PRELIMINARY COPY
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant [ ]
Filed by a Party other than the Registrant [x]
Check the appropriate box:
[x] Preliminary Proxy Statement
[ ] Confidential, for use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12
COMSAT CORPORATION
(Name of Registrant as Specified In Its Charter)
PROVIDENCE CAPITAL, INC./WYSER-PRATTE & CO., INC.
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[x] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
...........................................................................
2) Aggregate number of securities to which transaction applies:
...........................................................................
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
...........................................................................
4) Proposed maximum aggregate value of transaction:
...........................................................................
5) Total fee paid:
...........................................................................
Set forth the amount on which the filing fee is calculated and state how it
was determined.
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
...........................................................................
2) Form, Schedule or Registration Statement No.:
...........................................................................
3) Filing Party:
...........................................................................
4) Date Filed:
...........................................................................
SOLICITATION OF AGENT DESIGNATIONS
IN CONNECTION WITH THE
CALL OF A SPECIAL MEETING OF SHAREHOLDERS
OF
COMSAT CORPORATION
------------------------------------------
PRELIMINARY SOLICITATION STATEMENT
OF
PROVIDENCE CAPITAL, INC.
730 Fifth Avenue
New York, NY 10019
(212) 888-3200
and
WYSER-PRATTE & CO., INC.
63 Wall Street
New York, NY 10005
(212) 495-5350
------------------------------------------
This Preliminary Solicitation Statement is being furnished to
holders of outstanding common stock, without par value, (the "Common
Stock"), of COMSAT Corporation, a corporation incorporated under the laws
of the District of Columbia ("COMSAT" or the "Company"), in connection with
the solicitation of appointments of Designees ("Agent Designations") from
holders of Common Stock. The Agent Designations are being solicited by
Providence Capital, Inc. ("Providence") and Wyser-Pratte & Co., Inc.
("WPC") and certain of their affiliates (the "Soliciting Group") to provide
for the call of a special meeting of the Company's shareholders (the
"Special Meeting") for the purposes of considering and voting upon three
proposals designed to advance shareholder democracy (the "Shareholder
Democracy Proposals"), as follows:
- A proposal to request that the Company's Board of
Directors (the "Board") schedule the 1997 Annual
Meeting of Shareholders without further delay, and
hold such meeting as soon as possible; and
<PAGE>
- A proposal to request the Board to eliminate its
restrictions on the voting rights of shareholders who
own more than 5% of the Common Stock.
Under the Company's by-laws (the "By-Laws") a special meeting of
shareholders of the Company "may be requested at any time by . . . . the
holders of not less than one-fifth (1/5th) of all the shares of stock of
the [Company] outstanding and entitled to vote at such meeting" (the
"Required Holders"). Upon such a request by the Required Holders the
Company's Secretary must promptly call a special meeting of the Company's
shareholders to be held on such date as the Secretary may fix. Under the
Business Corporation Act (1954) of the District of Columbia (the "BCA"),
however, persons holding at least one-fifth (1/5th) of all the outstanding
shares entitled to vote may themselves call a special meeting of
shareholders. The Soliciting Group presently intends to have its Designees
(as hereinafter defined) request the Secretary to call the Special Meeting
in accordance with the By-Laws if the Required Holders consent, but
reserves the right to call the meeting directly.
This Preliminary Solicitation Statement is first being sent to
shareholders of the Company on or about April 8, 1997. It is anticipated
that a Definitive Solicitation Statement and accompanying gold Agent
Designation card will be sent to shareholders of the Company in April 1997.
THE FAILURE TO EXECUTE AND RETURN THE GOLD AGENT
DESIGNATION CARD WILL HAVE THE SAME EFFECT AS OPPOSING THE CALL
OF THE SPECIAL MEETING.
2
<PAGE>
PURPOSE OF THE SOLICITATION
The Soliciting Group's purpose in making the solicitation
described herein is to seek consents from the Required Holders in order to
have a Special Meeting for the purposes of considering its Shareholder
Democracy Proposals. The Shareholder Democracy Proposals, if adopted, would
ask the present Board to (i) schedule the postponed 1997 Annual Meeting
without delay, and to hold such meeting as soon as possible and (ii)
eliminate restrictions on the voting rights of shareholders holding more
that 5% of the Company's Common Stock.
As described in detail below under "Reasons for the Solicitation",
the Soliciting Group believes that COMSAT is in need of certain fundamental
changes that start with changes to COMSAT's Board of Directors. The
Shareholder Democracy Proposals, if adopted at a Special Meeting, would
send to the management and the present Board of COMSAT an unmistakable
message that the shareholders of the Company value their franchise and
expect to be able to exercise their right to elect directors to the
Company's Board annually, without further delay, without restrictions on
their voting rights and in confidence.
In considering this Solicitation Statement shareholders should be
aware of the following:
- THE SOLICITING GROUP IS NOT PRESENTLY SEEKING VOTES
Your completion of the Agent Designations will
not give the Designees the right to vote any
shares of Common Stock at the Special Meeting
and no proxies for such votes are being
solicited by the Soliciting Group at this time
or with this Solicitation Statement. Presently,
we are seeking enough consents to hold the
Special Meeting. If the Designees receive the
consent of the Required Holders to call the
Special Meeting, the Soliciting Group intends to
then seek proxies from shareholders to vote in
favor of the Shareholder Democracy Proposals at
the Special Meeting.
- EVEN IF THE SPECIAL MEETING IS HELD AND THE
PROPOSED RESOLUTIONS ARE ADOPTED THE RESULTS ARE NOT
BINDING UPON THE PRESENT BOARD
The resolutions proposed by the Soliciting Group
for consideration at the Special Meeting
(assuming that the consents of the Required
Holders are obtained to hold the Special
Meeting) are precatory only; that is they will
not be binding upon the Company if adopted.
Under the By-Laws the Board is empowered to
schedule the Company's annual meeting.
Similarly, the power to eliminate the voting
restrictions and restore full voting rights to
those shareholders owning more than 5% of the
Common Stock of the Company is reserved to the
Board. However, as noted above, the Soliciting
Group believes that a favorable vote on its
3
<PAGE>
Shareholder Democracy Proposals will send
management a strong message.
SHAREHOLDERS ENTITLED TO EXECUTE AGENT DESIGNATIONS AND EFFECT OF
EXECUTION AND DELIVERY OF AGENT DESIGNATIONS
The By-Laws provide that the holders of at least 1/5th of the
voting securities of the Company entitled to vote at a meeting may request
the Secretary of the Company to call a Special Meeting. According to the
By-Laws, it is the duty of the Secretary to promptly call a Special Meeting
when presented with consents of the Required Holders. If the Secretary does
not promptly call a meeting and give notice of its time, date and place,
the requesting shareholders may themselves call the Special Meeting and
give notice of the time, date and place of the requested special meeting.
The BCA, however, grants the Required Holders the right to themselves call
a special meeting without making a request of the Secretary (See BCA
Section 29-325). Under the BCA, the by-laws of a District of Columbia
corporation may contain any provision for the regulation and management of
the affairs of the corporation that are not inconsistent with law (See BCA
Section 29-324). The provision of the By-Laws requiring the Required
Holders to request the Secretary of the Company to call a special meeting
is not consistent with the BCA and is, therefore, inoperative. The
Soliciting Group presently intends for the persons it has designated as
agents of the shareholders with respect to the solicitation (the
"Designees") to satisfy the By-Law provision nonetheless and request the
Secretary to call the Special Meeting if the consents of the Required
Holders are obtained. Pursuant to the Agent Designations, however, the
Designees will have (and reserve) the right, at any time (whether before or
after a request is made to the Company's Secretary), under Section 29-325
of the BCA to call the Special Meeting directly and to provide notice to
the shareholders of the same.
The Agent Designations grant to the Designees the full rights and
authority of the Required Holders to take the foregoing actions in
connection with the Special Meeting (e.g. the right to request the
Secretary to call the Special Meeting, the right to call and give notice of
the Special Meeting etc.) but, as noted above, the Agent Designations will
not give the Designees the right to vote any shares of Common Stock at the
Special Meeting and no proxies for such votes are being solicited with this
Solicitation Statement. If a Special Meeting is called the Soliciting Group
intends to send shareholders of the Company additional materials and to
solicit proxies to vote at the Special Meeting.
Although the issue is not entirely free from doubt the Soliciting
Group believes that the record date for determining the identity of the
shareholders of the Company entitled to call the Special Meeting is the
date on which the unrevoked consents of the Required Holders are delivered
to the Secretary of the Company with a request to call a Special Meeting
(if the Secretary is requested to call the Special Meeting) or the date on
which the Designees themselves call the Special Meeting on behalf of the
Required Holders (if a request to call the Special Meeting has not been
made to the Secretary).
4
<PAGE>
The record date for determining shareholders entitled to notice
of, or to vote at, the Special Meeting shall be the date on which notice of
the Special Meeting is given to shareholders in accordance with the
By-Laws, unless the Board either closes the Company's stock transfer books
or sets a different record date in accordance with the BCA.
The purpose of the Special Meeting is to provide shareholders of
the Company with the opportunity to consider and vote on the Shareholder
Democracy Proposals.
By executing and returning the gold Agent Designation to MacKenzie
Partners you will not be committing to vote in favor of or against the
Shareholder Democracy Proposals or any other matter to be brought before
the Special Meeting, nor will you be granting any proxies to vote on such
matters. A validly executed and unrevoked Agent Designation will authorize
the Designees (i) to call or request the Secretary to call the Special
Meeting, (ii) to give notice of the place, date and time of the Special
Meeting and any adjournment thereof, and (iii) to exercise all rights of
Required Holders incidental to calling and convening the Special Meeting
and causing the purposes of the authority expressly granted pursuant to the
Agent Designations to the Designees to be carried into effect. To vote on
the matters to be brought before the Special Meeting you must vote by proxy
or in person at the Special Meeting.
If any of your shares of Common Stock are held in the name of a
brokerage firm, bank, bank nominee or other institution, only such holder
can execute an Agent Designation for such shares and will do so only upon
receipt of your specific instructions. Accordingly, you are asked to
contact the person responsible for your account and instruct that person to
execute the gold Agent Designation.
REASONS FOR THE SOLICITATION
The Soliciting Group is seeking consents from shareholders of
COMSAT to call a Special Meeting of shareholders. As noted above, the
purpose of such a meeting is to vote on the Shareholder Democracy
Proposals, consisting of the following precatory shareholder resolutions:
1. Resolved that the shareholders request the Board of Directors
of the Company to set a meeting date forthwith for the 1997 Annual Meeting
of Shareholders of the Company and to hold the 1997 Annual Meeting as soon
as possible; and
2. Resolved that the shareholders request the Board of Directors
of the Company to eliminate the Board-imposed restrictions on voting by
persons owning more than 5% of the Company's Common Stock, with effect
prior to the 1997 Annual Meeting.
5
<PAGE>
REASON FOR THE FIRST RESOLUTION: COMSAT NEEDS TO HOLD THE 1997
ANNUAL MEETING WITHOUT DELAY
On March 24, 1997, COMSAT announced that "in view of the timing of
the restructuring actions, the corporation has decided to postpone its
annual shareholders meeting, normally held in May of each year, in order to
allow focused execution of the plan and to report progress on its
implementation." The Soliciting Group believes the Board is not acting in
the best interest of COMSAT shareholders by indefinitely postponing the
1997 Annual Meeting because 1) there is an urgent need for a change in the
membership of the Board; 2) the reason for the postponement is inadequate;
and 3) the postponement serves to entrench the Board by delaying
indefinitely a proxy contest that the present Board knew would be
undertaken by the Soliciting Group.
I. The Shareholders of COMSAT Need to have the Opportunity to
Elect New Directors to the Board
A. Summary
The Soliciting Group believes that COMSAT's Board, composed mostly
of individuals with occupational backgrounds in law, regulated industries,
and government service, is not well suited to lead this Company. The
Board's lack of commercial management experience has created an
organization at COMSAT which, we believe, lacks the operating efficiency
and profit-driven motivations to prosper in a newly-competitive
marketplace. The Board's inexperience is evidenced by the poor financial
results of COMSAT's operations.
The Soliciting Group contends over the last decade, COMSAT's Board
of Directors has consistently misallocated capital and supervised numerous
instances of management errors which have caused a steady erosion in the
Company's profitability and shareholder value. The Soliciting Group
believes that the Board supported a constant diversification strategy at
the Company which ultimately resulted in the loss of capital and poor
equity returns dramatically below those of COMSAT's core business of
satellite telecommunications. Furthermore, the Board has provided
inadequate supervision of COMSAT's management, which has consistently
produced costly delays in major strategic programs and initiatives.
In our opinion, the past is a prologue to future results.
Currently, COMSAT's troubled financial state (a condition for which the
Board bears responsibility) is characterized by capital constraints,
consistently negative cash flow from operations after capital expenditures
and payment of dividends, a leveraged balance sheet reliant upon risky
short-term borrowings, and a dividend now in jeopardy. The Soliciting Group
believes the Board's current strategy is likely to cause further declines
in shareholder value because it does not properly address the critical
issues facing the Company.
COMSAT's core satellite operations are facing increasing
competition from private companies pursuing opportunities in the global
satellite telecommunications market. The Board's
6
<PAGE>
response to these market changes is a strategic plan to reduce capital allocated
to satellite systems and to increase the capital ($100 million per year going
forward) to the International Division. Formerly called "International
Ventures", COMSAT International primarily consists of start-up telecommunication
ventures in high risk Third World countries, such as Bolivia, Guatemala and
Peru. Given the financial track record of this division to date, the capital-
intensive nature of these enterprises versus COMSAT's current financial
constraints, and the Board's chronic history of poor capital allocation, the
Soliciting Group doubts that this is a sound strategy.
As a result, the Soliciting Group believes that COMSAT requires a
change in leadership at the Board level in order to halt the erosion of
shareholder value. New commercially-oriented directors are needed in order
for COMSAT to receive the proper leadership, experience, and competencies
from its Board to develop a strategy which will maximize shareholder value.
B. Board's Inadequate Stewardship of Shareholders' Investment
1. Board Composition is Representative of an Historic Cultural
Problem at COMSAT
The Soliciting Group believes that COMSAT has a "government
agency" culture due to several factors including sponsorship by the U.S.
Government through the Communications Satellite Act of 1962 (the "Satellite
Act") as reinforced by COMSAT's continued involvement with regulatory
agencies and international treaty organizations such as INTELSAT and
Inmarsat. Also, COMSAT maintains three facilities, including its
headquarters, located in the Washington, DC area. The composition of
COMSAT's Board of Directors, in turn, has always consisted of individuals
with occupational backgrounds primarily in law, regulated industries, and
government service. In particular, we note the presence of three
Presidential appointees on COMSAT's Board. As a result, the Soliciting
Group believes there is a deeply-rooted culture at COMSAT which is similar
to a bureaucratic, regulated, quasi-governmental organization, lacking in
the competencies and vision required to maximize profits and shareholder
returns.
The Soliciting Group believes that a successful Board will consist
largely of directors who have industry experience in telecommunications and
communications technology, and who have held managerial leadership
positions especially in publicly-held, commercially-oriented
7
<PAGE>
companies. The following list of COMSAT's Directors reveals that less than half
of the current Directors have senior management experience with a public company
other than COMSAT. (Y = Yes, N = No)
<TABLE>
<CAPTION>
Public Company
Management
Experience
COMSAT Industry Experience/ other than
Director Professional Occupation COMSAT
- -------- ----------------------- --------------
<S> <C> <C>
Betty C. Alewine Communications Company Executive N
Lucy W. Benson Diplomatic and Political Consultant N
Edwin I. Colodny Lawyer, Retired Airline Executive. Y
Lawrence S. Eagleburger Lawyer, Retired U.S. Secretary of State. N
Neal B. Freeman Communications Company Executive Y
Barry M. Goldwater Retired U.S. Senator N
Caleb B. Hurtt Retired Defense and Space Company Y
Executive
Arthur Hauspburg Retired Utility Company Executive Y
Peter S. Knight Lawyer, Lobbyist, Political Fund-Raiser N
Peter W. Likins Educator N
Howard M. Love Retired Executive (Steel/Pharmaceuticals) Y
Charles T. Manatt Lawyer, Politics N
Robert G. Schwartz Retired Insurance Company Executive Y
C.J. Silas Retired Petroleum Company Executive Y
Delores D. Wharton Political Consultant, Lobbyist N
</TABLE>
On the whole, COMSAT's present Board of Directors has a low level
of corporate executive experience yet a high level of political and legal
experience.
COMSAT's competitors and peer group members, by contrast, on
average have a greater percentage of board members with senior management
experience at one or more other public companies. COMSAT's competitors (who
are American Mobile Satellite, Globalstar Telecommunications, Orion Network
Systems and PanAmSat, according to COMSAT's Form 10-K for 1996) each had a
board of directors (according to the last proxy statements for each such
company) with a significantly higher percentage of individuals (ranging
from 60% to 100%) with senior management experience at other public
companies. The same observation is true for COMSAT's peer group identified
in its 1996 proxy statement - of the seventeen companies in the peer group,
based upon the last available proxy statement for each, thirteen of the
companies had boards where at least 50% of the directors had senior
management experience at other public companies.
8
<PAGE>
2. Board Is Responsible for COMSAT's Deteriorating Financial
Condition
As indicated in the chart below, during the past five Fiscal
Years, COMSAT's financial position has diminished significantly due to
misguided initiatives approved by the Board.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
($'s millions) 1996 1995 1994 1993 1992
Revenues $1,015 $863 $836 $758 $690
Operating Income 64 96 150 152 145
Net Income 9 38 78 84 53
E.P.S $0.18 $0.79 $1.64 $1.79 $1.16
Operating Margin 6.3% 11.1% 18.0% 20.0% 21.0%
Net Profit Margin .85% 4.4% 9.3% 11.1% 7.7%
Return on Average Equity 1.0% 4.5% 9.8% 11.5% 7.8%
Total Debt $813 $676 $644 $534 $536
Shareholders Equity $843 $839 $827 $763 $702
Free Cash Flow ($125) ($161) ($111) $23.4 ($7.6)
Dividend per share $0.78 $0.78 $0.76 $0.74 $0.70
Payout Ratio 433% 99% 46% 41% 60%
</TABLE>
Notes
Total Debt is the sum of short-term borrowing, commercial paper,
current maturities of long-term debt and long term debt.
Free Cash Flow is equal to net cash from operating activities less
net cash used in investing activities.
Operating Margin is determined by dividing operating income by
revenues.
Net Profit Margin is determined by dividing net income by
revenues.
Figures for 1992 Operating Income do not include a $40 million
charge.
Return on Average Equity ("ROAE") for 1996 is calculated by
dividing 1996 net income by average of reported shareholders
equity for 1996 and 1995. ROAE for 1992 to 1995 is as reported in
1995 COMSAT's 1995 Annual Report.
Payout ratio is the dividend paid per share as a percentage of
earnings per share.
Sources: COMSAT 1996 10-k, COMSAT 1995 and 1994 Annual Reports.
9
<PAGE>
COMSAT's financial results indicate the following:
a. Declining Return on Equity and Profitability
COMSAT has clearly fallen short of management's stated goal of a
15%-20% return on equity. The 1% return on equity earned in Fiscal 1996 is
the lowest in the past six years. Also margins have significantly
deteriorated over time. The Net Profit Margin for 1996 was less than 1%
meaning that for each dollar COMSAT took in as revenue, COMSAT's
shareholders earned less than one penny.
b. Capital Constrained
The lack of free cash flow and the lack of borrowing capacity has
forced COMSAT to forgo certain capital investment opportunities. For
example, in December, 1996, COMSAT reduced its ownership in I-CO Global
Communications Holdings Ltd., a promising multi-billion dollar venture to
construct a medium-earth-orbit satellite system targeting mobile telephony
customers. This decision was influenced by the $97 million in capital
commitments COMSAT had remaining on the initial stage of the I-CO
development. We believe COMSAT is precluded from pursuing other major
satellite system ventures due to its inability to raise substantial amounts
of capital.
c. Dividend Under Review
COMSAT announced on March 24, 1997 that "the Board of Directors is
reviewing whether COMSAT should maintain its dividend at the current
level". COMSAT has failed to earn its dividend in five of the last seven
quarters. In 1996 the dividend pay-out ratio was an unhealthy and
unsustainable 433%.
d. Riskier Financial Structure
Due to regulatory guidelines imposed by the Federal Communications
Commission, (the"FCC"), COMSAT is attempting to keep its ratio of long-term
debt to total capitalization to less than 45%. Consequently, in March 1997,
COMSAT called, at a premium, $160 million of its long-term debentures the
purchase of which was financed by a short-term credit facility. This is a
classic example of a tenor mismatch in the capital structure, which occurs
when long term assets are financed with short-term borrowings. This tenor
mismatch will increase the risk of COMSAT financial structure.
3. The Board's History of Flawed Strategies and Failures
Given the high quality assets the Company owns, the Soliciting
Group finds the current financial problems at COMSAT incomprehensible. The
Company's core business of satellite transmission, a quasi-monopoly by
virtue of COMSAT's status as the sole U.S. signatory to the INTELSAT and
Inmarsat satellite networks, has demonstrated consistently strong operating
10
<PAGE>
margins and pre-tax returns on assets. COMSAT's financial constraints
relate directly to the Board's approval of various ill-conceived plans to
diversify COMSAT away from its core satellite transmission business.
o This diversification strategy outlined in the 1991 Annual
Report states "We are going to take the proceeds from
these [CWS and CMC] businesses and invest in non-capital
intensive, complementary communications enterprises, such
as the video distribution business." The 1991 Annual
Report states further that "the entertainment
distribution business is a logical follow-up to the
businesses we're succeeding in today."
o In the 1994 Annual Report, management claims "We could
not rely exclusively on our traditional satellite
communications business to produce long-term gains in
shareholder value. For this reason we decided to
complement our substantial ownership in the international
satellite consortia, INTELSAT and Inmarsat, with new
growth engines." Even while making this statement,
however, management did admit in the same Annual Report
that its satellite communications business was "steady
and profitable".
For at least the past ten years, all of COMSAT's meaningful
attempts to redirect its strategy away from the INTELSAT and Inmarsat
businesses have ended in strategic and financial failure. For example:
1987: COMSAT sold or discontinued several businesses related to
electronics, communications equipment manufacturing and
satellite transmission which had had cumulative net
losses of $152 million from 1985 through in 1987.
1990: The Company restructured its video distribution services
for a total charge of $98 million from asset write-downs,
work force reductions, and the write-off of goodwill.
Within twelve months, of the write-down, however, COMSAT
increased its investment in this area by acquiring 47% of
a similar business, On- Command Video, for $14 million.
1992: The Company took restructuring charges of another $39
million for the realignment of its video distribution
division and for the consolidation of the Systems
Division with CL.
1995: The further restructuring of Ascent Entertainment caused
the Company to take a $10.9 million charge. In addition,
asset write-downs and cost reductions at CRSI and CL
resulted in $7.3 million in charges.
1997: The Company is now attempting to exit the entertainment
and hotel video distribution businesses after ten years
and $450 million dollars in total capital expenditures
that have produced $100 million in operating losses.
11
<PAGE>
1997: The Company has decided to dispose of CRSI after
purchasing the business two years ago for 6.147 million
shares of COMSAT Common Stock.
COMSAT's entertainment, technology, and international ventures
businesses, which as of December 1996 had combined assets of $1.2 billion,
generated $40 million in combined losses from 1991 to 1996. While COMSAT
was trying to diversify away from satellite transmission, several world
class companies such as General Electric, GM Hughes Electronics, News
Corp., Motorola, Loral Space and Communications, and Microsoft, have
initiated satellite ventures vying for a position in COMSAT's core industry
of global satellite telecommunications.
4. Board's Approval of a Flawed Strategy Going Forward
COMSAT's Board has approved a business strategy which, in the view
of the Soliciting Group is critically flawed. Among the questionable
elements of the strategy are the following:
a. Decision to Invest $100 Million Annually in COMSAT
International
COMSAT's International Division ("CIV") was formed in 1990 to
invest in start-up telecommunications companies in emerging markets. During
the period for which separate financial information for CIV is available,
the division has registered $42.2 million in operating losses and absorbed
over $150 million in capital investments (see chart below):
CIV DIVISION ($mm) Total 1996 1995 1994
Revenues $114.9 $58.1 $37.7 $19.1
EBITDA (15.8) (2.5) (12.5) (0.8)
D&A (26.4) (14.8) (8.2) (3.4)
Operating Income ($42.2) ($17.3) ($20.7) ($4.2)
Capital Investment $151.9 $89.9 $41.0 $21.0
Total Assets $200.0 $116.9 $67.0
Source: COMSAT 1996 10-K
Fiscal 1996 results showed operating losses of $17.3 million and
additional capital investments totaling $90 million. From this table, it is
clear that COMSAT is accelerating its capital investment in CIV, although
the incremental return on this capital thus far is negative, since CIV has
yet to show a profit in a single year for which separate financial
information is available. The Soliciting Group questions why the Board,
given its history of consistently poor capital allocation decisions and
management's inability to operate businesses outside of the core CWS and
CMC divisions, has approved such a high-risk strategic plan.
12
<PAGE>
According to a recent management presentation, COMSAT's criteria
for international investments includes a targeted IRR of more than 25% per
annum. CIV's reported results to date, however, give no indication at all
that COMSAT can achieve such a target. Even COMSAT Argentina, one of
management's highlighted ventures, has failed to show signs of producing a
targeted IRR of 25% per annum. Given the results to date and the fact that
management intends to invest another approximately $100 million per annum
in CIV going forward it is difficult to imagine CIV reaching this IRR
target. Even if CIV were to attain the targeted IRR we would argue that
given the high risk nature of operations in emerging markets (evidenced by
COMSAT's ongoing operational and financial problems with Belcom in Russia,
as well as the Company's unprepossessing exits from the Philippines and
Chile) the target IRR for CIV should be more in line with emerging market
venture capital investments which the Soliciting Group believes generally
have target IRRs of 40% per annum or more.
This strategy is also suspect given COMSAT's existing capital
constraints. Rather than invest another $100 million annually into the CIV
division, COMSAT could improve its balance sheet by using its cash to repay
short-term debt.
b. Questionable Decision to Avoid Increased Investment in
Satellite Systems Outside of INTELSAT and Inmarsat
The Soliciting Group believes that the proliferation of global
satellite systems and large capital investments in future systems evidences
the tremendous growth opportunities available in the satellite transmission
marketplace. Even Mrs. Alewine, in her testimony to Congress in September
1996, indicated that the new planned systems, "representing $23 billion in
new satellite facilities, ..., are primed to go after such lucrative
satellite markets as the direct-to-home markets that are seen as the future
for many satellite operators." The Soliciting Group believes COMSAT is
unable to pursue such opportunities due to its capital constraints, which
might possibly be overcome with a strategic partnership. The Soliciting
Group questions why the Board has not chosen to pursue strategic
opportunities in these areas, outside of the INTELSAT and Inmarsat systems.
While Mrs. Alewine contends that COMSAT is precluded from owning or
operating its own system in competition with domestic carriers or COMSAT
clients, we believe she is mistaken. In fact, during the 1980's, COMSAT did
pursue the direct broadcasting satellite (DBS) business in a satellite
joint-venture with RCA Corporation named Satellite Television Corporation.
COMSAT, through its COMSAT General Corporation, also operated its COMSTAR
satellite systems, outside of INTELSAT, providing domestic telephony
services to AT&T and broadcasting services to the NBC network. COMSTAR
General Corporation also operated the MARISAT mobile satellite system,
providing service to the U.S. Navy and later to Inmarsat. Also, in 1985,
COMSAT created COMSAT International Communications, Inc. to deliver
end-to-end international communications services directly to customers.
13
<PAGE>
c. Questionable Decision to Spin-off Ascent Entertainment Group,
Inc. to Shareholders
Lastly, the Soliciting Group questions the Board's failure to
accept a cash bid for Ascent. Management claims that the offers COMSAT
received were inadequate after taking into account the tax effects.
However, the Soliciting Group believes that COMSAT could deploy the cash it
would receive from an outright sale of Ascent in a useful manner. In fact,
the Soliciting Group contends that if COMSAT were to explore a sale of its
CIV division, complete a cash sale of Ascent, and fulfill its stated goal
of selling CRSI, then the Company would have a significant cash surplus and
be able to retire debt.
Unfortunately, the Board has approved a spin-off of Ascent at a
stock price now 56% lower than it was six months ago. Secondly, the Company
has called at a premium $160 million of a long-term debt issue. The result
is little change in the leverage position of the Company, a tenor mismatch,
no increased liquidity, and no return of capital to shareholders. COMSAT is
also assuming refinancing and interest-rate risk by redeeming long-term
debt due in 2004 and replacing it with funds from a short-term credit
facility subject to floating interest rates.
5. The Board Has Failed to Correct Problems of "Management by
Delay"
In keeping with our view of COMSAT's bureaucratic,
government-agency character, management's chronic delays have resulted in
repeated declines in shareholder value:
a. Delay in Pursuing Non-Dominant Status at FCC
COMSAT is classified as a "dominant carrier" by the FCC.
Consequently, it faces rate- based regulatory constraints which place a
12.5% ceiling on its rate of return on capital from its World Systems
operations. The removal of this dominant status is critical to COMSAT's
future financial performance. We are concerned that COMSAT's management has
been lax in pressing the FCC to review its "dominant carrier" status. Even
AT&T has achieved "non- dominant" status notwithstanding that its market
share of international telephony is estimated to be more than double that
of COMSAT.
In September, 1996, Betty Alewine submitted written testimony to
the U.S. Congress claiming that "COMSAT is being hamstrung today by a
burdensome regulatory regime whose roots were born in the 1970s and 1980s
when COMSAT did occupy a major market position." In March 1997, management
announced that it will formally petition the FCC in June 1997 to
re-classify COMSAT as a non-dominant carrier and for relief from rate-base
rate-of-return regulation. If the Company believed as early as the Summer
of 1996 that its status with the FCC was hurting results, then why is it
delaying the submission of its official petition to the FCC, until June
1997. In our view, there is no excuse for this delay. The Soliciting Group
estimates that the rate-of return restriction placed on COMSAT causes its
core World Systems business to operate at a fraction of its commercial
capacity, perhaps lower than 65%. We
14
<PAGE>
believe that there is significant earnings improvement to be gained for COMSAT's
shareholders from deregulation.
b. Delayed Disposal of Ascent Entertainment
COMSAT announced on October 18, 1996, that it intended to dispose
of its remaining 81% share of Ascent Entertainment Group. At that time,
Ascent had a market valuation of $617 million, and COMSAT's ownership was
worth $498 million. Six months have passed, and COMSAT has failed to find a
buyer for Ascent. Meanwhile, the market value of COMSAT's investment has
fallen to $217 million, equal to a loss in value of $5.74 per COMSAT share.
Furthermore, management delayed until January 1997 to file for a
ruling from the IRS to allow the spin-off of Ascent as a tax-free dividend
to shareholders. An IRS ruling is not expected until May 1997 at the
earliest. The Soliciting Group questions management's decision to wait
until January to file for a ruling with the IRS when it knew as early as
mid-October that the Company might dispose of its Ascent investment through
a tax-free spin-off.
c. Annual Meeting Delayed Indefinitely
Management has delayed the 1997 Annual Meeting indefinitely.
According to the Company's March 24, 1997 press release the meeting was
postponed "in order to allow focused execution of the plan and to report
progress on its implementation." The effect of this delay, however, is to
allow the Company's current strategy to continue unchallenged.
d. Operating Performance of International Ventures Behind Schedule
The business model for COMSAT's international ventures, according
to COMSAT's management, calls for each venture to be cash flow neutral,
before capital expenditures, after two to three years, and, as noted above,
have an internal rate of return of over 25% on average.
During its recent road show, management presented to shareholders
the operating results of COMSAT Argentina. Based on the performance of this
venture, it is unreasonable to assume this 25% IRR threshold will be
achieved. Cash flow in every year since inception in 1990 has failed to
finance capital expenditures, and COMSAT Argentina's Fiscal 1996 pre-tax
return on capital was only about 4%. COMSAT has invested $72 million in
COMSAT Argentina over the past five years, and the venture would have to be
valued at a significant multiple of revenues to produce an IRR of 25%.
COMSAT management contends that this venture will be increasingly valuable
in the future. In fact, this is their argument for the entire COMSAT
International division, that after a few more years, and several hundred
million dollars of additional capital, the International division will
generate excellent returns. COMSAT claims that Argentina is one of its more
successful ventures.
15
<PAGE>
e. Realizing Value of Intellectual Property at COMSAT Laboratories
The Soliciting Group believes that the laboratory operation of the
Company has been mismanaged and operated for decades as more of a research
and development facility rather than as a producer of commercially viable
intellectual property. CEO Betty Alewine recently confirmed this perception
when she stated that the COMSAT Laboratory operation, over the past several
years, has "not been used the way they should have been used, in a
commercial environment," and that COMSAT has not been "getting some return
on the intellectual property rights that are resident in our laboratories."
This same view has been expressed by Benjamin Pontano, President of COMSAT
Laboratories who said in a recently published interview that "in the past,
we were never looked at to make a profit." This delay in recognizing the
commercial value of COMSAT Laboratories has, in our opinion, comes at
shareholders' expense.
f. Lack of Communication with Shareholders
Following the appointment of Betty Alewine as Chief Executive
Officer in July of 1996, the Company proceeded to enter an inexplicable
"quiet period" with regard to communicating with shareholders. The Company
did not have an investor relations executive, was not attending any
investor conferences, and was not holding any meetings with investment
analysts. We believe this policy damaged COMSAT's relations with
institutional investors who were left unadvised as to the events taking
place at the Company. Gary Sharpe, COMSAT's current VP- Investor Relations,
was not hired until February 24, 1997, a full seven months after Mrs.
Alewine took office. The new investor relations program began, somewhat
disingenuously in our view, with the indefinite postponement of the 1997
Annual Meeting.
g. Launch of Planet One Delayed
Planet One is a six-pound, laptop computer-sized, personal
satellite terminal used for mobile telecommunications over the Inmarsat
satellite system. COMSAT announced this product in January 1996 and
expected it to begin service by mid-year 1996. COMSAT did not commence
service until January 1997. To date, the Company has not received FCC
approval to operate Planet One in North America. Competitors will be sure
to take advantage of these lapses ensuring the erosion of Planet One's
value. Indeed, Mitsubishi and American Mobile Satellite Corp. recently
announced their joint effort version of a laptop-sized portable phone.
6. Board's Actions are Unfriendly to Shareholders
We believe COMSAT's Board has not acted in the best interests of
its shareholders with regard to several issues.
Firstly, as mentioned previously, the 1997 Annual Meeting has been
postponed for specious reasons.
16
<PAGE>
Secondly, management has only recently hired an Investor Relations
executive, and for the first time in nine months, COMSAT's senior
executives are meeting in person with shareholders.
Thirdly, the Board maintains a voting restriction policy pursuant
to which shares owned by a single shareholder in excess of 5 percent of the
total shares outstanding may not be voted by the shareholder, but will be
voted pro-rata with all other shares.
Finally, COMSAT's Board has rejected past attempts by Providence
to engage in discussions about the Company's strategic plan. A chronology
of Providence's contact with COMSAT is as follows:
o October 23, 1996: Providence sent a letter to Betty
Alewine asking for "the chance to meet with you, either
in New York or in your office, at your convenience to
discuss these strategic issues." Mrs. Alewine did not
respond to the letter. Providence was previously informed
that she was not speaking to investors until an Investor
Relations executive was hired.
o December 12, 1996: Providence sent a letter to Mr. C.J.
Silas, Chairman of the Board, indicating that Providence
has "some thoughts about COMSAT's future which we would
like to discuss with you at your convenience."
o January 6, 1997: Providence called Mr. Silas. Mr. Silas
indicated that he was meeting with Mrs. Alewine the
following day and would discuss Providence's letter and
respond accordingly. Mr. Silas never contacted Providence
subsequent to this conversation as had been promised.
o February 24, 1997: Mr. Denton faxed a letter to Mrs.
Alewine stating "I will call you later today to put
forward our case for your participation at this
[Providence's proposed] institutional shareholders'
meeting." Mr. Denton called Mrs. Alewine later that day.
Her secretary took a message. Mrs. Alewine did not return
the call.
o March 12, 1997: Providence sent a letter to Warren Zeger,
COMSAT's corporate secretary, notifying the Company of
its "intention to nominate one or more individuals for
election to the Company's Board of Directors at the 1997
Annual Meeting."
o March 13, 1997: Providence received a letter from
COMSAT's counsel acknowledging Providence's letter and
advising Providence that it should make no assumptions
concerning the scheduled date of the 1997 Annual Meeting.
o March 24, 1997: Less than two weeks later, COMSAT
announced that "in view of the timing of the
restructuring actions, the corporation has decided to
postpone
17
<PAGE>
its annual shareholders meeting, normally held
in May of each year, in order to allow focused execution
of the plan and to report progress on its
implementation". Coinciding with this announcement,
management began a two- week nationwide "road show".
From these events, Providence has concluded that its hopes for an open
dialogue with COMSAT were misplaced. Consequently, the Soliciting Group
intends to nominate candidates for election to COMSAT's Board at the 1997
Annual Meeting who will support a reevaluation of COMSAT's strategic
alternatives with a view to maximizing shareholder value.
C. A New Board Must Be Committed to Maximizing Shareholder Value:
1. Designing a Strategy Based on the Company's Satellite
Transmission Expertise and Assets
The Soliciting Group believes that the Board must provide its
shareholders with a clearly defined vision, strategy and business plan for
the future. The current direction by the Board may preclude COMSAT from
fully participating in the unprecedented surge in demand for wireless
global telecommunication services. Accordingly, we believe the Board must
design a strategy and vision centered on leveraging COMSAT's experience and
valuable assets in the satellite transmission industry.
This industry is undergoing rapid expansion and change, as
demonstrated by the recent joint-venture announcements concerning PanAmSat
Corporation with the Hughes Electronics Unit of General Motors, Echostar
Communications with News Corp., and Alcatel and Loral Space &
Communications. Capital markets are providing financing to several
developing systems such as Iridium, Globalstar, and Orion Network Systems,
Inc. In addition, there is a record backlog of low-earth-orbit (LEO) and
geostationary satellites due for construction at major manufacturers
(Hughes, Lockheed Martin and Loral). The International Telecommunication
Union (ITU), the organization responsible for approving and allocating
orbital slots to satellite operators, recently reported a backlog of over
600 satellite applications. These new systems are targeting the growth
markets which COMSAT, as evidenced by the sale of its I-CO investment, is
not fully pursuing.
In the near future, there are a number of critical events which
may alter the profitability of COMSAT's core satellite business. For
example, the INTELSAT organization is considering the spin-off of some of
its satellite assets into a commercial affiliate and Inmarsat is
considering a restructuring plan which would convert it into a private
company. Secondly, COMSAT will petition the FCC to eliminate the dominant
carrier status under which the Company currently operates. It is imperative
that the Board focus its attention on preparing for the outcome of these
events in order to maximize the profit potential of both the CWS
(INTELSAT-based) and CMC (Inmarsat-based) divisions.
18
<PAGE>
Despite new competitors, the Company has a formidable set of
competitive advantages based on a number of attractive, non-fungible
assets. For example, COMSAT has the exclusive U.S. access to INTELSAT,
which owns the largest network of commercial geostationary satellites,
controlling 31 key orbital slots with favorable frequency allocations in
over 200 countries. (We note that in 1996, for example, MCI and News Corp.
paid $682.4 million for one slot which can provide Direct Broadcast
Satellite (DBS) television service to the U.S.) Since 1992, INTELSAT has
begun placing in orbit a new series of fifteen high-powered satellites
which provide greater capacity for Ku-band services such as DBS quality
video broadcasting and private business network communications. The bevy of
future opportunities for global satellite operators suggest that COMSAT
focus on growing, rather than just maintaining, its presence in the
satellite transmission industry.
2. Sell COMSAT's Non-Core Assets
In tandem with the conclusion that COMSAT needs to leverage its
satellite transmission expertise and core satellite-based assets, the
Soliciting Group believes COMSAT must consider disposing of all of the
Company's non-strategic businesses which include COMSAT's 80.7% interest in
Ascent Entertainment, Inc., CIV and COMSAT's Radiation Systems Division
(CRSI). As indicated by the table below, the profitability of Ascent, CIV
and Technology Services (a segment that includes CRSI, as well COMSAT
Laboratories), as measured by earnings before interest and taxes (EBIT)
divided by sales, is significantly below the levels for CWS and CMC.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
% EBIT/
FISCAL 1996 Sales EBIT Sales
CWS $272.9 $104.0 38.1%
CMC 155.2 31.3 20.2%
Sub-total $428.1 $135.3 31.6%
Technology Services
(includes CRSI and COMSAT
Laboratories) 301.0 19.0 6.3%
Ascent Entertainment 258.1 (46.0) n/a
CIV 58.1 (17.3) n/a
Sub-total $617.2 ($44.3) n/a
Eliminations
and Other Corporate (29.7) (27.0) n/a
Total $1,015.6 $64.0 6.3%
</TABLE>
Source: COMSAT 1996 10-K
This proposal goes further than the Board's current plans because it
envisions a possible sale of CIV.
19
<PAGE>
3. Establish an Executive Committee of the Board to Execute
the Newly-formed Vision and Strategy.
The Soliciting Group will nominate candidates for the election for
the Board who are committed to establishing an Executive Committee of the
Board of Directors. Such candidates, if elected, will propose that a
majority of the individuals appointed to the Executive Committee consist of
Board members elected for the first time at the 1997 Annual Meeting. The
purpose of the Executive Committee in accordance with the Company's
By-Laws, will be to exercise the authority of the Board of Directors in the
management of the property, affairs, and business of the Company. More
specifically, the Executive Committee will increase the Board's direct
involvement in managing the Company during this period of fundamental
change and the execution of a new strategic plan. Once COMSAT's strategic
plan is designed and approved by the Board, the Executive Committee will
direct management and control the implementation process. The Executive
Committee will establish timetables for management to follow, and will hold
management responsible for meeting the goals and time commitments. Lastly,
the Executive Committee will be responsible for the potential search for
strategic partners.
4. Seek to Reduce the Level of Corporate and Divisional
Operating Expenses.
COMSAT has a thirty-year history as a quasi-governmental
organization with a long-term monopolistic position in its core businesses.
This raises concerns that management does not exercise strict control over
expenses, both at the corporate and divisional operating levels.
Although difficult to quantify, there is a consensus among industry
sources as well as institutional investors that there is substantial room
for cost reduction at COMSAT. The Soliciting Group will nominate candidates
for election to the Board who will propose that the Board conduct a review
of the operating expenses within each division at COMSAT, as well as at the
corporate level.
5. Identify One or More Strategic Partners
As part of the Company's redirection towards a focus on the
satellite transmission industry, COMSAT must pursue growth outside of the
INTELSAT and Inmarsat treaty organizations because these two organizations
possess the same bureaucratic complacency that currently is evident at
COMSAT. The explosive growth in the development of commercial geostationary
satellite systems is intended to meet a similar increase in worldwide
demand for multi-channel television and telephone/data services from
developing countries.
In order to succeed in expanding its satellite operations, COMSAT
must find a strategic partner that can benefit from COMSAT's experience in
satellite transmission, while providing COMSAT with product content,
marketing experience, and financial resources. COMSAT has acted as a
wholesale provider of satellite capacity. The Company should seek to align
itself with a marketer or provider of services targeted for satellite
customers. These services may include satellite-TV, cable programming,
Internet access, and business communication networking. COMSAT's most
formidable competitor, PanAmSat Corp., has ventures around the globe with
20
<PAGE>
partners such as Telecommunications Inc., Groupo Televisa, and Hughes
Electronics Corp. Echostar Communications Corp., a provider of Satellite-TV
services, recently took in News Corp., and MCI Communications Corp. as
partners. MCI is being acquired by British Telecommunications PLC, an
INTELSAT signatory from the UK. The ideal partner ultimately must also have
a successful corporate culture, a vision for the future and a talented
management team to execute the business plan in a timely fashion.
6. Vigorously Pursue De-Regulation and INTELSAT Privatization
The Soliciting Group is not satisfied that management has
effectively pursued the achievement of non-dominant status as well as the
completion of the INTELSAT privatization which are two critical goals for
the Company.
7. Review Roll-out of Planet One
The Soliciting Group will nominate and seek to elect candidates at
the 1997 Annual Meeting who will commit to examining the capital spending
plan and budgets for Planet One to determine if this product is being
marketed correctly and why the expectations have not been met to date.
COMSAT's management had initially been very optimistic about this product,
but during their recent road show, failed to mention its current status.
The Board that is elected at the 1997 Annual Meeting must determine if a
strategic partner is warranted to provide the marketing expertise and, if
necessary, capital to accelerate the growth in the user base of Planet One.
II. Management's Explanation for the Indefinite Postponement
of the 1997 Annual Meeting is Inadequate
Shareholders have been deprived of the opportunity to meet with
the Board of Directors and management at a critical time of strategic
redirection. The Soliciting Group is not at all persuaded by the Company's
stated rationale for the postponement of the 1997 Annual Meeting, nor do we
accept certain follow-on reasons offered to shareholders by COMSAT's Chief
Executive Officer, Betty Alewine, including the excuse that management is
"very, very busy" and that these are "confusing times" for shareholders.
It is not standard business practice for public companies to
postpone shareholder meetings simply because a restructuring program is
being implemented. In the case of COMSAT, the restructuring "plan" consists
of measures which management had either previously committed to
implementing or had been under consideration for some time. For example,
the planned spin- off of Ascent Entertainment was announced in late 1996.
The Company had also signaled during its February conference call to
shareholders that it was exploring the sale of CRSI. Management and the
Board have had plenty of time to begin implementation of the plan. In our
view holding the 1997 Annual Meeting will not interfere with this process.
21
<PAGE>
In fact, the Soliciting Group believes that management is not
telling the truth to its shareholders. During the period of March 24th to
April 5th, management met with investors located throughout the United
States to present the new strategic plan, announced on March 24th. We do
not believe management is too busy to hold the 1997 Annual Meeting
considering that the Chief Executive Officer, Chief Financial Officer, and
Treasurer were able to spend two weeks visiting shareholders. Similarly,
since management held these investor meetings for the purpose of clarifying
the current situation at COMSAT, we do not believe shareholders would be
too confused to attend an annual meeting.
We believe the real reason the Board has postponed the 1997 Annual
Meeting indefinitely relates to Providence's letter, dated March 12, 1997,
to COMSAT's Corporate Secretary Warren Zeger which stated Providence's
"intention to nominate one or more individuals for election to the
Company's Board of Directors at the 1997 Annual Meeting." The effect of the
Company's decisions to indefinitely postpone the 1997 Annual Meeting
entrenches the present Board and inequitably delays the exercise by the
shareholders of their right to elect directors of their choice to COMSAT's
Board.
REASONS FOR THE SECOND RESOLUTION:
COMSAT'S SHAREHOLDERS DESERVE THE OPPORTUNITY TO EXERCISE THEIR
FRANCHISE AT THE 1997 ANNUAL MEETING WITHOUT LIMITATIONS ON THEIR
VOTING RIGHTS
In addition to seeking support for a resolution calling upon the
Board to schedule and hold the 1997 Annual Meeting without delay, if the
Required Holders consent to the Special Meeting the Soliciting Group will
also seek support for another shareholder-oriented proposal that calls for
the elimination of the current restrictions on the voting rights of
shareholders owning more than 5% of the Company's Common Stock.
Under both the Satellite Act and the Company's articles of
incorporation (the "Articles") a shareholder (other than a communications
common carrier authorized to hold shares by the FCC) is prohibited from
owning more than 10% of the aggregate issued and outstanding shares of the
Company's voting stock. The Articles authorize (but do not require) the
Board to establish limitations on ownership of Common Stock below this 10%
level.
According to the Company's proxy statement for its 1996 Annual
Meeting, shareholders who own more than 5% of the Common Stock do not have
voting rights with respect to more than 5% of the shares. Instead, any
share owned by such a shareholder above the five percent threshold is voted
pro rata with all other shares of Common Stock voted on any given matter.
Effectively, the shareholder's voting rights with respect to any share
owned in excess of the 5% level are neutralized.
22
<PAGE>
This limitation on voting rights is not required by law or by the
Articles. Further, in the view of the Soliciting Group, it does not even
advance the stated aim of the Satellite Act to encourage the widest
distribution of shares to the American public. Instead, it merely precludes
those holders who have a significant economic stake in COMSAT from having a
voice in the governance of the Company that is commensurate with their
investment and their risk.
In addition to the fact that this voting limitation is not, in the
view of the Soliciting Group, fair, democratic or necessary, it is not even
clear that it is an appropriate limitation at law. This limitation on
voting rights does not appear to be consistent with Section 29-327(a) of
the BCA which states that "unless otherwise provided in the articles of
incorporation, each outstanding share shall be entitled to one vote on each
matter submitted to a vote." While the Articles do explicitly vary the
voting rights of shareholders in certain instances (e.g. cumulative voting
for the election of directors is provided in the Articles, as per the
Satellite Act), the Articles do not anywhere state that the voting rights
of shareholders owning more than 5% of the Company's Common Stock are to be
limited.
23
<PAGE>
RECESS OR ADJOURNMENT OF MEETING AND OTHER MATTERS
The Soliciting Group also anticipates requesting, in the proxy
solicitation relating to the Special Meeting, authority to initiate and
vote for proposals to recess or adjourn the Special Meeting for any reason,
including to allow inspectors of votes to collect and count votes and to
report the results of the vote to the secretary of the Special Meeting, or
to allow the solicitation of additional votes, if necessary, to approve the
Shareholder Democracy Proposals. The Soliciting Group does not currently
anticipate additional proposals on any substantive matters. Nevertheless,
the Soliciting Group may elect to cause additional proposals to be
identified in the notice of, and in the proxy materials for, the Special
Meeting.
CERTAIN INFORMATION CONCERNING PROVIDENCE, WPC AND
OTHER PARTICIPANTS IN THE SOLICITATION
Providence Capital, Inc. is a New York City based registered
broker-dealer with special expertise in corporate governance and
shareholder matters. Providence was founded in 1990 by Herbert A. Denton,
its President, Chief Executive Officer and sole director. Providence's
principal offices are located at 730 Fifth Avenue, Suite 2102, New York,
New York 10019.
As at April 4, 1997 Providence beneficially owned 11,100 shares of
the Company's outstanding Common Stock and options to purchase 40,000
additional shares. William J. Tapert, an employee of Providence owns
options to purchase 2,000 shares of the Company's Common Stock.
Providence Investors, LLC, ("PI") a private investment vehicle
organized as a limited liability company of which Mr. Denton is a managing
member owns 25,000 shares of the Company's Common Stock and options to
purchase 5,000 additional shares. Gregory Morey one of the other managing
members of PI owns 2,500 shares. PI's principal executive offices are
located at 730 Fifth Avenue, New York, New York 10019. The three managing
members of PI, Mr. Denton, Mr. Morey and Mr. Frederick Whitridge each own
approximately 11.1% of PI. Except for Messrs. Morey and Tapert, none of the
managing members of PI and none of the officers or employees of Providence
directly own any shares of the Company's Common Stock. Providence, PI,
Morey and Tapert own in the aggregate less than 1% of the Company's
outstanding Common Stock.
Guy P. Wyser-Pratte ("Wyser-Pratte") is President and Chief
Executive Officer of Wyser-Pratte Management Co., Inc. and WPC, which are
principally engaged in money management and event arbitrage. The principal
executive offices of WPC are located at 63 Wall Street, New York, New York
10005. As of April 4, 1997, Wyser-Pratte beneficially owned 1,253,400
shares of the Common Stock, representing approximately 2.56% of the
Company's outstanding Common Stock as reported in its Form 10-K for the
period ended December 31, 1996. This includes shares owned directly by
Wyser-Pratte and shares owned by investment
24
<PAGE>
partnerships and other managed accounts for which affiliates of WPC are the
general partner or investment manager. Other than Wyser-Pratte, no other officer
of WPC owns any shares of Common Stock of COMSAT.
Providence and WPC have orally agreed that (i) the expenses
incurred in connection with the preparation and distribution of this
Solicitation Statement and the matters described herein will be borne in
equal portions by Providence and WPC and (ii) that Providence shall be
entitled to 10% of the net profits, if any, realized upon the sale or other
disposition of any shares of the Company beneficially owned by Wyser-Pratte
Management Co., Inc.
GENERAL INFORMATION
This Preliminary Solicitation Statement is first being made
available to shareholders on or about April 8, 1997. It is anticipated that
a Definitive Solicitation Statement and accompanying gold Agent Designation
Card will be sent to the Company's shareholders in April, 1997. Executed
Agent Designations will be solicited by mail, telephone,
facsimile/telecopier and in person. Solicitations will be made by Mr.
Denton, Mr. Tapert and Adam Weiss, (each of whom are employees of
Providence), Mr. Morey and Mr. Whitridge (each of whom are managing members
of PI) and Mr. Wyser-Pratte and Eric Longmire, Senior Managing Director of
WPC. None of the foregoing individuals will receive additional compensation
for making solicitations. Proxies will be solicited from individuals,
brokers, banks, bank nominees and other institutional holders. The
Soliciting Group has requested banks, brokerage houses and other
custodians, nominees and fiduciaries to forward all solicitation materials
to the beneficial owners of the shares they hold of record. The Soliciting
Group will reimburse these record holders for their reasonable
out-of-pocket expenses.
The Soliciting Group has retained MacKenzie Partners as the
information agent and to solicit Agent Designations in connection with
calling the Special Meeting for which MacKenzie Partners will be paid a fee
of approximately [$_______] and will be reimbursed for its reasonable
expenses. MacKenzie Partners will employ approximately [___] people in its
efforts. The costs of this solicitation include printing, postage, legal
and related expenses that are expected to be approximately [$_________].
The total costs incurred to date in connection with this solicitation are
not in excess of [$_________]. The Soliciting Group intends to ask the
Board to have the Company reimburse it for the costs and expenses incurred
in connection with this solicitation. The Soliciting Group does not intend
to request that its reimbursement request be submitted to a vote of
shareholders.
REVOCABILITY OF SIGNED AGENT DESIGNATIONS
You may revoke your Agent Designation at any time by executing and
delivering a written revocation to Herbert A. Denton at Providence Capital,
Inc., 730 Fifth Avenue, New York, New York 10019 or the Company, at 6560
Rock Spring Drive, Bethesda, Maryland
25
<PAGE>
20817 (please send a copy of any revocation sent to the Company to Herbert A.
Denton, so that the Soliciting Group is aware of the revocation). Such a
revocation must clearly state that your Agent Designation is no longer
effective. Any revocation of an Agent Designation will not effect any action
taken by the Designees pursuant to the Agent Designation prior to such
revocation.
HERBERT A. DENTON
PROVIDENCE CAPITAL, INC.
GUY P. WYSER-PRATTE
WYSER-PRATTE & CO., INC.
IF YOUR SHARES OF COMSAT CORPORATION COMMON STOCK ARE HELD IN THE NAME OF A
BROKERAGE FIRM, BANK, BANK NOMINEE OR OTHER INSTITUTION, ONLY IT CAN SIGN
AN AGENT DESIGNATION WITH RESPECT TO YOUR COMMON STOCK. ACCORDINGLY, PLEASE
CONTACT THE PERSON RESPONSIBLE FOR YOUR ACCOUNT AND GIVE INSTRUCTIONS FOR
AN AGENT DESIGNATION TO BE SIGNED REPRESENTING YOUR SHARES OF COMMON STOCK.
IF YOU HAVE ANY QUESTIONS ABOUT GIVING YOUR AGENT DESIGNATION OR
REQUIRE ASSISTANCE, PLEASE CONTACT MACKENZIE PARTNERS, INC. TOLL-
FREE AT (800) [ ], OR HERBERT A. DENTON, PRESIDENT OF
PROVIDENCE AT (212) 888-3200.
26
<PAGE>
[PRELIMINARY COPY]
APPENDIX A
GOLD AGENT DESIGNATION CARD
AGENT DESIGNATION
THIS AGENT DESIGNATION IS SOLICITED BY PROVIDENCE CAPITAL, INC.
AND WYSER-PRATTE & CO., INC. AND CERTAIN OF THEIR RESPECTIVE AFFILIATES AND
ASSOCIATES (THE "SOLICITING GROUP") FOR THE APPOINTMENT OF DESIGNEES TO
CALL A SPECIAL MEETING OF SHAREHOLDERS OF COMSAT CORPORATION (THE
"COMPANY").
Each of the undersigned hereby constitutes and appoints Daniel H.
Burch, Stanley J. Kay and Mark H. Harnett, and each of them, with full
power of substitution, the proxies and agents of each of the undersigned
(said proxies and agents, together with each substitute appointed by any of
them, if any, collectively, the "Designees") in respect of all shares of
Common Stock, without par value (the "Common Stock"), of the Company owned
by the undersigned to do any or all of the following, to which each of the
undersigned hereby consents:
1. To take all such action as shall be necessary or appropriate
(i) to request the Secretary of the Company to call and/or (ii) to call
(BUT NOT, IN EITHER CASE, TO VOTE AT) a special meeting of the shareholders
of the Company (the "Special Meeting") for the purpose of considering and
voting upon the "Shareholder Democracy Proposals" as described in the
Solicitation Statement of the Soliciting Group.
2. To give or cause to be given, to the Company's shareholders
entitled thereto, notice of the time, date and place of the Special
Meeting.
<PAGE>
(AGENT DESIGNATION CONTINUED ON REVERSE)
GOLD AGENT DESIGNATION CARD
3. To exercise any and all of the other rights of each of the
undersigned incidental to (i) calling and convening the Special Meeting and
(ii) causing the purposes of the authority expressly granted hereinabove to
the Designees to be carried into effect; provided, however, that NOTHING
CONTAINED IN THIS INSTRUMENT SHALL BE CONSTRUED TO GRANT TO THE DESIGNEES
THE RIGHT, POWER OR AUTHORITY TO VOTE ANY SHARES OWNED BY THE UNDERSIGNED
AT THE SPECIAL MEETING.
PLEASE PROMPTLY COMPLETE, SIGN, DATE AND MAIL IN THE ENCLOSED
ENVELOPE.
DATE ______________________, 1997 SIGNATURE
SIGNATURE, IF HELD JOINTLY _________________________ TITLE
Please sign exactly as name appears hereon. When shares are held by joint
tenants, both should sign. When signing as an attorney, executor,
administrator, trustee or guardian, give full title as such. If a
corporation, sign in full corporate name by President or other authorized
officer. If a partnership, sign in partnership name by any partners.
PLEASE SIGN, DATE AND MAIL PROMPTLY IN THE ENCLOSED ENVELOPE.
