HUGHES NETWORK SYSTEMS, LLC - Annual Report (10-K) Item 12. Security Ownership of Certain Beneficial Owners and ...

About EDGAR Online

The following is an excerpt from a 10-K SEC Filing, filed by HUGHES NETWORK SYSTEMS, LLC on 3/26/2007.

Next Section

Previous Section

HUGHES NETWORK SYSTEMS, LLC - 10-K - 20070326 - SECURITY_OWNERS

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

All of our Class A membership interests are owned by Hughes Communications, Inc. (“HCI” or our “Parent”). The following table sets forth information regarding the beneficial ownership as of March 22, 2007 of Hughes Network Systems, LLC (“HNS”) Class B membership interests of: (i) each of our executive officers; (ii) each member of our Board of Managers; (iii) each person known to beneficially own more than 5% of HNS Class B membership interests; and (iv) all of our executive officers and members of our Board of Managers as a group. As of March 22, 2007, there were 4,650 HNS Class B membership interests issued and outstanding.


Tittle of Class	Name of Beneficial Owner	Number of Units	Percentage of Class
HNS Class B membership interests	Pradman P. Kaul ⁽¹⁾	1,500	32.26	%
HNS Class B membership interests	Grant Barber ⁽²⁾	500	10.75	%
HNS Class B membership interests	T. Paul Gaske ⁽³⁾	650	13.98	%
HNS Class B membership interests	James Lucchese ⁽⁴⁾	200	4.30	%
HNS Class B membership interests	Adrian Morris ⁽⁵⁾	500	10.75	%
HNS Class B membership interests	Bahram Pourmand ⁽⁶⁾	500	10.75	%
HNS Class B membership interests	Jeffrey A. Leddy ⁽⁷⁾	600	12.90	%

HNS Class B membership interests	Members of the board of managers and executive officers as a group (7 persons)	4,450	95.70	%

⁽¹⁾	Consists of 1,500 of our Class B membership interests which are subject to time or performance vesting requirements as set forth in his employment agreement with us. Mr. Kaul also owns 14,000 shares of HCI restricted stock granted under the HCI 2006 Equity and Incentive Plan.

⁽²⁾	Consists of 500 of our Class B membership interests which are subject to time or performance vesting requirements as set forth in his employment agreement with us. Mr. Barber also owns 20,000 shares of HCI common stock granted as options he exercised under the HCI 2006 Equity and Incentive Plan.

⁽³⁾	Consists of 650 of our Class B membership interests which are subject to time or performance vesting requirements as set forth in his employment agreement with us. Mr. Gaske also owns 14,000 shares of HCI restricted stock granted under the HCI 2006 Equity and Incentive Plan.

⁽⁴⁾

Consists of 200 of our Class B membership interests which are subject to time vesting requirements as set forth in his former employment agreement with us. Mr. Lucchese, formerly an Executive Vice President and the Chief Financial Officer of our Company, resigned from our company effective as of March 1, 2006. Mr. Lucchese also owns 14,000 shares of HCI restricted common stock granted under the HCI 2006 Equity and Incentive Plan.

⁽⁵⁾	Consists of 500 of our Class B membership interests which are subject to time or performance vesting requirements as set forth in his employment agreement with us. Mr. Morris also owns 14,000 shares of HCI restricted stock granted under the HCI 2006 Equity and Incentive Plan.

⁽⁶⁾	Consists of 500 of our Class B membership interests which are subject to time or performance vesting requirements as set forth in his employment agreement with us. Mr. Pourmand also owns 14,000 shares of HCI restricted stock granted under the HCI 2006 Equity and Incentive Plan.

⁽⁷⁾

Consists of 600 of our Class B membership interests which are subject to time or performance vesting requirements as set forth in a restricted unit purchase agreement between Mr. Leddy and HCI. Mr. Leddy also owns 150,000 shares of HCI common stock including options to purchase 20,000 shares of HCI common stock.

140

Our executive officers and members of our Board of Managers also own shares of the common stock of our Parent. The following table sets forth information regarding the beneficial ownership as of March 22, 2007 of HCI’s common stock of (i) each of our executive officers, (ii) each member of our Board of Managers and (iii) all of our executive officers and members of our Board of Managers as a group. As of March 22, 2007, there were 19,132,622 shares of HCI’ common stock issued and outstanding.


Tittle of Class	Name of Beneficial Owner	Number of Shares	Percentage of Class
HCI Common Stock	Pradman P. Kaul ⁽¹⁾	14,000	*
HCI Common Stock	Grant Barber ⁽²⁾	20,000	*
HCI Common Stock	T. Paul Gaske ⁽³⁾	14,000	*
HCI Common Stock	James Lucchese ⁽⁴⁾	14,000	*
HCI Common Stock	Adrian Morris ⁽⁵⁾	14,000	*
HCI Common Stock	Bahram Pourmand ⁽⁶⁾	14,000	*
HCI Common Stock	Jeffrey A. Leddy ⁽⁷⁾	150,000	*

HCI Common Stock	Members of the board of managers and executive officers as a group (7 persons)	240,000	1.26	%

*	Indicates beneficial ownership of less than 1%.

⁽¹⁾	Consists of 14,000 shares of restricted stock granted under the HCI 2006 Equity and Incentive Plan (the “HCI Plan”).

⁽²⁾	Consists of 20,000 shares of HCI’ common stock granted as options he exercised under the HCI Plan.

⁽³⁾	Consists of 14,000 shares of restricted stock granted under the HCI Plan.

⁽⁴⁾	Consists of 14,000 shares of restricted stock granted under the HCI Plan.

⁽⁵⁾	Consists of 14,000 shares of restricted stock granted under the HCI Plan.

⁽⁵⁾	Consists of 14,000 shares of restricted stock granted under the HCI Plan.

⁽⁷⁾	Includes options to purchase 20,000 shares of HCI’s common stock that are currently exercisable.

The amounts and percentages of voting membership interests beneficially owned are reported on the basis of regulations of the SEC governing the determination of beneficial ownership of securities. Under the rules of the SEC, a person is deemed to be a “beneficial owner” of a security if that person has or shares “voting power,” which includes the power to vote or to direct the voting of such security, or “investment power,” which includes the power to dispose of or to direct the disposition of such security. A person is also deemed to be a beneficial owner of any securities of which that person has a right to acquire beneficial ownership within 60 days. Under these rules, more than one person may be deemed a beneficial owner of the same securities and a person may be deemed a beneficial owner of securities as to which he has no economic interest.

141

Securities Authorized for Issuance under Incentive Compensation Plans


Plan category	Securities to be Issued upon Exercise of Outstanding Options, Warrants and Rights (a)	Weighted Average Exercise Price of Outstanding Options, Warrants and Rights (b)	Securities Remaining Available for Future Issuance under Equity Compensation Plans (Excluding Securities Reflected in Column (a)) (c)
Equity compensation plans approved by security holders:
Hughes Network Systems, LLC Bonus Unit Plan ⁽¹⁾	-	-	-
Equity compensation plans not approved by security holders:
None

Total	-	-	-

⁽¹⁾

In July 2005, the Company adopted an incentive plan (the “Bonus Unit Plan”) pursuant to which 4.4 million bonus units were granted to certain employees. As a result of the January 2006 Transaction, if a participant is still employed by the Company on April 22, 2008, then at such time the participant’s vested bonus units would be exchanged for HCI’s common stock. A second exchange will take place April 22, 2010 for participants in the Bonus Unit Plan still employed by the Company at such time. The number of shares of HCI’s common stock to be issued upon each such exchange would be based upon the fair market value of such vested bonus units divided by the value of HCI’s common stock at the time of exchange. As of December 31, 2006, the bonus units would be exchangable for approximately 25,355 shares of HCI’s common stock, based upon management’s estimate of the increase in value of the Company and the share price of HCI’s common stock as of December 31, 2006. The total number of shares issuable under the Bonus Unit Plan is not subject to limitation.

Item 13.

Certain Relationships and Related Transactions and Board of Managers Member Independence

The January 2006 Transaction

On January 1, 2006, HCI entered into a membership interest purchase agreement with DirecTV Group, Inc. (“DIRECTV”) to purchase the remaining Class A membership interests in the Company that were not contributed to HCI by SkyTerra Communications, Inc. (“SkyTerra”) for a purchase price of $100.0 million in cash (the “January 2006 Transaction”). Accordingly, HCI now owns 100% of such Class A membership interests.

In order to fund the January 2006 Transaction, we borrowed the necessary funds from Apollo, as described below in “Other Related Party Transactions—The Apollo Loan.” Immediately following distribution by SkyTerra of all of HCI’s outstanding common stock to certain of its stockholders and warrant holders (the “Distribution”), HCI conducted the rights offering in order to repay the loan from Apollo.

In connection with the closing of the January 2006 Transaction, the parties to the membership interest purchase agreement entered into agreements governing certain relationships between and among the parties after the closing. Such agreements include the modification and/or termination of certain prior agreements between and among the parties, including:

•

amending certain provisions of SkyTerra’s original purchase agreement with the Company and DTV Networks, Inc. (“DTV Networks”) to accelerate the expiration of certain representations and warranties made by DTV Networks in connection with that agreement;

•

terminating an investor rights agreement in connection with that original purchase agreement pursuant to which, among other covenants, SkyTerra and DTV Networks agreed to limit the transferability of the Class A membership interests and we granted SkyTerra and DTV Networks public offering registration rights; and

•

amending the Advertising and Marketing Support Agreement, pursuant to which, affiliates of DTV Networks provided the Company with discounted advertising costs for its Direcway services.

142

Contribution Agreement and Ancillary Agreements

On April 22, 2005, the Company consummated the transactions contemplated by the Contribution and Membership Interest Purchase Agreement dated December 3, 2004, as amended (the “December 2004 Agreement”), among the Company, SkyTerra, DIRECTV and DTV Networks, formerly known as Hughes Network Systems, Inc. Pursuant to the terms of the December 2004 Agreement, DTV Networks contributed to us substantially all of the assets and certain liabilities of its VSAT, mobile satellite, and terrestrial microwave businesses along with the SPACEWAY 3 satellite, certain network operations center facilities, certain other ground facilities and equipment and intellectual property rights. In return, we paid DTV Networks approximately $200.7 million, including certain adjustments at closing based principally upon the value of HNS’ working capital (as defined in the December 2004 Agreement).

To finance, among other things, the initial $190.7 million payment made to DTV Networks, on April 22, 2005, we issued $325.0 million of term indebtedness and obtained a $50.0 million revolving credit facility. Immediately following the payment by the Company, SkyTerra acquired 50% of our Class A membership units from DTV Networks for $50.0 million in cash and 300,000 shares of SkyTerra’s common stock. The events of April 22, 2005 described herein are collectively referred to as the “April 2005 Transaction.”

Amended and Restated Limited Liability Company Agreement

In connection with the April 2005 Transaction, we entered into an amended and restated limited liability company agreement, or former LLC agreement, which governed our management and certain aspects of the relationship between us, SkyTerra and DTV Networks. Our former LLC agreement was amended on January 1, 2006 and was amended and restated on February 28, 2006. See “—Second Amended and Restated Limited Liability Company Agreement.” Pursuant to our former LLC agreement:

•

There were two classes of our membership interests—one voting and the other non-voting. SkyTerra and DTV Networks each held 50% of the voting units. The non-voting units were available for issuance to our employees, officers, directors and consultants.

•

Our Board of Managers was composed of seven members. Three managers were elected by members holding a majority of our LLC interests held by SkyTerra; three managers were elected by members holding a majority of our LLC interests held by DTV Networks; and one independent manager was elected jointly by (i) members holding a majority of our LLC interests held by SkyTerra and (ii) members holding a majority of our LLC interests held by DTV Networks.

•

Responsibility for the management of our business and affairs was vested in SkyTerra or one of its subsidiaries as the managing member, with the exception of certain major decisions which required the consent of a majority the Board of Managers (not including the independent manager), including:

incurring debt or guarantee obligations in excess of $10.0 million;

except with respect to any drag-along rights pursuant to the investor rights agreement (as described below), entering into mergers, consolidations or other significant transactions, including any proposed initial public offering by us, acquisitions, joint ventures, dispositions or equity investments in third-parties (where such equity investments are in excess of $2.5 million in the aggregate);

hiring or terminating senior executive officers, determining the financial terms of their employment and approving plans to issue non-voting units to employees, officers and members of our Board of Managers;

approving our annual operating budget and changing accounting policies;

replacing the managing member; and

making any loans, advances, guarantees and similar transactions to any member of our Board of Managers or their affiliates.

143

•

The former LLC agreement permitted us, in the normal course of our business, to enter into transactions with any of our members and their respective affiliates, provided that the price and other terms of any such transactions were fair to us and not less favorable to us than those generally prevailing with respect to comparable transactions between unrelated parties. To the extent any such transactions were not entered into in the ordinary course of our business or involved aggregate payments by us exceeding $2.5 million, they were required to be approved by the board members not elected by the interested member.

•

In addition to the fees and expense reimbursements, if any, to be paid to the managing member by us under the management services agreement, the managing member was entitled to receive a quarterly management fee of $250,000 in cash in consideration for services as managing member during the first three years following the closing date of the April 2005 Transaction.

Investor Rights Agreement

In connection with the April 2005 Transaction, we entered into an investor rights agreement with DTV Networks and SkyTerra. Under the terms of the investor rights agreement, as holders of our voting membership interests, SkyTerra and DTV Networks have certain tag along rights, drag-along rights, registration rights and other related rights, with respect to sales of our voting membership interests. Included in the registration rights is the right after five years for either DTV Networks or SkyTerra to request up to five demand registrations each for underwritten public offerings of $50.0 million or more of the membership interests or other equity interests. However, we are only required to effect one registration in any six-month period. In addition, if we are ever eligible to use a shelf registration statement with the Securities and Exchange Commission for our equity interests, each of DTV Networks and SkyTerra has the right to register sales of our equity interests owned by them in amounts of $10.0 million or more. We have agreed to indemnify the investors under the securities laws in connection with any registered transactions and pay for certain costs of registration. Upon consummation of the January 2006 Transaction, the investor rights agreement was terminated.

Relationship with DIRECTV

Until the closing of the April 2005 Transaction, we operated as a wholly owned subsidiary of DIRECTV. Accordingly, DIRECTV provided us with various support services such as tax advisory services, treasury/cash management, risk management, audit functions, employee benefits, and business insurance. As a stand-alone entity, we have to provide for the services historically performed by DIRECTV. In connection with the April 2005 Transaction, we entered into the following agreements with DIRECTV:

•

Transition Services Agreement— On April 22, 2005, we entered into a transition services agreement with DTV Networks and DIRECTV. Under the terms of the transition services agreement, DIRECTV agreed to provide certain transitional services to support the conduct of its business and we agreed to reimburse DIRECTV certain fees and out-of-pocket expenses. These services include assisting in the implementation of our benefit plans and arrangements and enabling our employees to participate in certain travel-related discount programs provided by DIRECTV’s affiliate, News Corporation, to the extent permissible. Neither party made any representations or warranties with respect to the services provided under the transition services agreement, and neither party has any liability for any acts or omissions in connection with the transition services agreement other than repeating a service for the purpose of correcting an act or omission, unless such liability arose from gross negligence or willful misconduct. The transition services agreement was amended and restated in connection with the January 2006 Transaction. Under the terms of the amended and restated agreement, we no longer receive services from DIRECTV and HNS provides certain payroll related services to DIRECTV and its subsidiaries. Through December 31, 2005, there were no payments made to any party under this agreement.

•

DIRECWAY Advertising Agreement— On April 22, 2005, we entered into an advertising agreement with DIRECTV pursuant to which DIRECTV agreed to provide certain advertising services to us. These services included DIRECTV continuing to broadcast our DIRECWAY infomercial for one year after the closing of the April 2005 Transaction, DIRECTV broadcasting thirty-second and sixty-second

144

DIRECWAY advertising spots at preferred rates and DIRECTV maintaining then current DIRECWAY recognition on DIRECTV’s internet home page. From April 23, 2005 through December 31, 2005, we paid DIRECTV $4.4 million for advertising services.

•

SPACEWAY Services Agreement— On April 22, 2005, we entered into a SPACEWAY services agreement with DIRECTV pursuant to which the Company and DIRECTV agreed to share and provide technical services to one another in connection with their respective SPACEWAY assets. Under the terms of the SPACEWAY services agreement, the Company retained DIRECTV and/or DTV Networks to provide it with certain technical assistance services, including the right to participate in certain operational testing on DIRECTV’s SPACEWAY satellites. The Company agreed to reimburse DIRECTV or DTV Networks, as applicable, for labor and overhead costs incurred to perform the applicable service and out-of-pocket costs and expenses paid to third-parties for labor and materials. Also, under the terms of the SPACEWAY services agreement, DIRECTV retained the Company to provide to DIRECTV and DTV Networks certain transitional operational assistance services and ground facility development assistance and maintenance services for DIRECTV’s SPACEWAY satellites. DIRECTV agreed to reimburse the Company for certain labor and overhead costs. DIRECTV also agreed to pay the Company monthly performance fees if it attains or exceeds certain enumerated milestones. The agreement provides for certain limited representations and warranties with respect to the services provided and limited indemnities for certain breaches and negligent acts or omissions under the agreement. Each party has the right to terminate the agreement with respect to all or any portion of the other party’s services upon 120 days written notice. In 2006 and 2005, we recognized revenues of $2.9 million and $10.1 million, respectively, under this contract, of which DIRECTV paid us $2.9 million and $9.2 million, respectively, and we paid DIRECTV a nominal amount. On January 31, 2007, the Company and DIRECTV amended the SPACEWAY services agreement to expand the scope of work to cover certain upgrades requested by DIRECTV, up to a maximum price of $1.6 million.

•

Intellectual Property Agreement— On April 22, 2005, we entered into an intellectual property agreement with DIRECTV pursuant to which HNS acquired by assignment certain patents, trademarks and other intellectual property pertinent to our business that were owned or controlled by DIRECTV. Pursuant to the intellectual property agreement, we also obtained from DIRECTV (i) a royalty-free perpetual license (including the right to sublicense to third-parties in connection with our business) under certain other patents (including certain patents and patent applications that originated from such business but were retained by DIRECTV following the April 2005 Transaction); (ii) a covenant not to assert claims against us based on any intellectual property owned or controlled by DIRECTV as of the closing date that is pertinent to our business (including certain other patents and patent applications that originated from our business but were retained by DIRECTV following the April 2005 Transaction), and (iii) a royalty-free perpetual license to any derivative intellectual property DIRECTV develops after the closing of the April 2005 Transaction which relates to our SPACEWAY assets. Among the rights we acquired by assignment or license from DIRECTV are certain rights related to our SPACEWAY satellite communications platform. These licenses and assignments granted to us are subject to existing licenses granted to third-parties. We granted back to DIRECTV a royalty-free perpetual license to use, in connection with its business (including the right to sublicense to third-parties in connection with DIRECTV’s business), the patents and other intellectual property that DIRECTV assigned to us plus any derivative intellectual property we develop after the closing of the April 2005 Transaction which relates to the SPACEWAY assets retained by DIRECTV. We also acquired from DIRECTV (i) by assignment, the “HUGHES” family of marks and the “SPACEWAY” family of marks, subject to existing licenses granted to third-parties and (ii) by license the right to use the “DIRECWAY” and “DIRECPC” marks for a transition period of twelve months following the closing of the April 2005 Transaction. Use of any of the rights assigned or licensed to us by DIRECTV under the intellectual property agreement excludes any activities within the field of direct-to-home satellite television applications.

Upon the closing of the January 2006 Transaction the above agreements continue in effect as amended, and DIRECTV ceased to be an affiliate of the Company. In addition, we and DTV Networks entered into a subcontract agreement under which we agreed to provide certain services with respect to an international VSAT network supply contract which was retained by DTV Networks.

145

Non-Competition Agreement

In connection with the April 2005 Transaction, we entered into a non-competition agreement with DIRECTV and DTV Networks. Under the terms of the non-competition agreement, DIRECTV and DTV Networks agreed that for a period of five years following the closing of the April 2005 Transaction, neither will, directly or indirectly, engage in business activities that will compete, directly or indirectly, with our business—specifically, the enterprise data networks and enterprise satellite internet service existing as of the closing of the April 2005 Transaction, and the enterprise data applications of the SPACEWAY business contemplated as of the closing of the April 2005 Transaction, and natural extensions thereof within the data services area. We made a reciprocal agreement that we will not, for a period of five years following the closing of the April 2005 Transaction, directly or indirectly engage in business activities that will compete, directly or indirectly, with the direct-to-home video business of DIRECTV or any natural extensions thereof. The non-competition agreement does not extend to our non-enterprise business, which means DIRECTV could compete with us in offering satellite internet access to consumers. However, DIRECTV has agreed that during the five year non-competition period, so long as DIRECTV’s SPACEWAY satellites are capable of commercial video operation, DIRECTV will not use advanced on-board processing capabilities of its SPACEWAY satellites to provide data services.

Management Services Agreement

In connection with the April 2005 Transaction, we and SkyTerra entered into a management agreement which identified the types of services to be provided by SkyTerra to us. Through December 31, 2005, we paid approximately $0.7 million to SkyTerra pursuant to this agreement. The management agreement was terminated upon consummation of the January 2006 Transaction.

Second Amended and Restated Limited Liability Company Agreement

Our second amended and restated limited liability company agreement, (“LLC agreement”), governs our management and certain aspects of the relationship between us, HCI and our officers, directors, employees and consultants who may, from time to time, hold equity interests in our company.

Pursuant to the LLC agreement:

•

There are two classes of our membership interests—one voting (Class A) and the other non-voting (Class B). HCI currently holds 100% of the voting membership interests. The non-voting membership interests are available for issuance to our officers, directors, employees and consultants, in exchange for the performance of services.

•

Our Board of Managers is composed of seven members or such other number as determined by the majority of the voting members from time to time. The managers are elected by the members holding a majority of our voting units.

•

Responsibility for the management of our business and affairs is vested in our Board of Managers and, as delegated by the Board of Managers, to the officers of our company.

•

We are permitted, in the normal course of our business, to enter transactions with any of our members and their respective affiliates, provided that the price and other terms of any such transactions are fair to us and not less favorable to us than those generally prevailing with respect to comparable transactions between unrelated parties.

•

Under certain circumstances, holders of voting units have the preemptive right to subscribe to additional issuances of voting units.

•

Distributions are made first to holders of voting units until each such holder has received aggregate distributions equal to the holder’s capital contributions and second, on a pro rata basis, to holders of voting units and non-voting units, to the extent that the non-voting units have vested.

•

Subject to the approval of the Board of Managers, we may make quarterly distributions to our voting members to offset taxes paid by these members on our income.

146

Management and Advisory Services Agreement with HCI

On March 27, 2006, the Company entered into a management and advisory services agreement with HCI. Under this agreement, HCI provides the Company, through its officers and employees, with general support, advisory and consulting services in relation to HNS’ business. Under the agreement, we paid a quarterly fee of $250,000 for these services. In addition, we reimbursed HCI for its out of pocket costs and expenses incurred in connection with the services, including an amount equal to 98% of the base salary of certain executives plus a 2% service fee. We amended the management and advisory services agreement, effective from January 1, 2007, to eliminate the quarterly fee of $250,000 that we paid to HCI for the services. All other terms and conditions of the management and advisory services agreement remained unchanged.

Sponsor Investment

Apollo currently owns, directly or indirectly, 23% of Intelsat Holdings Limited, which owns 100% of Intelsat, Ltd. We lease satellite transponder capacity from Intelsat. In addition, our Italian subsidiary, Hughes Network Systems, S.r.L., entered into a cooperation agreement with Intelsat, Telespazio and Telecom Italia. Under this agreement, the parties are cooperating to provide broadband satellite services for Italian businesses operating in Eastern Europe and North Africa.

Agreements with Hughes Systique Corporation

On October 12, 2005, we granted a limited license to Hughes Systique Corporation (“HSC”), then known as Systique Corporation, allowing HSC to use the HUGHES trademark. The license is limited in that HSC may use the HUGHES mark only in connection with its business of software development and associated consulting, licensing, sales, support, maintenance and hardware, and only in combination with the SYSTIQUE name. The license is non-exclusive, non-transferable, non-sublicensable, worldwide and royalty-free. In addition to other standard termination provisions (i.e., in the event of default or bankruptcy) we may terminate the license agreement (i) in our reasonable business discretion, or in the event that HCI (or any affiliate thereof to which HCI transfers its ownership interest in HSC) ceases to maintain an ownership interest in HSC.

On December 22, 2005, we entered into a master software development agreement with HSC. Under this agreement, we can issue mutually agreed statements of work to HSC for software development projects. For the year ended December 31, 2006, we paid $0.7 million for HSC services.

At December 31, 2006, our parent, HCI, owns approximately 24% of the outstanding shares of HSC. Pradeep Kaul, our former Executive Vice President and the brother of our Chief Executive Officer, is the President and Chief Executive Officer of HSC. Pradman Kaul, our Chief Executive Officer and chairman of the Board of Managers, is also the chairman of HSC and owns approximately 9% of the outstanding shares of HSC.

Agreement with 95 West Co. Inc.

In July 2006, we entered into an agreement with 95 West Co. Inc. (“95 West Co.”) and its parent, Miraxis License Holdings, LLC., (“MLH”), pursuant to which 95 West Co. and MLH agreed to provide a series of coordination agreements allowing us to operate our SPACEWAY 3 satellite at the 95° West Longitude orbital slot where 95 West Co. and MLH have higher priority rights. MLH owns a controlling interest in 95 West Co. MLH is controlled by an affiliate of Apollo Investment Fund IV, L.P., our controlling shareholder. Jeffrey Leddy, a member of our Board of Managers and a member of the HCI board of directors, is a director and the general manager of MLH, the chief executive officer and president of 95 West Co., and also owns a small interest in each of 95 West Co. and MLH. Andrew Africk, a member of our Managers and a member of the HCI board of directors. As part of the agreement, we agreed to pay 95 West Co. annual installments of $0.3 million in 2006, $0.75 million in each of 2007 through 2010 and $1.0 million in each of 2011 through 2016. During 2006, we paid 95 West $0.3 million.

147

Agreement with Hughes Telematics Inc.

In July 2006, we granted a limited license to Hughes Telematics Inc. (“HTI”), allowing HTI to use the HUGHES trademark. The license is limited in that HTI may use the HUGHES mark only in connection with its business of automotive telematics, and only in combination with the TELEMATICS name. As partial consideration for the license, the agreement provides that we will be HTI’s preferred engineering services provider. The license is royalty-free, except that HTI has agreed to commence paying a royalty to us in the event HTI no longer has a commercial or affiliated relationship with us. As contemplated by the license terms, we have commenced providing engineering development services to HTI and we will be compensated at customary rates for such services. To date we have been authorized to provide such services in the amount of $1.9 million.

HTI is controlled by an Apollo affiliate. Apollo owns a controlling interest in our parent,. Jeffrey A. Leddy, a member of our Board of Managers and a member of the HCI board of directors, is the Chief Executive Officer and a director of HTI and owns approximately 1.0% of the equity of HTI. In addition, Andrew Africk, a member of our Board of Managers and a member of the HCI board of directors, is a director of HTI.

Agreement with Mobile Satellite Ventures LP

On November 3, 2006, the Company signed a sales contract with Mobile Satellite Ventures LP (“MSV”) to design, develop and supply a satellite base station. SkyTerra owns approximately 95% of MSV as of December 31, 2006. Apollo and its affiliates own approximately 25% of SkyTerra’s common equity and control approximately 31% of the voting shares of SkyTerra. Four individuals associated with Apollo currently serve on the six member board of directors of SkyTerra. Andrew Africk, Aaron Stone and Jeffrey Leddy are each a member of our board of managers, a member of the board of directors of our Parent, and a director of MSV and SkyTerra. Michael Weiner, a member of the board of directors of our Parent, served as an officer of Apollo until August 31, 2006.

Board of Managers Member Independence

The Company is not a listed issuer under applicable SEC rules and therefore is not subject to any independence rules of a national securities exchange or inter-dealer quotation system. All of our Class A membership interests are owned by our Parent. Our Board of Managers has determined that none of the members of our Board of Managers are independent as defined in the NASDAQ rules and regulations to which our Parent is subject. Pursuant to our second amended and restated limited liability agreement, only the holders of our Class A membership interests are entitled to vote as holders of interests in the Company. We rely on the controlled company exception contained NASDAQ Marketplace Rule 4350 for exception from the independence requirements related to the majority of our Board of Managers. Pursuant to NASDAQ Marketplace Rule 4350, a company of which more than 50% of the voting power is held by an individual, a group or another company is exempt from the requirements that its board of directors consist of a majority of independent directors. Because 100% of our voting power is held by our Parent, we are exempt from the independence requirements under NASDAQ.

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents