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, 1996 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:
Title of each class Name of each exchange on 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 $1,223,921,370 based on a closing market price of $26.25 per
share on February 28, 1997, as reported on the composite tape for New York
Stock Exchange listed issues.
48,950,328 shares of common stock, without par value, were outstanding
on February 28, 1997.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents are incorporated by reference:
TITLE
----- Part of the Form 10-K into which
COMSAT - Annual Meeting of Shareholders the document is incorporated
Notice and Proxy Statement - 1997 --------------------------------
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 1996 in three business segments:
International Communications, Technology Services and Entertainment.
The International Communications segment consists of COMSAT World
Systems (CWS), COMSAT Mobile Communications (CMC) and COMSAT International
(CI). 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). 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). CI develops, acquires and manages telecommunications companies
in rapidly growing overseas markets. Prior to January 1997, CI was known as
COMSAT International Ventures. These companies provide individualized
network solutions to business clients and carriers in selected high-growth
markets. The Technology Services segment consists of COMSAT RSI, Inc.
(CRSI), a wholly-owned subsidiary of the corporation, and COMSAT
Laboratories, which are engaged in the design and manufacture of voice and
data communications networks and products, system integration services, and
applied research and technology services for worldwide customers. The
Entertainment segment consists of the corporation's 80.67% ownership
interest in Ascent Entertainment Group, Inc. (Ascent). Ascent, through its
subsidiaries, provides on-demand in-room 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 18
to the financial statements.
The corporation had 3,766 employees on December 31, 1996. None of the
employees is represented by a labor union, except for approximately 74
employees working for CRSI on the construction of 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. Government
has not invested funds in COMSAT, guaranteed funds invested in COMSAT or
guaranteed the payment of dividends by COMSAT.
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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 issuance of capital stock and borrowing 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, teleports, 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 91.7 % 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's International
Digital Route (IDR) service, for example, makes it possible for
communications carriers to provide digital public-switched telephone
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-
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premise earth stations that eliminate the need for costly land-line
connections. At year-end 1996, approximately 89.7% of CWS's IBS traffic was
covered by long-term commitments. The large increase in the portion of IBS
traffic committed to long-term was due to new tariffs introduced in 1996
which resulted in the move of monthly IBS traffic to one year and longer
commitments. CWS's customers have established international VSAT networks
in 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 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.
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 broadband, integrated services digital networks (ISDN), and
asynchronous transfer mode (ATM).
INTELSAT. INTELSAT is a 140-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, 1996 and 19.1%
as of December 31, 1995.
Signatories also pay INTELSAT for their use of the satellite system.
INTELSAT has targeted a pretax rate of return of 20% on signatory capital
used by another signatory or from non-owners who use the satellite system.
The actual rate of return on signatory's capital was 20.2% in 1996. In
1997, COMSAT expects to receive an actual pretax rate of return of between
18% to 22% on its capital investment after appropriate accounting
adjustments. CWS realized revenue from its INTELSAT ownership, net of use
charges paid, of $35.8 million in 1996. This net revenue is reflected in
CWS's revenue requirements for FCC ratemaking purposes.
At December 31, 1996, total INTELSAT Owners' Equity was approximately
$1.72 billion.
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At year end 1996, approximately 87% of CWS's IDR, IBS and FM traffic
was under long term commitments with INTELSAT. 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-Outlook" and Note 11 to the financial statements.
The corporation continues to promote efforts to restructure the
INTELSAT satellite system to ensure that they will remain competitive in
the future and to enhance the value of the corporation's investment in
those systems. For a discussion of the current status of INTELSAT
restructuring, see "Management's Discussion and Analysis of Financial
Condition and Results of Operations-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 (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 expired on
December 31, 1996. 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-Outlook" 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.
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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 CWS's
1992 petition, but in August 1996 the FCC issued an order granting CWS's
1994 request for streamlined tariffing for its switched-voice and private
line services. The FCC did not grant CWS's request for streamlined
tariffing of its video services, but invited CWS to file a new petition
with updated data seeking such relief, which CWS did in October 1996. That
petition is now pending before the FCC, as is a petition for
reconsideration of the FCC's August 1996 order filed by one of CWS's
separate system competitors.
The corporation plans to formally petition the FCC in 1997 to
re-classify it as a non-dominant carrier and for relief from rate-base
rate-of-return regulation. There can be no assurance that the FCC will act
favorably upon the petition.
CWS has entered into inter-carrier contracts with each of its three
largest customers, AT&T, MCI and Sprint. 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 occurred 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 and 1996, 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 27% of the corporation's consolidated revenues in 1996
were derived from CWS's services (30% in 1995 and 30% in 1994).
Approximately 6% of the corporation's consolidated revenues in 1996 were
derived from CWS's services to AT&T. Also in 1996, CWS's three largest
customers, AT&T, MCI and Sprint, were the source of approximately 24%, 18%
and 9%, respectively, of CWS's revenues.
COMSAT INTERNATIONAL
COMSAT International (CI) operates an integrated group of
telecommunications companies that are engaged principally in providing
individualized digital network solutions to business clients and carriers
in selected markets. CI also is actively engaged in the development of
prospective international telecommunications opportunities that are
consistent with its digital networking strategy. CI's existing and
prospective companies typically are and will be located in those rapidly
growing markets where a significant number of CI's existing or targeted
clients are located (or where they intend to locate).
As of December 31, 1996, CI operated 13 companies worldwide. These
companies are located in Latin America, Asia, Europe and the Commonwealth
of Independent States (CIS). CI's companies generally are wholly- or
majority-owned, with the exception of COMSAT Max Limited, CI's company
operating in India, and Viatel, Inc. (Viatel), the European
facilities-based carrier and call-back company. At December 31, 1996, CI
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beneficially owned 50% and 9.5%, respectively, of COMSAT Max Limited and
Viatel, respectively. CI's clients are typically local, indigenous (non-
U.S.) large and medium-sized corporations, national branches of
multinational corporations and major telecommunications carriers and
consortia.
CI continued to develop new opportunities around the world in 1996. In
particular, CI expanded its activities in Latin America through the
formation of a new joint venture in Peru to pursue terrestrial-based voice
and data transmission services. Primarily through the conversion of
existing debt to equity, CI also increased its ownership interest and
operating control of BelCom, Inc. (BelCom) to 99.6%. BelCom currently
provides telecommunications services in certain countries of the CIS,
including the Russian Federation, Kazakhstan, Uzbekistan and Turkmenistan.
In January 1997, CI's company in China initiated VSAT service. CI also sold
its 20% interest in Philippine Global Communications, Inc. (PhilCom) (see
Note 7 to the financial statements) in January 1997.
In October 1996, Viatel completed an initial public offering (IPO) of
38.7% of its common stock. As a result of the offering, CI now owns 9.5% in
Viatel. CI has demand and piggy-back registration rights with respect to
its Viatel shares but, in connection with the IPO, has agreed not to
exercise such rights or sell its shares for a period of six months
following the IPO.
CI's companies operate in numerous and diverse markets, as reflected
in the table set forth below. Consequently, the level of competition in
these countries varies considerably. In some countries there is full
competition, and in others competition is limited by law. The competitive
conditions faced by each company are the result of differing and changing
regulatory policies and economic conditions. In those countries that have
not yet undergone a substantial liberalization of their telecommunications
laws, CI's principal competitor is typically the local Postal, Telegraph
and Telephone administration (PTT), together with a limited number of
companies that provide telecommunications services similar to those offered
by CI. In countries that have liberalized their telecommunications laws, CI
typically faces greater competition than in less liberalized markets.
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<TABLE>
<CAPTION>
<S> <C> <C>
CI COMPANY COUNTRY CI OWNERSHIP PERCENTAGE
- ---------- ------- -----------------------
BelCom, Inc. Russian Federation and CIS 99.6%
COMSAT Argentina, S.A. Argentina 100
COMSAT Asia (L) China 55
Incorporated
COMSAT de Colombia, S.A. Colombia 100
COMSAT de Bolivia S.R.I. Bolivia 100
COMSAT Brasil Brazil 100
COMSAT de Guatemala, S.A. Guatemala 100
COMSAT Max Limited India 50
COMSAT Peru, S.A. Peru 65
COMSAT Digital Services Turkey 85
COMSAT Telecommunications Turkey 51
Services
COMSAT Venezuela, Venezuela 100
COMSATVEN, C.A.
Viatel, Inc. U.S., Europe, Latin America 9.5
and Asia
</TABLE>
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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 74,000 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.
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 and expanded to the
Indian Ocean Region in 1994. 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.
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 corporate aircraft.
By an FCC Report and Order issued in 1989, COMSAT was authorized: (i)
to be the sole U.S. provider of Inmarsat space segment capacity for
aeronautical services; (ii) to provide ground segment aeronautical services
in connection with the Inmarsat space segment on a non-exclusive basis; and
(iii) 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 to be 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. In 1996, CMC offered domestic aeronautical services on an
interim basis pursuant to temporary authority granted by 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
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Pacific Ocean Regions through its earth stations at Southbury, Connecticut
and Santa Paula, California. There are currently more than 1,300 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.
A service agreement with GTE Airfone, Incorporated, a provider of
air-to-ground passenger telephone service using terrestrial facilities,
enables it to extend its current service to transoceanic flights by
acquiring satellite and ground earth station services from CMC.
COMSAT was selected by United Airlines in 1997 to provide satellite
communications services for passengers (including telephone, fax and data
transmission) on approximately 74 United Airlines aircraft, in exchange for
making available to United Airlines a financing facility of up to $7
million to promote the use of satellite phones on United Airlines aircraft.
COMSAT also was selected by Air Canada in 1994 to provide passenger voice
service and now provides such service on 20 aircraft.
In late 1996, the Federal Aviation Administration (FAA) selected CMC
to provide satellite and uplink services for the Wide Area Augmentation
System (WAAS). For a further discussion of the WAAS contract, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations-Outlook."
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-LinkSM
service. C-LinkSM 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.
COMSAT is not generally 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. In 1996, COMSAT applied to the FCC for blanket
authority to construct and operate up to 5,000 Planet 1TM terminals in the
United States. The FCC has not yet ruled on those applications.
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In 1996, the corporation established COMSAT Personal Communications
(CPC) to develop and manage the corporation's personal communications
services, including the introduction of Planet 1SM and future I-CO Global
Communications (Holdings) Limited (ICO) service. CPC's operating results
are reported as part of CMC's results.
PLANET 1SM. The corporation plans to build on its established position
in mobile satellite communications as it evolves toward handheld satellite
service. Planet 1SM, the first generation of personal satellite
communications, commenced commercial service in January 1997. The Planet
1TM terminal is a six pound, laptop computer-sized satellite terminal which
utilizes the Inmarsat-3 satellites. This product addresses the demand for
global personal communications ahead of the availability of hand-held
satellite services. During 1996, the first three of four operational
Inmarsat- 3 satellites were launched and are now in service.
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 23.0% as of
December 31, 1996 and 24% as of December 31, 1995.
At December 31, 1996, total Inmarsat Owners' Equity was approximately
$931 million. Inmarsat's outstanding contractual capital commitments
totaled approximately $235 million, and it had operating lease commitments
of $13.5 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.
ICO. In December 1996, the corporation reduced its direct investment
in ICO from eight percent to three percent (see Note 7 to the financial
statements). The reduction in ICO ownership aligns the corporation's
financial interest with its plans to concentrate on developing a national
service wholesaler role in the U.S. The corporation also continues to hold
an indirect share of ICO through its 23% ownership interest in Inmarsat,
which is also an ICO shareholder.
ICO was 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 other current major investors in ICO,
besides the Corporation and Inmarsat, include Inmarsat signatories
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and 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 and 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.
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
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 American Mobile Satellite Corporation (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
and C-band and Ku-band satellites, and in the future is expected to compete
with the FCC-licensed low-earth-orbit ("Big Leo") satellite systems of
Iridium and GlobalStar and the medium-earth-orbit satellite systems of
Odyssey. Operators of C-band satellites 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 June 1996, CMC and AT&T concluded
an Interconnection and Service Agreement to address interconnection of
facilities and settlement issues.
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.
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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 non-structural safeguards. To satisfy the
FCC's conditions, COMSAT filed a proposed cost allocation manual and a plan
for implementing certain non-accounting safeguards requested by the FCC.
The FCC approved COMSAT's cost allocation manual in July 1995. In August
1996, the FCC approved the second compliance filing subject to COMSAT's
submission of a further compliance filing, which also must be approved by
the FCC before the waiver becomes operative. COMSAT submitted the further
compliance filing in September 1996. The FCC has not yet acted on that
filing.
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 granted this petition in May 1996, subject to FCC
approval of a compliance filing establishing non-structural safeguards. In
October 1996, COMSAT submitted that compliance filing, which is pending
before the FCC. In September 1996, COMSAT submitted a request for interim
relief allowing CMC to market Planet 1TM terminals under the terms of the
aeronautical land mobile waiver while the FCC is reviewing COMSAT's
compliance filing. The FCC has not yet ruled on that request.
REVENUES. Approximately 15% of the corporation's consolidated revenues
in 1996 were derived from CMC (21% in 1995, 23% in 1994). No single
customer of CMC provided more than 10% of the corporation's consolidated
revenues in 1996.
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. The remaining unit, which serves global machine
tool markets, is preparing to manufacture wireless antenna coaxial cable
connectors that can be used by certain other CRSI units. CRSI designs,
manufactures, installs and supports systems and products for satellite,
terrestrial and wireless communication, as well as antennas and products
for air traffic control, radar, and scientific applications. 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 Aperture Terminal (USAT) and
VSAT equipment, cellular switch and base station radio 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. In 1996, CRSI began making towers for use in wireless communication
programs and became a distributor of coaxial cable for the same projects.
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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 and system design; satellite tracking, telemetry and command
(TT&C) services; radio frequency engineering and system analysis for
cellular, PCS, and 2-GHz microwave relocation applications; and intelligent
transportation system (ITS) integration.
The Technology Services segment 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 two
satellites launched in 1976 -- the capacity of which is leased to Inmarsat,
the U.S. Navy and the U.K. Navy. In September 1996, COMSAT General
decommissioned the SBS-2 satellite (launched in 1981). COMSAT General also
owns the COMSTAR D-4 satellite (launched in 1981) with capacity leased to
CMC and the U.S. Navy.
In contrast to its historical pattern of product diversification and
growth through acquisition, in 1996, CRSI focused on integrating the
acquisitions made in recent years, streamlining and combining operations to
improve efficiency (such as consolidating its two wireless antenna plants
in the U.S. and U.K. under a unified management and marketing structure)
and expanding product offerings through ongoing internal development and
external licensing agreements.
In 1996, CRSI incurred research and development expenses of $8.6
million, an increase of $2.4 million over 1995. The majority of the
increase was used to develop new VSAT/USAT equipment, wireless antennas,
wideband multiplexing equipment, cellular switch and antenna control
products. CRSI has also entered into licensing agreements for the
manufacture of new wireless communication towers and the sale of coaxial
cable.
CRSI won contracts with a total value of $282 million in 1996. Major
contracts ongoing or commenced during 1996 included: a contract for ten
gateway earth stations to be deployed worldwide; a contract in the Republic
of Kazakhstan for a combined television broadcast and VSAT data
transmission network; a contract to supply the first INTELSAT earth station
in the Kyrgyz Republic; transponder orders and a second bandwidth
management center authorized under the multi-year Commercial Satellite
Communications Initiative (CSCI) contract; work on the Asia Cellular
Satellite system (ACeS); separate contracts for Inmarsat land earth
stations (LESs) in Italy, Poland, Thailand and India; a contract to supply
communications trucks in China for television and voice/data emergency
communications; an INTELSAT Standard-B earth station to be installed in
Taiwan; a contract to upgrade an earth station in Korea; satellite
construction monitoring and/or launch services contracts for Egypt, Hong
Kong, Italy, Korea and Mexico; sales of VSATs for telephony gateways,
Internet access, environmental and resource monitoring and ATM banking;
contracts to supply cellular switching equipment in China, Burundi, Guinea,
Zaire, Russia, Argentina and the Caribbean; contracts to supply PCN
antennas in France, Spain, the United Kingdom and the U.S.
CRSI has a large customer base; 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 1996 and 1995, sales to the U.S. Government accounted
for 40% and 45% of CRSI's sales, respectively. If the U.S. Department of
Defense is considered separately, it accounted for 28% and 24% of 1996 and
1995 sales, respectively. CRSI sales to other COMSAT divisions totaled $11
million in 1996 and $10 million in 1995. Exports represented 27% and 31% of
CRSI's sales in 1996 and 1995, respectively.
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At December 31, 1996, CRSI's backlog of orders believed to be firm
totaled approximately $226 million, as compared to approximately $212
million at December 31, 1995. Of the December 31, 1996 backlog,
approximately $160 million is expected to be recognized as sales in 1997
and approximately $36 million is unfunded. Included in this order backlog
is approximately $128 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 likely assert 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; Hy- Power, Inc.; 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, CRSI competes on the
basis of price, performance, on-time delivery, reliability and customer
support.
COMSAT LABORATORIES
COMSAT Laboratories consists of two main business segments: technical
consulting and communications products. Technical consulting activities
include the design and development of advanced digital communications
technologies, systems and networking solutions to commercial and government
customers worldwide. COMSAT Laboratories also designs, develops and
licenses communications products for access, compression and networking
applications as well as software for satellite system planning and
management. COMSAT Laboratories also licenses new technology it develops to
other companies for commercialization.
Customers include U.S. and foreign government agencies, commercial
entities, INTELSAT and Inmarsat. In addition, COMSAT Laboratories conducts
research and development on a broad range of telecommunications devices,
subsystems, transmission systems, technologies and techniques in support of
other COMSAT businesses.
On-going contracts being performed in 1996 include: a contract to
design, manufacture and deliver S-band mobile satellite communications
equipment; a contract with AT&T to deliver second generation TDMA
terminals; contracts with INTELSAT to design STRIP 7 and develop a software
system for generating INTELSAT TDMA burst time plans; a contract with NASA
to provide operation and maintenance support for the ACTS (Advanced
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Communications Technology Satellite) program; and a variety of technical
consulting contracts for INTELSAT, Inmarsat and other governmental and
private industry customers.
COMSAT Laboratories won external contracts with a total value of $20.8
million in 1996. Major new contracts awarded or begun in 1996 include: a
contract with Inmarsat to develop, install and support equipment for the
Aeronautical Network Channel Management System (NCMS); a contract with
Lockheed Martin for the system definition and global traffic model for the
Astrolink program; a contract with Space Systems/Loral for two In-Orbit
Test systems; and a contract to provide frequency coordination support for
Toshiba Corporation.
Revenue from external customers was $18.8 million in 1996 and $12.0
million in 1995. COMSAT Laboratories support of other COMSAT divisions
totaled $10.5 million in 1996 and $8.6 million in 1995. At December 31,
1996, COMSAT Laboratories' backlog of orders totaled $18.2 million, as
compared to $17.5 million at December 31, 1995.
COMSAT Laboratories incurred research and development expenditures of
$6.3 million in 1996, a decrease of $1.1 million from 1995. These
expenditures were largely attributed to the development of its video
compression, asynchronous transfer mode (ATM) and software products. COMSAT
Laboratories expects R&D expenses to increase in the future as it pursues
additional commercial activities.
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.
Ascent is a diversified entertainment and media company which operates
entertainment production and distribution businesses characterized by
well-known franchises. Ascent owns approximately 57% of On Command
Corporation (OCC), which in turn owns 100% of On Command Video Corporation
(OCV) and Spectravision, Inc. (Spectravision). Ascent is the primary
provider of satellite distribution support services to affiliates of the
National Broadcast Company (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).
OCC is the leading provider of on-demand in-room entertainment
services for the United States lodging industry. On October 10, 1996, OCC
consummated the acquisition of the assets and properties and assumed
certain liabilities of Spectravision (the Acquisition). Immediately prior
to the Acquisition, OCV, formerly an 84% (78.4% on a fully diluted basis)
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owned subsidiary of Ascent, was merged into a subsidiary of OCC and became
a wholly owned subsidiary of OCC.
In addition to installing systems in hotels served by OCC, OCC sells
systems to certain other providers of in-room entertainment, including
MagiNet Corporation (formerly Pacific Pay Video Limited), which is licensed
to use OCC's system to provide on-demand in-room entertainment in the Asia
Pacific region.
ANS, a wholly-owned subsidiary of Ascent, is a satellite distribution
support service company that operates a nationwide installation, field
service and maintenance support business that principally services the NBC
affiliate distribution network. 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.
In 1984, in connection with its construction, service and support of
NBC's master earth station and receiver earth stations at NBC affiliates,
Ascent entered into a ten year contract to design, build and operate a
Ku-band satellite distribution network, for which the network control
center is located in Florida. The initial ten year contract with NBC was
extended to continue through 1999. Ascent owns and operates the network
(excluding the satellite transponders, which are leased by NBC) and
receives yearly payments from NBC in connection with such operations. The
network consists of the network control center, two master earth stations,
eight transmit/receive stations, 167 receive earth stations at NBC
affiliates, of which 51 such earth stations contain portable uplink antenna
and six transportable transmit/receive trucks.
NBC, with ANS's technical assistance, issued a request for information
to certain of its hardware vendors in July 1995 with respect to procuring
equipment necessary to upgrade the NBC distribution network to digital
technology. In August 1996, ANS and NBC executed a letter of intent
pursuant to which ANS has procured and installed certain of such digital
equipment to provide MSNBC, LLC, a joint venture between NBC and Microsoft
Corporation (MSNBC) with network service, maintenance and support. The
partial digital upgrade service is to be provided for a 10 year term and is
currently governed by the underlying NBC service contract, although ANS and
MSNBC anticipate finalizing a service agreement separate from the
underlying NBC contract in the first half of 1997. The network service,
maintenance and support provided to MSNBC are related to and dependent upon
the original NBC distribution network. Ascent anticipates that ANS will
assist NBC in completing the upgrade of the NBC network to digital
technology, which will likely involve significant capital expenditures on
the part of Ascent and would be accompanied by an extension of ANS's
contract with NBC that expires in 1999.
Historically, ANS also included the Satellite Cinema Division, which
provided satellite-delivered pay-per-view movies on a scheduled basis to
the lodging industry. In the third quarter of 1995, ANS contributed
substantially all of its hotel pay per view assets, including Satellite
Cinema assets, to OCV in exchange for OCV common stock, raising Ascent's
ownership in OCV by approximately 5% to 84.7% (which was subsequently
adjusted to 83.7%). In connection with that transaction, OCC converted
select Satellite Cinema hotel properties to higher margin OCV services, and
OCV sold certain of the contracts to provide pay-per-view service to
approximately 100,000 rooms and related equipment to TeleVideoCom
Corporation ("TVC") for a payment of approximately $3.3 million. Satellite
Cinema operations at the hotel properties not included in the TVC
transaction and not being converted were discontinued.
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In June 1996, the Avalanche won the NHL championship in its first year
in Denver. Ascent had acquired one of the 26 franchises in the NHL in July
1995 and had moved the franchise to Denver. For the 1995-1996 NHL season,
the Avalanche sold all 12,000 season tickets that the team made available
for sale. For the 1996 - 1997 season all 12,250 season tickets made
available by the team to the public were sold.
The Nuggets are one of 29 franchises in the NBA. Since Ascent's
initial investment in the team in 1989 through the 1995 - 1996 season, the
Nuggets experienced gains in attendance, season ticket sales, corporate
sponsorships, broadcast fees and proceeds from licensed merchandise. For
the 1996 - 1997 season Nuggets season ticket sales declined from 11,960 to
approximately 8,700. The Nuggets corporate sales and other arena related
sales have also seen declines of somewhat smaller proportions. Ascent
assumed operating control of the Nuggets at the end of the 1991-1992 season
and through the 1995-1996 season, the Nuggets have enjoyed a compound
annual growth rate in revenues (excluding $9.2 million of NBA expansion
fees recorded in 1995) of approximately 17.5%. Revenues for the 1996-1997
season will almost certainly show a decline from those of the 1995-1996
season.
Ascent markets, produces and sells advertising for local market
over-the-air television and radio broadcasts of the Avalanche and the
Nuggets games. In connection with cable television broadcasts, Ascent has
agreements with Fox Sports Rocky Mountain ("Fox Sports") whereby Fox Sports
pays a rights fee to Ascent and Fox Sports is then entitled to all cable
advertising revenue. Ascent believes that the Avalanche and the Nuggets are
among only a few sports franchises to control their own local market cable,
over-the-air television and radio broadcast distribution. Ascent produces
many of the Avalanche and the Nuggets games through Colorado Studios, a
television production company that owns and operates mobile television
production facilities and in which Ascent owns a one-third interest. Ascent
believes that its control of over-the-air television and radio broadcast
distribution increases the profitability to the Company from these media.
Ascent also capitalizes on its ownership of the Avalanche and the Nuggets
through marketing and local market sales of branded Avalanche, Nuggets, NHL
and NBA merchandise. Ascent believes that its ownership of the Avalanche
and the Nuggets and its control of its own over-the-air television and
radio broadcast distribution form a base of expansion into ancillary
entertainment opportunities in the Rocky Mountain region. To capitalize on
this competitive advantage, Ascent is proposing to build a new arena and
entertainment complex as an integral part of its operating and growth
strategy for the Avalanche and the Nuggets.
Beacon, a wholly-owned subsidiary of Ascent, was acquired by the
Corporation in 1994 and was founded in 1990 to produce feature length
motion pictures for theater and television distribution. Beacon's principal
focus is the production of high quality motion pictures with varying
budgets. It has developed a production formula that it believes will allow
it to maximize its production capacity while at the same time optimizing
the cost structure and quality of its motion pictures and television
programming. A component of that formula includes Beacon's strategic
relationships with significant domestic and international motion picture
distributors. Beacon began production of three motion pictures in 1996, all
of which are intended to be released in 1997. Beacon currently is planning
to begin production of up to three motion pictures in 1997, which may be
released in 1998.
In July 1996, Beacon entered into a five-year agreement (the
"Universal Agreement") with Universal Pictures ("Universal") pursuant to
which Universal has agreed to co-finance and distribute in the United
States and Canada up to 20 pictures produced by Beacon, although Universal
is not obligated to accept more than 4 films per year from Beacon. To date,
no motion pictures have been produced and distributed pursuant to the
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Universal Agreement. Pursuant to the Universal Agreement, Beacon pays
Universal a distribution fee out of the revenues generated by domestic
distribution of such motion pictures and Beacon receives net revenues after
Universal's fees and expenses. Universal generally controls all rights to
distribute such motion pictures domestically for two full television
syndication cycles, not to exceed 21 years from the theatrical release of
the picture, although Beacon retains the copyrights and retains certain
other rights related to such films such as music publishing, merchandising
and hotel television rights.
In April 1993, Beacon entered into a five-year agreement (the "Sony
Agreement") with Sony Pictures Entertainment, Inc. ("Sony") 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. Two motion pictures
have been produced and distributed pursuant to the Sony Agreement. Another
has been produced and is scheduled to be released in 1997, the motion
picture "Air Force One" starring Harrison Ford. Pursuant to the Sony
Agreement, Beacon and Sony share in the revenues generated by domestic
distribution of such motion pictures. Sony generally controls all rights to
distribute the motion pictures domestically for the later of 14 years or
the end of the second television syndication cycle for such motion picture
(but in no event later than 23 years), although Beacon retains the
copyrights. In July 1996, the Sony Agreement was amended to terminate
Sony's exclusive acquisition term and to provide that Sony has the right to
jointly develop, produce and distribute up to two additional motion
pictures with Beacon for distribution under the Sony Agreement.
Generally, Beacon intends to produce motion pictures with production
budgets in the range of approximately $5 million to $40 million, although
Beacon will also consider certain higher budget projects. In that regard,
Beacon produced "Air Force One" starring Harrison Ford with a production
budget of approximately $95 million which will be distributed domestically
pursuant to the Sony Agreement, and distributed internationally by Buena
Vista International, Inc., a subsidiary of the Walt Disney Company ("Buena
Vista"), pursuant to an agreement which provides for a fixed advance of a
significant portion of production costs.
Beacon plans to release most of its motion pictures on a nationwide
basis, with advertising and distribution budgets generally comparable to
those of the major motion picture companies. This type of release pattern
requires substantial marketing expenditures to create a campaign and
purchase advertising on television, newspapers, radio and other media.
Beacon expects that the Universal Agreement and the Sony Agreement, as
amended, will help offset such costs and provide more cost effective use of
Beacon's resources than if Beacon distributed its motion pictures alone.
The Universal Agreement and the Sony Agreement, as amended, each allow
Beacon to continue to offset risks by pre-selling foreign distribution
rights to its motion pictures and each provides Beacon a proven domestic
distribution network for its productions; however the Universal Agreement
is more favorable to Beacon in terms of the overhead advance paid to
Beacon, production funding and domestic print and advertising funding.
In 1997, "Playing God" a suspense film starring David Duchovny and "A
Thousand Acres" starring Michelle Pfeiffer and Jessica Lange will not be
released under the Universal Agreement or the Sony Agreement, as amended;
however, both will be released domestically by Buena Vista. Beacon has
retained the foreign distribution rights to "Playing God" and a portion of
the film's production costs are offset by the domestic distribution
arrangement with Buena Vista. "A Thousand Acres" is being distributed
internationally by Polygram Filmed Entertainment ("Polygram") and the
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production costs are being split between Beacon, Beacon's co-producer
Propaganda Films, Inc. (a subsidiary of Polygram) and the Walt Disney
Company.
The production and release of motion pictures are subject to numerous
uncertainties and there can be no assurance that Beacon's strategy will be
successful, that its release schedule will be met, that Beacon will be
successful in obtaining the necessary financing for its operations or that
it will achieve its goals. Beacon intends to maintain flexibility in order
to adjust its strategies, including the criteria for investing in motion
pictures, in response to changes in the motion picture industry and in
respect of Beacon.
Ascent owns a 26% limited partnership interest in New Elitch Gardens,
Ltd. (Elitch Gardens), which it purchased at a cost of approximately $7.9
million. Elitch Gardens operated an amusement park in Denver, Colorado. In
October 1996, Elitch Gardens sold the amusement park to Premier Parks, Inc.
In connection with the sale, Ascent has recorded a loss on its investment
of $2.3 million in 1996. Ascent has received distributions in 1996 and 1997
in an aggregate amount of $3.6 million for its interest as a limited
partner of Elitch Gardens, and expects an additional distribution in the
first half of 1997.
Ascent also owns small equity interests in MagiNet Corporation, which
purchases and uses OCC's on-demand systems in the Asia-Pacific region, and
Metromedia International Group, a diversified company pursuing
telecommunications ventures in eastern Europe and producing motion
pictures, among other things.
Ascent's entertainment properties compete with a broad spectrum of
other entertainment alternatives. In providing entertainment services to
the lodging industry, OCC operates in a highly competitive and rapidly
changing environment in which the principal methods of competition are
service, product features and price.
The Denver Nuggets and Colorado Avalanche compete not only with each
other and other major league sports, but also with minor league sports,
college athletics, other sports entertainment and non-sports entertainment
such as the Colorado Symphony, Opera and Ballet, movies, local theater and
recreational activities such as skiing. Beacon competes with many other
motion picture producers and distributors, including major motion picture
studios.
INVESTMENTS
The corporation's investments are discussed at Note 7 to the financial
statements.
ITEM 2. PROPERTIES
COMSAT PROPERTIES
At year end 1996, the headquarters of the corporation and the
headquarters of the International Communications segment 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 10 to the financial statements). In 1995, Ascent's headquarters were
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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 still
operates two of three satellites launched in 1976 (the F-3 was
decommissioned in September 1996) -- with capacity leased to the U.K. Navy
and Fugro N.V., a Netherlands company. COMSAT General owns the COMSTAR D-4
satellite (launched in 1981) with capacity leased to CMC and the U.S. Navy.
In September 1996, COMSAT General decommissioned the SBS-2 satellite
(launched in 1981).
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. A leased earth
station in Fucino, Italy along with the California and Connecticut earth
stations are used by CRSI to provide 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. The corporation owns an
additional earth station at Clarksburg, Maryland which is used by CRSI to
house its Satellite Control and Teleport Facilities as well as the
Bandwidth Management Center for the U.S. Government CSCI Program.
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.
There are nine INTELSAT V and V-A satellites continuing to operate in
the INTELSAT system. These satellites are or soon will be operating in an
inclined orbit. The capacities range from 15,000 to 17,000 voice circuits
and 51 to 57 television channels. The satellites were built by Space
Systems/Loral.
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, having an
average capacity of 7,000 bearer circuits or 32 television channels was
launched in 1992.
21
<PAGE>
The INTELSAT VII series consists of six satellites constructed by
Space Systems/Loral. These satellites have an average capacity of at least
17,050 bearer circuits or 62 television channels. The last INTELSAT VII
satellite was launched on June 15, 1996.
The INTELSAT VII-A series, also constructed by Space Systems/Loral,
consists of two satellites having an average capacity of at least 19,250
bearer circuits or 70 television channels. Of the three INTELSAT VII-A
satellites constructed, 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 have been
and 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 was successfully launched in February 1997.
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 1998.
COMSAT has applied to the FCC for authorization to participate in the
procurement of the K-TV satellite. This spacecraft is being constructed by
Matra Marconi Space and has a capacity of 30 high power television
channels. It is expected that the satellite will be launched in the first
quarter of 1999.
COMSAT has applied to the FCC for authorization to participate in the
procurement of two FOS II satellites. These spacecraft will be built by
Space Systems/Loral and are intended to replace two INTELSAT VI satellites
in the year 2001.
The corporation has purchased insurance to cover the launch phase of
the INTELSAT VIII and VIII-A satellites. For the INTELSAT 801, the
corporation has purchased post-separation insurance with no deductible on a
partial-loss basis for 180 days following launch. Total loss in- orbit
insurance for the remaining five INTELSAT 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 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. One
of these serves as the operational satellite in the AOR-W, one of
Inmarsat's four coverage areas, while the other three are used primarily
for leases and backup capacity.
The third-generation Inmarsat satellite system, known as the
Inmarsat-3 series, consists of five satellites constructed by Lockheed
Martin Astro Space. These satellites use spot-beam technology, which allows
reuse of the scarce frequency resources allocated for mobile satellite
22
<PAGE>
communications. The Inmarsat-3s have more than 20 times the capacity of the
largest satellites in the first-generation Inmarsat system and are about
eight times more powerful than the Inmarsat-2 series. Three of these
satellites are already operational and the latter two are scheduled for
launch in mid to late 1997. Inmarsat has purchased an insurance policy for
launch failures 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. For a discussion of
financing arrangements related to the Inmarsat-2 and -3 satellites, see
Note 8 to the financial statements.
ENTERTAINMENT PROPERTIES
Ascent currently leases its principal offices in Denver, Colorado
under a lease which expires in August 1998. Ascent also leases facilities
from COMSAT in Maryland, for Beacon in Los Angeles, California, and for ANS
in Palm Bay, Florida. Through 1996, OCV leased facilities in Santa Clara,
California for its headquarters and manufacturing plant; however, in
December 1996 OCC entered into a lease for facilities in San Jose,
California and relocated its headquarters and OCV's manufacturing
facilities to that location. In connection with the OCC Transactions, OCC
acquired Spectravision's headquarters building in Plano, Texas and directed
Spectravision to assume certain leases for office space throughout the
United States, Canada, Mexico, Puerto Rico, Hong Kong and Australia for its
customer support operations.
The Nuggets and the Avalanche currently play their home games in
Denver's McNichols Arena, an indoor sports arena located in downtown
Denver. 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 2005-2006 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 played in McNichols Arena (from the
2007-2008 season to the 2005-2006 season).
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 and maximum 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 police and fire safety
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 plans 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. The proposed
arena would have approximately 95 luxury suites and 1,669 luxury seats.
Ascent anticipates that financing for the proposed arena may be raised
through a partnership with other regional investors, sale of taxable bonds,
bank financing or other alternatives and will likely include corporate
sponsorship. Ascent estimates that the cost of a new arena would be
approximately $160 million. Ascent is currently negotiating with the City
regarding the proposed arena and the current leases of the Avalanche and
23
<PAGE>
Nuggets. Ascent management believes that these negotiations can be
successfully concluded, but there can be no assurance that Ascent will be
able to reach acceptable terms for the construction of the new arena.
On March 28, 1996, Ascent entered into a Land Purchase Agreement with
Southern Pacific Transportation Company ("SPT") pursuant to which Ascent
would purchase approximately 49 acres in downtown Denver as a site for the
proposed arena and entertainment complex for a purchase price of $20
million. Pursuant to the agreement, the closing of the land purchase had to
have occurred on or before June 29, 1996. The closing did not take place by
that time and the Land Purchase Agreement terminated. Ascent management
believes that SPT will reinstate the agreement. The transaction would be
subject to several conditions, including obtaining satisfactory financing
and reaching agreements with the City regarding the construction of the
proposed arena and the release of the Nuggets and the Avalanche from their
existing leases at McNichols Arena. The Land Purchase Agreement also
provided for SPT to effect a state-approved environmental clean-up plan on
the site, and provide continuing indemnification with regard to certain
environmental liabilities. Although there can be no assurance, Ascent
management believes that SPT will reinstate the Agreement on substantially
similar terms and the closing date for the agreement will be extended.
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. News
Corporation has asserted a counter claim for return of the deposit it
originally paid.
COMSAT and its subsidiaries are a party to various lawsuits and
arbitration proceedings and are subject to various claims and inquiries,
which generally are incidental to the ordinary course of its business. The
outcome of legal proceedings cannot be predicted with certainty. Based on
currently available information, however, management does not believe that
the outcome of any matter which is pending or threatened, either
individually or in the aggregate, will have a materially adverse effect on
the consolidated financial condition of the corporation but could
materially affect consolidated results of operations in a given year or
quarter.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
24
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT
<TABLE>
<CAPTION>
<S> <C> <C>
Age as of
Name Officer March 31,1997
---- ------- -------------
Betty C. Alewine President and Chief Executive Officer 48
Steven F. Bell Vice President, Human Resources and 47
Organization Development
James M. Carroll Vice President, Government Relations 34
Thomas Collins Vice President and General Manager, CMC 39
Janet L. Dewar Vice President, Corporate Affairs 47
John V. Evans Chief Technical Officer 63
Allen E. Flower Vice President and Chief Financial Officer 53
Dwight Jasmann President and General Manager, 61
COMSAT International
Alan G. Korobov Controller 48
Christopher Leber Vice President and General Manager, CPC 44
Charles Lyons President and Chief Executive Officer, 42
Ascent Entertainment Group, Inc.
John H. Mattingly Vice President and General Manager, CWS 46
Paul G. Pizzani Treasurer 37
Raymond D. Thomas President, COMSAT RSI, Inc. 46
Warren Y. Zeger Vice President, General Counsel and Secretary 49
</TABLE>
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:
Mrs. Alewine has been President and Chief Executive Officer since July
1996. She was President, COMSAT International Communications from January
1995 to July 1996, and was President, CWS, from May 1991 to January 1995.
She was Vice President and General Manager, INTELSAT Satellite Services
from January 1989 to May 1991. She is also a member of the Board of
Directors of the Corporation.
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 1993; and with US Sprint,
serving as Regional Director of Human Resources from October 1987 to August
1992.
25
<PAGE>
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.
Mr. Collins has been Vice President and General Manager, COMSAT Mobile
Communications since May 1996. He was Vice President of Finance and
Planning, COMSAT International Communications from September 1995 to May
1996 and Vice President of Finance and Planning, COMSAT World Systems from
April 1993 to September 1995. Prior to that, he was Vice President of
Finance, COMSAT Technology Services.
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 the Chief Technical Officer for COMSAT Corporation
since September 1996. He was President, COMSAT Laboratories from September
1991 to September 1996. He was Vice President and Director, COMSAT
Laboratories from October 1983 to September 1991. He is a consultant to
Johns Hopkins University's Applied Physics Laboratory.
Mr. Flower has been Vice President and Chief Financial Officer since
November 1995. From November 1995 to September 1996, he was also Acting
Treasurer. 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. He
is a director of Ascent Entertainment Group, Inc.
Mr. Jasmann has been President and General Manager, COMSAT
International since August, 1996. He previously worked for AirTouch
Communications as Vice President of Human Resources and Corporate Services
and for AT&T, where in his last position he was Managing President and
Managing Director of AT&T Asia/Pacific. He is a director of Elcotel, Inc.
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. Leber has been Vice President and General Manager, COMSAT Personal
Communication since 1995. In May 1994, he was named Vice President and
General Manager of COMSAT's aeronautical services. From August 1991 to May
1994, he was Acting Vice President of Operations, CMC and then Vice
President and General Manager, CMC Operations, Engineering and
International Relations.
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. He is a director of On Command Corporation
and National Jewish Hospital.
26
<PAGE>
Mr. Mattingly has been Vice President and General Manager, COMSAT
World Systems since 1995. He previously served as Vice President, European
Ventures, COMSAT International Ventures. Before joining COMSAT, he was
Senior Vice President and General Manager of OrionNet, Inc. He is a
director for Global Tradeshow Services, Inc.
Mr. Pizzani has been Treasurer of COMSAT since September 1996. From
1993 to 1996 he was Vice President, Finance and Business Planning, COMSAT
International Ventures and from 1991 to 1992 he was Director, Business
Planning, COMSAT World Systems. He is a director of Viatel, Inc.
Mr. Thomas has been President of COMSAT RSI, Inc. since January 1997,
having served as acting President from September 1996. From 1994 until
September 1996, he was Group Vice President of CRSI's Communication Systems
Group. In 1993, he was appointed President of Fixed Earth Station Systems.
Prior to that, he was Vice President of Finance and Administration for
COMSAT Systems Division. He is a director of Plexsys International
Corporation.
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. He is a
director of On Command Corporation.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
As of December 31, 1996, there were 48,820,868 shares of common stock,
without par value, of the corporation (COMSAT Common Stock) outstanding:
48,800,044 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 Swiss Exchange.
The corporation's Transfer Agent, Registrar and Dividend Disbursing
Agent is The Bank of New York, 101 Barclay Street, New York, New York.
27
<PAGE>
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:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
COMSAT COMMON STOCK
--------------------------------------------------------
CALENDAR YEAR 1996 High Low Dividend
- ------------------ -------------- -------------- --------------
First Quarter 25 5/8 16 3/4 .195
Second Quarter 33 1/8 23 3/8 .195
Third Quarter 26 1/2 18 3/4 .195
Fourth Quarter 26 3/4 21 1/2 .195
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
</TABLE>
ITEM 6: SELECTED FINANCIAL DATA FOR THE REGISTRANT FOR EACH OF THE LAST FIVE
FISCAL YEARS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
In thousands, except per
share information 1996 1995 1994 1993 1992
- -------------------------------------------------------------------------------------------------------------------
Summary of Operations
Revenues $ 1,015,261 $ 862,912 $ 835,665 $ 758,015 $ 690,245
Operating expenses 951,180 767,277 685,414 606,435 585,263
Operating income 64,081 95,635 150,251 151,580 104,982
Income from continuing operations
before cumulative effect of
changes in accounting principles 8,622 37,817 77,642 82,469 53,292
Cumulative effect of changes in
accounting principles - - - 1,925 -
Net income 8,622 37,817 77,642 84,394 53,292
Dividends paid 37,698 36,874 33,547 30,410 27,837
Primary earnings per share 0.18 0.79 1.64 1.79 1.16
Dividends paid per share 0.78 0.78 0.76 0.74 0.70
BALANCE SHEET DATA
Total assets 2,665,803 2,314,266 1,975,992 1,773,513 1,654,985
Long-term debt 635,474 664,601 515,542 410,550 496,804
Stockholders' equity 843,211 839,433 826,916 763,440 702,292
</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. Information for 1992 through 1995 has been
reclassified for certain costs historically reflected as a reduction of
revenues and now classified as cost of services.
28
<PAGE>
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
ANALYSIS OF OPERATIONS
CONSOLIDATED OPERATIONS
Consolidated revenues for 1996 were $1.02 billion, an increase of $152
million as compared to 1995. Revenues improved in all segments in 1996 with
the largest increase, over 40%, recorded in the Technology Services
segment. The International Communications segment revenues improved
slightly over last year with increases in both COMSAT World Systems (CWS)
and COMSAT International (CI) offset, in part, by a decrease in COMSAT
Mobile Communications (CMC). The Entertainment segment revenues improved by
28% in 1996 as compared to 1995. In October 1996, Ascent Entertainment
Group, Inc. (Ascent), through its newly formed subsidiary On Command
Corporation (OCC), acquired the assets and assumed certain liabilities of
SpectraVision, Inc. (SpectraVision) (see Note 5 to the financial
statements).
Consolidated revenues for 1995 were $863 million, an increase of $27
million over 1994. Revenues increased in the International Communications
and Entertainment segments but declined in the Technology Services segment.
Within International Communications, CWS's and CI's revenues increased over
the prior year, while CMC's revenues declined over 1994. The largest
improvement in revenues was in the Entertainment segment where On Command
Video (OCV) continued to have substantial growth in its hotel business.
Operating income in 1996 was $64 million, which was $32 million below
1995. During 1995, the corporation restructured elements of each of its
business segments and recorded a pre-tax $20 million provision for
restructuring (see Note 16 to the financial statements). Exclusive of such
provision, the decrease in operating income over 1995 was $52 million.
Excluding the 1995 restructuring provision, the Technology Services segment
reflected an increase in operating income, while both the International
Communications and Entertainment segments reported lower operating income.
Operating income in 1995 was $96 million, a decline of $55 million
from 1994. Exclusive of the 1995 restructuring provision 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.
The initial public offering of common stock of Ascent was completed in
December 1995. The corporation owns 80.67% of Ascent's common stock. The
corporation recognized, in 1995, a $19 million pre-tax gain as a result of
the public offering (see Note 5 to the financial statements).
Other income (expense), net, for 1996 was a net expense of $11
million, which was $4 million greater than 1995. This was due to a full
year of dividend payments on the Monthly Income Preferred Securities
(MIPS), which were issued in July 1995 (see Note 9 to the financial
statements), offset by a $2.7 million gain on the sale of I-CO Global
Communications (Holdings) Limited (ICO) shares (see Note 7 to the financial
statements). In 1995, other income (expense), net, was a net expense of $8
million compared to a net other income of $3 million for 1994. Dividends on
the MIPS securities of $7 million were the primary cause of the increased
expense in 1995.
29
<PAGE>
Interest costs increased by $2 million in 1996 as compared to 1995 and
by $11 million in 1995 as compared to 1994 as a result of increases in
borrowings. Interest capitalized, primarily on satellite construction
projects, declined in 1996 by $5 million as compared to 1995, and in 1995
by $3 million as compared to 1994, due to the completion of several
satellite projects.
Income tax expense was adjusted to a higher accrual rate in 1996 to
reflect increases in non-deductible expenses and state income taxes. In
October 1996, Ascent's ownership in OCC declined to less than 80%. As a
result, OCC is no longer a part of the COMSAT consolidated tax group, and
COMSAT is no longer able to recognize tax benefits from OCC losses.
Minority interest in net losses of consolidated subsidiaries increased
from $4 million in 1995 to $18 million in 1996 primarily as a result of the
minority interest of Ascent, net of taxes.
Net income for 1996 was $9 million, which was $29 million below
last year. Earnings per share were $0.18, a $0.61 decrease from 1995.
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.
SEGMENT OPERATING RESULTS
The corporation reports operating results in three segments:
International Communications, Technology Services and Entertainment (see
Note 18 to the financial statements). The International Communications
segment includes COMSAT World Systems (CWS), COMSAT Mobile Communications
(CMC) and COMSAT International (CI). Prior to 1996, CMC was reported as a
separate segment. The segment financial information for 1995 and 1994 has
been adjusted to reflect the change in the corporation's segments in 1996.
In January 1997, COMSAT International Ventures changed its name to COMSAT
International.
30
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
In millions 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------
Revenues
International Communications:
World Systems $ 272.9 $ 254.7 $ 252.0
Mobile Communications 155.2 180.4 193.5
International 58.1 37.7 19.2
---------- --------- ---------
Total 486.2 472.8 464.7
Technology Services 300.6 205.9 219.1
Entertainment 258.1 202.3 165.6
Eliminations and other corporate (29.6) (18.1) (13.7)
---------- --------- ---------
Total revenues $ 1,015.3 $ 862.9 $ 835.7
========== ========= =========
Operating income (loss)
International Communications:
World Systems $ 104.0 $ 108.6 $ 100.9
Mobile Communications 31.3 53.5 53.5
International (17.3) (20.7) (4.2)
---------- --------- ---------
Total 118.0 141.4 150.2
Technology Services 19.0 14.0 21.4
Entertainment (45.9) (15.4) 13.6
---------- --------- ---------
Total segment operating income 91.1 140.0 185.2
Merger and integration costs - - (7.4)
Provision for restructuring - (20.1) -
Other corporate (27.0) (24.3) (27.5)
---------- --------- ---------
Total operating income $ 64.1 $ 95.6 $ 150.3
========== ========= =========
</TABLE>
INTERNATIONAL COMMUNICATIONS
International Communications includes the FCC-regulated and
non-regulated businesses of CWS, CMC and CI. CWS provides international
voice, data, video and audio communications as the statutorily-designated
U.S. participant in the global INTELSAT satellite system. CMC provides
maritime, aeronautical and land mobile communications services as the
statutorily-designated U.S. participant in the Inmarsat satellite system.
CI operates an integrated group of telecommunications businesses in
countries with rapidly growing telecommunications markets and provides
individualized digital network solutions to customers located in these
markets.
Revenues in the International Communications segment in 1996 were $486
million, which was 3% higher than 1995. In 1995, International
Communications revenues of $473 million improved 2% over 1994. Operating
income in 1996 was $118 million, which was 17% below last year. Operating
income of $141 million in 1995 was 6% below 1994 results.
COMSAT WORLD SYSTEMS
CWS's 1996 revenues were $273 million, which reflects a 7% increase
over 1995. The improvement in revenues came primarily from increases in
VSAT leases, IBS traffic and CWS's share of revenues from the INTELSAT
system. These increases were partially offset by reduced revenues from
scheduled rate reductions in long-term contracts with AT&T, MCI and Sprint,
CWS's three largest international carrier customers.
CWS's 1995 revenues of $255 million were 1% higher than 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
31
<PAGE>
reductions in the long-term contracts and the conversion of analog circuits
to more efficient digital service. CWS's share of revenues from the
INTELSAT system also declined as a result of a 1% reduction in the
corporation's ownership share in 1995.
Operating income in 1996 in CWS was $104 million, a decrease of 4%
from the prior year. The decrease in operating income was the result of a
lower investment base upon which the regulated rate of return is
calculated. This was the result of insurance proceeds received from the
February 1996 launch failure of the INTELSAT 708 satellite (see Note 4 to
the financial statements).
CWS's 1995 operating income of $109 million improved 8% over 1994 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.
COMSAT MOBILE COMMUNICATIONS
CMC's 1996 revenues were $155 million, a decrease of 14% as compared
to 1995. The lower revenues were primarily the result of decreases in
analog telephone and telex revenues, expiration of the American Mobile
Satellite Corporation (AMSC) service contract in December 1995 and lower
volume in the bulk service contract with IDB Mobile Communications, Inc.
(IDB). CMC's analog telephone and telex revenues declined by 15% from 1995
as a result of continued competitive pressures. CMC's 1995 revenues of $180
million were 7% lower than the prior year due to rate reductions and the
migration of traffic to less expensive, more efficient digital services
such as Standard-M.
Operating income in CMC for 1996 was $31 million, or 42% lower than
1995 due to lower revenues, increased depreciation expense as two
Inmarsat-3 satellites were placed in service during 1996 and increased
costs related to the start-up of Planet 1SM service.
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.
COMSAT INTERNATIONAL
CI's revenues for 1996 were $58 million, which reflects growth of 54%
over last year. The majority of the growth originated from companies in
Brazil and Argentina, where the year over year growth was 254% and 38%,
respectively. Partially offsetting the increases was a decline in revenues
in BelCom, CI's company operating in Russia and in the Commonwealth of
Independent States (CIS), due principally to a reduction in equipment
sales. CI's revenue commitments under long-term contracts were $220 million
at the end of 1996, which more than doubled over 1995.
CI's revenues in 1995 were $38 million, which was 97% higher than
1994. This was the result of improvements in Latin America and the full
year consolidation of the results of BelCom.
CI's operating loss in 1996 was $17 million, which was 17% less than
the previous year's loss of $21 million. This improvement was primarily the
result of the increase in revenues in Brazil and a decrease in the
operating losses at BelCom. Partially offsetting these improvements were
start-up costs associated with CI's newer companies in China, Colombia,
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India and Venezuela. In 1995, CI experienced an operating loss of $21
million, which was caused in part by losses in BelCom.
TECHNOLOGY SERVICES
The Technology Services segment includes COMSAT RSI (CRSI) and COMSAT
Laboratories. CRSI 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, the segment provides operations and maintenance, satellite
construction monitoring and applied research services.
Technology Services' revenues in 1996 were $301 million, a 46%
improvement over last year due to increased revenues at both CRSI and
COMSAT Laboratories. Included in Technology Services' 1996 revenues were
royalties of $8 million related to a licensing agreement that resolved
patent infringement disputes with certain manufacturers of television
encryption and decryption equipment. Exclusive of these royalties,
Technology Services' revenues improved 42% over 1995. This improvement was
primarily the result of increases in revenues from the Commercial Satellite
Communications Initiative (CSCI) contract, sales of PCS antennas and the
impact of a full year of revenues from JEFA Wireless (JEFA) and Plexsys
International (Plexsys), which were both acquired in the second half of
1995.
Revenues for this segment declined in 1995 by $13 million from the
prior year due to the completion in 1994 of several large international and
U.S. Government contracts which were not replaced in 1995, a $5 million
insurance settlement recorded in 1994 at CRSI, and the downsizing of one of
the Laboratories' divisions in 1995. Offsetting the decline, in part, were
increases in revenues from satellite services for classified government
customers, earth station component sales and the initial consolidation of
three companies - Intelesys, JEFA and Plexsys - that are involved in the
manufacture, integration and installation of various wireless components
and systems.
Technology Services' operating income was $19 million in 1996, which
was 36% better than 1995. Exclusive of the $8 million in royalties noted
above, operating income in the Technology Services segment was $11 million
in 1996 as compared to $14 million in 1995. This decrease was the result of
charges of $9 million taken in the fourth quarter of 1996 related to
estimated losses on certain long-term, fixed-price contracts. The decrease
was partially offset by improvements from increased sales of PCS antennas
and VSAT products.
Operating income in 1995 declined $7 million from 1994. The decline
was primarily due to lower revenues, as well as new product development
costs associated with newly acquired VSAT and cellular product businesses,
and the favorable insurance settlement received in 1994.
ENTERTAINMENT
The Entertainment segment consists of the corporation's 80.67%
ownership interest in Ascent (see Note 5 to the financial statements).
Ascent, through OCC and Ascent Network Services, Inc. (ANS), provides
video distribution and on-demand video entertainment services to the
lodging industry and video distribution services for the National
Broadcasting Company (NBC). This segment also includes the Denver Nuggets
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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.
In October 1996, Ascent through its newly formed subsidiary, OCC,
acquired the assets and assumed certain liabilities of SpectraVision. Prior
to the acquisition, OCV was merged into a subsidiary of OCC and became a
wholly-owned subsidiary of OCC. Ascent now owns 57.2% of the outstanding
common stock of OCC (see Note 5 to the financial statements).
The Entertainment segment's 1996 revenues were $258 million, an
increase of 28% over 1995. The improvement for 1996 includes $21 million of
revenue from the fourth quarter acquisition of SpectraVision by OCC; growth
associated with the continued installation of new on- demand video systems
at OCC and a full year of revenues for the Colorado Avalanche, which was
acquired in July 1995. Partially offsetting these increases were lower
revenues from the Denver Nuggets and from Beacon, which had no new film
releases in 1996. In addition, revenues in 1996 were lower compared to 1995
due to the discontinuance of the Satellite Cinema business at year-end 1995
and the absence of any expansion fees from the NBA which were received in
1995.
In 1995, the Entertainment segment's revenues were $202 million, which
was 22% higher than 1994. This increase in revenues was the result of
growth in the OCV installed room base, the inclusion of the Colorado
Avalanche for the last half of 1995, revenues from a newly released Beacon
film and NBA expansion revenues. Offsetting these increases were lower
revenues from the NBC contract.
In 1996, the Entertainment segment's operating loss was $46 million as
compared to an operating loss of $15 million in the prior year. The
increase in the operating loss is primarily attributable to increased
losses at the sports franchises and at OCC. OCC recognized costs of $9
million relating primarily to asset write-downs, reserves and expense
accruals associated with the integration of SpectraVision in the fourth
quarter. The 1995 results included $9 million of operating income related
to the NBA expansion that did not reoccur in 1996. The sport franchise
results reflect the full-year losses of the Colorado Avalanche, which was
not included in this segment's results until July 1995.
In February 1997, Ascent restated its financial statements for the
year ended December 31, 1995 to reduce film inventory through a charge to
earnings and to change the Beacon purchase price allocation between two
intangible assets with different useful lives. COMSAT's operating loss for
the fourth quarter included a negative $2.0 million adjustment to account
for the restatement by Ascent. COMSAT's 1995 financial statements were
unaffected by the Ascent restatement.
The Entertainment segment in 1995 reported an operating loss of $15
million compared to operating income of $14 million in 1994. The decline in
1995 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.
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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.
In March 1997, COMSAT's Board of Directors approved a comprehensive
strategic plan to refocus the corporation on international satellite
services and digital networking services and technology. The satellite
services businesses, which include CWS, CMC and COMSAT Personal
Communications, are well positioned in the international market with a
significant ownership interest in the largest fleet of satellites, which
covers most of the world's land mass and oceans. The digital networking
services and technology businesses, which include CI and COMSAT
Laboratories, develop and operate digital networks in emerging markets and
provide advanced technology services. By focusing on those businesses, and
shedding non-core operations, the corporation plans to improve shareholder
value by strengthening its balance sheet, improving earnings and
positioning itself to participate in the growth opportunities that exist in
the international satellite and digital networking markets.
As part of the strategic plan, the corporation reaffirmed its
commitment to divest its 80.67% interest in Ascent. In January 1997, the
corporation filed a ruling request with the Internal Revenue Service as a
predicate to a tax-free spin-off. Pending the ruling, COMSAT will continue
efforts to identify a purchaser for its interest in Ascent. Although the
timing may vary depending on which course is taken and factors not within
the corporation's control (e.g., the timing of receipt of a ruling), the
corporation anticipates that Ascent will be deconsolidated for financial
reporting purposes by the end of the first half of 1997.
The corporation also announced that it intends to sell substantially
all of the assets and operations of CRSI as well as non-core assets.
Consistent with that strategy, in late 1996 and early 1997, the corporation
divested its minority ownership interest in Philippine Global
Communications, Inc. (Philcom) and reduced its ownership interest in ICO
(see Note 7 to the financial statements).
The company intends to increase its financial flexibility be
refinancing a portion of its long-term debt with the proceeds of short-term
debt. Additionally, the Board of Directors is reviewing whether COMSAT
should maintain its dividend at the currend level.
The corporation also announced, in connection with the strategic plan,
that it will formally petition the FCC in 1997 to re-classify it as a
non-dominant carrier and for relief from rate-based, rate-of-return
regulation. There can be no assurance that the FCC will act favorably upon
the petition.
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INTERNATIONAL COMMUNICATIONS
The corporation continues to promote efforts to restructure the
INTELSAT and Inmarsat satellite systems to ensure that they will remain
competitive in the future and to enhance the value of the corporation's
investment in those systems. The corporation believes that considerable
progress has been made on the restructuring of INTELSAT. In 1996, the
corporation worked closely with the United States Government to gain
support for the creation of a separate, independent company - carved out of
INTELSAT - to pursue video distribution and other new services. The
existing intergovernmental organization would continue to provide basic
public network and other core services. The corporation believes that there
is widespread agreement throughout INTELSAT for this basic restructuring
concept, which was not evident a year ago. There are a number of important
issues that must be resolved, however, before a restructuring of INTELSAT
may be implemented, including the number of satellites to be transferred to
the new company, the capital structure of INTELSAT after restructuring, and
the level of ownership in the new company by INTELSAT and its signatories
(e.g., COMSAT) after a planned initial public offering in 1999 of the
affiliate's stock.
The INTELSAT Assembly of Parties is scheduled to meet in April 1997.
It will review a report of the Working Party on restructuring during the
meeting. The Assembly is not expected to make a final determination about
restructuring but is expected to endorse the overall concept and direction.
Additional progress needs to be made on several important issues before a
final consensus proposal can emerge for subsequent review and adoption by
the Assembly.
A consensus agreement of the Assembly or a vote of two-thirds of the
140 governments that are members of the INTELSAT consortium is necessary
for approval. The United States Government, not the corporation,
participates in the Assembly and casts a single vote. The success of the
corporation's restructuring efforts will depend on the ability to achieve a
consensus among other signatories and participating member governments.
In January 1997, the FCC staff advised COMSAT that it will need to
make application to the FCC to participate in INTELSAT actions to create an
affiliate, including the transfer of satellite assets. At issue will be the
terms and conditions under which those assets may be removed from the
corporation's regulatory rate base. The FCC staff has expressed the view
that, since COMSAT's ownership share of INTELSAT is reflected in its
regulatory rate base, any gain generated as a result of restructuring
should be applied against the rate base and inure to the benefit of
ratepayers, unless COMSAT demonstrates sound public policy reasons why a
different standard should apply. COMSAT believes that any transfer of
satellite assets should be effected at book value with any resulting gain
derived from the restructuring of INTELSAT inuring to the benefit of the
corporation's shareholders.
COMSAT WORLD SYSTEMS continues to be well-positioned with major
international carriers through long-term agreements to provide
cost-competitive services for bulk usage beyond the year 2000. In addition,
CWS expects growth in several emerging markets, including international
VSAT service and Asynchronous Transfer Mode (ATM) services.
In addition to eight 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 the 1997 - 1998 time-frame.
INTELSAT launched two satellites successfully in 1996 and plans for three
or four launches in 1997, depending on satellite delivery and launch
availability. The new INTELSAT VIII series satellites will offer
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higher-power C-band capabilities to address various markets. INTELSAT is
nearing the end of an investment cycle in which it has invested heavily in
new satellites. As those satellites are placed in service and begin to
generate revenues, the corporation anticipates that CWS's free cash flow
(operating cash flow less capital investment) will grow significantly.
CWS is expected to face increasing competition over the longer term.
Several recently announced or completed acquisitions are expected to
significantly increase the competition for international satellite
telecommunications services, including the planned acquisition of PanAmSat
by Hughes Electronics Corporation and British Telecommunications PLC's
planned acquisition of MCI Communication Corp.
In late 1993, the FCC substantially eliminated prior restrictions on
access of separate system satellite operators to the public switched
telephone network. The remaining restrictions expired as of December 31,
1996. Accordingly, separate system satellite operators are no longer
subject to any U.S. policy limitations with respect to the number of
satellite circuits that they may interconnect with the public switched
telephone network. This will increase competition in the provision of
switched services.
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. In October 1996, CMC reduced its service charges in response to
competitive pressures and has solved quality issues in its new digital
services.
The lower service prices and a greater prevalence of lower-priced
digital versus analog telephone service charges are expected to more than
offset potential increases in revenues due to traffic growth. As a result
of those factors and the increased depreciation associated with the
Inmarsat-3 satellites, CMC's operating income is expected to be lower in
1997 than in 1996.
In late 1996, the Federal Aviation Administration (FAA) selected CMC
to provide satellite and uplink services for the Wide Area Augmentation
System (WAAS). The initial contract is expected to generate revenues of $34
million and could generate revenues of up to $100 million if all options
are exercised over the next five years.
CMC plans to build on its established position in mobile satellite
communications as it evolves toward handheld satellite service. Planet 1SM,
the first generation of personal satellite communications, commenced
commercial service in January 1997. The Planet 1TM terminal is a six-
pound, laptop computer-sized satellite terminal which utilizes the
Inmarsat-3 satellites. This product is expected to address the demand for
global personal communications ahead of the availability of handheld
satellite services. During 1996, the first three of four operational
Inmarsat-3 satellites were successfully launched and are now in service.
The Planet 1SM service is expected to be available globally by the second
half of 1997, with the launch of the fourth satellite.
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In December 1996, the corporation reduced its direct investment in ICO
from eight percent to three percent (see Note 7 to the financial
statements). The reduction in ICO ownership aligns the corporation's
financial interest with its plans to concentrate on developing a national
service wholesaler role in the U.S. The corporation also continues to hold
an indirect share of ICO through its 23% ownership in Inmarsat, which is
also an ICO shareholder.
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 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 INTERNATIONAL will continue to operate an integrated group of
telecommunications companies that are engaged principally in providing
individualized digital network solutions to business clients and carriers
in selected markets. CI also plans to develop prospective international
telecommunications opportunities that are consistent with its digital
networking strategy. In this regard, CI will continue to target those
rapidly growing markets where a significant number of CI's existing or
targeted clients are located (or in which they intend to locate).
CI's general financial performance benchmark is for individual
companies to be operationally cash-flow positive within three years and
profitable after five years of operation absent unforeseen circumstances or
problems. As part of its integrated approach to management of those
companies, CI evaluates operating performance, strategic fit and overall
effectiveness of managerial control to determine whether to continue to
increase or reduce its investment in individual companies. CI is currently
reviewing its investment in BelCom. In January 1997, CI sold its 20% share
in Philcom (see Note 7 to the financial statements).
CI's more mature companies located in Argentina, Bolivia, Brazil and
Guatemala are expected to be profitable in the aggregate in 1997. Profits
generated from those operations are expected to be offset by losses in CI's
newer companies operating in China, Colombia, India and Venezuela losses at
BelCom and by management costs in the U.S.
In early 1997, the Communications Secretariat of Argentina issued
resolutions which reserve for Nahuelsat, the domestic Argentine satellite
operator, certain exclusive rights for the sale of domestic Ku-band
satellite services in Argentina. CI expects that the resolution will be
challenged by satellite service providers and users. COMSAT Argentina has
reserved sufficient Ku-band capacity to address its current and future
business requirements through 1998. Following 1998, however, COMSAT
Argentina will be required to secure additional capacity for new business
from Nahuelsat.
TECHNOLOGY SERVICES
COMSAT RSI should continue to experience revenue growth in each of its
three core groups as a result of strong worldwide demand for wireless and
satellite communications infrastructure and increased U.S. Government
spending on advanced communications products and services. CRSI's backlog
rose to $226 million at the end of 1996 as compared to $212 million at the
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end of 1995. Of the December 31, 1996 backlog, approximately $160 million
is expected to be recognized as sales in 1997 and approximately $36 million
is unfunded. Included in this order backlog is approximately $128 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 likely
assert a claim for reimbursement of costs incurred and a reasonable
allowance for profit thereon.
CRSI's operating income in 1997 is expected to improve over 1996
operating income, exclusive of the reserves taken in 1996 on certain
long-term, fixed-price contracts. Although the increase in operating income
may not be at the same pace as the increase in revenues due to costs
related to the introduction of new services and products, as well as
increasing investment in product development. Additionally, earnings growth
at CRSI will continue to depend upon CRSI's ability to contain costs and
complete projects with favorable margins.
ENTERTAINMENT
ASCENT is expected to continue to derive a majority of its revenues
from the lodging industry video distribution business. Revenue growth is
expected from the continued installation of OCC systems for new customers
and in SpectraVision hotels, and the full year impact of the acquisition of
SpectraVision.
Contracted revenues for video distribution services provided to NBC
entered an option phase in 1995, which resulted in lower revenues and
operating income. In 1996, ANS procured and installed digital equipment to
provide MSNBC, LLC, a joint venture between Microsoft Corporation and NBC
("MSNBC") with network services, maintenance and support. ANS anticipates
that it will assist NBC in completing the upgrade of the NBC network to
digital technology.
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 expected to
result in improved operating results for both teams. It is estimated that
the arena will cost approximately $160 million.
Beacon is expected to release three feature films during 1997 and
begin production on up to three additional films in 1997, which may be
released in 1998. There is a significant degree of unpredictability and
risk associated with theatrical films.
In October 1996, Ascent through its newly formed subsidiary, OCC,
acquired the assets and assumed certain liabilities of SpectraVision. In
addition, Ascent's ownership of OCC declined at that time to less than 80%.
As a result, OCC is no longer a part of the COMSAT consolidated tax group,
and COMSAT is no longer able to recognize tax benefits from OCC losses.
As a result of anticipated continued losses at Ascent, primarily as a
result of the increased losses associated with the acquisition of
SpectraVision and the impact of the deconsolidation for tax purposes of
OCC, COMSAT expects to report net losses in 1997 until Ascent is no longer
a part of COMSAT's consolidated results.
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ANALYSIS OF BALANCE SHEETS
CONSOLIDATED BALANCE SHEETS
ASSETS. The corporation ended 1996 with $2.7 billion of assets, a $352
million increase over 1995.
Current assets decreased during 1996 by $16 million primarily due to a
decline in cash and cash equivalents of $111 million, which was partially
offset by increases in receivables and inventories of $80 million and $13
million, respectively. The decrease in cash and cash equivalents was
primarily related to the repayment of loans on corporate-owned life
insurance policies and additional investment in ICO. The increase in
accounts receivable was principally the result of growth in revenues at
CRSI, higher unbilled CRSI receivables and the acquisition by OCC of
SpectraVision. All of CRSI's unbilled receivables, except for $11 million,
are expected to be collected within one year. The increase in inventory was
due to growth at CRSI related to PCS and other products.
Non-current assets increased in 1996 by $368 million to end the year
at $2.3 billion. Of the total increase, $129 million was related to
property and equipment. Property and equipment, before accumulated
depreciation, increased during the year by $239 million. The increase in
property and equipment was primarily related to the installation of video
systems and the acquisition of SpectraVision at OCC, additions related to
CWS's and CMC's share of INTELSAT and Inmarsat satellite programs and
investment in new communication property and equipment at COMSAT
International. Partially offsetting these increases was the receipt in 1996
of insurance proceeds related to the launch failure of the INTELSAT 708
satellite and retirement of fully-depreciated satellite assets.
Investments increased $45 million during 1996 of which $36 million was
related to the corporation's direct and indirect investments in ICO.
Goodwill increased in 1996 by $88 million and was principally related to
the acquisition of SpectraVision by OCC. Other assets increased by $112
million in 1996 as the corporation repaid loans related to corporate owned
life insurance policies and Beacon made further investments in film
inventories.
LIABILITIES. The corporation's total liabilities increased during 1996
by $272 million. This was primarily the result of increased borrowings of
$123 million at Ascent, increases in liabilities for the production of
films at Beacon of $44 million and liabilities of $19 million related to
the acquisition of SpectraVision by OCC. COMSAT's short-term borrowings
increased during 1996 by $18 million.
ANALYSIS OF CASH FLOWS, LIQUIDITY AND CAPITAL RESOURCES
CASH FLOWS
Cash from operating activities for 1996 was $231 million, which was
12% below 1995. The International Communications and Entertainment segments
generated the majority of the corporation's cash from operations. The
corporation made interest payments, net of amounts capitalized, of $41
million and tax payments of $1 million.
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During 1996, the corporation used $357 million in investing
activities, a 16% decrease over 1995. The 1996 purchases of property and
equipment came primarily from the International Communications businesses,
as CWS and CMC continued to make capital investments equal to their related
shares of INTELSAT's and Inmarsat's satellite programs. CI purchased
communications plant and equipment, predominantly related to contracts in
Latin America. OCC also purchased video-on-demand equipment. Increases in
investments in unconsolidated businesses are primarily related to the
corporation's investment in ICO.
The corporation expects to make additional investments in property and
equipment in 1997, but at a level below the amount expended in 1996. A
decrease in spending is expected in CWS as a large portion of existing
satellite program costs at INTELSAT were expended in prior years.
Investments in unconsolidated businesses are expected to be lower in 1997,
as a result of a decrease in the corporation's obligation related to ICO
and the sale in January 1997 of Philcom.
Cash proceeds from financing activities in 1996 were a net $14
million, a $252 million decrease from the previous year. During 1996, the
corporation had a net repayment of long-term debt of $70 million, repaid
loans on company owned life insurance policies of $51 million and paid
dividends of $38 million. Cash from short-term borrowings of $158 million
came principally from an increase in short-term debt at Ascent of $143
million. The quarterly dividend has remained at $0.195 per share throughout
1995 and 1996.
LIQUIDITY AND CAPITAL RESOURCES
The corporation's working capital at year-end 1996 was a deficit of
$75 million, a decrease of $296 million from a positive $221 million at
year-end 1995. The $16 million decline in current assets was more than
offset by the $280 million increase in current liabilities. The increase in
current liabilities, as compared to the prior year, was primarily due to
the short-term borrowings of $143 million under the Ascent and OCC credit
facilities, $18 million in borrowings under the corporation's commercial
paper program, a $44 million increase in deferred income from Beacon's film
production activities and increases in accounts payable and other
liabilities from an increased level of operations. Cash from operating
activities and short-term borrowings will be used for the near term to fund
growth and to finance working capital needs.
The corporation has access to short-term 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 $18
million in borrowings outstanding as of December 31, 1996. Ascent had $143
million in short term debt outstanding at year-end 1996. A $200 million
credit agreement, expiring in 1999, backs up the commercial paper program.
The corporation's current commercial paper ratings also were 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 1996 under a
$100 million medium-term note program, which is unchanged from year-end
1995. The medium-term note program is part of a $200 million debt
securities shelf registration program initiated in 1994.
As part of its strategic plan (see "Management's Discussion and
Analysis -- Outlook", the corporation intends to tender for a portion of
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its long-term debt using the proceeds from short-term debt. The corporation
plans to reduce its short-term debt. The corporation plans to reduce
short-term debt with proceeds from the sale of assets of CRSI and non-core
assets.
In March 1997, OCC amended its credit facility to increase the amount
that OCC may borrow to $150 million from $125 million. Concurrently, Ascent
amended its credit facility to reduce the amount which ascent can borrow to
$140 million from $200 million and committed to raise not less than $50
million in subordinated debt before October 1997 as a condition to further
renewal of its credit facility (see Note 8 to the financial statements).
Ascent's management believes that Ascent will be able to satisfy the
commitment to raise $50 million within that time frame. There can be no
assurance, however, that other contingencies will not arise which could
impact Ascent's ability to obtain the additional subordinated financing or
that such financing will be abailable on terms acceptable to Ascent. If
Ascent wer not able to obtain the additional subordinated financing, Ascent
could be required to refinance the credit facility, which could require
Ascent to reduce or reschedule planned capital investments, reduce capital
outlays or sell assets.
The corporation's capital structure and debt-financing activities are
regulated by the FCC. The corporation is required to submit its financial
plans to the FCC for review annually. Under existing FCC guidelines, the
corporation is subject to a limit of $200 million in short-term debt, a
maximum long-term debt to total capital ratio of 45% and an interest
coverage ratio of 2.3 to 1. The latter two guidelines are measured at
year-end. In October 1996, the FCC approved a temporary decrease in the
interest coverage ratio to a minimum of 1.9 to 1, and an increase in the
short-term debt limit to $325 million for the 1996 plan year and until the
FCC acts on the corporation's 1997 capital plan, which is scheduled to be
filed by the end of April 1997. The corporation was in compliance with the
guidelines, as modified, with a long-term debt to total capital ratio of
43%, $178 million in short-term debt outstanding and an interest coverage
ratio of 1.97 to 1 at December 31, 1996.
If the corporation were to fail to satisfy one or more of the FCC
guidelines as of an applicable measurement date, the corporation would be
required to seek advance FCC approval of future financing activities on a
case by case basis. If such approval were not granted, the corporation
could be required to reduce or reschedule planned capital investments,
reduce cash outlays, reduce debt or sell assets.
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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, 1996 and 1995, and the
related consolidated statements of income, stockholders' equity and cash
flow for each of the three years in the period ended December 31, 1996. 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, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1996, 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.
Deloitte & Touche LLP
Washington, D.C.
February 14, 1997
(March 23, 1997 as to the eighth paragraph of Note 8)
43
<PAGE>
COMSAT CORPORATION AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
For the Years Ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
<S> <C> <C> <C>
In thousands, except per share amounts 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------
REVENUES $ 1,015,261 $ 862,912 $ 835,665
------------- ------------- ------------
OPERATING EXPENSES:
Cost of services 666,345 506,660 471,043
Depreciation and amortization 236,276 202,024 167,784
Research and development 24,618 18,693 16,369
General and administrative 23,941 19,856 22,851
Merger and integration costs - - 7,367
Provision for restructuring - 20,044 -
------------- ------------- ------------
Total operating expenses 951,180 767,277 685,414
------------- ------------- ------------
OPERATING INCOME 64,081 95,635 150,251
Gain on sale of minority interest - 19,286 -
Other income (expense), net (11,139) (7,557) 2,689
Interest cost (61,559) (59,487) (48,940)
Interest capitalized 15,760 20,355 23,662
------------- ------------- ------------
Income before taxes and minority interest 7,143 68,232 127,662
Income tax expense (16,144) (34,911) (49,939)
Minority interest in net losses (income)
of consolidated subsidiaries 17,623 4,496 (81)
------------- ------------- ------------
NET INCOME $ 8,622 $ 37,817 $ 77,642
============= ============= ============
EARNINGS PER SHARE $ 0.18 $ 0.79 $ 1.64
============= ============= ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
44
<PAGE>
COMSAT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1996 and 1995
<TABLE>
<CAPTION>
<S> <C> <C>
In thousands 1996 1995
- --------------------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 12,721 $ 124,156
Receivables 314,766 234,465
Inventories 39,635 26,851
Deferred income taxes 12,756 12,445
Other 29,961 27,908
------------- -------------
Total current assets 409,839 425,825
------------- -------------
Property and equipment 1,656,763 1,528,053
Investments 133,592 88,378
Goodwill 155,250 67,569
Franchise rights 102,189 107,962
Other assets 208,170 96,479
------------- -------------
TOTAL ASSETS $ 2,665,803 $ 2,314,266
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings and current maturities of long-term debt $ 159,719 $ 11,688
Commercial paper 17,993 -
Accounts payable and accrued liabilities 168,039 126,980
Deferred income 81,942 38,060
Due to related parties 34,602 22,825
Accrued income taxes 17,411 -
Accrued interest 5,377 5,155
------------- -------------
Total current liabilities 485,083 204,708
------------- -------------
Long-term debt 635,474 664,601
Deferred income taxes 123,972 119,018
Deferred investment tax credits 12,350 15,190
Accrued postretirement benefit costs 50,423 49,497
Other long-term liabilities 147,818 129,911
Commitments and contingencies (notes 10, 11 & 17) - -
Minority interest 167,472 91,908
Preferred securities issued by subsidiary 200,000 200,000
STOCKHOLDERS' EQUITY:
Common stock, without par value, 100,000 shares authorized,
49,090 shares issued in 1996 and 48,612 in 1995 340,691 324,074
Preferred stock, 5,000 shares authorized, no shares issued or
outstanding - -
Retained earnings 502,839 533,238
Treasury stock, at cost, 269 shares in 1996 and 857 in 1995 (3,006) (9,020)
Unearned compensation (3,869) (5,484)
Other 6,556 (3,375)
------------- -------------
Total stockholders' equity 843,211 839,433
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $2,665,803 $2,314,266
============= =============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
45
<PAGE>
COMSAT CORPORATION AND SUBSIDIARIES
CONSOLIDATED CASH FLOW STATEMENTS
For the Years Ended December 31, 1996, 1995
and 1994
<TABLE>
<CAPTION>
<S> <C> <C> <C>
In thousands 1996 1995 1994
- ----------------------------------------------------------------- --------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 8,622 $ 37,817 $ 77,642
Adjustments for noncash expenses:
Depreciation and amortization 236,276 202,024 167,784
Provision for restructuring - 20,044 -
Gain on sale of minority interest - (19,286) -
Changes in operating assets and liabilities:
Receivables and other current assets (63,155) (11,959) (17,169)
Current liabilities 30,557 (12,431) (14,847)
Noncurrent liabilities 15,498 24,748 25,808
Other 3,482 22,161 3,690
------------ ------------- -------------
Net cash provided by operating activities 231,280 263,118 242,908
------------ ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (364,427) (308,161) (274,562)
Expenditures for film production costs (21,050) (12,549) (181)
Investments in unconsolidated businesses (64,707) (32,810) (53,397)
Purchase of subsidiaries (9,264) (78,240) (35,676)
Purchase of minority shares of subsidiaries (1,461) (92) (4,016)
Proceeds from sale of investments 29,684 - -
Insurance proceeds from satellite launch failure 54,443 - -
Decrease (increase) in INTELSAT ownership (1,238) 17,919 13,520
Decrease (increase) in Inmarsat ownership 5,746 (6,978) 3,573
Other 15,579 (2,930) (3,471)
------------ ------------- -------------
Net cash used in investing activities (356,695) (423,841) (354,210)
------------ ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt 126,645 154,119 112,296
Net short-term borrowings (repayments) 158,323 (121,356) 74,123
Borrowings (repayments) against company-owned
life insurance policies (51,443) 2,542 32,437
Common stock issued 16,445 10,834 5,291
Proceeds from issuance of preferred securities of subsidiary - 200,000 -
Proceeds from issuance of subsidiary's common stock - 78,985 1,486
Repayment of long-term debt (196,543) (9,970) (77,023)
Cash dividends paid (37,698) (36,874) (33,547)
Other (1,749) (12,059) (1,333)
------------ ------------- -------------
Net cash provided by financing activities 13,980 266,221 113,730
------------ ------------- -------------
Net increase (decrease) in cash and cash equivalents (111,435) 105,498 2,428
Cash and cash equivalents, beginning of year 124,156 18,658 16,230
------------ ------------- -------------
Cash and cash equivalents, end of year $ 12,721 $ 124,156 $ 18,658
============ ============= =============
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid, net of amount capitalized $ 40,623 $ 36,710 $ 24,880
Income taxes paid $ 1,255 $ 20,607 $ 30,639
Noncash financing of Inmarsat satellites $ 5,602 $ 7,551 $ 7,197
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
46
<PAGE>
COMSAT CORPORATION AND SUBSIDIARIES
STATEMENTS OF CHANGES IN CONSOLIDATED STOCKHOLDERS' EQUITY
For the Years Ended December 31, 1996, 1995 and 1994
<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, 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, 401(k)
and Investors' Plus 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, 401(k)
and Investors' Plus plans 558 558 10,276
Restricted stock awarded 91 871 911 (1,782)
Amortization of unearned compensation
and incentive plan expense
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)
Net income 8,622
Cash dividends (37,698)
Common stock issued:
Stock options and restricted stock
units, including tax benefits 4 484 4,768 5,149
Employee stock purchase, 401(k)
and Investors' Plus plans 474 474 8,888
Restricted stock awarded 183 597 1,980 (2,577)
Amortization of unearned compensation
and incentive plan expense 437 2,685
Forfeiture and cancellation of
restricted stock awards (75) (51) (1,115) 360
Minimum pension liability adjustment 383
Translation adjustment 924
Unrealized gain on available for sale
securities, net of taxes 8,624
Other 1,978 (1,323) 1,147
-----------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1996 49,090 48,821 $340,691 $502,839 $(3,006) $(3,869) $6,556
===================================================================================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
47
<PAGE>
COMSAT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS For the Years Ended December 31,
1996, 1995 and 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 is primarily comprised of the interest
of other shareholders in Ascent Entertainment Group, Inc. (Ascent) and
On Command Corporation (OCC) (see Note 5). As of December 31, 1996,
the corporation owned 80.67% of Ascent and Ascent owned 57.2% of OCC.
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, 1996, the corporation owned 19.1% of INTELSAT and 23.0% of
Inmarsat.
USE OF ESTIMATES. The preparation of financial statements in
conformity with generally accepted accounting principles requires
estimates and assumptions that directly affect the amounts of assets
and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results may
differ from those estimates. Estimates are used in accounting for
long-term contracts, allowance for doubtful accounts, inventory
obsolescence, depreciation and amortization, employee benefit plans,
taxes and contingencies.
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 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 49,090,000 for
1996, 47,998,000 for 1995 and 47,356,000 for 1994.
48
<PAGE>
EVALUATION OF LONG-LIVED ASSETS. The corporation evaluates the
potential impairment of long-lived assets, including goodwill, based
upon projections of undiscounted cash flows whenever events or changes
in circumstances indicate that the carrying amount of an asset may not
be fully recoverable. Management believes no material impairment of
these assets exists at December 31, 1996.
GOODWILL. The balance sheet includes goodwill related to the
acquisitions of SpectraVision, Inc., On Command Video Corporation, the
Denver Nuggets Limited Partnership (the Nuggets), Beacon (see Note 5)
and other businesses. Goodwill is amortized over 10 to 25 years.
Accumulated goodwill amortization was $20,476,000 and $12,671,000 at
December 31, 1996 and 1995, respectively.
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 5). These rights are being amortized
over 25 years. The amounts shown on the balance sheets are net of
accumulated amortization of $13,091,000 and $8,317,000 at December 31,
1996 and 1995, respectively.
The cash surrender values of life insurance policies (net of loans)
totaling $71,724,000 and $12,879,000 at December 31, 1996 and 1995,
respectively, are included in "Other assets." In January 1996, the
corporation repaid loans totaling $51,175,000. Other income (expense),
net on the income statement includes the increases in the cash
surrender values of these policies.
Film costs totaling $76,234,000 and $11,470,000 at December 31, 1996
and 1995, respectively, are included in "Other assets." Film costs,
net of amortization, are stated at the lower of cost or net realizable
value.
STOCK-BASED COMPENSATION. Statement of Financial Accounting Standards
(SFAS) No. 123, "Accounting for Stock-Based Compensation," requires
expanded disclosures of stock- based compensation arrangements with
employees and encourages (but does not require) compensation cost to
be measured based on fair value of the equity instrument awarded (see
Note 13). The corporation has chosen to continue to account for
employee stock-based compensation using the intrinsic value method
prescribed in Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees," and related Interpretations.
Accordingly, compensation costs for stock options is measured as the
excess , if any, of the quoted market price of the corporation's stock
at the date of the grant over the amount an employee must pay to
acquire the stock.
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.
STATEMENT PRESENTATION. Certain prior period amounts have been
reclassified to conform with the current year's presentation. Most
notably, minority interest in net losses (income) of consolidated
subsidiaries is presented separately on the income statement. In
addition, Ascent has historically reflected certain costs as a
reduction of revenues and will now classify such costs as costs of
services.
49
<PAGE>
2. RECEIVABLES
Receivables at each year end are composed of:
<TABLE>
<CAPTION>
<S> <C> <C>
In thousands 1996 1995
-----------------------------------------------------------------------------------------------------------
Commercial receivables $ 211,561 $ 160,990
Receivables under long-term contracts:
U.S. Government:
Amounts billed 9,889 6,188
Unbilled costs and accrued profits 35,607 28,937
Commercial customers:
Amounts billed 14,153 9,891
Unbilled costs and accrued profits 34,525 31,617
Related party receivables 8,305 5,726
Other 15,418 4,194
------------- -------------
Total 329,458 247,543
Less allowance for doubtful accounts (14,692) (13,078)
------------- -------------
Net $ 314,766 $ 234,465
============= =============
</TABLE>
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 $10,535,000 of the 1996
amounts are expected to be collected within one year. Unbilled amounts
are net of progress payments of $69,801,000 in 1996 and $74,677,000 in
1995.
In the fourth quarter, the corporation recorded additional costs
totaling $9,000,000 for estimated losses on certain long-term,
fixed-price contracts. Revenues related to claims for constructive
change orders on long-term contracts are recorded at the estimated
amount of recoverable costs incurred. The corporation has filed claims
for recovery on long-term, fixed-price contracts totaling $34,223,000.
At December 31, 1996, U.S. Government unbilled receivables includes
$9,918,000 from such claims. These estimates could change in the near
term as additional costs are incurred to complete the contracts and as
the claims are settled with the U. S. Government and other customers.
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 1996 1995
----------------------------------------------------------------------------------------------------------
Finished goods $ 18,015 $ 8,137
Work in progress 11,811 10,260
Raw materials 9,809 8,454
------------ ------------
Total $ 39,635 $ 26,851
============ ============
</TABLE>
50
<PAGE>
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 1996 1995
---------------------------------------------------------------------------------------------------
Property and equipment at cost:
Satellites $1,546,891 $1,396,311
Furniture, fixtures and equipment 974,466 794,393
Buildings and improvements 122,083 122,986
Land 10,043 8,567
----------- -----------
Total 2,653,483 2,322,257
Less accumulated depreciation (1,266,560) (1,156,518)
----------- -----------
Net property and equipment in service 1,386,923 1,165,739
Property and equipment under construction:
INTELSAT satellites 111,222 172,043
Immarsat third-generation satellites 53,323 126,056
Other 105,295 64,215
----------- ----------
Total $1,656,763 $1,528,053
=========== ==========
</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 $54,443,000 were
received in the second quarter of 1996.
5. ASCENT ENTERTAINMENT GROUP, INC.
INITIAL PUBLIC OFFERING. In December 1995, Ascent Entertainment Group,
Inc. (Ascent) completed a public offering of 5,750,000 shares of its
common stock at an offering price of $15.00 per share. At that time,
Ascent consisted 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. COMSAT
retained 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.
SPECTRAVISION, INC. In October 1996, Ascent through its newly formed
subsidiary, On Command Corporation (OCC), acquired the assets and
assumed certain liabilities of SpectraVision, Inc. (SpectraVision).
OCC acquired all of the outstanding capital stock of SpectraDyne, Inc.
(SpectraDyne), the primary operating subsidiary of SpectraVision,
together with certain other assets of SpectraVision and its
affiliates. OCV, an approximately 79% owned subsidiary of Ascent, was
merged into a subsidiary of OCC and became a wholly-owned subsidiary
51
<PAGE>
of OCC. In connection with the merger, Ascent received 17,149,766
shares of OCC common stock (57.2% of the initial 30,000,000 shares of
outstanding OCC common stock). OCV minority shareholders received
4,600,234 shares of the OCC stock in the merger. In consideration of
the acquisition of the assets and properties of SpectraVision by OCC,
8,041,618 shares of OCC common stock were issued to the SpectraVision
bankruptcy estate for distribution to SpectraVision's creditors.
Additionally, 208,382 shares of OCC common stock were held in reserve
pending finalization of the closing balance sheet pursuant to the
acquisition agreement. Of these, 12,000 shares of reserved stock will
be distributed to Ascent and the former OCV minority stockholders and
the remainder will be distributed to the SpectraVision bankruptcy
estate.
In connection with the SpectraVision acquisition and the merger, OCC
also issued seven year warrants representing the right to purchase a
total of up to 7,500,000 shares of OCC common stock (20% of the
outstanding common stock of OCC, after exercise of the warrants) at
$15.27 per share. Warrants to purchase on a cashless basis a total of
up to 1,425,000 shares were issued to former OCV shareholders, of
which Ascent received warrants to purchase 1,124,325 shares. In
addition, warrants to purchase for cash 3,450,000 shares of OCC common
stock were issued to OCC's investment advisors in connection with the
transactions and the remainder was issued to the SpectraVision estate.
The fair value of the acquisition was determined as of April 19, 1996
based on an independent appraisal of the net assets acquired. The
aggregate purchase consideration, has been allocated to the acquired
assets and assumed liabilities of SpectraVision, based on their
respective fair market values. The financial statements reflect the
preliminary allocation of the purchase price as the purchase price
allocation has not been finalized.
The assets acquired and liabilities assumed are as follows:
<TABLE>
<CAPTION>
<S> <C>
In thousands
----------------------------------------------------------------------------------------------------------
Estimated fair value of assets acquired $ 158,916
Liabilities assumed (67,282)
-----------
Net assets acquired at estimated fair value 91,634
Acquisition costs paid (net of cash received of $257) (9,572)
-----------
Common stock and warrants issued $ 82,062
===========
</TABLE>
The following unaudited pro forma consolidated results of operations
for the years ended December 31, 1996 and 1995 are presented as if the
SpectraVision acquisition had been made at the beginning of each
period presented. The unaudited pro forma information is not
necessarily indicative of either the results of operations that would
have occurred had the purchase been made during the periods presented
or the future results of the combined operations.
<TABLE>
<CAPTION>
<S> <C> <C>
In thousands, except per share 1996 1995
----------------------------------------------------------------------------------------------------------
Revenues $ 1,100,561 $986,898
Net income 3,017 25,234
Earnings per share 0.06 0.53
</TABLE>
52
<PAGE>
DENVER ARENA DEVELOPMENT COSTS. In March 1996, Ascent purchased the
interests of The Anschutz Corporation ("TAC") in the proposed arena
development project in Denver, which Ascent and TAC had been jointly
developing. In consideration for TAC's interest in the proposed arena,
Ascent paid TAC $6,600,000 in cash and agreed to pay TAC an additional
$5,000,000 and grant a paid-up suite license, both contingent upon the
construction and occupancy of the proposed arena. Costs of $11,540,000
and $2,445,000 representing the total expenditures on the proposed
arena at December 31, 1996 and 1995, respectively, have been recorded
in property.
Ascent is currently negotiating to acquire an option to purchase the
land for the arena site. Ascent is also negotiating with the City and
County of Denver regarding the construction of the proposed arena and
the release of the Nuggets and Avalanche from their existing leases at
the current arena.
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, Ascent 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. If Beacon had been
acquired as of January 1, 1994, the corporation's pro forma
consolidated revenues would have been $862,160,000 and the pro forma
consolidated net income would have been $61,969,000 for 1994
(unaudited).
6. MERGER WITH RADIATION SYSTEMS, INC.
On June 3, 1994, the corporation consummated its merger with Radiation
Systems, Inc. (RSi) by issuing 6,147,000 shares of its common stock
for RSi's common stock. The merger was accounted for as a pooling of
interests. 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. INVESTMENTS
ICO. In 1995 and 1996, the corporation made direct investments
totaling $11,350,000 and $46,663,000, respectively, in I-CO Global
Communications (Holdings) Limited (ICO). In December 1996, the
corporation reduced its direct investment in ICO by selling 777,701 of
its shares to other ICO shareholders for $29,941,000. The corporation
recognized a gain of $2,722,000 that is included in "Other income
(expense), net" on the income statement. At December 31, 1996 and
53
<PAGE>
1995, the corporation's direct investment in ICO amounted to
$30,794,000 and $11,350,000, respectively. The accompanying balance
sheet also includes the corporation's $30,713,000 and $14,226,000
share of Inmarsat's investment in ICO as of December 31, 1996 and
1995, respectively (see Note 10).
PHILCOM. 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 was recorded using the "equity method" of accounting
through the third quarter of 1996 and is included in "Other income
(expense), net" on the income statement. In the fourth quarter of
1996, the corporation sold a portion of its interest in PhilCom at
book value for $3,517,000 and in January 1997 sold its remaining
interest in PhilCom at book value in exchange for cash and a
collateralized note receivable totaling $34,292,000.
MARKETABLE SECURITIES. During 1996, certain of the corporation's
equity investments became marketable securities as defined in
Statement of Financial Accounting (SFAS) No. 115, "Accounting for
Certain Investments in Debt and Equity Securities." The securities are
classified as available for sale and are reported in investments on
the December 31, 1996 balance sheet at fair value of $24,860,000,
based on quoted market prices. At December 31, 1996, the unrealized
gain on such securities was $13,268,000 and is reported net of taxes
in stockholders' equity. During 1996, the corporation recognized a
pre-tax loss of $1,105,000 in "Other income (expense), net" on the
income statement for a decline in market value of a marketable
security that was deemed to be other than temporary.
ELITCH GARDENS. In March 1996, Ascent purchased TAC's limited
partnership interest in New Elitch Gardens, Ltd. (Elitch Gardens),
which owned an amusement park in Denver, Colorado for $4,125,000 (see
Note 5). This purchase increased Ascent's ownership interest in Elitch
Gardens from 13% to 26%. In September 1996, Ascent recorded a
$1,800,000 reserve on its limited partnership investment in Elitch
Gardens, based on the announced sale of the amusement park to Premier
Parks, Inc. Ascent's share of the proceeds from the sale, which closed
on October 30, 1996, is subject to certain future adjustments. In
December 1996, Ascent recorded an additional loss of $510,000 on its
investment due to its concerns over the liquidation of the
partnership. At December 31, 1996, Ascent's investment in Elitch
Gardens was $2,379,000. Ascent received a partnership distribution of
$1,900,000 in January 1997 with the balance expected in the first half
of 1997.
8. DEBT
The corporation's capital and debt-financing activities are regulated
by the Federal Communications Commission (FCC). The corporation is
required to submit a financial plan to the FCC for review annually.
Under existing FCC guidelines, the corporation is subject to a limit
of $200,000,000 in short-term borrowings, a maximum long-term debt to
total capital ratio of 45% and an interest coverage ratio, as defined,
of 2.3 to 1. In October 1996, the FCC approved a temporary decrease in
the interest coverage ratio to a minimum of 1.9 to 1, and an increase
in the short-term debt limit to $325,000,000 for the 1996 plan year
and until the FCC acts on the corporation's 1997 capital plan which is
54
<PAGE>
to be filed by the end of April 1997. At December 31, 1996, the
corporation was in compliance with those guidelines, as modified.
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 outstanding borrowings of $17,993,000,
with a weighted average interest rate of 7.25% at December 31, 1996.
No borrowings were outstanding at December 31, 1995. During 1996 and
1995, the weighted average commercial paper borrowing rates were 5.48%
and 5.96%, respectively.
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 credit agreement that provides for borrowings up to
$200,000,000 under a one-year secured revolving credit facility, which
is renewable for up to two additional one-year periods (subject to
certain conditions). Revolving loans extended under the Ascent
facility generally will bear interest at the London Interbank Offering
Rate (LIBOR) plus a spread that may range from 1.75% to 2.50%
depending on certain operating ratios of Ascent. The Ascent Credit
Facility provides that at no time will amounts outstanding under the
facility exceed: (a) $125,000,000 until Ascent shall have received
consent from the NBA and NHL to pledge Ascent's interests in the
Nuggets and Avalanche, respectively, and thereafter, (b) the sum of;
(i) up to $100,000,000 secured by first priority pledges of, and liens
on, the equity interests in all of Ascent's subsidiaries (excluding
OCC), plus (ii) 50% of the value of the OCC common stock owned by
Ascent, secured by a pledge of such stock. The Ascent facility
requires Ascent and OCC to maintain compliance with certain financial
covenants, limits Ascent's ability to incur other indebtedness and
precludes Ascent from paying cash dividends on its common stock. At
December 31, 1996, Ascent was in compliance with these covenants. The
corporation's share of Ascent's net assets as of December 31, 1996,
was approximately $217,474,000.
At December 31, 1996, $95,000,000 was outstanding under the Ascent
facility and was classified as short-term borrowings. At December 31,
1995, $70,000,000 was outstanding under a previous five-year facility
and was classified as long-term debt. The weighted average interest
rate on these borrowings was 8.05 % and 6.20% at December 31, 1996 and
1995, respectively.
OCC has a $125,000,000 bank credit facility consisting of a one year
revolving facility, which is renewable up to four additional one-year
periods subject to certain conditions, and a five-year revolving
facility. Revolving loans extended under the OCC facility generally
will bear interest at LIBOR plus a spread that may range from 0.50% to
0.75% depending on certain operating ratios of OCC. The OCC facility
requires OCC to comply with certain financial covenants, which, among
other matters, limit OCC's ability to incur indebtedness or pay
dividends (other than on its common stock). At December 31, 1996, OCC
was in compliance with these covenants.
55
<PAGE>
At December 31, 1996, $50,000,000 was outstanding under the OCC
facility as a long-term revolving loan and is repayable in 2001 while
$48,000,000 is considered a short-term borrowing. The weighted average
interest rate on these borrowings was 6.17%.
In March 1997, OCC amended its credit facility to increase the amount
that OCC may borrow to $150 from $125 million. Concurrently, Ascent
amended its credit facility to reduce the amount which Ascent can
borrow to $140 million from $200 million and committed to raise not
less than $50 million in subordinated debt before October 1997 as a
condition to further renewal of its credit facility. Ascent's amended
agreement also removed the borrowing-base limit related to consent of
the NBA and NHL as discussed above. Ascent's management believes they
will successfully raise the subordinated debt.
LONG-TERM DEBT. Long-term debt, including the corporation's share of
INTELSAT and Inmarsat debt, and amounts outstanding under credit
facilities at each year end consists of:
<TABLE>
<CAPTION>
<S> <C> <C>
In thousands 1996 1995
----------------------------------------------------------------------------------------------------------
8.125% notes due 2004 $ 160,000 $ 160,000
8.95% notes due 2001 75,000 75,000
6.75% INTELSAT Eurobonds due 2000 28,693 28,659
7.375% INTELSAT Eurobonds due 2002 38,258 38,212
8.375% INTELSAT Eurobonds due 2004 38,258 38,212
6.625% INTELSAT Asian bonds due 2004 38,258 38,212
8.125% INTELSAT Eurobonds due 2005 38,258 38,212
Inmarsat lease financing obligations 103,186 112,203
Medium-term notes, 7.7% - 8.66%, due 2006 - 2007 74,000 74,000
Ascent credit facility 95,000 70,000
OCC credit facility 98,000 -
Other, net of discounts on notes payable 8,282 3,579
--------- ---------
Total 795,193 676,289
--------- ---------
Less: Short-term borrowings 143,000 207
Current maturities 16,719 11,481
--------- ---------
Total 159,719 11,688
--------- ---------
Total long-term debt $ 635,474 $ 664,601
========= =========
</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 $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
obligations) maturing over the next five years is $145,917,000 in
1997, $5,555,000 in 1998, $305,000 in 1999, $28,998,000 in 2000 and
$125,284,000 in 2001.
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, 1996, (pound)123,300,000 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
56
<PAGE>
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 17).
The corporation's share of the payments under these lease obligations
for each of the next five years is $19,869,000 in 1997, $18,584,000 in
1998, $20,040,000 in 1999, $21,217,000 in 2000, $21,932,000 in 2001
and $43,857,000 thereafter. These payments include interest totaling
$42,313,000 and a current maturity of $13,802,000.
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 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 5. 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 $16,250,000 and $7,358,000 in 1996 and
1995, respectively, and are included in "Other income (expense), net"
on the income statement.
10. COMMITMENTS AND CONTINGENCIES
PROPERTY AND EQUIPMENT. As of December 31, 1996, the corporation had
commitments to acquire property and equipment totaling $179,614,000.
Of this total, $164,008,000 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 and entertainment
talent. 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 $118,821,000
relating to player agreements) total approximately $59,975,000 in
1997, $43,192,000 in 1998, $27,245,000 in 1999, $17,015,000 in 2000,
$8,670,000 in 2001 and $9,284,000 thereafter.
57
<PAGE>
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. 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 $24,498,000 in
1996, $12,773,000 in 1995 and $11,798,000 in 1994. The future rental
payments under operating leases are $33,424,000 in 1997, $26,179,000
in 1998, $19,657,000 in 1999, $12,512,000 in 2000, $7,325,000 in 2001
and $44,111,000 thereafter.
FILM RIGHTS. As of December 31, 1996, the corporation had a purchase
commitment for undelivered film product of approximately $9,629,000.
GOVERNMENT CONTRACTS. The corporation and its subsidiaries are subject
to, and are currently a party to, audits and investigations 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.
ENVIRONMENTAL ISSUES. The corporation reviews, on a quarterly basis,
its estimates of costs of compliance with environmental laws and the
cleanup of various sites, including sites which governmental agencies
have designated the corporation as a potentially responsible party.
When it is probable that obligations have been incurred and where a
minimum cost or a reasonable estimate of the cost of compliance or
remediation can be determined, the applicable amount is accrued.
Because of the uncertainties associated with environmental assessment
and remediation activities, future expense to remediate currently
identified sites could be higher than the liability currently accrued.
Based on currently available information, however, management does not
believe that any costs incurred in excess of those currently accrued
will have a materially adverse effect on the financial condition of
the corporation.
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, 1996,
the corporation's investment totaled $30,794,000, and the
corporation's share of Inmarsat's investment totaled $30,713,000. The
other ICO shareholders who purchased the corporation's ICO shares in
the December 1996 transactions, also assumed future investment
commitments of $50,551,000 on those shares. As of December 31, 1996,
the corporation's future commitments to ICO totaled $5,239,000 and the
corporation's share of Inmarsat's future commitments to ICO totaled
$5,123,000, all payable in December 1997.
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, although the FCC may condition the use of ICO telephones in
the U.S. on reciprocal access by ICO's U.S. competitors to foreign
markets. In addition, the provision of ICO service in the U.S. may be
subject to the availability of adequate spectrum on an economic basis.
58
<PAGE>
In May 1996, TRW, Inc. filed a lawsuit against ICO in the U.S.
District Court for the Central District of California seeking
injunctive relief and unspecified monetary damages. The lawsuit, as
amended, alleges that the proposed ICO satellite system would infringe
two patents held by TRW. If TRW prevails, ICO could be precluded from
offering services in the U.S. or could be required to make royalty
payments to TRW. The corporation has been advised by ICO that it
intends to vigorously defend the lawsuit.
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 fixed satellite communications services.
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 remaining FCC restrictions on competitive systems
expired on December 31, 1996.
The corporation has received FCC authorization to participate in the
procurement of five third-generation Inmarsat satellites (see Note 4).
The first Inmarsat-3 satellites were successfully launched in April,
September and December 1996. The remaining two launches are planned
for 1997. In May 1996, the corporation received authority to provide
communication services, including Planet 1SM and other land mobile
services outside of North America, over the Inmarsat-3 satellites. The
corporation has applied to the FCC for authorization to offer Planet
1SM and other mobile services in the U.S. Those applications, which
have been opposed by certain of the corporation's competitors, are
pending before the FCC.
LITIGATION. The corporation and its subsidiaries are a party to
various lawsuits and arbitration proceedings and are subject to
various claims and inquiries, which generally are incidental to the
ordinary course of its business. The outcome of legal proceedings
cannot be predicted with certainty. Based on currently available
information, however, management does not believe that the outcome of
any matter which is pending or threatened, either individually or in
the aggregate, will have a materially adverse effect on the
consolidated financial condition of the corporation but could
materially affect consolidated results of operations in a given year
or quarter.
The corporation also is defending an antitrust suit brought by
PanAmSat Corporation against the corporation, which alleges
interference with PanAmSat's efforts to compete in the international
satellite communications market and seeks estimated alleged damages
(before trebling) at a 1994 present value of approximately
$228,000,000. In December 1994, the corporation filed a motion for
summary judgment directed to dismissal of all claims in the complaint.
In September 1996, the U.S. District Court for the Southern District
59
<PAGE>
of New York granted the corporation's motion for summary judgement and
dismissed the complaint in its entirety. In October 1996, PanAmSat
filed an appeal with the U.S. Court of Appeals for the Second Circuit,
which is pending before the court.
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's Investors' Plus Plan allows
investors to purchase shares of common stock directly from the
corporation. In 1996, 1995 and 1994, 80,000, 145,000 and 76,000 shares
were issued with total proceeds of $1,781,000, $3,027,000 and
$977,000, respectively.
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 7,307,000 shares of
common stock may be granted under the current plans. As of December
31, 1996, 261,000 shares of the corporation's treasury stock and
7,046,000 unissued common shares were reserved for these plans. As of
December 31, 1996, no stock appreciation rights were outstanding.
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. The exercise price of certain options granted prior to 1993,
pursuant to an expired plan, 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 in
stockholders' equity. This unearned compensation has been amortized to
expense over the three-year vesting period. Stock option activity was
as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
In thousands 1996 1995 1994
-----------------------------------------------------------------------------------------------------------
Outstanding at January 1 4,415 3,742 2,519
Granted 899 1,204 1,398
Exercised (481) (327) (126)
Canceled (355) (204) (49)
--------- --------- ---------
Outstanding at December 31 4,478 4,415 3,742
========= ========= =========
Exercisable at December 31 2,270 1,792 1,377
========= ========= =========
</TABLE>
The weighted average fair value at date of grant for options granted
during 1996 and 1995 was $5.59 and $6.04, respectively. The fair value
of options at date of grant was estimated using the Black-Scholes
model assuming an expected option life of seven years and the
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<PAGE>
following weighted average assumptions, respectively, for 1996 and
1995: dividend yield- 3.37% and 3.29%, interest rate - 5.70% and
7.30%, and volatility- 29.47% and 28.82%.
Weighted average option exercise price information for the years 1996,
1995 and 1994 follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Per share 1996 1995 1994
----------------------------------------------------------------------------------------------------------
Outstanding at January 1 $22.08 $22.31 $19.46
Granted 19.44 19.31 25.02
Exercised 17.24 12.80 10.86
Canceled 20.37 24.00 25.73
Outstanding at December 31 22.20 22.08 22.31
Exercisable at December 31 23.00 20.19 16.86
</TABLE>
Stock options outstanding and exercisable at December 31, 1996 follow:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
In thousands, except per share amounts and years
----------------------------------------------------------------------------------------------------------------
Options Outstanding Options Exercisable
-------------------------------------------- ---------------------------
Weighted Average
----------------------------
Remaining Weighted
Exercise Price Number Contractual Exercise Number Average
Range Outstanding Life in Years Price Exercisable Exercise Price
------------------ ------------ ------------- ------------- ------------- -------------
$ 5.97 - $ 6.64 67 4.10 $ 6.16 67 $ 6.16
8.89 - 10.66 156 4.58 9.64 156 9.64
13.57 - 19.57 1,835 8.01 18.47 423 17.66
22.44 - 30.31 2,420 6.97 26.28 1,624 26.36
------------ ------------- ------------- ------------- -------------
$ 5.97 - $30.31 4,478 7.27 22.20 2,270 23.00
============ ============= ============= ============= =============
</TABLE>
RESTRICTED STOCK AWARDS. Restricted stock awards are shares of stock
that are subject to restrictions on their sale or transfer. In 1996
and 1995, 66,000 and 91,000 "performance-based" restricted stock
awards were granted, respectively, and in 1994, 265,000 awards were
granted. With respect to the 1996 and 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. The weighted average fair
value at date of grant for restricted stock awards granted during
1996, 1995, and 1994 was $18.00, $19.69 and $27.37, respectively,
which in each case was equal to the market value of the common stock
at the date of grant.
At the end of the performance period with respect to the 1995 and 1994
awards, 76,000 shares and 116,000 shares, 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 $1,360,000 in 1996, $1,009,000 in 1995 and
$1,420,000 in 1994, and a corresponding increase to stockholders'
equity.
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 1996, 1995 and 1994, respectively, 34,000, 71,000 and
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115,000 restricted stock units were granted . The weighted average
fair value for the units granted during 1996, 1995 and 1994 was
$18.99, $19.67 and $27.25 per unit, which in each case was equal to
the market value of the common stock at the date of grant. Partially
vested restricted stock units outstanding totaled 197,000 at December
31, 1996 and 202,000 at December 31, 1995. 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 1996, 1995 and 1994 was $1,830,000, $1,286,000 and
$335,000, 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 purchase price on the respective
offering dates for 1996, 1995 and 1994 purchases, was $16.04, $16.74
and $25.87, respectively.
There were 254,000 shares, 236,000 shares and 178,000 shares issued
under this plan at weighted average prices of $16.03, $16.37 and
$19.79 for the years ended December 31, 1996, 1995 and 1994,
respectively. As of December 31, 1996, a total of 1,758,000 shares of
the corporation's unissued common stock has been reserved for this
plan.
The weighted average fair value of the purchase rights granted
pursuant to this plan in 1996 and 1995 was $4.07 and $4.56,
respectively. The fair value of each purchase right was estimated
using the Black-Scholes model as of January 1 of each year assuming
each plan year consisted of twelve, one month options, and the
following weighted average assumptions respectively, for 1996 and
1995: dividend yield- 3.89% and 3.15%, interest rate - 5.11% and 6.40%
and volatility- 27.33% and 32.15%.
PRO FORMA DISCLOSURES. Had stock-based compensation cost for the
corporation's stock incentive plans been determined based on the fair
value at the grant dates for awards under those plans, the
corporation's net income would have been decreased by $2,352,000
($0.05 per share) and $1,732,000 ($0.04 per share) in 1996 and 1995,
respectively. The pro forma effect on net income for 1996 and 1995 is
not representative of the pro forma effect on net income in future
years because it does not take into consideration pro forma
compensation expense related to grants made prior to 1995.
ASCENT AND OCC STOCK INCENTIVE PLANS. Ascent and OCC have each
established stock incentive plans expiring in 2006, under which stock
options, restricted stock awards, stock appreciation rights and other
stock based awards may be granted. For each of the plans, options are
generally granted at prices not less than the fair value of Ascent's
or OCC's stock at the date of grant. At December 31, 1996, the Ascent
and OCC plans have, respectively, a total of 1,610,000 and 3,000,000
common stock shares reserved for issuance and options to purchase
1,344,250 and 2,181,565 shares outstanding. Ascent and OCC have also
adopted the disclosure only provisions of SFAS No. 123. The
corporation's share of Ascent's and OCC's pro forma compensation cost
for 1996 would be approximately $1,701,000, net of tax, or a decrease
of $0.03 per share.
62
<PAGE>
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 $538,000 in 1996, $800,000 in 1995
and $864,000 in 1994. 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 1996 1995 1994
-----------------------------------------------------------------------------------------------------------
Service cost for benefits earned during the year $ 2,590 $ 2,606 $ 3,719
Interest cost on projected benefit obligation 7,213 6,995 6,817
Credit for actual return on pension plan assets (15,323) (23,924) (624)
Net amortization and deferral 5,981 15,197 (7,572)
---------- --------- ----------
Net pension expense $ 461 $ 874 $ 2,340
========== ========== ==========
</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.
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 1996 1995
----------------------------------------------------------------------------------------------------------
Actuarial present value of benefit obligations:
Vested benefit obligation $ 89,773 $ 90,997
========== ==========
Accumulated benefit obligation $ 92,095 $ 93,848
========== ==========
Actuarial present value of projected benefit obligation for
service rendered to date $ 103,608 $ 105,593
Pension plan assets at fair value 126,936 114,690
---------- ----------
Plan assets greater than projected benefit obligation 23,328 9,097
Unrecognized net gain (25,512) (10,677)
Unrecognized transition asset at January 1, 1986 being
amortized over 13 years (2,402) (3,610)
---------- ----------
Net pension liability $ (4,586) $ (5,190)
========== ==========
Assumed discount rate 7.50% 7.00%
Assumed rate of compensation increase 5.00% 4.75%
Expected rate of return on pension plan assets 9.00% 9.00%
</TABLE>
63
<PAGE>
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 $1,065,000 cash contribution to the plan
in 1996. 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 $2,817,000, $2,505,000 and $2,976,000 for 1996, 1995 and
1994, respectively.
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 $3,180,000
as of December 31, 1996 and $3,563,000 as of December 31, 1995. 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>
<S> <C> <C>
In thousands 1996 1995
----------------------------------------------------------------------------------------------------------
Actuarial present value of benefit obligations:
Accumulated benefit obligation $ 20,913 $ 20,220
========== ==========
Projected benefit obligation $ 22,136 $ 21,443
========== ==========
Accrued liability $ 20,913 $ 20,220
========== ==========
Assumed discount rate 7.50% 7.00%
Assumed rate of compensation increase 5.00% 4.75%
</TABLE>
401(K) PLAN. The corporation has a 401(k) plan for qualifying
employees. A portion of employee contributions is matched by the
corporation with shares of its common stock. The number of shares
contributed to the plan and the respective market values each year
were as follows: 1996 - 140,000 shares ($3,035,000), 1995- 177,000
shares ($3,386,000) and 1994 - 79,000 shares ($1,934,000).
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 1996 1995 1994
-----------------------------------------------------------------------------------------------------------
Service cost for benefits earned during the year $ 1,019 $ 1,128 $ 1,756
Interest cost on accumulated postretirement
benefit obligation 2,496 2,778 2,867
Net amortization and deferral (1,219) (1,241) (1,221)
---------- ---------- ----------
Net postretirement benefit expense $ 2,296 $ 2,665 $ 3,402
========== ========== ==========
</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.
64
<PAGE>
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 1996 1995
-----------------------------------------------------------------------------------------------------------
Accumulated postretirement benefit obligation:
Retirees $ 16,792 $ 23,020
Fully eligible active participants 4,038 5,158
Other active participants 8,630 10,614
---------- ----------
Total 29,460 38,792
Unrecognized gain from plan changes 15,368 10,454
Unrecognized net gain 5,595 251
---------- ----------
Net postretirement benefit liability $ 50,423 $ 49,497
========== ==========
Assumed discount rate 7.50% 7.00%
Assumed rate of compensation increase 5.00% 4.75%
</TABLE>
A 9.5% increase in health care costs was assumed for 1996 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, 1996
by $3,471,000 and the benefit expense for 1996 by $481,000.
15. INCOME TAXES
The components of income tax expense for each year are:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
In thousands 1996 1995 1994
-----------------------------------------------------------------------------------------------------------
Federal:
Current $ 9,468 $ 20,852 $ 28,646
Deferred (1,948) 11,615 16,821
Investment tax credits (net) (1,844) (2,150) (2,307)
State and local 7,002 4,600 6,510
Foreign 3,466 (6) 269
---------- ---------- ----------
Total $ 16,144 $ 34,911 $ 49,939
========== ========== ==========
</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 1996 1995 1994
-----------------------------------------------------------------------------------------------------------
Federal income taxes computed at the statutory rate $ 2,500 $ 23,881 $ 44,681
Foreign losses 5,679 5,518 656
Investment tax credits (net) (1,844) (2,150) (2,307)
Losses (income) with no tax benefit (507) 3,833 1,156
State income taxes, net of Federal income tax benefit 4,541 2,656 4,097
Goodwill amortization 1,027 1,349 920
Losses on non-tax consolidated U.S. investments 5,287 161 139
Merger costs - - 1,556
Life insurance (net) (1,123) (814) (548)
Other 584 477 (411)
---------- ---------- ----------
Income tax expense $ 16,144 $ 34,911 $ 49,939
========== ========== ==========
</TABLE>
65
<PAGE>
The current and net non-current components of deferred tax accounts as
shown on the balance sheet at December 31, 1996 and 1995 are:
<TABLE>
<CAPTION>
<S> <C> <C>
In thousands 1996 1995
-----------------------------------------------------------------------------------------------------------
Current deferred tax asset $ 12,756 $ 12,445
Non-current deferred tax liability (123,972) (119,018)
---------- ----------
Net liability $(111,216) $(106,573)
========== ==========
</TABLE>
The deferred tax assets and liabilities at December 31, 1996 and 1995
are:
<TABLE>
<CAPTION>
<S> <C> <C>
In thousands 1996 1995
-----------------------------------------------------------------------------------------------------------
Assets:
Postretirement benefits $ 22,872 $ 21,760
Accrued expenses 59,880 43,781
Alternative minimum tax credit 36,562 35,330
Long-term contract revenues 9,583 7,009
Other 7,762 4,381
---------- ----------
Total deferred tax assets 136,659 112,261
---------- ----------
Liabilities:
Property and equipment (235,964) (211,292)
Investments - unrealized gains (11,476) (7,074)
Other (435) (468)
---------- ----------
Total deferred tax liabilities (247,875) (218,834)
---------- ----------
Net liability $ (111,216) $(106,573)
=========== ==========
</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 1996.
16. PROVISION FOR RESTRUCTURING
In the third quarter of 1995, the corporation recorded a pre-tax
charge of $20,044,000 to strategically restructure elements of all its
business units. About 170 employees were severed as part of these
activities. The provision included $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 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. Revenues for
the Satellite Cinema operations were $25,036,000 and $34,753,000 for
66
<PAGE>
the years ended December 31, 1995 and 1994, respectively. Operating
income (loss) before allocation of general and administrative expenses
was ($16,591,000) and $3,897,000 for the years ended December 31, 1995
and 1994, 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. 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.
At December 31, 1995, $4,100,000 of the restructuring provision
remained, principally for the payment of employee severance and
contractual commitments. All of the restructuring actions were
substantially completed at the end of 1995, except for the shut down
of Satellite Cinema, which was completed in the first quarter of 1996.
No additions to the provision were necessary during 1996, leaving a
minor balance yet to be paid at December 31, 1996 for severance and
contractual commitments.
17. 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
mortgage on the building. The balance of the guarantee was $2,086,000
as of December 31, 1996. The guarantee will be reduced as the loan's
principal balance is repaid. The corporation was also contingently
liable to banks for $8,925,000 as of December 31, 1996 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, 1996, Inmarsat had several contracts maturing primarily in 1997 to
purchase foreign currency for a total of $97,829,000. The
corporation's share of the estimated fair value of these contracts, as
determined by a bank, is an unrealized gain of approximately $787,000
at December 31, 1996.
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, 1996, Inmarsat had
$394,754,000 of swaps to be exchanged for (pound)246,274,000 sterling
at various dates through 2007. Inmarsat is exposed to loss if one or
more of the counter parties defaults. However, Inmarsat does not
anticipate non-performance by the counter parties as all are major
financial institutions. The corporation's share of the estimated fair
67
<PAGE>
value of these swaps is an unrealized loss of $5,295,000 at December
31, 1996. 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.
The fair value of long-term debt (excluding capitalized leases) was
estimated by obtaining a yield-adjusted price as of December 31, 1996
for each obligation from an investment banker.
<TABLE>
<CAPTION>
<S> <C> <C>
Book
In thousands Amount Fair Value
----------------------------------------------------------------------------------------------------------
8.125% notes due 2004 $ 160,000 $ 171,088
8.95% notes due 2001 75,000 81,473
INTELSAT bonds 181,725 190,523
Medium-term notes 74,000 79,538
</TABLE>
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.
18. BUSINESS SEGMENT INFORMATION
The corporation reports operating results and financial data in three
business segments: International Communications, Technology Services
and Entertainment. The International Communications segment consists
of activities undertaken by the corporation in its COMSAT World
Systems (CWS), COMSAT Mobile Communications (CMC) and COMSAT
International (CI) businesses. CWS provides voice, data, video and
audio communications services between the U.S. and other countries
using the INTELSAT satellite network. CMC provides voice, data, fax,
telex and information services for ships, aircraft and land mobile
applications throughout the world using the Inmarsat satellite system.
CI develops, acquires and manages telecommunications companies in
high-growth emerging markets overseas. In January 1997, COMSAT
International Ventures changed its name to COMSAT International. These
companies provide a wide array of private line and public switched
communications services and equipment installations. 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, 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 owns a 57.2% interest in OCC (which
provides on-demand entertainment programming and information services
primarily to the domestic lodging industry), a professional basketball
team and a professional hockey team, and a film and television
production company.
68
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
SEGMENT INFORMATION
In thousands 1996 1995 1994
-----------------------------------------------------------------------------------------------------------
Revenues:
International Communications:
World Systems $ 272,969 $ 254,683 $ 251,988
Mobile Communications 155,187 180,384 193,530
International 58,084 37,708 19,148
----------- ----------- -----------
Total 486,240 472,775 464,666
Technology Services (1) 300,629 205,912 219,119
Entertainment 258,120 202,332 165,612
Eliminations and other corporate (29,728) (18,107) (13,732)
----------- ----------- -----------
Total $1,015,261 $ 862,912 $ 835,665
=========== =========== ===========
Operating income (loss) (2)
International Communications:
World Systems $ 104,009 $ 108,655 $ 100,856
Mobile Communications 31,255 53,504 53,518
International (17,282) (20,708) (4,247)
----------- ----------- -----------
Total 117,982 141,451 150,127
Technology Services (1) 19,014 13,990 21,423
Entertainment (45,963) (15,445) 13,603
Merger and integration costs - - (7,367)
Provision for restructuring (3) - (20,044) -
Other corporate (26,952) (24,317) (27,535)
----------- ------------ -----------
Total $ 64,081 $ 95,635 $ 150,251
=========== ============ ===========
Identifiable assets as of December 31:
International Communications:
World Systems $ 791,497 $ 832,823 $ 817,623
Mobile Communications 440,856 418,878 420,570
International 199,510 116,861 67,014
----------- ----------- ------------
Total 1,431,863 1,368,562 1,305,207
Technology Services 244,478 176,529 147,015
Entertainment 727,452 494,519 368,904
Corporate and other assets (4) 262,010 274,656 154,866
----------- ----------- ------------
Total $2,665,803 $2,314,266 $1,975,992
=========== =========== ============
Property and equipment additions:
International Communications:
World Systems $ 110,231 $ 137,762 $ 115,555
Mobile Communications 70,616 39,795 55,103
International 89,857 41,025 20,970
----------- ----------- -----------
Total 270,704 218,582 191,628
Technology Services 9,274 6,910 4,067
Entertainment 88,286 85,111 90,053
Corporate and other assets 1,193 717 835
----------- ------------ ------------
Total $ 369,457 $ 311,320 $ 286,583
=========== ============ ============
Depreciation and amortization:
International Communications:
World Systems $ 91,729 $ 87,980 $ 81,521
Mobile Communications 45,207 40,096 35,299
International 14,814 8,244 3,404
----------- ------------ ------------
Total 151,750 136,320 120,224
Technology Services 7,580 7,206 6,880
Entertainment 74,812 56,213 38,010
Corporate and other assets 2,134 2,285 2,670
------------ ------------ ------------
Total $ 236,276 $ 202,024 $ 167,784
============ ============ ============
</TABLE>
69
<PAGE>
(1) International Communications' World Systems revenues include
intersegment sales totaling $15,931,000 in 1996, $7,124,000 in
1995 and $3,726,000 in 1994. Technology Services segment revenues
include intersegment sales totaling $11,624,000 in 1996,
$9,960,000 in 1995, and $8,625,000 in 1994. 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.
(2) The method of allocating indirect corporate costs was changed in
1995, and 1994's segment operating results 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;
$315,000, $1,343,000 and $200,000 to the World Systems, Mobile
Communications, and International businesses, respectively;
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.
RELATED PARTY TRANSACTIONS. The corporation provides support services
to INTELSAT and support services and satellite capacity to Inmarsat.
The revenues from these services were $19,656,000 in 1996, $25,190,000
in 1995 and $26,162,000 in 1994. These revenues were recorded
primarily in the International Communications and Technology Services
segments.
SIGNIFICANT CUSTOMERS. Revenues in 1996, 1995 and 1994, respectively,
included sales to the U.S. Government of $144,435,000, $121,152,000
and $121,715,000, and to AT&T of $70,588,000, $81,866,000 and
$100,096,000. Substantially all of the U.S. Government sales are
reported in International Communications' Mobile Communications
business and the Technology Services segment. Substantially all of the
sales to AT&T are reported in International Communications' World
Systems business.
70
<PAGE>
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
-------------------------------------------------------------------------- --------------------------------
1996:
Revenues $ 248,555 $ 239,161 $ 234,005 (1) $ 293,540 $1,015,261
Operating income (loss) 25,764 22,675 26,248 (10,606)(2) 64,081
Net income (loss) 9,327 5,782 5,037 (11,524)(3) 8,622
Earnings (loss) per share 0.19 0.12 0.10 (0.24) 0.18
Dividends per share 0.19 1/2 0.19 1/2 0.19 1/2 0.19 1/2 0.78
Stock price:
High 25 5/8 33 1/8 26 1/2 26 3/4 33 1/8
Low 16 3/4 23 3/8 18 3/4 21 1/2 16 3/4
Close 23 3/8 26 22 5/8 24 5/8 24 5/8
1995:
Revenues $ 210,063 $ 214,050 (4) $ 206,298 $ 232,501 (4) $ 862,912
Operating income 29,757 44,939 628 (5) 20,311 95,635
Net income (loss) 14,573 22,012 (15,623) 16,855 (6) 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
</TABLE>
(1) Revenues in the third quarter of 1996 include $7,800,000 in
royalties related to a licensing agreement that resolved patent
infringement disputes.
(2) The fourth quarter of 1996 includes costs of $9,000,000 for
estimated losses on certain long-term fixed price contracts. OCC
recorded charges of $8,700,000 relating primarily to asset
write-downs, reserves and expense accruals associated with the
integration of SpectraVision.
(3) The fourth quarter of 1996 includes a pre-tax gain of $2,722,000
from the corporation's sale of ICO shares and a pre-tax loss of
$1,105,000 for a decline in value of a marketable security. The
fourth quarter tax provision reflects a net charge, due to the
losses from non-tax consolidated U.S. investments and increased
state income taxes.
(4) 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.
(5) The third quarter of 1995 includes a $20,044,000 provision for
restructuring (see Note 16 to the financial statements).
(6) 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.
71
<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 - 1997 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, 1996, 1995 and 1994
(ii) Consolidated Balance Sheets as of December 31, 1996
and 1995
(iii)Consolidated Cash Flow Statements for the Years
Ended December 31, 1996, 1995 and 1994
(iv) Statements of Changes in Consolidated Stockholders'
Equity for the Years Ended December 31, 1996, 1995
and 1994
(v) Notes to Consolidated Financial Statements for Each
of the Three Years in the Period Ended December
31, 1996
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, 1996
a. Schedule I -- Condensed Financial Information of
Registrant
b. Schedule II -- Valuation and Qualifying Accounts
72
<PAGE>
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
The corporation filed a Report on Form 8-K dated October 18,
1996 related to the announcement of its intent to divest its
interest in Ascent Entertainment Group, Inc. and third
quarter 1996 operating results.
(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
(Incorporated by reference from Exhibit No. 3.2 to
Registrant's Report on Form 10-K for the fiscal year ended
1995)
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, 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, 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 (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)
73
<PAGE>
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, N.A., 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, N.A., 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, N.A., 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)
74
<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 effective January 1, 1997
10.11* Registrant's Non-Employee Directors Stock Plan
75
<PAGE>
10.12 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)
10.13 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)
10.14 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)
10.15 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)
10.16 Amendment No. 1 to Exhibit 10.15 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)
10.17* 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)
10.18* Amendment No. 1 to Exhibit 10.17 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)
10.19* Amendment No. 2 to Exhibit 10.17 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)
10.20 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)
76
<PAGE>
10.21 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)
10.22 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)
10.23 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)
10.24* Registrant's Directors and Executives Deferred Compensation
Plan, as amended and restated as of January 1997
10.25 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)
10.26 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)
10.27 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)
10.28 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)
77
<PAGE>
10.29 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)
10.30 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)
10.31 Amendment to Exhibit 10.30 dated as of December 1, 1995
(Incorporated by reference from Exhibit No. 10.34 to
Registrant's Report on Form 10-K for the fiscal year ended
December 31, 1995)
10.32 Amendment to Exhibit 10.30 dated as of January 8, 1997
10.33 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)
10.34 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)
10.35 Amendment to Exhibit 10.34 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)
10.36 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)
10.37 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)
10.38 Amendment No. 1 to Exhibit 10.37 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)
78
<PAGE>
10.39 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)
10.40 Amendment to Exhibit 10.39 dated as of July 1, 1995
(Incorporated by reference from Exhibit No. 10.42 to
Registrant's Report on Form 10-K for the fiscal year ended
December 31, 1995)
10.41 Amendment to Exhibit 10.39 dated as of September 17, 1996
10.42 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)
10.43 Fiscal Agency Agreement between International
Telecommunications Satellite Organization, Issuer, and
Bankers Trust Company, Fiscal Agent and Principal Paying
Agent, dated as of March 22, 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)
10.44 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)
10.45 Fiscal Agency Agreement between International
Telecommunications Satellite Organization, Issuer, and
Morgan Guaranty Trust Company, Fiscal Agent and Principal
Paying Agent, dated as of October 14, 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)
10.46* 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)
10.47 Fiscal Agency Agreement between International
Telecommunications Satellite Organization, Issuer, and
Morgan Guaranty Trust Company, Fiscal Agent and Principal
Paying Agent, dated as of February 28, 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)
79
<PAGE>
10.48 Consent Agreement, dated as of July 1, 1995, by and among
the National Hockey League, Le Club de Hockey Les
Nordiques, Les Nordiques de Quebec 1988, Marcel Aubut,
COMSAT Hockey Enterprises, LLC, COMSAT Video Enterprises,
Inc., Ascent Entertainment Group, Inc., and the Registrant
(Incorporated by reference from Exhibit No. 10.7 to Ascent
Entertainment Group, Inc.'s Report on Form 10-K for the
fiscal year ended December 31, 1996)
10.49* Amended and Restated Employment Agreement, dated as of
December 18, 1995, between Ascent and Charles Lyons
10.50* Agreement, dated as of November 4, 1996, between the
Registrant and Richard E. Thomas
10.51* 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)
10.52 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
(Incorporated by reference from Exhibit No. 10.54 to the
Registrant's Report on Form 10-K for the fiscal year ended
December 31, 1995)
10.53 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 (Incorporated by reference from
Exhibit No. 10.55 to the Registrant's Report on Form 10-K
for the fiscal year ended December 31, 1995)
10.54 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 (Incorporated by reference from Exhibit No. 10.56
to the Registrant's Report on Form 10-K for the fiscal year
ended December 31, 1995)
10.55 $200,000,000 Credit Agreement dated as of October 8, 1996
among Ascent Entertainment Group, Inc., the lenders named
therein and NationsBank of Texas, N.A. (Incorporated by
reference from the Current Report on Form 8-K filed by
Ascent Entertainment Group, Inc. on October 17, 1996)
10.56 $125,000,000 Credit Agreement dated as of October 8, 1996
among On Command Corporation, the lenders named therein and
NationsBank of Texas, N.A. (Incorporated by reference from
the Current Report on Form 8-K filed by Ascent Entertainment
Group, Inc. on October 17, 1996)
10.57 Agreement between Beacon Communications Corp. and Universal
Pictures, a division of Universal City Studios, Inc., dated
as of July 10, 1996 (Incorporated by reference from Exhibit
No. 10.5 to the Quarterly Report on Form 10-Q filed by
Ascent Entertainment Group, Inc. on November 13, 1996 as
amended on January 6, 1997)
10.58 Employment Agreement, dated as of July 19, 1996, between the
Registrant and Betty C. Alewine
80
<PAGE>
10.59 Agreement, dated as of July 19, 1996, between the Registrant
and Bruce L. Crockett (Incorporated by reference from Exhibit
No. 10 to the Registrant's Report on Form 10-Q filed on
November 14, 1996)
Exhibit No. 11 - Statement re computation of per share earnings
Exhibit No. 21 - Subsidiaries of the Registrant as of March 1, 1997
Exhibit No. 23 - Consents of experts and counsel
Consent of Independent Auditors dated March 23, 1997.
Exhibit No. 27 - Financial Data Schedule
*Compensatory plan or arrangement.
81
<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 21, 1997 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 21, 1997 By /s/ Betty C. Alewine
-------------------------------
(Betty C. Alewine, President and
Chief Executive Officer)
(2) Principal financial officer
Date: March 21, 1997 By /s/ Allen E. Flower
-------------------------------
(Allen E. Flower, Vice President
and Chief Financial Officer)
(3) Principal accounting officer
Date: March 21, 1997 By /s/ Alan G. Korobov
-------------------------------
(Alan G. Korobov, Controller)
(4) Board of Directors
Date: March 21, 1997 By /s/ C. J. Silas
-------------------------------
(C. J. Silas, Chairman and Director)
By /s/ Lucy Wilson Benson
-------------------------------
(Lucy Wilson Benson, Director)
82
<PAGE>
By /s/ Edwin I. Colodny
-------------------------------
(Edwin I. Colodny, Director)
By
-------------------------------
(Lawrence S. Eagleburger, Director)
By /s/ Neal B. Freeman
-------------------------------
(Neal B. Freeman, Director)
By /s/ Arthur Hauspurg
-------------------------------
(Arthur Hauspurg, Director)
By /s/ Caleb B. Hurtt
-------------------------------
(Caleb B. Hurtt, Director)
By /s/ Peter S. Knight
-------------------------------
(Peter S. Knight, Director)
By /s/ Peter W. Likins
-------------------------------
(Peter W. Likins, Director)
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/ Dolores D. Wharton
-------------------------------
(Dolores D. Wharton, Director)
83
<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
(Incorporated by reference from Exhibit No. 3.2 to
Registrant's Report on Form 10-K for the fiscal year ended
1995)
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, 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, 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 (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)
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, N.A., 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)
84
<PAGE>
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, N.A., 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, N.A., 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)
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)
85
<PAGE>
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 effective January 1, 1997
10.11 *Registrant's Non-Employee Directors Stock Plan
10.12 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)
10.13 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)
10.14 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)
10.15 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)
10.16 Amendment No. 1 to Exhibit 10.15 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)
10.17* 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)
10.18* Amendment No. 1 to Exhibit 10.17 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)
86
<PAGE>
10.19* Amendment No. 2 to Exhibit 10.17 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)
10.20 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) 10.21 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)
10.22 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)
10.23 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)
10.24* Registrant's Directors and Executives Deferred Compensation
Plan, as amended and restated as of January 1, 1997
10.25 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)
10.26 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)
10.27 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)
10.28 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)
87
<PAGE>
10.29 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)
10.30 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)
10.31 Amendment to Exhibit 10.30 dated as of December 1, 1995
(Incorporated by reference from Exhibit No. 10.34 to
Registrant's Report on Form 10-K for the fiscal year ended
December 31, 1995)
10.32 Amendment to Exhibit 10.30 dated as of January 8, 1997
10.33 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)
10.34 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)
10.35 Amendment to Exhibit 10.34 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)
10.36 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)
10.37 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)
10.38 Amendment No. 1 to Exhibit 10.37 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)
10.39 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)
10.40 Amendment to Exhibit 10.39 dated as of July 1, 1995
(Incorporated by reference from Exhibit No. 10.42 to
Registrant's Report on Form 10-K for the fiscal year ended
December 31, 1995)
10.41 Amendment to Exhibit 10.39 dated as of September 17, 1996
88
<PAGE>
10.42 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)
10.43 Fiscal Agency Agreement between International
Telecommunications Satellite Organization, Issuer, and
Bankers Trust Company, Fiscal Agent and Principal Paying
Agent, dated as of March 22, 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)
10.44 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)
10.45 Fiscal Agency Agreement between International
Telecommunications Satellite Organization, Issuer, and
Morgan Guaranty Trust Company, Fiscal Agent and Principal
Paying Agent, dated as of October 14, 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)
10.46* 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)
10.47 Fiscal Agency Agreement between International
Telecommunications Satellite Organization, Issuer, and
Morgan Guaranty Trust Company, Fiscal Agent and Principal
Paying Agent, dated as of February 28, 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)
10.48 Consent Agreement, dated as of July 1, 1995, by and among
the National Hockey League, Le Club de Hockey Les
Nordiques, Les Nordiques de Quebec 1988, Marcel Aubut,
COMSAT Hockey Enterprises, LLC, COMSAT Video Enterprises,
Inc., Ascent Entertainment Group, Inc., and the Registrant
(Incorporated by reference from Exhibit No. 10.7 to Ascent
Entertainment Group, Inc.'s Report on 10-K for the fiscal
year ended December 31, 1996)
10.49* Amended and Restated Employment Agreement, dated as of
December 18, 1995, between Ascent and Charles Lyons
10.50* Agreement, dated as of November 4, 1996, between the
Registrant and Richard E. Thomas
10.51* Registrant's 1995 Key Employee Stock Plan
10.52 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
(Incorporated by reference from Exhibit No. 10.54 to the
Registrant's Report on Form 10-K for the fiscal year ended
December 31, 1995)
89
<PAGE>
10.53 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 (Incorporated by reference from
Exhibit No. 10.55 to the Registrant's Report on Form 10-K
for the fiscal year ended December 31, 1995)
10.54 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 (Incorporated by reference from Exhibit No. 10.56
to the Registrant's Report on Form 10-K for the fiscal year
ended December 31, 1995)
10.55 $200,000,000 Credit Agreement dated as of October 8, 1996
among Ascent Entertainment Group, Inc., the lenders named
therein and NationsBank of Texas, N.A. (Incorporated by
reference from the Current Report on Form 8-K filed by
Ascent Entertainment Group, Inc. on October 17, 1996)
10.56 $125,000,000 Credit Agreement dated as of October 8, 1996
among On Command Corporation, the lenders named therein and
NationsBank of Texas, N.A. (Incorporated by reference from
the Current Report on Form 8-K filed by Ascent
Entertainment Group, Inc. on October 17, 1996)
10.57 Agreement between Beacon Communications Corp. and Universal
Pictures, a division of Universal City Studios, Inc., dated
as of July 10, 1996 (Incorporated by reference from Exhibit
No. 10.5 to the Quarterly Report on Form 10-Q filed by
Ascent Entertainment Group, Inc. on November 13, 1996 as
amended on January 6, 1997)
10.58 Employment Agreement, dated as of July 19, 1996, between
the Registrant and Betty C. Alewine
10.59 Agreement, dated as of July 19, 1996, between the
Registrant and Bruce L. Crockett (Incorporated by reference
from Exhibit No. 10 to the Registrant's Report on Form 10-Q
filed on November 14, 1996.)
11 Statement re computation of per share earnings
21 Subsidiaries of the Registrant as of March 1, 1997
23 Consents of experts and counsel
Consent of Independent Auditors dated March 23, 1997
27 Financial Data Schedule
*Compensatory plan or arrangement.
90
<PAGE>
COMSAT CORPORATION (PARENT COMPANY)
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
INCOME STATEMENTS
For the Years Ended December 31, 1996, 1954 and 1994
<TABLE>
<CAPTION>
<S> <C> <C> <C>
In thousands 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------
REVENUES $ 425,810 $ 428,943 $ 446,380
------------- ------------- ------------
OPERATING EXPENSES:
Cost of services 132,272 130,899 163,745
Depreciation and amortization 140,027 131,596 121,131
Research and development 11,518 9,114 10,009
General and administrative 21,941 19,856 22,851
Merger and integration costs - - 2,469
Provision for restructuring - 3,702 -
------------- ------------- ------------
Total operating expenses 305,758 295,167 320,205
------------- ------------- ------------
OPERATING INCOME 120,052 133,776 126,175
Gain on sale of shares of a subsidiary - 19,286 -
Other income, net 6,755 2,160 1,371
Interest cost (67,209) (66,801) (47,924)
Interest capitalized 15,760 20,355 23,662
------------- ------------- ------------
Income before taxes and equity in net income (loss)
of subsidiaries 75,358 108,776 103,284
Income tax expense (27,488) (42,515) (39,507)
------------- ------------- ------------
Income before equity in net income (loss) of subsidiaries 47,870 66,261 63,777
Equity in net income (loss) of subsidiaries (39,248) (28,444) 13,865
------------- ------------- ------------
NET INCOME $ 8,622 $ 37,817 $ 77,642
============= ============= ============
</TABLE>
<PAGE>
COMSAT CORPORATION (PARENT COMPANY)
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
BALANCE SHEETS
As of December 31, 1996 and 1995
<TABLE>
<CAPTION>
<S> <C> <C>
In thousands 1996 1995
- -------------------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,658 $ 102,796
Receivables 91,380 80,413
Other 22,954 27,137
------------- ------------
Total current assets 115,992 210,346
------------- ------------
Property and equipment (net of accumulated depreciation of
$923,617 in 1996 and $790,247 in 1995) 1,174,890 1,204,675
Investment in and amounts due from subsidiaries 625,113 542,525
Other assets 155,191 58,629
------------- ------------
TOTAL ASSETS $ 2,071,186 $ 2,016,175
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term obligations $ 13,802 $ 10,375
Commercial paper 17,993 -
Accounts payable and accrued liabilities 70,849 49,501
Due to related parties 34,602 22,825
------------- ------------
Total current liabilities 137,246 82,701
------------- ------------
Long-term debt 578,379 590,378
Note payable to subsidiary 206,200 206,200
Deferred income taxes and investment tax credits 132,512 135,572
Other long-term liabilities 183,262 160,820
STOCKHOLDERS' EQUITY:
Common stock 340,691 324,074
Retained earnings 502,839 533,238
Treasury stock and other (9,943) (16,808)
------------- ------------
Total stockholders' equity 833,587 840,504
------------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,071,186 $ 2,016,175
============= ============
</TABLE>
<PAGE>
COMSAT CORPORATION (PARENT COMPANY)
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CASH FLOW STATEMENTS
For the Years Ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
<S> <C> <C> <C>
In thousands 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 231,828 $ 216,743 $ 186,015
------------- ------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (177,448) (171,247) (165,185)
Investments in unconsolidated businesses (57,350) (27,200) (1,895)
Change in intercompany balances, net (118,693) (48,738) (158,957)
Proceeds from sale of investment 22,626 17,919 13,520
Insurance proceeds from satellite launch failure 54,443 - -
Decrease (increase) in INTELSAT ownership (1,238) 17,919 13,520
Other 11,853 (13,155) 430
------------- ------------- ------------
Net cash used in investing activities (265,807) (242,421) (312,087)
------------- ------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt - 81,986 112,296
Repayment of long-term debt (9,848) (2,975) (71,306)
Borrowings from subsidiary - 206,200 -
Net short-term borrowings (repayments) 17,993 (121,356) 78,123
Borrowings (repayments) against company-owned life
insurance policies (51,443) 2,542 32,437
Common stock issued 13,837 10,834 5,291
Cash dividends paid (37,698) (36,874) (33,133)
Other - (11,883) (1,333)
------------- ------------- ------------
Net cash provided by (used for) financing activities (67,159) 128,474 122,375
------------- ------------- ------------
Net increase (decrease) in cash and cash equivalents (101,138) 102,796 (3,697)
Cash and cash equivalents, beginning of year 102,796 - 3,697
------------- ------------- ------------
Cash and cash equivalents, end of year $ 1,658 $ 102,796 -
============= ============= ============
</TABLE>
<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,
1996, 1995 and 1994
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>
<S> <C> <C>
In thousands 1996 1995
----------------------------------------------------------------------------------------------------------
8.125% notes due 2004 $ 160,000 $ 160,000
8.95% notes due 2001 75,000 75,000
6.75% INTELSAT Eurobonds due 2000 28,693 28,659
7.375% INTELSAT Eurobonds due 2002 38,258 38,212
8.375% INTELSAT Eurobonds due 2004 38,258 38,212
6.625% INTELSAT Asian bonds due 2004 38,258 38,212
8.125% INTELSAT Eurobonds due 2005 38,258 38,212
Inmarsat lease financing obligations 103,186 12,203
Medium-term notes, 7.7% - 8.66%, due 2006 - 2007 74,000 74,000
Discounts on notes payable (1,730) (1,957)
------------ -------------
Total 592,181 600,753
Less current maturities (13,802) (10,375)
------------ -------------
Total long-term debt $ 578,379 $ 590,378
============ =============
</TABLE>
The principal amount of debt (excluding the Inmarsat lease financing
obligation) maturing over the next five years is none in 1997 through
1999, $28,693,000 in 2000 and $74,979,000 in 2001. 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.
<PAGE>
COMSAT CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING
ACCOUNTS For the Years Ended December 31,
1996, 1995 and 1994
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Balance at
Beginning of Charged to Balance at
In thousands Year Expenses Deductions(a) End of Year
- -----------------------------------------------------------------------------------------------------------
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
1996:
Allowance for loss on accounts receivable $ 13,078 $ 4,958 $ 3,344 $ 14,692
Allowance for loss on investments $ 750 $ 3,417 - $ 4,167
</TABLE>
(a) Uncollectible amounts written off, recoveries of amounts previously
reserved, and other adjustments.
<PAGE>
COMSAT CORPORATION
INSURANCE AND RETIREMENT PLAN FOR EXECUTIVES
Restated effective January 1, 1997
(except as otherwise stated)
<PAGE>
TABLE OF CONTENTS
Section 1 - Name and Purpose PAGE
---------------------------- ----
1.1 Name 3
1.2 Purpose 3
Section 2 - Definitions and Construction
----------------------------------------
2.1 Definitions 3
2.2 Construction 7
Section 3 - Participation
-------------------------
3.1 Initial Participation 7
3.2 Continued Participation 7
3.3 Disabled Participant 7
Section 4 - Normal Retirement
-----------------------------
4.1 Normal Retirement Age 7
4.2 Normal Retirement Benefit - Participation
Commencement Date Prior to September 21, 1996 8
4.3 Normal Retirement Benefit - Participation
Commencement Date After September 20, 1996 8
4.4 Nonforfeitable Benefit 9
Section 5 - Early Retirement
----------------------------
5.1 Early Retirement Date 9
5.2 Retirement Benefit 9
Section 6 - Late Retirement
---------------------------
6.1 Late Retirement Date 10
6.2 Retirement Benefit 10
Section 7 - Termination of Employment
-------------------------------------
7.1 Retirement Benefit - Participation
Commencement Date Prior to September 21, 1996 10
7.2 Retirement Benefit - Participation
Commencement Date After September 20, 1996 10
Section 8 - Vesting
-------------------
8.1 Vesting - Participation Commencement Date
Prior to June 21, 1985 11
8.2 Vesting - Participation Commencement Date
After June 20, 1985, and Prior to
January 1, 1993 11
<PAGE>
8.3 Vesting - Participation Commencement Date
After December 31, 1992 11
8.4 Benefits for Terminated Employees 12
8.5 Death Benefits 12
Section 9 - Form of Payment of
------------------------------
Retirement Benefits
-------------------
9.1 Normal Form of Payment 12
9.2 Optional Forms of Payment 12
9.3 1991 Lump Sum Payment Option 13
9.4 1992 Lump Sum Payment Option 13
9.5 Change in Control 14
9.6 Actuarial Equivalent 14
Section 10 - Death Benefits
---------------------------
10.1 Death Benefits While Employed 14
10.2 Death Benefits After Retirement 15
10.3 Death Benefits Offset 15
Section 11 - Forfeiture of Benefits
-----------------------------------
11.1 Termination for Cause 15
11.2 Employment With a Competitor 15
Section 12 - Administration
---------------------------
12.1 Appointment of Administrator 16
12.2 Responsibility and Authority of Administrator 16
12.3 Exceptions Under Board Authority 16
Section 13 - Amendment or Termination of Plan
---------------------------------------------
13.1 Right to Amend or Terminate 17
13.2 Effect on Benefits Accrued 17
Section 14 - Miscellaneous Provisions
-------------------------------------
14.1 No Implied Rights 17
14.2 Insurance Policies 17
14.3 No Assignment or Alienation 17
14.4 Expenses 17
14.5 Applicable Laws 18
ii
<PAGE>
Section 1 - Name and Purpose
----------------------------
1.1 Name. The name of this plan is the COMSAT Corporation Insurance
and Retirement Plan for Executives.
1.2 Purpose. The purpose of this plan is to provide key executives of
the Corporation with supplemental retirement income and death benefits in
order to assist the Corporation in attracting and retaining executives of
outstanding ability.
Section 2 - Definitions and Construction
----------------------------------------
2.1 Definitions. For purposes of the Plan, unless a different meaning
is plainly required by the context, the following definitions are
applicable:
(a) "Accrued Benefit" means an amount equal to the Normal
Retirement Benefit of a Participant, as of any date, as though that date
were the date of termination of his employment.
(b) "Administrator" means the person appointed by the Board in
accordance with Section 12.1.
(c) "Age" means the number of full years which have elapsed since
the Participant's date of birth.
(d) "Beneficiary" means a person designated by a Participant, in
a written instrument filed with and in a form satisfactory to the
Administrator, to receive the lump sum death benefit payable under Section
10.1 or 10.2 upon the death of a Participant.
(e) "Board" means the Board of Directors of COMSAT Corporation or
any successor to such Corporation.
(f) "Change in Control" means, with respect to COMSAT
Corporation, the occurrence of any of the following events:
(i) The acquisition by any individual, entity or group
(within the meaning of Sections 13(d)(3) or 14(d)(2) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) of beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the Exchange
Act) of fifty percent (50%) or more of the combined voting power of the
then outstanding voting securities of the Corporation; provided, however,
that the following acquisitions shall not constitute a Change in Control
for purposes of this definition: (A) any acquisitions of voting securities
of the Corporation by the Corporation, or (B) any acquisitions of voting
3
<PAGE>
securities of the Corporation by any employee benefit or stock ownership
plan or related trust sponsored or maintained by the Corporation for the
benefit of its employees;
(ii) Any change in the composition of the Board such that
the individuals who, as of May 17, 1996, constitute those members of the
Board who have been elected by the shareholders of the Corporation in
accordance with the provisions of Section 303(a) of the Communications
Satellite Act of 1962, as amended (the "Incumbent Directors"), cease for
any reason to constitute a majority of the Board at any time; provided,
however, that any individual becoming a director subsequent to such date
whose election, or nomination for election, was approved by a vote of at
least three-fourths (3/4) of the then Incumbent Directors shall be
considered as though such individual were an Incumbent Director;
(iii) Approval by the shareholders of the Corporation of a
merger, share exchange, swap, consolidation, recapitalization or other
business combination involving any other corporation or entity (a
"Transaction"), the effect of which would result in the combined voting
securities of the Corporation immediately prior to the effectiveness of
such Transaction continuing to represent less than sixty percent (60%) of
the combined voting power of the voting securities of the Corporation, or
of any surviving entity of, or parent entity following, the Transaction,
immediately after the effectiveness of the Transaction;
(iv) Approval by the shareholders of the Corporation of (A)
a complete liquidation or dissolution of the Corporation, or (B) the sale
or disposition by the Corporation of all or substantially all of its assets
other than to a corporation or entity with respect to which following such
sale or other disposition more than eighty percent (80%) of the then
combined voting power of the voting securities of such corporation or
entity is, immediately following such sale or disposition, beneficially
owned (within the meaning of Rule 13d-3 promulgated under the Exchange Act)
by all or substantially all of the individuals and entities who were the
beneficial owners of the voting securities of the Corporation upon or
immediately before such approval; or
(v) Any event that would be required to be reported in
response to Item 6(e) or any successor thereto of Schedule 14A of
Regulation 14A promulgated under the Exchange Act;
provided, however, that none of the events described in clauses (i) through
(v) shall be deemed to constitute a Change in Control if, prior to the
occurrence of such event, the Board adopts a resolution specifically
4
<PAGE>
providing that the event shall not be deemed to constitute a Change in
Control for purposes of the Plan.
(g) "Corporation" means COMSAT Corporation or any successor
thereto, and any subsidiary of such Corporation.
(h) "Disability" means total disability as defined in the
Corporation's Long-Term Disability Plan.
(i) "Disabled Participant" means a Participant who incurs a
Disability while he is an Employee and who continues to accrue Credited
Service under the Retirement Plan.
(j) "Early Retirement Date" means the date on which a
Participant retires pursuant to Section 5.1.
(k) "Early Retirement Supplement" means the amount of annual
income equal to the Primary Social Security Benefit of the Participant used
in determining his Normal Retirement Benefit under the Retirement Plan.
(l) "Earnings" means:
(i) In the case of a Participant whose Participation
Commencement Date is prior to September 21, 1996, (A) the regular, basic
salary received by the Participant from the Corporation, before any salary
reductions, (B) Incentive Compensation, (C) dividend equivalents from
Restricted Stock Units, and (D) cash proceeds from vested Restricted Stock
Units.
(ii) In the case of a Participant whose Participation
Commencement Date is after September 20, 1996, the items described in
subparagraphs (i)(A) and (B).
Incentive Compensation, dividend equivalents from Restricted Stock Units,
and cash proceeds from vested Restricted Stock Units shall be included in
Earnings at the earliest time they could have been paid to the Participant
in cash, whether or not he elects to receive such payment then or defer it
to a later date.
(m) "Employee" means any person who is employed by the
Corporation.
(n) "Highest Average Earnings Period" means:
(i) In the case of a Participant whose Participation
Commencement Date is prior to September 21, 1996, the 48 consecutive months
in which the Participant's Earnings were the greatest. If a Participant has
completed less than 48 consecutive months of employment with the
Corporation as of any date, "Highest Average Earnings Period" shall mean
5
<PAGE>
all of the consecutive months of employment with the Corporation as of that
date.
(ii) In the case of a Participant whose Participation
Commencement Date is after September 20, 1996, the 60 consecutive months
during the 120 months immediately preceding the Participant's Normal
Retirement Date, Early Retirement Date, Late Retirement Date or date of
termination of employment with the Corporation, whichever is earlier, in
which his Earnings were the greatest. If a Participant has completed less
than 60 consecutive months of employment with the Corporation at such date,
"Highest Average Earnings Period" shall mean all of the consecutive months
of employment with the Corporation immediately preceding such date.
(o) "Highest Average Annual Earnings" means the amount
determined by dividing the total Earnings earned by a Participant during
his Highest Average Earnings Period by the number of years (including
fractions of years) included in the Highest Average Earnings Period.
(p) "Inactive Participant" means a Participant who is no
longer an Employee but who has an interest in the Plan which has not been
fully paid.
(q) "Incentive Compensation" means the additional
compensation awarded a Participant under the Corporation's Annual Incentive
Plan, as amended from time to time.
(r) "Late Retirement Date" means the date on which a
Participant retires pursuant to Section 6.1.
(s) "Normal Retirement Benefit" means the amount of annual
income payable from and after a Participant's Normal Retirement Date, as
calculated as provided in Section 4.2 or 4.3, whichever is applicable.
(t) "Normal Retirement Date" means the first day of the
month coincident with or next following a Participant's 65th birthday. The
"normal retirement age" under the Plan shall be age 65.
(u) "Participant" means an Employee participating in the
Plan in accordance with Section 3, an Inactive Participant, and a Disabled
Participant.
(v) "Participation Commencement Date" means the date on
which an Employee becomes a Participant in the Plan in accordance with
Section 3.
6
<PAGE>
(w) "Plan" means the COMSAT Corporation Insurance and
Retirement Plan for Executives, as amended from time to time.
(x) "Restricted Stock Units" (RSUs) means stock units
awarded to a Participant under the Corporation's 1986 or 1990 Key Employee
Stock Plans or any successors thereto.
(y) "Retirement Plan" means the Corporation's qualified
defined benefit pension plan, currently known as the COMSAT Corporation
Retirement Plan, as amended from time to time, or any successor thereto.
(z) "Spouse" means the person who is married to a
Participant on the date of the Participant's death.
(aa) "Years of Service" means the number of full years which
a Participant has been employed by the Corporation.
(bb) Any term used in the Plan in capitalized form which is
not defined in one of the preceding paragraphs shall have the same meaning
as in the Retirement Plan.
2.2 Construction. Wherever applicable, the masculine pronoun
shall mean or include the feminine pronoun, and words used in the singular
shall include the plural, and vice versa.
Section 3 - Participation
-------------------------
3.1 Initial Participation. An Employee shall become a Participant
in the Plan upon being designated as such by the Board. There is no minimum
age or service requirement to become a Participant.
3.2 Continued Participation. An Employee who becomes a
Participant shall remain a Participant as long as he is an Employee. He
shall thereafter be an Inactive Participant as long as he has an interest
in the Plan which has not been fully paid.
3.3 Disabled Participant. A Disabled Participant shall remain a
Participant for all purposes of the Plan.
Section 4 - Normal Retirement
-----------------------------
4.1 Normal Retirement Age. A Participant who has not retired
earlier pursuant to Section 5.1 shall retire on his 65th birthday, except
as provided in Section 6.1.
7
<PAGE>
4.2 Normal Retirement Benefit - Participation Commencement Date
Prior to September 21, 1996. Subject to the provisions of Sections 8.1
through 8.3, a Participant whose Participation Commencement Date is prior
to September 21, 1996 who retires at the Normal Retirement Age of 65 shall
receive a Normal Retirement Benefit, beginning on his Normal Retirement
Date, in an amount equal to 60 percent (65 percent in the case of the
President of COMSAT Corporation, and 70 percent in the case of the Chairman
and/or Chief Executive Officer of COMSAT Corporation) of his Highest
Average Annual Earnings, reduced by the following:
(a) The Normal Retirement Income of the Participant under
the Retirement Plan, provided that in the case of a Participant who retires
under the Retirement Plan on or after March 1, 1993, the amount of the
reduction shall be the amount of annual retirement income which the
Participant is actually receiving under the Retirement Plan;
(b) The Primary Social Security Benefit of the Participant
used in determining his Normal Retirement Income under the Retirement Plan;
(c) Vested age 65 retirement benefits of the Participant
from the qualified defined benefit pension plans of prior employers,
including any lump sum retirement benefit previously received, expressed in
the form of a single life annuity, whether or not actually paid in that
form; and
(d) Retirement benefits of the Participant from government
and military pensions, expressed in the form of a single life annuity,
whether or not actually paid in that form.
4.3 Normal Retirement Benefit - Participation Commencement Date
After September 20, 1996. Subject to the provisions of Sections 8.1 through
8.3, a Participant whose Participation Commencement Date is after September
20, 1996 who retires at the Normal Retirement Age of 65 shall receive a
Normal Retirement Benefit, beginning on his Normal Retirement Date, in an
amount equal to:
(a) The sum of:
(i) An amount equal to 30 percent of the Participant's
Highest Average Annual Earnings once the Participant completes 10 Years of
Service; plus
(ii) 2 percent of the Participant's Highest Average
Annual Earnings multiplied by the number of his Years of Service in excess
of 10 years but not in excess of 25 years (30 years in the case of the
Chief Executive Officer of the Corporation);
(b) Reduced by the amounts described in Sections 4.2(a) and (b).
4.4 Nonforfeitable Benefit. Except as provided in Section 11.2, the
Normal Retirement Benefit of a Participant who retires at the Normal
Retirement Age of 65 shall be nonforfeitable.
Section 5 - Early Retirement
----------------------------
5.1 Early Retirement Date. A Participant may elect to retire on the
first day of any month between his 55th and 65th birthdays, provided that a
Participant may retire before his 62nd birthday only with the Board's
consent, and provided further that a Participant eligible for early
retirement under the Retirement Plan may retire early under this Plan only
if he also elects early retirement under the Retirement Plan on the same
date.
5.2 Retirement Benefit.
(a) A Participant retiring on an Early Retirement Date shall,
unless he makes the election provided for in paragraph (b), receive an
annual retirement benefit, beginning on his Normal Retirement Date, in an
amount equal to his Accrued Benefit at his Early Retirement Date.
(b) Such Participant may, by a written statement filed with the
Administrator at least 30 days before the date on which he wishes payment
to begin, elect that payment of his annual retirement benefit shall begin
on the first day of any month between his Early Retirement Date and his
Normal Retirement Date. The amount of annual retirement benefit shall be
equal to (i) his Accrued Benefit at his Early Retirement Date plus (ii) the
Early Retirement Supplement, provided that if payment of such annual
retirement benefit commences before the Participant's 62nd birthday, the
amount of the Accrued Benefit shall be reduced by 1/4 of one percent (1/2
of one percent for any Participant whose Participation Commencement Date is
after September 20, 1996) for each complete month between the date the
retirement benefit payments commence and his 62nd birthday.
(c) Participants eligible for the Early Retirement Supplement are
those (i) whose Participation Commencement Date is prior to September 21,
1996 and (ii) who either retire on or after January 1, 1988, or who are
receiving an Early Retirement Benefit as of that date.
9
<PAGE>
Section 6 - Late Retirement
---------------------------
6.1 Late Retirement Date. A Participant shall retire not later than
the earlier of: (a) his 70th birthday; or (b) the earliest day upon which
he meets all of the following tests: (i) he has attained age 65; (ii) his
Normal Retirement Benefit under this Plan plus his Normal Retirement Income
under the Retirement Plan would be at least $44,000; provided, however,
that no Participant shall be required to retire before the earliest date
upon which he may be required to retire under the applicable laws of the
state or other jurisdiction in which he is employed.
6.2 Retirement Benefit. A Participant retiring on a Late Retirement
Date pursuant to Section 6.1 shall receive an annual retirement benefit,
beginning on the first day of the month coincident with or next following
his Late Retirement Date, in an amount equal to his Accrued Benefit at his
Late Retirement Date.
Section 7 - Termination of Employment
-------------------------------------
7.1 Retirement Benefit - Participation Commencement Date Prior to
September 21, 1996.
(a) A Participant whose Participation Commencement Date is prior
to September 21, 1996 whose employment with the Corporation terminates for
any reason other than death or retirement under this Plan shall be entitled
to receive an annual retirement benefit, payable as provided in paragraph
(b), in an amount equal to his Accrued Benefit at his date of termination
multiplied by a fraction, the numerator of which is the number of complete
months of his employment before his termination date, and the denominator
of which is the number of complete months of employment he would have had
if he had retired at the normal retirement age of 65.
(b) If a Participant entitled to an annual retirement benefit
pursuant to paragraph (a) dies before payment of such retirement benefit
has begun pursuant to paragraph (c), no payment shall be made under any
provision of this Plan for the benefit of such Participant.
(c) Payment of the annual retirement benefit to which a
Participant is entitled under paragraph (a) shall begin on his Normal
Retirement Date, if he shall be living on that date.
7.2 Retirement Benefit - Participation Commencement Date After
September 20, 1996. A Participant whose Participation Commencement Date is
10
<PAGE>
after September 20, 1996 whose employment with the Corporation terminates
for any reason other than death or retirement under this Plan shall forfeit
all rights to any benefits under the provisions of this Plan, except to the
extent that the Board in the exercise of its discretionary authority
pursuant to Section 12.3 determines to pay a benefit to such Participant.
Section 8 - Vesting
-------------------
8.1 Vesting - Participation Commencement Date Prior to June 21, 1985.
Notwithstanding any other provision of this Plan except Sections 11, 12.3,
and 13, a Participant whose Participation Commencement Date is any time
before June 21, 1985, shall be fully vested at all times in the annual
retirement benefit and the Early Retirement Supplement to which he is
entitled under the Plan.
8.2 Vesting - Participation Commencement Date After June 20, 1985, and
Prior to January 1, 1993. Notwithstanding any other provision of this Plan
except Sections 11, 12.3, and 13, in the case of a Participant whose
Participation Commencement Date is after June 20, 1985, and prior to
January 1, 1993, the annual retirement benefit and the Early Retirement
Supplement to which such a Participant is otherwise entitled under this
Plan shall be multiplied by a fraction (not to exceed 1.0), the numerator
of which is the number of complete months of employment with the
Corporation before his retirement or termination date, and the denominator
of which is 60.
8.3 Vesting - Participation Commencement Date After December 31, 1992.
Notwithstanding any other provision of this Plan except Sections 11, 12.3,
and 13, a Participant whose Participation Commencement Date is after
December 31, 1992, shall be entitled to receive retirement income equal to
a percentage of the annual retirement benefit and the Early Retirement
Supplement to which the Participant is otherwise entitled under this Plan,
computed in accordance with the following schedule once the sum of the
Participant's Age and the Participant's Years of Service equals 60:
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<PAGE>
Years of Service Vested Percentage
---------------- -----------------
0-4 0%
5 50
6 60
7 70
8 80
9 90
10 100
8.4 Benefits for Terminated Employees. The amount of the benefits
payable under the Plan for any Participant who retired or whose employment
with the Corporation otherwise terminated before January 1, 1997 shall be
governed in all respects by the terms of the Plan as in effect on the date
of his retirement or other termination of employment.
8.5 Death Benefits. Any benefits payable pursuant to Section 10 on
account of a Participant's death shall not be reduced because the
Participant had completed less than five years of employment with the
Corporation at the time of his death.
Section 9 - Form of Payment of Retirement Benefits
--------------------------------------------------
9.1 Normal Form of Payment. The normal form of payment of retirement
benefits shall be in equal monthly installments for the life of the
Participant.
9.2 Optional Forms of Payment.
(a) At any time prior to the date on which payment of retirement
benefits is to begin, a Participant may by an instrument in writing
delivered to the Administrator elect to receive, in lieu of the normal form
of payment provided in Section 9.1, a retirement benefit which is the
actuarial equivalent of the benefit specified in Section 9.1, in one of the
forms provided for the payment of retirement benefits under the Retirement
Plan.
(b) Notwithstanding paragraph (a), with respect to a Participant
who (i) retires on an Early Retirement Date, (ii) elects to begin payment
of his retirement benefits before his Normal Retirement Date, and (iii)
elects an optional form of payment pursuant to paragraph (a), the portion
of his retirement benefits specified in Section 5.2 (b)(ii) shall be paid
in equal monthly installments.
12
<PAGE>
c) Notwithstanding paragraph (a), the retirement benefit of a
Participant who retires on a Late Retirement Date and who elects an
optional form of payment pursuant to paragraph (a) shall not be actuarially
increased to take account of the commencement of such benefits after the
Participant's Normal Retirement Date.
9.3 1991 Lump Sum Payment Option.
(a) For purposes of this Section 9.3:
(i) "Lump Sum Payment" means a single payment, payable on
January 1, 2000, equal to the actuarial equivalent of the retirement
benefits otherwise payable to a Participant under the Plan after December
31, 2000, based on the Participant's Accrued Benefit as of March 31, 1991.
In the case of a Participant who has not begun receiving retirement
benefits before January 1, 2000, such actuarial equivalence shall be
computed on the basis as if the Participant's retirement benefits were to
begin on the later of January 1, 2001, or the first day of the month
coincident with or next following his 62nd birthday.
(ii) "Electing Participant" means an Employee who: (1) was a
Participant on April 1, 1991 and (2) by an instrument in writing filed with
the Administrator no later than August 31, 1991, elects to receive a Lump
Sum Payment.
(b) On January 1, 2000, a Lump Sum Payment shall be made to each
Electing Participant who as of that date: (i) has begun receiving
retirement benefits pursuant to Section 4.2, 5.2 or 6.2; (ii) has retired
on an Early Retirement Date and has not begun to receive his annual
retirement benefit pursuant to Section 5.2; or (iii) is an Employee. The
annual retirement benefit payable after December 31, 2000, to the Electing
Participant pursuant to Section 4.2, 5.2 or 6.2, whichever may be
applicable, shall be reduced to reflect his receipt of the Lump Sum
Payment.
9.4 1992 Lump Sum Payment Option.
(a) For purposes of this Section 9.4:
(i) "Lump Sum Payment" means a single payment, payable on
January 1, 2001, equal to the actuarial equivalent of the retirement
benefits otherwise payable to a Participant under the Plan after December
31, 2001, based on the amount equal to (1) the Participant's Accrued
Benefit as of March 31, 1992, less (2) if the Participant made the election
provided in Section 9.3, the Participant's Accrued Benefit as of March 31,
1991. In the case of a Participant who has not begun receiving retirement
benefits before January 1, 2001, such actuarial equivalence shall be
13
<PAGE>
computed on the basis as if the Participant's retirement benefits were to
begin on the later of January 1, 2002, or the first day of the month
coincident with or next following his 62nd birthday.
(ii) "Electing Participant" means an Employee who: (1) was a
Participant on January 1, 1992, and (2) by an instrument in writing filed
with the Administrator no later than May 31, 1992, elects to receive a Lump
Sum Payment.
(b) On January 1, 2001, a Lump Sum Payment shall be made to each
Electing Participant who as of that date: (i) has begun receiving
retirement benefits pursuant to Section 4.2, 5.2 or 6.2; (ii) has retired
on an Early Retirement Date and has not begun to receive his annual
retirement benefit pursuant to Section 5.2; or (iii) is an Employee. The
annual retirement benefit payable after December 31, 2001, to the Electing
Participant pursuant to Section 4.2, 5.2 or 6.2, whichever may be
applicable, shall be reduced to reflect his receipt of the Lump Sum
Payment.
9.5 Change in Control.* Notwithstanding any other provision of this
Plan, upon the occurrence of a Change in Control, each Participant in the
Plan shall be entitled to an immediate lump sum payment in an amount equal
to the actuarial equivalent of the Participant's Accrued Benefit as of the
date of occurrence of the Change in Control determined without regard to
Sections 8.1 through 8.3.
9.6 Actuarial Equivalent. Wherever in the Plan a benefit is required
to be the actuarial equivalent of another benefit, such actuarial
equivalence shall be computed on the basis of (a) Table V in section 1.72-9
of the Treasury Department Regulations and (b) the Pension Benefit Guaranty
Corporation's interest rate for immediate annuities, both as in effect for
the month preceding the date of distribution of such benefit.
Section 10 - Death Benefits
---------------------------
10.1 Death Benefits While Employed. If a Participant dies while an
active Employee:
* Effective as of February 16, 1996.
14
<PAGE>
(a) His Spouse shall receive an annual death benefit in an amount
equal to 50% of his Accrued Benefit at the date of his death. Such benefit
shall be payable in equal monthly installments beginning on the first day
of the month coincident with or next following the date of the
Participant's death, and continuing until the earlier of (i) the completion
of 120 months or (ii) the date of the Spouse's death.
(b) In the case of a Participant whose Participation Commencement
Date is prior to September 21, 1996, his Beneficiary shall receive a lump
sum death benefit in the amount of $200,000 as soon as practicable after
the date of his death.
10.2 Death Benefits After Retirement. If a Participant whose
Participation Commencement Date is prior to September 21, 1996 dies after
retirement, his Beneficiary shall receive a lump sum death benefit in the
amount of $200,000 as soon as practicable after the date of his death.
10.3 Death Benefits Offset. If a Participant dies before January 1,
2000, any payments made to the Participant's Spouse or Beneficiary pursuant
to life insurance policies on the life of the Participant which are
purchased in connection with this Plan shall be offset against, and shall
to that extent reduce the payments otherwise required to be made to such
Spouse or Beneficiary pursuant to Section 10.1 or 10.2.
Section 11 - Forfeiture of Benefits
-----------------------------------
11.1 Termination for Cause. A Participant whose employment with the
Corporation is terminated for cause shall forfeit all right to any benefits
under the provisions of this Plan. For this purpose, a Participant's
employment with the Corporation shall be considered to be terminated for
cause only if: (a) the Participant is convicted of a felony, without regard
to his right to appeal, which involves the Corporation's real, tangible or
intellectual property, any of its personnel or any person with whom the
Corporation has a business relationship, and (b) at least two-thirds of the
members of the Board affirmatively vote, in their sole discretion, to
terminate the Participant's employment with the Corporation because of such
conviction.
11.2 Employment With a Competitor. A Participant who, without the
written consent of the Administrator, becomes employed with a competitor of
the Corporation, shall forfeit all rights to any further benefits under the
provisions of this Plan; provided, however, that the benefits of a
Participant whose Participation Commencement Date is prior to January 1,
1993, and who retires at the normal retirement age of 65, or who retires at
15
<PAGE>
a later date upon meeting all of the tests of Section 6.1 (a)(ii), shall be
nonforfeitable. For this purpose, a Participant shall be considered to be
employed with a competitor of the Corporation only if, within the period
ending two years after the date of his termination of employment with the
Corporation:
(a) there is a final judgement by a court of competent
jurisdiction, in an action brought by the Corporation, that the Participant
is liable for an act of unfair competition or the misappropriation of trade
secrets or confidential information; or
(b) (i) the Participant is employed in a management position with
another employer in a line of business that is classified under the same
four-digit industry code of the Standard Industrial Classification as is a
line of business operated by the Corporation, and (ii) such line of
business generated revenues for the Corporation during the previous
12-month period exceeding the greater of (1) $10,000,000 or (2) two percent
of the total revenues generated during such period by the Corporation.
Section 12 - Administration
---------------------------
12.1 Appointment of Administrator. The Board shall appoint a person to
serve as Administrator of the Plan. The initial Administrator shall be the
Vice President for Human Resources and Organization Development.
12.2 Responsibility and Authority of Administrator. The Plan shall be
administered by the Administrator, who shall have the responsibility and
authority to, among other things, (a) interpret and construe the terms of
the Plan and (b) adopt such regulations, rules, procedures and forms
consistent with the Plan as he considered necessary or desirable for the
administration of the Plan. In all cases the determination of the
Administrator shall be final, conclusive and binding on all persons,
subject to Section 12.3.
12.3 Exceptions Under Board Authority. Notwithstanding any other
provision of this Plan, the Board in its sole discretion shall have the
authority to make exceptions to the normal application and administration
of any and all provisions of the Plan in individual cases; provided,
however, that no such exception shall, without the written consent of the
person involved, deprive any Participant, Beneficiary or Spouse of any part
of his benefits under the Plan accrued as of the time such exception is
made.
16
<PAGE>
Section 13 - Amendment or Termination of Plan
---------------------------------------------
13.1 Right to Amend or Terminate. The Board reserves in its sole
discretion the right, at any time and from time to time, to amend or
terminate the Plan.
13.2 Effect on Benefits Accrued. No amendment or termination of the
Plan pursuant to Section 13.1 shall, without the written consent of the
person involved, deprive any Participant, Beneficiary, or Spouse of any
part of his benefits under the Plan accrued as of the time of such
amendment or termination.
Section 14 - Miscellaneous Provisions
-------------------------------------
14.1 No Implied Rights. Nothing in this Plan shall be deemed to: (a)
give to any Employee the right to be retained in the employ of the
Corporation or to interfere with the right of the Corporation to dismiss
any Employee at any time, or (b) give to any Participant, Beneficiary, or
Spouse (i) any right to any payments except as specifically provided for in
the Plan or (ii) any interest in any insurance policies acquired by the
Corporation in accordance with Section 14.2.
14.2 Insurance Policies. The Corporation in its discretion may, but
shall not be required to, provide for its obligations under the Plan
through the purchase of one or more life insurance policies on the life of
a Participant. Each Participant agrees, as a condition to receiving any
benefits under this Plan, to cooperate in securing life insurance on his
life by furnishing such information as the Corporation or any insurer may
require, by submitting to such physical examinations as may be necessary,
and by taking such other actions as may be requested by the Corporation or
any insurer to obtain and maintain such insurance coverage.
14.3 No Assignment or Alienation. To the extent permitted by law, no
benefit provided under the Plan shall be anticipated, assigned (either at
law or in equity), alienated or subject to attachment, garnishment, levy,
execution or other process. Any attempt to perform any such action shall be
void.
14.4 Expenses. The Corporation shall pay all expenses incident to the
operation and administration of the Plan.
17
<PAGE>
14.5 Applicable Laws. Except as otherwise required by federal law, the
provisions of the Plan and the rules, regulations, and decisions of the
Board and the Administrator shall be construed and enforced according to
the laws of the State of Maryland.
18
<PAGE>
COMSAT CORPORATION
NON-EMPLOYEE DIRECTORS STOCK PLAN
Adopted by the Board of Directors on January 15, 1988,
and approved by the Shareholders on May 20, 1988
Amendments adopted by the Board of Directors on March 16, 1990,
January 15, 1993 and February 16, 1996, and approved by the Shareholders on
May 18, 1990, May 21, 1993 and May 17, 1996
<PAGE>
COMSAT CORPORATION
NON-EMPLOYEE DIRECTORS STOCK PLAN
---------------------------------
1. Purpose. The purpose of the plan ("Plan") is to advance the
interests of COMSAT Corporation ("Corporation") and its shareholders by
encouraging increased share ownership by members of the Board of Directors
("Board") of the Corporation who are not employees of the Corporation, or
any of its subsidiaries. The Plan does this by enhancing the Corporation's
ability to attract and retain the services of experienced, able and
knowledgeable persons to serve as directors and by providing additional
incentive for such directors to make a maximum contribution to the
Corporation's success through continuing and increased share ownership in
the Corporation.
2. Administration. The Plan shall be administered by the Board. In
addition to its duties with respect to the Plan stated elsewhere in the
Plan, the Board shall have full authority, consistent with the Plan, to
interpret the Plan, to promulgate such rules and regulations with respect
to the Plan as it deems desirable and to make all other determinations
necessary or desirable for the administration of the Plan. All decisions,
determinations and interpretations of the Board shall be binding upon all
persons.
3. Shares Covered by the Plan. Under the Plan, grants of stock options
("Options") and retainer awards ("Retainer Awards") will provide the
opportunity for eligible members of the Board to acquire shares of the
Corporation's common stock without par value ("Common Stock"). Shares of
Common Stock which may be delivered on exercise of Options and in
satisfaction of Retainer Awards may be previously issued shares reacquired
by the Corporation or authorized but previously unissued shares.
<PAGE>
4. Granting of Options.
-------------------
(a) Eligible Directors. Each member of the Board who is not an
employee of the Corporation or any of its subsidiaries ("Non-Employee
Director") shall be eligible to receive Options in accordance with this
Section 4. As used herein, the term "subsidiary" means any corporation at
least 40% of whose outstanding voting stock is owned, directly or
indirectly, by the Corporation.
(b) Automatic Grants. An Option to purchase 2,000 shares of
Common Stock shall be granted annually at a meeting of the Board held in
March (or the next succeeding meeting date if no March meeting is held),
beginning in 1988, to each Non-Employee Director who was a director as of
the date of the Annual Meeting of Shareholders for the prior year, provided
the Non-Employee Director continues in office after the Board meeting date
on which the Option is granted. Beginning in 1993, each annual Option grant
shall be for 4,000 shares of Common Stock.
(c) Option Agreement. Each Option shall be evidenced by a
written instrument which shall state the terms and conditions of the grant,
not inconsistent with the Plan, as the Board in its sole discretion shall
determine and approve.
(d) Option Price. The purchase price for each share of Common
Stock subject to an Option shall be 100% (50% for Options granted from 1990
to 1992) of the fair market value of the Common Stock on the date the
Option is granted. For this purpose, as well as other purposes under the
Plan, fair market value shall be deemed to be the average of the highest
and lowest selling prices of Common Stock as reported under New York Stock
Exchange-Composite Transactions on the date on which the Option was granted
or, if there were no sales of Common Stock on that date, then on the next
preceding date on which there were sales.
(e) Option Duration. Each Option shall expire fifteen years (ten
years for Options granted in 1988 and 1989) from the
2
<PAGE>
date that it is granted, except that in the instance where a Non-Employee
Director dies within the 15th year following the date of grant of an
Option, any unexercised portion of the Option will continue to be
exercisable for one year following the date of death.
(f) Nontransferability. An Option shall be nonassignable and
nontransferable by a Non-Employee Director other than by will or the laws
of descent and distribution. An Option shall be exercisable during the
Non-Employee Director's lifetime only by him or his guardian.
5. Option Exercises.
----------------
(a) Exercise Timing. Except as provided in Section 5(c) or 5(d)
below, each Option shall become exercisable for 50% of the shares of Common
Stock covered by the Option after the expiration of one year following the
date of grant and exercisable for 100% of the shares covered by the Option
after the expiration of two years following the date of grant.
(b) Method of Exercise. Exercise of each Option granted under the
Plan shall be by written notice in the form and manner determined by the
Board. Each notice of exercise shall be accompanied by the full purchase
price of the shares being purchased pursuant to the exercise. Such payment
may be made in cash, check, shares of Common Stock valued using the fair
market value as of the date of exercise or a combination thereof.
(c) Termination of Board Service. If a Non-Employee Director
granted an Option ceases to be a member of the Board, any unexercised or
partially exercised Options held by such Non-Employee Director shall be
exercisable in accordance with the following provisions:
(i) if termination of Board service is due to (A) retirement
from the Board upon reaching 72 years of age, (B) expiration of
the Non-Employee Director's term as a Presidential appointee to
the Board, (C)
3
<PAGE>
failure to stand for reelection to the Board with the Board's
consent, or (D) resignation from the Board with the Board's
consent, all outstanding Options shall become fully exercisable
and shall continue in force for the duration of their respective
terms, or
(ii) if termination of Board service is due to a
Non-Employee Director's death, or in the event of a Non-Employee
Director's death following termination of Board service for a
reason provided in (i) above, all outstanding Options shall
become fully exercisable and shall continue in force for one year
following the date of death, or
(iii) if termination of Board service is for any reason
other than one of the reasons provided in (i) and (ii) above, all
outstanding Options shall terminate immediately.
(d) Change in Control. Each Option granted under the Plan shall
immediately vest and become fully exercisable upon the occurrence of a
"Change in Control" of the Corporation. For purposes of this Plan, a
"Change in Control" of the Corporation shall be deemed to have occurred
upon the happening of any one of the following events:
(i) the acquisition by any individual, entity or group
(within the meaning of Sections 13(d)(3) or 14(d)(2) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"))
of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of fifty percent (50%) or
more of the combined voting power of the then outstanding voting
securities of the Corporation; provided, however, that the
following acquisitions shall not constitute a Change in Control
for purposes of this definition: (A) any acquisitions of voting
securities of the Corporation by the Corporation, or (B) any
4
<PAGE>
acquisitions of voting securities of the Corporation by any
employee benefit or stock ownership plan or related trust
sponsored or maintained by the Corporation for the benefit of its
employees;
(ii) any change in the composition of the Board such that
the individuals who, as of May 17, 1996, constitute those members
of the Board who have been elected by the shareholders of the
Corporation in accordance with the provisions of Section 303(a)
of the Communications Satellite Act of 1962, as amended (the
"Incumbent Directors"), cease for any reason to constitute a
majority of the Board at any time; provided, however, that any
individual becoming a director subsequent to such date whose
election, or nomination for election, was approved by a vote of
at least three-fourths (3/4) of the then Incumbent Directors
shall be considered as though such individual were an Incumbent
Director;
(iii) approval by the shareholders of the Corporation of a
merger, share exchange, swap, consolidation, recapitalization or
other business combination involving any other corporation or
entity (a "Transaction"), the effect of which would result in the
combined voting securities of the Corporation immediately prior
to the effectiveness of such Transaction continuing to represent
less than sixty percent (60%) of the combined voting power of the
voting securities of the Corporation, or of any surviving entity
of, or parent entity following, the Transaction, immediately
after the effectiveness of the Transaction;
(iv) approval by the shareholders of the Corporation of (A)
a complete liquidation or dissolution of the Corporation, or (B)
the sale or
5
<PAGE>
disposition by the Corporation of all or substantially all of its
assets other than to a corporation or entity with respect to
which following such sale or other disposition more than eighty
percent (80%) of the then combined voting power of the voting
securities of such corporation or entity is, immediately
following such sale or disposition, beneficially owned (within
the meaning of Rule 13d-3 promulgated under the Exchange Act) by
all or substantially all of the individuals and entities who were
the beneficial owners of the voting securities of the Corporation
upon or immediately before such approval; or
(v) any event that would be required to be reported in
response to Item 6(e) or any successor thereto of Schedule 14A of
Regulation 14A promulgated under the Exchange Act;
provided, however, that none of the events described in clauses (i)
through (v) shall be deemed to constitute a Change in Control if,
prior to the occurrence of such event, the Board adopts a resolution
specifically providing that the event shall not be deemed to
constitute a Change in Control for purposes of the Plan.
6. Granting of Retainer Awards.
---------------------------
(a) Automatic Grants. A Retainer Award of 600 shares of Common
Stock shall be granted annually at the first meeting of the Board following
the Annual Meeting of Shareholders to each Non-Employee Director who is
serving as a director at such Board meeting. Non-Employee Directors who are
elected by the Board or appointed by the President of the United States to
fill vacancies between Annual Meetings shall receive a prorated Retainer
Award, payable at the time of election or appointment, equal to the number
of shares of Common Stock determined by multiplying (i) the number of full
months of service as a director between
6
<PAGE>
election or appointment and the next Annual Meeting by (ii) the number 50.
(b) Phantom Stock Units. A Non-Employee Director may elect to
defer the entire annual Retainer Award to which he or she is entitled under
Section 6(a) by filing a deferral election ("Deferral Election"), in the
form and manner prescribed by the Board, by December 15 of the year
immediately preceding the year in which the Retainer Award otherwise would
be paid, except that a Deferral Election with respect to a prorated
Retainer Award shall be filed at such time following election or
appointment as the Board shall determine. If a Non-Employee Director makes
a Deferral Election, 600 phantom stock units ("Phantom Stock Units") shall
be credited to an account maintained for the director. Each Phantom Stock
Unit shall be equivalent in value to a share of Common Stock. Upon payment
of a dividend on the Corporation's Common Stock, the Non-Employee
Director's account shall be credited with additional Phantom Stock Units
equal to the quotient obtained by dividing (i) the amount of the dividend
the Corporation would have paid to the director as if the director had been
the record owner of the shares of Common Stock covered by the Phantom Stock
Units in the director's account on the record date for the payment of the
dividend by (ii) the fair market value of the Common Stock on the dividend
payment date. Upon the Non-Employee Director's termination of Board service
for any reason, the Non-Employee Director shall receive payment in shares
of the Corporation's Common Stock equal to the number of whole Phantom
Stock Units credited to his account, plus cash in an amount equal to the
fair market value of any fractional Phantom Stock Unit interests. The
Phantom Stock Units credited to the account of a Non-Employee Director
shall become immediately payable, in the manner described in the preceding
sentence, upon the occurrence of a Change in Control.
7
<PAGE>
7. Adjustment Upon Changes in Capitalization. If there is a change in
the number or kind of outstanding shares of the Corporation's stock by
reason of a stock dividend, stock split, recapitalization, merger,
consolidation, combination or other similar event, or if there is a
distribution to shareholders of the Corporation's Common Stock other than a
cash dividend, appropriate adjustments shall be made by the Board to the
number of shares covered by the automatic Option grants provided for in
Section 4(b) and by any outstanding Options; the purchase price for shares
of Common Stock covered by outstanding Options; the number of shares
covered by the automatic Retainer Award grants provided for in Section 6(a)
and by any outstanding Phantom Stock Units; and other relevant provisions,
to the extent that the Board, in its sole discretion, determines that such
change makes such adjustments necessary or equitable.
8. Tax Withholding. Any exercise of an Option or payment of a
Retainer Award pursuant to the Plan shall be subject to withholding of income
tax, FICA tax or other taxes to the extent the Corporation is required to make
such withholding.
9. Laws and Regulations. The Plan, the grant and exercise of
Options, the grant and deferral of Retainer Awards, and the obligation of the
Corporation to sell or deliver shares of Common Stock under the Plan shall be
subject to all applicable laws, regulations and rules.
10. Termination and Amendment of the Plan. The Board may at any time
terminate the Plan or may at any time or times amend the Plan or amend any
outstanding Options or Phantom Stock Units for the purpose of satisfying
the requirements of any changes in applicable laws or regulations or for
any other purpose which at the time may be permitted by law, provided that:
8
<PAGE>
(i) no amendment of any outstanding Options or Phantom Stock
Units shall contain terms or conditions inconsistent with the
provisions of the Plan as determined by the Board; and
(ii) except as provided in Section 7, no such amendment
shall, without the approval of the shareholders of the
Corporation: (a) increase the number of shares of Common Stock
for which each Option or Retainer Award may be granted under the
Plan; (b) increase the frequency of Option or Retainer Award
grants; (c) reduce the price at which Options may be granted or
exercised below the price provided for in Section 4(d); (d)
extend the period during which any outstanding Option may be
exercised; (e) shorten the exercise timing as provided for in
Section 5(a); (f) materially increase in any other way the
benefits accruing to Non-Employee Directors; (g) expand Plan
eligibility beyond Non-Employee Directors; or (h) disqualify a
Non-Employee Director from being a "disinterested" administrator,
as defined for the purposes of Rule 16b-3 (or any successor rule)
under the Securities Exchange Act of 1934, of any other
stock-based plan of the Corporation.
11. Effective Date. The Plan shall become effective upon approval by
the Board; provided, however, that the Plan shall be submitted to the
shareholders of the Corporation for approval, and if not approved by the
shareholders within one year from the date of approval by the Board shall
be of no force and effect. Options granted under the Plan before approval
of the Plan by the shareholders shall be granted subject to such approval
and shall not be exercisable before such approval.
9
<PAGE>
COMSAT CORPORATION
DIRECTORS AND EXECUTIVES DEFERRED COMPENSATION PLAN
Restated effective January 1, 1997
(except as otherwise stated)
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
TABLE OF CONTENTS
-----------------
PAGE
----
SECTION 1 - Purpose and Effective Date
--------------------------------------
1.1 Purpose 3
1.2 Effective Date 3
SECTION 2 - Definitions and Construction
----------------------------------------
2.1 Definitions 3
2.2 Construction 6
SECTION 3 - Eligibility and Participation
-----------------------------------------
3.1 Eligibility 6
3.2 Participation; Deferral Elections 6
3.3 Initial Eligibility During the Plan Year 7
3.4 Modification of Deferral Election 7
3.5 Rollover Election 7
SECTION 4 - Deferred Compensation Accounts
------------------------------------------
4.1 Maintenance of Accounts 8
4.2 Interest 8
SECTION 5 - Payment of Benefits
-------------------------------
5.1 Payment Upon Termination of Service 9
5.2 Payments Upon Death 10
5.3 Hardship Distributions 10
5.4 Form of Payment 11
5.5 Commencement of Payments 11
5.6 Change in Control 12
5.7 Payment as of January 1, 2000 12
5.8 Payment as of January 1, 2001 13
SECTION 6 - Administration
--------------------------
6.1 Committee; Duties 14
6.2 Appointment of Agents 14
SECTION 7 - Amendment or Termination of Plan
--------------------------------------------
7.1 Right to Amend or Terminate 14
7.2 Effect of Amendment or Termination 14
SECTION 8 - Miscellaneous Provisions
------------------------------------
8.1 No Implied Rights 14
8.2 Insurance Policies 15
8.3 No Assignment or Alienation 15
8.4 Expenses 15
8.5 Applicable Laws 15
</TABLE>
<PAGE>
Section 1 - Purpose and Effective Date
--------------------------------------
1.1 Purpose. The purpose of this Plan is to provide Directors and key
executives of the Corporation with supplemental retirement income and death
benefits in order to assist the Corporation in attracting and retaining
Directors and executives of outstanding ability.
1.2 Effective Date. The Plan shall become effective upon approval by
the Board.
Section 2 - Definitions and Construction
----------------------------------------
2.1 Definitions. For purposes of the Plan, unless a different meaning
is plainly required by the context, the following definitions are
applicable:
(a) "Beneficiary" means the person designated by a Participant, in
accordance with Section 5.4(a), to receive benefits payable under the Plan
upon the death of the Participant.
(b) "Board" means the Board of Directors of COMSAT Corporation or
any successor to such Corporation.
(c) "Change in Control" means, with respect to COMSAT Corporation,
the occurrence of any of the following events:
(i) The acquisition by any individual, entity or group (within
the meaning of Sections 13(d)(3) or 14(d)(2) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act")) of beneficial ownership (within
the meaning of Rule 13d-3 promulgated under the Exchange Act) of fifty
percent (50%) or more of the combined voting power of the then outstanding
voting securities of the Corporation; provided, however, that the following
acquisitions shall not constitute a Change in Control for purposes of this
definition: (A) any acquisitions of voting securities of the Corporation by
the Corporation, or (B) any acquisitions of voting securities of the
Corporation by any employee benefit or stock ownership plan or related
trust sponsored or maintained by the Corporation for the benefit of its
employees;
(ii) Any change in the composition of the Board such that the
individuals who, as of May 17, 1996, constitute those members of the Board
who have been elected by the shareholders of the Corporation in accordance
with the provisions of Section 303(a) of the Communications Satellite Act
of 1962, as amended (the "Incumbent Directors"), cease for any reason to
constitute a majority of the Board at any time; provided, however, that any
3
<PAGE>
individual becoming a director subsequent to such date whose election, or
nomination for election, was approved by a vote of at least three-fourths
(3/4) of the then Incumbent Directors shall be considered as though such
individual were an Incumbent Director;
(iii) Approval by the shareholders of the Corporation of a
merger, share exchange, swap, consolidation, recapitalization or other
business combination involving any other corporation or entity (a
"Transaction"), the effect of which would result in the combined voting
securities of the Corporation immediately prior to the effectiveness of
such Transaction continuing to represent less than sixty percent (60%) of
the combined voting power of the voting securities of the Corporation, or
of any surviving entity of, or parent entity following, the Transaction,
immediately after the effectiveness of the Transaction;
(iv) Approval by the shareholders of the Corporation of (A) a
complete liquidation or dissolution of the Corporation, or (B) the sale or
disposition by the Corporation of all or substantially all of its assets
other than to a corporation or entity with respect to which following such
sale or other disposition more than eighty percent (80%) of the then
combined voting power of the voting securities of such corporation or
entity is, immediately following such sale or disposition, beneficially
owned (within the meaning of Rule 13d-3 promulgated under the Exchange Act)
by all or substantially all of the individuals and entities who were the
beneficial owners of the voting securities of the Corporation upon or
immediately before such approval; or
(v) Any event that would be required to be reported in response
to Item 6(e) or any successor thereto of Schedule 14A of Regulation 14A
promulgated under the Exchange Act;
provided, however, that none of the events described in clauses (i) through
(v) shall be deemed to constitute a Change in Control if, prior to the
occurrence of such event, the Board adopts a resolution specifically
providing that the event shall not be deemed to constitute a Change in
Control for purposes of the Plan.
(d) "Committee" means the Committee on Compensation and Management
Development of the Board.
(e) "Compensation" means:
(i) In the case of an Employee, the following amounts payable or
awarded to the Employee by the Corporation with respect to a Plan Year: (1)
4
<PAGE>
base salary, (2) Incentive Compensation, (3) dividend equivalents from
Restricted Stock Units and Phantom Stock Units, and (4) cash proceeds from
vested Restricted Stock Units and Phantom Stock Units, or
(ii) In the case of a Director, the fees and retainer payable to
the Director by the Corporation with respect to a Plan Year, before
reduction for any amounts deferred pursuant to this Plan or any other plan
of the Corporation, and not including any expense reimbursements or any
form of non-cash compensation and benefits.
(f) "Corporation" means COMSAT Corporation or any successor thereto, and
any subsidiary of such Corporation.
(g) "Deferral Election" means an election made by the Participant, in
accordance with Section 3.2 or 3.3, to defer an amount of Compensation
payable or awarded to the Participant with respect to a Plan Year.
(h) "Deferred Compensation Account" means the account maintained for a
Participant by the Corporation, in accordance with Section 4.1, with
respect to the Compensation for which the Participant has made a Deferral
Election.
(i) "Determination Date" means (i) for purposes of Sections 4.2(a) and
(b), the last Friday of each biweekly payroll period of the Corporation,
and (ii) for purposes of Section 4.2(c), the last day of each calendar
quarter in each Plan Year.
(j) "Director" means any member of the Board who is not an Employee.
(k) "Disability" means total disability as defined in the Corporation's
Long-Term Disability Plan.
(l) "Employee" means any person who is employed by the Corporation.
(m) "Hardship" means the immediate and heavy financial need of a
Participant as determined by the Committee in accordance with uniform
standards established by the Committee.
(n) "Inactive Participant" means a Participant who is no longer an
Employee or Director but who has an interest in the Plan which has not yet
been fully distributed.
(o) "Incentive Compensation" means the additional compensation awarded
a Participant with respect to a Plan Year under the Corporation's Annual
Incentive Plan and such other incentive plans or arrangements of the
Corporation as designated by the Committee from time to time as such plans
5
<PAGE>
or arrangements may be amended from time to time.
(p) "Participant" means (i) an Employee or Director participating in
the Plan in accordance with Section 3, and (ii) an Inactive Participant.
(q) "Phantom Stock Units" means phantom stock units awarded to a
Participant under the Corporation's Annual Incentive Plan.
(r) "Plan" means the COMSAT Corporation Directors and Executives
Deferred Compensation Plan, as amended from time to time.
(s) "Plan Year" means the period beginning as soon as practicable
after the effective date of the Plan and ending December 31, 1986, and each
calendar year thereafter.
(t) "Restricted Stock Units" means restricted stock units awarded to a
Participant under the Corporation's 1986 or 1990 Key Employee Stock Plans.
(u) "Retirement Plan" means the Corporation's qualified defined
benefit pension plan, currently known as the COMSAT Corporation Retirement
Plan, as amended from time to time, or any successor thereto.
(v) "Rollover Election" means an election made by the Participant in
accordance with Section 3.5.
2.2 Construction. Wherever applicable, the masculine pronoun shall
mean or include the feminine pronoun, and the words used in the singular
shall include the plural, and vice versa.
Section 3 - Eligibility and Participation
-----------------------------------------
3.1 Eligibility. Eligibility to participate in the Plan is limited to
(a) Directors and (b) Employees who are designated as eligible by the Board.
3.2 Participation; Deferral Elections. An eligible Employee or
Director may elect to participate in the Plan with respect to any Plan Year
by filing a Deferral Election, in the form and manner prescribed by the
Committee, by December 15 of the immediately preceding Plan Year, except
that a Deferral Election with respect to the first Plan Year shall be filed
at such time before the commencement of such Plan Year as the Committee
shall determine. The Participant may elect in the Deferral Election to
defer Compensation with respect to the Plan Year as follows:
6
<PAGE>
(a) If the Participant is an Employee, he may elect to defer, subject
to a minimum deferral of $1,000, (i) base salary payable during the Plan
Year in increments of 5 percent up to a maximum of 25 percent, (ii)
Incentive Compensation awarded with respect to the Plan Year in increments
of 25 percent up to a maximum of 100 percent, (iii) dividend equivalents
from Restricted Stock Units payable during the Plan Year in increments of
25 percent up to a maximum of 100 percent, and (iv) cash proceeds from
vested Restricted Stock Units payable during the Plan Year in increments of
25 percent up to a maximum of 100 percent.
(b) If the Participant is a Director, he may elect to defer any amount
or percentage of fees and retainer payable with respect to the Plan Year,
subject to a minimum deferral of $1,000.
3.3 Initial Eligibility During the Plan Year. If an Employee or
Director first becomes eligible to participate in the Plan during a Plan
Year, he may elect to participate with respect to such Plan Year by filing
a Deferral Election for such Plan Year not later than 30 days after
notification to him by the Committee of his eligibility to participate in
the Plan. The Participant may elect in such Deferral Election to defer
Compensation with respect to the Plan Year which is payable or awarded
following the filing of the Deferral Election, in accordance with the
limitations of Section 3.2(a) and (b) as if such period were an entire Plan
Year.
3.4 Modification of Deferral Election. A Deferral Election made
pursuant to Section 3.2 or 3.3 shall be irrevocable, except that the
Committee in its discretion may at any time reduce, or waive the remainder
of, the amount to be deferred under the Deferral Election upon determining
that the Participant has suffered a Hardship.
3.5 Rollover Election. When an Employee or Director first becomes
eligible to participate in the Plan, but not thereafter, he may elect to
rollover to the Plan all, but not less than all, of his then-current
account balance of any amounts previously deferred, plus interest credited,
under the Corporation's Annual Incentive Plan or its Insurance and
Retirement Plan for Directors. Such Rollover Election shall be made at the
time, and in the form and manner prescribed by the Committee. If the
eligible Employee or Director makes a Rollover Election, he shall become a
Participant in the Plan, whether or not he also files a Deferral Election
pursuant to Section 3.2 or 3.3, and the amount rolled over shall thereafter
be subject in full to the provisions of this Plan.
7
<PAGE>
Section 4 - Deferred Compensation Accounts
------------------------------------------
4.1 Maintenance of Accounts. The Corporation shall maintain, for
record-keeping purposes only, a Deferred Compensation Account for each
Participant who files a Deferral Election or Rollover Election. The
Compensation deferred pursuant to a Deferral Election shall be credited to
the Participant's Deferred Compensation Account as it otherwise would
become payable to the Participant. The amount rolled over pursuant to a
Rollover Election shall be credited to the Participant's Deferred
Compensation Account upon the filing of the Rollover Election. Each
Participant's Deferred Compensation Account shall be subdivided into the
following sub-accounts, as applicable:
(a) Sub-account A, which shall include amounts credited to the
Participant's Deferred Compensation Account prior to January 31, 1994
pursuant to a Deferral Election or Rollover Election.
(b) Sub-account B, which shall include (i) amounts credited to the
Participant's Deferred Compensation Account after January 30, 1994 but
prior to January 1, 1997 pursuant to a Deferral Election or Rollover
Election, plus (ii) any amount credited to the Participant's Deferred
Compensation Account after December 31, 1996 which is attributable to
Incentive Compensation awarded in Plan Year 1997 with respect to which a
Deferral Election was made in Plan Year 1996.
(c) Sub-account C, which shall include amounts credited to the
Participant's Deferred Compensation Account after December 31, 1996
pursuant to a Deferral Election or Rollover Election, but excluding any
amount described in paragraph (b)(ii) above.
4.2 Interest. Each sub-account in a Participant's Deferred
Compensation Account shall be credited with interest at the applicable rate
for such sub-account as of each Determination Date for such sub-account
based upon the balance of such sub-account as of the immediately preceding
Determination Date. The applicable interest rate for each sub-account shall
be as follows:
(a) For sub-account A, the interest rate shall be Moody's plus 6
percent. For this purpose, "Moody's" means the effective annual yield on
Moody's Seasoned Corporate Bond Yield Index as determined during the first
week of the Plan Year from Moody's Bond Record published by Moody's
Investors Service, Inc., or any successor thereto. If Moody's annual yield
is no longer published, the rate of interest for purposes of sub-account A
shall be based on a substantially similar annual yield selected by the
Committee.
8
<PAGE>
(b) For sub-account B, the interest rate shall be the Corporation's
Cost of Capital. For this purpose, "Cost of Capital" means the cost of
funds employed in the Corporation's business as determined by the
Corporation's Chief Financial Officer effective as of the first day of each
Plan Year.
(c) For sub-account C, the interest rate shall be Prime plus 1
percent. For this purpose, "Prime" means the prime rate as published in the
Wall Street Journal on the last business day of the calendar quarter
preceding the calendar quarter which includes the relevant Determination
Date.
Section 5 - Payment of Benefits
-------------------------------
5.1 Payment Upon Termination of Service.
-----------------------------------
(a) A Participant whose service with the Corporation terminates for
any of the following reasons shall be entitled to receive an amount equal
to the balance of his Deferred Compensation Account, payable as provided in
Sections 5.4 and 5.5:
(i) retirement under the Corporation's Retirement Plan or its
Insurance and Retirement Plan for Executives, as those plans may be amended
from time to time;
(ii) Disability;
(iii) the convenience of the Corporation as determined by the
Committee; or
(iv) if the Participant is a Director, termination of service for
any reason other than death.
(b) A Participant whose service with the Corporation terminates for
any reason other than death or the reasons specified in paragraphs (a) or
(c) shall be entitled to receive an amount, payable as provided in Sections
5.4 and 5.5, equal to the balance of his Deferred Compensation Account,
calculated by recomputing (i) all interest credited to sub-account A of his
Deferred Compensation Account at a rate equal to Moody's plus 2 percent,
and (ii) all interest credited to sub-account B of his Deferred
Compensation Account at a rate equal to the Cost of Capital minus 4
percent.
(c) A Participant, other than a Director, whose service with the
Corporation is terminated for cause shall be entitled to receive an amount,
payable as provided in Sections 5.4 and 5.5, equal to the balance of his
Deferred Compensation Account, calculated by recomputing (i) all interest
credited to sub-account A of his Deferred Compensation Account at a rate
9
<PAGE>
equal to Moody's, and (ii) all interest credited to sub-account B of his
Deferred Compensation Account at a rate equal to the Cost of Capital minus
6 percent. For this purpose, a Participant's service with the Corporation
shall be considered to be terminated for cause only if: (i) the Participant
is convicted of a felony, without regard to his right to appeal, which
involves the Corporation's real, tangible or intellectual property, any of
its personnel or any person with whom the Corporation has a business
relationship, and (ii) at least two-thirds of the members of the Board
affirmatively vote, in their sole discretion, to terminate the
Participant's employment with the Corporation because of such conviction.
5.2 Payments Upon Death.
-------------------
(a) Each Participant may designate a Beneficiary or Beneficiaries to
receive payment of the amounts provided in paragraph (b) in the event of
his death. Each Beneficiary designation: (i) shall be made on a form filed
in the manner prescribed by the Committee, (ii) shall be effective when,
and only if made and filed in such manner during the Participant's
lifetime, and (iii) upon such filing, shall automatically revoke all
previous Beneficiary designations.
(b) Upon the death of a Participant, the Participant's Beneficiary
shall be entitled to receive an amount equal to the balance of the
Participant's Deferred Compensation Account payable as provided in Sections
5.4 and 5.5.
(c) If the payments to be made pursuant to paragraph (b) are not
subject to a valid Beneficiary designation at the time of the Participant's
death (because the designated Beneficiary predeceased the Participant or
for any other reason), the estate of the Participant shall be the
Beneficiary. If a Beneficiary designated by the Participant to receive all
or any part of the Participant's Deferred Compensation Account dies after
the Participant but before complete distribution of that portion of that
Deferred Compensation Account, and at the time of the Beneficiary's death
there is no valid designation of a contingent Beneficiary, the estate of
such Beneficiary shall be the Beneficiary of the portion in question.
(d) Any payments made to a Participant's Beneficiary pursuant to life
insurance policies on the life of the Participant which are purchased in
connection with this Plan shall be offset against, and shall to that extent
reduce the payments otherwise required to be made to such Beneficiary
pursuant to Section 5.2(b).
5.3 Hardship Distributions. The Committee may, in its sole discretion,
make distributions to a Participant from his Deferred Compensation Account
10
<PAGE>
prior to his termination of service with the Corporation if the Committee
determines that the Participant has suffered a Hardship. The amount of any
such distribution shall be limited to the amount reasonable necessary to
meet the Participant's needs created by the Hardship.
5.4 Form of Payment.
---------------
(a) Except as provided in paragraph (c), the amount which a
Participant or Beneficiary becomes entitled to receive pursuant to Section
5.1 or 5.2 shall be paid either:
(i) as a lump sum, or
(ii) in regular annual installments over a period of time not to
exceed 15 years. The amount of each annual installment shall be determined
by dividing the balance of the Deferred Compensation Account as of the most
recent Determination Date, as defined in Section 2.1(i)(ii), by the number
of remaining installments. The remaining balance of the Deferred
Compensation Account shall continue to be credited with interest in
accordance with Section 4.2.
(b) Except as provided below in this paragraph (b), the Participant
shall elect, at the time and in the manner prescribed by the Committee, the
form specified in paragraph (a) in which payment shall be made. If the
Participant fails to elect the form of payment, payment shall be made in
accordance with paragraph (a) (ii) over a period of 15 years, provided that
in the case of such a Participant's death, the Participant's Beneficiary
may elect the form of payment. In the case of a Participant who becomes
entitled to receive payment pursuant to Section 5.1(a)(iii), the Committee
shall determine the form specified in paragraph (a) in which payment shall
be made.
(c) Notwithstanding any other provision of this Plan, the amount which
a Participant becomes entitled to receive pursuant to paragraph (b) or (c)
of Section 5.1 shall be paid in a lump sum.
5.5 Commencement of Payments.
------------------------
(a) Payment which a Participant or Beneficiary becomes entitled to
receive in the event of the Participant's death, Disability or termination
of service pursuant to paragraph (b) or (c) of Section 5.1 shall commence
or be made, as the case may be, as soon as practicable after the occurrence
of such event.
(b) Payment which a Participant becomes entitled to receive upon
termination of service pursuant to Section 5.1(a)(iii) shall commence or be
made, as determined by the Committee, on the first day of any month between
the date the Participant's service terminates and his 66th birthday.
11
<PAGE>
(c) Payment which a Participant becomes entitled to receive upon
termination of service for any other reason shall commence or be made, as
elected by the Participant at the time and in the manner prescribed by the
Committee, on the first day of any month between the date his service
terminates and (i) in the case of an Employee, his 66th birthday, or (ii)
in the case of a Director, his 73rd birthday.
5.6 Change in Control.* Notwithstanding any other provision of this
Plan, a Participant shall be entitled to receive an immediate lump sum
payment in an amount equal to the balance of his Deferred Compensation
Account upon the occurrence of a Change in Control.
5.7 Payment as of January 1, 2000
-----------------------------
(a) An Employee or Director who is an active Participant on April 1,
1991 may, by an instrument in writing filed with the Vice President of
Human Resources and Organization Development no later than August 31, 1991,
elect that the amount described in paragraph (b) shall be paid to him or,
if applicable, to his Beneficiary on January 1, 2000.
(b) Notwithstanding any other provision of this Plan:
(i) a Participant whose service with the Corporation has not
terminated before January 1, 2000, or
(ii) a Participant or Beneficiary who is receiving installment
payments pursuant to Section 5.4 as of January 1, 2000, shall, if the
Participant has made the election provided for in paragraph (a), be
entitled to receive an amount, payable on January 1, 2000 as a lump sum,
equal to the portion of the Participant's Deferred Compensation Account, to
the extent such portion has not previously been distributed to the
Participant, or, if applicable, his Beneficiary pursuant to Sections 5.3
and 5.4, which consists of the balance of the Participant's Deferred
Compensation Account as of March 31, 1991 together with interest credited
to such balance pursuant to Section 4.2 from April 1, 1991 to December 31,
2000. Solely for purposes of this Section 5.7, interest on such balance
from January 1, 2000 to December 31, 2000 shall be credited as of January
1, 2000.
* Effective as of February 16, 1996.
12
<PAGE>
(c) Any balance remaining in the Participant's Deferred Compensation
Account on January 1, 2000 after payment of the amount described in
paragraph (b), together with any amounts credited to his Deferred
Compensation Account after such date, shall continue to be payable in
accordance with the provisions of Sections 5.1 through 5.6.
5.8 Payment as of January 1, 2001
-----------------------------
(a) An Employee or Director who is an active Participant on January 1,
1992 may, by an instrument in writing filed with the Vice President of
Human Resources and Organization Development no later than May 31, 1992,
elect that the amount described in paragraph (b) shall be paid to him or,
if applicable, to his Beneficiary on January 1, 2001.
(b) Notwithstanding any other provision of this Plan:
(i) a Participant whose service with the Corporation has not
terminated before January 1, 2001, or
(ii) a Participant or Beneficiary who is receiving installment
payments pursuant to Section 5.4 as of January 1, 2001, shall, if the
Participant has made the election provided for in paragraph (a), be
entitled to receive an amount, payable on January 1, 2001 as a lump sum,
equal to the portion of the Participant's Deferred Compensation Account, to
the extent such portion has not previously been distributed to the
Participant, or, if applicable, his Beneficiary pursuant to Sections 5.3
and 5.4, which consists of the difference between the balance of the
Participant's Deferred Compensation Account as of March 31, 1992 and the
balance of such Deferred Compensation Account as of March 31, 1991 together
with interest credited to such difference pursuant to Section 4.2 from
April 1, 1992 to December 31, 2001. Solely for purposes of this Section
5.8, interest on such balance from January 1, 2001 to December 31, 2001
shall be credited as of January 1, 2001.
(c) Any balance remaining in the Participant's Deferred Compensation
Account on January 1, 2001 after payment of the amount described in
paragraph (b), together with any amounts credited to his Deferred
Compensation Account after such date, shall continue to be payable in
accordance with the provisions of Sections 5.1 through 5.6.
13
<PAGE>
Section 6 - Administration
--------------------------
6.1 Committee; Duties. The Plan shall be administered by the
Committee, which shall have the responsibility and authority to, among
other things, (a) interpret and construe the terms of the Plan and (b)
adopt such regulations, rules, procedures and forms consistent with the
Plan as it considers necessary or desirable for the administration of the
Plan. In all cases the determination of the Committee shall be final,
conclusive and binding on all persons.
6.2 Appointment of Agents. The Committee shall appoint the Vice
President of Human Resources and Organization Development to be the
Committee's agent and shall delegate to him its duties with respect to the
day-to-day administration of the Plan. The Committee may from time to time
appoint other agents and delegate to them such administrative duties as it
sees fit. Notwithstanding the above, the Committee may not delegate to any
agent its duties under the Plan provided in Sections 2.1(o), 3.4, 4.2(a),
5.1(a)(iii) and 5.3.
Section 7 - Amendment or Termination of Plan
--------------------------------------------
7.1 Right to Amend or Terminate. The Board reserves in its sole
discretion the right, at any time and from time to time, to amend or
terminate the Plan.
7.2 Effect of Amendment or Termination. No amendment or termination of
the Plan pursuant to Section 7.1 shall deprive any Participant or
Beneficiary of any part of his benefits under the Plan accrued as of the
time of such amendment or termination. If the Plan is terminated, each
Participant shall be paid the full amount of his Deferred Compensation
Account in a lump sum within 90 days of the date of termination.
Section 8 - Miscellaneous Provisions
------------------------------------
8.1 No Implied Rights. Nothing in this Plan shall be deemed to: (a)
give to any Employee the right to be retained in the employ of the
Corporation or to interfere with the right of the Corporation to dismiss
any Employee at any time, or (b) give to any Participant or Beneficiary (i)
any right to any payments except as specifically provided for in the Plan
or (ii) any interest in any insurance policies acquired by the Corporation
in accordance with Section 8.2
14
<PAGE>
8.2 Insurance Policies. The Corporation in its discretion may, but
shall not be required to, provide for its obligations under this Plan
through the purchase of one or more life insurance policies on the life of
a Participant. Each Participant agrees, as a condition to receiving any
benefits under this Plan, to cooperate in securing life insurance on his
life by furnishing such information as the Corporation or any insurer may
require, by submitting to such physical examinations as may be necessary,
and by taking such other actions as may be required by the Corporation or
any insurer to obtain and maintain such insurance coverage.
8.3 No Assignment or Alienation. To the extent permitted by law, no
benefit provided under the Plan shall be anticipated, assigned (either at
law or in equity), alienated or subject to attachment, garnishment, levy,
execution, or other process. Any attempt to perform any such action shall
be void.
8.4 Expenses. The Corporation shall pay all expenses incident to the
operation and administration of the Plan.
8.5 Applicable Laws. Except as otherwise required by federal law, the
provisions of the Plan and the rules, regulations and decisions of the
Board and the Committee shall be construed and enforced according to the
laws of the State of Maryland.
15
<PAGE>
AMENDMENT TO AGREEMENT
----------------------
This AMENDMENT TO AGREEMENT is entered into this 8th day of January,
1997 by and between AT&T Corp. ("AT&T") and COMSAT Corporation ("COMSAT")
(collectively referred to as the "Parties").
WHEREAS, on July 27, 1993, AT&T and COMSAT entered into an Agreement
for the provision of telecommunications services (the "1993 Agreement");
and
WHEREAS, on December 7, 1995, the 1993 Agreement was amended (the "1995
Amendment"); and
WHEREAS, both the 1993 Agreement and 1995 Amendment were submitted to
the Federal Communications Commission (the "FCC") pursuant to Section 211
of the Communications Act; and
WHEREAS, the Parties have decided to further 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:
<PAGE>
1. Article IV of the Agreement, entitled "Base and Additional
Circuits," is revised by adding the following Paragraph F:
"F. The Parties agree that AT&T may cancel without penalty a
total of up to 402 Base or Additional Circuits prior to March 31,
1997, provided, however, that: (1) billing for each of the 402 Base or
Additional Circuits shall cease as of the date that AT&T provides
notice of cancellation and identifies the circuit as one of the 402
Base or Additional Circuits to be cancelled; (2) AT&T shall extend by
thirty-six (36) months the lease terms of at least 660 Base or
Additional Circuits that otherwise would have expired on June 30, 2000
and up to 189 Base or Additional Circuits that otherwise would have
expired between July 1, 2000 and December 31, 2000 for a total of 849
Base or Additional Circuits extended for thirty-six (36) months; and
(3) AT&T shall identify the 849 Base or Additional Circuits whose
leases are to be extended no later than March 31, 1997."
2. All other provisions of the 1993 Agreement and the 1995 Amendment
shall be interpreted in a manner consistent with this Amendment to
Agreement, but otherwise shall remain unchanged and shall continue to have
full force and effect.
2
<PAGE>
3. This Amendment to Agreement shall become effective as of the date
executed by the Parties hereto, 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 CORP. COMSAT CORPORATION
By: /s/ C. A. Peters By: /s/ John H. Mattingly
------------------------------- ---------------------
Name: C. A. Peters Name: John H. Mattingly
------------------------------ --------------------
Title: Supplier Management Director Title: Vice President and
---------------------------- General Manager
------------------
3
<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 1994 Agreement was amended as of July 1, 1995, and that
amendment was also submitted to the FCC; and
WHEREAS, the Parties have again 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;
<PAGE>
1. Article III of the Agreement, entitled "Base and Additional
Circuits," is revised by adding the following Paragraphs:
H. In addition to the Digital Bearer Circuits described in
Paragraphs A, B, C and G of this Article, COMSAT hereby agrees to
provide, and MCI commits and agrees to lease from COMSAT, an
additional 690 64-Kbps equivalent IDR Growth Circuits, provided,
however that MCI may use New IBS Circuits rather than IDR circuits to
meet up to 52% (i.e., 360 circuits) of this commitment. The lease term
for each of these 690 circuits shall commence as of August 1, 1996 and
shall run for a period of ten (10) years. The rates, terms and
conditions for IDR circuits shall be as specified in Article IV and
Attachments B and C, as amended herein, and for New IBS circuits shall
be as specified in COMSAT FCC Tariff No. 1 except as specifically
modified by this Agreement.
I. The Parties agree that, for those circuits described in
Paragraph H of this Article that may be activated as either IDR or New
IBS circuits (i.e., up to 360 of the total of 690 circuits), MCI shall
also have the flexibility to exchange a New IBS circuit for an IDR
circuit of equivalent carrier size, and vice versa, at any time
<PAGE>
during the 10-year lease term, at the rates applicable for the type of
circuit being utilized. "Equivalent carrier size" means that the
carrier(s) taken down must have the same 64 Kbps circuit capacity as
the carrier(s) designated as replacements.
2. Article IV of the Agreement, entitled "Rates for Base and
Additional Circuits," is revised by adding the following Paragraph F:
F. COMSAT's rates for Base and Additional Circuits shall be
reduced as of July 1, 1996, to the levels that were specified in
Attachments A, B, C, and D and were to take effect on January 1, 1997.
3. Article V of the Agreement, entitled "First Bulk Offering," is
revised by adding the following Paragraph L:
L. 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 August 1, 1996 through December 31, 1997, and an additional 5,000
Circuits during the period from January 1, 1998 through December 31,
1998;
<PAGE>
provided, however, that for purposes of this Paragraph only, MCI may
use New 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 15,000 Circuit Months to MCI on a take-or-pay
basis at the rate of $590 per month for each 64 Kbps equivalent
circuit (multiplied by the applicable rate adjustment factor, if any,
as specified in Attachment B hereto for IDR and as implied by the
rates in Tariff F.C.C. No. 1 for New IBS). 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
through G of this Article in the original 1994 Agreement.
M. COMSAT's rates for the Circuit Months made available under
Paragraphs A through G of this Article shall be reduced as of July 1,
1996, to the levels that otherwise would have been applicable as of
January 1, 1997 pursuant to the ratesetting mechanism set forth in
Paragraph D and Attachment D in the original 1994 Agreement.
4. Article VI of the Agreement, entitled "Second Bulk Offering," is
revised by adding the following new paragraphs:
<PAGE>
M. Consistent with the provisions of paragraph L of this Article,
COMSAT agrees to provide to MCI, and MCI agrees to lease from COMSAT,
four contiguous segments of bandwidth in a high-power (minimum 29.0
dBW at beam edge) global beam transponder on the INTELSAT satellite at
the 359 degree orbital location. This allotment shall initially be in
transponder 37/37. The first segment in this allotment shall be for 6
MHz and was activated on July 14, 1996 for a one-year lease term. The
rate per month for this segment shall be $34,225 for the U.S. half. If
MCI renews this segment for a succeeding one-year term, the rate per
month shall be $51,337.50 for the U.S. half. The other three segments
in this allotment shall be activated by October 27, 1997 for five-year
lease terms and shall be for 3 MHz, 9 MHz and 18 MHz respectively.
During the first twelve months of service, the applicable monthly
rates for the U.S. half of these segments shall be $14,205 for 3 MHz,
$42,595 for 9 MHz, and $71,175 for 18 MHz. For the remaining 48 months
of service, the applicable monthly rates for the U.S. half of these
segments shall be $21,307.50 for 3 MHz, $63,892.50 for 9 MHz, and
$106,762.50 for 18 MHz. If MCI elects to have COMSAT self-match any
portion of this capacity, the above rates shall be doubled for such
self-matched portion.
<PAGE>
N. Consistent with the provisions of paragraph L of this Article,
COMSAT also agrees to provide to MCI, and MCI agrees to lease from
COMSAT, two contiguous segments of bandwidth in a high-power (minimum
29.0 dBW at beam edge) global beam transponder at the 307 degrees
orbital location. This allotment shall initially be in transponder
37/37. The first segment in this allotment shall be for 9 MHz and the
second segment shall be for 3 MHz. The lease term for both segments of
this allotment shall be ten years; the start dates for both segments
shall be no later than August 1, 1997; and the monthly rates for the
U.S. half of this allotment shall be $56,650 for the 9 MHz segment and
$18,900 for the 3 MHz segment. If MCI elects to have COMSAT self-match
any portion of this capacity, the above rates shall be doubled for
such self-matched portion.
O. Subject to the availability of capacity, MCI may incrementally
activate portions (that are 9 MHz in bandwidth or smaller) of the
allotments described in paragraphs M and N of this Article at COMSAT's
applicable tariffed VSAT rates prior to the stated start dates.
P. The penalty for early termination of the allotments described
in paragraphs M and N of this Article (or any segment of those
allotments) shall be full payment for one-year leases; full payment
for the first three years of service plus 75% of the balance due for
five-year leases; and full payment
<PAGE>
for the first five years plus 75% of the balance due for ten-year
leases.
Q. The allotments described in paragraphs M and N of this Article
shall be non-preemptible. In case of space segment failure, an attempt
shall be made in accordance with the procedures set forth in the
INTELSAT Contingency Plans, as may be amended from time to time, to
restore these allotments. These allotments may be used for any type of
U.S. traffic, provided, however, that: (1) INTELSAT's lease parameter
definitions, as set forth in the IESS and SSOG documents that COMSAT
routinely provides to MCI, shall apply to the use of these allotments;
(2) COMSAT and INTELSAT must approve transmission plans for each
circuit located in the allotments in advance of circuit activation;
and (3) these allotments may not absorb any other traffic commitments
that MCI has with COMSAT.
R. The Parties recognize that, during the lease term of the
allotments described in paragraphs M and N of this Article, the
particular satellites on which service will initially be provided may
be replaced by other INTELSAT satellites. In that case, COMSAT may
substitute other high-power (minimum 29.0 dBW at beam edge)
<PAGE>
transponders of the same connectivity, or, upon mutual agreement of
the Parties, a transponder of different connectivity may be
substituted for the replaced transponder under the same terms and
conditions. If high-power transponder(s) are not available, other
transponder capacity may be substituted for the replaced
transponder(s) under rates, terms and conditions to be mutually agreed
upon by the Parties.
S. The Parties agree that the rates and other terms and
conditions specified in paragraphs M, N, O, P, Q and R of this Article
shall supersede any conflicting provisions in COMSAT World Systems
Tariff F.C.C. No. 1. All other terms and conditions for the circuits
contained in the allotments described in paragraphs M and N of this
Article shall be the same as those specified in COMSAT World Systems
Tariff F.C.C. No. 1 as of the effective date of this Agreement, and
those tariff provisions are hereby incorporated into this Agreement.
5. Article VIII of the Agreement, entitled "Most Favored Carrier" is
revised by adding the following Paragraph E:
<PAGE>
E. To the extent permitted by law, COMSAT agrees that, during the
term of this Agreement, it will offer MCI rates, terms and conditions
for the bulk capacity made available pursuant to Paragraphs M and N of
Article VI of this Agreement (i.e., a high-power global beam allotment
at 359 degrees consisting of four contiguous segments of bandwidth
comprising 6 MHz, 3 MHz, 9 MHz and 18 MHz respectively, and a
high-power global beam allotment at 307°E consisting of two
contiguous segments of bandwidth comprising 9 MHz and 3 MHz
respectively) that are no less favorable than the rates, terms and
conditions it makes available to any other USISC for such bulk
capacity. In the event that, during the term of this Agreement, COMSAT
makes available to another USISC rates, terms and conditions for bulk
capacity of the type made available pursuant to Paragraphs M and N of
Article VI of this Agreement that are more favorable than those
applicable under this Agreement, then such more favorable rates, terms
and conditions shall be offered to MCI in writing and, if accepted by
MCI in writing, shall be automatically incorporated into this
Agreement as an amendment thereto, and shall be effective as of the
date made available to such other USISC.
6. All other provisions of the 1994 Agreement shall be interpreted in
a manner consistent with this Amendment, but
<PAGE>
otherwise shall remain unchanged and shall continue to have full force and
effect.
7. This Amendment to Agreement shall become effective 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
By: /s/ Anthony Cirieco By: /s/ Robert S. Twining
----------------------------- ----------------------------------
Vice President, Sales,
Title: Executive Director Finance Title: Marketing and Business Planning
-------------------------- -------------------------------
Date: 9/17/96 Date: September 16, 1996
--------------------------- --------------------------------
<PAGE>
CONFIDENTIAL
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
-----------------------------------------
This AMENDED AND RESTATED AGREEMENT made as of December 18, 1995, and
amended as of November 18, 1996, by and between Ascent Entertainment Group,
Inc., a Delaware corporation ("Ascent"), successor in interest to COMSAT
Entertainment Group ("CEG"), a Delaware corporation, and Charles Lyons, a
resident of the State of Colorado(the "Executive").
WHEREAS, COMSAT Video Enterprises, Inc. ("CVE") a wholly owned
subsidiary of COMSAT Corporation, a District of Columbia corporation
("COMSAT") previously owned and operated the sports and entertainment
businesses of COMSAT which comprised the Entertainment segment of COMSAT
for purposes of its reports on Form 10-K and 10-Q (and any amendments
thereto) filed with the Securities and Exchange Commission (the
"Entertainment Business");
WHEREAS, COMSAT has created CEG as a holding company to own and
operate the Entertainment Business;
WHEREAS, the Executive currently serves as the President of CEG and
CVE;
WHEREAS Ascent succeeded to all of the assets of CEG and CVE;
WHEREAS, Ascent caused an initial public offering (the "IPO") of
approximately 19.3% of the shares of the common stock of Ascent on December
18, 1995 (the "IPO Date"); and
WHEREAS, Ascent desires to employ the Executive as President and Chief
Executive Officer of Ascent, and the Executive desires to accept such
employment, on the terms and conditions set forth herein;
-1-
<PAGE>
NOW, THEREFORE, in consideration of the premises and the mutual
agreements made herein, and intending to be legally bound hereby, Ascent
and the Executive agree as follows:
1. Employment; Duties.
(a) Employment and Employment Period. Ascent shall employ the
Executive to serve as President and Chief Executive Officer of Ascent or
its successor entity for a period (the "Employment Period") commencing on
December 18, 1995 (the "Effective Date") and continuing thereafter for a
term of five years until December 18, 2000 unless terminated in accordance
with the provisions of this Agreement. The Executive shall also continue to
serve as President of CVE but shall not receive any compensation for such
position in addition to the compensation provided in this Agreement. In the
event that Ascent desires to extend the employment of the Executive, it
must give written notice of such desire by the third anniversary of the
Effective Date, and after such notice the parties shall enter into an
exclusive negotiation period of not less than six months, unless otherwise
mutually agreed upon by the parties in writing. Each 12 month period ending
on the anniversary date of the Effective Date is sometimes referred to
herein as a "year of the Employment Period."
(b) Offices, Duties and Responsibilities. Effective on the
Effective Date, Executive shall be elected President and Chief Executive
Officer of Ascent. The Executive shall report directly and solely to the
Board of Directors of Ascent (the "Board"). Throughout the Employment
Period, Ascent shall cause Executive to be a member of the Board. In
addition, the Executive shall be a member of all committees of the Board
(including any executive committee or nominating committee) other than the
Audit Committee and the Compensation Committee, and other than any special
committees on which he might be regarded as a self-interested member. The
Executive's offices initially shall be located at the Company's
-2-
<PAGE>
headquarters, which are presently located in Denver, Colorado. The
Executive shall have all duties and authority customarily accorded a chief
executive officer, including, without limitation, the lead responsibility
with full autonomy, subject to the customary authority and direction of the
Board, to direct and develop the capabilities and performance of Ascent.
The Executive shall be a member and the chairman of any senior
executive/management committees which may be established from time to time
by the Board. The services to be rendered by the Executive as President of
Ascent shall be generally consistent with the services previously rendered
by the Executive as President of CVE. All employees of Ascent shall report,
directly or indirectly, to the Executive and the Executive shall have the
authority to hire and fire all such employees within established budget
parameters, provided that the Board shall approve (i)any salary actions
(including hiring decisions) for employees of Ascent which result in an
annual salary in excess of the amount established by the Board from time to
time, but in no event less than $150,000, and (ii) any bonuses to be
awarded to employees of Ascent, in excess of the amount established by the
Board from time to time, and provided further that the Board reserves the
right to take any such salary or bonus actions to the Compensation
Committee of the Board (the "Compensation Committee") for approval. The
Executive's management of Ascent shall be (x) in accordance with the
policies of the Board and Ascent's Policies and Procedures, both as in
effect from time to time, and (y)within the limits of an annual budget for
Ascent which shall be approved by the Board at least 30 days before the
beginning of the fiscal year to which such budget relates. The annual
budget shall provide adequate resources for Executive to operate the
Entertainment Business in a manner substantially consistent with the
customary day to day operations of comparable first-class businesses in the
United States entertainment industry. If the Executive proposes the
expenditure of any amounts which exceed the applicable annual budgets for
-3-
<PAGE>
Ascent, such excess amounts shall not be committed to Executive's authority
unless and until specifically authorized and approved by the Board.
(c) Devotion to Interests of Ascent. During the Employment
Period, the Executive shall render his business services solely in the
performance of his duties hereunder. The Executive shall use his best
efforts to promote the interests and welfare of Ascent and the
Entertainment Business. Notwithstanding the foregoing, the Executive shall
be entitled to undertake such outside activities (e.g., charitable,
educational, personal interests, board of directors membership, and so
forth, that do not compete with the Entertainment Business) as do not
unreasonably or materially interfere with the performance of his duties
hereunder as reasonably determined by the Board in consultation with the
Executive.
2. Compensation and Fringe Benefits.
--------------------------------
(a) Base Compensation. Ascent shall pay the Executive a base
salary ("Base Salary") at the rate of $500,000 per year during the
Employment Period with payments made in installments in accordance with
Ascent's regular practice for compensating executive personnel, provided
that in no event shall such payments be made less frequently than twice per
month. The Base Salary for the Executive shall be reviewed for increases
each year during the Employment Period commencing the second year of the
Employment Period. Any Base Salary increases shall be approved by the Board
in its sole discretion.
(b) Bonus Compensation. The Executive will be eligible to receive
bonuses ("Annual Bonus") during the Employment Period in accordance with
the following parameters: (i) the target bonus for each year during the
Employment Period shall be 70% of Base Salary for achieving 100% of the
target level for the performance measures; and (ii) the performance
-4-
<PAGE>
measures, the relative weight to be accorded each performance measure and
the amount of bonus payable in relation to the target bonus for achieving
more or less than 100% of the target level for the performance measures
shall be determined for each year during the Employment Period by the
Compensation Committee after consultation with the Executive. As part of
the consultation process set forth in the preceding sentence, the Executive
shall prepare before the end of each fiscal year ending during the
Employment Period a business plan for Ascent with respect to at least the
following three year period. The Board shall consider and approve such
plans on an annual basis, subject to such modifications as are otherwise
consistent with this Agreement, and each fiscal year the current plan shall
be considered by the Compensation Committee as the basis for establishing
the bonus standards for such year with such reasonable modifications as the
Compensation Committee may reasonably determine and which are consistent
with this Agreement.
(c) Fringe Benefits. The Executive also shall be entitled to
participate in group health, dental and disability insurance programs, and
any group profit sharing, deferred compensation, supplemental life
insurance or other benefit plans as are generally made available by Ascent
to the senior executives of Ascent on a favored nations basis, which
benefits shall be comparable, in the aggregate, to the benefits available
to senior executives of similarly situated companies. Such benefits shall
include reimbursement of (i) documented expenses reasonably incurred in
connection with travel and entertainment related to Ascent's business and
affairs (including, without limitation, all expenses and losses incurred in
connection with the sale of Executive's home in Bethesda, Maryland, the
acquisition of a home in the Denver, Colorado area and relocation of
Executive and his family to the Denver area), (ii) Executive's reasonable
legal fees and costs incurred in connection with the drafting, negotiation
and execution of this Agreement, Irell & Manella's rates for fees and costs
-5-
<PAGE>
being deemed reasonable, and (iii) a monthly payment for or reimbursement
of automobile and other transportation related expenses of $1,200 per
month. All benefits described in the foregoing (i) and (ii) that are
reportable as earned or unearned income will be "grossed up" by ASCENT in
connection with federal and state tax obligations to provide Executive with
appropriate net tax coverage so that the benefits received by the Executive
from the foregoing clauses (i) and (ii) shall be net of income and
employment taxes thereon. Without limiting any of the foregoing, as soon as
practicable Ascent will gather information regarding nature and scope of
benefit plans (e.g., profit sharing, deferred compensation, supplemental
life insurance) offered to executives of comparable or otherwise relevant
entertainment companies (including spinoffs and recent issuers of initial
public offerings), and the Board will determine in 1996 whether and to what
extent to implement any such programs. Ascent reserves the right to modify
or terminate from time to time the fringe benefits provided to the senior
management group, provided that the fringe benefits provided to the
Executive shall not be materially reduced on an overall basis during the
Employment Period. Notwithstanding the foregoing, until such time as Ascent
shall implement group-health, dental and disability insurance plans for its
executives, or for a period of one year following the IPO, whichever is
less, Executive will be entitled to participate in the group health,
dental, and disability insurance plans made available to the senior
management group of COMSAT.
(d) Financial Planning. The Executive shall be entitled to
receive financial counseling and planning services provided by Ascent
consistent with similar services provided to the COMSAT senior management
group.
(e) Stock Options. Ascent hereby grants to Executive as of the
Effective Date options ("Options") to purchase 297,500 shares of Ascent's
common stock, par value $0.01 per share (i.e., one percent (1%) of the
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shares of Ascent common stock outstanding immediately following the IPO
(including any shares outstanding as a result of the underwriter's exercise
of their over-allotment option)), each such Option exercisable at the
per-share price to public at the IPO (the "IPO Per-Share Price"). The
Options shall be exercisable by Executive according to the following
schedule:
(i) 10% of the Options on or after the commencement of the
second year of the Employment Period;
(ii) 15% of the Options on or after the commencement of the
third year of the Employment Period;
(iii)25% of the Options on or after the commencement of the
fourth year of the Employment Period;
(iv) 25% of the Options on or after the commencement of the
fifth year of the Employment Period;
(v) 25% of the Options on or after the completion of the
fifth year of the Employment Period; provided, however, that for so long as
COMSAT owns at least 80% of Ascent, Executive shall not be entitled to
exercise any of the Options prior to the third anniversary of the Effective
Date. Notwithstanding the foregoing, 100% of the Options shall immediately
vest and become immediately exercisable, without any further action by the
Executive, upon the occurrence of any "change of control" as defined in
Section 7(a) below, or upon the occurrence of any event that results in
Ascent's Common Stock no longer being traded on any of the New York Stock
Exchange, American Stock Exchange or NASDAQ National Market System
(including, without limitation, as a result of any "going private"
transaction with Ascent). Such options shall be represented by a stock
option agreement containing appropriate terms consistent with the
provisions of this Agreement. The Options, to the extent they remain
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unexercised, shall automatically and without further notice terminate and
become of no further force and effect at the time of the earliest of the
following to occur:
(x) Three months after the date upon which a termination for
cause by Ascent (as provided in Section 5(b)) shall have become effective
and final; or
(y) Ten years after the Effective Date.
In the event of any stock split, stock dividend, spin-off,
reclassification, recapitalization, merger, consolidation, subdivision,
combination or other change which affects the character or amount of
Ascent's common stock after the Effective Date and prior to the exercise
and/or expiration of all of the Options, the number and exercise price of
and/or the formula for determining the value of such unissued or
unexercised Options shall be adjusted in order to make such Options, as
nearly as may be practicable, equivalent in nature and value to the Options
that would have existed had such change not taken place. In addition, if
Ascent adopts a stock option plan that in Executive's sole judgment
provides for any term(s) more favorable to the grantee than any term(s) set
forth above, Executive will be entitled to the benefit of such more
favorable term(s) with respect to the Options, other than with respect to
the vesting schedule thereof, but in no event will any term(s) applicable
to the Options be less favorable to Executive than those set forth above.
During the Employment Period, the Executive shall be granted
additional non-statutory stock options as determined by the Compensation
Committee in its sole discretion, provided that no additional stock options
shall be granted to the Executive within three years from the Effective
Date. Notwithstanding any other provision of this Agreement except Section
5(b), the Compensation Committee may in its discretion provide that any
stock options granted to the Executive which have not vested prior to his
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termination of employment shall continue to vest in accordance with their
original terms as if the Executive's employment had not terminated.
(f) COMSAT Benefits. After the Effective Date, the Executive
shall cease to participate in COMSAT's Key Employee Stock Plans, Insurance
and Retirement Plan for Executives, Directors and Executives Deferred
Compensation Plan (the "Deferred Compensation Plan"), Split Dollar
Insurance Plan, Annual Incentive Plan ("AIP") and Educational Grant Program
(collectively, the "COMSAT Executive Benefit Plans"), and shall forfeit any
and all rights and interests under the COMSAT Executive Benefit Plans;
provided, however, that (i) the Executive shall retain the stock options,
restricted stock awards, restricted stock units and phantom stock units
previously granted to him under the Key Employee Stock Plans and the AIP
(together with Executive's deferred compensation account referred to in
(iii) below, collectively, the "COMSAT Stock Awards"), which shall continue
to vest in accordance with their original terms as long as the Executive
remains employed by Ascent; (ii) the Executive shall be entitled to receive
a bonus with respect to 1995 under the AIP as determined in the sole
discretion of the Committee on Compensation and Management Development of
the COMSAT Board of Directors; and (iii) the disposition of the balance in
the Executive's deferred compensation account in the Deferred Compensation
Plan as of the Effective Date shall be mutually determined by COMSAT and
the Executive no later than December 31, 1996, provided that such account
shall continue to be maintained in the Deferred Compensation Plan with the
crediting of interest at the applicable rates until such disposition
occurs, and provided further that in no event shall the disposition of such
account result in a taxable event to the Executive at the time of such
disposition. Notwithstanding the foregoing, the Company shall use its best
efforts to cause 100% of the COMSAT Stock Awards to vest immediately and to
become immediately exercisable, without any further action by the
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Executive, upon the occurrence of any "change of control" as defined in
Section 7(a) below.
(g) Consulting Compensation. If the Executive is still employed
by Ascent on the date preceding the sixth anniversary of the Effective
Date, and if by such date the Executive and Ascent have not executed a
written agreement for an additional term of employment, then the Employment
Period shall expire and, in addition to and without limitation of any
rights of either party under this Agreement or otherwise, Ascent shall
retain the Executive as a non-exclusive consultant and, as compensation for
such consulting services, shall pay the Executive an amount equal to one
hundred percent (100%) of his then current Base Salary for an additional
period of eighteen (18) months (the "Consulting Period"), and during the
Consulting Period the Executive shall continue to receive Fringe Benefits
(as defined below), and to vest in any employee stock options previously
awarded to the Executive, but the Executive shall not be entitled to
receive any Base Salary increases, bonuses, or further awards of stock
options. Without limiting any of the Executive's other rights under this
Agreement or otherwise, if the Executive is still employed by Ascent on the
date preceding the fourth anniversary of the Effective Date and is retained
as a consultant and is entitled to the compensation and benefits set forth
in the immediately preceding sentence, then such compensation and benefits
shall constitute the Executive's sole compensation resulting from the
expiration of this Agreement, and the Executive waives any claims to any
additional compensation other than as a result of Ascent's breach of this
Agreement.
(h) Performance-Based Compensation; Conflicting Provisions. The
parties agree to use their best efforts in the administration of this
Agreement to take actions so as to comply with the requirements of Section
162(m) of the Internal Revenue Code of 1986, as amended (the "Code") to
ensure, to the extent possible consistent with the other terms of this
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Agreement and the Options, the Federal tax deductibility under that section
of compensation paid to the Executive pursuant to performance-based
compensation. Solely to the extent of any conflict between the provisions
of this Agreement and the provisions of any agreement between Executive, on
the one hand, and COMSAT, Ascent and/or any affiliated or related entity of
either of them, on the other hand, relating to stock options (including the
Options), life insurance, health insurance, any other employee equity
participation, profit sharing or retirement plan, group health plan or
other employee benefits (individually and collectively, together with the
COMSAT Stock Awards, referred to herein as the "Fringe Benefits"), the
provisions of this Agreement will control.
3. Trade Secrets; Return of Documents and Property.
(a) Executive acknowledges that during the course of his
employment he will receive secret, confidential and proprietary information
("Trade Secrets") of Ascent and of other companies with which Ascent does
business on a confidential basis and that Executive will create and develop
Trade Secrets for the benefit of Ascent. Trade Secrets shall include,
without limitation, (a) literary, dramatic or other works, screenplays,
stories, adaptations, scripts, treatments, formats, "bibles," scenarios,
characters, titles of any kind and any rights therein, custom databases,
"know-how," formulae, secret processes or machines, inventions, computer
programs (including documentation of such programs) (collectively,
"Technical Trade Secrets"), and (b) matters of a business nature, such as
customer data and proprietary information about costs, profits, markets and
sales, customer databases, and other information of a similar nature to the
extent not available to the public, and plans for future development
(collectively, "Business Trade Secrets"). All Trade Secrets disclosed to or
created by Executive shall be deemed to be the exclusive property of Ascent
(as the context may require). Executive acknowledges that Trade Secrets
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have economic value to Ascent due to the fact that Trade Secrets are not
generally known to the public or the trade and that the unauthorized use or
disclosure of Trade Secrets is likely to be detrimental to the interests of
Ascent and its subsidiaries. Executive therefore agrees to hold in strict
confidence and not to disclose to any third party any Trade Secret acquired
or created or developed by Executive during the term of this Agreement
except (i)when Executive is required to use or disclose any Trade Secret in
the proper course of the Executive's rendition of services to Ascent
hereunder, (ii)when such Trade Secret becomes public knowledge other than
through a breach of this Agreement, or (iii) when Executive is required to
disclose any Trade Secret pursuant to any valid court order in which the
Executive is compelled to disclose such Trade Secret. The Executive shall
notify Ascent immediately of any such court order in order to enable Ascent
to contest such order's validity. For a period of two (2) years after
termination of the Employment Period for all Business Trade Secrets and for
a period of five (5) years after termination of the Employment Period for
all Technical Trade Secrets, the Executive shall not use or otherwise
disclose Trade Secrets unless such information (x) becomes public knowledge
or is generally known in the entertainment or sports industry among
executives comparable to the Executive other than through a breach of this
Agreement, (y) is disclosed to the Executive by a third party who is
entitled to receive and disclose such Trade Secret, or (z) is required to
be disclosed pursuant to any valid court order, in which case the Executive
shall notify Ascent immediately of any such court order in order to enable
Ascent to contest such order's validity.
(b) Upon the effective date of notice of the Executive's or
Ascent's election to terminate this Agreement, or at any time upon the
request of Ascent, the Executive (or his heirs or personal representatives)
shall deliver to Ascent (i) all documents and materials containing or
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otherwise relating to Trade Secrets or other information relating to
Ascent's business and affairs, and (ii) all documents, materials and other
property belonging to Ascent, which in either case are in the possession or
under the control of the Executive (or his heirs or personal
representatives). The Executive shall be entitled to keep his personal
records relating to Ascent's business and affairs except to the extent
those contain documents or materials described in clause (i) or (ii) of the
preceding sentence, in which case Executive may retain copies for his
personal and confidential use.
4. Discoveries and Works. All discoveries and works made or conceived
by the Executive during his employment by Ascent pursuant to this
Agreement, jointly or with others, that relate to Ascent's activities
("Discoveries and Works") shall be owned by Ascent. Discoveries and Works
shall include, without limitation, literary, dramatic or other works,
screenplays, stories, adaptations, scripts, treatments, formats, "bibles,"
scenarios, characters, titles of any kind and any rights therein, other
works of authorship, inventions, computer programs (including documentation
of such programs), technical improvements, processes and drawings. The
Executive shall (i) promptly notify, make full disclosure to, and execute
and deliver any documents reasonably requested by, Ascent to evidence or
better assure title to such Discoveries and Works in Ascent, (ii) assist
Ascent in obtaining or maintaining for itself at its own expense United
States and foreign copyrights, trade secret protection or other protection
of any and all such Discoveries and Works, and (iii) promptly execute,
whether during his employment by Ascent or thereafter, all applications or
other endorsements necessary or appropriate to maintain copyright and other
rights for Ascent and to protect their title thereto. Any Discoveries and
Works which, within sixty days after the termination of the Executive's
employment by Ascent, are made, disclosed, reduced to a tangible or written
form or description, or are reduced to practice by the Executive and which
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pertain to work performed by the Executive while with Ascent, COMSAT, CEG
and CVE shall, as between the Executive and Ascent, COMSAT, CEG and CVE be
presumed to have been made during the Executive's employment by Ascent,
COMSAT, CEG and CVE.
5. Termination. This Agreement shall remain in effect during the
Employment Period, and this Agreement and Executive's employment with
Ascent may be terminated only as follows:
(a) By the Executive (an "Executive Election") at any time upon
sixty (60) days advance written notice to Ascent upon an "Executive
Election Event" (as defined below). In such event or if the Executive's
employment is terminated by Ascent without "cause" (as defined below),
there will be no forfeiture, penalty, reduction or other adverse effect
upon any rights or interests relating to any Fringe Benefits, all of which
will fully vest, to the extent not previously vested, immediately upon such
termination becoming effective and final. Without limiting the foregoing,
in the event of an Executive Election or if the Executive's employment is
terminated without "cause," the Executive shall be entitled to receive the
following benefits through the longer of (a) the remainder of the
Employment Period as if this Agreement had remained in effect until the end
of such five-year Employment Period and (B) one year following the date of
such termination (the "Duration Period"): (i) his then current Base Salary;
(ii) an Annual Bonus equal to seventy percent (70%) of his then current
Base Salary; and (iii) all other benefits provided pursuant to Sections
2(c), (d) and (e) of this Agreement; provided, however, that in no event
will the amounts payable under clauses (i) and (ii) above be referable to
less than one full year of the Employment Period. The Executive shall have
no obligation to seek other employment in the event of his termination
pursuant to this paragraph (a), provided, however, that his compensation
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from any such employment obtained shall offset up to fifty percent (50%) of
Ascent's obligations under clauses (i) and (ii) above, but only after
payments pursuant to clauses (i) and (ii) are made with respect to a one
year period following termination. Ascent shall have the option at any time
during the Duration Period to pay to the Executive in a lump sum the
amounts remaining under clauses (i) and (ii) of this paragraph (a),
provided that the amount of such lump sum payment shall be reduced up to
fifty percent (50%) by the compensation payable to the Executive from other
employment for the time period remaining on Ascent's payment obligation
hereunder at the time such payment is made. If Ascent exercises such
option, Ascent and COMSAT shall have no further compensation payment
obligations under clauses (i) and (ii) above. The Executive shall have the
right to instruct Ascent to decrease any such payment or other benefit due
under this paragraph (a) to an amount not to exceed an amount to be
designated by the Executive in writing for the purpose of providing that
such payment (together with any other benefits provided to the Executive)
shall not constitute a "parachute payment" as defined in Section 280G of
the Code; provided, however, that Ascent's agreement to decrease such
payment shall not result in any liability from Ascent to the Executive with
respect to any excise tax under Section 4999 of the Code (or any similar
state or local provision), or any penalties or interest with respect to
such excise tax. Ascent shall place an amount equivalent to its obligations
owed to the Executive in connection with this Section 5(a) in an escrow
account to be administered by an unrelated third party, or shall provide
some other comparable form of security (e.g., an irrevocable letter of
credit) for such obligations reasonably acceptable to the Executive. In all
circumstances of termination under this Section 5(a), Ascent shall remain
obligated under clause (iii) and all stock options (including the Option)
will remain exercisable for the maximum period provided in each applicable
grant.
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An "Executive Election Event" shall be any of the following: (I)
any substantial reduction (except in connection with the termination of his
employment voluntarily by the Executive or by Ascent for "cause" as defined
below) by Ascent, without the Executive's express written consent, of his
responsibilities as President and Chief Executive Officer of Ascent; (II)
any change in the reporting structure set forth in Section 1(b) above;
(III) any requirement that Executive perform material services of lesser
stature than those typically performed by the president and CEO of
comparably sized companies in the entertainment industry; (IV) any
reduction in Executive's title; (V) a "Change of Control Event" (as defined
in Section 7(a) below); provided that in such event, the 50% offset from
subsequent employment set forth in the preceding paragraph shall be
increased to 100% and such offset shall apply during the first year after
termination as well; (VI) any other material default of this Agreement
which continues for ten (10) business days following Ascent's receipt of
written notice from the Executive specifying the manner in which Ascent is
in default of this Agreement; (VII) the Board's requiring Executive to be
based at any office location other than the principal offices of Ascent, or
the relocation, without Executive's consent, of such principal offices to a
location outside the greater Denver area prior to the second anniversary of
the Effective Date; or (VIII) any purported termination of Executive's
employment otherwise than as expressly permitted by the Agreement.
(b) By Ascent at any time for "cause." For purposes of this
Agreement, Ascent shall have "cause" to terminate the Executive's
employment hereunder upon (i) the continued and deliberate failure of the
Executive to perform his material duties, in a manner substantially
consistent with the manner reasonably prescribed by the Board and in
accordance with the terms of this Agreement (other than any such failure
resulting from his incapacity due to physical or mental illness), which
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failure continues for ten (10) business days following the Executive's
receipt of written notice from the Board specifying the manner in which the
Executive is in default of his duties, (ii) the engaging by the Executive
in intentional serious misconduct that is materially and demonstrably
injurious to Ascent or its reputation, which misconduct, if it is
reasonably capable of being cured, is not cured by the Executive within ten
(10) business days following the Executive's receipt of written notice from
the Board specifying the serious misconduct engaged in by the Executive,
(iii) the conviction of the Executive of commission of a felony involving a
crime of moral turpitude, whether or not such felony was committed in
connection with Ascent's business, or (iv) any material breach by the
Executive of Section 8 hereof. If Ascent shall terminate the Executive's
employment for "cause," there will be no forfeiture, penalty, reduction or
other adverse effect upon any vested rights or interests relating to any
Fringe Benefits. In such event, Ascent, in full satisfaction of all of
Ascent's obligations under this Agreement and in respect of the termination
of the Executive's employment with Ascent, shall pay the Executive his Base
Salary, a prorated Annual Bonus and all other compensation, benefits and
reimbursement through the date of termination of his employment, provided
that the Options and any other stock options granted to the Executive under
the Ascent option or any successor plan or under COMSAT's Key Employee
Stock Plans shall terminate three months after the date of termination of
his employment for "cause".
6. Disability; Death.
(a) If, prior to the expiration or termination of the Employment
Period, the Executive shall be unable to perform substantially his duties
by reason of disability or impairment of health for at least six
consecutive calendar months, Ascent shall have the right to terminate this
Agreement by giving sixty (60) days written notice to the Executive to that
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effect, but only if at the time such notice is given such disability or
impairment is still continuing. Following the expiration of the notice
period, the Employment Period shall terminate with the payment of the
Executive's Base Salary for the month in which notice is given and a
prorated Annual Bonus through such month, and there will be no forfeiture,
penalty, reduction or other adverse effect upon any vested rights or
interests relating to any Fringe Benefits. In the event of a dispute as to
whether the Executive is disabled within the meaning of this paragraph (a),
or the duration of any disability, either party may request a medical
examination of the Executive by a doctor appointed by the Chief of Staff of
a hospital selected by mutual agreement of the parties, or as the parties
may otherwise agree, and the written medical opinion of such doctor shall
be conclusive and binding upon the parties as to whether the Executive has
become disabled and the date when such disability arose. The cost of any
such medical examinations shall be borne by Ascent.
(b) If, prior to the expiration or termination of the Employment
Period, the Executive shall die, Ascent shall pay to the Executive's estate
his Base Salary and a prorated Annual Bonus through the end of the month in
which the Executive's death occurred, at which time the Employment Period
shall terminate without further notice and there will be no forfeiture,
penalty, reduction or other adverse effect upon any vested rights or
interests relating to any Fringe Benefits; provided that the Options and
any other stock options granted to the Executive under the Ascent option
plan or any successor plan shall become fully vested and shall terminate
one year after the date of termination of the Executive's employment for
death, notwithstanding the limitations of Section 2(e) of this Agreement.
(c) Nothing contained in this Section 6 shall impair or otherwise
affect any rights and interests of the Executive under any compensation
plan or arrangement of Ascent which may be adopted by the Board.
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7. Change of Control.
-----------------
(a) If, prior to the termination of the Employment Period, there
is a "Change of Control Event" (as hereinafter defined in this paragraph
(a)), the Executive shall have the right to exercise his Executive Election
in accordance with Section 5(a), but shall not have the right to give
notice in accordance with Section 5(a) in any event later than 120 days
following such Change of Control Event. Prior to any "change of control"
(as hereinafter defined in this paragraph (a)), and from time to time
thereafter at the Executive's request upon relevant changed circumstances
in the ownership or management of Ascent, the Executive and the Board will
mutually determine whether such "change of control" or changed
circumstances would be reasonably likely to have a materially detrimental
effect on the condition, reputation or future prospects of Ascent or its
successor entity, the day-to-day circumstances of the Executive's
employment or the compensation payable to the Executive hereunder. An
affirmative determination with respect to either of the foregoing by the
Executive and the Board, or by an arbitrator as provided below, shall be
referred to herein as a "Change of Control Event", it being agreed that the
arbitrator shall award the Executive costs and attorney's fees under
Section 11(c) if the Executive has submitted the matter to arbitration with
a reasonable basis for doing so, even if the Executive is not the
prevailing party therein. If the Executive and the Board are unable to
agree on such determination, the Executive shall have the right: (i) to
submit to arbitration pursuant to Section 11 below the determination of
whether the "change of control" or changed circumstances would be
reasonably likely to have either of the materially detrimental effects
mentioned above, and an affirmative determination by the arbitrator shall
constitute a "Change of Control Event"; (ii) to accept continued employment
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with Ascent or its successor entity on the terms of this Agreement; or
(iii) to terminate this Agreement by giving sixty (60) days written notice
to Ascent to that effect. If the Executive elects to terminate this
Agreement pursuant to clause (iii) of this paragraph (a), following the
expiration of the notice period provided therein, the Employment Period
shall terminate with the payment of the Executive's Base Salary for the
month in which notice is given. "Change of control" for purposes of this
paragraph (a) shall mean any event as a result of which COMSAT no longer
owns more than fifty percent (50%) of the voting stock of Ascent, provided
that any Ascent voting stock which is publicly held shall be considered as
owned by COMSAT for this purpose.
(b) In the event that COMSAT or Ascent adopts any "change of
control" provisions applicable to any COMSAT or Ascent benefits plans,
respectively, providing for the accelerated vesting and/or payment of any
benefits for its senior management group, to the extent that such
provisions give Executive greater rights than those provided in paragraph
(a) above, such provisions shall apply to the Executive to the same extent
as other Ascent senior executives or COMSAT senior executives on a favored
nations basis with respect to the benefits affected by such COMSAT or
Ascent provisions, respectively.
8. Non-Competition.
---------------
(a) As an inducement for Ascent to enter into this Agreement, the
Executive agrees that for a period commencing as of the Effective Date and
running through the earlier of (i) the end of the Employment Period if the
Executive remains employed by Ascent for the entire Employment Period or
(ii) one year following termination of the Executive's employment by Ascent
for "cause" as defined in Section 5(b) hereof, or by the Executive for any
reason (other than an Executive Election Event or an event described in
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Section 7(a)(iii) above, in which case the provisions of this paragraph (a)
shall not apply) (the "Non-Competition Period"), the Executive shall not,
without the prior written consent of the Board, engage or participate,
directly or indirectly, as principal, agent, employee, employer,
consultant, stockholder, partner or in any other individual capacity
whatsoever, in the conduct or management of, or own any stock or any other
equity investment in or debt of, any business which is competitive with any
business conducted by Ascent, including the Entertainment Business.
For the purpose of this Agreement, a business shall be considered
to be competitive with any business of Ascent only if such business is
engaged in providing services or products (i) similar to (A) any service or
product currently provided by Ascent during the Employment Period; (B) any
service or product which evolves from or results from enhancements in the
ordinary course during the Non-Competition Period to the services or
products provided by Ascent as of the date hereof or during the Employment
Period; or (C) any future service or product of Ascent as to which the
Executive materially and substantially participated in the development or
enhancement, and (ii) to customers, distributors or clients of the type
served by Ascent during the Non-Competition Period.
(b) Non-Solicitation of Employees. During the Non-Competition
Period, the Executive will not (for his own benefit or for the benefit of
any person or entity other than Ascent) solicit, or assist any person or
entity other than Ascent to solicit, any officer, director, executive or
employee (other than an administrative or clerical employee) of Ascent to
leave his or her employment.
(c) Reasonableness; Interpretation. The Executive acknowledges
and agrees, solely for purposes of determining the enforceability of this
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Section 8 (and not for purposes of determining the amount of money damages
or for any other reason), that (i) the markets served by Ascent are
national and international and are not dependent on the geographic location
of executive personnel or the businesses by which they are employed; (ii)
the length of the Non-Competition Period is linked to the term of the
Employment Period and the severance benefit provided for in Section 5(a);
and (iii) the above covenants are manifestly reasonable on their face, and
the parties expressly agree that such restrictions have been designed to be
reasonable and no greater than is required for the protection of Ascent. In
the event that the covenants in this Section 8 shall be determined by any
court of competent jurisdiction in any action to be unenforceable by reason
of their extending for too great a period of time or over too great a
geographical area or by reason of their being too extensive in any other
respect, they shall be interpreted to extend only over the maximum period
of time for which they may be enforceable, and/or over the maximum
geographical area as to which they may be enforceable and/or to the maximum
extent in all other respects as to which they may be enforceable, all as
determined by such court in such action.
(d) Investment. Nothing in this Agreement shall be deemed to
prohibit the Executive from owning equity or debt investments in any
corporation, partnership or other entity which is competitive with Ascent,
provided that such investments (i) are passive investments and constitute
five percent (5%) or less of the outstanding equity securities of such an
entity the equity securities of which are traded on a national securities
exchange or other public market, or (ii) are approved by the Board.
9. Indemnification; Liability Insurance. The Executive shall be
entitled to indemnification and coverage under Ascent's liability insurance
policy for directors and officers to the same extent as other directors and
officers of Ascent. During and after the term of employment, Ascent hereby
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agrees to indemnify and hold Executive harmless against any and all claims
arising from or in connection with his employment by or service to Ascent
to the full extent permitted by law and, in connection therewith, to
advance the expenses of Executive incurred in defending against such claims
subject to such limitations as may actually be required by law.
10. Enforcement; Joint and Several Liability. The Executive
acknowledges that a breach of the covenants or provisions contained in
Sections 3, 4 and 8 of this Agreement will cause irreparable damage to the
Entertainment Business and Ascent, the exact amount of which will be
difficult to ascertain, and that the remedies at law for any such breach
will be inadequate. Accordingly, the Executive agrees that if the Executive
breaches or threatens to breach any of the covenants or provisions
contained in Sections 3, 4 and 8 of this Agreement, in addition to any
other remedy which may be available at law or in equity, Ascent shall be
entitled to seek specific performance and injunctive relief.
11. Arbitration.
(a) Subject to Ascent's right to enforce Sections 3, 4 and 8
hereof by an injunction issued by a court having jurisdiction (which right
shall prevail over and supersede the provisions of this Section 11), any
dispute relating to this Agreement, including the enforceability of this
Section 11, arising between the Executive and Ascent shall be settled by
arbitration which shall be conducted in Denver, Colorado, or any other
location where the Executive then resides at Ascent's request, before a
single arbitrator in accordance with the commercial arbitration rules of
the American Arbitration Association ("AAA"). Within 90 days after the
Effective Date, the parties shall mutually agree upon three possible
arbitrators, one of whom shall be selected by the AAA within 2 days after
notice of a dispute to be arbitrated under this Section 11. The parties
-24-
<PAGE>
shall instruct the arbitrator to use his or her best efforts to conclude
the arbitration within 60 days after notice of the dispute to AAA.
(b) The award of any such arbitrator shall be final. Judgment
upon such award may be entered by the prevailing party in any federal or
state court sitting in Denver, Colorado or any other location where the
Executive then resides at Ascent's request.
(c) Subject to Section 7(a), the parties will bear their own
costs associated with arbitration and will each pay one-half of the
arbitration costs and fees of AAA; however, the arbitrator may in his sole
discretion determine that the costs of the arbitration proceedings,
including attorneys' fees, shall be paid entirely by one party to the
arbitration if the arbitrator determines that the other party is the
prevailing party in such arbitration.
12. Severability. Should any provision of this Agreement be determined
to be unenforceable or prohibited by any applicable law, such provision
shall be ineffective to the extent, and only to the extent, of such
unenforceability or prohibition without invalidating the balance of such
provision or any other provision of this Agreement, and any such
unenforceability or prohibition in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
13. Assignment. The Executive's rights and obligations under this
Agreement shall not be assignable by the Executive. Ascent's rights and
obligations under this Agreement shall not be assignable by Ascent except
as incident to the transfer, by merger or otherwise, of all or
substantially all of the business of Ascent. In the event of any such
assignment by Ascent, all rights of Ascent hereunder shall inure to the
benefit of the assignee.
-24-
<PAGE>
14. Notices. All notices and other communications which are required
or may be given under this Agreement shall be in writing and shall be
deemed to have been duly given when received if personally delivered; when
transmitted if transmitted by telecopy, electronic or digital transmission
method, provided that in such case it shall also be sent by certified or
registered mail, return receipt requested; the day after it is sent, if
sent for next day delivery to a domestic address by recognized overnight
delivery service (e.g., Federal Express); and upon receipt, if sent by
certified or registered mail, return receipt requested. Unless otherwise
changed by notice, in each case notice shall be sent to:
If to Executive, addressed to:
Charles Lyons
4681 W. Hanoverian Way
Littleton, Colorado 80123
With a copy to:
Irell & Manella
Suite 900
1800 Avenue of the Stars
Los Angeles, California 90067
Attention: Ed Zeldow, Esq.
Telecopier No.: (310) 203-7199
-25-
<PAGE>
If to Ascent, addressed to:
Ascent Entertainment Group, Inc.
1200 Seventeenth Street
Denver, Colorado 80202
Attention: James A. Cronin, III
Telecopier No. (303) 595-0823
With a copy to:
Ascent Entertainment Group
1200 Seventeenth Street
Denver, Colorado 80202
Attention: Arthur M. Aaron
Telecopier No. (303) 595-0127
15. Miscellaneous. This Agreement constitutes the entire agreement,
and supersedes all prior agreements, of the parties hereto relating to the
subject matter hereof, and there are no written or oral terms or
representations made by either party other than those contained herein. No
amendment, supplement, modification or waiver of this Agreement shall be
binding unless executed in writing by the party to be bound thereby. The
validity, interpretation, performance and enforcement of the Agreement
shall be governed by the laws of the State of Maryland. The headings
contained herein are for reference purposes only and shall not in any way
affect the meaning or interpretation of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
/s/ Charles Lyons
---------------------------
Charles Lyons, Executive
-26-
<PAGE>
ASCENT ENTERTAINMENT GROUP, INC.
By: C.J. Silas
---------------------------
Title: Chairman
<PAGE>
PRIVATE AND CONFIDENTIAL
November 4, 1996
Richard E. Thomas
8207 Light Horse Court
Annandale, VA 22030
Dear Dick:
In consideration of the mutual premises set forth herein, this letter
agreement (the "Agreement") between COMSAT Corporation ("COMSAT") and you
amends and supersedes the employment agreement by and among COMSAT, CTS
America, Inc. and you dated as of January 30, 1994 (the "Employment
Agreement") in order to reflect your desire to step down as President of
COMSAT RSI, Inc. ("CRSI"), the mutual desire that you continue your
employment with CRSI by providing certain consulting services during the
balance of the employment period under the Employment Agreement, and your
retirement from CRSI at the end of such period. Subject to the conditions
listed below, you will remain in the employ of CRSI as described below
through June 3, 1997 (the "Retirement Date"). Based on the foregoing and
the terms and conditions stated below, COMSAT and you agree as follows:
1. (a) You have resigned as President of CRSI effective September 20,
1996 (the "Effective Date").
(b) You will retire from CRSI on the Retirement Date, and your
employment with CRSI will thereupon terminate.
(c) During the period from the Effective Date through the Retirement
Date (the "Transition Period"), as an employee of CRSI you will provide
advisory and consulting services to COMSAT and CRSI with respect to matters
which may arise in connection with your former duties as President of CRSI
("Consulting Services"), from time to time as requested by the Vice
President, Human Resources and Organization Development of COMSAT (the "VP
of HR") or the head of CRSI, subject at all times to your availability to
provide such services. All requests for Consulting Services will, to the
greatest extent possible, be made with sufficient advance notice to allow
you to coordinate your schedule and will be coordinated between the VP of
HR and the head of CRSI to the extent necessary to ensure no conflicts
between their respective requests. All such requests will be made in good
faith and with
<PAGE>
Richard E. Thomas
November 4, 1996
Page 2
a view not to place excessive demands upon your time and energies. You will
be reimbursed for all reasonable expenses in connection with your provision
of Consulting Services.
(d) In consideration of your rights and obligations under this
Agreement, including your provision of the Consulting Services, during the
Transition Period COMSAT and CRSI 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 were provided to you
immediately prior to the Effective Date as a member of the senior
management group, including, but not limited to, the COMSAT Insurance and
Retirement Plan for Executives (the "SERP"), the COMSAT Directors and
Executives Deferred Compensation Plan, the COMSAT Savings and
Profit-Sharing Plan, the COMSAT Employee Stock Purchase Plan, the CRSI
Employee Stock Ownership Plan, the CRSI health and disability insurance
programs, and financial counseling. In addition, you will be entitled to
receive a cash bonus of $90,000 under the COMSAT Annual Incentive Plan (the
"AIP") with respect to 1996, such bonus to be payable in February 1997 at
the same time other AIP bonuses are paid. However, except as provided above
in this Paragraph 1(d), during the Transition Period, you will not be
eligible for salary increases of any nature, cash or stock-based bonuses or
awards of any nature, outplacement assistance or educational assistance,
any or all of which may be available to other employees. Except as
otherwise provided in this Agreement, for all purposes of COMSAT and CRSI
service credit, your last date of employment will be the Retirement Date.
(e) During the Transition Period, the stock options and Restricted
Stock Awards previously granted to you under the 1990 and 1995 COMSAT Key
Employee Stock Plans pursuant to Sections 3 and 4 of the Employment
Agreement or otherwise, and the Phantom Stock Units previously granted to
you under the AIP will continue to vest in accordance with their original
terms.
(f) Except as provided in Paragraph 3 of this Agreement, the $100,000
retention bonus provided for in Section 2(d)(iv) of the Employment
Agreement will be paid to you on the Retirement Date.
(g) Beginning on July 1, 1997, the first day of the month after the
Retirement Date, you will receive SERP retirement benefits calculated, as
approved by the COMSAT Board of Directors, with the inclusion of the
retention bonuses previously paid to you under Section 2(d) of the
Employment Agreement, plus the retention bonus payable under Paragraph 2(f)
of this Agreement, unless such retention bonus payable under Paragraph
<PAGE>
Richard E. Thomas
November 4, 1996
Page 3
2(f)is forfeited pursuant to Paragraph 3 of this Agreement. Based on
preliminary calculations which are subject to final adjustment, the
estimated annual SERP retirement benefit you will receive beginning on July
1, 1997 is $278,435.
(h) CRSI at its expense will transfer to you title of the car you are
currently using pursuant to the Employment Agreement.
(i) During the Transition Period, you will be free at all times to
seek, take on and perform other business and employment opportunities and
responsibilities outside CRSI ("Other Business"), 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. In the event of a conflict between a
request for Consulting Services and your Other Business, you will resolve
such conflict in your reasonable discretion after consultation with the VP
of HR.
(j) The Employment Agreement is hereby terminated on the Effective
Date of this Agreement, except that the provisions of Sections 3, 4 5, 6,
7, 8(b)(ii) and (iii), 9(b) and (c), 10, 11, 12, 13, 14 and 15 shall
survive the termination of the Employment Agreement.
2. You agree to the general release and covenant not to sue contained in
this paragraph 2. It is understood, however, that this release will not
waive your right to pursue any claim for benefits or any rights to which
you are or may be entitled under this Agreement, your employment by CRSI
from the Effective Date through the Retirement Date in accordance with this
Agreement, the SERP, or any other payments or other benefits to which you
are entitled, or will become entitled after your retirement from CRSI,
pursuant to the specific terms of this Agreement or any COMSAT or CRSI
employee benefit plans in which you are a participant. It is further
understood that this release will not (i) waive any rights to
indemnification from COMSAT you may be entitled to under COMSAT's Articles
of Incorporation or By-Laws or (ii) vitiate any rights you may have as a
shareholder of COMSAT, provided that you agree that you will not (x)
participate as a named plaintiff in any shareholder action against COMSAT
or its directors and officers for any acts, omissions or events occurring
during the period commencing on June 3, 1994 and ending on December 3, 1997
or (y) recover as a shareholder of COMSAT any damages or other relief in
any such action which is not recovered by COMSAT's directors and officers
in their capacity as shareholders of COMSAT.
<PAGE>
Richard E. Thomas
November 4, 1996
Page 4
(a) Except as provided above in this Paragraph 2, 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 (collectively "Waived Claims"), including, without limitation, (i) any
claims relating to your employment with COMSAT; (ii) any claims relating to
the Employment Agreement; (iii) 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 the resulting termination of your
employment effective on the Retirement Date, under the arrangement as set
forth herein; (iv) any claims relating to the terms, conditions and
benefits associated with such employment or your retirement and the
resulting termination of your employment; (v) 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; (vi) any claims at common law, including, without
limitation, claims for breach of an express or implied contract, or
wrongful discharge; or (vii) 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. You understand and agree that your employment status with CRSI during
the Transition Period and the salary and benefits provided during such
period, together with the retention bonus payable pursuant to Paragraph
2(f), are conditioned upon the following and that if you breach any of the
following during such period, you will forfeit the retention bonus and your
employment, salary and benefits provided during such period will terminate
effective on the date upon which COMSAT provides written notice to you of
such termination:
<PAGE>
Richarg E. Thomas
November 4, 1996
Page 5
(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) You will cooperate as reasonably requested by the Vice President
and General Counsel of COMSAT or his designee in assisting COMSAT and CRSI
to defend the Flora lawsuit or any other existing or prospective lawsuits
or administrative or regulatory proceedings that arise out of or involve
matters or events which occurred on or before the Effective Date.
4. This Agreement is strictly confidential. You agree, that, until such
time as this Agreement becomes public as a result of its filing, if
required, by COMSAT with the Securities and Exchange Commission (the
"SEC"), or 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 before this Agreement becomes public as a result of its filing with
the SEC, 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 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,
<PAGE>
Richard E. Thomas
November 4, 1996
Page 6
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 or CRSI 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. You will be entitled to indemnification as provided in COMSAT's
Articles of Incorporation and By-Laws and to coverage under COMSAT's
directors and officers liability insurance policy as provided therein.
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. A waiver of a breach of any provision of this Agreement will not
constitute a waiver of any subsequent breach of the same provision or a
waiver of a breach of any other provision of this Agreement.
11. 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>
Richard E. Thomas
November 4, 1996
Page 7
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/ Richard E. Thomas
- ----------------------------
Richard E. Thomas
6 November 1996
- ----------------------------
Date
Enclosure: Duplicate Original
<PAGE>
COMSAT CORPORATION
1995 KEY EMPLOYEE STOCK PLAN
Adopted by the Board of Directors on January 20, 1995,
and approved by the Shareholders on May 19, 1995
Amendments adopted by the Board of Directors on February 16, 1996
<PAGE>
COMSAT CORPORATION
1995 KEY EMPLOYEE STOCK PLAN
1. Purpose. The purpose of this plan ("Plan") is to promote the
interests of COMSAT Corporation ("Corporation") by affording its key
employees an incentive, by means of an opportunity to acquire the
Corporation's common stock without par value ("Common Stock"), to remain in
the employ of the Corporation and to exert their maximum efforts in its
behalf.
2. Administration. The Plan shall be administered by the Committee on
Compensation and Management Development ("Committee") of the Board of
Directors of the Corporation ("Board"). In addition to its duties with
respect to the Plan stated elsewhere in the Plan, the Committee shall have
full authority, consistently with the Plan, to interpret the Plan, to
promulgate such rules and regulations with respect to the Plan as it deems
desirable and to make all other determinations necessary or desirable for
the administration of the Plan. All decisions, determinations and
interpretations of the Committee shall be binding upon all persons.
3. Shares Subject to the Plan. The aggregate number of shares of
Common Stock which may be covered by stock options ("Options"), stock
appreciation rights ("SARs"), restricted stock units ("Restricted Stock
Units") and restricted stock awards ("Restricted Stock Awards") granted
pursuant to the Plan is 5,000,000 shares, subject to adjustment under
Section 11. No
<PAGE>
more than 1,665,000 of the shares may be covered by Restricted Stock Units
and Restricted Stock Awards. Shares which may be delivered on exercise or
settlement of Options, SARs, Restricted Stock Units or Restricted Stock
Awards may be previously issued shares reacquired by the Corporation or
authorized but unissued shares. Shares covered by Restricted Stock Units
and Restricted Stock Awards that are forfeited and shares covered by
Options that expire unexercised (without having been surrendered upon the
exercise of SARs, whether settled in cash or Common Stock) shall again be
available for grant under the Plan. Shares tendered in payment of the
purchase price of shares purchased pursuant to the exercise of Options also
shall be available for grant under the Plan. Any SAR or Restricted Stock
Unit, or any portion thereof, which is payable in cash shall not be counted
against the various share limits on grants set forth in this Section 3.
4. Eligibility. The Committee shall from time to time in its
discretion select the employees to whom Options, SARs, Restricted Stock Units
and Restricted Stock Awards shall be granted ("Participants") from among the
key employees of the Corporation and its subsidiary corporations
("Subsidiaries").
5. Options.
(a) The Committee shall in its discretion determine the time or
times when Options shall be granted and the number of shares of Common
Stock to be subject to each Option. In the case of incentive stock options,
as defined in Section 422 of the Internal Revenue Code of 1986, as amended
(the "Code"), the
2
<PAGE>
aggregate fair market value (determined as of the date the Options are
granted) of the stock with respect to which such Options are exercisable
for the first time by any Participant during any calendar year (under all
stock option plans of the Corporation and its Subsidiaries) shall not
exceed $100,000, or such other amount as may be provided by Section 422 of
the Code. Options may be granted under the Plan on such terms and
conditions as the Committee considers appropriate, which may differ from
those provided in the Plan, where such Options are granted in substitution
for stock options held by employees of other companies who concurrently
become employees of the Corporation or a Subsidiary as the result of a
merger or consolidation of the employing company with, or the acquisition
of the property or stock of the employing company by, the Corporation or a
Subsidiary.
(b) Each Option shall be for such term as the Committee shall
determine, but not more than 10 years from the date it is granted, except
that the term of an Option other than an incentive stock option may extend
up to 11 years from the date the Option is granted if the Participant dies
within the 10th year following the date of grant.
(c) The purchase price for each share of Common Stock subject to
an Option shall be no less than the fair market value of the Common Stock
on the date the Option is granted. For this purpose as well as other
purposes under the Plan, fair market value shall be deemed to be the
average of the highest and lowest
3
<PAGE>
selling prices of Common Stock as reported under New York Stock
Exchange-Composite Transactions on the date on which the Option was granted
or, if there were no sales of Common Stock on that date, then on the next
preceding date on which there were sales.
(d) Exercise of an Option shall be by written notice in the form
and manner determined by the Committee. Except as otherwise determined by
the Committee, no Option may be exercised to any extent before six months
from the date of grant. The Committee in its discretion may (1) determine
installment exercise terms for an Option under which it may be exercised in
a series of cumulative installments, (2) prescribe rules limiting the
frequency of exercise of Options or the minimum number of shares that may
be exercised at any one time, (3) determine the form of consideration
(including cash, shares of Common Stock or any combination thereof) which
may be accepted in payment of the purchase price of shares purchased
pursuant to the exercise of an Option, and (4) prescribe such other rules
or conditions as it considers appropriate regarding the exercise of Options
granted under the Plan.
(e) In the case of incentive stock options, the instruments
evidencing such Options shall provide that if, within two years from the
date of grant of the Option or within one year after the transfer of shares
of Common Stock to the Participant on exercise of the Option, the
Participant makes a disposition (as defined in Section 424(c) of the Code)
of any shares of such Common Stock, the Participant shall notify the
Corporation of
4
<PAGE>
such disposition in the manner and within the time as the Committee in its
discretion shall determine. The Committee may direct that a legend
restricting transfer in the absence of appropriate notification be affixed
to any stock certificates representing Common Stock transferred under the
Plan.
(f) Each Option shall be evidenced by a written instrument which
shall state such terms and conditions which are not inconsistent with the
provisions of the Plan as the Committee in its sole discretion shall
determine and approve, including terms and conditions regarding the
exercise of Options upon termination of employment.
6. Stock Appreciation Rights. The Committee may from time to time
grant SARs, which may be freestanding SARs or SARs related to Options or
portions of Options granted to Participants under the Plan. Each SAR shall
be evidenced by a written instrument and shall be subject to such terms and
conditions as the Committee may determine, including terms and conditions
regarding the exercise price for each share of Common Stock subject to such
SAR, provided that in the case of an SAR related to an Option or portion
thereof, such terms and conditions may not be less restrictive than the
terms and conditions of the related Option. The Participant may exercise an
SAR or portion thereof, and thereupon shall be entitled to receive payment
of an amount equal to the aggregate appreciation in value of the shares
covered by the SAR or portion thereof exercised, as measured by the
difference between the exercise price of such shares and
5
<PAGE>
their fair market value on the date of exercise. Such payment may be made
in cash, in shares of Common Stock valued at fair market value as of the
date of exercise, or in any combination thereof, as the Committee in its
discretion shall determine. Upon the exercise of an SAR related to an
Option or portion thereof, the Participant shall surrender the right to
exercise the related Option or portion thereof.
7. Restricted Stock Units.
(a) The Committee may from time to time, and subject to the
provisions of the Plan and such other terms and conditions as the Committee
may determine, grant Restricted Stock Units under the Plan. Each grant of
Restricted Stock Units shall be evidenced by a written instrument which
shall state the number of Restricted Stock Units covered by the grant and
the terms and conditions which the Committee shall have determined with
respect to such grant. Each Restricted Stock Unit shall be equivalent in
value to a share of Common Stock.
(b) Vesting of each grant of Restricted Stock Units shall require
the Participant to remain in the employment of the Corporation or a
Subsidiary for a prescribed period ("Restriction Period"). The Committee
shall determine the Restriction Period or Periods which shall apply to the
shares of Common Stock covered by each grant of Restricted Stock Units,
provided that in no case shall the Restriction Period be less than one
year. Except as otherwise determined by the Committee, all Restricted Stock
Units granted to a Participant under the Plan shall
6
<PAGE>
terminate upon termination of the Participant's employment with the
Corporation or any of its Subsidiaries before the end of the Restriction
Period or Periods applicable to such Restricted Stock Units, and in such
event the Participant shall not be entitled to receive any payment with
respect to those Restricted Stock Units, except as provided in paragraph
(d).
(c) Upon expiration of the Restriction Period or Periods
applicable to each grant of Restricted Stock Units, the Participant shall,
without payment on his part, be entitled to receive payment in an amount
equal to the aggregate fair market value of the shares of Common Stock
covered by such grant on the date of expiration. Such payment may be made
in cash, in shares of Common Stock equal to the number of Restricted Stock
Units with respect to which such payment is made, or in any combination
thereof, as the Committee in its discretion shall determine.
(d) A Participant whose Restricted Stock Units have not
previously terminated shall be entitled to receive payment in an amount
equal to each cash dividend the Corporation would have paid to such
Participant during the term of those Restricted Stock Units as if the
Participant had been the owner of record of the shares of Common Stock
covered by such Restricted Stock Units on the record date for the payment
of such dividend. Payment of each such dividend equivalent shall be made on
the payment date of the cash dividend with respect to which it is made, or
as soon as practicable thereafter.
7
<PAGE>
8. Restricted Stock Awards.
-----------------------
(a) The Committee may from time to time, and subject to the
provisions of the Plan and such other terms and conditions as the Committee
may determine, grant Restricted Stock Awards under the Plan. Each
Restricted Stock Award shall be evidenced by a written instrument which
shall state the number of shares of Common Stock covered by the award and
the terms and conditions which the Committee shall have determined with
respect to such award. Upon the grant of each Restricted Stock Award, a
certificate representing the shares of Common Stock covered by the award
shall be registered in the name of the Participant and shall be delivered
to the Participant without payment on his part. The Participant shall
generally have the rights and privileges of a shareholder of the
Corporation with respect to such shares, including the right to vote and to
receive dividends, subject to the restrictions specified in paragraphs (b)
and (c).
(b) The Committee shall determine a period of time ("Limitation
Period") which shall apply to the shares of Common Stock transferred to a
Participant with respect to each Restricted Stock Award, provided that in
no event shall the Limitation Period be less than one year. Except as
otherwise determined by the Committee, during the Limitation Period
applicable with respect to each Restricted Stock Award, the Participant may
not sell, transfer, assign, pledge or otherwise encumber or dispose of the
shares of Common Stock covered by such
8
<PAGE>
Restricted Stock Award. The Committee in its discretion may prescribe
conditions for the incremental lapse of the preceding restrictions during
the Limitation Period, and for the lapse or termination of such
restrictions upon the occurrence of certain events before the expiration of
the Limitation Period. The Committee in its discretion also may shorten or
terminate the Limitation Period or waive any conditions for the lapse or
termination of the restrictions with respect to all or any portion of the
shares of Common Stock covered by the Restricted Stock Award. The
certificate representing the shares of Common Stock distributed with
respect to each Restricted Stock Award made under the Plan shall be affixed
with a legend setting forth the restrictions applicable to the transfer of
such shares. The restrictions applicable to a Restricted Stock Award shall
lapse and a certificate for the number of shares of Common Stock with
respect to which the restrictions have lapsed shall be delivered to the
Participant free of all such restrictions upon the earliest of the
following: (1) the expiration of the Limitation Period applicable to the
Restricted Stock Award, (2) the occurrence of an event prescribed by the
Committee which results in the lapse of the restrictions, or (3) such other
time as the Committee may determine.
(c) The shares of Common Stock covered by a Restricted Stock
Award shall be forfeited by the Participant upon termination of the
Participant's employment with the Corporation or any of its subsidiaries
before the occurrence of any of the
9
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events described in the last sentence of paragraph (b). The Participant
shall thereupon immediately transfer the shares back to the Corporation
without payment by the Corporation.
9. Performance-Based Awards.
------------------------
(a) Notwithstanding the provisions of Sections 7 and 8, the
Committee in its discretion may determine that Restricted Stock Units or
Restricted Stock Awards shall be subject to performance goals in addition
to the provisions of Sections 7 and 8. The terms and conditions of such
performance goals shall be determined by the Committee pursuant to the
provisions of this Section 9 and shall be stated in the written instrument
evidencing the Restricted Stock Unit or Restricted Stock Award grant. No
more than 50,000 shares of Common Stock may be covered by performance-based
Restricted Stock Units or Restricted Stock Awards granted to any
Participant in any given year.
(b) The Committee shall determine a period of time ("Performance
Period") which shall apply to the shares of Common Stock covered by each
grant of performance-based Restricted Stock Units or Restricted Stock
Awards, provided that in no event shall the Performance Period be less than
one year. The Committee shall determine the performance measures and
specific targets applicable thereto which shall apply during the
Performance Period. The performance measures shall include one or more of
the following: improvements in revenues, earnings per share, profit before
taxes, price/equity ratio, net income or operating income; return on
shareholder equity; return on net assets;
10
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or stock price performance. If the Committee shall establish more than one
performance measure, the Committee shall determine the appropriate
weighting for each performance measure. The Committee also shall determine
whether the target established for each applicable performance measure is
subject to full or partial satisfaction.
(c) In the case of a Restricted Stock Unit grant subject to the
provisions of this Section 9, the Committee may determine that the dividend
equivalents otherwise payable to a Participant during the Performance
Period shall instead be accrued and paid to the Participant at the end of
the Performance Period to the extent that the applicable performance
measures have been achieved.
(d) At the end of the Performance Period applicable to each grant
of Restricted Stock Units or Restricted Stock Awards subject to the
provisions of this Section 9, the Committee shall certify whether the
applicable performance measures have been achieved. The shares of Common
Stock covered by the Restricted Stock Units or Restricted Stock Awards
shall be forfeited by the Participant to the extent that the applicable
performance measures have not been achieved. In the case of a Restricted
Stock Award, the Participant shall thereupon immediately transfer the
forfeited shares back to the Corporation without payment by the
Corporation.
(e) Except as otherwise provided in this Section 9, each
Restricted Stock Unit or Restricted Stock Award grant
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<PAGE>
subject to the provisions of this Section 9 shall be governed by the
provisions of Section 7 or 8, whichever is applicable. The Committee shall
administer this Section 9 and the other provisions of the Plan in such a
manner as to comply with the requirements of Section 162(m) of the Code.
10. Change in Control.
-----------------
(a) Notwithstanding any other provision of this Plan, Options,
SARs, Restricted Stock Units and Restricted Stock Awards granted under the
Plan shall immediately become exercisable or vested, as applicable, upon
the occurrence of a "Change in Control" of the Corporation as defined in
paragraph (b).
(b) For purposes of this Plan, a "Change in Control" of the
Corporation shall be deemed to have occurred upon the happening of any one
of the following events:
(i) the acquisition by any individual, entity or group
(within the meaning of Sections 13(d)(3) or 14(d)(2) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"))
of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of fifty percent (50%) or
more of the combined voting power of the then outstanding voting
securities of the Corporation; provided, however, that the
following acquisitions shall not constitute a Change in Control
for purposes of this definition: (A) any acquisitions of voting
securities of the Corporation by the Corporation, or (B) any
acquisitions
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of voting securities of the Corporation by any employee benefit
or stock ownership plan or related trust sponsored or maintained
by the Corporation for the benefit of its employees;
(ii) any change in the composition of the Board such that
the individuals who, as of May 17, 1996, constitute those members
of the Board who have been elected by the shareholders of the
Corporation in accordance with the provisions of Section 303(a)
of the Communications Satellite Act of 1962, as amended (the
"Incumbent Directors"), cease for any reason to constitute a
majority of the Board at any time; provided, however, that any
individual becoming a director subsequent to such date whose
election, or nomination for election, was approved by a vote of
at least three-fourths (3/4) of the then Incumbent Directors
shall be considered as though such individual were an Incumbent
Director;
(iii) approval by the shareholders of the Corporation of a
merger, share exchange, swap, consolidation, recapitalization or
other business combination involving any other corporation or
entity (a "Transaction"), the effect of which would result in the
combined voting securities of the Corporation immediately prior
to the effectiveness of such Transaction continuing to represent
less than sixty
13
<PAGE>
percent (60%) of the combined voting power of the voting
securities of the Corporation, or of any surviving entity of, or
parent entity following, the Transaction, immediately after the
effectiveness of the Transaction;
(iv) approval by the shareholders of the Corporation of (A)
a complete liquidation or dissolution of the Corporation, or (B)
the sale or disposition by the Corporation of all or
substantially all of its assets other than to a corporation or
entity with respect to which following such sale or other
disposition more than eighty percent (80%) of the then combined
voting power of the voting securities of such corporation or
entity is, immediately following such sale or disposition,
beneficially owned (within the meaning of Rule 13d-3 promulgated
under the Exchange Act) by all or substantially all of the
individuals and entities who were the beneficial owners of the
voting securities of the Corporation upon or immediately before
such approval; or
(v) any event that would be required to be reported in
response to Item 6(e) or any successor thereto of Schedule 14A of
Regulation 14A promulgated under the Exchange Act;
provided, however, that none of the events described in clauses (i) through
(v) shall be deemed to constitute a Change in Control if, prior to the
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<PAGE>
occurrence of such event, the Board adopts a resolution specifically
providing that the event shall not be deemed to constitute a Change in
Control for purposes of the Plan.
11. Adjustment Upon Changes in Capitalization. If there is a change in
the number or kind of outstanding shares of the Corporation's stock by
reason of a stock dividend, stock split, recapitalization, merger,
consolidation, combination or other similar event, or if there is a
distribution to shareholders of the Corporation's Common Stock other than a
cash dividend, appropriate adjustments shall be made by the Committee to
the number and kind of shares subject to the Plan; the number and kind of
shares under Options, SARs, Restricted Stock Units and Restricted Stock
Awards then outstanding; the maximum number of shares available for
Options, SARs, Restricted Stock Units and Restricted Stock Awards; the
purchase price for shares of Common Stock covered by Options; and other
relevant provisions, to the extent that the Committee, in its sole
discretion, determines that such change makes such adjustments necessary or
equitable. Similar adjustments may also be made by the Committee in its
discretion if substitute Options are granted pursuant to Section 5(a).
12. Nontransferability. Options, SARs, Restricted Stock Units and
Restricted Stock Awards shall be assignable and transferable by the
Participant only to the extent permitted by applicable rules promulgated by
the Securities and Exchange
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<PAGE>
Commission or, in the case of incentive stock options, by Section 422 of
the Code. During the Participant's lifetime, Options, SARs, Restricted
Stock Units and Restricted Stock Awards shall only be exercisable by or
payable to the Participant or his or her guardian.
13. Laws and Regulations. The Plan, the grant and exercise of Options,
SARs, Restricted Stock Units and Restricted Stock Awards, and the
obligation of the Corporation to sell or deliver shares of Common Stock
under the Plan shall be subject to all applicable laws, regulations and
rules.
14. No Employment Rights. Nothing in the Plan shall confer upon any
employee of the Corporation or a Subsidiary any right to continued
employment, or interfere with the right of the Corporation or a Subsidiary
to terminate his or her employment at any time.
15. Tax Withholding. Any payment to or settlement with a Participant
in cash or Common Stock pursuant to any provision of the Plan shall be
subject to withholding of income tax, FICA tax or other taxes to the extent
the Corporation or a Subsidiary is required to make such withholding.
16. Termination; Amendments.
------------------------
(a) The Board may at any time terminate the Plan. Unless the Plan
shall previously have been terminated by the Board, it shall terminate on
May 19, 2000. No Option, SAR, Restricted Stock Unit or Restricted Stock
Award may be granted after such termination.
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(b) The Board may at any time or times amend the Plan or amend
any outstanding Options, SARs, Restricted Stock Units or Restricted Stock
Awards for the purpose of satisfying the requirements of any changes in
applicable laws or regulations or for any other purpose which at the time
may be permitted by law, provided that no amendment of any outstanding
Options, SARs, Restricted Stock Units or Restricted Stock Awards shall
contain terms or conditions inconsistent with the provisions of the Plan as
determined by the Committee.
(c) Except as provided in Section 11, no such amendment shall,
without the approval of the shareholders of the Corporation: (i) increase
the maximum number of shares of Common Stock for which Options, SARs,
Restricted Stock Units or Restricted Stock Awards may be granted under the
Plan; (ii) except to the extent required or permitted under Section 5(a) in
the case of substitute Options, reduce the price at which Options may be
granted below the price provided for in Section 5(c); (iii) reduce the
Option price of outstanding Options; (iv) extend the period during which
Options, SARs, Restricted Stock Units or Restricted Stock Awards may be
granted; (v) except to the extent permitted or required under Section 5(a)
in the case of substitute Options, extend the period during which an
outstanding Option may be exercised beyond the maximum period provided for
in Section 5(b); (vi) materially increase in any other way the benefits
accruing to Participants; or (vii) change the class of persons eligible to
be Participants.
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<PAGE>
17. Effective Date. The Plan shall become effective upon approval by
the Board; provided, however, that the Plan shall be submitted to the
shareholders of the Corporation for approval, and if not approved by the
shareholders within one year from the date of approval by the Board shall
be of no force and effect. Options, SARs, Restricted Stock Units and
Restricted Stock Awards granted by the Committee before approval of the
Plan by the shareholders shall be granted subject to such approval and
shall not be exercisable or payable before such approval.
18
<PAGE>
EMPLOYMENT AGREEMENT
--------------------
This AGREEMENT is made as of July 19, 1996, by and between COMSAT
Corporation ("COMSAT"), a District of Columbia corporation, and Betty C.
Alewine, a resident of the Commonwealth of Virginia (the "Executive").
WHEREAS, the COMSAT Board of Directors (the "Board") elected the
Executive as President and Chief Executive Officer and a member of the
Board (a "Director") on July 19, 1996;
WHEREAS, the Board believes it to be in the best interests of COMSAT
to enter into this Agreement to ensure the Executive's continuing services
to COMSAT; and
WHEREAS, COMSAT desires to continue to employ the Executive as
President and Chief Executive Officer of COMSAT, and the Executive desires
to continue such employment, on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and the mutual
agreements made herein, and intending to be legally bound hereby, COMSAT
and the Executive agree as follows:
1. Employment; Duties.
------------------
(a) Employment and Employment Period. COMSAT shall employ the
Executive to serve as President and Chief Executive Officer of COMSAT or
any successor entity for a period (the "Employment Period") commencing on
July 19, 1996 (the "Effective Date") and continuing thereafter for
successive three-year terms from each successive day thereafter until July
19, 2003 unless terminated in accordance with the provisions of this
Agreement. Notwithstanding the foregoing, COMSAT may appoint another person
to serve as President during the Employment Period. In that event, the
Executive's title shall become Chief Executive Officer and the President
shall report to the Executive in her capacity as Chief Executive Officer.
The appointment of a President shall not be deemed to constitute "Good
Reason" for purposes of Section 5 of this Agreement. Each 12-month period
ending on the anniversary date of the Effective Date is sometimes referred
to herein as a "year of the Employment Period."
(b) Offices, Duties and Responsibilities. The Executive shall
report directly and solely to the Board. Throughout the Employment Period,
COMSAT shall cause Executive to be nominated and recommended for election
as a Director at each meeting of COMSAT shareholders at which directors are
to be elected and to be included as a recommended nominee for election in
any proxy provided to shareholders in connection with such meeting. The
Executive's offices initially shall be located at COMSAT's present
headquarters in Bethesda, Maryland. The Executive shall have all duties and
authority
<PAGE>
customarily accorded a chief executive officer, including, without
limitation, the lead responsibility with full autonomy, subject to the
customary authority and direction of the Board, to manage the overall
business and operations of COMSAT. All employees of COMSAT shall report,
directly or indirectly, to the Executive, and the Executive shall have the
authority to hire and fire all such employees within established budget
parameters, provided that the Board shall approve (i) any salary actions
(including hiring decisions) for employees of COMSAT which result in an
annual salary in excess of the amount established by the Board from time to
time, but in no event less than $100,000, and (ii) any bonuses to be
awarded to employees of COMSAT under the COMSAT Annual Incentive Plan (the
"AIP") or any other bonuses to be awarded in excess of the amount
established by the Board from time to time. The Executive's management of
COMSAT shall be (x) in accordance with the policies of the Board and
COMSAT's Policies and Procedures, both as in effect from time to time, and
(y) within the limits of an annual budget for COMSAT which shall be
approved by the Board at least 30 days before the beginning of the fiscal
year to which such budget relates. If the Executive proposes the
expenditure of any amounts which exceed the applicable annual budgets for
COMSAT, such excess amounts shall not be committed to Executive's authority
unless and until specifically authorized and approved by the Board.
(c) Devotion to Interests of COMSAT. During the Employment
Period, the Executive shall devote her best efforts and full business time
and attention to the performance of her duties hereunder. Notwithstanding
the foregoing, the Executive shall be entitled to serve on the boards of
directors of non-profit organizations and, commencing on the second
anniversary of the Effective Date, the boards of directors of for-profit
organizations that do not compete with COMSAT. Prior to joining any boards
of directors in addition to those on which she is serving as of the
Effective Date, the Executive shall consult with the Board to confirm that
such memberships shall not unreasonably or materially interfere with the
performance of her duties hereunder. In addition, the Executive may speak
and write independently, if such activity does not conflict with the best
interests of COMSAT. The Executive may keep all fees and other monies paid
for such outside board memberships and activities in accordance with COMSAT
corporate policy.
2. Compensation and Fringe Benefits.
--------------------------------
(a) Base Compensation. COMSAT shall pay the Executive a base
salary ("Base Salary") during the Employment Period with payments made in
installments in accordance with COMSAT's regular practice for compensating
executive personnel, provided that in no event shall such payments be made
less frequently than twice per month. The Base Salary for the first year of
the Employment Period shall be $450,000.
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Effective on July 19, 1997, the Base Salary shall be increased to $500,000.
Thereafter, the Base Salary for the Executive shall be reviewed for
increases each subsequent year during the Employment Period commencing the
third year of the Employment Period. Any further Base Salary increases
shall be approved by the Board in its sole discretion.
(b) Bonus Compensation. The Executive will be eligible to receive
bonuses ("Annual Bonus") during the Employment Period under the AIP in
accordance with the following parameters: (i) the target bonus for each
year during the Employment Period shall be 70% of Base Salary for achieving
100% of the target level for the performance measures; and (ii) the
performance measures, the relative weight to be accorded each performance
measure and the amount of bonus payable in relation to the target bonus for
achieving more or less than 100% of the target level for the performance
measures shall be determined for each year during the Employment Period by
the Committee on Compensation and Management Development of the Board (the
"Compensation Committee") after consultation with the Executive. As part of
the consultation process set forth in the preceding sentence, the Executive
shall prepare before the end of each fiscal year ending during the
Employment Period a business plan for COMSAT with respect to at least the
following three-year period. The Board shall consider and approve such
plans on an annual basis, subject to such modifications as are otherwise
consistent with this Agreement, and each fiscal year the current plan shall
be considered by the Compensation Committee as the basis for establishing
the bonus standards for such year with such reasonable modifications as the
Compensation Committee may reasonably determine and which are consistent
with this Agreement.
(c) Fringe Benefits. The Executive shall continue to be entitled
to the fringe benefits for COMSAT senior executives which she enjoyed
immediately prior to the Effective Date, including (i) participation in the
COMSAT Directors and Executives Deferred Compensation Plan, the COMSAT
Split Dollar Insurance Plan, the COMSAT Educational Grant Program, the
COMSAT Retirement Plan, the COMSAT Savings and Profit-Sharing Plan, the
COMSAT 1995 Key Employee Stock Plan (the "Stock Plan"), the COMSAT Employee
Stock Purchase Plan, the COMSAT health and disability insurance programs
and the COMSAT financial planning program, (ii) an annual physical
examination by a physician of her choice in the Washington, D.C.
metropolitan area at COMSAT's expense, and (iii) reimbursement of
reasonable expenses incurred in connection with travel and entertainment
related to COMSAT's business and affairs. The Executive also shall be
entitled to such additional fringe benefits as are made available to COMSAT
senior executives during the Employment Period on a most favored nations
basis. The Executive further shall be entitled to reimbursement of the
Executive's reasonable legal
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fees and costs incurred in connection with the negotiation and execution of
this Agreement, subject to a cap of $12,000. COMSAT reserves the right to
modify or terminate from time to time the fringe benefits provided to the
senior management group.
(d) Stock Options. On October 17, 1996 (the "Grant Date"), COMSAT
shall grant to the Executive non-statutory stock options (the "Options")
under the Stock Plan to purchase 150,000 shares of COMSAT's common stock,
without par value ("Common Stock"), at a purchase price equal to the
average of the high and low selling price of the Common Stock as reported
under New York Stock Exchange-Composite Transactions on the Grant Date. The
Options shall carry a term of ten years and shall be exercisable by the
Executive in accordance with the following schedule: (i) 25% of the Options
on and after the first anniversary of the Grant Date; (ii) an additional
25% of the Options on and after the second anniversary of the Grant Date;
and (iii) the remaining 50% of the Options on and after the third
anniversary of the Grant Date. The Options shall be represented by a stock
option agreement in the form customarily used by COMSAT for such agreements
which shall contain appropriate terms consistent with the provisions of
this Agreement. During the Employment Period, the Executive may be granted
additional non-statutory stock options as determined by the Compensation
Committee in its sole discretion.
(e) RSAs. On February 20, 1997, COMSAT shall grant to the
Executive 20,000 Restricted Stock Awards ("RSAs") under the Stock Plan.
Such RSAs shall vest in accordance with (i) the performance standards for
the two-year performance period following the date of grant which are
adopted by the Compensation Committee for RSAs granted generally on such
date, and (ii) the following schedule thereafter for the portion of such
RSAs which are earned during the performance period: (x) 20% of such
portion on and after February 20, 2000; (y) an additional 40% of such
portion on and after February 20, 2001; and (z) the remaining 40% of such
portion on and after February 20, 2002.
(f) RSUs. On the Grant Date, COMSAT shall grant to the Executive
5,000 Restricted Stock Units ("RSUs") under the Stock Plan. Such RSUs shall
entitle the Executive to receive "dividend equivalents" (when and in the
same amounts as dividends are paid on the Common Stock) as provided under
the Stock Plan, and shall vest three (3) years from the Grant Date if the
Executive is still employed by COMSAT at such time.
(g) SERP. The Executive shall continue to participate in the
COMSAT Insurance and Retirement Plan for Executives (the "SERP"). Any
future amendments or changes to the SERP which provide for a reduction,
deferral or elimination of benefits payable to participants in the SERP
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<PAGE>
shall expressly not apply to the Executive unless the Executive consents
otherwise.
3. Trade Secrets; Return of Documents and Property.
-----------------------------------------------
(a) Executive acknowledges that during the course of her
employment she will receive secret, confidential and proprietary
information ("Trade Secrets") of COMSAT and of other companies with which
COMSAT does business on a confidential basis and that Executive will create
and develop Trade Secrets for the benefit of COMSAT. Trade Secrets shall
include, without limitation, matters of a technical nature, such as
scientific and engineering secrets, "know-how," formulae, secret processes
or machines, inventions and computer programs (including documentation of
such programs), and matters of a business nature, such as customer data and
proprietary information about costs, profits, markets, sales and customer
databases, and other information of a similar nature to the extent not
available to the public, and plans for future development. All Trade
Secrets disclosed to or created by Executive shall be deemed to be the
exclusive property of COMSAT (as the context may require). Executive
acknowledges that Trade Secrets have economic value to COMSAT due to the
fact that Trade Secrets are not generally known to the public or the trade
and that the unauthorized use or disclosure of Trade Secrets is likely to
be detrimental to the interests of COMSAT and its subsidiaries. Executive
therefore agrees to hold in strict confidence and not to disclose to any
third party any Trade Secret acquired or created or developed by Executive
during the term of this Agreement except (i) when Executive uses or
discloses any Trade Secret in the proper course of the Executive's
rendition of services to COMSAT hereunder, (ii) when such Trade Secret
becomes public knowledge other than through a breach of this Agreement, or
(iii) when Executive is required to disclose any Trade Secret pursuant to
any valid legal process. The Executive shall notify COMSAT immediately of
any such legal process in order to enable COMSAT to contest such legal
process's validity. After termination of this Agreement, the Executive
shall not use or otherwise disclose Trade Secrets unless such information
(x) becomes public knowledge other than through a breach of this Agreement,
(y) is disclosed to the Executive by a third party who is entitled to
receive and disclose such Trade Secret, or (z) is required to be disclosed
pursuant to any valid legal process, in which case the Executive shall
notify COMSAT immediately of any such legal process in order to enable
COMSAT to contest such legal process's validity.
(b) Upon the effective date of notice of the Executive's or
COMSAT's election to terminate this Agreement, or at any time upon the
request of COMSAT, the Executive (or her heirs or personal representatives)
shall deliver to COMSAT (i) all documents and materials containing or
otherwise relating to Trade Secrets or other information relating to
-5-
<PAGE>
COMSAT's business and affairs, and (ii) all documents, materials and other
property belonging to COMSAT, which in either case are in the possession or
under the control of the Executive (or her heirs or personal
representatives). The Executive shall be entitled to keep her personal
records (including Rolodex) relating to COMSAT's business and affairs
except to the extent those contain documents or materials described in
clause (i) of the preceding sentence.
4. Discoveries and Works. All discoveries and works made or conceived
by the Executive during her employment by COMSAT pursuant to this
Agreement, jointly or with others, that relate to COMSAT's activities
("Discoveries and Works") shall be owned by COMSAT. Discoveries and Works
shall include, without limitation, inventions, computer programs (including
documentation of such programs), technical improvements, processes,
drawings and works of authorship. The Executive shall (a) promptly notify,
make full disclosure to, and execute and deliver any documents requested
by, COMSAT to evidence or better assure title to such Discoveries and Works
in COMSAT, (b) assist COMSAT in obtaining or maintaining for itself at its
own expense United States and foreign patents, copyrights, trade secret
protection or other protection of any and all such Discoveries and Works,
and (c) promptly execute, whether during her employment by COMSAT or
thereafter, all applications or other endorsements necessary or appropriate
to maintain patents and other rights for COMSAT and to protect their title
thereto. Any Discoveries and Works which, within six months after the
termination of the Executive's employment by COMSAT, are made, disclosed,
reduced to a tangible or written form or description, or are reduced to
practice by the Executive and which pertain to work performed by the
Executive while with COMSAT shall, as between the Executive and COMSAT, be
presumed to have been made during the Executive's employment by COMSAT.
5. Termination. This Agreement shall remain in effect during the
Employment Period, and this Agreement and Executive's employment with COMSAT
may be terminated only as follows:
(a) By the Executive at any time upon forty-five (45) days
advance written notice to COMSAT for "Good Reason" (as defined below). In
such event or if the Executive's employment is terminated by COMSAT without
"cause" (as defined below), the Executive shall be entitled to receive the
following benefits until the earlier of (i) three (3) years from the
effective date of such termination, or (ii) the later of (A) July 19, 2003
or (B) one year from such effective date: (i) her then current Base Salary;
(ii) an Annual Bonus equal to seventy percent (70%) of her then current
Base Salary; and (iii) all other benefits provided pursuant to Sections
2(c), (d), (e) and (f) of this Agreement, which shall be deemed to vest
fully and immediately if subject to vesting. The
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<PAGE>
Executive shall have no obligation to seek other employment in the event of
her termination pursuant to this paragraph (a), and any such employment
shall not mitigate COMSAT's obligations hereunder.
"Good Reason" shall mean any of the following: (I) any
substantial reduction (except in connection with the termination of her
employment voluntarily by the Executive or by COMSAT for "cause" as defined
below) by COMSAT, without the Executive's express written consent, of her
responsibilities as President and Chief Executive Officer of COMSAT; (II)
any change in the reporting structure set forth in Section 1(b) above;
(III) any reduction in Executive's title; (IV) any relocation of the
Executive's offices outside the Washington, D.C. metropolitan area by
COMSAT without the Executive's express written consent prior to the third
anniversary of the Effective Date; (V) any material default of the
provisions of Section 2 of this Agreement which continues for twenty (20)
business days following COMSAT's receipt of written notice from the
Executive specifying the manner in which COMSAT is in default of such
provisions; (VI) the Executive is not reelected to or is removed from the
Board; or (VII) any officer superior to the Executive is appointed by
COMSAT.
(b) By COMSAT at any time upon ten (10) days written notice to
the Executive, and after an opportunity to discuss such decision with the
Board, for "cause." For purposes of this Agreement, COMSAT shall have
"cause" to terminate the Executive's employment hereunder upon (i) the
continued and deliberate failure of the Executive to perform her material
duties, in a manner substantially consistent with the manner reasonably
prescribed by the Board and in accordance with the terms of this Agreement
(other than any such failure resulting from her incapacity due to physical
or mental illness), which failure continues for twenty (20) business days
following the Executive's receipt of written notice from the Board
specifying the manner in which the Executive is in default of her duties,
(ii) the engaging by the Executive in intentional serious misconduct that
is materially and demonstrably injurious to COMSAT or its reputation, which
misconduct, if it is reasonably capable of being cured, is not cured by the
Executive within twenty (20) business days following the Executive's
receipt of written notice from the Board specifying the serious misconduct
engaged in by the Executive, (iii) the conviction of the Executive of
commission of a felony involving a crime of moral turpitude, whether or not
such felony was committed in connection with COMSAT's business, or (iv) any
material breach by the Executive of Section 7 hereof, which breach, if it
is reasonably capable of being cured, is not cured by the Executive within
twenty (20) business days following the Executive's receipt of written
notice from the Board specifying the breach of Section 7 by the Executive.
If COMSAT shall terminate the Executive's employment for "cause,"
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COMSAT, in full satisfaction of all of COMSAT's obligations under this
Agreement and in respect of the termination of the Executive's employment
with COMSAT, shall pay the Executive her Base Salary and all other
compensation, benefits and reimbursement through the date of termination of
her employment.
(c) If, prior to the expiration or termination of the Employment
Period, the Executive shall have been unable to perform substantially her
duties by reason of disability or impairment of health for at least six
consecutive calendar months, COMSAT shall have the right to terminate this
Agreement by giving sixty (60) days written notice to the Executive to that
effect, but only if at the time such notice is given such disability or
impairment is still continuing. Following the expiration of the notice
period, the Employment Period shall terminate with the payment of the
Executive's Base Salary for the month in which notice is given and a
prorated Annual Bonus through such month. In the event of a dispute as to
whether the Executive is disabled within the meaning of this paragraph (a),
or the duration of any disability, either party may request a medical
examination of the Executive by a doctor appointed by the Chief of Staff of
a hospital selected by mutual agreement of the parties, or as the parties
may otherwise agree, and the written medical opinion of such doctor shall
be conclusive and binding upon the parties as to whether the Executive has
become disabled and the date when such disability arose. The cost of any
such medical examinations shall be borne by COMSAT. In no event shall this
Agreement terminate before COMSAT's long-term disability benefits under
applicable plans become payable to the Executive.
(d) If, prior to the expiration or termination of the Employment
Period, the Executive shall die, COMSAT shall pay to the Executive's estate
her Base Salary and a prorated Annual Bonus through the end of the month in
which the Executive's death occurred, at which time the Employment Period
shall terminate without further notice.
(e) If either the Executive or COMSAT elects not to renew the
Executive's employment with COMSAT at the end of the Employment Period, the
Executive shall be entitled to receive payments under the SERP beginning on
August 1, 2003, the first day of the month after the end of such period,
calculated in accordance with the provisions of the plan based on the
Executive's retirement on that date, provided that the Board reserves the
discretion to waive the applicable early retirement reduction under the
plan in such event. If the Executive's employment with COMSAT under this
Agreement is terminated either by the Executive for Good Reason or by
COMSAT without "cause," the Executive shall be entitled to receive payments
under the SERP beginning on June 1, 2003, the first day of the month after
the Executive's 55th birthday,
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<PAGE>
calculated in accordance with the provisions of the plan as if the
Executive retired on that date, provided that the Board reserves the
discretion to waive the applicable early retirement reduction under the
plan in such event.
6. Change of Control.
-----------------
(a) In the event that the Board in its sole discretion determines
that repeal of the ownership restrictions on COMSAT capital stock in the
Communications Satellite Act of 1962 is reasonably imminent, the parties
shall negotiate in good faith to adopt a "change of control" provision
applicable to this Agreement which shall set forth (i) the events that
shall constitute a "change of control" for this purpose, (ii) the
consequences under this Agreement if such a "change of control" occurs and
(iii) such other terms and conditions as the parties shall mutually agree
to.
(b) Any "change of control" provisions adopted by COMSAT
applicable to any COMSAT benefits plans which provide for the accelerated
vesting and/or payment of any benefits for its senior executives shall
apply to the Executive to the same extent as other COMSAT senior executives
on a most favored nations basis with respect to the benefits affected by
such COMSAT provisions.
7. Non-Competition.
---------------
(a) As an inducement for COMSAT to enter into this Agreement, the
Executive agrees that for a period commencing as of the Effective Date and
running through the earlier of (i) the end of the Employment Period if the
Executive remains employed by COMSAT for the entire Employment Period or
(ii) one year following termination of the Executive's employment by COMSAT
for "cause" as defined in Section 5(b) hereof, or by the Executive for any
reason (other than Good Reason, in which case the provisions of this
paragraph (a) shall not apply) (the "Non-Competition Period"), the
Executive shall not, without the prior written consent of the Board, engage
or participate, directly or indirectly, as principal, agent, employee,
employer, consultant, stockholder, partner or in any other individual
capacity whatsoever, in the conduct or management of, or own any stock or
any other equity investment in or debt of, any business which is
competitive with any business conducted by COMSAT.
For the purpose of this Agreement, a business shall be considered
to be competitive with any business of COMSAT only if such business is
engaged in providing services or products (i) comparable to or competitive
with (A) any service or product currently provided by COMSAT during the
Employment Period; (B) any service or product which evolves from or results
from enhancements in the ordinary course during the Non-Competition Period
to the services or products provided by
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<PAGE>
COMSAT as of the date hereof or during the Employment Period; or (C) any
future service or product of COMSAT as to which the Executive materially
and substantially participated in the development or enhancement, and (ii)
to customers, distributors or clients of the type served by COMSAT during
the Non-Competition Period.
(b) Non-Solicitation of Employees. During the Non-Competition
Period, the Executive will not (for her own benefit or for the benefit of
any person or entity other than COMSAT) solicit, or assist any person or
entity other than COMSAT to solicit, any officer, director, executive or
employee (other than an administrative or clerical employee) of COMSAT to
leave his or her employment.
(c) Reasonableness; Interpretation. The Executive acknowledges
and agrees, solely for purposes of determining the enforceability of this
Section 7 (and not for purposes of determining the amount of money damages
or for any other reason), that (i) the markets served by COMSAT are
national and international and are not dependent on the geographic location
of executive personnel or the businesses by which they are employed; (ii)
the length of the Non-Competition Period is linked to the term of the
Employment Period and the severance benefit provided for in Section 5(a);
and (iii) the above covenants are manifestly reasonable on their face, and
the parties expressly agree that such restrictions have been designed to be
reasonable and no greater than is required for the protection of COMSAT. In
the event that the covenants in this Section 7 shall be determined by any
court of competent jurisdiction in any action to be unenforceable by reason
of their extending for too great a period of time or over too great a
geographical area or by reason of their being too extensive in any other
respect, they shall be interpreted to extend only over the maximum period
of time for which they may be enforceable, and/or over the maximum
geographical area as to which they may be enforceable and/or to the maximum
extent in all other respects as to which they may be enforceable, all as
determined by such court in such action.
(d) Investment. Nothing in this Agreement shall be deemed to
prohibit the Executive from owning equity or debt investments in any
corporation, partnership or other entity which is competitive with COMSAT,
provided that such investments (i) are passive investments and constitute
five percent (5%) or less of the outstanding equity securities of such an
entity the equity securities of which are traded on a national securities
exchange or other public market, or (ii) are approved by the Board.
8. Indemnification; Liability Insurance. The Executive shall be
entitled to indemnification and coverage under COMSAT's liability insurance
policy for directors and officers to the same extent as other directors and
officers of COMSAT.
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<PAGE>
In addition, the Executive shall be indemnified to the maximum extent
permitted by law of the jurisdiction in which COMSAT is incorporated, as it
may be amended from time to time.
9. Enforcement.
-----------
(a) The Executive acknowledges that a breach of the covenants or
provisions contained in Sections 3, 4 and 7 of this Agreement will cause
irreparable damage to COMSAT, the exact amount of which will be difficult
to ascertain, and that the remedies at law for any such breach will be
inadequate. Accordingly, the Executive agrees that if the Executive
breaches or threatens to breach any of the covenants or provisions
contained in Sections 3, 4 and 7 of this Agreement, in addition to any
other remedy which may be available at law or in equity, COMSAT shall be
entitled to seek specific performance and injunctive relief in a court of
competent jurisdiction after notice and a hearing.
(b) The parties expressly agree that any litigation directly or
indirectly arising out of or relating to this Agreement, including an
action brought by COMSAT pursuant to paragraph (a) of this Section 9, shall
be brought in a court of competent jurisdiction in the State of Maryland.
10. Severability. Should any provision of this Agreement be determined
to be unenforceable or prohibited by any applicable law, such provision
shall be ineffective to the extent, and only to the extent, of such
unenforceability or prohibition without invalidating the balance of such
provision or any other provision of this Agreement, and any such
unenforceability or prohibition in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
11. Assignment. The Executive's rights and obligations under this
Agreement shall not be assignable by the Executive. COMSAT's rights and
obligations under this Agreement shall not be assignable by COMSAT except
as incident to the transfer, by merger or otherwise, of all or
substantially all of the business of COMSAT. In the event of any such
assignment by COMSAT, all rights of COMSAT hereunder shall inure to the
benefit of the assignee, provided that all references herein to COMSAT
shall be deemed to refer with equal force and effect to any corporate or
other successor of COMSAT.
12. Notices. All notices and other communications which are required
or may be given under this Agreement shall be in writing and shall be
deemed to have been duly given when received if personally delivered; when
transmitted if transmitted by telecopy, electronic or digital transmission
method, provided that in such case it shall also be sent by certified or
registered mail, return receipt requested; the day after it is sent, if
sent for next day delivery to a
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<PAGE>
domestic address by recognized overnight delivery service (e.g., Federal
Express); and upon receipt, if sent by certified or registered mail, return
receipt requested. Unless otherwise changed by notice, in each case notice
shall be sent to:
If to Executive, addressed to:
Betty C. Alewine
1742 Creek Crossing Road
Vienna, Virginia 22182
With a copy (not constituting notice) to:
Williams & Connolly
725 Twelfth Street, N.W.
Washington, DC 20005
Attention: Robert B. Barnett, Esq.
Telecopier No.: (202) 434-5029
If to COMSAT, addressed to:
COMSAT Corporation
6560 Rock Spring Drive
Bethesda, MD 20817
Attention: Steven F. Bell
Telecopier No.: (301) 214-7134
With a copy (not constituting notice) to:
COMSAT Corporation
6560 Rock Spring Drive
Bethesda, MD 20817
Attention: Robert N. Davis, Jr.
Telecopier No.: (301) 214-7128
13. Miscellaneous. This Agreement constitutes the entire agreement,
and supersedes all prior agreements, of the parties hereto relating to the
subject matter hereof, and there are no written or oral terms or
representations made by either party other than those contained herein. No
amendment, supplement, modification or waiver of this Agreement shall be
binding unless executed in writing by the party to be bound thereby. The
validity, interpretation, performance and enforcement of the Agreement
shall be governed by the laws of the State of Maryland without giving
effect to conflicts of laws principles thereof. The headings contained
herein are for reference purposes only and shall not in any way affect the
meaning or interpretation of this Agreement. The waiver by any party of a
breach of any term or condition of this Agreement by the other party shall
not operate as nor be construed as a waiver of any subsequent breach
thereof or a waiver of a breach of any other term or condition of this
-12-
<PAGE>
Agreement. This Agreement may be signed in two (2) or more counterparts,
each of which shall constitute an original but all of which together shall
form only a single instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
/s/ Betty C. Alewine
__________________________________
Betty C. Alewine, Executive
COMSAT Corporation
/s/ C.J. Silas
By: ______________________________
C.J. Silas, Chairman
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<PAGE>
<TABLE>
Exhibit 11
COMSAT CORPORATION CONSOLIDATED
COMPUTATION OF EARNINGS PER SHARE
For the Years Ended December 31, 1996, 1995 and 1994
<CAPTION>
<S> <C> <C> <C>
In thousands, except per share amounts 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------
PRIMARY
Earnings $ 8,622 $ 37,817 $ 77,642
============= ============ ============
SHARES:
Weighted average number of common shares outstanding 48,343 47,282 46,590
Add - shares issuable from assumed exercise of options 747 716 766
Weighted average shares 49,090 47,998 47,356
============= ============ ============
Primary earnings per share $ 0.18 $ 0.79 $ 1.64
============= ============ ============
ASSUMING FULL DILUTION
Earnings $ 8,622 $ 37,817 $ 77,642
============= ============ ============
SHARES:
Weighted average number of common shares outstanding 48,343 47,282 46,590
Add - shares issuable from assumed exercise of options 840 725 874
Weighted average shares 49,183 48,007 47,464
============= ============ ============
Fully diluted earnings per share $ 0.18 $ 0.79 $ 1.64
============= ============ ============
</TABLE>
<PAGE>
Exhibit 23
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-8,
Registration Statement No. 33-54369 on Form S-8, 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, Registration Statement No.
33-59841 on Form S-3, Registration Statement No. 33-33061 on Form S-3 of
our report dated February 14, 1997 (March 23, 1997 as to the eighth
paragraph of Note 8), appearing in this Annual Report on Form 10-K of
COMSAT Corporation for the year ended December 31, 1996.
Deloitte & Touche LLP
Washington, D.C.
March 23, 1997
<PAGE>
<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-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 12,721
<SECURITIES> 0
<RECEIVABLES> 314,766
<ALLOWANCES> 0
<INVENTORY> 39,635
<CURRENT-ASSETS> 409,839
<PP&E> 2,923,323
<DEPRECIATION> 1,266,560
<TOTAL-ASSETS> 2,665,803
<CURRENT-LIABILITIES> 485,083
<BONDS> 635,474
0
0
<COMMON> 340,691
<OTHER-SE> 502,520
<TOTAL-LIABILITY-AND-EQUITY> 2,665,803
<SALES> 0
<TOTAL-REVENUES> 1,015,261
<CGS> 0
<TOTAL-COSTS> 666,345
<OTHER-EXPENSES> 284,835
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 45,799
<INCOME-PRETAX> 24,766
<INCOME-TAX> 16,144
<INCOME-CONTINUING> 8,622
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,622
<EPS-PRIMARY> 0.18
<EPS-DILUTED> 0.18
</TABLE>
