution (within the meaning of the Securities Act), and (ii) such transferee does not constitute an underwriter (within the meaning of the Securities Act) with respect to the acquisition of such Registrable Securities from the Pension Plan and/or the VEBA. (i) Issuer shall make available members of the management of Issuer and its affiliates for reasonable assistance in the selling efforts relating to any public offering of the Registrable Securities pursuant to a Public Transfer, to the extent customary for public offerings (including, without limitation, to the extent customary, senior management attendance at due diligence meetings with underwriters and their counsel and road shows), and for such assistance as is reasonably requested by the Donees and their counsel in the selling efforts relating to any Negotiated Transfer. 4. Piggyback Registration. ---------------------- (a) In the event that Issuer proposes to register any shares of Class H Common Stock for its own account or for the account of any holder or holders of Class H Common Stock (other than a Strategic Partner) pursuant to contractual rights of such holder or holders or otherwise, in either case under the Securities Act in an underwritten public offering (other than on a registration statement on Form S-4 or S-8 under the Securities Act or any successors thereto, a registration statement for a delayed or continuous offering pursuant to Rule 415, a registration statement covering securities convertible into or exercisable or exchangeable for Class H Common Stock, an offering of securities solely to Issuer's existing shareholders or otherwise in connection with any offer to exchange securities) (together with any underwritten public offering of Class H Common Stock pursuant to Rule 415 as described in Section 4(b) below, a "Piggyback Registration"), Issuer shall give the Donees written notice of such proposed registration no less than 30 days before the date of filing anticipated by Issuer in connection with such registration. Subject to Section 4(d), Issuer shall include in such registration all Registrable Securities held by the Donees with respect to which Issuer has received a written request for inclusion therein within 15 days after Issuer's notice of such proposed registration. (b) In the event that Issuer proposes to offer for its own account or for the 18 account of any holder or holders of Class H Common Stock (other than a Strategic Partner) pursuant to contractual rights of such holder or holders or otherwise, in either case any shares of Class H Common Stock in any underwritten public offering pursuant to Rule 415, Issuer shall give the Donees written notice of such proposed offering no less than 30 days before the date of commencement of distribution anticipated by Issuer in connection with such offering. Subject to Section 4(d), Issuer shall include in such offering all such Registrable Securities with respect to which Issuer has received a written request for inclusion therein within 10 days after Issuer's notice of such proposed offering. Without limiting the generality of the foregoing, in order to so include such Registrable Securities, Issuer shall, to the extent necessary, file an amendment to the registration statement then in effect for the Class H Common Stock or an additional registration statement for the Class H Common Stock that uses a combined prospectus pursuant to Rule 429. (c) Issuer may select the lead underwriter and co-manager or co-managers to administer any offering of Registrable Securities pursuant to a Piggyback Registration; provided, however, that if Donees' Registrable Securities that are expected to be included in any such offering constitute, in Issuer's reasonable judgment, at least 25% of the shares of Class H Common Stock expected to be Transferred in such offering, the Donees shall have the right to appoint one co- manager (reasonably acceptable to Issuer) for such offering, who shall participate in such offering on the same terms as the co-managers appointed by Issuer. In the event that Issuer gives the Donees notice of its intention to effect an offering pursuant to a Piggyback Registration and subsequently declines to proceed with such offering, the Donees shall have no rights in connection with such offering; provided, however, that, subject to Section 3(f), at the request of the Donees, Issuer shall proceed with such offering with respect to the Registrable Securities, which offering shall be deemed to be a Demand Transfer for all purposes hereunder. The Donees shall participate in any offering of Registrable Securities pursuant to a Piggyback Registration in accordance with the same plan of distribution for such Piggyback Registration as Issuer or the holder or holders of Class H Common Stock that proposed such Piggyback Registration, as the case may be. (d) Until such time as the Donees reduce their ownership of Registrable Securities to less than 2% of the then outstanding shares of Class H Common Stock in the aggregate (the "Termination Date"), if there is a Share Limitation in connection with any Piggyback Registration, then Issuer shall include in such offering: (i) first, (A) if the Piggyback Registration has been initiated by holders of Class H Common Stock pursuant to Section 2.1 of the Primestar Registration Rights Agreement, the "Registrable Securities" as defined in the Primestar Registration Rights Agreement requested to be included in the Piggyback Registration or (B) if the Piggyback Registration has been initiated by holders of Class H Common Stock pursuant to Section 2.1 of the AOL Registration Rights Agreement, the "Registrable Securities" as defined in the AOL Registration Rights Agreement requested to be included in the Piggyback Registration, 19 (ii) second, the Class H Common Stock that Issuer proposes to Transfer, (iii) third, the Qualifying Securities requested to be included by each Qualifying Person in accordance with the General Allocation Basis, (iv) fourth, any additional shares of Qualifying Securities requested to be included therein by any Qualifying Persons wishing to include shares in excess of the amount which they are entitled to include pursuant to clause (iii) above, pro rata based on their holdings, as of the time of the offering, relative to the holdings of all other Qualifying Persons wishing to include additional shares of Qualifying Securities, as of the time of the offering, until all additional shares of Qualifying Securities requested to be included therein by any Qualifying Persons have been included in such offering, (v) fifth, other shares of Class H Common Stock requested to be included therein pursuant to contractual rights of the holder or holders thereof (including the holder or holders of Class H Common Stock that proposed such Piggyback Registration, if any, except as otherwise provided in clause (i) hereof), and (vi) sixth, any other shares of Class H Common Stock; 5. Holdback Period. --------------- (a) Each of the Pension Plan and the VEBA agrees not to make any Transfer of Registrable Securities during any of the following periods unless the underwriter or underwriters administering the offering otherwise agree: (i) except as contemplated by clause (ii) or clause (iii) below, the period commencing with the effective date of a registration statement for any underwritten public offering of the Class H Common Stock (or any securities convertible into or exchangeable or exercisable for the Class H Common Stock) and ending on the 90th day after such effectiveness; (ii) in the case of a Rule 415 registration statement, the period commencing upon Issuer's notice of commencement of distribution in connection with such offering and ending on the 90th day after such notice; and (iii) in the case of a registration statement on Form S-4 (or any successor form) in connection with a transaction involving the Issuer, upon the date of consummation of such transaction and terminating on the 90th day after the consummation of such transaction; provided, that any applicable period shall terminate on such earlier date as Issuer gives notice to the Donees that Issuer declines to proceed with any such offering; and provided further 20 that this Section 5(a) shall apply to the effectiveness of any registration statement, commencement of distribution or consummation of transaction that has occurred on or after January 1, 2000, including any such events that shall have occurred prior to the date of this Agreement. (b) Issuer agrees not to make any Transfer of any Class H Common Stock (or any securities convertible into or exchangeable or exercisable for the Class H Common Stock) during the period commencing with the date of any notice of a proposed Public Transfer and terminating on the 90th day after the effectiveness of the registration statement for such Public Transfer pursuant to the Securities Act or, in the case of a Shelf Registration Statement, the commencement of distribution in connection with such Public Transfer, or, in either case, on such earlier date as the Donees give notice to Issuer that they decline to proceed with such Public Transfer, except (i) for the issuance of shares of Class H Common Stock upon the conversion, exercise or exchange, by the holder thereof, of options, warrants or other securities convertible into or exercisable or exchangeable for the Class H Common Stock pursuant to the terms of such options, warrants or other securities (which, in the case of any conversion, exercise or exchange which is at Issuer's option, Issuer shall not call for conversion, exercise or exchange during such period (it being understood that nothing herein shall limit the right of Issuer to call for redemption any security convertible, exercisable or exchangeable for Class H Common Stock or to issue shares of Class H Common Stock to the extent a holder of any such security elects to convert, exercise or exchange such security in lieu of accepting any redemption payments)), (ii) pursuant to the terms of any other agreement to issue shares of Class H Common Stock (or any securities convertible into or exchangeable or exercisable for the Class H Common Stock) in effect on the date of the notice of a proposed Transfer, including any such agreement in connection with any previously disclosed acquisition, merger, consolidation or other business combination, and (iii) in connection with Transfers to dividend reinvestment plans or to employee benefit plans in order to enable any such employee benefit plan to fulfill its funding obligations in the ordinary course, unless the underwriter or underwriters administering the offering in connection with such Public Transfer otherwise agree. Notwithstanding the foregoing, the provisions of this Section 5(b) shall be subject to the provisions of Section 3(f), and if Issuer exercises its rights of postponement pursuant to Section 3(f) with respect to any proposed Public Transfer, the provisions of this Section 5(b) shall not apply unless and until such time as Issuer notifies the Donees of the termination of such postponement and the Donees notify Issuer of their intention to continue with such proposed Public Transfer. 6. Other Registration Rights. ------------------------- (a) Nothing herein shall restrict the authority of Issuer to grant to any Person, including a Strategic Partner, if any, the right to obtain registration under the Securities Act of any equity securities of Issuer, or any securities convertible into or exchangeable or exercisable for such securities; provided, however, that Issuer shall not grant any such right with respect to the Class H Common Stock or securities convertible into or exchangeable or 21 exercisable for the Class H Common Stock that conflicts with the rights of the Donees under this Agreement or otherwise limits or reduces such rights. Issuer shall cause each Strategic Partner and each other holder of Class H Common Stock who obtains the right, after the date hereof, to propose a registration giving rise to a Piggyback Registration, if any, to agree not to Transfer any shares of Class H Common Stock or securities convertible into or exchangeable or exercisable for the Class H Common Stock, for the applicable period set forth in Section 5(a) hereof. (b) If at any time a Strategic Partner has been designated by Issuer, the relative rights of the Donees and any Strategic Partners shall be as follows: (i) If at any time a Strategic Partner elects to exercise any rights for a demand registration of shares of Class H Common Stock pursuant to an underwritten public offering (a "Strategic Partner Demand Registration"), Issuer shall give the Donees written notice of such proposed Strategic Partner Demand Registration within five days of receipt of notice thereof from the Strategic Partner. (ii) The Donees may at any time elect to participate in any Strategic Partner Demand Registration by giving Issuer notice thereof within 15 days of Issuer's notice to the Donees of such Strategic Partner Demand Registration. In such case, subject to Section 6(b)(iii), Issuer shall include in such registration the number of Registrable Securities requested by the Donees to be included therein (which number shall be set forth in the Donees' notice to Issuer of their election to participate therein). The Donees' participation in such registration shall be considered a Public Transfer and shall be deemed to be effected as set forth in Section 3(a). The Donees shall participate in any offering of Class H Common Stock in connection with such registration in accordance with the same plan of distribution as the Strategic Partner requesting registration. (iii) Until the Termination Date, if there is a Share Limitation in connection with any Strategic Partner Demand Registration in which the Donees have elected to participate, Issuer shall include in such registration: (A) first, the Qualifying Securities requested to be included by each Qualifying Person in accordance with the General Allocation Basis, (B) second, any additional shares of Qualifying Securities requested to be included therein by any Qualifying Persons wishing to include shares in excess of the amount which they are entitled to include pursuant to clause (A) above, pro rata based on their holdings, as of the time of the offering, relative to the holdings all other Qualifying Persons wishing to include additional shares of Qualifying Securities, as of the time of the offering, until all additional shares of Qualifying Securities requested to be included therein by any Qualifying Persons have been included in such offering, 22 (C) third, other shares of Class H Common Stock requested to be included therein by the holder or holders thereof pursuant to contractual rights of such holder or holders, and (D) fourth, any other shares of Class H Common Stock. (iv) Any Strategic Partner, may at any time elect to participate in any Public Transfer requested by the Donees by giving Issuer notice thereof within 15 days (or, in the case of a Shelf Registration Statement, 5 days) of the notice by the Donees to Issuer of such Public Transfer. In such case, subject to Section 6(b)(v), Issuer may include in the registration in connection with such Public Transfer the number of shares of Class H Common Stock requested by any Strategic Partner to be included therein. Strategic Partners shall participate in any offering of Class H Common Stock in connection with such Public Transfer in accordance with the same plan of distribution for such Public Transfer as the Donees. (v) Until the Termination Date, if there is a Share Limitation in connection with a Public Transfer requested by the Donees in which any Strategic Partner has elected to participate, Issuer shall include in the registration in connection with such Public Transfer: (A) first, the Qualifying Securities requested to be included by each Qualifying Person in accordance with the General Allocation Basis, (B) second, any additional shares of Qualifying Securities requested to be included therein by any Qualifying Persons wishing to include shares in excess of the amount which they are entitled to include pursuant to clause (A) above, pro rata based on their holdings, as of the time of the offering, relative to the holdings of all other Qualifying Persons wishing to include additional shares of Qualifying Securities, as of the time of the offering, until all additional shares of Qualifying Securities requested to be included therein by any Qualifying Persons have been included in such offering, (C) third, other shares of Class H Common Stock requested to be included therein by the holder or holders thereof pursuant to contractual rights of such holder or holders, and (D) fourth, any other shares of Class H Common Stock. (vi) Nothing herein shall obligate Issuer to grant to any Person, including a Strategic Partner, if any, the right to obtain registration under the Securities Act of any equity securities of Issuer, or any securities convertible into or exercisable or exchangeable for such securities. If and to the extent Issuer grants any such rights to any 23 Person, the terms thereof shall be as set forth in the related agreement between such Person and Issuer and may include restrictions on and obligations of such Person greater than or in addition to those contemplated herein, subject to Section 6(a). (c) If, in connection with any Strategic Partner Demand Registration or Public Transfer to which Section 6(b) is applicable, the lead underwriter notifies Issuer and/or any other party participating in such proposed offering that, in its opinion, due to market conditions or otherwise, the number of shares of Class H Common Stock that may be included in the offering is greater than or less than anticipated when the notice referred to in Section 6(b)(i) or 6(b)(iv) was given, then only those parties who have elected to participate in such Strategic Partner Demand Registration or Public Transfer will be notified of such increase or decrease, as applicable, and such additional shares or such reduction in shares, as applicable, shall be allocated among such participants as contemplated by Section 6(b)(iii) or 6(b)(v), as applicable. In no event shall any party that had previously declined to participate, or did not have the right to participate, in such Strategic Partner Demand Registration or Public Transfer be entitled to receive notice of or participate therein as a result of a revised notice of such increase or decrease, as applicable. (d) Each of the Pension Plan and the VEBA acknowledges that, prior to the date of this Agreement, Issuer has entered into the Primestar Registration Rights Agreement and the AOL Registration Rights Agreement. Each of the Pension Plan and the VEBA is familiar with the rights granted thereunder and agrees that, notwithstanding anything to the contrary in this Agreement, the registration rights granted to the Pension Plan and the VEBA hereunder are subordinate to such registration rights provided under the Primestar Registration Rights Agreement and the AOL Registration Rights Agreement. Each of the Pension Plan and the VEBA agrees that it shall cooperate in all reasonable respects with the Issuer in coordinating the exercise of its rights hereunder with the rights granted under the Primestar Registration Rights Agreement and the AOL Registration Rights Agreement. 7. Demand, Piggyback and Shelf Registration Procedures. Whenever Registrable Securities are to be registered pursuant to this Agreement, Issuer shall, to the extent applicable for each type of registration statement: (a) subject to Sections 3(f) and 12(a), prepare and file with the Commission a registration statement with respect to such Registrable Securities and use reasonable efforts to cause such registration statement to be declared effective as promptly after the initial filing thereof as reasonably practicable; (b) furnish to any investment manager acting on behalf of the Donees with respect to the Registrable Securities and to one law firm representing each such investment manager, copies of such registration statement, the prospectus contained therein and any amendments or supplements thereto prior to filing such documents with the Commission, but only to the extent such documents contain information regarding such investment 24 manager, with such documentation, and any other documentation provided by this Agreement to be delivered to the investment manager acting on behalf of the Donees and counsel to the Donees, to be delivered as provided in Section 12(d) unless otherwise directed by the Pension Plan Named Fiduciary, the VEBA Named Fiduciary or either of their delegates; (c) subject to Sections 3(f) and 12(a), prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective for a period of not less than nine months (or such shorter period as may be necessary to effect the Transfer of all shares of Registrable Securities covered by such registration statement as described therein); (d) furnish to the Donees and the underwriters such number of copies of such registration statement, each amendment and supplement thereto, the prospectus included in such registration statement (including each preliminary prospectus) and such other documents as the Donees and their counsel may reasonably request in order to facilitate the disposition of the Registrable Securities; (e) so long as Class H Common Stock is listed on any United States securities exchange or a quotation system, use its best efforts to cause all of the Registrable Securities to be listed on such exchange or a quotation system; (f) use its best efforts to register or qualify such Registrable Securities under such other securities or blue sky laws of such jurisdictions as the Donees reasonably request and do any and all other acts and things which may be reasonably necessary or advisable to enable the Donees to consummate the disposition in such jurisdictions of the Registrable Securities (provided that Issuer will not be required to (i) qualify generally to do business in any jurisdiction where it would not otherwise be required to qualify but for this subsection, (ii) subject itself to taxation in any such jurisdiction or (iii) consent to general service of process in any such jurisdiction); (g) notify the Donees at any time when a prospectus relating thereto is required to be delivered under the Securities Act, of the happening of any event as a result of which the prospectus included in such registration statement contains an untrue statement of a material fact or omits any material fact necessary to make the statements therein, in light of the circumstances in which they were made, not misleading, and, at the request of the Donees, Issuer will prepare a supplement or amendment to such prospectus so that, as thereafter delivered to the purchasers of such Registrable Securities, such prospectus will not contain an untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in light of the circumstances in which they were made, not misleading; 25 (h) enter into such customary agreements (including underwriting agreements in customary form) and take all such other actions as the Donees or the underwriters, if any, reasonably request in order to expedite or facilitate the disposition of the Registrable Securities; and (i) make available (and cause all the officers, directors, employees and independent accountants of Issuer and its subsidiaries to make available), to the extent reasonably requested by the Donees or any underwriter, attorney, accountant or agent retained by the Donees in connection with such registration statement, all financial and other records and pertinent corporate documents and properties of Issuer and its subsidiaries for inspection by the Donees or any underwriter, attorney, accountant or other agent retained by the Donees in connection with such registration. Each of the parties will treat all notices of proposed Transfers and registrations, all notices pursuant to Section 7(g) and all information relating to any Blackout Periods under Section 3(f) received from the other party with the strictest confidence and will not disseminate such information. Subject to Section 3(c), nothing herein shall be construed to require Issuer or any of its affiliates to make any public disclosure of information at any time. In the event Issuer has notified the Donees that (i) the prospectus included in a registration statement contains an untrue statement of a material fact or omits any fact necessary to make the statements therein not misleading, (ii) the Commission has issued or threatened to issue any stop order suspending the effectiveness of a registration statement or has initiated proceedings for such purpose or (iii) Issuer has received any notification with respect to the suspension of the qualification of the Registrable Securities for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose, then the Donees shall not deliver such prospectus to any purchaser unless and until a supplement or amendment to such prospectus has been prepared as set forth in Section 7(g) or until Issuer advises the Donees in writing that the use of such prospectus may be resumed. The Donees shall cooperate with Issuer in the preparation and filing of any registration statement under the Securities Act pursuant to this Agreement and provide Issuer with all information necessary to complete such preparation within a reasonable period of time prior to the proposed filing of such registration statement, and in the case of any Demand Registration Statement or Shelf Registration Statement to be filed pursuant to Section 3(c), within such period as is necessary to enable Issuer to file such registration statement within 30 days of the Donees' request therefor. From and after such time as the Donees reduce their ownership of the Registrable Securities to less than 20 million shares of Class H Common Stock in the aggregate, or the VEBA reduces its ownership to less than 2 million shares of Class H Common Stock, Issuer shall file the reports required to be filed by it under Section 13 of the Exchange Act or any successor thereto (or, if Issuer is not required to file such reports, make publicly available such information upon the request of Pension Plan or the VEBA), and take such further 26 action as the Pension Plan or the VEBA may reasonably request, all to the extent required to enable the Donees to Transfer the Registrable Securities pursuant to Rule 144. 8. Participation in Underwritten Transfers. The Donees may not participate in any underwritten Transfers hereunder unless they (a) agree to sell their securities on the basis provided in any underwriting arrangements approved by the Person or Persons entitled hereunder to approve such arrangements and (b) complete and execute all questionnaires, powers of attorney, indemnities, underwriting agreements, custodian agreements and other documents required under the terms of such underwriting arrangements. 9. Registration Expenses and Legal Counsel. Issuer shall be responsible for all federal and state filing fees (including all blue sky registration or qualification fees), all fees and expenses of its counsel and all independent certified public accountants, underwriters (excluding discounts and commissions and fees and expenses of counsel to the underwriters) and other Persons retained by Issuer and all other costs or expenses incurred by Issuer in the performance of its obligations hereunder and the reasonable fees and expenses of one outside law firm jointly representing the Donees and other out- of-pocket expenses of the Donees in connection with any registration statement under the Securities Act pursuant to this Agreement or any amendment thereto; provided, however, that the selection of the law firm representing the Donees shall be subject to the consent of Issuer, which consent shall not be unreasonably withheld. Issuer shall have the right to select the financial printer to be used in connection with any registration of Registrable Securities under the Securities Act pursuant to this Agreement. 10. Indemnification. --------------- (a) Issuer agrees to indemnify and hold harmless each of the Pension Plan, the VEBA, the Pension Plan Trustee and any successor thereto, the VEBA Trustee and any successor thereto, the investment manager or managers acting on behalf of the Pension Plan and the VEBA with respect to the Registrable Securities and Persons, if any, who control any of them within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act (each an "Indemnitee"), from and against any and all costs and expenses reasonably incurred and losses, damages and other liabilities sustained by such Indemnitee and arising out of or caused by any untrue statement or alleged untrue statement of a material fact contained in any registration statement described herein or any related prospectus relating to the Registrable Securities (as amended or supplemented if Issuer shall have furnished any amendments or supplements thereto), or arising out of or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading, except insofar as such costs, expenses, losses, damages or other liabilities arise out of or are caused by any such untrue statement or omission included or omitted in conformity with information furnished to Issuer in writing by such Indemnitee or any Person acting on behalf of such Indemnitee expressly for use therein; provided, however, 27 the foregoing indemnity agreement with respect to any preliminary prospectuses shall not inure to the benefit of such Indemnitee, if the Person asserting any claims, losses, damages or other liabilities against such Indemnitee purchased Registrable Securities and a copy of the prospectus (as then amended or supplemented if Issuer shall have furnished any amendments or supplements thereto) was not sent or given by or on behalf of such Indemnitee to such Person, if required by law so to have been delivered, at or prior to the written confirmation of the sale of the Registrable Securities to such Person, and if the prospectus (as so amended or supplemented) would have cured the defect giving rise to such asserted claim, loss, damage or other liability; provided, further, that the foregoing proviso shall not apply in the case of a Piggyback Registration if the Indemnitee is the Pension Plan, the VEBA, the Pension Plan Trustee or the VEBA Trustee. (b) Each of the Pension Plan and the VEBA, severally and not jointly, agrees, to the extent permitted under applicable law, and each underwriter selected shall agree, to indemnify and hold harmless each of Issuer, its directors, officers, employees and agents, and each person, if any, who controls Issuer within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act, to the same extent as the foregoing indemnity from Issuer, but only with respect to costs, expenses, losses, damages or other liabilities arising out of or caused by an untrue statement or omission included or omitted in conformity with information furnished in writing by or on behalf of the Pension Plan, the VEBA or such underwriter, as the case may be, expressly for use in any registration statement described herein or any related prospectus relating to the Registrable Securities (as amended or supplemented if Issuer shall have furnished or any amendments or supplements thereto). No claim against the assets of the Pension Plan or the VEBA shall be created by this Section 10(b), except as and to the extent permitted by applicable law. (c) In case any claim is asserted or any proceeding (including any governmental investigation) shall be instituted where indemnity may be sought by an Indemnitee pursuant to any of the preceding paragraphs of this Section 10, such Indemnitee shall promptly notify in writing the Person against whom such indemnity may be sought (the "Indemnitor"); provided, however, that the omission so to notify the Indemnitor shall not relieve the Indemnitor of any liability which it may have to such Indemnitee except to the extent that the Indemnitor was prejudiced by such failure to notify. The Indemnitor, upon request of the Indemnitee, shall retain counsel reasonably satisfactory to the Indemnitee to represent (subject to the following sentences of this section) the Indemnitee and any others the Indemnitor may designate in such proceeding and shall pay the fees and disbursements of such counsel related to such proceeding. In any such proceeding, any Indemnitee shall have the right to retain its own counsel, but the fees and expenses of such counsel shall be at the expense of such Indemnitee unless (i) the Indemnitor and the Indemnitee shall have mutually agreed to the retention of such counsel, (ii) the Indemnitor fails to take reasonable steps necessary to defend diligently any claim within ten calendar days after receiving written notice from the Indemnitee that the Indemnitee believes the Indemnitor has failed to take such steps, or (iii) the named parties to any such proceeding (including any impleaded 28 parties) include both the Indemnitor and the Indemnitee and representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests or legal defenses between them and, in all such cases, the Indemnitor shall only be responsible for the reasonable fees and expenses of such counsel. It is understood that the Indemnitor shall not, in connection with any proceeding or related proceedings in the same jurisdiction, be liable for the reasonable fees and expenses of more than one separate law firm (in addition to any local counsel) for all such Indemnitees not having actual or potential differing interests or legal defenses among them, and that all such fees and expenses shall be reimbursed as they are incurred. In the case of any such separate firm for the Pension Plan or the VEBA or any control Person of the Pension Plan or the VEBA, such firm shall be designated in writing by the Pension Plan Named Fiduciary or the VEBA Named Fiduciary. The Indemnitor shall not be liable for any settlement of any proceeding effected without its written consent. (d) If the indemnification provided for in this Section 10 is unavailable to an Indemnitee in respect of any costs, expenses, losses, damages or other liabilities referred to herein, then the Indemnitor, in lieu of indemnifying such Indemnitee hereunder, shall contribute to the amount paid or payable by such Indemnitee as a result of such costs, expenses, losses, damages or other liabilities in such proportion as is appropriate to reflect the relative fault of the Indemnitor and the Indemnitee and Persons acting on behalf of or controlling the Indemnitee in connection with the statements or omissions or violations which resulted in such costs, expenses, losses, damages or other liabilities, as well as any other relevant equitable considerations. If the indemnification described in Section 10(a) or 10(b) is unavailable to an Indemnitee, the relative fault of Issuer, the Pension Plan, the VEBA and Persons acting on behalf of or controlling the Pension Plan and the VEBA shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by Issuer or by Persons acting on behalf of the Pension Plan and the VEBA and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Indemnitor shall not be required to contribute pursuant to this Section 10(d) if there has been a settlement of any proceeding effected without its written consent. No claim against the assets of the Pension Plan or the VEBA shall be created by this Section 10(d), except as and to the extent permitted by applicable law. (e) The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 10 were determined by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to in the immediately preceding section. Notwithstanding the provisions of this Section 10, the aggregate contribution of the Pension Plan or the VEBA under this Section 10 will not exceed the proceeds received by it from the Registrable Securities sold by it and neither the Pension Plan nor the VEBA shall be required to contribute under this Section 10 in respect of any costs, expenses, losses, damages or other liabilities unless the same arise with 29 reference to any information furnished to Issuer in writing by Persons acting on behalf of the Pension Plan or the VEBA, respectively, expressly for use in any registration statement pursuant to this Agreement or the prospectus or any amendment or supplement thereto. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. (f) The indemnification and contribution agreements contained in this Section 10 and the representations and warranties of Issuer contained in this Agreement shall remain operative and in full force and effect regardless of (i) any termination of this Agreement and (ii) acceptance of and the payment by the buyer for any Registrable Securities. 11. Definitions. ----------- "AOL Registration Rights Agreement" means the Registration Rights Agreement, dated June 21, 1999, by and between General Motors and America Online, Inc., as in effect on the date of this Agreement. "Base Purchase Price" shall have the meaning set forth in Section 2(f)(iv). "Bidder" shall have the meaning set forth in Section 2(e)(ii). "Blackout Period" means (i) any period of time during which a requested Demand Transfer has been postponed pursuant to Section 3(f), which period shall continue until notice of the termination of such postponement has been delivered to the Donees, and (ii) any holdback period during which Transfers were not permitted by operation of Section 5(a), unless in any offering referred to in Section 5(a), the Donees Transferred or had the opportunity to Transfer shares of Registrable Securities that constituted the lesser of (a) the aggregate number of shares of Class H Common Stock that the Donees requested to be included in such offering or (b) 10 million shares. "Business Day" shall have the meaning set forth in Section 1(a). "Class H Common Stock" means Class H Common Stock, par value $0.10 per share, of General Motors and any securities issued or issuable with respect to the Class H Common Stock in connection with any stock dividend, stock split (forward or reverse), combination of shares, recapitalization, merger, consolidation, redemption, exchange of securities or other reorganization or reclassification after the date hereof. In the event of any of the foregoing with respect to the Class H Common Stock or similar transactions affecting the Class H Common Stock, all references herein to the designation "Class H Common Stock" and to any specific number of shares of Class H Common Stock shall be adjusted in accordance with Section 12(h) hereof, and shall include reference to all securities of the same class regardless of whether any such securities were issued or issuable with respect to the securities that 30 previously constituted the Class H Common Stock. "Co-Manager List" shall have the meaning set forth in Section 3(g). "Commission" means the United States Securities and Exchange Commission. "Contribution" shall have the meaning set forth in Section 1(a). "Demand Registration" shall have the meaning set forth in Section 3(e). "Demand Registration Statement" shall have the meaning set forth in Section 3(e). "Demand Transfers" shall have the meaning set forth in Section 3(a). "Donee" shall have the meaning set forth in the Recitals. "Donee Allocation Basis" means (A) at any time that an acquisition of Class H Common Stock by the Donees has caused the 10% threshold set forth in (S)407(a)(2) of ERISA (or any threshold set forth in any successor to such provision) to be exceeded, 75% with respect to the VEBA (or such lesser percentage as shall constitute all of the Registrable Securities then held by the VEBA) and the remaining percentage with respect to the Pension Plan and (B) at all other times, 50% with respect to the VEBA (or such lesser percentage as shall constitute all of the Registrable Securities then held by the VEBA) and the remaining percentage with respect to the Pension Plan. All numbers of shares determined pursuant to the Donee Allocation Basis shall be rounded to the nearest whole share. "ERISA" shall have the meaning set forth in the Recitals. "Exchange Act" means the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder. "Exercise Notice" shall have the meaning set forth in Section 2(f)(ii). "Final Date" shall have the meaning set forth in Section 2(f)(iv). "Form S-3" shall have the meaning set forth in Section 3(d). "General Allocation Basis" means, at the time of determination, with respect to each Qualifying Person, such Qualifying Person's pro rata share of the Registrable Securities or shares of Class H Common Stock entitled to be included in the proposed registration based on such Person's holdings of Qualifying Securities as of the time of such proposed registration relative to the holdings, as of such time, of all Qualifying Persons who have the right to request and have requested the inclusion of all or a portion of their shares of 31 Qualifying Securities in such registration, which shall be determined as follows: (A) the number of shares of Qualifying Securities then held by such person at the time of the determination, divided by (B) the total number of shares of Qualifying Securities then held by all Qualifying Persons; Notwithstanding the foregoing, the Registrable Securities included by the Donees in any registration shall be allocated between the Registrable Securities held by the Pension Plan and those held by the VEBA in accordance with the Donee Allocation Basis. "General Motors" means General Motors Corporation, a Delaware corporation. "Indemnitee" shall have the meaning set forth in Section 10(a). "Indemnitor" shall have the meaning set forth in Section 10(c). "Independent Directors" shall have the meaning set forth in Section 2(e)(ii). "Issuer" means, initially, General Motors, and thereafter, each successor issuer as described in Section 12(a). "Lead Underwriter List" shall have the meaning set forth in Section 3(g). "Liquidity Event" means that either: (A) the Donees have Transferred an aggregate of at least the greater of (x) 10 million shares of Registrable Securities and (y) shares of Registrable Securities having a fair market value (based upon the closing price of the Registrable Securities quoted on the securities exchange on which such Registrable Securities are listed on the trading day immediately preceding the date of determination) of $1 billion; or (B) the Donees have been given an opportunity to include at least the greater of (x) 10 million shares and (y) shares of Registrable Securities having a fair market value (based upon the closing price of the Registrable Securities quoted on the securities exchange on which such Registrable Securities are listed on the trading day immediately preceding the date of determination) of $1 billion of Registrable Securities in the aggregate in a Piggyback Registration or a Strategic Partner Demand Registration and have declined to do so. 32 "Lists" shall have the meaning set forth in Section 3(g). "Maximum Share Number" shall have the meaning set forth in Section 2(f)(ii). "Minimum Tender Condition" means, with respect to any tender offer, that there have been validly tendered and not withdrawn pursuant to such tender offer a number of shares of Class H Common Stock which, when taken together with the number of shares of Class H Common Stock that the Bidder making such tender offer otherwise beneficially owns as of immediately after the acceptance for purchase and purchase of such tendered shares, represent more than 50% of the voting power of all securities of Issuer outstanding as of such expiration date and generally entitled to vote in the election of directors. "Negotiated Transfer" shall have the meaning set forth in Section 3(a). "NYSE" shall have the meaning set forth in Section 1(a). "Pension Plan" shall have the meaning set forth in the Recitals. "Pension Plan Named Fiduciary" shall have the meaning set forth in the Recitals. "Pension Plan Trustee" shall have the meaning set forth in the Recitals. "Person" means an individual, a partnership, a corporation, an association, a joint stock company, a trust, a joint venture, an unincorporated organization or a governmental entity or any department, agency or political subdivision thereof. "Piggyback Registration" shall have the meaning set forth in Section 4(a). "Primestar Registration Rights Agreement" means the Registration Rights Agreement, dated April 28, 1999, by and between General Motors and Primestar, Inc., as in effect on the date of this Agreement. "Public Transfer" shall have the meaning set forth in Section 3(a). "Put Closing" shall have the meaning set forth in Section 2(f)(iv). "Put Price" shall have the meaning set forth in Section 2(f)(ii). "Put Price Notice" shall have the meaning set forth in Section 2(f)(iii). "Put Right" shall have the meaning set forth in Section 2(f)(ii) 33 "Qualifying Person" means, with respect to any registration hereunder: (i) any Strategic Partner, and (ii) the Donees, in each case, if such Person has the right to request and has requested the inclusion of all or a portion of its shares of Qualifying Securities in such registration and if each such Person (with the Donees being considered collectively for this purpose) beneficially owns or has the right to acquire Qualifying Securities in an amount equal to 2% or more of the outstanding Class H Common Stock at the time of determination. "Qualifying Securities" means (A) with respect to Strategic Partners, shares of Class H Common Stock (or securities which are then immediately convertible into or exchangeable or exercisable for Class H Common Stock) which have been acquired by such Strategic Partner in connection with the Strategic Partner Transactions (as defined below) and (B) with respect to the Donees, the Registrable Securities. "Registrable Securities" means (i) the Class H Common Stock contributed pursuant to this Agreement from time to time, and (ii) the securities issued or issuable with respect to the securities referred to in clause (i) in connection with any stock dividend, stock split (forward or reverse), combination of shares, recapitalization, merger, consolidation, redemption, exchange of securities or other reorganization or reclassification after the date hereof. As to any particular Registrable Securities, such securities will cease to be Registrable Securities when they have been Transferred by the Pension Plan or the VEBA in accordance with all applicable provisions of this Agreement. "Rights" shall have the meaning set forth in Section 2(e)(i). "Rule 144" shall have the meaning set forth in Section 2(a)(v). "Rule 14e-2(a)" shall have the meaning set forth in Section 2(e)(ii). "Rule 415" shall have the meaning set forth in Section 3(b). "Rule 429" shall have the meaning set forth in Section 3(b). "Securities Act" means the Securities Act of 1933, as amended, and the rules and regulations thereunder. "Share Limitation" means that the lead underwriter or co-managers of any offering in connection with a Piggyback Registration, a Demand Registration or a 34 Strategic Partner Demand Registration advise Issuer in writing that in their opinion the number of Registrable Securities requested to be included in such offering exceeds, together with other shares of Class H Common Stock to be included therein, the number of shares of Class H Common Stock which can be sold in such offering without adversely affecting the marketability of the offering. "Shelf Registration Statement" shall have the meaning set forth in Section 3(b). "Strategic Partner" means any one or more Person(s) (or group of Persons acting in concert) who (i) beneficially owns or has committed to acquire at the time of determination shares of Class H Common Stock (or securities convertible into or exchangeable or exercisable for the Class H Common Stock) that constitute not less than 2% of the Class H Common Stock then outstanding (determined after giving effect to such commitment (and assuming that all such shares or securities subject to such commitment are acquired) and the conversion, exchange or exercise of all such securities subject to such commitment) acquired in a single transaction or series of related transactions (including, without limitation, acquisitions and business combinations) entered into as part of a single business venture (the "Strategic Partner Transactions"), (ii) is granted the right to demand registration under the Securities Act of the Class H Common Stock (or securities convertible into or exchangeable or exercisable for the Class H Common Stock) that it beneficially owns or has committed to acquire and (iii) is designated as such by the Board of Directors of Hughes Electronics Corporation (or any successor thereto) at any time that the Class H Common Stock tracks the financial performance of such entity or the Board of Directors of Issuer, which designation shall be made at the time such Person(s) first acquired or committed to acquire shares of Class H Common Stock (or securities convertible into or exchangeable or exercisable for the Class H Common Stock). Issuer shall give the Donees prompt notice of any such acquisition, commitment and designation, of the nature and proposed timetable for any acquisitions and of the nature of any rights granted to the Person so designated to register under the Securities Act shares of the Class H Common Stock. If more than one Person is designated as a Strategic Partner as described above, except as otherwise set forth in this Agreement, all rights of the Strategic Partners with respect to one another shall be determined as such Persons and Issuer may agree. All references herein to the shares of Class H Common Stock beneficially owned by a Strategic Partner shall include all shares of Class H Common Stock (or securities convertible into or exchangeable or exercisable for the Class H Common Stock) acquired by a Strategic Partner pursuant to the Strategic Partner Transactions and all additional shares of Class H Common Stock (or securities convertible into or exchangeable or exercisable for the Class H Common Stock) that a Strategic Partner has a right, commitment or obligation to acquire pursuant to the Strategic Partner Transactions. "Strategic Partner Demand Registration" shall have the meaning set forth in Section 6(b)(i). 35 "Tender Notice" shall have the meaning set forth in Section 2(f)(i). "tender offer" shall have the meaning set forth in Section 2(e). "Termination Date" shall have the meaning set forth in Section 4(d). "Transfer" means any sale, transfer or other disposition (including any pledge and any disposition upon the foreclosure of any pledge or any agreement to do any of the foregoing). "Transfer Agreement" shall have the meaning set forth in the Recitals. "Trustees" shall have the meaning set forth in the Recitals. "VEBA" shall have the meaning set forth in the Recitals. "VEBA Named Fiduciary" shall have the meaning set forth in the Recitals. "VEBA Trustee" shall have the meaning set forth in the Recitals. 12. Miscellaneous. ------------- (a) Succession. In the event that the Registrable Securities are to be converted or exchanged into (or become the right to receive) securities of any issuer other than the Person who is then Issuer hereunder in connection with any transaction to which such Issuer is a party, such Issuer shall cause the issuer of such securities to agree, effective as of such conversion or exchange, that all rights, obligations and restrictions of Issuer set forth in this Agreement, except for the rights, obligations and restrictions set forth in subsections (a) through (e) of Section 1 (which shall only be obligations of General Motors), shall continue to apply to such securities. As of the time of such conversion or exchange, subject to the exception set forth in the preceding sentence, such issuer shall be bound by this Agreement and shall succeed to all rights, restrictions and obligations of Issuer set forth in this Agreement, all references to Issuer herein shall thereafter be deemed to be references to such issuer, and the predecessor Issuer shall be released from all obligations under this Agreement (except with respect to any obligations under Section 10 with respect to any registration of securities issued by such Issuer). To evidence the foregoing, prior to the time of such conversion or exchange, Issuer may execute, and cause such issuer to execute, a Succession Agreement substantially in the form of Exhibit C attached hereto. Upon request, the Donees shall acknowledge and agree to any such Succession Agreement as set forth therein. To the extent required and permissible under applicable law, as soon as reasonably practicable after such conversion or exchange, such issuer shall file with the Commission an amendment to the Shelf 36 Registration Statement, if any, then in effect to ensure that such Shelf Registration shall continue to apply to such securities. In the event such issuer is not eligible to register such securities on Form S-3, all references to Form S-3 herein shall thereafter be deemed to be references to Form S-l or any other available form, except that such issuer shall have no obligations hereunder to file a Shelf Registration Statement (and shall have no obligation with respect to any Shelf Registration Statement that is then in effect) unless and until such time as such issuer becomes eligible to register such securities on Form S-3 or any successor short form registration statement. (b) Termination. All rights, restrictions and obligations of Issuer, the Pension Plan and the VEBA, except with respect to any rights and obligations under Section 10, shall terminate and this Agreement shall have no further force and effect at such time as the Donees reduce their aggregate ownership of the Registrable Securities to less than 2% of the aggregate number of shares of Class H Common Stock then outstanding. (c) Amendments and Waivers. Except as otherwise provided herein, the provisions of this Agreement may not be amended, modified or supplemented except by a writing signed by Issuer, the Pension Plan and the VEBA. Any obligation of, or restriction applicable to, the Donees hereunder may be waived by a writing signed by the Issuer. Any obligation of, or restriction applicable to, the Issuer hereunder may be waived by a writing signed by the Donees. (d) Notices. Except where notice by teleconference is specifically called for in this Agreement, all notices and other communications provided for or permitted hereunder shall be in writing and, except as specified herein, shall be made by hand delivery, by registered or certified first-class mail, return receipt requested, overnight courier or facsimile transmission: (i) If to the Pension Plan: United States Trust Company of New York 600 Fourteenth Street, N.W., Suite 400 Washington, DC 20005-3314 Attention: Norman P. Goldberg Authorized Agent Telephone: (202) 585-4175 Facsimile: (202) 783-7044 with copies to: -------------- General Motors Investment Management Corporation 767 Fifth Avenue New York, New York 10153 37 Attention: Managing Director, North American Equities Telephone: (212) 418-6420 Facsimile: (212) 418-3665 and --- Jones, Day, Reavis & Pogue 2727 North Harwood Street Dallas, Texas 75201-1515 Attention: James F. Carey Telephone: (214) 220-3939 Facsimile: (214) 969-5100 (ii) If to the VEBA: United States Trust Company of New York 600 Fourteenth Street, N.W., Suite 400 Washington, DC 20005-3314 Attention: Norman P. Goldberg Authorized Agent Telephone: (202) 585-4175 Facsimile: (202) 783-7044 with copies to: -------------- General Motors Investment Management Corporation 767 Fifth Avenue New York, New York 10153 Attention: Chief Investment Officer, GM Subsidiaries Telephone: (212) 418-6318 Facsimile: (212) 418-3656 and --- Jones, Day, Reavis & Pogue 2727 North Harwood Street Dallas, Texas 75201-1515 Attention: James F. Carey Telephone: (214) 220-3939 Facsimile: (214) 969-5100 (iii) If to Issuer: 38 General Motors Corporation 767 Fifth Avenue New York, New York 10153 Attention: Treasurer Telephone: (212) 418-3500 Facsimile: (212) 418-3695 with a copy to: -------------- General Motors Corporation Legal Staff 300 Renaissance Center Mailcode 482-C25-C22 Detroit, Michigan 48265-3000 Attention: Warren G. Andersen, Esq. Telephone: (313) 665-4921 Facsimile: (313) 665-4978 All notices and communications shall be deemed to have been duly given and received: when received telephonically, if notice by teleconference is specifically called for by this Agreement; when delivered by hand, if hand delivered; the fifth Business Day after being deposited in the mail, registered or certified, return receipt requested, first class postage prepaid, or earlier Business Day actually received, if mailed; the first Business Day after being deposited with an overnight courier, postage prepaid, if by overnight courier; upon oral confirmation of receipt, if by facsimile transmission. Each party agrees promptly to confirm receipt of all notices. Whenever notices are required to be given by Issuer, such notices may only be given by the Treasurer of Issuer or another officer or employee of Issuer designated by the Treasurer in advance in writing to the recipient of such notice. Whenever notices are required to be given by any investment manager (including the Trustee) with respect to the Registrable Securities, such notices may only be given by an officer or employee of such investment manager designated in advance in writing to the recipient of such notice. (e) No Third Party Beneficiaries. This Agreement shall be for the sole and exclusive benefit of Issuer, the Pension Plan, the VEBA, the Pension Plan Trustee, the VEBA Trustee and any other investment manager or managers acting on behalf of the Pension Plan and the VEBA with respect to the Registrable Securities, and their respective successors, and directors, trustees, officers, employees, agents and controlling Persons indemnified hereunder. Nothing in this Agreement shall be construed to give any other Person any legal or equitable right, remedy or claim under this Agreement. 39 (f) Descriptive Headings. The headings of the sections of this Agreement are inserted for convenience only and shall not constitute a part hereof. (g) Cooperation. Each party hereto shall take such further action, and execute such additional documents, as may be reasonably requested by any other party hereto in order to carry out the purposes of this Agreement. (h) Adjustments; Restatement of Agreement. In the event of any stock dividend or distribution, stock split (forward or reverse), combination of shares, recapitalization, merger, consolidation, redemption, exchange of securities or other reorganization or reclassification after the date hereof with respect to the Registrable Securities or similar transactions affecting the Registrable Securities, all references herein to any designation of securities and to any specific number of shares or Registrable Securities shall be appropriately adjusted to give full effect thereto. Further, in the event of any of the foregoing transactions, Issuer shall be entitled, without the consent of any other party hereto, to restate this Agreement in its entirety to reflect such adjustments, and the Donees and the Issuer hereby agree to execute any such restatement of this Agreement. (i) Binding Effect: Assignment. This Agreement shall be binding upon and shall inure to the benefit of and be enforceable by each of the parties and their successors and the directors, trustees (including, without limitation, any successor trustee for the Pension Plan and the VEBA), officers, employees, agents and controlling Persons of the parties. Except for an assignment to a successor trustee or to an investment manager as stated herein, and except as contemplated in Section 12(a), none of the rights or obligations under this Agreement shall be assigned by the Pension Plan or the VEBA without the consent of Issuer or by Issuer without the consent of the Pension Plan and the VEBA. (j) Counterparts. This Agreement may be executed in counterparts, and shall be deemed to have been duly executed and delivered by all parties when each party has executed a counterpart hereof and delivered an original or facsimile copy thereof to the other party. Each such counterpart hereof shall be deemed to be an original, and all of such counterparts together shall constitute one and the same instrument. (k) Governing Law. All questions concerning the construction, validity and interpretation of this Agreement shall be governed by the internal laws (and not the laws of conflict) of the State of Delaware, except to the extent that the laws of the state or jurisdiction of incorporation or organization of the issuer of the Registrable Securities from time to time specifically apply to questions concerning the relative rights of the issuer of the Registrable Securities and the stockholders of such issuer in their capacities as such. 40 (l) Acknowledgments. Each of the Pension Plan and the VEBA agrees that it will obtain written acknowledgments, and provide a copy of such acknowledgments to Issuer, from each of its investment managers with respect to the Registrable Securities (other than the Pension Plan Trustee and the VEBA Trustee) and from the valuation advisers of the Pension Plan Trustee and the VEBA Trustee, confirming that such entity has received and reviewed this Agreement and will comply with the terms of this Agreement applicable to it. * * * * 41 IN WITNESS WHEREOF, the parties hereto, being duly authorized, have executed and delivered this Registration Agreement on the date first above written. GENERAL MOTORS CORPORATION By: ________________________________ Name: ________________________________ Title: ________________________________ GENERAL MOTORS HOURLY-RATE EMPLOYEES PENSION PLAN By: United States Trust Company of New York, As Trustee By: ________________________________ Name: ________________________________ Title: ________________________________ GENERAL MOTORS WELFARE BENEFIT TRUST By: United States Trust Company of New York, As Trustee By: ________________________________ Name: ________________________________ Title: ________________________________ 42 EXHIBIT A --------- TRANSFER AGREEMENT This Agreement is entered into on _______ __, ____, by and among General Motors Corporation, a Delaware corporation ("General Motors"), United States Trust Company of New York (the "Pension Plan Trustee") as trustee of a trust established under the General Motors Hourly-Rate Employees Pension Plan (the "Pension Plan"), for the account and on behalf of the Pension Plan (which shall thereby be deemed a party to this Agreement) and United States Trust Company of New York (the "VEBA Trustee" and together with the Pension Plan Trustee, the "Trustees") as a trustee of a dedicated account within the General Motors Welfare Benefit Trust, a voluntary employees' beneficiary association trust established to fund certain hourly retiree health care and life insurance benefits under the General Motors Health Care Program for Hourly Employees and other applicable welfare plans (the "VEBA"), for the account and on behalf of the VEBA (which shall thereby be deemed a party to this Agreement). Each of the Pension Plan and the VEBA are referred to herein as a "Donee" and they are sometimes referred to collectively as "Donees." Capitalized terms used and not otherwise defined herein shall have the respective meanings set forth in Section 5. WHEREAS, General Motors intends, subject to the satisfaction of certain regulatory and other conditions, to contribute approximately ___________ shares of Class H Common Stock to the Pension Plan and the VEBA, pursuant to the terms of a Registration Rights Agreement, dated as of the date hereof (the "Registration Rights Agreement"), by and among General Motors, the Pension Plan and the VEBA; and WHEREAS, General Motors wishes to preserve its ability to consummate at a later date a tax-free reorganization (or series of reorganizations) under the Internal Revenue Code of 1986, as amended, and the rules, regulations and rulings thereunder (the "Code"), including, without limitation, a split-off or spin-off pursuant to which holders of outstanding shares of General Motors' $1 2/3 par value common stock or Class H Common Stock would become holders of the capital stock of Hughes Electronics Corporation, a Delaware corporation ("Hughes") (or a successor to or subsidiary of Hughes or any other subsidiary of General Motors owning an interest in Hughes) (Hughes and any such subsidiary being collectively referred to herein as "Hughes") such that Hughes is no longer controlled by General Motors (any such transaction or series of transactions being referred to herein as a "Spin-Off"); and WHEREAS, each of the Donees is prepared to accept the shares of Class H Common Stock that may be contributed to it as described in the Registration Rights Agreement and to hold and Transfer any such shares and other shares of Class H Common Stock owned by it on the terms and conditions stated herein; and WHEREAS, the Pension Plan Trustee has been appointed by the named fiduciary of the Pension Plan (the "Pension Plan Named Fiduciary") (as determined in accordance with Section 402(a) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA")), to manage any shares of Class H Common Stock held by the Pension Plan as described in the Registration Rights Agreement and this Agreement and to exercise all rights, powers and privileges appurtenant to such shares (subject to the authority of the Pension Plan Named Fiduciary to terminate such appointment and appoint one or more other investment managers for any such shares); and WHEREAS, the VEBA Trustee has been appointed by the named fiduciary of the VEBA (the "VEBA Named Fiduciary") (as determined in accordance with Section 402(a) of ERISA), to manage any shares of Class H Common Stock held by the VEBA as described in the Registration Rights Agreement and this Agreement and to exercise all rights, powers and privileges appurtenant to such shares (subject to the authority of the VEBA Named Fiduciary to terminate such appointment and appoint one or more other investment managers for any such shares); and WHEREAS, the Pension Plan Trustee has full power and authority to execute and deliver this Agreement for the account and on behalf of the Pension Plan and to so bind the Pension Plan and the VEBA Trustee has full power and authority to execute and deliver this Agreement for the account and on behalf of the VEBA and to so bind the VEBA; NOW, THEREFORE, in consideration of the foregoing and the mutual agreements set forth herein and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, General Motors, the Pension Plan and the VEBA hereby agree as follows: 1. Restrictions on Transfer. ------------------------ (a) From and after such date as the first shares of Class H Common Stock are contributed to the Donees pursuant to the Registration Rights Agreement (the "Initial Contribution Date"), the Donees shall not make any Transfer of the Transferable Securities to any Person (or group of related Persons acting pursuant to a plan or arrangement) if such Person (or group of related Persons acting pursuant to a plan or arrangement) is then, or as a result of such Transfer and related transactions will become, to the knowledge of either Donee after reasonable inquiry, a 5% Person. (b) The restriction set forth in Section 1(a) above shall terminate two years after the date on which a Spin-Off is effected (the "Spin-Off Date"), unless there was an agreement, understanding, arrangement or substantial negotiation (collectively, an "Agreement") with respect to such Transfer within such two-year period, in which case the foregoing restriction will terminate on the later to occur of (i) the date two years after the Spin-Off Date, and (ii) the date which is six months after the date such Agreement is consummated or terminated, as the case may be. (c) From and after any such time as the Donees receive notice from General Motors or otherwise become aware by public announcement that General Motors intends to effect a Spin-Off (the "Spin-Off Notice Date"), the Donees shall not make any Transfer of 2 the Transferable Securities if, after giving effect to such Transfer, the number of shares of Transferable Securities that would be owned directly by the Donees (which shall include all shares in which either of the Donees has a beneficial interest (whether or not registered in the name of either Donee) and which shall not include shares owned by any Affiliate of the Donees) would constitute less than 50% of the number of Transferable Securities owned directly by the Donees as of the Spin-Off Notice Date. The restrictions set forth in this Section 1(c) shall terminate (i) in the event any such Spin-Off is abandoned, on such date as the Donees receive notice from General Motors or otherwise become aware of such abandonment (subject to such restrictions again becoming applicable as described in the first sentence of this Section 1(c)) or (ii) in the event any such Spin- Off is effected, on the second anniversary of the Spin-Off Date. (d) Section 1(a) shall not apply to any Transfer of Transferable Securities by the Donees if such Transfer is pursuant to an underwritten public offering reasonably designed to achieve a broad public distribution of the securities being offered; provided, that the Donees shall have caused the lead underwriter and any co-manager of such offering to have agreed (and the Donees shall have delivered evidence of such agreement to General Motors promptly after the execution thereof) to use their reasonable best efforts (i) to effect a broad public distribution of such securities and (ii) not to make any Transfer to any one Person (or group of related Persons acting pursuant to a plan or arrangement) (whether such Person (or group of related Persons acting pursuant to a plan or arrangement) is buying for its own account or as a fiduciary on behalf of one or more accounts) if such Person (or group of related Persons acting pursuant to a plan or arrangement) (A) is then a 5% Person, or (B) at any time prior to the time of such Transfer, has been designated in a written list provided by General Motors to the Donees as, to the reasonable belief of General Motors, beneficially owning (or as a result of such Transfer and related transactions would become the beneficial owner of) (in each case as defined in Rule 13d-3) 5% or more of the total voting power or total value of the Class H Common Stock then outstanding. (e) Nothing in this Agreement shall prohibit the Donees from making any Transfer of Transferable Securities if and to the extent such Transfer is made pursuant to a Spin-Off or a Merger; provided that this Agreement shall continue to apply to any Transferable Securities received by the Donees pursuant to such Spin-Off or Merger, as the case may be, as provided in this Agreement. (f) From and after the Initial Contribution Date, in the event that General Motors waives the restrictions under Section 1(a) hereof so as to permit the Donees to make a Transfer of Transferable Securities to any Person (or group of related Persons acting pursuant to a plan or arrangement) which would otherwise have been prohibited by Section 1(a) hereof, such Transfer shall not be made unless prior to such Transfer such Person (and all related Persons acting pursuant to a plan or arrangement) agrees to be bound by the provisions of this Agreement and executes and delivers to General Motors and the applicable Donee a transferee agreement reasonably satisfactory to General Motors and the applicable Donee to effectuate the purposes hereof. 3 (g) Until all restrictions set forth in Sections 1(a) through 1(f) have terminated pursuant to the terms set forth therein, the Donees shall not make any Transfer of securities convertible into or exercisable or exchangeable for the Transferable Securities or any other securities the value of which is derived from the Transferable Securities. (h) Until all restrictions set forth in Sections 1(a) through 1(f) have terminated pursuant to the terms set forth therein, the Donees (or the Trustees on behalf of the Pension Plan and the VEBA) will vote against any proposed Merger or similar transaction for which it is entitled or permitted to cast a vote if General Motors delivers to the Trustees, no later than three Business Days prior to the scheduled date for the stockholders meeting at which such Merger or similar transaction is to be voted on or the expiration date for the consent solicitation with respect thereto, as the case may be, an opinion of tax counsel reasonably satisfactory to the Trustees (which tax counsel may have been and be retained, employed or consulted from time to time by General Motors) that there is a material risk that such Merger or similar transaction would have an adverse impact on the tax-free status of a Spin-Off. (i) No Transfer or attempted Transfer of Transferable Securities in violation of this Agreement shall be made or recorded on the books of General Motors (or any other issuer of the Transferable Securities) and any such Transfer shall be void and of no effect. (j) Each certificate representing the shares of Class H Common Stock (or other evidence thereof) contributed to the Donees pursuant to the Registration Rights Agreement shall conspicuously bear a legend in substantially the following form and each uncertificated share of Class H Common Stock shall have an appropriate designation made in the book-entry records relating thereto to the following effect: "THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A TRANSFER AGREEMENT, DATED AS OF __________ ___, _____, BY AND BETWEEN GENERAL MOTORS CORPORATION ("GENERAL MOTORS") AND THE INITIAL HOLDER HEREOF THAT CONTAINS, AMONG OTHER THINGS, CERTAIN RESTRICTIONS ON THE TRANSFER OF SUCH SECURITIES. A COPY OF SUCH TRANSFER AGREEMENT WILL BE FURNISHED WITHOUT CHARGE BY GENERAL MOTORS TO THE HOLDER HEREOF UPON WRITTEN REQUEST." The certificates representing shares of Class H Common Stock (or other evidence thereof) held by the Donees and acquired other than pursuant to the Registration Rights Agreement shall be promptly surrendered to General Motors in order that General Motors' transfer agent may place such legend upon them. General Motors (or any other issuer of the Transferable Securities) shall instruct its transfer agent that such legend or the book-entry designation shall be removed from the certificates representing any Transferable Securities upon the earlier of (i) the Transfer of such shares of Transferable Securities if such Transfer is made in accordance with all applicable provisions of this Agreement and to a Person (or group of 4 related Persons acting pursuant to a plan or arrangement) who is not required to execute a transferee agreement under Section 1(f) and (ii) the termination of all restrictions set forth in Sections 1(a) through 1(f) pursuant to the terms set forth therein. (k) Nothing herein shall be construed as a waiver or modification of any of the restrictions on Transfer of the Registrable Securities (as defined in the Registration Rights Agreement) set forth in the Registration Rights Agreement, in no event shall any Transfer of the Transferable Securities be deemed to be a permitted Transfer of the Registrable Securities under the Registration Rights Agreement solely because such Transfer is permitted under this Agreement and in no event shall any Transfer of the Registrable Securities be deemed to be a permitted Transfer of the Transferable Securities under this Agreement solely because such Transfer is permitted under the Registration Rights Agreement. 2. Representations, Warranties and Covenants. ----------------------------------------- (a) The Pension Plan represents that it owns __________ shares of Class H Common Stock as of the date hereof. The VEBA represents that it owns __________ shares of Class H Common Stock as of the date hereof. (b) Each of the Donees agrees that from and after the date hereof it shall not purchase or acquire, in open market transactions or otherwise, any additional shares of Class H Common Stock or any securities convertible into or exercisable or exchangeable for the Class H Common Stock or any other interest in the Class H Common Stock; provided, that (i) any securities received by either Donee as consideration for any exchange or conversion of Class H Common Stock pursuant to the terms of a Spin-Off or a Merger, (ii) any securities acquired by either Donee as a dividend or other distribution on the Class H Common Stock and (iii) any shares of Class H Common Stock contributed to the Donees pursuant to the Registration Rights Agreement, shall not violate this Section 2(b). The foregoing covenant shall terminate following the consummation of a Spin-Off on the second anniversary of the Spin-Off Date. 3. Cooperation and Other Covenants. ------------------------------- (a) The Donees shall take (or refrain from taking) all such actions as General Motors may reasonably request as necessary to ensure that General Motors obtains and maintains a private letter ruling from the IRS or an opinion of counsel selected by General Motors (the "Spin-Off Ruling") confirming, in form and substance reasonably satisfactory to General Motors, that no income, gain or loss will be recognized by General Motors, its stockholders or Affiliates on account of a Spin-Off (except to the extent of any additional consideration described in Section 356 of the Code). Without limiting the generality of the foregoing, the Donees shall agree to be bound by such further restrictions on their ability to Transfer the Transferable Securities and to make such further representations and covenants and execute such additional documents, in each case as General Motors may reasonably request as necessary in connection with obtaining the Spin-Off Ruling. 5 (b) If so requested by the Donees, General Motors shall waive or modify any restriction set forth in Section 1 if and to the extent that General Motors obtains a private letter ruling from the IRS or opinion of counsel selected by General Motors (the "Modification Ruling") confirming, in form and substance reasonably satisfactory to General Motors, that such proposed waiver or modification shall not adversely affect General Motors' ability to obtain and maintain a Spin-Off Ruling. General Motors and the Pension Plan shall cooperate with each other (and any such tax counsel) and shall take (or refrain from taking) such actions as either party hereto may reasonably request as necessary to obtain any requested Modification Ruling. (c) General Motors shall promptly notify the Donees of any intention of General Motors to effect or abandon a Spin-Off. (d) Until all restrictions set forth in Section 1 have terminated, each Donee shall give General Motors written notice of any proposed Transfer of the Transferable Securities within a reasonable period of time prior to such proposed Transfer, and in any event no later than such date as any notice with respect to such proposed Transfer is required to be given by such Donee pursuant to the Registration Rights Agreement (including any notice of election to participate in any Piggyback Registration) or, if no such date is provided for in the Registration Rights Agreement, 10 days prior to the proposed consummation of such Transfer. Each notice hereunder of a proposed Transfer shall set forth the number of shares of Transferable Securities then owned by the applicable Donee and the terms and conditions of such proposed Transfer, including, without limitation, the approximate number of Transferable Securities proposed to be Transferred, the proposed timetable for such Transfer, whether such Transfer is to be made pursuant to an underwritten public offering in accordance with Section 1(f) and, if such Transfer is to be made otherwise, the identity of any proposed transferee and the number of shares of Class H Common Stock otherwise then owned by such proposed transferee, all with sufficient particularity to enable General Motors to determine whether such proposed Transfer would comply with the provisions of this Agreement. If, in connection with any such proposed Transfer, the applicable Donee receives from any proposed underwriter, co- manager or transferee any certificate, representation, undertaking or other documentation intended to establish compliance with the provisions of this Agreement, then such Donee shall deliver to General Motors a copy thereof prior to the consummation of such proposed Transfer. Such Donee shall give General Motors written notice of any material change in the terms and conditions of a proposed Transfer from those described in any previous notice thereof to General Motors from such Donee as promptly as practicable, and in no event later than two Business Days prior to such time as such Transfer is then proposed to be consummated, and such Donee shall not make any proposed Transfer other than in accordance with such terms and conditions as so described to General Motors. If at any time prior to the consummation of any proposed Transfer, General Motors determines, based on the advice of its legal counsel, that such proposed Transfer would violate any of the restrictions or be inconsistent with any of the provisions of this Agreement, then General Motors shall give notice to the applicable Donee of such determination and, unless and until tax counsel (which shall not be tax counsel regularly employed by General Motors or the applicable Donee unless otherwise agreed) mutually agreeable to General Motors and the applicable Donee (the fees and 6 expenses of which shall be borne equally by General Motors and the applicable Donee) delivers an opinion to General Motors and the applicable Donee that such proposed Transfer would not so violate or be inconsistent with this Agreement, such Donee shall not make such proposed Transfer. General Motors and the Donees shall cooperate with each other (and any such tax counsel) and shall provide each other with such information as may reasonably be requested in order to enable any party (or such tax counsel) to make any determination with respect to this Agreement. (e) Each of the parties shall treat all notices of and information relating to proposed Transfers, Spin-Offs and Mergers, including, without limitation, all notices pursuant to Sections 3(c) and 3(d), that are received from the other party with the strictest confidence and shall not disseminate such information; provided, that nothing herein shall prohibit disclosure of any such notice or information to the then issuer of the Transferable Securities. Nothing herein shall be construed to require General Motors or any of its Affiliates to make any public disclosure of information at any time. 4. Remedies. Each of the parties to this Agreement shall be entitled to enforce its rights under this Agreement specifically, to recover damages and costs (including reasonable attorneys fees) caused by any breach of any provision of this Agreement and to exercise all other rights existing in its favor. The parties hereto agree and acknowledge that either Donee's breach of any term or provision of this Agreement will materially and irreparably harm General Motors, that money damages will accordingly not be an adequate remedy for any breach of the provisions of this Agreement by the Donees and that General Motors, in its sole discretion and in addition to any other remedies it may have at law or in equity, may apply to any court of law or equity of competent jurisdiction (without posting any bond or deposit) for specific performance and/or other injunctive relief in order to enforce or prevent any violations of the provisions of this Agreement. 5. Definitions and Interpretations. ------------------------------- (a) Definitions. "Affiliate" has the meaning set forth in Rule 12b-2 under the Exchange Act (or any successor thereto). "Business Day" means such days as the New York Stock Exchange, Inc. shall be open for trading. "Class H Common Stock" means Class H Common Stock, par value $0.10 per share, of General Motors and any securities issued or issuable with respect to the Class H Common Stock in connection with any stock dividend, stock split (forward or reverse), combination of shares, recapitalization, merger, consolidation, redemption, exchange of securities or other reorganization or reclassification after the date hereof, including, without limitation, shares of capital stock of Hughes issued or issuable with respect to the Class H Common Stock in connection with a Spin-Off and shares of capital stock issued or issuable with respect to such shares of capital stock of Hughes in connection with a Merger. In the 7 event of any of the foregoing with respect to the Class H Common Stock or similar transactions affecting the Class H Common Stock, all references herein to the designation "Class H Common Stock" and to any specific number of shares of Class H Common Stock shall be appropriately adjusted to give effect thereto, and shall include reference to all securities of the same class regardless of whether any such securities were issued or issuable with respect to the securities that previously constituted the Class H Common Stock. "Exchange Act" means the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder. "5% Person" means any Person (or group of related Persons acting pursuant to a plan or arrangement) that, directly or indirectly, beneficially owns (as defined in Rule 13d-3) shares of Class H Common Stock or shares of any class of capital stock of Hughes that constitute 5% or more of the total voting power or total value of the Class H Common Stock or such class of capital stock of Hughes, as applicable, then outstanding (computed for this purpose as if any option, warrant, or other security that permits such Person (or group of related Persons acting pursuant to a plan or arrangement) to acquire additional shares of Class H Common Stock or such class of capital stock of Hughes (or any securities convertible into or exchangeable or exercisable for the Class H Common Stock or such class of capital stock of Hughes) had been fully converted, exchanged or exercised); provided that no Person (or group of related Persons acting pursuant to a plan or arrangement) shall be deemed a 5% Person for purposes of Section 1(c) if such Person (or group of related Persons acting pursuant to a plan or arrangement) acquired such shares directly from General Motors. "IRS" means the Internal Revenue Service. "Merger" means any business combination involving two or more corporations, or any other transaction (or series of related transactions) involving the issuance, exchange, conversion, recapitalization or redemption of Class H Common Stock. "Person" means an individual, a partnership, a corporation, an association, a joint stock company, a trust, a joint venture, an unincorporated organization or a governmental entity or any department, agency or political subdivision thereof. "Transfer" means any sale, transfer or other disposition (including any pledge and any disposition upon the foreclosure of any pledge) or any agreement to do any of the foregoing. "Transferable Securities" means (i) the Class H Common Stock contributed to the Donees pursuant to the Registration Rights Agreement from time to time, and (ii) the securities issued or issuable with respect to the securities referred to in clause (i) in connection with any stock dividend, stock split (forward or reverse), combination of shares, recapitalization, merger, consolidation, redemption, exchange of securities or other reorganization or reclassification after the date hereof, including, without limitation, shares of capital stock of Hughes issued or issuable with respect to the Class H Common Stock in connection with a Spin-Off and shares of capital stock issued or issuable with respect to the 8 Class H Common Stock in connection with a Merger. In the event of any of the foregoing with respect to the Transferable Securities or similar transactions affecting the Transferable Securities, all references herein to the designation "Transferable Securities" and to any specific number of shares of Transferable Securities shall be appropriately adjusted to give effect thereto. (b) Interpretations. For purposes of this Agreement, "knowledge of either Donee after reasonable inquiry" shall mean actual knowledge of such Donee after such inquiry, provided that, for purposes of determining compliance of any proposed Transfer of Transferable Securities with the provisions of this Agreement, (i) both Donees shall be deemed to have actual knowledge of the information contained in any Schedule 13D or 13G (or any successor thereto) filed under the Exchange Act or any amendment thereto with respect to the Class H Common Stock more than two Business Days prior to such proposed Transfer and (ii) if such Transfer is made pursuant to an underwritten public offering as described in Section 1(d), both Donees shall be deemed to have made a reasonable inquiry if they shall have conducted a search of the filings of Schedules 13D and 13G (and any successors thereto) under the Exchange Act and any amendments thereto within two Business Days of such proposed Transfer. 6. Miscellaneous. ------------- (a) Successor Issuers. In the event that, at any time after the time a which the Class H Common Stock is converted into, exchanged for or otherwise becomes a security of Hughes, Hughes enters into any transaction pursuant to which the capital stock of Hughes is to be converted into, exchanged for or otherwise become the right to receive securities of any issuer other than Hughes, then all references herein to Hughes (including this Section 6(a)) shall be deemed as of the time of consummation of such transaction to be references to both Hughes and such successor issuer. (b) Amendments and Waivers. Except as otherwise provided herein, the provisions of this Agreement may not be amended, modified or supplemented except by a writing signed by General Motors, the Pension Plan and the VEBA. (c) Notices. All notices and other communications provided for or permitted hereunder shall be in writing and shall be made by hand delivery, by registered or certified first-class mail, return receipt requested, overnight courier or facsimile transmission: 9 (i) If to the Pension Plan: United States Trust Company of New York 600 Fourteenth Street, N.W., Suite 400 Washington, DC 20005-3314 Attention: Norman P. Goldberg Authorized Agent Telephone: (202) 585-4175 Facsimile: (202) 783-7044 with a copy to: -------------- General Motors Investment Management Corporation 767 Fifth Avenue New York, New York 10153 Attention: Managing Director, North American Equities Telephone: (212) 418-6420 Facsimile: (212) 418-3665 and --- Jones, Day, Reavis & Pogue 2727 North Harwood Street Dallas, Texas 75201-1515 Attention: James F. Carey Telephone: (214) 220-3939 Facsimile: (214) 969-5100 (ii) If to the VEBA: United States Trust Company of New York 600 Fourteenth Street, N.W., Suite 400 Washington, DC 20005-3314 Attention: Norman P. Goldberg, Authorized Agent Telephone: (202) 585-4175 Facsimile: (202) 783-7044 with a copy to: -------------- General Motors Investment Management Corporation 767 Fifth Avenue New York, New York 10153 Attention: Chief Investment Officer, GM Subsidiaries Telephone: (212) 418-6318 Facsimile: (212) 418-3656 and --- 10 Jones, Day, Reavis & Pogue 2727 North Harwood Street Dallas, Texas 75201-1515 Attention: James F. Carey Telephone: (214) 220-3939 Facsimile: (214) 969-5100 (iii) If to General Motors: General Motors Corporation 767 Fifth Avenue New York, New York 10153 Attention: Treasurer Telephone: (212) 418-3500 Facsimile: (212) 418-3695 with copies to: --------------- General Motors Corporation Legal Staff 300 Renaissance Center Mail Code 482-C25-C22 Detroit, Michigan 48265-3000 Attention: Warren G. Andersen, Esq. Telephone: (313) 665-4921 Facsimile: (313) 665-4978 All notices and communications shall be deemed to have been duly given and received: when delivered by hand, if hand delivered; the fifth Business Day after being deposited in the mail, registered or certified, return receipt requested, first class postage prepaid, or earlier Business Day actually received, if mailed; the first Business Day after being deposited with an overnight courier, postage prepaid, if by overnight courier; upon oral confirmation of receipt, if by facsimile transmission. Each party agrees promptly to confirm receipt of all notices. Whenever notices are required to be given by General Motors, such notices may only be given by the Treasurer of General Motors or another officer or employee of General Motors designated by the Treasurer in advance in writing to the recipient of such notice. Whenever notices are required to be given by any investment manager (including the Trustees) with respect to the Transferable Securities, such notices may only be given by an officer or employee of such investment manager designated in advance in writing to the recipient of such notice. (d) No Third Party Beneficiaries. This Agreement shall be for the sole and exclusive benefit of General Motors, the Pension Plan, the VEBA, the Pension Plan Trustee, the VEBA Trustee and any other investment manager or managers acting on behalf of the Pension Plan or the VEBA with respect to the Transferable Securities, and their respective 11 successors, and directors, trustees, officers, employees, agents and controlling Persons indemnified hereunder. Nothing in this Agreement shall be construed to give any other Person any legal or equitable right, remedy or claim under this Agreement. (e) Descriptive Headings. The headings of the sections of this Agreement are inserted for convenience only and shall not constitute a part hereof. (f) Cooperation. Each party hereto shall take such further action, and execute such additional documents, as may be reasonably requested by any other party hereto in order to carry out the purposes of this Agreement. (g) Binding Effect; Assignment. This Agreement shall be binding upon and shall inure to the benefit of and be enforceable by each of the parties and their successors. Except for an assignment to a successor trustee or to an investment manager as stated herein and except as provided in Section 1(f), none of the rights or obligations under this Agreement shall be assigned by either Donee without the consent of General Motors or by General Motors without the consent of the Donees. (h) Counterparts. This Agreement may be executed in counterparts, and shall be deemed to have been duly executed arid delivered by all parties when each party has executed a counterpart hereof and delivered an original or facsimile copy thereof to the other party. Each such counterpart hereof shall be deemed to be an original, and all of such counterparts together shall constitute one and the same instrument. (i) Governing Law. All questions concerning the construction, validity and interpretation of this Agreement shall be governed by the internal laws (and not the laws of conflict) of the State of Delaware, except to the extent that the laws of the state or jurisdiction of incorporation or organization of the issuer of the Transferable Securities from time to time specifically govern questions concerning the relative rights of the issuer of the Transferable Securities and the stockholders of such issuer in their capacities as such. (j) Acknowledgments. Each of the Donees agrees that it will (i) obtain written acknowledgments, and provide a copy of such acknowledgments to General Motors from each of its investment managers with respect to the Transferable Securities (other than the Trustees), confirming that such entity has received and reviewed this Agreement and will comply with the terms of this Agreement applicable to it and (ii) inform each of the investment managers working with or for the Donees in any capacity of the existence and terms of the covenant made by the Pension Plan in Section 2(b) and instruct each such investment manager to comply with such covenant at all times until such covenant terminates as provided in Section 2(b). * * * * * 12 IN WITNESS WHEREOF, the parties hereto, being duly authorized have executed and delivered this Transfer Agreement on the date first above written. GENERAL MOTORS CORPORATION By:____________________________________ Name: Title: GENERAL MOTORS HOURLY-RATE EMPLOYEES PENSION PLAN By: The United States Trust Company of New York, As Trustee By:__________________________________ Name: Title: GENERAL MOTORS WELFARE BENEFIT TRUST By: The United States Trust Company of New York, As Trustee By:__________________________________ Name: Title: 13 EXHIBIT B --------- INTEREST RATE SCHEDULE The interest rate referred to in Section 2(f) (iv) shall be a per annum rate equal to the sum of (i) the rate quoted on the date of delivery of the Exercise Notice for United States Treasury bills with a maturity of 90 days and (ii) the amount set forth below under the column "Spread" corresponding to the rating (the "Rating") assigned by Standard & Poor's Ratings Group ("S&P") to the short term unsecured debt obligations of Issuer on the date of delivery of the Exercise Notice (it being understood that, for purposes of the foregoing, (i) the rating assigned to such debt obligations by any other rating agency shall be disregarded, (ii) any plus attached to a rating assigned by S&P shall be disregarded, (iii) any minus attached to a rating assigned by S&P shall be considered a downgrade to the next lowest rating and (iv) if S&P changes its rating system after the date hereof, the Ratings as set forth below shall be adjusted to the comparable ratings under such new rating system). Rating Spread (in basis points) ------------------------------- A-1 30 A-2 60 A-3 or below 100 56 EXHIBIT C --------- SUCCESSION AGREEMENT This Agreement is entered into as of _____________, ____, by and between ______________________, a ________ corporation ("Predecessor"), and _______________________, a ________ corporation ("Successor"). Capitalized terms used and not otherwise defined herein shall have the meanings set forth in the Registration Rights Agreement, dated as of __________ __, ____ (the "Registration Agreement") by and among General Motors Corporation, a Delaware corporation ("General Motors"), and United States Trust Company of New York, as trustee (the "Pension Plan Trustee") of a trust established under the General Motors Hourly-Rate Employees Pension Plan (the "Pension Plan"), for the account of and on behalf of the Pension Plan and United States Trust Company of New York, as a trustee (the "VEBA Trustee") of a dedicated account within the General Motors Welfare Benefit Trust, a voluntary employees' beneficiary association trust established to fund certain hourly retiree health care and life insurance benefits under the General Motors Health Care Program for Hourly Employees and other applicable welfare plans (the "VEBA"), for the account of and on behalf of the VEBA. WHEREAS, Predecessor is currently the issuer of the securities referred to as the "Registrable Securities" and "Class H Common Stock" in the Registration Agreement and generally has the rights and the obligations of Issuer under the Registration Agreement; and WHEREAS, pursuant to ____________________ (the "Transaction"), shares of Class H Common Stock shall be [converted into] [exchanged for] securities of Successor (the "Successor Securities"), effective as of ___________ (the "[Conversion] [Exchange] Date"); and WHEREAS, the Registration Agreement contemplates that in the event of a transaction such as the Transaction, Successor shall generally succeed to the rights and obligations of Issuer under the Registration Agreement; and NOW, THEREFORE, in consideration of the foregoing and the mutual agreements set forth herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Predecessor and Successor hereby agree as follows: 1. Succession. ---------- (a) Effective as of the [Conversion] [Exchange] Date, all rights, obligations and restrictions with respect to shares of Class H Common Stock (including Registrable Securities) set forth in the Registration Agreement shall apply to the Successor Securities. (b) Effective as of the [Conversion] [Exchange] Date, Successor shall be bound by the Registration Agreement and shall succeed to all rights, restrictions and obligations of Issuer set forth in the Registration Agreement, all references to Issuer therein shall thereafter be deemed to be references to Successor, and Predecessor shall be released from all obligations under the Registration Agreement. (c) Notwithstanding subsections (a) and (b) above, (i) all rights and obligations in Sections 1(a) through 1(e) of the Registration Agreement shall remain rights and obligations of General Motors and (ii) Predecessor shall not be released from any obligations under Section 10 of the Registration Agreement with respect to any registration of securities issued by Predecessor. 2. Cooperation. Predecessor and Successor shall take such further action, and execute such additional documents, as may be reasonably requested by either party in order to carry out the purposes of this Agreement. 3. Counterparts. This Agreement may be executed in counterparts, and shall be deemed to have been duly executed and delivered by all parties when each party has executed a counterpart hereof and delivered an original or facsimile copy thereof to the other party. Each such counterpart hereof shall be deemed to be an original, and all such counterparts together shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties hereto, being duly authorized, have executed and delivered this Succession Agreement on the date first above written. PREDECESSOR: By: Name: SUCCESSOR: By: Name: 2 This Succession Agreement (including, without limitation, the release of the Predecessor from obligations under the Registration Agreement as set forth herein (except as provided in Section 1(c) above)), is acknowledged and agreed to as of this ____ day of _________, ____. GENERAL MOTORS HOURLY-RATE EMPLOYEES PENSION PLAN By: United States Trust Company of New York, as Trustee By: Its: GENERAL MOTORS WELFARE BENEFIT TRUST By: United States Trust Company of New York, as Trustee By: Its: 3 -----END PRIVACY-ENHANCED MESSAGE-----