================================================================= PEGASUS BANKRUPTCY NEWS Issue Number 1 ----------------------------------------------------------------- Copyright 2004 (ISSN XXXX-XXXX) June 3, 2004 ----------------------------------------------------------------- Bankruptcy Creditors' Service, Inc. 215-945-7000 FAX 215-945-7001 ----------------------------------------------------------------- PEGASUS BANKRUPTCY NEWS is published by Bankruptcy Creditors' Service, Inc., 572 Fernwood Lane, Fairless Hills, Pennsylvania 19030, on an ad hoc basis (generally every 10 to 20 days) as significant activity occurs in the Debtors' cases. New issues are prepared by Riza Deloria, Frauline S. Abangan and Peter A. Chapman, Editors. Subscription rate is US$45 per issue. Any Re- mailing of PEGASUS BANKRUPTCY NEWS is prohibited. ================================================================= IN THIS ISSUE ------------- [00000] HOW TO SUBSCRIBE TO PEGASUS BANKRUPTCY NEWS [00001] BACKGROUND & DESCRIPTION OF PEGASUS SATELLITE [00002] PARENT'S CONSOLIDATED MARCH 31, 2004 BALANCE SHEET [00003] PEGASUS SATELLITE COMM'S MARCH 31, 2004 BALANCE SHEET [00004] PARENT'S PRESS RELEASE ANNOUNCING CHAPTER 11 FILINGS [00005] PEGASUS DEBTORS' CHAPTER 11 DATABASE [00006] LIST OF THE DEBTORS' 50-LARGEST UNSECURED CREDITORS [00007] ORGANIZATIONAL MEETING TO FORM OFFICIAL COMMITTEES [00008] DEBTORS' MOTION FOR AUTHORITY TO USE CASH COLLATERAL KEY DATE CALENDAR ----------------- 06/02/04 Voluntary Petition Date 06/04/04 10:00 a.m. First Day Hearing in Portland __/__/04 Organizational Meeting with UST to form Committees 06/17/04 Deadline for filing Schedules of Assets and Liabilities 06/17/04 Deadline for filing Statement of Financial Affairs 06/17/04 Deadline for filing Lists of Leases and Contracts 06/22/04 Deadline to provide Utilities with adequate assurance 08/01/04 Deadline to make decisions about lease dispositions 08/31/04 Deadline to remove actions pursuant to F.R.B.P. 9027 09/30/04 Expiration of Debtors' Exclusive Plan Proposal Period 11/29/04 Expiration of Debtors' Exclusive Solicitation Period 06/02/06 Deadline for Debtors' Commencement of Avoidance Actions First Meeting of Creditors pursuant to 11 USC Sec. 341 Bar Date for filing Proofs of Claim ----------------------------------------------------------------- [00000] HOW TO SUBSCRIBE TO PEGASUS BANKRUPTCY NEWS ----------------------------------------------------------------- PEGASUS BANKRUPTCY NEWS is distributed to paying subscribers by electronic mail. New issues are published on an ad hoc basis as significant activity occurs (generally every 10 to 20 days) in the Debtors' cases. The subscription rate is US$45 per issue. Newsletters are delivered via e-mail; invoices, transmitted following publication of each newsletter issue, arrive by fax. Re-mailing of PEGASUS BANKRUPTCY NEWS is prohibited. Distribution to multiple individuals at the same firm is provided at no additional charge; folks outside of your firm should set-up and pay for their own subscriptions. Subscriptions may be canceled at any time without further obligation. To continue receiving PEGASUS BANKRUPTCY NEWS, please complete the form below and return it by fax or e-mail to: Bankruptcy Creditors' Service, Inc. 572 Fernwood Lane Fairless Hills, PA 19030 Telephone (215) 945-7000 Fax (215) 945-7001 E-mail: peter@bankrupt.com We have published similar newsletters tracking billion-dollar insolvency proceedings since 1990, starting with Federated Department Stores. 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PEGASUS BANKRUPTCY NEWS is distributed to paying subscribers by electronic mail. New issues are published on an ad hoc basis as significant activity occurs (generally every 10 to 20 days) in the Debtors' cases. The subscription rate is US$45 per issue. Newsletters are delivered via e-mail; invoices, transmitted following publication of each newsletter issue, arrive by fax. Re-mailing of PEGASUS BANKRUPTCY NEWS is prohibited. Distribution to multiple individuals at the same firm is provided at no additional charge; folks outside of your firm should set-up and pay for their own subscriptions. Subscriptions may be canceled at any time without further obligation. ----------------------------------------------------------------- [00001] BACKGROUND & DESCRIPTION OF PEGASUS SATELLITE ----------------------------------------------------------------- Pegasus Satellite Communications, Inc. Pegasus Broadcast Television, Inc. Pegasus Media & Communications, Inc. PST Holdings, Inc. 225 City Line Avenue, Suite 200 Bala Cynwyd, PA 19004 Telephone (610) 934-7000 Fax (610) 934-7054 Pegasus Satellite Television, Inc. 123 Felton Street Marlborough, MA 01752 Telephone (508) 786-4200 http://www.pegsattv.com/ Pegasus Satellite provides DIRECTV(R) programming services to rural households across the United States. As of March 31, 2004, Pegasus was the largest independent distributor of DIRECTV programming with 1,113,416 subscribers and the exclusive right to distribute DIRECTV services to approximately 8.4 million rural households in territories located in 41 states. Pegasus has consolidated assets of approximately $1.6 billion related to their direct satellite business, which generated net revenues of approximately $831 million during calendar year 2003. Direct broadcast satellite programming services are digital broadcasting services that require a subscriber to install or have installed a satellite receiving antenna (or dish) and a digital receiver. DIRECTV requires subscribers to have a satellite dish, which can be as small as 18 inches in diameter depending on the services received, to which DIRECTV directly transmits programming services via five satellites. Pegasus, in turn, offers certain core DIRECTV programming packages to subscribers, which vary according to channels delivered and price. Pegasus employs approximately 779 workers in its direct satellite business. In addition, Pegasus maintains an independent retail network through dealer relationships to distribute DIRECTV programming in their exclusive territories. Pegasus' network includes over 4,000 independent retailers, consumer electronics stores, and other retailers serving rural areas in exclusive service areas. Today, Pegasus' retail network is one of the few sales and distribution channels available to digital satellite service providers seeking broad and effective distribution in rural areas throughout the continental United States. In addition to the direct satellite business, some of Pegasus' affiliates are either owners or programmers of eight television stations affiliated with either CBS Television, Fox Broadcasting Company, United Paramount Network, or The WB Television Network. As of December 31, 2003, the Debtors had consolidated assets of approximately $57.0 million related to their television broadcasting business. Approximately 163 employees are devoted to their broadcast television business. Who's Who in the Zoo Pegasus Satellite Communications, Inc., is a direct subsidiary of Pegasus Communications Corporation, a non-debtor Delaware corporation that is a publicly listed company (NASDAQ: PGTV). * The Satellite Companies Pegasus Satellite Communications, Inc., is a holding company and is the direct parent company and sole shareholder of Pegasus Media & Communications, Inc., which is also a holding company and has sought chapter 11 protection. Pegasus Media conducts direct broadcast satellite operations through 15 subsidiaries, 14 of which have filed voluntary petitions under chapter 11. The primary direct broadcast satellite-operating subsidiary of Pegasus Media is Pegasus Satellite Television, Inc. Together with its subsidiaries and sister company affiliate, Henry County MRTV, Inc., Pegasus Satellite Television, Inc., is the nation's largest independent provider of DIRECTV, the country's leading direct broadcast satellite service. * The Broadcast Companies Pegasus Media also conducts television broadcast operations through 12 subsidiaries, all of which have filed voluntary petitions under chapter 11. The Broadcast Companies own four television stations and operate five others. One of the stations operated by a Broadcast Company is owned by a subsidiary of Pegasus Satellite Communications, Inc. (WGFL License Corporation), and did not file for chapter 11 protection. An organizational chart showing the relationships between these companies is available at no charge at: http://bankrupt.com/misc/PegasusOrganizationalChart.pdf _______________________________ | | | BUSINESS OPERATIONS: | | The Satellite Companies | |_______________________________| (A) Direct Broadcast Satellite Television There are currently two nationally branded direct broadcast satellite programming services: DIRECTV and The DISH Network. DIRECTV is a service of DIRECTV, Inc., a subsidiary of The DIRECTV Group, Inc. (f/k/a Hughes Electronics Corporation). DIRECTV, Inc., is now controlled by the Fox Entertainment Group, Inc., after The News Corporation Limited acquired control of Hughes Electronics Corporation from General Motors Corporation in December 2003. EchoStar Communications Corporation owns DISH. Additionally, Cablevision Systems Corporation launched a high definition focused direct broadcast satellite service in late 2003 through its Rainbow DBS, LLC, subsidiary. This new direct broadcast satellite entrant operates under the VOOM brand name. Direct broadcast satellite programming services are digital services that require a subscriber to install or have installed a satellite receiving antenna (or dish) and a digital receiver. DIRECTV transmits programming services via five high power Ku band satellites into subscribers' homes. The reception of DIRECTV services requires the installation of a satellite dish that can be as small as 18 inches in diameter. The Satellite Companies in turn offer programming packages to subscribers, which vary by channels delivered and price. The Satellite Companies are the primary providers of DIRECTV programming services in rural areas. Rural areas make up approximately 85% of the total landmass of the continental United States and are home to approximately 20% of the U.S. population. Because the cost of reaching a household by a cable or other wire line distribution system is generally inversely proportional to home density (the greater the density, the less the cost per household) and the cost of providing the satellite service is not, direct broadcast satellite services have strong cost advantages over cable and other wire line distribution systems in rural areas. Rural areas, therefore, represent a large and attractive market for direct broadcast satellite services. The Satellite Companies actively market DIRECTV programming to potential subscribers in these market segments as their primary source of television programming. The direct broadcast satellite business competes with a number of different sources that provide news, information, and entertainment programming to consumers. Some of these competitors include, among others, other direct broadcast satellite providers, cable television systems, Internet companies, local television broadcast stations that can be reached using a roof top antenna, satellite master antenna television systems, wireless program distribution services, movie theaters, and home video products. (B) Independent Retail Network The Satellite Companies obtain new subscribers for their DIRECTV programming services through several channels of distribution. The most significant method of distribution is through an independent retail network, which consists of dealer relationships with over 4,000 dealers. The Satellite Companies' primary commission plan with the Dealers involves the marketing of the Pegasus Digital One Plan (or the Pegasus Standard Sale Plan). This commission plan is generally governed by the Dealer Rules, Policies, and Procedures, restated as of May 10, 2004. In general, the Dealer Rules provide that the Dealers will market the Pegasus Digital One Plan to residential subscribers who are not current DIRECTV programming subscribers and who have not subscribed to DIRECTV programming through the Satellite Companies during the prior twelve months. The Dealers are responsible for enrolling subscribers to the Satellite Companies' DIRECTV programming, providing subscribers with the necessary equipment, and arranging for installation of the equipment. The Dealers are typically paid directly by the Satellite Companies through a variety of incentive programs, including equipment subsidies, installation subsidies, commissions, and/or flex payments. The Satellite Companies change these incentives from time to time in accordance with certain business rules to reward particular Dealer behavior or to achieve a particular mix of sales. In addition, the Dealers may participate in the Pegasus Cooperative Advertising Program. Under the Cooperative Advertising Program, eligible dealers are allocated monthly cooperative advertising funds to offset a certain percentage of their qualified advertising expenditures. The strength of the Satellite Companies' business is based on the their widespread national presence in rural markets. In contrast to metropolitan areas, it is difficult to establish sales and distribution channels in rural areas. Most retailers in rural areas are independently owned and operate a limited number of store locations. As a result, the Satellite Companies rely on their 4,000 independent Dealers to distribute DIRECTV programming services to certain areas of the country that would otherwise be underserved. The Satellite Companies' ability to maintain a network of Dealers and to penetrate rural markets on a wide-scale basis is critical to their success in their restructuring efforts, Ted S. Lodge, Pegasus' President, Chief Operating Officer and Counsel, says. Furthermore, Mr. Lodge relates, the Satellite Companies' operations are dependent on obtaining a sufficient number of quality subscribers and retention of subscribers for extended periods of time. The Satellite Companies' Dealer compensation and incentive programs are designed to ensure that the Dealers maximize their efforts in enlisting and retaining new, quality subscribers to the Satellite Companies' DIRECTV programming services. (C) Direct and Other Sales Channels In addition to its independent retail network, the Satellite Companies have direct sales capabilities to facilitate the acquisition of new subscribers through telemarketing, advertising and other marketing efforts, which reduce subscriber acquisition costs. Through its direct sales channels the Satellite Companies enroll subscribers and arrange for equipment delivery and installation through distribution arrangements with third party service providers and national distributors. Finally, the Satellite Companies also obtain new subscribers to DIRECTV programming through national retail chains that sell DIRECTV under arrangements with DIRECTV, Inc. (D) Two Step Distributor Relationships In order to facilitate the acquisition of subscribers via Satellite Companies' retail network, direct sales capabilities, and alternate channels of distribution, the Satellite Companies have entered into certain distribution and fulfillment arrangements with various national distributors of satellite programming equipment. Distributors purchase satellite equipment directly from manufacturers and maintain in their inventory the equipment needed by subscribers to access the Satellite Companies' DIRECTV programming. Distributors sell the equipment to the Dealers (the price of which may be subsidized by the Satellite Companies through their equipment "buy-down" program) who, in turn, provide the equipment to subscribers. Distributors directly charge the Dealers for the equipment they sell to them. Distributors also drop ship equipment to subscribers or arrange for equipment fulfillment and installation for subscribers obtained through the Satellite Companies' direct sales channel or through one of the Satellite Companies' other alternate channels of distribution. (E) Consumer Offers The Satellite Companies generally offer two options for acquiring the equipment necessary to receive DIRECTV programming: the Digital One Plan and the Standard Sale Plan. Under the Digital One Plan, subscribers are provided with equipment, consisting of a satellite receiving antenna (dish) and one or more set top receivers, obtain DIRECTV programming for a monthly programming fee, enter into an initial 12-month commitment secured by a credit card, and enjoy the benefits of repair service without additional monthly cost (subject to certain limitations). Under this plan, the Satellite Companies retain title to the set top receivers and remote controls provided to subscribers. Subscribers who terminate service but do not return equipment and access cards are assessed equipment non-return fees and may be assessed access card non-return fees. Failure to satisfy the 12- month commitment, including, in some instances, downgrading of service, typically results in the imposition of cancellation fees. Under the Standard Sale Plan, subscribers obtain equipment consisting of a satellite receiving antenna (dish) and one or more set top receivers and obtain DIRECTV programming for a monthly programming fee. Unlike the Digital One Plan, the subscribers own the equipment under the Standard Sale Plan. The Satellite Companies require most Standard Sale Plan subscribers to make an initial 12-month commitment. Failure to satisfy the 12-month programming commitment by those subscribers required to make the commitment typically results in the imposition of cancellation fees. The imposition of cancellation fees under both the Digital One Plan and the Standard Sale Plan is intended to reimburse Pegasus in part for their costs of special introductory promotional offers, equipment and installation subsidies paid to retailers in order to induce those retailers to provide these items at a low cost or no cost to subscribers, and dealer commissions. (F) Direct Broadcast Satellite Agreements The Satellite Companies distribute DIRECTV programming services through agreements with the National Rural Telecommunications Cooperative. The NRTC is a cooperative organization whose members and affiliates are engaged in the distribution of telecommunications and other services in predominantly rural areas of the United States. Prior to the launch of DIRECTV's programming services, Hughes Communications Galaxy, Inc., succeeded by DIRECTV, Inc., entered into the DBS Distribution Agreement, as amended with the NRTC authorizing the NRTC to offer its members and affiliates the opportunity to acquire exclusive rights to distribute DIRECTV programming services in rural areas. Approximately 252 NRTC members and affiliates, including PST, initially acquired those exclusive rights, thereby becoming DIRECTV independent distributors. At the time DIRECTV began providing satellite programming services in 1994, the Satellite Companies were the largest of the original DIRECTV independent distributors, with a DIRECTV exclusive territory of approximately 500,000 homes in four New England states. In October 1996, the Satellite Companies began acquiring exclusive distribution rights from other NRTC Patrons. Between October 1996 and February 2001, the Satellite Companies acquired an aggregate of 159 additional territories. * Member Agreements The Satellite Companies provide DIRECTV programming services in each of these territories pursuant to the NRTC/Member Agreements for Marketing and Distribution of DBS Services, as amended between the NRTC and certain of the Satellite Companies. Through the Member Agreements and the DBS Agreement, the Satellite Companies have substantial rights and enjoy substantial benefits from the distribution of DIRECTV services into their exclusive territories. These rights include the right to set pricing, to retain all subscription remittances and to appoint sales agents. In exchange for those rights and benefits, the Satellite Companies make substantial payments to the NRTC each month, for programming and other actual costs billed by DIRECTV to NRTC on account of Pegasus' subscribers, although a certain portion of the payments include charges by NRTC and DIRECTV that are unrelated to costs of providing services to the subscribers. In addition, Pegasus Letter of Credit Subsidiary, Inc., a non- debtor subsidiary of Pegasus Media & Communications, Inc., has posted irrevocable letters of credit to secure payment of NRTC's billings in the outstanding principal face amount of $59 million, naming the NRTC as the beneficiary. These letters of credit are cash collateralized at 105% of the outstanding face amount, or approximately $62 million. Subject to the terms and conditions of the Member Agreements (and the drawing conditions under the letters of credit), if the Companies fail to pay their uncontested obligations under the Member Agreements after written notice from the NRTC, the NRTC may have the ability to draw on the letters of credit. Pegasus and the NRTC dispute the interpretation and application of the terms of the Letter of Credit Amendment. * Revised Seamless Consumer Program Agreement In addition to the Member Agreements, PST and Golden Sky Systems, Inc., entered into an interim arrangement with DIRECTV, Inc., without prejudice to its claims for programming and other services, to provide certain programming services to the Satellite Companies' existing and prospective subscribers pursuant to a revised seamless consumer program agreement. The Revised Seamless Consumer Program Agreement enables the Satellite Companies to provide DIRECTV subscribers a more expansive service selection and a simplified and consolidated billing process. In particular, while the Member Agreements allow the Satellite Companies to provide all programming and services, at a minimum, from 27 frequencies at the 101 W.L. orbital location, under the Revised Seamless Consumer Program Agreement, the Satellite Companies are able to provide subscribers with certain premium programming channels distributed by DIRECTV, like HBO, Showtime, Cinemax and The Movie Channel (which the Satellite Companies believe they have the right to provide in any event, although DIRECTV contests that right), as well as certain local television station broadcasts, which are provided from other frequencies. Under the Revised Seamless Consumer Program Agreement, the Satellite Companies bill and collect monthly fees from subscribers, retain certain percentages of the revenues associated with the additional programming services, and remit the remaining revenue to DIRECTV. _______________________________ | | | BUSINESS OPERATIONS: | | The Broadcast Companies | |_______________________________| The Broadcast Companies own or operate certain television stations affiliated with CBS, Fox, UPN, or WB. The markets served by, call letters and network affiliations of these stations are: * Portland, Maine - WPXT (WB) and WPME (UPN); * Chattanooga, Tennessee - WDSI (Fox); * Tallahassee, Florida - WTLH (Fox) and WTLF (UPN); * Wilkes-Barr/Scranton, Pennsylvania - WOLF (Fox), WILF (WB) and WSWB (WB), and * Gainesville, Florida - WGFL (CBS). Local Marketing Agreements The Broadcast Companies have entered into local marketing agreements -- commonly called LMA's -- or similar agreements in markets where Pegasus already own a television broadcast station. These agreements allow the Broadcast Companies to program the broadcast hours and sell advertising for that time of a station whose FCC license is owned by a third party. The Broadcast Companies have entered into the LMA's because, pursuant to current rules administered by the Federal Communications Commission, the number of television stations one entity may own in a given market is limited. Thus, the LMA's allow the Broadcast Companies to obtain additional opportunities for increasing revenue share with limited additional operating expenses. There are three markets in which the Broadcast Companies own stations and separately program a station pursuant to an LMA: Portland, Maine; Wilkes-Barre/Scranton, Pennsylvania; and Tallahassee, Florida. _______________________________ | | | LITIGATION | |_______________________________| Seamless Marketing Litigation On April 14, 2004, a jury returned a verdict in favor of DIRECTV, Inc., in the Seamless Marketing litigation that DIRECTV, Inc., brought against Pegasus Satellite Television, Inc., and Golden Sky Systems, Inc. The jury verdict awarded DIRECTV, Inc., $51.5 million. On April 16, 2004, DIRECTV, Inc., asked the United States District Court for the Central District of California for an award of prejudgment interest on the verdict. DIRECTV, Inc., requested $12.6 million as interest. On May 20, 2004, the California District Court granted DIRECTV, Inc.'s request for prejudgment interest. The District Court determined the amount of prejudgment interest to be $10.7 million as of April 16, 2004. Pegasus had previously recorded $6.5 million for prejudgment interest. As the result of the order being entered, Pegasus will record an additional $4.2 million will be recorded for prejudgment interest. On May 24, 2004, the District Court entered a $62,586,479.43 judgment, which includes prejudgment interest calculated through the date of entry of the judgment. Pegasus could not post a bond to stay its enforcement. NRTC Sends Termination Notice BALA CYNWYD, Pennsylvania -- June 2, 2004 -- Pegasus Communications Corporation (NASDAQ: PGTV) announced that Pegasus Satellite Television, Inc. and certain of its affiliates received today notice from the National Rural Telecommunications Cooperative purporting to terminate Pegasus Satellite Television's exclusive distribution arrangements with NRTC, which provide to Pegasus Satellite Television the exclusive rights to distribute DIRECTV services in specified rural territories of the United States. The notice provides that this action is based upon an agreement between NRTC and DIRECTV, Inc. to terminate the distribution agreement between NRTC and DIRECTV. Ted S. Lodge, President and Chief Operating Officer of Pegasus Satellite Television, stated: "We are still evaluating the notice purporting to terminate our agreements and a related cash offer, which we received this morning with no prior notification. We categorically reject DIRECTV's and NRTC's assertion that they can terminate our agreements, and intend to vigorously protect our rights. We believe the strong arm tactics demonstrated by these actions today further evidence both the true value of our assets and the very strong desire of DIRECTV and NRTC to take value away from our stakeholders." DirecTV, Inc., is offering cash to NRTC Members for their subscribers. A free copy of DirecTV's offer dated June 2, 2004, is available at no charge at: http://www.sec.gov/Archives/edgar/data/1234308/000119312504098063/dex101.htm ----------------------------------------------------------------- [00002] PARENT'S CONSOLIDATED MARCH 31, 2004 BALANCE SHEET ----------------------------------------------------------------- PEGASUS COMMUNICATIONS CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS At March 31, 2004 ASSETS: Currents assets: Cash and cash equivalents $64,243,000 Restricted cash 62,664,000 Accounts receivable, net Trade 22,241,000 Other 10,636,000 Deferred subscriber acquisition costs, net 7,950,000 Prepaid expenses 5,656,000 Other current assets 6,269,000 -------------- Total current assets 179,659,000 Property and equipment, net 80,542,000 Intangible assets, net 1,583,531,000 Other noncurrent assets 168,798,000 -------------- Total $2,012,530,000 ============== LIABILITIES & EQUITY: Current liabilities: Current portion of long term debt $19,625,000 Accounts payable 11,073,000 Accrued interest 21,572,000 Accrued programming fees and commissions 57,642,000 Litigation verdict accrual 58,000,000 Other accrued expenses 22,356,000 Other current liabilities 7,293,000 -------------- Total current liabilities 197,561,000 Long term debt 1,372,799,000 Mandatorily redeemable preferred stock 86,038,000 Other noncurrent liabilities 78,825,000 -------------- Total liabilities 1,735,223,000 -------------- Commitments and contingent liabilities Redeemable preferred stocks 214,330,000 Minority interest 8,834,000 Common stockholders' equity: Common stock 65,000 Other common stockholders' equity 54,078,000 -------------- Total common stockholders' equity 54,143,000 -------------- Total $2,012,530,000 ============== ----------------------------------------------------------------- [00003] PEGASUS SATELLITE COMM'S MARCH 31, 2004 BALANCE SHEET ----------------------------------------------------------------- PEGASUS SATELLITE COMMUNICATIONS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS At March 31, 2004 ASSETS: Currents assets: Cash and cash equivalents $9,058,000 Restricted cash 62,511,000 Accounts receivable, net Trade 22,178,000 Other 10,017,000 Deferred subscriber acquisition costs, net 7,950,000 Prepaid expenses 4,363,000 Other current assets 6,256,000 -------------- Total current assets 122,333,000 Property and equipment, net 62,081,000 Intangible assets, net 1,428,167,000 Other noncurrent assets 150,302,000 -------------- Total $1,762,883,000 ============== LIABILITIES & EQUITY: Current liabilities: Current portion of long term debt $19,506,000 Accounts payable 8,986,000 Accrued interest 21,505,000 Accrued programming fees and commissions 57,642,000 Litigation verdict accrual 58,000,000 Other accrued expenses 11,801,000 Other current liabilities 7,272,000 -------------- Total current liabilities 184,712,000 Long term debt 1,364,544,000 Mandatorily redeemable preferred stock 178,194,000 Note payable to parent 42,018,000 Other noncurrent liabilities 108,727,000 -------------- Total liabilities 1,878,195,000 -------------- Commitments and contingent liabilities Minority interest 771,000 Common stockholder's equity: Common stock -- Other common stockholder's equity (116,083,000) -------------- Total common stockholder's equity (116,083,000) -------------- Total $1,762,883,000 ============== ----------------------------------------------------------------- [00004] PARENT'S PRESS RELEASE ANNOUNCING CHAPTER 11 FILINGS ----------------------------------------------------------------- Pegasus Satellite Television Files for Protection Under Chapter 11 to Prevent NRTC and DIRECTV From Seeking to Implement Unlawful Termination All Pegasus Entities Will Continue to Operate in Ordinary Course BALA CYNWYD, Pennsylvania -- June 2, 2004 -- Pegasus Communications Corporation (NASDAQ: PGTV) announced today that its subsidiaries, Pegasus Satellite Television, Inc., Pegasus Satellite Communications, Inc., and Pegasus Media & Communications, Inc., and certain of their subsidiaries have filed for protection under Chapter 11 of the U.S. Bankruptcy Code in order to prevent the National Rural Telecommunications Cooperative (NRTC) and DIRECTV from seeking to implement an unlawful termination of Pegasus Satellite Television's agreements for exclusive distribution of DIRECTV services. These filings will seek affirmation by the Bankruptcy Court of Pegasus Satellite Television's valuable rights as well as damages resulting from NRTC's and DIRECTV's actions to impair those rights, including NRTC's breach of its duties to Pegasus Satellite Television, NRTC's majority owner. Pegasus Satellite Television believes the filing will also enable it to continue to provide uninterrupted service to its 1.1 million rural subscribers during the resolution of these disputes and to continue to meet its responsibilities to its employees and business partners in the ordinary course. Pegasus Satellite Television is involved in an ongoing dispute regarding the duration of its right to exclusive distribution of DIRECTV services. This dispute was brought to a head this morning, when NRTC and DIRECTV purported to terminate Pegasus Satellite Television's exclusive distribution arrangements with the NRTC. Mark Pagon, Chairman and Chief Executive Officer of Pegasus Communications Corporation, parent of Pegasus Satellite Television, said: "Action this morning by NRTC and DIRECTV that purports to terminate our long-standing agreements is unlawful. We intend to take all appropriate actions necessary to prevent NRTC and DIRECTV from implementing this latest scheme to deprive our stakeholders of the substantial value that we have successfully created in our satellite television business since 1994. It is with the greatest reluctance that we have concluded that Pegasus Satellite Television must seek the protection of Chapter 11 in order to protect our customers, employees, business partners, creditors and owners -- while we seek affirmation of our rights. We intend to pursue a resolution of these matters as expeditiously as possible." Pegasus Satellite Television is the nation's largest independent provider of DIRECTV(R), the country's leading Direct Broadcast Satellite (DBS) service. Pegasus Satellite Television has the exclusive right to provide DIRECTV to more than 8.4 million homes in 41 states and serves 1.1 million rural subscribers. Pegasus Satellite Television had annual revenues of $831.2 million in 2003 and DBS operating profit before depreciation and amortization (EBITDA) of $213.8 million. The Chapter 11 filing was made in the U.S. Bankruptcy Court in Portland, Maine. The Chapter 11 filing does NOT include Pegasus Communications or its direct subsidiaries (other than Pegasus Satellite Communications) which are unaffected by today's filing. The filing entities' financial advisor is Miller Buckfire Lewis Ying & Co., LLC. Its legal advisors are Sidley Austin Brown & Wood, LLP, and Bernstein, Shur, Sawyer & Nelson. About Pegasus Pegasus Communications Corporation through its subsidiary, Pegasus Satellite Communications, provides digital satellite television to rural households throughout the United States and owns and/or operates television stations affiliated with CBS, FOX, UPN and The WB networks. Pegasus Communications Corporation also has other assets and operations conducted through subsidiaries that have not filed for Chapter 11, including: -- Pegasus Development Corporation, which holds two Ka band satellite licenses granted by the FCC and intellectual property rights licensed from Personalized Media Communications, L.L.C. -- Pegasus Guard Band, LLC, which holds FCC licenses to provide terrestrial communications services in the 700 MHZ spectrum. -- Pegasus Rural Broadband, LLC, which is developing a business to provide broadband Internet access in rural areas. Additional information about the restructuring will be available at http://www.pgtv.com/ ----------------------------------------------------------------- [00005] PEGASUS DEBTORS' CHAPTER 11 DATABASE ----------------------------------------------------------------- Debtors filing separate Chapter 11 petitions: Case No. Debtor Entity -------- ------------- 04-20864 HMW, Inc. 04-20865 B.T. Satellite, Inc. 04-20866 Portland Broadcasting, Inc. 04-20867 Pegasus Broadcast Television, Inc. 04-20868 Bride Communications, Inc. 04-20871 Pegasus Broadcast Associates, L.P. 04-20872 Pegasus Broadcast Towers, Inc. 04-20873 Telecast of Florida, Inc. 04-20874 WDSI License Corp. 04-20875 WILF, Inc. 04-20876 WOLF License Corp. 04-20877 WTLH License Corp. 04-20878 Pegasus Satellite Television, Inc. 04-20879 Argos Support Services Company 04-20880 Carr Rural TV, Inc. 04-20881 DBS Tele-Venture, Inc. 04-20882 Golden Sky Systems, Inc. 04-20883 Digital Television Services of Indiana, LLC 04-20884 DTS Management, LLC 04-20885 Henry County MRTV, Inc. 04-20886 Golden Sky DBS, Inc. 04-20887 Pegasus Media & Communications, Inc. 04-20888 Golden Sky Holdings, Inc. 04-20889 Pegasus Satellite Communications, Inc. 04-20890 Primewatch, Inc. 04-20891 Pegasus Satellite Television of Illinois, Inc. 04-20892 PST Holdings, Inc. 04-20893 South Plains DBS, LP Chapter 11 Petition Date: June 2, 2004 Bankruptcy Court: United States Bankruptcy Court District of Maine 537 Congress Street, 2nd Floor Portland, ME 04101 Telephone (207) 780-3482 Fax (207) 780-3679 Bankruptcy Judge: Chief Judge James B. Haines, Jr. Circuit: First Debtors' Lead Bankruptcy Counsel: Larry J. Nyhan, Esq. James F. Conlan, Esq. Paul S. Caruso, Esq. Ellen R. Moring, Esq. Jessica C. Knowles, Esq. Sidley Austin Brown & Wood, LLP Bank One Plaza 10 South Dearborn Street Chicago, IL 60603 Telephone (312) 853-7000 Fax (312) 853-7036 - and - Ellen R. Moring, Esq. Sidley Austin Brown & Wood, LLP 787 Seventh Avenue New York, NY 10019 Telephone (212) 839-5300 Fax (212) 839-5599 Debtors' Local Bankruptcy Counsel: Robert J. Keach, Esq. Bernstein, Shur, Sawyer & Nelson 100 Middle Street P.O. Box 9729 Portland, ME 04104 Telephone (207) 774-1200 Debtors' Special Corporate and Regulatory Counsel: Drinker Biddle & Reath, LLP Debtors' Special Communications Laws Counsel: Shaw Pittman, LLP Debtors' Special Litigation Counsel: Arnold & Porter, LLP Debtors' Financial Advisor and Investment Banker: Miller Buckfire Lewis Ying & Co., LLC. 250 Park Avenue, 19th Floor New York, NY 10177 Telephone (212) 895-1800 Fax (212) 895-1850 Debtors' Financial Advisor: FTI Consulting, Inc. Debtors' Cooperative Issues Expert: Capital Management Associates, Inc. Debtors' Claims, Noticing and Balloting Agent: Lorenzo Mendizabal Trumbull Group, LLC 4 Griffin Road North Windsor, CT 06095 Telephone (860) 687-5401 Debtors' Compensation Consultant: Hewitt Associates, LLC Debtors' Corporate Communications Advisor: Michael Freitag Victoria Weld Kekst and Company 437 Madison Avenue New York, NY 10033 Telephone (212) 521-4800 U.S. Trustee: Robert Checkoway, Esq. Office of the United States Trustee 537 Congress Street, Room 303 Portland, ME 04101 Telephone (207) 780-3564 Fax (207) 780-3568 Counsel to The Steering Committee of Senior Secured Creditors: Benjamin E. Marcus, Esq. Drummond Woodsum & MacMahon 245 Commercial Street P.O. Box 9781 Portland, ME 04104-5081 ----------------------------------------------------------------- [00006] LIST OF THE DEBTORS' 50-LARGEST UNSECURED CREDITORS ----------------------------------------------------------------- Entity Nature Of Claim Claim Amount ------ --------------- ------------ JP Morgan Trust NA Note Debt $341,924,000 Institutional Trust Services (11.25% Sr. Notes due 2010) Trust Operations 2001 Bryan St., 10th Fl. Dallas, TX 75201 Attn: Jason Warzaka Tel (212) 623-5303 Fax (212) 623-6380 Wachovia Bank, National Note Debt $158,205,000 Association (12.375% Sr. Notes due 2006) Corporate Trust Department Finance Group - NC 1196 1525 West W.T. Harris Blvd. 3C3 Charlotte, NC 28288 Attn: Alan Finn Tel (215) 670-6313 Fax (215) 670-6340 Wachovia Bank, National Note Debt $128,790,000 Association (13.5% Sr. Notes due 2007) Wachovia Bank, National Note Debt $118,521,000 Association (12.5% Sr. Notes due 2007) Wachovia Bank, National Note Debt $80,591,000 Association (9.625% Sr. Notes due 2005) Wachovia Bank, National Note Debt $71,055,000 Association (9.75% Sr. Notes due 2006) DIRECTV Litigation $62,486,479 2230 E. Imperial Highway El Segundo, CA 90245 Attn: __________________ Tel (310) 535-5000 National Rural Programming $47,950,000 Telecommunications Cooperative (NRTC) 2121 Cooperative Way Herndon, VA 20171 Attn: __________________ (703) 787-0874 Pegasus Communications Note Debt $45,000,000 Corporation c/o Pegasus Communications Management Property 225 City Line Avenue Bala Cynwyd, PA DIRECTV Programming $3,000,000 State of Texas Comptroller Tax $525,456 Public Accountants Austin, TX 78774 Attn: __________________ (800) 252-5555 State Controller - Texas Tax $442,077 Controller of Public Accounts Indiana Department of Revenue Tax $356,225 P.O. Box 6155 Indianapolis, IN 46206-6155 Attn: __________________ (317) 233-4015 Minnesota Department of Tax $330,566 Revenue Sale and Use Tax P.O. Box 64093 St. Paul, MN 55164 Attn: __________________ (651) 296-6181 Nortel Networks Trade Debt $241,000 Vermont Dept. of Taxes Tax $190,063 Satellite System Network Dealer Reimbursements $190,000 Florida Dept. of Revenue Tax $165,150 Kansas Dept. of Revenue Tax $162,985 Treasurer of State of Ohio Tax $162,222 Florida Dept. of Finance Tax $145,451 Collectech Systems, Inc. Trade Debt $145,165 Nationwide Credit, Inc. Trade Debt $137,000 Bank One Trade Debt $125,000 South Carolina Dept. of Rev. Tax $113,802 Johnson County Treasurer Tax $100,337 State Tax Commissioner Tax $99,888 Office of Revenue WebClick Concepts, Inc. Dealer Reimbursements $85,716 New Mexico Taxation Tax $77,289 Iowa DOR Tax $75,015 FEDEX Trade Debt $70,000 Petry Television Agent Commission $69,710 Tennessee Dept. of Revenue Tax $58,877 BCK Communications Dealer Reimbursement $54,998 RF Media Associates Trade Debt $54,000 W. Dale Summerford C.F.C. Tax $52,936 City of Marlborough Tax $50,978 The WB Television Network Network Fees $50,741 Utah State Tax Commission Tax $49,033 South Dakota State Treasurer Tax $48,961 West Virginia State Tax Dept. Tax $45,788 Commissioner of Rev. Services Tax $42,841 Twentieth Century Fox Film Contract $42,326 Television Division North Carolina Dept. of Rev. Tax $37,448 Basic Your Best Buy, Inc. Dealer Reimbursement $35,510 Johnson County TAC Tax $30,633 Nebraska Dept. of Revenue Tax $28,356 Professional Satellite and Dealer Reimbursement $28,044 Communications Jefferson County Sheriff's Tax $27,985 Office Guckenheimer Enterprises, Trade Debt $27,000 Inc. State of Arkansas Tax $25,889 ----------------------------------------------------------------- [00007] ORGANIZATIONAL MEETING TO FORM OFFICIAL COMMITTEES ----------------------------------------------------------------- The United States Trustee for Region 1 will convene a meeting of the Debtors' largest unsecured creditors within the next week or two for the purpose of forming a committee of unsecured creditors in Pegasus' Chapter 11 cases. The meeting will be held at: 537 Congress Street, Room 302 Portland, ME 04101 unless a larger facility is necessary. This is not the meeting of creditors pursuant to Section 341 of the Bankruptcy Code. That meeting, required in all bankruptcy cases, will be held at a later date. A representative of the Debtors will attend the organizational meeting and provide background information regarding the cases, but not under oath. Contact Robert Checkoway, Esq., at (207) 780-3564 to obtain a statement of willingness to serve on a committee and for any additional information about this meeting. ----------------------------------------------------------------- [00008] DEBTORS' MOTION FOR AUTHORITY TO USE CASH COLLATERAL ----------------------------------------------------------------- Pegasus Media & Communications, Inc., as borrower, owes: $391,766,856 on account of Term Loans plus $2,950,150 for accrued but unpaid interest, plus all fees and other amounts due and owing under a Prepetition Credit Agreement, amended for the fourth time on October 22, 2003, to Bank of America, N.A., as agent, and (based on Pegasus' latest public disclosures) a consortium of lenders comprised of: * BANK OF AMERICA, N.A. * AMMC CDO I, LIMITED (by American Money Management Corp.) * AMMC CDO II, LIMITED (by American Money Management Corp.) * APEX (TRIMARAN) CDO I, LTD. (by Trimaran Advisors, L.L.C.) * ARCHIMEDES FUNDING III, LTD. (by ING Capital Advisors LLC) * ENDURANCE CLO I, LTD. (c/o ING Capital Advisors LLC) * SEQUILS-ING I (HBDGM), LTD. (by ING Capital Advisors LLC) * BALLYROCK CDO I LIMITED (by BALLYROCK Investment Advisors LLC) * BINGHAM CDO L.P. * CASTLE HILL I - INGOTS, LTD. (by Sankaty Advisors, LLC) * CASTLE HILL II - INGOTS, LTD. (by Sankaty Advisors, LLC) * CENTURION CDO II Ltd. (by American Express Asset Management Group, Inc.) * CENTURION CDO VI, Ltd. (by American Express Asset Management Group, Inc.) * KZH ING-2 LLC (by American Express Asset Management Group, Inc.) * KZH CYPRESSTREE-1 LLC (by American Express Asset Management Group, Inc.) * KZH STERLING LLC (by American Express Asset Management Group, Inc.) * EMERALD ORCHARD LIMITED * FIDELITY ADVISOR SERIES II: FIDELITY ADVISOR FLOATING RATE HIGH INCOME FUND * FRANKLIN CLO II * FRANKLIN FLOATING RATE TRUST * GLENEAGLES TRADING LLC * GREAT POINT CLO 1999-1 LTD. (by Sankaty Advisors, LLC) * 1888 FUND, LTD. (by Guggenheim Investment Management, LLC) * CALIFORNIA PUBLIC EMPLOYEES RETIREMENT SYSTEM (by Highland Capital Management, L.P.) * RESTORATION FUNDING CLO, LTD. (by Highland Capital Management, L.P.) * HIGHLAND LEGACY LIMITED (by Highland Capital Management, L.P.) * INNER HARBOR CBO 2001-1 LTD. (by T. ROWE PRICE ASSOCIATES, INC.) * MAGMA CDO LTD. * ML CBO IV (CAYMAN), LTD. (by Highland Capital Management, L.P.) * ORIX FINANCE CORP. I * PAMCO CAYMAN, LTD. (by Highland Capital Management, L.P.) * SAWGRASS TRADING LLC * SEQUILS - CENTURION V, LTD. (by American Express Asset Management Group, Inc.) * STELLAR FUNDING, LTD. * TORONTO DOMINION (NEW YORK), INC. * LONGHORN CDO (CAYMAN) LTD (by Merrill Lynch Investment Managers, L.P.) * LONGHORN II CDO (CAYMAN) LTD (by Merrill Lynch Investment Managers, L.P.) * MERRILL LYNCH GLOBAL INVESTMENT SERIES: BANK LOAN INCOME PORTFOLIO (by Merrill Lynch Investment Managers, L.P.) * DEBT STRATEGIES FUND, INC. * MERRILL LYNCH GLOBAL INVESTMENT SERIES: INCOME STRATEGIES PORTFOLIO (by Merrill Lynch Investment Managers, L.P.) * MASTER SENIOR FLOATING RATE TRUST * MERRILL LYNCH PRIME RATE PORTFOLIO (by Merrill Lynch Investment Managers, L.P.) * SENIOR HIGH INCOME PORTFOLIO, INC. * HIGHLAND LOAN FUNDING V, LTD. (by Highland Capital Management, L.P.) * STANFIELD CLO LTD. (by Stanfield Capital Partners LLC) * STANFIELD/RMF TRANSATLANTIC CDO LTD. (by Stanfield Capital Partners LLC) * WINDSOR LOAN FUNDING, LIMITED (by Stanfield Capital Partners LLC) * STANFIELD ARBITRAGE CDO, LTD. (by Stanfield Capital Partners LLC) * STANFIELD QUATTRO CLO, LTD. (by Stanfield Capital Partners LLC) * SUNAMERICA SENIOR FLOATING RATE FUND INC. (by Stanfield Capital Partners LLC) * PILGRIM CLO 1999 - 1 LTD. (by ING Investments, LLC) * PILGRIM AMERICA HIGH INCOME INVESTMENTS LTD. (by ING Investments, LLC) * ML CLO XV PILGRIM AMERICA (CAYMAN) LTD. (by ING Investments, LLC) * ML CLO XX PILGRIM AMERICA (CAYMAN) LTD. (by ING Investments, LLC) * SEQUILS - PILGRIM I, LTD. (by ING Investments, LLC) * ING PRIME RATE TRUST (by Aeltus Investment Management, Inc.) * ING SENIOR INCOME FUND (by Aeltus Investment Management, Inc.) * SUNAMERICA LIFE INSURANCE COMPANY (by AIG Global Investment Corp.) * ELF FUNDING TRUST I (by Highland Capital Management, L.P.) * BLUE SQUARE FUNDING LIMITED SERIES 3 * HIGHLAND OFFSHORE PARTNERS, L.P. (by Highland Capital Management, L.P.) * PAM CAPITAL FUNDING LP (by Highland Capital Management, L.P.) * FRANKLIN FLOATING RATE DAILY ACCESS FUND * FRANKLIN FLOATING RATE MASTER SERIES * Sankaty Advisors, Inc. as Collateral Manager for BRANT POINT CBO 1999-1, LTD. * HARBOUR TOWN FUNDING LLC * RACE POINT CLO, LIMITED (by Sankaty Advisors, LLC) * AVERY POINT CLO, LTD. (by Sankaty Advisors, LLC) * RACE POINT II CLO, LIMITED * SANKATY HIGH YIELD PARTNERS III, L.P. * INTERNATIONAL PAPER RETIREMENT PLAN (by Oaktree Capital Management, LLC) * GENERAL BOARD OF PENSION AND HEALTH BENEFITS OF THE UNITED METHODIST CHURCH (by Oaktree Capital Management, LLC) * THE CALIFORNIA ENDOWMENT (by Oaktree Capital Management, LLC) * DAIMLER CHRYSLER CORPORATION MASTER RETIREMENT TRUST (by Oaktree Capital Management, LLC) * DELTA MASTER TRUST (by Oaktree Capital Management, LLC) * BILL & MELINDA GATES FOUNDATION (by Oaktree Capital Management, LLC) * GENERAL MOTORS INVESTMENT MANAGEMENT CORPORATION (by Oaktree Capital Management, LLC) * THE J. PAUL GETTY TRUST (by Oaktree Capital Management, LLC) * IBM RETIREMENT PLAN (by Oaktree Capital Management, LLC) * IOWA PUBLIC EMPLOYEES' RETIREMENT ASSOCIATION (by Oaktree Capital Management, LLC) * MICROSOFT CORPORATION (by Oaktree Capital Management, LLC) * OCM HIGH YIELD FUND II, L.P. (by Oaktree Capital Management, LLC) * OCM HIGH YIELD LIMITED PARTNERSHIP (by Oaktree Capital Management, LLC) * OCM HIGH YIELD TRUST (by Oaktree Capital Management, LLC) * PACIFIC GAS AND ELECTRIC COMPANY RETIREMENT PLAN MASTER TRUST (by Oaktree Capital Management, LLC) * QWEST PENSION TRUST (by Oaktree Capital Management, LLC) * SAN DIEGO COUNTY EMPLOYEES' RETIREMENT SYSTEM (by Oaktree Capital Management, LLC) * STATE TEACHERS RETIREMENT BOARD OF OHIO (by Oaktree Capital Management, LLC) * TRIPAN PARTNERSHIP (by Oaktree Capital Management, LLC) * A3 FUNDING LP (by A3 Fund Management, LLC) * ABLECO FINANCE LLC * FIR TREE RECOVERY MASTER FUND, LP * FIR TREE VALUE PARTNERS, LDC * TRS ELARA, LLC * T. ROWE PRICE HIGH YIELD FUND, INC. * T. ROWE PRICE INSTITUTIONAL HIGH YIELD FUND, INC. and * WELLS FARGO BANK, NATIONAL ASSOCIATION Pegasus Satellite Communications, Inc., as a limited recourse guarantor, is contingently liable to the Prepetition Term Loan Lenders for Pegasus Media's obligations. Certain of Pegasus Media's subsidiaries also guarantee repayment of these debts. Under another Credit Agreement, dated as of December 19, 2003 among Pegasus Media, as borrower, Madeleine, L.L.C., as administrative agent and the lenders from time to time party thereto, Pegasus Media owes: $18,000,000 on account of Revolving Loans plus $275,410 of accrued interest plus $10,417 in fees. To secure repayment of these Senior Loans, Pegasus Media and the Subsidiary Guarantors granted to security interests in and liens on substantially all of their personal and material real property and other assets, then owned or thereafter acquired or arising, and the proceeds, products, rents and profits thereof. The Lenders also have set-off rights. An Intercreditor Agreement, dated as of December 19, 2003 says that the Senior Lenders share pari passu in all Prepetition Priority Collateral. Pegasus Satellite Communications, Inc., also entered into an Amended and Restated [Junior] Term Loan Agreement, dated as of August 1, 2003 with Wilmington Trust Company, as administrative agent, and the lenders from time to time party thereto. The Junior Term Loan Lenders are owed: $104,402,897 on account of Junior Term Loans plus $2,246,374 in accrued interest plus fees. The Junior Term Loans are secured by liens subordinate to the Senior Lenders' liens. The cash that comes in the door each day is pledged to secure repayment of these all these loans. Those funds constitute cash collateral within the meaning of the Bankruptcy Code. The Debtors need access to the lenders' cash collateral to fund their on-going business operations. The Debtors project positive cash flow during the next 30 days: Pegasus Satellite Communications, Inc. Consolidated Cash Flow Forecast Scenario Week Week Week Week Ending Ending Ending Ending June 4, June 11, June 18, June 25, 2004 2004 2004 2004 ----------- ----------- ----------- ----------- Beginning Balance $16,619,729 $21,263,068 $13,809,018 $25,575,718 Total cash receipts 12,838,800 24,948,400 15,175,400 15,175,400 Total cash disbursements 8,195,461 32,402,450 3,408,700 7,860,750 ----------- ----------- ----------- ----------- Ending balance $21,263,068 $13,809,018 $25,575,718 $32,890,368 ----------- ----------- ----------- ----------- The Bankruptcy Code requires the Debtors to provide the Lenders with "adequate protection" of their security interests if they use the Lenders' cash collateral. Prior to filing for chapter 11 protection, the Majority Secured Parties consented to Pegasus' interim use of Cash Collateral in exchange for dollar-for-dollar replacement superpriority liens to the extent the company actually dips into the Lenders' cash collateral. Because this maintains the status quo, this is a fair and reasonable proposal under the circumstances, Larry J. Nyhan, Esq., at Sidley Austin Brown & Wood, LLP, tells the Court. The Debtors assert that this arrangement reflects their exercise of prudent business judgment consistent with their fiduciary duties. Without access to the lenders' cash collateral, "the Debtors' operations would collapse," Ted S. Lodge, Pegasus' President and Chief Operating Officer, tells the Court. Because the need for cash is critical in Pegasus' business, the Debtors ask Chief Judge Haines to convene an emergency hearing at 10:00 a.m., tomorrow, June 4, 2004, to allow use of the Lenders' cash collateral through June 25, 2004. The Debtors will return to Court later this month to ask for final approval of their request after an official committee has been appointed and has had an opportunity to review the details. Those details include granting broad releases to the Prepetition Lenders and a 90-day window within which to challenge the validity, extent or priority of the Lenders' liens. *** End of Issue No. 1 ***