DIRECTV 2002 Annual Report Download - page 35

HUGHES ELECTRONICS CORPORATION
filed suit in Germany against the chip manufacturer seeking in part an injunction against their continued
work on behalf of the DIRECTV Parties. The DIRECTV Parties are cooperating with the chip
manufacturer, who believes the claim is without merit.
***
In connection with the proposed merger between Hughes and EchoStar Communications
Corporation (“EchoStar”), the agreements entered into by the parties provided that, subject to certain
conditions, Hughes could terminate the merger and EchoStar would pay a $600 million termination fee
and purchase all the shares of PanAmSat if the merger did not receive regulatory approval. After
failure of the merger to receive such approval, Hughes and EchoStar agreed to a settlement whereby
the merger agreement was terminated, EchoStar paid Hughes a $600 million termination fee and did
not purchase the PanAmSat shares, and EchoStar and Hughes mutually released all claims against
each other arising from the transaction agreements. On December 18, 2002, a purported class action
(P. Shoenfeld Asset Management LLC, et al. v. Shaw, et al.) was filed in Delaware Chancery Court
against Hughes and the PanAmSat Board of Directors, alleging that this settlement favored Hughes in
violation of alleged fiduciary duties. The case has not been certified as a class action. On January 31,
2003, Hughes and the PanAmSat Board of Directors filed a motion to dismiss the case for plaintiff’s
failure to state a claim upon which relief can be granted. Hughes and PanAmSat believe this action is
without merit and intend to vigorously defend against the allegations raised.
***
(b) Previously reported legal proceedings which have been terminated, either during the year
ended December 31, 2002, or subsequent thereto, but before the filing of this report are summarized
below:
As previously reported, Hughes has had periodic discussions with the United States Department
of State (“State Department”) directed at potential settlement of administrative concerns related to past
export activities with China. On December 26, 2002, the State Department issued a formal charging
letter to Hughes and Boeing Satellite Systems, Inc. (“BSS”). As part of the sale of the satellite systems
manufacturing businesses to Boeing, Hughes retained liability for certain possible fines and penalties
and certain financial consequences of debarment or suspension that could be imposed by the State
Department in connection with this matter. Hughes and BSS have now settled this matter through
execution of a Consent Agreement with the State Department and a separate agreement among
Hughes, BSS and Boeing. The Consent Agreement requires the payment of a fine in the aggregate
amount of $20 million ($5 million of which is to be reimbursed to Hughes by BSS) to be paid in 8 equal
installments over 7 years, which has been provided for in Hughes’ consolidated financial statements as
of December 31, 2002, a commitment by Hughes to spend $2 million over 5 years on internal export
compliance, and various improvements in Hughes’ export program. The State Department has agreed
that there will be no suspension or debarment for either company as part of the settlement. This
resolves all outstanding government action related to the China matters and all claims among Boeing,
BSS and Hughes related to these matters.
***
As previously reported, Hughes Communications Galaxy, Inc. (“HCGI”) filed a lawsuit on
March 22, 1991 against the United States Government based upon the National Aeronautics and
Space Administration’s breach of contract to launch ten satellites on the Space Shuttle. On June 30,
2000, a final judgment was entered in favor of HCGI in the amount of $103 million and in April 2002,
the United States government paid to Hughes the full amount of the judgment. As a result, Hughes
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