SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the fiscal year ended December 31, 1995 Commission file number 1-4929
COMSAT Corporation
(Exact name of registrant as specified in its charter)
District of Columbia 52-0781863
State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6560 Rock Spring Drive, Bethesda, MD 20817
(Address of principal executive offices)
Registrant's telephone number, including area code: (301) 214-3000
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
------------------- ------------------------
Common Stock, without par value New York Stock Exchange
Chicago Stock Exchange
Pacific Stock Exchange
8 1/8% Cumulative Monthly Income New York Stock Exchange
Preferred Securities of
COMSAT Capital I, L.P.
Securities registered pursuant to Section 12(g) of the Act: None.
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Act
of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. [ ]
Aggregate market value of voting stock held by non-affiliates of the
Registrant was $1,113,786,988 based on a closing market price of $23.25 per
share on March 1, 1996, as reported on the composite tape for New York
Stock Exchange listed issues.
47,972,330 shares of common stock, without par value, were outstanding
on February 29, 1996.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents are incorporated by reference:
Part of the Form 10-K into which
Title the document is incorporated
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COMSAT - Annual Meeting of Shareholders
- - Notice and Proxy Statement - 1996 Part III
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PART I
Item 1. Business
GENERAL INFORMATION
Business Segments
COMSAT Corporation (COMSAT, the corporation or Registrant) reported
operating results and financial data for 1995 in four business segments:
International Communications, Mobile Communications, Technology Services
and Entertainment.
In 1995, the International Communications segment consisted of
activities undertaken by the corporation in its COMSAT World Systems (CWS)
and COMSAT International Ventures (CIV) businesses. CWS provides voice,
data, video and audio communications services between the U.S. and other
countries using the satellite system of the International
Telecommunications Satellite Organization (INTELSAT). CIV develops,
acquires and manages telecommunications companies in emerging overseas
markets which, in its view, present the potential for high growth. These
ventures provide a wide array of private-line and public-switched
communications services and equipment installations. The Mobile
Communications segment consists of activities undertaken by the corporation
in its COMSAT Mobile Communications (CMC) business. CMC provides voice,
data, fax, telex and information services for ships, aircraft and land
mobile applications throughout the world primarily using the satellite
system of the International Mobile Satellite Organization (Inmarsat). The
Technology Services segment consists of the financial results of COMSAT
RSI, Inc. (CRSI) and COMSAT Laboratories, which include the design and
manufacture of voice and data communications networks and products, system
integration services, and applied research and technology services for
worldwide users. The Entertainment segment consists of the financial
results of Ascent Entertainment Group, Inc. (Ascent). Ascent, through its
subsidiaries, provides on-demand entertainment programming and information
services primarily to the domestic lodging industry, owns a professional
basketball team and a professional hockey team, owns a film and television
production company, and provides satellite distribution support services to
the National Broadcasting Company (NBC).
The revenues, operating income (loss) and assets of the corporation,
by business segment, for each of the last three years are shown in Note 17
to the financial statements.
The corporation had 2,991 employees on December 31, 1995. None of the
employees is represented by a labor union, except for approximately 37
employees working for CRSI on a 100- meter radio telescope.
Communications Satellite Act of 1962
COMSAT was incorporated in 1963 under District of Columbia law, as
authorized by the Communications Satellite Act of 1962 (the Satellite Act).
Effective June 1, 1993, COMSAT changed its corporate name from "Communications
Satellite Corporation" to "COMSAT Corporation." COMSAT is not an agency or
establishment of the U.S. Government. The U.S.
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Government has not invested funds in COMSAT, guaranteed funds invested in
COMSAT or guaranteed the payment of dividends by COMSAT.
Although COMSAT is a private corporation, the Satellite Act governs
certain aspects of COMSAT's structure, ownership and operations, including
the following: three of COMSAT's 15 directors are appointed by the
President of the United States with the advice and consent of the United
States Senate; COMSAT's issuances of capital stock and borrowings of money
must be authorized by the Federal Communications Commission (FCC); there
are limitations on the classes of persons that may hold shares of COMSAT's
common stock and on the number of shares a person or class of persons may
hold; and, on matters that may affect the national interest and foreign
policy of the United States, COMSAT's representatives to INTELSAT and
Inmarsat receive instructions from the U.S. Government. Congress has
reserved the right to amend the Satellite Act, and amendments, if any,
could materially affect the corporation.
Government Regulation
Under the Satellite Act, the International Maritime Satellite
Telecommunications Act of 1978 (the Inmarsat Act) and the Communications
Act of 1934, as amended (the Communications Act), COMSAT is subject to
regulation by the FCC with respect to its capital and organizational
structure, as well as CWS's and CMC's plant, operations, services and
rates. FCC decisions and policies have had and will continue to have a
significant impact on the corporation. For a discussion of these matters,
see Notes 10 and 11 to the financial statements.
INTERNATIONAL COMMUNICATIONS
COMSAT World Systems
Services. COMSAT World Systems (CWS) provides satellite capacity for
telephone, data, video and audio communications services between the United
States and the rest of the world using the global network of INTELSAT
satellites. CWS's customers include U.S. international communications
common carriers, private network providers, multinational corporations,
U.S. and international broadcasters, news-gathering organizations, digital
audio companies and the U.S. government.
The largest portion of CWS's revenues comes from leasing full-time
voice grade half- circuits (two-way communications links between an earth
station and an INTELSAT satellite) to U.S. international communications
common carriers. The three largest carrier customers are AT&T Corp. (AT&T),
MCI International Inc. (MCI) and Sprint Communications Company (Sprint).
CWS offers significant discounts to customers entering into long-term
commitments for full-time voice-grade half-circuits. More than 95.2% of all
eligible voice-grade half-circuits are now under such commitments.
CWS's voice and data services are primarily digital, which provides
higher quality transmissions than analog services. CWS International
Digital Route (IDR) service, for example, makes it possible for
communications carriers to provide digital public-switched telephone
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network circuits. The carriers apply techniques to such circuits that permit a
single digital circuit to handle multiple telephone calls simultaneously.
For private-line customers, CWS offers an all-digital International
Business Service (IBS), as well as an international VSAT (Very Small
Aperture Terminal) service. IBS offers customers high-speed, digital
communications for voice, data, facsimile and video conferencing using on-
premise earth stations that eliminate the need for costly land-line
connections. At year-end 1995, approximately 44% of CWS IBS traffic was
covered by long-term commitments. CWS's customers have established
international VSAT networks to both Latin America and Europe. Using
on-premise antennas as small as 1.8 meters in combination with the
high-power satellites in the INTELSAT network, corporations doing business
internationally can deliver communications to multiple sites. Used
primarily for data transmissions, VSATs can also accommodate voice and
video communications.
To the growing international broadcasting community, CWS provides both
digital and analog transmission services on a long-term, short-term or
occasional as-needed basis. With the launch of the INTELSAT K satellite and
the INTELSAT VII and VIIA satellites (see "Item 2. Properties -- INTELSAT
Satellites"), CWS has expanded the availability of high-power, flexible
capacity for broadcasters and satellite news gatherers. In particular, CWS
introduced a flexible digital television service and a digital audio
service to attract new customers using digital compression in the broadcast
industry to satellite broadcasting.
To maintain the quality of the INTELSAT network, CWS provides
tracking, telemetry, control and monitoring services to INTELSAT and
engages in a program of research and development to ensure that the
satellite system accommodates the latest communications technologies,
including both broadband and integrated services digital networks (ISDN).
INTELSAT. INTELSAT is a 137-nation organization headquartered in
Washington, D.C. It operates under three agreements: (1) an
intergovernmental agreement; (2) a headquarters agreement with the U.S.
Government; and (3) an operating agreement signed by each nation's
government or designated telecommunications entity (a signatory). COMSAT is
the U.S. signatory. It represents the United States in INTELSAT, subject to
instructions from the Department of State (in concert with the Department
of Commerce and the FCC) on matters that may affect the national interest
and foreign policy of the United States.
Each signatory has rights and obligations in INTELSAT analogous to
those of a partner. Each owns an investment share, makes proportionate
contributions to INTELSAT's capital costs, and receives proportionate
distributions of INTELSAT's net revenues after deductions for operating
expenses. The investment shares are readjusted as of March 1 of each year
to approximate the Signatories' respective portions of the total use of the
INTELSAT space segment for the previous six months. COMSAT's investment
share, the largest in INTELSAT, was 19.1% as of December 31, 1995 and 20.1%
as of December 31, 1994.
Signatories also pay INTELSAT for their use of the satellite system.
While INTELSAT has targeted a pretax cumulative rate of return of 20% on
signatory's capital used by another signatory or from non-owners who use
the satellite system, COMSAT expects to receive an actual pretax cumulative
rate of return of between 16% to 18% on its capital investment after
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appropriate accounting adjustments. CWS realized revenue from its INTELSAT
ownership, net of use charges paid, of $17.5 million in 1995. This net revenue
is reflected in CWS's revenue requirements for FCC ratemaking purposes.
At December 31, 1995, total INTELSAT Owners' Equity was approximately
$1.87 billion, and INTELSAT's outstanding contractual commitments totaled
approximately $1.32 billion.
In 1995, as had been its practice in each of the preceding six years,
CWS renewed its commitment with INTELSAT to place substantially all of
CWS's FM, IDR and IBS traffic on the INTELSAT system over the next 15
years. CWS has short-term commitments with INTELSAT for the remaining
portion of its FM, IDR and IBS traffic. CWS also enters into commitments
with INTELSAT for video traffic, which vary in length depending on the
length of commitments from CWS's customers.
Under the INTELSAT agreements, the member nations that authorize
international satellite systems separate from INTELSAT are required to
ensure that such systems are technically compatible with the INTELSAT
system and will not cause significant economic harm to the INTELSAT system.
During 1990, INTELSAT initiated certain reforms to its process for
coordinating with these separate satellite systems, which reforms were
superseded in November 1992 and again in October 1994. Under the
streamlined procedures approved in 1992, carriage by separate systems of
any amount of traffic or services not interconnected to the public-switched
network and of up to 1,250 circuits of public-switched traffic per
satellite is presumed not to cause significant economic harm to the
INTELSAT system. The 1,250 circuit threshold was raised in 1994 to 8,000
circuits of public-switched traffic per satellite. In addition, in 1994
INTELSAT approved further liberalization of coordination procedures with a
view toward eliminating the economic harm test in the 1997-98 time frame.
For a discussion of separate satellite systems competition to CWS, see
Management's Discussion and Analysis of Financial Condition and Results of
Operations and Note 11 to the financial statements.
The corporation continues to promote efforts for the privatization and
restructuring of INTELSAT, based upon management's belief that if INTELSAT
is converted into a commercial enterprise responsible to shareholders and
without the governance constraints and cost structure associated with
international organizations, INTELSAT will be able to become more
competitive in the dynamic international telecommunications markets of
tomorrow. In 1994, the United States Government endorsed such restructuring
of INTELSAT. Intergovernmental proceedings under the procedures of INTELSAT
are now underway to debate privatization and other alternative structures
favored by other member nations of the organization.
The corporation announced in February 1996 that it had reached
agreement with the U.S. Government concerning a joint proposal that would
transfer approximately 50% of INTELSAT's assets, including satellites, to a
new commercial affiliate. For a discussion of the proposal, which must be
approved by two-thirds of the 137 governments that are members of INTELSAT
before it may be implemented, see "Management's Discussion and Analysis of
Financial Condition and Results of Operation --Outlook."
Competition. CWS competes with operators of high capacity fiber-optic
and other submarine cables in service along major traffic routes worldwide.
CWS's major carrier customers
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(including its three largest customers, AT&T, MCI and Sprint) are co-owners of
submarine cables.
Under the Satellite Act and FCC orders, COMSAT is the only U.S. entity
that may provide international space segment services to customers using
INTELSAT satellites. In 1985 the FCC authorized the establishment of
separate U.S. international communications satellite systems that would
compete with INTELSAT, subject to certain restrictions that are being
phased out. Three separate U.S. based international communications
satellite systems (Orion, PanAmSat and Columbia), INTERSPUTNIK, a
Russian-based international system, and a number of regional and foreign
satellite systems around the world currently compete with CWS. For further
discussion of the competition with CWS by the U.S. separate satellite
systems, see Management's Discussion and Analysis of Financial Condition
and Results of Operations and Note 11 to the financial statements.
Tariffs and Revenues. Under the Satellite Act and the Communications
Act, COMSAT is subject to regulation by the FCC with respect to CWS's
communications services and the rates charged for those services. CWS
provides its services on a non-discriminatory basis to all customers,
either under tariffs filed with the FCC or on the basis of inter-carrier
contracts.
CWS filed a petition for rulemaking with the FCC seeking
incentive-based regulation of its multi-year, switched-voice services for
carriers in January 1992. In the absence of FCC action on the petition, CWS
filed a Petition for Partial Relief in July 1994. This petition requested
expedited FCC action to approve streamlined tariff procedures for all of
CWS's INTELSAT satellite services. The petition was also accompanied by an
extensive economic study which concluded that CWS faces substantial
effective competition in all geographic and service market segments from
existing and planned fiber optic cables, separate satellite facilities, and
regional and foreign satellite systems, and that its access to the INTELSAT
system does not confer upon CWS any market power in the provision of
transoceanic telecommunications facilities. The FCC has not acted on either
petition.
CWS entered into inter-carrier contracts with each of its three
largest customers, AT&T, MCI and Sprint in 1993 and 1994. Pursuant to those
contracts, CWS reduced its rates for 10- and 15-year IDR and TDMA digital
"base" circuits activated prior to January 1, 1992, and also reduced its
rates beginning in 1996 for 7-year and longer IDR and TDMA circuits
activated after January 1, 1992. Additional rate reductions will occur on
January 1, 1997. In addition, the contracts provided AT&T and Sprint with
leases and with options to lease capacity from CWS in 36-MHz increments
under specified rates, terms and conditions. During 1995, the contracts
with AT&T, MCI and Sprint were each amended to provide the customers with
additional capacity in 18- and 36-MHz increments.
Approximately 30% of the corporation's consolidated revenues in 1995
were derived from CWS's services (30% in 1994 and 32% in 1993).
Approximately 8% of the corporation's consolidated revenues in 1995 were
derived from CWS's services to AT&T. Also in 1995, CWS's three largest
customers, AT&T, MCI and Sprint, were the source of approximately 27%, 19%
and 8%, respectively, of CWS's revenues.
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COMSAT International Ventures
COMSAT International Ventures (CIV) invests in and manages a portfolio
of companies that provide a variety of telecommunications services
throughout the world, including private-line and public-switched services.
CIV is also actively engaged in the development of prospective
international telecommunications opportunities. CIV's existing and
prospective ventures are typically located in markets that the corporation
expects to be the world's emerging, high growth telecommunications markets.
As of December 31, 1995, CIV managed a total of 13 ventures operating
in Latin America, Asia and Europe. CIV's ventures take various forms,
including wholly-owned subsidiaries, joint ventures and minority equity
investments. Customers of these ventures include U.S. and foreign
multinational corporations, and domestic (non-U.S.) companies operating in
their own countries.
CIV continued to develop new investment opportunities around the world
in 1995. In particular, CIV expanded its operations in Latin America
through the formation of a new subsidiary in Colombia to pursue
satellite-based communications services, and its Venezuelan venture
initiated VSAT services. CIV also increased its equity ownership in, and
assumed operating control of, BelCom, Inc., a company providing
telecommunications services in the Russia Federation and other countries of
the Commonwealth of Independent States (the CIS). CIV extended its
operations in Asia and the Middle East through the initiation of VSAT
operations in India and Turkey, respectively. CIV expects to continue to
expand its existing businesses and to develop investment opportunities in
other markets of the world.
CIV operates in numerous and diverse markets. Consequently, the level
of competition in the countries where CIV's ventures conduct business
varies considerably. In some countries there is full competition, and in
others competition is limited by law. The competitive conditions faced by
each venture are the result of differing regulatory policies, as well as
economic and market conditions, in the particular country in which a
venture operates. Because CIV's ventures operate in some of the world's
most dynamic markets, the competitive environment faced by these ventures
is subject to constant change.
MOBILE COMMUNICATIONS
COMSAT Mobile Communications
COMSAT Mobile Communications (CMC) provides satellite
telecommunications services for maritime, aeronautical and land mobile
applications, primarily using Inmarsat satellites and COMSAT's land earth
stations in Connecticut and California, which serve the Atlantic and
Pacific Ocean Regions, respectively, and in Malaysia and Turkey, which
serve the Indian Ocean Region. These stations enable CMC to offer global
coverage for its services. There are currently more than 56,000 mobile
terminals operating in the Inmarsat system. As described below, CMC
provides a full range of voice, facsimile, data and telex services, as well
as certain value-added services.
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In October 1995, the corporation notified the FCC of its intent to
reorganize CMC as a line of business within COMSAT International
Communications (CIC), a division of the corporation that includes CWS and
CIV. The FCC approved this reorganization in January 1996. In connection
with the consolidation of the management and administration of these
businesses into one business unit, various administrative, marketing and
other positions were eliminated (see Note 16 to the financial statements).
Maritime Services. CMC provides satellite services for communications
to and from ships and other vessels. Customers for these services include
transport ship operators, cruise ships and their passengers, fishing vessel
operators, oil and mining interests, pleasure boat operators, U.S. Navy
ships and foreign telecommunications administrations.
In addition to standard telephony services, CMC's services include
group call messaging to a fleet of ships, electronic mail services, a
direct-dial telephone service for passengers and crew on board ships, a
news summary distribution service, access to data bases through personal
computers, and other office communications services for facsimile
transmissions, worldwide teleconferencing and current financial news
reports.
In 1992, CMC initiated two digital services, Inmarsat-B and
Inmarsat-M, in the Atlantic and Pacific Ocean Regions. These services
provide more efficient use of the Inmarsat satellite capacity, help to
significantly lower the cost of using satellite communications, and expand
the potential customer base for maritime and land mobile services. CMC also
introduced a multi-channel version of Inmarsat-M service that allows cruise
ships and other high-volume users to increase their channel capacity and
offer lower rates to their customers. In 1994, CMC opened a new land earth
station in Malaysia to provide these new digital services to the Indian
Ocean Region.
Aeronautical Services. CMC provides satellite telecommunications
services for aeronautical applications, including airline operational and
administrative communications, passenger telephone service and,
prospectively, air traffic control. Customers of CMC for international
aeronautical services include airline service providers, commercial
airlines, government aircraft and owners and operators of corporate
aircraft.
By an FCC Report and Order issued in 1989, COMSAT was authorized (1)
to be the sole U.S. provider of Inmarsat space segment capacity for
aeronautical services; (2) to provide ground segment aeronautical services
in connection with the Inmarsat space segment on a non-exclusive basis; and
(3) to provide such aeronautical services only to aircraft engaged in
international flights, including international flights over U.S. airspace.
Another entity, the American Mobile Satellite Corporation (AMSC), was
designated as the sole provider of certain domestic aeronautical and land
mobile satellite services. In 1995, CMC applied to the FCC for authority to
offer domestic aeronautical services. CMC's request is pending before the
FCC.
CMC began providing aeronautical services in 1990 with a data service
for cockpit communications on commercial flights under a 10-year agreement
with Aeronautical Radio, Inc., an airline-owned service organization. In
1991, CMC began providing aeronautical voice services in the Atlantic and
Pacific Ocean Regions through its earth stations at Southbury, Connecticut
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and Santa Paula, California. There are currently more than 1,084
aircraft equipped to use the Inmarsat aeronautical system, equally split
between voice and data services.
A service agreement with Kokusai Denshin Denwa Co., Ltd. (KDD), the
Japanese signatory to Inmarsat, provides that CMC may use KDD's ground
earth station serving the Indian Ocean Region to serve CMC's aeronautical
customers, and CMC may serve KDD's customers flying in the Atlantic Ocean
Region. Under the agreement, CMC and KDD provide mutual back-up in the
Pacific Ocean Region for aeronautical customers of both companies.
Service agreements with GTE Airfone, Incorporated, Claircom and
In-Flight Phone, Inc., all of which are providers of air-to-ground
passenger telephone service using terrestrial facilities, enable these
providers to extend their current service to transoceanic flights by
acquiring satellite and ground earth station services from CMC.
COMSAT was selected by United Airlines in 1993 to provide satellite
communications services for passengers (including telephone, fax and data
transmission) on approximately 74 United Airlines aircraft, 57 of which
aircraft to date have been equipped with satellite terminals. COMSAT also
was selected by Air Canada in 1994 to provide passenger voice service and
now provides such service on 20 aircraft.
Land Mobile Services. CMC provides telecommunications services for
international land mobile applications, using mobile and portable terminals
located outside of the United States. Customers for these services include
broadcasters, foreign telecommunications authorities and U.S. and foreign
corporations and government agencies.
CMC's land mobile services are currently available using transportable
versions of Inmarsat's Inmarsat-A and Inmarsat-B mobile earth stations
(telephone, facsimile, data, and telex), a briefcase-size Inmarsat-M
terminal and a smaller data-only Inmarsat-C terminal through CMC's
C-Link(sm) service. C-Link(sm) service is a low-cost text messaging service
that permits smaller vessels and land mobile units to use the global
satellite network. The briefcase-size Inmarsat-M terminals provide a more
portable and less expensive telephone service for international travelers,
the news media, government officials and others who travel to remote parts
of the world where reliable communications services are often not
available.
In June 1995, CMC filed an application, which is being opposed by
certain of the corporation's competitors, for authority to provide its
existing Inmarsat communications services, including service to new
notebook computer-size Planet 1(TM) terminals, over the Inmarsat-3
satellites. The FCC has not yet ruled on the application. If authorized,
CMC expects to begin providing service through Planet 1(TM) terminals in
mid-1996. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Outlook."
COMSAT is not regularly authorized to provide U.S. domestic land
mobile services. However, it is providing U.S. domestic service to certain
individual end users under special temporary authorities from the FCC. In
1995, COMSAT applied to the FCC for regular authority to offer land mobile
services domestically.
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Inmarsat. Inmarsat is a 79-nation organization headquartered in
London, England. It operates under three agreements: (1) an
intergovernmental convention; (2) a headquarters agreement with the U.K.
Government; and (3) an operating agreement signed by each nation's
government or designated telecommunications entity (signatory). COMSAT is
the U.S. signatory. It represents the United States in Inmarsat, subject to
instructions from the Department of State (in concert with the Department
of Commerce and the FCC) on matters that may affect the national interest
and foreign policy of the United States.
Each signatory has rights and obligations in Inmarsat analogous to
those of a partner. Each owns an investment share, makes proportionate
contributions to Inmarsat's capital costs, and receives proportionate
distributions of Inmarsat's space segment charges after deductions for
operating expenses. The investment shares are readjusted as of February 1
of each year to approximate the Signatories' respective portions of the
total utilization of the Inmarsat space segment for the previous year.
COMSAT's investment share, the largest in Inmarsat, was 24.0% as of
December 31, 1995 and 22.4% as of December 31, 1994.
At December 31, 1995, total Inmarsat Owners' Equity was approximately
$729 million, including undistributed compensation for use of capital
totaling approximately $162 million. Inmarsat's outstanding contractual
capital commitments totaled approximately $452 million, and it had
operating lease commitments of $12 million.
The corporation continues to promote efforts for the privatization of
Inmarsat, based upon management's belief that if Inmarsat is converted into
a commercial enterprise responsible to shareholders and without the
governance and cost structure associated with international treaty
organizations, it will be able to be more competitive in the dynamic
international telecommunications markets of tomorrow. Intergovernmental
proceedings under the procedures of Inmarsat are now underway to debate
privatization and other possible alternative structures favored by other
member nations of the organization.
ICO. As part of the corporation's international telecommunications
strategy, CMC has responsibility for the corporation's commitment to invest
approximately $150 million in I-CO Global Communications (Holdings) Limited
(ICO), a company formed to provide hand-held satellite communications
services outside of the Inmarsat organization to allow a more commercial
focus than the current Inmarsat system. The current major investors in ICO
include Inmarsat, Inmarsat signatories and other strategic investors, such
as Hughes Communications, Inc. (Hughes), which are expected to compete with
the corporation as service providers in the U.S. and other markets. For a
discussion of the proposed ICO satellite system and the corporation's
investment in ICO, see "Management's Discussion and Analysis of Financial
Condition Results of Operations -- Outlook" and Note 10 to the financial
statements.
On May 1, 1995, COMSAT filed an application with the FCC for authority
to participate in Inmarsat's procurement of space segment from ICO for
specialized (non-handheld) communications services. In that application,
COMSAT also sought an FCC ruling that ICO had been structured in compliance
with the requirements for COMSAT's participation in ICO set out in a prior
FCC ruling. The application is being opposed by certain of the
corporation's competitors. The FCC has not acted on that application.
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Competition. Under the Inmarsat Act, COMSAT is the designated U.S.
signatory to the Inmarsat Operating Agreement, and is the sole U.S.
operating entity and investor in the Inmarsat system. CMC competes for
maritime, land mobile and aeronautical communications business with other
Inmarsat Signatories operating land earth stations and with IDB Mobile
Communications, Inc. (IDB), another U.S land earth station operator. IDB,
which is half-owned by the Canadian signatory to Inmarsat, provides
maritime, land mobile and aeronautical services through its own U.S. land
earth stations, using Inmarsat satellite capacity obtained from CMC, as
well as through certain foreign earth stations. In addition, CMC competes
with AMSC, which launched its own satellite in 1995 to offer U.S. domestic
and international mobile satellite services. Prior to the launch, AMSC
offered service on an interim basis pursuant to an agreement with CMC. CMC
also competes for maritime communications business with domestic and
international operators of cellular radio services, high frequency radio
services, mobile satellites, C-band and Ku-band satellites, and the
FCC-licensed low-earth-orbit, or "Big Leo," satellite systems of Iridium,
GlobalStar and Odyssey. Operators of C-band satellites recently have been
successful in capturing a significant portion of the maritime
communications business with the U.S. Navy and cruise ships. These
competitive forces continue to exert downward pressure on CMC's pricing for
services provided through the Inmarsat system.
FCC decisions also may significantly affect the competition for
products and services offered by CMC. In November 1993, the FCC authorized
AT&T to provide shore-to-ship Inmarsat service under an agreement with CMC.
In December 1993, AT&T filed a new application to provide "branded
end-to-end" Standard-A mobile satellite service in the ship-to- shore
direction, which COMSAT opposed. In early 1996, AT&T was granted FCC
authorization to offer such service.
In December 1994, IDB filed two applications seeking authority to
provide two new digital services, Inmarsat-M and Inmarsat-B, to maritime
and land mobile users through foreign earth stations in the shore-to-ship
direction in the Atlantic and Pacific Ocean regions. In that proceeding,
IDB contended that the Inmarsat Act allows U.S. carriers to use Inmarsat
earth stations and space segment obtained from foreign Inmarsat Signatories
for U.S.-originating traffic, a position COMSAT opposes. IDB withdrew its
applications in July 1995. In August 1995, however, Cruisephone filed
applications, which are being opposed by COMSAT, that raise similar issues.
The FCC has not yet ruled on the Cruisephone applications.
In March 1993, the FCC granted COMSAT a waiver that would allow COMSAT
to provide equipment, software and value-added services to customers
directly through CMC, rather than through a separate subsidiary, thereby
avoiding substantial duplication of personnel and other costs, subject to
COMSAT's establishing certain nonstructural safeguards. To satisfy the
FCC's conditions, COMSAT filed a proposed cost allocation manual and a plan
for implementing certain nonaccounting safeguards requested by the FCC. The
FCC approved COMSAT's cost allocation manual in July 1995, but has not yet
acted on the second compliance filing, which must be approved by the FCC
before the waiver becomes operative.
In July 1995, COMSAT petitioned the FCC for authorization to provide
the same kinds of value-added services to its aeronautical and land mobile
customers. The FCC has not yet ruled on this petition, which is being
contested by certain of the corporation's competitors.
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Revenues. Approximately 21% of the corporation's consolidated revenues
in 1995 were derived from CMC (23% in 1994, 25% in 1993). No single
customer of CMC provided more than 10% of the corporation's consolidated
revenues in 1995.
TECHNOLOGY SERVICES
COMSAT RSI
COMSAT RSI, Inc. (CRSI) has three operating groups: Advanced Systems,
Communication Systems and Wireless Networks. These groups include 11
business units, 10 of which are vertically integrated to serve global
telecommunications markets and one of which serves global machine tool
markets. CRSI designs, manufactures and integrates a range of systems,
subsystems and components for advanced microwave communication, satellite
communication, radar, intelligent transportation, air traffic control,
distance learning, intelligence and scientific applications. CRSI also
supplies cellular switch and a variety of antenna products for rural
telephony, personal mobile and last-mile wireless markets. CRSI's customers
include the U.S. Government, U.S. Government prime contractors, foreign
governments, domestic and foreign telecommunication service providers, and
a wide variety of other commercial customers.
CRSI's manufactured products include parabolic antennas from .6 meters
to 32 meters in diameter, line-of-sight microwave antennas, cellular and
personal communication system (PCS) antennas, tri-band satellite frequency
converters, microwave components, Ultra-Small Aperature Terminal (USAT) and
VSAT equipment, cellular switch and base station equipment, servo control
systems, antenna monitor and control systems, antenna positioning systems,
tactical military antennas, air traffic control antennas, radar antennas,
radio telescope antennas, optical measuring devices and tactical masts.
CRSI's services include installation of large-scale wireless and wired
(including fiber optic cable) communications networks, gateway earth
station operations and maintenance, satellite construction monitoring,
engineering development, system design, satellite tracking, telemetry and
command (TT&C) services and radio frequency engineering and system analysis
for cellular, PCS, and 2-GHz microwave relocation applications.
CRSI also includes the activities of COMSAT General Corporation
(COMSAT General), an FCC-licensed satellite communications carrier and a
wholly-owned subsidiary of the corporation. COMSAT General owns 86.3% of
the MARISAT Joint Venture, which operates three satellites launched in 1976
- -- the capacity of which is leased to Inmarsat, the U.S. Navy and the U.K.
Navy. COMSAT General also owns the SBS-2 satellite launched in 1981, which
is primarily leased to NBC, and the COMSTAR D-4 satellite launched in 1981,
which is used by CMC and is scheduled to be decommissioned in 1996.
In 1995, CRSI made three strategic acquisitions to improve its
capabilities in VSAT, cellular and PCS markets. In January 1995, CRSI
acquired Intelesys, Inc., a manufacturer of USAT terminals which offer
two-way Ku- and C-band satellite communications for low to
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medium rate interactive data transmission in remote-to-hub applications ranging
from transaction processing and paging networks to environmental and utility
monitoring.
In July 1995, CRSI increased its investment to a majority position
(53.3%) in Plexsys International, Inc., a manufacturer of low-price
cellular equipment. Plexsys offers a modular product line of switching and
base station equipment designed for small metropolitan, rural and emerging
telecommunications markets throughout the world. Presently, Plexsys has
cellular systems installed and operating in over 25 countries.
In September 1995, CRSI acquired the assets of JEFA International,
Inc., a systems engineering and field services company specializing in
cellular and microwave communications systems. The JEFA acquisition is
intended to position CRSI to compete for the emerging PCS and 2-GHz
microwave relocation markets as well as the intelligent transportation
system (ITS) market. The ITS market involves the application of CRSI's
telecommunications equipment and systems expertise to highway traffic
management systems.
In September 1995, CRSI also established a new product office,
Baseband Technologies, to design and manufacture wideband multiplex and
switching equipment for military and commercial applications. The initial
product being developed will provide 1300 Mbps of bandwidth, programmable
multiplexers interoperable with open military and commercial systems and a
transparent interface between tactical, strategic and commercial systems.
COMSAT Labs has developed ATM Link Accelerator technology that will be
integrated into the new product to provide fiber-like quality over
satellite.
CRSI won contracts with a total value of $254 million in 1995. Major
contracts ongoing or commenced during 1995 included: a contract for one
base year plus nine one-year options with the U.S. Department of Defense to
provide satellite communications and the associated bandwidth management
and control centers under its Commercial Satellite Communications
Initiative (CSCI); a contract with Lockheed Martin Corporation to provide
gateway earth stations and a network control center in Indonesia for the
Asia Cellular Satellite System; contracts with the Texas Department of
Transportation for intelligent transportation systems projects in Houston,
Dallas and San Antonio; a contract with the Cote d'Ivoire (Ivory Coast)
government to provide a national television and radio distribution network;
a contract with ITT to provide shipboard navigational antennas for Taiwan;
a contract with the Commonwealth of Virginia to provide antenna equipment
and satellite communications for a higher-education distance learning
network; a contract with the National Science Foundation to install the
world's largest steerable radio telescope in Green Bank, West Virginia;
contracts for LMST trailers and tri-band converters for Harris Corporation;
a contract with the Federal Aviation Administration to provide tactical air
navigation antennas; contracts to provide PCS antennas to service providers
in the United Kingdom and France; a contract with Cornell University to
upgrade the world's largest fixed position radio telescope in Arecibo,
Puerto Rico; contracts for cellular switch equipment in Brazil, China,
Costa Rica and Russia; a contract with Unisys to provide antenna
positioners for the next generation weather radar (NEXRAD) program;
contracts with the U.S. Navy for restoration and repair of SPS-49 air
search radar pedestals; contracts with Rockwell and Raytheon to provide
antennas and pedestals for the U.S. Government's MILSTAR communication
system; a contract to provide microwave antenna systems in the Philippines;
and a contract to provide transportable earth stations for the China
Ministry of Posts and Telecommunications.
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CRSI's business is such that its total customer base is quite large;
however, in any one 12-month period relatively few customers can represent
a large portion of sales. In particular, CRSI sells to the U.S. Government
as a prime contractor and as a subcontractor. In 1995 and 1994, sales to
the U.S. Government accounted for 45% and 44% of CRSI's sales,
respectively. If the U.S. Department of Defense is considered separately,
it accounted for 24% of 1995 and 1994 sales. CRSI sales to other COMSAT
divisions totaled $10 million in 1995 and $8.6 million in 1994. Exports
represented 31% and 32% of CRSI's sales in 1995 and 1994, respectively.
At December 31, 1995, CRSI's backlog of orders believed to be firm
totaled approximately $212 million, as compared to approximately $152
million at December 31, 1994. Of the December 31, 1995 backlog,
approximately $140 million is expected to be recognized as sales in 1996
and approximately $57 million is unfunded. Included in this order backlog
is approximately $114 million of U.S. Government contracts. As is
customary, these contracts include provisions for cancellation at the
convenience of the U.S. Government or the prime contractor. If such a
provision were exercised, CRSI would have a claim for reimbursement of
costs incurred and a reasonable allowance for profit thereon.
CRSI purchases parts and materials from a number of reliable
commercial suppliers and does not depend on any single source for a
significant portion of its supplies. It has encountered delays and
adjustments from time to time, but operations have not been materially
affected.
CRSI competes with major companies around the world in several of the
telecommunications markets for its products and services. Major competitors
in the communications systems markets include Scientific Atlanta, Inc.,
California Microwave, Inc., Miteq, Inc., LNR Communications, Inc., SSE
Telecom, Inc., NEC, Harris Corporation and Mitsubishi. In the wireless
networks market, competitors include GM Hughes Electronics Corporation,
Andrew Corporation, Kathrein, Cellwave, Allgon, Gabriel Electronics, Inc.,
Ericsson Radio Systems AB, Northern Telecom Limited, Stanilite, Celcore,
Alcatel NV, STM Wireless, Inc., The Allen Group, Inc., Prodelin and Channel
Master. The Advanced Systems markets competition includes Datron Systems,
Inc., TIW Systems, Inc., Electrospace Systems, Inc., Signal Processors,
Ltd., Marconi Radar Systems Limited, Cosser Electronics Limited (Raytheon),
Tech- Sym Corporation, and Vertex Communications Corporation. In the
intelligent transportation systems market, the competition includes MICA
Corporation and Florida Traffic Control Devices, Inc. Certain companies
like Hughes, Scientific Atlanta, California Microwave, Harris and Andrew
Corporation compete in most of CRSI's markets. Many of these companies are
considerably larger and have greater financial resources than the
corporation. In all market areas, COMSAT RSI competes on the basis of
price, performance, on-time delivery, reliability and customer support.
CRSI incurred research and development expenses of $6.2 million in
1995, an increase of $2.7 million over 1994. The increase is largely
attributable to the development of new USAT/VSAT equipment, cellular switch
and antenna control products.
CRSI is the surviving corporation to the merger of a wholly-owned
subsidiary of the corporation in June 1994 with Radiation Systems, Inc.
(RSi). For a further discussion of the merger, see Note 6 to the financial
statements.
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COMSAT Laboratories
COMSAT Laboratories conducts research and development on a broad range
of telecommunications devices, subsystems, transmission systems,
technologies and techniques in support of CIC and other COMSAT businesses,
as well as for outside customers. Customers include U.S. and foreign
government agencies, commercial entities, INTELSAT and Inmarsat. COMSAT
Laboratories also licenses new technology it develops to other companies
for commercialization.
Major new COMSAT Laboratories contracts awarded or begun in 1995
include: a contract with India's Center for Development of Telematics to
design, manufacture and deliver S-band mobile satellite communications
equipment; contracts with Inmarsat for independent implementation of a
Mini-M voice codec and for development of an aeronautical network
management system; a contract with the U.S. Government to develop a
multi-carrier demultiplex/demodulator; a contract with Telespazio, SpA of
Italy, to upgrade the ITALSAT flight simulator; and contracts with a number
of mobile equipment suppliers to perform vocoder subjective listening
tests. In 1995, COMSAT Laboratories also began development of a Bandwidth
Management Center to support the CSCI program awarded to CRSI by the U.S.
Government. All together, COMSAT Laboratories won a total of 92 contracts
in 1995, with a total value of $13.5 million.
On-going contracts being implemented in 1995 include: a contract with
AT&T to manufacture second generation TDMA terminals; contracts with
INTELSAT to design and implement STRIP7, and to develop a software system
for generating TDMA burst time plans; a contract with NASA to provide
operation and maintenance support for the ACTS (Advanced Communications
Technology Satellite) program; as well as a large variety of R&D contracts
for INTELSAT, Inmarsat, and other governmental and private industry
customers.
Support of COMSAT Laboratories from outside sources was 44% of total
funding in 1995. The corporation's total expenditures for research and
development were $19 million in 1995, $16 million in 1994, and $15 million
in 1993. The majority of this research and development was performed by
COMSAT Laboratories.
ENTERTAINMENT
During 1995, the corporation incorporated and transferred all of its
entertainment assets to COMSAT Entertainment Group, Inc., which was
subsequently renamed Ascent Entertainment Group, Inc. (Ascent). An initial
public offering of Ascent's common stock was completed in December 1995
(see Note 5 to the financial statements). Ascent's common stock is traded
on the Nasdaq National Market under the symbol "GOAL." As a result of the
offering, the corporation now owns 80.67% of Ascent's common stock. In
connection with the offering, the corporation entered into a Corporate
Agreement, an Intercompany Services Agreement and a Tax- Sharing Agreement
with Ascent, which govern certain relationships and arrangements between
the corporation and Ascent, including, among others, corporate governance,
registration rights, indemnification, various corporate services,
allocation of tax liabilities and intercompany payments.
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Ascent is a diversified entertainment and media company which operates
entertainment production and distribution businesses characterized by
well-known franchises. Ascent is the leading provider of on-demand in-room
entertainment services to the domestic lodging industry through its
approximately 85%-owned subsidiary, On Command Video Corporation (OCV), and
the primary provider of satellite distribution support services to the NBC
television network through its wholly-owned subsidiary, Ascent Network
Services, Inc. (ANS), formerly COMSAT Video Enterprises, Inc. Ascent also
owns two professional sports franchises, the National Basketball
Association (NBA) Denver Nuggets (the Nuggets) and the National Hockey
League (NHL) Colorado Avalanche (the Avalanche), and a motion picture and
television production company, Beacon Communications Corp. (Beacon).
OCV is the leading provider (by number of hotel rooms served) of
on-demand in-room entertainment services for the United States lodging
industry. OCV has experienced rapid growth in the past three years,
increasing its base of installed rooms from approximately 37,000 rooms in
approximately 90 hotels at the end of 1992 to approximately 361,000 rooms
in approximately 1,200 hotels at December 31, 1995. In addition, at
December 31, 1995, OCV had approximately 113,000 additional rooms at 540
hotels under contract awaiting installation of OCV equipment. At December
31, 1995, approximately 97% of OCV's installed on-demand rooms were located
in the United States, with the balance located in Canada, the Caribbean and
Europe. In addition to installing OCV systems in hotels served by OCV, OCV
sells its systems to certain other providers of in-room entertainment,
including MagiNet Corporation (formerly Pacific Pay Video Limited), which
is licensed to use OCV's system to provide on-demand in-room entertainment
in the Asia Pacific region and, at December 31, 1995, provided service to
approximately 30,000 rooms.
ANS is a satellite distribution support service that operates a
nationwide installation, field service and maintenance support business
that principally services the NBC affiliate distribution network and, to a
lesser degree, OCV's in-room entertainment business. Pursuant to a service
contract which runs until 1999, ANS distributes national television
programming of the NBC television network via satellite transponders leased
by NBC to NBC affiliate stations nationwide.
Historically, ANS also included the Satellite Cinema Division, which
provided scheduled satellite-delivered pay-per-view movies to the lodging
industry. In the third quarter of 1995, ANS contributed substantially all
of its Satellite Cinema assets to OCV. As of December 31, 1995, OCV had
converted, and is continuing to convert, select Satellite Cinema properties
to OCV systems and had sold or discontinued essentially all of Satellite
Cinema's remaining operations.
The Nuggets are one of 29 franchises in the NBA. Ascent initially
invested in the team in 1989, and assumed operating control of the Nuggets
at the end of the 1991-1992 NBA season. In July 1995, Ascent acquired one
of the 26 franchises in the NHL from the Quebec Nordiques. Ascent moved the
franchise to Denver to share Denver's McNichols Arena with the Nuggets,
where the team has commenced play under the Colorado Avalanche name.
Ascent markets, produces and sells advertising for local-market cable,
over-the-air television and radio broadcasts of the Nuggets and the
Avalanche games. Ascent produces the Nuggets and the Avalanche games
through Colorado Studios, a television production company
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that owns and operates mobile television production facilities and in
which Ascent owns a one-third interest. To capitalize on its sports
franchises, Ascent is proposing to build a new arena and entertainment
complex as an integral part of its operating and growth strategy for the
Nuggets and the Avalanche (see "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Outlook").
Beacon, a wholly owned subsidiary of Ascent acquired in 1994, produces
feature length motion pictures for theater and television distribution. In
April 1993, Beacon and Sony Pictures Entertainment, Inc. (Sony) entered
into a motion picture development, production and domestic distribution
agreement (the Sony Agreement), pursuant to which Sony has agreed to
co-finance and distribute in the United States and Canada, through Sony's
affiliates, including Columbia Pictures and Tri-Star Pictures, up to 15
motion pictures produced by Beacon through April 1998. To date, two motion
pictures have been produced and distributed pursuant to the Sony Agreement.
Generally, Beacon intends to produce motion pictures with production
budgets in the range of approximately $5 million to $25 million, although
Beacon will also consider certain higher budget projects, such as a current
motion picture in development that would have a production budget of
approximately $70 million. Beacon plans to release most of its motion
pictures on a nationwide basis, with advertising and distribution budgets
which require substantial marketing expenditures to create a campaign and
purchase advertising on television, newspapers, radio and other media.
Beacon expects that the Sony Agreement will help offset such costs and
provide more cost effective use of Beacon's resources than if Beacon
distributed its motion pictures alone.
In addition, Ascent owns a 26% limited partnership interest in New
Elitch Gardens, Ltd. (Elitch Gardens), which it purchased at a cost of $7.9
million. Elitch Gardens operates an amusement park in Denver, Colorado.
Ascent also owns small equity interests in MagiNet Corporation, which
purchases and uses OCV's on-demand systems in the Asia-Pacific region as
discussed above, and Metromedia International Group, a publicly-traded
company pursuing telecommunications ventures in eastern Europe and engaged
in motion picture production.
Ascent's entertainment properties compete with a broad spectrum of
other entertainment alternatives. In providing entertainment services to
the lodging industry, OCV operates in a highly competitive and rapidly
changing environment in which the principal methods of competition are
service, product features and price. Several competing companies,
especially Spectravision, Inc. ("Spectravision") and Lodgenet Entertainment
Corporation, provide hotels with in-room video entertainment.
Spectravision, the largest provider (based on the aggregate number of
on-demand and scheduled rooms served) in the in-room pay-per-view industry,
recently filed for protection under Chapter 11 of the United States
Bankruptcy Code. OCV believes that there may be significant opportunity to
expand its installed hotel customer base, particularly in light of the
Spectravision bankruptcy filing. With respect to hotel properties already
receiving in-room entertainment services, however, the current provider may
have certain informational and installation cost advantages as compared to
outside competitors. As a result, OCV anticipates substantial competition
in obtaining new contracts with major hotel chains.
The Denver Nuggets and Colorado Avalanche compete not only with other
major league sports, which are quite competitive among the leagues (i.e.,
the NBA, the NHL, the National Football League, and Major League Baseball),
but also with minor league sports, college athletics
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and other sports entertainment. Beacon has numerous competitors in the motion
picture and television industry, many of whom have significantly greater
financial and other resources than the corporation for the development and
production of motion pictures and television programming.
INVESTMENTS
The corporation's investments are discussed at Note 7 to the financial
statements.
Item 2. Properties
COMSAT Properties
At year end 1995, the headquarters of the corporation and the
headquarters of the International Communications, Mobile Communications and
Entertainment segments were located in a building in Bethesda, Maryland,
which the corporation leases from a limited partnership in which it holds a
50% interest, primarily as a limited partner. The managing general partner
also owns a 50% interest in the partnership. An affiliate of the managing
general partner owns the building site and has leased this site to the
partnership. The corporation has entered into a 15- year lease with the
partnership for the new building (see Note 9 to the financial statements).
In 1995, the corporation relocated the headquarters for the Mobile
Communications segment from Clarksburg, Maryland to Bethesda, Maryland. In
1995, Ascent's headquarters were located in Bethesda, Maryland in space
leased from the corporation. Ascent relocated its headquarters to Denver,
Colorado in 1996.
The corporation owns buildings and land at Clarksburg, Maryland that
serve as the headquarters of COMSAT Laboratories, as well as offices for
certain operations of CRSI and CMC. The corporation also owns two
manufacturing facilities in Dulles, Virginia, one of which serves as the
headquarters of CRSI, and land located nearby that is used as an antenna
test range by CRSI. Further, the corporation owns or leases 14 other
properties in the United States and leases two properties in England and a
sales office in the United Arab Emirates for the operations of CRSI's
business units.
COMSAT General owns 86.3% of the MARISAT Joint Venture, which operates
three satellites launched in 1976 -- the capacity of which is leased to
Inmarsat, the U.S. Navy and the U.K. Navy. COMSAT General also owns the
SBS-2 satellite launched in 1981, which is primarily leased to NBC, and the
COMSTAR D-4 satellite launched in 1981, which is used by CMC and is
scheduled to be decommissioned in 1996.
The corporation leases earth stations in Turkey and Malaysia, and owns
earth stations at Santa Paula, California and Southbury, Connecticut that
are used by CMC to provide mobile communications services. The California
and Connecticut earth stations are also used by CRSI to provide
communications services and TT&C services. The corporation owns earth
stations at Clarksburg, Maryland and Paumalu, Hawaii that are used by CWS
to provide TT&C services to INTELSAT.
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The corporation's properties are suitable and adequate for the
corporation's business operations.
INTELSAT Satellites
The corporation's property accounts include CWS's pro-rata share of
INTELSAT satellites. The INTELSAT satellites currently used and under
construction are described below.
The INTELSAT V series consists of six satellites constructed by Space
Systems/Loral (formerly Ford Aerospace and Communications Company) having
an average capacity of at least 15,000 voice-grade bearer circuits or 51
television channels. The INTELSAT V-A series consists of five satellites
constructed by Space Systems/Loral having an average capacity of at least
16,000 bearer circuits or 57 television channels.
The INTELSAT VI series consists of five satellites, constructed by
Hughes Aircraft Company, a subsidiary of General Motors Corporation, having
an average capacity of at least 24,000 bearer circuits or 87 television
channels.
The INTELSAT-K satellite, constructed by General Electric Technical
Services Company, Inc., a subsidiary of General Electric Company, which was
launched in 1992, has an average capacity of 7,000 bearer circuits or 32
television channels.
The INTELSAT VII series consists of six satellites constructed or
being constructed by Space Systems/Loral. These satellites have an average
capacity of at least 17,050 bearer circuits or 62 television channels. To
date, five INTELSAT VII satellites have been launched, in October 1993,
June 1994, October 1994, January 1995 and March 1995.
The INTELSAT VII-A series, also being constructed by Space
Systems/Loral, consists of three satellites having an average capacity of
at least 19,250 bearer circuits or 70 television channels. The first
INTELSAT VII-A satellite was successfully launched in May 1995; the launch
of the second VII-A, in February 1996, was a failure (see Note 4 to the
financial statements); and the third VII-A was successfully launched in
March 1996.
The INTELSAT VIII series consists of four satellites that are being
constructed by Lockheed Martin Astro Space, a division of the Lockheed
Martin Corporation. These satellites will have an average capacity of
21,000 bearer circuits or 76 television channels. The first INTELSAT VIII
satellite is expected to be launched in 1996.
COMSAT has applied to the FCC for authorization to participate in the
procurement of two INTELSAT VIII-A spacecraft. These satellites, which are
being constructed by Lockheed Martin Astro Space, will have an average
capacity of at least 11,600 bearer circuits, or 38 television channels, and
are expected to be launched in 1997.
The corporation has purchased insurance to cover the launch phase of
the INTELSAT VII, VII-A, VIII and VIII-A satellites. Total loss in-orbit
insurance for the first five INTELSAT VII satellites has been purchased for
360 days with a one satellite loss deductible. Total loss in-orbit
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insurance for the remaining INTELSAT VII, VII-A, VIII and VIII-A satellites
has been purchased for 365 days with a one satellite loss deductible.
Inmarsat Satellites
The corporation's property accounts include CMC's pro-rata share of
Inmarsat satellites. The Inmarsat satellites currently used and under
construction are described below.
The first-generation Inmarsat satellite system, which is now used
primarily for backup capacity, leases, and specialized services, consists
of satellite capacity leased from INTELSAT, the European Space Agency and
the MARISAT Joint Venture through year-end 1996 with various early
termination and extension options.
The second-generation Inmarsat satellite system, known as the
Inmarsat-2 series, consists of four satellites constructed by an
international consortium led by British Aerospace Dynamics Corporation.
The third-generation Inmarsat satellite system, known as the
Inmarsat-3 series, consists of five satellites which are being constructed
by Lockheed Martin Astro Space. These satellites will use spot-beam
technology, which allows reuse of the scarce frequency resources allocated
for mobile satellite communications. The Inmarsat-3s will have more than 20
times the capacity of the largest satellites in the first-generation
Inmarsat system and will be about eight times more powerful than the
Inmarsat-2 series. Inmarsat has purchased an insurance policy for launch
failures with a one-loss deductible and 365 day in-orbit coverage. In the
event of a first loss, Inmarsat will use the insurance proceeds to fully
fund the insurance of the remaining launches and 365 day coverage. The
first Inmarsat-3 satellite is scheduled to be launched in April 1996. A
financing arrangement with respect to the Inmarsat-2 and -3 satellites is
discussed in Note 8 to the financial statements.
In October 1995, COMSAT filed applications for authority to: (i)
participate in the launch of the Inmarsat-3 (F-1) satellite, which is
currently scheduled for April 1996; (ii) modify its U.S. Inmarsat earth
stations to operate via the Inmarsat-3 satellites; and (iii) provide
service using those satellites. The FCC has approved the launch application
but has not acted on the other applications (see Note 11 to the financial
statements).
Entertainment Properties
Ascent leased its principal offices from COMSAT in 1995 under a
short-term lease. Ascent relocated its principal offices to Denver,
Colorado in 1996. Ascent leases facilities in Denver, Colorado and
Bethesda, Maryland, facilities for OCV in Santa Clara, California,
facilities for Beacon in Los Angeles, California, and facilities for ANS in
Palm Bay, Florida.
The Nuggets and the Avalanche currently play their home games in
Denver's McNichols Arena, an indoor sports arena located in downtown Denver
that has a seating capacity of approximately 17,000 for basketball games
and approximately 16,000 for hockey games. McNichols Arena is owned by the
City and County of Denver (the "City") and is made available to the Nuggets
under a lease agreement which extends until the conclusion of the 2007-2008
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season. McNichols Arena is made available to the Avalanche under a
lease agreement which extends until the conclusion of the 1996-1997 season,
subject to renewals for two one-year terms. Pursuant to an amendment to the
Nuggets lease agreement, the term of the Nuggets' lease will decrease by
one year for each of the first two years that the Avalanche play in
McNichols Arena.
The Nuggets' and the Avalanche's leases with the City require the
teams to pay rent to the City for use of McNichols Arena equal to a
percentage of the teams' net income from ticket sales, subject to certain
minimum annual payments. The City is generally responsible for maintaining
McNichols Arena and providing administrative personnel such as ushers,
electricians, janitors, technicians and engineers. The Nuggets and the
Avalanche are responsible for providing ticket takers, police and security
personnel, announcers, timers, scorers and statisticians. The Nuggets and
the Avalanche also share in revenue from food and beverage concessions and
parking rights at McNichols Arena.
Ascent is currently developing and reviewing several options for a
privately financed arena for the Nuggets, the Avalanche and other
entertainment events, including, among other things, concerts, college
sporting events, ice and dance performances, comedy shows and circuses. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Outlook." Under current plans, the proposed arena would seat
approximately 19,000 for Nuggets games, approximately 18,000 for Avalanche
games and approximately 20,000 for concerts and other events and would have
approximately 84 luxury suites and 1,500 luxury seats. Ascent anticipates
that financing for the arena may be raised through a partnership with other
regional investors and will likely include corporate sponsorship. The
Company estimates that the cost of a new arena would be approximately $150
million.
Item 3. Legal Proceedings
Neither COMSAT nor any of its subsidiaries is a party to, and none of
their property is the subject of, material pending legal proceedings, and
no such proceedings are known to be contemplated by governmental
authorities, except for the matters described in Notes 10 and 11 to the
financial statements and as discussed below.
In 1995, the corporation entered into a five-year agreement with News
Corporation to provide satellite services beginning in 1996. In March 1996,
News Corporation rescinded this agreement. The corporation has commenced a
lawsuit against News Corporation and other parties to recover damages
arising out of News Corporation's breach of obligation to COMSAT.
COMSAT and certain of its subsidiaries are parties to other pending
legal proceedings arising in the ordinary course of business. While the
outcome of such proceedings cannot be predicted with certainty, the
corporation believes that the resolution of such proceedings will not have
a material effect on the financial condition of the corporation.
Item 4. Submission of Matters to a Vote of Security Holders
None.
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Executive Officers of The Registrant
Age as of
Name Officer March 31, 1996
---- ------- --------------
Bruce L. Crockett....President and Chief Executive Officer 52
Betty C. Alewine.....President, COMSAT International 47
Communications
Steven F. Bell.......Vice President, Human Resources and 46
Organization Development
James M. Carroll.....Vice President, Government Relations 33
Janet L. Dewar.......Vice President, Corporate Affairs 46
John V. Evans........President, COMSAT Laboratories 62
Allen E. Flower......Vice President, Chief Financial Officer 52
and Acting Treasurer
Alan G. Korobov......Controller 47
Charles Lyons........President, Ascent Entertainment Group, Inc. 41
Ronald J. Mario......Senior Vice President, Business Development 52
Richard E. Thomas... President, COMSAT RSI, Inc. 69
Warren Y. Zeger..... Vice President, General Counsel and 49
Secretary
Normally, the officers are elected annually by the Board of Directors,
at its first meeting following the Annual Meeting of Shareholders, to serve
until their successors are elected and qualified.
There is no family relationship between an officer and any other
officer or director and no arrangement or understanding between an officer
and any other person pursuant to which he or she was selected as an
officer.
The following is a brief account of each executive officer's
experience for the past five years:
Mr. Crockett has been President and Chief Executive Officer and a
director of COMSAT since February 1992. He was President and Chief
Operating Officer of the corporation from April 1991 to February 1992. He
has been an employee of the corporation since 1980 and has held various
operational and financial positions. He also is a director of Ascent, ACE
Limited and Augat, Inc. and a director or trustee of funds of AIM
Management Group, Inc. He also is a member of the Board of Trustees of the
University of Rochester.
Ms. Alewine has been President, COMSAT International Communications
since January 1995, and was President, CWS, from May 1991 to May 1994. She
was Vice President and General Manager, INTELSAT Satellite Services from
January 1989 to May 1991.
Mr. Bell has been Vice President, Human Resources and Organization
Development since October 1993. Prior to joining the corporation, he was
with American Express Worldwide Technologies, serving as Vice President of
Human Resources from September 1992 to September
22
<PAGE>
1993; and with US Sprint, serving as Regional Director of Human Resources from
October 1987 to August 1992.
Mr. Carroll has been Vice President, Government Relations since
November 1995. He served as Director of Government Relations from 1993 to
1995. He joined COMSAT in 1990 as manager of government relations after
serving as legislative assistant to U.S. Senator Warren B. Rudman.
Ms. Dewar has been Vice President, Corporate Affairs since November
1995. She joined the corporation in 1991 in marketing communications at CWS
and became Director, Marketing Communications in 1992. She previously
worked at Mobil Oil Corporation in international public affairs and
strategic planning.
Dr. Evans has been President, COMSAT Laboratories since September
1991. He was Vice President and Director, COMSAT Laboratories from October
1983 to September 1991.
Mr. Flower has been Vice President, Chief Financial Officer and Acting
Treasurer since November 1995. He was Controller and Acting Chief Financial
Officer from April 1995 through November 1995, Controller from June 1992 to
May 1995 and Vice President, Finance and Administration, CVE from May 1990
to June 1992.
Mr. Korobov has been Controller since November 1995. He was Vice
President, Finance for CMC from January 1993 to September 1995; Vice
President, Finance for CVE from June 1992 to January 1993; and the
Controller for CVE from March 1992 to June 1992. He was the Financial
Controller for Inmarsat, based in London, from April 1990 to March 1992.
Mr. Lyons has been President, Chief Executive Officer and a director
of Ascent since October 1995, and prior to that was President and a
director of Ascent's predecessors since February 1992. He was Vice
President and General Manager of COMSAT Video Enterprises, Inc. (CVE) from
October 1990 to February 1992.
Mr. Mario has been Senior Vice President, Business Development since
July 1995. He was President, CMC from May 1991 to July 1995 and Vice
President and General Manager, CMC from April 1988 to May 1991.
Mr. Thomas has been President, COMSAT RSI, Inc. since June 1994. Prior
to the merger of Radiation Systems, Inc. (RSi), a communications and radar
systems manufacturing company, with COMSAT, he was with RSi since 1965,
serving as President, Chairman of the Board, and Chief Executive Officer
from June 1978 to June 1994.
Mr. Zeger has been Vice President, General Counsel and Secretary since
August 1994. He was Vice President and General Counsel from March 1992 to
August 1994. He was Acting General Counsel from September 1991 to March
1992 and Associate General Counsel of the corporation and Vice President,
Law, World Systems Division from February 1988 to September 1991.
23
<PAGE>
PART II
Item 5. Market for the Registrant's Common Stock and Related Stockholder
Matters.
As of December 31, 1995, there were 47,754,557 shares of common stock,
without par value, of the corporation (COMSAT Common Stock) outstanding:
47,733,733 were Series I shares, held by approximately 37,000 holders of
record other than communications common carriers; and 20,824 were Series II
shares, held by 35 common carriers.
The principal market for COMSAT Common Stock is the New York Stock
Exchange, where it is traded under the symbol "CQ." COMSAT Common Stock is
also listed on the Chicago Stock Exchange and the Pacific Stock Exchange in
the United States and on the Basel, Geneva and Zurich Stock Exchanges in
Switzerland.
The corporation's Transfer Agent, Registrar and Dividend Disbursing
Agent is The Bank of New York, 101 Barclay Street, New York, New York.
The high and low sales prices of, and the dividends declared on, each
share of COMSAT Common Stock for the last two years are as follows:
COMSAT
Common Stock
------------------------------------------
Calendar Year 1995 High Low Dividend
- ------------------ ---- --- --------
First Quarter 21 5/8 17 5/8 .195
Second Quarter 21 18 1/4 .195
Third Quarter 24 5/8 19 1/2 .195
Fourth Quarter 22 5/8 18 1/4 .195
Calendar Year 1994
First Quarter 30 24 7/8 .185
Second Quarter 26 1/2 20 1/2 .185
Third Quarter 26 1/2 23 .195
Fourth Quarter 25 5/8 17 1/2 .195
24
<PAGE>
Item 6: Selected Financial Data for the Registrant for Each of the Last
Five Fiscal Years.
<TABLE>
<CAPTION>
FIVE YEAR FINANCIAL SUMMARY
<S> <C> <C> <C> <C> <C>
In thousands, except per
share information 1995 1994 1993 1992 1991
- ---------------------------------------------------------------------------------------------------------------------
Summary of Operations
Revenues $ 852,057 $ 826,899 $ 754,285 $ 688,093 $ 651,211
Operating expenses 756,422 676,648 602,705 583,111 508,499
Operating income 95,635 150,251 151,580 104,982 142,712
Income from continuing operations
before cumulative effect of
changes in accounting principles 37,817 77,642 82,469 53,292 81,014
Cumulative effect of changes in
accounting principles - - 1,925 - (26,607)
Net income 37,817 77,642 84,394 53,292 54,407
Dividends paid 36,874 33,547 30,410 27,837 25,867
Primary earnings per share 0.79 1.64 1.79 1.16 1.22
Dividends paid per share 0.78 0.76 0.74 0.70 0.67
Balance Sheet Data
Total assets 2,314,266 1,975,992 1,773,513 1,654,985 1,469,516
Long-term debt 664,601 515,542 410,550 496,804 391,308
Stockholders' equity 839,433 826,916 763,440 702,292 657,783
</TABLE>
Notes
- -----
As discussed in Note 6 to the financial statements, the corporation
consummated its merger with Radiation Systems, Inc. (RSi) in June 1994. The
merger has been treated as a pooling of interests for accounting purposes.
Accordingly, information for all periods prior to the merger has been
restated to include RSi.
25
<PAGE>
Item 7: Management's Discussion and Analysis of Financial Condition and
Results of Operations.
ANALYSIS OF OPERATIONS
Consolidated Operations
Consolidated revenues for 1995 were a record $852 million, an increase
of $25 million over the previous year. Revenues increased in the
International Communications and Entertainment segments, while declining in
the Mobile Communications and Technology Services segments. The largest
improvement was in the Entertainment segment, where On Command Video
continued to have substantial growth in its hotel room base. Within
International Communications, International Ventures revenues almost
doubled, in large part because of significant growth in its Latin American
ventures.
Consolidated revenues in 1994 increased $73 million over 1993 with
revenue increases in all business segments. The largest improvements were
in the Entertainment and International Communications segments. Substantial
growth in system installations at On Command Video and improvements from
the Denver Nuggets were responsible for the favorable increase in
Entertainment segment revenues. Revenues increased more than threefold in
International Ventures over 1993.
Operating income in 1995 was $96 million, a decline of $55 million
from 1994. During 1995 the corporation took actions to restructure elements
of all of its business segments, and recorded a $20 million restructuring
provision (see Note 16 to the financial statements). Exclusive of the 1995
restructuring charge and the Radiation Systems, Inc. (RSi) merger and
integration costs recorded in 1994, operating income was $116 million, or
$42 million below 1994. All business segments reported lower operating
income in 1995, as compared to 1994, except Mobile Communications, where
operating income was unchanged from the prior year.
Operating income for 1994 was $1 million lower than in 1993. Improved
performances from the Entertainment and Technology Services segments were
offset by non-recurring merger and integration costs of $7 million
associated with the acquisition of RSi in June 1994. The merger was
accounted for as a pooling of interests. Accordingly, the 1993 financial
statements were restated to include RSi (see Note 6 to the financial
statements).
Other income (expense) decreased in 1995 by $5 million from 1994
levels. The corporation, through a subsidiary, issued $200 million of
Monthly Income Preferred Securities (MIPS) in July 1995 (see Note 9 to the
financial statements). Dividends on these securities of $7 million were the
primary cause of the increased expense in 1995. Other income (expense)
declined by $7 million in 1994 from 1993 because of proceeds of
corporate-owned life insurance policies received in 1993 which did not
recur in 1994 and because of lower equity profits associated with
unconsolidated businesses.
Interest costs increased by $11 million in 1995 as compared to 1994
and by $3 million for 1994 over 1993 as a result of increases in both
interest rates and borrowings. Interest capitalized, primarily on satellite
construction projects, declined in 1995 by $3 million compared to 1994 due
to the completion of several INTELSAT satellites, and increased slightly
from 1993 to 1994 as levels of property under construction grew during that
period.
The corporation adopted Statement of Financial Accounting Standards
(SFAS) No. 109 in 1993. This standard requires that deferred tax assets and
liabilities be adjusted to reflect current tax rates. The cumulative effect
of adopting this standard was to increase income by $2
26
<PAGE>
million in 1993. In addition, the corporation recorded a charge to income
tax expense of $3 million in 1993 under the new standard to reflect the
impact on the prior year's deferred tax accounts of the change in the
Federal income tax rate to 35% from 34%.
The initial public offering of common stock of Ascent Entertainment
Group, Inc. (Ascent) was completed in December 1995. As a result of the
offering, the corporation now owns 80.67% of Ascent's common stock. The
corporation recognized a $19 million pre-tax gain as a result of the public
offering (see Note 5 to the financial statements).
Net income was $38 million in 1995, a reduction of $40 million from
the prior year. Earnings per share for 1995 were $0.79, down $0.85 from
1994.
Income for 1995 was $50 million, or $1.04 per share excluding the gain
on the initial public offering of Ascent, the provision for restructuring
and certain non-recurring items. These non-recurring items include one-time
charges primarily related to the restructuring.
For 1994, net income was $78 million or $7 million lower than in 1993.
Earnings per share were $1.64, or $0.15 lower than in the previous year.
Merger and integration costs reduced income in 1994 by $6 million, net of
taxes, or $0.13 per share. Excluding these costs, income was $84 million or
$1.77 per share in 1994, versus $82 million or $1.75 per share in 1993
before the cumulative effect of the accounting change.
Segment Operating Results
<TABLE>
<CAPTION>
<S> <C> <C> <C>
In millions 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------
Revenues
International Communications $ 292.4 $ 271.1 $ 249.9
Mobile Communications 180.4 193.5 190.0
Technology Services 205.9 219.1 202.2
Entertainment 191.5 156.9 121.8
Eliminations and other (18.1) (13.7) (9.6)
-------------- -------------- --------------
Total revenues $ 852.1 $ 826.9 $ 754.3
============== ============== ==============
Operating income (loss)
International Communications $ 87.9 $ 96.6 $ 97.3
Mobile Communications 53.5 53.5 53.8
Technology Services 14.0 21.4 18.3
Entertainment (15.4) 13.6 9.6
-------------- -------------- --------------
Total segment operating income 140.0 185.1 179.0
Merger and integration costs - (7.4) -
Provision for restructuring (20.1) - -
Other corporate (24.3) (27.4) (27.4)
-------------- -------------- --------------
Total operating income $ 95.6 $ 150.3 $ 151.6
============== ============== ==============
</TABLE>
International Communications
International Communications includes COMSAT International Ventures
(CIV) and the FCC-regulated and non-regulated businesses of COMSAT World
Systems (CWS). CWS provides international voice, data, video and audio
communications as the statutory-designated U.S. participant in the global
INTELSAT satellite system. CIV invests in and operates telecommunications
businesses internationally.
CWS's 1995 revenues increased 1% from 1994. Revenues from expanded
service offerings such as VSAT leases, digital audio and wide-band mobile
increased by 55%. These increases were partially offset by reduced revenues
from voice circuits, which declined 6% due to rate reductions and the
anticipated conversion of analog circuits to more efficient digital
27
<PAGE>
service. The rate reductions relate to agreements with AT&T, MCI and
Sprint, CWS's three largest international carrier customers. CWS's share of
revenues from the INTELSAT system also declined with the 1% reduction in
the corporation's ownership share in 1995.
CWS's revenues in 1994 increased 3% over 1993, driven by a 29%
increase in video services and a doubling of expanded service offerings
such as VSAT leases, digital audio and wide-band mobile. These increases
were partly offset by reduced revenues from voice circuits which declined
7% for the reasons indicated above.
CWS's 1995 operating income increased 8% from 1994. The increase was
due to decreased operating expenses within the division and CWS's lower
share of INTELSAT's costs. These savings were partially offset by increased
depreciation expense from the launch of three INTELSAT VII satellites in
1995.
CWS's 1994 operating income declined 3% from 1993. The decrease was
the result of increased operating expenses, primarily depreciation, which
increased as a result of the launch of three new satellites that went into
service in late 1993 and 1994.
CIV has 13 business ventures providing telecommunication services in
Latin America, Asia and Europe. CIV owns a controlling interest in 10 of
these ventures. In 1995, revenues grew to $38 million due to growth in
Latin American ventures and the consolidation of the results of Belcom,
CIV's Russian venture, for a full year. In 1994, CIV revenues grew more
than threefold over 1993 to $19 million.
In 1995, CIV experienced an operating loss of $21 million, primarily
due to operating problems in Belcom. Despite these operational problems,
CIV's total backlog of revenue under contract grew from roughly $50 million
at the end of 1994 to over $100 million by the end of 1995. In 1994, CIV
incurred an operating loss of $5 million, which was $1 million better than
1993.
Mobile Communications
This segment consists of COMSAT Mobile Communications (CMC), which
provides maritime, aeronautical and land mobile communications services as
the statutory-designated U.S. participant in the Inmarsat satellite system.
Revenues in 1995 declined 7% from the prior year due to rate
reductions and the migration of traffic to less expensive, more efficient
digital services such as Standard-M. However, CMC's telephone traffic
minutes increased 2% in 1995 as the lower-cost digital Standard-M service
dominated new terminal commissionings during the year. The number of
Standard-M digital terminals in the marketplace doubled, totaling 7,900 by
the end of the year.
Telephone revenues declined 11% from 1994 due to lower average rates.
Telex revenues also declined 11% from 1994. However, this decline was
partially offset by revenue growth of almost 40% in Standard-C services,
which operate in smaller and less expensive digital terminals.
Revenues from service contracts with IDB Mobile Communications, Inc.
(IDB) and American Mobile Satellite Corporation (AMSC) increased 3% over
1994 due principally to additional capacity requirements. A contract under
which CMC provided Inmarsat with satellite control services terminated at
the end of 1994.
28
<PAGE>
CMC's operating income for 1995 was unchanged from 1994. Lower
revenues were offset by a reduction in operating expenses and an increase
in CMC's share of Inmarsat's operating results. The decline in operating
expenses was due in part to lower CMC operating costs and the reversal of
Inmarsat-related costs which were over-accrued in 1994.
Revenue increases of 2% in 1994 over 1993 occurred across a broad
range of services. Operating expenses increased by 1%, largely attributable
to higher depreciation on earth station upgrades. Operating income was flat
in 1994 compared to 1993.
Technology Services
The Technology Services segment includes COMSAT Laboratories and
COMSAT RSI (CRSI), which designs, manufactures and integrates a range of
turnkey systems, subsystems and components for advanced microwave,
cellular, personal communication services and networks (PCS/PCN), wireless
local loop communication networks, satellite communication, radar and other
services. In addition, this segment provides operations and maintenance,
satellite construction monitoring and applied research services.
Revenues for this segment declined in 1995 by $13 million from the
prior year. The decrease was caused by the completion in 1994 of several
large international and U.S. Government contracts which were not replaced
in 1995. Offsetting the decline, in part, were increases in revenues from
satellite services for classified government customers, earth station
component sales and the acquisitions of three companies - Intelesys,
Plexsys and Jefa - that are involved in the manufacture, integration and
installation of various wireless components and systems. In addition, the
revenue decline was in part the result of a $5 million insurance settlement
recorded in 1994 at CRSI, as well as downsizing of one of the Laboratories'
divisions.
Revenues in 1994 increased by $17 million over 1993. Improvements came
primarily from continued work on the VSAT rural telephony program in
Guatemala and the television and radio distribution network in Cote
d'Ivoire (Ivory Coast), as well as from new projects to install cellular
antennas in Argentina and to provide digital upgrades to telephony
equipment at a number of earth stations internationally. Revenues were
lower at COMSAT Laboratories primarily due to the sale of a microwave
electronics group in 1993.
Operating income in 1995 declined $7 million from 1994. The decline
was primarily due to the lower revenues as well as new product development
costs associated with VSAT and cellular products. Operating profit in 1994
improved slightly as compared to the prior year, as a result of higher
revenues and insurance income, offset in part by the costs associated with
the cancellation of a large infrastructure project in Kuwait.
Entertainment
The Entertainment segment is comprised of Ascent Entertainment Group,
Inc. (Ascent). As discussed in Note 5 to the financial statements, the
initial public offering of Ascent was completed in December 1995 and COMSAT
Corporation now owns 80.67% of Ascent.
Ascent, through On Command Video Corporation (OCV) and Ascent Network
Services, Inc. (ANS), formerly COMSAT Video Enterprises, Inc., provides
video distribution and on- demand video entertainment services to the
hospitality industry and video distribution services for the National
Broadcasting Company (NBC). This segment also includes the Denver Nuggets
National Basketball Association (NBA) franchise, the Colorado Avalanche
National Hockey League (NHL) franchise and Beacon Communications Corp.
(Beacon), a producer of theatrical films and television programming.
29
<PAGE>
In the third quarter of 1995, ANS contributed substantially all of its
pay-per-view video systems in hotels and related assets to OCV for OCV
common stock. This transaction raised Ascent's ownership of OCV to
approximately 85%. OCV now owns and manages all of Ascent's hotel video
systems. Certain Satellite Cinema hotel properties are being converted to
services provided by OCV and Ascent has terminated or sold Satellite Cinema
operations at the remaining hotel properties.
In July 1995, Ascent acquired the Quebec Nordiques NHL franchise and
related player contracts. After the acquisition, Ascent relocated the team
to Denver, Colorado for the 1995- 1996 season, and the franchise is now
known as the Colorado Avalanche (see Note 7 to the financial statements).
In December 1994, ANS purchased substantially all of the assets of Beacon
(see Note 7 to the financial statements).
Ascent's revenues increased in 1995 by $35 million over the previous
year. This increase in revenues was the result of a significant growth in
the OCV installed room base, the inclusion of the Colorado Avalanche
revenues for the last half of 1995 and Beacon revenues for the full year,
and NBA expansion revenues. Offsetting these increases were lower revenues
from the NBC contract, which entered an option phase in 1995.
Revenues increased in 1994 from 1993 by $35 million. The increase was
caused by OCV room growth in newly contracted hotels, the conversion of
existing ANS rooms to the OCV system, and improved results by the Denver
Nuggets following their playoff participation and higher paid attendance
and sponsor revenues.
Ascent incurred a $15 million operating loss in 1995 as compared to
operating income of $14 million in 1994. The decline was a result of lower
revenues from the NBC contract, losses from the Colorado Avalanche for the
last half of 1995 and full-year costs for Beacon. Additionally, the 1995
results include one-time charges recorded in connection with the Ascent
public offering. These losses were partially offset by receipt of NBA
expansion fees and improvement in OCV operations.
Operating income in 1994 grew 42% over 1993. Gains in operating
results from the Denver Nuggets led to the improved performance. Results
from video programming and distribution were unchanged from 1993.
Outlook
Many of the statements that follow are forward-looking and relate to
anticipated future operating results. Statements which look forward in time
are based on management's current expectations and assumptions, which may
be affected by subsequent developments and business conditions, and
necessarily involve risks and uncertainties. Therefore, there can be no
assurance that actual future results will not differ materially from
anticipated results. Although the corporation has attempted to identify
some of the important factors that may cause actual results to differ
materially from those anticipated, those factors should not be viewed as
the only factors which may affect future operating results.
The corporation continues to promote efforts to restructure INTELSAT
and Inmarsat as privatized commercial enterprises to enhance prospects that
services offered on the INTELSAT and Inmarsat systems remain competitive in
tomorrow's marketplace. In the corporation's view, the rapid evolution of
telecommunications technology and increased competition have made
privatization necessary so that these treaty-based organizations can become
more cost-effective and responsive to customer needs. The corporation, as a
minority shareholder and the U.S. signatory to both organizations, lacks
the ability to independently effect a restructuring of either
30
<PAGE>
organization. The success of the corporation's privatization efforts will
depend on the corporation's ability to achieve a consensus among other
signatories and participating member governments.
The corporation announced in February 1996 that it had reached
agreement with the U.S. Government concerning a joint proposal that would
transfer approximately 50% of INTELSAT's assets, including satellites, to a
new commercial affiliate. The existing intergovernmental organization would
continue to provide basic public network services. The proposal also
contemplates that a majority of the affiliate's stock would be sold to
external investors. The corporation's objective is to build a consensus on
the proposal that can be considered for adoption at the next INTELSAT
Assembly of Parties to be held in 1997. A vote of two-thirds of the 137
governments that are members of the INTELSAT consortium is necessary for
approval.
In early 1996, the corporation retained an investment banker to assess
strategic alternatives for enhancing shareholder value and to analyze the
capital needs of its businesses for continued expansion. As part of that
effort, the corporation is examining a number of options with a view toward
enhancing the ability of its various businesses to continue to accelerate
their strategic investment programs, while permitting COMSAT as a parent
organization to reduce debt, strengthen its balance sheet and improve
liquidity.
Interest costs are expected to significantly increase in 1996 due to
increased borrowings primarily for capital expenditures, including
investments in ICO (see Note 10 to the financial statements). The
corporation anticipates that the amount of interest capitalized will
decrease significantly as several INTELSAT and Inmarsat satellites are
expected to be placed in service during 1996.
COMSAT World Systems and INTELSAT are faced with increased competition
for the provision of satellite services from new and existing satellites
launched by separate systems such as Pan American Satellite (PanAmSat) and
Orion Network Systems, Inc. In late 1993, the Federal Communications
Commission (FCC) substantially eliminated prior restrictions on access of
separate system satellite operators to the public switched telephone
network. This action, along with the FCC's stated goal of eliminating all
restrictions on separate satellite systems by 1997, will increase
competition.
Over the next few years, continuing increases in satellite competition
and the expected doubling of fiber optic cable capacity available in the
marketplace will put increased pressure on service revenues and operating
margins and could result in loss of market share. In addition, under CWS's
long-term service contracts, carrier customers may cancel certain circuits
upon paying a termination charge.
In 1995, the corporation signed a five-year agreement with News
Corporation to provide satellite services beginning in 1996. In March 1996,
News Corporation rescinded this agreement. The corporation has commenced a
lawsuit against News Corporation and other parties to recover damages
arising out of News Corporation's breach of obligation to COMSAT.
The corporation believes that CWS continues to be well-positioned with
long-term agreements with major international carriers to provide
cost-competitive services for bulk usage beyond the year 2000. In addition,
CWS expects continued growth in several emerging markets, particularly in
international television distribution, where new opportunities are being
created in the marketplace. Opportunities are also expanding for
international VSAT services.
31
<PAGE>
In addition to the seven satellites currently on order, INTELSAT has
signed a lease for capacity aboard the INSAT-2E satellite in the
Asia-Pacific region, planned for launch in 1997. INTELSAT launched three
satellites in 1995 and plans five launches for 1996. In February 1996,
there was a launch failure of the INTELSAT 708 satellite aboard a China
Long March vehicle. The corporation's investment in the satellite,
including capitalized interest, was fully insured against the loss. Receipt
of the insurance proceeds will reduce the corporation's rate base for
jurisdictional rate-making purposes, resulting in a potential reduction of
earnings capacity. The new INTELSAT VII and INTELSAT VIII series satellites
will offer higher-power capabilities.
COMSAT International Ventures plans to continue to make further
investments in its current international businesses and may form new
ventures in selected markets. CIV plans to target those markets where the
telecommunications environment is liberalizing and where CIV's core
strengths can be used to capture an early position in rapidly growing
markets.
In 1995, CIV experienced difficulties in the operations of two
ventures, Belcom (Russia) and Philcom (Philippines). CIV expects improved
performance in both of these ventures during 1996. It is expected that
profits from existing ventures in 1996 will likely be offset by CIV's
expansion in newer ventures, which typically yield losses in their
formative stages. Those losses, coupled with CIV's overhead and management
costs, are expected to result in continued losses for CIV as a whole.
COMSAT Mobile Communications plans to continue to expand its service
offerings and value-added products to meet anticipated growth in customers'
needs. The increasing number of digital terminals with improved operating
efficiency and reduced service charges are expected to continue to provide
traffic growth in land mobile, small commercial and pleasure boat, and
business traveler markets. CMC expects to continue to face increasing
competition from existing Inmarsat service providers, other wireless
communications services including C- Band, and other potential market
entrants such as AT&T, which recently obtained FCC approval to resell
ship-to-shore service. As a result, expected increases in revenues due to
traffic growth would be partially offset by a reduction in service charges
caused by competitive pressures and lower-priced digital versus analog
telephone service charges.
The service contract with AMSC expired at the end of 1995 as AMSC
began using its own satellite. The IDB contract was extended during 1995 to
provide service through September 1999.
CMC plans to build on its established position of leadership in mobile
satellite communications as it evolves toward handheld satellite service.
The first generation of personal satellite communications will be a
six-pound, laptop computer-sized satellite terminal named Planet 1TM. CMC
announced this product in January 1996 with expected service commencement
in 1996 utilizing the Inmarsat-3 satellites which are scheduled to begin
launching in April 1996. This product is expected to address the demand for
global personal communications ahead of the availability of handheld
satellite systems.
A major part of the corporation's international telecommunications
strategy is the investment of approximately $150 million in ICO (see Note
10 to the financial statements). This newly created company was formed
outside the Inmarsat organization to allow a more commercial and
market-driven focus on the development of handheld satellite service. ICO's
intermediate circular orbit satellite system will have 12 satellites and is
scheduled to become operational by the year 2000. ICO users are expected to
communicate worldwide using handheld units similar to cellular phones. The
units are expected to cost less than $1,000 and will operate through both
satellite and cellular links.
32
<PAGE>
As with any new product, there are a number of factors that may affect
the corporation's ability to offer Planet 1SM and ICO services on a
profitable basis. Such factors include the ability to meet commercial
deployment schedules, the level of consumer acceptance and demand, the
quality and pricing of competitive services, and the performance of ground
and space systems and customer terminals. In order to offer Planet 1SM and
ICO services, the corporation must obtain certain regulatory approvals (see
Notes 10 and 11 to the financial statements). In addition, ICO must receive
the funding required to complete its satellite system.
COMSAT RSI has been successful in winning new contracts in 1995
totaling $254 million, including two programs of strategic significance.
The first is the Commercial Satellite Communications Initiative (CSCI)
contract from the U. S. Department of Defense to provide domestic and
international satellite capacity and associated equipment and network
management services over a 10-year period. The second is the Asia Cellular
Satellite System (ACeS) contract from Lockheed Martin to provide equipment
and services for this regional mobile satellite system.
CRSI's backlog rose to $212 million at the end of 1995 as compared to
$152 million at the end of 1994. Of the December 31, 1995 backlog,
approximately $140 million is expected to be recognized as sales in 1996
and approximately $57 million is unfunded. Included in this order backlog
is approximately $114 million of U.S. Government contracts. As is
customary, these contracts include provisions for cancellation at the
convenience of the U.S. Government or the prime contractor. If such a
provision were exercised, CRSI would have a claim for reimbursement of
costs incurred and a reasonable allowance for profit thereon.
The corporation believes that CRSI's acquisition of three companies in
1995 has positioned CRSI for future growth in the VSAT, cellular and PCS
markets. Earnings growth at CRSI, however, will continue to depend upon
CRSI's ability to contain costs and complete projects with favorable
margins.
Ascent is expected to continue to derive a majority of its revenues
from the hospitality industry video distribution business. Revenue and
income growth are expected from the continued installation of OCV systems
for new customers.
Contracted revenues for video distribution services provided to NBC
entered an option phase in 1995 which resulted in lower revenues and
operating income. It is expected that revenues and operating income will
remain at such levels until the end of the contract in 1999.
The financial performance of the Denver Nuggets and the Colorado
Avalanche are, to a large extent, dependent on their performance in their
respective leagues. In addition, due to the limitations of the facilities
available at McNichols Arena where both teams currently play, Ascent
believes that projected increases from facilities-based revenues will not
keep pace with increases in players' salaries, which could result in
operating losses for as long as they play in McNichols Arena. Ascent plans
to construct a new arena and entertainment complex which is expe ted to
result in improved operating results for both teams. It is estimated that
the arena will cost approximately $150 million.
In March 1996, Ascent entered into an agreement with The Anschutz
Corporation (TAC), with which Ascent had been jointly developing the
proposed arena project, to purchase TAC's interests and assets related to
the project for $11.6 million. As part of the agreement, TAC agreed to use
reasonable efforts to facilitate the development of the proposed arena. In
connection with this agreement, Ascent also purchased TAC's limited
partnership interest in New Elitch Gardens, Ltd. (Elitch Gardens), which owns
an amusement park in downtown Denver, for $4.1 million. The purchase of
TAC's interest in Elitch Gardens increased Ascent's interest from 13% to
26%. Additionally, in March 1996, Ascent entered into an agreement with
Southern Pacific Transportation Company to purchase land in downtown Denver
for $20 million for the proposed arena site. The land purchase agreement is
subject to several conditions including obtaining reasonable financing and
the release of the teams from their current lease at McNichols Arena.
Beacon is to begin production on two to three feature films during
1996, one of which may be released in the second half of 1996. There is a
significant degree of unpredictability and risk associated with theatrical
films.
33
<PAGE>
ANALYSIS OF BALANCE SHEETS
Consolidated Balance Sheets
Assets. The corporation ended 1995 with $2,314 million of assets, a
17% increase over 1994.
International Communications assets excluding unconsolidated
investments increased $65 million during 1995 to end the year at $950
million. Of the total increase, International Ventures invested $41 million
in new communications property and equipment. These additions are needed to
meet specific customer requirements for technically advanced applications
in developing countries. The corporation expects to expend up to an
additional $50 million in 1996 to meet anticipated customer demand in
existing ventures and may invest additional amounts if warranted by new
opportunities.
CWS's assets increased slightly during 1995. Additions to property and
equipment of $138 million, which were principally related to CWS's share of
INTELSAT's satellite programs for the VII, VII-A and VIII series of
satellites, were offset by a 1% decrease in ownership of INTELSAT, plus
higher accumulated depreciation.
Assets in Mobile Communications decreased slightly during 1995, ending
the year at $419 million. Property and equipment additions of $40 million
primarily relate to Inmarsat's third-generation satellites currently under
construction and CMC's increased ownership of Inmarsat. Offsetting this
increase was a decline in accounts receivable because of lower sales and an
increase in accumulated depreciation. The Inmarsat-3 satellite launch
program is scheduled to begin in early 1996. These satellites will provide
increased global capacity to meet anticipated growing demand for services,
which includes the commencement of Planet 1SM service.
Total assets for Technology Services increased in 1995 by $30 million.
This change was the result of an increase in accounts receivable, because
of stronger sales in the fourth quarter, and an increase in assets because
of CRSI's acquisitions of Intelesys, Plexsys and Jefa.
Entertainment assets at year end were $484 million, an increase of
$115 million over 1994. Property and equipment additions of $85 million
were primarily related to installations of OCV's on-demand video
entertainment systems for new hotel customers. At December 31, 1995, OCV
had a backlog of 113,000 rooms and expects to continue to make additional
investments in these systems during 1996. Additionally, the increase in
assets reflects the acquisition of the Colorado Avalanche (see Note 7 to
the financial statements).
Corporate and other assets include cash and cash equivalents,
investments in unconsolidated businesses, corporate-owned life insurance
policies and certain land, property and equipment. During 1995, such assets
increased by $131 million. The primary reason for this change was an
increase in cash and cash equivalents of $105 million. Additionally, the
corporation invested $26 million in ICO (see Note 7 to the financial
statements).
Liabilities. The corporation's total liabilities increased in 1995 by
$326 million. This increase was primarily the result of the issuance of
$200 million of preferred securities by a subsidiary (see Note 9 to the
financial statements), the corporation's share of long-term debt issued by
INTELSAT of $38 million, four notes totaling $42 million issued under the
corporation's medium-term note program and Ascent's long-term borrowings of
$70 million.
34
<PAGE>
ANALYSIS OF CASH FLOWS, LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
Cash from operating activities for 1995 was $251 million, a 3%
increase over 1994. The International Communications, Mobile Communications
and Entertainment segments generated the majority of the corporation's cash
from operations. The corporation made interest payments, net of amounts
capitalized, of $37 million and tax payments of $21 million.
During 1995, the corporation used $411 million in investing
activities, a 16% increase over last year. Included under purchases of
subsidiaries in 1995 was Ascent's $76 million purchase of the National
Hockey League franchise now known as the Colorado Avalanche. The increase
in 1995 in property and equipment came primarily from the International
Communications businesses, as CWS continued to make capital investments
equal to its share of INTELSAT's satellite program, and CIV purchased
communications plant and equipment, predominantly for Latin America
ventures. Cash invested in unconsolidated businesses in 1995 was primarily
the result of the corporation's investment in ICO.
The corporation expects to make additional investments in property and
equipment in 1996. Increases are expected in both CIV and CMC while lower
expenditures are planned for CWS. Investments in unconsolidated businesses
are expected to increase because of anticipated payments related to the
corporation's commitment to invest in ICO. The corporation expects to
receive insurance proceeds of approximately $54 million in the second
quarter of 1996 related to the February 1996 launch failure of an INTELSAT
satellite.
Cash proceeds from financing activities in 1995 were $266 million, a
$152 million increase from the previous year. This increase came from the
proceeds from the issuance of $200 million of preferred securities by a
subsidiary, increase in long-term debt of $154 million and the proceeds of
the public offering of Ascent stock. This was offset by the repayment of
short-term borrowings of $121 million. Dividends of $37 million were paid
during the year as compared to $34 million in 1994. The quarterly dividend
was increased in the second half of 1994 from $0.185 per share to $0.195
per share.
Liquidity and Capital Resources
The corporation's working capital improved from a deficit of $19
million at year-end 1994 to a positive $221 million at year-end 1995. This
improvement was caused by the increase in cash and cash equivalents of $105
million and the reduction in commercial paper borrowings of $121 million.
The change came primarily from the proceeds from the issuance of preferred
securities by a subsidiary and the proceeds from the initial public
offering of Ascent.
The corporation has access to short- and long-term financing at
favorable rates. The corporation's current long-term debt ratings were
downgraded one level in early 1996 to A- by Standard and Poor's and to A3
by Moody's. The corporation's $200 million commercial paper program had no
borrowings outstanding as of December 31, 1995. A $200 million credit
agreement, expiring in 1999, backs up this commercial paper program. The
corporation's current commercial paper ratings were also downgraded one
level in early 1996 to A2 by Standard and Poor's and to P2 by Moody's.
The corporation had $26 million remaining at year-end 1995 under a
$100 million medium-term note program. The medium-term note program is part
of a $200 million debt securities shelf registration program initiated in
1994.
35
<PAGE>
The corporation's debt-financing activities are regulated by the FCC.
The corporation submits its financing plans to the FCC for review annually.
Under existing FCC guidelines, the corporation is subject to a maximum
long-term debt to total capital ratio of 45%, a limit of $200 million in
short-term debt and an interest coverage ratio of 2.3 to 1. At December 31,
1995, the corporation had long-term debt to total capital of 44%, no
short-term debt outstanding, and was in compliance with the interest
coverage ratio. The corporation expects that cash flows from operations and
its short-term borrowing capacity will be sufficient to fund its cash
requirements in 1996.
36
<PAGE>
Item 8: Financial Statements and Supplementary Data.
REPORT OF INDEPENDENT AUDITORS
To the Shareholders of
COMSAT Corporation:
We have audited the accompanying consolidated balance sheets of COMSAT
Corporation and its subsidiaries as of December 31, 1995 and 1994, and the
related consolidated statements of income, stockholders' equity and cash
flow for each of the three years in the period ended December 31, 1995. Our
audit also included the financial statement schedules listed in the Index
at Item 14(a)2. These financial statements and the financial statement
schedules are the responsibility of the corporation's management. Our
responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion such consolidated financial statements present fairly, in
all material respects, the financial position of the corporation and its
subsidiaries at December 31, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1995, in conformity with generally accepted accounting
principles. Also, in our opinion, such financial statement schedules, when
considered in relation to the basic consolidated financial statements taken
as a whole, present fairly in all material respects, the information set
forth therein.
As discussed in Note 15 to the consolidated financial statements, in 1993
the corporation changed its method of accounting for income taxes to
conform with Statement of Financial Accounting Standards No. 109.
Deloitte & Touche LLP
Washington, D.C.
February 15, 1996
37
<PAGE>
COMSAT CORPORATION AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
For the Years Ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
<S> <C> <C> <C>
In thousands, except per share amounts 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------
Revenues $ 852,057 $ 826,899 $ 754,285
-------------- -------------- --------------
Operating expenses:
Cost of services 495,805 462,277 423,473
Depreciation and amortization 202,024 167,784 142,111
Research and development 18,693 16,369 15,302
General and administrative 19,856 22,851 21,819
Merger and integration costs - 7,367 -
Provision for restructuring 20,044 - -
-------------- -------------- --------------
Total operating expenses 756,422 676,648 602,705
-------------- -------------- --------------
Operating income 95,635 150,251 151,580
Gain on sale of minority interest 19,286 - -
Other income (expense), net (3,041) 2,348 9,765
Interest cost (59,487) (48,940) (45,881)
Interest capitalized 20,355 23,662 22,197
-------------- -------------- --------------
Income before taxes and cumulative effect of accounting change 72,748 127,321 137,661
Income tax expense (34,931) (49,679) (55,192)
-------------- -------------- --------------
Income before cumulative effect of accounting change 37,817 77,642 82,469
Cumulative effect of accounting change for income taxes - - 1,925
-------------- -------------- --------------
Net income $ 37,817 $ 77,642 $ 84,394
============== ============== ==============
Earnings per share:
Before cumulative effect of accounting change $ 0.79 $ 1.64 $ 1.75
Cumulative effect of accounting change - - 0.04
-------------- -------------- --------------
Net income $ 0.79 $ 1.64 $ 1.79
============== ============== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
38
<PAGE>
COMSAT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1995 and 1994
<TABLE>
<CAPTION>
<S> <C> <C>
In thousands 1995 1994
- -------------------------------------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 124,156 $ 18,658
Receivables 234,465 226,189
Inventories 26,851 21,933
Deferred income taxes 12,445 10,914
Other 27,908 20,546
-------------- --------------
Total current assets 425,825 298,240
-------------- --------------
Property and equipment 1,528,053 1,431,066
Investments 88,378 69,541
Goodwill 67,569 60,705
Franchise rights 107,962 39,119
Other assets 96,479 77,321
-------------- --------------
Total assets $ 2,314,266 $ 1,975,992
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term obligations $ 11,688 $ 7,115
Commercial paper - 121,356
Accounts payable and accrued liabilities 164,801 147,502
Due to related parties 22,825 36,750
Accrued interest 5,155 4,357
-------------- --------------
Total current liabilities 204,469 317,080
-------------- --------------
Long-term debt 664,601 515,542
Deferred income taxes 119,018 104,309
Deferred investment tax credits 15,190 18,489
Accrued postretirement benefit costs 49,497 50,817
Other long-term liabilities 129,911 112,824
Commitments and contingencies (notes 10, 11 & 18) - -
Minority interest 92,147 30,015
Preferred securities issued by subsidiary 200,000 -
Stockholders' equity:
Common stock, without par value, 100,000 shares authorized,
48,612 shares issued in 1995 and 48,054 in 1994 324,074 312,143
Preferred stock, 5,000 shares authorized, no shares issued or
outstanding - -
Retained earnings 533,238 532,229
Treasury stock, at cost, 857 shares in 1995 and 1,243 in 1994 (9,020) (12,502)
Unearned compensation (5,484) (7,249)
Other (3,375) 2,295
-------------- --------------
Total stockholders' equity 839,433 826,916
-------------- --------------
Total liabilities and stockholders' equity $ 2,314,266 $ 1,975,992
============== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
39
<PAGE>
COMSAT CORPORATION AND SUBSIDIARIES
CONSOLIDATED CASH FLOW STATEMENTS
For the Years Ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
<S> <C> <C> <C>
In thousands 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income $ 37,817 $ 77,642 $ 84,394
Adjustments for noncash expenses:
Depreciation and amortization 202,024 167,784 142,111
Cumulative effect of accounting change - - (1,925)
Provision for restructuring 20,044 - -
Gain on sale of minority interest (19,286) - -
Changes in operating assets and liabilities:
Receivables and other current assets (11,959) (17,169) (21,047)
Current liabilities (12,431) (14,847) 32,199
Noncurrent liabilities 24,748 25,808 26,117
Other 9,612 3,509 (5,223)
-------------- -------------- --------------
Net cash provided by operating activities 250,569 242,727 256,626
-------------- -------------- --------------
Cash flows from investing activities:
Purchase of property and equipment (308,161) (274,562) (234,552)
Investments in unconsolidated businesses (32,810) (53,397) (8,639)
Purchase of subsidiaries (78,240) (35,676) (3,140)
Purchase of minority shares of subsidiaries (92) (4,016) (12,606)
Decrease in INTELSAT ownership 17,919 13,520 16,442
Decrease (increase) in Inmarsat ownership (6,978) 3,573 4,771
Other (2,930) (3,471) 4,529
-------------- -------------- --------------
Net cash used in investing activities (411,292) (354,029) (233,195)
-------------- -------------- --------------
Cash flows from financing activities:
Proceeds from issuance of long-term debt 154,119 112,296 32,745
Net short-term borrowings (repayments) (121,356) 74,123 (562)
Borrowings against company-owned life insurance policies 2,542 32,437 -
Common stock issued 10,834 5,291 7,952
Proceeds from issuance of preferred securities of subsidiay 200,000 - -
Proceeds from issuance of subsidiary's common stock 78,985 1,486 11,582
Repayment of long-term debt (9,970) (77,023) (40,481)
Cash dividends paid (36,874) (33,547) (30,410)
Other (12,059) (1,333) 196
-------------- -------------- --------------
Net cash provided by (used for) financing activities 266,221 113,730 (18,978)
-------------- -------------- --------------
Net increase in cash and cash equivalents 105,498 2,428 4,453
Cash and cash equivalents, beginning of year 18,658 16,230 11,777
-------------- -------------- --------------
Cash and cash equivalents, end of year $ 124,156 $ 18,658 $ 16,230
============== ============== ==============
Supplemental cash flow information:
Interest paid, net of amount capitalized $ 36,710 $ 24,880 $ 26,083
Income taxes paid $ 20,607 $ 30,639 $ 28,618
Noncash financing of Inmarsat satellites $ 7,551 $ 7,197 $ 6,200
</TABLE>
The accompanying notes are an integral part of these financial statements.
40
<PAGE>
COMSAT CORPORATION AND SUBSIDIARIES
STATEMENTS OF CHANGES IN CONSOLIDATED STOCKHOLDERS' EQUITY
For the Years Ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Shares Shares Common Retained Treasury Unearned
In thousands Issued Outstanding Stock Earnings Stock Compensation Other
- ------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1992 48,250 45,842 $ 298,469 $ 434,067 $ (22,627) $ (6,233) $ (1,384)
Net income 84,394
Cash dividends (30,410)
Common stock issued:
Stock options and restricted stock
units, including tax benefits 407 4,562 3,810
Employee stock purchase plan 154 154 3,153
Restricted stock awarded 348 5,322 3,312 (8,634)
Amortization of unearned compensation 3,291
Minimum pension liability adjustment (2,301)
Purchase of treasury stock (378) (5,968)
Other 39 685 (107)
--------- -------- --------- --------- --------- --------- --------
Balance at December 31, 1993 48,404 46,373 311,506 488,090 (21,473) (10,891) (3,792)
Net income 77,642
Cash dividends (33,547)
Common stock issued:
Stock options and restricted stock
units, including tax benefits 105 948 808
Employee stock purchase, 401k
and Investors' plans 333 333 6,432
Amortization of unearned compensation
and incentive plan expense 1,420 2,868
Retirement of treasury stock (683) (8,163) 8,163
Translation adjustment 5,343
Other 44 774 744
--------- -------- --------- --------- --------- --------- ----------
Balance at December 31, 1994 48,054 46,811 312,143 532,229 (12,502) (7,249) 2,295
Net income 37,817
Cash dividends (36,874)
Common stock issued:
Stock options and restricted stock
units, including tax benefits 334 1,705 3,373
Employee stock purchase, 401k
and Investors' plans 558 558 10,276
Restricted stock awarded 91 871 911 (1,782)
Amortization of unearned compensation
and incentive plan expense 619 2,131
Forfeiture and cancellation of
restricted stock awards (39) (1,540) (802) 798
Minimum pension liability adjustment (2,006)
Translation adjustment (3,664)
Other 66 618
--------- -------- --------- --------- --------- --------- --------
Balance at December 31, 1995 48,612 47,755 $ 324,074 $ 533,238 $ (9,020) $ (5,484) $ (3,375)
========= ======== ========= ========= ========= ========= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
41
<PAGE>
COMSAT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For Each of the Three Years in the Period
Ended December 31, 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
These financial statements have been prepared in conformity with
generally accepted accounting principles (GAAP). Certain amounts
reported in the financial statements and related notes have required
the use of management's estimates. Actual results could differ from
those estimates. The significant accounting policies that have guided
the preparation of these financial statements are:
Principles of Consolidation. Accounts of COMSAT Corporation and its
majority-owned subsidiaries (COMSAT or the corporation) have been
consolidated. Significant intercompany transactions have been
eliminated. Minority interest on the balance sheet is primarily
comprised of the interest of other shareholders in Ascent
Entertainment Group, Inc. (Ascent) (see Note 5). As of December 31,
1995, the corporation owned 80.67% of Ascent. The minority interest
share of the net income of consolidated businesses is included in
"Other income (expense), net."
The corporation has consolidated its shares of the accounts of the
International Telecommunications Satellite Organization (INTELSAT) and
the International Mobile Satellite Organization (Inmarsat). The
corporation's ownership interests in INTELSAT and Inmarsat are based
primarily on the corporation's usage of these systems. As of December
31, 1995, the corporation owned 19.1% of INTELSAT and 24.0% of
Inmarsat.
Revenue Recognition. Revenue from satellite services is recognized over
the period during which the satellite services are provided. Revenue from
long-term product, system integration and related services contracts
is accounted for using the percentage-of- completion (cost-to-cost)
method. Revenue from other services is recorded as services are
provided.
Income Taxes and Investment Tax Credits. The corporation adopted Statement
of Financial Accounting Standards (SFAS) No. 109, "Accounting for
Income Taxes," effective January 1, 1993. This accounting standard
requires the use of the asset and liability approach for financial
accounting and reporting for income taxes.
The provision for income taxes includes taxes currently payable and
those deferred because of differences between the financial statement
and tax bases of assets and liabilities. The corporation has earned
investment tax credits on certain INTELSAT and Inmarsat satellite
costs. These tax credits have been deferred and are being recognized
as reductions to the tax provision over the estimated service lives of
the related assets.
Earnings Per Share. Earnings per share are computed using the average
number of shares outstanding during each period, adjusted for
outstanding stock options, restricted stock units and unissued
restricted stock awards. The weighted average number of shares used in
the computation of earnings per share for each year was 47,998,000 for
1995, 47,356,000 for 1994 and 47,095,000 for 1993.
42
<PAGE>
Goodwill. The balance sheet includes goodwill related to the
acquisitions of On Command Video Corporation, the Denver Nuggets
Limited Partnership (the Nuggets), Beacon (see Note 7) and other
ventures. Goodwill is amortized over 10 to 25 years. Accumulated
goodwill amortization was $12,671,000 and $7,302,000 at December 31,
1995 and 1994, respectively. The corporation reviews annually the
balance of goodwill for potential impairment and, if necessary,
adjusts the balance to its estimated net realizable value based on
discounted cash flows.
Franchise Rights and Other Assets. Franchise rights were recorded in
connection with the acquisition of the Nuggets beginning in 1989 and
the Avalanche in 1995 (see Note 7). These rights are being amortized
over 25 years. The amounts shown on the balance sheets are net of
accumulated amortization of $8,317,000 and $4,920,000 at December 31,
1995 and 1994, respectively.
The cash surrender values of life insurance policies (net of loans)
totaling $12,879,000 and $12,784,000 at December 31, 1995 and 1994,
respectively, are included in "Other assets." In January 1996, the
corporation repaid loans totaling $51,175,000. Other income on the
income statement includes the increases in the cash surrender values
of these policies. Additionally, other income for 1993 included income
of $4,131,000 ($3,137,000 net of tax) from the death benefit proceeds
of corporate-owned policies.
Cash Flow Information. The corporation considers highly liquid
investments with a maturity of three months or less at the time of
purchase to be cash equivalents.
New Accounting Pronouncements. SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of," and SFAS No. 123, "Accounting for Stock-Based
Compensation," were issued in 1995 and will be adopted by the
corporation in 1996. The corporation has elected not to adopt the
recognition and measurement provisions of SFAS No. 123. The effect of
adopting these statements in 1996 is not expected to be material to
the corporation.
Statement Presentation. Certain prior period amounts have been
reclassified to conform with the current year's presentation.
2. RECEIVABLES
Receivables at each year end are composed of:
<TABLE>
<CAPTION>
<S> <C> <C>
In thousands 1995 1994
-----------------------------------------------------------------------------------------------------------
Commercial receivables $ 160,990 $ 155,552
Receivables under long-term contracts:
U.S. Government:
Amounts billed 6,188 5,530
Unbilled costs and accrued profits 28,937 34,265
Commercial customers:
Amounts billed 9,891 8,029
Unbilled costs and accrued profits 31,617 21,713
Related party receivables 5,726 8,889
Other 4,194 1,586
------------ ------------
Total 247,543 235,564
Less allowance for doubtful accounts (13,078) (9,375)
------------ ------------
Net $ 234,465 $ 226,189
============ ============
</TABLE>
43
<PAGE>
Unbilled amounts represent accumulated costs and accrued profits that
will be billed at future dates in accordance with contract terms and
delivery schedules. All but approximately $5,933,000 of these amounts
are expected to be collected within one year. Unbilled amounts are net
of progress payments of $74,677,000 in 1995 and $55,563,000 in 1994.
U.S. Government receivables include $11,500,000 at December 31, 1995,
for estimated recoveries on claims in excess of committed contract
amounts. Revenues related to claims for constructive change orders on
long-term contracts are recorded at the estimated amount of
recoverable costs incurred. These estimates could change in the near
term as the claims are settled with the U.S. Government.
3. INVENTORIES
Inventories, stated at the lower of cost (first-in, first-out) or
market, consist of the following at each year end:
<TABLE>
<CAPTION>
<S> <C> <C>
In thousands 1995 1994
-----------------------------------------------------------------------------------------------------------
Finished goods $ 8,137 $ 5,228
Work in progress 10,260 9,187
Raw materials 8,454 7,518
------------ ------------
Total $ 26,851 $ 21,933
============ ============
</TABLE>
4. PROPERTY AND EQUIPMENT
Property and equipment include the corporation's shares of
INTELSAT and Inmarsat property and equipment.
<TABLE>
<CAPTION>
<S> <C> <C>
In thousands 1995 1994
-----------------------------------------------------------------------------------------------------------
Property and equipment at cost:
Satellites $ 1,396,311 $ 1,255,019
Furniture, fixtures and equipment 794,393 674,407
Buildings and improvements 122,986 121,596
Land 8,567 7,044
------------ ------------
Total 2,322,257 2,058,066
Less accumulated depreciation (1,156,518) (990,596)
------------ ------------
Net property and equipment in service 1,165,739 1,067,470
Property and equipment under construction:
INTELSAT satellites 172,043 222,793
Immarsat third-generation satellites 126,056 93,328
Other 64,215 47,475
------------ ------------
Total $ 1,528,053 $ 1,431,066
============ ============
</TABLE>
Depreciation is calculated using the straight-line method over the
estimated service life of each asset. The service lives for property
and equipment are: satellites, 10 to 13 years; furniture, fixtures and
equipment, 3 to 15 years; buildings and improvements, 3 to 40 years.
Costs of satellites that are lost at launch or that fail in orbit are
carried, net of any insurance proceeds, in the property accounts. The
remaining net amounts are depreciated over the estimated service life
of a satellite of the same series.
On February 14, 1996, the launch of the INTELSAT 708 satellite failed.
The corporation's share of the construction and capitalized interest
costs was fully insured. Insurance proceeds totaling approximately $54
million are expected to be received in the second quarter of 1996.
44
<PAGE>
5. ASCENT ENTERTAINMENT GROUP, INC.
Ascent Entertainment Group, Inc. (Ascent) consists of Ascent Network
Services, Inc. (ANS), formerly COMSAT Video Enterprises, Inc., and
ANS's ownership of On Command Video Corporation (OCV), the Denver
Nuggets Limited Partnership, Beacon Communications Corp. and the
Colorado Avalanche (see Note 7). In December 1995, Ascent completed a
public offering of 5,750,000 shares of its common stock at an offering
price of $15.00 per share. COMSAT retains 24,000,000 shares, or 80.67%
of Ascent. Concurrent with the public offering, Ascent repaid a
$140,000,000 intercompany note payable to COMSAT. COMSAT recognized a
$19,286,000 pre-tax gain as a result of the public offering.
In the third quarter of 1995, ANS contributed substantially all of its
pay-per-view video systems in hotels and related assets to OCV for OCV
common stock. This transaction raised Ascent's ownership of OCV to
85%, an increase of 5%.
6. MERGER WITH RADIATION SYSTEMS, INC.
On June 3, 1994, the corporation consummated its merger with Radiation
Systems, Inc. (RSi), based in Sterling, Virginia. RSi designs,
manufactures and integrates satellite earth stations, advanced
antennas and other turnkey systems for telecommunications, radar, air
traffic control and military uses.
Each share of RSi's common stock was converted into 0.78 of a share of
the corporation's common stock. A total of 6,147,000 shares of the
corporation's common stock were issued for RSi's common stock.
The merger was accounted for as a pooling of interests. Accordingly,
financial statements for periods prior to the merger were restated to
include RSi. The corporation recorded nonrecurring charges to
operations in 1994 totaling $7,367,000 ($6,269,000 net of taxes or
$0.13 per share) for merger and integration costs. These charges
consisted of $4,446,000 for investment banking, legal and other
professional fees, $2,226,000 for the costs associated with closing a
former RSi division, and $695,000 for severance and related costs.
7. ACQUISITIONS AND INVESTMENTS
Colorado Avalanche. In July 1995, Ascent acquired a National Hockey
League franchise and related player contracts, management contracts
and certain other assets from Le Club de Hockey Les Nordiques in
Quebec, Canada for $75,840,000. The cost of this acquisition was
allocated primarily to "franchise rights" (see Note 1). As part of the
purchase, the corporation assumed contractual commitments to players
aggregating $24,625,000 over the next three years. The franchise,
which was known as the Quebec Nordiques, has been relocated to Denver,
Colorado and is known as the Colorado Avalanche (the Avalanche).
Beacon Communications Corp. In December 1994, Ascent acquired the
assets of Beacon Communications Corp. (Beacon), a film and television
production company based in Los Angeles. The cost of this acquisition
was $29,133,000 which consisted of $16,180,000 in cash and liabilities
assumed of $12,953,000. The purchase agreement calls for future cash
consideration of up to $16,900,000 which is contingent on the
production and performance of motion pictures over the next five
years. If Beacon had been acquired as of January 1, 1993, the
corporation's consolidated revenues would have
45
<PAGE>
been $853,394,000 and $772,425,000 for 1994 and 1993, respectively,
and the consolidated net income would have been $61,969,000 and
$80,377,000 for 1994 and 1993, respectively (unaudited).
Investments. In June 1994, the corporation acquired an interest of
approximately 17% in Philippine Global Communications, Inc. (PhilCom),
a provider of international communications services in the
Philippines, for $42,141,000. The corporation's share of PhilCom's
income or losses is recorded using the "equity method" of accounting
and is included in "Other income (expense), net" on the income
statement.
In 1995, the corporation made direct cash investments totaling
$11,350,000 in a new company, I-CO Global Communications (Holdings)
Limited (ICO), that will own and operate a satellite system. The
accompanying balance sheet also includes the corporation's $14,226,000
share of Inmarsat's investment in ICO as of December 31, 1995 (see
Note 10).
The corporation has investments in other businesses that are accounted
for using the equity and cost methods of accounting. These investments
(including PhilCom and ICO) totaled $88,378,000 and $69,541,000 at
December 31, 1995 and 1994, respectively.
8. DEBT
The corporation, as regulated by the Federal Communications Commission
(FCC), is allowed to undertake long-term borrowings of up to 45% of
its total capital (long-term debt plus equity) and $200,000,000 in
short-term borrowings. The corporation also has a requirement to
maintain an interest expense coverage ratio, as defined, of 2.3 to 1.
Commercial Paper. The corporation issues short-term commercial paper
as needed with repayment terms of 90 days or less under a $200,000,000
program. The corporation had no outstanding borrowings at December 31,
1995, and $121,356,000 in borrowings outstanding at December 31, 1994.
The weighted average interest rate on these borrowings was 6.1% at
December 31, 1994.
Credit Facilities. The corporation has a $200,000,000 revolving credit
agreement, which expires in December 1999, as a backup to the
commercial paper program. There have been no borrowings under this
agreement.
Ascent has a $175,000,000 bank credit agreement which consists of a
$70,000,000 five-year facility and a $105,000,000 one-year facility.
The agreement requires compliance with financial covenants including
the maintenance of certain financial ratios and precludes the payment
of cash dividends by Ascent. The corporation's share of Ascent's net
assets as of December 31, 1995, was approximately $244,000,000. At
December 31, 1995, $70,000,000 was outstanding under the five-year
facility and is classified as long-term debt. The weighted average
interest rate on these borrowings was 6.2% at December 31, 1995.
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<PAGE>
Long-Term Debt. Long-term debt including the corporation's share of
INTELSAT and Inmarsat debt at each year end consists of:
<TABLE>
<CAPTION>
<S> <C> <C>
In thousands 1995 1994
-----------------------------------------------------------------------------------------------------------
8.125% notes due 2004 $ 160,000 $ 160,000
8.95% notes due 2001 75,000 75,000
6.75% INTELSAT Eurobonds due 2000 28,659 30,194
7.375% INTELSAT Eurobonds due 2002 38,212 40,258
8.375% INTELSAT Eurobonds due 2004 38,212 40,258
6.625% INTELSAT Asian bonds due 2004 38,212 40,258
8.125% INTELSAT Eurobonds due 2005 38,212 -
Immarsat lease financing obligations 112,203 100,434
Medium-term notes, 7.7% - 8.66%, due 2006 - 2007 74,000 32,000
Ascent credit agreement 70,000 -
Other, net of discounts on notes payable 3,579 4,255
------------ ------------
Total 676,289 522,657
Less current maturities (11,688) (7,115)
------------ ------------
Total long-term debt $ 664,601 $ 515,542
============ ============
</TABLE>
In July 1994, the corporation filed a shelf registration statement
with the Securities and Exchange Commission (SEC) to issue up to
$200,000,000 of debt securities. The corporation also filed a
prospectus supplement with the SEC to issue up to $100,000,000 of such
securities under a "medium-term note program." The corporation issued
four notes totaling $42,000,000, which are due in 2007, with rates of
7.7% to 8.5% during 1995 under this program. The corporation also
issued two medium-term notes totaling $32,000,000 in 1994, which are
due in 2006, with rates of 8.05% to 8.66%. The $26,000,000 remaining
under the medium-term note program may be issued from time to time, at
fixed or floating interest rates, as determined at the time of
issuance.
The principal amount of debt (excluding the Inmarsat lease financing
obligation) maturing over the next five years is $1,313,000 in 1996,
$773,000 in 1997, $1,910,000 in 1998, $305,000 in 1999 and $98,964,000
in 2000.
Inmarsat Lease Financing Obligations. Inmarsat borrowed
(pound)140,400,000 sterling under a capital lease agreement to finance
the construction of second-generation Inmarsat satellites. Inmarsat
also entered into another capital lease arrangement to finance the
construction costs of its third-generation satellites. As of December
31, 1995, (pound)102,900,000 sterling of the (pound)197,000,000
sterling available for this purpose has been borrowed. The
corporation's share of these lease obligations is included in
long-term debt. Inmarsat has hedged its obligations through various
foreign exchange transactions to minimize the effect of fluctuating
interest and exchange rates (see Note 18).
The corporation's share of the payments under these lease obligations
for each of the next five years is $17,047,000 in 1996, $19,080,000 in
1997, $19,868,000 in 1998, $21,288,000 in 1999, $22,553,000 in 2000
and $71,171,000 thereafter. These payments include interest totaling
$58,804,000 and a current maturity of $10,376,000.
9. MONTHLY INCOME PREFERRED SECURITIES
In July 1995, COMSAT Capital I, L.P. (COMSAT Capital) issued
$200,000,000 of Monthly Income Preferred Securities (MIPS). COMSAT
Capital is a limited partnership formed for the sole purpose of
issuing the MIPS and loaning the proceeds to COMSAT, the managing
general partner. The MIPS were issued at a par value of $25 per share,
and dividends are payable monthly at an annual rate of 8.125%. The
MIPS are callable by the issuer after July 2000 at par value. The
proceeds of the MIPS were loaned to COMSAT
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<PAGE>
under the terms of a 8.125%, 30-year subordinated debenture agreement.
This agreement allows COMSAT to extend the maturity of the debentures
until 2044, provided that COMSAT satisfies certain financial
covenants. The proceeds were used to repay commercial paper borrowings
and a $75,000,000 bank loan incurred in the acquisition of the NHL
franchise and related assets discussed in Note 7. COMSAT Capital has
been consolidated in the financial statements of the corporation since
the third quarter of 1995. The loan between the partnership and COMSAT
has been eliminated in consolidation. The $200,000,000 of MIPS is
shown on the corporation's consolidated balance sheet as "preferred
securities issued by subsidiary." The dividends on these securities
are recorded as minority interest expense of $7,358,000 in 1995 and
are included in "Other income (expense), net" in the consolidated
financial statements.
10. COMMITMENTS AND CONTINGENCIES
Property and Equipment. As of December 31, 1995, the corporation had
commitments to acquire property and equipment totaling $300,714,000.
Of this total, $278,200,000 is payable over the next three years.
These commitments are related principally to the corporation's share
of INTELSAT and Inmarsat satellite acquisition programs.
Employment and Consulting Agreements. The corporation has employment
and consulting agreements with certain officers, coaches and players.
Virtually all of these agreements provide for guaranteed payments.
Other contracts provide for payments contingent upon the fulfillment
of certain terms and conditions, which generally relate only to normal
performance of employment duties. Amounts required to be paid under
such agreements (including approximately $92,115,000 relating to
player agreements) total approximately $50,624,000 in 1996,
$39,151,000 in 1997, $23,535,000 in 1998, $10,464,000 in 1999,
$4,468,000 in 2000 and $3,154,000 thereafter.
Leases. The corporation leases its headquarters building from a
partnership in which the corporation owns a 50% interest. The initial
term of the lease expires in 2008. The annual rent expense under this
lease is $4,119,000. In addition to lease payments, the corporation is
responsible for taxes, insurance and maintenance of the building. The
corporation also has leases of other property and equipment. Rental
expense under operating leases was $10,182,000 in 1995, $8,381,000 in
1994 and $7,993,000 in 1993. The future rental payments under
operating leases are $8,452,000 in 1996, $8,380,000 in 1997,
$7,855,000 in 1998, $6,880,000 in 1999 and $5,706,000 in 2000.
Government Contracts. The corporation is subject to audit and
investigation by various agencies which oversee contract performance
in connection with the corporation's contracts with the U.S.
Government. If the corporation is found liable for wrongdoing as a
result of such an audit or investigation, the corporation could be
fined or subjected to other punitive actions. Management believes that
potential claims from such audits and investigations will not have a
material adverse effect on the corporation's financial statements.
Environmental Issue. The corporation is engaged in a program to
monitor a toxic solvent spill of limited scope at the site of its
former manufacturing subsidiary in California. The corporation
believes that it has complied with the directions of state authorities
to date, including removing approximately 458 cubic yards of soil from
the site soon after the leak was discovered in 1986 and conducting
ongoing groundwater monitoring at the site. The corporation has
accruals to cover monitoring costs over the near term, but it is
unclear at this time whether or to what extent groundwater remediation
may be required.
48
<PAGE>
Investment in ICO. In 1994, the corporation and Inmarsat committed to
invest in ICO (see Note 7). ICO plans to build and operate spacecraft
and related terrestrial facilities for the provision of worldwide
mobile communications via handheld devices. As of December 31, 1995,
the corporation's cash contributions totaled $11,350,000, and the
corporation's share of Inmarsat's contributions totaled $14,226,000.
In January 1996, the corporation invested an additional $29,200,000
and has committed to invest $73,250,000 in two installments due in
December 1996, and December 1997. The corporation's share of
Inmarsat's future commitments to ICO totaled approximately $23,400,000
as of December 31, 1995.
The corporation has applied to the FCC for authority to participate as
an investor and service provider in ICO. In acting on the application,
which is being opposed by ICO's competitors, the FCC will determine
whether the corporation satisfies the requisite legal and policy
criteria to participate in ICO. The corporation believes that all
necessary operating authorizations with respect to ICO will be
obtained.
11. REGULATORY ENVIRONMENT AND LITIGATION
Regulatory Environment. Under the Communications Act of 1934 and the
Satellite Act, as amended, the corporation is subject to regulation by
the FCC with respect to communications facilities and services
provided through the INTELSAT and Inmarsat systems and to the rates
charged for those services.
Until 1985, the corporation was, with minor exceptions, the sole U.S.
provider of international satellite communications services using the
INTELSAT system. Since then, the FCC has authorized several
international satellite systems separate from INTELSAT. These separate
U.S. systems currently compete against the corporation for voice,
video and data traffic. In 1993, the FCC substantially eliminated
prior restrictions on the ability of separate systems to offer public
switched telephony services, thereby increasing competition to the
corporation in the voice market. The U.S. Government has established a
goal of eliminating all restrictions on competitive systems by 1997.
The corporation has received FCC authorization to participate in the
construction of four third-generation Inmarsat satellites, with an
application relating to a fifth satellite pending (see Note 4). The
first Inmarsat-3 satellite is scheduled to be launched in the first
half of 1996. The corporation has applied for authority to provide
services via those satellites. Those applications, which have been
opposed by certain of the corporation's competitors, are pending
before the FCC. The corporation believes that all requisite operating
authorizations with respect to these satellites will be obtained.
49
<PAGE>
Litigation. The corporation is defending an antitrust suit brought by
PanAmSat against the corporation, alleging interference with
PanAmSat's efforts to compete in the international satellite
communications market, and seeking trebled damages of approximately
$1.5 billion. In 1991, a U.S. Court of Appeals ruled that the
corporation is immune from antitrust suits in its role as a signatory
to INTELSAT. An amended complaint was filed alleging that the
corporation violated antitrust laws in its business activities
purportedly outside of its role as a signatory to INTELSAT. In
February 1994, PanAmSat submitted a report estimating its alleged
damages (before trebling) at a 1994 present value of $227,436,000.
Discovery in the suit ended in November 1994; however, PanAmSat has
motions pending which, if granted, would result in additional
discovery. In December 1994, the corporation filed a motion which is
pending before the court for summary judgment directed to dismissal of
all claims in the complaint. In the opinion of management, the
complaint against the corporation is without merit, and the ultimate
disposition of this matter will not have a material adverse effect on
the corporation's financial statements.
12. STOCKHOLDERS' EQUITY
Treasury Stock. The corporation acquired 404,500 shares of RSi common
stock in 1993 for $5,098,000. Additionally, RSi acquired 80,000 shares
of its own common stock for $870,000. These shares, which were
equivalent to 378,000 shares of COMSAT common stock, were accounted
for as treasury stock transactions as of December 31, 1993. These
shares, in addition to RSi's other treasury shares, were retired upon
consummation of the merger discussed in Note 6. Accordingly, 683,000
shares of the corporation's common stock, with a total cost of
$8,163,000, were retired in 1994.
Investors' Plus Plan. The corporation has a plan that allows investors
to purchase shares of common stock directly from the corporation. In
1995, 145,000 shares were issued with total proceeds of $3,027,000 and
in 1994, 76,000 shares were issued with total proceeds of $977,000.
13. STOCK INCENTIVE PLANS
The corporation has stock incentive plans that provide for the
issuance of stock options, restricted stock awards, stock appreciation
rights and restricted stock units. A total of 8,099,000 shares of
common stock may be granted under the current plans. As of December
31, 1995, 849,000 shares of the corporation's treasury stock and
750,000 unissued common shares were reserved for these plans. As of
December 31, 1995, no stock appreciation rights were outstanding.
50
<PAGE>
Stock Options. Under the current plans, the exercise price for stock
options may not be less than the fair market value of the stock when
granted. Options vest over three years and expire after 10 to 15
years. Stock option activity was as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Number of Exercise
In thousands, except per share amounts Shares Price Range
------------------------------------------------------------------------------------------------------------
Balance at January 1, 1993 1,666 $5.97-23.08
Options granted 1,288 16.99-30.31
Options exercised (408) 5.97-18.42
Options canceled (27) 5.97-27.03
------------ ------------
Balance at December 31, 1993 2,519 5.97-30.31
Options granted 1,398 23.08-27.63
Options exercised (126) 5.97-25.41
Options canceled (49) 5.97-27.63
------------ ------------
Balance at December 31, 1994 3,742 5.97-30.31
Options granted 1,204 19.00-19.38
Options exercised (327) 5.97-19.23
Options canceled (204) 19.31-27.63
------------ ------------
Balance at December 31, 1995 4,415 $5.97-30.31
============ ============
Options exercisable at December 31, 1995 1,792 $5.97-30.31
============ ============
</TABLE>
The exercise price of certain options granted prior to 1993 is equal
to 50% of the market price on the grant date. The cost of these
awards, which is the 50% discount to market when granted, was recorded
as unearned compensation and is shown as a separate component of
stockholders' equity. This unearned compensation has been amortized to
expense over the three-year vesting period. The exercise price for
options awarded after 1992 is equal to the fair market value on the
grant date. Accordingly, no expense is recorded for these options.
Restricted Stock Awards. Restricted stock awards are shares of stock
that are subject to restrictions on their sale or transfer. During
1993, 348,000 restricted stock awards were granted, net of awards
forfeited. The market value of the shares awarded was recorded as
unearned compensation and is being amortized to expense over the
six-year vesting period.
In 1995, 91,000 "performance-based" restricted stock awards were
granted and in 1994, 265,000 awards were granted. With respect to the
1995 awards, grantees have record ownership of the underlying
securities. However, all such securities are subject to forfeiture at
the end of a two-year performance period. With respect to the 1994
awards, grantees did not have record ownership of the underlying
shares of stock until the end of a two-year performance period. The
actual shares awarded are based upon the achievement of the applicable
financial performance targets during the relevant performance period.
As of December 31, 1995, the end of the performance period with
respect to the 1994 awards, 116,000 shares of stock, net of amounts
forfeited, were eligible to be issued in connection with these awards.
The shares to be issued are subject to restrictions on their sale or
transfer for three additional years. The expected cost of these grants
is being amortized over five years. The amortization was recorded as
compensation expense of $1,009,000 in 1995 and $1,420,000 in 1994, and
a corresponding increase to stockholders' equity.
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<PAGE>
Restricted Stock Units. Restricted stock units entitle the holder to
receive a combination of stock and cash equal to the market price of
common stock for each unit, when vested. These units vest over three
years. During 1995, 1994 and 1993, respectively, 71,000, 115,000 and
49,000 restricted stock units were granted. Partially vested
restricted stock units outstanding totaled 202,000 at December 31,
1995 and 189,000 at December 31, 1994. The cost of these awards, which
is the market value of the units when vested, is amortized to expense
over the three-year vesting period. The amounts amortized to expense
in 1995, 1994 and 1993 were $1,286,000, $335,000 and $1,538,000,
respectively.
Employee Stock Purchase Plan. Employees may purchase stock at a
discount through the corporation's Employee Stock Purchase Plan. The
purchase price of the shares is the lower of 85% of the fair market
value of the stock on the offering date, or 85% of the fair market
value of the stock on the last business day of each month throughout
the one-year offering period. The offering date for 1996 purchases was
November 17, 1995, when 85% of the fair market value was $16.04.
As of December 31, 1995, a total of 2,012,000 shares of the
corporation's unissued common stock has been reserved for this plan.
Employee Stock Ownership Plan. A subsidiary of the corporation has an
Employee Stock Ownership Plan (ESOP) which was established for the
benefit of eligible employees. The ESOP acquired 714,000 shares of
common stock in 1988 with bank loan proceeds. The corporation makes
periodic contributions to the ESOP at least sufficient to make
principal and interest payments when they are due. Contributions to
the ESOP charged to expense totaled $800,000 in 1995, $864,000 in 1994
and $1,049,000 in 1993. The corporation has guaranteed the ESOP's bank
notes payable and has reported the unpaid balance of these loans as
long-term debt of the corporation. An unearned ESOP compensation
amount, which is equal to the unpaid bank loans, has been recorded as
a reduction to stockholders' equity.
14. PENSION AND OTHER BENEFIT PLANS
The corporation has a non-contributory, defined benefit pension plan
for qualifying employees. Pension benefits are based on years of
service and compensation prior to retirement.
The components of net pension expense for each year are:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
In thousands 1995 1994 1993
-------------------------------------------------------------------------------------------------------
Service cost for benefits earned during the year $ 2,606 $ 3,719 $ 3,087
Interest cost on projected benefit obligation 6,995 6,817 7,044
Credit for actual return on pension plan assets (23,924) (624) (13,010)
Net amortization and deferral 15,197 (7,572) 5,427
------------ ------------ ------------
Net pension expense $ 874 $ 2,340 $ 2,548
============ ============ ============
</TABLE>
The corporation recognized a $1,380,000 curtailment gain in the second
quarter of 1995 which arose from the reduction of pension benefits for
a group of employees. Additionally, the provision for restructuring
recorded in 1995 (see Note 16) is net of a $925,000 curtailment gain
resulting from workforce reductions.
52
<PAGE>
The following table shows the pension plan's obligations and assets as
well as the liability recorded in the corporation's balance sheet at
each year end.
<TABLE>
<CAPTION>
<S> <C> <C>
In thousands 1995 1994
----------------------------------------------------------------------------------------------------------
Actuarial present value of benefit obligations:
Vested benefit obligation $ 90,997 $ 72,620
============= =============
Accumulated benefit obligation $ 93,848 $ 74,403
============= =============
Actuarial present value of projected benefit obligation for
service rendered to date $ 105,593 $ 87,347
Pension plan assets at fair value 114,690 95,003
------------- -------------
Plan assets greater than projected benefit obligation 9,097 7,656
Unrecognized net gain (10,677) (9,459)
Unrecognized transition asset at January 1, 1996 being
amortized over 13 years (3,610) (4,818)
------------- -------------
Net pension liability $ (5,190) $ (6,621)
============= =============
Assumed discount rate 7.00 % 8.5%
Assumed rate of compensation increase 4.75 % 5.5%
Expected rate of return on pension plan assets 9.00 % 9.0%
</TABLE>
The plan's assets consist primarily of common stock, corporate and
government bonds and short-term investments. The corporation's policy
is to fund the minimum actuarially computed contributions required by
law. The corporation made a $102,000 cash contribution to the plan in
1994. No contribution was required for 1995.
Supplemental Executive Retirement Plan. The corporation has an
unfunded supplemental pension plan for executives. The expense for
this plan was $2,505,000, $2,976,000 and $2,058,000 for 1995, 1994 and
1993, respectively.
In accordance with the provisions of Financial Accounting Standard No.
87, the corporation recorded a minimum plan liability for the excess
of the accumulated benefit obligation over the accrued plan liability.
This was reported as a reduction to stockholders' equity of $3,563,000
as of December 31, 1995 and $1,557,000 as of December 31, 1994. These
amounts are net of deferred income taxes and net of an intangible
asset recorded for the unrecognized transition obligation.
The following table shows the plan's obligations as well as the
liability recorded in the corporation's balance sheet at each year
end.
<TABLE>
<CAPTION>
In thousands 1995 1994
----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation $ 20,220 $ 16,041
============= =============
Projected benefit obligation $ 21,443 $ 16,558
============= =============
Accrued liability $ 20,220 $ 16,041
============= =============
Assumed discount rate 7.00% 8.5%
Assumed rate of compensation increase 4.75% 5.5%
</TABLE>
401(k) Plan. The corporation has a 401(k) plan for qualifying
employees. A portion of employee contributions is matched by the
corporation. The corporation's matching contribution for the year
ended December 31, 1993 was $3,237,000. Since 1994, the matching
contributions have been made in shares of the corporation's common
stock. In 1995, 177,000 shares of common stock with a total market
value of $3,391,000 were
53
<PAGE>
contributed to the plan. In 1994, 79,000 shares with a total market
value of $1,941,000 were contributed to the plan.
Postretirement Benefits. The corporation provides health and life
insurance benefits to qualifying retirees. The expected cost of these
benefits is recognized during the years in which employees render
service.
The components of the net postretirement benefit expense for each year
were:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
In thousands 1995 1994 1993
------------------------------------------------------------------------------------------------------------
Service cost for benefits earned during the year $ 1,128 $ 1,756 $ 1,898
Interest cost on accumulated postretirement
benefit obligation 2,778 2,867 3,518
Net amortization and deferral (1,241) (1,221) (321)
-------------- -------------- --------------
Net postretirement benefit expense $ 2,665 $ 3,402 $ 5,095
============== ============== ==============
</TABLE>
The corporation recognized a $1,300,000 curtailment gain in the second
quarter of 1995 which arose from the elimination of postretirement
health care benefits for a group of employees. Additionally, the
provision for restructuring recorded in 1995 (see Note 16) is net of a
$993,000 curtailment gain resulting from workforce reductions.
The following table shows the plan's obligations as well as the
liability recorded in the corporation's balance sheet at each year
end.
<TABLE>
<CAPTION>
<S> <C> <C>
In thousands 1995 1994
---------------------------------------------------------------------------------------------------------
Accumulated postretirement benefit obligation:
Retirees $ 23,020 $ 20,598
Fully eligible active participants 5,158 3,845
Other active participants 10,614 12,363
------------- -------------
Total 38,792 36,806
Unrecognized gain from plan changes 10,454 11,614
Unrecognized net gain 251 2,397
------------ -------------
Net postretirement benefit liability $ 49,497 $ 50,817
============ =============
Assumed discount rate 7.00% 8.5%
Assumed rate of compensation increase 4.75% 5.5%
</TABLE>
A 10.0% increase in health care costs was assumed for 1995 with the
rate decreasing 0.5% each year to an ultimate rate of 5.5%. Increasing
the assumed trend rate by 1.0% each year would have increased the
accumulated postretirement benefit obligation as of December 31, 1995
by $3,858,000 and the benefit expense for 1995 by $507,000.
15. INCOME TAXES
The corporation adopted SFAS No. 109, "Accounting for Income Taxes,"
effective January 1, 1993. This accounting statement changed the
method for the recognition and measurement of deferred tax assets and
liabilities. The cumulative effect of adopting SFAS No. 109 on the
corporation's financial statements was to increase income by
$1,925,000 ($0.04 per share) and was recorded in the first quarter of
1993. Prior year financial statements were not restated.
54
<PAGE>
The components of income tax expense for each year are:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
In thousands 1995 1994 1993
--------------------------------------------------------------------------------------------------------
Federal:
Current $ 20,866 $ 28,655 $ 32,646
Deferred 12,772 18,064 19,419
Investment tax credits (3,307) (3,550) (3,627)
State and local 4,600 6,510 6,754
------------ ------------ ------------
Total $ 34,931 $ 49,679 $ 55,192
============ ============ ============
</TABLE>
The difference between tax expense computed at the statutory Federal
tax rate and the corporation's effective tax rate is:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
In thousands 1995 1994 1993
--------------------------------------------------------------------------------------------------------
Federal income taxes computed at the statutory rate $ 25,462 $ 44,562 $ 48,182
Net equity losses (profits) 4,206 (223) 540
Investment tax credits (3,307) (3,550) (3,627)
Losses with no tax benefit 3,833 1,156 2,321
State income taxes, net of Federal income tax benefit 2,987 4,227 4,326
Rate increase on prior year deferred taxes - - 2,977
Goodwill amortization 1,349 920 670
Merger costs - 1,556 -
Other 401 1,031 (197)
------------ ------------ ------------
Income tax expense $ 34,931 $ 49,679 $ 55,192
============ ============ ============
</TABLE>
The current and net non-current components of deferred tax accounts as
shown on the balance sheet at December 31, 1995 and 1994 are:
<TABLE>
<CAPTION>
<S> <C> <C>
In thousands 1995 1994
--------------------------------------------------------------------------------------------------------
Current deferred tax asset $ 12,445 $ 10,914
Non-current deferred tax liability (119,018) (104,309)
------------ ------------
Net liability $ (106,573) $ (93,395)
============ ============
</TABLE>
The deferred tax assets and liabilities at December 31, 1995 and 1994
are:
<TABLE>
<CAPTION>
<S> <C> <C>
In thousands 1995 1994
--------------------------------------------------------------------------------------------------------
Assets:
Postretirement benefits $ 21,760 $ 22,947
Accrued expenses 43,781 41,247
Alternative minimum tax credit 35,330 35,688
Long-term contract revenues 7,009 8,432
Other 4,381 377
------------ ------------
Total deferred tax assets 112,261 108,691
------------ ------------
Liabilities:
Property and equipment (211,292) (202,086)
Gain on sale of minority interest (7,074) -
Other (468) -
------------ ------------
Total deferred tax liabilities (218,834) (202,086)
------------ ------------
Net liability $ (106,573) $ (93,395)
============ ============
</TABLE>
The Internal Revenue Service (IRS) has completed examinations of the
Federal income tax returns of the corporation through 1989 and is
currently examining Federal income tax returns for 1990 through 1994.
The corporation has also amended its returns and filed claims for
refunds for 1979 through 1987. The IRS has denied these claims. The
corporation is contesting this denial by the IRS. In the opinion of
the corporation, adequate provision has been made for income taxes for
all periods through 1995.
55
<PAGE>
16. PROVISION FOR RESTRUCTURING
In the third quarter of 1995, the corporation took actions to
strategically restructure elements of all its business units to lower
costs and improve competitiveness for the long term. The corporation
recorded a $20,044,000 provision for these restructuring actions. This
provision includes $1,858,000 for employee severance costs in COMSAT
World Systems (CWS) and COMSAT Mobile Communications (CMC),
$10,866,000 to restructure COMSAT's entertainment businesses, and
$7,320,000 to restructure several businesses within COMSAT RSI (CRSI)
and for actions taken in COMSAT Laboratories.
The actions taken in CWS and CMC were associated with the
consolidation of the management and administration of these two
businesses into one business unit. As a result, various
administrative, marketing and other positions were eliminated.
In the third quarter of 1995, management decided to discontinue the
Satellite Cinema scheduled movie operations. The corporation is
converting certain Satellite Cinema hotel properties to services
provided by On Command Video Corporation and has discontinued or sold
Satellite Cinema operations at the remaining hotel properties. The
restructuring charge included a provision of $5,140,000 to write down
property and inventory to estimated realizable value, an accrual of
$1,010,000 for employee severance costs and a charge of $4,716,000 for
costs related principally to settling contractual commitments incurred
to support the Satellite Cinema business that will not be fulfilled.
Additional charges related to the discontinued Satellite Cinema
operations may be recorded based upon actual salvage values or
severance costs for additional personnel. Revenues for the Satellite
Cinema operations were $25,036,000, $34,753,000 and $41,325,000 for
the years ended December 31, 1995, 1994 and 1993, respectively.
Operating income (loss) before allocation of general and
administrative expenses was $(16,591,000), $3,897,000 and $2,017,000
for the years ended December 31, 1995, 1994 and 1993, respectively.
Within CRSI, the corporation combined the management and
administration of four of its business units into two businesses and
decided to discontinue certain product lines in another business unit.
The corporation also downsized one of the divisions of its
Laboratories business. These actions were substantially completed by
the end of 1995. The restructuring provision included $1,920,000 for
employee severance costs associated with these actions and $5,400,000
primarily to write down inventory to its estimated realizable value.
17. BUSINESS SEGMENT INFORMATION
The corporation reports operating results and financial data in four
business segments: International Communications, Mobile
Communications, Technology Services and Entertainment. The
International Communications segment consists of activities undertaken
by the corporation in its COMSAT World Systems (CWS) and COMSAT
International Ventures (CIV) businesses. CWS provides voice, data,
video and audio communications services between the U.S. and other
countries using the INTELSAT satellite network. CIV develops, acquires
and manages telecommunications companies in high-growth emerging
markets overseas. These ventures provide a wide array of private line
and public switched communications services and equipment
installations. The Mobile Communications segment consists of
activities undertaken by the corporation in its COMSAT Mobile
Communications (CMC) business. CMC provides voice, data, fax, telex
and information services for ships, aircraft and land mobile
applications throughout the world using the Inmarsat satellite system.
The Technology Services segment consists of the financial results of
COMSAT RSI and COMSAT Laboratories, which include the design and
manufacture of voice and data communications networks and products,
56
<PAGE>
systems integration services, and applied research and technology
services for worldwide users. The Entertainment segment consists of
the financial results of Ascent (see Note 5). Ascent provides
on-demand entertainment programming and information services primarily
to the domestic hospitality industry, owns a professional basketball
team and a professional hockey team, and owns a film and television
production company.
Segment Information
<TABLE>
<CAPTION>
<S> <C> <C> <C>
In thousands 1995 1994 1993
--------------------------------------------------------------------------------------------------------
Revenues:
International Communications $ 292,391 $ 271,136 $ 249,935
Mobile Communications 180,384 193,530 190,040
Technology Services (1) 205,912 219,119 202,161
Entertainment 191,477 156,846 121,814
Eliminations and other corporate (18,107) (13,732) (9,665)
------------ ------------ ------------
Total $ 852,057 $ 826,899 $ 754,285
============ ============ ============
Operating income (loss) (2)
International Communications $ 87,947 $ 96,609 $ 97,351
Mobile Communications 53,504 53,518 53,753
Technology Services (1) 13,990 21,423 18,309
Entertainment (15,445) 13,603 9,583
Merger and integration costs - (7,367) -
Provision for restructuring (3) (20,044) - -
Other corporate (24,317) (27,535) (27,416)
------------ ------------ ------------
Total $ 95,635 $ 150,251 $ 151,580
============ ============ ============
Identifiable assets as of December 31:
International Communications $ 949,684 $ 884,637 $ 822,034
Mobile Communications 418,878 420,570 401,649
Technology Services 176,529 147,015 165,011
Entertainment 483,507 368,904 257,718
Corporate and other assets (4) 285,668 154,866 127,101
------------ ------------ ------------
Total $ 2,314,266 $ 1,975,992 $ 1,773,513
============ ============ ============
Property and equipment additions:
International Communications $ 178,787 $ 136,525 $ 116,652
Mobile Communications 39,795 55,103 50,586
Technology Services 6,910 4,067 7,468
Entertainment 85,111 90,053 65,325
Corporate and other assets 717 835 2,835
------------ ------------ ------------
Total $ 311,320 $ 286,583 $ 242,866
============ ============ ============
Depreciation and amortization:
International Communications $ 96,224 $ 84,925 $ 73,636
Mobile Communications 40,096 35,299 32,772
Technology Services 7,206 6,880 7,916
Entertainment 56,213 38,010 25,329
Corporate and other assets 2,285 2,670 2,458
------------ ------------ ------------
Total $ 202,024 $ 167,784 $ 142,111
============ ============ ============
</TABLE>
(1) Technology Services segment revenues include intersegment
sales totaling $9,960,000 in 1995, $8,625,000 in 1994 and
$10,132,000 in 1993. Intersegment sales for other segments
are not significant. Revenues and operating income reported
for the Technology Services segment include business
interruption insurance proceeds of $4,835,000 in 1994 and
$3,021,000 in 1993.
(2) The method of allocating indirect corporate costs was changed
in 1995. Segment operating results for 1994 and 1993 have
been restated for this change.
(3) If the 1995 provision for restructuring (see Note 16) had
been charged to segment operating income, the amounts
allocated to each segment would have been: International
Communications, $515,000; Mobile Communications, $1,343,000;
Entertainment, $10,866,000; and Technology Services,
$7,320,000.
(4) The corporation's investments in unconsolidated businesses are
included in Corporate and other assets.
57
<PAGE>
Related Party Transactions. The corporation provides support services
to INTELSAT and support services and satellite capacity to Inmarsat.
The revenues from these services were $25,190,000 in 1995, $26,162,000
in 1994 and $23,190,000 in 1993. These revenues were recorded
primarily in the International Communications and Technology Services
segments.
Significant Customers. Revenues in 1995,1994 and 1993, respectively,
included sales to the U.S. Government of $121,152,000, $121,715,000
and $115,446,000, and to AT&T of $81,866,000, $100,096,000 and
$117,582,000. Substantially all of the U.S. Government sales are
reported in the Mobile Communications and Technology Services
segments. Substantially all of the sales to AT&T are reported in the
International Communications and Mobile Communications segments.
18. FINANCIAL INSTRUMENTS AND OFF-BALANCE-SHEET RISKS
The corporation owns a 50% interest in a partnership which owns the
headquarters building leased by the corporation (see Note 10). The
corporation has guaranteed repayment of a portion of the partnership's
construction loan. The balance of the guarantee was $2,396,000 as of
December 31, 1995. The guarantee will be reduced as the loan's
principal balance is repaid. The corporation was also contingently
liable to banks for $13,731,000 as of December 31, 1995, for
outstanding letters of credit securing performance of certain
contracts. The estimated fair value of these instruments is not
significant.
Inmarsat has entered into foreign currency contracts designed to
minimize exposure to exchange rate fluctuations on fixed operating
expenses denominated primarily in British pounds sterling. At December
31, 1995, Inmarsat had several contracts maturing in 1996 to purchase
foreign currency for a total of $87,200,000. The corporation's share
of the estimated fair value of these contracts, as determined by a
bank, is an unrealized loss of approximately $400,000 at December 31,
1995.
Inmarsat has entered into interest rate and foreign currency swap
arrangements to minimize the exposure to interest rate and foreign
currency exchange fluctuations related to its satellite financing
obligations. Inmarsat borrowed and is obligated to repay pounds
sterling. The pounds sterling borrowed were swapped for U.S. dollars
with an agreement to exchange the dollars for pounds sterling in order
to meet the future lease payments. Inmarsat pays interest on the
dollars at an average fixed rate of 8.8%, and it receives variable
interest on the sterling amounts based on short-term LIBOR rates. The
differential to be paid or received is accrued as interest rates
change and is recognized over the life of the agreements. The currency
swap arrangements have been designated as hedges, and any gains or
losses are included in the measurement of the debt. The effect of
these swaps is to change the sterling lease obligation into
fixed-interest-rate dollar debt. As of December 31, 1995, Inmarsat had
$406,900,000 of swaps to be exchanged for (pound)249,500,000 sterling
at various dates through 2006. Inmarsat is exposed to loss if one or
more of the counterparties defaults. However, Inmarsat does not
anticipate non-performance by the counterparties as all are major
financial institutions. The corporation's share of the estimated fair
value of these swaps is an unrealized loss of $10,000,000 at December
31, 1995. The fair value was estimated by computing the present value
of the dollar obligations using current rates available for issuance
of debt with similar terms, and the current value of the sterling at
year-end exchange rates.
58
<PAGE>
The fair value of long-term debt (excluding capitalized leases) was
estimated by obtaining a yield-adjusted price as of December 31, 1995
for each obligation from an investment banker.
Book
In thousands Amount Fair Value
----------------------------------------------------------------------
8.125% notes due 2004 $ 160,000 $ 178,112
8.95% notes due 2001 75,000 85,470
INTELSAT bonds 181,507 199,108
Medium-term notes 74,000 83,227
The fair values of the remaining long-term debt not itemized above and
the corporation's other financial instruments are approximately equal
to their carrying values.
19. QUARTERLY FINANCIAL INFORMATION (Unaudited)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
In thousands, except per First Second Third Fourth Total
share amount Quarter Quarter Quarter Quarter Year
-----------------------------------------------------------------------------------------------------------
1995:
Revenues $ 207,883 $ 210,809(1) $ 203,894 $ 229,471(1) $ 852,057
Operating income 29,757 44,939 628(2) 20,311 95,635
Net income (loss) 14,573 22,012 (15,623) 16,855(3) 37,817
Earnings (loss) per share 0.31 0.46 (0.33) 0.35 0.79
Dividends per share 0.19-1/2 0.19-1/2 0.19-1/2 0.19-1/2 0.78
Stock price:
High 21-5/8 21 24-5/8 22-5/8 24-5/8
Low 17-5/8 18-1/4 19-1/2 18-1/4 17-5/8
Close 18-5/8 19-5/8 22-5/8 18-5/8 18-5/8
-----------------------------------------------------------------------------------------------------------
1994:
Revenues $ 200,495 $ 207,861(4) $ 200,771 $ 217,772 $ 826,899
Operating income (5) 36,874 41,893 41,436 30,048(6) 150,251
Net income 20,181 21,617 21,398 14,446 77,642
Earnings per share 0.43 0.46 0.45 0.30 1.64
Dividends per share 0.18-1/2 0.18-1/2 0.19-1/2 0.19-1/2 0.76
Stock price:
High 30 26-1/2 26-1/2 25-5/8 30
Low 24-7/8 20-1/2 23 17-1/2 17-1/2
Close 26-1/8 23-1/2 25-5/8 18-5/8 18-5/8
</TABLE>
(1) Revenues include the corporation's share of NBA expansion fees
totaling $8,802,000 in the second quarter of 1995 and $367,000 in
the fourth quarter of 1995.
(2) The third quarter of 1995 includes a $20,044,000 provision for
restructuring (see Note 16 to the financial statements).
(3) The fourth quarter of 1995 includes a $19,286,000 pre-tax gain as
a result of the public offering of the common stock of Ascent
(see Note 5 to the financial statements). Additionally, the
corporation recorded accounting charges to operating income totaling
$2,265,000 net of tax, to conform the corporation's consolidation of
Ascent to Ascent's externally reported financial results.
(4) Revenues include business interruption insurance income of
$4,835,000 in the second quarter of 1994.
(5) Operating income is net of nonrecurring charges for merger and
integration costs totaling $4,264,000, $477,000 and $2,626,000 in
the second, third and fourth quarters of 1994, respectively.
(6) The fourth quarter of 1994 includes nonrecurring charges of
$1,049,000 for employee severance costs related to a reduction in
force and $7,206,000 for the corporation's share of costs related
to an early retirement program offered by INTELSAT.
59
<PAGE>
Item 9. Disagreements on Accounting and Financial Disclosure. None.
PART III
Except for the portion of Item 10 relating to Executive Officers which
is included in Part I of this Report, the information called for by Items
10-13 is incorporated by reference from the COMSAT - 1996 Annual Meeting of
Shareholders - Notice and Proxy Statement - (to be filed pursuant to
Regulation 14A not later than 120 days after the close of the fiscal year)
which meeting involves the election of directors, in accordance with
General Instruction G to the Annual Report on Form 10-K.
Item 10. Directors and Officers of the Registrant.
Item 11. Executive Compensation.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Item 13. Certain Relationships and Related Transactions.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) Documents filed as part of this Report.
1. Consolidated Financial Statements and Supplementary Data of
Registrant.
a. Independent Auditors' Report
b. Consolidated Financial Statements of COMSAT Corporation and
Subsidiaries
(i) Consolidated Income Statements for the Years Ended
December 31, 1995, 1994 and 1993
(ii) Consolidated Balance Sheets as of December 31, 1995
and 1994
(iii) Consolidated Cash Flow Statements for the Years Ended
December 31, 1995, 1994 and 1993
(iv) Statements of Changes in Consolidated Stockholders'
Equity for the Years Ended December 31, 1995, 1994
and 1993
(v) Notes to Consolidated Financial Statements for Each
of the Three Years in the Period Ended December 31,
1995
60
<PAGE>
2. Financial Statement Schedules Relating to the Consolidated
Financial Statements of COMSAT Corporation for Each of the
Three Years in the Period Ended December 31, 1995.
a. Schedule I -- Condensed Financial Information of Registrant
b. Schedule II -- Valuation and Qualifying Accounts
All Schedules except those listed above have been omitted
because they are not applicable or not required or because the
required information is included elsewhere in the financial
statements in this filing.
(b) Reports on Form 8-K.
None.
(c) Exhibits (listed according to the number assigned in the table in
Item 601 of Regulation S-K).
Exhibit No. 3 - Articles of Incorporation and By-laws.
3.1 Articles of Incorporation of Registrant, composite copy, as
amended through June 1, 1993. (Incorporated by reference
from Exhibit No. 4(a) to Registrant's Registration Statement
on Form S-3 (No. 33-51661) filed on December 22, 1993).
3.2 By-laws of Registrant, as amended through February 16, 1996.
3.3 Regulations adopted by Registrant's Board of Directors
pursuant to Section 5.02(c) of Registrant's Articles of
Incorporation. (Incorporated by reference from Exhibit No.
3(c) to Registrant's Report on Form 10-K for the fiscal year
ended 1992.)
Exhibit No. 4 - Instruments defining the rights of security holders,
including indentures.
4.1 Specimen of a certificate representing Series I shares of
COMSAT Common Stock, without par value, registered under
Section 12 of the Securities Exchange Act of 1934, which are
held by citizens of the United States. (Incorporated by
reference from Exhibit No. 4(a) to Registrant's Report on
Form 10-K for the fiscal year ended December 31, 1993.)
4.2 Specimen of a certificate representing Series I shares of
COMSAT Common Stock, without par value, registered under
Section 12 of the Securities Exchange Act of 1934, which are
held by aliens. (Incorporated by reference from Exhibit No.
4(b) to Registrant's Report on Form 10-K for the fiscal year
ended December 31, 1982.)
4.3 Specimen of a certificate representing Series II shares of
COMSAT Common Stock, without par value, registered under
Section 12 of the Securities Exchange Act of 1934.
(Incorporated by reference from Exhibit No. 4(c) to
Registrant's Report on Form 10-K for the fiscal year ended
December 31, 1982.)
61
<PAGE>
4.4 Standard Multiple-Series Indenture Provisions, dated March
15, 1991. (Incorporated by reference from Exhibit No. 4(a)
to Registrant's Registration Statement on Form S-3 (No.
33-39472) filed on March 15, 1991.)
4.5 Indenture dated as of March 15, 1991 between Registrant and
The Chase Manhattan Bank, N.A. (Incorporated by reference
from Exhibit No. 4(b) to Registrant's Registration Statement
on Form S-3 (No. 33-39472) filed on March 15, 1991.)
4.6 Supplemental Indenture, dated as of June 29, 1994, from the
Registrant to The Chase Manhattan Bank, N. A. (Incorporated
by reference from Exhibit No. 4(c) to Registrant's
Registration Statement on Form S-3 (No. 33-54369) filed on
June 30, 1994.)
4.7 Officers' Certificate pursuant to Section 3.01 of the
Indenture, dated as of March 15, 1991, from the Registrant
to the Chase Manhattan Bank (National Association), as
Trustee, relating to the authorization of $75,000,000
aggregate principal amount of Registrant's 8.95% Notes Due
2001 (with form of Note attached). (Incorporated by
reference from Exhibit No. 4 to Registrant's Current Report
on Form 8-K filed on May 15, 1991.)
4.8 Officers' Certificate pursuant to Section 3.01 of the
Indenture, dated as of March 15, 1991, from the Registrant
to the Chase Manhattan Bank (National Association), as
Trustee, relating to the authorization of $160,000,000
aggregate principal amount of Registrant's 8.125% Debentures
Due 2004 (with form of Debenture attached). (Incorporated by
reference from Exhibit No. 4 to Registrant's Current Report
on Form 8-K filed on April 9, 1992.)
4.9 Officers' Certificate pursuant to Section 3.01 of the
Indenture, dated as of March 15, 1991, as supplemented by
the Supplemental Indenture, dated as of June 29, 1994, from
the Registrant to the Chase Manhattan Bank (National
Association), as Trustee, relating to the authorization of
$100,000,000 aggregate principal amount of Registrant's
Medium Term Notes, Series A (with forms of Notes attached).
(Incorporated by reference from Exhibit No. 4(i) to
Registrant's Report on Form 10-K for the fiscal year ended
December 31, 1994.)
4.10 Limited Partnership Agreement of COMSAT Capital I, L.P.,
dated as of July 18, 1995, relating to issuance of monthly
income preferred securities. (Incorporated by reference from
Exhibit No. 4(a) to Registrant's Report on Form 10-Q for the
quarter ended June 30, 1995.)
4.11 Guarantee Agreement for Preferred Securities of COMSAT
Capital I, L.P., dated as of July 18, 1995. (Incorporated by
reference from Exhibit No. 4(b) to Registrant's Report on
Form 10-Q for the quarter ended June 30, 1995.)
4.12 Indenture between Registrant and the First National Bank of
Chicago, as Trustee, dated as of July 18, 1995.
(Incorporated by reference from Exhibit No. 4(c) to
Registrant's Report on Form 10-Q for the quarter ended June
30, 1995.)
62
<PAGE>
Exhibit No. 10 - Material Contracts
10.1 Agreement Relating to the International Telecommunications
Satellite Organization (INTELSAT) by Governments, which
entered into force on February 12, 1973. (Incorporated by
reference from Exhibit No. 10(a) to Registrant's Report on
Form 10-K for the fiscal year ended December 31, 1980.)
10.2 Operating Agreement Relating to INTELSAT by Governments
which entered into force on February 12, 1973. (Incorporated
by reference from Exhibit No. 10(b) to Registrant's Report
on Form 10-K for the fiscal year ended December 31, 1980.)
10.3 Agreement dated August 15, 1975, among COMSAT General
Corporation, RCA Global Communications, Inc., Western Union
International, Inc. and ITT World Communications, Inc.
relating to the establishment of a joint venture for the
purpose of participating in the ownership and operation of a
maritime communications satellite system and Amendment Nos.
1-4 and Amendment No. 5 dated March 24, 1980. (Incorporated
by reference from Exhibit No. 10(p) to Registrant's Report
on Form 10-K for the fiscal year ended December 31, 1980.)
10.4 Amendment No. 6 to Exhibit 10.3 dated September 1, 1981.
(Incorporated by reference from Exhibit No. 10(p)(ii) to
Registrant's Report on Form 10-K for the fiscal year ended
December 31, 1981.)
10.5 Convention on the International Maritime Satellite
Organization (INMARSAT) dated September 3, 1976.
(Incorporated by reference from Exhibit No. 11 to
Registrant's Report on Form 10-K for the fiscal year ended
December 31, 1978.)
10.6 Operating Agreement on INMARSAT dated September 3, 1976.
(Incorporated by reference from Exhibit No. 12 to
Registrant's Report on Form 10-K for the fiscal year ended
December 31, 1978.)
10.7* Registrant's 1982 Stock Option Plan. (Incorporated by
reference from Exhibit No. 10(x) to Registrant's Report on
Form 10-K for the fiscal year ended December 31, 1981.)
10.8 Agreement dated October 6, 1983, between COMSAT General
Corporation and National Broadcasting Company for the
provision of satellite distribution network programming.
(Incorporated by reference from Exhibit No. 10(r) to
Registrant's Report on Form 10-K for the fiscal year ended
December 31, 1983.)
10.9 Amendment to Exhibit 10.8 dated September 1, 1992.
(Incorporated by reference from Exhibit No. 10(j)(i) to
Registrant's Report on Form 10-K for the fiscal year ended
December 31, 1992.)
10.10* Registrant's Insurance and Retirement Plan for Executives,
as amended and restated by the Board of Directors on June
21, 1985, as amended by the Board of Directors
63
<PAGE>
on July 15, 1993. (Incorporated by reference from Exhibit No.
10(h) to the Registrant's Form 10-K for the fiscal year
ended December 31, 1993.)
10.11* Registrant's 1986 Key Employee Stock Plan. (Incorporated by
reference from Exhibit No. 10(g) to Registrant's
Registration Statement on Form S-4 (File No. 33-9966) filed
on November 4, 1986.)
10.12* Registrant's Non-Employee Directors Stock Option Plan.
(Incorporated by reference from Exhibit No. 10(h) to
Registrant's Report on Form 10-K for the fiscal year ended
December 31, 1987.)
10.13 Amendment No. 1 to Exhibit 10.12 dated March 16, 1990.
(Incorporated by reference from Exhibit No. 10(g)(i) to
Registrant's Report on Form 10-K for the fiscal year ended
December 31, 1989.)
10.14 Amendment No. 2 to Exhibit 10.12 dated January 15, 1993.
(Incorporated by reference from Exhibit No. 10(k)(ii) to
Registrant's Report on Form 10-K for the fiscal year ended
December 31, 1993.)
10.15 Memorandum of Understanding between Registrant and National
Aeronautics and Space Administration (NASA), dated July 21,
1988 and amended through February 22, 1990. (Incorporated by
reference from Exhibit No. 10(aa) to Registrant's Report on
Form 10-K for the fiscal year ended December 31, 1989.)
10.16 Agreement to Acquire and Lease (and Supplemental Agreements
thereto) dated September 28 and October 10, 1988,
respectively, among the International Maritime Satellite
Organization (Inmarsat), the North Sea Marine Leasing
Company, British Aerospace Public Limited Company, the
European Investment Bank, Kreditanstalt Fuer Wiederaufbau,
European Investment Bank (as Agent and as Trustee),
Instituto Mobiliare Italiano, Credit National, Hellenic
Industrial Development Bank, and Society Nationale de Credit
a L'Industrie relating to the financing of three Inmarsat
spacecraft. (Incorporated by Reference from Exhibit No. 3(a)
to Registrant's Report on Form 10-K for the fiscal year
ended December 31, 1988.)
10.17 Service Agreement, dated September 14, 1989, between
Registrant and Aeronautical Radio, Inc. relating to
satellite-based communications services. (Incorporated by
reference from Exhibit No. 10(y) to Registrant's Report on
Form 10-K for the fiscal year ended December 31, 1989.)
10.18 Agreement, dated January 22, 1990, between Registrant and
Kokusai Denshin Denwa Co., Ltd. for provision of
aeronautical services. (Incorporated by reference from
Exhibit No. 10(z) to Registrant's Report on Form 10-K for
the fiscal year ended December 31, 1990.)
64
<PAGE>
10.19 Amendment No. 1 to Exhibit 10.18 dated May 20, 1993.
(Incorporated by reference from Exhibit No. 10(q)(i) to
Registrant's Report on Form 10-K for the fiscal year ended
December 31, 1993.)
10.20* Registrant's 1990 Key Employee Stock Plan. (Incorporated by
reference from Exhibit No. 10 (p) to Registrant's Report on
Form 10-K for the fiscal year ended December 31, 1989.)
10.21* Amendment No. 1 to Exhibit 10.20 dated January 15, 1993.
(Incorporated by reference from Exhibit No. 10(r)(i) to
Registrant's Report on Form 10-K for the fiscal year ended
December 31, 1993.)
10.22* Amendment No. 2 to Exhibit 10.20 dated January 16, 1994.
(Incorporated by reference from Exhibit No. 10(o)(ii) to
Registrant's Report on Form 10-K for the fiscal year ended
December 31, 1994.)
10.23 Amended and Restated Agreement, dated November 14, 1990, of
Limited Partnership of Rock Spring II Limited Partnership.
(Incorporated by reference from Exhibit No. 10(a) to
Registrant's Current Report on Form 8-K filed on February
24, 1992.)
10.24 Amended and Restated Lease Agreement, dated November 14,
1990, of Limited Partnership of Rock Spring II Limited
Partnership. (Incorporated by reference from Exhibit No.
10(b) to Registrant's Current Report on Form 8-K filed on
February 24, 1992.)
10.25 Amended and Restated Ground Lease Indenture, dated November
14, 1990, between Anne D. Camalier (Landlord) and Rock
Spring II Limited Partnership (Tenant). (Incorporated by
reference from Exhibit No. 10(c) to Registrant's Current
Report on Form 8-K filed on February 24, 1992.)
10.26 Finance Facility Contract (and Supplemental Agreements
thereto), dated December 20, 1991, among the International
Maritime Satellite Organization (Inmarsat), Abbey National
plc, General Electric Technical Services Company, Inc.,
European Investment Bank, Kreditanstalt Fuer Wiederaufbau,
Instituto Mobiliare Italiano S.p.A., Credit National,
Societe Nationale de Credit a L'Industrie,
Finansieringsinstituttet for Industri OG Haandvaerk A/S, De
Nationale Investeringsbank NV, and Osterreichische
Investitionkredit Aktiengesellschaft relating to the
financing of three Inmarsat spacecraft. (Incorporated by
reference from Exhibit No. 10 (dd) to Registrant's Report on
Form 10-K for the fiscal year ended December 31, 1991.)
10.27* Registrant's Directors and Executives Deferred Compensation
Plan, as amended by the Board of Directors on July 15, 1993.
(Incorporated by reference from Exhibit No. 10(v) to the
Registrant's Report on Form 10-K for the fiscal year ended
December 31, 1993.)
65
<PAGE>
10.28 Service Agreement, dated September 12, 1990, between
Registrant and GTE Airfone, Incorporated, for the provision
of aeronautical satellite services. (Incorporated by
reference from Exhibit No. 10(r) to Registrant's Report on
Form 10-K for the fiscal year ended December 31, 1990.)
10.29 Fiscal Agency Agreement, dated as of August 6, 1992, between
International Telecommunications Satellite Organization and
Morgan Guaranty Trust Company of New York. (Incorporated by
reference from Exhibit No. 10 (dd) to Registrant's Report on
Form 10-K for the fiscal year ended December 31, 1992.)
10.30 Fiscal Agency Agreement, dated as of January 19, 1993,
between International Telecommunications Satellite
Organization and Morgan Guaranty Trust Company of New York.
(Incorporated by reference from Exhibit No. 10 (ee) to
Registrant's Report on Form 10-K for the fiscal year ended
December 31, 1992.)
10.31 Lease Agreement, dated June 8, 1993, between GTE Airfone,
Incorporated, United Airlines, Inc. and Registrant for the
provision and financing of aeronautical satellite equipment.
(Incorporated by reference from Exhibit No. 10(aa) to
Registrant's Report on Form 10-K for the fiscal year ended
December 31, 1993.)
10.32 Agreement dated July 1, 1993, between Registrant and AT&T
Easylink Services relating to exchange of telex traffic.
(Incorporated by reference from Exhibit No. 10(bb) to
Registrant's Report on Form 10-K for the fiscal year ended
December 31, 1993.)
10.33 Agreement dated July 27, 1993, between the Registrant and
American Telephone & Telegraph Company relating to
utilization of space segment. (Incorporated by reference
from Exhibit No. 10(cc) to Registrant's Report on Form 10-K
for the fiscal year ended December 31, 1993.)
10.34 Amendment to Exhibit 10.33 dated as of December 1, 1995.
10.35 Agreement dated September 1, 1993, between Registrant and
MCI International, Inc. relating to exchange of traffic.
(Incorporated by reference from Exhibit No. 10(dd) to
Registrant's Report on Form 10-K for the fiscal year ended
December 31, 1993.)
10.36 Agreement dated November 30, 1993, between the Registrant
and Sprint Communications Company L.P. relating to
utilization of space segment. (Incorporated by reference
from Exhibit No. 10(ee) to Registrant's Report on Form 10-K
for the fiscal year ended December 31, 1993.)
66
<PAGE>
10.37 Amendment to Exhibit 10.36 dated April 7, 1995.
(Incorporated by reference from Exhibit No. 10(a)(i) to
Registrant's Report on Form 10-Q/A Amendment No. 2 dated
June 29, 1995 for the quarter ended March 31, 1995.)
10.38 Agreement dated December 10, 1993, between Registrant and
Sprint International relating to the exchange of traffic.
(Incorporated by reference from Exhibit No. 10(ff) to
Registrant's Report on Form 10-K for the fiscal year ended
December 31, 1993.)
10.39 Credit Agreement dated as of December 17, 1993 among
Registrant, NationsBank of North Carolina, N.A., Bank of
America National Trust and Savings Association, The First
National Bank of Chicago, The Chase Manhattan Bank, N.A.,
The Sumitomo Bank, Limited, New York Branch, Swiss Bank
Corporation, New York Branch, as lenders, and NationsBank of
North Carolina, N.A., as agent. (Incorporated by reference
from Exhibit No. 10(gg) to Registrant's Report on Form 10-K
for the fiscal year ended December 31, 1993.)
10.40 Amendment No. 1 to Exhibit 10.39 dated as of December 17,
1994. (Incorporated by reference from Exhibit No. 10(cc)(i)
to Registrant's Report on Form 10-K for the fiscal year
ended December 31, 1994.)
10.41 Agreement dated January 24, 1994, between MCI International,
Inc. and Registrant relating to utilization of space
segment. (Incorporated by reference from Exhibit No. 10(ii)
to Registrant's Report on Form 10-K for the fiscal year
ended December 31, 1993.)
10.42 Amendment to Exhibit 10.41 dated as of July 1, 1995.
10.43 Agreement dated February 18, 1994, between Registrant and
AT&T relating to exchange of traffic. (Incorporated by
reference from Exhibit No. 10(jj) to Registrant's Report on
Form 10-K for the fiscal year ended December 31, 1993.)
10.44 Fiscal Agency Agreement between International
Telecommunications Satellite Organization, Issuer, and
Bankers Trust Company, Fiscal Agent and Principal Paying
Agent, dated as of 22 March 1994. (Incorporated by reference
from Exhibit No. 10(kk) to Registrant's Report on Form 10-K
for the fiscal year ended December 31, 1993.)
10.45 Distribution Agreement dated July 11, 1994 between
Registrant and CS First Boston Corporation, Salomon Brothers
Inc and Nationsbanc Capital Markets, Inc., as Distributors,
of Registrant's Medium-Term Notes, Series A. (Incorporated
by reference from Exhibit No. 10(ff) to Registrant's Report
on Form 10-K for the fiscal year ended December 31, 1994.)
10.46 Fiscal Agency Agreement between International
Telecommunications Satellite Organization, Issuer, and
Morgan Guaranty Trust Company, Fiscal Agent and Principal
Paying Agent, dated as of 14 October 1994. (Incorporated by
reference
67
<PAGE>
from Exhibit No. 10(gg) to Registrant's Report on Form 10-K for
the fiscal year ended December 31, 1994.)
10.47* Registrant's Annual Incentive Plan. (Incorporated by
reference from Exhibit No. 10(hh) to Registrant's Report on
Form 10-K for the fiscal year ended December 31, 1994.)
10.48 Fiscal Agency Agreement between International
Telecommunications Satellite Organization, Issuer, and
Morgan Guaranty Trust Company, Fiscal Agent and Principal
Paying Agent, dated as of 28 February 1995. (Incorporated by
reference from Exhibit No. 10(ii) to Registrant's Report on
Form 10-K for the fiscal year ended December 31, 1994.)
10.49 Asset Purchase Agreement, dated as of May 24, 1995, between
COMSAT Video Enterprises, Inc. and Le Club de Hockey Les
Nordiques, Societe en Commandite (Limited Partnership).
(Incorporated by reference from Exhibit No. 10(a) to
Registrant's Report on Form 10-Q for the quarter ended June
30, 1995.)
10.50* Employment Agreement, dated as of December 18, 1995, between
Ascent and Charles Lyons. (Incorporated by reference from
Exhibit No. 10.16 to the Report on Form 10-K filed by Ascent
Entertainment Group, Inc. for the fiscal year ended December
31, 1995.)
10.51* Agreement, dated as of December 5, 1995, between the
Registrant and Ronald J. Mario.
10.52* Employment Agreement, dated as of January 30, 1994, by and
among the Registrant, CTS America, Inc. and Richard E.
Thomas. (Incorporated by reference from Exhibit No. 10(a) to
Registrant's Registration Statement on Form S-4 (File No.
33-53437) filed on May 3, 1994.)
10.53* Registrant's 1995 Key Employee Stock Plan. (Incorporated by
reference from Exhibit No. 99 to the Registrant's definitive
Proxy Statement on Schedule 14A filed on April 7, 1995).
10.54 Corporate Agreement, dated as of December 18, 1995, between
the Registrant and Ascent relating to certain matters
arising in connection with Ascent's initial public offering.
10.55 Intercompany Services Agreement, dated as of December 18,
1995, between the Registrant and Ascent relating to the
provision of certain services subsequent to Ascent's initial
public offering.
68
<PAGE>
10.56 Tax Sharing Agreement, dated as of December 18, 1995,
between the Registrant and Ascent relating to certain tax
matters arising subsequent to Ascent's initial public
offering.
Exhibit No. 11 - Statement re computation of per share earnings.
Exhibit No. 21 - Subsidiaries of the Registrant as of March 31, 1996.
Exhibit No. 23 - Consents of experts and counsel.
Consent of Independent Auditors dated March 29, 1996.
Exhibit No. 27 - Financial Data Schedule.
*Compensatory plan or arrangement.
69
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
COMSAT CORPORATION
(Registrant)
Date: March 29, 1996 By /s/ Alan G. Korobov
(Alan G. Korobov, Controller)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by each of the following persons on behalf of
the Registrant and in the capacity and on the date indicated.
(1) Principal executive officer
Date: March 29, 1996 By /s/ Bruce L. Crockett
----------------------
(Bruce L. Crockett, President and
Chief Executive Officer)
(2) Principal financial officer
Date: March 29, 1996 By /s/ Allen E. Flower
--------------------
(Allen E. Flower, Vice President
and Chief Financial Officer)
(3) Principal accounting officer
Date: March 29, 1996 By /s/ Alan G. Korobov
--------------------
(Alan G. Korobov, Controller)
70
<PAGE>
(4) Board of Directors
Date: March 29, 1996 By /s/ Melvin R. Laird
(Melvin R. Laird, Chairman and
Director)
By /s/ Lucy Wilson Benson
(Lucy Wilson Benson, Director)
By /s/ Edwin I. Colodny
(Edwin I. Colodny, Director)
By /s/ Bruce L. Crockett
(Bruce L. Crockett, Director)
By /s/ Lawrence S. Eagleburger
(Lawrence S. Eagleburger, Director)
By /s/ Neal B. Freeman
(Neal B. Freeman, Director)
By /s/ Barry M. Goldwater
(Barry M. Goldwater, Director)
By /s/ Arthur Hauspurg
(Arthur Hauspurg, Director)
By /s/ Peter S. Knight
(Peter S. Knight, Director)
By /s/ Peter W. Likins
(Peter W. Likins, Director)
71
<PAGE>
By /s/ Howard M. Love
(Howard M. Love, Director)
By /s/ Charles T. Manatt
(Charles T. Manatt, Director)
By /s/ Robert G. Schwartz
(Robert G. Schwartz, Director)
By /s/ C. J. Silas
(C. J. Silas, Director)
By /s/ Dolores D. Wharton
(Dolores D. Wharton, Director)
72
<PAGE>
<TABLE>
<CAPTION>
COMSAT CORPORATION (PARENT COMPANY)
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
INCOME STATEMENTS
For the Years Ended December 31, 1995, 1994 and 1993
In thousands 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues $ 428,943 $ 446,380 $ 443,986
-------------- -------------- --------------
Operating expenses:
Cost of services 130,899 163,745 169,841
Depreciation and amortization 131,596 121,131 109,373
Research and development 9,114 10,009 11,710
General and administrative 19,856 22,851 21,819
Merger and integration costs - 2,469 -
Provision for restructuring 3,702 - -
-------------- -------------- --------------
Total operating expenses 295,167 320,205 312,743
-------------- -------------- --------------
Operating income 133,776 126,175 131,243
Gain on sale of shares of a subsidiary 19,286 - -
Other income, net 2,160 1,371 8,984
Interest cost (66,801) (47,924) (44,356)
Interest capitalized 20,355 23,662 22,197
-------------- -------------- --------------
Income before taxes, equity in net income (loss) of
subsidiaries and cumulative effect of accounting change 108,776 103,284 118,068
Income tax expense (42,515) (39,507) (46,315)
-------------- -------------- --------------
Income before equity in net income (loss) of subsidiaries
and cumulative effect of accounting change 66,261 63,777 71,753
Equity in net income (loss) of subsidiaries (28,444) 13,865 14,897
-------------- -------------- --------------
Income before cumulative effect of accounting change 37,817 77,642 86,650
Cumulative effect of accounting change for income taxes - - (2,256)
-------------- -------------- --------------
Net income $ 37,817 $ 77,642 $ 84,394
============== ============== ==============
</TABLE>
73
<PAGE>
<TABLE>
<CAPTION>
COMSAT CORPORATION (PARENT COMPANY)
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
BALANCE SHEETS
As of December 31, 1995 and 1994
In thousands 1995 1994
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 102,796 $ -
Receivables 80,413 97,524
Other 27,137 20,245
-------------- --------------
Total current assets 210,346 117,769
-------------- --------------
Property and equipment (net of accumulated depreciation of
$790,247 in 1995 and $679,239 in 1994) 1,204,675 1,177,124
Investment in and amounts due from subsidiaries 542,525 491,929
Other assets 58,629 28,331
-------------- --------------
Total assets $ 2,016,175 $ 1,815,153
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term obligations $ 10,375 $ 5,005
Commercial paper - 121,356
Accounts payable and accrued liabilities 49,501 55,055
Due to related parties 22,825 36,750
-------------- --------------
Total current liabilities 82,701 218,166
-------------- --------------
Long-term debt 590,378 511,473
Note payable to subsidiary 206,200 -
Deferred income taxes and investment tax credits 135,572 109,248
Other long-term liabilities 160,820 151,325
Stockholders' equity:
Common stock 324,074 312,143
Retained earnings 533,238 532,229
Treasury stock and other (16,808) (19,431)
-------------- --------------
Total stockholders' equity 840,504 824,941
-------------- --------------
Total liabilities and stockholders' equity $ 2,016,175 $ 1,815,153
============== ==============
</TABLE>
74
<PAGE>
<TABLE>
<CAPTION>
COMSAT CORPORATION (PARENT COMPANY)
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CASH FLOW STATEMENTS
For the Years Ended December 31, 1995, 1994 and 1993
In thousands 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net cash provided by operating activities $ 216,743 $ 186,015 $ 229,502
-------------- -------------- --------------
Cash flows from investing activities:
Purchase of property and equipment (171,247) (165,185) (161,296)
Investments in unconsolidated businesses (27,200) (1,895) (2,824)
Change in intercompany balances, net (48,738) (158,957) (55,555)
Decrease in INTELSAT ownership 17,919 13,520 16,442
Other (13,155) 430 4,680
-------------- -------------- --------------
Net cash used in investing activities (242,421) (312,087) (198,553)
-------------- -------------- --------------
Cash flows from financing activities:
Proceeds from issuance of long-term debt 81,986 112,296 32,745
Repayment of long-term debt (2,975) (71,306) (36,378)
Borrowings from subsidiary 206,200 - -
Net short-term borrowings (repayments) (121,356) 78,123 (4,562)
Borrowings against company-owned life insurance policies 2,542 32,437 -
Common stock issued 10,834 5,291 7,952
Cash dividends paid (36,874) (33,133) (29,577)
Other (11,883) (1,333) 1,066
-------------- -------------- --------------
Net cash provided by (used for) financing activities 128,474 122,375 (28,754)
-------------- -------------- --------------
Net increase (decrease) in cash and cash equivalents 102,796 (3,697) 2,195
Cash and cash equivalents, beginning of year - 3,697 1,502
-------------- -------------- --------------
Cash and cash equivalents, end of year $ 102,796 $ - $ 3,697
============== ============== ==============
</TABLE>
75
<PAGE>
COMSAT CORPORATION (PARENT COMPANY)
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
NOTES TO CONDENSED FINANCIAL INFORMATION OF REGISTRANT
For the Years Ended December 31, 1995, 1994 and 1993
1. BASIS OF PRESENTATION
Pursuant to the rules and regulations of the Securities and Exchange
Commission, the Condensed Financial Statements of the Registrant do
not include all of the information and notes normally included with
financial statements prepared in accordance with generally accepted
accounting principles. These Condensed Financial Statements should be
read in conjunction with the Consolidated Financial Statements, and
Notes thereto included in the accompanying Annual Report on Form 10-K,
Part II, Item 8.
2. LONG-TERM DEBT
The components of long-term debt are as follows:
<TABLE>
<CAPTION>
In thousands 1995 1994
-------------------------------------------------------------------------------------------------------------
<S> <C> <C>
8.125% notes due 2004 $ 160,000 $ 160,000
8.95% notes due 2001 75,000 75,000
6.75% INTELSAT Eurobonds due 2000 28,659 30,194
7.375% INTELSAT Eurobonds due 2002 38,212 40,258
8.375% INTELSAT Eurobonds due 2004 38,212 40,258
6.625% INTELSAT Asian bonds due 2004 38,212 40,258
8.125% INTELSAT Eurobonds due 2005 38,212 -
Immarsat lease financing obligations 112,203 100,434
Medium-term notes, 7.7% - 8.66%, due 2006 - 2007 74,000 32,000
Discounts on notes payable (1,957) (1,924)
------------ ------------
Total 600,753 516,478
Less current maturities (10,375) (5,005)
------------ ------------
Total long-term debt $ 590,378 $ 511,473
============ ============
</TABLE>
The principal amount of debt (excluding the Inmarsat lease financing
obligation) maturing over the next five years is none in 1996 through
1999 and $28,659,000 in 2000. See Note 8 to the Consolidated Financial
Statements on Form 10-K, Part II, Item 8, for a discussion of the
Inmarsat lease financing obligation.
3. NOTE PAYABLE TO SUBSIDIARY
In 1995, COMSAT Corporation borrowed $206,200,000 from a subsidiary,
COMSAT Capital I, L.P. (see Note 9 to the Consolidated Financial
Statements on Form 10-K, Part II, Item 8). Interest of 8.125% per
annum is payable monthly. The entire principal amount is due in July
2025. The maturity may be extended to a date not later than July 2044
at the election of the borrower, provided that certain financial
covenants are satisfied.
76
<PAGE>
<TABLE>
<CAPTION>
COMSAT CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended December 31, 1995, 1994 and 1993
Balance at
Beginning of Charged to Balance at
In thousands Year Expenses Deductions(a) End of Year
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1993:
Allowance for loss on accounts receivable $ 10,980 $ 3,525 $ 1,667 $ 12,838
Allowance for loss on investments $ 1,000 $ - $ - $ 1,000
1994:
Allowance for loss on accounts receivable $ 12,838 $ 2,428 $ 5,891 $ 9,375
Allowance for loss on investments $ 1,000 $ - $ 250 $ 750
1995:
Allowance for loss on accounts receivable $ 9,375 $ 5,138 $ 1,435 $ 13,078
Allowance for loss on investments $ 750 $ - $ - $ 750
(a) Uncollectible amounts written off, recoveries of amounts
previously reserved, and other adjustments.
</TABLE>
77
<PAGE>
EXHIBIT INDEX
Exhibit
No. Description
3.1 Articles of Incorporation of Registrant, composite copy, as
amended through June 1, 1993. (Incorporated by reference
from Exhibit No. 4(a) to Registrant's Registration Statement
on Form S-3 (No. 33-51661) filed on December 22, 1993).
3.2 By-laws of Registrant, as amended through February 16, 1996.
3.3 Regulations adopted by Registrant's Board of Directors
pursuant to Section 5.02(c) of Registrant's Articles of
Incorporation. (Incorporated by reference from Exhibit No.
3(c) to Registrant's Report on Form 10-K for the fiscal year
ended 1992.)
4.1 Specimen of a certificate representing Series I shares of
COMSAT Common Stock, without par value, registered under
Section 12 of the Securities Exchange Act of 1934, which are
held by citizens of the United States. (Incorporated by
reference from Exhibit No. 4(a) to Registrant's Report on
Form 10-K for the fiscal year ended December 31, 1993.)
4.2 Specimen of a certificate representing Series I shares of
COMSAT Common Stock, without par value, registered under
Section 12 of the Securities Exchange Act of 1934, which are
held by aliens. (Incorporated by reference from Exhibit No.
4(b) to Registrant's Report on Form 10-K for the fiscal year
ended December 31, 1982.)
4.3 Specimen of a certificate representing Series II shares of
COMSAT Common Stock, without par value, registered under
Section 12 of the Securities Exchange Act of 1934.
(Incorporated by reference from Exhibit No. 4(c) to
Registrant's Report on Form 10-K for the fiscal year ended
December 31, 1982.)
4.4 Standard Multiple-Series Indenture Provisions, dated March
15, 1991. (Incorporated by reference from Exhibit No. 4(a)
to Registrant's Registration Statement on Form S-3 (No.
33-39472) filed on March 15, 1991.)
4.5 Indenture dated as of March 15, 1991 between Registrant and
The Chase Manhattan Bank, N.A. (Incorporated by reference
from Exhibit No. 4(b) to Registrant's Registration Statement
on Form S-3 (No. 33-39472) filed on March 15, 1991.)
4.6 Supplemental Indenture, dated as of June 29, 1994, from the
Registrant to The Chase Manhattan Bank, N. A. (Incorporated
by reference from Exhibit No. 4(c) to Registrant's
Registration Statement on Form S-3 (No. 33-54369) filed on
June 30, 1994.)
78
<PAGE>
4.7 Officers' Certificate pursuant to Section 3.01 of the
Indenture, dated as of March 15, 1991, from the Registrant
to the Chase Manhattan Bank (National Association), as
Trustee, relating to the authorization of $75,000,000
aggregate principal amount of Registrant's 8.95% Notes Due
2001 (with form of Note attached). (Incorporated by
reference from Exhibit No. 4 to Registrant's Current Report
on Form 8-K filed on May 15, 1991.)
4.8 Officers' Certificate pursuant to Section 3.01 of the
Indenture, dated as of March 15, 1991, from the Registrant
to the Chase Manhattan Bank (National Association), as
Trustee, relating to the authorization of $160,000,000
aggregate principal amount of Registrant's 8.125% Debentures
Due 2004 (with form of Debenture attached). (Incorporated by
reference from Exhibit No. 4 to Registrant's Current Report
on Form 8-K filed on April 9, 1992.)
4.9 Officers' Certificate pursuant to Section 3.01 of the
Indenture, dated as of March 15, 1991, as supplemented by
the Supplemental Indenture, dated as of June 29, 1994, from
the Registrant to the Chase Manhattan Bank (National
Association), as Trustee, relating to the authorization of
$100,000,000 aggregate principal amount of Registrant's
Medium Term Notes, Series A (with forms of Notes attached).
(Incorporated by reference from Exhibit No. 4(i) to
Registrant's Report on Form 10-K for the fiscal year ended
December 31, 1994.)
4.10 Limited Partnership Agreement of COMSAT Capital I, L.P.,
dated as of July 18, 1995, relating to issuance of monthly
income preferred securities. (Incorporated by reference from
Exhibit No. 4(a) to Registrant's Report on Form 10-Q for the
quarter ended June 30, 1995.)
4.11 Guarantee Agreement for Preferred Securities of COMSAT
Capital I, L.P., dated as of July 18, 1995. (Incorporated by
reference from Exhibit No. 4(b) to Registrant's Report on
Form 10-Q for the quarter ended June 30, 1995.)
4.12 Indenture between Registrant and the First National Bank of
Chicago, as Trustee, dated as of July 18, 1995.
(Incorporated by reference from Exhibit No. 4(c) to
Registrant's Report on Form 10-Q for the quarter ended June
30, 1995.)
10.1 Agreement Relating to the International Telecommunications
Satellite Organization (INTELSAT) by Governments, which
entered into force on February 12, 1973. (Incorporated by
reference from Exhibit No. 10(a) to Registrant's Report on
Form 10-K for the fiscal year ended December 31, 1980.)
79
<PAGE>
10.2 Operating Agreement Relating to INTELSAT by Governments
which entered into force on February 12, 1973. (Incorporated
by reference from Exhibit No. 10(b) to Registrant's Report
on Form 10-K for the fiscal year ended December 31, 1980.)
10.3 Agreement dated August 15, 1975, among COMSAT General
Corporation, RCA Global Communications, Inc., Western Union
International, Inc. and ITT World Communications, Inc.
relating to the establishment of a joint venture for the
purpose of participating in the ownership and operation of a
maritime communications satellite system and Amendment Nos.
1-4 and Amendment No. 5 dated March 24, 1980. (Incorporated
by reference from Exhibit No. 10(p) to Registrant's Report
on Form 10-K for the fiscal year ended December 31, 1980.)
10.4 Amendment No. 6 to Exhibit 10.3 dated September 1, 1981.
(Incorporated by reference from Exhibit No. 10(p)(ii) to
Registrant's Report on Form 10-K for the fiscal year ended
December 31, 1981.)
10.5 Convention on the International Maritime Satellite
Organization (INMARSAT) dated September 3, 1976.
(Incorporated by reference from Exhibit No. 11 to
Registrant's Report on Form 10-K for the fiscal year ended
December 31, 1978.)
10.6 Operating Agreement on INMARSAT dated September 3, 1976.
(Incorporated by reference from Exhibit No. 12 to
Registrant's Report on Form 10-K for the fiscal year ended
December 31, 1978.)
10.7* Registrant's 1982 Stock Option Plan. (Incorporated by
reference from Exhibit No. 10(x) to Registrant's Report on
Form 10-K for the fiscal year ended December 31, 1981.)
10.8 Agreement dated October 6, 1983, between COMSAT General
Corporation and National Broadcasting Company for the
provision of satellite distribution network programming.
(Incorporated by reference from Exhibit No. 10(r) to
Registrant's Report on Form 10-K for the fiscal year ended
December 31, 1983.)
10.9 Amendment to Exhibit 10.8 dated September 1, 1992.
(Incorporated by reference from Exhibit No. 10(j)(i) to
Registrant's Report on Form 10-K for the fiscal year ended
December 31, 1992.)
10.10* Registrant's Insurance and Retirement Plan for Executives,
as amended and restated by the Board of Directors on June
21, 1985, as amended by the Board of Directors
on July 15, 1993. (Incorporated by reference from Exhibit No.
10(h) to the Registrant's Form 10-K for the fiscal year
ended December 31, 1993.)
80
<PAGE>
10.11* Registrant's 1986 Key Employee Stock Plan. (Incorporated by
reference from Exhibit No. 10(g) to Registrant's
Registration Statement on Form S-4 (File No. 33-9966) filed
on November 4, 1986.)
10.12* Registrant's Non-Employee Directors Stock Option Plan.
(Incorporated by reference from Exhibit No. 10(h) to
Registrant's Report on Form 10-K for the fiscal year ended
December 31, 1987.)
10.13 Amendment No. 1 to Exhibit 10.12 dated March 16, 1990.
(Incorporated by reference from Exhibit No. 10(g)(i) to
Registrant's Report on Form 10-K for the fiscal year ended
December 31, 1989.)
10.14 Amendment No. 2 to Exhibit 10.12 dated January 15, 1993.
(Incorporated by reference from Exhibit No. 10(k)(ii) to
Registrant's Report on Form 10-K for the fiscal year ended
December 31, 1993.)
10.15 Memorandum of Understanding between Registrant and National
Aeronautics and Space Administration (NASA), dated July 21,
1988 and amended through February 22, 1990. (Incorporated by
reference from Exhibit No. 10(aa) to Registrant's Report on
Form 10-K for the fiscal year ended December 31, 1989.)
10.16 Agreement to Acquire and Lease (and Supplemental Agreements
thereto) dated September 28 and October 10, 1988,
respectively, among the International Maritime Satellite
Organization (Inmarsat), the North Sea Marine Leasing
Company, British Aerospace Public Limited Company, the
European Investment Bank, Kreditanstalt Fuer Wiederaufbau,
European Investment Bank (as Agent and as Trustee),
Instituto Mobiliare Italiano, Credit National, Hellenic
Industrial Development Bank, and Society Nationale de Credit
a L'Industrie relating to the financing of three Inmarsat
spacecraft. (Incorporated by Reference from Exhibit No. 3(a)
to Registrant's Report on Form 10-K for the fiscal year
ended December 31, 1988.)
10.17 Service Agreement, dated September 14, 1989, between
Registrant and Aeronautical Radio, Inc. relating to
satellite-based communications services. (Incorporated by
reference from Exhibit No. 10(y) to Registrant's Report on
Form 10-K for the fiscal year ended December 31, 1989.)
10.18 Agreement, dated January 22, 1990, between Registrant and
Kokusai Denshin Denwa Co., Ltd. for provision of
aeronautical services. (Incorporated by reference from
Exhibit No. 10(z) to Registrant's Report on Form 10-K for
the fiscal year ended December 31, 1990.)
81
<PAGE>
10.19 Amendment No. 1 to Exhibit 10.18 dated May 20, 1993.
(Incorporated by reference from Exhibit No. 10(q)(i) to
Registrant's Report on Form 10-K for the fiscal year ended
December 31, 1993.)
10.20* Registrant's 1990 Key Employee Stock Plan. (Incorporated by
reference from Exhibit No. 10 (p) to Registrant's Report on
Form 10-K for the fiscal year ended December 31, 1989.)
10.21* Amendment No. 1 to Exhibit 10.20 dated January 15, 1993.
(Incorporated by reference from Exhibit No. 10(r)(i) to
Registrant's Report on Form 10-K for the fiscal year ended
December 31, 1993.)
10.22* Amendment No. 2 to Exhibit 10.20 dated January 16, 1994.
(Incorporated by reference from Exhibit No. 10(o)(ii) to
Registrant's Report on Form 10-K for the fiscal year ended
December 31, 1994.)
10.23 Amended and Restated Agreement, dated November 14, 1990, of
Limited Partnership of Rock Spring II Limited Partnership.
(Incorporated by reference from Exhibit No. 10(a) to
Registrant's Current Report on Form 8-K filed on February
24, 1992.)
10.24 Amended and Restated Lease Agreement, dated November 14,
1990, of Limited Partnership of Rock Spring II Limited
Partnership. (Incorporated by reference from Exhibit No.
10(b) to Registrant's Current Report on Form 8-K filed on
February 24, 1992.)
10.25 Amended and Restated Ground Lease Indenture, dated November
14, 1990, between Anne D. Camalier (Landlord) and Rock
Spring II Limited Partnership (Tenant). (Incorporated by
reference from Exhibit No. 10(c) to Registrant's Current
Report on Form 8-K filed on February 24, 1992.)
82
<PAGE>
10.26 Finance Facility Contract (and Supplemental Agreements
thereto), dated December 20, 1991, among the International
Maritime Satellite Organization (Inmarsat), Abbey National
plc, General Electric Technical Services Company, Inc.,
European Investment Bank, Kreditanstalt Fuer Wiederaufbau,
Instituto Mobiliare Italiano S.p.A., Credit National,
Societe Nationale de Credit a L'Industrie,
Finansieringsinstituttet for Industri OG Haandvaerk A/S, De
Nationale Investeringsbank NV, and Osterreichische
Investitionkredit Aktiengesellschaft relating to the
financing of three Inmarsat spacecraft. (Incorporated by
reference from Exhibit No. 10 (dd) to Registrant's Report on
Form 10-K for the fiscal year ended December 31, 1991.)
10.27* Registrant's Directors and Executives Deferred Compensation
Plan, as amended by the Board of Directors on July 15, 1993.
(Incorporated by reference from Exhibit No. 10(v) to the
Registrant's Report on Form 10-K for the fiscal year ended
December 31, 1993.)
10.28 Service Agreement, dated September 12, 1990, between
Registrant and GTE Airfone, Incorporated, for the provision
of aeronautical satellite services. (Incorporated by
reference from Exhibit No. 10(r) to Registrant's Report on
Form 10-K for the fiscal year ended December 31, 1990.)
10.29 Fiscal Agency Agreement, dated as of August 6, 1992, between
International Telecommunications Satellite Organization and
Morgan Guaranty Trust Company of New York. (Incorporated by
reference from Exhibit No. 10 (dd) to Registrant's Report on
Form 10-K for the fiscal year ended December 31, 1992.)
10.30 Fiscal Agency Agreement, dated as of January 19, 1993,
between International Telecommunications Satellite
Organization and Morgan Guaranty Trust Company of New York.
(Incorporated by reference from Exhibit No. 10 (ee) to
Registrant's Report on Form 10-K for the fiscal year ended
December 31, 1992.)
10.31 Lease Agreement, dated June 8, 1993, between GTE Airfone,
Incorporated, United Airlines, Inc. and Registrant for the
provision and financing of aeronautical satellite equipment.
(Incorporated by reference from Exhibit No. 10(aa) to
Registrant's Report on Form 10-K for the fiscal year ended
December 31, 1993.)
10.32 Agreement dated July 1, 1993, between Registrant and AT&T
Easylink Services relating to exchange of telex traffic.
(Incorporated by reference from Exhibit No. 10(bb) to
Registrant's Report on Form 10-K for the fiscal year ended
December 31, 1993.)
10.33 Agreement dated July 27, 1993, between the Registrant and
American Telephone & Telegraph Company relating to
utilization of space segment. (Incorporated by reference
from Exhibit No. 10(cc) to Registrant's Report on Form 10-K
for the fiscal year ended December 31, 1993.)
83
<PAGE>
10.34 Amendment to Exhibit 10.33 dated as of December 1, 1995.
10.35 Agreement dated September 1, 1993, between Registrant and
MCI International, Inc. relating to exchange of traffic.
(Incorporated by reference from Exhibit No. 10(dd) to
Registrant's Report on Form 10-K for the fiscal year ended
December 31, 1993.)
10.36 Agreement dated November 30, 1993, between the Registrant
and Sprint Communications Company L.P. relating to
utilization of space segment. (Incorporated by reference
from Exhibit No. 10(ee) to Registrant's Report on Form 10-K
for the fiscal year ended December 31, 1993.)
10.37 Amendment to Exhibit 10.36 dated April 7, 1995.
(Incorporated by reference from Exhibit No. 10(a)(i) to
Registrant's Report on Form 10-Q/A Amendment No. 2 dated
June 29, 1995 for the quarter ended March 31, 1995.)
10.38 Agreement dated December 10, 1993, between Registrant and
Sprint International relating to the exchange of traffic.
(Incorporated by reference from Exhibit No. 10(ff) to
Registrant's Report on Form 10-K for the fiscal year ended
December 31, 1993.)
10.39 Credit Agreement dated as of December 17, 1993 among
Registrant, NationsBank of North Carolina, N.A., Bank of
America National Trust and Savings Association, The First
National Bank of Chicago, The Chase Manhattan Bank, N.A.,
The Sumitomo Bank, Limited, New York Branch, Swiss Bank
Corporation, New York Branch, as lenders, and NationsBank of
North Carolina, N.A., as agent. (Incorporated by reference
from Exhibit No. 10(gg) to Registrant's Report on Form 10-K
for the fiscal year ended December 31, 1993.)
10.40 Amendment No. 1 to Exhibit 10.39 dated as of December 17,
1994. (Incorporated by reference from Exhibit No. 10(cc)(i)
to Registrant's Report on Form 10-K for the fiscal year
ended December 31, 1994.)
10.41 Agreement dated January 24, 1994, between MCI International,
Inc. and Registrant relating to utilization of space
segment. (Incorporated by reference from Exhibit No. 10(ii)
to Registrant's Report on Form 10-K for the fiscal year
ended December 31, 1993.)
84
<PAGE>
10.42 Amendment to Exhibit 10.41 dated as of July 1, 1995.
10.43 Agreement dated February 18, 1994, between Registrant and
AT&T relating to exchange of traffic. (Incorporated by
reference from Exhibit No. 10(jj) to Registrant's Report on
Form 10-K for the fiscal year ended December 31, 1993.)
10.44 Fiscal Agency Agreement between International
Telecommunications Satellite Organization, Issuer, and
Bankers Trust Company, Fiscal Agent and Principal Paying
Agent, dated as of 22 March 1994. (Incorporated by reference
from Exhibit No. 10(kk) to Registrant's Report on Form 10-K
for the fiscal year ended December 31, 1993.)
10.45 Distribution Agreement dated July 11, 1994 between
Registrant and CS First Boston Corporation, Salomon Brothers
Inc and Nationsbanc Capital Markets, Inc., as Distributors,
of Registrant's Medium-Term Notes, Series A. (Incorporated
by reference from Exhibit No. 10(ff) to Registrant's Report
on Form 10-K for the fiscal year ended December 31, 1994.)
10.46 Fiscal Agency Agreement between International
Telecommunications Satellite Organization, Issuer, and
Morgan Guaranty Trust Company, Fiscal Agent and Principal
Paying Agent, dated as of 14 October 1994. (Incorporated by
reference from Exhibit No. 10(gg) to Registrant's Report on
Form 10-K for the fiscal year ended December 31, 1994.)
10.47* Registrant's Annual Incentive Plan. (Incorporated by
reference from Exhibit No. 10(hh) to Registrant's Report on
Form 10-K for the fiscal year ended December 31, 1994.)
10.48 Fiscal Agency Agreement between International
Telecommunications Satellite Organization, Issuer, and
Morgan Guaranty Trust Company, Fiscal Agent and Principal
Paying Agent, dated as of 28 February 1995. (Incorporated by
reference from Exhibit No. 10(ii) to Registrant's Report on
Form 10-K for the fiscal year ended December 31, 1994.)
10.49 Asset Purchase Agreement, dated as of May 24, 1995, between
COMSAT Video Enterprises, Inc. and Le Club de Hockey Les
Nordiques, Societe en Commandite (Limited Partnership).
(Incorporated by reference from Exhibit No. 10(a) to
Registrant's Report on Form 10-Q for the quarter ended June
30, 1995.)
10.50* Employment Agreement, dated as of December 18, 1995, between
Ascent and Charles Lyons. (Incorporated by reference from
Exhibit No. 10.16 to the Report on Form 10-K filed by Ascent
Entertainment Group, Inc. for the fiscal year ended December
31, 1995.)
10.51* Agreement, dated as of December 5, 1995, between the
Registrant and Ronald J. Mario.
10.52* Employment Agreement, dated as of January 30, 1994, by and
among the Registrant, CTS America, Inc. and Richard E.
Thomas. (Incorporated by reference from Exhibit No. 10(a) to
Registrant's Registration Statement on Form S-4 (File No.
33-53437) filed on May 3, 1994.)
85
<PAGE>
10.53* Registrant's 1995 Key Employee Stock Plan. (Incorporated by
reference from Exhibit No. 99 to the Registrant's definitive
Proxy Statement on Schedule 14A filed on April 7, 1995).
10.54 Corporate Agreement, dated as of December 18, 1995, between
the Registrant and Ascent relating to certain matters
arising in connection with Ascent's initial public offering.
10.55 Intercompany Services Agreement, dated as of December 18,
1995, between the Registrant and Ascent relating to the
provision of certain services subsequent to Ascent's initial
public offering.
10.56 Tax Sharing Agreement, dated as of December 18, 1995,
between the Registrant and Ascent relating to certain tax
matters arising subsequent to Ascent's initial public
offering.
11 Statement re computation of per share earnings.
21 Subsidiaries of the Registrant as of March 31, 1996.
23 Consents of experts and counsel.
Consent of Independent Auditors dated March 29, 1996.
27 Financial Data Schedule.
*Compensatory plan or arrangement.
86
<PAGE>
BY-LAWS
OF
COMSAT Corporation
(as amended through February 16, 1996)
<PAGE>
Table of Contents*
Page
ARTICLE I Offices................................. 1
Section 1.01 Registered Office....................... 1
Section 1.02 Other Offices........................... 1
ARTICLE II Shareholders............................ 1
Section 2.01 Meetings................................ 1
Section 2.02 Annual Meeting.......................... 1
Section 2.03 Special Meetings........................ 1
Section 2.04 Adjournments............................ 2
Section 2.05 Notice or Waiver of Notice.............. 2
Section 2.06 Quorum.................................. 2
Section 2.07 Organization............................ 3
Section 2.08 Order of Business....................... 3
Section 2.09 Voting--Voting List--Proxies............ 3
Section 2.10 Inspectors of Votes..................... 4
Section 2.11 Election of Directors................... 4
Section 2.12 Appointment of Independent Public
Accountants........................... 6
ARTICLE III Board of Directors...................... 6
Section 3.01 General Powers.......................... 6
Section 3.02 Number, Term of Office and
Qualifications........................ 6
Section 3.03 The Chairman of the Board............... 6
Section 3.04 Vice Chairman of the Board.............. 7
Section 3.05 Organization of Directors' Meetings..... 7
- --------------------
* This Table of Contents is not a part of the By-laws.
<PAGE>
Section 3.06 Resignations............................ 7
Section 3.07 Regular Meetings........................ 7
Section 3.08 Special Meetings........................ 7
Section 3.09 Quorum, Manner of Acting and
Adjournment........................... 8
Section 3.10 Special Meetings for Filling
Vacancies in Board.................... 8
Section 3.11 Compensation............................ 9
Section 3.12 Outside Interests of Directors.......... 9
ARTICLE IV Committees.............................. 9
Section 4.01 Executive Committee..................... 9
Section 4.02 Committee on Audit, Corporate
Responsibility and Ethics............. 10
Section 4.03 Committee on Compensation and
Management Development................ 10
Section 4.04 Committees in General................... 11
Section 4.05 Committee Procedure..................... 11
ARTICLE V Officers................................ 12
Section 5.01 Officers................................ 12
Section 5.02 Election, Term of Office and
Qualifications........................ 12
Section 5.03 Removal................................. 13
Section 5.04 Resignation............................. 13
Section 5.05 Vacancies............................... 13
Section 5.06 The President........................... 13
Section 5.07 The Vice Presidents..................... 13
Section 5.08 The Secretary........................... 13
<PAGE>
Section 5.09 The Treasurer........................... 14
Section 5.10 Controller.............................. 14
Section 5.11 Duties of Officers May Be Delegated..... 14
Section 5.12 Compensation............................ 14
Section 5.13 Outside Interests of Officers
and Employees......................... 14
ARTICLE VI Shares and Their Issuance and
Transfer.............................. 15
Section 6.01 Certificates for Shares................. 15
Section 6.02 Declarations Required................... 16
Section 6.03 Transfer of Stock....................... 16
Section 6.04 Lost, Destroyed and Mutilated
Certificates.......................... 16
Section 6.05 Regulations............................. 16
Section 6.06 Closing Transfer Books--Fixing
Record Date, etc...................... 17
Section 6.07 Corporate Records....................... 17
Section 6.08 Subsidiaries or Affiliated Companies
of Communications Common Carriers..... 18
ARTICLE VII Seal.................................... 18
ARTICLE VIII Indemnification......................... 18
ARTICLE IX Amendments.............................. 22
<PAGE>
By-Laws
of
COMSAT Corporation
(as amended through February 16, 1996)
ARTICLE I
Offices
Section 1.01. Registered Office. The registered office of
the Corporation shall be in the City of Washington, District of
Columbia.
Section 1.02. Other Offices. The Corporation may also have offices at
such other places, either within or without the District of Columbia, as
the Board of Directors may from time to time authorize.
ARTICLE II
Shareholders
Section 2.01. Meetings. Annual and special meetings of the
shareholders entitled to vote shall be held at the Corporation's principal
place of business in the District of Columbia or at such other place within
or without the District of Columbia as the Board of Directors may from time
to time determine.
Section 2.02. Annual Meeting. The annual meeting of the shareholders
for the election of directors shall be held at such time and on such date
as shall be specified by resolution of the Board of Directors. Failure to
hold the annual meeting at the designated time shall not work any
forfeiture or dissolution of the Corporation.
Section 2.03. Special Meetings. A special meeting of the shareholders
may be requested at any time by the Chairman of the Board, the Vice
Chairman of the Board, if there be one, the President, the Secretary, the
Board of Directors either by resolution or by written direction signed by
any three (3) members of the Board, or by holders of not less than
one-fifth (1/5th) of all the shares of stock of the Corporation outstanding
and entitled to vote at such meeting. Upon any such request, it shall be
the duty of the Secretary promptly to call such special meeting to be held
on such date as the Secretary may fix, giving notice thereof in accordance
with Section 2.05 of these by-laws. If the Secretary shall neglect or
<PAGE>
refuse to issue such call, the Chairman of the Board, the Vice Chairman of
the Board, the President or the Board of Directors, or the person or
persons making the request, may do so.
Section 2.04. Adjournments. Any annual or special meeting of
shareholders may be adjourned from time to time by a majority of the votes
of the shareholders present in person or represented by proxy at the
meeting and entitled to vote thereat, provided that any meeting at which
directors are to be elected shall be adjourned as provided in Section 2.11
of these by-laws.
Section 2.05. Notice or Waiver of Notice. Except as hereinafter
otherwise provided, notice of each meeting of the shareholders, whether
annual or special, shall be given to each shareholder of record entitled to
vote at such meeting by delivering a written or printed notice thereof to
him personally or by mailing or telegraphing such notice to him, charges
prepaid, addressed to him at his address as it appears on the books of the
Corporation, not less than ten (10) days (or such greater period as may be
required by law in a particular case) and not more than fifty (50) days
before the day on which the meeting is to be held. Every such notice shall
state the place, day and hour of the meeting and, in the case of special
meetings, state the business to be transacted at, and the purpose of, the
meeting. Attendance by any shareholder, in person or by proxy, at any
meeting of which he is entitled to notice shall constitute a waiver by him
of notice of such meeting except where such attendance is for the express
purpose of objecting to the transaction of any business because the meeting
was not lawfully called or convened. A written waiver of notice of any
meeting signed by a person or persons entitled to such notice, whether
before or after the time stated therein, shall be deemed equivalent to
giving of such notice to such person or persons. When a meeting is
adjourned it shall not be necessary except when required by law to give any
notice of the adjourned meeting or of the business to be transacted thereat
otherwise than by announcement at the meeting at which such adjournment is
taken.
Section 2.06. Quorum. A shareholders' meeting shall not be organized
for the transaction of business unless a quorum is present. The presence in
person or by proxy of the holders of one-third (1/3rd) (or such greater
number as may be fixed by statute in any case) of the outstanding shares of
stock of the Corporation entitled to vote shall be necessary to, and shall,
constitute a quorum, except that for the election of directors the
provisions of Section 2.11 of these by-laws shall govern; provided that if
a quorum is found to exist at any duly organized meeting, a quorum shall be
deemed to continue to exist until final adjournment of such meeting,
whether on the same day or a later day, notwithstanding the withdrawal of
the holders of enough shares to leave less than the number necessary to
constitute a quorum.
<PAGE>
Section 2.07. Organization. At each meeting of the shareholders the
Chairman of the Board, the Vice Chairman of the Board, if there be one, or
the President, or in the absence of the Chairman of the Board, the Vice
Chairman of the Board and the President, a chairman chosen by a majority of
the votes of the shareholders present in person or represented by proxy at
the meeting and entitled to vote thereat shall act as chairman of such
meeting and preside thereat. The Secretary of the Corporation, or in his
absence, an Assistant Secretary, shall act as secretary at all meetings of
the shareholders. In the absence from any such meeting of the Secretary and
all the Assistant Secretaries, the chairman of the meeting may appoint any
person to act as secretary of the meeting.
Section 2.08. Order of Business. The order of business to be followed
at any meeting at which a quorum is present shall be as established by the
chairman of the meeting, unless objection thereto shall be made by a
shareholder, in which event the order of business shall be established by a
majority of the votes of the shareholders present in person or represented
by proxy at the meeting and entitled to vote thereat.
Section 2.09. Voting--Voting List--Proxies. (a) Except as in the
Articles of Incorporation or these by-laws or by applicable law otherwise
provided, every shareholder of record entitled to vote shall have the right
at every shareholders' meeting to one vote for each share entitled to be
voted standing in his name on the books of the Corporation at the time
determined in accordance with Section 6.06 of these by-laws. At least five
(5) days before each meeting of shareholders, the Secretary shall make a
complete list of the shareholders entitled to vote at the meeting arranged
in alphabetical order as to each series of stock with the address of and
the number of shares held by each. Such list shall be kept on file at the
principal place of business of the Corporation or at the registered office
of the Corporation, and shall be subject to inspection, for any proper
purpose, at any time during usual business hours, by any shareholder
entitled to vote. The original share ledger or transfer book, or a
duplicate thereof, shall be prima facie evidence as to who are the
shareholders entitled to examine such lists or to vote at any meeting of
the shareholders.
(b) Any shareholder may vote either in person or by proxy;
provided that a proxy in respect of shares of Series I Common Stock shall
not be valid if granted to, or solicited by, a person to whom shares of
such Series may not be issued. A proxy may authorize the casting of votes
in any manner authorized by the Articles of Incorporation, as the holder of
such proxy may determine in his discretion, or may require that such votes
be cast in a particular manner. Every proxy shall be executed in writing by
the shareholder or by his duly authorized attorney-in-fact and filed with
<PAGE>
the Secretary or, if the Secretary shall so direct, with the Inspectors of
Votes. No proxy shall be valid after eleven (11) months from the date of
its execution, unless a longer period is expressly provided therein, but in
no event shall a proxy be valid after three (3) years from the date of its
execution. Every proxy shall be revocable at the pleasure of the person
executing it or his personal representatives or assigns; provided that the
parties to a valid pledge or to an executory contract of sale may agree in
writing as to which of them shall vote the stock pledged or sold until the
contract of pledge or sale is fully executed.
(c) Upon the demand of any shareholder, the vote upon any matter
shall be by ballot. On a vote by ballot, each ballot shall be signed by the
shareholder voting or by the holder of his proxy, and shall state the
number of shares voted. At all meetings of the shareholders, all matters
(except the election of directors and matters the manner of deciding which
is especially regulated by statute, the Articles of Incorporation or these
by-laws) shall be decided by a majority of the votes of the shareholders of
the Corporation present in person or represented by proxy and entitled to
vote at such meeting. Shares owned by the Corporation shall not be voted
and shall not be counted in determining the existence of a quorum or in
determining the total number of outstanding shares for voting purposes.
Section 2.10. Inspectors of Votes. The Board of Directors, in advance
of any meeting of shareholders, shall appoint three (3) Inspectors of Votes
to act at the meeting or any reconvened session thereof. In case any person
appointed fails to appear or act, the vacancy may be filled by appointment
made by the Board of Directors in advance of the meeting or at the meeting
by the chairman of the meeting. Each Inspector of Votes shall, promptly
upon his appointment, subscribe an oath or affirmation faithfully to
execute his duties with strict impartiality. The Inspectors of Votes shall
determine all questions touching the qualifications of voters, the validity
of proxies and the acceptance or rejection of votes and, with respect to
each vote by ballot, shall collect and count the ballots and report in
writing to the secretary of the meeting the result of the vote. The
Inspectors of Votes need not be shareholders of the Corporation. No person
who is an officer or director of the Corporation, or who is a candidate for
election as director, shall be eligible to be an Inspector of Votes.
Section 2.11. Election of Directors. (a) At each annual meeting
following the completion of the initial offering of Common Stock, the
shareholders entitled to vote shall elect twelve (12) directors in the
manner provided in the Articles of Incorporation, to serve until the next
annual meeting or until their successors are elected and qualified.
<PAGE>
(b) At any meeting of shareholders for the election of directors,
the presence in person or by proxy of the holders of a majority of the
shares of Series I Common Stock entitled to vote thereat shall be necessary
to constitute a quorum for the election of Series I directors and the
presence in person or by proxy of the holders of a majority of the shares
of Series II Common Stock entitled to vote thereat shall be necessary for
the election of Series II directors.
(c) If at any meeting of shareholders for the election of
directors there shall not exist the quorum of holders of either series of
Common Stock required for the election of directors by such series, the
meeting may proceed to transact such other business as may be authorized,
but with respect to the election of directors by such series, the meeting
shall be adjourned from day to day, or for such longer periods not
exceeding fifteen (15) days each, as the holders of a majority of the
shares of such series present in person or represented by proxy shall
direct, until such quorum of such series shall have been attained and such
directors shall have been elected, provided that, if such quorum shall not
have been attained within thirty (30) days from the date of such meeting as
originally called, the presence in person or by proxy of the holders of
one-third (1/3rd) of the outstanding shares of such series entitled to vote
thereat shall then be sufficient to constitute a quorum for the sole
purpose of election of directors by such series. The absence of a quorum of
the holders of one series shall not affect the election by the holders of
the other series of the directors whom they are entitled to elect.
(d) No vote may be counted for the election of any person as a
Series I or Series II director unless such person shall have been proposed
for nomination to be a candidate for election by a written notice signed by
a shareholder of the appropriate series and mailed by registered or
certified mail to the Secretary not less than ten (10) nor more than fifty
(50) days before the date of the meeting, provided that in the event of the
death or incapacity of any person so proposed the proposer shall be
entitled to make a substitute nomination at the meeting. The Secretary
shall, upon the written request of any shareholder entitled to vote at any
meeting, give to such shareholder a list of the names of those proposed for
nomination and their proposers.
(e) No vote may be counted for the election of any person as a
director unless he shall have filed with the Secretary a statement of his
interests in any communications common carrier as defined in Section 103(7)
of the Communications Satellite Act of 1962 for purposes of Sections 303
and 304 of said Act, in such reasonable detail as the Board of Directors
may require. Such statements shall be produced and kept open at the time
and place of the meeting, and during the whole time of the meeting shall be
<PAGE>
subject to inspection by any shareholder entitled to vote.
(f) In the event that any holder of Series II shares or a trustee
for any such shareholder casts votes, either directly or indirectly,
through subsidiaries or affiliated companies, nominees, or persons subject
to his direction or control, for more than three (3) candidates for
election as Series II directors, only the votes so cast for those three (3)
of such candidates who receive the highest number of the votes so cast
shall be counted, and the votes so cast for any other such candidate shall
not be counted.
Section 2.12. Appointment of Independent Public Accountants. At each
annual meeting, the shareholders, after receiving a recommendation of the
Board of Directors, shall appoint Independent Public Accountants for the
purpose of auditing and certifying the annual financial statements of the
Corporation for its current fiscal year, as sent to shareholders or
otherwise published by the Corporation. In case the shareholders shall fail
to appoint such Independent Public Accountants or if the Independent Public
Accountants so appointed by the shareholders shall decline to act, or shall
resign, or for some other reason shall be unable to perform their duties,
the Board of Directors shall appoint other Independent Public Accountants
to perform the duties herein provided.
ARTICLE III
Board of Directors
Section 3.01. General Powers. The property, affairs and
business of the Corporation shall be managed by the Board of
Directors.
Section 3.02. Number, Term of Office and Qualifications. The Board of
Directors shall consist of fifteen (15) members whose method of appointment
or election and whose terms of office shall be as set forth in the
Communications Satellite Act of 1962 and the Articles of Incorporation.
Directors shall be citizens of the United States but need not be
shareholders or residents of the District of Columbia. Directors may be
salaried officers of the Corporation.
Section 3.03. The Chairman of the Board. At the meeting of the Board
of Directors specified in Section 5.02 of these by-laws, the Board, by a
vote of a majority of all the members thereof, shall elect from among its
members a Chairman of the Board of Directors, to serve in such capacity at
the pleasure of the Board. He shall, if present, preside at all meetings of
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the Board. He shall perform such other duties as from time to time may be
assigned to him by the Board. In his capacity as Chairman of the Board, he
shall not be an officer of the Corporation, but he shall be eligible to
serve, in addition, as an officer of the Corporation pursuant to Article V
of these by-laws. In the absence of the Chairman of the Board, the Vice
Chairman of the Board, if there be one, or, in the absence of the Chairman
of the Board and the Vice Chairman of the Board, the President of the
Corporation, shall in all respects act in the stead of the Chairman of the
Board during such absence.
Section 3.04. Vice Chairman of the Board. The Board of Directors, by a
vote of a majority of all of the members thereof, may elect from among its
members a Vice Chairman of the Board of Directors, to serve in such
capacity at the pleasure of the Board until the meeting of the Board
specified in Section 5.02 of these by-laws. He shall perform such duties as
are assigned to him by these by-laws and as from time to time may be
assigned to him by the Board. In his capacity as Vice Chairman of the
Board, he shall not be an officer of the Corporation, but he shall be
eligible to serve, in addition, as an officer of the Corporation pursuant
to Article V of these by-laws.
Section 3.05. Organization of Directors' Meetings. At all meetings of
the Board of Directors the Chairman of the Board, or, in his absence, the
Vice Chairman of the Board, if there be one, or, in the absence of the
Chairman of the Board and the Vice Chairman of the Board, the President, or
in the absence of the Chairman of the Board, the Vice Chairman of the Board
and the President, a chairman chosen by a majority of the directors present
shall act as chairman of such meeting and preside thereat. The Secretary,
or in his absence, an Assistant Secretary, shall act as secretary at all
meetings of the Board. In the absence from any such meeting of the
Secretary and all the Assistant Secretaries, the chairman may appoint any
person to act as secretary of the meeting.
Section 3.06. Resignations. Any director of the Corporation may resign
at any time by giving written notice of his resignation to the Corporation.
Such resignation shall take effect at the time received unless another time
is specified therein. The acceptance of such resignation shall not be
necessary to make it effective.
Section 3.07. Regular Meetings. Regular meetings of the Board of
Directors shall be held within the District of Columbia or elsewhere at
such regular intervals as may be fixed by resolution adopted by a majority
of the whole Board and upon such notice, or without notice, as shall be
specified in said resolution.
Section 3.08. Special Meetings. Special meetings of the Board of
Directors shall be held whenever called by the Chairman of the Board, the
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Vice Chairman of the Board, if there be one, the President or any three (3)
of the directors. Notice of each such meeting shall be mailed to each
director at his address appearing on the books of the Corporation or
supplied by him to the Corporation for the purpose of notice, at least five
(5) days before the day on which the meeting is to be held, or shall be
sent to him at such place by telegraph, charges prepaid, or delivered to
him personally not later than the third (3rd) day before the day on which
the meeting is to be held. Every such notice shall specify the place, day
and hour of the meeting and the general nature of the business to be
transacted. A waiver of notice of any meeting in writing signed by the
director entitled to such notice, whether before or after the time stated
therein, shall be deemed equivalent to the giving of such notice.
Attendance of a director at any meeting shall constitute a waiver by him of
notice of such meeting except where a director attends for the express
purpose of objecting to the transaction of any business because the meeting
was not lawfully called or convened. Whenever a meeting of the Board of
Directors shall be adjourned it shall not be necessary to give any notice
of the adjourned meeting or of the business to be transacted thereat
otherwise than by announcement at the meeting at which such adjournment is
taken.
Section 3.09. Quorum, Manner of Acting and Adjournment. At each
meeting of the Board of Directors the presence of eight (8) directors shall
be necessary to constitute a quorum for the transaction of business;
provided that, if a quorum is found to exist at any time during the course
of any such meeting, a quorum shall be deemed to continue to exist until
final adjournment of such meeting. Except as otherwise specifically
provided by statute, the Articles of Incorporation or these by-laws, the
acts of a majority of the directors present at a meeting at which a quorum
has been found to exist for the purpose of transacting business shall be
the acts of the Board of Directors. A majority of the directors present at
any meeting may adjourn the meeting from time to time. Except as otherwise
provided in the Articles of Incorporation, each director shall be entitled
to one vote. Voting rights of directors may not be exercised by proxy.
Notwithstanding the foregoing, during an emergency period following a
national catastrophe, a majority of the surviving members of the Board of
Directors who have not been rendered incapable of acting or attending shall
constitute a quorum.
Section 3.10. Special Meetings for Filling Vacancies in Board. Any
vacancy among the Series I directors or the Series II directors, to be
filled in accordance with Section 8.02 of the Articles of Incorporation,
shall be filled at a meeting of the remaining Series I or Series II
directors, as the case may be. Such a meeting shall be held whenever called
by the Chairman of the Board, the Vice Chairman of the Board, if there be
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one, the President, or two (2) of the directors of the Series in which such
vacancy has occurred. Notice of any such meeting shall be given to, or may
be waived by, each director of the Series affected, in accordance with the
provisions of Section 3.08 of these by-laws. A majority of the directors of
such Series remaining in office shall be necessary to constitute a quorum
at any such meeting, and the affirmative vote of a majority of the
directors of such Series remaining in office shall be necessary to fill the
vacancy. A majority of the directors of such Series present at any such
meeting, whether or not they shall constitute a quorum, may adjourn the
meeting from time to time, and it shall not be necessary to give any notice
of the next session of the meeting being adjourned otherwise than by
announcement at the meeting at which such adjournment is taken.
Section 3.11. Compensation. Directors shall receive such reasonable
compensation for their services as members of the Board or of any committee
thereof, and such reimbursement for expenses incurred in connection with
such services (including attendance at meetings) as the Board of Directors
may by resolution from time to time prescribe; provided, however, that
nothing herein contained shall preclude any director from serving the
Corporation in any other capacity or from receiving compensation for any
such services.
Section 3.12. Outside Interests of Directors. Pursuant to procedures
to be established by the Board of Directors from time to time, each
director, upon assuming office and at least annually thereafter, shall file
with the Secretary a statement identifying any entity (individual
proprietorship, partnership, association, corporation or other business
entity) with which the Corporation to his knowledge does or contemplates
doing a substantial volume of business, and of which he is a director,
officer, trustee or employee, or in which he has a substantial financial
interest. For purposes of this Section and Section 8.06 of the Articles of
Incorporation, the term "substantial financial interest" shall mean any
financial interest with a fair value in excess of $60,000, or any ownership
interest in excess of ten per centum (10%) without regard to value,
including any such interest, known to the director, officer or employee, as
the case may be, of his spouse or minor child.
ARTICLE IV
Committees
Section 4.01. Executive Committee. The Board of Directors, by
resolution adopted by a majority of the whole Board, may designate not less
than three (3) of the directors then in office to constitute an Executive
Committee. To the extent specifically provided by resolution adopted by a
majority of the whole Board, the Executive Committee shall have and may
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exercise the authority of the Board of Directors in the management of the
property, affairs and business of the Corporation, and may authorize the
seal of the Corporation to be affixed to all papers which may require it.
The Board may designate one member of the Committee to act as its chairman.
Section 4.02. Committee on Audit, Corporate Responsibility and Ethics.
(a) The Board of Directors, by resolution adopted by a majority of the
whole Board, shall designate not less than three (3) of the directors then
in office to constitute a Committee on Audit, Corporate Responsibility and
Ethics. The Board may designate one member of the Committee to act as its
chairman. A director who is also an officer or employee of the Corporation
shall not be eligible to serve as a member of the Committee.
(b) The Committee shall (i) consider and make recommendations to
the Board with respect to the employment of a firm of Independent Public
Accountants, which recommendation, if accepted by the Board, shall be
subject to the provisions of Section 2.12 of these by-laws, (ii) confer
with the Corporation's Independent Public Accountants to determine the
scope of the audit that such accountants will perform, (iii) receive
reports from the Independent Public Accountants and transmit such reports
to the Board, and after the close of the fiscal year, transmit to the Board
the financial statements certified by such accountants, (iv) inquire into,
examine and make comments on the accounting procedures of the Corporation
and the reports of the Independent Public Accountants, and (v) consider and
make recommendations to the Board upon matters presented to it by the
officers of the Corporation pertaining to the audit practices and
procedures adhered to by the Corporation.
(c) The Committee shall (i) review and make recommendations to
the Board relating to corporate policy in respect of community and
governmental relations, codes of conduct, ethics and other broad social,
political and public issues, (ii) consult with the directors and officers
of the Corporation concerning the administration of policies and programs
in respect of conflicts of interest (including the procedures established
pursuant to Section 3.12 of these by-laws), and (iii) consider and make
recommendations to the Board upon matters relating to such policies and
programs and the administration thereof. The Committee also shall exercise
such authority as may from time to time be granted to it by resolution
adopted by the Board upon matters pertaining to the policies referred to in
this subsection.
Section 4.03. Committee on Compensation and Management Development.
The Board of Directors, by resolution adopted by a majority of the whole
Board, may designate not less than three (3) of the directors then in
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office to constitute a Committee on Compensation and Management
Development. The Committee, if established, shall (i) consider and make
recommendations to the Board with respect to programs relating to the
development of human resources, organizational plans for the Corporation
and management succession, (ii) consider and make recommendations to the
Board with respect to the rates and manner of payment of the compensation
to be paid to officers and other employees of the Corporation, (iii)
exercise such authority as may from time to time be granted to it by
resolution adopted by a majority of the whole Board to set the salaries of
specified officers within rates of compensation fixed by resolution of the
Board, (iv) consider and make recommendations to the Board as to the
salaries to be paid to all other officers of the Corporation, (v) as
directed by resolution adopted by a majority of the whole Board set
salaries or make recommendations as to salaries to be paid to employees of
the Corporation other than officers, (vi) upon request, consult with the
principal officers of the Corporation upon matters of policy relating to
the compensation of employees of the Corporation, (vii) consider and make
recommendations to the Board with respect to the adoption, modification or
termination of any pension plan, profit-sharing plan, stock bonus plan,
stock option plan or other incentive or benefit plan or arrangement
applicable to any or all of the officers and employees of the Corporation,
(viii) exercise the authority which may be granted to the Committee by any
such plan, and (ix) exercise such other authority as may from time to time
be granted to it by resolution adopted by a majority of the whole Board
upon matters pertaining to compensation and management development. The
Board may designate one member of the Committee to act as its chairman. A
director who is also an officer of the Corporation shall not be eligible to
serve as a member of the Committee.
Section 4.04. Committees in General. The Board of Directors may
appoint such other committees, and chairmen thereof, as it may deem
appropriate to perform such functions as it may designate, provided that no
committee shall be appointed or disbanded unless notice of such proposed
action shall have been given to, or waived by, each director in accordance
with the provisions of Section 3.08 of these by-laws, and that any such
Committee shall consist of not less than three (3) of the directors then in
office.
Section 4.05. Committee Procedure. Each member of any committee shall
continue to be a member of that committee only during the pleasure of the
Board of Directors, provided that no existing member of a committee shall
be removed from such membership and no new member shall be appointed unless
notice of such proposed action shall have been given to, or waived by, each
director in accordance with the provisions of Section 3.08 of these
by-laws. Except as otherwise provided by the Board of Directors, a majority
of a committee shall constitute a quorum thereof, and the act of a majority
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of those present at a meeting at which a quorum is present shall be the act
of the committee, provided that any committee may, by unanimous approval of
its members, take action without a meeting of the committee. Meetings of
each committee shall be called by the Secretary at the request of the
chairman of the committee or any two members of the committee. Each
committee shall keep minutes of its meetings and shall render to the Board
of Directors, at its next ensuing regular meeting, a report of all action
taken by the committee since the last meeting of the Board at which a
report was made, or if no such previous report was made, since the
appointment of the committee. Each committee shall also render such other
reports, at such other times, as the Board may request.
ARTICLE V
Officers
Section 5.01. Officers. The officers of the Corporation shall be a
President, such Vice Presidents as may from time to time be elected by the
Board of Directors, a Secretary, a Treasurer and a Controller. The Board of
Directors may elect such other officers, including assistant officers, as
it may deem necessary, each of whom shall have such authority and perform
such duties as the Board of Directors may from time to time determine. The
Board of Directors may appoint other officers and prescribe the authority
and duties of such other officers. The Board of Directors also may delegate
the power to appoint and prescribe the duties of such other officers to the
Chief Executive Officer of the Corporation. Appointed officers shall not be
deemed to be an "officer" or a "Person Entitled to Indemnification" as such
terms are used in Section 3.03(a) of the Corporation's Articles of
Incorporation or Section 8.01(a) hereof, unless the Board of Directors
adopts a resolution that so provides.
Section 5.02. Election, Term of Office and Qualifications. The
officers of the Corporation required by Section 5.01 shall be elected at
least annually by vote of a majority of the whole Board of Directors. Such
annual election shall be held at the first meeting of the Board of
Directors following the annual election of directors. Other officers may be
appointed from time to time in the manner prescribed by Section 5.01. Each
officer shall hold his office until his successor shall have been duly
elected and qualified in his stead or until he shall resign or shall have
been removed in the manner hereinafter provided. No individual other than a
citizen of the United States shall be an officer of the Corporation. Except
as may be provided otherwise by law, any two (2) or more offices may be
held by the same person.
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Section 5.03. Removal. Any officer elected by the Board of Directors
may be removed by vote of a majority of the whole Board of Directors
whenever in its judgment the best interest of the Corporation will be
served thereby, but such removal shall be without prejudice to the contract
rights, if any, of the person so removed. The Board of Directors may
remove, or delegate to the Chief Executive Officer the power to remove,
other officers.
Section 5.04. Resignation. Any officer of the Corporation may resign
at any time by giving written notice of his resignation to the Corporation.
Such resignation shall take effect at the time received unless another time
is specified therein. The acceptance of such resignation shall not be
necessary to make it effective.
Section 5.05. Vacancies. Any vacancy in any office because of death,
resignation, removal, disqualification or any other cause may be filled by
the Board of Directors at any regular or special meeting thereof or by
appointment, to the extent authorized by Section 5.01.
Section 5.06. The President. The President shall have all the
authority and perform all the duties normally incident to the office of
President and such other duties as from time to time may be assigned to him
by the Board of Directors.
Section 5.07. The Vice Presidents. Each Vice President shall have such
powers and perform such duties as from time to time may be assigned to him
by the Board of Directors.
Section 5.08. The Secretary. The Secretary shall (a) see that all
notices are duly given in accordance with law and these by-laws; (b) be
custodian of the seal of the Corporation and affix such seal to all
certificates of stock of the Corporation prior to their issue and to all
documents the execution of which, on behalf of the Corporation under its
seal, is authorized by the Board of Directors or the Executive Committee,
if any, or by any officer or agent of the Corporation to whom power to
authorize the affixing of such seal shall have been delegated; (c) keep, or
cause to be kept, in books provided for the purpose, minutes of the
meetings of the shareholders, of the Board of Directors, and of each
committee of the Board; (d) keep registers of the shareholders of all
series of stock in accordance with Section 6.01 of these by-laws; (e) see
that the books, reports, statements, certificates, voting lists and all
other documents and records required by law are properly kept and filed;
(f) sign such instruments as require the signature of the Secretary; and
(g) in general perform all the duties incident to the office of Secretary
and such other duties as from time to time may be assigned to him by the
Board of Directors.
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Section 5.09. The Treasurer. The Treasurer shall (a) have charge and
custody of, and be responsible for, all funds and securities of the
Corporation and deposit all such funds in such banks, trust companies or
other depositories as shall be selected in accordance with the provisions
of these by-laws; (b) receive, and give receipts for, moneys due and
payable to the Corporation from any source whatsoever; (c) sign such
documents as shall require the signature of the Treasurer; and (d) perform
such other duties as from time to time may be assigned to him by the Board
of Directors. The Treasurer shall give a bond for the faithful discharge of
his duties in such sum and with such sureties as the Board of Directors
shall determine.
Section 5.10. Controller. The Controller shall keep, or cause to be
kept at such office of the Corporation as the Board of Directors shall from
time to time by resolution designate, and shall be responsible for the
keeping of, correct records of the business and transactions of the
Corporation and at all reasonable times shall exhibit such records to any
of the directors of the Corporation upon application at the office of the
Corporation where such records are kept. The Controller shall perform such
other duties as from time to time may be assigned to him by the Board of
Directors.
Section 5.11. Duties of Officer May Be Delegated. Subject to the
approval of the Board of Directors, which approval may be of a general or
specific nature, any officer of the Corporation may delegate to any
employee of the Corporation, for the period set forth in such delegation,
but not to exceed the term of office of the person making such delegation,
any authority or duty of his office; provided, however, that any such
delegation shall not be effective until such delegation and the approval
relating thereto are evidenced in writing and filed in the Office of the
Secretary of the Corporation.
Section 5.12. Compensation. The rates of compensation of the elected
officers shall be fixed from time to time by the Board of Directors. No
officer of the Corporation shall receive any salary from any source other
than the Corporation during his period of employment by the Corporation.
Section 5.13. Outside Interests of Officers and Employees. The Board
of Directors from time to time may adopt rules and regulations governing
the conduct of officers or key employees with respect to matters in which
they have a financial interest adverse to the interests of the Corporation.
Such rules and regulations may forbid officers or key employees from
participating personally and substantially in corporate action with respect
to any contract, transaction or other matter in which, to the knowledge of
any such officer or employee, he or any member of his immediate family has
a financial interest, unless (a) such officer or employee makes full
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disclosure of the circumstances to the Board or its delegate and the Board
or its delegate determines that the interest is not so substantial as to
affect the integrity of the services of such officer or employee, or (b) on
the basis of standards to be established in such rules or regulations, the
financial interest is too remote or too inconsequential to affect the
integrity of such services. Such rules and regulations may also prohibit,
or establish appropriate limits upon, the ownership by such officer or
employee, or member of his immediate family, of securities of any
communications common carrier or any other firm or corporation doing a
substantial volume of business with the Corporation.
ARTICLE VI
Shares and Their Issuance and Transfer
Section 6.01. Certificates for Shares. (a) Shares of stock of the
Corporation shall be represented by certificates for shares in such form as
the Board of Directors may from time to time prescribe. No certificate
representing any share shall be issued until such share is fully paid. Each
certificate representing shares of Common Stock shall state that the
transfer of the shares represented thereby is subject to the provisions of
the Communications Satellite Act of 1962 and the Articles of Incorporation
of the Corporation and, except for certificates representing shares of
Common Stock issued to Incorporators pursuant to Section 5.01 of the
Articles of Incorporation of the Corporation, shall include a description
or summary of the provisions of Section 5.02 of said Articles. Shares of
Common Stock held by or for the account of, or in trust for, a person of
the classes described in paragraphs (1), (2), (3), (4) and (5) of Section
3.10(a) of the Communications Act of 1934, as amended, shall be represented
by Foreign Share Certificates. All other shares of Common Stock shall be
represented by Domestic Share Certificates. Certificates for shares of
stock of the Corporation shall be numbered as to each Series of
shareholders and registered in the order in which they shall be issued.
(b) A record shall be kept of the name of the person, firm or
corporation in which each certificate for shares of stock of the
Corporation shall be issued, the number of shares represented thereby, the
date thereof, and, in case of cancellation, the date of the cancellation
thereof. A record shall also be kept of the declarations made as provided
in Section 6.02 of these by-laws by each person, firm or corporation in
whose name a certificate for shares of Common Stock is issued.
(c) No certificate for shares of stock of the Corporation shall
be valid unless it shall have been signed by the President or a Vice
President and by the Secretary or an Assistant Secretary and shall have
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been impressed with the corporate seal; provided, however, that to the
extent permitted by law, the signatures of such officers or any of them and
such corporate seal may be facsimile.
Section 6.02. Declarations Required. No issue or transfer of shares of
Common Stock shall be registered on the books of the Corporation, and no
certificate for shares shall be issued, except after the execution and
delivery to the Corporation, by or on behalf of the person, firm or
corporation in whose name such shares are to be registered and in whose
name the certificate for such shares is to be issued, of an application
containing such declarations, in the form as may be prescribed by rules or
regulations of the Board of Directors, with reference to limitations on
ownership of shares set forth in Section 5.02 of the Articles of
Incorporation and to the descriptions of persons to whom shares may be
issued set forth in Section 5.03 of the Articles, as the Board of Directors
may determine.
Section 6.03. Transfer of Stock. Except as otherwise provided by law,
transfer of shares of stock of the Corporation shall be made on the books
of the Corporation only by the holder thereof, or by his attorney thereunto
authorized by a power of attorney duly executed and filed with the
Secretary, and on surrender of the certificate or certificates for such
shares properly endorsed and the payment of all taxes on the transfer
thereof. The Corporation shall have the right to treat the person whose
name is registered upon its books as the holder of any shares of its stock
as the absolute owner of such shares, and, except as otherwise provided in
these by-laws, such person shall have the exclusive right to vote and to
receive dividends thereon.
Section 6.04. Lost, Destroyed and Mutilated Certificates. The holder
of any shares of stock of the Corporation shall immediately notify the
Corporation of any loss, destruction or mutilation of the certificate
therefor, and the Board of Directors may, in its discretion, cause a new
certificate or certificates to be issued to him, upon the surrender of the
mutilated certificate, or in the case of loss or destruction of the
certificate, upon satisfactory proof of such loss or destruction, and the
deposit of a bond, in such form and amount and with such sureties as the
Board of Directors may require.
Section 6.05. Regulations. The Board of Directors may make such rules
and regulations as it may deem expedient concerning the issue, transfer and
registration of certificates for shares of stock of the Corporation. It may
appoint one or more transfer agents and one or more registrars of
transfers, and may require all certificates of stock to bear the signature
of either a transfer agent or a registrar or both.
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Section 6.06. Closing Transfer Books--Fixing Record Date, etc. Insofar
as permitted by law, the Board of Directors shall have power to close the
stock transfer books of the Corporation for a period not exceeding fifty
(50) days preceding the date of any meeting of the shareholders, or the
date fixed for the payment of any dividend or distribution, or the date for
the allotment of rights, or the date when any change or conversion or
exchange of shares will be made or go into effect. If the stock transfer
books are so closed for the purpose of determining shareholders entitled to
notice of or vote at a meeting of shareholders, such books shall be closed
for at least ten (10) days immediately preceding the date of such meeting.
If the stock transfer books are so closed for any purpose, written or
printed notice of the closing shall be mailed at least ten (10) days before
the closing to each shareholder of record of the Corporation at his address
appearing on the records of the Corporation, or supplied by him to the
Corporation for the purpose of notice. While the stock transfer books of
the Corporation are closed, no transfer of shares shall be made thereon. In
lieu of closing the stock transfer books as aforesaid, the Board of
Directors may, in its discretion, fix a time, not more than fifty (50) days
prior to the date of any meeting of shareholders or the date fixed for the
payment of any dividend or distribution, or the date for the allotment of
rights, or the date when any change or conversion or exchange of shares
will be made or go into effect, and, in the case of a meeting of
shareholders, not less than ten (10) days before the date of the meeting,
as a record date for the determination of shareholders entitled to notice
of, or to vote at any such meeting, or entitled to receive payment of any
such dividend or distribution, or to receive any such allotment of rights,
or to exercise the rights in respect of any such change, conversion or
exchange of shares. If a record date shall be fixed as aforesaid, such
persons as shall be shareholders of record on the date so fixed, and only
such persons, shall be entitled to notice of, or to vote at, such meeting,
or to receive payment of such dividend, or to receive such allotment of
rights, or to exercise such rights, as the case may be, notwithstanding any
transfer of any shares on the books of the Corporation after any record
date so fixed as aforesaid. If the stock transfer books of the Corporation
shall not be closed as herein provided and if a record date for the
determination of shareholders entitled to receive notice of, or to vote at,
any shareholders' meeting shall not be fixed as herein provided, the date
on which notice of the meeting is given shall be in accordance with Section
2.05 of these by-laws and shall be the record date for such determination.
Section 6.07. Corporate Records. The Corporation shall keep at its
principal place of business (a) the original or a duplicate record of the
proceedings of the shareholders and directors, (b) the original or a copy
of its by-laws, including all amendments or alterations thereto to date,
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certified by the Secretary, and (c) appropriate, correct and complete books
and records of account. The Corporation shall keep at its principal place
of business or at the registered office of the Corporation in the District
of Columbia the original or a duplicate share register for each Series of
shares.
Section 6.08. Subsidiaries or Affiliated Companies of
Communications Common Carriers. For all purposes under Article V
of the Articles of Incorporation:
(a) an association, joint-stock company, trust, corporation or
other entity shall be deemed to be a subsidiary of a communications common
carrier if more than fifty percent (50%) of the shares of such association,
joint-stock company, trust, corporation or other entity having the right
under normal circumstances to elect a majority of its board of directors or
trustees are owned or controlled directly or indirectly by such
communications common carrier; and
(b) an association, joint-stock company, trust, corporation or
other entity shall be deemed to be an affiliated company of a
communications common carrier if such association, joint-stock company,
trust, corporation or other entity is otherwise directly or indirectly
subject to the control of, or is under direct or indirect common control
with, such communications common carrier.
ARTICLE VII
Seal
The Corporation shall have a corporate seal, which shall be in the form of
a circle and shall bear the full name of the Corporation and the words and
figures "Incorporated 1963, District of Columbia" or words and figures of
similar import.
ARTICLE VIII
Indemnification
Section 8.01 (a) To the full extent permitted by law, the Corporation
shall indemnify any person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action, suit or
proceeding (including civil, criminal, administrative or investigative
actions, suits or proceedings) brought by or in the right of the
Corporation or any wholly owned subsidiary of the Corporation (a
"Subsidiary"), or otherwise, by reason of the fact that such person
(hereinafter a "Person Entitled to Indemnification") is or was or has
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agreed to become a director, advisory director, or officer of the
Corporation, or is or was a director or officer of a Subsidiary, or is or
was serving or has agreed to serve at the request of the Corporation or a
Subsidiary as a director, officer, trustee or other fiduciary of another
corporation, partnership, joint venture, trust or other enterprise,
including employee benefit plans, or by reason of any action alleged to
have been taken or omitted in such capacity, against costs, charges and
expenses (including attorneys' fees) reasonably incurred by him or on his
behalf in connection with the defense or settlement of any threatened,
pending or completed action, suit or proceeding, and any appeal therefrom,
or in defense or settlement of any claim, issue or matter, except that no
indemnification pursuant to this paragraph shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged
liable for negligence or misconduct in the performance of duty by a court
of competent jurisdiction. The termination of any claim, action, suit or
proceeding by settlement, conviction or upon a plea of nolo contendere or
its equivalent, shall not, in itself, create a presumption that any such
person was adjudged liable for negligence or misconduct in the performance
of duty.
(b) To the full extent permitted by law, the Corporation shall,
upon request, pay costs, charges and expenses (including attorneys' fees)
incurred by Persons Entitled to Indemnification in advance of the final
disposition of any such action, suit or proceeding; provided, however, that
the payment of such costs, charges and expenses incurred by a Person
Entitled to Indemnification in the capacity in which he became entitled to
indemnification (and not in any other capacity in which service was or is
rendered by such person) in advance of the final disposition of such
action, suit or proceeding shall be made only upon receipt of an
undertaking by or on behalf of such person to repay all amounts so advanced
in the event that it shall ultimately be determined that he is not entitled
to be indemnified by the Corporation pursuant to this Section 8.01, or
otherwise.
(c) To the full extent permitted by law, the Corporation, in the
sole discretion of the Board of Directors of the Corporation, may indemnify
any person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding (including
civil, criminal, administrative or investigative actions, suits or
proceedings) brought by or in the right of the Corporation or a Subsidiary,
or otherwise, by reason of the fact that such person is or was or has
agreed to become an employee or agent of the Corporation or a Subsidiary,
or is or was serving or has agreed to serve at the request of the
Corporation or a Subsidiary as an employee, agent, trustee or other
fiduciary of another corporation, partnership, joint venture, trust or
other enterprise, including employee benefit plans, or by reason of any
<PAGE>
action alleged to have been taken or omitted in such capacity, against all
costs, charges and expenses (including attorneys' fees) reasonably incurred
by him or on his behalf in connection with the defense or settlement of any
threatened, pending or completed action, suit or proceeding, and any appeal
therefrom or in defense or settlement of any claim, issue or matter, except
that no indemnification pursuant to this paragraph shall be made in respect
of any claim, issue or matter as to which such person shall have been
adjudged liable for negligence or misconduct in the performance of duty by
a court of competent jurisdiction. The termination of any claim, action,
suit or proceeding by settlement, conviction or upon a plea of nolo
contendere or its equivalent, shall not in itself create a presumption that
any such person was adjudged liable for negligence or misconduct in the
performance of duty.
(d) To the full extent permitted by law, the Corporation may,
upon request, pay costs, charges and expenses (including attorneys' fees)
incurred by Persons Entitled to Indemnification pursuant to paragraph (c)
of this Section 8.01 in advance of the final disposition of such action,
suit or proceeding; provided, however, that the payment of such costs,
charges and expenses incurred by any such person in the capacity in which
he became entitled to indemnification (and not in any other capacity in
which service was or is rendered by such person) in advance of the final
disposition of such action, suit or proceeding shall be made only upon
receipt of an undertaking by or on behalf of such person to repay all
amounts so advanced in the event that it shall ultimately be determined
that he is not entitled to be indemnified by the Corporation pursuant to
this Section 8.01, or otherwise.
(e) Any indemnification or advance of costs, charges and expenses
provided for in paragraphs (a) and (b) of this Section 8.01 shall be made
promptly, and in any event within sixty (60) days, upon the written request
of the Person Entitled to Indemnification; the right to indemnification or
advances as granted by paragraphs (a) and (b) of this Section 8.01 shall be
enforceable by the Person Entitled to Indemnification in any court of
competent jurisdiction, if the Corporation denies such request, in whole or
in part, or if no disposition thereof is made within sixty (60) days, such
Person Entitled to Indemnification's costs, charges and expenses incurred
in connection with successfully establishing his right to indemnification,
in whole or in part, in any such action shall also be indemnified by the
Corporation; it shall be a defense to any such action (other than an action
brought to enforce a claim for the advance of costs, charges and expenses
under paragraph (b) of this Section 8.01 where the required undertaking, if
any, has been received by the Corporation) that the Person Entitled to
Indemnification has not met the standard set forth in paragraph (a) of this
Section 8.01, but the burden of proving such defense shall be on the
Corporation. Neither the failure of the Corporation (including its Board of
<PAGE>
Directors, its independent legal counsel, and its shareholders) to have
made a determination prior to the commencement of such action that
indemnification of the claimant is proper in the circumstances because he
has met the applicable standard of conduct set forth in paragraph (a) of
this Section 8.01, nor the fact that there has been an actual determination
by the Corporation (including its Board of Directors, its independent legal
counsel, and its shareholders) that the claimant has not met such
applicable standard of conduct, shall be a defense to the action or create
a presumption that the claimant has not met the applicable standard of
conduct.
(f) The provisions of paragraphs (a) and (b) of this Section 8.01
shall be applicable to claims, actions, suits or proceedings made or
commenced after the adoption hereof, whether arising from acts or omissions
occurring before or after the adoption hereof.
(g) The indemnification and advancement of expenses provided by
this Section 8.01 shall not be deemed exclusive of any other rights to
which a person seeking indemnification or advancement of expenses may be
entitled under any law (present or future, common or statutory), by-law,
agreement, vote of shareholders or otherwise and shall continue as to a
person who has ceased to serve in the capacity making him eligible for
indemnification, and shall inure to the benefit of the estate, heirs,
executors and administrators of such person. To the full extent permitted
by law, the Corporation may enter into and perform agreements with persons,
including without limitation, present and former officers, directors and
employees of the Corporation and its Subsidiaries and of companies acquired
by or merged with the Corporation or any of its subsidiaries, obligating
the Corporation, among other things, to provide indemnification and
advancement of costs, charges and expenses to such persons in addition to
any indemnification or advancement which may be available to such person
under this Section 8.01.
(h) All rights to indemnification under this Section 8.01 shall
be deemed to be a contract between the Corporation and each Person Entitled
to Indemnification who serves or served in such capacity at any time while
this Section 8.01 is in effect. Any repeal or modification of this Section
8.01 or any repeal or modification of the relevant provisions of the
Business Corporation Act of the District of Columbia or of any other
applicable law shall not in any way diminish any rights to indemnification
of any person or the obligation of the Corporation arising prior to such
repeal or modification.
(i) If this Section 8.01 or any portion hereof shall be
invalidated on any ground in any court of competent jurisdiction, then the
Corporation shall nevertheless indemnify each Person Entitled to
<PAGE>
Indemnification, and may nevertheless indemnify each person whom the
Corporation has determined to indemnify pursuant to paragraphs (c) and (g)
of this Section 8.01, to the full extent permitted by any applicable
portion of this Section 8.01 that shall not have been invalidated (whether
under paragraphs (c) or (g) or the other applicable provisions of this
Section 8.01), and to the full extent permitted by applicable law.
ARTICLE IX
Amendments
Any of these by-laws may be altered, amended or repealed, and new
by-laws may be adopted, by the affirmative vote of a majority of the whole
Board; provided that (a) such action may be taken only at a meeting of the
Board called for such purpose; (b) the notice of such meeting shall state
the substance of the by-law to be made or repealed, or of the alteration or
amendment; and (c) the notice of such meeting shall be mailed, telegraphed
or delivered personally to each director, and a copy thereof shall be
mailed, telegraphed or delivered to the Attorney General of the United
States, the Chairman of the Federal Communications Commission and such
other persons as the President of the United States may designate from time
to time, at least five (5) days before the date on which the meeting is to
be held.
<PAGE>
AMENDMENT TO AGREEMENT
This AMENDMENT TO AGREEMENT is made by and between AT&T
Corp. ("AT&T") and COMSAT Corporation ("COMSAT").
WHEREAS, on July 27, 1993, AT&T and COMSAT entered into an Agreement
for the provision of telecommunications services (the "1993 Agreement"); and
WHEREAS, the 1993 Agreement was submitted to the Federal
Communications Commission ("FCC") pursuant to Section 211 of the
Communications Act; and
WHEREAS, the Parties have decided to amend the 1993 Agreement in order
to facilitate COMSAT's provision of additional telecommunications services to
AT&T;
NOW, THEREFORE, in consideration of and in reliance upon the mutual
promises set forth below, the Parties hereby amend the 1993 Agreement as
follows:
1. Article V of the Agreement, entitled "Bulk Offering,"
is revised by adding the following Paragraphs K through O:
K. In addition to the 36 MHz bandwidth allotments
described in Paragraphs A through J of this Article, COMSAT
hereby agrees to provide, and AT&T commits and agrees to lease
<PAGE>
from COMSAT for a 5-year term, the following two (2) 18-MHz bandwidth
allotments to be used for U.S. traffic: (1) an allotment providing WH/EH
connectivity on the 359(degree) E.L. satellite in the Atlantic Ocean
Region; and (2) an allotment providing NWZ/SWZ connectivity on the
325(degree) E.L. satellite in the Atlantic Ocean Region. The 5-year lease
on the 359(degree) satellite shall commence no later than April 1, 1996,
and shall be located initially on transponder 11/21. The 5-year lease on
the 325(degree) satellite shall commence no later than July 1, 1996, and
shall be located initially on transponder 45/95.
L. COMSAT's rates for each of the two 18-MHz allotments described
in Paragraph K above shall be $130,000 per month during calendar year 1996
and $113,400 per month after calendar year 1996. COMSAT's charge for early
termination of each of the two 18-MHz allotments shall be a flat fee of 270
x $6,880, plus 45% of the balance due at the time of early termination;
provided, however, that AT&T agrees not to cancel either of these 18-MHz
allotments within the first three years of their respective lease terms.
M. In addition to committing to lease the two 18-MHz allotments
described in Paragraph K above, AT&T agrees to commit at least 600 duplex
64-Kbps equivalent IBS circuits now under month-to-month lease to 5-year
terms prior to December 15, 1995. From the date of commitment, the rates
for these 600 duplex 64-
2
<PAGE>
Kbps equivalent IBS circuits shall be COMSAT's 5-year IBS rates
(as opposed to "New IBS" rates) as set forth in COMSAT World Systems Tariff
F.C.C. No. 1. In consideration for both of these commitments, COMSAT hereby
agrees that AT&T may terminate without penalty up to 180 64-Kbps equivalent
IDR or TDMA circuits during the 12-month period beginning upon commencement
of the first 18- MHz allotment described in Paragraph K above, and up to an
additional 180 64-Kbps equivalent IDR or TDMA circuits during the 12-month
period beginning upon commencement of the second 18-MHz allotment described
in Paragraph K above.
N. AT&T may also terminate without penalty an additional 60
64-Kbps equivalent Digital Bearer Base Circuits or multi-year IBS circuits
prior to December 31, 1997, provided, however, that: (1) AT&T first must
have terminated all of the 360 64-Kbps equivalent circuits referenced in
Paragraph M above and must have activated both 18-MHz allotments described
in Paragraph K above; (2) the Digital Bearer Base Circuits to be terminated
pursuant to this Paragraph must be terminated in order of age, with the
oldest being terminated first, and for each such Digital Bearer Base
Circuit terminated pursuant to this Paragraph, AT&T must extend the term of
one 64-Kbps equivalent Digital Bearer Base Circuit, beginning with the next
oldest Base Circuit then under lease, by the number of months remaining on
the lease term for the 64-Kbps equivalent circuit being terminated; (3)
with respect to the multi-year IBS circuits that alternatively may be
3
<PAGE>
terminated pursuant to this Paragraph, AT&T must extend the term
of one 64-Kbps equivalent IBS circuit currently leased for each such
multi-year IBS circuit terminated prematurely by the number of months
remaining on the lease term of the prematurely terminated IBS circuit,
provided that the extended lease term may not reach beyond the year 2002;
and (4) the rates, terms and conditions applicable during the period of
such term extension shall be the same as those in effect prior to such
extension for Digital Bearer Base Circuits and multi-year IBS circuits
respectively.
O. The 18-MHz allotments described in Paragraph K above shall be
non-preemptible. In case of space segment failure, an attempt shall be made
to restore these allotments in accordance with the procedures set forth in
INTELSAT SSOG 103, Section 6, as may be amended from time to time. These
allotments may be used for any type of services, including both
public-switched and private-line services and both analog and digital
services, provided, however that (1) INTELSAT's technical lease
definitions, as set forth in the IESS documents that COMSAT routinely
provides to AT&T, shall apply to the use of these allotments; and (2)
COMSAT and INTELSAT must approve transmission plans for each circuit in
these allotments prior to circuit activation.
4
<PAGE>
2. All other provisions of the 1993 Agreement shall be
interpreted in a manner consistent with this Amendment, but otherwise shall
remain unchanged and shall continue to have full force and effect.
3. This Amendment to Agreement shall become effective as of
December 1, 1995, upon execution by authorized representatives of both
Parties, and shall be submitted to the FCC pursuant to Section 211 of the
Communications Act.
IN WITNESS WHEREOF, each of the Parties hereto has executed this
Amendment to Agreement.
AT&T CORPORATION COMSAT CORPORATION
\s\ Neil F. Dinn \s\ John H. Mattingly
By:_________________________ By:___________________________
Division Manager,
International Network Vice President and
Capacity, Planning and General Manager
Delivery COMSAT World Systems
Title:______________________ Title:________________________
12/7/95 11/21/95
Date:_______________________ Date:_________________________
5
<PAGE>
AMENDMENT TO AGREEMENT
This AMENDMENT TO AGREEMENT is made by and between MCI
International, Inc. ("MCI") and COMSAT Corporation ("COMSAT").
WHEREAS, on January 24, 1994, MCI and COMSAT entered into an
Agreement for the provision of telecommunications services (the "1994
Agreement"); and
WHEREAS, the 1994 Agreement was submitted to the Federal
Communications Commission ("FCC") pursuant to Section 211 of the
Communications Act; and
WHEREAS, the Parties have decided to amend the 1994 Agreement in
order to facilitate COMSAT's provision of additional telecommunications
services to MCI;
NOW, THEREFORE, in consideration of and in reliance upon the
mutual promises set forth below, the Parties hereby amend the 1994
Agreement as follows;
1. Article III of the Agreement, entitled "Base and
Additional Circuits," is revised by adding the following
Paragraph G:
G. In addition to the Digital Bearer Circuits described in
Paragraphs A, B, and C of this Article, COMSAT hereby agrees to
<PAGE>
provide, and MCI commits and agrees to lease from COMSAT, an additional 450 64
Kbps equivalent IDR Growth Circuits. At least 180 of these circuits must be
leased by year-end 1995 and the remainder by year-end 1996. The lease term for
each of these circuits shall be at least seven (7) years. The rates, terms and
conditions for these circuits shall be as specified in Article IV and
Attachments B, C and D.
2. Article V of the Agreement, entitled "First Bulk
Offering," is revised by adding the following paragraph K:
K. Consistent with Paragraph H of this Article, the Parties hereby
agree that COMSAT shall provide, and that MCI shall place on the INTELSAT
system via COMSAT, Digital Bearer Growth Circuits equivalent to an additional
10,000 Circuit Months during the period from July 1, 1995 through December 31,
1997; provided, however, that for purposes of this Paragraph only, MCI may
use IBS circuits rather than IDR circuits to meet up to 25% of its total
Circuit Month commitment. The Parties also affirm that COMSAT shall provide
these 10,000 Circuit Months to MCI on a take-or-pay basis at the rate of
$625 per month for each 64 Kbps equivalent circuit. Thus, MCI shall pay for
any unused Circuit Months up to the 10,000 provided for under this Paragraph
at the rate of $625. For accounting purposes, unless otherwise instructed
by MCI, COMSAT will attribute Circuit Months ordered by MCI first to the
offering made available under this Paragraph and then to the offering made
available under Paragraphs A
<PAGE>
through G of this Article so as to minimize any amount due for
unused Circuit Months.
3. All other provisions of the 1994 Agreement shall be interpreted
in a manner consistent with this Amendment, but otherwise shall remain
unchanged and shall continue to have full force and effect.
4. This Amendment to Agreement shall become effective as of July 1,
1995, upon execution by authorized representatives of both Parties, and shall
be submitted to the FCC pursuant to Section 211 of the Communications Act.
IN WITNESS WHEREOF, each of the Parties hereto has executed this
Amendment to Agreement.
MCI INTERNATIONAL, INC. COMSAT CORPORATION
/s/ Anthony Cirieco /s/ John H. Mattingly
By:___________________________ By:__________________________
Vice President and
General Manager
V.P. Finance COMSAT World Systems
Title:________________________ Title:_______________________
8/15/95 8/7/95
Date:_________________________ Date:________________________
<PAGE>
December 5, 1995
Ronald J. Mario
8108 Coach Street
Potomac, MD 20854
Dear Ron:
This letter sets forth the substance of our understandings and
agreements with respect to your employment relationship with COMSAT
Corporation ("COMSAT") as a result of your reassignment to the position of
Senior Vice President, Business Development of COMSAT for a specified
period of time, your continuation of employment with COMSAT for a further
specified period of time thereafter, and your desire to retire from the
employment of COMSAT at the end of the latter specified period. Subject to
the conditions listed below, you will remain in the employ of COMSAT as
described below until July 1, 1998 (the "Retirement Date"). Based on the
foregoing and the terms and conditions stated below, COMSAT and you agree
as follows:
1. (a) You will serve as Senior Vice President, Business Development of
COMSAT through June 30, 1996. The President of COMSAT in his sole
discretion may extend your service in this position through December 31,
1996. You will be notified no later than March 31, 1996 whether your
service will be extended. During the period you serve as Senior Vice
President, Business Development (the "Active Service Period"), you will (i)
be responsible for such strategic planning and corporate development tasks
for COMSAT as are assigned to you by the President of COMSAT, (ii) serve as
the Chairman of the Inmarsat Council and COMSAT's representative on the
Board of Governors of ICO Global Communications, Ltd. and (iii) cooperate
as requested by the President of COMSAT International Communications
("CIC") (A) in connection with any projects or other matters in which you
were involved in your prior position as President of COMSAT Mobile
Communications ("CMC") and (B) in the transition of CMC to CIC.
(b) From the end of the Active Service Period until the Retirement
Date (the "Continuation Period"), you will continue to remain on the
payroll of COMSAT. You will voluntarily retire from and terminate your
employment with COMSAT on the Retirement Date.
<PAGE>
Ronald J. Mario
December 5, 1995
Page 2
(c) During the Active Service Period and the Continuation Period,
COMSAT will continue to pay you your salary at your current rate of
compensation and, except as otherwise provided in this Agreement, will
provide you with all benefits that are provided to COMSAT employees,
including, but not limited to, the Retirement Plan, the SERP, the Directors
and Executives Deferred Compensation Plan, the Savings and Profit-Sharing
Plan, the Employee Stock Purchase Plan, the Split Dollar Insurance Plan,
the Flexible Benefits Program and financial counseling. In addition, you
will be entitled to receive stock-based awards under the Key Employee Stock
Plan with respect to 1995 and a cash bonus under the Annual Incentive Plan
with respect to both 1995 and the period in 1996 during which you continue
to serve as Senior Vice President, Business Development, such cash bonuses
to be payable in January 1996 and January 1997, respectively. The 1995
bonus will be at the same target level as was in effect for your prior
position as President of CMC. The 1996 bonus will be at the appropriate
target level for a COMSAT corporate staff Vice President, as reduced by
fifty percent (50%) if the Active Service Period ends on June 30, 1996.
However, except as provided above in this paragraph 1(c), during the Active
Service Period and the Continuation Period, you will not be eligible for
salary increases of any nature, cash or stock-based bonuses or awards of
any nature, or educational assistance, any or all of which may be available
to other COMSAT employees. Except as otherwise provided in this Agreement,
for all purposes of COMSAT service credit, your last date of employment
will be the Retirement Date.
(d) During the Continuation Period, you will be free at all times
to seek, take on and perform other business and employment opportunities
and responsibilities outside COMSAT, whether or not for compensation,
without limitation and without any effect on the obligations of COMSAT to
you under this Agreement, subject only to the express terms and conditions
of this Agreement.
2. In consideration of COMSAT's agreement to enter into this Agreement and
in return for your receipt of the benefits thereof, you agree to the
general release and covenant not to sue contained in this paragraph 2 and
the other provisions of this Agreement. It is understood, however, that
this release shall not waive any claim for benefits or any rights to which
you are or may be entitled under this Agreement, your employment by COMSAT
from the date of this Agreement until the Retirement Date in accordance
with this Agreement, the COMSAT Retirement Plan, the Insurance and
Retirement Plan for Executives, or any other payments or other benefits to
which you are entitled, or will become entitled after your termination from
COMSAT, pursuant to
<PAGE>
Ronald J. Mario
December 5, 1995
Page 3
the specific terms of any other COMSAT employee benefit plans in
which you are a participant.
(a) You, on behalf of yourself and your heirs, executors,
administrators, successors and assigns, agree to release, discharge and
covenant not to sue COMSAT, its affiliated companies and its and their
predecessors, successors, assigns, shareholders, directors, officers,
employees, administrators, fiduciaries and agents, in their individual and
representative capacities (hereinafter referred to collectively as
"COMSAT") with respect to all claims, charges, causes of action,
liabilities, suits, debts and demands, of any kind or nature, which you
had, have or may have against COMSAT up to the effective date of this
Agreement (collectively "Waived Claims"), including, without limitation,
(i) any claims relating to your employment with COMSAT; (ii) any claims
relating to the termination of your employment pursuant to the terms of
this Agreement, including but not limited to your agreement to retire and
terminate employment effective on the Retirement Date, under the
arrangement as set forth herein; (iii) any claims relating to the terms,
conditions and benefits associated with such employment or your retirement
and termination from employment; (iv) any claims under any local, state or
federal antidiscrimination law, including, without limitation, Title VII of
the Civil Rights Act of 1964, as amended, the Age Discrimination in
Employment Act, the Americans With Disabilities Act, the Employee
Retirement Income Security Act of 1974, as amended, and the Fair Labor
Standards Act; (v) any claims at common law, including, without limitation,
claims for breach of an express or implied contract, or wrongful discharge;
or (vi) any other claims, statutory or otherwise.
(b) You agree not to encourage, initiate or participate in or
assist in any way in any individual or class action lawsuit or
administrative, arbitral or other proceeding against COMSAT with respect to
any Waived Claims in any forum on behalf of yourself or others, unless
compelled to do so by legal process or court order. You further agree to
waive any remedy or recovery in any action which may be brought on your
behalf by any governmental agency or other person with respect to any
Waived Claims.
3. Except to the extent provided herein, you release and waive any and all
rights or claims you may have to reemployment with COMSAT or any of its
affiliated companies after the Retirement Date, and agree that you will not
apply for employment with COMSAT or any of its affiliated companies after
such date. You further understand and agree that your employment status
with COMSAT during the Active Service Period and the Continuation Period
and the salary and benefits provided are conditioned upon
<PAGE>
Ronald J. Mario
December 5, 1995
Page 4
the following and that if you breach any of the following during such
periods, your employment with COMSAT will immediately terminate:
(a) You will not criticize, disparage, slander, defame, impugn or
make any statement to third parties orally or in writing, or take, or omit
to take, any other actions that will damage or harm COMSAT or any of its
subsidiaries or affiliates, or their respective officers and directors, or
the reputations of any of them.
(b) Without the prior written approval of the Vice President,
Human Resources and Organization Development of COMSAT (the "VP of HR"),
you may not accept or enter into any employment or direct or indirect
consulting arrangement during the Active Service Period and the
Continuation Period (i) with any competitor of COMSAT, including, but not
limited to, AT&T, MCI, Motorola/Iridium, Sprint, AMSC, IDB, Seven Seas,
Cruisephone and Rydex, provided that the VP of HR in his discretion may
approve your employment or consulting arrangement with a subsidiary,
division or other organizational unit of a competitor of COMSAT as long as
such subsidiary, division or other unit does not itself compete with
COMSAT, or (ii) which violates or is otherwise prohibited by the Conflicts
of Interest or Confidentiality policies of COMSAT, including the Standard
Invention and Information Agreement you signed regarding nondisclosure of
corporate proprietary information.
4. This Agreement is strictly confidential. You agree, that, except as
agreed upon in writing by COMSAT, you will not communicate, publish or
disclose, in any manner, the terms, nature or scope of this Agreement to
any person except: (a) as may be required by law; (b) to your attorneys,
accountants, financial counselors, or tax consultants; or (c) to members of
your immediate family. In the event that information described in this
Agreement is revealed to your attorneys, accountants, financial counselors,
tax consultants or immediate family as permitted herein, such person(s)
shall be advised of this non- disclosure covenant and be instructed that
they are bound not to publish, disclose, or otherwise disseminate such
information in the same way you are bound and that you are responsible for
any unauthorized disclosure by such recipient.
5. Because of the nature of the terms of this Agreement, and the general
release and covenant not to sue contained herein, by agreeing to this
Agreement you acknowledge that you have been advised, in writing, by COMSAT
to consult with an attorney prior to executing this Agreement, that you
have had an opportunity to do so and that you understand the nature, terms
and effects of
<PAGE>
Ronald J. Mario
December 5, 1995
Page 5
this Agreement, and the general release and covenant not to sue. You
further acknowledge that COMSAT has not made any representations to you, or
your agents or successors and assigns, concerning this Agreement, or the
general release and covenant not to sue, other than those contained herein.
In addition, you acknowledge that you have been informed that you have the
right to consider and review this Agreement for a period of at least
twenty-one (21) days, and that you have the right to revoke this Agreement
for a period of seven (7) days following its execution, and that this
Agreement shall not become effective or enforceable until such seven (7)
day period has expired.
6. Finally, you agree and acknowledge that this Agreement, and the general
release and covenant not to sue contained herein, shall not operate or be
construed as an admission by COMSAT of any violation of any local, state or
federal statute or regulation or of any duty at common law or otherwise
owed to you, your successors or assigns.
7. The terms of this Agreement have been reviewed by the Committee on
Compensation and Management Development (the "Committee") of the COMSAT
Board of Directors (the "Board"). The Committee has agreed to recommend to
the Board, at the end of the Active Service Period, that the Board approve
your early retirement under the Insurance and Retirement Plan for
Executives (the "SERP") on the Retirement Date, with SERP retirement
benefits beginning on that date subject to actuarial reduction as provided
in the plan. Attached as Exhibit A to this Agreement is a copy of the
Committee's report of its meeting on November 16, 1995 reflecting such
action.
8. This Agreement shall inure to the benefit of, and is binding
upon, COMSAT and you and our respective heirs, executors,
administrators, successors, representatives and assigns.
9. This Agreement may not be modified or amended except in
writing signed by the parties.
10. This Agreement shall be governed by and construed in accordance with
the laws of the State of Maryland without giving effect to conflicts of
laws principles thereof.
<PAGE>
Ronald J. Mario
December 5, 1995
Page 6
If you agree to the foregoing, please sign both originals of this
Agreement in the space provided below and return one original to the
undersigned.
COMSAT Corporation
/s/ Steve Bell
By: Steve Bell, Vice President
Human Resources and
Organization Development
Agreed and Acknowledged:
/s/ Ronald J. Mario
Ronald J. Mario
December 6, 1995
Date
Enclosure: Duplicate Original
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CORPORATE AGREEMENT
THIS CORPORATE AGREEMENT ("Agreement") is entered into as of December
18, 1995, by and between COMSAT Corporation, a District of Columbia
corporation ("COMSAT"), and Ascent Entertainment Group, Inc., a Delaware
corporation ("Ascent").
RECITALS
A. COMSAT owns all of the issued and outstanding common stock, par
value $.01 per share ("Common Stock"), of Ascent, and Ascent is a member of
COMSAT's "affiliated group" of corporations for federal income tax
purposes.
B. Ascent plans to issue shares of the Common Stock to the public in
an offering (the "IPO") registered under the Securities Act of 1933.
C. The parties desire to enter into this Agreement to set forth their
agreement regarding (i) COMSAT's rights to purchase additional shares of
Common Stock upon any issuance of Common Stock to any person to permit
COMSAT to maintain its ownership interest in Ascent at a level sufficient
to permit COMSAT to continue to utilize the equity method of accounting
with respect to such interest, (ii) certain registration rights with
respect to Common Stock held by COMSAT, (iii) the agreement of Ascent to
cause to be nominated for election to its board of directors individuals
designated by COMSAT such that such individuals comprise a majority of the
board of directors of Ascent, (iv) the agreement of Ascent not to amend its
articles of incorporation or bylaws without the consent of COMSAT, (v) the
agreement of the parties that at least two directors be independent
directors, and (vi) the agreement of Ascent regarding certain covenants and
agreements applicable to Ascent.
AGREEMENTS
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, COMSAT and Ascent, for
themselves, their successors, and assigns, hereby agree as follows:
ARTICLE I
DEFINITIONS
1.1. Definitions. As used in this Agreement, the following terms will
have the following meanings, applicable both to the singular and the plural
forms of the terms described:
"Additional Information" has the meaning ascribed thereto in Section
5.2(h).
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"Affiliate" means, with respect to a given Person, any Person
controlling, controlled by or under common control with such Person. For
purposes of this definition, "control" (including, with correlative
meanings, the terms "controlled by" and "under common control with"), as
applied to any Person, means the possession, directly or indirectly, of the
power to vote a majority of the securities having voting power for the
election of directors (or other Persons acting in similar capacities) of
such Person or otherwise to direct or cause the direction of the management
and policies of such Person, whether through the ownership of voting
securities or by contract or otherwise.
"After-Tax Basis" means, with respect to any payment to be received or
accrued by any Person, the amount of such payment supplemented by a further
payment or payments (which shall be payable either simultaneously with the
initial payment or, in the event that taxes resulting from the receipt or
accrual of such initial payment are not payable in the year of receipt or
accrual at the time or time such taxes become payable) so that the sum of
all such initial and supplemental payments, after deduction of all taxes
imposed by any taxing authority (after taking into account any credits or
deductions or other tax benefits arising therefrom to the extent such are
currently utilized) resulting from the receipt or accrual of such payments
(whether or not such taxes are payable in the year of receipt or accrual)
shall be equal to the initial payment to be so received or accrued.
"Agreement" has the meaning ascribed thereto in the preamble hereto,
as such agreement may be amended and supplemented from time to time in
accordance with its terms.
"Ascent" has the meaning ascribed thereto in the preamble hereto.
"Ascent Entities" means Ascent and its Subsidiaries.
"Ascent Payroll Payment" has the meaning ascribed thereto in Section
5.5.
"Ascent Payroll Payment Date" has the meaning ascribed thereto in
Section 5.5.
"Associated Party" has the meaning ascribed thereto in Section 3.7.
"Best Efforts" means all reasonable efforts within the power of a
party to effect a given action, but shall not be construed so as to require
any party to take any action that would have a material adverse consequence
to the party responsible for performance of such action or make a material
payment if neither customarily nor proximately related to the performance
of such action.
"Base Rate" with respect to any party means the highest marginal
interest rate paid by that party on such party's outstanding indebtedness
for borrowed money in effect from time to time or, if the party does not
then have any outstanding indebtedness for borrowed money, ten percent per
annum.
"Company Securities" has the meaning ascribed thereto in Section
3.2(b).
"COMSAT" has the meaning ascribed thereto in the preamble hereto.
"COMSAT Entities" means COMSAT and its Subsidiaries (other than
Subsidiaries that constitute Ascent Entities). "COMSAT Entity" shall mean
any of the COMSAT Entities.
"COMSAT Ownership Reduction" means any decrease at any time in the
ownership by the COMSAT Entities of all classes of voting securities of
Ascent such that the COMSAT Entities would
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collectively be entitled to cast less than 20.000 percent of the total
number of votes eligible to be cast in the election of directors or the
occurrence of any other event such that the COMSAT Entities would no longer
be entitled to account for their investment in Ascent utilizing the equity
method of accounting in accordance with GAAP.
"Disadvantageous Condition" has the meaning ascribed thereto in
Section 3.1(a).
"Estimated Ascent Payroll Payment" has the meaning ascribed thereto in
Section 5.5.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
or any successor statute.
"GAAP" means generally accepted accounting principles.
"Holder" means each of COMSAT and any Transferee of Registrable
Securities to whom COMSAT or another Holder (to the extent so authorized by
COMSAT in writing) has effected a transfer of all or any portion of
COMSAT's or such Holder's registration rights pursuant to Article III of
this Agreement (each, a "Holder"); provided, however, that no Transferee of
Registrable Securities shall be deemed to have received registration rights
pursuant to Article III of this Agreement, and thereby constitute a Holder
hereunder, solely as a matter of right by virtue of such Transferee's
ownership of Registrable Securities, unless such rights are expressly
granted in writing by COMSAT or another Holder entitled to grant such
rights, and the Transferee receiving such rights complies with the
procedures set forth in Section 3.9 of this Agreement required to effect a
valid transfer of such rights.
"Holder Securities" has the meaning ascribed thereto in Section
3.2(b).
"IPO" has the meaning ascribed thereto in the recitals to this
Agreement.
"IPO Date" means the closing date for the initial sale of Common Stock
in the IPO.
"Intercompany Receivable Account" has the meaning ascribed thereto in
Section 5.5.
"Intercompany Services Agreement" means the Intercompany Services
Agreement between COMSAT and Ascent entered into of even date herewith.
"IPO Expenses" has the meaning ascribed thereto in Section 5.3.
"IPO Offering Documents" has the meaning ascribed thereto in Section
5.3.
"Issuance Event" has the meaning ascribed thereto in Section 2.2.
"Issuance Event Date" has the meaning ascribed thereto in Section 2.2.
"Laws" has the meaning ascribed thereto in Section 5.2(h).
"Losses" has the meaning ascribed thereto in Section 3.7.
"Market Price" of any shares or other securities on any date means (i)
the average of the last sale price of such shares or other securities on
each of the five trading days immediately preceding such date
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on the principal national securities exchange on which such shares or
other securities are traded or, (ii) if such shares are not admitted to
trading on any national securities exchange, the average of the last sale
price of such shares or other securities on each of the five trading days
immediately preceding such date reported by the National Association of
Securities Dealers, Inc. Automated Quotation System, or, (iii) if such sale
price is unavailable, (x) the value of such shares or other securities on
such date determined in accordance with agreed-upon procedures reasonably
satisfactory to Ascent and COMSAT, or, (y) in the absence of such
agreement, the proportionate amount of the entire equity interest of Ascent
determined with reference to, and upon appropriate weighing of, the
following factors: (1) the prices at which recent transactions involving
companies that would be reasonably considered by investment bankers to be
comparable to Ascent for valuation purposes have been consummated, (2)
application of an earnings multiple to the earnings of Ascent as determined
in a manner reasonably considered appropriate by investment bankers in
valuing a company comparable to Ascent and (3) the trading prices of
comparable securities of publicly traded companies, but only to the extent
such companies would be reasonably considered by investment bankers to be
comparable to Ascent for valuation purposes.
"Offering Documents" means all documents relating to an offering of
Registrable Securities which are required or permitted to be filed with any
governmental agency or authority or to be delivered to any person to whom
Registrable Securities are offered for sale or sold, including, without
limitation, registration statements, prospectuses, preliminary
prospectuses, summary prospectuses, and all material incorporated by
reference therein, and any schedule or exhibit to any of the foregoing, in
each case as such documents may be amended or supplemented from time to
time.
"Option" has the meaning ascribed thereto in Section 2.1.
"Option Notice" has the meaning ascribed thereto in Section 2.2.
"Other Holders" has the meaning ascribed thereto in Section 3.2(b).
"Other Securities" has the meaning ascribed thereto in Section 3.2.
"Other Voting Securities" has the meaning ascribed thereto in Section
2.1(a).
"Person" means any individual, partnership, limited liability company,
joint venture, corporation, trust, unincorporated organization, government
(and any department or agency thereof) or other entity.
"Price to Public" has the meaning ascribed thereto in Section 2.1(a).
"Registrable Securities" means Common Stock and any stock or other
securities into which or for which such Common Stock (or such shares or
other securities into which or for which such shares are so changed,
converted or exchanged) may hereafter be changed, converted or exchanged
and any other shares or securities issued to Holders of such Common Stock
(or such shares or other securities into which or for which such shares are
so changed, converted or exchanged) upon any reclassification, share
combination, share subdivision, share dividend, share exchange, merger,
consolidation or similar transaction or event.
"Registration Expenses" means all expenses in connection with any
registration of securities pursuant to Article III, including, without
limitation, the following: (i) the fees, disbursements and expenses of
Ascent's counsel (United States and foreign) and accountants (United States
and foreign) in
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connection with the registration of the securities to be disposed of;
(ii) all expenses in connection with the preparation, printing and filing
of the registration statement, any preliminary prospectus or final
prospectus, any other offering document and amendments and supplements
thereto and the mailing and delivering of copies thereof to any
underwriters (United States and foreign) and dealers (United States and
foreign); (iii) the cost of printing or producing any agreements among
underwriters, underwriting agreements, and blue sky or legal investment
memoranda, any selling agreements and any other documents (in each case,
United States and foreign) in connection with the offering, sale or
delivery of the securities to be disposed of; (iv) all expenses in
connection with the qualification of the securities to be disposed of for
offering and sale under state securities laws, including the fees and
disbursements of counsel for the underwriters or the Holders of securities
in connection with such qualification and in connection with any blue sky
and legal investments surveys; (v) the filing fees incident to securing any
required review by the National Association of Securities Dealers, Inc. of
the terms of the sale of the securities to be disposed of; (vi) transfer
agents', depositaries' and registrars' fees and expenses and the fees and
expenses of any other agent (in each case, United States and foreign)
appointed in connection with such offering; (vii) all security engraving
and security printing expenses; (viii) all fees and expenses payable in
connection with the listing of the securities on any securities exchange or
inter-dealer quotation system (in each case, United States and foreign);
and (ix) the fees, disbursements and expenses of counsel to all
participating COMSAT Entities; provided, however, that "Registration
Expenses" shall not include (A) the financial advisory fees of any Holder,
or (B) the fees, disbursements and expenses of counsel to any Holder other
than a COMSAT Entity.
"Representatives" has the meaning ascribed thereto in Section 5.2(h).
"Rule 415 Offering" means an offering on a delayed or continuous basis
pursuant to Rule 415 (or any successor rule to similar effect) promulgated
under the Securities Act.
"Rule 144" means Rule 144 (or any successor rule to similar effect)
promulgated under the Securities Act.
"SEC" means the United States Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended, or any
successor statute.
"Selling Holder" has the meaning ascribed thereto in Section 3.4(e).
"Settlement Date" has the meaning ascribed thereto in Section 5.5.
"Subsidiary" means, as to any Person, any corporation, association,
partnership, joint venture or other business entity of which more than 50%
of the voting capital stock or other voting ownership interests is owned or
controlled directly or indirectly by such Person or by one or more of the
Subsidiaries of such Person or by a combination thereof. Subsidiary, when
used with respect to COMSAT or Ascent, shall also include any other entity
affiliated with COMSAT or Ascent, as the case may be, that COMSAT and
Ascent may hereafter agree in writing shall be treated as a "Subsidiary"
for the purposes of this Agreement.
"Tax Sharing Agreement" means the Tax Sharing Agreement between COMSAT
and Ascent entered into of even date herewith.
"Transferee" means any transferee of Registrable Securities from COMSAT.
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"Underwriters" means the underwriters named in the Underwriting
Agreement.
"Underwriting Agreement" means the underwriting agreement to be
entered into prior to the IPO Date by the Underwriters, Ascent and COMSAT.
1.2. Internal References. Unless the context indicates otherwise,
references to Articles, Sections and paragraphs shall refer to the
corresponding articles, sections and paragraphs in this Agreement and
references to the parties shall mean the parties to this Agreement.
ARTICLE II
OPTION
2.1. Option. Ascent hereby grants to COMSAT, on the terms and
conditions set forth herein, a continuing right (the "Option"), at times
set forth herein, to purchase from Ascent not less than the number of
shares of any class of Registrable Securities or any other class of voting
securities or securities convertible into voting securities other than the
Registrable Securities ("Other Voting Securities") as shall be necessary to
permit the COMSAT Entities to prevent a COMSAT Ownership Reduction from
occurring upon consummation of the issuance of additional Registrable
Securities or Other Voting Securities by Ascent. The Option may be
assigned, in whole or in part and from time to time, by COMSAT to any
COMSAT Entity. The exercise price for the shares of Registrable Securities
or Other Voting Securities purchased pursuant to the Option shall be the
lower of (i) the Market Price of such shares as of the date of first
delivery of notice of exercise of the Option by COMSAT (or its permitted
assignee hereunder) to Ascent, or (ii) the price at which such shares are
offered and sold to a third party (the "Price to Public").
2.2. Notice. At least 20 business days prior to the issuance of any
shares of Registrable Securities or Other Voting Securities or the first
date on which any event could occur that, in the absence of a full exercise
of the Option, would result in a COMSAT Ownership Reduction, Ascent will
notify COMSAT in writing (an "Option Notice") of any plans it has to issue
such shares or the date on which such event could first occur. Each Option
Notice must specify the date on which Ascent intends to issue such
additional shares or on which such event could first occur (such issuance
or event being referred to herein as an "Issuance Event" and the date of
such issuance or event as an "Issuance Event Date"), the number of shares
Ascent intends to issue or may issue and the other terms and conditions of
such Issuance Event.
2.3. Option Exercise and Price. The Option may be exercised by COMSAT
(or any COMSAT Entity to which all or any part of the Option has been
assigned) for such number of shares as are necessary or reasonably
appropriate for the COMSAT Entities to prevent the occurrence of a COMSAT
Ownership Reduction. The Option may be exercised at any time after delivery
of an Option Notice (or, failing delivery of the Option Notice, after the
date that the Option Notice should have been delivered) and prior to the
Issuance Event Date by the delivery to Ascent of a written notice to such
effect specifying (i) the number of shares of each class of Registrable
Securities or Other Voting Securities to be purchased by COMSAT or any of
the COMSAT Entities, and (ii) a calculation of the exercise price for such
shares. If the Price to Public is not known on the date that COMSAT or its
permitted assigns exercise the Option, the Option may be exercised by the
holder by delivering the Market Price of such shares, and Ascent shall
refund the positive difference, if any, between the Market Price tendered
and the Price to Public on or before the Issuance Event Date to the Person
exercising the Option. Upon any such exercise of the Option, Ascent will,
prior to the Issuance Event Date, deliver to COMSAT (or as
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directed by COMSAT), against payment therefor, certificates (which
certificates may bear any and all legends as may be required by applicable
law) issued in the name of COMSAT or its permitted assignee hereunder (or
as directed by COMSAT or such assign) representing the shares of
Registrable Securities or Other Voting Securities being purchased upon such
exercise. Payment for such shares shall be made by wire transfer or
intrabank transfer to such account as shall be specified by Ascent, for the
full purchase price for such shares.
2.4. Termination of Option. The Option shall terminate upon the
occurrence of any Issuance Event that results in a COMSAT Ownership
Reduction, other than any Issuance Event in violation of this Agreement. If
Ascent fails to deliver the Option Notice on a timely basis as required by
Section 2.2, the Option shall remain exercisable until such time as an
Option Notice is provided to COMSAT and the 20 business day period
prescribed by Section 2.2 has elapsed.
ARTICLE III
REGISTRATION RIGHTS
3.1 Demand Registration. (a) Upon written notice provided at any time
after the IPO Date from any Holder of Registrable Securities requesting
that Ascent effect the registration under the Securities Act of any or all
of the Registrable Securities held by such Holder, which notice shall
specify the intended method or methods of disposition of such Registrable
Securities, Ascent shall use its Best Efforts to effect the registration
under the Securities Act of such Registrable Securities for disposition in
accordance with the intended method or methods of disposition stated in
such request (including a Rule 415 Offering). Ascent shall not be required
to effect a registration pursuant to this Section 3.1(a) under any of the
following circumstances:
(i) With respect to any registration statement filed, or to be
filed, pursuant to this Section 3.1, if Ascent shall furnish to the
Holders of Registrable Securities that have made such request a
certified resolution of the Board of Directors of Ascent (adopted by
the affirmative vote of a majority of the directors not designated by
the COMSAT Entities) stating that in the Board of Directors' good
faith judgment that effecting such a demand registration at such time
(i) would have a material adverse effect upon a proposed sale of all
(or substantially all) the assets of Ascent, or a merger,
reorganization, recapitalization, acquisition, investment, joint
venture, or similar transaction or otherwise would require premature
disclosure of Ascent's plans or proposals with respect to any of the
foregoing, or (ii) is not then practical because of the unavailability
for reasons beyond Ascent's reasonable control of any required
financial statements or the existence of any other event or condition
of similar significance to Ascent that is materially disadvantageous
to Ascent (each, a "Disadvantageous Condition"), and setting forth the
general reasons for such judgment, Ascent shall be entitled to cause
such registration statement to be withdrawn and the effectiveness of
such registration statement terminated, or, in the event no
registration statement has yet been filed, shall be entitled not to
file any such registration statement, until such Disadvantageous
Condition no longer exists (notice of which Ascent shall promptly
deliver to such Holders); provided, that Ascent may only delay a
demand registration pursuant to this clause (i) for a period not
exceeding 120 days (or until such earlier time as the Disadvantageous
Condition no longer exists). Upon receipt of any such notice of a
Disadvantageous Condition, such Holders shall forthwith discontinue
use of the prospectus contained in such registration statement, if
any, and Ascent shall reimburse the Holders for all reasonable
expenses incurred by the Holders in connection with such demand
registration.
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(ii) The Holders of Registrable Securities shall not have the
right to exercise any rights pursuant to this Section 3.1 after the
Holders collectively shall have exercised such rights on four
occasions, excluding any prior exercises that are not deemed to have
been effected pursuant to Section 3.1(b). The priority of exercise for
such rights shall be allocated among the Holders in such manner as
COMSAT and the Holders may agree. If Registrable Securities relating
to different demand notices delivered by more than one Holder are
registered under the same registration statement, such offering shall
be deemed to be a single exercise of demand rights by the first Holder
to deliver notice and the filing of only one registration statement
for purposes of this Section 3.1.
(iii) The Holders of Registrable Securities shall not have the
right to exercise registration rights pursuant to this Section 3.1 in
any six-month period following the registration and sale of
Registrable Securities effected pursuant to a prior exercise of
registration rights under this Section 3.1.
(iv) The Holders of Registrable Securities shall not have the
right to exercise registration rights pursuant to this Section 3.1 in
any six-month period following the registration and sale of equity
securities by Ascent in an underwritten public offering if Ascent
furnishes such Holder with a written opinion from a nationally
recognized investment banking firm jointly selected by Ascent and the
Holder, at Ascent's expense, stating that, in the view of such firm,
the registration and sale of the Registrable Securities named in the
demand by the Holder could not then be effected without adversely
affecting the resale market for such equity securities; provided, that
Ascent may only delay a demand registration pursuant to this clause
(iv) for a period not exceeding six months (or until such earlier
time, as determined by the aforesaid investment banking firm, as the
sale of the Holder's securities could then be effected prior to
expiration of such six month period without adversely affecting the
market price for the subject equity securities).
(b) Notwithstanding any other provision of this Agreement to the
contrary, a registration requested by a Holder of Registrable Securities
pursuant to this Section 3.1 shall not be deemed to have been effected
(and, therefore, not requested for purposes of paragraph (a) above), (i)
unless it has become effective, (ii) if after it has become effective, such
registration is interfered with by any stop order, injunction or other
order or requirement of the SEC or other governmental agency or court for
any reason other than a misrepresentation or an omission by such Holder, or
is withdrawn by Ascent pursuant to Section 3.1(a)(i) or otherwise and, as a
result thereof, the Registrable Securities requested to be registered
cannot be completely distributed in accordance with the plan of
distribution set forth in the related registration statement, or (iii) if
the conditions to closing specified in the purchase agreement or
underwriting agreement entered into in connection with such registration
are not satisfied or waived other than by reason of some act or omission by
such Holder of Registrable Securities.
(c) In the event that any registration pursuant to this Section 3.1
shall involve, in whole or in part, an underwritten offering, Ascent shall
have the right to select one or more nationally recognized investment
banking firms to serve as the lead underwriter(s) or managing
underwriter(s) of such underwritten offering, subject to the approval of
the majority of the Selling Holders, which approval shall not be
unreasonably withheld.
(d) Ascent shall have the right to cause the registration of
additional securities for sale for the account of any Person (including,
without limitation, Ascent and any existing or former directors, officers
or employees of the Ascent Entities) in any registration of Registrable
Securities requested by
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the Holders pursuant to paragraph (a) above; provided, that Ascent shall
not have the right to cause the registration of such additional securities
if such Holders are advised in writing (with a copy to Ascent) by a
nationally recognized investment banking firm selected by such Holders
(which shall be the lead underwriter or a managing underwriter in the case
of an underwritten offering) that, in such firm's view, registration of
such additional securities would materially and adversely affect the
offering and sale of the Registrable Securities then contemplated by any
Holder. The Holders with respect to the Registrable Securities to be
offered may require that any such additional securities be included in the
offering proposed by such Holders on the same terms and conditions as the
Registrable Securities that are included therein. Ascent agrees that, if
requested by a Selling Holder, it will not effect any public sale or
distribution of its securities of the same class proposed to be registered
by the Holders, or any securities convertible into the same class, during
the 30 days before the commencement and 90 days after termination of an
offering effected by the Holders pursuant to this Section 3.1, except (i)
as part of such offering in accordance with this paragraph (d), (ii) in
connection with any dividend reinvestment plan, employee stock option,
bonus, retirement or other compensation plan or arrangement (other than
secondary registrations for resales pursuant to such plans or arrangements)
of Ascent, (iii) any public sale or distribution, the registration
statement for which was filed with the SEC before the receipt of the notice
from the requesting Holder pursuant to Section 3.1 (otherwise than pursuant
to Rule 415), or (iv) upon delivery by Ascent of a written opinion
addressed to the Selling Holder from a nationally recognized investment
banking firm jointly selected by Ascent and the Selling Holder, at Ascent's
expense, stating that, in the view of such firm, such public sale and
distribution by Ascent could be effected without adversely affecting the
market price for the Registrable Securities.
3.2. Piggyback Registration. In the event that Ascent at any time
after the IPO Date proposes to register any of its Common Stock or any
other of its securities (collectively, "Other Securities") under the
Securities Act, whether or not for sale for its own account, in a manner
that would permit registration of Registrable Securities for sale for cash
to the public under the Securities Act, it shall at each such time give
prompt written notice to each Holder of Registrable Securities of its
intention to do so and of the rights of such Holder under this Section 3.2,
at least 60 days prior to the anticipated filing date of the registration
statement relating to such registration. Subject to the terms and
conditions hereof, such notice shall offer each such Holder the opportunity
to include in such registration statement such number of Registrable
Securities as such Holder may request. Upon the written request of any such
Holder made within 30 days after the receipt of Ascent's notice (which
request shall specify the number of Registrable Securities intended to be
disposed of and the intended method of disposition thereof), Ascent shall
use its Best Efforts to effect, in connection with the registration of the
Other Securities, the registration under the Securities Act of all
Registrable Securities which Ascent has been so requested to register, to
the extent required to permit the disposition (in accordance with such
intended methods thereof) of the Registrable Securities so requested to be
registered; provided, that:
(a) if, at any time after giving such written notice of its intention
to register any Other Securities and prior to the effective date of the
registration statement filed in connection with such registration, Ascent
shall determine for any reason not to register the Other Securities, Ascent
may, at its election, give written notice of such determination to such
Holders and thereupon Ascent shall be relieved of its obligation to
register such Registrable Securities in connection with the registration of
such Other Securities, without prejudice, however, to the rights of the
Holders of Registrable Securities immediately to request that such
registration be effected as a registration under Section 3.1;
(b) (i) if the registration referred to in the first sentence of this
Section 3.2 is to be an underwritten registration on behalf of Ascent, and
a nationally recognized investment banking firm selected by Ascent advises
Ascent in writing that, in such firm's view, such offering would be
materially
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and adversely affected by the inclusion therein of all the Registrable
Securities requested to be included therein, Ascent shall include in such
registration: (1) first, all Other Securities Ascent proposes to sell for
its own account ("Company Securities"), (2) second, up to the full number
of Registrable Securities held by Holders constituting COMSAT Entities of
Registrable Securities that are requested to be included in such
registration (Registrable Securities that are held by Holders being
sometimes referred to herein as "Holder Securities") in excess of the
number of Company Securities to be sold in such offering which, in the view
of such investment banking firm, can be sold without so materially and
adversely affecting such offering (and (x) if such number is less than the
full number of such Holder Securities, such number shall be allocated by
COMSAT among such COMSAT Entities and (y) in the event that such investment
banking firm advises that less than all of such Holder Securities may be
included in such offering, such COMSAT Entities may withdraw their request
for registration of their Registrable Securities under this Section 3.2 and
request that such registration be effected as a registration under Section
3.1 to the extent permitted thereunder), (3) third, up to the full number
of Registrable Securities held by Holders (other than COMSAT Entities) of
Registrable Securities in excess of the number of Company Securities and
Holder Securities held by Holders constituting COMSAT Entities to be sold
in such offering which, in the view of such investment banking firm, can be
so sold without so materially and adversely affecting such offering (and
(x) if such number is less than the full number of such Holder Securities,
such number shall be allocated pro rata among such Holders on the basis of
the number of Holder Securities requested to be included therein by each
such Holder and (y) in the event that such investment banking firm advises
that less than all of such Holder Securities may be included in such
offering, such Holders may withdraw their request for registration of their
Registrable Securities under this Section 3.2 and request that such
registration be effected as a registration under Section 3.1 to the extent
permitted thereunder), and (4) fourth, up to the full number of the Other
Securities (other than Company Securities), if any, in excess of the number
of Company Securities and Holder Securities to be sold in such offering
which, in the view of such investment banking firm, can be so sold without
materially and adversely affecting such offering (and, if such number is
less than the full number of such Other Securities, such number shall be
allocated pro rata among the holders of such Other Securities (other than
Company Securities) on the basis of the number of securities requested to
be included therein by each such holder); and
(ii) if the registration referred to in the first sentence of this
Section 3.2 is to be an underwritten secondary registration on behalf of
holders of Other Securities other than the Company (the "Other Holders"),
and the lead underwriter or the managing underwriters advise Ascent in
writing that in their such offering would be materially and adversely
affected by the inclusion therein of the Registrable Securities requested
to be included therein by the Holders, Ascent shall include in such
registration the amount of securities (including Registrable Securities)
that such underwriters advise, allocated pro rata among the Other Holders
and the Holders of Registrable Securities on the basis of the number of
securities (including Registrable Securities) requested to be included
therein by each Other Holder and each Holder of Registrable Securities;
provided, that if such registration statement is to be filed at any time
after a COMSAT Ownership Reduction, if such Other Holders have requested
that such registration statement be filed pursuant to demand registration
rights granted to them by Ascent, Ascent shall include in such registration
(1) first, Other Securities sought to be included therein by the Other
Holders pursuant to the exercise of such demand registration rights, (2)
second, the number of Registrable Securities sought to be included in such
registration by Holders constituting COMSAT Entities in excess of the
number of Other Securities sought to be included in such registration by
the Other Holders which in the view of such investment banking firm, can be
so sold without so materially and adversely affecting such offering (and
(x) if such number is less than the full number of such Holder Securities,
such number shall be allocated by COMSAT among such COMSAT Entities and (y)
in the event that such investment banking firm advises that less than all
of such Holder Securities may be included in such offering, such COMSAT
Entities may withdraw their request for registration of their Registrable
Securities under this
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Section 3.2 and request that such registration be effected as a
registration under Section 3.1 to the extent permitted thereunder) and (3)
third, the number of Registrable Securities sought to be included in such
registration by Holders (other than COMSAT Entities) in excess of the
number of Other Securities and Holder Securities held by Holders
constituting COMSAT Entities sought to be included in such registration by
the Other Holders and Holders constituting COMSAT Entities which, in the
view of such investment banking firm, can be so sold without so materially
and adversely affecting such offering (and (x) if such number is less than
the full number of such Holder Securities, such number shall be allocated
pro rata among such Holders on the basis of the number of Holder Securities
requested to be included therein by each such Holder and (y) in the event
that such investment banking firm advises that less than all of such Holder
Securities may be included in such offering, such Holders may withdraw
their request for registration of their Registrable Securities under this
Section 3.2 and request that such registration be effected as a
registration under Section 3.1 to the extent permitted thereunder);
(c) Ascent shall not be required to effect any registration of
Registrable Securities under this Section 3.2 incidental to the
registration of any of its securities in connection with mergers,
acquisitions, exchange offers, dividend reinvestment plans or stock option
or other executive or employee benefit or compensation plans (other than
secondary registrations for resales pursuant to such plans); and
(d) no registration of Registrable Securities effected under this
Section 3.2 shall relieve Ascent of its obligation to effect a registration
of Registrable Securities pursuant to Section 3.1.
3.3. Expenses. Ascent shall pay all Registration Expenses in
connection with the offer and sale of Registrable Securities by the Holders
pursuant to Section 3.1 on not more than two occasions. Ascent shall pay
all Registration Expenses in connection with the offer and sale of
Registrable Securities pursuant to Section 3.2, except for Registration
Expenses associated with secondary distributions effected solely on behalf
of holders of Other Securities other than the Ascent Entities. Except as
expressly provided herein, each Holder and Ascent shall pay its pro rata
portion of Registration Expenses with respect to a particular offering (or
proposed offering), such pro rata portion to be equal to the total amount
of such Registration Expenses multiplied by a fraction, the numerator of
which is the number of shares sold (or proposed to be sold) in such
offering by such Holder or by Ascent, as the case may be, and the
denominator of which is the total number of shares sold (or proposed to be
sold) in such offering. For purposes of determining which Person is
required to pay Registration Expenses, shares sold (or proposed to be sold)
by Ascent on behalf of any Person other than a Holder shall be deemed to
have been sold (or proposed to be sold) by Ascent. Notwithstanding the
foregoing, each Holder and Ascent shall (i) be responsible for its own
internal administrative and similar costs, and (ii) pay its pro rata
portion of any underwriting discounts with respect to any offering
apportioned in the manner set forth above, neither of which shall
constitute Registration Expenses.
3.4 Registration and Qualification. If and whenever Ascent is required
to effect the registration of any Registrable Securities under the
Securities Act as provided in Section 3.1 or Section 3.2, Ascent shall as
promptly as practicable:
(a) prepare, file and use its Best Efforts to cause to become
effective under the Securities Act Offering Documents relating to the
Registrable Securities to be offered (and, in the case of an underwritten
offering, consistent in form, substance and scope with customary practice
for the offering of similar securities by nationally recognized investment
banking firms); provided, that before filing any such Offering Documents,
Ascent will furnish to the Selling Holders, counsel designated by the
Selling Holders and the underwriters, if any, copies of all such Offering
Documents (which Offering Documents shall be subject to review of such
Selling Holders, counsel and underwriters) and shall consider in good
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faith incorporating such changes in the Offering Documents as are
reasonably requested by the Selling Holders, counsel and underwriters;
(b) prepare and file with the SEC such amendments and supplements to
the Offering Documents as may be necessary to keep the Offering Documents
effective and to comply with the provisions of the Securities Act with
respect to the disposition of all Registrable Securities until the earlier
of (i) such time as all of such Registrable Securities have been disposed
of in accordance with the intended methods of disposition set forth in the
Offering Documents and (ii) the expiration of nine months after such
registration statement becomes effective if the registration is effected on
Form S-3 (or a comparable successor form which permits the incorporation by
reference of any subsequently filed periodic reports under the Exchange
Act) or the expiration of 90 days if the registration statement becomes
effective on any other form; provided, that such nine-month or 90-day
period, as applicable, shall be extended for such number of days that
equals the number of days that elapse from (x) the date the written notice
contemplated by paragraph (f) below is given by Ascent to (y) the date on
which Ascent delivers to the Holders of Registrable Securities the
supplement or amendment contemplated by paragraph (f) below; and provided,
further, that before filing any such amendments or supplements to the
Offering Documents, Ascent will furnish to the Selling Holders, counsel
designated by the Selling Holders and the underwriters, if any, copies of
such proposed amendments or supplements (which amendments or supplements
shall be subject to review of such Selling Holders, counsel and
underwriters) and shall consider in good faith incorporating such changes
in the amendments or supplements as are reasonably requested by the Selling
Holders, counsel and underwriters;
(c) furnish to the Holders of Registrable Securities and to any
underwriter of such Registrable Securities such number of conformed or
original copies of the Offering Documents in conformity with the
requirements of the Securities Act and such other documents as the Holders
of Registrable Securities or such underwriter may reasonably request,
together with a copy of any and all transmittal letters or other
correspondence to, or received from, the SEC or any other governmental
agency or self-regulatory body or other body having jurisdiction (including
any domestic or foreign securities exchange) relating to such offering;
(d) use its Best Efforts to register or qualify all Registrable
Securities covered by such Offering Documents under the securities or blue
sky laws of such jurisdictions (domestic or foreign) as the Holders of such
Registrable Securities or any underwriter to such Registrable Securities
shall request, and use its Best Efforts to obtain all appropriate
registrations, permits and consents in connection therewith, and do any and
all other acts and things which may be necessary or advisable to enable the
Holders of Registrable Securities or any such underwriter to consummate the
disposition in such jurisdictions of its Registrable Securities covered by
such Offering Documents; provided, that Ascent shall not for any such
purpose be required to qualify generally to do business as a foreign
corporation in any non-United States jurisdiction wherein it is not so
qualified, or to subject itself to taxation in any such non-United States
jurisdiction, or to consent to general service of process in any such
non-United States jurisdiction; provided, further, that, in the case of any
such registration or qualification, at the request of the Holders of the
Registrable Securities to be registered or qualified, in any non-United
States jurisdiction, (i) notwithstanding Section 3.3, the Holders of the
Registrable Securities to be so registered or qualified shall pay all costs
and expenses incurred by Ascent in connection with such registration or
qualification in such jurisdiction, (ii) Ascent shall have no obligation to
use its Best Efforts to so register or qualify Registrable Securities if in
the good faith opinion of counsel for Ascent such registration or
qualification shall impose on Ascent an on-going material compliance
obligation, and (iii) Ascent shall not be obligated to keep any such
registration or qualification in effect except for so long as is reasonably
necessary in order to dispose of Registrable Securities in such
jurisdiction;
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(e) (i) use its Best Efforts to furnish an opinion of counsel for
Ascent addressed to each Holder of Registrable Securities included in such
registration (each, a "Selling Holder") and to any underwriter of such
Registrable Securities dated the date of the closing under the underwriting
agreement (if any) (or, if such offering is not underwritten, dated the
effective date of the registration statement), and (ii) use its Best
Efforts to furnish a "cold comfort" letter addressed to each Selling Holder
and to any underwriter of such Registrable Securities signed by the
independent public accountants who have audited the financial statements of
Ascent included in such registration statement, in each such case covering
substantially the same matters with respect to such registration statement
(and the prospectus included therein) as are customarily covered in
opinions of issuer's counsel and in accountants' letters delivered to
underwriters in underwritten public offerings of securities and such other
matters as the Selling Holders may reasonably request and, in the case of
such accountants' letter, with respect to events subsequent to the date of
such financial statements; provided, that the Selling Holders deliver a
representation letter, if so requested by such accountants, covering such
matters as are customarily required as a precondition to the delivery of
such "cold comfort" letters.
(f) as promptly as practicable, notify the Selling Holders in writing
(i) at any time when a prospectus relating to a registration pursuant to
Section 3.1 or Section 3.2 is required to be delivered under the Securities
Act of the happening of any event as a result of which the Offering
Documents, as then in effect and included as part of the registration
statement, include an untrue statement of a material fact or omits to state
any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading, and (ii) of any request by the SEC or any other
regulatory body or other body having jurisdiction for any amendment of or
supplement to any Offering Documents relating to such offering, and in
either such case, at the request of the Selling Holders prepare and furnish
to the Selling Holders a reasonable number of copies of a supplement to or
an amendment to such Offering Documents as may be necessary so that, as
thereafter delivered to the purchasers of such Registrable Securities, such
Offering Documents shall not include an untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which
they are made, not misleading;
(g) use its Best Efforts to list all such Registrable Securities
covered by such registration on each securities exchange and inter-dealer
quotation system on which a class of common equity securities of Ascent is
then listed;
(h) to the extent reasonably requested by the lead or managing
underwriters send appropriate officers of Ascent to attend any "road shows"
scheduled in connection with any such registration; and
(i) furnish for delivery in connection with the closing of any
offering of Holder Securities pursuant to a registration effected pursuant
to Section 3.1 or 3.2 unlegended certificates representing ownership of the
Registrable Securities being sold in such denominations as shall be
requested by the Selling Holders or the underwriters; provided, that the
certificates may bear a legend of the same type customarily used by Ascent,
if any, to indicate that the shares are held by an "Affiliate", as such
term is defined pursuant to Rule 144, if applicable.
3.5 Conversion of Other Securities, Etc. In the event that any Holder
offers any options, rights, warrants or other securities issued by it or
any other Person that are offered with, convertible into or exercisable or
exchangeable for any Registrable Securities, the Registrable Securities
underlying such options, rights, warrants or other securities shall
continue to be eligible for registration pursuant to Section 3.1 and
Section 3.2.
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3.6 Underwriting; Due Diligence. (a) If requested by the underwriters
for any underwritten offering of Registrable Securities pursuant to a
registration requested under this Article III, Ascent shall enter into an
underwriting agreement with such underwriters for such offering, such
agreement to contain such representations and warranties by Ascent and such
other terms and provisions as are customarily contained in underwriting
agreements with respect to secondary distributions, including, without
limitation, indemnification and contribution provisions substantially to
the effect and to the extent provided in Section 3.7, and agreements as to
the provision of opinions of counsel and accountants' letters to the effect
and to the extent provided in Section 3.4(e). The Selling Holders on whose
behalf the Registrable Securities are to be distributed by such
underwriters shall be parties to any such underwriting agreement and the
representations and warranties by, and the other agreements on the part of,
Ascent to and for the benefit of such underwriters, shall also be made to
and for the benefit of such Selling Holders. Such underwriting agreement
shall also contain such representations and warranties by such Selling
Holders and such other terms and provisions as are customarily contained in
underwriting agreements with respect to secondary distributions, including,
without limitation, indemnification and contribution provisions
substantially to the effect and to the extent provided in Section 3.7.
(b) In connection with the preparation and filing of each registration
statement registering Registrable Securities under the Securities Act
pursuant to this Article III, Ascent shall give the Holders of such
Registrable Securities and the underwriters, if any, and their respective
counsel and accountants, such reasonable and customary access to its books
and records and such opportunities to discuss the business of Ascent with
its officers and the independent public accountant who have certified the
financial statements of Ascent as shall be necessary, in the opinion of
such Holders and such underwriters or their respective counsel, to conduct
a reasonable investigation within the meaning of the Securities Act.
3.7. Indemnification and Contribution. (a) In the case of each
offering of Registrable Securities made pursuant to this Article III,
Ascent agrees to save, protect, indemnify and hold harmless, on an
After-Tax Basis, each of the COMSAT Entities and each Person, if any, who
controls any of the foregoing persons within the meaning of the Securities
Act and the officers, directors and employees of each of the foregoing (the
"Associated Parties"), jointly and severally, from and against any and all
liabilities, costs (including reasonable attorney's fees and expenses),
claims and damages, including any amounts paid in investigation, defense or
settlement of any litigation commenced or threatened ("Losses"), to which
they or any of them may become subject, under the Securities Act or
otherwise, arising from or relating to any untrue statement or alleged
untrue statement of a material fact contained in the Offering Documents
relating to the offering, or any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, or arising from or relating to any
violation or alleged violation of the Securities Act, any blue sky laws,
securities laws or other applicable laws of any state or country in which
the Registrable Securities are offered and relating to action required of,
or inaction by Ascent in connection with such offering, other than the
applicable laws of any jurisdiction for which qualification was not
requested or obtained pursuant to Section 3.4(d); provided, however, that
Ascent shall not be liable to any COMSAT Entity or Associated Party of a
COMSAT Entity in any such case to the extent that any such Losses arise out
of or relate to any untrue statement or alleged untrue statement, or any
omission, if such statement or omission shall have been made in reliance
upon and in conformity with information relating to such holder furnished
in writing to Ascent by or on behalf of any COMSAT Entity specifically for
use in the Offering Documents. Such indemnity shall remain in full force
and effect regardless of any investigation made by or on behalf of a COMSAT
Entity or its Associated Parties and shall survive the transfer of such
securities. The foregoing indemnity agreement is in addition to any
liability that Ascent may otherwise have to each of the COMSAT Entities or
any Associated Party of a COMSAT Entity; provided, further, that, in the
case of an offering where a COMSAT Entity is offering Registrable
Securities directly,
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without an underwriter, this indemnity does not apply to any Losses
arising out of or relating to any untrue statement or alleged untrue
statement or omission or alleged omission in any preliminary Offering
Document if a copy of a final Offering Document was not sent or given by or
on behalf of any such COMSAT Entity to such Person asserting such Losses at
or prior to the written confirmation of the sale of the Registrable
Securities as required by the Securities Act and such untrue statement or
omission had been corrected in such final Offering Document.
(b) In the case of each offering of Registrable Securities made
pursuant to this Article III, Ascent agrees to save, protect, indemnify and
hold harmless, on an After-Tax Basis, severally, but not jointly, each
Holder of Registrable Securities covered by the Offering Documents (other
than any COMSAT Entities and their respective Associated Parties, each of
which or whom will be provided indemnification pursuant to paragraph (a)
above), each underwriter of Registrable Securities so offered and each
Associated Party of such Holder or underwriter, from and against any and
all Losses, to which they may become subject, under the Securities Act or
otherwise, arising from or relating to any untrue statement or alleged
untrue statement of a material fact contained in the Offering Documents
relating to the offering, or any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, or arising from or relating to any
violation or alleged violation of the Securities Act, any blue sky laws,
securities laws or other applicable laws of any state or country in which
the Registrable Securities are offered and relating to action required of,
or inaction by Ascent in connection with such offering, other than the
applicable laws of any jurisdiction for which qualification was not
requested or obtained pursuant to Section 3.4(d); provided, however, that
Ascent shall not be liable to any Holder of Registrable Securities or any
Associated Party of any Holder pursuant to this paragraph (b) in any such
case to the extent that any such Losses arise out of or relate to any
untrue statement or alleged untrue statement, or any omission, if such
statement or omission shall have been made in reliance upon and in
conformity with information relating to a Holder furnished in writing to
Ascent by or on behalf of a Holder specifically for use in the Offering
Documents. Such indemnity shall remain in full force and effect regardless
of any investigation made by or on behalf of a Holder of Registrable
Securities or the Associated Parties of a Holder and shall survive the
transfer of such securities. The foregoing indemnity agreement is in
addition to any liability that Ascent may otherwise have to each Holder of
Registrable Securities and the Associated Parties of each Holder; provided,
further, that, in the case of an offering in which the Selling Holder is
offering Registrable Securities directly, without an underwriter, this
indemnity does not apply to any Losses arising out of or relating to any
untrue statement or alleged untrue statement or omission or alleged
omission in any preliminary Offering Document if a copy of a final Offering
Document was not sent or given by or on behalf of such Selling Holder to
such Person asserting such Losses at or prior to the written confirmation
of the sale of the Registrable Securities as required by the Securities Act
and such untrue statement or omission had been corrected in such final
Offering Document.
(c) In the case of each offering made pursuant to this Agreement, each
Holder of Registrable Securities included in such offering, by exercising
its registration rights hereunder, agrees to save, protect, indemnify and
hold harmless, on an After-Tax Basis, Ascent, each underwriter who
participates in such offering, and each Associated Party of Ascent or such
underwriter, from and against any and all Losses arising from or relating
to any untrue statement or alleged untrue statement by such Holder of a
material fact contained in the Offering Documents relating to the offering
and sale of such Registrable Securities, or any omission by such Holder or
alleged omission by such Holder of a material fact required to be stated
therein or necessary to make the statements therein not misleading, but in
each case only to the extent that such untrue statement of a material fact
is contained in, or such material fact is omitted from information relating
to such Holder furnished in writing to Ascent by or on behalf of such
Holder specifically for use in such Offering Documents; provided, that the
maximum liability of any Holder for
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Losses pursuant to the foregoing indemnity shall not exceed the amount
of proceeds, if any, obtained by the Holder upon the sale of such Holder's
Registrable Securities pursuant to such offering. The foregoing indemnity
is in addition to any liability which such Holder may otherwise have to
Ascent, the underwriters, or their respective Associated Parties; provided,
however, that, in the case of an offering with respect to which Ascent has
designated the lead underwriter or managing underwriters (or Ascent is
offering Registrable Securities directly, without an underwriter), this
indemnity does not apply to any Losses arising out of or based upon any
untrue statement or alleged untrue statement or omission or alleged
omission in any preliminary Offering Document if a copy of the final
Offering Document was not sent or given by or on behalf of any underwriter
(or Ascent, as the case may be) to such Person asserting such Losses at or
prior to the written confirmation of the sale of the Registrable Securities
as required by the Securities Act and such untrue statement or omission had
been corrected in such final Offering Document.
(d) Each party indemnified under paragraph (a), (b) or (c) above
shall, promptly after receipt of notice of a claim or action against such
indemnified party in respect of which indemnity may be sought hereunder,
notify the indemnifying party in writing of the claim or action; provided,
that the failure to notify the indemnifying party shall not relieve it from
any liability that it may have to an indemnified party on account of the
indemnity agreement contained in paragraph (a), (b) or (c) above except to
the extent that the indemnifying party was prejudiced by such failure, and
in no event shall such failure relieve the indemnifying party from any
other liability that it may have to such indemnified party. If any such
claim or action shall be brought against an indemnified party, and it shall
have notified the indemnifying party thereof, the indemnifying party shall
be entitled to participate therein, and, to the extent that it wishes,
jointly with any other similarly notified indemnifying party, to assume the
defense thereof with counsel reasonably satisfactory to the indemnified
party (unless in the good faith reasonable judgment of the indemnified
party a conflict of interest between such indemnified and indemnifying
parties may exist in respect of such claim or action). After notice from
the indemnifying party to the indemnified party of its election to assume
the defense of such claim or action, the indemnifying party shall not be
liable to the indemnified party under this Section 3.7 for any legal or
other expenses subsequently incurred by the indemnified party in connection
with the defense thereof other than reasonable costs of investigation;
provided, however, that, any Person entitled to indemnification hereunder
shall have the right to employ separate counsel and to participate in the
defense of any such claim or action, but the fees and expenses of such
counsel shall be at the expense of such Person, unless (i) the indemnifying
party has agreed to pay such fees or expenses, (ii) the indemnifying party
shall have failed to assume the defense of such claim and employ counsel
satisfactory to such Person, or (iii) in the reasonable good faith judgment
of any such Person based on advice of its counsel, a conflict of interest
may exist between such Person and the indemnifying party with respect to
such claims or actions (in which case, if the Person notifies the
indemnifying party in writing that such Person elects to employ separate
counsel at the expense of the indemnifying party, the indemnifying party
shall not have the right to assume the defense of such claim or action on
behalf of such Person). Any indemnifying party against whom indemnity may
be sought under this Section 3.7 shall not be liable to indemnify an
indemnified party if such indemnified party settles such claim or action
without the consent of the indemnifying party (but such consent shall not
be unreasonably withheld). The indemnifying party may not agree to any
settlement of any such claim or action as the result of which any remedy or
relief, other than solely for monetary damages for which the indemnifying
party shall be responsible hereunder, shall be applied to or against the
indemnified party, without the prior written consent of the indemnified
party, which consent shall not be unreasonably withheld. No indemnifying
party shall consent to entry of any judgment or enter into any settlement
which does not include, as an unconditional term thereof, the giving by the
claimant or plaintiff to such indemnified party of a release from all
liability in respect of such claim or action. An indemnifying party who is
not entitled to, or elects not to, assume the defense of
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a claim or action shall not be obligated to pay the fees and expenses
of more than one counsel for all parties, unless in the reasonable good
faith judgment of any indemnified party a conflict of interest may exist
between such indemnified party and any other of such indemnified parties
with respect to such claim, in which event the indemnifying party shall be
obligated to pay the fees and expenses of such additional counsel or
counsels.
(e) If the indemnification provided for in this Section 3.7 shall for
any reason be unavailable (other than as a result of its terms) to an
indemnified party in respect of any liability, cost, claim or damage
referred to therein, then each indemnifying party shall, in lieu of
indemnifying such indemnified party, contribute to the amount paid or
payable by such indemnified party as a result of such liability, cost,
claim or damage in such proportion as shall be appropriate to reflect the
relative fault of the indemnifying party on the one hand and the
indemnified party on the other with respect to the statements or omissions
which resulted in such liability, cost, claim or damage as well as any
other relevant equitable considerations. The relative fault shall be
determined by reference to whether the untrue or alleged untrue statement
of a material fact or omission or alleged omission to state a material fact
relates to information supplied by the indemnifying party on the one hand
or the indemnified party on the other, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission, but not by reference to any indemnified party's
stock ownership in Ascent. The amount paid or payable by an indemnified
party as a result of the loss, claim, damage or liability, or action in
respect thereof, referred to above in this paragraph (e) shall be deemed to
include, for purposes of this paragraph (e), any legal or other expenses
reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation.
3.8. Rule 144 and Form S-3. Commencing 90 days after the IPO Date,
Ascent shall ensure that the conditions to the availability of Rule 144 set
forth in paragraph (c) thereof shall be satisfied. Ascent further agrees to
use its Best Efforts to cause all conditions to the availability of Form
S-3 (or any successor form) and Rule 415 (or any successor rule) under the
Securities Act of the filing of registration statements under this
Agreement to be met as soon as practicable after the IPO Date.
3.9 Transfer of Registration Rights. COMSAT and, to the extent
authorized in writing by COMSAT, any other Holder may transfer all or any
portion of its rights pursuant to Article III to any Transferee of an
amount of Registrable Securities. Any transfer of registration rights
pursuant to this Section 3.9 shall be in writing and shall only be
effective upon receipt by Ascent of (i) written notice from such Holder
stating the name and address of any transferee and identifying the amount
of Registrable Securities with respect to which the rights under this
Agreement are being transferred and the nature of the rights so transferred
and (ii) a written agreement from such transferee to be bound by the terms
of this Agreement. The Holders may exercise their rights hereunder in such
priority as they shall agree upon among themselves.
3.10 Application to Other Voting Securities. The provisions of
Sections 3.1 through 3.9 shall also apply to any Other Voting Securities
acquired pursuant to the Option in the same manner as if the Other Voting
Securities were Registrable Securities.
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ARTICLE IV
CORPORATE GOVERNANCE COVENANTS
4.1 COMSAT Directors. Ascent covenants and agrees, for so long as the
COMSAT Entities own at least 50% of the outstanding securities of Ascent
entitled to be cast for the election of directors, to propose, at each
election of directors, a slate of directors, or in the cases of vacancies,
individual directors, for election so that at all times during the term of
this Agreement, a majority of the board of directors of Ascent is comprised
of persons designated by COMSAT.
4.2 Independent Directors. Ascent and, for so long as the COMSAT
Entities own at least 50% of the outstanding securities of Ascent entitled
to be cast for the election of directors, COMSAT shall each use its Best
Efforts to cause no fewer than two individual directors to be independent
directors within the meaning of the rules of the National Association of
Securities Dealers, Inc. for the Nasdaq National Market, or such other
market or exchange on which Ascent's common stock may then be traded, as
such rules are in effect as of the date of this Agreement.
4.3 Amendment to Articles of Incorporation and Bylaws. Ascent hereby
covenants and agrees, for so long as the COMSAT Entities own at least 50%
of the outstanding securities of Ascent entitled to be cast for the
election of directors, not to amend, supplement, restate, cancel, modify or
alter its Articles of Incorporation or Bylaws in any manner whatsoever
without the prior written consent of COMSAT.
4.4 Limitation on Indebtedness. Ascent hereby covenants and agrees,
for so long as the COMSAT Entities own at least 50% of the outstanding
securities of Ascent entitled to be cast for the election of directors,
that it will not incur any indebtedness, other than that certain bank
credit facility to be entered into on the IPO Date as described in the IPO
Offering Documents and refinancings thereof (the "Credit Facility") and
other indebtedness incurred in the ordinary course of business consistent
with past practices, which together with the Credit Facility shall not
exceed $175 million in the aggregate, without the prior written consent of
COMSAT. For so long as the COMSAT Entities own at least 50% of the
outstanding securities of Ascent entitled to be cast for the election of
directors, Ascent agrees to (i) utilize reasonable cash management
procedures, and (ii) use its Best Efforts to minimize its excess cash
holdings.
4.5 Limitation on Issuance of Equity Securities. Ascent hereby
covenants and agrees, for so long as the COMSAT Entities own at least 50%
of the outstanding securities of Ascent entitled to be cast for the
election of directors, that it will not issue any equity securities or any
securities convertible into equity securities without the prior written
consent of COMSAT.
4.6 Change in Fiscal Year. For so long as the COMSAT Entities own at
least 50% of the outstanding securities of Ascent entitled to be cast for
the election of directors, Ascent hereby covenants and agrees that it will
not change its fiscal year without the prior written consent of COMSAT.
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ARTICLE V
CERTAIN OTHER COVENANTS AND AGREEMENTS
5.1. FCC Capitalization Plan and Credit Agreement Requirements. (a)
For so long as the COMSAT Entities own at least 50% of the outstanding
securities of Ascent entitled to be cast for the election of directors,
Ascent covenants and agrees that it will not take any action or enter into
any commitment or agreement which may reasonably be anticipated to result,
with or without notice and with or without lapse of time, or otherwise, in
a contravention or event of default by any COMSAT Entity of any provision
of applicable law or regulation, including but not limited to provisions
set forth in COMSAT's then current capitalization plan approved by the
Federal Communications Commission (the "FCC Capitalization Plan"), or any
provision set forth in any credit agreement, indenture or other material
instrument binding upon any COMSAT Entity (collectively, the "COMSAT Credit
Agreements") as of the IPO Date and in any refinancings thereof on the same
terms or on terms no more restrictive as to Ascent (provided, that such
terms are disclosed to Ascent).
(b) Ascent and COMSAT agree to provide to the other any information
and documentation reasonably requested by the other for the purpose of
evaluating and ensuring compliance with Section 5.1(a) hereof.
(c) In connection with the execution and negotiation of any new loan
or credit agreement or indenture during the term of this Agreement, COMSAT
agrees to use reasonable efforts to attempt to exclude the Ascent Entities
from the representations, covenants and agreements required of COMSAT
(other than financial covenants calculated generally on the basis of
COMSAT's published financial statements); provided, that COMSAT's
obligations under this Section 5.1(c) shall not be construed so as to
require COMSAT to modify the terms of any proposed agreement or indenture
in a manner that COMSAT, in the exercise of its sole discretion, deems
adverse to its interests, including but not limited to accepting a higher
interest rate or other financing costs.
5.2 Financial Statements and Other Information. (a) For so long as the
COMSAT Entities own at least 50% of the outstanding securities of Ascent
entitled to be cast for the election of directors, Ascent shall deliver
financial statements and other information in such format and media, and on
the same schedule, as COMSAT requires of its other Subsidiaries. COMSAT
shall provide Ascent with advance notice of any changes in the content,
format or schedule for delivery of the financial statements and other
information required of its Subsidiaries.
(b) At such time as Section 5.2 (a) above is no longer applicable and
until such time as a COMSAT Ownership Reduction has occurred, Ascent shall
deliver to COMSAT in such format and media as COMSAT may reasonably
request:
(1) as soon as available, and in any event no later than the
first Friday in February after the end of each fiscal year of COMSAT
as long as COMSAT's fiscal year ends on December 31 or, if COMSAT's
fiscal year is changed, 75 days after the end of such fiscal year, a
consolidated audited balance sheet of Ascent and its Subsidiaries as
of the end of such fiscal year and the related consolidated statements
of operations, shareholders' equity and cash flows for such fiscal
year, all prepared in accordance with GAAP, and reported on by
independent public accountants of recognized standing selected by
Ascent with the consent of COMSAT;
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(2) as soon as available, and in any event no later than the
Tuesday of the week immediately preceding the first regularly
scheduled meeting of COMSAT's Board of Directors after the end of each
quarter of COMSAT, consolidated statements of operations as of the end
of such fiscal quarter and for the portion of COMSAT's fiscal year
then ended, prepared in accordance with GAAP;
(3) as soon as available, and in any event no later than 30 days
after the end of each quarter of COMSAT, a consolidated unaudited
balance sheet of Ascent and its Subsidiaries as of the end of such
fiscal quarter and the related consolidated statements of
shareholders' equity and cash flows for such fiscal quarter and for
the portion of COMSAT's fiscal year then ended, all prepared in
accordance with GAAP;
(4) as soon as available, and in any event no later than the
Tuesday of the week immediately preceding the first regularly
scheduled meeting of COMSAT's Board of Directors after the end of each
month or, if no board meeting is scheduled for that month, no later
than the Tuesday of the week immediately preceding the week in which
the third Friday of the month occurs after the end of each month, a
report on revenues and operating earnings of Ascent on a consolidated
basis, which reports shall contain such other financial information
and data as COMSAT may reasonably prescribe, as of the end of the
immediately preceding calendar month;
(5) as soon as available, and in any event no later than the
Friday preceding the first regularly scheduled meeting of COMSAT's
Board of Directors after the end of any quarter of COMSAT, revised
forecasted quarterly statements of operations for the remainder of the
calendar year for Ascent and its Subsidiaries on a consolidated basis;
(6) as soon as available, and in any event no later than the 15th
day of October of each year, a projected operating budget for Ascent
for the ensuing fiscal year; and
(7) as soon as available, and in any event no later than five
business days following receipt of a request by COMSAT, such other
information relating to Ascent as COMSAT may reasonably request, in
connection with the reporting of its ownership interest in Ascent
under the "equity method" of accounting in accordance with GAAP, to
prepare COMSAT's own financial statements and reports under the
Exchange Act.
(c) For so long as the COMSAT Entities own at least 50% of the
outstanding securities of Ascent entitled to be cast for the election of
directors, Ascent shall deliver copies of its proposed budget and strategic
business plan to its directors not less than 30 days in advance of the
consideration of such documents by Ascent's Board of Directors for approval
and concurrently deliver copies thereof to COMSAT's chief financial
officer.
(d) For so long as the COMSAT Entities own at least 50% of the
outstanding securities of Ascent entitled to be cast for the election of
directors, Ascent shall deliver written notice to COMSAT of (i) filing of
any material litigation, counter-claim, administrative proceeding or
arbitration by or against Ascent or any Subsidiary, (ii) any event of
default or breach under any material agreement to which Ascent or any
Subsidiary is a party (including, but not limited to, this Agreement, the
Intercompany Services Agreement and the Tax Agreement), and (iii) the entry
of any material judgment or order for the payment of money or injunctive
relief against Ascent or any Subsidiary, in each case as soon as possible
and in any event within five business days after Ascent becomes aware of
such event. COMSAT shall provide notice to Ascent of the occurrence of any
of the foregoing events relating to COMSAT
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within the same time frame if Ascent would be required to disclose
such events under applicable financial reporting requirements pursuant to
federal or state securities laws or in accordance with GAAP.
(e) For so long as the COMSAT Entities own at least 50% of the
outstanding securities of Ascent entitled to be cast for the election of
directors, Ascent shall deliver to COMSAT, if requested by COMSAT,
information of the same type, and at the same time, as required to be
provided pursuant to paragraphs (a), (b) and (d) of this Section 5.2 for
any Subsidiary or any other corporation, association, partnership, joint
venture or other business entity in which Ascent holds an equity interest
if such interest has a material impact on Ascent's operating results.
(f) With respect to the financial statements delivered pursuant to
Section 5.2(a) and (b), a certification executed by the Chief Financial
Officer or Chief Executive Officer of Ascent certifying that such financial
statements were prepared in accordance with GAAP and fairly present the
financial position of Ascent and its Subsidiaries as of the end of the
applicable fiscal month, quarter or year-end and their combined results of
operations and cash flows for the periods then ended, subject to year-end
audit adjustments.
(g) Ascent agrees to reimburse COMSAT, no later than 30 days after
delivery to Ascent of a written request for reimbursement by COMSAT, for
all costs, losses, damages or liabilities (including attorney's fees and
expenses) that COMSAT may incur as a result of any breach of the provisions
of this Section 5.2 by Ascent.
(h) For so long as the COMSAT Entities own at least 50% of the
outstanding securities of Ascent entitled to be cast for the election of
directors, Ascent hereby agrees to provide to COMSAT such other information
respecting the financial condition or operations of Ascent as COMSAT may
from time to time reasonably request. In addition, subject to applicable
law, each party hereto covenants and agrees to provide the other party and
its authorized accountants, counsel and other designated representatives
(collectively, the "Representatives") reasonable access (including using
reasonable efforts to give access to persons or firms possessing
information) during normal business hours to all records, books, contracts,
instruments, computer data and other data and information (collectively,
"Additional Information") insofar as such access is reasonably required by
the other party in connection with the transactions contemplated by this
Agreement, the Intercompany Services Agreement and the Tax Sharing
Agreement, each of even date herewith between the parties, or as may be
required by such other party to comply with all applicable federal, state,
county and local laws, administrative or court orders, ordinances,
regulations and codes, including, but not limited to, securities and tax
laws and regulations ("Laws"). Without limiting the foregoing, Additional
Information may be requested under this Section 5.2(h) for audit,
accounting, claims, regulatory, litigation and tax purposes, as well as for
purposes of fulfilling disclosure and reporting obligations and for
performing this Agreement and the transactions contemplated hereby. Each
party covenants that it will provide Additional Information to the other
party promptly and on a timely basis following a request therefor so as to
permit the other party sufficient time to process the Additional
Information and incorporate such Additional Information into any report,
return or filing required under applicable Laws or to effect the
transactions contemplated by this Agreement, the Intercompany Services
Agreement and the Tax Sharing Agreement, assuming that the request therefor
is made on a timely basis sufficiently in advance of any filing deadline so
as to permit such response.
(i) For so long as the COMSAT Entities own at least 50% of the
outstanding securities of Ascent entitled to be cast for the election of
directors, Ascent shall provide to COMSAT access to Ascent's independent
public accountants and Chief Financial Officer or other officers at
reasonable intervals.
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(j) Each party shall hold, and cause its Representatives to hold, in
confidence, all information concerning the other in its possession or
furnished by the other or the other's Representatives pursuant to this
Agreement and shall not use any such information except for such purposes
as shall be expressly permitted hereunder (except in each case to the
extent that such information has been (i) in the public domain through no
fault of such party or (ii) lawfully acquired from other sources by such
party), and each such party shall not release or disclose such information
to any other person, except its regulators, auditors, attorneys, financial
advisors, bankers, rating agencies, creditors, insurers, and other
consultants and advisors, unless compelled to disclose such information, as
advised by its counsel, in order to comply with reporting or other
requirements under applicable Laws. Without prejudice to the rights and
remedies of any party to this Agreement, a party disclosing confidential
information to the other party in accordance with the terms of this
Agreement shall be entitled to equitable relief by way of an injunction if
the other party hereto breaches or threatens to breach any provision of
this Section 5.6. Each party shall use the same care in keeping
confidential the information of the party as it would use in safeguarding
its similar information, but in no event less than reasonable care.
5.3 The IPO. Ascent shall pay all expenses relating to IPO (including
the fees of the advisors and counsel to COMSAT and to Ascent), all of the
reimbursable expenses of the Underwriters pursuant to the Underwriting
Agreement, all of the costs of producing, printing, mailing and otherwise
distributing the registration statement and offering documents, including
any preliminary prospectus and final prospectus, or any amendments or
supplements to the foregoing relating to the IPO (the "IPO Offering
Documents"), as well as the Underwriters' discount as provided in the
Underwriters' Agreement (collectively, the "IPO Expenses"). Notwithstanding
anything to the contrary that may be contained in the Underwriting
Agreement, the provisions of this paragraph shall govern and control the
allocation of IPO Expenses as between COMSAT and Ascent. Ascent hereby
agrees to save, protect, indemnify, defend and hold harmless, on an
After-Tax Basis, each of the COMSAT Entities and each of the officers,
directors, and employees of each of the COMSAT Entities from and against
all Losses to which any of them may become jointly or severally subject (i)
arising out of any untrue statement or alleged untrue statement of a
material fact or omission or alleged omission to state a material fact
required to be stated therein or necessary to make the statements therein
not misleading, with respect to the IPO Offering Documents (provided,
however, that Ascent shall not be liable to the COMSAT Entities to the
extent that any such Losses arise out of or relate to any untrue statement
or alleged untrue statement, or any omission or alleged omission, if such
statement or omission shall have been made in reliance upon and in
conformity with information relating to the COMSAT Entities furnished in
writing to Ascent or the Underwriters by or on behalf of the COMSAT
Entities specifically for use in the IPO Offering Documents), (ii) relating
to any litigation initiated by persons acting in their capacity as a
shareholder or creditor of Ascent and arising out of the IPO, or (iii)
arising out of or related to that certain Indemnification Agreement among
COMSAT, Ascent, COMSAT Video Enterprises, Inc., COMSAT Denver, Inc. and the
Denver Nuggets Limited Partnership, as indemnitors, in favor of the
following persons and entities (collectively, referred to as the "NBA
Entities"): the National Basketball Association, each member of the Board
of Governors of the National Basketball Association, each of the member
teams of the National Basketball Association, NBA Properties, Inc., NBA
Market Extension Partnership, and each of the respective affiliates,
subsidiaries, directors, officers, employees, agents, partners and
shareholders of each of the foregoing entities, entered into by COMSAT at
the request of Ascent on or about the IPO Date to facilitate the receipt of
the approval of the IPO by the NBA Entities under the constitution and
by-laws of the National Basketball Association. COMSAT hereby agrees to
save, protect, indemnify, defend and hold harmless, on an After-Tax Basis,
Ascent and each of the officers, directors, and employees of Ascent from
and against all Losses to which any of may become jointly or severally
subject relating to any litigation initiated by persons acting in their
capacity as a shareholder or creditor of COMSAT arising out of the IPO.
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5.4 Allocation of Certain Contingent Liabilities and Benefits. The
parties agree that any costs and recoveries associated with certain
contingent liabilities and claims described in Appendix A and any
contingent liabilities and claims that may arise in the future shall be
allocated between COMSAT and Ascent in the manner therein described, the
terms of which are incorporated herein by reference.
5.5 Intercompany Receivables and Interest. (a) For so long as the
COMSAT Entities own at least 50% of the outstanding securities of Ascent
entitled to be cast for the election of directors, COMSAT shall debit or
credit any amounts that are due and payable by Ascent, or owed to Ascent,
under the terms of this Agreement, the Intercompany Services Agreement or
the Tax Sharing Agreement against an intercompany receivable account (the
"Intercompany Receivable Account") that COMSAT will maintain as part of its
books and records. If the Intercompany Receivable Account has a positive
balance (i.e., if the amounts owed to COMSAT by Ascent exceed the amounts
owed to Ascent by COMSAT) as of the end of any month, Ascent shall pay the
amount of such balance to COMSAT by wire transfer, intrabank transfer or
such other immediately available sources of funds as COMSAT may agree no
later than the first business day after the date that the monthly financial
statements of Ascent for that month are required to be delivered to COMSAT
pursuant to Section 5.2(a) or, failing the specification of such a date by
COMSAT, the date described in Section 5.2(b)(4) (the "Settlement Date"). If
the Intercompany Receivable Account has a negative balance (i.e., if the
amounts owed to Ascent by COMSAT exceed the amounts owed to COMSAT by
Ascent) as of the end of any month, COMSAT shall pay the amount of such
balance to Ascent by wire transfer, intrabank transfer or such other
immediately available sources of funds as COMSAT may agree no later than
the Settlement Date.
(b) The Intercompany Services Agreement, among other transactions,
contemplates that COMSAT will provide certain payroll processing and
payment services to Ascent. Notwithstanding the provisions of Section
5.5(a), Ascent hereby agrees to deposit into such bank account or accounts
as COMSAT may designated by written notice an amount equal to the aggregate
payroll of all Ascent employees for whom COMSAT provides payroll processing
services (each, an "Ascent Payroll Payment") pursuant to the Intercompany
Services Agreement by wire transfer, intrabank transfer or such other
immediately available sources of funds as COMSAT may agree no later than
the business day (the "Ascent Payroll Payment Date") immediately preceding
the date on which such payment is scheduled to be made to Ascent's
employees. COMSAT shall advise Ascent of the estimated amount of each
Ascent Payroll Payment (the "Estimated Ascent Payroll Payment") no later
than the business day immediately preceding the Ascent Payroll Payment
Date. If COMSAT fails to advise Ascent of the Estimated Ascent Payroll
Payment, Ascent shall make an Estimated Ascent Payroll Payment equal to the
Ascent Payroll Payment for the preceding pay period. Any differences
between the Ascent Payroll Payment and the Estimated Ascent Payroll Payment
shall be credited or debited, as applicable, against the Intercompany
Receivable Account.
(c) Any balances in the Intercompany Receivable Account that have not
been paid by the party responsible for such payment and any Estimated
Ascent Payroll Payments that have not been paid by Ascent pursuant to terms
of this Section 5.5 after the fifth business day after the Settlement Date
or Ascent Payroll Payment Date, as applicable, shall bear interest until
such amount is paid in full, credited or debited (as applicable) against
the Intercompany Receivable Account, at a rate per annum equal at all times
to 4% per annum above the Base Rate then in effect of the party obligated
to make such payment. In the event that the rate provided for in the
preceding sentence exceeds the maximum rate allowed by applicable law, the
maximum legal rate interest shall apply. In the event that Ascent wishes to
contest or disagrees with any credit or debit made against the Intercompany
Receivable Account during any month, Ascent shall provide written notice of
its objection to such credit or debit no later than 10 business days after
the Settlement Date. Upon receipt of such notice, COMSAT and Ascent shall
use their Best
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Efforts to resolve any disagreements with respect to contested credits
or debits against the Intercompany Receivable Account before the next
Settlement Date. The failure to reach agreement as to the appropriate
resolution of any disputed credit or debit to the Intercompany Receivable
Account, however, shall not relieve either party of its obligation to make,
or give rise to any right of set-off by such party arising either at common
law or in equity (which such rights are hereby waived by each of the
parties) against, future payments to the other in respect of the
Intercompany Receivable Account or Estimated Ascent Payroll Payments
pursuant to this Section 5.5.
5.6 Existing Guaranties and Letters of Credit. Ascent hereby consents
to the delivery by COMSAT of a notice of revocation to Philips Consumer
Electronics Company ("Philips") pursuant to that certain Unlimited Guaranty
by COMSAT to Philips, dated March 17, 1992, guaranteeing certain
indebtedness of COMSAT Video Enterprises, Inc. ("CVE") in an amount not to
exceed $350,000 (the "Philips Guarantee") promptly after the IPO Date.
Ascent shall use its Best Efforts to obtain the discharge and release by
Professional Bank of COMSAT as a guarantor under that certain Commercial
Guaranty by COMSAT to Professional Bank, dated February 5, 1994,
guaranteeing certain indebtedness of Mountain Mobile TV, L.L.C. in an
amount not to exceed $556,666.67 (the "Professional Bank Guaranty"), as
soon as practical after the IPO Date. Ascent shall cause the Denver Nuggets
Ltd. Partnership (the "Denver Nuggets") to deliver a notice of cancellation
under that certain Irrevocable Clean Sight Letter of Credit issued by
Northwest Bank Denver, N.A. ("Norwest") to the City and County of Denver,
as beneficiary, on behalf of the Nuggets in the amount of $100,000 (the
"Norwest LC") to Norwest no later than May 30, 1996, unless Norwest shall
have discharged and released COMSAT from any further liability or
obligation under that certain Letter of Guaranty by COMSAT to Norwest
guaranteeing payment of the outstanding principal amount funded under the
Norwest LC, if any, interest thereon and all costs of collection associated
therewith (the "Norwest Guaranty") and COMSAT is provided with evidence of
such release, in a form reasonably satisfactory to COMSAT, prior to such
date. Ascent agrees to refrain from taking any action, and shall cause the
Denver Nuggets to refrain from taking any action, that would extend the
expiration date of that certain letter of credit dated October 13, 1993
issued by The Chase Manhattan Bank, N.A. ("Chase") to Taubman Cherry Creek,
Ltd. Partnership up to an aggregate amount of $188,560 (the "Chase LC")
beyond January, 31, 1996. Ascent shall reimburse COMSAT for all charges,
costs and expenses paid or incurred by COMSAT in connection with the
Norwest LC and the Chase LC. Ascent hereby agrees to indemnify COMSAT from
and against any and all Losses that COMSAT may incur arising from or
relating to the Philips Guarantee, the Professional Bank Guarantee, the
Norwest Guaranty, the Chase LC and that certain Continuing Guaranty by
COMSAT to Morgan Guaranty Trust Company of New York ("Morgan"), dated
August 4, 1994, guaranteeing certain indebtedness of International Telcell,
Inc. (the "Morgan Guaranty"). In addition, Ascent hereby agrees to pay
COMSAT a guaranty fee on the IPO Date and on each anniversary thereof equal
to one percent of the sum of (x) the then current aggregate amount of
obligations guaranteed by COMSAT under the Professional Bank Guaranty and
the Norwest Guaranty, and (y) the aggregate amount that may be drawn under
the Chase LC. Ascent hereby agrees that any amount owed by it to COMSAT
under the terms of this Section 5.6 may be charged by COMSAT to or against
the Intercompany Receivable Account.
5.7 Separation Agreement. Immediately prior to the effective time of
any transaction that would result in the COMSAT Entities failing to own at
least 50% of the outstanding securities of Ascent entitled to be cast for
the election of directors, Ascent and COMSAT shall use their respective
Best Efforts to enter into a separation agreement containing such terms, in
addition to those set forth in this Agreement, the Intercompany Services
Agreement and the Tax Sharing Agreement, as shall be necessary or
appropriate to effect the orderly and timely deconsolidation of Ascent from
the COMSAT consolidated group.
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5.8 Use of COMSAT Name. At such time as the COMSAT Entities no longer
own or hold with power to vote at least 50% of the outstanding securities
of Ascent entitled to be cast for the election of directors, Ascent shall
cease and desist from any further use of the COMSAT name and any COMSAT
logo, trademark or service mark, other than pursuant to a written licensing
agreement signed by COMSAT authorizing such use or as may be required to be
disclosed by applicable law.
ARTICLE VI
MISCELLANEOUS
6.1. Limitation of Liability. Neither COMSAT nor Ascent shall be
liable to the other for any special, punitive or consequential damages
arising in connection with this Agreement, the Intercompany Services
Agreement or the Tax Sharing Agreement.
6.2. Subsidiaries. COMSAT agrees and acknowledges that COMSAT shall be
responsible for the performance by each COMSAT Entity of the obligations
hereunder applicable to such COMSAT Entity. Ascent agrees and acknowledges
that Ascent shall be responsible for the performance by each Ascent Entity
of the obligations hereunder applicable to such Ascent Entity.
6.3. Amendments; Waivers; Remedies. This Agreement, the Intercompany
Services Agreement and the Tax Sharing Agreement may not be amended or
terminated, nor may any failure of performance or default be waived,
orally, except by a writing duly executed by or on behalf of the parties
hereto. Any such amendment or waiver shall be validly and sufficiently
authorized for purposes of this Agreement if it is signed on behalf of
COMSAT or Ascent by any of their respective presidents or vice presidents.
No failure on the part of COMSAT, any Transferee or Ascent to exercise, and
no delay in exercising, any right hereunder or thereunder shall operate as
a waiver thereof (except as expressly provided herein or therein); nor
shall any single or partial exercise thereof or the exercise of any other
right preclude any other or further exercise thereof or the exercise of any
other right. The remedies herein and therein provided are cumulative and
not exclusive of any remedies provided at law or in equity.
6.4. Term. This Agreement shall remain in effect until all Registrable
Securities held by Holders have been transferred by them to Persons other
than Holders; provided, that the provisions of Sections 3.7, 5.2(j), 5.3,
5.4 and any unsatisfied payment obligation pursuant to Section 5.5 shall
survive any such expiration.
6.5 Severability. If any provision of this Agreement or the
application of any such provision to any party or circumstances shall be
determined by any court of competent jurisdiction or fully authorized
arbitration tribunal to be invalid, illegal or unenforceable to any extent,
the remainder of this Agreement or such provision of the application of
such provision to such party or circumstances, other than those to which it
is so determined to be invalid, illegal or unenforceable, shall remain in
full force and effect to the fullest extent permitted by law and shall not
be affected thereby, unless such a construction would be unreasonable.
6.6 Notices. Any notice, instruction, direction or demand under the
terms of this Agreement required to be in writing will be duly given upon
delivery, if delivered by hand, facsimile transmission or intercompany
mail, or five (5) days after posting if sent by certified mail, return
receipt requested to the following addresses:
COMSAT:
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COMSAT Corporation
6560 Rock Spring Drive
Bethesda, Maryland 20817
Attention: Allen E. Flower
Vice President and Chief Financial Officer
Telecopy No.: 301/214-7131
With copy (which shall not constitute notice) to:
Warren Y. Zeger
Vice President, General Counsel and Secretary
COMSAT Corporation
6560 Rock Spring Drive
Bethesda, Maryland 20817
Telecopy No.: 301/214-7128
and
Ascent:
Ascent Entertainment Group, Inc.
6560 Rock Spring Drive
Bethesda, Maryland 20817
Attention: Wesley D. Minami
Vice President, Chief Financial Officer
and Treasurer
Telecopy No.: 301/214-7120
With copy (which shall not constitute notice) to:
Arthur M. Aaron
Vice President, Business and Legal Affairs
and Secretary
Ascent Entertainment Group, Inc.
6560 Rock Spring Drive
Bethesda, Maryland 20817
Telecopy No.: 301/214-7120
or to such other address as either party may have furnished to the
other in writing in accordance with this Section 6.6.
6.7. Further Assurances. COMSAT and Ascent shall execute, acknowledge
and deliver, or cause to be executed, acknowledged and delivered, such
instruments and take such other action as may be necessary or advisable to
carry out their obligations under this Agreement and under any exhibit,
document or other instrument delivered pursuant hereto.
6.8. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original instrument, but all
of which together shall constitute but one and the same agreement.
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6.9. Governing Law. This Agreement and the transactions contemplated
hereby shall be construed in accordance with, and governed by, the laws of
the State of Maryland without giving effect to the conflicts of law
principles thereof. Each party hereby agrees that any legal action or
proceedings with respect to this Agreement, the Intercompany Services
Agreement or the Tax Sharing Agreement shall be brought in a federal or
state court located in the State of Maryland, and each of the parties
hereby consents to the exclusive jurisdiction of such courts and hereby
waives any objections on the grounds of venue, forum non conveniens, situs
of the action, improper forum or any similar grounds.
6.10. Successors. This Agreement shall be binding upon, and shall
inure to the benefit of, the parties hereto and their respective successors
and assigns. Nothing contained in this Agreement, express or implied, is
intended to confer upon any other person or entity any benefits, rights or
remedies.
6.11. Entire Agreement. This Agreement constitutes the entire
understanding of the parties hereto with respect to the subject matter
hereof.
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<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be
signed by their duly authorized representatives.
COMSAT CORPORATION
/s/ Allen E. Flower
By: ---------------------------
Allen E. Flower
Vice President and Chief
Financial Officer
ASCENT ENTERTAINMENT GROUP, INC.
/s/ Wesley D. Minami
By: -------------------------------
Wesley D. Minami
Vice President, Chief Financial
Officer
Treasurer
28
<PAGE>
Appendix A
to the
CORPORATE AGREEMENT
between
COMSAT Corporation
and
Ascent Entertainment Group, Inc.
December 18, 1995
<PAGE>
CONTINGENT LIABILITIES AND CONTINGENT BENEFITS
Section 1 - Definitions
Capitalized terms that are used in this Appendix have the
meaning ascribed to such term in the Corporate Agreement or, to the
extent not therein defined, the meaning set forth below. Words
importing only the singular include the plural and vice versa where
the context requires.
"Action" means any litigation or other judicial, regulatory or
administrative proceeding (including audits of taxes other than
federal or state income taxes, including state franchise taxes
measured by income).
"Acts or Omissions" means significant active and direct
participation by a Party in the conduct that resulted in the
Contingent Liability or Contingent Benefit; provided, however, that
approvals, non-approvals or rejections of budgets, strategic
business plans and other corporate plans shall not constitute Acts
or Omissions with respect to any particular conduct.
"Benefit" means a significant, identifiable financial benefit
that directly flows to a Party from the Acts or Omissions that
resulted in the Contingent Liability or Contingent Benefit;
provided, however, that the payment of dividends to COMSAT by one
or more of its Subsidiaries shall not constitute a Benefit to
COMSAT or to any of COMSAT's other Subsidiaries with respect to any
particular Acts or Omissions of the Subsidiary paying such
dividends.
"Contingent Benefit" means a Benefit of one or both of the
Parties which was not booked for financial reporting purposes prior
to the Effective Date that is attributable to either (a) an event
which occurred prior to the Initial Public Offering Date, (b) a
condition which existed prior to the Initial Public Offering Date,
or (c) an event which occurred after the Initial Public Offering
Date but which was attributable to the Initial Public Offering;
provided, however, that in any case the Action that resulted in the
Contingent Benefit must have been filed or otherwise commenced
within 5 years after the Initial Public Offering Date.
"Contingent Liability" means a liability (to the extent not
covered by insurance) of one or both of the Parties which was not
booked for financial reporting purposes prior to the Effective Date
that is attributable to either (a) an event which occurred prior to
the Initial Public Offering Date, (b) a condition which existed
prior to the Initial Public Offering Date, or (c) an event which
occurred after the Initial Public Offering Date but which was
attributable to the Initial Public Offering; provided, however,
that in any case the Action that resulted in uninsured liability
2
<PAGE>
must have been filed or otherwise commenced within 5 years after
the Initial Public Offering Date.
"Judgment" means any judgment or other determination of
liability entered by a court or regulatory or administrative
authority, any settlement entered into or consented to by both of
the Parties, or any dismissal of a third party claim; provided,
however, that a stipulated judgment or order of dismissal (or
equivalent) by which a court approves a settlement of an Action
entered into by only one of the Parties, including class action
settlements, shall not be deemed to be a Judgment. For example,
the assessment of a tax deficiency (other than a federal or state
income tax deficiency) after the conclusion of an audit and the
exhaustion of the taxpayer's administrative remedies is a Judgment.
"Named Party" means a Party which has one or more members that
are named as a defendant (or equivalent) in an Action. For
example, if Ascent is the taxpayer being audited by a taxing
authority, Ascent would be a Named Party in such Action.
"Party" means a party to this Agreement and each Subsidiary of
such party, other than the other party and its Subsidiaries.
Section 2 - Defense and Prosecution of Actions
2.1 The Parties will cooperate and consult with each other in
connection with the defense or prosecution of any Action in which
both Parties are or potentially may be involved (even if both
Parties are not Named Parties in the Action), including but not
limited to Actions which might result in a Contingent Liability or
Contingent Benefit.
2.2 If only one of the Parties is a Named Party in an Action,
such Named Party shall be responsible for both the defense or
prosecution of the Action (in cooperation and consultation with the
other Party) and all of the Benefits and/or costs associated with
such Action until such time as such Benefits or costs may be
subject to allocation as a Contingent Benefit or Contingent
Liability under this Agreement. Nothing in this Section 2.2,
however, shall preclude either Party from joining the other party
as a Named Party to the Action, in which case costs shall be
allocated in accordance with Section 2.3.
2.3 If both Parties are Named Parties in an Action, they
shall agree on the responsibility for both the defense or
prosecution of the Action and the Benefits and costs associated
with such Action until such time as such Benefits and costs may be
subject to allocation as a Contingent Benefit or Contingent
Liability under this Agreement. Such agreement shall take into
consideration the manner in which any Contingent Benefit or
Contingent Liability resulting from the Action would be allocated
under Section 3.3. For example, if both COMSAT and Ascent were
3
<PAGE>
Named Parties in an action which arose out of Ascent's hotel in-
room entertainment business, the Parties should agree that Ascent
would be primarily responsible for the defense of the Action and
would bear all of the costs associated with such defense until such
time as such costs may be subject to allocation as a Contingent
Liability under this Agreement.
2.4 Each Party shall bear its own internal costs (such as the
salaries of in-house legal counsel and other personnel) incurred in
connection with the defense or prosecution of any Action.
Section 3 - Contingent Liabilities and Contingent Benefits
3.1 The allocation rules set forth in Section 3.3 shall apply
to all Contingent Liabilities and Contingent Benefits of the
Parties which result from Judgments, except for those Actions
relating to federal and state income taxes, including state
franchise taxes measured by income, which shall be governed by the
Tax Sharing Agreement. For example, Contingent Liabilities may be
based on contract, tort (including business torts such as alleged
violations of the antitrust laws), tax (other than federal and
state income tax), environmental, workers' compensation, ERISA,
securities, regulatory and other common law and statutory claims.
3.2 Except as the Parties may otherwise agree, any Contingent
Liability or Contingent Benefit which results from a settlement (as
opposed to a Judgment) entered into by only one of the Parties will
not be subject to allocation under this Agreement.
3.3 The Parties agree to allocate Contingent Benefits and pay
the costs of Contingent Liabilities which result from Judgments
(and any settlements entered into by only one of the Parties which
the Parties may agree are subject to allocation under this
Agreement) in accordance with the following allocation rules:
(a) Named Party Rule. Except as otherwise provided in
paragraphs (b) through (e) below, if only one of the Parties is a
Named Party in an Action, the Contingent Liability or Contingent
Benefit shall be allocated solely to that Party.
(b) COMSAT Rule. If the Contingent Liability or Contingent
Benefit is attributable solely to the Acts or Omissions of the
COMSAT Entities and the Ascent Entities did not, in the case of a
Contingent Liability, receive any Benefit from such Acts or
Omissions or, in the case of a Contingent Benefit, contribute to or
participate in the Acts giving rise to such Contingent Benefit,
then the Contingent Liability or Contingent Benefit, as applicable,
shall be allocated solely to the COMSAT Entities.
(c) Ascent Rule. If the Contingent Liability or Contingent
Benefit is attributable solely to the Acts or Omissions of Ascent
and the COMSAT Entities did not, in the case of a Contingent
4
<PAGE>
Liability, receive any Benefit from such Acts or Omissions or, in
the case of a Contingent Benefit, contribute to or participate in
the Acts giving rise to such Contingent Benefit, then the
Contingent Liability or Contingent Benefit, as applicable, shall be
allocated solely to Ascent.
(d) Joint Rule. In the case of a Contingent Liability, if
either (1) the Contingent Liability is attributable to the Acts or
Omissions of both the COMSAT Entities and the Ascent Entities, or
(2) the Party not responsible for the Acts or Omissions resulting
in the Contingent Liability received a Benefit from such Acts or
Omissions, the Parties will use their best efforts to attempt to
agree on an equitable means of sharing the Contingent Liability
which reasonably reflects both (a) the nature of each Party's Acts
or Omissions, and (b) any Benefit to each Party from the Acts or
Omissions that resulted in such Contingent Liability. In the case
of a Contingent Benefit, if either (1) the Contingent Benefit is
attributable to the Acts or Omissions of both the COMSAT Entities
and the Ascent Entities, or (2) the Party not responsible for the
Acts or Omissions resulting in the Contingent Benefit contributed
to or participated in the Acts giving rise to such Contingent
Benefit, the Parties will use their best efforts to attempt to
agree on an equitable means of sharing the Contingent Benefit which
reasonably reflects both (a) the nature of each Party's Acts or
Omissions, (b) the relative contribution of each Party that gave
rise to the Contingent Benefit, and (c) the Benefits or costs paid
by each party in respect of such Contingent Benefit.
(e) Employee Rule. Notwithstanding paragraphs (a) through (d)
above and except as may otherwise be provided for under any of the
indemnification provisions of this Agreement, the Tax Sharing
Agreement or the Intercompany Services Agreement, if the
Contingent Liability results from the claim of an employee, or
former employee of a member of the COMSAT Entities or Ascent
Entities and is related to such person's employment, the Contingent
Liability shall be allocated to the Party by whom such person was
employed at the time when the Acts or Omissions that resulted in
the Contingent Liability occurred. For example, if an employee of
one of the Ascent Entities who was injured while working for an
Ascent Entity later transferred to COMSAT, any Contingent Liability
relating to such injury would be allocated solely to the Ascent
Entities.
The applicable allocation rule set forth in paragraphs (b),
(c), (d) and (e) above shall apply even if a Party to which all or
part of the Contingent Liability or Contingent Benefit is to be
allocated is not a Named Party in the Action and regardless of
whether such Party may have been dismissed from the Action by
virtue of a motion, settlement or otherwise.
3.4 The amount of a Contingent Liability subject to
allocation under this Agreement shall include, and the amount of
5
<PAGE>
any Contingent Benefit available for allocation shall be reduced
by, the costs of any Judgment entered by a court or judicial,
regulatory or administrative authority in an Action (or the cost of
any settlement entered into by both of the Parties), the costs of
defending or prosecuting the Action (including court costs,
sanctions imposed by a court, attorneys' fees, experts' fees and
all other external expenses, and the cost of any interest or
penalties with respect to any such Judgment.
3.5 Exhibit A-1 (Schedule of Actions) contains a list of all
Actions pending or threatened as of the date of this Agreement, in
which the Parties believe that a Judgment would be reasonably
likely to result in a Contingent Liability or Contingent Benefit
and the manner in which such Contingent Liability or Contingent
Benefit shall be allocated under this Agreement, notwithstanding
the general allocation rules set forth in Section 3.3.
3.6 The Named Party in an Action in which an adverse Judgment
would be reasonably likely to result in a Contingent Liability or
a favorable Judgment would be reasonably likely to result in a
Contingent Benefit to be allocated under this Agreement shall use
its best efforts to notify the other Party of the Action (unless
the other Party is also a Named Party in the same Action) within 30
days after the service of process on, or other initial written
notice of the Action to, such Named Party. The notice shall
include the following information: (a) caption of the Action,
including the docket number and the name of the court or other
judicial, regulatory or administrative authority before which the
Action is pending; (b) names of the parties involved in the Action,
if not disclosed in the caption; (c) brief statement of the claims
alleged; (d) amount of the liability alleged or expected to be
alleged, if known; and (e) which of the allocation rules set forth
in Section 3.3 such Party believes would be applicable.
3.7 Notwithstanding the provisions of Section 3.6, no Party
shall be relieved of its obligations under this Agreement with
respect to a Contingent Liability unless such Party can demonstrate
by a preponderance of the evidence that it was substantially
prejudiced by the failure of the other Party to either (a) list the
action in Exhibit A-1 (Schedule of Actions) pursuant to Section
3.5, or (b) give timely notice of the Action pursuant to Section
3.6.
3.8 Except as otherwise provided in Exhibit A-1 or as the
Parties may otherwise agree, any Contingent Liability or Contingent
Benefit resulting from the Actions either (a) listed in Exhibit A-1
(Schedule of Actions) or (b) for which notice is given pursuant to
Section 3.6 shall be allocated according to the applicable rule set
forth in Section 3.3.
(Exhibit A-1 follows)
6
<PAGE>
Exhibit A-1
Schedule of Pending or Threatened Actions
CONTINGENT LIABILITIES AND CONTINGENT BENEFITS ALLOCATED SOLELY TO
ASCENT
1. The Anschutz claim described in the letter to Deloitte &
Touche LLP dated October 20, 1995 from Wilmer, Cutler & Pickering.
2. The Miramax litigation described in the letter dated
October 3, 1995 to Deloitte & Touche LLP from Williams & Connolly.
3. All Contingent Liabilities and Contingent Benefits
arising out of Ascent's ownership interest in Beacon Communications
Corp., including but not limited to those matters described on
Schedule 4.19 of the Disclosure Schedule to the Beacon Asset
Purchase Agreement, shall be allocated to Ascent.
4. The Hoskins litigation described in the letter dated
October 5, 1995 to Deloitte & Touche LLP from Akin, Gump, Strauss,
Hauer & Feld, L.L.P.
5. All Contingent Liabilities and Contingent Benefits
arising out of Ascent's ownership interest in the Nuggets and the
Avalanche shall be allocated to Ascent.
6. Broadcast Music, Incorporated ("BMI"), the representative
of many composers and publishers of musical works for the licensing
of the public performance rights to such works under U.S. copyright
law, has contacted Ascent and On Command Video Corporation ("OCV")
to negotiate a licensing agreement and royalty arrangement for the
use of music in the movies shown by OCV in its pay-per-view in-room
entertainment systems. BMI has requested a royalty rate of 0.45%
of the gross revenues generated from the purchase of movies
containing BMI-represented music, while Ascent and OCV believe a
substantially lower royalty rate should be applicable. All
Contingent Liabilities and Contingent Benefits associated with the
BMI claim or BMI royalties shall be allocated to Ascent.
7. American Society of Composers, Authors and Publishers
("ASCAP"), the representative of many composers and publishers of
musical works for the licensing of the public performance rights to
such works under U.S. copyright law, is being contacted by Ascent
and OCV to negotiate a licensing agreement and royalty arrangement
for the use of music in the movies shown by OCV in its pay-per-view
in-room entertainment systems. ASCAP is currently requesting
7
<PAGE>
hotels to sign its new "Standard Agreement" that obligates the
hotel to pay for pay-per-view music royalties if the provider of
such services does not do so. The OCV contracts with hotels
require OCV to indemnify the hotels for any costs they incur for
the payment of copyright royalty obligations related to pay-per-
view movies. The royalty rates in the Standard Agreement vary
depending on several factors, but they are in all cases
significantly higher than OCV believes it could negotiate from
ASCAP directly. Thus, negotiations are being initiated to acquire
the lowest royalty rate feasible. OCV believes that the royalty
rates for ASCAP licensed music should be no higher than for BMI
licensed music, and that because ASCAP controls considerably less
motion picture music than does BMI, it is reasonable that payments
to ASCAP should be considerably less. All Contingent Liabilities
and Contingent Benefits associated with ASCAP royalties or claims
shall be allocated to Ascent.
8. On May 22, 1995, COMSAT Video Enterprises, Inc. ("CVE")
and OCV entered into a Settlement Agreement with Spectradyne, Inc.
("Spectradyne") which concluded the Spectradyne patent and
copyright infringement litigation described in the letter dated
January 31, 1995 from Wiley, Rein & Fielding. All Contingent
Benefits and Contingent Liabilities associated with the Spectradyne
litigation and any Actions pertaining to the breach or
nonperformance of the Settlement Agreement shall be allocated to
Ascent.
9. Showtime Networks, Inc. ("Showtime") filed suit against
CVE in New York State Court claiming that CVE was in breach of the
agreement under which Showtime provides CVE with its "Showtime" and
"The Movie Channel" services. The Showtime suit alleged that CVE
failed to use its best efforts to promote "Showtime" and "The Movie
Channel" and that CVE failed to pay certain license fees. The
Showtime suit subsequently was dismissed with prejudice as a result
of a settlement in which CVE agreed to pay a portion of the license
fees in dispute and enter into a new license agreement. All
Contingent Liabilities and Contingent Benefits associated with the
settlement with Showtime or any subsequent Actions which may be
brought by Showtime, if any, pertaining to CVE shall be allocated
to Ascent.
10. The Leask litigation described in the letter to Deloitte
& Touche LLP dated January 10, 1995 from Wilson, Sonsini, Goodrich
& Rosati. COMSAT reached a post-judgment settlement with Mr. Leask
under which OCV will pay Mr. Leask $1.54 million in return of his
release of all claims against OCV. All Contingent Liabilities and
Contingent Benefits associated with the settlement with Mr. Leask
or any subsequent Actions which may be brought by Mr. Leask, if
any, pertaining to OCV shall be allocated to Ascent.
11. On February 16, 1995, OCV filed a lawsuit against
Lodgenet Entertainment Corporation ("Lodgenet") alleging
8
<PAGE>
infringement of an OCV patent on in-room entertainment systems. On
November 28, 1995, Lodgenet was granted summary judgment on the
issues of limiting the period during which Lodgenet might be liable
for damages to begin on November 22, 1994, and OCV has sought
reconsideration of that decision. All Contingent Benefits and
Contingent Liabilities associated with the Lodgenet litigation
shall be allocated to Ascent.
CONTINGENT LIABILITIES AND CONTINGENT BENEFITS ALLOCATED SOLELY TO
COMSAT
12. On April 14, 1995, COMSAT filed a lawsuit against General
Instrument Corporation ("GI") and two San Francisco area cable
television companies alleging infringement of COMSAT's patent on
conditional access technology for the encrytion and decryption of
television signals. On May 23, 1995, GI filed a counterclaim
against COMSAT asserting that COMSAT tortiously interfered with and
defamed GI's business in bringing the patent infringement suit and
publicly announcing it. All Contingent Benefits and Contingent
Liabilities associated with the GI litigation shall be allocated to
COMSAT.
13. The PanAmSat antitrust litigation contained in the letter
dated January 27, 1995 to Deloitte & Touche LLP from Howrey &
Simon.
14. The Amplica chemical spill proceeding described in the
letter dated January 27, 1995 to Deloitte & Touche LLP from Howrey
& Simon.
15. The Mendoza commercial litigation described in the letter
dated January 30, 1995 to Deloitte & Touche LLP from Patton, Boggs
& Blow.
16. The Insurance Company of the State of Pennsylvania
litigation described in the letter dated January 31, 1995 to
Deloitte & Touche LLP from McGlinchey Stafford & Lang.
17. The Florida Department of Environmental Protection
proceeding described in the letter dated February 3, 1995 to
Deloitte & Touche LLP from Hearne, Graziano & Nader, P.A.
18. The Belcom arbitration described in the letter dated
February 2, 1995 from Wilmer, Cutler & Pickering.
CONTINGENT LIABILITIES AND CONTINGENT BENEFITS ALLOCATED TO EITHER
COMSAT OR ASCENT OR BOTH, AS APPLICABLE
19. In response to concerns of Hilton Hotels Corporation
("Hilton"), a key customer and shareholder of OCV, Ascent, CVE, OCV
and COMSAT entered into a letter agreement with Hilton dated
December 8, 1995. The Hilton agreement provides, among other
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<PAGE>
terms, that: (a) an independent investment banker will be engaged
to review the contribution by CVE of substantially all of its in-
room entertainment assets to OCV in a transaction reflected in the
Contribution Agreement dated August 1, 1995 between CVE and OCV
(the "Contribution") with respect to the value of the consideration
received by OCV and the value of the OCV shares issued in the
transaction, and the parties agree to be bound by the
recommendation of such investment banker (the "Contribution
Recommendation"), including, if necessary, at CVE's option, paying
cash to OCV or the minority stockholders of OCV (the "CVE Cash
Payment"), retiring shares of OCV owned by Ascent (the "OCV Share
Retirement") or reallocating shares of OCV owned by Ascent (the
"OCV Share Reallocation") to the minority stockholders of OCV; (b)
Allen & Company Incorporated or another investment banker selected
by Hilton will, if Hilton requests and at Hilton's expense, be
engaged to attempt to locate a buyer for Hilton's equity interests
in OCV at fair market value, and, if Hilton so requests, all of the
parties to the agreement agree to cooperate in respect of such
sales efforts; and (c) if CVE disposes of all or any portion of its
interests in OCV to any person that is not an affiliate of OCV,
Hilton will be afforded an opportunity to dispose of a pro rata
portion of its position in OCV on the same terms. If, as a result
of the Contribution Recommendation, CVE is required to elect from
among a CVE Cash Payment, an OCV Share Retirement or an OCV Share
Reallocation in accordance with terms of the Hilton agreement, (a)
Ascent shall consult with COMSAT as to which option CVE shall elect
and have Ascent's Board of Directors approve any such election; and
(b) COMSAT shall, as applicable, either: (i) reimburse CVE or
Ascent for the amount of the CVE Cash Payment, or (ii) make a cash
payment or transfer property to CVE or Ascent with a valuation
equal to the value of the OCV shares surrendered or retired at
COMSAT's option. All Contingent Liabilities arising out of the
Hilton agreement or associated with any Action, if any, that may be
brought by an OCV shareholder in respect of the Contribution, other
than as provided in the preceding sentence, shall be allocated to
Ascent.
20. COMSAT has a number of federal and state tax
contingencies, both asserted and unasserted, which will be
allocated in accordance with the Tax Sharing Agreement.
10
<PAGE>
INTERCOMPANY SERVICES AGREEMENT
This Intercompany Services Agreement (the "Agreement") is
made and entered into as of December 18, 1995, by and between Ascent
Entertainment Group, Inc., a Delaware corporation ("Ascent" and
collectively with its subsidiaries, "Ascent Entertainment Group"), and
COMSAT Corporation, a District of Columbia corporation ("COMSAT").
1. Corporate Services, Insurance, Employee Benefits and Use of
Premises. Ascent plans to issue shares of its common stock to the public in
an offering (the "IPO") registered under the Securities Act of 1933.
Beginning on the closing date for the initial sale of common stock by
Ascent in the IPO (the "IPO Date"), COMSAT shall provide to Ascent
Entertainment Group the services set forth in Exhibit A to this Agreement
in substantially the same manner as such services were provided prior to
the IPO Date (the "Corporate Services") during normal business hours and in
a manner that will not unreasonably interfere with COMSAT's business, its
tax, internal audit, accounting, legal and similar staff and services upon
the terms and subject to the conditions set forth in this Agreement;
provided, that the Corporate Services shall not include any services other
than those specifically described in Exhibit A or any services described in
Exhibit A that are beyond the scope, manner or quantity in which such
services were usually and customarily provided prior to the IPO Date. To
the extent provided in this Agreement, COMSAT will arrange for the coverage
of Ascent Entertainment Group under certain Insurance (as defined below)
policies and permit Ascent to continue to use and have access to the AEG
Premises (as defined below). In addition, COMSAT has agreed to provide
employees of Ascent Entertainment Group with benefit plans and programs and
the corresponding administrative services to the extent provided in this
Agreement ("Benefit Plans"). The Corporate Services, Benefit Plans,
Insurance (as defined below), and use of AEG Premises may be provided by
(i) any affiliate of COMSAT and, to the extent applicable, by any employee
of COMSAT or its affiliates or (ii) any third party at the sole discretion
of COMSAT.
2. Corporate Services.
(a) Fee. In exchange for the Corporate Services, Ascent
Entertainment Group shall pay to COMSAT an annual fee in the amount of
$2,000,000 (the "Services Fee") payable in 12 equal installments of
$166,666.67 commencing on the IPO date and on the same day of each month
thereafter during the term for which Corporate Services are to be provided
pursuant to Section 2(c). In addition, Ascent Entertainment Group shall
reimburse COMSAT for all reasonable out-of-pocket expenses that COMSAT may
incur in connection with the provision of the Corporate Services other than
overhead and the cost of COMSAT personnel ("Reimbursable Expenses"). For so
long as COMSAT and its subsidiaries (other than the Ascent Entertainment
Group) own at least 50% of the outstanding securities of Ascent entitled to
be cast for the election of directors, COMSAT shall debit or credit any
amounts that are due and payable by Ascent, or owed to Ascent, under the
terms of this Agreement against an intercompany receivable account (the
"Intercompany Receivable Account") that COMSAT will maintain as part of its
books and records in accordance with the terms and procedures set forth in
the Corporate Agreement of even date herewith between COMSAT and Ascent
(the "Corporate Agreement"). If the Intercompany Receivable Account is
terminated prior to the term for the provision of Corporate Services,
<PAGE>
Insurance and Benefit Plan services under this Agreement, COMSAT will
invoice Ascent for the Corporate Services, Reimbursable Expenses, the AEG
Premises Rent (as defined below), all direct costs incurred by COMSAT on
behalf of the Ascent Entertainment Group for Insurance and under the
Benefit Plans, any differences between the Estimated Ascent Payroll Payment
and Ascent Payroll Payment (as such terms are defined in the Corporate
Agreement), and for any additional services provided pursuant to Section
2(b), if any, on a monthly basis, and Ascent shall make payment to COMSAT
within 10 business days after receipt of the invoice. Any invoiced balances
that remain unpaid after the fifth business day after the due date shall
bear interest until such amount is paid in full at the rate set forth in
Section 5.5(c) of the Corporate Agreement.
(b) Additional Services. At any time during the term of
this Agreement, Ascent Entertainment Group may request that COMSAT provide
additional services to Ascent Entertainment Group. Such services may
include services that are not Corporate Services or Corporate Services
beyond the scope of those usually and customarily provided. Upon any such
request, the parties will discuss in good faith, without obligation, an
appropriate adjustment to the Services Fee to reflect such additional
services as Corporate Services, after which Ascent Entertainment Group
shall notify COMSAT in writing whether it shall accept such additional
services and such adjustment. In the alternative, COMSAT may agree to
perform additional services on an ad hoc negotiated fee for service basis
without adjustment of the Services Fee, and such additional services shall
be deemed to be Corporate Services for all other purposes of this
Agreement, including, but not limited to, the indemnification and
limitation of liability provisions set forth in Sections 8 through 10 of
this Agreement.
(c) Term; Termination of Corporate Services. The term of
agreement to provide Corporate Services shall be for one year from and
after the IPO Date; provided that Ascent Entertainment Group may elect to
extend the term of this Agreement for an additional term of one year upon
written notice to COMSAT delivered not later than 60 days prior to the
first anniversary of the IPO Date and payment of the Services Fee for the
extended term in accordance with Section 2(a). If at any time prior to
expiration of the term or extended term (if extended), COMSAT and its
subsidiaries (other than the Ascent Entertainment Group) fail to own at
least 50% of the outstanding securities of Ascent entitled to be cast for
the election of directors, either party upon written notice to the other
may elect to terminate the term for provision of Corporate Services (and
COMSAT's obligation to provide Corporate Services and Ascent's obligation
to make monthly payments in respect of the Services Fee shall cease) upon
the later to occur of the following: (i) 60 days after the delivery of such
notice (unless the parties have agreed upon an earlier termination date, in
which case that date shall apply); or (ii) the last date on which an
employee of Ascent Entertainment Group is eligible to continue to accrue
benefits under one or more of the Benefit Plans.
3. (a) Insurance. COMSAT has historically provided
insurance coverage related to the business and assets of Ascent
Entertainment Group through policies maintained by COMSAT for the benefit
of itself and its subsidiaries for workers' compensation, general
liability, fire and other types of losses. COMSAT shall use its reasonable
efforts to cause Ascent Entertainment Group to be covered under the COMSAT
insurance policies set forth in Exhibit F or comparable substitute policies
which will provide to Ascent Entertainment Group substantially the same
types of insurance provided to Ascent Entertainment Group immediately prior
to the IPO Date ("Insurance"), subject to availability. In addition to the
Services Fee, Ascent Entertainment Group shall pay the portion of the
premiums and other charges for the Insurance attributable to the coverage
provided to Ascent Entertainment Group, which amounts will be charged
against the Intercompany Receivable Account or invoiced as described in
Section 2(a), as applicable. The portion of such premiums and other charges
payable by Ascent Entertainment Group shall be allocated in good faith by
COMSAT in a manner to reflect the costs to COMSAT of the
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insurance premiums and other charges that are properly attributable to
Ascent Entertainment Group (but without any allocation of COMSAT overhead
costs). The Insurance provided shall be subject to such policies of
insurance or self-insurance, and such guidelines or procedures in respect
of insurance and self-insurance, as COMSAT shall determine. Nothing in this
Section 3(a) shall be construed as requiring COMSAT to continue to maintain
any specific type or amount of Insurance or otherwise serve to restrict or
preclude COMSAT from modifying or amending any Insurance policy. In the
event the terms of the Insurance change from those terms in effect
immediately prior to the date hereof, COMSAT agrees (a) to the extent
COMSAT is aware of a material change prior to the effective date of the
change, to provide notice to Ascent Entertainment Group of the change prior
to its effective date, or (b) otherwise to provide notice to Ascent
Entertainment Group upon becoming aware of the change. It is expressly
agreed by Ascent Entertainment Group and COMSAT that any self-insurance,
retention or deductible shall be for the account of and be an obligation of
Ascent, and that Ascent's obligations in respect of such self-insurance,
retention or deductible shall survive the termination of this Agreement.
Experience-rated Insurance policies will be actualized as soon as
practicable after the end of policy period; and, as applicable, Ascent
shall promptly reimburse COMSAT for the amount of any increased cost, or
COMSAT will promptly refund to Ascent any overcharges. Upon completion of
any insurance policy audit that results in a retroactive increase or
decrease in premium, Ascent shall promptly pay its allocable portion of any
increased premium costs to COMSAT, or COMSAT will promptly refund the
allocable portion of any policy refund to Ascent. Any additional payments
or refunds required pursuant to this Section 3(a) will be debited or
credited against the Intercompany Receivable Account or invoiced as
described in Section 2(a), as applicable. The payment obligation on the
part of Ascent or COMSAT, as applicable, set forth in this paragraph shall
survive termination of this Agreement. To the extent that losses by Ascent
Entertainment Group are not covered by third party insurers, COMSAT shall
not be required or obligated to reimburse Ascent for such losses.
(b) Termination of Insurance. Either Ascent or COMSAT may
terminate Ascent Entertainment Group's participation in all or any portion
of the Insurance at any time upon 60 days prior written notice to the other
party; provided that COMSAT shall have no obligation to continue to permit
Ascent Entertainment Group to participate in the Insurance beyond the term
of the agreement to provide Corporate Services specified in Section 2(c).
If COMSAT elects to permit Ascent to continue to participate in all or any
portion of the Insurance beyond the term of agreement to provide Corporate
Services, Ascent shall reimburse COMSAT for any direct costs associated
with such continued participation and shall pay COMSAT a reasonable fee, to
be determined by COMSAT upon consultation with Ascent, for any claims
administration or other services provided by COMSAT in connection with
Ascent Entertainment Group's continued participation beyond such term.
Notwithstanding the foregoing, so long as COMSAT beneficially owns shares
of capital stock of Ascent possessing 50% or more of the voting power of
all then-outstanding shares of capital stock, Ascent may not, without the
prior written consent of COMSAT, terminate its participation in all or any
portion of the Insurance without providing evidence reasonably satisfactory
to COMSAT that Ascent Entertainment Group has obtained, or upon termination
of such Insurance will obtain, comparable insurance coverage. In the event
that all or any portion of the Insurance is terminated by an insurer, the
aforementioned 60-day notice period shall not apply, and COMSAT shall
provide Ascent with notice promptly upon becoming aware of such
termination. In the event that Ascent Entertainment Group's participation
in all or any portion of the Insurance is terminated, if appropriate, the
charges therefor shall be adjusted equitably to reflect such termination;
provided that no adjustment shall be made for Insurance coverage that has
been terminated for which the premium has been previously paid in full and
is nonrefundable; and provided, further, that in calculating any such
adjustment, any increased premium or other costs associated with a
reduction in the total policy amount, assets covered, persons insured or
loss of volume-related discounts ("Breakage Costs") shall be deducted from
the amount that would otherwise be refunded. If the Breakage Costs
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associated with termination of Ascent Entertainment Group's participation
in all or any portion of the Insurance by Ascent exceed the amount of
premiums that have or would have been paid in respect of such Insurance
over the remaining term of the affected policy or policies, Ascent shall
reimburse COMSAT for the amount of any such Breakage Costs, less the amount
of any premium reductions associated with the termination of Ascent
Entertainment Group's participation in the Insurance. Any additional
payments or refunds required pursuant to this Section 3(b) will be debited
or credited against the Intercompany Receivable Account or invoiced as
described in Section 2(a), as applicable.
4. Employee Benefit Plans.
(a) Plans and Services. Prior to the IPO Date, certain
employees of Ascent Entertainment Group participated in certain of the
employee benefit plans sponsored by COMSAT and administered by the COMSAT
Benefits Department. On and after the IPO Date, employees of Ascent
Entertainment Group shall continue to be eligible to participate in the
plans listed in Exhibit B subject to the terms of the governing plan
documents as interpreted by the appropriate plan fiduciaries. On and after
the IPO Date, subject to regulatory requirements and the terms of this
Agreement, the COMSAT Benefits Department will continue to administer those
plans listed on Exhibit B in which employees of Ascent Entertainment Group
continue to participate in substantially the same manner as it administered
the plans prior to the IPO Date. On and after the IPO Date, employees of
Ascent Entertainment Group shall cease to be eligible to participate in the
plans listed in Exhibit E.
(b) Direct Cost Reimbursement. Ascent Entertainment Group
shall reimburse COMSAT for the direct costs (other than COMSAT overhead and
personnel costs) associated with the plans in which Ascent Entertainment
Group employees participate. For this purpose, direct costs associated with
the plans shall include those items charged to Ascent Entertainment Group
as direct costs prior to the IPO Date which included the cost of the
benefits (premiums and contributions) and administration and management
fees of third party providers. As appropriate, Ascent Entertainment Group's
allocable share of the direct costs will be determined consistent with the
methodology used prior to the IPO Date. COMSAT will provide an estimate of
the direct costs allocable to Ascent Entertainment Group at the same time
such information is provided to other business units of COMSAT. Experience
rated insurance contracts will be actualized as soon as practicable after
the end of each year; Ascent Entertainment Group shall promptly reimburse
COMSAT the amount of any increased cost, and COMSAT will promptly refund to
Ascent Entertainment Group any overcharges. Ascent hereby waives and
releases COMSAT from any claim that Ascent Entertainment Group may have
against COMSAT with respect to any credit or benefit arising from the
termination of participation of Ascent Entertainment Group employees in
COMSAT's retirement plan and post-retirement retiree medical benefits plan
(the "COMSAT Retirement Plans") on and after the IPO Date. In consideration
of such release by Ascent, COMSAT hereby waives and releases Ascent from
any claim that COMSAT may have against Ascent for reimbursement of any
costs associated with providing benefits under the COMSAT Retirement Plans
after the IPO date to employees of Ascent Entertainment Group who retired
prior to the IPO Date and to any employees of Ascent Entertainment Group
who, by mutual written agreement of COMSAT and Ascent, are permitted to
retire on or after the IPO Date and to continue to participate in, vest or
accrue benefits under COMSAT's Retirement Plans on and after the IPO Date
through such retiree's actual date of retirement (each, a "Special
Agreement Retiree"); provided that Ascent shall reimburse COMSAT for any
additional and incremental costs associated with permitting any Special
Agreement Retiree to continue to participate, vest or accrue benefits under
the COMSAT Retirement Plans after the IPO Date through and including such
Special Agreement Retiree's actual date of retirement, including, but not
limited to, any increased benefit costs that arise after the date of such
Special Agreement Retiree's actual retirement which are attributable to
such Special Agreement Retiree's continued participation in the COMSAT
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Retirement Plans on and after the IPO Date. All payments or refunds
required pursuant to this Section 4(b) will be debited or credited against
the Intercompany Receivable Account or invoiced as described in Section
2(a), as applicable.
(c) Termination. Ascent Entertainment Group or COMSAT may
terminate participation by Ascent Entertainment Group in any plan sponsored
by COMSAT by giving 90 days written notice to the other party, except that
the date of termination may be extended by either party if the termination
of Ascent Entertainment Group's participation would adversely affect the
tax qualification of the plan or its compliance with applicable regulatory
requirements. The termination date may also be extended to the earlier of
an additional 90 days or the expiration date of any contract pursuant to
which benefits are provided if termination within 90 days would adversely
affect rates or rights of other employees or if more time is necessary to
effect an orderly termination of participation by employees of Ascent
Entertainment Group. If the termination date is extended, COMSAT and Ascent
Entertainment Group will cooperate reasonably in establishing a mutually
agreeable termination date. Notice of less than 90 days may be given by
mutual written consent of Ascent Entertainment Group and COMSAT. Unless
COMSAT otherwise agrees, termination shall be effective with respect to the
entire plan. COMSAT will promptly submit an invoice for, and Ascent
Entertainment Group shall promptly pay to COMSAT, all direct costs incurred
prior to the date of termination associated with participation in the
terminated plan by Ascent Entertainment group employees and all direct and
incidental costs incurred by COMSAT resulting from the termination. All
services offered by the COMSAT Benefits Department with respect to such
terminated benefit shall cease. COMSAT thereafter will not be responsible
for providing benefits of a like type to Ascent Entertainment Group
employees.
(d) Changes; Additional Services. Ascent Entertainment
Group may request changes in plan terms or services; approval of such
changes shall be in the sole discretion of COMSAT. Ascent Entertainment
Group may request additional services that, if agreeable to COMSAT, will be
provided on a direct cost basis to Ascent Entertainment Group. From time to
time, COMSAT, as plan sponsor, may make changes in the Benefit Plans or in
the administration of any of the plans in its sole discretion.
(e) Ascent Entertainment Group Plans. Except for the
executive compensation plans referenced in Exhibit C, on or after the IPO
Date, no employee of Ascent Entertainment Group who is covered by a benefit
plan sponsored by any entity other than COMSAT shall be entitled to
simultaneous coverage under any plan sponsored by COMSAT that provides a
benefit of similar type, regardless of whether the other plan provides more
or less coverage than the COMSAT-sponsored plan. Ascent Entertainment Group
shall be solely responsible for benefits delivery and administration of
plans covering its employees that are not sponsored by COMSAT. A list of
plans not sponsored by COMSAT that covered Ascent Entertainment Group
employees prior to the IPO Date is attached as Exhibit D.
(f) Legislative and Regulatory. In the event Ascent
Entertainment Group provides benefit plans to its employees, other than
those sponsored by COMSAT, Ascent Entertainment Group will have sole
responsibility to comply with all regulatory requirements with respect to
Ascent Entertainment Group plans. Notwithstanding the foregoing, COMSAT and
Ascent Entertainment Group agree to cooperate fully with each other in the
administration and coordination of regulatory and administrative
requirements that apply jointly to Ascent Entertainment Group and COMSAT.
Such coordination, upon request, will include (but is not limited to) the
following: sharing payroll data for determination of highly compensated
employees, providing census information (including accrued benefits) for
purposes of running discrimination tests, providing actuarial reports for
purposes of determining the funded status of any plan, review and
coordination of insurance and other third party contracts, and providing
for review
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all summary plan descriptions, requests for determination letters,
insurance contracts, forms 5500, financial statement disclosures, and plan
documents.
(g) Executive Compensation. Certain Ascent executives
also participate in executive compensation and benefit programs offered by
COMSAT. These plans are listed in Exhibit C. Ascent Entertainment Group
shall reimburse COMSAT for the direct costs associated with the executive
compensation plans in which Ascent Entertainment Group employees
participate. For this purpose, direct costs associated with the plans shall
be determined in the manner described in Section 4(b) for assessment of the
direct costs associated with other Benefit Plans. All payments by Ascent
required pursuant to this Section 4(g) will be charged against the
Intercompany Receivable Account or invoiced as described in Section 2(a),
as applicable.
(h) Certain Notices. In the event there is an "ERISA
Event," COMSAT shall advise Ascent Entertainment Group as soon as
reasonably practicable after COMSAT determines the ERISA Event has
occurred. For purposes of this Section 4(h), an "ERISA Event" means (a) the
termination of a plan listed on Exhibit B or the filing of a Notice of
Intent to Terminate such a plan, in either case, under Section 4041(c) of
the Employee Retirement Income Security Act of 1974, as amended from time
to time ("ERISA"); (b) the institution of proceedings by the Pension
Benefit Guaranty Corporation (or any successor thereof) to terminate a plan
listed on Exhibit B or to appoint a trustee to administer such a plan or
the receipt of notice by COMSAT that such an action has been taken with
respect to such a plan; (c) any substantial accumulated funding deficiency
within the meaning of Section 412 of the Internal Revenue Code of 1986, as
amended (the "Code") or Section 302 of ERISA is incurred with respect to
any plan sponsored by COMSAT and listed on Exhibit B and no waiver of that
deficiency has been obtained from the Internal Revenue Service; (d) the
Internal Revenue Service determines that a plan listed on Exhibit B that is
intended to be qualified under Section 401 of the Code fails to meet the
applicable requirements of the Code and disqualifies the plan; or (e) an
amendment to a plan sponsored by COMSAT and listed on Exhibit B that
results in a significant underfunding described in Section 401(a)(29) of
the Code or Section 307 of ERISA.
(i) Third Party Beneficiary. Nothing in this Agreement is
intended to entitle any employee or individual to any benefit or
compensation from Ascent Entertainment Group or COMSAT or to otherwise
establish or create any rights on the part of any third party. Nothing in
this agreement is intended to restrict or limit COMSAT in the exercise of
its rights or the fulfillment of its duties as plan sponsor.
(j) Severance Payments. Ascent Entertainment Group and
COMSAT agree that with respect to individuals who, in connection with the
IPO, cease to be employees of Ascent Entertainment Group or COMSAT and
become employees of the other, such cessation shall not be deemed to be a
termination of employment by Ascent Entertainment Group or COMSAT, as
applicable, for purposes of any plan that provides for the payment of
severance, salary continuation or similar benefits upon termination of
employment. Ascent Entertainment Group shall assume and be solely
responsible for, and hereby indemnifies COMSAT against, all liabilities and
obligations whatsoever in connection with claims made by or on behalf of
employees of Ascent Entertainment Group as of the IPO Date in respect of
severance pay, salary continuation and similar obligations relating to the
termination or alleged termination of any such person's employment by
Ascent Entertainment Group or COMSAT on or before the first anniversary of
the IPO Date.
5. Use of Premises. During the term of agreement for the
provision of Corporate Services, Ascent Entertainment Group shall be
entitled to continue to use and have access to the office space
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occupied by Ascent Entertainment Group at COMSAT's executive offices
located at 6560 Rock Spring Drive, Bethesda, Maryland and COMSAT's offices
located at 22300 COMSAT Drive, Clarksburg, Maryland as of the IPO Date or
comparable substitute office space to be designated by COMSAT taking into
account COMSAT's existing office and space requirements (the "AEG
Premises"), with such designation to be exercised reasonably and in good
faith upon written notice to Ascent Entertainment Group. In consideration
for the use of the AEG Premises, in addition to the Services Fee, Ascent
shall reimburse COMSAT for all direct costs related to the occupancy of the
AEG Premises by the Ascent Entertainment Group (the "AEG Premises Rent").
The AEG Premises Rent will be determined consistent with the methodology
used prior to the IPO Date for determining Ascent's allocable portion of
building occupancy costs. Utilities usage consistent with past usage and
usual and customary building maintenance and cleaning services associated
with occupancy of the AEG Premises shall be included in the AEG Premises
Rent. The AEG Premises Rent will be charged against the Intercompany
Receivable Account or invoiced as described in Section 2(a), as applicable.
In addition, during the term of agreement for the provision of Corporate
Services, employees of Ascent Entertainment Group assigned to the AEG
Premises shall continue to have access to and the use of building common
areas and services on the same terms that such space and services are made
available to COMSAT employees, including, but not limited to, parking,
access to the cafeteria, and access to the COMSAT Fitness Center at the
then current membership rate. Upon the earliest to occur of termination of
the term of agreement for Corporate Services or vacation of the AEG
Premises, Ascent Entertainment Group shall return the AEG Premises,
together with all fixtures and personal property owned by COMSAT situated
thereon (including, but not limited to, furniture and equipment), to COMSAT
in the same condition in which such premises and property existed as of IPO
Date, ordinary wear and tear and insured casualty losses under the
Insurance excepted.
6. Allocation Methodology. In those instances in which COMSAT
allocates the costs of services or benefits between or among more than one
of its subsidiaries (e.g., Insurance costs), COMSAT agrees to use the same
allocation methodology in determining Ascent's allocable portion of such
costs that COMSAT uses in determining the allocable portion of costs
attributable to subsidiaries other than Ascent.
7. Prior Payments. Ascent Entertainment Group agrees from time to
time to pay in full all amounts owed to COMSAT for any costs and charges
for inter-corporate allocations consistent with past practices incurred
prior to the IPO Date, including but not limited to Ascent's portion of
corporate overhead charges for 1995. COMSAT agrees from time to time to
refund any overcharges paid by Ascent Entertainment Group with respect to
services prior to the IPO Date.
8. Limitation of Liability. Except as may be provided in Section 9
below, COMSAT, its subsidiaries, affiliates, directors, officers,
employees, and each of the heirs, executors, successors and assigns of any
of the foregoing (each, a "COMSAT Party") shall not be liable to Ascent
Entertainment Group, any subsidiary or any affiliate, director, officer,
employee, agent of Ascent Entertainment Group or any of its subsidiaries
and each of the heirs, executors, successors and assigns of any of the
foregoing (each, an "Ascent Entertainment Group Party") for any
liabilities, claims, damages, losses or expenses (including, but not
limited to, court costs, attorneys' fees and expenses, and any special,
indirect, incidental, punitive or consequential damages) of an Ascent
Entertainment Group Party arising in connection with this Agreement, the
Corporate Services, the Insurance, the Benefit Plans and the use of the AEG
Premises. Notwithstanding any provision of this Agreement to the contrary,
no COMSAT Party shall be liable for any action that it or any other COMSAT
Party takes or omits to take in good faith (i) in reliance on advice of
legal counsel to Ascent Entertainment Group, (ii) upon and in conformity
with the instructions of Ascent Entertainment Group, or (iii) in accordance
with instructions, rulings or orders of any governmental authority or court
of competent jurisdiction.
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9. COMSAT Indemnification. COMSAT shall indemnify, defend and hold
harmless each of the Ascent Entertainment Group Parties from and against
all liabilities, claims, damages, losses and expenses (including, but not
limited to, court costs and reasonable attorneys' fees) (collectively
referred to as "Damages") of any kind or nature, caused by or arising in
connection with the willful breach of this Agreement by COMSAT or the gross
negligence or willful misconduct of any employee of COMSAT in connection
with the performance of the Corporate Services, administration of the
Benefit Plans, provision of the Insurance or performance of COMSAT's other
obligations under this Agreement, except to the extent that Damages were
caused directly or indirectly by acts or omissions of any Ascent
Entertainment Group Party; provided however, that in the case of a Benefit
Plan, Ascent Entertainment Group's right of indemnification also shall
extend to claims of Ascent Entertainment Group employees but shall not
extend to any Damages that otherwise would have been owed in the absence of
such gross negligence or willful misconduct. Notwithstanding the foregoing,
COMSAT shall not be liable for any special, punitive or consequential
damages relating to any claim. In the event that Ascent Entertainment Group
knows of a claim that may be the subject of indemnification under this
paragraph, it shall promptly notify COMSAT of such claim.
10. Ascent Entertainment Group Indemnification. Ascent
Entertainment Group shall indemnify, defend and hold harmless each of the
COMSAT Parties, from and against all Damages of any kind or nature, caused
by or arising in connection with: (i) the performance of Corporate
Services, administration of the Benefit Plans, provision of Insurance, use
of the AEG Premises by the Ascent Entertainment Group and other actions
undertaken or services performed by COMSAT on behalf of Ascent
Entertainment Group hereunder unless caused by the willful breach of this
Agreement by COMSAT or willful misconduct or gross negligence of an
employee of COMSAT; or (ii) Ascent Entertainment Group's failure to fulfill
Ascent Entertainment Group's obligations hereunder, except to the extent
that such failure is caused, directly or indirectly, by acts or omissions
of any COMSAT Party. Notwithstanding the foregoing, Ascent Entertainment
Group shall not be liable for any special, punitive or consequential
damages related to such claims. In the event that COMSAT knows of a claim
that may be the subject of indemnification under this paragraph, it shall
promptly notify Ascent of such claim.
11. Cooperation. COMSAT and Ascent Entertainment Group shall
cooperate with each other with respect to all provisions of this Agreement
and the Corporate Services, Insurance and Benefit Plans provided hereunder.
In the event of payment by an indemnifying party to any indemnitee pursuant
to Section 9 or 10 of this Agreement in connection with a third-party
claim, such indemnifying party shall be subrogated to and stand in the
place of the indemnitee as to any events or circumstances in respect of
which such indemnitee may have relating to such third-party claim or
against any other person. Such indemnitee shall cooperate with such
indemnifying party in a reasonable manner, and at the cost and expense of
such indemnifying party, in prosecuting any subrogated right or claim.
12. Access to Information. Subject to applicable law, each party
hereto covenants and agrees to provide the other party and its authorized
accountants, counsel and other designated representatives (collectively,
the "Representatives") reasonable access (including using reasonable
efforts to give access to persons or firms possessing information) during
normal business hours to all records, books, contracts, instruments,
computer data and other data and information (collectively, "Information")
insofar as such access is reasonably required by the other party in
connection with the transactions contemplated by this Agreement or as may
be required by such other party to comply with all applicable federal,
state, county and local laws, administrative or court orders, ordinances,
regulations and codes, including, but not limited to, ERISA and securities
laws and regulations ("Laws"). Without limiting the foregoing, Information
may be requested under this Section 12 for audit, accounting, claims,
regulatory, litigation
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and tax purposes, as well as for purposes of fulfilling disclosure and
reporting obligations and for performing this Agreement and the
transactions contemplated hereby.
13. Confidential Information. Each party shall hold, and cause its
Representatives to hold, in strict confidence, all Information concerning
the other in its possession or furnished by the other or the other's
Representatives pursuant to this Agreement and shall not use any such
Information except for such purposes as shall be expressly permitted
hereunder (except in each case to the extent that such Information has been
(i) in the public domain through no fault of such party or (ii) lawfully
acquired from other sources by such party), and each such party shall not
release or disclose such Information to any other person, except its
regulators, auditors, attorneys, financial advisors, bankers, insurers, and
other consultants and advisors with a reasonable need to know such
Information, unless compelled to disclose such Information, as advised by
its counsel, in order to comply with reporting or other requirements under
applicable Laws. Without prejudice to the rights and remedies of any party
to this Agreement, a party disclosing confidential Information to the other
party in accordance with the terms of this Agreement shall be entitled to
equitable relief by way of an injunction if the other party hereto breaches
or threatens to breach any provision of this Section 13.
14. Assignment. Except as otherwise provided herein, neither
party may assign or transfer any of its rights or duties under this
Agreement to any person or entity without the prior written consent of the
other party.
15. Notices. Any notice, instruction, direction or demand under
the terms of this Agreement required to be in writing will be duly given
upon delivery, if delivered by hand, facsimile transmission or intercompany
mail, or five (5) days after posting if sent by certified mail, return
receipt requested to the following addresses:
COMSAT:
COMSAT Corporation
6560 Rock Spring Drive
Bethesda, Maryland 20817
Attention: Allen E. Flower
Vice President and Chief Financial Officer
Telecopy No.: 301/214-7131
With copy (which shall not constitute notice) to:
Warren Y. Zeger
Vice President, General Counsel and Secretary
COMSAT Corporation
6560 Rock Spring Drive
Bethesda, Maryland 20817
Telecopy No.: 301/214-7128
and
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Ascent Entertainment Group:
Ascent Entertainment Group, Inc.
6560 Rock Spring Drive
Bethesda, Maryland 20817
Attention: Wesley D. Minami
Vice President, Chief Financial Officer
and Treasurer
Telecopy No.: 301/214-7120
With copy (which shall not constitute notice) to:
Arthur M. Aaron
Vice President, Business and Legal Affairs
and Secretary
Ascent Entertainment Group, Inc.
6560 Rock Spring Drive
Bethesda, Maryland 20817
Telecopy No.: 301/214-7120
or to such other address as either party may have furnished to the other in
writing in accordance with this Section 15.
16. Governing Law. This Agreement shall be construed in accordance
with and governed by the laws of the State of Maryland (not including the
choice of law provisions thereof), except to the extent preempted by
federal law. Each party hereby agrees that any legal action or proceedings
with respect to this Agreement shall be brought in a federal or state court
located in the State of Maryland, and each of the parties hereby consents
to the exclusive jurisdiction of such courts and hereby waives any
objections on the grounds of venue, forum non conveniens, situs of action,
improper forum, or any similar grounds.
17. Suspension. The obligations of any party to perform any
acts hereunder may be suspended if such performance is prevented by fires,
strikes, embargoes, riot, invasion, governmental interference, inability to
secure goods or materials, or other circumstances outside the reasonable
control of the parties.
18. Severability. If any provision of this Agreement shall be
invalid or unenforceable, such invalidity or unenforceability shall not render
the entire Agreement invalid. Rather, the Agreement shall be construed as if
not containing the particular invalid or unenforceable provision, and the
rights and obligations of each party shall be construed and enforced
accordingly.
19. Rights Upon Orderly Termination; Survival. Upon termination
or expiration of this Agreement or any of the Corporate Services, Insurance or
Benefit Plans described herein, each party shall, upon request, use its
reasonable best efforts to assist the other in the orderly termination of
this Agreement or any of the Corporate Services, Insurance or Benefit Plans
described herein. Notwithstanding any termination of this Agreement, the
obligations of the parties hereto to make payments hereunder and the
provisions of Sections 3(a), 4(j), 8, 9, 10 and 13 shall survive.
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20. Amendment; Waiver; Remedies. This Agreement may not be amended
or terminated, nor may any failure of performance or default be waived,
orally, but only by a writing duly executed by or on behalf of the parties
hereto. Any such amendment or waiver shall be validly and sufficiently
authorized for purposes of this Agreement if it is signed on behalf of
COMSAT or Ascent by any of their respective presidents or vice presidents.
No failure on the part of COMSAT or Ascent to exercise, and no delay in
exercising, any right hereunder shall operate as a waiver thereof; nor
shall any single or partial exercise thereof or the exercise of any other
right preclude any other or further exercise thereof or the exercise of any
other right. The remedies herein provided are cumulative and not exclusive
of any remedies provided at law or in equity.
21. Entire Agreement. This Agreement, including the exhibits
hereto, constitutes the entire agreement between the parties, and supersedes
all prior agreements, representations, negotiations, statements or proposals
related to the subject matter hereof.
22. Counterparts. This Agreement may be executed in separate
counterparts, each of which shall be deemed an original and all of which,
when taken together, shall constitute one agreement.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be
signed by their duly authorized representatives.
COMSAT CORPORATION
/s/ Allen E. Flower
By:-----------------------
Allen E. Flower
Vice President and
Chief Financial Officer
ASCENT ENTERTAINMENT GROUP, INC.
/s/ Wesley D. Minami
By:--------------------------------------
Wesley D. Minami
Vice President, Chief Financial Officer
and Treasurer
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EXHIBIT A
Corporate Services
Tax planning and advice and preparation of tax returns and tax-related GAAP
accounting allocations and financial disclosure.
Internal audit services.
Insurance planning, advice and claims administration.
Human resources, employee relations and policy coordination services.
Legal services, including services of COMSAT's office of general counsel
and arrangements for outside counsel, but excluding outside counsel
services (which will be invoiced to Ascent Entertainment Group on a direct
cost basis) and legal services provided by COMSAT's office of general
counsel at the request of Ascent Entertainment Group that specifically
relate to Ascent Entertainment Group projects (which will be charged to,
and paid by, Ascent Entertainment Group in the same manner as such costs
were assessed prior to the IPO Date).
Corporate secretary services
Administration and services associated with the employee benefit plans and
arrangements identified on Exhibits B and C.
Treasury and cash management services.
Provision of inter-corporate cash transfers, with terms and conditions
(including the payment of principal and interest) as agreed upon.
Provision of public and media relations services.
Payroll processing and related tax filings for Ascent and subsidiaries of
Ascent for which such services were provided immediately prior to the IPO
Date.
13
<PAGE>
EXHIBIT B
COMSAT employee benefit plans in which Ascent Entertainment Group
employees will be eligible to participate after the IPO Date:
Savings and Profit Sharing Plan
Employee Stock Option Plan
(provided that no additional grants to Ascent employees will be made after
the IPO Date)
Flexible Benefits Plan, which includes:
medical insurance
dental insurance
life insurance
accident insurance
dependent life insurance
time off
Dependent Care Spending Account Plan
Health Care Spending Account Plan
Short-Term Disability Plan
Long-Term Disability Plan
14
<PAGE>
EXHIBIT C
Executive Compensation Plans
Key Employee Stock Plans
Deferred Compensation Plan for Directors and Executives
Insurance and Retirement Plan for Executives
Split Dollar Insurance Plan
Annual Incentive Plan
Educational Grant Program
15
<PAGE>
EXHIBIT D
Plans Covering Ascent Entertainment Group Employees
Any and all employee benefit, health or welfare plans maintained
by COMSAT Denver, Inc., the Denver Nuggets Limited Partnership, the
Colorado Avalanche, or On Command Video Corporation.
16
<PAGE>
EXHIBIT E
COMSAT employee benefit plans in which Ascent Entertainment
Group employees will no longer be eligible to participate after the IPO
Date:
Retirement Plan
Employee Stock Purchase Plan
Retiree Medical Benefits
17
<PAGE>
EXHIBIT F
Schedule of Insurance policies as of the IPO Date
Description Policy # Insurance Company
Comprehensive General Liability TE00800270 St Paul
Business Auto Liability TE00800270 St Paul
Business Auto Liability (Mass. Only) 060MA3099 St Paul
Worker's Compensation WVA0801122 St Paul
Worker's Compensation (NJ Only) WVA0801759 St Paul
Worker's Compensation (CA Only) 1402459-95 CA State Fund
Lead Umbrella TE00800270 St Paul
Excess Liability 426-47-94 National Union Fire Ins.
Excess Liability (95) 7966-75-00 Federal Insurance Co.
Excess Liability TBD Aetna
Excess Liability XXK00082536616 American Insurance Co.
Non Owned Aviation AV479397301 AIG
Primary Property CCIPW01016 Security of Harford
Excess Property LP066 Allendale
Excess CA Quake IMF019320 RLI Insurance
Excess CA Quake CCP8784134 Agricultural Insurance
Excess CA Quake NA01801 N.American Specialty
Boiler & Machinery 3XM047963-01 Kemper
Marine Cargo 492571-00 CIGNA
Business Travel 4040048 Zurich
International Worker's Compensation 8356563 AIU
International General Liability 80257203 AIU
International Property IF7527335 AIU
Executive Protection 8091-76-61I Chubb
18
<PAGE>
TAX SHARING AGREEMENT
THIS TAX SHARING AGREEMENT dated as of December 18, 1995 is made
and entered into by and between COMSAT Corporation, a District of Columbia
corporation ("COMSAT"), and Ascent Entertainment Group, Inc., a Delaware
corporation ("Ascent").
RECITALS
WHEREAS, COMSAT is the common parent corporation of an affiliated
group of corporations within the meaning of Section 1504(a) of the Internal
Revenue Code of 1986, as amended, and Ascent is a member of such affiliated
group; and
WHEREAS, the affiliated group of which COMSAT is the common parent
and Ascent is a member files a consolidated Federal income tax return as
defined in Code Section 1501; and
WHEREAS, COMSAT and Ascent desire to provide for the allocation of
liabilities, procedures to be followed, and other matters with respect to
certain taxes for tax years beginning after December 31, 1995, in which
Ascent and its subsidiaries are included in a consolidated Federal income
tax return filed for the Combined Consolidated Group.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants and
promises contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties agree
as follows:
ARTICLE I
DEFINITIONS
1. "Ascent Consolidated Group" shall mean for any taxable year the
affiliated group of corporations of which Ascent would be the common parent
for consolidated Federal income tax return filing purposes if it were not a
subsidiary of COMSAT, and any other corporations which are or may become
members of the affiliated group.
2. "Code" shall mean the Internal Revenue Code of 1986, as amended.
3. "Combined Consolidated Group" shall mean for any taxable year the
COMSAT Consolidated Group together with the Ascent Consolidated Group, and any
other corporations which may become members of either.
4. "Combined Consolidated Return" shall mean a consolidated Federal
income tax return filed for the Combined Consolidated Group.
<PAGE>
5. "COMSAT Consolidated Group" shall mean for any taxable year the
affiliated group of corporations of which COMSAT is the common parent, and
any other corporations which may become members of the affiliated group,
but excluding members of the Ascent Consolidated Group.
6. "Federal Income Taxes" and "Federal Income Tax Liability" shall
mean the taxes imposed by sections 11, 55, 59A, and 1201(a) of the Code, or
any successor provisions to such sections and any other income based U.S.
Federal taxes which are hereinafter imposed upon corporations.
7. "Final Determination" shall mean the final resolution of
liability for any tax for a taxable period, (i) by IRS Form 870 or 870-AD
(or any successor forms thereto), on the date of acceptance by or on behalf
of the taxing authority, or by a comparable form under the laws of other
jurisdictions; except that a Form 870 or 870-AD or comparable form that
reserves (whether by its terms or by operation of law) the right of the
taxpayer to file a claim for refund and/or the right of the taxing
authority to assert a further deficiency shall not constitute a Final
Determination; (ii) by a decision, judgment, decree, or other order by a
court of competent jurisdiction, which has become final and unappealable;
(iii) by a closing agreement or accepted offer in compromise under Section
7121 or 7122 of the Code, or comparable agreements under the laws of other
jurisdictions; (iv) by any allowance of a refund or credit in respect of an
overpayment of tax, but only after the expiration of all periods during
which such refund may be recovered (including by way of offset) by the
tax-imposing jurisdiction; or (v) by any other final disposition, including
by reason of the expiration of the applicable statute of limitations or by
mutual agreement of the parties.
8. "IRS" shall mean the Internal Revenue Service.
9. "Regulations" shall mean the U.S. Treasury regulations in effect
from time to time.
ARTICLE II
PROCEDURAL MATTERS
1. COMSAT shall have the sole and exclusive responsibility for the
preparation and filing of the consolidated U.S. Federal income tax return
of the Combined Consolidated Group, including any amended returns and any
other returns, documents, or statements required to be filed with the IRS
with respect to the determination of the Federal Income Tax Liability of
the Combined Consolidated Group. All returns shall be filed by COMSAT on a
timely basis, taking into account extensions of the due date for the
filings of such returns.
2. The Ascent Consolidated Group shall continue to join in filing
a consolidated Federal income tax return with the COMSAT Consolidated Group
for all such taxable years for which the Ascent Consolidated Group is
eligible to do so under the Code and the Regulation, unless COMSAT shall
request and be granted permission to discontinue filing on a consolidated
basis or shall otherwise properly elect not to file on a consolidated basis
in any particular case.
3. COMSAT shall make all Federal income tax payments, including
estimated payments, with respect to consolidated tax returns of the
Combined Consolidated Group, and COMSAT shall have the right to exercise
all powers of a common parent with respect to filing the consolidated
Federal income tax returns as are conferred on it by the Regulations.
2
<PAGE>
4. COMSAT shall be the sole and exclusive agent of the Ascent
Consolidated Group and any member of such group in any and all matters
relating to the U.S. Federal Income Tax Liability of the Combined
Consolidated Group for all consolidated return years. In its sole
discretion, COMSAT shall have the right with respect to any Federal
consolidated returns which it files (a) to determine (i) the manner in
which such returns shall be prepared and filed, including, without
limitation, the manner in which any item of income, gain, loss, deduction
or credit shall be reported, (ii) whether any extensions of the due dates
for filing of such returns or of the applicable statutes of limitations may
be requested and (iii) the elections that will be made by any member of the
Combined Consolidated Group, (b) to contest, compromise or settle any
adjustment or deficiency proposed, asserted or assessed as a result of any
audit of such returns by the IRS, (c) to file, prosecute, compromise or
settle any claim for refund and (d) to determine whether any refunds, to
which the Combined Consolidated Group may be entitled, shall be paid by way
of refund or credited against the tax liability of the Combined
Consolidated Group. Ascent hereby irrevocably appoints COMSAT as its agent
and attorney-in-fact to take such action (including the execution of
documents) as COMSAT may deem appropriate to effect the foregoing. COMSAT
shall consult with Ascent regarding any material issue relating to the
Ascent Consolidated Group which arises pursuant to an audit by the IRS of a
Combined Consolidated Return.
5. Ascent shall reimburse COMSAT for any legal and accounting
expenses incurred by COMSAT in the course of the conduct of any audit or
contest regarding the tax liability of the Combined Consolidated Group, and
for any other expenses incurred by COMSAT in the course of any litigation
relating thereto, to the extent such costs are reasonably attributable to
an Ascent Consolidated Group issue.
6. Ascent shall furnish to COMSAT in a timely manner such
information and documents and other cooperation as COMSAT may reasonably
request for purposes of this Article.
ARTICLE III
CALCULATION AND PAYMENT OF TAX SHARING PAYMENTS
1. For each taxable year for which COMSAT files a Combined
Consolidated Return, Federal Income Tax Liability shall be allocated among
the members of the Combined Consolidated Group in the same manner as the
applicable methods in effect under Treas. Reg. ss. 1.1552-1 for such year,
provided that the Combined Consolidated Group shall in any event be treated as
having elected the percentage method under Treas. Reg. ss. 1.1502-33(d)(3),
utilizing a fixed percentage of 100 percent.
2. a. Prior to March 15 following each taxable year for which a
Combined Consolidated Return is filed, COMSAT may prepare a preliminary tax
calculation ("Preliminary Tax Calculation") for such taxable year. Ascent
shall pay to COMSAT by such March 15 the amount, if any, of the Federal
Income Tax Liability (allocated as provided in Section 1 of this Article
III) of the Ascent Consolidated Group determined pursuant to the
Preliminary Tax Calculation.
b. Within 10 days after the date on which a Combined
Consolidated Return for the taxable year is filed, Ascent shall make a
payment to COMSAT in an amount equal to the amount, if any, by which the
Federal Income Taxes actually paid by COMSAT with respect to such taxable
year (which may be zero), but not including any amounts received by COMSAT
from Ascent pursuant to paragraph (a) of this Section 2, exceed the Federal
Income Tax Liability allocated to members of the COMSAT Consolidated Group
under Section 1 of this Article (which may be a negative amount). No
interest shall be payable in respect of any amount payable to COMSAT
pursuant to the preceding sentence.
3
<PAGE>
c. Within 10 days after the date on which a Combined
Consolidated Return for the taxable year is filed, COMSAT shall make a
payment to Ascent in an amount equal to the amount, if any, by which the
amounts (which may be zero) actually paid by Ascent to COMSAT pursuant to
Paragraph (a) of this Section 2 exceed the Federal Income Tax Liability
allocated to members of the Ascent Consolidated Group under Section 1 of
this Article (which may be a negative amount). No interest shall be payable
in respect of any amount payable to Ascent pursuant to the preceding
sentence.
d. COMSAT shall furnish to Ascent the Preliminary Tax
Calculation (if any) no later than 10 days prior to March 15 of the year
following the taxable year, and shall furnish to Ascent the allocation of
tax liability under Section 1 of this Article no later than 10 days before
the Combined Consolidated Return for the taxable year is filed.
3. If a member of the Ascent Consolidated Group ceases to be a
member of the Combined Consolidated Group and, for any taxable year
beginning on or after the date on which such member of the Ascent
Consolidated Group ceased to be a member of the Combined Consolidated
Group, such member (or a successor to such member) incurs a net operating
loss that could be carried back to a Combined Consolidated Return, COMSAT
and such member (or its successor) shall mutually agree as to the
appropriate treatment of such net operating loss.
4. If, in any year after a member of the Ascent Consolidated Group
ceases to be a member of the Combined Consolidated Group, a net capital
loss, excess tax credit or any other tax attribute of such member is
carried back and actually utilized in a Combined Consolidated Return,
COMSAT shall pay such member an amount equal to the actual reduction in tax
resulting from the utilization of such tax attribute; provided however,
that if such utilization is subsequently displaced by other tax attributes,
a recomputation shall be made and such member shall repay to COMSAT any
amount necessary to reflect the actual utilization of such tax attribute
following such displacement. Any payments made under this Section 4 shall
reflect interest under Article IV to the extent that interest is actually
paid to or received from the Internal Revenue Service with respect to the
utilization of such attribute.
5. To the extent that any audit, litigation, claim or refund with
respect to a Combined Consolidated Return results in an increase or
decrease in taxable income, gain, loss, deduction or credits relating to
any member of the Combined Consolidated Group, corresponding adjustments
shall be made to the allocation of Federal Income Tax Liability among the
members of the Combined Consolidated Group. Within 10 days after there is a
Final Determination with respect to any such adjustment, such payment as
shall be necessary to reflect the reallocation of Federal Income Tax
Liability (and penalties and additions to tax, if any) shall be made
between COMSAT and Ascent, with interest as provided in Article IV.
6. If a member of the Combined Consolidated Group ceases to be a
member of the Combined Consolidated Group, a payment shall be made between
COMSAT and Ascent to reflect the difference, if any, between the amount of
alternative minimum tax credit allocated to such member under Prop. Treas.
Reg. ss. 1.1502-55(h)(6) or successor provisions and the allocable amount
of alternative minimum tax paid by such member (and not subsequently
credited against regular tax) as reflected in the prior sections of this
Article III. Such payment shall be made no later than 10 days after the
filing of the Combined Consolidated Return for the taxable year that
includes the date of the member's departure from the Combined Consolidated
Group.
4
<PAGE>
ARTICLE IV
INTEREST
Interest required to be paid by or to Ascent pursuant to this
Agreement shall, unless otherwise specified, be computed at the rate and in
the manner provided in the Code for interest on underpayments (including
large corporate underpayments, if applicable) and overpayments,
respectively, of Federal income tax for the relevant period.
ARTICLE V
STATE & LOCAL INCOME AND FRANCHISE TAXES
1. The principles expressed with respect to the Combined
Consolidated Group Federal income tax matters throughout this Agreement
(including the Procedural Matters of Article II and the Miscellaneous
Provisions of Article VI) shall apply with equal force and effect to state
and local income and franchise tax matters to the extent such taxes are
determined on a combined or consolidated basis, including the preparation
and filing of state and local income tax and franchise tax returns required
to be filed by the Combined Consolidated Group. Except to the extent
provided in the Intercompany Services Agreement between COMSAT and Ascent
of even date herewith, any state or local income or franchise tax return
required to be filed on a separate entity basis by any member of the
Combined Consolidated Group shall be prepared and filed by such member.
2. Any interest charge required to be paid by or to Ascent
pursuant to this Agreement with respect to any state or local income tax or
franchise tax return shall be computed at the rate and in the manner as
provided under the applicable state or local statute for interest on
underpayments and overpayments of such tax for the relevant period.
ARTICLE VI
MISCELLANEOUS PROVISIONS
1. COMSAT and Ascent agree that any information furnished one
another pursuant to this Agreement is confidential and, except as, and to
the extent, required during the course of an audit or litigation or
otherwise required by law, shall not be disclosed to another person or
entity.
2. This Agreement shall be binding upon and inure to the benefit
of any successor to any of the parties, by merger, acquisition of assets or
otherwise, to the same extent as if the successor had been an original
party to this Agreement.
3. This Agreement shall be governed by and construed in accordance
with the laws of the State of Maryland without giving effect to conflicts
of law principles thereof.
4. This Agreement may be amended from time to time by agreement in
writing executed by all the parties hereto or all of the parties then bound
thereby. This Agreement constitutes the entire agreement with respect to
the subject matter hereof and supersedes all prior written and oral
understandings with respect thereto.
5
<PAGE>
5. a. With respect to each member of the Ascent Consolidated
Group, if such member is no longer eligible to file consolidated returns
with COMSAT for any reason (including, without limitation, the sale,
exchange, or other disposition of all or any portion of the stock of Ascent
or any other member sufficient to disaffiliate Ascent or such member from
the Combined Consolidated Group, or the termination of the Combined
Consolidated Group), the parties hereto agree that as between COMSAT and
the departing member, except as otherwise provided herein, this Agreement
shall be terminated at the time specified in the following paragraph b.
b. This Agreement shall become operative as of December
18, 1995 and with respect to any member of the Ascent Consolidated Group,
shall terminate and be of no further force or effect only upon the
expiration of all applicable statutes of limitations relating to federal
and state income and franchise taxes (including refunds thereof) for all
periods in which such member was a member of the Combined Consolidated
Group.
6. a. COMSAT hereby agrees to indemnify and hold each member of
the Ascent Consolidated Group harmless with respect to any Federal Income
Tax Liability attributable to any taxable period of such member to the
extent to which such member has paid COMSAT its separate Federal Income Tax
Liability, if any, in accordance with this Agreement.
b. COMSAT hereby agrees to indemnify and hold each member
of the Ascent Consolidated Group harmless with respect to any Federal Income
Tax Liability of the Combined Consolidated Group where such liability arises
solely by reason of the member being severally liable for any taxes of the
COMSAT Consolidated Group pursuant to Treas. Reg. 1.1502-6.
c. Ascent hereby agrees to indemnify and hold each member of the
COMSAT Consolidated Group harmless with respect to any Federal Income Tax
Liability of the Combined Consolidated Group where such liability arises
solely by reason of the member being severally liable for any taxes of the
Ascent Consolidated Group pursuant to Treas. Reg. 1.1502-6.
d. Ascent hereby agrees to indemnify and hold each member
of the COMSAT Consolidated Group harmless from and against any and all
liabilities, claims and expenses resulting from any action or failure to
act on the part of Ascent or any member of the Ascent Consolidated Group
that is in contravention of the provisions of this Agreement.
e. COMSAT hereby agrees to indemnify and hold each member
of the Ascent Consolidated Group harmless from and against any and all
liabilities, claims and expenses resulting from any action or failure to
act on the part of COMSAT or any member of the COMSAT Consolidated Group
that is in contravention of the provisions of this Agreement.
7. Any notice, request or other communication required or
permitted under this Agreement shall be in writing and shall be
sufficiently given if personally delivered or if sent by facsimile or by
registered or certified mail, postage prepaid, addressed as follows:
6
<PAGE>
COMSAT:
COMSAT Corporation
6560 Rock Spring Drive
Bethesda, Maryland 20817
Attention: Allen E. Flower
Vice President and Chief Financial Officer
Telecopy No.: (301) 214-7131
With copy (which shall not constitute notice) to:
Warren Y. Zeger
Vice President, General Counsel and Secretary
COMSAT Corporation
6560 Rock Spring Drive
Bethesda, Maryland 20817
Telecopy No.: (301) 214-7128
and
Ascent Entertainment Group:
Ascent Entertainment Group, Inc.
6560 Rock Spring Drive
Bethesda, Maryland 20817
Attention: Wesley D. Minami
Vice President, Chief Financial Officer
and Treasurer
Telecopy No.: (301) 214-7120
With copy (which shall not constitute notice) to:
Arthur M. Aaron
Vice President, Business and Legal Affairs
and Secretary
Ascent Entertainment Group, Inc.
6560 Rock Spring Drive
Bethesda, Maryland 20817
Telecopy No.: (301) 214-7120
or to such other address as either party may have furnished to the other in
writing in accordance with this Section 7.
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed by their authorized representatives.
COMSAT CORPORATION
/s/ Allen E. Flower
By:------------------------
Allen E. Flower
Vice President and
Chief Financial Officer
ASCENT ENTERTAINMENT GROUP, INC.
/s/ Wesley D. Minami
By:--------------------------------------
Wesley D. Minami
Vice President, Chief Financial Officer
and Treasurer
8
<PAGE>
Exhibit 11
<TABLE>
<CAPTION>
COMSAT CORPORATION CONSOLIDATED
COMPUTATION OF EARNINGS PER SHARE
For the Years Ended December 31, 1995, 1994 and 1993
In thousands, except per share amounts 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PRIMARY
Earnings:
Income before cumulative effect of accounting change $ 37,817 $ 77,642 $ 82,469
Cumulative effect of accounting change - - 1,925
-------------- -------------- --------------
Net income $ 37,817 $ 77,642 $ 84,394
============== ============== ==============
Shares:
Weighted average number of common shares outstanding 47,282 46,590 46,336
Add - shares issuable from assumed exercise of options 716 766 759
-------------- -------------- --------------
Weighted average shares 47,998 47,356 47,095
============== ============== ==============
Primary earnings per share:
Before cumulative effect of accounting change $ 0.79 $ 1.64 $ 1.75
Cumulative effect of accounting change - - 0.04
-------------- -------------- --------------
Net income $ 0.79 $ 1.64 $ 1.79
============== ============== ==============
ASSUMING FULL DILUTION
Earnings:
Income before cumulative effect of accounting change $ 37,817 $ 77,642 $ 82,469
Cumulative effect of accounting change - - 1,925
-------------- -------------- --------------
Net income $ 37,817 $ 77,642 $ 84,394
============== ============== ==============
Shares:
Weighted average number of common shares outstanding 47,282 46,590 46,336
Add - shares issuable from assumed exercise of options 725 874 821
-------------- -------------- --------------
Weighted average shares 48,007 47,464 47,157
============== ============== ==============
Fully diluted earnings per share:
Before cumulative effect of accounting change $ 0.79 $ 1.64 $ 1.75
Cumulative effect of accounting change - - 0.04
-------------- -------------- --------------
Net income $ 0.79 $ 1.64 $ 1.79
============== ============== ==============
</TABLE>
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
AS OF MARCH 31, 1996
Locality of
Subsidiary Incorporation
- ---------- -------------
Ascent Entertainment Group, Inc. Delaware
Ascent Denver, Inc. Delaware
Ascent Network Services, Inc. Delaware
Anghel Laboratories, Inc. Delaware
Beacon Communications Corp. Delaware
BelCom, Inc. Delaware
Bethesda Real Property, Inc. Delaware
C&S Antennas, Inc. Delaware
C&S Antennas Limited United Kingdom
Colorado Avalanche, LLC Colorado
COMSAT Argentina, S.A. Argentina
COMSAT Brasil, Ltda. Brazil
COMSAT Capital I, L.P. Delaware
COMSAT de Bolivia, S.R.L. Bolivia
COMSAT de Colombia, S.A. Colombia
COMSAT de Guatemala, S.A. Guatemala
COMSAT Dijital Hizmetleri
Ticaret Anonim Sirketi Turkey
COMSAT do Brasil Equipamentos
de Telecomunicacoes Ltda. Brazil
COMSAT Enhanced Services, Inc. Delaware
COMSAT General Corporation Delaware
COMSAT General Telematics, Inc. Delaware
COMSAT Iletisim Hizmetleri Ticaret
Anonim Sirketi Turkey
COMSAT Investments, Inc. Delaware
COMSAT Mobile India, Inc. Delaware
COMSAT Mobile Investments, Inc. Delaware
COMSAT Overseas, Inc. Delaware
COMSAT Personal Communications, Inc. Delaware
COMSAT Peru S.A. Peru
COMSAT RSI, Inc. Delaware
COMSAT RSI Communications Corp. Delaware
COMSAT RSI Foreign Sales Corporation US VI
COMSAT RSI International Limited United Kingdom
COMSAT RSI Maryland, Inc. Delaware
COMSAT Technology, Inc. Delaware
COMSAT Venezuela, COMSATVEN, C.A. Venezuela
CRSI Acquisition, Inc. Delaware
CSA Limited United Kingdom
CTS Transnational, Inc. Delaware
Denver Nuggets Limited Partnership Delaware
Mark Antenna Products, Inc. Nevada
Mexia Fabricators, Inc. Texas
On Command Video Corporation Delaware
PG Technology Limited United Kingdom
<PAGE>
Radiation Systems Electromechanical
Systems, Incorporated Florida
Radiation Systems Precision Controls, Inc. Nevada
RSi Acquisition, Inc. Nevada
SatCom Technologies, Inc. Nevada
Universal Antennas Incorporated Nevada
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in COMSAT Corporation's
Registration Statement No. 2-87942 on Form S-8, Registration Statement No.
33-5259 on Form S-8, Registration Statement No. 33-25124 on Form S-8,
Registration Statement No. 33-35364 on Form S-8, Registration Statement No.
33-53610 on Form S-8, Registration Statement No. 33-51661 on Form S-3,
Registration Statement No. 33-54369 on Form S-3, Registration Statement No.
33-54685 on Form S-8, Registration Statement No. 33-54687 on Form S-8,
Registration Statement No. 33-56331 on Form S-8, Registration Statement No.
33-56333 on Form S-8, Registration Statement No. 33-59531 on Form S-8,
Registration Statement No. 33-59513 on Form S-8, and Registration Statement
No. 33-59841 on Form S-3 of our report dated February 15, 1996, appearing
in this Annual Report on Form 10-K of COMSAT Corporation for the year ended
December 31, 1995.
Washington, D.C.
March 29, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements for the year ended December 31, 1995 and is
qualified in its entirety by referencee to such financial statements.
</LEGEND>
<CIK> 0000022698
<NAME> COMSAT Corporation
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> year
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<EXCHANGE-RATE> 1
<CASH> 124,156
<SECURITIES> 0
<RECEIVABLES> 234,465
<ALLOWANCES> 0
<INVENTORY> 26,851
<CURRENT-ASSETS> 425,825
<PP&E> 2,684,571
<DEPRECIATION> 1,156,518
<TOTAL-ASSETS> 2,314,266
<CURRENT-LIABILITIES> 204,469
<BONDS> 664,601
0
0
<COMMON> 324,074
<OTHER-SE> 515,359
<TOTAL-LIABILITY-AND-EQUITY> 2,314,266
<SALES> 0
<TOTAL-REVENUES> 852,057
<CGS> 0
<TOTAL-COSTS> 495,805
<OTHER-EXPENSES> 260,617
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 39,132
<INCOME-PRETAX> 72,748
<INCOME-TAX> 34,931
<INCOME-CONTINUING> 37,817
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 37,817
<EPS-PRIMARY> 0.79
<EPS-DILUTED> 0.79
</TABLE>
