Document:

Prepared and filed by St Ives Financials

EXECUTION COPY

SETTLEMENT AGREEMENT

THIS SETTLEMENT AGREEMENT, dated as of October 10, 2006 (the “Agreement”), by and among the following (each, a “Party” and, collectively, the “Parties”):

(a) Pegasus Satellite Communications, Inc. (“PSC”), on its own behalf and on behalf of its direct and indirect subsidiaries listed on Schedule 1 hereto (collectively with PSC, the “Pegasus Debtors”),

(b) Ocean Ridge Capital Advisors, LLC, solely in its capacity as Liquidating Trustee (the “Trustee”) of The PSC Liquidating Trust (the “Trust” and, together with the Pegasus Debtors and the Trustee, the “Pegasus Debtor Parties”), on its own behalf and on behalf of the Trust;

(c) Pegasus Communications Corporation (“PCC”), on its own behalf and on behalf of its direct and indirect subsidiaries, other than the Pegasus Debtors (collectively, the “Pegasus Non-Debtors”); and

(d) The former directors and officers of the Pegasus Debtors listed on Schedule 2 hereto (the “Scheduled Claimants” and, together with Pegasus Non-Debtors, the “Pegasus Non-Debtor Parties”), solely with respect to Sections 3, 7, 9 and 10.

RECITALS

A. On June 2, 2004, each of the Pegasus Debtors filed a voluntary petition for relief with the United States Bankruptcy Court for the District of Maine (the “Bankruptcy Court”), commencing cases (collectively, the “Chapter 11 Case”) under chapter 11, title 11 of the United States Code.

B. By an order entered in the Chapter 11 Case on July 22, 2004, the Bankruptcy Court authorized the Pegasus Debtors to perform under a Support Services Agreement, effective as of May 1, 2004, pursuant to which Pegasus Management Company (“PCMC”), a Pegasus Non-Debtor, provided certain services to the Pegasus Debtors (the “Support Services Agreement”).

C. By an order entered in the Chapter 11 Case on August 26, 2004, the Bankruptcy Court approved a Global Settlement Agreement, dated July 30, 2004, pursuant to which, among other things, the Pegasus Debtors and the Pegasus Non-Debtors exchanged mutual releases of all Claims arising on or before August 27, 2004, except claims arising under the Support Services Agreement.

D.
  By an order entered in the Chapter
  11 Case on April 15, 2005 (the “Confirmation
  Order”), the Bankruptcy Court
  confirmed the Pegasus Debtors’ First Amended Joint Plan of Reorganization
  (the “Plan”).
  The Plan became effective on May 5, 2005.

E. Pursuant to the Plan and the Confirmation Order, among other things, (i) the Trust was established and the Trustee was appointed as Liquidating Trustee of the Trust (ii) the Trust reserved the right to challenge payments made under the SSA, as well as the right to assert other claims against the Pegasus Non-Debtors and the former officers and directors of the Pegasus Debtors, and (iii) the Pegasus Debtors assumed the Support Services Agreement.

F. On June 28, 2005, the Trustee, PCC and PCMC entered into a stipulation (the “Medical Costs Stipulation”) relating to, among other things, the treatment of medical insurance costs billed to PCMC after May 31, 2005 (“Run-Off Medical Cost Claims”). Pursuant to the Medical Costs Stipulation, the Trustee has established a cash reserve (the “Medical Costs Reserve”) for the payment of Run-Off Medical Cost Claims in accordance with the Medical Costs Stipulation. As of the date hereof, the amount held in the Medical Costs Reserve is $5,083,061.

G. On June 28, 2005, the Trustee and the Scheduled Claimants entered into a stipulation (the “D&O Indemnity Costs Stipulation”) relating to the treatment of reserves for claims by the Scheduled Claimants for indemnification under the applicable Pegasus Debtor’s by-laws and governing state corporate law (“Indemnification Claims”). Pursuant to the D&O Indemnity Costs Stipulation, the Trustee has established a cash reserve (the “Indemnification Claims Reserve”) for the payment of Indemnification Claims in accordance with the D&O Indemnity Costs
Stipulation. As of the date hereof, the amount held in the Indemnification Claims Reserve is $3,000,000.

H. On August 31, 2005 (the “SSA Termination Date”), the Support Services Agreement terminated in accordance with its terms. The Pegasus Non-Debtors assert that certain amounts remain owing to them for services provided pursuant to the Support Services Agreement, while the Trust asserts that, as a result of offsets and a differing interpretation of the contractual obligations under the SSA, that a net refund is owing to the Trust.

I. Following extensive negotiations, the Parties desire to avoid costly litigation and to resolve potential Claims between them on the terms of this Agreement.

NOW, THEREFORE, in consideration of the mutual promises set forth herein and for other good and valuable consideration, the receipt of which is hereby acknowledged, the Parties hereby agree as follows:

1.
  Support Services Agreement.
  On and after the Effective Date, notwithstanding anything to the contrary in
  the Support Services Agreement or the Medical Costs Stipulation, the treatment
  of Claims under the Support Services Agreement shall be governed exclusively
  by this Section 1 and, with respect to Run-Off Medical Cost Claims, Section 2.

(a) No Further Claims Under the Support Services Agreement. Except for the treatment of Run-Off Medical Cost Claims expressly provided in Section 2, no amounts are owing under the Support Services Agreement to or by PCMC or any Pegasus Non-Debtor, on the one hand, by or to any Pegasus Debtor, the Trustee or the Trust, on the other hand.

(b) Release of Claims. Except as expressly provided in Section 2 with respect to Run-Off Medical Cost Claims, all Claims of any Party under the Support Services Agreement shall be released pursuant to mutual releases provided in Section 7.

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2.
  Run-Off Medical Claims.
  On and after the Effective Date, notwithstanding anything to the contrary in
  the Medical Costs Stipulation or the Support Services Agreement, the treatment
  of Run-Off Medical Cost Claims shall be governed exclusively by this Section 2.

(a) Release of Medical Costs Reserve. On the Effective Date, the Medical Costs Stipulation shall terminate and the Medical Costs Reserve shall be released and amounts then held in the Medical Costs Reserve shall be available to the Trustee for use in accordance with terms of the Plan and the Trust.

(b) Payment of Certain Run-Off Medical Cost Claims. On or before the tenth day after the Effective Date, the Pegasus Debtors or the Trust will pay to PCMC (i) $143,618.47 in respect of Run-Off Medical Cost Claims billed to PCMC on or before March 31, 2006 and (ii) $17,172 in repayment of unpaid Covered COBRA Premiums due after March 31, 2006 and on or before July 31, 2006. In addition, the Pegasus Debtors or the Trust will pay to PCMC within 30 days after receipt of an invoice therefore, any Covered COBRA Premiums due after the Effective Date, provided that each such invoice shall specifically identify each person for whom, and the period for which, such Covered COBRA Premiums are
due. To the extent the Trustee disputes any such invoice, the Pegasus Debtors or the Trust shall pay within 30 days after receipt the undisputed portion of such invoice and the Trustee and PCMC shall work in good faith to resolve such dispute.

(c) Other Medical Insurance Costs. The Pegasus Debtors and the Trust will continue to be responsible, and the Pegasus Non-Debtors shall have no liability, for providing medical insurance coverage for medical expenses incurred on or after July 1, 2005 by persons who were active employees of the Pegasus Debtors on that date or who had been terminated prior to that date, to the same extent the Liquidating Trustee was required to provide such medical insurance coverage pursuant to Section 1 of Exhibit B to the Medical Costs Stipulation.

(d) Release of Claims. Except as expressly provided in this Section 2, all Claims of any Party for or relating to medical insurance costs, including, but not limited to, Claims under the Support Services Agreement and Claims under the Medical Costs Stipulation, shall be released pursuant to mutual releases provided in Section 7.

3.
  Indemnification Claims.
  On and after the Effective Date, notwithstanding anything to the contrary in
  the D&O Indemnity Costs Stipulation,
  the treatment of Indemnification Claims shall be governed exclusively by this
  Section 3.

(a) Release of Indemnification Claims Reserve. On the Effective Date, the D&O Indemnity Costs Stipulation shall terminate and the Indemnification Claims Reserve shall be released and amounts then held in the Indemnification Claims Reserve shall be available to the Trustee for use in accordance with terms of the Plan and the Trust.

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(b) Release of Claims. Except as expressly provided in this Agreement, all Indemnification Claims of the Scheduled Claimants, including, but not limited to, Claims under the D&O Indemnity Costs Stipulation, shall be released pursuant to mutual releases provided in Section 7.

4.
  Time Brokerage Agreement.
  This Agreement, including, but not limited to, the mutual releases provided
  in Section 7, shall not affect the rights and obligations of any of the
  Parties under the Time Brokerage Agreement, entered into as of June 18, 1997
  (the “TBA”),
  by and between Telecast of Florida, Inc. and WFXU Corporation, as successor
  to L.O. Telecast, LLC.

5. PCC Common Stock. As of the date hereof, the Trust owns 1,315,208 shares of Class A Common Stock of PCC (the “PCC Shares”). On and after the Effective Date, PCC shall not contest any actions taken by the Trustee or the Trust to have PCC Shares freely transferable without restrictions. On the basis set forth on Schedule 3 hereto, the Pegasus Debtor Parties have concluded that they are not affiliates of PCC within the meaning of applicable securities laws. PCC agrees with that conclusion and will not take a contrary position after the Effective Date, provided that the relationship among the Pegasus Debtor Parties and PCC have not changed in a manner that would cause the Pegasus Debtor Parties
to be considered affiliates of PCC within the meaning of applicable securities laws. At the request of the Pegasus Debtor Parties, in connection with the prosecution of their Motion on Short Notice for an Order in Aid of Consummation of the Plan, docket no. 1547, or a similar Motion, PCC will confirm to the Bankruptcy Court, subject to the proviso of the preceding sentence, PCC’s agreement with (a) the Pegasus Debtor Parties’ conclusion that they are not affiliates of PCC within the meaning of applicable securities laws and (b) the facts supporting that conclusion set forth on Schedule 4 hereto. Such confirmation shall take the form of a written declaration or, at the request and expense of the Pegasus Debtor Parties, live testimony of an appropriate officer or other employee of PCC determined by PCC.

6.
  Litigation Assistance.
  The provisions of this Section 6 shall apply on and after the Effective
  Date.

(a) Dorran Claims. PCC shall reimburse the Trust for any amounts paid by the Trust pursuant to a settlement or judgment to satisfy the severance claims asserted by William J. Dorran filed in the Chapter 11 Case (the “Dorran Claims”), provided that (x) such obligation to reimburse shall be limited to the lesser of (a) 50% of the aggregate settlement/judgment amount paid by the Trust and (b) $87,500, and (y) the Pegasus Non-Debtors shall receive from Dorran a release of the Pegasus Non-Debtor Released Parties (as defined below) with respect to the Dorran Claims and all claims relating to his
employment, including his termination, provided, however, the Pegasus Non-Debtors shall be required to provide a reciprocal release in favor of Dorran.

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(b) Waiver of Privilege for Certain Matters. Certain matters relating to or arising from communications and other activities of PCC, the Pegasus Debtors, and/or the Trust that may be put into in issue in the Proceedings (as defined below) may be subject to claims of attorney-client privilege or other applicable privileges that belong jointly or severally to PCC, the Pegasus Debtors, and/or the Trust. “Proceedings” means, collectively, (i) AIG Global Investment Corp. v. Pegasus Communications Corp., Civ. No. 05-2499-AB (E.D. Pa), Mark Madden v. Marshall W.
Pagon, No. 2:05-CV-05868-AB (E.D. Pa.), and similar lawsuits and proceedings involving PCC and its officers and directors as control persons or such officers and directors in their capacity as former officers and directors of the Pegasus Debtors and (ii) the investigation by the Securities and Exchange Commission of subscriber issues and any related lawsuits or proceedings that may arise from or as a result of such investigation. The Pegasus Debtors and the Trust agree that, in connection with any of the Proceedings, (x) they will not waive, any such claims of privilege unless and until they receive a request in writing from PCC to waive such claims of privilege, and (y) upon receipt of a request in writing from PCC to waive such claims of privilege, the Pegasus Debtors and the Trust will waive such claims of privilege, but only to the extent so requested in writing by PCC.

7.
  Mutual Releases.

(a)
  Pegasus Debtor Parties’ Release
  of Pegasus Non-Debtor Parties.
  Subject to the occurrence of the Effective Date, the Pegasus Debtor Parties
  for themselves and their legal representatives, successors and assigns and all
  Persons claiming by, through or under them (collectively, the “Pegasus
  Debtor Releasing Parties”), hereby release the Pegasus Non-Debtor Parties
  and their legal representatives, successors and assigns, the respective present
  and former directors and officers of the Pegasus Non-Debtors, the respective
  present and former members, partners, trustees, shareholders, employees, agents,
  representatives and advisors of the Pegasus Non-Debtors and the respective heirs,
  executors, administrators, legal representatives, successors and assigns of
  each of the foregoing (collectively, the “Pegasus Non-Debtor Released
  Parties”), from and with respect to, and covenant not to sue the Pegasus
  Non-Debtor Released Parties with respect to, any and all Claims (whether such
  Claims are or could have been part of the assets of the Pegasus Debtor Releasing
  Parties or their estates and whether such Claims are or could have been assertable
  by the Pegasus Debtor Releasing Parties in their own right or on behalf of the
  holder of any Claim against, or equity interest in, the Pegasus Debtor Releasing
  Parties or any other Person claiming by, through or under them), which the Pegasus
  Debtor Releasing Parties or any of them now have, ever had or may ever have
  against the Pegasus Non-Debtor Released Parties or any of them, singly or in
  any combination, on account of, arising out of, or in connection with, any thing,
  cause, matter, transaction, act or omission of any nature whatsoever occurring
  from the beginning of the world to the Effective Date; provided, however,
  that the release in this Section 7(a) shall not apply to the Retained Claims.

(b)
  Pegasus Non-Debtor Parties’
  Release of Pegasus Debtor Parties.
  Subject to the occurrence of the Effective Date, the Pegasus Non-Debtor Parties,
  for themselves and their legal representatives, successors and assigns and all
  Persons claiming by, through or under them (collectively, the “Pegasus
  Non-Debtor Releasing Parties”), hereby release the Pegasus Debtor Parties
  and their legal representatives, successors and assigns, the respective present
  and former members, partners, trustees, shareholders, directors, officers, employees,
  agents, representatives and advisors of the Pegasus Debtor Parties and the respective
  heirs, executors, administrators, legal representatives, successors and assigns
  of each of the foregoing (collectively, the “Pegasus Debtor Released
  Parties”), from and with respect to, and covenant not to sue the Pegasus
  Debtor Released Parties with respect to, any and all Claims (whether such Claims
  are or could have been part of the assets of the Pegasus Non-Debtor Releasing
  Parties and whether such Claims are or could have been assertable by the Pegasus
  Non-Debtor Releasing Parties in their own right or on behalf of the holder of
  any Claim against, or equity interest in, the Pegasus Non-Debtor Releasing Parties
  or any other Person claiming by, through or under them), which the Pegasus Non-Debtor
  Releasing Parties or any of them now have, ever had or may ever have against
  the Pegasus Debtor Released Parties or any of them, singly or in any combination,
  on account of, arising out of, or in connection with, any thing, cause, matter,
  transaction, act or omission of any nature whatsoever occurring from the beginning
  of the world to the Effective Date; provided, however, that the
  release in this Section 7(b) shall not apply to the Retained Claims.

-5-

(c)
  Release of Unknown Claims.
  Each Party granting the releases pursuant to Sections 7(a) and 7(b) (each,
  a “Releasing Party”) represents that it has not assigned, and
  agrees it will not assign, to any other Person any Claim covered by any release
  granted by such Releasing Party pursuant to this Section 7 other than the
  Retained Claims. Each Releasing Party acknowledges that it may hereafter discover
  Claims or facts in addition to or different than those which it now knows or
  believes to exist with respect to the subject matter of this Agreement and which,
  if known or suspected at the time of entering into this Agreement, may have
  materially affected this Agreement and its decision to enter into it.

(d)
  Successors.
  For purposes of this Section 7, (i) the releases granted thereunder
  by any Releasing Party for any of its direct and indirect assigns, heirs, executors,
  administrators or successors (each, a “Releasing Successor”)
  is granted for such Releasing Successor solely in its capacity as an assign,
  heir, executor, administrator or successor of such Releasing Party and (ii) the
  releases granted thereunder by any Releasing Party for itself or any other Person
  to any direct or indirect, assign, heir, executor, administrator or successors
  of any Party (in the case of any Pegasus Debtor, including, without limitation,
  the Trustee) (each, a “Released Successor”) is granted to such
  Released Successor solely in its capacity as an assign, heir, executor, administrator
  or successor of such Party.

8.
  Certain Definitions.
  As used in this Agreement, the following terms have the following meanings:

“Claim” means any and all claims, suits, controversies, actions, cross-claims, counterclaims, third-party claims, setoffs, defenses, causes of action, complaints, petitions, appeals, assertions of rights, demands for relief or for remedies, rights, damages, costs, losses, expenses, attorneys’ fees, compensation, liabilities, indemnities, and obligations, of any kind, nature or description, whether in contract or in tort; whether in law or in equity or otherwise; whether known or unknown; whether suspected or unsuspected; whether accrued or unaccrued; and whether alleged or unclaimed, including, without limitation, (a) for any alleged breach of contract, breach of fiduciary duty, fraud, bad faith, willful or intentional conduct or wrongdoing, unfair or deceptive business
practices, interference with contract or advantageous or other relationships, conspiracy, or violation of any regulation or statute, (b) any judgment regarding or relating to any of the foregoing for (i) damages (including actual, compensatory, consequential, incidental, multiple, punitive or exemplary damages), (ii) injunctive, specific performance or other equitable remedies or relief, (iii) fines, penalties, forfeitures or regulatory orders, or (iv) any other legal, equitable or other relief; and (c) any settlement or compromise with respect to any of the foregoing (and including any interim or preliminary legal, equitable or other relief or remedy that is ordered with respect to any of the foregoing or any compromise with respect to such relief).

-6-

“COBRA Coverage” means healthcare continuation coverage in accordance with the requirements of Part 6 of Title I of ERISA and Section 4980B of the Internal Revenue Code.

“COBRA Premiums” means the premium cost for COBRA Coverage provided pursuant to the Employee Orders (as defined in the Plan) for PCMC employees terminated on or prior to the SSA Termination Date.

“Covered COBRA Premiums” means (a) for former PCMC employees other than Marion L. Carpenter, Ted S. Lodge, Charles E. Page and Jackie D. Paris, 77.0% of applicable COBRA Premiums, and (b) for Marion L. Carpenter, 0.0% of applicable COBRA Premiums, (c) for Ted S. Lodge, 100.0% of applicable COBRA Premiums up to an aggregate $21,600, and (d) for Charles E. Page and Jackie D. Paris, 100.0% of applicable COBRA Premiums.

“Effective Date” means the date on which the Approval Order has been entered in the Chapter 11 Case and becomes a final non-appealable order.

“Retained Claim” means any Claim arising under (i) this Agreement, (ii) the TBA, or (iii) the Pegasus Non-Debtor Parties’ existing lease of office space at 225 City Line Avenue, Bala Cynwyd, PA 19004. It is understood that nothing in Section 7 shall affect the Allowed Split Dollar Claim (as defined in the Stipulation Resolving Claim of the Pagon Insurance Trust stipulated and agreed on April 12, 2006).

9.
  Effectiveness; Implementation.

(a)
  Effectiveness.
  Subject to entry of the Approval Order,
  this Agreement is effective as to the Pegasus Debtor Parties, the Pegasus Non-Debtors
  and the Scheduled Claimants as of the date hereof.

(b) Bankruptcy Court Approval. The Pegasus Debtor Parties shall promptly file a motion (in form and substance satisfactory to the PCC and to be provided to PCC for approval prior to filing) (the “Approval Motion”) seeking entry of an order (in form and substance satisfactory to PCC) (the “Approval Order”) approving this Agreement. The Parties shall support the Approval Motion.

-7-

10.
  Other Provisions.

(a)
  No Admission.
  If the Effective Date does not occur, this Agreement and any action taken or
  statements made by or behalf of any Party hereto in connection with seeking
  the approval of this Agreement shall be of no force and effect and shall be
  deemed null and void and shall not be referred to by any Party for any purpose
  whatsoever in any proceeding, except for the purpose of enforcing the provisions
  of this Section 10(a).

(b) Binding Effect; Assignment. This Agreement shall be binding upon and inure to the benefit of the Parties and their respective successors and permitted assigns. Nothing in this Agreement shall create or be deemed to create any third-party beneficiary rights in any person not a party to this Agreement other than any Person that is released from Claims under Section 7 to the extent provided in such Section. No assignment of this Agreement or of any rights or obligations hereunder may be made by any Party (by operation of law or otherwise) without the prior written consent of the other Parties and any attempted assignment without the required consents shall be void. No assignment of any obligations hereunder shall relieve the Parties of any such obligations.

(c) Submission to Jurisdiction.

(i) Without limiting any party’s right to appeal any order of the Bankruptcy Court, (A) the Bankruptcy Court shall retain exclusive jurisdiction to enforce the terms of this Agreement and to decide any claims or disputes which may arise or result from, or be connected with, this Agreement, any breach or default hereunder, or the transactions contemplated hereby, and (B) any and all proceedings related to the foregoing shall be filed and maintained only in the Bankruptcy Court, and the Parties hereby consent to and submit to the jurisdiction and venue of the Bankruptcy Court and shall receive notices at such locations as indicated in Section 10(h); provided, 
however, that if the Chapter 11 Case is closed or if the Bankruptcy Court elects to not exercise its jurisdiction, the Parties agree to unconditionally and irrevocably submit to the exclusive jurisdiction of the United States District Court for the Southern District of New York sitting in New York County or the Commercial Division, Civil Branch of the Supreme Court of the State of New York sitting in New York County, for the resolution of any such claim or dispute. The Parties hereby irrevocably waive, to the fullest extent permitted by applicable law, any objection which they may now or hereafter have to the location of venue of any such dispute brought in such court or any defense of inconvenient forum for the maintenance of such dispute. Each of the Parties agrees that a judgment in any such dispute may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law.

(ii) Each of the Parties hereby consents to process being served by any party to this Agreement in any suit, action or proceeding by delivery of a copy thereof in accordance with the provisions of Section 10(h).

-8-

(d) Waiver of Right to Trial by Jury. Each Party waives any right to trial by jury in any action, matter or proceeding regarding this Agreement or any provision hereof.

(e) Entire Agreement; Amendments and Waivers. This Agreement (including the Schedules) represents the entire agreement among the Parties with respect to the subject matter hereof. This Agreement can be amended, supplemented or changed, and any provision hereof can be waived, only by written instrument making specific reference to this Agreement signed by each of the Parties, other than the Scheduled Claimants, and if such amendment, supplement, change or waiver relates to a Section of this Agreement to which the Scheduled Claimants are a Party, the Scheduled Claimants. No action taken pursuant to this Agreement shall be deemed to constitute a waiver by the Party taking such action of compliance with any representation,
warranty, covenant or agreement contained herein. The waiver by any Party of a breach of any provision of this Agreement shall not operate or be construed as a further or continuing waiver of such breach or as a waiver of any other or subsequent breach. No failure on the part of any Party to exercise, and no delay in exercising, any right, power or remedy hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of such right, power or remedy by such party preclude any other or further exercise thereof or the exercise of any other right, power or remedy.

(f) Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York applicable to contracts made and performed in such State, irrespective of and without regard for its conflicts of law principles, as to all matters, including matters of validity, construction, effect, enforceability, performance and remedies.

(g) Counterparts. This Agreement may be executed in one or more counterparts and by facsimile, each of which will be deemed to be an original copy of this Agreement and all of which, when taken together, will be deemed to constitute one and the same agreement.

(h) Notices. All notices and other communications under this Agreement shall be in writing and shall be deemed given (i) when delivered personally by hand (with written confirmation of receipt), (ii) when sent by facsimile (with written confirmation of transmission) or (iii) one Business Day following the day sent by overnight courier (with written confirmation of receipt), in each case at the following addresses and facsimile numbers (or to such other address or facsimile number as a Party may have specified by notice given to the other Party pursuant to this provision): 

 

  	

If to any Pegasus Debtor Party, to:

Ocean Ridge Capital Advisors, LLC
 56 Harrison Street, Suite 203A
 New Rochelle, NY 10801
 Facsimile: (914) 931-5287

Attention: Bradley E. Scher

 
 	

 
 	

With a copy to:

Lowenstein Sandler, PC
 65 Livingston Avenue
 Roseland, New Jersey 07068
 Facsimile: (973) 597-2479

Attention: Paul Kizel
 

-9-

 

 

  	

If to any Pegasus Non-Debtor Party or Scheduled Claimant, to:

Pegasus Communications Corporation
 225 City Line Avenue
 Bala Cynwyd, PA 19004
 Facsimile: (610) 934-7072

        Attention:
          Marshall W. Pagon

                           Chairman
          and Chief Executive Officer

      	

 
 	

With a copy to:

Debevoise & Plimpton LLP
 919 Third Avenue
 New York, NY 10022
 Facsimile: (212) 909-6836

Attention: George E.B. Maguire, Esq.
 

[Signature Pages Follow]

-10-

	

THE PEGASUS DEBTOR PARTIES
 	

 
 	

 
 
	

PEGASUS SATELLITE COMMUNICATIONS, INC.,

on its own behalf and on behalf of each of the other 

Pegasus Debtors 
 	

 
 	

OCEAN RIDGE CAPITAL ADVISORS, LLC,

solely in its capacity as Liquidating Trustee of 

The PSC Liquidating Trust, on its own behalf 

and on behalf of The PSC Liquidating Trust 
 
	

 
 	

 
 	

 
 
	

By
 	

OCEAN RIDGE CAPITAL ADVISORS, LLC, as
 Liquidating Trustee of The PSC Liquidating Trust
 	

 
 	

 
 
				

            

 

  	
         

      	
         

      	
         

      	
         

      
	
         

      	
        By: 

      	
        

          /s/ Bradley E. Scher

      	
         

      	
        By: 

      	
        

          /s/ Bradley E. Scher

      
	
         

      	
         

      	
        
        

      	
         

      	
         

      	
        
        

      
	
         

      	
         

      	
        Name:
          Bradley E. Scher

      	
         

      	
         

      	
        Name:
          Bradley E. Scher

      
	
         

      	
         

      	
        Title:
          Managing Member

      	
         

      	
         

      	
        Title: Managing
          Member

      

 

  	
        THE
          PEGASUS NON- DEBTOR
          PARTIES

      	
         

      	
         

      
	
        PEGASUS
          COMMUNICATIONS CORPORATION,

        on
          its own behalf and on behalf of each of the other 

        Pegasus
          Non-Debtors

      	
         

      	
         

      
	
         

      	
         

      	
         

      
	
        

          By: 

      	
        

          /s/ Scott A. Blank

      	
         

      	
        
        

      
	
         

      	
        
        

      	
         

      	
         

      
	
         

      	
        Name: Scott
          A. Blank

      	
         

      	
         

      
	
         

      	
        Title: Senior
          Vice President

      	
         

      	
         

      

 

	

SCHEDULED CLAIMANTS, as to Sections 3, 7, 9 and 10
 	

 
 	

 
 
	

 /s/ Robert F. Benbow
 	

 
 	

 /s/ Scott A. Blank
 
	

 	

 
 	

 
	

Robert F. Benbow
 	

 
 	

Scott A. Blank
 
	

 /s/ Cheryl K. Crate
 	

 
 	

 /s/ Karen M. Heisler
 
	

 	

 
 	

 
	

Cheryl K. Crate
 	

 
 	

Karen M. Heisler
 
	

 /s/ Michael B. Jordan
 	

 
 	

 /s/ Rory J. Lindgren
 
	

 	

 
 	

 
	

Michael B. Jordan
 	

 
 	

Rory J. Lindgren
 
	

 /s/ Ted S. Lodge
 	

 
 	

 /s/ James J. McEntee, III
 
	

 	

 
 	

 
	

Ted S. Lodge
 	

 
 	

James J. McEntee, III
 
	

 /s/ Mary C. Metzger
 	

 
 	

 /s/ Marshall W. Pagon
 
	

 	

 
 	

 
	

Mary C. Metzger
 	

 
 	

Marshall W. Pagon
 
	

 /s/ William Phoenix
 	

 
 	

 /s/ Joseph W. Pooler, Jr
 
	

 	

 
 	

 
	

William Phoenix
 	

 
 	

Joseph W. Pooler, Jr
 
	

 /s/ Robert N. Verdecchio
 	

 
 	

 /s/ Howard E. Verlin
 
	

 	

 
 	

 
	

Robert N. Verdecchio
 	

 
 	

Howard E. Verlin
 

SIGNATURE PAGE TO SETTLEMENT AGREEMENT DATED AS OF OCTOBER 10, 2006

Schedule 1

PEGASUS DEBTORS

 

  	
        1.

      	
         

      	
        PEGASUS
          SATELLITE TELEVISION, INC.

      
	
        2.

      	
         

      	
        PEGASUS
          SATELLITE TELEVISION OF ILLINOIS, INC.

      
	
        3.

      	
         

      	
        GOLDEN
          SKY SYSTEMS, INC.

      
	
        4.

      	
         

      	
        GOLDEN
          SKY DBS, INC.

      
	
        5.

      	
         

      	
        GOLDEN
          SKY HOLDINGS, INC.

      
	
        6.

      	
         

      	
        ARGOS
          SUPPORT SERVICES COMPANY

      
	
        7.

      	
         

      	
        CARR
          RURAL TV, INC.

      
	
        8.

      	
         

      	
        DBS
          TELE-VENTURE, INC.

      
	
        9.

      	
         

      	
        DIGITAL
          TELEVISION SERVICES OF INDIANA, LLC

      
	
        10.

      	
         

      	
        DTS
          MANAGEMENT, LLC

      
	
        11.

      	
         

      	
        HENRY
          COUNTY MRTV, INC.

      
	
        12.

      	
         

      	
        PRIMEWATCH,
          INC.

      
	
        13.

      	
         

      	
        PST
          HOLDINGS, INC.

      
	
        14.

      	
         

      	
        SOUTH
          PLAINS DBS LP

      
	
        15.

      	
         

      	
        BRIDE
          COMMUNICATIONS, INC.

      
	
        16.

      	
         

      	
        B.T.
          SATELLITE, INC.

      
	
        17.

      	
         

      	
        HMW,
          INC.

      
	
        18.

      	
         

      	
        PEGASUS
          BROADCAST ASSOCIATES, L.P.

      
	
        19.

      	
         

      	
        PEGASUS
          BROADCAST TELEVISION, INC.

      
	
        20.

      	
         

      	
        PEGASUS
          BROADCAST TOWER, INC.

      
	
        21.

      	
         

      	
        PEGASUS
          MEDIA & COMMUNICATIONS, INC.

      
	
        22.

      	
         

      	
        PEGASUS
          SATELLITE COMMUNICATIONS, INC.

      
	
        23.

      	
         

      	
        PORTLAND
          BROADCASTING, INC.

      
	
        24.

      	
         

      	
        TELECAST
          OF FLORIDA, INC.

      

 

	

25.
 	

 
 	

WDSI LICENSE CORP.
 
	

26.
 	

 
 	

WILF, INC.
 
	

27.
 	

 
 	

WOLF LICENSE CORP.
 

-2-

Schedule 2

SCHEDULED CLAIMANTS

 

  	
        1.

      	
         

      	
        Robert
          F. Benbow

      
	
        2.

      	
         

      	
        Scott
          A. Blank

      
	
        3.

      	
         

      	
        Cheryl
          K. Crate

      
	
        4.

      	
         

      	
        Karen
          M. Heisler

      
	
        5.

      	
         

      	
        Michael
          B. Jordan

      
	
        6.

      	
         

      	
        Rory
          J. Lindgren

      
	
        7.

      	
         

      	
        Ted
          S. Lodge

      
	
        8.

      	
         

      	
        James
          J. McEntee, III

      
	
        9.

      	
         

      	
        Mary
          C. Metzger

      
	
        10.

      	
         

      	
        Marshall
          W. Pagon

      
	
        11.

      	
         

      	
        William
          Phoenix

      
	
        12.

      	
         

      	
        Joseph
          W. Pooler, Jr

      
	
        13.

      	
         

      	
        Robert
          N. Verdecchio

      
	
        14.

      	
         

      	
        Howard
          E. Verlin

      

Schedule 3

PEGASUS DEBTOR PARTIES’ MEMORANDUM REGARDING

THE RELATIONSHIP BETWEEN PSC AND PCC

MEMORANDUM REGARDING THE RELATIONSHIP BETWEEN PEGASUS

SATELLITE COMMUNICATIONS, INC. AND PEGASUS COMMUNICATIONS CORP.

This memorandum sets forth the relevant factual and legal analysis to support the conclusion that Pegasus Satellite Communications, Inc. (“PSC”) and The PSC Liquidating Trust (the “Trust”) are not affiliates of Pegasus Communications Corp. (“PCC”) under Rule 144. 

FACTUAL BACKGROUND

PCC NO LONGER HAS ANY INTERESTS IN OR CONTROL OVER PSC, 

THE TRUST, THE LIQUIDATING TRUSTEE OR THEIR ASSETS

PSC and various related entities (collectively, the “Debtors”) filed for chapter 11 bankruptcy protection on June 2, 2004 (the “Petition Date”). As of the Petition Date, PSC was a wholly owned subsidiary of PCC, a corporation whose shares are publicly traded. PCC did not file a chapter 11 petition. 

The Debtors’ First Amended Joint Plan of Reorganization (the “Plan”) was filed on or about January 31, 2005. The Plan, as amended, was approved by an order (the “Confirmation Order”) of the United States Bankruptcy Court for the District of Maine entered on April 15, 2005 (the “Plan”). Pursuant to the Plan, the Trust was established to, among other things, administer the Liquidating Trust Assets and Remaining Assets for the benefit of Class 3A creditors. The Plan became effective on May 5, 2005 (the “Effective Date”). 

Pursuant to paragraph 19 of the Confirmation Order, as of the Effective Date, Ocean Ridge Capital Advisors, LLC (the “Ocean Ridge”) was appointed as the liquidating trustee (the “Liquidating Trustee”) of the Trust. Bradley E. Scher is the sole managing director of Ocean Ridge. Neither Ocean Ridge nor Mr. Scher have or had any interest in, or relationship with, PCC. 

In addition, pursuant to paragraph 21 of the Confirmation Order, “from the Confirmation Date  through the Effective Date” the Liquidating Trustee was granted the sole power “to make all operating decisions” and to “exercise all control over the Debtors’ assets including, without limitation, the Broadcast Assets including the Debtors’ broadcast television stations, subject to the jurisdiction of the Bankruptcy Court.”  Moreover, pursuant to paragraph 21 of the Confirmation Order, “from and after the Effective Date, the Liquidating Trustee shall continue to make all operating decisions for the Reorganized Debtors and shall exercise all control over the assets of the Reorganized Debtors and the Liquidating Trust including, without Limitation, the Broadcast Assets including the Debtors’ broadcast television stations, subject to the jurisdiction of
the Bankruptcy Court.”

Furthermore, pursuant to section 4.5 of the Plan, all of PCC’s equity interests in PSC were canceled and PCC is not entitled to receive, and will not receive, any distributions on account of  the interests it held in PSC and the other related debtors. 

Thus, since the Confirmation Date, by virtue of the provisions of the Plan and Confirmation Order, PCC has no interests in, or control of any kind over, PSC, the Trust, the Liquidating Trustee or their assets. Since the Confirmation Date, absolute control over the assets of PSC and the Trust has been vested in the Trust and Liquidating Trustee, subject to the jurisdiction of the Bankruptcy Court. 

THE PCC SHARES

Prior to the Petition Date, between July, 2002 and November, 2003, PSC acquired, through several open-market purchases, approximately 1.3 million shares (the “PCC Shares”) of the Class A common stock of PCC (the “Class A”). As described in more detail below, the PCC Shares represent approximately 11% of all Class A shares. The PCC Shares were originally registered under the Securities Act of 1933, as amended (the “Securities Act”). The PCC Shares constitute Remaining Assets and/or Liquidating Trust Assets over which the Liquidating Trustee has sole control. Pursuant to section 5.4(b) of the Plan, the purpose of the Trust is to liquidate the Liquidating Trust Assets in order to maximize the recovery of beneficiaries of the Trust. 

The common stock of PCC is divided into three classes: the Class A, Class B common stock (the “Class B”), and nonvoting common stock. As of May 31, 2005 there were 11,306,621 shares of Class A issued and outstanding, each entitled to one vote per share. The Class B, of which 1,903,760 shares are issued and outstanding is beneficially owned solely by Marshall W. Pagon, the Chief Executive Officer of PCC. The Class B is convertible into Class A on a share-for-share basis. PCC’s certificate of incorporation restricts transfer of the Class B to Mr. Pagon and his family members or entities controlled by him. Upon transfer to any other person or entity, the Class B shares automatically convert to Class A shares. Class B shares are entitled to ten (10) votes per share.

The beneficial ownership and total voting power of PCC’s major stockholders is set forth below:

 

  	
        Shareholder
 	
         
 	
        Class A
 (11,306,621 outstanding)
 	
         
 	
        Class B
 	
         
 	
        Total Votes
 	
         
 	
        Percentage Ownership1
 	
         
 	
        Class A Percentage Ownership2
 	
         
 	
        Voting Percentage3
 	
         
 
	

 	
         
 	
        

 	
         
 	
        

 	
         
 	
        

 	
         
 	
        

 	
         
 	
        

 	
         
 	
        

 	
         
 
	

Marshall Pagon
 	

 
 	

150,969
 	

 
 	

1,903,760
 	

 
 	

19,188,569
 	

 
 	

15.6
 	

%
 	

1.3
 	

%
 	

63.6
 	

%
 
	

PSC
 	

 
 	

1,300,000
 	

4
 	

0
 	

 
 	

1,300,000
 	

4
 	

9.8
 	

%
 	

11.5
 	

%
 	

4.3
 	

%
 
	

Peninsula5
 	

 
 	

6,880,500
 	

 
 	

0
 	

 
 	

6,880,500
 	

 
 	

52.1
 	

%
 	

60.9
 	

%
 	

22.8
 	

%
 
	

DBS Investors, LLC
 	

 
 	

1,100,000
 	

 
 	

0
 	

 
 	

1,100,000
 	

 
 	

8.3
 	

%
 	

9.7
 	

%
 	

3.6
 	

%
 
	

Directors and Officers as a group
 	

 
 	

4,000,000
 	

4
 	

1,903,760
 	

 
 	

23,037,600
 	

 
 	

44.69
 	

%
 	

35.4
 	

%
 	

76.3
 	

%
 

	

1
 	

Based on 13,210,381 shares of common stock outstanding.
 

	

2
 	

Based on 11,306,621 shares of Class A outstanding.
 

	

3
 	

Based on 30,193,252 total votes available.
 

	

4
 	

Estimate only.
 

	

5
 	

Peninsula Advisors, LLC and Peninsula Investment Partners, L.P. (hereinafter, “Peninsula”).
 

Class A and Class B shares vote together on nearly all matters including the election of directors and fundamental events requiring shareholder approval. As a result, Mr. Pagon controls the outcome of nearly all matters on which the stockholders vote, including the election of all directors. Under PCC’s certificate of incorporation, the only matters which require the approval of the holders of the Class A voting as a separate class are: (i) the issuance of additional shares of Class B (except in instances in which parallel action is being taken on the Class A such as with stock dividends, stock splits, etc.), (ii) any decrease in the voting rights per share of the Class A or any increase in the voting rights of the Class B, (iii) any increase in the number of shares of Class A into which shares of Class B are convertible, (iv) any relaxation on the restrictions on transfer of the
Class B, and (v) any changes in the powers, preferences, or special rights of the Class A or the Class B which may adversely affect holders of the Class A.

-2-

Peninsula holds approximately 60% of the outstanding Class A shares of PCC. If Peninsula maintains or increases its holding of Class A shares, it remains in a position to determine the outcome of any vote of the Class A shares voting as a class, regardless of the interests of other Class A stockholders.

The following additional facts are also relevant to the analysis of whether PSC and the Trust have any control over the management or policies of PCC:

(1) None of PSC, Ocean Ridge, the Trust or Mr. Scher, have any right, power or ability to elect any directors of PCC. 

(2) The Trust controls all of the outstanding shares of PSC and Mr. Scher is the sole director of PSC and is vested with all decision making power over the Trust and PSC, subject to the jurisdiction of the Bankruptcy Court. Ocean Ridge’s duties as the Liquidating Trustee pursuant to the Plan requires it to sell the assets of PSC, including the PCC Shares for the benefit of the PSC creditors. Ocean Ridge has no connection to current management of PCC.

(3) PSC has never elected a member of the PCC Board of Directors. All Directors have been elected by Marshall Pagon, the CEO of PCC and holder of the largest voting percentage of PCC common stock. PSC, the Trust, and the Liquidating Trustee do not exert any influence over PCC’s Board or management decisions.

(4) The influence of PSC’s 11% interest of the outstanding PCC Shares is essentially rendered ineffective by Mr. Pagon’s ownership of a substantial majority of voting power of PCC. Mr. Pagon has the sole power to elect the Board of Directors, exercise managerial control, and make virtually all decisions requiring a shareholder vote.

(5) Peninsula has accumulated a significantly larger block of Class A shares than PSC, and would control the outcome of any vote of the Class A shares voting as a class.

(6) PSC’s current holdings would not afford it a veto power over any shareholder or management decisions, the power to direct or cause the direction of the management and policies of PCC, or exercise any influence with reference to the election of directors. PSC’s holdings provide no special leverage that could be deemed a controlling influence for purposes of the Securities Act.

Based on the foregoing, it is evident that PSC does not directly or indirectly exercise control over PCC. Furthermore, there does not exist any relationship which results in PSC and PCC being under common control. Therefore, PSC should not be deemed an affiliate of PCC, despite its ownership of approximately 11% percent of the PCC Shares.

ANALYSIS OF AFFILIATE STATUS

Under Rule 144, an affiliate of an issuer is defined as “a person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, such issuer.” 17 C.F.R. §230.144(a)(1). Generally, a person is in “control” of an issuer if he is an executive officer, director or owns 10 percent or more of the voting securities of the issuer. See American-Standard, SEC No-Action Letter 1972 WL 19628 (October 11, 1972). However, this classification is not absolute, and can be rebutted if such person proves that he is not in a position of “control”. See id. In American-Standard, the Staff indicated that a person’s status as an officer, director or owner of 10 percent of the voting securities of a company is not necessarily determinative of whether such person is a control person or member of a controlling group of persons. His status as an officer, director or 10 percent shareholder is one fact which must be taken into consideration, but an individual’s status as a control person or as a member of a controlling group is still a factual question which must be determined by considering other relevant facts in accordance with the test set forth in Rule 405 of the Act. . . .

-3-

Id. Rule 405 defines “control” as “the possession, direct or indirect of the power to direct or cause the direction of management and policies of a person, whether through the ownership of voting securities, by contract, or otherwise.”1 17 C.F.R. §230.405.

In deciding whether a person is in the position of control, “the entire situation within the corporation at the time of determination, together with some of the history of the corporation must be considered; single factors — such as shareholdings, offices held, titles, conduct - are rarely determinative.” A. A. Sommer, Jr., Who’s “In Control”? - S.E.C., 21 Bus. Law. 559, 563 (1966). Stock ownership or representation on the Board is only an indication of control, in that “the influence upon management and policies of a corporation” is also relevant. United States v. Corr, 543 F.2d 1042, 1050 (2d Cir. 1976). Absent a
clear-cut power to control through use of voting power, “only careful examination of the actual running of the corporation . . . will identify the person who is the controlling person.”2 Sommer, supra, at 574.

“Stock ownership is but one aspect of control, which can rest with more than one person at the same time or from time to time.” Corr, supra, at 1050. The determination of whether a person is an affiliate for the purposes of Rule 144 depends upon “the totality of the circumstances, including an appraisal of the influence upon management and policies of a corporation by the person involved.” U.S. v. Sprecher, 783 F.Supp. 133, 159 (S.D.N.Y. 1992).

Because the inquiry is inherently factual, in some cases a shareholder with less than 10 percent of the outstanding shares may be considered an affiliate, while ownership of a greater percentage might not create affiliate status where the facts support a conclusion that no control relationship is present.” Alan K. Austin & Gregory M. Priest, Resales of Securities under Rule 144 and Rule 144A, 1143 PLI/Corp. 65, 72 (1999). The Commission has provided informal indications that persons with shareholdings over 10 percent of outstanding stock may be considered nonaffiliates. For example, the Staff, in a No-Action Letter concerning Documation, Inc., concluded that a co-founder, former officer and director of the issuer owning 9.8 percent of its outstanding shares was permitted to sell his shares without
registration based on an opinion letter that the transactions are exempt and the seller is not in a control relationship with issuer. Documation, Inc., SEC No-Action Letter, 1976 WL 10383 (Oct. 13, 1976). The seller was deemed to have satisfied this burden by showing that the two principal shareholders owned approximately 44 percent of the issuer’s shares and that management owned approximately 22 percent. Id. In Professional Care Services, the Commission, after counsel appealed the Staff’s initial conclusion, directed the Staff to issue a no-action letter to a former director and officer permitting the sale of 17 percent of the outstanding stock of issuer without compliance with Rule 144. Professional Care Services, Inc., SEC No-Action
Letter, 1974 WL 8463 (Apr. 15, 1974). In Lloyd’s Electronics, the Staff allowed a 21 percent shareholder to sell his shares from time to time without compliance with the registration requirements of the Securities Act, and thus deemed him not to be an affiliate. Lloyd’s Electronics, Inc., SEC No-Action Letter, 1976 WL 11362 (Apr. 22, 1976).

	

1
 	

In applying Rule 405, as a matter of law, “a person who claims that he is not an affiliate in order to use an exemption from registration has the burden of proving the availability of the exemption.” American Standard, SEC No-Action Letter, 1972 WL 19628 (Oct. 4, 1972). 
 

	

2
 	

Sommer also states that “[o]wnership of substantially less than 50 percent of the stock may be indicative of control only if the power inherent in the voting power has in some fashion been manifested through the exercise of control, usually through the election of a favorably inclined majority of the board of directors.” Sommer, supra, at 570.
 

-4-

PSC
  IS NOT AN AFFILIATE OF PCC

Although PSC is the beneficial owner of approximately 11% percent of the Class A common stock of PCC, the facts set forth in the Factual Background section of this memo demonstrate that due to PCC’s unique voting and governance structure and the existence of other shareholders with significantly more voting power, neither PSC, the Trust nor the Liquidating Trustee is an affiliate of PCC for purposes of the Securities Act. PSC, the Trust and the Liquidating Trust do not, and can not, directly or indirectly, influence/control PCC, nor are they under common control with a party that controls PCC. 

-5-

Schedule 4

SUPPORTING FACTS

Capitalized terms not otherwise defined in this Schedule 4 have the respective meanings given in the Agreement to which this Schedule 4 is attached.

PCC confirms that to the best of its knowledge the statements set forth on this Schedule 4 are true and correct as of the date of the Agreement.

PCC DOES NOT CONTROL THE PEGASUS DEBTOR PARTIES

	
      •

    	
      PCC
  has no ownership interest in and has no control of any kind over any of the
  Debtor Parties or their assets.

    

VOTING RIGHTS OF PCC’S COMMON STOCK

	

•
 	

The common stock of PCC is divided into three classes: Class A common stock (the “Class A”), Class B common stock (the “Class B”), and non-voting common stock. Class A shares are entitled to one (1) vote per share. Class B shares are entitled to ten (10) votes per share.
 

	

•
 	

Except as described below, Class A and Class B shares vote together on all matters requiring the approval of PCC’s stockholders, including, but not limited to, the election of directors and fundamental corporate changes. The only matters which require the approval of the holders of the Class A voting as a separate class are: (i) the issuance of additional shares of Class B (except in instances in which parallel action is being taken on the Class A such as with stock dividends, stock splits, etc.), (ii) any decrease in the voting rights per share of the Class A or any increase in the voting rights of the Class B, (iii) any increase in the number of shares of Class A into which shares of Class B are convertible, (iv) any relaxation on the restrictions on transfer of the Class B, and (v) any changes in the powers, preferences, or special rights of
the Class A or the Class B which may adversely affect holders of the Class A.
 

PCC SHARE OWNERSHIP

	

•
 	

PSC acquired the PCC Shares in open-market purchases between July, 2002 and November, 2003.
 

	

•
 	

The following table shows beneficial ownership and voting power for PCC’s principal share holders as of March 31, 2006. This information is extracted from PCC’s Annual Report on Form 10-K for its fiscal year ended December 31, 2005 (the “2005 10-K”). The 2005-K contains additional information regarding beneficial ownership and voting power and its calculation.
 

 

  	

 
 	

 
 	

Class A 
 	

 
 	

Class B 
 	

 
 	

% of Vote 
 	

 
 
	

 
 	

 
 	

 	

 
 	

 	

 
 	

 	

 
 
	

Beneficial Owner
 	
         
 	

Shares
 	
         
 	
        %
 	
         
 	

Shares
 	
         
 	
        %
 	
         
 	
        Class A
 	
         
 	
        Total
 	
         
 
	

 	

 
 	

 	

 
 	

 	

 
 	

 	

 
 	

 	

 
 	

 	

 
 	

 	

 
 
	

Marshall W. Pagon (a)                                                                                                                                          
 	

 
 	

216,870
 	

 
 	

1.9
 	

%
 	

1,832,760
 	

 
 	

100.0
 	

%
 	

1.9
 	

%
 	

62.5
 	

%
 
	

Peninsula Capital Advisors LLC                                                                                        
 	

 
 	

6,880,550
 	

 
 	

60.6
 	

%
 	

—
 	

 
 	

—
 	

 
 	

60.6
 	

%
 	

23.2
 	

%
 
	

Trustee                                                                                                                                                                                                                         
 	

 
 	

1,315,208
 	

 
 	

11.6
 	

%
 	

—
 	

 
 	

—
 	

 
 	

11.6
 	

%
 	

4.4
 	

%
 

	

(a)
 	

Class A ownership excludes unexercised options and Class A Shares underlying Class B shares.
 

	

•
 	

Marshall W. Pagon, PCC’s CEO and Chairman (“Pagon”), beneficially owns all of the outstanding Class B shares. 60.6% of the outstanding Class A shares at March 31, 2005 were beneficially owned by Peninsula Capital Advisors LLC (“Peninsula”). On July 12, 2006, Peninsula filed an amendment to its ownership report on Schedule 13D reporting a further increase in the Class A shares it beneficially owns.
 

PEGASUS DEBTOR PARTIES DO NOT HAVE ABILITY TO CONTROL PCC

	

•
 	

Pagon has sufficient voting power on his own to approve any matter requiring approval of Class A and Class B voting together as a single class. The PCC Shares are not sufficient to block any such approval or to approve any matter over the objection of Pagon.
 

	

•
 	

Peninsula has sufficient Class A shares to approve any matter requiring the vote of Class A voting as a separate class. The PCC Shares are not sufficient to block any such approval or to approve any such matter over the objection of Peninsula.
 

	

•
 	

PCC is not aware of any contract, arrangement, understanding or relationship by virtue of which any of the Pegasus Debtor Parties has the right, power, or ability to elect any directors of PCC or to approve or veto any matter requiring a vote of PCC shareholders or to otherwise influence the management and policies of PCC.
 

2Exhibit 10.1

    
      

    

    EMPLOYMENT
      AGREEMENT

     

    THIS
      AGREEMENT is made as of this 9th day of October, 2006, by and between
The
      Banker’s Store, Inc.,
      a New
      York corporation (the "Company"), and Vincent
      C. Buckman, an
      Indiana resident ("Executive Officer").

     

    RECITALS

     

    WHEREAS,
      the Company desires to employ Executive Officer as its President and Chief
      Executive Officer and Executive Officer desires to be employed by the Company
      as
      President and Chief Executive Officer; and

     

    WHEREAS,
      Executive Officer and the Company have reached an agreement with respect to
      the
      terms and conditions of said employment, including compensation, which are
      hereinafter set forth.

     

    NOW,
      THEREFORE, the Company and Executive Officer, in consideration of the mutual
      promises hereinafter set forth, agree as follows:

     

    ARTICLE
      I

     

    Employment

     

    The
      Company shall employ Executive Officer and Executive Officer shall serve the
      Company as its President and Chief Executive Officer. Executive Officer shall
      devote his full business time and attention to the Company and have such
      authority, powers, functions, duties and responsibilities as are customarily
      possessed by persons serving in similar corporate positions, subject to the
      provisions of applicable law and the Company’s Certificate of Incorporation and
      Bylaws. Company shall elect Executive Officer to the Board of Directors of
      Company.

     

    ARTICLE
      II

     

    Term

     

    The
      term
      of employment of Executive Officer by the Company under this Agreement shall
      commence as of the date hereof and shall continue until the second anniversary
      of the date hereof unless terminated prior thereto in accordance with the
      provisions of Paragraphs 4.1and
      4.2,
      below
      (“Initial Term”). The term hereof shall be automatically extended for one (1)
      additional year at the end of the Initial Term (“Extension Period”) and for an
      additional one(1) year period at the end of each Extension Period, unless either
      party shall have given notice to the other party at least sixty (60) days prior
      to the end of the Initial Term (or the end of the applicable Extension Period)
      that the Agreement shall not be so extended.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    ARTICLE
      III

     

    Compensation

     

    In
      consideration of his services to the Company hereunder, Executive Officer shall
      be compensated as follows:

     

    3.1    Base
      Salary.
      The
      Company shall pay to Executive Officer during the term hereof an annual base
      salary of One Hundred Twenty Thousand Dollars ($120,000) payable in accordance
      with its regular payroll practices. 

     

    3.2    Stock
      Option.
      The
      Company shall grant Executive Officer the following options (“Options”) to
      purchase an aggregate of Five Hundred Forty Five Thousand, Four Hundred
      Fifty-Five (545,455) shares of the Company’s common stock: (a) an Option to
      purchase Three Hundred Thousand (300,000) shares of the Company’s common stock
      to be granted within 30 days of the date on which Executive Officer’s employment
      commences with the Company; (b) an Option to purchase One Hundred Twenty-Two
      Thousand Seven Hundred Twenty-Eight (122,728) shares of the Company’s common
      stock to be granted on the first anniversary of the date of this Agreement;
      and
      (c) an Option to purchase One Hundred Twenty-Two Thousand, Seven Hundred
      Twenty-Seven (122,727) shares of the Company’s common stock to be granted on the
      second anniversary of the date of this Agreement. Each of the Options shall
      have
      a term of five (5) years, shall vest in three equal annual installments
      commencing on the first anniversary of the date of grant and have an exercise
      price equal to the fair market value of a share of the Company’s common stock on
      the date of grant (as determined in good faith by the Company’s Board of
      Directors). Each Option shall be evidenced by an option agreement, the terms
      of
      which shall be consistent with the terms and conditions set forth in this
      Agreement, terms and conditions deemed advisable by the Company’s Board of
      Directors and applicable laws and regulations. 

     

    3.3    Withholding.
      The
      Company shall deduct from the payments to be made to Executive Officer under
      this Agreement any federal, state or local withholding or other taxes or charges
      which the Company is from time to time required to deduct under applicable
      laws
      and regulations and all amounts payable to Executive Officer under this
      Agreement are stated herein before any such deduction. The Company shall have
      the right to rely upon a written opinion of legal counsel if any questions
      should arise as to any such deductions.

     

    3.4    Bonus.
      Executive Officer shall be considered for a bonus annually by the Board of
      Directors based upon his performance during the preceding year. Bonuses may
      be
      paid in cash or stock or a combination thereof at the discretion of the
      Board.

     

    ARTICLE
      IV

     

    Termination

     

    4.1    Termination.
      Notwithstanding anything contained herein to the contrary, the employment of
      Executive Officer under this Agreement shall terminate upon the occurrence
      of
      any of the following:

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

    (a)    The
      death
      of Executive Officer.

     

    (b)    In
      the
      event of Executive Officer's disability. For purposes hereof, Executive Officer
      shall be considered to be disabled if he is unable to perform his normal duties
      under this Agreement for a continuous period of six (6) months by reason of
      physical or mental illness or incapacity or if Executive Officer is unable
      to
      perform his normal duties under this Agreement for periods of physical or mental
      illness or incapacity aggregating six (6) months during the term of this
      Agreement. If there is any dispute as to whether Executive Officer is or was
      physically or mentally unable to perform his duties under this Agreement such
      questions shall be submitted to a licensed physician agreed upon by the parties.
      Executive Officer shall submit to such examinations and provide any information
      such physician may request. The determination of such physician as to
      Executive's physical or mental condition shall be binding and conclusive upon
      the parties. 

     

    (c)    At
      the
      option of the Company, in the event Executive Officer shall engage in any act
      constituting "misconduct" (as hereinafter defined). As used herein, "misconduct"
      shall mean (i) any act which is materially injurious to the Company, monetarily
      or otherwise, including but not limited to, dishonesty, fraud, theft, illegal
      conduct, neglect or misconduct; (ii) chronic absence from work other than by
      reason of illness, (iii) use of alcohol or drugs in such a manner as to
      interfere with the performance of Executive Officer's duties for the Company,
      (iv) commission of a felony or misdemeanor involving moral turpitude, (v)
      continued neglect or failure of Executive Officer to perform such duties as
      may
      be reasonably requested by the Chairman of the Board or the Board of Directors
      of the Company consistent with Article I hereof, (vi) violation of the Company’s
      employee conduct and/or business ethics policies as they exist during the term
      of this Agreement, or (vii) the breach by Executive Officer of any of the
      covenants set forth in Articles VI or VII, below.

     

    (d)    Notice
      and Opportunity to Cure. Notwithstanding the foregoing, it shall be a condition
      precedent to the Company's right to terminate Officer's employment "cause"
      and
      Officer's right to terminate for "cause" that (i) the party seeking termination
      shall first have given the other party written notice stating with specificity
      the reason for the termination ("breach") and (ii) if such breach is susceptible
      of cure or remedy, a period of thirty (30) days from and after the giving of
      such notice shall have elapsed without the breaching party having effectively
      cured or remedied such breach during such 30-day period, unless such breach
      cannot be cured or remedied within thirty (30) days, in which case the period
      for remedy or cure shall be extended for a reasonable time (not to exceed an
      additional thirty (30) days provided the breaching party has made and continues
      to make a diligent effort to effect such a remedy or cure.

     

    4.2    Termination
      by Executive Officer for Cause.
      Executive Officer shall be entitled to terminate his employment with the Company
      “for cause” if; (a) the Company materially breaches any material provision in
      this Agreement; or (b) following a Change in Control (as defined below), the
      salary of the Executive Officer is reduced or he is removed from the position
      of
      President and Chief Executive Officer. For
      purposes of this Agreement, a “Change in Control” shall mean:

     

    (a)    After
      the
      date of this Agreement, the Company adopts any plan of liquidation providing
      for
      the distribution of all or substantially all of its assets;

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

    (b)    After
      the
      date of this Agreement, all or substantially all of the assets or business
      of
      the Company are disposed of pursuant to a merger, consolidation or other
      transaction (unless the shareholders of the Company immediately prior to such
      merger, consolidation or other transaction beneficially own, directly or
      indirectly, in substantially the same proportion as they owned the voting
      securities (“Voting Securities”) of the Company, all of the Voting Securities or
      other ownership interests of the entity or entities, if any, that succeed to
      the
      business of the Company);

     

    (c)    After
      the
      date of this Agreement, the Company combines with another company and is the
      surviving corporation but, immediately after the combination, the respective
      shareholders of the Company immediately prior to the combination hold, directly
      or indirectly, 50% or less of the Voting Securities of the combined company;
      

     

    (d)    After
      the
      date of this Agreement, any event or transaction occurs, immediately after
      which
      the current shareholders of the Company hold directly or indirectly less than
      50% of the respective Voting Securities of the Company, or 

     

    (e)    The
      individuals who, as of the date of this Agreement, are members of the Board
      of
      Directors of the Company ("Incumbent Board") cease for any reason to constitute
      at least a majority of such Board; provided, however, that if any new director
      is approved by a vote of at least a majority of the Incumbent Board of the
      Company, such new director shall, for all purposes of the Plan, be considered
      as
      a member of the Incumbent Board; provided further, however, that no individual
      shall be considered a member of the Incumbent Board if such individual initially
      assumed office as a result of either an actual or threatened election contest
      (as described in Rule14a-1 promulgated under the Securities Exchange Act of
      1934) ("Election Contest") or other actual or threatened solicitation of proxies
      or consents by or on behalf of any person or entity other than the Board of
      the
      Company ("Proxy Contest") including by reason of any agreement intended to
      avoid
      or settle any Election Contest or Proxy Contest.

     

    4.3    Consequences
      of Termination.
      If
      Executive Officer's employment is terminated pursuant to Paragraph 4.1
      above,
      the Company shall not be obligated to make further payments to Executive
      Officer, other than to pay his salary prorated through the week in which such
      termination occurs. If Executive Officer's employment hereunder is terminated
      (i) by Executive Officer pursuant to Paragraph 4.2
      or (ii)
      by the Company for any reason other than those described in Paragraph
4.1,
      above,
      Executive Officer shall be entitled to receive from the Company the monthly
      salary to which Executive Officer would have been entitled under Paragraph
      3.1,
      above,
      for a period of 12 (twelve) months following termination of employment. The
      Company shall make such termination payments in accordance with its regular
      payroll practices. 

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

    ARTICLE
      V

     

    Expenses
      and Fringe Benefits; Indemnification

     

    5.1    Expenses;
      Housing Allowance.
      To the
      same extent it does so for other executives of similar rank and responsibility,
      the Company shall pay or reimburse Executive Officer in accordance with the
      Company's past practice, for reasonable travel expenses ordinarily and
      necessarily incurred by Executive Officer in furtherance of the business of
      the
      Company. Executive Officer shall be required to submit on the same basis as
      other employees of the Company an itemized account of such expenditures and
      such
      proof as may be necessary to establish to the satisfaction of the Company that
      such expenses are ordinary and necessary expenses incurred by Executive Officer
      in furtherance of the business of the Company. The Company agrees to reimburse
      Executive Officer the amount of $500 per month during the first year of this
      Agreement, for housing expenses. 

     

    5.2    Fringe
      Benefits.
      Executive Officer shall be entitled to participate in any individual or group
      life insurance, health insurance, qualified pension or profit sharing plan
      or
      any other fringe benefit program which the Company may from time to time make
      available to its executive employees, but Executive Officer acknowledges that
      he
      shall have no vested rights in any such programs except as expressly provided
      under the terms thereof and that such programs may be terminated as well as
      supplemented. The compensation payable to Executive Officer pursuant to
      Paragraph 3.1,
      above,
      shall be subject to reduction by reason of Executive Officer's participation
      in
      any fringe benefit program which provides for or allows employee contributions
      out of an employee's annual salary or other compensation; provided,
      however,
      Executive Officer shall have no right to participate in plans which by the
      terms
      thereof are discretionary in nature and Executive Officer shall have no right
      to
      continue to participate in any plans after termination, except as required
      by
      law.

     

    5.3    Vacation
      and Sick Days.
      Executive Officer shall be entitled to ten (10) vacation days and five (5)
      sick
      or personal days in every twelve (12) month period under this
      Agreement.

     

    5.4    Indemnification;
      Directors’ and Officers’ Insurance.
      The
      Company agrees that if Executive Officer is made a party, or is threatened
      to be
      made a party, to any action, suit or proceeding, whether civil, criminal,
      administrative or investigative (a “Proceeding”), by reason of the fact that he
      is or was a director, officer, employee, or representative of the Company or
      is
      or was serving at the request of the Company as a director, officer, member,
      employee, representative, or agent of another corporation, partnership, joint
      venture, trust or other enterprise, whether or not the basis of such Proceeding
      is Executive Officer’s alleged action in an official capacity while serving as a
      director, officer, member, employee or agent, Executive Officer shall be
      indemnified and held harmless by the Company to the fullest extent permitted
      by
      law against all costs, expenses, claims, actions and liabilities (including,
      without limitation, reasonable attorney’s fees) reasonably incurred or suffered
      by Executive Officer in connection therewith, and such indemnification shall
      continue as to Executive Officer even if he has ceased to be a director, member,
      employee, representative, or agent of the Company or other entity and shall
      inure to the benefit of Executive Officer’s heirs, executors and administrators.
      To the extent the Company obtains or maintains a directors’ and officers’
liability insurance policy covering any executive officers of the Company,
      the
      Company agrees to provide such coverage to Executive Officer and to continue
      such coverage or the maximum coverage available during the term of this
      Agreement to the extent available at rates not in excess of 125% of current
      or
      initial rates. 

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

    ARTICLE
      VI

     

    Nondisclosure
      of Proprietary

    Information,
      Surrender of Records

     

    6.1    Proprietary
      Information.
      Executive Officer shall not at any time while he is employed by the Company
      or
      at any time thereafter disclose any proprietary information (as hereafter
      defined) to any individual or entity other than as required in the ordinary
      course of business unless such disclosure has been authorized by the Board
      of
      Directors or by the Chairman of the Board of the Company. For purposes hereof,
      the term "proprietary information" shall mean (i) the name or address of any
      customer (as hereafter defined) or any information concerning the transactions
      of such customer with the Company, (ii) any information relating to the
      marketing methods, sources of supply, pricing information, or business plans
      of
      the Company, (iv) any information which is generally regarded as confidential
      in
      the Company’s industry, (v) computer programs and software which may be
      developed from time to time by the Company and its employees, including
      Executive Officer, and (vi) any other information determined to be confidential
      or proprietary by resolution of the Board of Directors of the Company and which
      at the time of such determination or thereafter is not in the public domain
      or
      does not enter the public domain without disclosure by Executive Officer. For
      purposes hereof, a "customer" of the Company shall mean any individual or entity
      who has entered into any transaction with the Company or who has made an inquiry
      to the Company concerning its products or services whether through use of the
      Company’s website, electronic mail, telephone, mail or personal
      contact.

     

    6.2    Confidentiality
      and Surrender of Records.
      Executive Officer shall not at any time while he is employed by the Company
      or
      at any time thereafter, without the prior approval of the Chairman of the Board
      or the Board of Directors of the Company, give any confidential records (as
      hereafter defined) to any individual or entity or permit any inspection or
      copying thereof by any individual or entity other than an individual or entity
      who during his employment by the Company has a reasonable need to know the
      contents of such confidential records in the ordinary course of business or
      an
      individual or entity providing bona fide consulting, legal or accounting
      services to the Company who has a reasonable need to know the contents of such
      confidential records in the course of providing services to the Company. For
      purposes hereof, "confidential records" mean all correspondence, memoranda,
      files, customer lists, electronic or computerized information, and all other
      documents of any kind which may be in Executive Officer's possession or under
      his control which contain any proprietary information as defined in Paragraph
      6.1,
      above.
      Upon the termination of his employment, Executive Officer shall immediately
      surrender to the Company all confidential records in his possession or under
      his
      control.

     

    ARTICLE
      VII

     

    Covenant
      Not to Compete

     

    7.1    Covenant
      Not to Compete.
      Executive Officer agrees that he shall not at any time while he is employed
      by
      the Company pursuant to this Agreement or any time for a period of one (1)
      year
      following the termination of his employment (such period not to include any
      period of violation of, or period required for litigation to enforce, the
      covenants contained in this Article VII) either directly or indirectly as agent,
      stockholder, employee, officer, director, trustee, partner, proprietor or
      otherwise (except as the holder of no more than five percent (5%) of the stock
      of a publicly held company, provided Executive Officer does not participate
      in
      the business of such company or render advice or assistance to it), engage
      in,
      or render advice or assistance to (other than on behalf of the Company), or
      be
      employed by any person, firm or entity located or engaged in, a business which
      competes with the business of the Company in an area within a 50-mile radius
      of
      any county in which the Company derived 10% or more of its revenues during
      the
      twelve (12) month period preceding such action. 

     

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

    7.2    Covenant
      Not to Solicit Employees.
      Executive Officer agrees that he shall not at any time while he is employed
      by
      the Company pursuant to this Agreement or any time for a period of one (1)
      year
      following the termination of his employment (such period not to include any
      period of violation of, or period required for litigation to enforce, the
      covenants in this Article VII), directly or indirectly, solicit or induce,
      or
      attempt to solicit or induce, any employee of the Company to leave the Company
      for any reason whatsoever or hire any individual employed by the Company. For
      purposes of this Paragraph 7.2, employee shall mean any individual employed
      by
      the Company within the three (3) month period prior to, and including, the
      last
      day of Executive Officer’s employment with the Company.

     

    7.3    Enforcement.
      Executive Officer recognizes that irreparable injury may result to the Company,
      its business and property, in the event of a breach by him of the restrictions
      imposed by this Article and agrees that if he shall engage in any act in
      violation of the provisions hereof the Company shall be entitled, in addition
      to
      such other remedies and damages as may be available, to an injunction
      prohibiting him from engaging in any such act. Executive Officer further agrees
      that if any court should finally determine that the restriction provided in
      this
      Article is too broad as to area or time covered, or otherwise, that said area
      or
      time covered or other restriction may be limited to whatever extent such court
      deems reasonable and this Agreement may be enforced as so limited. If any court
      should finally determine that conduct of Executive Officer is not in violation
      of Article VII, Company shall promptly reimburse Executive Officer for
      reasonable legal fees and expenses incurred in such litigation.

     

    ARTICLE
      VIII

     

    Miscellaneous

     

    8.1    Notices.
      Any
      notice required or permitted to be given under this Agreement shall be
      sufficient if in writing and personally delivered or sent by registered or
      certified mail, postage prepaid (in which case notice will be deemed to have
      been given on the third day after mailing), or by overnight delivery by a
      reliable overnight courier service (in which case notice will be deemed to
      have
      been given on the day after delivery to such courier service). Notices shall
      be
      directed to Executive Officer at the following
      address:         
    
     illegible     
                  
      and notices to the Company, shall be directed to the Chairman of the Board
      of
      the Company, at 1535 Memphis Junction Road, Bowling Green, Kentucky 42101,
      as
      the case may be, or to such other address as either party hereto shall specify
      by notice given as provided herein.

     

    8.2    Assignment.
      This
      Agreement shall not be assignable by the Company without Executive Officer's
      consent except that if the Company shall merge or consolidate with or into
      or
      transfer substantially all of its assets, to another corporation or other form
      of business organization, this Agreement may be assigned in connection therewith
      and shall continue to bind Executive Officer and the successor of the Company
      resulting from any such merger, consolidation or transfer. This Agreement shall
      not be assignable by Executive Officer, nor may Executive Officer assign, pledge
      or encumber his interest in this Agreement or any part hereof without the prior
      written consent of the Company.

     

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

    8.3    Applicable
      Law.
      This
      Agreement and all questions of its interpretation, enforcement and the rights
      and remedies of the parties hereto shall be governed and construed in accordance
      with the internal laws of the Commonwealth of Kentucky.

     

    8.4    Binding
      Effect.
      This
      Agreement and the terms, covenants and conditions hereof shall be binding upon
      and shall inure to the benefit of the parties hereto and their respective heirs,
      beneficiaries, successors and assigns, specifically including any successor
      to
      the Company, whether arising by merger, consolidation or otherwise.

     

    IN
      WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
      day,
      month and year first above written.

     

     

    
      	 	
              THE
                BANKER’S STORE, INC.

            
	 	 	 
	 	 	 
	 	
              By:

            	 
	 	 	
              Paul
                D. Clark

            
	 	 	 
	 	
              Title:
                

            	
              President
                and Chief Executive Officer

            
	 	 	 
	 	 	 
	 	
              EXECUTIVE
                OFFICER:

            
	 	 	 
	 	 	 
	 	/s/
              Vincent C. Buckman
	 	
              Vincent
                C. Buckman

            
	 	 	 
	 	 	 
	 	
              Address:

            	 
	 	 
	 	illegible
	 	illegible

    

     

     

      8

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