Pursuant to Rule 424(b)(3)
Registration No. 333-78279
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PROXY STATEMENT/PROSPECTUS
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[LOGO OF COMSAT CORPORATION APPEARS HERE] July 20, 1999
Dear Shareholders:
The 1999 Annual Meeting of Shareholders will be held at 9:30 a.m., local
time, on Friday, August 20, 1999, at COMSAT's headquarters, located at 6560
Rock Spring Drive, Bethesda, Maryland. The meeting was originally scheduled for
June 18, 1999, but was rescheduled for the reasons discussed below.
At the annual meeting, you will be asked to approve the merger between
Lockheed Martin Corporation and COMSAT. After the proposed merger, COMSAT will
be a wholly-owned subsidiary of Lockheed Martin, and you will be shareholders
of Lockheed Martin. In the merger, you will receive one share of Lockheed
Martin common stock for each share of COMSAT common stock that you own. The
proposed merger will be the second and final step in Lockheed Martin's
acquisition of COMSAT. The first step is a tender offer, which was commenced on
September 25, 1998, by a subsidiary of Lockheed Martin, to purchase a non-
controlling interest of up to 49% of the outstanding shares of COMSAT common
stock at a price of $45.50 per share.
On June 9, 1999, Lockheed Martin issued a press release and filed a Form 8-K
with the Securities and Exchange Commission regarding its expected financial
performance for the second quarter of fiscal year 1999 and for the remainder of
1999 and 2000. In the June 9 announcement, Lockheed Martin indicated that a
just completed financial review performed by Lockheed Martin resulted in a
substantial reduction in Lockheed Martin's estimates of its earnings and cash
flow outlook for these periods. In view of the proximity of the development and
release of this information to the originally scheduled date for the meeting,
COMSAT, with the concurrence of Lockheed Martin, rescheduled the date of the
meeting.
We anticipate that between 31,084,653 and 39,348,158 shares of Lockheed
Martin common stock will be issued to COMSAT shareholders in connection with
the merger. These amounts are based on June 30, 1999 records and represent the
difference between the number of shares of COMSAT common stock outstanding on a
fully-diluted basis and the maximum and minimum number of shares of COMSAT
common stock that may be acquired in the tender offer, respectively. The actual
number of shares issued in connection with the merger will depend upon the
number of shares tendered in the tender offer and the number of shares for
which dissenters' rights are properly exercised. Lockheed Martin common stock
is listed on the New York Stock Exchange under the symbol "LMT."
Your Board of Directors has determined that the merger is consistent with,
and advances, the long-term business strategy of COMSAT and recommends that you
vote in favor of the merger at the annual meeting.
At the annual meeting, you will also vote to elect 12 members to the Board
of Directors, to appoint Deloitte & Touche LLP as COMSAT's independent public
accountants for the year ending December 31, 1999, and to act upon a
shareholder proposal. Your Board of Directors has approved the election of the
director nominees and the appointment of Deloitte & Touche LLP as COMSAT's
independent public accountants and recommends that you vote in favor of these
proposals. Your Board of Directors does not recommend the shareholder proposal
and recommends that you vote against this proposal.
The attached proxy statement/prospectus provides you with detailed
information about COMSAT, Lockheed Martin and the proposed merger. You should
read this document, particularly the section describing risk factors relating
to the merger that begins on page 13. We look forward to the successful
combination of COMSAT and Lockheed Martin and to your continued support as a
shareholder of the combined company.
For your vote to be counted, it is important that you sign and return a new
proxy card. Proxy cards returned in connection with the originally scheduled
meeting date will not be counted.
Sincerely,
/s/ EDWIN I. COLODNY
Edwin I. Colodny
Chairman of the Board
/s/ BETTY C. ALEWINE
Betty C. Alewine
President and Chief Executive Officer
Neither the Securities and Exchange Commission nor any state securities
commission has approved the merger, nor have they determined if this proxy
statement/prospectus is accurate or adequate. Any representation to the
contrary is a criminal offense.
[LOGO OF COMSAT CORPORATION APPEARS HERE]
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NOTICE OF RESCHEDULED ANNUAL MEETING OF SHAREHOLDERS
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To the Shareholders of COMSAT
Corporation:
The 1999 Annual Meeting of The close of business on July 20,
Shareholders of COMSAT Corporation 1999 is the record date for
will be held in the Charyk determining which shareholders are
Conference Center, COMSAT entitled to vote at the annual
headquarters, 6560 Rock Spring meeting and at any adjournment or
Drive, Bethesda, Maryland, on postponement of the annual meeting.
Friday, August 20, 1999, at 9:30 A list of shareholders entitled to
a.m., local time, for the following vote at the annual meeting will be
purposes: available for your examination at
COMSAT's headquarters for a period
1. to consider and vote on a of five days before the annual
proposal to approve an agreement meeting during regular business
and plan of merger dated as of hours.
September 18, 1998 among COMSAT,
Lockheed Martin and a wholly- A map and directions by car and
owned subsidiary of Lockheed the Washington Metro to COMSAT's
Martin and to approve the merger headquarters appear at the end of
and other transactions described the proxy statement/prospectus.
in the merger agreement. You can
find the full text of the merger Please read the proxy
agreement at the back of this statement/prospectus for information
document as Appendix I; relating to COMSAT, Lockheed Martin,
and the terms and conditions of the
2. to elect 12 directors; merger. Other important information
is incorporated by reference from
3. to appoint Deloitte & other documents. Please review all
Touche LLP to serve as COMSAT's these materials before completing
independent public accountants the enclosed proxy card.
for the year ending December 31,
1999; By order of the Board of Directors,
4. to act on a shareholder /s/ WARREN Y. ZEGER
proposal that recommends COMSAT Warren Y. Zeger
affirm its political non- Vice President, General Counsel
partisanship and require the and Secretary
reporting of certain practices;
and Bethesda, Maryland
July 20, 1999
5. to act upon any other
matters that may properly come
before the annual meeting and any
adjournment or postponement of
the annual meeting.
To assure your representation at the annual meeting, please complete, sign,
date and return the enclosed proxy card promptly in the enclosed prepaid
envelope. Proxy cards returned in connection with the originally scheduled
meeting date will not be counted. You can also vote in person at the annual
meeting. Please do not send in your stock certificates with your proxy card.
This proxy statement/prospectus is dated July 20, 1999 and is first being
mailed to shareholders on or about July 23, 1999.
TABLE OF CONTENTS
Page
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QUESTIONS AND ANSWERS ABOUT THE MERGER.................................... 1
SUMMARY................................................................... 3
The Companies........................................................... 3
Our Recommendations To Shareholders..................................... 3
Reasons for the Merger.................................................. 4
Votes Required For Approval............................................. 4
Interests of COMSAT Executive Officers and Directors in the Merger...... 4
Conditions to the Merger................................................ 4
Termination of the Merger Agreement..................................... 5
Termination Fee; Termination Expenses................................... 5
Non-Solicitation of Competing Transactions.............................. 5
Regulatory Approvals.................................................... 5
Amendment of the Satellite Act.......................................... 6
Federal Tax Consequences of the Merger.................................. 6
Accounting Treatment.................................................... 6
Opinion of COMSAT's Financial Advisor................................... 6
Other Transaction Documents............................................. 6
Comparative Per Share Market Price Information.......................... 6
Material Differences in the Rights of Shareholders...................... 7
Forward-Looking Statements May Prove Inaccurate......................... 7
Lockheed Martin Selected Historical Consolidated Financial Information.. 8
COMSAT Selected Historical Consolidated Financial Information........... 9
Summary Selected Unaudited Pro Forma Combined Condensed Financial
Information............................................................ 10
Comparative Per Share Information....................................... 11
Recent Developments..................................................... 12
RISK FACTORS.............................................................. 13
Value of Lockheed Martin Common Stock You will Receive in the Merger
will Fluctuate......................................................... 13
Lack of Certainty that the Merger will be Tax Free to You............... 13
Lockheed Martin Global Telecommunications' Business is Relatively New
and has a Limited Operating History.................................... 14
The Expected Benefits of the Merger May Not Occur....................... 14
A Significant Period of Time May Elapse Before the Completion of the
Tender Offer or the Merger............................................. 14
It is Anticipated That Only One Shareholder Vote will be Taken on the
Merger................................................................. 14
The Satellite Act Must be Amended to Permit the Merger.................. 15
Lockheed Martin Must Receive Approvals from the FCC to Complete the
Tender Offer and the Merger............................................ 15
Antitrust Regulatory Agencies May Oppose or Impose Conditions on the
Merger................................................................. 16
The Merger Costs will be Substantial.................................... 16
The Interests of COMSAT Executive Officers and Directors in the Merger
May be Different From Yours............................................ 16
FORWARD-LOOKING STATEMENTS--SAFE HARBOR PROVISIONS........................ 18
THE COMSAT ANNUAL MEETING................................................. 19
When and Where the Annual Meeting will be Held.......................... 19
What will be Voted Upon................................................. 19
Only Shareholders of Record as of July 20, 1999 are Entitled to Vote.... 19
Number of Shares that Must be Present for a Vote to be Taken............ 19
Votes Required for Approval............................................. 19
Page
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Voting Your Shares and How Proxies are Counted.......................... 20
Revoking Your Proxy..................................................... 20
Soliciting Proxies...................................................... 20
ITEM 1. APPROVAL OF THE MERGER............................................ 22
Background of the Merger................................................ 22
Recommendations of the COMSAT Board of Directors; Reasons for the
Merger................................................................. 24
Lockheed Martin's Reasons for the Merger................................ 26
Opinion of COMSAT's Financial Advisor................................... 27
Interests of COMSAT Executive Officers and Directors in the Merger...... 37
Accounting Treatment.................................................... 42
Material U.S. Federal Income Tax Consequences........................... 42
Regulatory Approvals.................................................... 45
Appraisal Rights........................................................ 48
Resale Restrictions..................................................... 49
THE MERGER AGREEMENT...................................................... 50
The Tender Offer........................................................ 50
Conditions to the Tender Offer.......................................... 50
Employee Benefits....................................................... 51
Exchange Procedures..................................................... 51
Interim Operations...................................................... 52
No Solicitation......................................................... 52
Reasonable Efforts to Complete the Tender Offer and the Merger.......... 53
Directors' and Officers' Insurance; Indemnification..................... 54
Conditions to the Merger................................................ 54
Representations and Warranties.......................................... 55
Termination; Termination Fees........................................... 56
Fees and Expenses....................................................... 57
Other Transaction Documents............................................. 57
THE COMPANIES............................................................. 60
Lockheed Martin......................................................... 60
Deneb Corporation, Lockheed Martin's merger subsidiary.................. 60
COMSAT.................................................................. 60
MARKET DATA............................................................... 61
LOCKHEED MARTIN SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION.... 62
COMSAT SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION............. 63
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION.............. 64
COMPARISON OF SHAREHOLDERS' RIGHTS........................................ 70
OWNERSHIP OF COMSAT COMMON STOCK.......................................... 83
Record Date............................................................. 83
Beneficial Ownership of Principal Shareholders and Management........... 83
Ownership and Voting Limitations........................................ 85
ITEM 2. ELECTION OF DIRECTORS............................................. 85
Board of Directors...................................................... 85
Voting for Directors.................................................... 85
Requirements for Nominations and Shareholder Proposals.................. 86
Nominees for Election as Directors...................................... 87
Presidentially-Appointed Directors...................................... 89
Committees of the COMSAT Board of Directors............................. 90
Directors Compensation.................................................. 91
Compensation Committee Interlocks, Insider Participation and Related
Party Transactions..................................................... 95
ii
Page
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COMMITTEE ON COMPENSATION AND MANAGEMENT DEVELOPMENT REPORT ON EXECUTIVE
COMPENSATION............................................................ 95
EXECUTIVE COMPENSATION................................................... 98
CHANGE IN CONTROL ARRANGEMENTS........................................... 107
PERFORMANCE GRAPH........................................................ 108
ITEM 3. APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS.................... 109
ITEM 4. ACTION UPON A SHAREHOLDER PROPOSAL............................... 109
OTHER MATTERS............................................................ 110
LEGAL MATTERS............................................................ 110
EXPERTS.................................................................. 110
WHERE YOU CAN FIND MORE INFORMATION...................................... 111
APPENDIX I: MERGER AGREEMENT............................................. I
APPENDIX II: SECTION 29-373 OF THE DISTRICT OF COLUMBIA BUSINESS
CORPORATION ACT......................................................... II
APPENDIX III: OPINION OF DONALDSON, LUFKIN & JENRETTE SECURITIES
CORPORATION............................................................. III
APPENDIX IV: RESTATED ARTICLES OF INCORPORATION OF COMSAT CORPORATION.... IV
DIRECTIONS TO THE COMSAT BUILDING........................................ BC
iii
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: Why are the two companies proposing to merge? How will I benefit?
A: The merger will result in you having a stake in one of the nation's leading
companies. The merger combines the greater resources of Lockheed Martin
with the telecommunications services expertise of COMSAT. The combined
company will have the ability to meet the increased demand for broadband,
Internet and virtual private network services in the global
telecommunications services market. The combined company will also be more
competitive in this market than either company on a stand-alone basis. We
believe that the merger will accelerate long-term growth and increase
shareholder value.
Q: I tendered my shares in the tender offer. Can I still vote these shares at
the annual meeting?
A: Yes. You can and should still vote your tendered shares at the annual
meeting. You will be voting on whether to approve the merger, even though
the tender offer has not yet been completed.
Q: What will I receive in the merger?
A: In the merger, you will receive one share of Lockheed Martin common stock
in exchange for each share of COMSAT common stock that you own. Lockheed
Martin will not issue fractional shares. Instead, if you own fractional
shares of COMSAT common stock, you will receive cash for those shares.
If you tender shares in the tender offer, you will receive $45.50 for each
share of COMSAT common stock that you sell in the tender offer, subject to
proration, and will not receive Lockheed Martin common stock for those
shares in the merger.
Q: Is the exchange ratio fixed?
A: Yes. The exchange ratio of one share of COMSAT common stock for one share
of Lockheed Martin common stock will not change even if the price for
Lockheed Martin common stock increases or decreases before the merger is
completed. The market value of Lockheed Martin common stock that you
receive in the merger will almost certainly change and may be higher or
lower than its current market value.
Q: Do I have appraisal rights?
A: Yes. District of Columbia law permits you to dissent from the merger and
have the fair value of your shares of COMSAT common stock appraised by a
court and paid to you in cash. To do this, you must follow the procedures
set forth under District of Columbia law, including filing specific notices
and not voting your shares in favor of the merger. The relevant provisions
of the District of Columbia law governing this process are attached to this
proxy statement/prospectus as Appendix II.
Q: What happens to my future dividends?
A: As a shareholder of Lockheed Martin, you will no longer receive dividends
on COMSAT common stock in the amount of $.05 per share per quarter, or $.20
per share per year. Instead, you will receive dividends paid on Lockheed
Martin common stock in the amount of $0.22 per share per quarter, or $0.88
per share per year. Although Lockheed Martin currently expects to pay these
dividends, it has the discretion to change these payments in the future.
Q: What do I need to do now?
A: Please vote. For your vote to be counted, it is important that you sign,
date and return a new proxy card. Proxy cards returned in connection with
the originally scheduled meeting date will not be counted. Indicate on your
proxy card how you want to vote, and sign, date and mail the proxy card in
the enclosed return envelope as soon as possible.
1
You may attend the annual meeting and vote in person rather than voting by
proxy. In addition, you may revoke your proxy and change your vote before
or at the annual meeting.
Q: How do I vote shares that I hold through the COMSAT Corporation Savings
and Profit-Sharing Plan?
A: You will receive separate instructions as to how to direct the trustee to
vote the shares held in your plan account.
Q: Should I send in my stock certificates now?
A: No. After the merger is completed, you will receive instructions on how to
exchange your COMSAT stock certificates for Lockheed Martin stock
certificates.
If you wish to tender your shares in the tender offer, you should follow
the instructions in the tender offer materials which were provided
separately in September 1998.
Q: What are the major conditions to the merger?
A: To complete the merger, COMSAT shareholders must approve the merger,
various regulatory approvals must be obtained, and Congress must amend the
Communications Satellite Act of 1962.
Q: When do you expect the merger to be completed?
A: We are working toward completing the merger as quickly as possible.
However, we do not yet know when the merger will be completed as many
conditions to the merger are beyond our control.
If Congress does not adopt amendments to the Satellite Act in the very near
term, the merger will not occur in 1999, even if the tender offer is
completed. If, however, Congress adopts amendments to the Satellite Act in
the 1999 legislative session, the merger may occur in late 1999 or in early
2000, depending upon when approvals of the FCC and Department of Justice
necessary to complete the merger are obtained.
If the tender offer is not completed by September 18, 1999, either Lockheed
Martin or COMSAT may terminate the merger agreement. Lockheed Martin or
COMSAT may elect not to do this or together may elect to amend the merger
agreement so that the tender offer can be completed after September 18,
1999.
If the merger is not completed by September 18, 2000, either Lockheed
Martin or COMSAT may terminate the merger agreement. Lockheed Martin or
COMSAT may elect not to do this or together may elect to amend the merger
agreement so that the merger can be completed after September 18, 2000.
Q: Who can help answer my questions?
A: If you have questions about the merger, you should contact:
COMSAT Corporation
6560 Rock Spring Drive
Bethesda, Maryland 20817
Investor Relations
Toll Free: (888) 233-5777
If you have questions about the tender offer, you should contact the
Information Agent:
Morrow & Co., Inc.
445 Park Avenue, 5th Floor
New York, New York 10022
Phone Number: (212) 754-8000
Toll Free: (800) 566-9061
2
SUMMARY
This section summarizes selected information from this proxy
statement/prospectus and may not contain all of the information that is
important to you. This proxy statement/prospectus is meant only to apply to the
merger and does not address the tender offer in detail. To understand the
merger fully and for a more complete description of the legal terms of the
merger, you should read this document, including the appendices and other
documents to which it refers. We have included a copy of the merger agreement
in this document as Appendix I. The merger agreement, and not this document, is
the document that governs the merger. For information on how to obtain the
documents that we have filed with the SEC, including the tender offer
materials, see "Where You Can Find More Information" on page 111.
The Companies
(See page 60)
Lockheed Martin Corporation
6801 Rockledge Drive
Bethesda, Maryland 20817
(301) 897-6000
http://www.lockheedmartin.com
Lockheed Martin is a highly diversified global enterprise principally
engaged in the conception, research, design, development, manufacture,
integration and operation of advanced technology products and services.
Lockheed Martin currently conducts its principal business through:
. the Space & Strategic Missiles sector;
. the Electronics sector;
. the Aeronautics sector;
. the Information & Services sector; and
. the Energy & Environment sector.
It is expected that the combined businesses and operations of COMSAT and
Lockheed Martin Global Telecommunications, Inc., a subsidiary of Lockheed
Martin, will be a sixth sector.
For additional information about Lockheed Martin and its businesses, see
"The Companies--Lockheed Martin" and "Where You Can Find More Information."
COMSAT Corporation
6560 Rock Spring Drive
Bethesda, Maryland 20817
(301) 214-3000
http://www.comsat.com
COMSAT is a global provider of satellite communications services and digital
networking services and technology. COMSAT operates through four principal
business segments:
. COMSAT World Systems;
. COMSAT Mobile Communications;
. COMSAT International; and
. COMSAT Laboratories.
For additional information about COMSAT and its businesses, see "The
Companies--COMSAT" and "Where You Can Find More Information."
Our Recommendations To Shareholders
(See page 24)
Your Board of Directors has determined that the merger is consistent with,
and advances, the long-term business strategy of COMSAT and is fair to you.
Your Board of Directors has by a unanimous vote, excluding directors who were
absent or recused themselves, approved the merger and recommends that you vote
in favor of the merger. Following the announcement by Lockheed Martin on June
9, 1999 relating to Lockheed Martin's expected financial performance that is
described in the Recent Developments section at the end of this Summary, your
Board of Directors asked Donaldson, Lufkin & Jenrette Securities Corporation,
COMSAT's financial advisor in connection with the merger, to render a new
opinion as to the fairness to COMSAT shareholders, from a financial point of
view, of the consideration to be received by such shareholders under the merger
agreement. Donaldson, Lufkin & Jenrette delivered its opinion to the Board on
July 7, 1999. Following receipt of the opinion and a review and determination
that the reasons for the merger
3
continue to apply, your Board of Directors reconfirmed its recommendation that
shareholders vote in favor of the merger agreement.
Your Board of Directors further recommends that you vote in favor of the
election of the 12 director nominees and in favor of the appointment of
Deloitte & Touche LLP as COMSAT's independent public accountants. However, your
Board of Directors recommends that you vote against the shareholder proposal.
Reasons for the Merger
(See page 24)
Your Board of Directors considered a number of factors in determining to
approve the merger and recommend it to you, including:
. the consideration payable to you in the tender offer and merger;
. the potential for legislative action that could significantly and
adversely harm COMSAT's core businesses and the value of your investment
in COMSAT;
. consolidation trends and global alliances within the satellite and
telecommunications industries which have adversely affected, and are
expected to continue to adversely affect, COMSAT's relative competitive
position;
. COMSAT's need for continued capital investment to expand COMSAT
International's digital networking business; and
. Lockheed Martin's expertise in the research, manufacture and integration
of advanced-technology satellite systems and products, and the
opportunity to effect a strategic combination with Lockheed Martin with
its complementary assets and telecommunications growth strategy.
Before reconfirming its recommendation to shareholders on July 7, 1999, your
Board of Directors reviewed the factors that it considered originally in
approving the merger agreement. The Board concluded that the factors continue
to apply and continue to support the Board's recommendation.
Votes Required For Approval
(See page 19)
To approve the merger, the affirmative vote of two-thirds of the shares of
COMSAT common stock outstanding on the record date is required. If you do not
vote at the annual meeting on the merger proposal, either in person or by
proxy, you will effectively be voting against the merger proposal.
Directors are elected by a plurality of the votes represented at the annual
meeting, if a quorum is present.
For all other matters, the approval of a majority of the votes represented
at the annual meeting is required, if a quorum is present.
Interests of COMSAT Executive Officers and Directors in the Merger
(See page 37)
A number of COMSAT executive officers and directors may have interests in
the merger that are different from or in addition to and greater than yours and
which may be conflicts of interest. These executive officers have employment
agreements or severance arrangements that will pay substantial additional
benefits or accelerate the payment of benefits as a result of the merger. These
executive officers and the members of COMSAT's Board of Directors also
participate in benefit plans that will pay substantial additional benefits or
accelerate the payment of benefits as a result of the merger.
Conditions to the Merger
(See page 54)
The merger will be completed only if the conditions set forth in the merger
agreement are satisfied or, to the extent permissible, waived. Some of these
conditions are:
. completion of the tender offer;
. amendment of the Satellite Act to permit the completion of the merger;
. approval of the merger by COMSAT's shareholders;
4
. the receipt of all consents or approvals from governmental authorities;
and
. there is no event that has had or would reasonably be expected to have a
significant adverse effect on COMSAT.
Termination of the Merger Agreement
(See page 56)
Lockheed Martin and COMSAT may terminate the merger agreement and abandon
the tender offer and the merger if any of the following occurs:
. COMSAT's shareholders do not approve the merger by September 18, 1999;
. the tender offer is not completed by September 18, 1999;
. the merger is not completed by September 18, 2000;
. a court or other governmental authority permanently prohibits the tender
offer or the merger;
. COMSAT's Board of Directors recommends an alternative transaction with a
third party or otherwise withdraws or adversely changes its approval or
its recommendation of the merger;
. any of the other company's representations or warranties in the merger
agreement are not materially true; or
. the other company does not materially comply with its obligations under
the merger agreement.
Termination Fee; Termination Expenses
(See page 57)
COMSAT generally must pay Lockheed Martin a termination fee of $75 million
and reimburse its expenses up to $5 million if COMSAT terminates the merger
agreement to accept a superior proposal.
Non-Solicitation of Competing Transactions
(See page 52)
The merger agreement generally restricts COMSAT's ability to discuss
alternative transactions for the sale of COMSAT with third parties beyond what
is required by the COMSAT Board of Directors' fiduciary duties. COMSAT must
inform Lockheed Martin of the terms of any superior proposal it receives from a
third party unless the COMSAT Board of Directors believes that its fiduciary
duties require that it not do so.
Regulatory Approvals
(See page 45)
Federal Communications Commission. To complete the tender offer:
. the FCC must approve the transfer of control of COMSAT Government
Systems, Inc., a common carrier subsidiary of COMSAT, to Regulus, LLC, a
subsidiary of Lockheed Martin; and
. Regulus must receive FCC authorization to become an authorized carrier
and to acquire a non-controlling interest of up to 49% of the
outstanding shares of COMSAT common stock in the tender offer.
On October 16, 1998, Lockheed Martin and COMSAT filed with the FCC the
required applications. The FCC is currently reviewing these applications.
Following the amendment of the Satellite Act, Lockheed Martin, Regulus and
COMSAT must apply to the FCC for the authority necessary to transfer control of
COMSAT and complete the merger. The nature of any approval requirement will
depend upon the details of any amendment to the Satellite Act.
Antitrust. The Hart-Scott-Rodino Antitrust Improvements Act of 1976
prohibits Lockheed Martin and COMSAT from completing the tender offer and the
merger until after they have furnished specific information and materials to
the Department of Justice and the Federal Trade Commission, and a required
waiting period has ended. The Department of Justice is currently reviewing the
transactions.
As with any merger in the U.S., the Federal Trade Commission or the
Department of Justice has
5
the authority to challenge the merger on antitrust grounds before or after the
merger is completed.
Amendment of the Satellite Act
(See page 47)
Under the Satellite Act, no one may own more than 50% of the outstanding
shares of COMSAT common stock. Therefore, until Congress amends the Satellite
Act, the merger cannot be completed. Legislation was passed by the Senate on
July 1, 1999, and a bill is expected to be introduced in the House of
Representatives later this year, to amend the Satellite Act to, among other
things, eliminate this restriction. We do not know when or if this legislation
will be enacted.
Federal Tax Consequences of the Merger
(See page 42)
The exchange of COMSAT common stock for Lockheed Martin common stock, other
than cash paid for fractional shares, is intended to be tax free to you for
U.S. federal income tax purposes. The intended tax-free treatment of the merger
is based on facts and assumptions outside of the control of Lockheed Martin and
COMSAT that may change before the merger is completed. The merger is not
conditioned upon the tax-free nature of the transaction. As a result, you will
not know whether the merger will be tax free to you when you vote on the
merger.
The tax consequences of the merger to you will depend on your own situation.
For a more detailed discussion of the tax consequences of the merger, see
"Material U.S. Federal Income Tax Consequences." You should consult your tax
advisors for a full understanding of these tax consequences.
Accounting Treatment
(See page 42)
Lockheed Martin will account for the merger as a purchase of COMSAT, which
means the purchase price, including costs directly related to the merger, will
be allocated to the assets acquired and liabilities assumed based on their
estimated fair values at the time the merger is completed with any excess
allocated to goodwill.
Opinion of COMSAT's Financial Advisor
(See page 27)
Donaldson, Lufkin & Jenrette Securities Corporation, COMSAT's financial
advisor in connection with the merger, delivered to the COMSAT Board of
Directors an opinion as of September 18, 1998, and a separate opinion as of
July 7, 1999, that the consideration to be received by COMSAT shareholders
pursuant to the merger agreement was fair to such shareholders from a financial
point of view. The full text of the July 7, 1999 opinion, which sets forth the
factors considered and the assumptions made by COMSAT's financial advisor, is
attached as Appendix III to this proxy statement/prospectus. You should read
the opinion.
Other Transaction Documents
(See page 57)
Shareholders Agreement. COMSAT has agreed to, upon the completion of the
tender offer, elect three individuals selected by Lockheed Martin to COMSAT's
Board of Directors and to appoint one of the three individuals as a member of
each committee of the COMSAT Board of Directors.
Registration Rights Agreement. COMSAT has granted Lockheed Martin
registration rights for the COMSAT common stock acquired in the tender offer,
if the merger is not completed.
Carrier Acquisition Agreement. To facilitate the completion of the tender
offer and the merger, COMSAT Government Systems will merge with Regulus, and
Regulus will acquire the common carrier business of COMSAT Government Systems.
As a prospective common carrier, Regulus has applied to the FCC to become an
authorized carrier and for authority to acquire the shares of COMSAT common
stock that it has offered to purchase in the tender offer.
Comparative Per Share Market Price Information
(See page 61)
The table below shows the closing price per share on the New York Stock
Exchange Composite Tape for Lockheed Martin common stock and
6
COMSAT common stock on September 18, 1998, the last full trading day before the
public announcement of the proposed merger and on July 19, 1999, the last day
for which it was practicable to obtain this information prior to the mailing of
this proxy statement/prospectus.
Lockheed
COMSAT Martin
Common Common
Date Stock Stock
---- ------ --------
September 18, 1998......................................... $34 1/8 $ 50
July 19, 1999.............................................. $35 15/16 $38 3/4
Material Differences in the Rights of Shareholders
(See page 70)
There are material differences between your rights as a COMSAT shareholder
under District of Columbia law and COMSAT's articles of incorporation and
bylaws, and the rights you will have as a shareholder of Lockheed Martin under
Maryland law and Lockheed Martin's charter and bylaws.
Forward-Looking Statements May Prove Inaccurate
(See page 18)
COMSAT and Lockheed Martin have made forward-looking statements in this
proxy statement/ prospectus and in the documents to which we have referred you.
Forward-looking statements include information concerning possible or assumed
future results of operations of Lockheed Martin, COMSAT or the combined company
following the merger. Many factors could affect the future financial results of
Lockheed Martin, COMSAT or the combined company following the merger and could
cause those results to differ materially from those expressed in the forward-
looking statements contained or incorporated by reference in this proxy
statement/prospectus.
7
Lockheed Martin Selected Historical Consolidated Financial Information
Lockheed Martin is providing the following consolidated financial
information to aid you in analyzing the financial aspects of the merger. This
information was derived from audited consolidated financial statements for the
years 1994 through 1998, and unaudited condensed consolidated financial
statements for the three months ended March 31, 1999 and 1998. In the opinion
of Lockheed Martin's management, the interim financial data include all
adjustments (consisting of normal recurring accruals) necessary for a fair
presentation of the results of operations and financial position for each of
the periods presented. Results for the three months ended March 31, 1999 are
not necessarily indicative of results which may be expected for any other
interim period or for the 1999 year as a whole. Lockheed Martin was formed in
1995 as the result of the combination of Lockheed Corporation and Martin
Marietta Corporation. Financial information for 1994 was derived from the
financial statements of those companies under the pooling of interests method
of accounting. This information is only a summary, and you should read it in
conjunction with Lockheed Martin's historical consolidated financial statements
and related notes contained in its annual reports and other information filed
with the SEC. See "Where You Can Find More Information" on page 111.
At or For
Three Months Ended At or For
March 31, Year Ended December 31,
-------------------- ----------------------------------------
1999(2) 1998 1998(3) 1997(4) 1996(5) 1995(6) 1994(7)
---------- --------- ------- ------- ------- ------- -------
(In millions, except per share data)
Income Statement Data:
Net sales............. $ 6,188 $ 6,217 $26,266 $28,069 $26,875 $22,853 $22,906
Earnings before
cumulative effect of
change in
accounting........... 268 269 1,001 1,300 1,347 682 1,055
Net (loss) earnings... (87) 269 1,001 1,300 1,347 682 1,018
Net (loss) earnings
per common share:(1)
Basic:
Before cumulative
effect of change
in accounting.... .70 .72 2.66 (1.56) 3.40 1.64 2.66
Net (loss)
earnings ........ (.23) .72 2.66 (1.56) 3.40 1.64 2.56
Diluted:
Before cumulative
effect of change
in accounting.... .70 .71 2.63 (1.56) 3.04 1.54 2.43
Net (loss)
earnings ........ (.23) .71 2.63 (1.56) 3.04 1.54 2.34
Cash dividends per
common share(1)...... .22 .20 .82 .80 .80 .67 .57
Balance Sheet Data:
Total assets.......... $ 28,596 $ 29,376 $28,744 $28,361 $29,540 $17,558 $17,979
Short-term
borrowings........... 1,163 1,132 1,043 494 1,110 -- --
Current maturities of
long-term debt....... 884 585 886 876 180 722 285
Long-term debt........ 8,788 10,494 8,957 10,528 10,188 3,010 3,594
Stockholders' equity.. 6,053 5,436 6,137 5,176 6,856 6,433 6,086
- --------
(1) All share and per share amounts have been restated to reflect a two-for-one
stock split in the form of a stock dividend in December 1998.
(2) Includes the effects of a nonrecurring and unusual pretax gain of $114
million, $74 million after tax, or $.19 per diluted share. Also includes a
cumulative effect adjustment related to Lockheed Martin's change in the
method of accounting for the costs of start-up activities upon adoption of
the American Institute of Certified Public Accountants' Statement of
Position No. 98-5, which reduced net earnings by $355 million or $.93 per
diluted share.
(3) Includes the effects of a nonrecurring and unusual pretax charge of $233
million, $183 million after tax, or $.48 per diluted share.
(4) Includes the effects of a tax-free gain of $311 million and the effects of
nonrecurring and unusual pretax charges of $457 million, $303 million after
tax which, on a combined basis, decreased diluted loss per share by $.02.
Loss per share also includes the effects of a deemed dividend resulting
from a transaction with the holder of Lockheed Martin's series A preferred
stock which reduced the basic and diluted per share amounts by $4.93.
(5) Reflects a business combination with Loral Corporation effective April
1996. Includes the effects of a nonrecurring pretax gain of $365 million,
$351 million after tax, and nonrecurring pretax charges of $307 million,
$209 million after tax which, on a combined basis, increased diluted
earnings per share by $.32.
(6) Includes the effects of merger related and consolidation expenses totaling
$690 million, $436 million after tax, or $.99 per diluted share.
(7) Includes a cumulative effect adjustment related to Lockheed Martin's change
in the method of accounting for its leveraged employee stock ownership
plan.
8
COMSAT Selected Historical Consolidated Financial Information
COMSAT is providing the following consolidated financial information to aid
you in analyzing the financial aspects of the merger. This information is
derived from COMSAT's audited consolidated financial statements for the years
1994 through 1998, and unaudited condensed consolidated financial statements
for the three months ended March 31, 1999 and 1998. In the opinion of COMSAT's
management, the interim financial data include all adjustments (consisting of
normal recurring accruals) necessary for a fair presentation of the results of
operations and financial position for each of the periods presented. Results
for the three months ended March 31, 1999 are not necessarily indicative of
results which may be expected for any other interim period or for the 1999 year
as a whole. The information is only a summary, and you should read it in
conjunction with COMSAT's historical consolidated financial statements and
related notes contained in its annual reports and other information filed with
the SEC. See "Where You Can Find More Information" on page 111.
At or For
Three Months Ended At or For
March 31, Year Ended December 31,
------------------- ------------------------------------
1999 1998 1998 1997(1) 1996 1995 1994
--------- --------- ------ ------- ------ ------ ------
(In millions, except per share data)
Summary of Operations:
Revenues............... $ 145 $ 145 $ 616 $ 563 $ 545 $ 508 $ 500
Operating expenses..... 132 125 557 481 438 388 367
Operating income....... 13 20 59 82 107 120 133
Income from continuing
operations............ 12 4 26 29 36 44 69
Net income (loss)...... 12 4 26 (64) 9 38 78
Earnings (loss) per
share--assuming
dilution:
Income from continuing
operations........... 0.22 0.07 0.50 0.57 0.74 0.91 1.47
Net income (loss)..... 0.22 0.07 0.50 (1.29) 0.18 0.79 1.65
Balance Sheet Data (at
end of period):
Total assets........... 1,686 1,960 1,791 1,895 2,097 2,022 1,851
Long-term debt......... 368 458 447 462 578 590 511
Stockholders' equity... 608 641 659 586 842 839 827
Dividends:
Dividends paid......... 2 2 10 17 38 37 34
Dividends paid per
share................. 0.05 0.05 0.20 0.345 0.78 0.78 0.76
Distribution of Ascent
Entertainment Group,
Inc. shares........... -- -- -- 195 -- -- --
- --------
(1) COMSAT began accounting for Ascent Entertainment Group, Inc. and
substantially all of COMSAT RSI, Inc. as discontinued operations in 1997.
Accordingly, all prior periods were restated to present Ascent and COMSAT
RSI as discontinued operations.
9
Summary Selected Unaudited Pro Forma Combined Condensed
Financial Information
The following unaudited pro forma combined condensed financial information
is provided to give you a better picture of what the results of operations and
financial position of the combined businesses of Lockheed Martin and COMSAT
might have been had the tender offer and the merger occurred on an earlier
date. The unaudited pro forma combined condensed income statement data combines
information from the historical consolidated statements of earnings of Lockheed
Martin and COMSAT giving effect to the tender offer and the merger as if they
each occurred at the beginning of each of the periods presented. The unaudited
pro forma combined condensed balance sheet data combines information from the
historical consolidated balance sheets of Lockheed Martin and COMSAT giving
effect to the tender offer and the merger as if they had been completed on
March 31, 1999.
This information is provided for illustrative purposes only. This
information does not necessarily reflect the following:
. what the results of operations or financial position of the combined
company would have been if the tender offer and the merger had actually
occurred on the dates noted above, or
. what the combined company's actual future consolidated results of
operations or financial position will be.
This information also does not reflect the following:
. cash obtained from transactions related to Lockheed Martin's equity
interests in various investment holdings as a funding source for the
tender offer,
. any transition or restructuring costs associated with combining Lockheed
Martin and COMSAT, as these cannot presently be estimated, or
. the effect of any potential changes in revenues or any operating savings
which may be achieved by combining the resources of Lockheed Martin and
COMSAT.
The merger will be accounted for as a purchase of COMSAT by Lockheed Martin.
In connection with the merger, the purchase price will be allocated to the
assets acquired and liabilities assumed based upon their estimated fair values
at the completion of the merger, with any excess allocated to goodwill.
Refer to "Unaudited Pro Forma Combined Condensed Financial Information" on
page 64 for more details related to the information displayed.
At or For
Three For
Months Ended Year Ended
March 31, 1999 December 31, 1998
------------------ -------------------
(In millions, except per share data)
Pro Forma Income Statement
Data:
Net sales................. $ 6,322 $ 26,822
Earnings before cumulative
effect of change in
accounting............... 251 906
Earnings before cumulative
effect of change in
accounting per common
share:
Basic................... .62 2.25
Diluted................. .61 2.21
Cash dividends per common
share.................... .22 .82
Pro Forma Balance Sheet Data:
Total assets.............. $ 32,496 N/A
Short-term debt........... 1,336 N/A
Current maturities of
long-term debt........... 884 N/A
Long-term debt............ 10,018 N/A
Stockholders' equity...... 7,371 N/A
10
Comparative Per Share Information
The following table sets forth historical and pro forma Lockheed Martin
information, and historical and pro forma equivalent COMSAT information, on a
per share basis for earnings, dividends declared and book value.
Pro forma net earnings were derived from the pro forma information presented
under "Unaudited Pro Forma Combined Condensed Financial Information" on page
64. Pro forma cash dividends declared per share reflect Lockheed Martin's cash
dividends declared in the period indicated. The historical book value per share
information was based upon outstanding shares of common stock for each
respective company. The number of outstanding shares for Lockheed Martin common
stock used in calculating the pro forma data presented has been adjusted to
include the shares of Lockheed Martin common stock estimated to be issued in
the merger, based upon the number of COMSAT's outstanding common shares at
March 31, 1999.
The information set forth below is only a summary, and you should read it in
conjunction with the Unaudited Pro Forma Combined Condensed Financial
Information on page 64, and the respective audited and unaudited consolidated
financial statements of Lockheed Martin and COMSAT. The audited and unaudited
consolidated financial statements of Lockheed Martin and COMSAT are
incorporated in this proxy statement/prospectus by reference. See "Where You
Can Find More Information" on page 111.
At or for At or For
Three Months Ended Year Ended
March 31, 1999 December 31, 1998
------------------ -----------------
(In dollars)
Historical:
Per share of Lockheed Martin
common stock:
Book value...................... $15.89 $16.18
Cash dividends.................. .22 .82
Earnings before cumulative
effect of change in accounting:
Basic......................... .70 2.66
Diluted....................... .70 2.63
Per share of COMSAT common stock:
Book value...................... 11.55 12.52
Cash dividends.................. .05 .20
Net earnings:
Basic......................... .23 .51
Diluted....................... .22 .50
Unaudited Pro Forma:
Per share of Lockheed Martin
common stock:
Book value...................... $18.07 $18.36
Cash dividends.................. .22 .82
Earnings before cumulative
effect of change in accounting:
Basic......................... .62 2.25
Diluted....................... .61 2.21
Per equivalent share of COMSAT
common stock:(1)
Book value...................... 18.07 18.36
Cash dividends.................. .22 .82
Earnings before cumulative
effect of change in accounting:
Basic......................... .62 2.25
Diluted....................... .61 2.21
- --------
(1) Per equivalent common share data is calculated by multiplying the pro forma
amounts per share of Lockheed Martin common stock by the exchange ratio to
be used in the merger of one share of Lockheed Martin common stock for each
share of COMSAT common stock.
11
Recent Developments
The annual meeting was originally scheduled for June 18, 1999, but was
rescheduled to August 20, 1999 for the reasons discussed below.
On June 9, 1999, Lockheed Martin issued a press release and filed a Form 8-K
with the SEC regarding its expected financial performance for the second
quarter of fiscal year 1999 and for the remainder of 1999 and 2000. In the June
9 announcement, Lockheed Martin indicated that a just completed financial
review performed by Lockheed Martin resulted in a substantial reduction in
Lockheed Martin's estimates of its earnings and cash flow outlook for these
periods. More specifically, Lockheed Martin indicated that it expected,
excluding the effects of nonrecurring and unusual items, earnings per diluted
share of at least $1.50 for 1999, and at least $2.15 in 2000. Lockheed Martin
also reduced free cash flow estimates to $0.5 billion in 1999 and $0.9 billion
in 2000.
The principal reasons indicated for the revised financial outlook were
increased cost growth, reduced production rates and delivery delays on the C-
130J program; recent launch vehicle failures; and delays of launches and
commercial satellite deliveries. The revised financial outlook also excluded
most of the previously anticipated portfolio shaping gains. See "Forward-
Looking Statements--Safe Harbor Provisions."
In the June 9 announcement, Lockheed Martin indicated that the revised
financial outlook for 1999 included the following factors:
. anticipated timing delays have reduced net earnings expectations by $125
million, or $0.31 per diluted share;
. performance issues have reduced net earnings expectations by $205
million, or $0.54 per diluted share;
. exclusion of portfolio shaping gains from the revised financial outlook
has reduced net earnings expectations by $125 million, or $0.31 per
diluted share; and
. revised assumptions regarding Lockheed Martin's C-130J program cost
performance, production rate and delivery timing account for
approximately $275 million in reduced net earnings expectations, or
$0.70 per diluted share.
In the June 9 announcement, Lockheed Martin indicated that the revised
financial outlook for 2000 included the following factors:
. anticipated timing delays are projected to reduce net earnings
expectations by $140 million, or $0.33 per diluted share;
. performance issues are projected to reduce net earnings expectations by
$345 million, or $0.84 per diluted share;
. exclusion of portfolio shaping gains is projected to reduce net earnings
expectations by $35 million, or $0.07 per diluted share; and
. revised assumptions regarding Lockheed Martin's C-130J program cost
performance, production rate and delivery timing are projected to
account for approximately $110 million in reduced net earnings
expectations, or $0.26 per diluted share.
In view of the proximity of the development and release of this information
to the originally scheduled date of the annual meeting, COMSAT, with the
concurrence of Lockheed Martin, rescheduled the date of the annual meeting.
Following the June 9 announcement by Lockheed Martin, your Board of
Directors asked Donaldson, Lufkin & Jenrette to render a new opinion as to the
fairness to COMSAT shareholders, from a financial point of view, of the
consideration to be received by such shareholders under the merger agreement.
Donaldson, Lufkin & Jenrette delivered its opinion to the Board on July 7,
1999. Following receipt of the opinion and a review and determination that the
reasons for the merger continue to apply, your Board of Directors reconfirmed
its recommendation that shareholders vote in favor of the merger agreement.
12
RISK FACTORS
You should consider the following risks in deciding whether to approve the
merger. These matters should be considered along with the other information
included or incorporated by reference in this proxy statement/prospectus.
Value of Lockheed Martin Common Stock You will Receive in the Merger will
Fluctuate
Upon completion of the merger, each share of COMSAT common stock will be
exchanged for one share of Lockheed Martin common stock. This exchange ratio is
fixed and will not be adjusted for any increase or decrease in the price of
either Lockheed Martin common stock or COMSAT common stock. As a result, the
value of the Lockheed Martin common stock you receive in the merger will vary
depending on fluctuations in the stock's value and almost certainly will not be
the same as on the date of this proxy statement/prospectus, the annual meeting,
the closing of the tender offer or the closing of the merger. Fluctuations may
be the result of changes in the business, operations or prospects of Lockheed
Martin, general market and economic conditions or other factors. Neither COMSAT
nor its shareholders have the ability to terminate the merger agreement if the
value of Lockheed Martin common stock declines, which may occur after the vote
on the merger. A significant period of time may elapse between the date of the
vote on the merger and the date you receive shares of Lockheed Martin common
stock following completion of the merger. During that period, the value of
Lockheed Martin common stock will remain subject to market fluctuations.
Lack of Certainty that the Merger will be Tax Free to You
It is intended that the exchange of your shares of COMSAT common stock for
shares of Lockheed Martin common stock, other than cash paid for fractional
shares, will constitute a tax-free reorganization under the Internal Revenue
Code and will be tax free to you for U.S. federal income tax purposes. For the
merger to qualify as a tax-free reorganization so that you will not recognize
gain or loss on the exchange of COMSAT common stock for Lockheed Martin common
stock, all of the following must occur:
. the value of the shares of Lockheed Martin common stock deliverable as a
result of the merger must be at least 40% of the total consideration
received by COMSAT shareholders as a result of the tender offer and the
merger. For example,
(a) if Lockheed Martin purchases 49% of the outstanding shares of
COMSAT common stock in the tender offer at $45.50 per share, and
(b) if the price of Lockheed Martin common stock is less than $29.14
per share on the last full trading day prior to the completion of
the merger,
then the Lockheed Martin common stock received by COMSAT shareholders
would be less than 40% of the total consideration received by COMSAT
shareholders in the tender offer and the merger.
. COMSAT and Lockheed Martin must receive legal opinions that the merger
will qualify as a tax-free reorganization.
. COMSAT and Lockheed Martin must receive the consents and approvals
necessary, except where the failure to obtain these consents or
approvals would not reasonably be expected to have a material adverse
effect on COMSAT, so that when the merger occurs, Lockheed Martin's
subsidiary acquires the business and properties of COMSAT and it, not
COMSAT, "survives" the merger; in this proxy statement/prospectus, we
call a merger where the Lockheed Martin subsidiary survives a "forward
merger." The most significant consent or approval required in connection
with the merger, other than the amendment of the Satellite Act, is that
the U.S. government must recognize the Lockheed Martin subsidiary as the
U.S. participant in INTELSAT. If the U.S. government does not do so,
then COMSAT must "survive" the merger to preserve its business.
13
If COMSAT "survives" the merger, no such consents or approvals would be
needed, but the merger likely would not qualify as a tax-free reorganization
and, therefore, would result in your being subject to taxation. In this proxy
statement/prospectus, we call a merger where COMSAT survives a "reverse
merger."
Lockheed Martin Global Telecommunications' Business is Relatively New and has a
Limited Operating History
After the merger, COMSAT's business operations and the operations of
Lockheed Martin Global Telecommunications will be integrated. Lockheed Martin
announced the formation of Lockheed Martin Global Telecommunications in August
1998 to concentrate and expand Lockheed Martin's role in the global
telecommunications services business. Lockheed Martin Global Telecommunications
is subject to all the risks inherent in a new business enterprise, including
risks associated with unanticipated problems, liabilities and contingencies,
and diversion of management attention. In addition, Lockheed Martin has limited
prior experience in the global telecommunications services business which is
the focus of Lockheed Martin Global Telecommunications. If Lockheed Martin
Global Telecommunications and its management team cannot overcome these risks
and others that may arise, this new line of business may have a material
adverse effect on Lockheed Martin's business, operating results, financial
condition and cash flows. Moreover, given the substantial investments necessary
for the growth of the global telecommunications services business, Lockheed
Martin Global Telecommunications may seek strategic partners and may also seek
to access the public debt or equity markets to raise capital. There can be no
assurance that Lockheed Martin Global Telecommunications will be successful in
these endeavors.
The Expected Benefits of the Merger May Not Occur
COMSAT and Lockheed Martin entered into the merger agreement with the
expectation that the merger will accelerate the growth and expansion of
Lockheed Martin Global Telecommunications. Consolidating functions and
integrating disparate departments, systems and procedures present significant
management challenges. The merger will present special risks, including
possible unanticipated liabilities and costs, and diversion of management
attention.
A Significant Period of Time May Elapse Before the Completion of the Tender
Offer or the Merger
We expect a significant period of time to elapse before the completion of
the tender offer while Lockheed Martin and COMSAT seek the regulatory approvals
required to satisfy the conditions to the tender offer. The tender offer is
currently scheduled to expire on August 31, 1999. Lockheed Martin and Regulus
have agreed to extend, as necessary, the expiration date of the tender offer
one or more additional times until September 18, 1999 while Lockheed Martin and
Regulus seek the necessary regulatory approvals.
Because Congress must amend the Satellite Act and additional regulatory
approvals are needed to complete the merger, there may be a further significant
period of time between the completion of the tender offer and the completion of
the merger. We do not know when or if Congress will amend the Satellite Act to
permit the merger or if any of the required regulatory approvals will be
obtained.
It is Anticipated That Only One Shareholder Vote will be Taken on the Merger
Lockheed Martin and COMSAT do not presently intend to seek additional
shareholder approval of the merger even if there is a significant period of
time or material events occur between the date of the annual meeting and the
completion of the tender offer, or between the completion of the tender offer
and the completion of the merger. Material events may include the occurrence of
any of the contingencies that would allow one or both of the parties to
determine not to proceed with the merger and a decision by that party or the
parties to waive the contingency and proceed with the merger. This would occur
for example if Lockheed Martin were to agree to restrictive conditions on its
businesses or operations imposed by either the Department of Justice or the FCC
in its approval of the transaction.
14
The Satellite Act Must be Amended to Permit the Merger
The merger cannot be completed unless Congress amends the Satellite Act.
Under the Satellite Act, no one may own more than 50% (and no one other than an
authorized carrier may own more than 10%) of the outstanding shares of COMSAT
common stock. Legislation was passed by the Senate on July 1, 1999, and a bill
is expected to be introduced in the House of Representatives later this year,
to amend the Satellite Act to repeal the current ownership and governance
restrictions applicable to COMSAT. In 1998, the House of Representatives passed
a bill amending the Satellite Act which was not passed by the Senate. Had the
bill passed last year by the House of Representatives been enacted into law, it
would have had a material adverse effect on COMSAT's business. If Congress
enacts legislation that would reasonably be expected to have a significant
adverse effect on COMSAT, Lockheed Martin, following consultation with COMSAT,
would have the right to elect not to complete the merger. However, the bill
passed by the Senate this year is not now expected to have a material adverse
effect on COMSAT's business if enacted into law. We do not know when or if
Congress will amend the Satellite Act, or whether any amendment will permit the
completion of the merger or will contain terms that would reasonably be
expected to have a significant adverse effect on COMSAT.
Lockheed Martin Must Receive Approvals from the FCC to Complete the Tender
Offer and the Merger
To complete the tender offer, Lockheed Martin must obtain all consents and
approvals required by the FCC, including the receipt by Regulus of FCC
authorization to become an authorized carrier. Under the Satellite Act, to be
eligible to become an authorized carrier, Regulus must first become a common
carrier. COMSAT Government Systems holds an FCC common carrier authorization.
The purpose of the acquisition of COMSAT Government Systems by Regulus under
the carrier acquisition agreement is for Regulus to acquire the FCC common
carrier authorization currently held by COMSAT Government Systems.
On October 16, 1998, Lockheed Martin, Regulus and COMSAT applied to the FCC
for authority to transfer control of COMSAT Government Systems to Regulus and
for approval for Regulus to become an authorized carrier and to acquire a non-
controlling interest of up to 49% of the outstanding shares of COMSAT common
stock in the tender offer. Under the Communications Act of 1934, the Satellite
Act and the FCC's rules, applicants must show that the grant of each
application is consistent with the public interest, convenience and necessity,
and that the applicant is qualified to hold these FCC authorizations. The FCC
is currently reviewing these applications. In addition, a number of competitors
of COMSAT and other communications common carriers have filed with the FCC
petitions in opposition to these applications or petitions to impose conditions
on the grant of the applications which could have a significant adverse effect
on COMSAT. We do not know when or if the requisite FCC approvals will be
obtained to permit the acquisition of COMSAT Government Systems by Regulus and
the completion of the tender offer.
Lockheed Martin expects that, following any amendment of the Satellite Act,
Lockheed Martin, Regulus and COMSAT will be required to apply to the FCC for
the authority to transfer control of COMSAT in a process similar to the
applications submitted by the parties with respect to the transfer of control
of COMSAT Government Systems. The precise nature of any approval requirement
will depend upon the details of any amendment to the Satellite Act. We do not
know when or if the relevant provisions of the Satellite Act will be amended,
or when or if the requisite FCC approvals will be obtained to permit the
completion of the merger. Historically, FCC reviews can take several months to
complete, however, the FCC review may be completed more quickly due to the FCC
review of the transfer of control of COMSAT Government Systems.
On January 21, 1999, Representative Tom Bliley, Chairman of the House
Committee on Commerce, and Senator Conrad Burns, Chairman of the Senate
Subcommittee on Communications, sent a letter to William E. Kennard, Chairman
of the FCC, urging the FCC not to take any action to permit any company,
including Lockheed Martin, to purchase more than 10% of the outstanding shares
of COMSAT common stock prior to Congress adopting satellite reform legislation.
If the FCC does not proceed with its review of Lockheed Martin's applications
related to the tender offer, or if the FCC's review does not otherwise proceed
on the schedule that Lockheed Martin and COMSAT anticipated, the tender offer
may take longer than expected to be
15
completed. Further, if the FCC delays its review pending Congressional action,
the tender offer may not be completed by September 18, 1999. If this occurs,
under the terms of the merger agreement, Lockheed Martin or COMSAT could
terminate the merger agreement, or elect not to exercise this right and extend
this date.
Antitrust Regulatory Agencies May Oppose or Impose Conditions on the Merger
Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, Lockheed
Martin and COMSAT must file specific information with the Federal Trade
Commission and the Department of Justice, and a waiting period must expire or
terminate before the tender offer or the merger may be completed. The
Department of Justice is currently reviewing the transactions and has requested
additional information from both Lockheed Martin and COMSAT. At any time before
or after the completion of the tender offer, the Department of Justice could
take action under the antitrust laws to:
(1) enjoin the tender offer or the merger,
(2) require divestiture of the shares of COMSAT common stock purchased in
the tender offer or acquired in the merger, or
(3) require divestiture of substantial assets of Lockheed Martin or
COMSAT.
The merger agreement, however, provides that Lockheed Martin is not required
to agree to divest any of its businesses or assets or to any other restrictions
if the Lockheed Martin Board of Directors determines in good faith that such
agreement is not in the best interests of Lockheed Martin. We do not know
whether the Department of Justice will permit the HSR Act waiting period to
expire without imposing substantial conditions on COMSAT or Lockheed Martin. We
also do not know whether a third party will challenge the merger on antitrust
grounds or what the result of a third party challenge might be. If any of the
transactions contemplated by the merger agreement have not occurred within one
year after the HSR Act waiting period expires or is terminated, Lockheed Martin
and COMSAT must re-file notification and report forms with the Federal Trade
Commission and the Department of Justice with respect to the transactions that
have not been completed in the one-year period. A new HSR Act waiting period
and review process will begin from the date the filings are made.
The Merger Costs will be Substantial
COMSAT and Lockheed Martin estimate they will incur combined transaction
costs of approximately $89 million associated with the merger. Transaction
costs incurred by COMSAT will be charged to operations as they are incurred,
and those incurred by Lockheed Martin will be included as part of the COMSAT
purchase price.
The Interests of COMSAT Executive Officers and Directors in the Merger May be
Different From Yours
Some of COMSAT's directors and executive officers have interests in the
merger that may be different from or in addition to and greater than yours and
which may be conflicts of interests.
In connection with the transactions contemplated by the merger agreement,
COMSAT:
(1) amended employment agreements with three executive officers,
(2) adopted the Retention Bonus Plan, and
(3) amended the Change in Control Severance Plan.
The completion of the merger will constitute a change in control under the
employment agreements and the Change in Control Severance Plan. Upon a change
in control, the term of each employment agreement will automatically end on the
third anniversary of the change in control. In addition, the executive officers
will
16
receive, among other things, retention bonuses and severance benefits and
payments under specified circumstances. The amended employment agreements also
provide that if a change in control occurs and:
. if the executive and Lockheed Martin are unable to reach an agreement
regarding the terms of the executive's employment within 30 days
following the completion of the merger and the executive's employment is
terminated, or
. if the executive continues to be employed until the expiration of the
executive's employment term,
then the executive will receive enhanced benefits under COMSAT's Insurance and
Retirement Plan for Executives.
The Retention Bonus Plan generally provides retention bonuses and severance
payments instead of the retention bonuses to key employees, including certain
executive officers, who remain employed by COMSAT, or whose employment is
terminated under specified circumstances, following the signing of the merger
agreement. The amended Severance Plan generally provides severance payments and
benefits to key employees, including certain executive officers, of COMSAT
whose employment is terminated under specified circumstances following a change
in control of COMSAT.
The vesting of all options and other awards granted under COMSAT's stock
plans will accelerate upon completion of the merger. In addition, Lockheed
Martin will provide indemnification and liability protection for directors and
executive officers of COMSAT for six years following the completion of the
merger.
17
FORWARD-LOOKING STATEMENTS--SAFE HARBOR PROVISIONS
This proxy statement/prospectus contains or incorporates by reference
statements that, to the extent that they are not recitations of historical
fact, constitute "forward-looking statements" within the meaning of Section 27A
of the Securities Act and Section 21E of the Exchange Act. The words "believe,"
"estimate," "anticipate," "project," "intend," "expect" and similar expressions
are intended to identify forward-looking statements. All forward-looking
statements involve risks and uncertainties related to, among other things, the
following:
. regulatory approvals may not be obtained or obtained in a timely manner;
. Congress may not amend the Satellite Act at all, or may not amend it in
a timely manner, or may amend it in a manner that has or could
reasonably be expected to have a significant adverse effect on COMSAT;
. expected cost savings from the merger may not be fully realized or
realized within the expected time frame;
. severance and change in control costs may be larger than expected;
. costs or difficulties relating to the integration of COMSAT's and
Lockheed Martin's businesses may be greater than expected;
. pro forma data does not necessarily reflect what the combined company's
results of operations or financial condition would have been or will be
in the future; and
. Lockheed Martin's actual financial performance may vary from its revised
financial outlook for 1999 and 2000 discussed under "Recent
Developments."
You are cautioned not to place undue reliance on forward-looking statements
as these speak only as of the date of this proxy statement/prospectus. As for
forward-looking statements that relate to future financial results and other
projections, actual results will be different due to the inherent nature of
projections and may be better or worse than projected. The forward-looking
statements represent estimates and assumptions only as of the date they were
made. In addition, the forward-looking statements that relate to future
financial results and other projections are not financial statements and were
not audited or prepared in accordance with generally accepted accounting
principles. See Lockheed Martin's Form 8-K filed with the SEC on June 9, 1999
which is incorporated by reference in this proxy statement/prospectus for a
discussion of factors that may cause actual results to vary from this financial
outlook. Neither Lockheed Martin nor COMSAT undertakes any obligation to
publicly release any revisions to forward-looking statements to reflect events,
circumstances or changes in expectations after the date of this proxy
statement/prospectus, or to reflect the occurrence of unanticipated events.
Lockheed Martin and COMSAT intend that forward-looking statements in this
document, and documents incorporated by reference, be subject to the safe
harbor protection provided by Sections 27A of the Securities Act and 21E of the
Exchange Act. For a discussion identifying additional important factors that
could cause actual results to vary materially from those anticipated in any
forward-looking statements, you should read Lockheed Martin's and COMSAT's
respective SEC filings.
18
THE COMSAT ANNUAL MEETING
This proxy statement/prospectus is being provided in connection with the
solicitation of proxies from you by the COMSAT Board of Directors for use at
the annual meeting.
When and Where the Annual Meeting will be Held
The annual meeting will be held in the Charyk Conference Center, COMSAT
Headquarters, 6560 Rock Spring Drive, Bethesda, Maryland 20817, on Friday,
August 20, 1999, starting at 9:30 a.m., local time. The annual meeting was
originally scheduled for June 18, 1999, but was rescheduled to August 20, 1999.
What will be Voted Upon
At the annual meeting, you will be asked to consider and vote upon:
. a proposal to approve the merger in which COMSAT will become a wholly-
owned subsidiary of Lockheed Martin and the merger agreement;
. a proposal to elect 12 members to the Board of Directors;
. a proposal to appoint Deloitte & Touche LLP as independent public
accountants for the year ending December 31, 1999;
. a shareholder proposal to recommend that COMSAT affirm its political
non-partisanship and require the reporting of certain practices; and
. other matters that may properly come before the annual meeting,
including any postponements or adjournments of the meeting.
Only Shareholders of Record as of July 20, 1999 are Entitled to Vote
The COMSAT Board of Directors has fixed the close of business on July 20,
1999 as the record date. Only COMSAT shareholders of record on the record date
are entitled to notice of and to vote at the annual meeting. On the record
date, there were approximately 52,758,000 shares of COMSAT common stock
outstanding, held by approximately 32,250 shareholders of record, and entitled
to vote at the annual meeting.
It is important that you sign, date and return a new proxy card. Because the
record date for the annual meeting has changed, proxy cards returned in
connection with the originally scheduled meeting date cannot be counted.
Number of Shares that Must be Present for a Vote to be Taken
The presence, in person or by proxy, of the holders of one-third of the
shares of COMSAT common stock then issued and outstanding and entitled to vote
at the annual meeting is necessary to constitute a quorum at the annual meeting
for all matters, except the election of directors which requires the presence,
in person or by proxy, of the holders of a majority of the outstanding shares
of COMSAT common stock.
Votes Required for Approval
. The merger must be approved by the affirmative vote, in person or by
proxy, of the holders of two-thirds of the shares of COMSAT common stock
outstanding on the record date and entitled to vote at the annual
meeting.
. Directors are elected by a plurality of the votes represented at the
annual meeting, if a quorum is present.
. For all other matters, the approval of a majority of the votes
represented at the annual meeting is required, if a quorum is present.
19
As of June 1, 1999, COMSAT's directors and executive officers and their
affiliates beneficially owned 5.80% of the COMSAT common stock.
You are entitled to one vote per share owned by you. However, with respect
to the election of directors, you may cumulate your votes. See "Item 2.
Election of Directors."
If fewer shares of COMSAT common stock are voted in favor of the merger
proposal than the number required for approval, the annual meeting will be
postponed or adjourned to give us additional time to solicit and obtain
additional proxies or votes. At any subsequent reconvening of the annual
meeting, we will vote all proxies in the same manner as we would have voted the
proxies at the annual meeting, except for any proxies that have effectively
been revoked or withdrawn.
Voting Your Shares and How Proxies are Counted
You must submit a new proxy card to have your vote counted at the annual
meeting. A new proxy card is enclosed for that purpose. Because the record date
for the annual meeting has changed, proxy cards returned in connection with the
originally scheduled meeting date cannot be counted.
We will vote all shares of COMSAT common stock represented by properly
executed proxies received before or at the annual meeting and not revoked as
instructed on the proxies. If no instructions are indicated on a properly
executed and returned proxy, we will vote the proxy in favor of the merger
proposal, the election of the director nominees, and the appointment of
Deloitte & Touche LLP as COMSAT's independent public accountants. We will also
vote the proxy against the shareholder proposal.
A properly executed proxy marked "Abstain," although counted for purposes of
determining a quorum, will not be voted in favor of or against any proposal.
However, because the affirmative vote of two-thirds of the shares of COMSAT
common stock is required for approval of the merger proposal, a proxy marked
"Abstain" will have the effect of a vote against the merger proposal. Under the
rules of the New York Stock Exchange, brokers and nominees cannot exercise
their voting discretion on the merger proposal. For this reason, without
specific instructions from you, brokers and nominees cannot vote your shares on
the merger proposal. This circumstance is called a broker non-vote. A broker
non-vote will have the effect of a vote against the merger proposal. Shares of
COMSAT common stock represented by broker non-votes will, however, be counted
for purposes of determining a quorum at the annual meeting.
If you hold shares of COMSAT common stock through the COMSAT Corporation
Savings and Profit-Sharing Plan, you will receive separate instructions as to
how to direct the trustee to vote the shares held in your plan account.
Revoking Your Proxy
You may revoke your proxy at any time before its use:
. by delivering to COMSAT's Corporate Secretary a signed notice of
revocation,
. by a later dated vote by proxy, signed and returned, or
. by attending the annual meeting and voting in person.
Your attendance at the annual meeting will not in itself constitute the
revocation of a proxy.
Soliciting Proxies
In addition to solicitation by mail, directors, officers and employees of
COMSAT may solicit proxies in person without additional compensation. COMSAT
will reimburse brokerage houses and other custodians, nominees and fiduciaries
for their expenses in sending the proxy material to beneficial owners. COMSAT
has
20
retained D.F. King & Co., Inc. of New York, New York to aid in the solicitation
of proxies at an estimated fee of $25,000, plus reimbursement of expenses.
COMSAT may also request by telephone or telegram the return of proxies. The
extent to which this will be necessary depends entirely upon how promptly
proxies are returned. Lockheed Martin will pay the cost of SEC registration
fees related to the Lockheed Martin common stock to be issued in the merger.
The costs of printing and mailing this proxy statement/prospectus and
soliciting proxies up to $110,000 will be paid by COMSAT. Costs in excess of
this amount will be paid equally by Lockheed Martin and COMSAT.
You should not send any certificates representing COMSAT common stock with
the enclosed proxy card. A letter of transmittal with instructions for the
surrender of stock certificates for COMSAT common stock will be mailed to you
as soon as practicable after the completion of the merger.
21
ITEM 1. APPROVAL OF THE MERGER
This section of the proxy statement/prospectus describes the material
aspects of the proposed merger and some of the material terms of the merger
agreement. You should read the merger agreement which is attached as Appendix I
to this proxy statement/prospectus and is incorporated by reference.
Based upon the capitalization of Lockheed Martin and COMSAT as of June 1,
1999, following completion of the merger, COMSAT shareholders will own between
approximately 6.8% and 8.9% of the outstanding shares of Lockheed Martin common
stock, depending on the number of shares of COMSAT common stock tendered in the
tender offer. This assumes no exercise of outstanding options to acquire
Lockheed Martin common stock or options to acquire COMSAT common stock.
Background of the Merger
In 1997, COMSAT adopted a plan to refocus on its core strengths in
international satellite telecommunications, digital networking and technology.
As part of its plan, COMSAT decided to divest its non-core assets in
entertainment and manufacturing. In June 1997, COMSAT divested its
entertainment business, Ascent Entertainment Group, in a tax-free spin-off to
shareholders. A year later, COMSAT sold substantially all of its manufacturing
business, COMSAT RSI, and used the proceeds from the sale to pay down debt and
thereby strengthen its balance sheet. As part of its overall strategy to
enhance shareholder value, COMSAT began to consider the possibility of a
strategic alliance or business combination.
As a leading provider of communications satellites, space launch vehicles,
information and communications systems, and systems integration services,
Lockheed Martin had identified in its strategic plans the global
telecommunications services market as an attractive and logical growth
opportunity. This opportunity was viewed as consistent with Lockheed Martin's
strategy to grow into closely related market sectors to enhance its core
aerospace and defense businesses. In light of the potential for expansion into
this market, Lockheed Martin periodically reviewed potential market entry
strategies, including the possibility of internal investments, joint ventures
and strategic alliances, and acquisitions and business combinations with
companies participating in the commercial telecommunications services industry.
On August 5, 1997, consistent with their strategies of exploring strategic
alliances or business combinations, Lockheed Martin and COMSAT entered into
reciprocal confidentiality agreements on customary terms. On August 7 and 8,
1997, COMSAT and Lockheed Martin management met to discuss the overall market
environment of the telecommunications industry and each company's strategies
regarding that industry. They also discussed the regulatory and legislative
environment under which COMSAT operates.
From August 1997 through September 1998, COMSAT management made several
presentations and reports to its Board of Directors and Strategic Planning
Committee concerning a possible business combination with Lockheed Martin.
Prior to initially approving the transaction, your Board of Directors reviewed
the potential business combination with Lockheed Martin at 10 meetings in 1997
and 1998. Your Board of Directors also asked its Strategic Planning Committee
to evaluate the potential business combination. The Strategic Planning
Committee reviewed various aspects of the proposed transaction at 19 meetings
held in 1997 and 1998.
On September 25, 1997, Lockheed Martin's Board of Directors reviewed
Lockheed Martin's commercial telecommunications strategy and the strategic and
financial implications of a potential transaction with COMSAT. The Lockheed
Martin Board of Directors considered various aspects of the transaction at five
subsequent meetings in 1998.
Following the initial meetings between COMSAT and Lockheed Martin
management, a series of meetings occurred over the next several weeks.
Management of both companies discussed various business, financial, structural,
legal, legislative and regulatory issues. COMSAT hired Donaldson, Lufkin &
Jenrette to act as its financial advisor in connection with the potential
business combination.
22
COMSAT and Lockheed Martin did not reach agreement on the terms or structure
of a possible transaction after the initial series of meetings in late 1997.
Lockheed Martin then engaged outside consultants to review and suggest ways to
supplement its commercial telecommunications strategy.
In early January 1998, COMSAT and Lockheed Martin met to discuss potential
alternative transaction structures within the legislative and regulatory
framework constraining COMSAT. These alternatives included structures involving
varying degrees of equity ownership of COMSAT as well as joint ventures
involving COMSAT's non-regulated businesses, including primarily COMSAT
International and COMSAT Laboratories.
Meetings continued during March and early April in which the parties
discussed alternative transaction structures, the evolving regulatory and
legislative environment and the potential benefits related to a business
combination. These discussions continued through May and June 1998.
On June 26, 1998, the Lockheed Martin Board of Directors reviewed the
results of a task force comprising Lockheed Martin management and outside
consultants. The task force recommended that Lockheed Martin pursue a strategy
to increase its investment in the commercial telecommunications business. On
the same day, Lockheed Martin and COMSAT and their investment bankers met to
discuss transaction structures, valuations, and potential timetables for
reaching an agreement. Over the next three weeks, Lockheed Martin and COMSAT
met to further define transaction structure and negotiate the terms of the
proposed business combination.
During the week of July 27, 1998, members of management of both companies
met with outside counsel and investment bankers to continue negotiations
concerning terms of the transaction. In the ensuing weeks, negotiations
continued. As a result of significant progress toward an agreement, Lockheed
Martin and COMSAT determined to hold simultaneous board meetings on Sunday,
August 30, 1998 to seek approval of the transaction. Due to volatility and a
decline in the stock markets on August 27, 1998 and concerns related to
economic instability in parts of the world, including Russia, Asia, Central and
South America and other emerging markets, additional issues arose. In addition,
several open issues proved more difficult to address than had been anticipated.
As a result, the parties decided to postpone the board meetings.
Negotiations continued and sufficient progress was made in resolving
outstanding issues to allow the parties to seek board approval on September 18,
1998 at the regularly scheduled meeting of your Board of Directors and at a
special meeting of the Lockheed Martin Board of Directors.
At the September 18, 1998 meeting, COMSAT management reviewed for your Board
of Directors the status of negotiations and the principal terms of the proposed
transaction. COMSAT's general counsel reviewed the merger agreement, other
transaction documents and various legal and regulatory matters related to the
proposed transaction. Donaldson, Lufkin & Jenrette reviewed the financial
analysis and valuation it conducted on the proposed transaction and delivered
to your Board of Directors its written opinion that, as of September 18, 1998,
the consideration to be received in the tender offer and merger was fair, from
a financial point of view, to COMSAT shareholders. After receiving those
reports and advice and after reviewing additional information relating to the
transaction, your Board of Directors approved the merger agreement. The factors
your Board of Directors considered in approving the merger agreement are
summarized below.
Following the meeting of the COMSAT Board of Directors, a special telephonic
meeting of the Lockheed Martin Board of Directors was held to consider the
proposed transaction. The factors the Lockheed Martin Board of Directors
considered in approving the merger are summarized below.
The Lockheed Martin Board of Directors reviewed the transaction documents,
transaction structure and various legal and regulatory issues. After receiving
such advice and after reviewing various additional information relating to the
transaction, the Lockheed Martin Board of Directors approved the terms and
conditions of the transaction.
23
Following the conclusion of the Lockheed Martin Board of Directors meeting
on the evening of September 18, 1998, Lockheed Martin and COMSAT executed the
merger agreement and the other transaction agreements and publicly announced
the merger on September 20, 1998.
The annual meeting was originally scheduled for June 18, 1999. Following the
announcement by Lockheed Martin on June 9, 1999 relating to Lockheed Martin's
expected financial performance that is described under "Recent Developments,"
and in light of the proximity of the release of the information to the original
meeting date, COMSAT, with the concurrence of Lockheed Martin, rescheduled the
date of the annual meeting. Following that action, your Board of Directors
asked Donaldson, Lufkin & Jenrette to render a new opinion as to the fairness
to COMSAT shareholders, from a financial point of view, of the consideration to
be received by such shareholders under the merger agreement. Donaldson, Lufkin
& Jenrette delivered its opinion to the Board on July 7, 1999. Following
receipt of the opinion and a review and determination that the reasons for the
merger continue to apply, your Board of Directors reconfirmed its
recommendation that shareholders vote in favor of the merger agreement.
Recommendations of the COMSAT Board of Directors; Reasons for the Merger
Recommendation of the COMSAT Board of Directors.
Your Board of Directors has approved the tender offer, the merger and the
merger agreement and determined that the terms of each of the tender offer, the
merger and the merger agreement are consistent with, and advance, the long-term
business strategy of COMSAT and are fair to COMSAT shareholders. Your Board of
Directors recommends that you vote in favor of the merger proposal. This
recommendation is based in part upon opinions the COMSAT Board of Directors
received from Donaldson, Lufkin & Jenrette, to the effect that, as of September
18, 1998 and as of July 7, 1999, the consideration to be received by COMSAT
shareholders pursuant to the merger agreement was fair to such shareholders
from a financial point of view. The full text of the July 7, 1999 opinion is
attached to this proxy statement/prospectus as Appendix III. See also "Item 1.
Approval of the Merger--Opinion of COMSAT's Financial Advisor." You should read
the opinion.
On July 7, 1999, your Board of Directors reconfirmed its recommendation that
shareholders vote in favor of the merger agreement by unanimous vote, excluding
Messrs. Bennett, Colodny, Hurtt and Knight and Ms. Turner who recused
themselves. The determination to approve the merger agreement and the
recommendation to shareholders on September 18, 1998 by your Board of Directors
also was by unanimous vote, excluding Mr. Eagleburger who attended the meeting
but was absent when the vote was taken and Messrs. Bennett, Colodny and Hurtt
who recused themselves.
Reasons for the COMSAT Board's Recommendation.
Factors Considered by the COMSAT Board of Directors. In approving the merger
and the related transactions, and recommending that you vote in favor of the
merger, the COMSAT Board of Directors considered a number of factors including:
(1) the financial and other terms of the tender offer, the merger
agreement, shareholder agreement, carrier acquisition agreement and
registration rights agreement;
(2) the presentations of Donaldson, Lufkin & Jenrette and its opinions
that, as of September 18, 1998 and as of July 7, 1999, the consideration to
be received by COMSAT shareholders pursuant to the merger agreement was
fair to such shareholders from a financial point of view;
24
(3) that the $45.50 per share offer price to be paid for the shares in
the tender offer represents a premium of approximately 33.5% over the $34
1/8 closing price of COMSAT common stock on the New York Stock Exchange on
September 18, 1998, the last full trading day prior to the execution of the
merger agreement;
(4) the absence of a financing condition to the tender offer and the
perceived ability of Lockheed Martin, as compared to other potential
acquirors, to obtain the regulatory approvals and legislative changes
required to complete the tender offer, the merger and the transactions
contemplated by the merger agreement;
(5) COMSAT's future prospects, financial resources and ability to access
the capital markets as a stand-alone enterprise;
(6) the potential for legislative action that could significantly and
adversely harm COMSAT's core businesses and the value of your investment in
COMSAT;
(7) increased competition in all segments of COMSAT's business from
other companies with substantially greater financial resources and the
ability of these companies to exercise greater influence over the
legislative and regulatory process;
(8) progress in efforts to privatize the International
Telecommunications Satellite Organization ("INTELSAT") and the
privatization of the International Mobile Satellite Organization
("Inmarsat") and the anticipated effects of privatization upon COMSAT,
including potential changes in COMSAT's role as an investor and service re-
seller, method of accounting for its investments, and future cash flows;
(9) consolidation trends and global alliances within the satellite and
telecommunications industries which have adversely affected, and which
COMSAT expects will continue to adversely affect, COMSAT's relative
competitive position;
(10) the capital investment required to expand COMSAT International's
digital networking business in emerging markets around the world and the
limited period in which these investments must be completed to establish a
presence in those markets in advance of competitors;
(11) constraints upon COMSAT's ability to fully commercialize its
technology assets;
(12) the strategic value of COMSAT's principal assets in the hands of a
larger enterprise, like Lockheed Martin, with the financial and other
resources necessary to better utilize those assets;
(13) the COMSAT Board of Directors' belief that the tender offer, the
merger and the transactions contemplated by the merger agreement represent
an opportunity to reduce certain of the risks described above by effecting
a strategic business combination with a larger enterprise, like Lockheed
Martin, and achieve a premium for your COMSAT common stock;
(14) the expertise of Lockheed Martin in the research, manufacture and
integration of advanced-technology satellite systems and products, and the
opportunity to effect a strategic combination with Lockheed Martin with its
complementary assets and telecommunications growth strategy;
(15) the view of the COMSAT Board of Directors, based in part upon the
presentation of management to the Board of Directors, that there was a
limited likelihood of a superior offer arising under current law;
(16) the provisions of the merger agreement that permit the COMSAT Board
of Directors to consider an unsolicited superior proposal so as to comply
with the COMSAT Board of Directors' fiduciary duties to COMSAT
shareholders;
(17) the provision of the merger agreement that permits the COMSAT Board
of Directors to terminate the merger agreement, under specific
circumstances, upon payment to Lockheed Martin of the $75 million
termination fee and reimbursement of up to $5 million of Lockheed Martin's
aggregate expenses; and
(18) the ability to benefit COMSAT's customers, communications users
around the world and employees by creating a dynamic new global competitor.
25
Before reconfirming its recommendation to shareholders on July 7, 1999, your
Board of Directors reviewed the factors that it considered originally in
approving the merger agreement. The Board of Directors concluded that the
factors continue to apply and continue to support the Board's recommendation.
The foregoing discussion of the information and factors considered and given
weight by the COMSAT Board of Directors is not intended to be exhaustive. The
preceding factors figured positively in the consideration of the merger
agreement and the merger by the COMSAT Board of Directors, with the exception
of factor (17), which the COMSAT Board of Directors considered to be neutral.
In view of the variety of factors considered in connection with its evaluation
and approval of the merger transaction, the COMSAT Board of Directors did not
find it practicable to, and did not, quantify or otherwise assign relative
weights to the specific factors considered in reaching its determination. In
addition, individual members of the COMSAT Board of Directors may have given
different weights to different factors.
Lockheed Martin's Reasons for the Merger
In approving the merger and the related transactions, the Lockheed Martin
Board of Directors considered a number of factors, including:
. the financial condition and prospects of COMSAT;
. the strategic value of the proposed transaction and the possible effects
of the transaction on Lockheed Martin's shareholders, operations,
customers and future growth, and its financial condition and prospects;
and
. the current state of the telecommunications industry and trends in the
foreseeable future.
Lockheed Martin's Board of Directors believes that the merger provides it
with a unique opportunity to diversify its core aerospace and defense business
and to expand its presence in the global telecommunications services market. In
particular, Lockheed Martin anticipates that:
. the merger will allow Lockheed Martin Global Telecommunications to be
more competitive, to offer better value to its customers and to meet the
increased demand for broadband, Internet and virtual private network
services in the global telecommunications services market;
. the merger will allow Lockheed Martin to quickly and decisively enter
the global telecommunications services market through COMSAT's
established market presence;
. the COMSAT International business will present the combined company with
significant growth opportunities as a result of COMSAT International's
existing customers and market share in 11 high growth developing
markets;
. COMSAT's existing relationships with many of the world's largest
telecommunications companies, primarily through COMSAT's ownership
shares of INTELSAT and Inmarsat, will provide Lockheed Martin with new
opportunities for strategic alliances which may further accelerate
growth;
. COMSAT's financial position and cash flow, as well as expected increases
in revenues resulting from the merger, will permit increased investment
for further growth; and
. the merger will produce positive benefits such as increases in revenue,
increases in the number of customers, long-term growth and enhanced
shareholder value.
26
Opinion of COMSAT's Financial Advisor
Introduction.
In its role as financial advisor to COMSAT, Donaldson, Lufkin & Jenrette
delivered a written opinion to the COMSAT Board of Directors that, as of
September 18, 1998, and based upon and subject to the assumptions, limitations
and qualifications in the opinion, the consideration to be received by COMSAT
shareholders under the merger agreement was fair to such shareholders from a
financial point of view. The September 18, 1998 opinion was based on economic,
market, regulatory, financial and other conditions as they existed on, and on
the information made available to Donaldson, Lufkin & Jenrette as of, September
18, 1998. A copy of the September 18, 1998 opinion was included in the proxy
statement/prospectus dated May 12, 1999 that was mailed to COMSAT shareholders
on or about May 14, 1999.
As a result of recent developments relating to Lockheed Martin described
under "Recent Developments," COMSAT's Board of Directors asked Donaldson,
Lufkin & Jenrette to render a new opinion to the Board of Directors as to the
fairness to COMSAT shareholders, from a financial point of view, of the
consideration to be received by such shareholders under the merger agreement.
On July 7, 1999, Donaldson, Lufkin & Jenrette delivered its written opinion to
the COMSAT Board of Directors that, as of that date and based upon and subject
to the assumptions, limitations and qualifications in the opinion, the
consideration to be received by COMSAT shareholders under the merger agreement
was fair to such shareholders from a financial point of view.
A copy of the July 7, 1999 Donaldson, Lufkin & Jenrette opinion is attached
as Appendix III to this proxy statement/prospectus. You should read this
opinion for the assumptions made, the procedures followed, the matters
considered and the limits of the review made by Donaldson, Lufkin & Jenrette.
The July 7, 1999 opinion is based necessarily on economic, market, regulatory,
financial and other conditions as they existed on, and on the information made
available to Donaldson, Lufkin & Jenrette as of, July 7, 1999. Although later
events may affect its opinion, Donaldson, Lufkin & Jenrette does not have any
obligation to update, revise or reaffirm its opinion. Donaldson, Lufkin &
Jenrette expressed no opinion as to:
. the prices at which the Lockheed Martin common stock would actually
trade at any time;
. the relevant merits of the tender offer and the merger, on the one hand,
and the other business strategies considered by the COMSAT Board of
Directors, on the other hand; or
. the COMSAT Board of Directors' decision to proceed with such
transactions.
Donaldson, Lufkin & Jenrette prepared its opinions for the COMSAT Board of
Directors. The opinions address only the fairness from a financial point of
view of the consideration to be received by COMSAT shareholders under the
merger agreement. The opinions are not a recommendation to any COMSAT
shareholder as to how such shareholder should vote on the merger.
COMSAT and Lockheed Martin determined the consideration to be paid to COMSAT
shareholders under the merger agreement in arm's length negotiations.
Donaldson, Lufkin & Jenrette advised COMSAT in the negotiations. Donaldson,
Lufkin & Jenrette was not requested to, nor did it, solicit the interest of any
other party in acquiring COMSAT.
Information Reviewed and Assumptions Made.
In arriving at its July 7, 1999 opinion, Donaldson, Lufkin & Jenrette:
. reviewed the merger agreement;
. reviewed the June 18, 1999 draft of this proxy statement/prospectus;
. reviewed financial and other information that was publicly available or
that COMSAT and Lockheed Martin furnished to it, including information
provided during discussions with their respective managements such as:
. certain financial projections of business units of COMSAT prepared
by COMSAT's management;
27
. compared certain financial and securities data of COMSAT with various
other companies whose securities are traded in public markets;
. reviewed the historical stock prices and trading volumes of the common
stock of COMSAT and Lockheed Martin; and
. conducted such other financial studies, analyses and investigations as
it deemed appropriate for purposes of its opinion.
For its opinion, Donaldson, Lufkin & Jenrette relied upon, and assumed the
accuracy and completeness of, all the financial and other information that was
available or provided to it. Donaldson, Lufkin & Jenrette also assumed that the
financial projections provided to it were reasonably prepared on the basis
reflecting the best currently available estimates and judgments of COMSAT's
management as to the future operating and financial performance of COMSAT.
Donaldson, Lufkin & Jenrette did not make an independent evaluation of any
assets or liabilities of COMSAT or Lockheed Martin, or an independent
verification of any information Donaldson, Lufkin & Jenrette reviewed.
Donaldson, Lufkin & Jenrette assumed that the tender offer, the merger and all
other transactions contemplated by the merger agreement would be completed as
described in the merger agreement. Donaldson, Lufkin & Jenrette relied as to
certain legal matters on the advice of COMSAT's counsel. COMSAT imposed no
restrictions on Donaldson, Lufkin & Jenrette with respect to the investigations
it made or the procedures it followed in arriving at its opinion.
Financial Analyses.
The following is a summary of the financial analyses that Donaldson, Lufkin
& Jenrette performed in connection with its opinion and its presentation to the
COMSAT Board of Directors on July 7, 1999.
COMSAT.
(1) Equity Value Per Share Analysis. Donaldson, Lufkin & Jenrette calculated
the implied equity value of COMSAT by:
. adding together the enterprise values of COMSAT's business segments and
the equity values of certain investments;
. adjusting the value to reflect corporate overhead;
. deducting an amount for debt, preferred stock and minority interests;
and
. adding an amount for other investments, other assets and cash.
28
This analysis resulted in an implied equity valuation range for COMSAT of
approximately $1.97 billion to $3.24 billion in the aggregate, and
approximately $34.39 to $56.68 per share. Based upon the results of all its
analyses taken as a whole, Donaldson, Lufkin & Jenrette determined that an
appropriate reference range per share of COMSAT common stock would be $39.00 to
$53.25. The table below summarizes these results:
Valuation Range
------------------
Low High
-------- --------
(In millions,
except per share
data)
Satellite Businesses:
World Systems(1)....................................... $1,530.0 $2,255.0
Mobile Communications(2)............................... 495.0 657.5
Network Businesses:
International.......................................... 400.0 650.0
Other Businesses:
Labs and Government(3)................................. 73.6 112.6
Corporate Overhead and Other........................... (160.0) (125.0)
-------- --------
Total Business Segment Range........................... $2,338.6 $3,550.1
======== ========
Less: Debt(4).......................................... (394.0) (394.0)
Less: Preferred Stock(4)............................... (200.0) (200.0)
Less: Minority Interest(4)............................. (3.8) (3.8)
Plus: Other Investments(5)............................. 52.9 52.9
Plus: Other Assets(6).................................. 36.0 100.0
Plus: Cash(4)(7)....................................... 138.2 138.2
-------- --------
Equity Value........................................... $1,967.9 $3,243.5
======== ========
Shares Outstanding(4)(7)............................... 57.2 57.2
Equity Value per Share................................. $ 34.39 $ 56.68
Reference Range per Share.............................. $ 39.00 $ 53.25
--------
(1) Includes consolidated results for INTELSAT until assumed
privatization of INTELSAT on January 1, 2002. COMSAT's interest in
INTELSAT is valued separately as an unconsolidated entity beyond
January 1, 2002 and discounted to a present value as of June 30,
1999. Also includes discounted cash flow valuation of Link One
Services and estimated valuation of New Skies based on 1.0-1.5 times
actual book value as of March 31, 1999 (16.6% owned).
(2) Includes COMSAT's interest in Inmarsat as an unconsolidated equity
investment.
(3) Includes discounted cash flow valuation of Labs and estimated
valuation of Government based on 1.5 to 2.5 times actual book value
as of May 31, 1999.
(4) Capitalization estimated as of June 30, 1999 based on May 31, 1999
data.
(5) Investments includes the market value of ICO (direct and indirect
ownership), Calian and other investments; other investments carried
at cost.
(6) Includes after-tax proceeds from potential tax refund claims and
litigation.
(7) Includes cash proceeds of $94.5 million from exercise of in the
money options. Assumes that all proceeds from exercise are held in
cash.
Donaldson, Lufkin & Jenrette's analysis of the value of COMSAT's principal
business units and of COMSAT's corporate overhead are described below.
World Systems Business Segment. COMSAT's World Systems business segment
provides satellite capacity for telephone, data, Internet, video and audio
communications services between the United States and the rest of the world
using the global satellite networks of INTELSAT and New Skies Satellites, N.V.
Donaldson, Lufkin & Jenrette analyzed the value of the World Systems business
segment primarily using a
29
comparable public companies analysis, a comparable acquisitions analysis and
discounted cash flow analyses. The results are summarized in the table below:
Valuation Range(1)
-------------------
Valuation Approach Low High
------------------ --------- ---------
(In millions)
Comparable Public Companies Analysis.................. $ 1,650.0 $ 2,400.0
Comparable Acquisitions Analysis...................... 1,500.0 2,200.0
Discounted Cash Flow Analysis(2)(3)
Core Discounted Cash Flow Analysis.................. 555.0 685.0
INTELSAT Discounted Cash Flow Analysis.............. 735.0 1,070.0
Total Discounted Cash Flow Analysis................. 1,290.0 1,755.0
Valuation Reference Range............................. $ 1,400.0 $ 1,900.0
Link One Service Plan Valuation(4).................... $ 15.0 $ 185.0
New Skies Investment(5)............................... $ 115.0 $ 170.0
Valuation Reference Range............................. $ 1,530.0 $ 2,255.0
--------
(1) Assumes privatization of INTELSAT on January 1, 2002.
(2) Includes consolidated results for INTELSAT until assumed
privatization of INTELSAT on January 1, 2002. COMSAT's interest in
INTELSAT is valued separately as an unconsolidated entity beyond
January 1, 2002 and discounted to a present value as of June 30,
1999.
(3) Discounted cash flows as of June 30, 1999.
(4) Link One Service Plan valuation range based on the capital invested
and/or expensed to date and a discounted cash flow analysis.
(5) Estimated at 1.0-1.5 times actual book value as of March 31, 1999
(16.6% owned as of June 30, 1999).
. Comparable Public Companies Analysis. Donaldson, Lufkin & Jenrette
analyzed the enterprise value of the World Systems business segment
(which, for purposes of this analysis, excludes the Link One Service
Plan and the New Skies investment) based on the market values and
trading multiples of four comparable publicly traded companies:
. PanAmSat;
. Apt Satellite Holdings;
. Asia Satellite Telecom; and
. SES Astra.
For each company, Donaldson, Lufkin & Jenrette analyzed:
. the equity value and the enterprise value as of June 28, 1999; and
. the enterprise value as a multiple of estimated sales and estimated
earnings before interest, taxes, depreciation and amortization
("EBITDA") for calendar years 1999 and 2000.
Enterprise value is defined as the equity value plus the book value of
debt and preferred stock less cash. Equity value is defined as the
market value of the common equity securities. The sales and EBITDA
estimates for calendar years 1999 and 2000 were based on publicly
available estimates from equity research analysts. From this analysis,
Donaldson, Lufkin & Jenrette developed enterprise valuation multiples
ranging from 7.0 to 10.0 times estimated 1999 sales, 6.0 to 8.0 times
estimated 2000 sales, 8.5 to 13.5 times estimated 1999 EBITDA, and 7.5
to 10.5 times estimated 2000 EBITDA. Donaldson, Lufkin & Jenrette then
applied these valuation multiples to 1999 and 2000 projected operating
data for the World Systems business segment as prepared by COMSAT
management. From this analysis, Donaldson, Lufkin & Jenrette determined
an imputed enterprise valuation range for the World Systems business
segment of approximately $1.65 billion to $2.4 billion.
30
. Comparable Acquisitions Analysis. Donaldson, Lufkin & Jenrette also
analyzed the enterprise value of the World Systems business segment
(which, for purposes of this analysis, excludes the Link One Service
Plan and the New Skies investment) based on the transaction multiples
paid in selected comparable transactions. The transactions analyzed
included:
. Hughes Communications' acquisition of PanAmSat;
. Loral's acquisition of SkyNet;
. Loral's acquisition of Orion Network;
. Loral's acquisition of SatMex; and
. SES Astra's acquisition of a non-controlling interest in AsiaSat.
For each acquisition, Donaldson, Lufkin & Jenrette analyzed:
. the total transaction value;
. the total transaction value as a multiple of revenues, EBITDA and
earnings before interest and taxes for the twelve months prior to
announcement of a transaction, to the extent such information was
available; and
. the total transaction value as a multiple of EBITDA for the current
fiscal year and the subsequent fiscal year as of the date of
announcement of the transaction.
The EBITDA estimates for the current and subsequent fiscal years were
based on publicly available projections from research analysts. From
this analysis, Donaldson, Lufkin & Jenrette developed valuation
multiples ranging from 7.0 to 10.0 times current fiscal year EBITDA and
8.0 to 9.0 times EBITDA for the subsequent fiscal year. Donaldson,
Lufkin & Jenrette then applied these valuation multiples to 1998 and
projected 1999 operating data for the World Systems business segment
prepared by management. The analysis resulted in an imputed enterprise
valuation range for the World Systems business segment of approximately
$1.5 billion to $2.2 billion.
. Discounted Cash Flow Analysis. Donaldson, Lufkin & Jenrette also
analyzed the enterprise value of the World Systems business segment
(which, for purposes of this analysis, excludes the Link One Service
Plan and the New Skies investment) using a discounted cash flow
analysis. This discounted cash flow analysis had two components: (1) the
discounted cash flow for this segment including consolidated results for
INTELSAT until its assumed privatization on January 1, 2002 and (2) a
stand alone discounted cash flow analysis for COMSAT's interest in
INTELSAT after the assumed privatization. The first component was based
on estimates of the projected financial performance for such segment
(taking into account INTELSAT as described above) prepared by COMSAT
management for the period from July 1, 1999 to December 31, 2003.
Utilizing these projections, Donaldson, Lufkin & Jenrette calculated a
range of present values for the segment based upon the discounted net
present value as of June 30, 1999 of the sum of (a) the projected stream
of after-tax unlevered free cash flows of the segment, which is
operating cash flow available after working capital, capital spending
and tax requirements, to December 31, 2003; and (b) the projected
terminal value of the segment at such year based upon a range of
multiples of the segment's projected EBITDA in such year. Applying
discount rates ranging from 11.0% to 13.0% and multiples of terminal
EBITDA ranging from 8.5 to 11.5 times, Donaldson, Lufkin & Jenrette
estimated enterprise values of the first component of the segment
ranging from approximately $555 million to $685 million. The second
component of this analysis, a stand alone discounted cash flow analysis
for COMSAT's 18% interest in INTELSAT after its assumed privatization on
January 1, 2002, was based on estimates of projected financial
performance for INTELSAT prepared by INTELSAT management for the fiscal
years 2002 to 2008 and discounted back to June 30, 1999. Utilizing these
projections, Donaldson, Lufkin & Jenrette calculated a range of present
values for COMSAT's interest in INTELSAT based upon the discounted net
present value as of June 30, 1999 of the sum of (a) the projected stream
of after-tax unlevered free cash flows of INTELSAT, which is operating
cash flow available after working capital, capital spending and tax
requirements, to the year 2008; and (b) the projected
31
terminal value of INTELSAT at such year based upon a range of multiples
of INTELSAT's projected EBITDA in such year. Applying discount rates
ranging from 11.0% to 13.0% and multiples of terminal EBITDA ranging
from 8.5 to 11.5 times, Donaldson, Lufkin & Jenrette estimated
enterprise values of COMSAT's interest in INTELSAT ranging from
approximately $735 million to $1.07 billion. The sum of the two
components of this discounted cash flow analysis led to an estimated
enterprise value of the segment ranging from approximately $1.29 billion
to $1.76 billion, and a valuation reference range (before taking into
account LinkOne Service Plan and the New Skies investment) from $1.4
billion to $1.9 billion.
. Link One Service Plan and New Skies Investment. To reach an overall
valuation reference range for the World Systems business segment,
Donaldson, Lufkin & Jenrette included estimated valuations for the
LinkOne Service Plan and the New Skies investment. Donaldson, Lufkin &
Jenrette estimated an enterprise value of the Link One Service Plan
ranging from $15 million to $185 million based on (1) approximately $15
million in capital invested and/or expensed to date and (2) a discounted
cash flow analysis based on estimates of the projected financial
performance for Link One prepared by COMSAT management for the period
from July 1, 1999 to December 31, 2003, applying discount rates ranging
from 20.0% to 30.0% and multiples of terminal EBITDA ranging from 8.5 to
11.5 times, and resulting in valuations ranging from approximately $130
million to $253 million. The equity value of the New Skies investment
was estimated at 1.0 to 1.5 times actual book value as of March 31, 1999
based on COMSAT's 16.6% ownership interest as of June 30, 1999.
Based on these methodologies, Donaldson, Lufkin & Jenrette determined that
an appropriate valuation range for the World Systems business segment would be
$1.530 billion to $2.255 billion.
Mobile Communications Business Segment. COMSAT's Mobile Communications
business segment provides satellite telecommunications services for maritime,
aeronautical and land mobile applications, primarily using the satellite
system of Inmarsat. Donaldson, Lufkin & Jenrette analyzed the value of the
Mobile Communications business segment using (1) a discounted cash flow
analysis for COMSAT's land earth station operators business and (2) a
valuation analysis of COMSAT's interest in Inmarsat based on (a) a pro-rata
valuation of such interest based on a prior transaction involving an interest
in Inmarsat and (b) a discounted cash flow analysis for Inmarsat. The results
are summarized in the table below:
Valuation Range(1)
-------------------
Valuation Approach Low High
------------------ --------- ---------
(In millions)
Land Earth Station Operators Valuation Summary
Discounted Cash Flow Analysis(2)...................... $ 95.0 $ 157.5
Inmarsat Equity Valuation Summary
Pro Rata Inmarsat Valuation Analysis(3)............... $ 425.0 $ 475.0
Discounted Cash Flow Analysis(2)(3)................... $ 385.0 $ 527.5
Inmarsat Reference Range............................ $ 400.0 $ 500.0
Valuation Reference Range............................. $ 495.0 $ 657.5
--------
(1) Assumes privatization of Inmarsat as of April 15, 1999.
(2) Discounted cash flows as of June 30, 1999.
(3) Assumes approximately $84.7 (22.2%) million in net debt adjustment
to arrive at COMSAT's equity ownership. Net debt estimate as of June
30, 1999 based on Inmarsat's net debt balance as of March 31, 1999.
. Land Earth Station Operators Business Discounted Cash Flow
Analysis. Donaldson, Lufkin & Jenrette also analyzed the enterprise
value of the Land Earth Station Operators business within the Mobile
Communications business segment using a discounted cash flow analysis as
of June 30, 1999 for three separate sub-segments: voice/telex services,
data/aero services and contract services, in each case based on
estimates of the projected financial performance for such sub-segment
prepared by
32
COMSAT management for the period from July 1, 1999 to December 31, 2003.
In the aggregate, this analysis resulted in an imputed enterprise
valuation range for the Land Earth Station Operators business within the
Mobile Communications business segment of approximately $95.0 million to
$157.5 million, as follows:
Range of Perpetuity
Growth Rates of Cash Approximate Enterprise
Range of Discount Flow Used to Calculate Valuation Range
Sub-Segment Rates Applied Terminal Value (in millions)
----------- ----------------- ---------------------- ----------------------
Voice/Telex services.... 11.0% to 13.0% (10.0%) to (5.0%) $45.0 to $55.0
Data/Aero services...... 12.0% to 14.0% 7.5% to 9.5% $32.5 to $77.5
Contract services....... 10.0% to 12.0% (5.0%) to 0.0% $17.5 to $25.0
. Inmarsat Valuation. Donaldson, Lufkin & Jenrette also analyzed the value
of the Inmarsat portion of the Mobile Communications business segment
based on: (a) a valuation of the segment's pro-rata share of Inmarsat
and (b) a discounted cash flow analysis of Inmarsat as of June 30, 1999
based on projections prepared by COMSAT management. Based on this
analysis, Donaldson, Lufkin & Jenrette determined that an appropriate
range of equity values for COMSAT's interest in Inmarsat was $400
million to $500 million.
. Based on Donaldson, Lufkin & Jenrette's analysis of the July 1998
announced transaction between Teleglobe and Stratos Global which
included a sale of a 1.4% ownership interest in Inmarsat by Teleglobe
to Stratos Global, Donaldson, Lufkin & Jenrette estimated the implied
value of the Mobile Communications business segment's ownership
interest in Inmarsat (after taking into account net debt of $84.7
million) ranging from approximately $425 million to $475 million.
. Donaldson, Lufkin & Jenrette estimated the implied value of COMSAT's
interest in Inmarsat based on estimates of the projected financial
performance for Inmarsat prepared by COMSAT management for the period
from July 1, 1999 to December 31, 2003, applying discount rates
ranging from 11.5% to 13.5% and calculating terminal values based on
EBITDA multiples of 8.0 to 11.0 times. This analysis resulted in a
valuation for COMSAT's interest in Inmarsat ranging from
approximately $385 million to $527.5 million.
Based on these methodologies, Donaldson, Lufkin & Jenrette determined that
an appropriate valuation range for the Mobile Communications business segment
would be $495 million to $657.5 million.
International Network Business Segment. COMSAT's International Network
business segment provides individualized digital network solutions to business
clients and carriers in selected markets in Latin America, Asia and Europe.
Donaldson, Lufkin & Jenrette estimated the enterprise valuation of the
International Network business segment using a comparable public companies
analysis, a comparable acquisition analysis and a discounted cash flow
analysis. The results are summarized in the table below:
Valuation Range(1)
-------------------
Valuation Approach Low High
------------------ --------- ---------
(In millions)
Comparable Public Companies Analysis.................. $ 400.0 $ 650.0
Comparable Acquisition Analysis....................... 340.0 400.0
Discounted Cash Flow Analysis(1)...................... 525.0 925.0
Valuation Reference Range............................. $ 400.0 $ 650.0
--------
(1) Discounted cash flows as of June 30, 1999.
33
. Comparable Public Companies Analysis. Donaldson, Lufkin & Jenrette
analyzed the enterprise value of the International Network business
segment based on the market values and trading multiples of four
publicly traded companies:
. Grupo Iusacell;
. Panafon;
. STET Hellas Communications; and
. Telecel.
Although these companies are not directly comparable to the
International Network business segment, Donaldson, Lufkin & Jenrette
believed they would provide a relevant valuation benchmark. For each
company, Donaldson, Lufkin & Jenrette analyzed:
. the equity value and the enterprise value as of June 28, 1999; and
. the enterprise value as a multiple of last twelve month sales and
EBITDA, and estimated sales and estimated EBITDA for calendar years
1999 and 2000.
The sales and EBITDA estimates for calendar years 1999 and 2000 were
based on publicly available projections from research analysts. From
this analysis, Donaldson, Lufkin & Jenrette developed valuation
multiples ranging from 4.5 to 6.0 times last twelve month sales, 3.5 to
4.0 times estimated 1999 sales, 3.0 to 3.5 times estimated 2000 sales,
16.0 to 19.0 times last twelve month EBITDA, 9.0 to 13.0 times
estimated 1999 EBITDA, and 7.0 to 9.0 times estimated 2000 EBITDA.
Donaldson, Lufkin & Jenrette then applied these valuation multiples to
projected 1999 and 2000 pro forma operating data for the International
Network business segment as prepared by COMSAT management. The pro
forma adjustments were made to remove the effects of a currency
devaluation in Brazil. Based on this analysis, Donaldson, Lufkin &
Jenrette estimated an imputed enterprise valuation range for the
International Network business segment of approximately $400 million to
$650 million.
. Comparable Acquisition Analysis. Donaldson, Lufkin & Jenrette analyzed
the enterprise value of the International Network business segment based
on the transaction multiple paid in British Telecom's acquisition of a
20% stake in IMPSAT. From this analysis, Donaldson, Lufkin & Jenrette
developed valuation multiples of 3.6 times last twelve month revenues as
of December 31, 1998, 3.0 times estimated 1999 revenues and 9.9 times
estimated 1999 EBITDA. 1999 estimates were derived by applying a revenue
growth rate (from March 31, 1998 to March 31, 1999) to actual 1998
figures. Donaldson, Lufkin & Jenrette then applied these valuation
multiples to projected pro forma operating data for the International
Network business prepared by COMSAT management. The pro forma
adjustments were made to remove the effects of a currency devaluation in
Brazil. The analysis resulted in an imputed enterprise valuation range
for the International Network business segment of approximately $340
million to $400 million.
. Discounted Cash Flow Analysis. Donaldson, Lufkin & Jenrette also
analyzed the enterprise value of the International Network business
segment using a discounted cash flow analysis based on estimates of the
projected financial performance for such segment prepared by COMSAT
management for the period from July 1, 1999 to December 31, 2004.
Utilizing these projections, Donaldson, Lufkin & Jenrette calculated a
range of present values for the segment based upon the discounted net
present value as of June 30, 1999 of the sum of (a) the projected stream
of after-tax unlevered free cash flows of the segment, which is
operating cash flow available after working capital, capital spending
and tax requirements, to December 31, 2004; and (b) the projected
terminal value of the segment at such year based upon a range of
multiples of the segment's projected EBITDA in such year. Applying
discount rates ranging from 15.0% to 20.0% and multiples of terminal
EBITDA ranging from 8.0 to 10.0 times, Donaldson, Lufkin & Jenrette
estimated an imputed enterprise valuation range for the International
Network business segment of approximately $525 million to $925 million.
34
Based on these methodologies, Donaldson, Lufkin & Jenrette determined that
an appropriate valuation range for the International Network business segment
would be $400 million to $650 million.
Labs and Government Business Segment. COMSAT's Labs and Government business
segment provides technical consulting services and develops advanced
communications technologies and products for satellite access and networking
applications. Donaldson, Lufkin & Jenrette analyzed the enterprise value of the
Labs business segment using a discounted cash flow analysis based on estimates
of the projected financial performance for such segment prepared by COMSAT
management for the period from July 1, 1999 to December 31, 2003. Utilizing
these projections, Donaldson, Lufkin & Jenrette calculated a range of present
values for the segment based upon the discounted net present value as of June
30, 1999 of the sum of (a) the projected stream of after-tax unlevered free
cash flows of the segment, which is operating cash flow available after working
capital, capital spending and tax requirements, to December 31, 2003; and (b)
the projected terminal value of the segment at such year based upon a range of
multiples of the segment's projected EBITDA in such year. Applying discount
rates ranging from 12.0% to 14.0% and multiples of terminal EBITDA ranging from
8.5 to 11.5 times, Donaldson, Lufkin & Jenrette estimated an imputed enterprise
valuation range for the Labs business segment of approximately $60.0 million to
$90.0 million. For the Government segment, Donaldson, Lufkin & Jenrette
estimated an enterprise value based on 1.5 to 2.5 times actual book value as of
May 31, 1999, resulting in a range from $13.6 million to $22.6 million.
Corporate Overhead. Donaldson, Lufkin & Jenrette adjusted the combined value
of the business segments by approximately $125 million to $160 million to
reflect corporate overhead. Donaldson, Lufkin & Jenrette calculated this amount
using a discounted cash flow analysis based on estimates of the projected
corporate overhead of COMSAT prepared by COMSAT management for the period from
July 1, 1999 to December 31, 2003 to which it applied discount rates ranging
from 10.5% to 11.5% and calculated terminal value by applying perpetuity growth
rates ranging from 1.0% to 3.0%.
(2) Stock Price and Trading History. Donaldson, Lufkin & Jenrette reviewed
the daily trading activity, including price and volume, of the COMSAT common
stock from June 29, 1998 to June 29, 1999.
Lockheed Martin.
(1) Stock Price and Trading History. Donaldson, Lufkin & Jenrette reviewed
the daily trading activity, including price and volume, of the Lockheed Martin
common stock from June 30, 1998 to June 30, 1999.
(2) Relative Performance. Donaldson, Lufkin & Jenrette compared the daily
trading performance of the Lockheed Martin stock to an index of
aerospace/defense companies from September 1, 1998 to June 28, 1999. The index
includes the following aerospace/defense companies:
. Boeing . Raytheon
. General Dynamics . United Technologies
. Northrop Grumman
Such analysis indicated that historical trading performance of Lockheed Martin
was below other aerospace/defense peer companies.
(3) Comparable Trading Analysis. Donaldson, Lufkin & Jenrette compared
Lockheed Martin to five comparable companies on the basis of equity values and
enterprise values, based on stock prices on June 28, 1999, measured as a
multiple of selected historical and projected financial data. The comparable
companies were:
. Boeing . Raytheon
. General Dynamics . United Technologies
. Northrop Grumman
35
This analysis indicated that Lockheed Martin traded at the lower end of these
comparable companies.
(4) Accretion/Dilution Analysis. Donaldson, Lufkin & Jenrette analyzed the
impact of the transaction on the projected earnings per share of Lockheed
Martin for the projected fiscal years ending December 31, 1999 (assuming a
closing date of January 1, 1999), 2000 and 2001. The earnings per share
projections for 1999 and 2000 were based on Lockheed Martin estimates. The
earnings per share projections for 2001 were based on such 2000 projections
compounded by a long-term earnings per share growth rate estimated by First
Call. The pro forma earnings per share projections were calculated assuming
that Lockheed Martin acquired 49% of the COMSAT common stock in the tender
offer and the remaining 51% of the COMSAT common stock in the merger. As set
forth in the table below, this analysis indicated that the transaction was
expected to have a dilutive effect on the projected earnings per share for
Lockheed Martin for the periods indicated below, unless pre-tax savings were
realized. All per share amounts have been adjusted to reflect Lockheed Martin's
two-for-one stock split in the form of a stock dividend in December 1998.
Fiscal year ending December 31,
----------------------------------
Pro Forma
1999 2000 2001
----------- ---------- ----------
Projected Earnings Per Share......... $ 1.50 $ 2.15 $ 2.52
Pro Forma Earnings Per Share......... $ 1.21 $ 1.80 $ 2.20
Accretion/(Dilution) ($ per share)... ($0.29) ($0.35) ($0.33)
Accretion/(Dilution) (%)............. (19.0%) (16.2%) (12.9%)
Required Pre-Tax Savings to Break
Even (in millions).................. $ 201.1 $ 245.3 $ 229.3
This summary is not a complete description of Donaldson, Lufkin & Jenrette's
analyses. Instead, it summarizes material elements of the presentation
Donaldson, Lufkin & Jenrette made to the COMSAT Board of Directors on July 7,
1999 in connection with the preparation of its opinion. The preparation of a
fairness opinion involves various determinations as to the most appropriate and
relevant methods of financial analysis and the application of these methods to
the particular circumstances. Therefore, such an opinion is not readily
susceptible to summary description.
Each of Donaldson, Lufkin & Jenrette's analyses was carried out to provide a
different perspective on the transaction and add to the total mix of
information available. Donaldson, Lufkin & Jenrette did not form a conclusion
as to whether any individual analysis, considered by itself, supported or
failed to support an opinion as to the fairness from a financial point of view.
Rather, in reaching its conclusion, Donaldson, Lufkin & Jenrette considered the
results of the analyses in light of each other and ultimately rendered its
opinion based on the results of all these analyses taken as a whole. Donaldson,
Lufkin & Jenrette did not place particular reliance or weight on any individual
analysis, but instead concluded that its analyses, taken as a whole, supported
its determination. For this reason, Donaldson, Lufkin & Jenrette believes that
its analyses must be considered as a whole and that selecting portions of its
analyses and the factors considered by it, without considering all such
analyses and factors, could create an incomplete or misleading view of the
process underlying its opinion. The analyses performed by Donaldson, Lufkin &
Jenrette are not necessarily indicative of actual past or future results or
values, which may be significantly more or less favorable than suggested by
such analyses.
Engagement Letter.
COMSAT engaged Donaldson, Lufkin & Jenrette to act as its principal
financial advisor for a period of 24 months in connection with the sale, merger
or other business combination of COMSAT and other transactions. Under the
engagement letter, COMSAT paid Donaldson, Lufkin & Jenrette a retainer fee of
$350,000 on the signing of the letter and $2,000,000 on the signing of the
merger agreement. COMSAT agreed to pay Donaldson, Lufkin & Jenrette an
additional $2,000,000 upon completion of the tender offer.
36
In the event of a COMSAT sale, COMSAT will also pay Donaldson, Lufkin &
Jenrette additional compensation in the amount of 0.35% of the aggregate value
of the COMSAT common stock outstanding or issuable upon exercise of options,
plus the amount of any debt assumed, acquired, remaining outstanding or
retired, less $4,175,000 of the amounts previously paid or to be paid to
Donaldson, Lufkin & Jenrette under the terms of the engagement letter. A COMSAT
sale will occur on the earliest of:
. the acquisition of over 50% of the outstanding COMSAT common stock
calculated on a fully diluted basis;
. a merger or consolidation of COMSAT;
. the acquisition by another person of a significant portion of the assets
of COMSAT representing over 50% of COMSAT's book value, as adjusted to
exclude certain designated assets; or
. the closing of any other COMSAT sale.
The aggregate value of outstanding COMSAT common stock will be determined,
in the case of the tender offer and the merger, based on the amount of cash to
be received by COMSAT shareholders in the tender offer plus the fair market
value of Lockheed Martin common stock to be received by COMSAT shareholders in
the merger. For that purpose, the fair market value of Lockheed Martin common
stock to be received in the merger will be determined based on the average of
the high and low sales prices for such stock over the five trading days
immediately prior to completion of the merger. If the tender offer and the
merger had been completed on July 7, 1999, the additional compensation to
Donaldson, Lufkin & Jenrette would have been approximately $5.9 million. The
actual amount of such additional compensation will depend upon factors such as
the number of shares tendered in the tender offer, the number of shares
outstanding immediately prior to the merger, the number of dissenting shares
and the fair market value of Lockheed Martin common stock as of the merger.
COMSAT also agreed to reimburse Donaldson, Lufkin & Jenrette for out-of-
pocket expenses. In addition, COMSAT agreed to indemnify Donaldson, Lufkin &
Jenrette and related persons against various liabilities in connection with its
engagement, including liabilities under the federal securities laws. The SEC
has taken the position that such indemnification under the federal securities
laws may not be enforceable if it is found to be against public policy.
COMSAT began working with Donaldson, Lufkin & Jenrette as a mergers and
acquisitions advisor in August 1997. In addition, Donaldson, Lufkin & Jenrette
has been advising COMSAT on the privatization of Inmarsat and had performed
strategic analyses for COMSAT. Donaldson, Lufkin & Jenrette has received
customary compensation for such services.
The COMSAT Board of Directors selected Donaldson, Lufkin & Jenrette to act
as its financial advisor in connection with the tender offer and the merger
because Donaldson, Lufkin & Jenrette is an internationally recognized
investment banking firm with substantial expertise in the communications
industry and in mergers and acquisitions transactions. Donaldson, Lufkin &
Jenrette, as part of its investment banking services, is regularly engaged in
the valuation of businesses and securities in connection with mergers,
acquisitions, underwritings, sales and distributions of listed and unlisted
securities, private placements and valuations for corporate and other purposes.
Interests of COMSAT Executive Officers and Directors in the Merger
As a result of the merger, executive officers of COMSAT will receive
substantial additional benefits under employment agreements, retention
incentives or employee benefit plans. In addition, non-employee director stock
options will vest upon completion of the merger. For this reason, the interests
of these persons in the merger may be different from or in addition to and
greater than yours and which may be conflicts of interest.
37
In connection with the merger, COMSAT entered into the following agreements
and took the following actions:
. amended its employment agreements with Betty C. Alewine, Allen E. Flower
and Warren Y. Zeger;
. adopted the Retention Bonus Plan;
. amended the Change in Control Severance Plan;
. amended
(a) the 1990 and 1995 Key Employee Stock Plans,
(b) the Non-Employee Directors Stock Plan, and
(c) the Directors and Executives Deferred Compensation Plan; and
. adopted resolutions of the Board of Directors stating that the merger
and related transactions would not be a "change in control" under other
COMSAT employee benefit plans.
Amendments to Employment Agreements.
On September 18, 1998, COMSAT amended the employment agreements of Mrs.
Alewine and Messrs. Flower and Zeger to provide that, following a change in
control, the term of each employment agreement will automatically end on the
third anniversary of the change in control. The employment agreements were also
amended to provide that, with respect to the merger, a change in control will
occur upon the completion of the merger, but not on the signing of the merger
agreement, the approval of the COMSAT Board of Directors or shareholders of the
merger or the completion of the tender offer.
For a description of these employment agreements and the September 18, 1998
amendments, see "Item 2. Election of Directors--Executive Compensation--
Agreements with Current Executive Officers."
Retention Bonus Plan.
Effective September 18, 1998, COMSAT adopted the Retention Bonus Plan. For a
description of the Retention Bonus Plan, see "Item 2. Election of Directors--
Executive Compensation--Retention Bonus Plan."
Amended and Restated Change in Control Severance Plan.
Effective September 18, 1998, COMSAT amended and restated the COMSAT
Corporation Change in Control Severance Plan. For a description of these
amendments and the severance plan, see "Item 2. Election of Directors--
Executive Compensation--Change in Control Severance Plan."
Amendments to COMSAT Stock and Deferred Compensation Plans.
Effective September 18, 1998, COMSAT amended the 1990 Key Employee Stock
Plan, the 1995 Key Employee Stock Plan and the Non-Employee Directors Stock
Plan. The amendments to each of these plans conformed the definition of change
in control to the definition described above under the caption "Amendments to
Employment Agreements." As amended, the completion of the merger will
constitute a change in control of COMSAT, resulting in the acceleration of
vesting and the exercisability of all stock options, restricted stock and other
awards outstanding under these plans.
Effective September 18, 1998, COMSAT amended the Directors and Executives
Deferred Compensation Plan to provide that, if the plan is terminated, each
participant will be paid the full account balance in accordance with the plan
and the participant's elections under the plan.
38
Board Resolutions Regarding Change in Control Provisions Under Other COMSAT
Plans.
The COMSAT Board of Directors has the authority to determine that the change
in control provisions in COMSAT benefit plans will not apply to a particular
transaction. Pursuant to this authority, the COMSAT Board of Directors has
adopted resolutions determining that the merger will not constitute a change in
control of COMSAT for the Insurance and Retirement Plan for Executives, the
Directors and Executives Deferred Compensation Plan, the Split Dollar Life
Insurance Plan for Directors and the Split Dollar Life Insurance Plan for Key
Employees.
Summary of Amounts Payable as a Result of the Merger.
This section summarizes the additional compensation that may be payable to
COMSAT's named executive officers and directors as a result of the merger, or
that may be payable earlier than would otherwise be the case. We have
calculated these payments based upon each executive officer's base salary and
target bonus on June 1, 1999. Actual payments will be based upon each executive
officer's highest base salary and highest target bonus for the relevant period.
Retention Bonuses. Mrs. Alewine and Messrs. Flowers and Zeger are eligible
to receive retention bonuses under the terms of their amended employment
agreements, and Mr. Mattingly and Dr. Pontano are eligible to receive retention
bonuses under the terms of the Retention Bonus Plan, as follows:
. a first bonus if the executive remains employed by COMSAT through the
completion of the merger, the termination of the merger agreement, or
September 18, 2000, whichever comes first, in the following amounts:
Mrs. Alewine, $1,466,250; Mr. Flower, $652,500; Mr. Zeger, $742,500;
Mr. Mattingly, $247,500; and Dr. Pontano, $160,500; and
. a second bonus if the executive remains employed by COMSAT through the
eighteen month anniversary of the completion of the merger, in the
following amounts: Mrs. Alewine, $977,500; Mr. Flower, $435,000; Mr.
Zeger, $495,000; Mr. Mattingly, $495,000; and Dr. Pontano, $321,000.
Severance Payments. Mrs. Alewine and Messrs. Flowers and Zeger are eligible
to receive severance payments under the terms of their amended employment
agreements, and Mr. Mattingly and Dr. Pontano are eligible to receive severance
payments under the terms of the Retention Bonus Plan, as follows:
. a pre-closing severance payment in an amount equal to the first
retention bonus described above if on or prior to the first retention
bonus payment date, COMSAT terminates the executive's employment for
reasons other than for cause or the executive's employment is terminated
on account of disability or death, or if the executive terminates
employment for good reason. An executive cannot receive both a pre-
closing severance payment and the first retention bonus; and
. a post-closing severance payment in an amount equal to the second
retention bonus described above if, after the completion of the merger
but on or prior to the second retention bonus payment date, COMSAT
terminates the executive's employment for reasons other than for cause
or the executive's employment terminates on account of disability or
death, or if the executive terminates employment for good reason. An
executive cannot receive both the post-closing severance payment and the
second retention bonus.
In addition, following the merger, Mrs. Alewine and Messrs. Flower and Zeger
each will have a three-year term under their employment agreements. As salary
and targeted bonus in each of the three years, Mrs. Alewine would be eligible
to receive $977,500, Mr. Flower $435,000 and Mr. Zeger $495,000. The salary and
targeted bonus amounts will be paid if:
. the executive remains employed by COMSAT and the bonus targets are met
to the maximum extent,
. COMSAT terminates the executive's employment for reasons other than for
cause,
39
. the executive becomes disabled, or
. the executive terminates employment for good reason.
Under the Amended and Restated Change in Control Severance Plan, if, during
the eighteen-month period following the merger, COMSAT terminates the
employment of Mr. Mattingly or Dr. Pontano for reasons other than for cause or
disability, or if the executive terminates employment for good reason, then Mr.
Mattingly would receive severance payments of $495,000 for each of two years
and Dr. Pontano would receive severance payments of $321,000 for each of two
years. However, the executive cannot receive payments following termination
under both the Amended and Restated Change in Control Severance Plan and the
Retention Bonus Plan. The executive will receive the highest benefit payable
under the two plans.
Accelerated Options and Stock Awards. At the completion of the merger,
unvested stock options, restricted stock awards and restricted stock units will
vest and will become exercisable. COMSAT's named executive officers and non-
employee directors would receive the following amounts as a result of the
vesting of these options and other stock awards: Mrs. Alewine, $3,663,893; Mr.
Flower, $1,326,901; Mr. Mattingly, $823,947; Dr. Pontano, $526,750; Mr. Zeger,
$1,345,625; and each non-employee director, $34,107. These amounts are based on
the number of unvested options or other stock awards held by each individual as
of June 1, 1999 and assume that these options and stock awards are converted
into equivalent Lockheed Martin options and stock awards, that the price of
Lockheed Martin common stock on the day of the merger is equal to $37 3/4, the
closing price of Lockheed Martin common stock on July 7, 1999, and that the
options are exercised on that day for a net value equal to the difference
between the $37 3/4 price and the exercise price of the options. The actual
amount that will be received by each individual as a result of the vesting of
options and other stock awards upon the completion of the merger may be higher
or lower depending on the actual price of Lockheed Martin common stock on the
date of the merger.
Retirement Benefits. At the closing of the merger, Mrs. Alewine and Messrs.
Flower and Zeger will become eligible to begin receiving benefits under the
COMSAT Insurance and Retirement Plan for Executives, without any actuarial
reduction for early commencement of benefits, on the later of the first day of
the next calendar month after reaching age 55 or the first day of the next
calendar month after termination of employment and payment of any severance
benefits. Assuming Mrs. Alewine and Messrs. Flower and Zeger begin receiving
these benefits on the first day of the next calendar month after reaching age
55, the present value of eliminating the actuarial reduction for early
commencement is estimated to be as follows: Mrs. Alewine, $1,828,360; Mr.
Flower, $419,000; and Mr. Zeger, $423,280. COMSAT calculated these present
values using the actuarial assumptions it usually applies to COMSAT retirement
plans.
Parachute Tax Gross-Up. If the payments received by a COMSAT executive
officer as a result of the change in control, but not including compensation
for regular services, plus the value of accelerated stock options and awards,
exceed three times the officer's "Base Amount," he or she may owe an excess
parachute excise tax. Section 280G of the Internal Revenue Code defines Base
Amount as an officer's average annual compensation during the five previous tax
years. The excess parachute excise tax equals 20% of the amount by which the
change in control payments exceed one times the Base Amount. COMSAT will
reimburse an executive officer for this excise tax, plus any income taxes and
excise taxes owed as a result of this reimbursement. While it is difficult to
estimate the amount of parachute tax gross-up payments, the payments could be
substantial.
Indemnification of Persons in the Merger.
Other contracts, agreements, arrangements and understandings between COMSAT
and its directors, executive officers and affiliates are described under the
caption "The Merger Agreement--Directors' and Officers' Insurance;
Indemnification."
40
Potential Conflicts of Interest.
Marcus C. Bennett and Caleb B. Hurtt, each a director of Lockheed Martin,
also serve on the COMSAT Board of Directors. In August 1997, Mr. Bennett joined
the COMSAT Board of Directors and serves on its Finance Committee and on its
Committee on Audit, Corporate Responsibility and Ethics. In May 1996, Mr. Hurtt
joined the COMSAT Board of Directors and serves on its Committee on
Compensation and Management Development as Chairman and on its Nominating and
Corporate Governance Committee. As of June 1, 1999, Mr. Bennett held options to
purchase 4,961 shares of COMSAT common stock, of which 2,480 are currently
exercisable or will be exercisable within sixty days. As of June 1, 1999, Mr.
Hurtt held 1,000 shares of COMSAT common stock and options to purchase 9,922
shares of COMSAT common stock, of which 7,441 are currently exercisable or will
be exercisable within sixty days. Both Mr. Bennett and Mr. Hurtt have elected
to defer receipt of annual retainer fees and instead have received phantom
stock units, which are not included in their beneficial ownership of COMSAT
common stock. As of June 1, 1999, Mr. Bennett's account held a balance of 2,016
phantom stock units and Mr. Hurtt's account held a balance of 2,788 phantom
stock units. As of June 1, 1999, Mr. Bennett had beneficial ownership of 57,092
shares of Lockheed Martin common stock and had 141,800 options exercisable for
shares of Lockheed Martin common stock, of which 140,000 are currently
exercisable or would be exercisable within sixty days. In addition, as of June
1, 1999, Mr. Bennett had accounts in Lockheed Martin deferred compensation
plans credited with 1,461 phantom stock units, of which 861 units were
nonforfeitable. As of June 1, 1999, Mr. Hurtt had beneficial ownership of 5,672
shares of Lockheed Martin common stock. In addition, as of June 1, 1999, Mr.
Hurtt had accounts in Lockheed Martin deferred compensation plans credited with
2,213 phantom stock units, of which 1,013 units were nonforfeitable. To avoid
any actual or perceived conflict of interest, each of Mr. Bennett and Mr. Hurtt
recused himself from the deliberations relating to the merger conducted by both
Boards of Directors. Messrs. Bennett and Hurtt currently serve on the COMSAT
Board of Directors in their individual capacities and not as representatives of
Lockheed Martin. It is anticipated that, following the tender offer, Messrs.
Bennett and Hurtt will serve as two of the three directors on the COMSAT Board
of Directors which Lockheed Martin will be entitled to designate under the
shareholders agreement.
Edwin I. Colodny, Chairman of the COMSAT Board of Directors and a former
member of Lockheed Martin's Board of Directors, owns 4,204 shares of Lockheed
Martin common stock. To avoid any actual or perceived conflict of interest, Mr.
Colodny recused himself from the deliberations relating to approval of the
merger and related transactions conducted by COMSAT.
Lockheed Martin has a continuing engagement with the law firm of Wunder,
Knight, Levine, Thelen & Forscey to provide general legislative support. Under
this engagement, Peter S. Knight, a Presidentially-appointed director of COMSAT
since September 1994 and partner of Wunder Knight, has rendered services to
Lockheed Martin. Lockheed Martin paid Wunder Knight $54,716, $161,669,
$112,129, $135,325 and $151,370 for services rendered and expenses incurred
during 1999 (through June 1), 1998, 1997, 1996 and 1995, respectively. Mr.
Knight recused himself from the deliberations relating to the determination by
the COMSAT Board of Directors on July 7, 1999 to reconfirm its recommendation
that shareholders approve the merger agreement.
Lockheed Martin also has a continuing engagement with the law firm of
Manatt, Phelps & Phillips, LLP to provide general legal and legislative
advocacy services in connection with government contracts and contracting
opportunities in the state of California. Under this engagement, Charles T.
Manatt, a Presidentially-appointed director of COMSAT since May 1995 and
chairman of Manatt Phelps, has not rendered any services to Lockheed Martin.
Lockheed Martin paid Manatt Phelps $24,078, $65,414, $116,113, $153,126 and
$66,686 for services rendered and expenses incurred during 1999 (through June
1), 1998, 1997, 1996 and 1995, respectively.
Standard Technology, Inc., a technology, engineering and systems integration
firm, has provided services to Lockheed Martin under various contracts, which
resulted from arm's-length negotiations, in connection with a Department of
Defense mentor-protege program to encourage large defense contractors to
subcontract with minority-owned businesses. Kathryn C. Turner, a director of
COMSAT since August 1997, is the Chairperson, Chief Executive Officer and sole
shareholder of Standard Technology. Lockheed Martin paid Standard
41
Technology $949,803, $1,807,711, $2,008,766, $1,846,662 and $2,242,126 in 1999
(through June 1), 1998, 1997, 1996 and 1995, respectively, under those
contracts. Pursuant to the mentor-protege program, Lockheed Martin agreed to
award Standard Technology with a targeted amount of $1 million of contracts per
year through 2001. Pursuant to the mentor-protege program, Lockheed Martin also
participates on an ad hoc advisory board which provides guidance on business
matters and has provided financial assistance to Standard Technology. Lockheed
Martin has made an unsecured loan to Standard Technology, which is repayable
over a fifteen year period commencing upon the earlier of 2007 or the year
after Standard Technology achieves annual revenues in excess of $25 million. As
of June 1, 1999, the outstanding balance of the loan was $2,632,166, which
includes previously capitalized interest. Interest does not currently accrue on
the loan but will accrue at 8% per annum on the unpaid principal amount once
repayment is required. In addition, Lockheed Martin has guaranteed up to $2
million of Standard Technology's borrowings under a line of credit with a
commercial bank, which also is secured by Standard Technology's accounts
receivable and a personal guarantee by Ms. Turner. Ms. Turner recused herself
from the deliberations relating to the determination by the COMSAT Board of
Directors on July 7, 1999 to reconfirm its recommendation that shareholders
approve the merger agreement.
Accounting Treatment
Lockheed Martin will account for the merger under the purchase method of
accounting in accordance with generally accepted accounting principles. Under
the purchase method, Lockheed Martin will allocate the purchase price,
including costs incurred by Lockheed Martin directly related to the merger, to
the assets acquired and liabilities assumed based upon their estimated fair
values as of the date of the completion of the merger, with any excess purchase
consideration allocated to cost in excess of net assets acquired and amortized.
The operating results of COMSAT will be included with those of Lockheed Martin
from the date of completion of the merger. See "Unaudited Pro Forma Combined
Condensed Financial Information."
Material U.S. Federal Income Tax Consequences
In the opinion of King & Spalding and Skadden, Arps, Slate, Meagher & Flom
LLP, the following discussion is a summary of the material U.S. federal income
tax consequences of the merger to COMSAT shareholders who hold shares of COMSAT
common stock as capital assets. The following discussion may not address all of
the U.S. federal income tax consequences that may be relevant to particular
shareholders in light of their individual circumstances or to shareholders who
are subject to special rules under the Internal Revenue Code, including foreign
holders, financial institutions, tax exempt organizations, insurance companies,
dealers in securities or currencies, persons who hold their shares as a hedge
against currency risk, holders who acquired their shares as part of a straddle,
synthetic security, conversion transaction or other integrated investment,
employee benefit plans, and holders who acquired their shares as a result of
the exercise of employee stock options or otherwise as compensation. The
following summary is not binding upon the Internal Revenue Service, and is
based upon laws, regulations, rulings and decisions currently in effect, all of
which are subject to change, retroactively or prospectively. We will not seek a
ruling from the Internal Revenue Service concerning the tax consequences of the
merger. We do not know if future legislation, regulations, administrative
rulings or court decisions would alter the U.S. federal income tax consequences
discussed below. If you have questions about the material U.S. federal income
tax consequences of the tender offer, please see Lockheed Martin's Schedule
14D-1 filed with the SEC on September 25, 1998.
Preliminary Considerations.
Integration of the Tender Offer and the Merger. Lockheed Martin intends to
treat the tender offer and the merger as a single integrated transaction for
U.S. federal income tax purposes. As discussed below, the U.S. federal income
tax consequences to a COMSAT shareholder who receives shares of Lockheed Martin
common stock in the merger may differ depending upon whether the tender offer
and the merger are treated as a single integrated transaction or as two
separate transactions for U.S. federal income tax purposes. Notwithstanding
Lockheed Martin's intention to treat the tender offer and the merger as a
single integrated transaction, because the issue is not free from doubt, you or
your tax advisor may determine otherwise and treat the tender offer and merger
as two separate transactions.
42
Tax Opinions as a Condition to the Forward Merger. The merger will be
structured as a forward merger of COMSAT with a wholly-owned subsidiary of
Lockheed Martin if certain conditions are met, including the receipt by
Lockheed Martin of a legal opinion from its tax counsel, King & Spalding, and
the receipt by COMSAT of a legal opinion from its tax counsel, Skadden, Arps,
Slate, Meagher & Flom LLP, each substantially to the effect that the merger
will constitute a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code for U.S. federal income tax purposes. The issuance of the
tax opinions will depend on the facts as they exist at the time of the merger,
and the tax opinions will be based on certain factual assumptions and on
representations that are customary for transactions similar to the tender offer
and the merger. If any of those factual assumptions or representations is or
becomes inaccurate, the tax opinions would not be an appropriate basis for your
tax position or for the preparation of your tax return. The tax opinions will
not be binding upon the Internal Revenue Service or the courts.
If these tax opinions are not received, or if any of the other conditions to
the forward merger are not satisfied, then the merger will be structured as a
reverse merger of a wholly-owned subsidiary of Lockheed Martin with COMSAT. If
the merger is completed as a reverse merger, Lockheed Martin intends to treat
the merger as not being a reorganization within the meaning of Section 368(a)
of the Internal Revenue Code, in which case the receipt of Lockheed Martin
common stock in the merger would be taxable to you and you would receive a Form
1099-B for the Lockheed Martin common stock you receive.
Tax Consequences to You if the Tender Offer and the Forward Merger are Treated
as a Single Integrated Transaction.
Exchange of Shares of COMSAT Common Stock Solely Pursuant to the Forward
Merger. If you surrender all of your shares of COMSAT common stock solely in
exchange for shares of Lockheed Martin common stock in the forward merger, and
you do not exchange any shares of COMSAT common stock for cash in the tender
offer, you will not recognize any gain or loss upon the exchange. You will
recognize gain or loss, however, to the extent you receive cash in the merger
instead of a fractional share of Lockheed Martin common stock, as discussed
below under the heading "Cash Received Instead of a Fractional Share of
Lockheed Martin Common Stock." The aggregate adjusted tax basis in the shares
of Lockheed Martin common stock you receive in the merger will be equal to your
aggregate adjusted tax basis in the shares of COMSAT common stock you surrender
in the merger. Your holding period for the shares of Lockheed Martin common
stock you receive in the merger will include your holding period for the shares
of COMSAT common stock you surrender in the merger.
Exchange of Shares of COMSAT Common Stock in the Tender Offer and the Forward
Merger. If the tender offer and the forward merger are treated as a single
integrated transaction and you surrender some of your shares of COMSAT common
stock in exchange for cash in the tender offer and the remainder of your shares
of COMSAT common stock in exchange for shares of Lockheed Martin common stock
in the merger, you will not recognize loss but will recognize gain, if any, in
an amount equal to the lesser of:
(1) the excess, if any, of the sum of the amount of cash you receive in
the tender offer and the fair market value of the shares of Lockheed Martin
common stock you receive in the merger over your adjusted tax basis in the
shares of COMSAT common stock you surrender in the tender offer and the
merger, or
(2) the amount of cash you receive in the tender offer.
If you receive a combination of cash and shares of Lockheed Martin common
stock in the tender offer and the forward merger, it is anticipated that, in
most circumstances, any gain you recognize will be treated as capital gain.
However, if your receipt of the cash has the effect of a dividend distribution
for U.S. federal income tax purposes, your recognized gain will be treated as
ordinary dividend income. The analysis of whether your receipt of cash has the
effect of a dividend distribution is based on very complicated rules and will
depend on your particular circumstances. You should consult your own tax
advisors for a full understanding of these rules and the tax consequences to
you of the receipt of cash in the transaction.
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If you exchange your shares of COMSAT common stock for a combination of cash
and Lockheed Martin common stock in the tender offer and the forward merger,
your aggregate adjusted tax basis in the shares of Lockheed Martin common stock
you receive will be the same as your aggregate adjusted tax basis in the shares
of COMSAT common stock you surrender in the tender offer and the merger,
decreased by the amount of cash you receive and increased by the amount of gain
you recognize, if any, including any portion of that gain which is treated as a
dividend. Your holding period for the shares of Lockheed Martin common stock
you receive in the merger will include your holding period for the shares of
COMSAT common stock you surrender in the merger.
Cash Received Instead of a Fractional Share of Lockheed Martin Common
Stock. If you currently own a fractional share of COMSAT common stock, you will
receive cash in the merger in exchange for your fractional COMSAT share instead
of a fractional share of Lockheed Martin common stock. You will be treated as
having received the cash in redemption of the fractional share, and you will
recognize gain or loss in an amount equal to the difference between the amount
of cash you receive for the fractional share and the portion of your adjusted
tax basis in your shares of COMSAT common stock allocable to the fractional
share.
Tax Consequences to You if the Tender Offer and the Forward Merger are Treated
as Separate Transactions.
If, notwithstanding Lockheed Martin's intended treatment of the tender offer
and the merger, the tender offer and the forward merger are not integrated and
instead are treated as separate transactions for U.S. federal income tax
purposes, the forward merger will qualify as a reorganization within the
meaning of Section 368(a) of the Internal Revenue Code. In such case, you will
not recognize any gain or loss on the exchange of your shares of COMSAT common
stock for shares of Lockheed Martin common stock received in the merger. You
will recognize gain or loss, however, to the extent you receive cash instead of
a fractional share of Lockheed Martin common stock, as discussed above under
the heading "Cash Received Instead of a Fractional Share of Lockheed Martin
Common Stock." The aggregate adjusted tax basis in the Lockheed Martin common
stock you receive in an exchange pursuant to the merger will be equal to your
aggregate adjusted tax basis in the shares of COMSAT common stock you surrender
in the merger. Your holding period for the shares of Lockheed Martin common
stock you receive in the merger will include your holding period for the shares
of COMSAT common stock you surrender in the merger.
Tax Consequences to You if the Merger is Effected as a Reverse Merger.
Tender Offer and Reverse Merger as an Integrated Transaction. If the tender
offer and the merger are integrated and the merger is effected as a reverse
merger, Lockheed Martin intends to treat the reverse merger as not qualifying
as a reorganization within the meaning of Section 368(a) of the Internal
Revenue Code. As a result, your receipt of cash in the tender offer and shares
of Lockheed Martin common stock pursuant to the reverse merger will constitute
a sale or exchange upon which you will recognize gain or loss, and a Form 1099-
B will be issued to you. The amount of the gain or loss you will recognize will
equal the difference between the sum of the amount of cash and the fair market
value of the shares of Lockheed Martin common stock you receive and your
adjusted tax basis in the shares of COMSAT common stock you surrender in the
tender offer and the merger.
Tender Offer and Reverse Merger as Separate Transactions. If, notwithstanding
Lockheed Martin's intended treatment of the tender offer and the merger, the
tender offer and the merger are not integrated, and instead are treated as
separate transactions for U.S. federal income tax purposes, and the merger is
effected as a reverse merger, the reverse merger may qualify as a
reorganization within the meaning of Section 368(a) of the Internal Revenue
Code, in which case the treatment would be the same as discussed above under
the heading "Tax Consequences to You if the Tender Offer and the Forward Merger
are Treated as Separate Transactions."
44
Characterization of Gain or Loss.
The gain or loss, if any, you recognize in the merger will be capital gain
or loss. If, as of the date of the merger, you have held the shares of COMSAT
common stock you surrender for more than one year, that capital gain will be
long-term. The amount of any gain or loss you recognize and its character as
short-term or long-term will be calculated and determined separately for each
identifiable block of shares of COMSAT common stock you surrender in the
merger.
Tax Consequences to COMSAT of the Merger.
While the tax consequences of the tender offer and the merger to you depend
on the structure and characterization of the transactions, under any structure
or characterization of the transactions, COMSAT will not recognize gain or loss
as a result of the merger.
You are urged to consult your own tax advisors to determine the specific tax
consequences to you of the merger, including any federal, state, local, foreign
or other tax consequences, and any tax return filing or other tax reporting
requirements.
Regulatory Approvals
Antitrust.
Under the HSR Act and the rules of the Federal Trade Commission and the
Department of Justice, the tender offer and the merger may not be completed
unless specific information has been furnished to the Department of Justice and
the Federal Trade Commission and waiting period requirements have been
satisfied.
The Federal Trade Commission has informed Lockheed Martin that it intends to
consider the merger of COMSAT Government Systems with Regulus, the tender offer
and the merger as a single integrated merger transaction, requiring Lockheed
Martin and COMSAT to each file only one notification and report form for the
entire transaction. On November 17, 1998, Lockheed Martin and COMSAT each filed
the required notification and report forms for the merger and related
transactions with the Federal Trade Commission and the Department of Justice.
The Department of Justice has asserted jurisdiction over the matter and is
reviewing the transaction. As a result of these filings, the waiting period was
scheduled to expire on December 17, 1998. On December 17, 1998, Lockheed Martin
and COMSAT each received requests for additional information from the
Department of Justice extending the waiting period until the 20th calendar day
after Lockheed Martin and COMSAT substantially comply with the requests, unless
they otherwise resolve the matter with the Department of Justice and thereby
terminate the waiting period. Lockheed Martin and COMSAT have furnished
additional information to the Department of Justice, but have not substantially
complied with the request for additional information. After Lockheed Martin and
COMSAT substantially comply with the requests for additional information, the
waiting period may be extended only by court order.
Lockheed Martin has negotiated terms with the Department of Justice which
could form the basis of a consent order that would resolve the Department of
Justice's review process. The most significant term negotiated is that any
consent order would require the divestiture of Lockheed Martin's interest in
Loral Space & Communications Ltd. over a two-year period after the tender offer
is completed. Lockheed Martin has stated that a condition to its willingness to
enter into such a consent order is that Lockheed Martin must obtain binding
assurances from Loral Space satisfactory to Lockheed Martin that Loral Space
will support Lockheed Martin's proposed divestiture on the terms and conditions
and within the time periods required by any consent order, including but not
limited to, by making any required filings with the SEC. We do not know when or
if Lockheed Martin will reach definitive agreements with the Department of
Justice or Loral Space. Further, if such agreements are reached, the consent
order reflecting these agreements must be approved by a federal district court.
We do not know whether this will occur.
45
As a result of the merger, Lockheed Martin will acquire COMSAT's minority
equity interests in New Skies Satellites, N.V. and Inmarsat. It is likely that
Lockheed Martin will be required to file separate notification and report forms
with respect to these acquisitions prior to completing the merger.
Lockheed Martin or COMSAT may agree to not close the merger, even if the
waiting period were to expire, to allow the Department of Justice additional
time to review the transaction. In addition, the merger agreement provides that
Lockheed Martin is not required to agree to divest any of its businesses or
assets or agree to any other restrictions if the Lockheed Martin Board of
Directors determines in good faith that such agreement is not in the best
interests of Lockheed Martin. Lockheed Martin will not complete the tender
offer unless and until the waiting period requirements imposed by the HSR Act
have expired or been terminated. If any of the transactions contemplated by the
merger agreement have not occurred within one year after the HSR Act waiting
period expires or is terminated, Lockheed Martin and COMSAT must re-file
notification and report forms with the Federal Trade Commission and the
Department of Justice with respect to the transactions that have not been
completed in the one-year period, and a new HSR Act waiting period and review
process will begin from the date the filings are made.
At any time before or after the completion of the tender offer or the
merger, the Federal Trade Commission or the Department of Justice can challenge
the tender offer or the merger and take any action under the antitrust laws as
either deems necessary or desirable in the public interest. Private parties and
state attorneys general may also bring legal action under federal or state
antitrust laws under certain circumstances.
In September and October of 1998, Lockheed Martin and COMSAT analyzed
whether the merger and related transactions required pre-merger filings under
the European Union's merger notification regulations. Under the regulations, a
pre-merger filing is required if each of the parties derives revenues from
sales in the European Union in excess of certain thresholds. Based on their
analysis, Lockheed Martin and COMSAT determined that, although Lockheed
Martin's revenues from sales in the European Union were sufficient to require a
filing, COMSAT's revenues were not. As a result, the parties did not make a
European Union pre-merger filing.
The European Commission's Merger Task Force has made inquiries to Lockheed
Martin Global Telecommunications requesting information to enable the Merger
Task Force to evaluate whether the merger and related transactions required a
pre-merger filing. Lockheed Martin and COMSAT have responded to the requests
and remain of the opinion that a European Union pre-merger filing is not
required.
Pre-merger filings are required in Germany and Turkey, and a post-merger
filing is required in Brazil. Lockheed Martin and COMSAT filed their pre-merger
notifications in Germany and Turkey on May 25, 1999 and June 23, 1999,
respectively. On June 23, 1999, Lockheed Martin and COMSAT received a letter
from the German Federal Cartel Office stating that the transaction was not
prohibited under German law, and therefore may be completed. On July 13, 1999,
Lockheed Martin and COMSAT received a letter from the Turkish Competition Board
requesting additional information relating to COMSAT's business activities in
Turkey. COMSAT is in the process of compiling data to respond to the request.
FCC Approvals.
Before the tender offer can close, Regulus must become a common carrier and
be authorized by the FCC to acquire a non-controlling interest of up to 49% of
COMSAT common stock as an authorized carrier. To facilitate Regulus becoming an
authorized carrier, Lockheed Martin and COMSAT have entered into the carrier
acquisition agreement which provides for the merger of COMSAT Government
Systems into Regulus. As a result of this merger, Regulus will succeed to
COMSAT Government Systems' FCC common carrier authorizations.
The FCC must approve the transfer of control of COMSAT Government Systems
before its merger with Regulus can occur. The FCC must also authorize Regulus
to acquire a non-controlling interest of up to 49% of COMSAT common stock as an
authorized carrier. On October 16, 1998, Lockheed Martin, Regulus and COMSAT
filed the relevant applications with the FCC. The FCC requires that the parties
show that the grant of the applications is consistent with the public interest,
convenience and necessity and that the applicant is
46
qualified to hold these licenses and authorizations. A number of competitors of
COMSAT and other communications common carriers have filed petitions with the
FCC in opposition to these applications or petitions to impose conditions on
the grant of the applications which could have a significant adverse effect on
COMSAT.
Lockheed Martin expects that, following the amendment of the Satellite Act,
Lockheed Martin, Regulus and COMSAT will be required to apply to the FCC for
the authority to transfer control of COMSAT, in a process similar to the
applications submitted by Lockheed Martin and Regulus with respect to the
transfer of control of COMSAT Government Systems. This process generally takes
several months. The precise nature of any approval requirement will, however,
depend upon the details of any amendment to the Satellite Act. We do not know
when or if the relevant provisions of the Satellite Act will be amended, or
when or if the requisite FCC approvals will be obtained to permit the
completion of the merger.
Satellite Act Amendment.
Until Congress amends the Satellite Act, no one may own more than 50% of the
outstanding shares of COMSAT common stock. The Satellite Act provides that only
those common carriers that are authorized carriers may, in the aggregate, own a
maximum of 50% of the outstanding shares of COMSAT common stock and that no
shareholder or group of shareholders, other than an authorized carrier, may own
more than 10% of the outstanding shares of COMSAT common stock. The Satellite
Act also provides that, upon application to the FCC, and after notice and
hearing, the FCC may compel any authorized carrier that owns shares of COMSAT
common stock to transfer to the applicant, for fair and reasonable
consideration, the number of shares that the FCC determines will advance the
public interest and the purposes of the Satellite Act.
In addition, until the amendment of the Satellite Act, Lockheed Martin and
Regulus are prohibited from voting the shares of COMSAT common stock acquired
in the tender offer for more than three candidates for the COMSAT Board of
Directors. It is anticipated that Messrs. Bennett and Hurtt, each of whom is on
Lockheed Martin's Board of Directors, and each of whom also currently serves on
COMSAT's Board of Directors in an individual capacity and not as a
representative of Lockheed Martin, will serve as two of these three candidates.
The Satellite Act states that the COMSAT Board of Directors must consist of 15
persons, 12 of whom are elected annually by COMSAT shareholders and three of
whom are appointed for three-year terms by the President of the United States,
with the advice and consent of the Senate. The Satellite Act also provides that
authorized carriers may separately elect up to six directors depending on the
amount of COMSAT common stock held by the authorized carriers. However, if
authorized carriers are entitled to separately elect directors, no single
authorized carrier may vote for more than three directors.
Lockheed Martin and COMSAT have agreed to use all reasonable efforts to seek
the amendment of the Satellite Act and any other applicable law that would
prohibit or limit the ability of Lockheed Martin to:
. acquire and own the securities of COMSAT,
. appoint all of the officers and directors of COMSAT following the
merger, and
. complete the transactions contemplated by the merger agreement.
On July 1, 1999, the Senate passed satellite legislation entitled "Open-
market Reorganization for the Betterment of International Telecommunications
(ORBIT) Act" (S. 376) sponsored by Senator Conrad Burns, Chairman of the
Subcommittee on Communications of the Senate Commerce Committee. The ORBIT
legislation would:
. repeal the ownership restrictions on COMSAT common stock upon enactment,
. prohibit government-imposed cancellation of COMSAT's customer contracts,
and
. eliminate any privilege or immunity enjoyed by COMSAT based on its
status as signatory to INTELSAT for actions after the date of enactment,
except for actions taken by COMSAT upon instruction of the U.S.
government or due to treaty obligations.
47
The ORBIT legislation also would establish as U.S. policy the goal of
privatization of INTELSAT no later than January 1, 2002, and would prohibit
INTELSAT from direct access to the U.S. retail market until the earlier of
INTELSAT privatization or July 1, 2001. If the January 1, 2002 privatization
target were not met, the United States would be required, among other measures,
to withdraw from INTELSAT, but the President would have discretion to extend
the privatization deadline.
The House of Representatives is also expected to consider satellite
legislation this year. Satellite legislation, however, has not yet been
introduced in the House. We cannot predict whether and to what extent
legislation will be passed by the House, or whether or in what form legislation
will be enacted into law.
Appraisal Rights
Section 29-373 of the District of Columbia Business Corporation Act provides
that you may exercise dissenters' rights. The following is a summary of the
principal steps that you must take to perfect your dissenters' rights under
that statute. You should also read Section 29-373 of the District of Columbia
Business Corporation Act, a copy of which is attached as Appendix II to this
proxy statement/prospectus. If you are considering exercising your dissenters'
rights, you should consult an attorney. Your dissenters' rights will be lost if
the procedural requirements under that statute are not fully and precisely
satisfied. To perfect your dissenters' rights, you must satisfy each of the
following conditions:
(1) File Written Objection and Do Not Vote in Favor of the Merger
Proposal. You must file with COMSAT before the annual meeting a written
objection to the merger. A vote against the merger will not satisfy the
requirement that a written objection be made to COMSAT. Your written
objection should be delivered to COMSAT at 6560 Rock Spring Drive,
Bethesda, Maryland 20817, Attention: Corporate Secretary.
. In addition, you must not vote your shares in favor of the merger
at the annual meeting. This requirement will be satisfied if:
(a) a proxy is signed and returned with instructions to vote
against the merger or to abstain from this vote,
(b) no proxy is returned and no vote is cast at the annual
meeting in favor of the merger, or
(c) you revoke a proxy, and thereafter abstain from voting
with respect to the merger or vote against the merger at the
annual meeting.
. A vote in favor of the merger at the annual meeting constitutes a
waiver of your dissenters' rights. A proxy that is returned
signed, but on which no voting preference is indicated, will be
voted in favor of the merger and will constitute a waiver of your
dissenters' rights.
(2) Filing Written Demand. If you wish to exercise your dissenters'
rights, you must, within 20 days after the completion of the merger, make a
written demand to the corporation surviving the merger for payment of the
fair value of your shares as of the day prior to the date on which the vote
was taken approving the merger. The demand should be delivered to COMSAT at
6560 Rock Spring Drive, Bethesda, Maryland 20817, Attention: Corporate
Secretary. It is recommended, although not required, that your demand be
sent by registered or certified mail, return receipt requested. A vote
against the merger will not itself constitute a demand. COMSAT will not
notify you as to the date on which the 20-day period expires. In exchange
for your dissenting shares, you will be paid the fair value of your
dissenting shares determined in accordance with the procedures under
District of Columbia law. Your demand must state the number and class of
shares owned by you. If you fail to make the demand within the 20-day
period, you will be bound by the terms of the merger.
. If you and the corporation surviving the merger agree on the fair
value of your dissenting shares within 30 days after completion of
the merger, payment for your dissenting shares will be made
48
by the corporation surviving the merger within 90 days after the
completion of the merger. You must surrender your dissenting shares
to receive payment. Upon payment of the agreed value, you will cease
to have any interest in the dissenting shares or in the corporation
surviving the merger.
(3) If There is no Agreement with the Surviving Corporation on the
Value, You Must File a Petition in Court. If, within this 30-day period,
you and the corporation surviving the merger do not agree as to the fair
value of your dissenting shares, then you may file a petition in any
District of Columbia court of competent jurisdiction asking for a finding
and determination of the fair value of your dissenting shares. The
petition must be filed within 60 days after the expiration of the 30-day
period. You will be entitled to judgment against the corporation surviving
the merger for the amount of the fair value of your dissenting shares as
of the day before the date on which the vote was taken approving the
merger. Accrued interest at a rate of 5% per annum to the date of the
judgment will also be paid. You must surrender to the corporation
surviving the merger your certificates representing your dissenting shares
to receive payment. Upon payment of the judgment, you will cease to have
any interest in your dissenting shares or in the corporation surviving the
merger. District of Columbia law provides that, unless you file a petition
within the required time limits, you will be bound by the terms of the
merger.
Resale Restrictions
All shares of Lockheed Martin common stock received by you in the merger
will be freely transferable, except that shares of Lockheed Martin common
stock received by persons who are considered to be COMSAT's "affiliates" under
the Securities Act at the time of the annual meeting may be resold by them
only in transactions permitted by the resale provisions of Rule 145 under the
Securities Act or as otherwise permitted under the Securities Act. Persons who
may be considered to be affiliates of COMSAT generally include individuals or
entities that control, are controlled by, or are under common control with,
COMSAT and may include certain officers and directors of COMSAT, as well as
principal shareholders of COMSAT. The merger agreement requires COMSAT to
exercise its reasonable efforts to cause each of its affiliates to execute a
written agreement to the effect that such person will not offer to transfer
any of the shares of Lockheed Martin common stock issued to such person in the
merger unless:
(a) the transfer has been registered under the Securities Act,
(b) the transfer is made in conformity with Rule 145 under the
Securities Act, or
(c) in the opinion of counsel or pursuant to a "no-action" letter
obtained from the SEC by such person, the transfer is exempt from
registration under the Securities Act.
COMSAT has agreed to use all reasonable efforts to obtain agreements from its
affiliates not to engage in any of these transactions.
49
THE MERGER AGREEMENT
We believe this summary describes all material terms of the merger
agreement. However, we recommend that you read the merger agreement. The merger
agreement is included in the document as Appendix I.
The Tender Offer
On September 25, 1998, Regulus commenced a tender offer to purchase a non-
controlling interest of up to 49% of the outstanding shares of COMSAT common
stock at a price of $45.50 per share. As soon as legally permissible, Regulus
will pay for all shares of COMSAT common stock validly tendered and not
withdrawn, subject to proration, if applicable. The tender offer is currently
scheduled to expire on August 31, 1999 but will be extended, as necessary,
until September 18, 1999.
Conditions to the Tender Offer
Regulus is not required to complete the tender offer unless:
. any waiting period under the antitrust laws has expired and all required
consents or approvals under the antitrust laws have been received;
. at least one-third of the outstanding shares of COMSAT common stock has
been tendered;
. the COMSAT shareholders have approved the merger and the merger
agreement;
. Lockheed Martin and Regulus have received all necessary approvals from
the FCC to acquire COMSAT Government Systems;
. Regulus has received the FCC's approval to become an authorized carrier
and acquire a non-controlling interest of up to 49% of the shares of
COMSAT common stock in the tender offer;
. Lockheed Martin has the right to vote any of the shares of COMSAT common
stock acquired in the tender offer, subject to the restrictions
contained in the Satellite Act; and
. COMSAT has not materially breached the merger agreement in a way that
would reasonably be expected to materially adversely affect COMSAT.
In addition, Regulus is not required to complete the tender offer if:
. any circumstance exists that would reasonably be expected to have a
material adverse effect on COMSAT;
. there is a general suspension of trading in securities on the New York
Stock Exchange, other than intraday trading halts;
. a banking moratorium is declared or any payments in respect of banks in
the U.S. are suspended;
. armed hostilities or any other calamity involving the U.S. occurs that
would reasonably be expected to have a material adverse effect on COMSAT
or would reasonably be expected to materially adversely affect or
materially delay the completion of the tender offer, or a material
acceleration, escalation or worsening of these conditions as they
existed on September 25, 1998;
. any limitation is imposed by any U.S. governmental authority that
materially adversely affects the extension of credit by financial
institutions generally;
. the Standard & Poor's 500 Index declines to 744.06 or below through any
day before the termination or expiration of the tender offer and is at
or below 744.06 on the earlier of:
(a) the close of trading on the next trading date at least 30 calendar
days from the day through which the index initially declined to
744.06, or
50
(b) the close of trading on the trading date immediately before the
date on which the tender offer would otherwise expire;
. before the purchase of shares in the tender offer, the COMSAT Board of
Directors:
(a) recommends an acquisition proposal by a third party that is
superior to the merger agreement,
(b) withdraws, modifies or materially qualifies in a manner adverse to
Lockheed Martin its support of the tender offer, the merger or the
merger agreement,
(c) recommends another offer to you, or
(d) adopts any resolution to effect any of these events that makes it
inadvisable for Regulus to accept the shares of COMSAT common stock
for payment; or
. the merger agreement is terminated.
Subject to compliance with laws, Lockheed Martin may, if it chooses to,
waive any condition in whole or in part at any time.
Employee Benefits
In the merger, Lockheed Martin will assume all outstanding options granted
under COMSAT's stock option plans for employees and directors of COMSAT. Each
option outstanding at the date the merger is completed will fully vest and
become an option to acquire, on the same terms and conditions, the number of
shares of Lockheed Martin common stock that the holder of that option would
have been entitled to receive in the merger had the holder exercised that
option in full immediately before the date the merger is completed. Lockheed
Martin has agreed to file a registration statement on Form S-8 to register the
shares of Lockheed Martin common stock issuable upon the exercise of the
outstanding COMSAT options and reserve for issuance sufficient shares of
Lockheed Martin common stock to provide for the exercise of these options.
For at least one year following the date the merger is completed, Lockheed
Martin will provide each COMSAT employee with qualified plan and employee
welfare plan benefits, other than plans provided exclusively to management,
that are comparable in total to the qualified plan and welfare plan benefits
provided to COMSAT employees immediately before the date the merger is
completed. As of that date, Lockheed Martin will assume and will cause the
corporation surviving the merger to assume specified COMSAT benefit plans.
Exchange Procedures
Lockheed Martin will appoint an exchange agent reasonably acceptable to
COMSAT before the date the merger is completed. On that date, Lockheed Martin
will deposit with the exchange agent certificates representing shares of
Lockheed Martin common stock that will be issued to you in exchange for your
certificates of COMSAT common stock. After the completion of the merger, the
exchange agent will send you a letter. The letter will contain instructions on
how to surrender your COMSAT stock certificates to the exchange agent and
receive your certificates for Lockheed Martin common stock and, if applicable,
cash for your fractional shares. You should not send in your COMSAT stock
certificates until you receive a letter from the exchange agent.
You will not be entitled to receive any dividends on shares of Lockheed
Martin common stock until you exchange your COMSAT stock certificates for
Lockheed Martin stock certificates. After you deliver your COMSAT stock
certificates to the exchange agent, you will, subject to applicable laws,
receive any accumulated dividends or distribution less the amount of any
withholding taxes, without interest.
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Interim Operations
Until the merger is completed, COMSAT has agreed to generally conduct its
business in the ordinary course. COMSAT will use commercially reasonable
efforts to:
. preserve intact its business organization and goodwill;
. maintain satisfactory relationships with those persons having business
relationships with it; and
. keep available its officers' and employees' services.
Until the merger is completed, subject to specified exceptions which
generally permit COMSAT to conduct its business in the ordinary course, COMSAT
will not take specific actions without Lockheed Martin's consent, including the
following:
. changing governing documents;
. issuing securities and paying dividends;
. pledging or encumbering shares of capital stock;
. executing or amending employment agreements with directors or executive
officers;
. executing or amending employee compensation and benefit plans;
. disposing of or acquiring material lines of business or assets;
. making material tax elections and settling tax liabilities;
. making or committing to make capital expenditures, guarantees and loans;
. changing accounting methods;
. paying material liabilities;
. adopting plans of liquidation, merger, or other material
reorganizations; and
. taking any action that would make any representation or warranty of
COMSAT in the merger agreement untrue as of the date the merger is
completed.
In addition, other than actions taken by COMSAT as instructed by U.S.
governmental authorities or otherwise taken in good faith, in relation to its
investment in INTELSAT and Inmarsat, COMSAT has agreed not to:
. dispose of its interests in INTELSAT or Inmarsat;
. enter into an agreement to vote any of its interests in INTELSAT or
Inmarsat that would be binding on Lockheed Martin or COMSAT following
the merger;
. enter into any lock-up, standstill or other similar agreement with
respect to its interests in INTELSAT or Inmarsat that would be binding
on Lockheed Martin or COMSAT following the merger, except in connection
with an initial public offering by INTELSAT, Inmarsat or New Skies
Satellites, N.V.; or
. take, or fail to take, any other action that would reasonably be
expected to materially impair its interests in INTELSAT or Inmarsat.
No Solicitation
COMSAT has agreed to, and has agreed to cause its officers, directors,
employees, consultants and other advisors to:
. cease discussions or negotiations with any person with respect to any
acquisition proposal;
52
. not solicit or initiate, or knowingly encourage the submission of, any
acquisition proposal; and
. not participate in any discussions or negotiations regarding, or give to
any person other than Lockheed Martin or its representatives or
affiliates, any information that may reasonably be expected to lead to
an acquisition proposal.
If before the annual meeting, the COMSAT Board of Directors determines in
good faith, that it must do so to comply with its fiduciary duties to COMSAT
shareholders, the COMSAT Board of Directors may permit COMSAT to respond to an
unsolicited acquisition proposal by furnishing nonpublic information concerning
COMSAT and by participating in discussions or negotiations regarding that
acquisition proposal.
The term "acquisition proposal" means any proposal or offer from any third
party:
. to acquire assets of COMSAT with a value equal to more than 10% of
COMSAT's market capitalization;
. for a tender offer or exchange offer that, if completed, would result in
any person beneficially owning more than 10% of COMSAT's common stock;
or
. for a merger, consolidation, business combination, sale of all or
substantially all the assets, recapitalization, liquidation, dissolution
or similar transaction involving COMSAT.
COMSAT has agreed that the COMSAT Board of Directors will not:
. withdraw, modify or qualify, in a manner adverse to Lockheed Martin, its
support of the tender offer, the merger or the merger agreement;
. approve or recommend any acquisition proposal;
. enter into any agreement with respect to any acquisition proposal; or
. publicly propose to take any of the above actions.
However, if before the annual meeting, the COMSAT Board of Directors
determines in good faith, that it must do so to comply with its fiduciary
duties to COMSAT shareholders, the COMSAT Board of Directors may terminate the
merger agreement to concurrently enter into a definitive agreement to effect a
superior proposal.
A "superior proposal" must be a proposal or offer from a third party to
acquire more than 50% of the then outstanding shares of COMSAT common stock or
all the assets of COMSAT. When considering this proposal, the COMSAT Board of
Directors must determine, based on the advice of a financial advisor, that the
superior proposal is more favorable to you than the tender offer and the merger
and has committed financing, to the extent required, or is reasonably capable
of being financed by that person.
COMSAT must advise Lockheed Martin if COMSAT receives any acquisition
proposal, a request for information or an inquiry that could lead to or is
related to any acquisition proposal, the identity of the person making the
request or acquisition proposal and the material terms of any acquisition
proposal. COMSAT must keep Lockheed Martin fully informed of the status and
terms of any request or acquisition proposal unless the COMSAT Board of
Directors determines in good faith that it should not do so to comply with its
fiduciary duties to COMSAT shareholders.
Reasonable Efforts to Complete the Tender Offer and the Merger
Lockheed Martin and COMSAT have agreed to use all reasonable efforts to
complete the tender offer and the merger. This obligation includes cooperating
and using reasonable efforts to promptly make all filings and obtain all
consents and approvals of governmental authorities and other persons necessary
to complete the
53
transactions and to resolve any objections that may be asserted under any
antitrust law or any other applicable law.
If any person initiates, or threatens to initiate, a proceeding or other
action challenging any transaction contemplated by the merger agreement as
violative of any law, Lockheed Martin and COMSAT will cooperate to contest the
proceeding, and to have reversed any decision or other official action of any
governmental authority that restricts completion of any transaction
contemplated by the merger agreement, including pursuing all reasonable avenues
of appeal. But:
. in no event is Lockheed Martin required to agree to hold separate or to
divest any of its businesses or assets, or agree to any other
restriction or condition with respect to the acquisition, ownership,
conduct or operation of any of its businesses or assets, or following
the completion of the tender offer or the merger, of COMSAT; and
. except for seeking review by the full FCC of any staff decision denying
an application to permit the transfer of control of COMSAT Government
Systems to Regulus, to cause Regulus to become an authorized carrier or
to complete the tender offer, Lockheed Martin is not required to contest
an action or pending legal proceeding or take any other action if, after
taking into account advice of independent counsel, the Lockheed Martin
Board of Directors determines in good faith that any contest or other
action is not in the best interests of Lockheed Martin.
Directors' and Officers' Insurance; Indemnification
Lockheed Martin has agreed to cause the corporation surviving the merger to
indemnify the present and former officers, directors, employees and agents of
COMSAT against all losses related to actions or omissions or alleged actions or
omissions occurring at or before the date the merger is completed on the same
terms as COMSAT's articles of incorporation and bylaws and agreements in effect
on September 18, 1998 subject to applicable law on the date the merger is
completed.
For a six-year period after the merger, Lockheed Martin will use reasonable
efforts to maintain the current policies of directors' and officers' liability
insurance maintained by COMSAT with respect to claims arising from or events
that occurred at or before the date the merger is completed. Lockheed Martin
will not be obligated to make annual premium payments for any insurance to the
extent the premiums exceed 150% of the annual premiums paid by COMSAT for this
insurance as of September 18, 1998. Lockheed Martin may substitute policies
with at least the same coverage and amounts containing terms and conditions
that are no less advantageous in the aggregate.
Conditions to the Merger
COMSAT and Lockheed Martin are not obligated to complete the merger unless:
. the tender offer has been completed;
. the Satellite Act and other applicable laws have been amended, and all
applicable proceedings before all governmental authorities have been
completed, to permit the merger;
. any waiting period under antitrust laws has terminated or expired, and
all consents or approvals required under antitrust laws have been
received;
. the shares of Lockheed Martin common stock to be issued in the merger
have been approved for listing on the New York Stock Exchange;
. the registration statement relating to this proxy statement/prospectus
has been declared effective by the SEC, no stop order suspending its
effectiveness has been issued and no proceedings for that purpose have
been initiated or threatened; and
54
. the merger and the merger agreement have been approved by COMSAT
shareholders.
In addition, Lockheed Martin is not obligated to complete the merger if:
. all consents and approvals required for the completion of the merger
have not been granted, except where the failure to obtain these consents
or approvals would not reasonably be expected to have a significant
adverse effect on COMSAT; and
. there occurs any event that has had or would reasonably be expected to
have a significant adverse effect on COMSAT.
COMSAT and Lockheed Martin will not be required to complete the merger as a
forward merger, unless the following conditions are satisfied. If the following
conditions are not satisfied, but the conditions set forth in the above
paragraphs are satisfied, the merger will be completed as a reverse merger, and
as a result the merger will be taxable to you:
. the value of the shares of Lockheed Martin common stock deliverable in
the merger must constitute no less than 40% of the consideration
received by COMSAT shareholders in the tender offer and the merger;
. COMSAT and Lockheed Martin must receive tax opinions from their
respective counsel to the effect that the forward merger will constitute
a "reorganization" within the meaning of Section 368(a) of the Internal
Revenue Code; and
. COMSAT and Lockheed Martin must receive all required consents or
approvals necessary to permit the completion of the forward merger,
except where the failure to obtain these consents or approvals would not
reasonably be expected to have a material adverse effect on COMSAT.
A "material adverse effect" is any change or effect that is materially
adverse to:
. the business, properties, operations, results of operations or financial
condition of COMSAT other than any effects or changes arising out of,
resulting from or relating to general economic, financial or industry
conditions; or
. the ability of COMSAT to perform its obligations under the merger
agreement and the carrier acquisition agreement.
A "significant adverse effect" is a material adverse effect on COMSAT of
such seriousness and significance that a reasonable businessperson in similar
circumstances would not proceed with the merger on the terms and conditions set
forth in the merger agreement. In determining whether a change or event has a
material adverse effect that would constitute a significant adverse effect,
effects or changes relating to general economic, financial or industry
conditions are considered.
Representations and Warranties
COMSAT has made customary representations and warranties to Lockheed Martin
about its organization, capitalization, financial statements, public filings,
conduct of business, compliance with laws, litigation, noncontravention,
consents and approvals, opinion of financial advisors, undisclosed liabilities
and the absence of certain changes with respect to COMSAT since June 30, 1998.
Lockheed Martin has made customary representations and warranties to COMSAT
about its organization, capitalization, financial statements, public filings,
noncontravention, consents and approvals, opinion of financial advisors and the
absence of certain changes with respect to Lockheed Martin since June 30, 1998.
55
Termination; Termination Fees
Termination by Either COMSAT or Lockheed Martin.
COMSAT and Lockheed Martin may terminate the merger agreement and abandon
the tender offer and the merger by mutual written consent. Either party may
also terminate the merger agreement if:
(1) any U.S. court or other U.S. governmental authority permanently
prohibits the completion of the tender offer or the merger;
(2) COMSAT shareholders do not approve the merger by September 18, 1999;
or
(3) the merger has not occurred by September 18, 2000, so long as the
party seeking to terminate has not materially breached the merger
agreement.
Termination by COMSAT.
COMSAT may also terminate the merger agreement if:
(1) COMSAT has not materially breached the merger agreement, and
Lockheed Martin:
. terminates the tender offer without purchasing COMSAT common
stock; or
. fails to acquire COMSAT common stock in the tender offer by
September 18, 1999;
(2) before Lockheed Martin acquires COMSAT common stock in the tender
offer, the COMSAT Board of Directors determines to accept an acquisition
proposal that is a superior proposal and approves an agreement relating to
it, or adopts such a resolution; however, the merger agreement will not
terminate until COMSAT pays the required termination fee; or
(3) before Lockheed Martin acquires COMSAT common stock in the tender
offer, Lockheed Martin breaches the merger agreement in a way that would
reasonably be expected to materially adversely affect, or materially delay,
the completion of the tender offer.
Termination by Lockheed Martin.
Lockheed Martin may also terminate the merger agreement if:
(1) Lockheed Martin has not materially breached the merger agreement
and, because a condition to Lockheed Martin's obligation to acquire COMSAT
common stock in the tender offer has not been satisfied or waived, Lockheed
Martin:
. terminates the tender offer without purchasing COMSAT common
stock; or
. fails to accept COMSAT common stock in the tender offer by
September 18, 1999;
(2) before Lockheed Martin acquires COMSAT common stock in the tender
offer:
. COMSAT breaches the merger agreement in a way that would
reasonably be expected to materially adversely affect, or
materially delay, the completion of the tender offer;
. the COMSAT Board of Directors:
(a) determines that an acquisition proposal is a superior
proposal,
(b) withdraws, modifies or materially qualifies in a manner
adverse to Lockheed Martin its support for the tender
offer, the merger or the merger agreement,
(c) recommends another acquisition proposal to COMSAT
shareholders, or
(d) adopts a resolution to effect any of the above; or
56
. at least one-third of the COMSAT common stock is not tendered by
the expiration of the tender offer and someone other than
Lockheed Martin commences, publicly proposes or publicly
discloses an acquisition proposal.
Termination Fees.
COMSAT must pay Lockheed Martin a $75 million termination fee if the merger
agreement is terminated by either COMSAT or Lockheed Martin because:
(1) at least one-third of the COMSAT common stock is not tendered by the
expiration of the tender offer and someone other than Lockheed Martin
commences, publicly proposes or publicly discloses an acquisition proposal;
or
(2) COMSAT shareholders do not approve the merger by September 18, 1999;
and, within 12 months after that date:
. COMSAT enters into an agreement with respect to or completes
another acquisition proposal with a third party:
(a) with whom COMSAT discussed an acquisition proposal after
September 18, 1998 and before termination of the merger
agreement,
(b) to whom COMSAT furnished information with respect to an
acquisition proposal after September 18, 1998 and before
termination of the merger agreement, or
(c) who had commenced, publicly proposed or publicly
disclosed an acquisition proposal, or expressed to
COMSAT interest in an acquisition proposal, after
September 18, 1998 and before termination of the merger
agreement.
If COMSAT decides to accept an acquisition proposal that is a superior
proposal and approves an agreement relating to it, or adopts such a resolution,
and terminates the merger agreement before Lockheed Martin acquires COMSAT
common stock in the tender offer, COMSAT must also pay Lockheed Martin the $75
million termination fee.
Fees and Expenses
Except as specifically provided in the merger agreement or the registration
rights agreement, each party will pay its own expenses in connection with the
merger agreement and related transactions. However, if the termination fee is
payable, COMSAT agrees to promptly reimburse Lockheed Martin for up to $5
million of its expenses.
Other Transaction Documents
The following are summaries of several agreements executed in connection
with the merger agreement. We believe these summaries describe all material
terms of each of these agreements. However, we recommend that you read each
agreement. These agreements are incorporated in this proxy statement/prospectus
by reference from the exhibits to COMSAT's Schedule 14D-9 filed with the SEC on
September 25, 1998.
Confidentiality Agreements.
COMSAT and Lockheed Martin executed separate confidentiality agreements,
each dated as of August 5, 1997. The confidentiality agreements contain
customary provisions under which Lockheed Martin and COMSAT agreed to keep
confidential all nonpublic, confidential or proprietary information furnished
to one party by the other, subject to exceptions, and to use confidential
information solely for the purpose of evaluating a possible transaction
involving COMSAT and Lockheed Martin. Lockheed Martin and COMSAT also agreed
that, unless otherwise agreed in writing, neither would for a three-year period
from the agreements'
57
date, acquire or offer to acquire or agree to acquire any securities or assets
of the other party. Lockheed Martin and COMSAT further agreed that, for a two-
year period from the date of the confidentiality agreements, without the prior
written consent of the other party, neither would solicit for employment any of
the current employees of the other party.
Shareholders Agreement.
In connection with the execution of the merger agreement, COMSAT and
Lockheed Martin have executed a shareholders agreement dated as of September
18, 1998 under which promptly, but no more than 30 days after the completion of
the tender offer, until the completion of the merger or until the shareholders
agreement is otherwise terminated, COMSAT agreed to take all actions necessary
to cause:
(a) three individuals selected by Lockheed Martin to become members of
the COMSAT Board of Directors;
(b) the appointment of one of the three individuals selected by Lockheed
Martin to become members of the COMSAT Board of Directors as a member of
each committee of the COMSAT Board of Directors; and
(c) if any Lockheed Martin designee ceases to be a director, the filling
of the vacancy with an individual selected by Lockheed Martin.
Any Lockheed Martin officer or employee serving as a COMSAT director will be
considered a Lockheed Martin designee.
COMSAT further agreed not to amend or repeal the provisions of the COMSAT
bylaws which permit any three directors to call a special meeting of the COMSAT
Board of Directors or to otherwise amend the COMSAT articles of incorporation
or bylaws in any manner that would adversely affect the rights of Lockheed
Martin under either the shareholders agreement or the registration rights
agreement discussed below.
COMSAT also agreed, at Lockheed Martin's request, to cause COMSAT's
directors to adopt resolutions to approve, recommend and submit for shareholder
approval, an amendment to the COMSAT articles of incorporation to eliminate
certain restrictions relating to the transfer of securities.
In addition, Lockheed Martin agreed not to:
(a) purchase more than 49% of the outstanding shares of COMSAT common
stock, unless approved by COMSAT;
(b) transfer its COMSAT shares, except in compliance with applicable law
and upon receipt of any necessary approvals of any governmental authority;
(c) transfer any shares of COMSAT common stock except through a
registered public offering or through an open market "brokers" transaction;
and
(d) solicit proxies in opposition to any matter that has been
recommended by the COMSAT Board of Directors or in favor of any matter that
has not been approved by the COMSAT Board of Directors.
Registration Rights Agreement.
Demand Registration Rights. Lockheed Martin and COMSAT have entered into a
registration rights agreement under which, after the termination of the merger
agreement and assuming the completion of the tender offer, Lockheed Martin has
the right to require COMSAT to prepare and file up to five registration
statements under the Securities Act to register shares of COMSAT common stock
held by Lockheed Martin. However, COMSAT is not required to register less than
3,000,000 shares of COMSAT common stock in the aggregate. In addition if, with
respect to an underwritten offering, the managing underwriter advises against
58
proceeding with an offering because the number of shares of COMSAT common stock
proposed to be included in an offering would adversely affect the offering,
Lockheed Martin can request registration of the maximum number of shares of
COMSAT common stock that it is advised can be sold without adverse effect, so
long as the request relates to 3,000,000 shares or more. Alternatively,
Lockheed Martin may elect not to proceed. If it does so, this will not count as
use of one of the demands. Expenses related to the exercise of this right will
generally be payable by COMSAT.
Piggy-Back Registration Rights. Under the registration rights agreement,
Lockheed Martin also has the right, with respect to any underwritten offerings,
including registered offerings, of COMSAT common stock for cash proposed by
COMSAT, to require COMSAT to include COMSAT common stock held by Lockheed
Martin in an offering and registration, except COMSAT will not be required to
register COMSAT common stock owned by Lockheed Martin in any registration
statement relating to acquisitions or employee benefit plans or filed in
connection with an exchange offer or other offering of securities solely to the
then-existing COMSAT shareholders. Expenses relating to exercises of this right
will generally be payable by COMSAT.
In other respects, the registration rights agreement contains terms that are
customary to registration rights agreements of its type including mutual
indemnification provisions and black-out provisions relating to the prohibition
of the sale of shares of COMSAT common stock for a specified period of time.
Carrier Acquisition Agreement.
To facilitate the completion of the tender offer and the merger, Lockheed
Martin and COMSAT entered into a carrier acquisition agreement with Regulus and
COMSAT Government Systems, under which COMSAT Government Systems will be merged
with Regulus as soon as practicable following the satisfaction or waiver of the
conditions set forth in the agreement, or on another date agreed upon by the
parties, before the completion of the tender offer. At the date the merger of
Regulus and COMSAT Government Systems is completed, Regulus will acquire the
common carrier telecommunications business of COMSAT Government Systems and
COMSAT Government Systems' FCC common carrier authorization.
59
THE COMPANIES
Lockheed Martin
Lockheed Martin was formed in March 1995 by the combination of the
businesses of Martin Marietta Corporation and Lockheed Corporation. Lockheed
Martin's principal executive offices are located at 6801 Rockledge Drive,
Bethesda, Maryland 20817, and its telephone number is (301) 897-6000.
Lockheed Martin is a highly diversified global enterprise principally
engaged in the conception, research, design, development, manufacture,
integration and operation of advanced technology products and services.
Lockheed Martin operates through five business sectors:
. Space & Strategic Missiles sector--designs, develops, manufactures and
integrates space systems, including spacecraft, space launch vehicles,
manned space systems and their supporting ground systems and services,
strategic fleet ballistic missiles and defensive missiles;
. Electronics sector--designs, develops, manufactures and integrates high
performance electronic systems for undersea, shipboard, land, airborne
and space-based applications;
. Aeronautics sector--designs, develops, manufactures and integrates
airlift, tactical and reconnaissance aircraft as well as
surveillance/command, maintenance/modification/logistics and other
development programs;
. Information & Services sector--designs, develops, integrates and
operates large, complex information systems which include command and
control, intelligence, simulation and training and air traffic
management; and provides state and local government transaction
processing, commercial information technology services and performs a
broad range of engineering, science and technology services for federal
government customers; and
. Energy & Environment sector--conducts and operates nuclear operations
management, nuclear materials management and technology-driven
remediation programs.
It is expected that the combined businesses and operations of COMSAT and
Lockheed Martin Global Telecommunications will be a sixth sector.
Deneb Corporation, Lockheed Martin's merger subsidiary
Deneb is a direct, wholly-owned subsidiary of Lockheed Martin which was
incorporated in Delaware for the sole purpose of effecting the merger. It
engages in no other business. Its principal executive offices are at 6801
Rockledge Drive, Bethesda, Maryland 20817, and its telephone number is (301)
897-6000.
COMSAT
COMSAT is a District of Columbia corporation incorporated in 1963. Its
principal executive offices are located at 6560 Rock Spring Drive, Bethesda,
Maryland 20817, and its telephone number is (301) 214-3000.
COMSAT reports operating results and financial data in four business
segments:
. COMSAT World Systems--provides satellite capacity for telephone, data,
Internet, video and audio communications services between the U.S. and
the rest of the world using the global satellite networks of INTELSAT
and New Skies Satellites, N.V. The COMSAT World Systems segment also
includes COMSAT General Corporation, COMSAT Digital Teleport, Inc. and
COMSAT Government Systems, which provide various satellite and ground
segment services to commercial and government customers;
. COMSAT Mobile Communications--provides satellite telecommunications
services for maritime, aeronautical and land mobile applications
primarily using the satellite system of Inmarsat;
. COMSAT International--operates an integrated group of telecommunications
companies that principally provide individualized digital network
solutions and value added services to business clients and carriers in
selected emerging markets; and
. COMSAT Laboratories--provides technical consulting services and develops
advanced communications technologies and products for satellite access
and networking applications.
60
MARKET DATA
Lockheed Martin common stock is listed on the New York Stock Exchange under
the symbol "LMT." COMSAT common stock is listed on the New York Stock Exchange
under the symbol "CQ" and on the Chicago and Pacific Stock Exchanges in the
U.S. and on the Swiss Exchange in Switzerland. On December 31, 1998, Lockheed
Martin effected a two-for-one stock split of its common stock in the form of a
stock dividend, and the information presented below for Lockheed Martin has
been adjusted to reflect this stock split. The table below sets forth, for the
calendar quarters indicated, the high and low sales prices per share reported
on the New York Stock Exchange Composite Tape, and the dividends declared on
Lockheed Martin common stock and on COMSAT common stock, respectively.
Lockheed Martin COMSAT
Common Stock Common Stock
-------------------------------- -----------------------------------
High Low Dividends High Low Dividends
------ ------ --------- ------- ------ ---------
1996:
First Quarter........... $40 7/16 $36 9/16 $0.20 $25 5/8 $16 3/4 $.195
Second Quarter.......... 43 3/8 36 1/2 0.20 33 1/8 23 3/8 .195
Third Quarter........... 45 7/8 38 1/8 0.20 26 1/2 18 3/4 .195
Fourth Quarter.......... 48 5/16 42 5/8 0.20 26 3/4 21 1/2 .195
1997:
First Quarter........... $46 7/16 $41 $0.20 $28 1/2 $23 $.195
Second Quarter.......... 52 5/8 39 1/8 0.20 26 11/16 19 5/8 .05
Third Quarter........... 56 23/32 49 3/16 0.20 24 5/16 20 13/16 .05
Fourth Quarter.......... 54 7/32 44 1/16 0.20 25 3/4 20 5/16 .05
1998:
First Quarter........... $58 15/16 $48 3/4 $0.20 $36 $21 5/8 $ .05
Second Quarter.......... 58 1/2 31/32 0.20 42 3/4 27 3/4 .05
Third Quarter........... 54 1/4 43 5/8 0.20 36 7/8 21 13/16 .05
Fourth Quarter.......... 56 3/4 41 0.22 39 5/8 32 7/16 .05
1999:
First Quarter........... $43 $34 5/8 $0.22 $36 11/16 $27 $ .05
Second Quarter.......... 46 33 3/4 0.22 34 7/16 27 13/16 .05
Third Quarter (through
July 19, 1999)......... 39 15/16 36 13/16 36 3/4 32 1/2 .05
The last reported closing sales prices per share on the New York Stock
Exchange Composite Tape of Lockheed Martin common stock and COMSAT common stock
on September 18, 1998, the last trading day before public announcement of the
merger, were $50 and $34 1/8, respectively. On July 19, 1999, the last day for
which it was practicable to obtain this information prior to the mailing of
this proxy statement/prospectus, the closing sales price per share on the New
York Stock Exchange Composite Tape of Lockheed Martin common stock and the
COMSAT common stock was $38 3/4 and $35 15/16, respectively.
Because the exchange ratio in the merger is fixed and because the market
price of Lockheed Martin common stock is subject to fluctuation, the market
value of the shares of Lockheed Martin common stock that you will receive in
the merger will increase or decrease prior to and following the merger. You are
urged to obtain current market quotations for Lockheed Martin common stock and
COMSAT common stock. See "Risk Factors--Value of Lockheed Martin Common Stock
You will Receive in the Merger will Fluctuate."
61
LOCKHEED MARTIN SELECTED HISTORICAL CONSOLIDATED
FINANCIAL INFORMATION
The selected historical financial information of Lockheed Martin for the
years 1998, 1997 and 1996 presented below, with the exception of the balance
sheet data for 1996, has been derived from the audited consolidated financial
statements of Lockheed Martin incorporated by reference in this proxy
statement/prospectus. The balance sheet data for 1996 and the financial
information for the years 1995 and 1994 have been derived from audited
consolidated financial statements previously filed with the SEC but not
incorporated by reference in this proxy statement/prospectus. Selected
historical financial data for the three month periods ended March 31, 1999 and
1998, with the exception of the balance sheet data for March 31, 1998, have
been derived from unaudited condensed consolidated financial statements
previously filed with the SEC and incorporated by reference in this proxy
statement/prospectus. The balance sheet data for March 31, 1998 have been
derived from unaudited condensed consolidated financial statements previously
filed with the SEC but not incorporated by reference in this proxy
statement/prospectus. In the opinion of Lockheed Martin's management, the
interim financial data include all adjustments (consisting of normal recurring
accruals) necessary for a fair presentation of the results of operations and
financial position for each of the periods presented. Results for the three
month period ended March 31, 1999 are not necessarily indicative of results
which may be expected for any other interim period or for the 1999 year as a
whole. Lockheed Martin was formed in 1995 from the combination of Lockheed
Corporation and Martin Marietta Corporation. Financial information for 1994 was
derived from the financial statements of those companies under the pooling of
interests method of accounting. The information shown below should be read in
conjunction with the historical consolidated financial statements of Lockheed
Martin, including the related notes thereto. See "Where You Can Find More
Information" on page 111.
At or For
Three Months Ended At or For
March 31, Year Ended December 31,
-------------------- ----------------------------------------
1999(2) 1998 1998(3) 1997(4) 1996(5) 1995(6) 1994(7)
---------- --------- ------- ------- ------- ------- -------
(In millions, except per share data)
Income Statement Data:
Net sales............. $ 6,188 $ 6,217 $26,266 $28,069 $26,875 $22,853 $22,906
Earnings before
cumulative effect of
change in
accounting........... 268 269 1,001 1,300 1,347 682 1,055
Net (loss) earnings... (87) 269 1,001 1,300 1,347 682 1,018
Net (loss) earnings
per common share:(1)
Basic:
Before cumulative
effect of change
in accounting.... .70 .72 2.66 (1.56) 3.40 1.64 2.66
Net (loss)
earnings......... (.23) .72 2.66 (1.56) 3.40 1.64 2.56
Diluted:
Before cumulative
effect of change
in accounting.... .70 .71 2.63 (1.56) 3.04 1.54 2.43
Net (loss)
earnings......... (.23) .71 2.63 (1.56) 3.04 1.54 2.34
Cash dividends per
common share(1)...... .22 .20 .82 .80 .80 .67 .57
Balance Sheet Data:
Total assets.......... $ 28,596 $ 29,376 $28,744 $28,361 $29,540 $17,558 $17,979
Short-term
borrowings........... 1,163 1,132 1,043 494 1,110 -- --
Current maturities of
long-term debt....... 884 585 886 876 180 722 285
Long-term debt........ 8,788 10,494 8,957 10,528 10,188 3,010 3,594
Stockholders' equity.. 6,053 5,436 6,137 5,176 6,856 6,433 6,086
- --------
(1) All share and per share amounts have been restated to reflect a two-for-one
stock split in the form of a stock dividend in December 1998.
(2) Includes the effects of a nonrecurring and unusual pretax gain of $114
million, $74 million after tax, or $.19 per diluted share. Also includes a
cumulative effect adjustment related to Lockheed Martin's change in the
method of accounting for the costs of start-up activities upon adoption of
the American Institute of Certified Public Accountants' Statement of
Position No. 98-5, which reduced net earnings by $355 million or $.93 per
diluted share.
(3) Includes the effects of a nonrecurring and unusual pretax charge of $233
million, $183 million after tax, or $.48 per diluted share.
(4) Includes the effects of a tax-free gain of $311 million and the effects of
nonrecurring and unusual pretax charges of $457 million, $303 million after
tax which, on a combined basis, decreased diluted loss per share by $.02.
Loss per share also includes the effects of a deemed dividend resulting
from a transaction with the holder of Lockheed Martin's series A preferred
stock which reduced the basic and diluted per share amounts by $4.93.
(5) Reflects a business combination with Loral Corporation effective April
1996. Includes the effects of a nonrecurring pretax gain of $365 million,
$351 million after tax, and nonrecurring pretax charges of $307 million,
$209 million after tax which, on a combined basis, increased diluted
earnings per share by $.32.
(6) Includes the effects of merger related and consolidation expenses totaling
$690 million, $436 million after tax, or $.99 per diluted share.
(7) Includes a cumulative effect adjustment related to Lockheed Martin's change
in the method of accounting for its leveraged employee stock ownership
plan.
62
COMSAT SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
COMSAT is providing the following consolidated financial information to aid
you in analyzing the financial aspects of the merger. This information is
derived from COMSAT's audited consolidated financial statements for the years
1994 through 1998. Selected historical financial data for the three month
periods ended March 31, 1999 and 1998, with the exception of the balance sheet
data for March 31, 1998, have been derived from unaudited condensed
consolidated financial statements previously filed with the SEC and
incorporated by reference in this proxy statement/prospectus. The balance sheet
data for March 31, 1998 have been derived from unaudited condensed consolidated
financial statements previously filed with the SEC but not incorporated by
reference in this proxy statement/prospectus. In the opinion of COMSAT's
management, the interim financial data include all adjustments (consisting of
normal recurring accruals) necessary for a fair presentation of the results of
operations and financial position for each of the periods presented. Results
for the three months ended March 31, 1999 are not necessarily indicative of
results which may be expected for any other interim period or for the 1999 year
as a whole. The information is only a summary, and you should read it in
conjunction with COMSAT's historical consolidated financial statements and
related notes contained in its annual reports and other information filed with
the SEC. See "Where You Can Find More Information" on page 111.
At or For
Three Months Ended At or For
March 31, Year Ended December 31,
------------------- ------------------------------------
1999 1998 1998 1997(1) 1996 1995 1994
--------- --------- ------ ------- ------ ------ ------
(In millions, except per share data)
Summary of Operations:
Revenues............... $ 145 $ 145 $ 616 $ 563 $ 545 $ 508 $ 500
Operating expenses..... 132 125 557 481 438 388 367
Operating income....... 13 20 59 82 107 120 133
Income from continuing
operations............ 12 4 26 29 36 44 69
Net income (loss)...... 12 4 26 (64) 9 38 78
Earnings (loss) per
share--assuming
dilution:
Income from continuing
operations........... 0.22 0.07 0.50 0.57 0.74 0.91 1.47
Net income (loss)..... 0.22 0.07 0.50 (1.29) 0.18 0.79 1.65
Balance Sheet Data (at
end of period):
Total assets........... 1,686 1,960 1,791 1,895 2,097 2,022 1,851
Long-term debt......... 368 458 447 462 578 590 511
Stockholders' equity... 608 641 659 586 842 839 827
Dividends:
Dividends paid......... 2 2 10 17 38 37 34
Dividends paid per
share................. 0.05 0.05 0.20 0.345 0.78 0.78 0.76
Distribution of Ascent
Entertainment Group,
Inc. shares........... -- -- -- 195 -- -- --
- --------
(1) COMSAT began accounting for Ascent Entertainment Group, Inc. and
substantially all of COMSAT RSI, Inc. as discontinued operations in 1997.
Accordingly, all prior periods were restated to present Ascent and COMSAT
RSI as discontinued operations.
63
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
The following unaudited pro forma combined condensed financial statements
are based upon Lockheed Martin's and COMSAT's historical consolidated financial
statements incorporated by reference in this proxy statement/prospectus, and
have been prepared to reflect the tender offer and proposed merger based on the
purchase method of accounting. The unaudited pro forma combined condensed
statements of earnings, which have been prepared for the three month period
ended March 31, 1999 and for the year ended December 31, 1998, give effect to
the tender offer and the merger as if they had occurred at the beginning of
each of the periods presented. The unaudited pro forma combined condensed
balance sheet has been prepared as of March 31, 1999, and gives effect to the
tender offer and the merger as if they had occurred on that date. Lockheed
Martin prepared the unaudited pro forma adjustments based upon financial data
provided by COMSAT, and upon preliminary estimates and assumptions that
management of Lockheed Martin believes are reasonable under the circumstances.
These pro forma financial statements have been reviewed by management of
COMSAT. While no material adjustments are expected to occur to the pro forma
financial statements based upon information currently available, events may
occur between now and completion of the merger, including among others,
developments concerning the privatization of INTELSAT, amendment of the
Satellite Act and other items discussed under the caption "Risk Factors," which
could materially affect the pro forma adjustments.
The unaudited pro forma combined condensed financial statements are not
necessarily indicative of actual or future financial position or results of
operations that would have occurred or will occur upon completion of the tender
offer and the merger. Lockheed Martin expects to ultimately dispose of its
equity interests in various investment holdings to fund the tender offer. These
statements, however, assume the issuance of debt obligations as the funding
source because Lockheed Martin presently anticipates that market conditions and
contractual limitations on its ability to dispose of the investments make
disposition before the tender offer is completed unlikely. In addition, these
statements do not include the effects of any estimated transition or
restructuring costs which may be incurred in connection with integrating the
operations of COMSAT into Lockheed Martin. It is not feasible at this time to
estimate the effect of such funding strategies or costs for pro forma purposes.
Additionally, the unaudited pro forma combined condensed statements of earnings
do not reflect any net cost savings or economies of scale that may have
occurred had the merger been completed at the beginning of the respective
periods.
The unaudited pro forma combined condensed financial statements are based
upon, and should be read in conjunction with, the historical consolidated
financial statements of Lockheed Martin and COMSAT, including the respective
related notes, which are incorporated by reference in this proxy
statement/prospectus. See "Where You Can Find More Information" on page 111.
64
Unaudited Pro Forma Combined Condensed Statements of Earnings
For The Three Months Ended March 31, 1999
-----------------------------------------------------------------
Historical
Lockheed Historical Pro Forma Pro Forma
Martin COMSAT Reclassifications Adjustments Combined
---------- ---------- ----------------- ----------- ---------
(In millions, except per share data)
Net sales............... $ 6,188 $145 $(11) $ -- $ 6,322
Cost of sales........... 5,701 132 3 10 (B) 5,846
------- ---- ---- ----- -------
Earnings from
operations............. 487 13 (14) (10) 476
Other income and
expenses, net.......... 129 17 9 (8)(C) 147
------- ---- ---- ----- -------
616 30 (5) (18) 623
Interest expense........ 192 10 (4) 18 (D) 216
------- ---- ---- ----- -------
Earnings before income
taxes and cumulative
effect of change in
accounting............. 424 20 (1) (36) 407
Taxes on income......... 156 8 (1) (7)(E) 156
------- ---- ---- ----- -------
Earnings before
cumulative effect of
change in accounting... $ 268 $ 12 $ -- $ (29) $ 251
======= ==== ==== ===== =======
Earnings before
cumulative effect of
change in accounting
per common share:
Basic:
Weighted average
shares.............. 380.3 407.2
Earnings before
cumulative effect of
change in
accounting.......... $ .70 $ .62
Diluted:
Weighted average
shares.............. 382.6 411.1
Earnings before
cumulative effect of
change in
accounting.......... $ .70 $ .61
For The Year Ended December 31, 1998
-----------------------------------------------------------------
Historical
Lockheed Historical Pro Forma Pro Forma
Martin COMSAT Reclassifications Adjustments Combined
---------- ---------- ----------------- ----------- ---------
(In millions, except per share data)
Net sales............... $26,266 $616 $(59) $ (1)(A) $26,822
Cost of sales........... 23,914 557 7 53 (A)(B) 24,531
------- ---- ---- ----- -------
Earnings from
operations............. 2,352 59 (66) (54) 2,291
Other income and
expenses, net.......... 170 13 51 (31)(C) 203
------- ---- ---- ----- -------
2,522 72 (15) (85) 2,494
Interest expense........ 861 40 (15) 73 (D) 959
------- ---- ---- ----- -------
Earnings before income
taxes.................. 1,661 32 -- (158) 1,535
Taxes on income......... 660 6 -- (37)(E) 629
------- ---- ---- ----- -------
Net earnings............ $ 1,001 $ 26 $ -- $(121) $ 906
======= ==== ==== ===== =======
Earnings per common
share:
Basic:
Weighted average
shares.............. 376.5 403.4
Earnings per share... $2.66 $2.25
Diluted:
Weighted average
shares.............. 381.1 410.4
Earnings per share... $2.63 $2.21
See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial
Statements.
65
Unaudited Pro Forma Combined Condensed Balance Sheet
As of March 31, 1999
------------------------------------------------------------------
Historical
Lockheed Historical Pro Forma Pro Forma
Martin COMSAT Reclassifications Adjustments Combined
---------- ---------- ----------------- ----------- ---------
(In millions)
Assets
Current assets:
Cash and cash
equivalents........... $ 43 $ 43 $ -- $ -- $ 86
Receivables............ 4,667 140 -- -- 4,807
Inventories............ 3,959 -- -- -- 3,959
Deferred income
taxes................. 1,108 8 (1) 9 (G) 1,124
Other current assets... 703 31 1 2 (G) 737
------- ------ ----- ------ -------
Total current
assets.............. 10,480 222 -- 11 10,713
Property, plant and
equipment.............. 3,587 944 (631) -- 3,900
Intangible assets
related to contracts
and programs acquired.. 1,378 -- -- -- 1,378
Cost in excess of net
assets acquired........ 9,462 -- -- 1,379 (G) 10,841
Investments in
affiliates............. 975 393 430 995 (G) 2,793
Other assets............ 2,714 127 (11) 41 (G) 2,871
------- ------ ----- ------ -------
$28,596 $1,686 $(212) $2,426 $32,496
======= ====== ===== ====== =======
Liabilities and
Stockholders' Equity
Current liabilities:
Accounts payable....... $ 1,021 $ 109 $ 16 $ -- $ 1,146
Customer advances and
amounts
in excess of costs
incurred.............. 4,329 -- -- -- 4,329
Salaries, benefits and
payroll taxes......... 934 -- -- -- 934
Income taxes........... 534 4 (3) -- 535
Short-term
borrowings............ 1,163 -- -- 173 (F) 1,336
Current maturities of
long-term debt........ 884 30 (30) -- 884
Due to related
parties............... -- 32 (32) -- --
Other current
liabilities........... 1,525 7 35 75 (G)(H) 1,642
------- ------ ----- ------ -------
Total current
liabilities......... 10,390 182 (14) 248 10,806
Long-term debt.......... 8,788 368 (159) 1,021 (F)(G) 10,018
Deferred income taxes... -- 131 (131) -- --
Deferred investment tax
credits................ -- 6 -- (6)(G) --
Post-retirement benefit
liabilities............ 1,887 49 -- (17)(G) 1,919
Other liabilities....... 1,478 142 292 470 (G)(H) 2,382
Preferred securities
issued by a
subsidiary............. -- 200 (200) -- --
Stockholders' equity:
Common stock........... 392 433 -- (406)(H) 419
Additional paid-in
capital............... 95 -- -- 1,291 (H) 1,386
Retained earnings...... 5,690 252 -- (252)(H) 5,690
Treasury stock ........ -- (6) -- 6 (H) --
Unearned ESOP shares... (165) -- -- -- (165)
Unearned
compensation.......... -- (4) -- 4 (H) --
Accumulated other
comprehensive
income................ 41 (67) -- 67 (H) 41
------- ------ ----- ------ -------
Total stockholders'
equity.............. 6,053 608 -- 710 7,371
------- ------ ----- ------ -------
$28,596 $1,686 $(212) $2,426 $32,496
======= ====== ===== ====== =======
See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial
Statements.
66
Notes To Unaudited Pro Forma
Combined Condensed Financial Statements
1. Basis of Presentation
The unaudited pro forma combined condensed financial statements have been
based upon Lockheed Martin's and COMSAT's historical consolidated financial
statements, and have been prepared to reflect the tender offer and the proposed
merger based on the purchase method of accounting. The unaudited pro forma
combined condensed statements of earnings for the three month period ended
March 31, 1999 and for the year ended December 31, 1998 have been prepared to
give effect to the tender offer and the merger as if they had occurred at the
beginning of each of the periods presented. The unaudited pro forma combined
condensed balance sheet as of March 31, 1999 has been prepared to give effect
to the tender offer and the merger as if they had occurred on that date.
Lockheed Martin prepared the unaudited pro forma adjustments based upon
financial data provided by COMSAT, and upon preliminary estimates and
assumptions that management of Lockheed Martin believes are reasonable under
the circumstances. These pro forma financial statements have been reviewed by
management of COMSAT. While no material adjustments are expected to occur to
the pro forma financial statements based upon information currently available,
events may occur between now and completion of the merger, including among
others, developments concerning the privatization of INTELSAT, amendment of the
Satellite Act and other items discussed under the caption "Risk Factors," which
could materially affect the pro forma adjustments.
The unaudited pro forma combined condensed financial statements are not
necessarily indicative of actual or future financial position or results of
operations that would have occurred or will occur upon the completion of the
tender offer and the merger. The unaudited pro forma combined condensed
financial statements are based upon and should be read in conjunction with the
historical consolidated financial statements of Lockheed Martin and COMSAT, and
the respective related notes, which are incorporated by reference in this proxy
statement/prospectus.
2. The Tender Offer and the Merger
A. Purchase Price
As described in the merger agreement, the tender offer will involve the
purchase by Regulus of a non-controlling interest of up to 49%, subject to
certain adjustments, of the outstanding shares of COMSAT common stock at a
price of $45.50 per share. The merger will involve the exchange of each
remaining outstanding share of COMSAT common stock for the right to receive one
share of Lockheed Martin common stock. The computation of the purchase price
follows (in millions):
Purchase of 49% of outstanding common shares (25.8 million
shares of COMSAT common stock at a price of $45.50 per share).. $1,173
Exchange of the remaining 51% of outstanding common shares (26.9
million shares of COMSAT common stock at the conversion ratio
of one share of Lockheed Martin common stock at an average
market price of $49 per share as of the time that the terms of
the transaction were announced)................................ 1,318
Assumption of COMSAT's stock options at an amount based on the
difference between the average market price of Lockheed Martin
common stock used above and the average exercise price of the
outstanding options............................................ 107
Estimated transaction costs..................................... 25
------
Total purchase price............................................ $2,623
======
67
Notes To Unaudited Pro Forma
Combined Condensed Financial Statements--(Continued)
B. Reclassifications
Reclassifications have been reflected in the unaudited pro forma combined
condensed statements of earnings and balance sheet to conform the presentation
of investments in affiliates, income tax balances, and other items to the
format used by Lockheed Martin.
C. Pro Forma Adjustments
The following adjustments are provided to reflect the tender offer and
merger on a pro forma basis:
(A) To eliminate sales and cost of sales between Lockheed Martin and
COMSAT. No adjustments have been made to eliminate the related intercompany
profit in ending inventories and the net intercompany receivables and
payables at March 31, 1999, as such amounts are not considered material.
(B) To record the amortization of cost in excess of net assets acquired
(over a composite estimated life of 30 years), and the effects, net of
state income tax benefits, of other estimated fair value adjustments,
including those related to pensions and post-retirement benefit
liabilities.
(C) To record the amortization of the estimated fair value of
investments in affiliates in excess of the underlying recorded values (over
a composite estimated life of 30 years), net of state income tax benefits.
(D) To record interest expense, using an estimated composite interest
rate of 6.6%, resulting from the assumed issuance of an estimated $1,173
million in debt obligations to complete the tender offer. If the assumed
interest rate was changed by 1/8%, pro forma interest expense for the three
months ended March 31, 1999 and the year ended December 31, 1998 would have
changed by less than $1 million and approximately $2 million, respectively.
(E) To record the federal income tax effect, using the 35% statutory
rate, related to the net pro forma adjustments other than the amortization
of cost in excess of net assets acquired.
(F) To record the assumed issuance of short-term borrowings and long-
term debt obligations to finance the tender offer.
(G) To adjust the assets and liabilities of COMSAT to their estimated
fair values (such estimated fair values are subject to possible adjustment
based on continued valuation analyses) as follows (in millions):
Net assets of COMSAT at March 31, 1999............................ $ 608
Estimated fair value adjustments:
Deferred income tax assets...................................... 9
Other current assets............................................ 2
Investments in affiliates....................................... 995
Other assets.................................................... 41
Other current liabilities....................................... (40)
Long-term debt.................................................. (21)
Post-retirement benefit liabilities............................. 17
Other liabilities............................................... (367)
Cost in excess of net assets acquired........................... 1,379
------
Total purchase price.............................................. $2,623
======
(H) To eliminate COMSAT's historical equity balances, to record the
assumed issuance of 26.9 million shares of Lockheed Martin common stock, at
an average market price of $49 per share as of the time that the terms of
the transaction were announced, to complete the merger, and to record
accrued
68
Notes To Unaudited Pro Forma
Combined Condensed Financial Statements--(Continued)
liabilities for the assumption of COMSAT's stock options, at an amount
based on the difference between the average market price of Lockheed Martin
common stock noted above and the average exercise price of the outstanding
options, and estimated transaction costs.
3. Computation of Pro Forma Earnings Per Common Share
Three
Months Ended Year Ended
March 31, 1999 December 31, 1998
-------------- -----------------
(In millions, except
per share data)
Pro Forma Basic Earnings Per Common
Share:
Earnings before cumulative effect of
change in accounting.................... $ 251 $ 906
====== ======
Average number of common shares outstand-
ing
for basic earnings per share............ 407.2 403.4
====== ======
Pro forma basic earnings per share before
cumulative effect of change in account-
ing .................................... $ .62 $ 2.25
====== ======
Pro Forma Diluted Earnings Per Common
Share:
Earnings before cumulative effect of
change in accounting.................... $ 251 $ 906
====== ======
Average number of common shares outstand-
ing
for basic earnings per share............ 407.2 403.4
Dilutive stock options--based on the
treasury stock method................... 3.9 7.0
------ ------
Average number of common shares outstand-
ing
for diluted earnings per share.......... 411.1 410.4
====== ======
Pro forma diluted earnings per share
before cumulative effect of change in
accounting ............................. $ .61 $ 2.21
====== ======
69
COMPARISON OF SHAREHOLDERS' RIGHTS
Upon completion of the merger, unless you properly exercise dissenters'
rights, you will become a Lockheed Martin shareholder. Your shareholder rights
will be governed by the Maryland General Corporation Law and Lockheed Martin's
charter and bylaws, which differ in a number of material respects from your
rights as a COMSAT shareholder under the District of Columbia Business
Corporation Act and COMSAT's articles of incorporation and bylaws. The
following tables summarize the principal differences between the rights of
COMSAT shareholders and Lockheed Martin shareholders. Copies of Lockheed
Martin's charter and bylaws and COMSAT's articles of incorporation and bylaws
are incorporated by reference into this proxy statement/prospectus, and copies
will be sent to you upon request. See "Where You Can Find More Information" on
page 111.
Authorized Capital. The total number of authorized shares of capital stock
are as follows:
COMSAT Lockheed Martin
--------------------- -----------------------
Par Value Shares Par Value Shares
--------- ----------- --------- -------------
Common stock.................. -- 100,000,000 $1.00 1,500,000,000
Preferred stock............... -- 5,000,000 -- --
Series A preferred stock...... -- -- $1.00 20,000,000
Series preferred stock........ -- -- $1.00 50,000,000
Total......................... 105,000,000 1,570,000,000
COMSAT Shareholders Lockheed Martin Shareholders
------------------- ----------------------------
Outstanding Capital No class or series of No class or series of
Stock.............. COMSAT preferred stock is Lockheed Martin preferred
currently outstanding. stock is currently
outstanding.
COMSAT common stock is
issued in two series,
designated Series I and
Series II. Shares of
Series I common stock may
be issued only to persons
who are not authorized
carriers. Shares of Series
II common stock may be
issued only to authorized
carriers.
The Satellite Act provides
that only authorized
carriers may own more than
10% of the outstanding
shares of COMSAT common
stock. COMSAT's articles
of incorporation authorize
COMSAT's Board of
Directors to establish an
ownership limitation below
the 10% statutory maximum.
Under this authority,
COMSAT's Board of
Directors established the
ownership limitation at
10%. COMSAT's Board of
Directors also established
a voting limitation
preventing holders of more
than 5% but less than 10%
of COMSAT common stock
from voting shares above
the 5% threshold.
Number of
Directors; Term of
Office.............
COMSAT has 15 director Lockheed Martin currently
positions, 12 of which are has 15 directors.
elected annually by Lockheed Martin's Board
COMSAT's shareholders for of Directors may increase
one-year terms, and three or decrease the number of
of which are appointed by directors, so long as the
the President of the Board is not decreased to
United States, with the less than 12. Each
advice and consent of the Lockheed Martin director
United States Senate, for serves until the next
three-year terms. In annual meeting of
70
COMSAT Shareholders Lockheed Martin Shareholders
------------------- ----------------------------
each case, COMSAT shareholders after his
directors serve until election and until a
their successors have successor has been
been appointed and elected and qualified.
qualified.
Election of COMSAT's bylaws provide Lockheed Martin's
Directors.......... that you are entitled to charter provides for
cumulate your votes for cumulative voting in the
the election of election of directors
directors. Authorized only in instances where
carrier holders of Series a single shareholder
II common stock are beneficially owns 40% or
entitled to vote more of shares entitled
separately from holders to vote for the election
of Series I common stock of directors.
and elect from one to six
directors if the number
of shares of Series II
common stock outstanding
at the record date
constitutes 8% or more of
the total outstanding
shares of COMSAT common
stock.
Quorum of
Directors........... Eight members of COMSAT's A majority of the
Board of Directors are members of Lockheed
generally required to Martin's Board of
constitute a quorum. Directors is generally
required to constitute a
quorum.
Removal of None of District of Lockheed Martin's
Directors.......... Columbia law, COMSAT's charter provides that
articles of incorporation directors may be removed
or COMSAT's bylaws at any time, but only
contain any provisions for cause, by the
regarding the removal of affirmative vote of at
directors. least 80% of the votes
that holders of
outstanding shares are
entitled to cast in the
election of directors,
voting together as one
class.
Filling Vacancies
on the Board of
Directors.......... Vacancies occurring may Under Maryland law,
be filled by a majority shareholders may elect a
vote of the remaining successor to fill a
directors, unless vacancy on the board of
otherwise provided in directors created by the
COMSAT's articles of removal of a director.
incorporation. A director The successor elected by
elected to fill a vacancy the shareholders serves
is elected for his for the balance of the
predecessor's unexpired removed director's term.
term. Under Maryland law, as
well as Lockheed
COMSAT's articles of Martin's charter and
incorporation provide bylaws, a majority of
that vacancies of the the remaining directors
COMSAT Board of Directors may appoint a director
are filled as follows: to fill a vacancy,
unless the vacancy is
. vacancies among the caused by an increase in
Presidential appointees the size of the Board of
are filled by the Directors, in which case
President; the vacancy may be
filled only by majority
. vacancies among vote of the entire
directors designated by Lockheed Martin Board of
holders of Series II Directors. A director
common stock are filled elected by the Board of
by a majority vote of Directors to fill a
the remaining directors vacancy serves until the
designated by the next annual meeting of
holders of Series II shareholders and until
common stock, subject his successor is elected
to the limitation on and qualified.
the ability of any
single holder of Series
II common stock to vote
for more than three
directors; and
71
COMSAT Shareholders Lockheed Martin Shareholders
------------------- ----------------------------
. vacancies among
directors designated by
holders of Series I
common stock are filled
by a majority vote of
the remaining directors
designated by the
holders of Series I
common stock.
Amendment to Charter
or Articles of
Incorporation....... The affirmative vote of Lockheed Martin's charter
two-thirds of the provides that, except as
outstanding shares described below, a
entitled to vote is majority vote of the
required to amend COMSAT's outstanding shares
articles of incorporation. entitled to vote is
necessary to amend
Lockheed Martin's charter.
In addition, COMSAT's . The affirmative vote of
articles of incorporation 80% of the votes of the
provide that at least ten holders of outstanding
days before a meeting of shares entitled to vote
COMSAT's Board of in the election of
Directors is called to directors is required to
consider an amendment to amend Sections 3 or 5 of
COMSAT's articles of Article V of Lockheed
incorporation, notice of Martin's charter
the meeting, including a relating to removal of
statement of the proposed directors and the
amendment or of the general powers of the
substance of the Board of Directors.
amendment, must be
provided to each director, . Amendments to Article
the United States Attorney XIII of Lockheed
General, the Chairman of Martin's charter
the FCC and other persons regarding business
designated by the combinations require the
President of the United affirmative vote of:
States.
(a) 80% of the
outstanding shares
entitled to vote in
the election of
directors, and
(b) 67% of the
outstanding shares
entitled to vote in
the election of
directors, excluding
shares held by
beneficial owners of
10% or more of the
outstanding shares
of any class or
series of voting
stock, and any
affiliates or
associates of such
person,
unless the amendment is
approved in advance of
submission to the
shareholders by not less
than two-thirds of
Lockheed Martin's
continuing directors.
Continuing directors are
directors who were either
directors prior to the
time the related person
became a related person or
were designated continuing
directors by a majority of
the then continuing
directors.
. Amendments to Article
XIV of Lockheed Martin's
charter regarding
prohibitions on
greenmail and other
transactions requires
the affirmative vote of
80% of the votes
entitled to vote in the
election of directors.
Amendment of Under COMSAT's articles of Under Maryland law, the
Bylaws............... incorporation and bylaws, power to adopt, amend or
COMSAT's repeal a corporation's
bylaws is
72
COMSAT Shareholders Lockheed Martin Shareholders
------------------- ----------------------------
bylaws may be altered, vested in the
amended or repealed by a corporation's
majority vote of COMSAT's shareholders, except to
Board of Directors at a the extent the
meeting called for that corporation's charter or
purpose. At least five bylaws vest it in the
days before the meeting, board of directors.
notice of the meeting Lockheed Martin's bylaws
stating the substance of grant Lockheed Martin's
the amendment must be sent Board of Directors
to the United States exclusive power to adopt,
Attorney General, the amend, alter or repeal
Chairman of the FCC and Lockheed Martin's bylaws.
other persons designated
by the President of the
United States.
Advance Notice of
Director Nominations
and New Business... COMSAT's bylaws provide For annual or special
that, with respect to any shareholders' meetings,
shareholder meeting, Lockheed Martin's bylaws
nominations of persons for provide that nominations
election to COMSAT's Board of persons for election to
of Directors may be made Lockheed Martin's Board of
only by a shareholder of Directors and the proposal
record who is entitled to of business to be
vote and who complies with considered by shareholders
the advance notice may be made only as
procedures set forth in follows:
COMSAT's bylaws. In
addition, a director . pursuant to Lockheed
nominee must file with Martin's notice of the
COMSAT's corporate meeting,
secretary a statement of
his interests in . by or at the direction
communications common of Lockheed Martin's
carriers in the form Board of Directors, or
required by COMSAT's Board
of Directors. . by a shareholder of
record who is entitled
COMSAT's bylaws provide to vote at the meeting
that the proposal of who complies with the
business at a shareholders advance notice
meeting may be made only procedures set forth in
as follows: Lockheed Martin's
bylaws.
. pursuant to COMSAT's
notice of the meeting,
. by or at the direction
of COMSAT's Board of
Directors, or
. by a shareholder of
record who is entitled to
vote at the meeting who
complies with the advance
notice procedures set
forth in COMSAT's bylaws.
Shareholder Meetings
and Notice
Provisions.......... Under COMSAT's bylaws, Under Lockheed Martin's
special shareholder bylaws, special
meetings may be called at shareholder meetings may
any time by COMSAT's Board be called at any time by
of Directors, by the Chairman of the Board,
resolution or written the President, the
direction of three Executive Committee of
members, the Chairman or Lockheed Martin's Board of
Vice Chairman of COMSAT's Directors, a majority of
Board of Directors, the Lockheed Martin's Board of
President or the Secretary Directors or by the
of COMSAT or by holders of Secretary at the written
not less than one-fifth of request of shareholders
all shares of stock entitled to cast at least
outstanding and entitled a majority of the votes
to vote at the meeting. entitled to be cast at the
meeting. Under Maryland
COMSAT's bylaws provide law, unless requested by
that notice of a the shareholders entitled
shareholders meeting must to cast a majority of all
be delivered to the votes at the meeting,
shareholders entitled to a special meeting of
vote at the shareholders need not be
73
COMSAT Shareholders Lockheed Martin Shareholders
------------------- ----------------------------
meeting not less than 10 called to consider any
nor more than 50 days matter that is
before the date of the substantially the same as
meeting. a matter voted on at a
special meeting held
within the preceding 12
months.
Lockheed Martin's bylaws
provide that notice of a
shareholders meeting must
be delivered to
shareholders not less than
30 nor more than 90 days
before the meeting.
Voting by
Shareholders......... Except for the election of Under Lockheed Martin's
directors and as otherwise charter, except for
provided by statute or amending a number of
COMSAT's articles of provisions of the charter,
incorporation or bylaws, or as otherwise provided
action by COMSAT in the charter or by
shareholders generally is applicable law, action by
taken by a majority vote Lockheed Martin
of the outstanding shares shareholders generally is
present in person or taken by a majority vote,
represented by proxy and at a meeting at which a
entitled to vote. A number quorum is present. A
of extraordinary actions, number of extraordinary
including mergers, actions, including
consolidations and charter mergers, consolidations
amendments, require the and charter amendments,
affirmative vote of two- that under Maryland law
thirds of the votes would, absent provision in
entitled to be cast on the Lockheed Martin's charter,
matter. require the affirmative
vote of two-thirds of the
votes entitled to be cast
on the matter, are taken
by a majority vote of all
votes entitled to be cast
on the matter.
Shareholder Action
Without a Meeting... Under District of Columbia Under Maryland law, any
law, any action required action required or
or permitted to be taken permitted to be taken at a
at a meeting of meeting of shareholders
shareholders may be taken may be taken without a
without a meeting if a meeting only if a
consent in writing setting unanimous written consent
forth the actions so taken is signed by each
is signed by all of the shareholder entitled to
shareholders entitled to vote on the matter and a
vote on the matter and the written waiver of any
consent is filed with the right to dissent is signed
corporate minutes. by each shareholder who
would have been entitled
to notice of, but could
not vote at, the meeting.
Business
Combinations......... The District of Columbia Under Maryland law, a
does not have a business number of business
combination statute. combinations between a
Maryland corporation and:
. any person who
beneficially owns 10% or
more of the voting power
of the corporation's
shares,
. an affiliate of the
corporation who, at any
time within the two-year
period before the date
in question, was the
beneficial owner of 10%
or more of the voting
power of the then-
outstanding voting stock
of the corporation, or
. any affiliate of an
interested shareholder,
are prohibited for five
years after the
most recent date on which
the interested shareholder
became an interested
74
COMSAT Shareholders Lockheed Martin Shareholders
------------------- ----------------------------
shareholder, and after
that time must be
recommended by the board
of directors of the
corporation and approved
by:
(a) the affirmative vote
of at least 80% of the
votes entitled to be
cast by holders of its
outstanding voting
shares voting together
as a single voting
group, and
(b) two-thirds of the
votes entitled to be
cast by holders of the
outstanding voting
shares, other than
shares held by the
interested shareholder
with whom the business
combination is to be
effected;
unless the "fair price"
provisions are complied
with or the business
combination is either
approved or exempted by
the board of directors
before the interested
shareholder becomes an
interested shareholder.
Business combinations
include mergers,
consolidations, share
exchanges or, in certain
circumstances, asset
transfers or issuances or
reclassifications of
equity securities.
In addition to Maryland
law requirements, Lockheed
Martin's charter also
contains a provision
requiring that any
business combination
between Lockheed Martin
and a related person must
be approved by 80% of the
outstanding shares of
voting stock and by not
less than 67% of the
outstanding shares of
voting stock not owned by
the related person. This
provision does not apply
to a business combination
approved by a two-thirds
vote of the continuing
directors or if the
consideration received by
the shareholders other
than the related person is
not less than the highest
price per share paid by
the related person before
the business combination
and a proxy statement
complying with the
regulations of the
Exchange Act shall have
been sent to all
shareholders. Under
Lockheed Martin's charter,
this provision may be
amended only by the same
two supermajority votes
required for approval of a
business combination.
The business combination
statute could have the
effect of discouraging
unsolicited offers to
acquire Lockheed Martin
and of increasing the
difficulty of consummating
an unsolicited offer.
75
COMSAT Shareholders Lockheed Martin Shareholders
------------------- ----------------------------
Control Share
Acquisitions......... The District of Columbia Maryland law provides that
does not have a control control shares of a
share acquisition statute. Maryland corporation
acquired in a control
share acquisition have no
voting rights except to
the extent approved by a
vote of two-thirds of the
votes entitled to be cast
by shareholders, excluding
shares of stock as to
which the acquiring
person, officers of the
corporation and directors
of the corporation who are
employees of the
corporation are entitled
to exercise or direct the
exercise of the voting
power of the shares in the
election of directors.
Control shares are voting
shares of stock that, if
aggregated with all other
shares of stock previously
acquired by a person,
would entitle the
acquiring person to
exercise voting power in
electing directors within
one of the following
ranges of voting power:
. one-fifth or more but
less than one-third,
. one-third or more but
less than a majority or
. a majority of all voting
power.
Control shares do not
include shares which the
acquiring person is
entitled to vote as a
result of having
previously obtained
shareholder approval. A
control share acquisition
generally means the
acquisition of control
shares.
A person who has made or
proposes to make a control
share acquisition, upon
satisfaction of a number
of conditions, may compel
the board of directors to
call a special meeting of
shareholders to be held
within 30 to 50 days of
the demand to consider the
voting rights of the
control shares.
If voting rights are not
approved at the meeting or
if an acquiring person
statement has been
delivered as required by
Maryland law, then, in
general, the corporation
may redeem any or all of
the control shares, except
those for which voting
rights have previously
been approved, for fair
value determined, without
regard to voting rights,
as of the date of the last
control share acquisition
or of any meeting of
shareholders at which the
voting rights of the
control shares are
considered and not
approved. If voting rights
for control shares are
76
COMSAT Shareholders Lockheed Martin Shareholders
------------------- ----------------------------
approved at a shareholders
meeting and the acquiring
person becomes entitled to
vote a majority of the
shares entitled to vote,
all other shareholders may
exercise appraisal rights.
The fair value of the
shares as determined for
purposes of appraisal
rights may not be less
than the highest price per
share paid in the control
share acquisition.
The control share
acquisition statute does
not apply to shares
acquired in a merger,
consolidation or share
exchange if the
corporation is a party to
the transaction or to
acquisitions approved or
excepted by the charter or
the bylaws of the
corporation.
The control share
acquisition statute could
have the effect of
discouraging unsolicited
offers to acquire Lockheed
Martin and of increasing
the difficulty of
consummating an
unsolicited offer.
Indemnification and
Limitation of
Liability........... Under District of Columbia Lockheed Martin's charter
law a corporation has the limits the monetary
power to indemnify its liability of both officers
current and former and directors to the
directors and officers and maximum extent permissible
other people who may have under Maryland law. To the
served at the extent that it is proved
corporation's request as a that the person received
director or officer of an improper benefit or
another corporation in profit in money, property
which the corporation owns or services, the liability
shares of capital stock or limitation is not
of which it is a creditor applicable for the amount
against expenses actually of benefit or profit so
and necessarily incurred received. In addition, the
by them in connection with liability limitation is
the defense of any not applicable if a
proceeding in which they judgment or other final
are a party, by reason of adjudication adverse to
being or having been a the person is entered in a
director or officer of the proceeding based on a
corporation, or of another finding that the person's
corporation, except in action or failure to act
relation to matters as to was the result of active
which the person shall be and deliberate dishonesty
adjudged in the proceeding and was material to the
to be liable for cause of action.
negligence or misconduct
in the performance of Under Maryland law, unless
duty. limited by the charter,
indemnification is
COMSAT's articles of mandatory if a director or
incorporation provide an officer is successful
that, to the fullest on the merits or otherwise
extent permitted by law, in the defense of any
any person who was or is a proceeding by reason of
party to any proceeding his service as a director
brought by COMSAT, by or officer unless
reason of the fact that indemnification is not
the person is a director, otherwise permitted as
advisory director or described in the following
officer of COMSAT, or by sentence. Indemnification
reason of any action is permissive unless it is
alleged to have been taken established that:
or omitted in that
capacity, shall be . the act or omission of
indemnified, against the director or officer
costs, reasonably incurred was material to the
by him in connection with matter giving rise to
the defense or settlement the proceeding and was
of any proceeding; committed in bad faith
provided that no or was the result of
indemnification will be active and deliberate
dishonesty,
77
COMSAT Shareholders Lockheed Martin Shareholders
------------------- ----------------------------
made in any matter where . the director or officer
the person will have been actually received an
judged liable for improper personal
negligence or misconduct benefit in money,
in the performance of property or services, or
duty. COMSAT's Board of
Directors may indemnify . in the case of a
other persons. criminal proceeding, the
director or officer had
COMSAT's articles of reasonable cause to
incorporation provide believe his act or
that, to the full extent omission was unlawful.
permitted by law, upon
request, COMSAT shall pay In addition to the
costs, charges and foregoing, a court may
expenses incurred by any order indemnification if
person entitled to it determines that the
indemnification in advance director or officer is
of the final disposition fairly and reasonably
of any proceeding upon entitled to
receipt of an undertaking indemnification in view of
by or on behalf of the all the relevant
person to repay all circumstances, whether or
amounts so advanced in the not the director or
event that it shall officer has met the
ultimately be determined standards of conduct set
that he is not entitled to forth in the preceding
be indemnified. COMSAT may sentence or has been
also pay the costs, adjudged liable on the
charges and expenses basis that a personal
incurred by any other benefit was improperly
person COMSAT indemnifies. received in a proceeding
charging improper personal
benefit to the director or
the officer. If the
proceeding was an action
by or in the right of the
corporation or involved a
determination that the
director or officer
received an improper
personal benefit, however,
no indemnification may be
made if the individual is
adjudged liable to the
corporation, except to the
extent of expenses
approved by a court.
Under Maryland law, where
indemnification is
permissible, it must be
authorized by:
. a majority vote of a
quorum consisting of
directors who are not
parties to the
proceeding, or a
majority vote of a
disinterested committee
of the board if a quorum
cannot be obtained;
. special legal counsel
selected by the board of
directors or by a
committee of the board,
or a majority of the
full board if a quorum
of the board cannot be
obtained and the
committee cannot be
established; or
. a vote of the
shareholders other than
those shareholder-
directors who are party
to the proceedings.
Under Maryland law,
expenses may be advanced
to a director, and to an
officer, employee or agent
who is not a director, to
the same extent that they
may be advanced to a
director, unless limited
by the charter. Advances
to officers, employees and
agents may be generally
authorized in the
corporation's charter or
bylaws, by action of the
board of directors or by
contract.
78
COMSAT Shareholders Lockheed Martin Shareholders
------------------- ----------------------------
Dissenters' or
Appraisal Rights.... Under District of Columbia Under Maryland law,
law, if you do not consent shareholders have the
to a merger or right to demand and to
consolidation and follow receive payment of the
all required procedures, fair value of their stock
you are entitled to in the event of:
appraisal rights under
which you may receive cash . a merger or
in the amount of the fair consolidation,
market value of your
shares instead of the . a share exchange,
consideration you would
otherwise receive in the . certain sales of all or
transaction. Under substantially all of the
District of Columbia law, assets,
appraisal rights are
available to you in . a charter amendment
connection with the altering contract rights
merger. of outstanding stock, as
expressly set forth in
the charter, and
substantially adversely
affecting the
shareholder's rights,
unless, as is the case
with Lockheed Martin's
charter, the right to do
so is reserved in the
charter, or
. certain business
combinations with
interested shareholders
that are subject to or
exempted from Maryland's
business combination
statute and in
connection with the
approval of voting
rights of certain
shareholders under
Maryland's control share
acquisition statute.
Except with respect to
certain business
combinations and in
connection with appraisal
and dissenters' rights
existing as a result of
Maryland's control share
acquisition statute, the
right to demand and
receive payment of fair
value does not apply to
the following:
. stock listed on a
national securities
exchange or NASDAQ;
. stock of the successor
in a merger, unless the
merger alters the
contract rights of the
stock and the charter
does not reserve the
right to do so or
converts the stock in
whole or in part into
something other than
stock, cash, scrip or
other interests, or
. stock of an open-end
investment company
registered with the SEC
under the Investment
Company Act of 1940 and
the stock is valued in
the transaction at its
net asset value.
Except in the case of
appraisal and dissenters'
rights existing as a
result of Maryland's
control share acquisition
statute, these rights are
available only when the
shareholder files with the
corporation a timely,
written objection to
79
COMSAT Shareholders Lockheed Martin Shareholders
------------------- ----------------------------
the transaction and does
not vote in favor of the
transaction. In addition,
the shareholder must make
a demand on the successor
corporation for payment of
the stock within 20 days
of the acceptance of
articles of incorporation
by the state.
Prohibition on
Payment of
Greenmail........... COMSAT's articles of Lockheed Martin's charter
incorporation do not contains a provision
contain a prohibition on requiring approval by the
the payment of greenmail. affirmative vote of
holders of a majority of
outstanding shares of
voting stock of any
purchase by Lockheed
Martin of shares of stock
entitled to vote from an
owner of 5% or more of
outstanding shares of
voting stock who
beneficially owned the
shares for less than two
years at a price per share
in excess of the market
price for the shares at
such time. Approval is
also required for certain
other transactions with
the shareholder,
including, but not limited
to, a merger or
consolidation, or the sale
or transfer of more than
$10 million of assets or
equity securities. In
either case, shares owned
the beneficial owner of 5%
or more of outstanding
shares of voting stock are
not permitted to vote or
taken into account. Under
Lockheed Martin's charter,
this provision may be
amended or repealed only
by the affirmative vote of
holders of at least 80% of
the outstanding shares of
voting stock.
Lockheed Martin's charter
further provides that if
any person other than
Lockheed Martin or certain
of its affiliates
beneficially owns voting
stock representing 40% or
more of the votes entitled
to be cast by all the
holders of outstanding
shares of voting stock,
the directors of Lockheed
Martin will be elected by
cumulative voting and one
or more candidates may be
nominated by certain
disinterested directors,
or by any beneficial owner
of voting stock having an
aggregate market price of
$250,000 or more.
Dividends............ District of Columbia law Maryland law permits a
permits a corporation to corporation to make a
declare and pay dividends distribution, including
except when the dividends, redemptions or
corporation is insolvent stock repurchases, unless
or its net assets are less prohibited by its charter
than its stated capital, or, if following the
or when the dividend distribution, the
payments would render the corporation would not be
corporation insolvent or able to pay its debts in
reduce its net assets the ordinary course as
below its stated capital. they become due or the
corporation's total assets
would be less
80
COMSAT Shareholders Lockheed Martin Shareholders
------------------- ----------------------------
than the sum of its
liabilities and, unless
the charter provides
otherwise, senior
liquidation preferences.
For purposes of
determining whether a
distribution is lawful,
the corporation's assets
may be based upon fair
value or any other method
of valuation that is
reasonable under the
circumstances.
Right to Examine
Shareholder List.... Under District of Columbia Under Maryland law, any
law, record holders of at one or more persons who
least 5% of all the for at least six months
outstanding shares of a have been the record
corporation are entitled holders of at least 5% of
to examine and copy a any class of stock are
corporation's shareholder entitled to inspect and
list. In accordance with copy the corporation's
the Satellite Act, stock ledger and if the
COMSAT's articles of corporation does not
incorporation provide that maintain its stock ledger
any COMSAT shareholder has at its principal place of
the right to examine and business, to request in
copy COMSAT's shareholder writing a shareholder
list. In addition, list. Following the
COMSAT's bylaws provide request, the corporation
that at least five days has 20 days to produce a
before each shareholders shareholder list with
meeting, the corporate names, addresses and
secretary must prepare a numbers of shares of each
shareholders list. class owned. In addition,
under Lockheed Martin's
bylaws, the corporate
secretary must furnish a
shareholder list at each
meeting.
Interested Director
Transactions........ The District of Columbia Under Maryland law,
does not have any certain contracts or
provisions regulating transactions in which one
interested director or more of a corporation's
transactions. However, directors has an interest
COMSAT's articles of are not void or voidable
incorporation provide that by virtue of the interest
no director may of the corporation's
participate in the directors if ratified by a
negotiation of any majority of disinterested
contract between COMSAT shareholders or a majority
and any entity in which of disinterested members
the director has a of the board of directors
substantial financial or a committee of the
interest or of which the board if the material
interested director is a facts are disclosed or
director, trustee or known by the board or the
employee. A director has a contract or transaction
duty to advise COMSAT's was fair and reasonable to
Board of Directors or any the corporation at the
committee of the board of time it was approved.
any interest the director
has in a contract that
COMSAT's Board of
Directors or committee
propose to act upon at a
meeting at which the
director will not be
present and, if the
director is present, at
the meeting he must advise
COMSAT's Board of
Directors or committee of
his interest and abstain
from participation in any
discussion of or vote upon
the contract. If a
director knowingly
violates the foregoing and
the contract was unfair to
COMSAT at the time it was
entered into, the director
is liable to COMSAT for
any damages that result
from the unfairness.
81
COMSAT Shareholders Lockheed Martin Shareholders
------------------- ----------------------------
Preemptive Rights.... Under District of Columbia Under Maryland law as in
law, the preemptive right effect at the time
of a shareholder to Lockheed Martin was
acquire additional shares incorporated, subject to
of a corporation several statutory
may be limited or denied exceptions, the preemptive
to the extent provided in right of a shareholder to
a corporation's charter. acquire additional shares
COMSAT's articles of of a corporation could be
incorporation expressly limited or denied to the
deny preemptive rights to extent provided in a
shareholders. corporation's charter.
Lockheed Martin's charter
denies preemptive rights
to holders of any class of
stock.
Unsolicited
Takeovers............ The District of Columbia The Maryland legislature
does not have an has passed a bill
unsolicited takeovers regarding unsolicited
statute. takeovers which, became
effective on June 1, 1999.
Under the proposed bill,
Maryland corporations may
elect to be subject to any
or all of its provisions
by a resolution of the
board of directors or a
provision in its charter
or bylaws. Currently,
Lockheed Martin's Board of
Directors has not
considered whether it will
elect to be subject to any
or all of the provisions
in the bill. The bill
contains the following
provisions:
. The board of directors
may establish a
stockholder rights plan
or "poison pill."
. A corporation electing
to be subject to the
bill must divide its
board of directors into
3 classes with each
class serving a
staggered 3 year term.
. Removal of a director on
a staggered board must
be for cause and
requires a two-thirds
vote of all votes
entitled to be cast by
shareholders generally
in the election of
directors.
. The number of directors
may be fixed only by the
board of directors.
. The secretary may call a
special shareholders
meeting only on the
written request of
shareholders entitled to
cast at least a majority
of the votes entitled to
be cast at the meeting
that satisfy certain
procedural requirements.
82
OWNERSHIP OF COMSAT COMMON STOCK
Record Date
On July 20, 1999, the record date, there were approximately 52,758,000
shares of COMSAT common stock outstanding. Of this number, approximately 19,000
were Series II shares and 52,739,000 were Series I shares. Series II shares are
shares held by FCC authorized communications common carriers. Series I shares
are held by other persons.
Beneficial Ownership of Principal Shareholders and Management
Beneficial Owners.
COMSAT has reviewed the Schedules 13G or 13D filed with the SEC as of June
1, 1999, the most recent practicable date for this information. COMSAT believes
that the following table includes a complete list of the persons that
beneficially owned more than 5% of COMSAT's common stock on that date.
Name and Address Amount and Nature of
of Beneficial Owner Beneficial Ownership(1) Percent of Class
- --------------------------------------- ----------------------- ----------------
FMR Corp(2)............................ 3,975,812 7.54%
Cramer Rosenthal McGlynn(3)............ 3,485,955 6.61
Morgan Stanley
Dean Witter & Co.(4).................. 3,355,632 6.37
- --------
(1) Each number in this column has been rounded to the nearest whole share.
(2) FMR Corp., a Massachusetts corporation, is located at 82 Devonshire Street,
Boston, Massachusetts 02109. FMR filed an amendment to its Schedule 13D on
February 25, 1999 reporting on a voluntary basis that FMR and Fidelity
International Limited, a Bermuda company, may be deemed to have jointly
owned as of that date a total of 3,975,812 shares of COMSAT common stock.
(3) Cramer Rosenthal McGlynn, a New York limited liability company, is located
at 707 Westchester Avenue, White Plains, New York 10604. The company filed
a Schedule 13G on March 15, 1999 reporting beneficial ownership of
3,485,955 shares of COMSAT common stock.
(4) Morgan Stanley Dean Witter & Co., a Delaware corporation, is located at
1585 Broadway, New York, New York 10036. Morgan Stanley Dean Witter
Investment Management Limited, organized under the laws of England, is a
wholly-owned subsidiary of Morgan Stanley Dean Witter & Co. that is located
at 25 Cabot Square, Canary Wharf, London E14 4QA, England. The two
companies filed a joint amendment to Schedule 13G on February 10, 1999 in
which it was reported that the two companies together beneficially owned an
aggregate of 3,355,632 shares of COMSAT common stock. Of this amount,
Morgan Stanley Dean Witter Investment Management Limited beneficially owned
an aggregate of 3,204,637 shares of COMSAT common stock.
83
Management.
The following table sets forth information as of June 1, 1999, the most
recent practicable date for this information, regarding the beneficial
ownership of COMSAT's common stock by all directors, by each of the named
executive officers, and by all directors and executive officers as a group.
Under the rules of the SEC, beneficial ownership includes any shares over which
an individual has sole or shared voting or investment power, and also any
shares that the individual has the right to acquire within 60 days through the
exercise of any stock option or other right.
Amount and Nature of
Name(1) Beneficial Ownership(2)
------------------------------------------------ -----------------------
Betty C. Alewine................................ 388,185(3)
Marcus C. Bennett............................... 2,480
Lucy Wilson Benson.............................. 40,485
Edwin I. Colodny................................ 47,749
Lawrence S. Eagleburger......................... 13,102
Allen E. Flower................................. 124,203(4)
Neal B. Freeman................................. 32,165
Caleb B. Hurtt.................................. 8,441
Dwight E. Jasmann............................... 9,571(5)
Peter S. Knight................................. 13,402
Peter W. Likins................................. 38,335(6)
Charles T. Manatt............................... 13,902
John H. Mattingly............................... 48,076(7)
Benjamin A. Pontano............................. 48,937(8)
Larry G. Schafran............................... 7,480(9)
Robert G. Schwartz.............................. 44,285
Kathryn C. Turner............................... 4,480
Guy P. Wyser-Pratte............................. 2,020,780(10)
Warren Y. Zeger................................. 172,161(11)
All directors and executive officers as a group
(22 persons)................................... 3,103,982(12)
- --------
(1) Unless otherwise indicated, each person has sole voting and investment
power over the shares listed, and no director or executive officer
beneficially owns more than 1.0% of COMSAT's common stock.
(2) Each number in this column has been rounded to the nearest whole share.
The following non-employee directors elected to defer receipt of their
1,000 share annual retainer for 1998 and instead received phantom stock
units which are not included in their beneficial ownership of COMSAT
common stock: Mr. Bennett; Mrs. Benson; Mr. Eagleburger; Mr. Hurtt; Mr.
Knight; Mr. Manatt; and Mr. Schafran. Beneficial ownership of COMSAT
common stock includes shares that may be acquired within 60 days after
June 1, 1999 through the exercise of options as follows: Mrs. Alewine,
266,743 shares; Mr. Bennett, 2,480 shares; Mrs. Benson, 34,725 shares; Mr.
Colodny, 43,408 shares; Mr. Eagleburger, 12,402 shares; Mr. Flower, 99,266
shares; Mr. Freeman, 29,765 shares; Mr. Hurtt, 7,441 shares; Mr. Jasmann,
7,752 shares; Mr. Knight, 12,402 shares; Dr. Likins, 31,005 shares; Mr.
Manatt, 12,402 shares; Mr. Mattingly, 33,524 shares; Dr. Pontano, 33,515
shares; Mr. Schafran, 2,480 shares; Mr. Schwartz, 34,725 shares; Ms.
Turner, 2,480 shares; Mr. Wyser-Pratte, 2,480 shares; Mr. Zeger, 149,052
shares; and all directors and executive officers as a group, 827,988
shares. The number of option shares and shares awarded under COMSAT
benefit plans which are restricted against transfer that are included as
beneficially owned have been adjusted to give effect to the Ascent spin-
off to COMSAT shareholders on June 27, 1997. All outstanding options and
restricted shares held on that date were adjusted by multiplying the
number of options or shares held by an adjustment ratio of 1.2402.
(3) Includes 23,666 shares which are restricted against transfer and 1,577
shares which are held in COMSAT's Savings and Profit-Sharing Plan as of
June 1, 1999.
(4) Includes 12,957 shares which are restricted against transfer and 1,318
shares which are held in COMSAT's Savings and Profit-Sharing Plan as of
June 1, 1999.
(5) Includes 121 shares which are held in COMSAT's Savings and Profit-Sharing
Plan as of June 1, 1999. Mr. Jasmann resigned in February 1998.
(6) Includes 2,850 shares over which Dr. Likins shares voting power and
investment power with Mrs. Likins.
(7) Includes 7,984 shares which are restricted against transfer and 1,123
shares which are held in COMSAT's Savings and Profit-Sharing Plan as of
June 1, 1999. Includes 500 shares held by Mr. Mattingly's mother of which
Mr. Mattingly disclaims beneficial ownership.
(8) Includes 4,000 shares which are restricted against transfer and 640 shares
which are held in COMSAT's Savings and Profit-Sharing Plan as of June 1,
1999.
(9) Includes 5,000 shares held by Mrs. Schafran of which Mr. Schafran
disclaims beneficial ownership.
(10) Includes 1,961,300 shares owned by investment partnerships and other
managed accounts for which Wyser-Pratte Management Co., Inc. and its
affiliates are the general partner or investment manager. Mr. Wyser-Pratte
beneficially owned 3.83% of COMSAT's outstanding common stock as of June
1, 1999.
(11) Includes 13,453 shares which are restricted against transfer and 1,483
shares which are held in COMSAT's Savings and Profit-Sharing Plan as of
June 1, 1999.
(12) Includes 5,500 shares with respect to which beneficial ownership is
disclaimed. Also includes an aggregate of 70,056 shares which are
restricted against transfer and 6,833 shares which are held in COMSAT's
Savings and Profit-Sharing Plan as of June 1, 1999. All directors and
executive officers as a group beneficially owned 5.80% of COMSAT's
outstanding common stock as of June 1, 1999.
84
Ownership and Voting Limitations
To ensure that COMSAT common stock is widely held, there are specific
limitations on ownership of COMSAT common stock. The Satellite Act provides
that, unless you are a communications common carrier authorized to hold shares
by the FCC, no shareholder, or any syndicate or affiliated group of
shareholders, may own more than 10% of the aggregate number of outstanding
shares of COMSAT common stock.
COMSAT's articles of incorporation authorize its Board of Directors to
establish an ownership limitation on COMSAT common stock below this 10%
statutory maximum. The COMSAT Board of Directors has set the ownership
limitation at 10% and has also established a voting limitation of 5%. The
voting limitation means that shares owned in excess of the 5% limitation, but
not in excess of the 10% limitation, may not be voted by the shareholder. These
excess shares will be voted proportionately with all other shares of COMSAT
common stock voted on any given matter.
ITEM 2. ELECTION OF DIRECTORS
Board of Directors
Composition.
The Satellite Act provides that the COMSAT Board of Directors will consist
of 15 directors. Of these, 12 are to be elected annually by the shareholders
for terms of one year. The remaining three are to be appointed by the President
of the United States, with the advice and consent of the U.S. Senate, for terms
of three years and, in each case, until their successors have been appointed
and qualified.
Attendance.
The COMSAT Board of Directors met eight times in 1998. All incumbent
directors, except Mr. Eagleburger, attended 75% or more of the meetings of the
Board of Directors and the meetings of committees of the Board of Directors of
which they were members in 1998.
Voting for Directors
Voting at the Annual Meeting.
At the annual meeting, 12 directors will be elected to serve until the 2000
Annual Meeting of COMSAT shareholders. This year all shareholders will vote
together for the election of directors because the number of Series II shares
outstanding on July 20, 1999, the record date, constituted less than 8% of the
total outstanding shares on that date, as required under the Satellite Act.
COMSAT's management has been authorized by the Board of Directors to solicit
proxies in favor of the election of the 12 nominees listed in this proxy
statement/prospectus. For biographical information about these nominees, please
refer to "Nominees For Election As Directors" on page 87. Each of these
nominees currently serves as a director. For biographical information about the
two Presidentially-appointed directors, please refer to "Presidentially-
Appointed Directors" on page 89.
Your Voting Options.
You may vote the total number of shares of COMSAT common stock you hold for
each of 12 nominees. Alternatively, you may cumulate your votes. This means
that you may give one nominee a total number of votes equal to the number of
shares you hold multiplied by 12. Or, you may distribute this total number of
votes among any number of nominees not exceeding 12. In any case, if you own
more than 5% of COMSAT's common stock, you will have to comply with the 5%
voting limitation described under "Ownership of COMSAT Common Stock."
If you leave the Election of Directors section of your proxy card blank,
your shares will be voted for the 12 nominees listed on the proxy card. COMSAT
does not currently expect that any of the 12 nominees will
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become unavailable for election. If this changes, the proxy holders will
designate a substitute nominee and will vote the shares represented by proxies
for this substitute nominee. The proxy holders may decide to vote the shares
cumulatively for fewer than 12 of the nominees.
Shareholders Agreement.
Under the shareholders agreement with Lockheed Martin, COMSAT has agreed
that, if the tender offer is completed, three individuals designated by
Lockheed Martin will be elected to the COMSAT Board of Directors and one of the
three individuals will be appointed to serve on each committee of the COMSAT
Board of Directors. It is anticipated that, following the tender offer, Messrs.
Bennett and Hurtt will serve as two of the three directors on the COMSAT Board
of Directors which Lockheed Martin will be entitled to designate under the
shareholders agreement.
Requirements for Nominations and Shareholder Proposals
Generally.
COMSAT's bylaws require that you provide advance notice of director
nominations or proposals which you would like to have brought before an annual
meeting of shareholders. COMSAT's general rule is that you must deliver certain
information concerning yourself and any director nomination or shareholder
proposal to COMSAT within a certain time period. This period runs at least 60
and not more than 90 days prior to the date that is the anniversary date of the
immediately preceding annual meeting of shareholders.
If the annual meeting is scheduled to be held on a date that is more than 30
days before or after the anniversary date, COMSAT's bylaws provide a different
rule. In that case, COMSAT is required to mail out a notice of the date of the
annual meeting or to make public disclosure of the date of the annual meeting.
On the date that COMSAT either mails the notice or makes the public disclosure,
whichever comes first, a new period for submitting director nominations or
shareholder proposals opens. This period closes at the close of business on the
10th day in the period.
This Year.
This year the anniversary date is May 15, 1999. The annual meeting was
originally scheduled to be held on June 18, 1999, which is more than 30 days
after the anniversary date. The annual meeting was subsequently rescheduled for
August 20, 1999. On February 22, 1999, COMSAT issued a press release
announcing, among other things, the date of the annual meeting. On June 11,
1999, COMSAT issued a press release and filed a Form 8-K with the SEC
announcing that the annual meeting had been rescheduled for August 20, 1999.
Nominations for director and shareholder proposals were required to be received
no later than June 21, 1999 to be considered at the annual meeting. This year
the only nomination or proposal received by the deadline is the proposal
discussed under the caption "Item 4. Action Upon a Shareholder Proposal."
Consequently, no nomination and no other proposal will be in order at the
annual meeting.
Other Requirements.
COMSAT requires each director nominee to file with COMSAT's Corporate
Secretary a statement of his interests in communications common carriers in
such reasonable detail as the COMSAT Board of Directors may require. The
Corporate Secretary will provide you with a form of such statement upon written
request. You may also send a written request to the Corporate Secretary to
receive a list of persons whose nominations have been duly proposed in
accordance with COMSAT's bylaws and not withdrawn. This list and the statements
of interests filed by each director nominee may be inspected by any
shareholder. You may inspect these documents:
(1) at the office of the Corporate Secretary, 6560 Rock Spring Drive,
Bethesda, Maryland 20817 during normal business hours from the date of this
proxy statement/prospectus until the date of the annual meeting, and
(2) at the place of the annual meeting during the meeting.
86
Nominees for Election as Directors
BETTY C. ALEWINE, 51, has been President and Chief
Executive Officer of COMSAT since July 1996. She was
President, COMSAT International Communications from
January 1995 to July 1996, and was President, COMSAT
World Systems from May 1991 to January 1995. She joined
COMSAT from MCI Communications Corporation in 1986 and
has been a director of COMSAT since July 1996. She also
is a director of New York Life Insurance Co. and the
Cancer Research Foundation of America, a not-for-profit
corporation. She is a member of the Inter-American
Development Bank Advisory Council, the Business-Higher
Education Forum and the American Institute of Aeronautics
and Astronautics.
[PHOTO OF BETTY C. ALEWINE, APPEARS HERE]
MARCUS C. BENNETT, 63, is a director of various
organizations. He was Executive Vice President and Chief
Financial Officer of Lockheed Martin from 1995 to January
1999 and is a director of Lockheed Martin. He has been a
COMSAT director since August 1997. He also is a director
of Carpenter Technology Corporation and Martin Marietta
Materials, Inc. and a member of the board of directors of
the Private Sector Council and the Georgia Tech Advisory
Board.
[PHOTO OF MARCUS C. BENNETT APPEARS HERE]
LUCY WILSON BENSON, 71, has been a director of various
business, educational and nonprofit organizations since
1980. She was Under Secretary of State for Security
Assistance, Science and Technology from 1977 to 1980. She
has been a COMSAT director since September 1987. She also
is a director of Logistics Management Institute, a
trustee of the Alfred P. Sloan Foundation and Vice
Chairperson of the Atlantic Council of the U.S., the
Board of Trustees of Lafayette College and the Citizens
Network for Foreign Affairs. She also is a director or
trustee of funds of The Dreyfus Corporation.
[PHOTO OF LUCY WILSON BENSON APPEARS HERE]
EDWIN I. COLODNY, 73, has been Chairman of the Board of
COMSAT since April 1997 and a director since May 1992. He
was Chairman of US Airways Group, Inc. and of its
subsidiary, US Airways, Inc., a commercial airline
company, from 1978 until July 1992 and was a director of
both corporations until May 1997. He was Chief Executive
Officer of US Airways Group from 1983 to June 1991 and of
its subsidiary, US Airways, Inc., from 1975 to June 1991.
He has served as counsel to the Washington, D.C. law firm
of Paul, Hastings, Janofsky and Walker since September
1991.
[PHOTO OF EDWIN I. COLODNY APPEARS HERE]
87
LAWRENCE S. EAGLEBURGER, 68, has been Senior Foreign
Policy Advisor for Baker, Donelson, Bearman & Caldwell, a
Washington, D.C. law firm, since January 1993. He
previously served as United States Secretary of State
from December 1992 through January 1993, Acting Secretary
of State from August 1992 to December 1992, and Deputy
Secretary of State from February 1989 to August 1992. He
has been a COMSAT director since May 1995. He also is a
director of Phillips Petroleum Company, Stimsonite
Corporation, Universal Corporation and Halliburton
Industries, and Chairman of the International Commission
on Holocaust Era Insurance Claims.
[PHOTO OF LAWRENCE S. EAGLEBURGER APPEARS HERE]
NEAL B. FREEMAN, 59, has been Chairman and Chief
Executive Officer of The Blackwell Corporation, a
television production and distribution company, since
1981. He was a Presidentially-appointed COMSAT director
from November 1983 to September 1988 and has been an
elected director since May 1991. He also is Vice Chairman
of The Ethics and Public Policy Center and a director of
Forum Network, Inc. and National Review, Inc.
[PHOTO OF NEAL B. FREEMAN APPEARS HERE]
CALEB B. HURTT, 67, is a director or trustee of various
organizations. He was President of Martin Marietta
Aerospace from 1982 to 1987 and then President and Chief
Operating Officer of Martin Marietta Corporation from
1987 through 1989. He has been a COMSAT director since
May 1996. He also is a director of Lockheed Martin and
has served as Chairman of the Board of Governors of the
Aerospace Industries Association, as Chairman of the NASA
Advisory Council, as Chairman of the Federal Reserve
Bank, Denver Branch, and as Vice Chairman of the Board of
Trustees of Stevens Institute of Technology.
[PHOTO OF CALEB B. HURTT APPEARS HERE]
PETER W. LIKINS, 63, has been President of The University
of Arizona since October 1997. He was President of Lehigh
University from 1982 to September 1997, Provost of
Columbia University from 1980 to 1982 and Professor and
Dean of the Columbia University School of Engineering and
Applied Science from 1976 to 1980. He has been a COMSAT
director since September 1987. He also is a director of
Parker Hannifin, Inc. and Safeguard Scientifics, Inc. and
a trustee of Consolidated Edison Company of New York,
Inc. and of the University Medical Center in Tucson,
Arizona.
[PHOTO OF PETER W. LIKINS APPEARS HERE]
LARRY G. SCHAFRAN, 61, has been the Managing General
Partner of L.G. Schafran & Associates, a real estate
investment and development firm, since 1984. He was
Chairman of the Executive Committee of Dart Group
Corporation from 1994 to October 1997 and a director of
Dart from 1993 to October 1997. He has been a COMSAT
director since August 1997. He also is a director of
PubliCARD, Inc., Tarragon Realty Investors, Inc.,
Discovery Zone, Inc. and Kasper A.S.L., Ltd. and Chairman
of the Board of Directors of Delta-Omega Technologies,
Inc.
[PHOTO OF LARRY G. SCHAFRAN APPEARS HERE]
88
ROBERT G. SCHWARTZ, 71, is a director or trustee of
various business organizations. He was Chairman of the
Board, President and Chief Executive Officer of
Metropolitan Life Insurance Co. (MetLife) from September
1989 to March 1993 and remains a director of MetLife. He
was Chairman of the Board of MetLife from February 1983
to September 1989. He has been a COMSAT director since
May 1986. He also is a trustee of Consolidated Edison
Company of New York, Inc. and a director of Lone Star
Industries, Inc., Lowe's Companies, Inc., Mobil Oil
Corporation, Potlatch Corporation and the Horatio Alger
Association for Distinguished Americans.
[PHOTO OF ROBERT G. SCHWARTZ APPEARS HERE]
KATHRYN C. TURNER, 52, is the Chairperson and Chief
Executive Officer of Standard Technology, Inc., a high-
technology, engineering and systems integration firm. She
previously has been appointed by the President to serve
on the President's Export Council, the Eximbank Advisory
Committee, and the Commission on the Future of Worker-
Management Relations and by the Secretary of Defense to
the Defense Policy Advisory Committee on Trade. She has
been a COMSAT director since August 1997. She also is a
director of Phillips Petroleum Company and Carpenter
Technology Corporation.
[PHOTO OF KATHRYN C. TURNER APPEARS HERE]
GUY P. WYSER-PRATTE, 59, is President of Wyser-Pratte &
Co., Inc. and Wyser-Pratte Management Co., Inc. He has
been a COMSAT director since August 1997. He also is a
director of The Eureka (US$) Fund, The Eureka (DM) Fund
and the International Rescue Committee, a non-
governmental international refugee organization, a member
of the Council on Foreign Relations and a trustee of the
U.S. Marine Corps University Foundation.
[PHOTO OF GUY P. WYSER-PRATTE APPEARS HERE]
Presidentially-Appointed Directors
PETER S. KNIGHT, 48, has been a partner in the
Washington, D.C. law firm of Wunder, Knight, Levine,
Thelen & Forscey since 1991. In 1996, he took a leave of
absence from his firm to serve as Campaign Manager for
Clinton/Gore '96. From 1989 to 1991, he was General
Counsel and Secretary of the Medicis Pharmaceutical
Corporation. From 1977 to 1989, he served as the Chief of
Staff to Congressman and later Senator Al Gore. He has
been a Presidentially-appointed COMSAT director since
September 1994. He also is a director of the Medicis
Pharmaceutical Corporation, Whitman Education Group Inc.,
Healthworld and the Schroder Series Trust. His current
term expires at this annual meeting.
[PHOTO OF PETER S. KNIGHT APPEARS HERE]
CHARLES T. MANATT, 63, is the Chairman of Manatt, Phelps
& Phillips, a Washington, D.C. and Los Angeles law firm
which he founded in 1965. He was Chairman of the
Democratic National Committee from 1981 through 1985. He
has been a Presidentially-appointed COMSAT director since
May 1995. He also is a director of the Federal Express
Corporation and ICN Pharmaceuticals, Inc. His current
term expired at the 1997 annual meeting, and he continues
to serve in accordance with the Satellite Act.
[PHOTO OF CHARLES T. MANATT APPEARS HERE]
89
The third Presidentially-appointed director position is currently vacant
pending nomination and confirmation of a successor.
Your Board of Directors recommends that you vote in favor of the 12 director
nominees. Proxies solicited by the management will be so voted unless you
specify a contrary choice in your proxy. For approval, the proposal requires
the affirmative vote of a plurality of the votes represented at the annual
meeting.
Committees of the COMSAT Board of Directors
The Board of Directors currently has six standing committees, described
below.
Committee on Audit, Corporate Responsibilities and Ethics.
The Committee on Audit, Corporate Responsibility and Ethics consists of Lucy
Wilson Benson (Chairperson), Marcus C. Bennett, Lawrence S. Eagleburger, Peter
W. Likins, Charles T. Manatt and Guy P. Wyser-Pratte. The committee met three
times during 1998. The committee is responsible for:
. making recommendations to the Board of Directors concerning the
selection of independent public accountants;
. reviewing with the independent accountants the scope of their audit;
. reviewing the financial statements with the independent accountants;
. reviewing with the independent accountants and COMSAT's management and
internal auditors COMSAT's accounting and audit practices and
procedures, its internal controls and its compliance with laws and
regulations; and
. reviewing COMSAT's policies regarding community and governmental
relations, conflicts of interest, business conduct, ethics and other
social, political and public matters, and the administration of these
policies.
Committee on Compensation and Management Development.
The Committee on Compensation and Management Development consists of Caleb
B. Hurtt (Chairman), Neal B. Freeman, Peter S. Knight, Robert G. Schwartz and
Kathryn C. Turner. The committee met ten times during 1998. The committee is
responsible for:
. approving long-term compensation for senior executives;
. considering and making recommendations to the Board of Directors with
respect to programs for human resources development and management
organization and succession;
. recommending salary and bonus awards for senior executives;
. reviewing compensation policies and employee benefit and incentive
plans; and
. exercising authority granted to it to administer these plans.
Finance Committee.
The Finance Committee consists of Robert G. Schwartz (Chairman), Betty C.
Alewine, Marcus C. Bennett, Neal B. Freeman, Peter S. Knight and Larry G.
Schafran. The committee met seven times during 1998. The committee is
responsible for:
. considering and making recommendations to the Board of Directors with
respect to the financial affairs of COMSAT, including matters relating
to capital structure and requirements, financial performance, dividend
policy, capital and expense budgets and significant capital commitments;
and
. other matters as may be referred to it by the Board of Directors, the
Chairman of the Board or the Chief Executive Officer.
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Nominating and Corporate Governance Committee.
The Nominating and Corporate Governance Committee consists of Edwin I.
Colodny (Chairman), Lucy Wilson Benson, Caleb B. Hurtt, Charles T. Manatt and
Robert G. Schwartz. The committee met three times during 1998. The committee is
responsible for:
. recommending to the Board of Directors qualified candidates for election
as directors and as Chairman of the Board;
. considering, acting upon or making recommendations to the Board of
Directors with respect to other matters as may be referred to it by the
Board of Directors, the Chairman of the Board or the Chief Executive
Officer; and
. considering candidates recommended by shareholders, if the
recommendations are submitted in writing to the Secretary of COMSAT.
Committee on Research and International Matters.
The Committee on Research and International Matters consists of Peter W.
Likins (Chairman), Lucy Wilson Benson, Lawrence S. Eagleburger, Charles T.
Manatt, Larry G. Schafran and Kathryn C. Turner. The committee met two times
during 1998. The committee is responsible for:
. considering and making recommendations to the Board of Directors with
respect to the research and development programs of COMSAT and the
relationship of these programs to the business of COMSAT;
. matters relating to COMSAT's responsibilities and activities under the
Satellite Act and the relationships of COMSAT with international
organizations like INTELSAT and Inmarsat or with foreign governments or
entities; and
. other matters as may be referred to it by the Board of Directors, the
Chairman of the Board or the Chief Executive Officer.
Strategic Planning Committee.
The Strategic Planning Committee consists of Edwin I. Colodny (Chairman),
Robert G. Schwartz and Guy P. Wyser-Pratte. The committee met fourteen times
during 1998. The committee is responsible for:
. reviewing and making recommendations to the Board of Directors with
respect to all aspects of COMSAT's business and its current and future
business and financial strategies, transactional opportunities and the
enhancement of shareholder value.
Directors Compensation
Generally.
Directors, other than the Chairman of the Board and the President and Chief
Executive Officer, currently receive an annual retainer of 1,000 shares of
COMSAT's common stock payable at the first meeting of the Board of Directors
after the annual meeting of shareholders. Those directors also receive a fee of
$1,000 per meeting for attending meetings of the Board of Directors, meetings
of committees of the Board of Directors or meetings held pursuant to a special
assignment. For service as chair of a committee of the Board of Directors, a
director receives an annual retainer of $3,000 paid in quarterly installments.
The President and Chief Executive Officer does not receive separate
compensation for service as a director. Executive compensation is described in
the section entitled "Executive Compensation."
Under the Non-Employee Directors Stock Plan, a non-employee director may
elect to defer receipt of the annual stock retainer and instead receive phantom
stock units. Phantom stock units are held in an account for each director
pending retirement or termination of service on the Board of Directors. Upon
payment of a dividend on COMSAT common stock, an equivalent dollar amount is
converted to phantom stock units, based
91
on the fair market value of the stock on the dividend payment date, and
credited to the director's account. The phantom stock units increase or
decrease in value based on an equivalent number of shares of COMSAT common
stock. Upon retirement or termination of service, or in the event of a change
in control, a director receives payment in shares of COMSAT common stock equal
to the number of phantom stock units credited to the director's phantom stock
unit account. See "Non-Employee Directors Stock Plan."
Chairman of the Board.
The Chairman of the Board receives annual cash compensation for service as
Chairman. Prior to August 1998, Mr. Colodny received $190,000 per year.
Effective August 1, 1998, this amount was increased to $215,000. The Chairman
may elect to receive all or a portion of this annual cash compensation in the
form of COMSAT common stock or stock options, on the following terms:
. the shares or stock options are granted on the date of the annual
meeting of shareholders;
. the number of shares of stock granted is determined by dividing the
amount which the Chairman elects to receive in shares by the fair market
value of the stock on the date of the grant;
. the number of stock options granted is determined by multiplying the
amount which the Chairman elects to receive in options by three and then
dividing by the fair market value of the stock on the date of grant;
. the exercise price per share of options granted pursuant to the
Chairman's election to receive options is the fair market value of a
share of stock on the date of grant; and
. each option expires 10 years from the date of grant and is exercisable
for half of the shares covered by the option six months after the date
of grant and for the remaining half of the shares one year after this
date.
For 1998, Mr. Colodny elected to receive $90,000 of the annual cash
compensation payable to him as Chairman in stock. Pursuant to his election, he
was granted 2,341 shares of common stock determined in the manner described
above.
Directors and Executives Deferred Compensation Plan
Under the Directors and Executives Deferred Compensation Plan, a non-
employee director may elect to defer payment of all or part of the cash
retainer and fees which the director is entitled to receive. Amounts deferred
are credited with interest and are paid out after the director retires from the
Board of Directors. The payment may take the form of a lump sum or up to 15
annual installments beginning not later than age 73. If the director dies, the
accumulated deferrals are paid to the director's beneficiary.
For 1998:
. the interest crediting rate was prime plus 1% for amounts deferred after
1996, 12.25% for amounts deferred from February 1994 to December 1996
and 12.94% for amounts deferred prior to that period under the plan; and
. the aggregate amount of interest accrued in respect of amounts deferred
by participating directors (11 persons) was $380,272.
In 1991, each director at that time serving on the Board of Directors and
participating in the plan was given an election to receive his account balance
as of March 31, 1991, together with interest accumulated on such balance to a
date in 2000, in a lump sum in 2000 to the extent that these amounts were not
previously distributed. This payment is made only if, in 2000, such director is
an active director or a retiree receiving installment payments. If a director
who has made such an election dies, the payment will be made to the beneficiary
of this director if this beneficiary is then receiving the installment
payments. The lump sum payment will be offset against the amounts otherwise
payable to the director or beneficiary under the plan.
92
In 1992, the plan was amended to provide for an additional lump sum payment
election for any additional amounts deferred under the plan from April 1, 1991
through March 31, 1992, together with interest accumulated on such amounts to a
date in 2001, with payment of the lump sum to be made in 2001.
In September 1998, the plan was amended to provide that if the plan is
terminated, each participant will be paid the full amount of his account in
accordance with the terms of the plan and the participant's elections.
Split Dollar Life Insurance Plan for Directors
Under the Split Dollar Life Insurance Plan for Directors, COMSAT provides
death benefits through split dollar life insurance policies to non-employee
directors as follows:
. $50,000 for each year or partial year of his or her service on the Board
of Directors until the benefit reaches $200,000;
. payments increased by 5.5% for each additional year of service on the
Board of Directors to age 72 (this increased coverage does not apply to
Presidentially-appointed directors); and
. coverage continues after retirement from the Board of Directors.
For 1998, the aggregate value of split dollar life insurance premiums paid
for the benefit of all covered directors was $112,891.
Non-Employee Directors Stock Plan
Under the Non-Employee Directors Stock Plan, in March of each year COMSAT
grants to each non-employee director an option to purchase shares of common
stock. These grants are only given to those non-employee directors who were
also serving on the date of the annual meeting of shareholders for the prior
year. Options have specific terms, as follows:
. for options granted before 1990, each option is for 2,480 shares, the
exercise price per share is the fair market value of a share of common
stock on the date of grant, and the option expires 10 years from the
date of grant;
. for options granted from 1990 to 1992, each option is for 2,480 shares,
the exercise price per share is 50% of the fair market value on the date
of grant, and the option expires 15 years from the date of grant;
. for options granted after 1992, each option is for 4,961 shares, the
exercise price per share is the fair market value of a share of common
stock on the date of grant, and the option expires 15 years from the
date of grant;
. all options granted before 1998 under the plan are currently
exercisable; and
. for options granted after 1995, each option becomes exercisable for
2,481 shares one year after the date of grant and for the remaining
2,480 shares two years after the date of grant.
All data related to shares of common stock, options to purchase shares of
common stock and share prices prior to June 27, 1997 have been adjusted to
reflect:
(1) the two-for-one split in COMSAT's common stock effective June 1, 1993,
and
(2) the spin-off of Ascent Entertainment Group, Inc. to COMSAT's
shareholders on June 27, 1997.
Pursuant to the Ascent spin-off, all outstanding options under the plan on
June 27, 1997 were adjusted by multiplying the number of options held by an
adjustment ratio of 1.2402, and the exercise price for such options was
adjusted by dividing the exercise price by the same ratio.
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Options become fully exercisable and continue in force for the duration of
their terms in the following situations:
. termination of service on the Board of Directors by reason of retirement
at age 72;
. expiration of a term as a Presidentially-appointed director;
. failure to stand for election with the Board of Directors' consent; or
. resignation with the Board of Directors' consent.
Options that have not terminated become fully exercisable and continue in
force for one year after the date of death of a director. Options terminate
immediately if the director's service terminates under any other circumstance.
Options also become fully exercisable and continue in force for the duration
of their terms in the event of certain changes in control. A change in control
includes:
. the acquisition by any person, other than COMSAT or an employee benefit
plan sponsored by COMSAT, of beneficial ownership of 50% or more of the
outstanding voting securities of COMSAT;
. any change in the composition of the Board of Directors such that the
elected directors as of May 17, 1996, referred to as the incumbent
directors, cease to constitute a majority of the Board of Directors,
provided that any individual whose nomination or election is approved by
a vote of three-fourths of the then incumbent directors will be treated
as an incumbent director;
. approval by the shareholders of a merger, share exchange, swap,
consolidation, recapitalization or other business combination which, if
consummated, would result in COMSAT shareholders holding less than 60%
of the combined voting power of COMSAT, the surviving entity or its
parent, as applicable;
. approval by the shareholders of the liquidation or dissolution of
COMSAT, or sale by COMSAT of all or substantially all of COMSAT's
assets, other than to an entity 80% of the combined voting power of
which would be beneficially owned by COMSAT's then existing
shareholders; or
. any event which would have to be reported as a change of control under
the regulations governing the solicitation of proxies by the SEC.
In September 1998, the plan was amended to provide that only the closing of
the merger with Lockheed Martin, and not any of the other transactions
contemplated by the merger agreement, would constitute a change in control for
purposes of this plan.
In 1998, options for a total of 64,493 shares of common stock were granted
to non-employee directors at a purchase price per share of $38.1563, which was
the fair market value of the common stock on the date of grant. In 1998, Mrs.
Benson, Mr. Freeman, Dr. Likins and Mr. Schwartz each exercised 2,480 options
granted previously under the plan, and realized net values, which is the market
value on exercise date less exercise price, of $52,130; $29,810; $47,325; and
$27,950, respectively.
Consulting Arrangements
On August 26, 1997, COMSAT entered into agreements with Arthur Hauspurg and
Howard M. Love, directors who retired at the 1997 Annual Meeting of
Shareholders, to retain their advisory services to the Chairman of the Board
and the President and Chief Executive Officer for a period of two years at a
rate of $25,000 per year.
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Compensation Committee Interlocks, Insider Participation and Related Party
Transactions
The following directors of COMSAT, who are also members of the Compensation
Committee of the Board of Directors, may be considered to have a relationship
with Lockheed Martin that may constitute an indirect material interest in the
proposed merger between COMSAT and Lockheed Martin.
Standard Technology, Inc., a technology, engineering and systems integration
firm, has provided services to Lockheed Martin under various contracts, which
resulted from arm's-length negotiations, in connection with a Department of
Defense mentor-protege program to encourage large defense contractors to
subcontract with minority-owned businesses. Kathryn C. Turner, a director of
COMSAT since August 1997, is the Chairperson, Chief Executive Officer and sole
shareholder of Standard Technology. Lockheed Martin paid Standard Technology
$949,803, $1,807,711, $2,008,766, $1,846,662 and $2,242,126 in 1999 (through
June 1), 1998, 1997, 1996 and 1995, respectively, under those contracts.
Pursuant to the mentor-protege program, Lockheed Martin agreed to award
Standard Technology with a targeted amount of $1 million of contracts per year
through 2001. Pursuant to the mentor-protege program, Lockheed Martin also
participates on an ad hoc advisory board which provides guidance on business
matters and has provided financial assistance to Standard Technology. Lockheed
Martin has made an unsecured loan to Standard Technology, which is repayable
over a fifteen year period commencing upon the earlier of 2007 or the year
after Standard Technology achieves annual revenues in excess of $25 million. As
of June 1, 1999, the outstanding balance of the loan was $2,632,166, which
includes previously capitalized interest. Interest does not currently accrue on
the loan but will accrue at 8% per annum on the unpaid principal amount once
repayment is required. In addition, Lockheed Martin has guaranteed up to $2
million of Standard Technology's borrowings under a line of credit with a
commercial bank, which also is secured by Standard Technology's accounts
receivable and a personal guarantee by Ms. Turner.
Pursuant to a continuing engagement, the law firm of Wunder, Knight, Levine,
Thelen & Forscey has provided Lockheed Martin general legislative support.
Peter S. Knight, a Presidentially-appointed director of the Corporation since
September 1994 and partner of Wunder Knight, has rendered services to Lockheed
Martin pursuant to such engagement. Lockheed Martin paid Wunder Knight $54,716,
$161,669, $112,129, $135,325 and $151,370 for services rendered and expenses
incurred during 1999 (through June 1), 1998, 1997, 1996 and 1995, respectively.
Caleb B. Hurtt, a director of COMSAT since May 1996 and a director of
Lockheed Martin, has beneficial ownership of 5,672 shares of Lockheed Martin
common stock as of April 1, 1999. In addition, as of June 1, 1999, Mr. Hurtt
had accounts in Lockheed Martin deferred compensation plans credited with 2,213
Lockheed Martin phantom stock units, of which 1,013 units were nonforfeitable.
COMMITTEE ON COMPENSATION AND MANAGEMENT DEVELOPMENT
REPORT ON EXECUTIVE COMPENSATION
The Committee on Compensation and Management Development, which is composed
of independent outside directors, is responsible for establishing and
administering COMSAT's executive compensation philosophy. Set forth below is
the committee's report on the 1998 compensation of the executive officers of
COMSAT, including Mrs. Alewine, the Chief Executive Officer, and the other
executive officers named in the Summary Compensation Table (the "named
executive officers").
COMSAT's executive compensation philosophy is designed to attract, motivate
and retain talented executives critical to the long-term success of COMSAT. One
of the objectives of this philosophy is to align executive compensation more
closely with the interests of shareholders through performance incentives. The
main components of this philosophy are annual compensation, consisting of
salary plus bonuses awarded under COMSAT's Annual Incentive Plan, and long-term
compensation, consisting of stock-based incentives. The committee reviews and
recommends to the Board of Directors the annual compensation of all executive
officers, and reviews and approves executive officers' long-term compensation.
95
There are two groups of competitive companies that are used in the executive
compensation analysis. The first group, consisting of the companies that make
up the Peer Group Index discussed under the caption "Performance Graph," is
used to compare executive compensation strategy and practices. The second
group, consisting of companies in the telecommunications industry with revenues
comparable to COMSAT's, is used to benchmark competitive compensation levels.
Annual Compensation
Mrs. Alewine has an employment agreement as Chief Executive Officer dated
July 19, 1996 which is summarized under the caption "Agreements with Current
Executive Officers." Pursuant to the agreement, Mrs. Alewine received a base
salary of $450,000 for the first year and an increase to $500,000 beginning in
the second year. In July 1998, the committee recommended to the Board that Mrs.
Alewine's base salary be increased to $575,000 based on market data for a
comparable Chief Executive Officer position and her performance in the last
year. The Board of Directors approved the committee's recommendation. Mrs.
Alewine's employment agreement specifies an annual bonus target of 70% of her
base salary. In addition, the agreement provides for the committee to determine
the performance measures and other factors used to determine her bonus in
consultation with Mrs. Alewine. These factors included COMSAT's financial
results, Mrs. Alewine's success in meeting personal objectives for 1998 which
she presented to the committee and COMSAT's achievement of strategic
objectives. These strategic objectives included the merger agreement with
Lockheed Martin, deregulation of COMSAT's largest business unit, completion of
the restructuring commenced in 1997 with the sale of COMSAT's manufacturing
unit, avoidance of adverse proposed legislation in the 105th Congress, and
rapid progress in the privatizations of INTELSAT and Inmarsat, the two global
satellite consortia in which COMSAT is the U.S. owner, including the spin-off
of twenty five percent of INTELSAT's satellite fleet into a new commercial
company named New Skies Satellites. The committee considered all of these
factors in arriving at a bonus recommendation for Mrs. Alewine. The committee
recommended, and the Board of Directors approved, payment of a 1998 cash bonus
award of $400,000 for Mrs. Alewine.
Base salary ranges have been established for the other executive officers
based on the average of the market for comparable positions in the revenue
group of competitive companies. Individual salaries within each range are based
on recommendations to the committee by the Chief Executive Officer taking into
account such factors as total professional experience, performance, and
experience in the current assignment. The bonus opportunities for other
executive officers for 1998 were based on a range of award percentages of base
salary for each position determined by the committee. A portion of each bonus
award was tied to corporate performance criteria based on the achievement of
financial measures as compared to planned performance, and individual
performance criteria based on the committee's evaluation of each individual
executive officer's achievement of established performance goals for the year.
The committee recommended a bonus award for each executive officer based on a
bonus range and the performance measures noted above. The Board had final
approval authority for these awards. Mr. Jasmann, who resigned as an executive
officer in February 1998, received the same bonus as he did the prior year in
accordance with the terms of his employment agreement with COMSAT, which
expires on August 1, 1999.
Long-Term Compensation
Long-term compensation is an integral element of COMSAT's executive
compensation philosophy because the committee believes that stock ownership by
senior management and stock-based performance compensation arrangements enhance
shareholder value. COMSAT's long-term compensation strategy includes a blend of
stock compensation. For 1998, awards by the committee consisted of non-
qualified stock options and restricted stock awards. These awards were
consistent with ranges in the revenue group of competitive companies approved
by the committee. The stock option ranges position COMSAT at the median of the
market for these companies while the performance-based restricted stock awards
allow for total long-term compensation to reach the 75th percentile for this
market if the business achieves prescribed performance standards over the long
term. At the committee's request, an independent executive compensation
consultant conducted a review of total compensation for Mrs. Alewine and the
other named executive officers which
96
included stock award recommendations. The committee endorsed the consultant's
methodology for developing recommendations for 1998 stock grants whereby base
salary, bonus and long-term compensation, including stock option and restricted
stock awards, would be measured against market data on total compensation for
comparable positions.
A portion of executive compensation is represented by stock options granted
at fair market value, which the committee believes provide a tie to shareholder
interests. In 1998, Mrs. Alewine received a grant of 30,000 stock options in
accordance with the methodology approved by the committee.
Stock options were granted to the other named executive officers in February
1998 as reflected in the table above setting forth 1998 option grants. These
stock option awards were determined on the basis of two factors. First, the
committee established target award guidelines for each executive officer based
on a competitive analysis of total compensation for each executive officer.
Second, the committee approved the actual awards for each executive officer
based on these guidelines and performance recommendations made by Mrs. Alewine
based on her evaluation of each officer's performance for 1997.
Restricted stock awards are restricted shares of COMSAT stock which are
granted to executive officers and selected key employees as a performance
incentive and a retention device based on the vesting schedule established by
the committee for each grant. The vesting of restricted stock awards is subject
to both a length of service requirement and the achievement of objective
performance-based criteria which have been approved by the committee. The
percent of the award earned is based on the level of achievement of the
performance objectives over the performance period established by the
committee. The restricted stock awards earned then become subject to vesting
over an additional 1, 2 and 3 years at the rate of 20%, 40% and 40%,
respectively. Mrs. Alewine received 6,000 restricted stock awards in February
1998. The other named executive officers also received restricted stock awards
in February 1998 as shown in the Summary Compensation Table, the number of
which in each case was consistent with the guidelines approved by the
committee.
The performance-based criteria applicable to restricted stock awards are
intended to ensure the Federal tax deductibility under Section 162(m) of the
Internal Revenue Code of compensation paid to COMSAT's executive officers
pursuant to restricted stock awards. COMSAT intends to preserve the tax
deductibility under Section 162(m) of all compensation paid to its executive
officers.
Committee on Compensation and Management Development
Caleb B. Hurtt, Chairman
Neal B. Freeman
Peter S. Knight
Robert G. Schwartz
Kathryn C. Turner
97
EXECUTIVE COMPENSATION
The following table shows the compensation for the three fiscal years ended
December 31, 1998 received by (a) the Chief Executive Officer; (b) the other
four most highly compensated executive officers of COMSAT who were serving at
year end 1998; and (c) Dwight E. Jasmann, who resigned as an executive officer
on February 2, 1998, and whose compensation would have been reportable but for
the fact that he was not an executive officer of COMSAT at year end 1998. These
six individuals are referred to as the named executive officers. The table
shows the amounts received or earned by each named executive officer for all
three fiscal years, whether or not the named executive officer was an executive
officer of COMSAT for each of those three years.
Summary Compensation Table
Annual Compensation Long-Term Compensation
-------------------------------------- --------------------------
Restricted Securities
Name and Other Annual Stock Underlying All Other
Principal Position Year Salary Bonus(1) Compensation(2) Award(s)(3) Options (#)(4) Compensation(5)
- ----------------------- ---- -------- -------- --------------- ----------- -------------- --------------- ---
Betty C. Alewine, ..... 1998 $533,173 $406,258 $ 665 $182,625 30,000 $22,736
President and Chief 1997 472,116 306,756 8,370 498,749 0 22,135
Executive Officer 1996 355,846 189,111 3,238 238,188 260,442 20,799
Allen E. Flower, ...... 1998 251,516 211,248 580 121,750 25,000 33,318
Vice President and
Chief 1997 209,770 83,627 5,622 174,554 49,608 36,855
Financial Officer 1996 180,000 73,301 60,122 90,000 43,407 31,578
Dwight E. Jasmann, .... 1998 252,000 142,396 44 0 0 9,887
President and General 1997 244,985 204,187 39,961 0 18,603 4,750
Manager, COMSAT 1996 98,770 203,600 13,795 97,813 12,402 923
International(6)
John H. Mattingly, .... 1998 270,539 173,146 0 91,313 20,000 4,800
President, COMSAT 1997 190,308 75,029 0 74,820 24,804 4,750
Satellite Services 1996 162,039 57,274 0 35,994 12,402 4,498
Benjamin A. Pontano, .. 1998 197,667 60,000 0 60,875 15,000 5,545
President, COMSAT 1997 153,663 50,000 0 49,867 18,603 4,610
Laboratories 1996 130,000 42,600 0 0 3,721 3,900
Warren Y. Zeger, ...... 1998 286,836 220,997 521 121,750 25,000 27,419
Vice President, 1997 229,808 94,348 5,466 174,554 49,608 26,938
General Counsel 1996 196,551 181,487 2,422 63,000 37,206 25,871
and Secretary
- --------
(1) Bonus for 1998 for each named executive officer, as indicated below,
includes unused credits under COMSAT's cafeteria plan that were paid in
cash to the named executive officers. The bonus reflected for Mrs. Alewine
for 1997 includes an additional $85,000 over the amount reported last year,
which was awarded in 1998 to Mrs. Alewine as a supplemental 1997 bonus. The
bonuses reflected for Mr. Flower, Mr. Mattingly and Mr. Zeger for 1998
include special performance-based spot bonuses in the amounts of $100,000;
$50,000; and $100,000, respectively. The bonus reflected for Mr. Zeger for
1996 includes a special performance-based spot bonus in the amount of
$100,000.
Name Unused Credits
---- --------------
Mrs. Alewine.............................................. $ 6,258
Mr. Flower................................................ 10,448
Mr. Jasmann............................................... 12,396
Mr. Mattingly............................................. 8,146
Dr. Pontano............................................... 0
Mr. Zeger................................................. 5,997
98
(2) With the exception of Mr. Flower, Other Annual Compensation shown for 1996,
1997 and 1998 does not include perquisites and other personal benefits
because the aggregate amount of such compensation does not exceed the
lesser of (a) $50,000 or (b) 10% of individual combined salary and bonus
for the named executive officer in each year. For Mr. Flower, Other Annual
Compensation for 1996 includes $30,000 for club membership fees.
(3) Includes restricted stock awards, restricted stock units and phantom stock
units. Dividends are paid on restricted stock awards. Dividend equivalents
are paid on restricted stock units and phantom stock units. The number and
value of the aggregate restricted stock holdings of each of the named
executive officers as of December 31, 1998 are as follows:
Number of Restricted Stock
Awards/Restricted Stock
Name Units/Phantom Stock Units Value as of 12/31/98
---- -------------------------- --------------------
Mrs. Alewine............... 67,639 $2,358,910
Mr. Flower................. 20,618 719,053
Mr. Jasmann................ 0 0
Mr. Mattingly.............. 9,201 320,885
Dr. Pontano................ 9,441 329,255
Mr. Zeger.................. 29,300 1,021,838
Awards granted prior to June 27, 1997 were adjusted to give effect to the
Ascent spin-off to COMSAT shareholders. Instead of receiving a distribution
of Ascent stock, all outstanding restricted stock awards, restricted stock
units, and phantom stock units held on that date were adjusted by
multiplying the number of shares or units held by an adjustment ratio of
1.2402. Mr. Jasmann forfeited his restricted stock holdings when he resigned
in February 1998.
(4) Options granted prior to June 27, 1997 were adjusted to give effect to the
Ascent spin-off to COMSAT shareholders. All outstanding options held on
that date were adjusted by multiplying the number of options held by an
adjustment ratio of 1.2402.
(5) All Other Compensation for 1998 includes the following elements: (a)
contributions by COMSAT to COMSAT's 401(k) Plan on behalf of the named
executive officers; (b) above-market interest accrued for the named
executive officers under COMSAT's Deferred Compensation Plan; and (c) life
insurance premiums for the named executive officers. The life insurance
premiums shown for the named executive officers represent split dollar
premiums which include (a) the value of the premiums paid by COMSAT with
respect to the term life insurance portion of the policy for each named
executive officer, determined under the P.S. 58 table published by the
Internal Revenue Service, and (b) the value of the benefit to each named
executive officer of the remainder of the premiums paid by COMSAT,
determined by calculating the present value of the cumulative interest
payments that would be made based on the assumption that the premiums were
loaned to each named executive officer at an interest rate of 7.5% until
the named executive officer reaches the normal retirement age of 65, at
which time the policy splits and the premiums are refunded to COMSAT.
Above-
401(k) Plan Market Life Insurance
Name Contributions Interest Premiums
---- ------------- -------- --------------
Mrs. Alewine......................... $4,800 $ 8,680 $ 9,256
Mr. Flower........................... 4,800 11,048 17,470
Mr. Jasmann.......................... 4,800 5,087 0
Mr. Mattingly........................ 4,800 0 0
Dr. Pontano.......................... 4,837 708 0
Mr. Zeger............................ 4,800 7,537 15,082
(6) Mr. Jasmann became an executive officer when he joined COMSAT as President
and General Manager, COMSAT International in August 1996. He resigned in
February 1998.
99
Option Grants
The following table sets forth information on options granted to the named
executive officers in 1998.
Option Grants In Last Fiscal Year
Individual Grants
---------------------------------------------------------------------------
Number of % of Total
Securities Options Granted
Underlying Options to Employees in Exercise Expiration Grant Date
Name Granted (#)(1) Fiscal Year(2) Price ($/Sh) Date Present Value(3)
- ---- ------------------ --------------- ------------ ---------- ----------------
Mrs. Alewine............ 30,000 3.23% $30.4375 02/20/08 $375,300
Mr. Flower.............. 25,000 2.69 30.4375 02/20/08 312,750
Mr. Jasmann............. 0 0.00 0.0000 -- 0
Mr. Mattingly........... 20,000 2.15 30.4375 02/20/08 250,200
Dr. Pontano............. 15,000 1.61 30.4375 02/20/08 187,650
Mr. Zeger............... 25,000 2.69 30.4375 02/20/08 312,750
- --------
(1) The options shown were granted on February 20, 1998 to acquire COMSAT
common stock. All options granted in 1998 vest as follows: 25% on the first
anniversary of the date of grant; another 25% on the second anniversary of
the date of grant; and the remaining 50% on the third anniversary of the
date of grant.
(2) The total number of COMSAT options granted to key employees in 1998 was
930,200.
(3) COMSAT used the Black-Scholes option pricing model to determine grant date
present values using the following assumptions: a dividend yield of 0.84%;
stock price volatility of 0.3642; a 6-year option term; a risk-free rate of
return of 5.36%; and the vesting schedule described in footnote 1 above.
The use of this model is in accordance with SEC rules; however, the actual
value of an option realized will be measured by the difference between the
stock price and the exercise price on the date the option is exercised.
Option Exercises and Fiscal Year-End Values
The following table sets forth information on (1) options exercised by the
named executive officers in 1998, and (2) the number and value of their
unexercised options as of December 31, 1998.
Aggregated Option Exercises In 1998 And 12/31/98 Option Values
Value of Unexercised In-
Shares Number of Securities Underlying The-
Underlying Unexercised Options at 12/31/98 (1) Money Options at 12/31/98
Options Value ---------------------------------------- -------------------------
Name Exercised (#) Realized Exercisable (#) Unexercisable (#) Exercisable Unexercisable
- ---- ------------- ---------- ----------------- ------------------ ----------- -------------
Mrs. Alewine............ 203,393 $2,615,608 229,726 160,221 $4,507,469 $2,451,773
Mr. Flower.............. 16,371 306,763 58,910 83,910 1,178,565 1,102,292
Mr. Jasmann............. 7,750 103,664 3,101 20,154 59,233 324,497
Mr. Mattingly........... 0 0 16,122 44,804 289,640 489,728
Dr. Pontano............. 0 0 23,254 30,813 359,938 310,484
Mr. Zeger............... 111,618 1,909,430 111,797 80,809 1,805,076 1,039,153
- --------
(1) Options granted prior to June 27, 1997 were adjusted to give effect to the
Ascent spin-off to COMSAT shareholders. All outstanding options held on
that date were adjusted by multiplying the number of options held by an
adjustment ratio of 1.2402.
Pension Plans
The following table shows the estimated annual benefits payable upon
retirement under COMSAT's Retirement Plan to persons in the salary and years-
of-service classifications specified. The Internal Revenue Code limits the
annual benefits payable under the Retirement Plan. Under this limitation, the
maximum annual benefit for 1998 is $130,000.
100
Estimated Annual Benefits -- COMSAT Corporation Retirement Plan
Average Years of Service
Annual ---------------------------------------
Salary ($) 15 20 25 30 35
---------- ------- ------- ------- ------- -------
100,000.............................. $24,768 $33,633 $42,738 $51,362 $60,227
150,000.............................. 38,543 52,408 66,272 80,137 94,002
200,000.............................. 48,552 67,417 86,282 105,147 124,011
250,000.............................. 55,340 79,205 103,070 126,934 130,000
300,000.............................. 60,340 89,205 118,070 130,000 130,000
350,000.............................. 65,340 99,205 130,000 130,000 130,000
400,000.............................. 70,340 109,205 130,000 130,000 130,000
450,000.............................. 75,340 119,205 130,000 130,000 130,000
500,000.............................. 80,340 129,205 130,000 130,000 130,000
550,000.............................. 85,340 130,000 130,000 130,000 130,000
600,000.............................. 90,340 130,000 130,000 130,000 130,000
The compensation covered by the Retirement Plan includes only base salary.
Benefits are determined on a straight life annuity basis under a formula based
on length of service and average annual base salary for the highest five
consecutive years during the final 10 years of employment. Prior to 1989,
benefits were offset by a portion of each participant's estimated Social
Security benefits. Beginning in 1989, each participant accrues a benefit at a
specified percentage of salary up to the Social Security wage base, and at a
higher percentage of salary above the Social Security wage base. The years of
credited service for the named executive officers as of December 31, 1998 are
as follows:
Mrs. Alewine.................................. 12
Mr. Flower.................................... 29
Mr. Jasmann................................... 2
Mr. Mattingly................................. 4
Dr. Pontano................................... 14
Mr. Zeger..................................... 23
Insurance and Retirement Plan for Executives
COMSAT also maintains the Insurance and Retirement Plan for Executives,
which covers those executive officers and other key employees who are
designated by the Board of Directors to participate. The plan provides an
annuity for life equal to 60%, or 70% for the Chief Executive Officer, of the
participant's average annual compensation, consisting of salary and incentive
compensation, during the 48 consecutive months of highest compensation or
during all consecutive months of employment if the participant has been
employed less than 48 months, offset by pension benefits payable under the
Retirement Plan, the qualified retirement plans of former employers, Social
Security, and government and military pensions.
Payment begins upon the participant's normal retirement at age 65. However,
a participant in the plan may retire as early as age 55. If a participant
retires before age 62, the Board of Directors must consent to such early
retirement. A participant who retires early will receive an annuity reduced by
3% for each year that payment begins before age 62. For employees who became
participants in the plan before January 1, 1993, benefits vest ratably over the
first five years of the participant's service. For employees who become
participants in the plan on or after January 1, 1993, benefits are 50% vested
after five years of service and then vest an additional 10% per year over the
following five years of service, provided that the sum of the participant's age
and years of service equals 60. See "Agreements with Current Executive
Officers."
101
The annual benefits payable upon retirement at age 65 based upon the 48
consecutive months of highest compensation as of December 31, 1998 for each of
the named executive officers under the plan are:
Mrs. Alewine............................. $400,520
Mr. Flower............................... 107,739
Mr. Jasmann.............................. N/A
Mr. Mattingly............................ N/A
Dr. Pontano.............................. N/A
Mr. Zeger................................ 114,452
Mrs. Alewine, Mr. Flower and Mr. Zeger are each 100% vested in the plan. Mr.
Jasmann, Mr. Mattingly and Dr. Pontano do not participate in the plan.
Change in Control Severance Plan
On September 18, 1998, COMSAT adopted the Amended and Restated Change in
Control Severance Plan. The plan amends and restates the Change in Control
Severance Plan adopted by COMSAT on June 20, 1997. The plan generally provides
severance payments and benefits to specified key employees, including certain
executive officers, of COMSAT who incur a termination of employment under
certain circumstances following a change in control of COMSAT. The plan covers
Mr. Mattingly and Dr. Pontano but does not cover Mrs. Alewine, Mr. Flower or
Mr. Zeger, who each have severance arrangements under their employment
agreements, or Mr. Jasmann, who is no longer an executive officer. Participants
under the plan are classified as either Group I Participants, Group II
Participants or Group III Participants. For purposes of the plan, the
definition of change in control is substantively identical to the definition of
such term described under the caption "Agreements with Current Executive
Officers."
Under the plan, if a change in control of COMSAT occurs and a participant's
employment is terminated during the period beginning on the date of the change
in control and ending on the date which is eighteen months after the date of
such change in control by COMSAT other than for cause or disability, or by the
participant for good reason, then, instead of any other severance payments or
severance benefits payable to the participant by COMSAT, the participant will
be entitled to receive the following during the benefits continuation period,
as defined below:
. base salary;
. targeted annual bonus under COMSAT's Annual Incentive Plan; and
. the same group health and welfare benefits to which the participant
would have been entitled had he or she remained continuously employed by
COMSAT during the benefits continuation period.
For purposes of the plan, benefits continuation period means with respect to
each Group I, Group II and Group III Participant, respectively, the 24 month,
18 month and 15 month periods immediately following the participant's date of
termination of employment. Mr. Mattingly and Dr. Pontano are Group I
Participants. If, however, the amount of the payment that the participant is
entitled to receive upon a termination of employment under the Retention Bonus
Plan, as described below, is greater than the aggregate amount that the
participant is entitled to receive under the amended severance plan, exclusive
of health and welfare benefits, then the participant will forfeit all rights to
receive these payments under the amended severance plan.
The amended severance plan also provides that, in the event of a
participant's termination of employment under the circumstances described
above, such participant would be entitled to receive a gross-up payment if any
payment or benefit to such participant would constitute an excess parachute
payment under Section 280G of the Internal Revenue Code.
102
Retention Bonus Plan
On September 18, 1998, COMSAT adopted the Retention Bonus Plan. The
Retention Bonus Plan generally provides retention bonuses to key employees who
remain employed by COMSAT, or whose employment is terminated under specific
circumstances, through specified dates following the signing of the merger
agreement. The Retention Bonus Plan covers approximately 108 participants, who
are classified as either Group I Participants or Group II Participants. The
plan covers Mr. Mattingly and Dr. Pontano, who are Group I Participants, but
does not cover Mrs. Alewine, Mr. Flower or Mr. Zeger, who each have similar
bonus arrangements under their employment agreements, or Mr. Jasmann, who is no
longer an executive officer.
Under the Retention Bonus Plan, each Group I Participant will be entitled to
receive the following retention bonuses, subject to such person's continued
employment through a specified date:
. a bonus on the earliest of:
(a) the completion of the merger,
(b) the termination date of the merger pursuant to the merger agreement,
or
(c) September 18, 2000,
equal to 50% of the sum of the participant's highest base salary plus
his or her highest targeted annual bonus under COMSAT's Annual
Incentive Plan; and
. a bonus on the 18-month anniversary of the closing of the merger equal
to 100% of the sum of the participant's highest base salary plus his or
her highest targeted annual bonus under COMSAT's Annual Incentive Plan.
If, on or before the date on which a bonus would be paid, a Group I
Participant's employment is terminated without cause or by reason of his or her
death or disability, or, if a Group I Participant elects to terminate his or
her employment for good reason, such Group I Participant will be entitled to
receive a payment upon termination, instead of any bonuses which have not yet
become payable to the participant under the Retention Bonus Plan, in an amount
equal to the bonus to which he or she would have been entitled had he or she
remained employed by COMSAT through the date on which the next bonus will be
paid. If, however, the aggregate amount of any severance payments to which the
participant is entitled under any severance plan of COMSAT is greater than or
equal to the amount of the bonus payable upon such a termination under the
Retention Bonus Plan, then the participant will forfeit all rights to receive
such payment and any other bonus payments that have not yet become payable to
the participant under the Retention Bonus Plan. In the event that the
participant receives a payment upon termination of employment under the
Retention Bonus Plan, such participant will not be entitled to any severance
payment under any severance plan of COMSAT to the extent that such severance
payment is based on the participant's salary and/or bonus.
Group II Participants are entitled to receive bonuses under the Retention
Bonus Plan at the same times and, in general, on the same terms as the Group I
Participants, except that the bonuses are based on a lower percentage of their
base salary and targeted annual bonus.
Agreements With Current Executive Officers
COMSAT has entered into an employment agreement with Mrs. Alewine dated as
of July 19, 1996, and amended as of May 16, 1997 and July 18, 1997, and has
entered into employment agreements with Mr. Flower and Mr. Zeger dated as of
April 18, 1997, and amended as of July 18, 1997. On September 18, 1998, COMSAT
amended the employment agreements in connection with the merger.
The agreements include the following terms:
. for Mrs. Alewine, successive three-year terms from each successive day
after July 19, 1996 until July 19, 2003; for Mr. Flower, a three-year
term; and for Mr. Zeger, a five-year term. The amendments extended the
term of Mr. Flower's employment agreement for two years until April 17,
2002;
103
. for Mrs. Alewine, base salary of $450,000 for the first year, with an
increase to $500,000 in the second year; for Mr. Flower, base salary of
$210,000 per year; for Mr. Zeger, base salary of $230,000 per year; for
each executive, further increases in base salary are subject to the
discretion of COMSAT's Board of Directors;
. eligibility for an annual bonus based on performance measures determined
by the Board of Directors' Compensation Committee with a target bonus
equal to 70% of Mrs. Alewine's base salary, 50% of Mr. Flower's base
salary, and 50% of Mr. Zeger's base salary;
. for termination without cause, or if the executive elects to terminate
his or her employment for good reason, the executive will be entitled to
receive the following for a period of time as specified below:
(1) his or her then current base salary;
(2) an annual bonus equal to 70% of Mrs. Alewine's then current base
salary, 50% of Mr. Flower's then current base salary, and 50% of
Mr. Zeger's then current base salary; and
(3) all other benefits provided for pursuant to the agreement, which
will be deemed fully and immediately vested if subject to vesting.
Mrs. Alewine will be entitled to receive these amounts for three years
from her termination date or until July 19, 2003, whichever is earlier,
but in no case for less than one year following termination. Mr. Flower
will be entitled to receive these amounts until the later of one year
from his termination date or April 17, 2002. Mr. Zeger will be entitled
to receive these amounts until April 17, 2002.
. if Mrs. Alewine's employment is not renewed after July 19, 2003, or is
terminated before then either by Mrs. Alewine for good reason or by
COMSAT without cause, Mrs. Alewine will be entitled to begin receiving
retirement benefits at age 55 under the Insurance and Retirement Plan
for Executives at the actuarially reduced rate for early retirement,
subject to the Board of Directors' discretion to waive such reduction;
. if Mr. Flower's employment is not renewed after April 17, 2002, Mr.
Flower will be entitled to receive:
(1) the benefits described above for one year thereafter, and
(2) retirement benefits under the Insurance and Retirement Plan for
Executives beginning on May 1, 2002 at the actuarially reduced rate
for early retirement, subject to the Board of Directors' discretion
to waive such reduction;
. if Mr. Zeger's employment is not renewed after April 17, 2002, or is
terminated before then either by Mr. Zeger for good reason or by COMSAT
without cause, Mr. Zeger will be entitled to begin receiving retirement
benefits at age 55 under the Insurance and Retirement Plan for
Executives at the actuarially reduced rate for early retirement, subject
to the Board of Directors' discretion to waive such reduction; and
. in the event that either Mr. Flower or Mr. Zeger dies after his
employment terminates but before his retirement benefits begin, under
the Insurance and Retirement Plan for Executives, his spouse will
receive the death benefits provided in the plan for participants who die
while employed by COMSAT.
Pursuant to her employment agreement, Mrs. Alewine was granted, on October
17, 1996, an option to purchase 186,030 shares of COMSAT's common stock at a
price equal to the market value of the stock on the grant date, which vests 25%
after one year, another 25% after the second year and the remaining 50% after
the third year; on October 17, 1996, 6,201 restricted stock units which vest
after three years; and on February 20, 1997, 24,804 restricted stock awards
which are subject to the same terms as restricted stock awards made to other
executives of COMSAT on that date.
Pursuant to the amendments, the employment agreements were amended to
provide that, upon the occurrence of a change in control, the term of each
employment agreement will automatically end on the third anniversary of the
date of such change in control.
104
As defined in the amendments, a change in control is deemed to have occurred
upon the happening of any one of the following events:
. the acquisition by any person of beneficial ownership of 50% or more of
the combined voting power of the outstanding voting securities of
COMSAT;
. any change in the composition of the Board of Directors of COMSAT such
that the incumbent directors elected as of May 17, 1996 cease to
constitute a majority of the Board of Directors; however, any individual
whose nomination or election is approved by a vote of three-fourths of
the then incumbent directors will be treated as an incumbent director;
. approval by the shareholders of a merger, share exchange, swap,
consolidation, recapitalization or other business combination which, if
consummated, would result in COMSAT's shareholders holding less than 60%
of the combined voting power of COMSAT, the surviving entity or its
parent;
. approval by the shareholders of the liquidation or dissolution of
COMSAT, or sale by COMSAT of all or substantially all of COMSAT's
assets, other than to an entity 80% of the combined voting power of
which would be beneficially owned by COMSAT's then existing
shareholders; or
. any event which would have to be reported as a change of control under
the regulations governing the solicitation of proxies by the SEC.
However, if, prior to the occurrence of any of the above events, the Board
of Directors adopts a resolution specifically providing that the event will not
be deemed to constitute a change in control for purposes of the employment
agreements, then such event will not constitute a change in control.
The amendments provide that, with respect to the merger, a change in control
of COMSAT for purposes of the employment agreements will be triggered by the
closing of the merger, but not by the signing of the merger agreement, the
approval by the Board of Directors or COMSAT's shareholders of the merger or
the merger agreement, the commencement or the closing of the tender offer, or
the acquisition by Lockheed Martin or Regulus of COMSAT Government Systems.
The amendments also amended the employment agreements to provide that each
of the executives will be entitled to receive the following retention bonuses,
subject to his or her continued employment through the applicable dates for
such bonuses:
. a bonus on the earliest of:
(a) the completion of the merger,
(b) the termination date of the merger pursuant to the merger
agreement, or
(c) September 18, 2000,
equal to 150% of the sum of the executive's highest base salary plus
the executive's highest targeted annual bonus, assuming all performance
targets are met to the maximum extent, under COMSAT's Annual Incentive
Plan; and
. a bonus on the eighteen month anniversary of the closing date of the
merger in an amount equal to 100% of the sum of the executive's highest
base salary plus the executive's highest targeted annual bonus, assuming
all performance targets are met to the maximum extent, under COMSAT's
Annual Incentive Plan.
105
In the following situations, the executive will be entitled to receive,
instead of the retention bonuses described above, a payment in an amount equal
to the retention bonus to which the executive would have been entitled had the
executive remained employed by COMSAT through the applicable date:
. for termination without cause on or before the applicable date for such
bonuses;
. by reason of the executive's death or disability; or
. if the executive elects to terminate his or her employment for good
reason.
If the executive and Lockheed Martin are unable to reach an agreement
regarding the terms and conditions of the executive's employment within 30 days
following the closing of the merger and the executive's employment is
terminated within such 30-day period, the executive will:
. forfeit all rights to receive the bonus which otherwise would have been
payable to the executive on the eighteen month anniversary of the
closing date of the merger; or
. forfeit all rights to the payment of a post-closing severance payment
which would have been payable to the executive in the event of a
termination of the executive's employment between the closing date of
the merger and the eighteen month anniversary of the closing date of the
merger.
The amendments amended the employment agreements to provide that each of the
executives will be entitled to receive the severance benefits and payments to
which he or she was entitled under his or her employment agreement prior to the
amendments only in the event that the termination of his or her employment
which gives rise to such payments occurs prior to a change in control of
COMSAT.
Pursuant to the amendments, each of the employment agreements was also
amended to provide that, if a change in control of COMSAT occurs and the
executive's employment is terminated during the period beginning on the date of
the change in control and ending on the last day of the executive's employment
term by COMSAT other than for cause or disability, or by the executive for good
reason, then, instead of any other severance payments or severance benefits
payable to the executive under the employment agreements, the executive will be
entitled to receive the following until the expiration of the executive's
employment term:
. base salary;
. targeted annual bonus under COMSAT's Annual Incentive Plan; and
. continued group health and welfare plan benefits for the executive and
the executive's dependents, subject to reduction under certain
circumstances described in the amendments.
The executives also will be entitled to receive benefits under COMSAT's
Insurance and Retirement Plan for Executives commencing as early as age 55
without any actuarial reduction for early commencement of benefits.
In addition, the amendments modified the employment agreements to provide
that if a change in control of COMSAT occurs and
(a) if the executive and Lockheed Martin have negotiated in good faith but
have been unable to reach an agreement regarding the terms and
conditions of the executive's employment within 30 days following the
closing of the merger and the executive's employment is terminated
within the 30-day period, or
(b) if the executive continues to be employed until the expiration of the
executive's employment term,
then the executive will be entitled to receive the benefits under the Insurance
and Retirement Plan for Executives noted above.
Each of the executives also would be entitled to receive a gross-up payment
if any payment or benefit to the executive would constitute an excess parachute
payment under Section 280G of the Internal Revenue Code.
The share amounts discussed in this section have been adjusted to give
effect to the Ascent spin-off to COMSAT shareholders on June 27, 1997 by
multiplying the number of shares or units held on that date by an adjustment
ratio of 1.2402.
106
Agreement With Former Executive Officer
COMSAT and Mr. Jasmann entered into a three-year employment agreement dated
August 1, 1996 which includes the following terms:
. base salary of $240,000 per year, subject to increases at the discretion
of COMSAT's Board of Directors; and
. guaranteed bonus of $130,000 for 1996 and annual bonuses thereafter
based on performance measures determined by the Board of Directors'
Compensation Committee with a target bonus equal to 40% of Mr. Jasmann's
base salary.
On August 1, 1996, Mr. Jasmann was granted:
. an option to purchase 12,402 shares of COMSAT's common stock at a price
equal to the market value of the stock on the grant date, which vests
25% after one year, another 25% after the second year and the remaining
50% after the third year; and
. 6,201 restricted stock units which vest after three years.
On February 2, 1998, Mr. Jasmann resigned pursuant to a provision of the
agreement which permitted him to terminate his employment if COMSAT failed to
do an initial public offering of COMSAT International by February 1, 1998.
Pursuant to this provision, Mr. Jasmann will continue to receive salary and an
annual bonus at the same rate as in effect on the date of his termination until
August 1, 1999. His existing stock options, but not his restricted stock units,
will continue to vest during that period.
The share amounts discussed in this section have been adjusted to give
effect to the Ascent spin-off to COMSAT shareholders on June 27, 1997 by
multiplying the number of shares or units held on that date by an adjustment
ratio of 1.2402.
CHANGE IN CONTROL ARRANGEMENTS
Certain of COMSAT's benefit and compensation programs have provisions that
are intended to assure the continuity and stability of management and the Board
of Directors necessary to protect shareholders' interests, and to protect the
rights of the participants under those programs, in the event of a change in
control of COMSAT. A change in control for this purpose is defined in the same
manner as described above under the caption "Directors Compensation--Non-
Employee Directors Stock Plan." The following actions will take place upon the
occurrence of a change in control:
. the vesting of all stock options, restricted stock awards, restricted
stock units and phantom stock units will be accelerated under COMSAT's
1990 and 1995 Key Employee Stock Plans, Non-Employee Directors Stock
Plan and Annual Incentive Plan;
. the deferred compensation accounts under COMSAT's Directors and
Executives Deferred Compensation Plan, Annual Incentive Plan and Non-
Employee Directors Stock Plan will become immediately payable;
. participants in the Split Dollar Life Insurance Plans for Directors and
for Key Employees will receive fully-paid individual policies;
. directors will receive an immediate lump sum payment of their accrued
benefits under the Directors Retirement Plan using present value
assumptions; and
. participants in COMSAT's Insurance and Retirement Plan for Executives
will become vested in their accrued benefits under the plan and will
receive an immediate lump sum payment using present value assumptions.
The Board of Directors retains the authority under the change in control
provisions to determine that the provisions should not apply to a particular
transaction. In the event of such a determination, the vesting of
107
stock awards and the payment of various plan benefits would not be accelerated.
This feature is intended to afford the Board of Directors flexibility in
structuring transactions and to encourage negotiated transactions.
Pursuant to such authority, the Board of Directors has adopted resolutions
determining that, for purposes of the Insurance and Retirement Plan for
Executives, the Deferred Compensation Plan, the Split Dollar Life Insurance
Plan for Directors, the Split Dollar Life Insurance Plan for Key Employees and
the Annual Incentive Plan, the merger and the transactions contemplated by the
merger agreement will not constitute a change in control of COMSAT. For
purposes of the 1990 Key Employee Stock Plan, the 1995 Key Employee Stock Plan,
the Non-Employee Directors Stock Plan and the Amended and Restated Change in
Control Severance Plan, only the closing of the merger, and not any of the
other transactions contemplated by the merger agreement, will constitute a
change in control of COMSAT.
PERFORMANCE GRAPH
The following graph compares the cumulative total shareholder return for
COMSAT's common stock with the cumulative total return of the S&P 500 Stock
Index and a Peer Group Index constructed by COMSAT for the five fiscal years
beginning on January 1, 1994 and ending on December 31, 1998. The Peer Group
consists of three long-distance telecommunications companies (AT&T, MCI
WorldCom and Sprint), and the following satellite industry companies (the years
for which the returns of such companies have been included in the five-year
period are noted in parentheses): American Mobil Satellite Corporation (all
years), Asia Satellite Telecom American Depository Receipts (ADRS) (1996-98),
British Sky Broadcasting Group ADRS (1995-98), Echostar Communications
Corporation (1996-98), Globalstar Telecommunications Ltd. (1996-98), Iridium
World Communications (1996-98), Loral Space & Communications Ltd. (1997-98),
PanAmSat Corporation (1996-98), PT Pasifik Satelit Nusantara ADRS (1996-98) and
U.S. Satellite Broadcasting Co. (1996-98). Returns for MCI use WorldCom, Inc.
data for all years and include MCI Corporation data for 1998.
[PERFORMANCE CHART APPEARS HERE]
108
ITEM 3. APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
You will vote at the annual meeting to appoint independent public
accountants to audit and certify to you the financial statements of COMSAT for
the fiscal year ending December 31, 1999. Your Board of Directors has
recommended the appointment of Deloitte & Touche LLP as such independent public
accountants. Deloitte & Touche LLP acted in such capacity for fiscal year 1998.
Representatives of Deloitte & Touche LLP will be present at the annual meeting
to respond to appropriate questions and to make a statement if they desire to
do so.
Your Board of Directors recommends that you vote for the appointment of
Deloitte & Touche LLP as independent public accountants. Proxies solicited by
the management will be so voted unless you specify a contrary choice in your
proxy. For approval, the proposal requires the affirmative vote of a majority
of the shares represented and entitled to vote at the annual meeting.
ITEM 4. ACTION UPON A SHAREHOLDER PROPOSAL
Mrs. Evelyn Y. Davis, Watergate Office Building, 2600 Virginia Avenue, N.W.,
Suite 215, Washington, D.C. 20037, owner of 200 shares of COMSAT common stock,
has given notice that she will introduce the following resolution at the annual
meeting:
RESOLVED: "That the shareholders of COMSAT assembled in Annual Meeting in
person and by proxy, hereby recommend that COMSAT affirm its political non-
partisanship. To this end the following practices are to be avoided:
(a) The handing of contribution cards of a single political party to an
employee by a supervisor.
(b) Requesting an employee to send a political contribution to an
individual in COMSAT for a subsequent delivery as part of a group of
contributions to a political party or fund raising committee.
(c) Requesting an employee to issue personal checks blank as to payee for
subsequent forwarding to a political party, committee or candidate.
(d) Using supervisory meetings to announce that contribution cards of one
party are available and that anyone desiring cards of a different party
will be supplied one on request to his supervisor.
(e) Placing a preponderance of contribution cards of one party at mail
station locations.
And if COMSAT engages in none of the above, to disclose this to ALL
shareholders in each quarterly report.
REASONS: "COMSAT must deal with a great number of governmental units,
commissions and agencies. It should maintain scrupulous political neutrality to
avoid embarrassing entanglements detrimental to its business. Above all, it
must avoid the appearance of coercion in encouraging its employees to make
political contributions against their personal inclinations. The Troy (Ohio)
News has condemned partisan solicitation for political purposes by managers in
a local company (not COMSAT)."
Last year the owners of 5,711,532 shares, representing approximately 17.5%
of shares voting, voted FOR this proposal."
"If you AGREE, please mark your proxy FOR this resolution."
Your Board of Directors Opposes this Proposal.
COMSAT has a strong record of supporting the political process in a
bipartisan manner. To the knowledge of the directors and management of COMSAT,
the types of practices described in the proposal as "to be avoided" have not
occurred at COMSAT. COMSAT has directors who have served as political
appointees of both Democratic and Republican administrations, which promotes a
corporate culture of bi-partisanship.
109
The COMSAT Political Action Committee, which is funded by voluntary
contributions from employees, contributes to candidates of both of the two
major political parties. Employees are not required to contribute to the COMSAT
Political Action Committee. The COMSAT Political Action Committee solicits
contributions periodically, and informs employees that all contributions are
entirely voluntary.
In light of COMSAT's past history of bi-partisanship, the COMSAT Board of
Directors believes that the resolution is unnecessary. If passed, the
resolution would create an administrative quarterly reporting burden without
resulting in any real benefit to you. Other companies, including COMSAT's
competitors, would not be subject to similar reporting requirements and the
related compliance burden and associated costs. For those reasons, COMSAT
recommends that you vote "no."
Your Board of Directors recommends that you vote against this proposal.
Proxies solicited by the management will be so voted unless you specify a
contrary choice in your proxy. For approval, the proposal requires the
affirmative vote of a majority of the shares represented and entitled to be
voted at the annual meeting.
OTHER MATTERS
As of July 20, 1999, COMSAT management knew of no other matters to be
presented for action at the annual meeting. If any other matter is properly
introduced by COMSAT, the persons named in the accompanying form of proxy will
vote the shares represented by the proxies according to their judgment. In
accordance with COMSAT's bylaws, proposals by shareholders were required to be
received no later than June 21, 1999 to be considered at the annual meeting.
See "Item 2. Election of Directors--Requirements for Nominations and
Shareholder Proposals." No other proposals were received other than the one
discussed under the caption "Item 4. Action Upon a Shareholder Proposal."
Unless the merger is completed before this date, COMSAT contemplates that
the 2000 Annual Meeting of Shareholders will be held on or about May 19, 2000.
If you wish to submit a proposal to be included in the proxy statement for
consideration at the 2000 Annual Meeting of Shareholders should submit them in
writing to the Corporate Secretary, COMSAT Corporation, 6560 Rock Spring Drive,
Bethesda, Maryland 20817, to be received no later than March 26, 2000.
LEGAL MATTERS
The validity of the Lockheed Martin common stock to be issued in connection
with the merger has been passed upon by King & Spalding, Washington, D.C. King
& Spalding, Washington, D.C., special tax counsel to Lockheed Martin, and
Skadden, Arps, Slate, Meagher & Flom LLP, Washington, D.C., special tax counsel
to COMSAT, have passed and will pass on the material federal income tax
consequences of the merger.
EXPERTS
Ernst & Young LLP, independent auditors, have audited the consolidated
financial statements of Lockheed Martin as of December 31, 1998 and 1997 and
for each of the three years in the period ended December 31, 1998, incorporated
by reference in this proxy statement/prospectus, as set forth in their report,
which is also incorporated in this proxy statement/prospectus by reference.
Such consolidated financial statements of Lockheed Martin are incorporated by
reference in reliance on their report, given on their authority as experts in
accounting and auditing.
The financial statements incorporated in this proxy statement/prospectus by
reference from COMSAT's Annual Report on Form 10-K for the fiscal year ended
December 31, 1998 have been audited by Deloitte &
110
Touche LLP, independent auditors, as stated in their report, which is also
incorporated in this proxy statement/prospectus by reference, and have been so
incorporated in reliance upon the report of such firm given upon their
authority as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
Lockheed Martin and COMSAT file annual, quarterly and special reports, proxy
statements and other information with the SEC. You may read and copy any
documents filed with the SEC by either company at the public reference
facilities maintained by the SEC in Washington, D.C., New York, New York and
Chicago Illinois. Please call the SEC at 1-800-SEC-0330 for further information
on the SEC's public reference rooms. Lockheed Martin's and COMSAT's filings are
also available to the public from the SEC's website at http://www.sec.gov. Each
company also has its filings on its website. COMSAT's website is
http://www.comsat.com, and Lockheed Martin's website is
http://www.lockheedmartin.com. In addition, Lockheed Martin's and COMSAT's
filings with the SEC may be inspected at the offices of the New York Stock
Exchange, 20 Broad Street, New York, New York 10005.
Lockheed Martin filed a Registration Statement on Form S-4 to register with
the SEC the Lockheed Martin common stock to be issued in the merger. This proxy
statement/prospectus is a part of that Registration Statement and constitutes a
prospectus of Lockheed Martin in addition to being a proxy statement of COMSAT
for the annual meeting. As allowed by SEC rules, this proxy
statement/prospectus does not contain all the information you can find in the
Registration Statement or the exhibits to the Registration Statement.
The SEC allows COMSAT (File No. 1-3229) and Lockheed Martin (File No. 1-
11437) to incorporate by reference information in this proxy
statement/prospectus, which means important information may be disclosed to you
by referring you to another document filed separately with the SEC. This proxy
statement/prospectus incorporates by reference the following documents:
. Lockheed Martin's Annual Report on Form 10-K for the fiscal year ended
December 31, 1998;
. Lockheed Martin's Quarterly Report on Form 10-Q for the fiscal
quarter ended March 31, 1999;
. Lockheed Martin's Current Reports on Form 8-K filed January 19, 1999,
January 28, 1999, February 10, 1999, February 16, 1999, April 21, 1999,
June 9, 1999, June 14, 1999, June 24, 1999 and June 28, 1999;
. Lockheed Martin's Schedule 14D-1 dated September 25, 1998, as amended on
October 13, 1998, November 18, 1998, December 18, 1998, January 7, 1999,
January 25, 1999, February 9, 1999, February 25, 1999, April 21, 1999,
June 15, 1999 and July 15, 1999;
. The description of Lockheed Martin's Common Stock contained under the
caption "Description of Lockheed Martin Capital Stock" set forth in
Lockheed Martin's Joint Proxy Statement/Prospectus dated February 9,
1995 constituting part of Lockheed Martin's Registration Statement on
Form S-4 (Reg. No. 33-57645);
. COMSAT's Annual Report on Form 10-K for the fiscal year ended December
31, 1998;
. COMSAT's Quarterly Report on Form 10-Q for the fiscal quarter ended
March 31, 1999;
. COMSAT's Current Reports on Form 8-K filed February 22, 1999 and June
11, 1999; and
. COMSAT's Schedule 14D-9 dated September 25, 1998, as amended on February
9, 1999, March 1, 1999, April 22, 1999 and July 15, 1999.
The information incorporated by reference is part of this proxy
statement/prospectus, except for any information superseded by information in,
or incorporated by reference in, this proxy statement/prospectus. All documents
filed by Lockheed Martin or COMSAT under Sections 13(a), 13(c), 14 or 15(d) of
the Exchange Act after the date of this proxy statement/prospectus and before
the annual meeting will be incorporated by reference in this proxy
statement/prospectus from the date such documents are filed.
111
Any statement contained in a document incorporated by reference in this
proxy statement/prospectus will be modified or superseded to the extent that a
statement contained in this proxy statement/prospectus, or in any other
subsequently filed document, modifies or supersedes such previous statement.
Any statement modified or superseded will not be a part of this proxy
statement/prospectus except as modified or superseded.
All information contained or incorporated by reference in this proxy
statement/prospectus relating to Lockheed Martin has been supplied by Lockheed
Martin. All information relating to COMSAT has been supplied by COMSAT.
Documents incorporated by reference, other than exhibits to these documents
not specifically incorporated by reference into this proxy
statement/prospectus, are available without charge, upon written or oral
request by any person to whom this proxy statement/prospectus has been
delivered, from Investor Relations, COMSAT, 6560 Rock Spring Drive, Bethesda,
Maryland 20817 (toll-free telephone: 888-233-5777) or from Investor Relations,
Lockheed Martin, 6801 Rockledge Drive, Bethesda, Maryland 20817 (telephone:
301-897-6000). Any exhibit will be provided upon payment of the reasonable cost
of providing such exhibit. To ensure timely delivery of the documents, your
request should be made by August 13, 1999.
No person has been authorized to give any information or make any
representation other than those contained or incorporated by reference in this
proxy statement/prospectus, and, if given or made, such information or
representation must not be relied upon as having been authorized. This proxy
statement/prospectus does not constitute an offer to sell or a solicitation of
an offer to buy the securities covered by this proxy statement/prospectus or a
solicitation of a proxy in any jurisdiction where, or to or from any person to
whom, it is unlawful to make such offer, solicitation of an offer or proxy
solicitation. Neither the delivery of this proxy statement/prospectus nor any
distribution of securities made hereunder will, under any circumstances, create
any implication that there has been no change in the affairs of Lockheed Martin
or COMSAT since the date hereof or that the information contained or
incorporated by reference in this proxy statement/prospectus is correct as of
any time subsequent to its date.
112
APPENDIX I
AGREEMENT AND PLAN OF MERGER
DATED AS OF SEPTEMBER 18, 1998
AMONG
COMSAT CORPORATION,
LOCKHEED MARTIN CORPORATION
AND
DENEB CORPORATION
TABLE OF CONTENTS
Page
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ARTICLE I
The Offer
Section 1.1 The Offer.................................................. I-1
Section 1.2 COMSAT Actions............................................. I-2
Section 1.3 Shareholder Lists.......................................... I-3
ARTICLE II
Related Agreements
Section 2.1 Registration Rights Agreement.............................. I-3
Section 2.2 Shareholders Agreement..................................... I-4
Section 2.3 Carrier Acquisition Agreement.............................. I-4
ARTICLE III
The Merger
Section 3.1 The Merger................................................. I-4
Section 3.2 Effective Time; Closing.................................... I-4
Section 3.3 Effects of the Merger...................................... I-4
Section 3.4 Certificate of Incorporation and By-Laws................... I-5
Section 3.5 Directors.................................................. I-5
Section 3.6 Officers................................................... I-5
Section 3.7 Effect on Capital Stock.................................... I-5
Section 3.8 Dissenting Shares.......................................... I-5
Section 3.9 Exchange of Stock.......................................... I-6
Section 3.10 No Fractional Shares of Lockheed Martin Common Stock....... I-7
Section 3.11 Termination of Exchange Fund............................... I-7
Section 3.12 No Liability............................................... I-8
Section 3.13 Lost Certificates.......................................... I-8
Section 3.14 Certain Adjustments........................................ I-8
Section 3.15 Conditions to Closing of Merger............................ I-8
ARTICLE IV
Representations and Warranties of COMSAT
Section 4.1 Organization............................................... I-10
Section 4.2 Authority.................................................. I-11
Section 4.3 Consents and Approvals; No Violations...................... I-11
Section 4.4 Capitalization............................................. I-12
Section 4.5 Absence of Certain Changes................................. I-13
Section 4.6 Reports.................................................... I-13
Section 4.7 No Default................................................. I-14
Section 4.8 Litigation; Compliance with Law............................ I-14
Section 4.9 Employee Benefit Plans; ERISA.............................. I-14
Section 4.10 Intellectual Property; Year 2000........................... I-15
Section 4.11 Certain Contracts and Arrangements......................... I-16
Section 4.12 Taxes...................................................... I-16
Section 4.13 Governmental Authorizations................................ I-17
Section 4.14 Environmental Matters...................................... I-18
Section 4.15 Brokerage Fees and Commissions............................. I-18
I-i
Page
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ARTICLE V
Representations and Warranties of Lockheed Martin and Acquisition Sub
Section 5.1 Organization............................................. I-18
Section 5.2 Authority................................................ I-18
Section 5.3 Consents and Approvals; No Violations.................... I-19
Section 5.4 Capitalization........................................... I-19
Section 5.5 Absence of Certain Changes............................... I-20
Section 5.6 Reports.................................................. I-20
Section 5.7 Opinion of Financial Advisor............................. I-20
Section 5.8 Brokers.................................................. I-20
ARTICLE VI
Covenants
Section 6.1 Conduct of Business of COMSAT............................ I-20
Section 6.2 INTELSAT and Inmarsat Privatizations..................... I-23
Section 6.3 Conduct of Business of Lockheed Martin................... I-24
Section 6.4 No Solicitation.......................................... I-25
Preparation of Proxy Statement; COMSAT Shareholders
Section 6.5 Meeting.................................................. I-26
Section 6.6 Access to Information.................................... I-27
Section 6.7 Reasonable Efforts....................................... I-27
Section 6.8 Listing Application...................................... I-28
Section 6.9 Consents and Approvals................................... I-28
Section 6.10 Public Announcements..................................... I-29
Section 6.11 Notification............................................. I-29
Section 6.12 Certain Litigation....................................... I-30
Section 6.13 Employee and Benefit Matters; Stock Options and Awards... I-30
Section 6.14 No Restrictions.......................................... I-31
Section 6.15 Advice of Changes........................................ I-31
Section 6.16 Indemnification.......................................... I-31
Section 6.17 No Control............................................... I-32
Section 6.18 Accountant's Letters..................................... I-32
Section 6.19 North American Numbering Plan............................ I-32
Section 6.20 Affiliate Letters........................................ I-32
ARTICLE VII
Termination; Amendment; Waiver
Section 7.1 Termination.............................................. I-33
Section 7.2 Effect of Termination.................................... I-34
Section 7.3 Fees and Expenses........................................ I-34
Section 7.4 Amendment................................................ I-35
Section 7.5 Extension; Waiver........................................ I-35
ARTICLE VIII
Miscellaneous
Section 8.1 Survival................................................. I-35
Section 8.2 Entire Agreement......................................... I-35
Section 8.3 Governing Law............................................ I-35
Section 8.4 Notices.................................................. I-35
Section 8.5 Successors and Assigns; No Third Party Beneficiaries..... I-36
I-ii
Page
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Section 8.6 Counterparts............................................... I-36
Section 8.7 Interpretation............................................. I-36
Section 8.8 Schedules.................................................. I-36
Section 8.9 Legal Enforceability....................................... I-37
Section 8.10 No Waivers; Remedies; Specific Performance................. I-37
Section 8.11 Exclusive Jurisdiction..................................... I-37
Section 8.12 Waiver of Jury Trial....................................... I-37
EXHIBITS
--------
Exhibit A................ Conditions to Offer
Exhibit B................ Form of Registration Rights Agreement
Exhibit C................ Form of Shareholders Agreement
Exhibit D................ Form of Carrier Acquisition Agreement
Exhibit E................ Form of Amended and Restated Articles of Incorporation
Exhibit F................ Form of Tax Opinions
SCHEDULES
----------
Schedule 1............... COMSAT Disclosure Schedule
I-iii
TABLE OF DEFINED TERMS
Term Section No.
- ---- -----------
Acquisition Proposal..................................... 6.4(a)
Acquisition Sub.......................................... Introductory Paragraph
Agreement................................................ Introductory Paragraph
Amendment................................................ 4.2
Antitrust Laws........................................... 6.9(c)
Assets................................................... 4.3
Audit.................................................... 4.12(j)(i)
Authorized Carrier Conditions............................ Exhibit A
Authorized Carriers...................................... 1.1(a)
Average Price............................................ 3.7(a)(i)
Carrier Acquisition...................................... 2.3
Carrier Acquisition Agreement............................ 2.3
CCEC..................................................... 6.9(c)
Certificates............................................. 3.9(b)
Closing.................................................. 3.2
Closing Date............................................. 3.2
Code..................................................... 3.15(c)(ii)
Communications Act....................................... 4.3
COMSAT................................................... Introductory Paragraph
COMSAT Affiliate Letter.................................. 6.20
COMSAT Business Plans.................................... 6.1(i)
COMSAT Carrier Subsidiary................................ 2.3
COMSAT Common Stock...................................... 1.1(a)
COMSAT Contracts......................................... 4.11(a)
COMSAT Disclosure Schedule............................... Article IV
COMSAT Employees......................................... 6.13(d)
COMSAT Form 10-K......................................... 4.5
COMSAT Preferred Stock................................... 4.4(a)
COMSAT Representatives................................... 6.4(a)
COMSAT SEC Documents..................................... 4.6
COMSAT Shareholders Meeting.............................. 6.5(b)
COMSAT Stock Options..................................... 4.4(a)
COMSAT Stock Plans....................................... 4.4(a)
Confidentiality Agreements............................... 8.2
DCBCA.................................................... 1.1(a)
DCRA..................................................... 3.2
DGCL..................................................... 3.1
Determination Date....................................... 3.7(a)(i)
Dissenting Shares........................................ 3.8
EC Merger Regulations.................................... 6.9(c)
Effective Time........................................... 3.2
Environmental Claims..................................... 4.14
Environmental Laws....................................... 4.14
Equity Securities........................................ 4.4(a)
ERISA.................................................... 4.9(a)
ERISA Affiliate.......................................... 4.9(a)
Exchange Act............................................. 1.1(a)
Exchange Agent........................................... 3.9(a)
Exchange Fund............................................ 3.9(a)
I-iv
Term Section No.
- ---- -----------
FCC...................................................... 3.15(a)(ii)
Form S-4................................................. 6.5(a)
Forward Merger........................................... 3.1
GAAP..................................................... 4.6
Governmental Authorizations.............................. 4.13
Governmental Authority................................... 3.11
HSR Act.................................................. 6.9(c)
ICO...................................................... 6.2(e)(i)
Indemnified Parties...................................... 6.16(a)
Inmarsat................................................. 3.9(b)
Inmarsat Convention...................................... 6.2(e)(ii)
Inmarsat Existing Documents.............................. 6.2(e)(iii)
Inmarsat Interests....................................... 6.2(e)(iv)
Inmarsat Investment Share................................ 6.2(e)(v)
Inmarsat Privatization................................... 6.2(e)(vi)
Inmarsat Restructuring Documents......................... 6.2(e)(vii)
Intellectual Property.................................... 4.10(a)
INTELSAT................................................. 3.9(b)
INTELSAT Agreement....................................... 6.2(e)(viii)
INTELSAT Existing Documents.............................. 6.2(e)(viii)
INTELSAT Operating Agreement............................. 6.2(e)(viii)
INTELSAT Interests....................................... 6.2(e)(ix)
INTELSAT Investment Share................................ 6.2(e)(x)
IRS...................................................... 4.9(a)
Laws..................................................... 4.1
Liabilities.............................................. 4.6
Lien..................................................... 4.3
Lockheed Martin.......................................... Introductory Paragraph
Lockheed Martin Common Stock............................. 3.7(a)
Lockheed Martin Form 10-K................................ 5.5
Lockheed Martin Preferred Stock.......................... 5.4(a)
Lockheed Martin SEC Documents............................ 5.6
Lockheed Martin Series Preferred Stock................... 5.4(a)
Lockheed Martin Stock Options............................ 5.4(a)
Lockheed Martin Stock Plans.............................. 5.4(a)
Lock-Up Agreement........................................ 6.2(c)
Material Adverse Effect.................................. 4.1
Maximum Amount........................................... 6.16(b)
Measurement Date......................................... Exhibit A
Merger................................................... 3.1
Merger Consideration..................................... 3.7(a)
Minimum Condition........................................ Exhibit A
NYSE..................................................... 3.2
Offer.................................................... 1.1(a)
Offer Closing Time....................................... 1.1(a)
Offer Documents.......................................... 1.1(d)
Offer Price.............................................. 1.1(a)
Offer Subsidiary......................................... 1.1(a)
Order.................................................... 6.9(d)
PBGC..................................................... 4.9(a)
Person................................................... 3.9(b)
I-v
Term Section No.
- ---- -----------
Plans.............................................................. 4.9(a)
Proxy Statement/Prospectus......................................... 6.5(a)
Recent SEC Documents............................................... 4.8(b)
Registration Rights Agreement...................................... 2.1
Reverse Merger..................................................... 3.1
Satellite Act...................................................... 1.1(a)
Schedule 14D-9..................................................... 1.2(b)
SEC................................................................ 1.1(a)
Securities Act..................................................... 3.15(a)(v)
Shareholders Agreement............................................. 2.2
Shares............................................................. 1.1(a)
Significant Adverse Effect......................................... 3.15(b)
Significant Subsidiary............................................. 4.3
Stock Option Plans................................................. 4.4(a)
Stock Value........................................................ 3.15(c)(i)
Subsidiary......................................................... 4.2
Superior Proposal.................................................. 6.4(b)
Surviving Corporation.............................................. 3.1
Taxes.............................................................. 4.12(j)(ii)
Tax Returns........................................................ 4.12(j)(iii)
Termination Fee.................................................... 7.3(a)(ii)
Transaction Agreements............................................. 2.3
I-vi
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (this "Agreement") dated as of September 18,
1998 among LOCKHEED MARTIN CORPORATION, a Maryland corporation ("Lockheed
Martin"), DENEB CORPORATION, a Delaware corporation and a wholly-owned
subsidiary of Lockheed Martin ("Acquisition Sub"), and COMSAT CORPORATION, a
District of Columbia corporation ("COMSAT").
In consideration of the representations, warranties, covenants and
agreements herein contained, and intending to be legally bound hereby, Lockheed
Martin, Acquisition Sub and COMSAT hereby agree as follows:
ARTICLE I
THE OFFER
Section 1.1 The Offer.
(a) Subject to this Agreement not having been terminated in accordance with
the provisions of Section 7.1 hereof, Lockheed Martin, acting through a wholly-
owned single member Delaware limited liability company (the "Offer
Subsidiary"), shall as promptly as practicable, but in no event later than five
business days from the date of the public announcement of the terms of this
Agreement, commence (within the meaning of Rule 14d-2 under the Securities
Exchange Act of 1934, as amended, and all rules and regulations promulgated
thereunder (the "Exchange Act")) an offer to purchase for cash (as it may be
amended in accordance with the terms of this Agreement, the "Offer") up to the
number of shares (collectively, the "Shares") of COMSAT's common stock, without
par value (the "COMSAT Common Stock"), that is equal to the remainder of
(i) 49% of the number of shares of COMSAT Common Stock outstanding at the close
of business on the date of purchase pursuant to the Offer minus (ii) the number
of shares of COMSAT Common Stock then owned of record by "authorized carriers"
(as defined in the Communications Satellite Act of 1962, as amended, 47 U.S.C.
(S)701 et. seq., and all rules and regulations promulgated thereunder (the
"Satellite Act")) ("Authorized Carriers"), as evidenced by issuance of shares
of Series II COMSAT Common Stock, minus (iii) the number of shares of COMSAT
Common Stock with respect to which written demand shall have been made and not
withdrawn under Section 29-373 of the District of Columbia Business Corporation
Act (the "DCBCA"), at a price of not less than $45.50 per Share, net to the
seller in cash (the "Offer Price"). Lockheed Martin shall extend the Offer, for
periods of no more than 60 days, until the earlier of (i) the one year
anniversary of the date hereof or (ii) 10 business days after the date on which
the last of the Authorized Carrier Conditions (as defined in Exhibit A hereto)
shall have been obtained. The obligation of Lockheed Martin to accept for
payment, and pay for, any Shares tendered pursuant to the Offer shall be
subject to the conditions set forth in Exhibit A (any of which may be waived in
whole or in part by Lockheed Martin in its sole discretion), and to the terms
and conditions of this Agreement. Lockheed Martin expressly reserves the right
to modify the terms and conditions of the Offer, except that, without the prior
written consent of COMSAT, Lockheed Martin shall not (i) reduce the number of
Shares subject to the Offer, (ii) waive the Minimum Condition (as defined in
Exhibit A hereto), (iii) reduce the Offer Price, (iv) modify or add to the
conditions set forth in Exhibit A, (v) except as provided in this Section
1.1(a), extend the term of the Offer, (vi) change the form of the consideration
payable in the Offer or (vii) make any other modifications that are otherwise
materially adverse to holders of COMSAT Common Stock. Notwithstanding the
foregoing, Lockheed Martin may, without the consent of COMSAT, (A) extend the
term of the Offer beyond any scheduled expiration date of the Offer (but not
beyond the two year anniversary of the date hereof) if, at any such scheduled
expiration date, any of the conditions to Lockheed Martin's obligation to
accept for payment, and pay for, Shares tendered pursuant to the Offer shall
not have been satisfied or waived and (B) extend the Offer (but not beyond the
two year anniversary of the date hereof) for any period required by any rule,
regulation, interpretation or position of the Securities and Exchange
Commission (the "SEC") or the staff thereof applicable to the Offer or any
other applicable Law (as hereinafter defined). Upon the terms and subject to
the conditions of the Offer, Lockheed Martin shall accept for payment and will
pay for, as soon as permitted under the terms of the Offer, Shares validly
tendered and not withdrawn prior to the expiration of the Offer. The date and
time at which the Offer shall close is referred to as the "Offer Closing Time".
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(b) Lockheed Martin shall not, nor shall it permit any of its affiliates to,
tender into the Offer any shares of COMSAT Common Stock beneficially owned by
it; provided, that shares of COMSAT Common Stock held beneficially or of record
by any plan, program or arrangement sponsored by Lockheed Martin or maintained
for the benefit of employees of Lockheed Martin or any of its Subsidiaries (as
hereinafter defined) shall be deemed not to be held by Lockheed Martin or an
affiliate thereof regardless of whether Lockheed Martin has, directly or
indirectly, the power to vote or control the disposition of such shares of
COMSAT Common Stock. COMSAT shall not, nor shall it permit any of its
Subsidiaries to, tender into the Offer any shares of COMSAT Common Stock
beneficially owned by it; provided, that shares of COMSAT Common Stock held
beneficially or of record by any plan, program or arrangement sponsored by
COMSAT or maintained for the benefit of employees of COMSAT or any of its
Subsidiaries shall be deemed not to be held by COMSAT regardless of whether
COMSAT has, directly or indirectly, the power to vote or control the
disposition of such shares of COMSAT Common Stock.
(c) Notwithstanding anything to the contrary contained in this Agreement,
Lockheed Martin shall not be required to commence the Offer in any foreign
country where the commencement of the Offer, in Lockheed Martin's reasonable
opinion, would violate the applicable Law of such jurisdiction.
(d) On the date of the commencement of the Offer, Lockheed Martin shall file
with the SEC a Tender Offer Statement on Schedule 14D-1 with respect to the
Offer, which will contain the offer to purchase and form of the related letter
of transmittal (together with any supplements or amendments thereto, the "Offer
Documents"). The Offer Documents shall comply as to form in all material
respects with the requirements of the Exchange Act and, on the date filed with
the SEC and when first published, sent or given to COMSAT's shareholders, shall
not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading, except that no representation is made by Lockheed Martin with
respect to information supplied by COMSAT in writing for inclusion in the Offer
Documents or incorporated therein by reference to any statement, report or
other document filed by or on behalf of COMSAT with the SEC. Upon obtaining
knowledge, Lockheed Martin or COMSAT shall correct promptly any information
provided by it for use in the Offer Documents if and to the extent that such
information shall have become false or misleading in any material respect, and
Lockheed Martin further shall take all steps necessary to amend or supplement
the Offer Documents and to cause the Offer Documents as so amended or
supplemented to be filed with the SEC and to be disseminated to COMSAT's
shareholders, in each case as and to the extent required by applicable federal
securities Laws. COMSAT and its counsel shall be given a reasonable opportunity
to review and comment on the Offer Documents prior to the filing of such Offer
Documents with the SEC. Lockheed Martin shall provide COMSAT and its counsel in
writing with any comments Lockheed Martin and its counsel may receive from the
SEC or its staff with respect to the Offer Documents promptly after the receipt
thereof. Lockheed Martin shall take all steps reasonably necessary to cause the
Offer Documents to be filed with the SEC and disseminated to the holders of
COMSAT Common Stock, in each case as, and to the extent, required by applicable
Law.
Section 1.2 COMSAT Actions.
(a) COMSAT hereby consents to the Offer and represents that its Board of
Directors, at a meeting duly called and held, has by resolutions duly adopted,
and not rescinded or modified, by a unanimous vote (excluding any directors
absent and any directors who recused themselves pursuant to Section 8.06 of
COMSAT's Articles of Incorporation) (i) determined as of the date hereof that
the Offer and the Merger are fair to the shareholders of COMSAT, are advisable
and are in the best interests of the shareholders of COMSAT, (ii) subject to
the terms and conditions set forth herein, approved the Offer, the Merger and
this Agreement, which approval constitutes approval of the Merger and this
Agreement for purposes of Section 29-364 of DCBCA, (iii) directed that the
Merger and this Agreement be submitted to a vote of the shareholders of COMSAT,
which direction constitutes the direction required by Section 29-366 of the
DCBCA with respect to the Merger and this Agreement and (iv) recommended
acceptance of the Offer and approval of the Merger and this Agreement by the
shareholders of COMSAT, which approval, if obtained, will constitute approval
of the Merger and this
I-2
Agreement for purposes of Section 29-367 of DCBCA. COMSAT further represents
that Donaldson, Lufkin & Jenrette Securities Corporation has delivered to the
Board of Directors of COMSAT its opinion that as of the date hereof the
consideration to be received in the Offer and the Merger by holders of shares
of COMSAT Common Stock is fair to the holders of COMSAT Common Stock from a
financial point of view.
(b) COMSAT shall, subject to the provisions of this Agreement (i) file with
the SEC a Solicitation/Recommendation Statement on Schedule 14D-9 (the
"Schedule 14D-9") containing a recommendation of acceptance of the Offer and
approval of the Merger and this Agreement by the shareholders of COMSAT and
(ii) mail such Schedule 14D-9 to the shareholders of COMSAT; provided, that
subject to the provisions of Section 6.4(b) hereof, such recommendation may be
withdrawn, modified or amended. Such Schedule 14D-9 shall be, if so requested
by Lockheed Martin, filed on the same date as Lockheed Martin's Schedule 14D-1
is filed and mailed together with the Offer Documents; provided, that in any
event the Schedule 14D-9 shall be filed and mailed no later than 10 business
days following the commencement of the Offer. The Schedule 14D-9 shall comply
as to form in all material respects with the requirements of the Exchange Act
and, on the date filed with the SEC and when first published, sent or given to
COMSAT's shareholders, shall not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading, except that no
representation is made by COMSAT with respect to information supplied by
Lockheed Martin in writing for inclusion in the Schedule 14D-9. Upon obtaining
knowledge, each of COMSAT and Lockheed Martin shall correct promptly any
information provided by it for use in the Schedule 14D-9 if and to the extent
that such information shall have become false or misleading in any material
respect, and COMSAT further shall take all steps necessary to amend or
supplement the Schedule 14D-9 and to cause the Schedule 14D-9 as so amended or
supplemented to be filed with the SEC and disseminated to COMSAT's
shareholders, in each case as and to the extent required by applicable federal
securities Laws. Lockheed Martin and its counsel shall be given a reasonable
opportunity to review and comment on the Schedule 14D-9, and each such
amendment or supplement, prior to COMSAT's filing of the Schedule 14D-9 or such
supplement or amendment, as the case may be, with the SEC. COMSAT shall provide
Lockheed Martin and its counsel in writing with any comments COMSAT or its
counsel may receive from the SEC or its staff with respect to the Schedule 14D-
9 or such supplement or amendment, as the case may be, promptly after the
receipt thereof.
Section 1.3 Shareholder Lists. In connection with the Offer, at the request
of Lockheed Martin, from time to time after the date hereof, COMSAT shall
promptly furnish Lockheed Martin with mailing labels, security position
listings and any available listing or computer file containing the names and
addresses of the record holders of the Shares as of a recent date and shall
furnish Lockheed Martin with such information and assistance as Lockheed Martin
or its agents may reasonably request in communicating the Offer to the record
and beneficial holders of Shares. Subject to the requirements of applicable
Law, and except for such steps as are necessary to disseminate the Offer
Documents and any other documents necessary to consummate the Merger, Lockheed
Martin shall hold in confidence the information contained in any such labels,
listings and files, and the additional information referred to in the preceding
sentence, will use such information only in connection with the Offer and the
Merger and, if this Agreement shall be terminated, shall, upon request, deliver
to COMSAT all copies of such information then in its possession or control or
in the possession or control of its agents or representatives.
ARTICLE II
RELATED AGREEMENTS
Section 2.1 Registration Rights Agreement. Simultaneous with the execution
and delivery of this Agreement, Lockheed Martin and COMSAT shall execute and
deliver the Registration Rights Agreement, substantially in the form attached
hereto as Exhibit B (the "Registration Rights Agreement"), with respect to the
Shares.
I-3
Section 2.2 Shareholders Agreement. Simultaneous with the execution and
delivery of this Agreement, Lockheed Martin and COMSAT shall execute and
deliver the Shareholders Agreement, substantially in the form attached hereto
as Exhibit C (the "Shareholders Agreement").
Section 2.3 Carrier Acquisition Agreement. Simultaneous with the execution
and delivery of this Agreement, Lockheed Martin, Offer Subsidiary, COMSAT and
COMSAT Government Systems, Inc., a Delaware corporation ("COMSAT Carrier
Subsidiary"), shall enter into an agreement pursuant to which COMSAT Carrier
Subsidiary shall be merged with and into Offer Subsidiary, which agreement
shall be substantially in the form attached hereto as Exhibit D (the "Carrier
Acquisition Agreement," and the transactions contemplated by the Carrier
Acquisition Agreement, the "Carrier Acquisition"). (This Agreement, the
Registration Rights Agreement, the Shareholders Agreement and the Carrier
Acquisition Agreement are hereinafter collectively referred to as the
"Transaction Agreements"). This Agreement contemplates the transactions set
forth in the Carrier Acquisition Agreement.
ARTICLE III
THE MERGER
Section 3.1 The Merger. Upon the terms and subject to the conditions hereof,
and in accordance with the DCBCA and the Delaware General Corporation Law (the
"DGCL"), at the Effective Time (as hereinafter defined) COMSAT shall be merged
with and into Acquisition Sub (the "Forward Merger") as soon as practicable
following the satisfaction or waiver of the conditions set forth in Section
3.15 hereof or on such other date as the parties hereto may agree; provided,
however, that if the conditions in subsections (a) and (b) of such Section 3.15
are satisfied, but any of the conditions in Section 3.15(c) are not satisfied,
then Acquisition Sub shall be merged with and into COMSAT at the Effective Time
(the "Reverse Merger"). At the Effective Time, if the Forward Merger is
effected, then the separate existence of COMSAT shall cease and Acquisition Sub
shall continue as the surviving corporation under the name "COMSAT" or, if the
Reverse Merger is effected, then the separate existence of Acquisition Sub
shall cease and COMSAT shall continue as the surviving corporation. The
surviving corporation of the Forward Merger or the Reverse Merger, as the case
may be, shall be herein referred to as the "Surviving Corporation" and the
Forward Merger and Reverse Merger shall alternatively be referred to as the
"Merger."
Section 3.2 Effective Time; Closing. The Merger shall be consummated by (i)
filing with the Department of Consumer and Regulatory Affairs of the District
of Columbia (the "DCRA") articles of merger, executed and filed in accordance
with Section 29-368 of the DCBCA and such other documents as are required by
Section 29-371 of the DCBCA and (ii) filing with the Secretary of State of the
State of Delaware a certificate of merger, executed and filed in accordance
with Sections 103 and 252 of the DGCL (the time the Merger becomes effective
being referred to as the "Effective Time"). The parties will cooperate to cause
the Effective Time to occur outside of New York Stock Exchange ("NYSE") trading
hours. The Merger shall be effective upon the latest to occur of (i) the
issuance by the DCRA of a certificate of merger with respect thereto pursuant
to Section 29-369 of the DCBCA, (ii) the acceptance for filing of the
certificate of merger by the Secretary of State of the State of Delaware
pursuant to Section 252 of the DGCL and (iii) the time, if any, specified as
the effective time of the Merger in the articles of merger filed in accordance
with the DCBCA and the certificate of merger filed in accordance with the DGCL.
Prior to the filings referred to in this Section 3.2, a closing (the "Closing")
will be held at the offices of O'Melveny & Myers LLP, 555 13th Street, N.W.,
Suite 500 West, Washington, D.C. 20004-1109 (or such other place as the parties
may agree), for the purpose of confirming all of the foregoing no later than
the second business day after satisfaction or waiver of all the conditions set
forth in Section 3.15 (the date of the Closing herein referred to as the
"Closing Date").
Section 3.3 Effects of the Merger. The Merger shall have the effects set
forth in Section 29-370 of the DCBCA and Section 259 of the DGCL. As of the
Effective Time, the Surviving Corporation shall be a wholly-owned Subsidiary of
Lockheed Martin.
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Section 3.4 Certificate of Incorporation and By-Laws. If the Forward Merger
is consummated, the Certificate of Incorporation and By-Laws of Acquisition
Sub, each as in effect at the Effective Time, shall be the Certificate of
Incorporation and By-Laws of the Surviving Corporation, until amended in
accordance with applicable Law, except that Article FIRST of the Certificate of
Incorporation shall be amended so that it reads in its entirety as follows:
"The name of the corporation is COMSAT Corporation". If the Reverse Merger is
consummated, the Articles of Incorporation of COMSAT shall be amended at the
Effective Time to read in their entirety as set forth in Exhibit E hereto and
shall be the Articles of Incorporation of the Surviving Corporation, and the
By-Laws of COMSAT as in effect at the Effective Time shall be the By-Laws of
the Surviving Corporation, each until amended in accordance with applicable
Law.
Section 3.5 Directors. The directors of Acquisition Sub at the Effective
Time shall be the initial directors of the Surviving Corporation and will hold
office from the Effective Time until their respective successors are duly
elected or appointed and qualify in the manner provided in the Certificate of
Incorporation or Articles of Incorporation of the Surviving Corporation, as the
case may be, and the By-Laws of the Surviving Corporation, or as otherwise
provided by Law.
Section 3.6 Officers. The officers of COMSAT at the Effective Time shall be
the initial officers of the Surviving Corporation and will hold office from the
Effective Time until their respective successors are duly elected or appointed
and qualify in the manner provided in the Certificate of Incorporation or
Articles of Incorporation of the Surviving Corporation, as the case may be, and
the By-Laws of the Surviving Corporation, or as otherwise provided by Law.
Section 3.7 Effect on Capital Stock. At the Effective Time:
(a) Each share of COMSAT Common Stock issued and outstanding immediately
prior to the Effective Time (other than shares of COMSAT Common Stock held in
the treasury of COMSAT, held by Offer Subsidiary, held by Lockheed Martin, if
any, and Dissenting Shares (as hereinafter defined), if any) shall, by virtue
of the Merger and without any action on the part of the holder thereof, be
converted into the right to receive 0.5 shares of Lockheed Martin common stock,
par value $1 per share (the "Lockheed Martin Common Stock") (as subject to
adjustment pursuant to Section 3.14 hereof, the "Merger Consideration"),
issuable to the holder thereof upon the surrender of the certificate formerly
representing such share of COMSAT Common Stock (except as provided in Section
6.13 hereof).
(b) Each share of COMSAT Common Stock held in the treasury of COMSAT, each
share of COMSAT Common Stock held by Offer Subsidiary, and each share of COMSAT
Common Stock held by Lockheed Martin, if any, immediately prior to the
Effective Time shall, by virtue of the Merger and without any action on the
part of the holder thereof, be cancelled and retired and cease to exist and no
consideration shall be received therefor; provided, that shares of COMSAT
Common Stock held beneficially or of record by any plan, program or arrangement
sponsored or maintained for the benefit of employees of Lockheed Martin or
COMSAT or any of their respective Subsidiaries shall be deemed not to be held
by Lockheed Martin, Offer Subsidiary or COMSAT regardless of whether Lockheed
Martin, Offer Subsidiary or COMSAT has, directly or indirectly, the power to
vote or control the disposition of such shares of COMSAT Common Stock.
(c) In the case of the Forward Merger, each share of common stock, par value
$1.00 per share, of Acquisition Sub issued and outstanding immediately prior to
the Effective Time shall, by virtue of the Merger and without any action on the
part of the holder thereof remain outstanding as one share of the Surviving
Corporation, or in the case of the Reverse Merger, be converted into and
exchangeable for one share of common stock of the Surviving Corporation.
Section 3.8 Dissenting Shares. Notwithstanding anything in this Agreement to
the contrary, shares of COMSAT Common Stock which are issued and outstanding
immediately prior to the Effective Time and which are held by shareholders who
have not voted such shares of COMSAT Common Stock in favor of the Merger and
shall have delivered a written demand for appraisal of such shares of COMSAT
Common Stock in the manner provided in Section 29-373 of the DCBCA (the
"Dissenting Shares") shall not be converted into or
I-5
be exchangeable for the right to receive the Merger Consideration, unless and
until such holder shall have failed to perfect or shall have effectively
withdrawn or lost such holder's right to appraisal and payment under the DCBCA.
If such holder shall have so failed to perfect or shall have effectively
withdrawn or lost such right, such holder's shares of COMSAT Common Stock shall
thereupon be deemed to have been converted into and to have become exchangeable
for, at the Effective Time, the right to receive the Merger Consideration.
Section 3.9 Exchange of Stock.
(a) Prior to the Effective Time, Lockheed Martin shall designate a bank or
trust company reasonably acceptable to COMSAT to act as exchange agent for the
holders of the shares of COMSAT Common Stock in connection with the Merger (the
"Exchange Agent"). At the Effective Time, Lockheed Martin will deposit with the
Exchange Agent, in trust for the benefit of holders of shares of COMSAT Common
Stock, certificates representing the Lockheed Martin Common Stock issuable
pursuant to Section 3.7(a) hereof in exchange for outstanding shares of COMSAT
Common Stock. Lockheed Martin shall make available to the Exchange Agent cash
sufficient to pay cash in lieu of fractional shares pursuant to Section 3.10
hereof and any dividends and other distributions pursuant to Section 3.9(d)
hereof. Any cash and certificates of Lockheed Martin Common Stock deposited
with the Exchange Agent shall hereinafter be referred to as the "Exchange
Fund".
(b) Promptly after the Effective Time, the Exchange Agent shall mail to each
record holder, as of the Effective Time, of an outstanding certificate or
certificates which immediately prior to the Effective Time represented shares
of COMSAT Common Stock (the "Certificates") a form letter of transmittal (which
shall specify that delivery shall be effected, and risk of loss and title to
the Certificates shall pass, only upon proper delivery of the Certificates to
the Exchange Agent) and instructions for effecting the surrender of such
Certificates in exchange for the applicable Merger Consideration in such form
as Lockheed Martin shall reasonably specify. Upon surrender to the Exchange
Agent of a Certificate, together with such letter of transmittal duly executed,
and any other required documents, the holder of such Certificate shall be
entitled to promptly receive in exchange therefor (A) one or more shares of
Lockheed Martin Common Stock representing, in the aggregate, the whole number
of shares that such holder has the right to receive pursuant to Section 3.7(a)
hereof (after taking into account all shares of COMSAT Common Stock then held
by such holder) and (B) a check in the amount equal to the cash that such
holder has the right to receive pursuant to the provisions of this Article III,
including cash in lieu of any fractional shares of Lockheed Martin Common Stock
pursuant to Section 3.10 hereof. No interest will be paid or will accrue on any
cash payable pursuant to Section 3.9(d) hereof or Section 3.10 hereof upon the
surrender of the Certificates. All distributions to holders of Certificates
shall be subject to any applicable federal, state, local and foreign tax
withholding, and such withheld amounts shall be treated for all purposes of
this Agreement as having been paid to the holder of Certificates in respect of
which such deduction and withholding was made. If the Merger Consideration is
to be distributed to a Person (as defined below) other than the Person in whose
name the Certificate surrendered is registered, it shall be a condition of such
distribution that the Certificate so surrendered shall be properly endorsed or
otherwise in proper form for transfer (including signature guarantees, if
required by the Surviving Corporation in its sole discretion) and that the
Person requesting such payment shall pay any transfer or other taxes required
by reason of the payment to a Person other than the registered holder of the
Certificate surrendered or establish to the satisfaction of the Surviving
Corporation that such tax has been paid or is not applicable. Until surrendered
in accordance with the provisions of this Section 3.9, each Certificate (other
than Certificates representing shares of COMSAT Common Stock held by Lockheed
Martin or any Subsidiary of Lockheed Martin, shares of COMSAT Common Stock held
in the treasury of COMSAT or held by any Subsidiary of COMSAT and Dissenting
Shares) shall represent for all purposes only the right to receive the Merger
Consideration. The Surviving Corporation shall pay all charges and expenses,
including those of the Exchange Agent, in connection with the distribution of
the Merger Consideration. For purposes of this Agreement, the term "Person"
means any individual, firm, trust, partnership, joint venture, association,
corporation, limited liability company, unincorporated organization,
Governmental Authority (as hereinafter defined), or other entity including,
without limitation, the International Telecommunications Satellite Organization
("INTELSAT") or the International Maritime Satellite Organization ("Inmarsat").
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(c) After the Effective Time, there shall be no transfers on the stock
transfer books of the Surviving Corporation of the shares of COMSAT Common
Stock which were outstanding immediately prior to the Effective Time. If, after
the Effective Time, Certificates are presented to the Surviving Corporation,
they shall be cancelled and exchanged for the Merger Consideration in
accordance with the procedures set forth in this Section 3.9.
(d) No dividends or other distributions declared or made with respect to
shares of Lockheed Martin Common Stock with a record date after the Effective
Time shall be paid to the holder of any unsurrendered Certificate with respect
to the shares of Lockheed Martin Common Stock that such holder would be
entitled to receive upon surrender of such Certificate and no cash payment in
lieu of fractional shares of Lockheed Martin Common Stock shall be paid to any
such holder pursuant to Section 3.10 hereof until such holder shall surrender
such Certificate in accordance with Section 3.9(b) hereof. Subject to the
effect of applicable Laws, including, without limitation, Laws of escheat,
following surrender of any such Certificate, there shall be paid to such holder
of shares of Lockheed Martin Common Stock issuable in exchange therefor,
without interest, (a) promptly after the time of such surrender, the amount of
any cash payable in lieu of fractional shares of Lockheed Martin Common Stock
to which such holder is entitled pursuant to Section 3.10 hereof and the amount
of dividends or other distributions with a record date after the Effective Time
theretofore paid with respect to such whole shares of Lockheed Martin Common
Stock, and (b) at the appropriate payment date, the amount of dividends or
other distributions with a record date after the Effective Time but prior to
such surrender and a payment date subsequent to such surrender payable with
respect to such shares of Lockheed Martin Common Stock.
(e) All shares of Lockheed Martin Common Stock issued and cash paid upon
conversion of shares of COMSAT Common Stock in accordance with the terms of
this Article III (including any cash paid pursuant to Section 3.9(d) or Section
3.10 hereof) shall be deemed to have been issued or paid in full satisfaction
of all rights pertaining to the shares of COMSAT Common Stock.
Section 3.10 No Fractional Shares of Lockheed Martin Common Stock.
(a) No certificates or scrip representing fractional shares of Lockheed
Martin Common Stock shall be issued upon the surrender for exchange of
Certificates and such fractional share interests will not be considered
deliverable shares under Section 3.7(a) hereof, and will not entitle the owner
thereof to vote or to have any rights of a shareholder of Lockheed Martin or a
holder of shares of Lockheed Martin Common Stock.
(b) Notwithstanding any other provision of this Agreement, each holder of
shares of COMSAT Common Stock exchanged pursuant to the Merger who would
otherwise have been entitled to receive a fraction of a share of Lockheed
Martin Common Stock (after taking into account all Certificates delivered by
such holder) shall receive, in lieu thereof, cash (without interest) in an
amount equal to the product of (i) such fractional part of a share of Lockheed
Martin Common Stock multiplied by (ii) the closing price per share of Lockheed
Martin Common Stock reported on the NYSE Composite Tape on the last full
trading day prior to the Effective Time. As promptly as practicable after the
determination of the amount of cash, if any, to be paid to holders of COMSAT
Common Stock with respect to fractional interests, the Exchange Agent shall so
notify Lockheed Martin, and Lockheed Martin shall or shall cause the Surviving
Corporation to deposit such amount with the Exchange Agent and shall cause the
Exchange Agent to forward payments to such holders of fractional share
interests subject to and in accordance with the terms hereof.
Section 3.11 Termination of Exchange Fund. Any portion of the Exchange Fund
which remains undistributed to the holders of Certificates for twelve months
after the Effective Time shall be delivered to the Surviving Corporation or
otherwise on the instruction of the Surviving Corporation, and any holders of
the Certificates who have not theretofore complied with this Article III shall,
subject to the effect of applicable Laws, including without limitation, Laws of
escheat, thereafter look only to the Surviving Corporation and Lockheed Martin
for the Merger Consideration with respect to the shares of COMSAT Common Stock
formerly represented thereby to which such holders are entitled pursuant to
Section 3.7 hereof and Section 3.9
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hereof, any cash in lieu of fractional shares of Lockheed Martin Common Stock
to which such holders are entitled pursuant to Section 3.10 hereof and any
dividends or distributions with respect to shares of Lockheed Martin Common
Stock to which such holders are entitled pursuant to Section 3.9(d) hereof. Any
such portion of the Exchange Fund remaining unclaimed by holders of shares of
COMSAT Common Stock five years after the Effective Time (or such earlier date
immediately prior to such time as such amounts would otherwise escheat to or
become property of any Governmental Authority (as defined below)) shall, to the
extent permitted by Law, become the property of the Surviving Corporation free
and clear of any claims or interest of any Person previously entitled thereto.
For purposes of this Agreement, the term "Governmental Authority" means any
agency, bureau, commission, court, department, officer, political subdivision,
or other instrumentality of any nation or government, any region, state, or
other political subdivision thereof whether federal, state, county or local,
domestic or foreign (excluding INTELSAT or Inmarsat), or any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government, and any Person owned or controlled through stock or
capital ownership or otherwise by any of the foregoing.
Section 3.12 No Liability. None of Lockheed Martin, Acquisition Sub, COMSAT,
the Surviving Corporation or the Exchange Agent shall be liable to any Person
in respect of any Merger Consideration from the Exchange Fund delivered to a
public official pursuant to any applicable abandoned property, escheat or
similar Law.
Section 3.13 Lost Certificates. If any Certificate shall have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the Person
claiming such Certificate to be lost, stolen or destroyed and, if required by
the Surviving Corporation, the posting by such Person of a bond in such
reasonable amount as the Surviving Corporation may direct as indemnity against
any claim that may be made against it with respect to such Certificate, the
Exchange Agent will deliver in exchange for such lost, stolen or destroyed
Certificate the applicable Merger Consideration with respect to the shares of
COMSAT Common Stock formerly represented thereby, any cash in lieu of
fractional shares of Lockheed Martin Common Stock, and unpaid dividends and
distributions on shares of Lockheed Martin Common Stock deliverable in respect
thereof, pursuant to this Agreement.
Section 3.14 Certain Adjustments. Without limiting any other provision of
this Agreement, if, between the date of this Agreement and the Effective Time,
the outstanding shares of Lockheed Martin Common Stock shall be changed into a
different number or a different class or series of shares by reason of any
reclassification, recapitalization, stock split, reverse stock split,
combination or exchange of shares or any other similar transaction, or any
dividend payable in stock or other securities shall be declared thereon with a
record date within such period, the Merger Consideration established pursuant
to the provisions of Section 3.7 hereof shall be adjusted accordingly to
provide to the holders of COMSAT Common Stock the same economic effect as
contemplated by this Agreement prior to such reclassification,
recapitalization, stock split, reverse stock split, combination, exchange or
dividend.
Section 3.15 Conditions to Closing of Merger.
(a) The obligation of each party to effect the Merger is subject to the
satisfaction at or prior to the Effective Time of the following conditions:
(i) Offer Subsidiary shall have purchased Shares pursuant to the Offer;
(ii) the Satellite Act, and other applicable Laws, shall have been
amended or repealed, and all applicable proceedings before the Federal
Communications Commission ("FCC") or other Governmental Authority necessary
to implement such amendment or repeal shall have been completed to the
extent necessary to permit the consummation of the Merger as contemplated
by the terms of this Agreement;
(iii) any applicable waiting period related to the Merger under the
Antitrust Laws (as hereinafter defined) shall have terminated or expired
and all consents or approvals required under the Antitrust Laws shall have
been received;
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(iv) the shares of Lockheed Martin Common Stock to be issued in the
Merger and such other shares to be reserved for issuance in connection with
the Merger shall have been approved upon official notice of issuance for
listing on the NYSE; and
(v) the Form S-4 (as hereinafter defined) shall have been declared
effective by the SEC under the Securities Act of 1933, as amended, and all
rules and regulations promulgated thereunder (the "Securities Act"). No
stop order suspending the effectiveness of the Form S-4 shall have been
issued by the SEC and no proceedings for that purpose shall have been
initiated or threatened by the SEC; and
(vi) the shareholders of COMSAT shall have approved the Merger and this
Agreement pursuant to Section 29-367 of the DCBCA.
(b) The obligations of Lockheed Martin and Acquisition Sub to effect the
Merger are further subject to the satisfaction at or prior to the Effective
Time of the following conditions:
(i) (A) after the date of this Agreement, there shall not have been any
change in existing Law or any new Law promulgated, enacted, enforced or
deemed applicable to COMSAT or to the transactions contemplated by this
Agreement nor (B) shall INTELSAT or Inmarsat have adopted a plan for
privatization, or have been privatized, in whole or in part, in a manner or
pursuant to terms and conditions (or, in the case of an adopted plan,
proposed terms and conditions), in the case of either clause (A) or clause
(B) that Lockheed Martin determines in good faith (after consultation with
COMSAT) would reasonably be expected to have a Significant Adverse Effect
(as defined below);
(ii) all consents and approvals from Governmental Authorities (including
the FCC) or any other Person required for the consummation of the Merger as
contemplated by the terms of this Agreement shall have been granted, except
where the failure to obtain such consent or approval, individually or in
the aggregate, would not reasonably be expected to have a Significant
Adverse Effect; and
(iii) since the date of this Agreement, there shall not have occurred
any event that has had or would reasonably be expected to have a
Significant Adverse Effect.
For purposes of this Agreement, the term "Significant Adverse Effect" means
a Material Adverse Effect on COMSAT (as hereinafter defined, but including, for
purposes of determining whether there has been a Significant Adverse Effect,
any effects or changes arising out of, resulting from or relating to general
economic, financial or industry conditions) of such seriousness and
significance that a reasonable businessperson in similar circumstances would
not proceed with the Merger on the terms and conditions set forth in this
Agreement.
COMSAT will furnish Lockheed Martin with such certificates and other
documents to evidence the fulfillment of the conditions set forth in this
Section 3.15(b) as Lockheed Martin may reasonably request.
(c) The obligation of each party to effect the Forward Merger is further
subject to the satisfaction at or prior to the Effective Time of the following
conditions and if any of the following conditions are not satisfied, but the
conditions set forth in Sections 3.15(a) and 3.15(b) are satisfied, the Reverse
Merger shall be effected:
(i) the aggregate fair market value of the shares of Lockheed Martin
Common Stock, deliverable pursuant to Section 3.7(a) hereof upon
consummation of the Forward Merger, based upon the most recent closing
price of such stock on the NYSE Composite Tape on the last full trading day
prior to the Effective Time (the "Stock Value"), would be at least 40% of
the sum of (A) the Stock Value, (B) the aggregate amount paid by Lockheed
Martin to purchase Shares pursuant to the Offer, (C) cash payable in
respect of Dissenting Shares (assuming for these purposes that the per
share amount payable in respect of Dissenting Shares is $50 per share), and
(D) cash payable in respect of fractional shares (assuming for these
purposes that each holder of record of COMSAT Common Stock as of the close
of the last trading day prior to the Effective Time is entitled to receive
$50 in respect of fractional share interests);
(ii) COMSAT shall have received from Skadden, Arps, Slate, Meagher, &
Flom LLP, counsel to COMSAT, a written opinion dated as of the Closing
Date, substantially in the form attached hereto as Exhibit F, based upon
representations of COMSAT and Lockheed Martin (including representations
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relating to any material transactions currently under consideration by
COMSAT and Lockheed Martin, respectively) contained in tax certificates.
Such representations shall be those that customarily would be required in
similar circumstances. The written opinion shall be substantially to the
effect that the Forward Merger will be treated for U.S. federal income tax
purposes as a reorganization qualifying under the provision of Section
368(a) of the Internal Revenue Code of 1986, as amended (the "Code");
(iii) Lockheed Martin shall have received from King & Spalding, counsel
to Lockheed Martin, a written opinion dated as of the Closing Date,
substantially in the form attached hereto as Exhibit F, based upon
representations of COMSAT and Lockheed Martin (including representations
relating to any material transactions currently under consideration by
COMSAT and Lockheed Martin, respectively) contained in tax certificates.
Such representations shall be those that customarily would be required in
similar circumstances. The written opinion shall be substantially to the
effect that the Forward Merger will be treated for U.S. federal income tax
purposes as a reorganization qualifying under the provision of
Section 368(a) of the Code; and
(iv) all required consents or approvals from Governmental Authorities
(including the FCC) or any other Person shall have been obtained to permit
the consummation of the Forward Merger, except where the failure to obtain
such consent or approval, individually or in the aggregate, would not
reasonably be expected to have a material adverse effect on COMSAT's
business.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF COMSAT
Except as set forth in the disclosure schedule delivered prior to the
execution hereof to Lockheed Martin (the "COMSAT Disclosure Schedule") (each
section of which qualifies only the corresponding numbered representation and
warranty or covenant as specified therein), COMSAT represents and warrants to
Lockheed Martin and Acquisition Sub as follows:
Section 4.1 Organization. Each of COMSAT and its Subsidiaries is a
corporation, limited liability company or limited partnership duly organized,
validly existing and in good standing under the Laws of the jurisdiction of its
organization or formation and has all requisite power and authority, as a
corporation, limited liability company or limited partnership, as the case may
be, to own, lease and operate its properties and to carry on its business as
now being conducted, except, in the case of Subsidiaries, where the failure to
be so organized, existing and in good standing or to have such power and
authority would not, either individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect on COMSAT and except as set forth in
Section 4.1 of the COMSAT Disclosure Schedule. For purposes of this Agreement,
the term "Material Adverse Effect" shall mean any change or effect that is
materially adverse to (i) the business, properties, operations, results of
operations or financial condition of the referenced Person and its
Subsidiaries, taken as a whole, other than any effects or changes arising out
of, resulting from or relating to general economic, financial or industry
conditions or (ii) the ability of any of the referenced Person and its
Subsidiaries to perform its obligations under this Agreement and the Carrier
Acquisition Agreement. Each of COMSAT and its Subsidiaries is duly qualified or
licensed and in good standing to do business in each jurisdiction in which the
property owned, leased or operated by it or the nature of the business
conducted by it makes such qualification or licensing necessary, except in such
jurisdictions where the failure to be so duly qualified or licensed and in good
standing, either individually or in the aggregate, would not reasonably be
expected to have a Material Adverse Effect on COMSAT and except as set forth in
Section 4.1 of the COMSAT Disclosure Schedule. COMSAT has heretofore delivered
or made available to Lockheed Martin accurate and complete copies of the
Articles of Incorporation and By-Laws (or other similar organizational
documents in the case of an entity other than a corporation), as currently in
effect, of COMSAT and each of its Subsidiaries. For purposes of this Agreement,
the term "Laws" shall mean collectively, any law, rule, regulation, statute,
writ, ordinance, judgment, decision, decree, ruling, Order (as hereinafter
defined), award, injunction or other official action of any Governmental
Authority.
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Section 4.2 Authority. COMSAT has full corporate power and authority to
execute and deliver each Transaction Agreement to which it is a party and
subject to the limitations of the Satellite Act, COMSAT's Articles of
Incorporation, and COMSAT's Bylaws to consummate the transactions contemplated
thereby. The execution and delivery of each such Transaction Agreement by
COMSAT and the consummation of the transactions contemplated thereby have been
duly and validly authorized by the Board of Directors of COMSAT and no other
corporate proceedings on the part of COMSAT are necessary to authorize any such
Transaction Agreement or to consummate the transactions contemplated thereby,
other than, with respect to the Merger, the approval of the Merger and this
Agreement by the shareholders of COMSAT and, with respect to the amendment to
COMSAT's Articles of Incorporation called for in the Shareholders Agreement
(the "Amendment"), the approval thereof by the Board of Directors and
shareholders of COMSAT as contemplated by the Shareholders Agreement. This
Agreement and each other Transaction Agreement has been duly and validly
executed and delivered by COMSAT and constitutes the valid and binding
agreement of COMSAT (and assuming due and valid authorization, execution and
delivery thereof by the other parties thereto) enforceable against COMSAT in
accordance with its terms, except to the extent that enforcement thereof may be
limited by bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance or other similar Laws, now or hereafter in effect, relating to the
creditors' rights generally and general principles of equity (regardless of
whether enforceability is considered in a proceeding at law or in equity). The
approval of the Merger, this Agreement and the Amendment by two-thirds of the
votes entitled to be cast by all holders of COMSAT Common Stock is the only
vote of the holders of any class or series of the capital stock of COMSAT
required to approve any Transaction Agreement or the transactions contemplated
thereby. For purposes of this Agreement, the term "Subsidiary", when used with
respect to any Person, means, (i) any corporation or other entity of which
securities or other ownership interests having ordinary voting power to elect
50% or more of the board of directors or other persons performing similar
functions are at the time directly or indirectly owned by the Person or (ii) a
partnership, limited liability company, joint venture or similar entity or
arrangement however organized or constituted in which the Person or a
Subsidiary of the Person is, at the date of determination, a general partner,
limited partner or member, as the case may be, but only if the Person or its
Subsidiary is entitled at any time to receive 50% or more of the amounts
distributed or distributable by such partnership, limited liability company,
joint venture or other entity or pursuant to such arrangement to the partners
or members thereof or parties thereto, whether upon dissolution, termination or
otherwise.
Section 4.3 Consents and Approvals; No Violations. Except for any applicable
requirements of the Securities Act, the Exchange Act, Antitrust Laws, the
Communications Act of 1934, as amended, and all rules and regulations
promulgated thereunder (the "Communications Act") and the Satellite Act, the
filing and recordation of articles and/or a certificate of merger with respect
to the Merger, as required by the DCBCA and the DGCL, respectively, the filing
with and approval of the NYSE and the SEC with respect to the delisting and
deregistering of the shares of COMSAT Common Stock, such filings and approvals
as may be required under the "takeover" or "blue sky" Laws of various states or
as disclosed in Section 4.3 of the COMSAT Disclosure Schedule, neither the
execution and delivery of this Agreement by COMSAT nor the consummation by
COMSAT of any transaction contemplated hereby will (i) conflict with or result
in any breach of any provision of the Articles of Incorporation or By-Laws of
COMSAT or the articles of incorporation or by-laws of any of its Subsidiaries
(other than those Subsidiaries which, either individually or in the aggregate,
would not be a "significant subsidiary" within the meaning of Regulation S-X
promulgated under the Securities Act) (each such Subsidiary, other than those
described in the preceding parenthetical, herein called a "Significant
Subsidiary"), (ii) require on the part of COMSAT, such Subsidiary or a
Significant Subsidiary any filing with, or the obtaining of any permit,
authorization, consent or approval of, any Governmental Authority or any other
Person, (iii) result in a violation or breach of, or constitute (with or
without due notice or lapse of time or both) a default (or give rise to any
right of termination, amendment, cancellation, acceleration or payment, or to
the creation of any mortgage, deed of trust, lien (statutory or otherwise),
pledge, hypothecation, charge, deposit arrangement, preference, priority,
security interest, restriction or transfer or encumbrance of any kind
(including, without limitation, any conditional sale contract, any capitalized
lease or any financing lease having substantially the same economic effect as
the foregoing and the filing of or agreement to give any financing
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statement under the Uniform Commercial Code or comparable Law of any
jurisdiction to evidence any of the foregoing) (collectively, "Liens") under
any of the terms, conditions or provisions of any note, mortgage, indenture,
other evidence of indebtedness, guarantee, license, agreement or other
contract, instrument or obligation to which COMSAT or any of its Subsidiaries
is a party or by which any of them or any of their Assets may be bound
(including, without limitation, the COMSAT Contracts (as hereinafter defined))
or (iv) violate any Law applicable to COMSAT or any of its Subsidiaries or any
of their Assets (as defined below), except for such requirements, defaults,
rights or violations under clauses (ii), (iii) and (iv) above (x) which, either
individually or in the aggregate, would not reasonably be expected to have a
Material Adverse Effect on COMSAT or (y) which become applicable as a result of
the business or activities in which Lockheed Martin or Acquisition Sub is or
proposes to be engaged (other than the business or activities of COMSAT and its
Subsidiaries, considered independently of the ownership thereof by Lockheed
Martin and Acquisition Sub) or as a result of other facts or circumstances
specific to Lockheed Martin or Acquisition Sub. For purposes of this Agreement,
the term "Assets" means all assets, of whatever nature, tangible, intangible,
real or personal.
Section 4.4 Capitalization.
(a) As of the close of business on September 11, 1998, the authorized
capital stock of COMSAT consisted of (i) 100,000,000 shares of COMSAT Common
Stock, of which 52,494,820 shares were issued and outstanding of which
52,475,862 shares were Series I Common Stock, inclusive of shares subject to
restrictions, and 18,958 shares were Series II Common Stock, and (ii) 5,000,000
shares of Preferred Stock, without par value ("COMSAT Preferred Stock"), of
which no shares were issued and outstanding. Since the close of business on
September 11, 1998 through the date hereof, no shares of Series II Common Stock
in addition to those set forth in the preceding sentence have been issued. As
of the close of business on September 11, 1998, (i) 3,562,415 shares of COMSAT
Common Stock were issuable upon the exercise of outstanding vested and non-
vested options (the "COMSAT Stock Options") granted under COMSAT's stock option
plans (the "Stock Option Plans") and (ii) not more than 9,000 shares of COMSAT
Common Stock were issuable upon the exercise of other rights to acquire shares
of COMSAT Common Stock granted under other programs of COMSAT or any of its
Subsidiaries that afford to employees or directors of COMSAT and its
Subsidiaries the opportunity to acquire shares of COMSAT Common Stock, each as
amended (such programs together with the Stock Option Plans, the "COMSAT Stock
Plans"), copies of which have previously been delivered to Lockheed Martin.
Since the close of business on September 11, 1998, COMSAT has not granted any
COMSAT Stock Options, issued any other right to acquire shares of its capital
stock or granted any restricted shares or restricted share units of COMSAT
Common Stock under the COMSAT Stock Plans, or otherwise issued any shares of
its capital stock except (i) as permitted by this Agreement, (ii) as set forth
in Section 4.4(a) of the COMSAT Disclosure Schedule, (iii) upon exercise of the
COMSAT Stock Options or (iv) pursuant to a nondiscretionary grant under the
COMSAT Savings and Profit Sharing Plan, the COMSAT Employee Stock Purchase
Plan, or the COMSAT Investors Plus Plan in accordance with the current terms of
such Plan. Except as set forth above and as otherwise permitted in this
Agreement, there are not now, and at the Effective Time there will not be, any
Equity Securities of COMSAT issued or outstanding. For purposes of this
Agreement, the term "Equity Securities" of a Person means the capital stock of
the Person and all other securities (whether or not issued by such Person but
excluding any exchange traded or privately granted options) convertible into or
exchangeable or exercisable for any shares of its capital stock, all rights or
warrants to subscribe for or to purchase, all options for the purchase of, and
all calls, commitments, agreements, arrangements, undertakings or claims of any
character relating to, any shares of its capital stock and any securities
convertible into or exchangeable or exercisable for any of the foregoing.
(b) All outstanding shares of capital stock of COMSAT are duly authorized,
validly issued, fully paid and nonassessable and are not subject to preemptive
rights.
(c) Except with respect to the outstanding shares of COMSAT Common Stock and
the COMSAT Stock Options, there are no outstanding bonds, debentures, notes or
other indebtedness or other securities of COMSAT having the right to vote (or
convertible into, or exchangeable for, securities having the right to vote) on
any matters on which shareholders of COMSAT may vote.
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(d) Except as set forth in Section 4.4(d) of the COMSAT Disclosure Schedule
or with respect to the COMSAT Stock Options, the Shareholders Agreement, the
restrictions set forth at Sections 303 and 304 of the Satellite Act (47 U.S.C.
(S)(S) 733 and 734), resolutions by the Board of Directors of COMSAT (which
currently restrict the exercise of voting rights with respect to the voting of
shares of COMSAT Common Stock held by a shareholder that is not an Authorized
Carrier in excess of five per centum (5%) of the issued and outstanding COMSAT
Common Stock) and the restriction pursuant to Section 5.02(e) of COMSAT's
Articles of Incorporation (which currently limits ownership of COMSAT stock by
any shareholder that is not an Authorized Carrier to ten per centum (10%) of
the issued and outstanding COMSAT Common Stock), there is no agreement or
arrangement restricting the voting or transfer of the Equity Securities of
COMSAT.
(e) Except as set forth in Section 4.4(e) of the COMSAT Disclosure Schedule,
there are no outstanding contractual obligations, commitments, understandings
or arrangements of COMSAT or any of its Subsidiaries to repurchase, redeem or
otherwise acquire, reacquire or make any payment in respect of any Equity
Securities of COMSAT or any of its Subsidiaries.
(f) Except as contemplated by the Registration Rights Agreement, there are
no agreements or arrangements to which COMSAT or any of its Subsidiaries is a
party pursuant to which COMSAT is required to register its Equity Securities
under the Securities Act.
Section 4.5 Absence of Certain Changes. Except (i) as set forth in Section
4.5 of the COMSAT Disclosure Schedule, (ii) as set forth in COMSAT's Annual
Report on Form 10-K for the year ended December 31, 1997 (the "COMSAT Form 10-
K"), COMSAT's Quarterly Reports on Form 10-Q for the three month periods ended
March 31, 1998 and June 30, 1998, respectively, or any other document filed
prior to the date hereof pursuant to Section 13(a) or 15(d) of the Exchange
Act, or (iii) as contemplated by this Agreement, from June 30, 1998 until the
date hereof, neither COMSAT nor any of its Subsidiaries has (x) taken any of
the prohibited actions set forth in Section 6.1 hereof, (y) suffered any
changes that, either individually or in the aggregate, would reasonably be
expected to have a Material Adverse Effect on COMSAT or (z) conducted its
business or operations in any material respect other than in the ordinary
course of business.
Section 4.6 Reports. For the purposes of this Agreement, the "COMSAT SEC
Documents" means each registration statement, report, proxy statement or
information statement of COMSAT prepared by it since January 1, 1996, in the
form (including exhibits and any amendments thereto) filed with the SEC. As of
the respective filing dates, the COMSAT SEC Documents (i) complied as to form
in all material respects with the applicable requirements of the Securities Act
and the Exchange Act and (ii) did not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements made therein, in the light of the
circumstances under which they were made, not misleading. Each of the
consolidated balance sheets included in or incorporated by reference into the
COMSAT SEC Documents (including the related notes and schedules) fairly
presents the consolidated financial position of COMSAT and its Subsidiaries as
of its date, and each of the consolidated statements of income, retained
earnings and cash flows included in or incorporated by reference into the
COMSAT SEC Documents (including any related notes and schedules) fairly
presents the results of operations, retained earnings or cash flows, as the
case may be, of COMSAT and its Subsidiaries for the periods set forth therein
(subject, in the case of unaudited statements, to normal year-end audit
adjustments which would not be material in amount or effect), in each case in
accordance with United States generally accepted accounting principles ("GAAP")
consistently applied during the periods involved, except as may be noted
therein. None of COMSAT and its Subsidiaries has any Liabilities (as defined
below) required to be disclosed in a balance sheet of COMSAT or in the notes
thereto prepared in accordance with GAAP consistently applied except (a)
Liabilities reflected on, or reserved against in, a balance sheet of COMSAT or
in the notes thereto, and included in the COMSAT SEC Documents, (b) Liabilities
incurred since June 30, 1998 in the ordinary course of business and (c) as set
forth in Section 4.6 of the COMSAT Disclosure Schedule. For purposes of this
Agreement, the term "Liabilities" means all debts, claims, actions, demands,
rights, costs, expenses, liabilities, losses, damages, commitments and
obligations (in each case whether fixed, contingent or absolute, accrued or not
accrued, that would be required by GAAP to be reflected in financial statements
of COMSAT or disclosed in the notes thereto).
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Section 4.7 No Default. Except as set forth in Section 4.7 of the COMSAT
Disclosure Schedule, neither COMSAT nor any of its Subsidiaries is in default
or violation (and no event has occurred which with notice or the lapse of time
or both would constitute a default or violation) of any term, condition or
provision of (i) its articles of incorporation or by-laws (or other similar
organizational documents in the case of an entity other than corporation), (ii)
any note, mortgage, indenture other evidence of indebtedness, guarantee,
license, agreement or other contract, instrument or contractual obligation to
which COMSAT or any of its Subsidiaries is now a party or by which they or any
of their Assets may be bound, or (iii) any Law applicable to COMSAT or any of
its Subsidiaries, except for defaults or violations under clause (i), clause
(ii) and clause (iii) above that, (A) in the aggregate would not reasonably be
expected to have a Material Adverse Effect on COMSAT or (B) become applicable
as a result of the business or activities in which Lockheed Martin or
Acquisition Sub is or proposes to be engaged (other than the business or
activities of COMSAT and its Subsidiaries, considered independently of the
ownership thereof by Lockheed Martin and Acquisition Sub) or as a result of any
other facts or circumstances specific to Lockheed Martin or Acquisition Sub.
Section 4.8 Litigation; Compliance with Law.
(a) Except as set forth in Section 4.8(a) of the COMSAT Disclosure Schedule,
as of the date hereof, there are no actions, suits, claims, proceedings or
investigations pending or, to the knowledge of COMSAT, threatened, involving
COMSAT or any of its Subsidiaries or any of their respective Assets (or any
Person whose liability therefrom may have been retained or assumed by COMSAT or
any of its Subsidiaries either contractually or by operation of law), by or
before any court, Governmental Authority or by any other Person that, either
individually or in the aggregate, if determined adversely to COMSAT or such
Subsidiary, would reasonably be expected to have a Material Adverse Effect on
COMSAT.
(b) Except as disclosed by COMSAT in COMSAT SEC Documents filed since
January 1, 1998 (the "Recent SEC Documents") or as set forth in Section 4.8(b)
of the COMSAT Disclosure Schedule, COMSAT and its Subsidiaries are now being
and, to the knowledge of COMSAT, since January 1, 1994 have been operated in
substantial compliance with all Laws, except for violations that, either
individually or in the aggregate, would not reasonably be expected to have a
Material Adverse Effect on COMSAT.
Section 4.9 Employee Benefit Plans; ERISA.
(a) Except as set forth in Section 4.9(a) of the COMSAT Disclosure Schedule,
(i) each "employee benefit plan" (as defined in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA")), and all other
employee benefit, bonus, incentive, stock option (or other equity-based),
severance, change in control, welfare (including post-retirement medical and
life insurance) and fringe benefit plans (whether or not subject to ERISA)
maintained or sponsored by COMSAT or its Subsidiaries or any trade or business,
whether or not incorporated, that would be deemed a "single employer" within
the meaning of Section 4001 of ERISA (an "ERISA Affiliate"), for the benefit of
any employee or former employee of COMSAT or any of its ERISA Affiliates (the
"Plans") is, and has been, operated in all material respects in accordance with
its terms and in substantial compliance (including the making of filings with
Governmental Authorities) with all applicable Laws, including, without
limitation, ERISA and the applicable provisions of the Code, (ii) each of the
Plans intended to be "qualified" within the meaning of Section 401(a) of the
Code has been determined by the Internal Revenue Service (the "IRS") to be so
qualified and is not under audit by the IRS or the Department of Labor or the
subject of IRS review under the IRS Employee Plans Compliance Resolution System
and COMSAT knows of no fact or set of circumstances that is reasonably likely
to adversely affect such qualification, (iii) no material withdrawal liability
with respect to any "multiemployer plan" (as defined in Section 4001(a)(3) of
ERISA) would be incurred by COMSAT and its ERISA Affiliates in the event of a
withdrawal from such plan, (iv) no "reportable event", as such term is defined
in Section 4043(c) of ERISA (for which the 30-day notice requirement to the
Pension Benefit Guaranty Corporation ("PBGC") has not been waived), has
occurred with respect to any Plan that is subject to Title IV of ERISA, and (v)
there are no material pending or, to the knowledge of COMSAT, threatened claims
(other than routine claims for benefits) by, on behalf of or against any of the
Plans or any trusts related thereto. Set forth in
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Section 4.9(a) of the COMSAT Disclosure Schedule is a list of all Plans. A true
and complete copy of each of the Plans and, if applicable, the summary plan
description, any summary of material modifications, the most recent Form 5500,
and the most recently issued IRS determination letter and actuarial report with
respect to each of the Plans has previously been provided to Lockheed Martin
and Acquisition Sub.
(b) (i) No Plan has incurred an "Accumulated Funding Deficiency" (as defined
in Section 302 of ERISA or Section 412 of the Code), whether or not waived,
(ii) neither COMSAT nor any ERISA Affiliate has incurred any Liability under
Title IV of ERISA except for required premium payments to the PBGC, which
payments have been made when due, and no events have occurred which are
reasonably likely to give rise to any Liability of COMSAT or an ERISA Affiliate
under Title IV of ERISA or which could reasonably be anticipated to result in
any claims being made against Lockheed Martin or its affiliates by the PBGC,
(iii) no amendment has been adopted which would require the posting of security
in accordance with Section 401(a)(29) of the Code, and (iv) COMSAT has not
incurred any material withdrawal liability (including any contingent or
secondary withdrawal liability) within the meaning of Section 4201 and 4204 of
ERISA to any multiemployer plan (within the meaning of Section 4001(a)(3) of
ERISA) which has not been satisfied in full.
(c) Except as set forth in Section 4.9(c) of the COMSAT Disclosure Schedule,
with respect to each Plan that is subject to Title IV of ERISA or that provides
post-retirement life or medical insurance or other post-employment benefits
(other than continuation coverage pursuant to Section 4980B(f) of the Code or
Sections 601 to 606 of ERISA) (i) COMSAT has provided to Acquisition Sub a
complete copy of the most recent actuarial valuation report prepared for such
Plan, (ii) the assets and liabilities in respect of the accrued benefits as set
forth in the most recent actuarial valuation report prepared by the Plan's
actuary fairly present the funded status of such Plan in all material respects,
and (iii) since the date of such valuation report there has been no material
adverse change in the funded status of any such Plan.
(d) Neither COMSAT nor any ERISA Affiliate has failed to make any
contribution or payment to any Plan or multiemployer plan which in either case
has resulted or could result in the imposition of a Lien or the posting of a
bond or other security under ERISA or the Code.
(e) Except as set forth in Section 4.9(e) of the COMSAT Disclosure Schedule
or as expressly provided for in this Agreement, the consummation of the
transactions contemplated by this Agreement will not (i) entitle any current or
former employee, officer or director of COMSAT or any Subsidiary to severance
pay, unemployment compensation or any other payment, (ii) accelerate the time
of payment or vesting, or increase the amount of compensation due any such
employee, officer or director or (iii) violate any provision of any Plan
document.
(f) Except as set forth in Section 4.9(f) of the COMSAT Disclosure Schedule,
COMSAT has reserved the right to amend or terminate the Plans according to the
terms of the Plans and with respect to any Plan that has been amended or
terminated within the five year period preceding the date of this Agreement,
such amendment or termination was permitted by the terms of the Plan.
Section 4.10 Intellectual Property; Year 2000.
(a) To the knowledge of COMSAT, COMSAT and its Subsidiaries do not now and
have not in the past used Intellectual Property in the conduct of their
respective businesses which conflicts with or infringes upon any proprietary
rights of others except where such conflict or infringement, individually or in
the aggregate, would not reasonably be expected to have a Material Adverse
Effect on COMSAT. For purposes of this Agreement, the term "Intellectual
Property" means trademarks, trade names, service marks, service names, mark
registrations, logos, assumed names, copyright registrations, patents and all
applications therefor and all other similar proprietary rights.
(b) As described in Section 4.10(b) of the COMSAT Disclosure Schedule,
COMSAT has implemented a program that is designed to ensure that prior to
December 31, 1999, all of the computer software programs, databases and
compilations, computer firmware, computer hardware (whether general or special
purpose), and
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other similar or related items of automated, computerized, and/or software
system(s) that are to be used or relied on by COMSAT or any of its Subsidiaries
in the conduct of their respective businesses will not malfunction, will not
cease to function, will not generate incorrect data, and will not provide
incorrect results when processing, providing, and/or receiving date-related
data into and between the twentieth and twenty-first centuries. The program
includes consideration of the status of the major vendors and suppliers of
COMSAT and its Subsidiaries and of the trustees of employee benefit plans as
defined in ERISA Section 3(3) maintained or sponsored by COMSAT or its
Subsidiaries with respect to this issue.
Section 4.11 Certain Contracts and Arrangements.
(a) COMSAT has delivered or otherwise made available (or will make
available) to Lockheed Martin true, correct and complete copies of all
contracts and agreements (and all amendments, modifications and supplements
thereto and all side letters to which COMSAT is a party affecting the
obligations of any party thereunder) to which COMSAT or any of its Subsidiaries
is a party or by which any of their Assets are bound that are material to the
business or Assets of COMSAT and its Subsidiaries taken as a whole, including,
without limitation, all: (i) employment, consulting, non-competition,
severance, golden parachute or indemnification contracts with past or present
directors, officers or employees (including, without limitation, any contract
to which COMSAT is a party involving employees of COMSAT); (ii) contracts
granting a right of first refusal or first negotiation; (iii) partnership or
joint venture agreements; (iv) agreements for the acquisition, sale or lease of
material Assets of COMSAT (by merger, purchase or sale of Assets or stock or
otherwise); (v) contracts or agreements with any Governmental Authority or
INTELSAT or Inmarsat; (vi) contracts or arrangements limiting or restraining
COMSAT, any of COMSAT's Subsidiaries or any successor thereto from engaging or
competing in any business; and (vii) all commitments and agreements to enter
into any of the foregoing (collectively, the "COMSAT Contracts").
(b) Except as set forth in Section 4.11(b) of the COMSAT Disclosure
Schedule:
(i) to the knowledge of COMSAT, there is no default under any COMSAT
Contract either by COMSAT or any of its Subsidiaries or, by any other party
thereto, and no event has occurred that with the lapse of time or the
giving of notice or both would constitute a default thereunder by COMSAT or
any of its Subsidiaries or, to the knowledge of COMSAT, any other party,
except for defaults or events that, either individually or in the
aggregate, would not reasonably be expected to have a Material Adverse
Effect on COMSAT; and
(ii) no party to any such COMSAT Contract has given notice to COMSAT of
or made a claim against COMSAT with respect to any breach or default
thereunder, except for defaults or breaches that, either individually or in
the aggregate, would not reasonably be expected to have a Material Adverse
Effect on COMSAT.
(c) Section 4.11(c) of the COMSAT Disclosure Schedule sets forth a list of
each material contract to which COMSAT or any of its Subsidiaries is a party or
may be bound and under the terms of which any of the rights or obligations of
COMSAT or its Subsidiaries will be modified or altered (including, without
limitation, any acceleration of rights or obligations thereunder pursuant to
the terms of any such contract, agreement or arrangement) as a result of the
transactions contemplated by this Agreement.
Section 4.12 Taxes. Except as otherwise disclosed in Section 4.12 of the
COMSAT Disclosure Schedule and except for those matters which, either
individually or in the aggregate, would not reasonably be expected to result in
a Material Adverse Effect on COMSAT:
(a) COMSAT and each of its Subsidiaries have filed (or have had filed on
their behalf) all Tax Returns required by applicable Law to be filed by any
of them;
(b) COMSAT and each of its Subsidiaries have paid (or have had paid on
their behalf) all Taxes due, and have established (or have had established
on their behalf and for their sole benefit and recourse) an adequate
accrual (in accordance with GAAP) for the payment of all other Taxes;
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(c) there are no Liens for any Taxes upon the Assets of COMSAT or any of
its Subsidiaries, other than statutory Liens for Taxes not yet due and
payable and Liens for real estate Taxes being contested in good faith;
(d) no Audit is pending with respect to any Taxes due from COMSAT or any
Subsidiary. There are no outstanding waivers extending the statutory period
of limitation relating to the payment of Taxes due from COMSAT or any
Subsidiary for any taxable period ending prior to the expiration of the
Offer which are expected to be outstanding as of the expiration of the
Offer;
(e) neither COMSAT nor any of its Subsidiaries is a party to, is bound
by, or has any obligation under, a Tax sharing contract or other agreement
or arrangement for the allocation, apportionment, sharing, indemnification,
or payment of Taxes;
(f) neither COMSAT nor any of its Subsidiaries has made an election
under Section 341(f) of the Code;
(g) the statute of limitations for all Tax Returns of COMSAT and each of
its Subsidiaries for all years through 1993 have expired for all federal,
California, Maryland and Connecticut Tax purposes, or such Tax Returns have
been subject to a final Audit;
(h) neither COMSAT nor any of its Subsidiaries has received any written
notice of deficiency, assessment or adjustment from the IRS or any other
Governmental Authority responsible for the administration of any Taxes that
has not been fully paid or finally settled, and any such deficiency,
adjustment or assessment shown on such schedule is being contested in good
faith through appropriate proceedings and adequate reserves have been
established on COMSAT's financial statements therefor. To the knowledge of
COMSAT, there are no indications of any other deficiencies, assessments or
adjustments with respect to COMSAT or any of its Subsidiaries; and
(i) neither COMSAT nor any of its Subsidiaries is a party to any
agreement, contract or other arrangement that would result, separately or
in the aggregate, in the requirement to pay any "excess parachute payments"
within the meaning of Section 280G of the Code or any gross-up in
connection with such an agreement, contract or arrangement.
(j) For purposes of this Agreement, capitalized terms have the following
meaning:
(i) "Audit" means any audit, assessment or other examination of
Taxes or Tax Returns by the IRS or any other Governmental Authority
responsible for the administration of any Taxes, proceeding or appeal
of such proceeding relating to Taxes.
(ii) "Taxes" means all federal, state, local and foreign taxes, and
other assessments of a similar nature (whether imposed directly or
through withholding) including, but not limited to income, excise,
property, sales, use (or any similar taxes), gains, transfer,
franchise, payroll, value-added, withholding, Social Security, business
license fees, customs, duties and other taxes, assessments, charges, or
other fees imposed by a Governmental Authority, including any interest,
additions to tax, or penalties applicable thereto.
(iii) "Tax Returns" shall mean all federal, state, local and foreign
tax returns, declarations, statements, reports, schedules, forms and
information returns and any amended Tax Return relating to Taxes.
Section 4.13 Governmental Authorizations. Each of COMSAT and its
Subsidiaries is in possession of all licenses, permits, franchises,
certificates, consents, approvals and other authorizations from appropriate
Governmental Authorities (including the FCC) necessary for COMSAT or any of its
Subsidiaries to own, lease and operate its properties or to carry on their
respective businesses as they are now being conducted ("Governmental
Authorizations"), and all such Governmental Authorizations are valid and in
full force and effect, except where the failure to have any of the Governmental
Authorizations, either individually or in the aggregate, would not reasonably
be expected to have a Material Adverse Effect on COMSAT. No suspension
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or termination of any material Governmental Authorization is pending or, to the
knowledge of COMSAT, threatened, except for suspensions or terminations which,
either individually or in the aggregate, would not reasonably be expected to
have a Material Adverse Effect on COMSAT and except as set forth in Section
4.13 of the COMSAT Disclosure Schedule. Neither COMSAT nor any of its
Subsidiaries is in conflict with, or in default or violation of, any material
Governmental Authorization except for conflicts, defaults, or violations which,
either individually or in the aggregate, would not reasonably be expected to
have a Material Adverse Effect on COMSAT.
Section 4.14 Environmental Matters. Except as set forth in Section 4.14 of
the COMSAT Disclosure Schedule, COMSAT and each of its Subsidiaries are in
material compliance with all applicable federal, state and local Laws relating
to pollution or protection of human health or the environment (including,
without limitation, ambient air, surface water, ground water, land surface or
subsurface strata) (collectively, "Environmental Laws"), except for instances
of noncompliance that, either individually or in the aggregate, would not
reasonably be expected to have a Material Adverse Effect on COMSAT. Such
compliance includes, but is not limited to, the possession by COMSAT and its
Subsidiaries of all material permits and other Governmental Authorizations
required under applicable Environmental Laws, and compliance with the terms and
conditions thereof. Except as set forth in Section 4.14 of the COMSAT
Disclosure Schedule, neither COMSAT nor any of its Subsidiaries has received
written notice of, or to the knowledge of COMSAT, is the subject of, any
actions, causes of action, claims, investigations, demands or notices by any
Person alleging liability under or noncompliance with any Environmental Law
("Environmental Claims") that, either individually or in the aggregate, would
reasonably be expected to have a Material Adverse Effect on COMSAT. To the
knowledge of COMSAT, there are no circumstances that are reasonably likely to
prevent or interfere with such material compliance in the future.
Section 4.15 Brokerage Fees and Commissions. Except for Donaldson, Lufkin &
Jenrette Securities Corporation, no Person is entitled to receive from COMSAT
or any of its Subsidiaries any investment banking, brokerage or finder's fee or
fees for financial consulting or advisory services in connection with this
Agreement or any of the transactions contemplated hereby.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF LOCKHEED MARTIN AND ACQUISITION SUB
Lockheed Martin and Acquisition Sub represent and warrant to COMSAT as
follows:
Section 5.1 Organization. Each of Lockheed Martin, Acquisition Sub and Offer
Subsidiary is a corporation or limited liability company, as the case may be,
duly organized, validly existing and in good standing under the Laws of the
jurisdiction of its incorporation or formation, as the case may be, and has all
requisite corporate or limited liability company power and authority, as the
case may be, to own, lease and operate its properties and to carry on its
business as now being conducted, except where the failure to be so organized,
existing and in good standing or to have such power and authority would not, in
the aggregate, reasonably be expected to have a Material Adverse Effect on
Lockheed Martin.
Section 5.2 Authority. Each of Lockheed Martin, Acquisition Sub and Offer
Subsidiary has full corporate or limited liability company power and authority,
as the case may be, to execute and deliver each Transaction Agreement to which
it is a party and to consummate the transactions contemplated thereby. The
execution and delivery of each such Transaction Agreement and the consummation
of the transactions contemplated thereby have been duly and validly authorized
by the Boards of Directors of Lockheed Martin or Acquisition Sub, as the case
may be, and by Lockheed Martin as the sole member of Offer Subsidiary and the
sole stockholder of Acquisition Sub; and no other corporate or limited
liability company proceedings on the part of Lockheed Martin, Acquisition Sub
or Offer Subsidiary, as the case may be, are necessary to authorize any such
Transaction Agreement or to consummate the transactions contemplated thereby.
This Agreement and
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each such other Transaction Agreement has been duly and validly executed and
delivered by Lockheed Martin, Acquisition Sub or Offer Subsidiary, as the case
may be, and constitutes the valid and binding agreement of Lockheed Martin,
Acquisition Sub or Offer Subsidiary, as the case may be, (and assuming due and
valid authorization, execution and delivery thereof by the other parties
thereto) enforceable against Lockheed Martin, Acquisition Sub or Offer
Subsidiary, as the case may be, in accordance with its terms, except to the
extent that enforcement thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance or other similar Laws, now or
hereafter in effect, relating to creditors' rights generally and general
principles of equity (regardless of whether enforceability is considered in a
proceeding at law or in equity).
Section 5.3 Consents and Approvals; No Violations. Except for any applicable
requirements of the Securities Act, the Exchange Act, Antitrust Laws, the
Communications Act, the Satellite Act, the NYSE, the filing and recordation of
articles and/or a certificate of merger with respect to the Merger as required
by the DCBCA and the DGCL, respectively, any filings required by the Investment
Canada Act, such filings and approvals as may be required under the "takeover"
or "blue sky" Laws of various states, or as contemplated by Section 6.19 hereof
or otherwise by this Agreement, neither the execution and delivery of this
Agreement or the Carrier Acquisition Agreement by Lockheed Martin, Acquisition
Sub or Offer Subsidiary, as the case may be, nor the consummation by Lockheed
Martin, Acquisition Sub or Offer Subsidiary, as the case may be, of any
transaction contemplated hereby and thereby will (i) conflict with or result in
any breach of any provision of the charter or by-laws of Lockheed Martin or
Acquisition Sub, or the limited liability company agreement or certificate of
formation of Offer Subsidiary, as the case may be, (ii) require on the part of
Lockheed Martin, Acquisition Sub or Offer Subsidiary any filing with, or the
obtaining of any permit, authorization, consent or approval of, any
Governmental Authority or any other Person, (iii) result in a violation or
breach of, or constitute (with or without due notice or lapse of time or both)
a default (or give rise to any right of termination, amendment, cancellation,
acceleration or payment, or to the creation of a Lien) under any of the terms,
conditions or provisions of any note, mortgage, indenture, other evidence of
indebtedness, guarantee, license, agreement or other contract, instrument or
obligation to which Lockheed Martin or any of its Subsidiaries is a party or by
which any of them or any of their Assets may be bound, or (iv) violate any Law
applicable to Lockheed Martin or any of its Subsidiaries or any of their
Assets, except for such requirements, defaults, rights or violations under
clauses (ii), (iii) and (iv) above that would not reasonably be expected to
have a Material Adverse Effect on Lockheed Martin.
Section 5.4 Capitalization.
(a) As of the close of business on September 11, 1998, the authorized
capital stock of Lockheed Martin consisted of (i) 1,500,000,000 shares of
Lockheed Martin Common Stock, of which 195,848,551 shares were issued and
outstanding, (ii) 50,000,000 shares of Series Preferred Stock, par value $1.00
per share of which no shares were issued and outstanding ("Lockheed Martin
Series Preferred Stock") and (iii) 20,000,000 shares of Series A preferred
stock, par value $1.00 per share ("Lockheed Martin Preferred Stock"), of which
no shares of any class or series were issued and outstanding. As of the close
of business on September 11, 1998, 12,023,408 shares of Lockheed Martin Common
Stock were issuable upon the exercise of outstanding vested and non-vested
options and other rights to acquire shares of Lockheed Martin Common Stock
("Lockheed Martin Stock Options") granted under any stock option plan, program,
employee stock purchase plan, employment agreement or similar arrangement of
Lockheed Martin or any Subsidiaries, each as amended (the "Lockheed Martin
Stock Plans").
(b) All outstanding shares of capital stock of Lockheed Martin are, and all
shares of Lockheed Martin Common Stock issuable pursuant to this Agreement when
issued, will be, duly authorized, validly issued, fully paid and nonassessable
and are not subject to preemptive rights.
(c) Except with respect to the outstanding shares of Lockheed Martin Common
Stock and the Lockheed Martin Stock Options, there are no outstanding bonds,
debentures, notes or other indebtedness or other securities of Lockheed Martin
having the right to vote (or convertible into, or exchangeable for, securities
having the right to vote) on any matters on which shareholders of Lockheed
Martin may vote.
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(d) Except with respect to the Lockheed Martin Stock Options, there are no
outstanding securities, options, warrants, calls, rights, commitments,
agreements, arrangements or undertakings of any kind to which Lockheed Martin
or any of its Subsidiaries is a party or by which any them is bound obligating
Lockheed Martin or any of its Subsidiaries to issue, deliver or sell, or cause
to be issued, delivered or sold, additional shares of capital stock or other
Equity Securities of Lockheed Martin or any of its Subsidiaries or obligating
Lockheed Martin or any of its Subsidiaries to issue, grant, extend or enter
into any such security, option, warrant, call, right, commitment, agreement,
arrangement or undertaking.
Section 5.5 Absence of Certain Changes. Except (i) as set forth in Lockheed
Martin's Annual Report on Form 10-K for the year ended December 31, 1997 (the
"Lockheed Martin Form 10-K"), Lockheed Martin's Quarterly Reports on Form 10-Q
for the three month periods ended March 31, 1998 and June 30, 1998,
respectively, or any other document filed prior to the date hereof pursuant to
Section 13(a) or 15(d) of the Exchange Act, or (ii) as contemplated by this
Agreement, from June 30, 1998 until the date hereof, neither Lockheed Martin
nor any of its Subsidiaries has suffered any changes that, either individually
or in the aggregate, would reasonably be expected to have a Material Adverse
Effect on Lockheed Martin.
Section 5.6 Reports. For the purposes of this Agreement, the "Lockheed
Martin SEC Documents" means each registration statement, report, proxy
statement or information statement of Lockheed Martin prepared by it since
January 1, 1996, in the form (including exhibits and any amendments thereto)
filed with the SEC. As of the respective filing dates, the Lockheed Martin SEC
Documents (i) complied as to form in all material respects with the applicable
requirements of the Securities Act and the Exchange Act and (ii) did not
contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements made
therein, in the light of the circumstances under which they were made, not
misleading. Each of the consolidated balance sheets included in or incorporated
by reference into the Lockheed Martin SEC Documents (including the related
notes and schedules) fairly presents the consolidated financial position of
Lockheed Martin and its Subsidiaries as of its date, and each of the
consolidated statements of income, retained earnings and cash flows included in
or incorporated by reference into the Lockheed Martin SEC Documents (including
any related notes and schedules) fairly presents the results of operations,
retained earnings or cash flows, as the case may be, of Lockheed Martin and its
Subsidiaries for the periods set forth therein (subject, in the case of
unaudited statements, to normal year-end audit adjustments which would not be
material in amount or effect), in each case in accordance with GAAP
consistently applied during the periods involved, except as may be noted
therein. None of Lockheed Martin and its Subsidiaries has any Liabilities
required to be disclosed in a balance sheet of Lockheed Martin or in the notes
thereto prepared in accordance with GAAP consistently applied except (a)
Liabilities reflected on, or reserved against in, a balance sheet of Lockheed
Martin or in the notes thereto, and included in the Lockheed Martin SEC
Documents and (b) Liabilities incurred since June 30, 1998 in the ordinary
course of business.
Section 5.7 Opinion of Financial Advisor. Bear, Stearns & Co. Inc. has
delivered to the Board of Directors of Lockheed Martin its opinion that, as of
the date hereof, the terms of this Agreement are fair to the holders of
Lockheed Martin Common Stock from a financial point of view.
Section 5.8 Brokers. Except for Bear, Stearns & Co. Inc., no Person is
entitled to receive from Lockheed Martin or any of its Subsidiaries any
investment banking, brokerage or finder's fee or fees for financial consulting
or advisory services in connection with this Agreement or the transactions
contemplated hereby.
ARTICLE VI
COVENANTS
Section 6.1 Conduct of Business of COMSAT. Except (i) as contemplated by
this Agreement, (ii) as set forth in Section 6.1A of the COMSAT Disclosure
Schedule, or (iii) as otherwise permitted by Sections 6.1(a)-(q) of this
Agreement, during the period from the date of this Agreement to the Effective
Time, unless
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Lockheed Martin has consented thereto in writing (which consent shall not be
unreasonably withheld or delayed), COMSAT shall, and shall cause each of its
Subsidiaries to, (x) conduct its operations in the ordinary course, (y) use
commercially reasonable efforts to preserve intact its business organization
and goodwill and maintain satisfactory relationships with those Persons having
business relationships with them, and (z) use commercially reasonable efforts
to keep available the services of its officers and employees. Without limiting
the generality of and in addition to the foregoing, and except as otherwise
contemplated by this Agreement or as set forth in Section 6.1A of the COMSAT
Disclosure Schedule, prior to the time specified in the preceding sentence,
unless Lockheed Martin has consented thereto in writing (which consent shall
not be unreasonably withheld or delayed), COMSAT and its Subsidiaries:
(a) except as required to give effect to changes in Law, shall not amend
their respective articles of incorporation or by-laws or other comparable
governing instruments in a manner that would adversely affect the
consummation of the transactions contemplated by, or otherwise adversely
affect the rights of Lockheed Martin or its Subsidiaries under, any
Transaction Agreement;
(b) except as set forth in Section 6.1(b) of the COMSAT Disclosure
Schedule, shall not, and shall not permit any of its Subsidiaries to, issue
any shares of their capital stock or Equity Securities (except by COMSAT as
permitted by this Agreement, in connection with the COMSAT Stock Options
that are outstanding on the date of this Agreement or which may hereafter
be granted as permitted by this Agreement under COMSAT Stock Plans or
shares of COMSAT Common Stock pursuant to nondiscretionary grants under the
current terms of any existing Plan), or grant, confer or award any options,
appreciation rights, warrants, conversion rights, restricted stock, stock
units, performance shares or other rights, not existing on the date hereof,
with respect to any shares of its capital stock or other Equity Securities
of COMSAT or its Subsidiaries except that, during the twelve-month period
beginning upon the date hereof and ending on the first anniversary hereof
and during each subsequent twelve-month period ending upon subsequent
anniversaries hereof, COMSAT may grant COMSAT Stock Options to acquire up
to the number of shares of COMSAT Common Stock as is equal to 1.5% of the
number of issued and outstanding shares of COMSAT Common Stock as of the
end of the preceding fiscal year pursuant to the continued operation of the
COMSAT Stock Plans, and up to 200,000 shares of COMSAT Common Stock during
each calendar year beginning after the date of this Agreement pursuant to
the continued operation of the COMSAT Employee Stock Purchase Plan, all in
the ordinary course of business and consistent with past practice, or
effect any stock split or otherwise change its capitalization;
(c) except as set forth in Section 6.1(c) of the COMSAT Disclosure
Schedule, shall not, and shall not permit any of its Subsidiaries to, (i)
declare, set aside or pay any dividend or make any other distribution or
payment with respect to any shares of its capital stock or other ownership
interests (other than regular quarterly cash dividends not to exceed $0.05
per share of COMSAT Common Stock and dividends and distributions from
Subsidiaries of COMSAT to COMSAT or another of its Subsidiaries) or (ii)
directly or indirectly redeem, purchase or otherwise acquire any shares of
its capital stock or capital stock of any of its Subsidiaries, or make any
commitment for any such action;
(d) shall not pledge or otherwise encumber shares of capital stock of
COMSAT or any of its Subsidiaries;
(e) except (i) as disclosed in Section 6.1(e) of the COMSAT Disclosure
Schedule, (ii) as required by Law (including any amendment required to
maintain the qualification of any Plan intended to be "qualified" under
Section 401(a) of the Code) or (iii) as contemplated by this Agreement,
shall not (A) except in the ordinary course of business and consistent with
past practice, enter into or amend any employment or similar agreements or
arrangements with any of its directors or executive officers, (B) amend or
otherwise change the terms of the Plans in any manner which would
constitute a material change in Plan design or materially increase the cost
of a Plan, including, without limitation, amend any employment, severance
or similar agreements or arrangements in existence on the date hereof, (C)
adopt any new Plans, programs or arrangements or any severance or similar
agreements or arrangements, or (D) except in the ordinary course of
business and consistent with past practice, increase any compensation,
bonus or other benefits payable to any current or former director or
executive officer;
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(f) except as set forth in Section 6.1(f) of the COMSAT Disclosure
Schedule, shall not transfer, sell, lease, license or dispose of any
material lines of business, Subsidiaries, divisions, operating units or
facilities (other than facilities currently closed or currently proposed to
be closed) outside the ordinary course of business or enter into any
material commitment or transaction outside the ordinary course of business;
(g) except as set forth in Section 6.1(g) of the COMSAT Disclosure
Schedule, shall not, and shall not permit any of its Subsidiaries to,
authorize, propose or announce an intention to authorize or propose to
another Person, or enter into an agreement with respect to, any merger,
consolidation or business combination, any acquisition of Assets or Equity
Securities (other than the purchase of Assets in the ordinary course of
business), any disposition of Assets or Equity Securities (other than the
disposition of Assets or Equity Securities in the ordinary course of
business) or any release or relinquishment of any contract rights in which,
in any such case, the aggregate consideration is in excess of $5 million
for any individual transaction or $20 million for all of such transactions
in any one year period or which would materially adversely affect the
ability of COMSAT or any of its Subsidiaries to consummate any of the
transactions contemplated by this Agreement. For purposes of this Section
6.1(g), Section 6.1(i), Section 6.1(j)(ii) and Section 6.1(l) only, any
actions taken by COMSAT to preserve substantially (or to increase or
decrease such interest by no more than 2.0% in any fiscal year) its
existing ownership interest in INTELSAT or Inmarsat in connection with (A)
annual share redeterminations and adjustments or (B) pursuant to capital
calls approved by the governing bodies of INTELSAT or Inmarsat in
accordance with their charter documents, shall be deemed to be in the
ordinary course of COMSAT's business;
(h) except as set forth in Section 6.1(h) of the COMSAT Disclosure
Schedule, shall not make any material Tax election other than in the
ordinary course of business and consistent with past practice, or settle or
compromise any Tax Liability in excess of $3 million arising from or in
connection with any single issue;
(i) shall not make or agree to make any capital expenditures other than
(i) expenditures in the ordinary course of business, (ii) capital
expenditures that are consistent with COMSAT's strategic business plans
(the "COMSAT Business Plans") and (iii) additional capital expenditures not
in excess of $5 million;
(j) except as set forth in Section 6.1(j) of the COMSAT Disclosure
Schedule, except in the ordinary course of business and except as
consistent with the COMSAT Business Plans, shall not, and shall not permit
any of its Subsidiaries to, (i) incur, create, assume or otherwise become
liable for borrowed money or assume, guarantee, endorse or otherwise become
responsible or liable for the obligations of any other Person (other than
COMSAT and its Subsidiaries) in excess of $5 million per occurrence and $20
million in the aggregate or (ii) make any loans or advances to any other
Person (other than COMSAT and its Subsidiaries) in excess of $5 million per
occurrence and $20 million in the aggregate;
(k) except as set forth in Section 6.1(k) of the COMSAT Disclosure
Schedule, or as required by Law or GAAP, shall not effect any material
change in any of its methods of accounting in effect as of December 31,
1997;
(l) except as provided in the Shareholders Agreement, shall not impose
limitations not already in existence on the date hereof, not imposed on
other shareholders of COMSAT, on the enjoyment by any of Lockheed Martin
and its Subsidiaries of the legal rights generally enjoyed by shareholders
of COMSAT;
(m) except as set forth in Section 6.1(m) of the COMSAT Disclosure
Schedule, shall not pay, discharge or satisfy any material Liabilities,
other than the payment, discharge or satisfaction of any such Liability (i)
reflected or reserved against in, or contemplated by, the financial
statements (or the notes thereto) of COMSAT and its Subsidiaries, (ii)
incurred in the ordinary course of business or (iii) which is legally
required to be paid, discharged or satisfied;
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(n) shall not adopt a plan of complete or partial liquidation,
dissolution, merger, consolidation, restructuring, recapitalization or
other material reorganization of COMSAT or any plan of merger or
consolidation of any of its Subsidiaries in which such Subsidiary is not
the surviving entity;
(o) shall not, and shall not permit any of its Subsidiaries to take any
action which would make any representation or warranty of COMSAT contained
herein untrue or incorrect in any material respect as of the Effective
Time;
(p) shall not fail to take reasonable efforts to cause the Merger to
constitute a reorganization within the meaning of Section 368(a) of the
Code; and
(q) shall not enter into a legally binding commitment with respect to,
or any agreement to take, any of the foregoing actions.
Section 6.2 INTELSAT and Inmarsat Privatizations. Any actions taken pursuant
to U.S. Government instruction and any actions taken in good faith by COMSAT or
its Subsidiaries in connection with the planned privatizations of INTELSAT or
Inmarsat shall not be considered a breach of the first sentence of Section 6.1
hereof or, to the extent applicable, of subsections 6.1(f), (g), (h), (i), (j),
(k) or (m) discharge of liabilities. Notwithstanding the foregoing, other than
as provided in Section 6.1A of the COMSAT Disclosure Schedule or pursuant to
the Existing INTELSAT Documents, the Existing Inmarsat Documents, the Inmarsat
Restructuring Documents or the New Skies Documents, COMSAT shall not:
(a) sell, transfer, assign or dispose of or agree to sell, transfer,
assign or dispose of the INTELSAT Interests or the Inmarsat Interests
(including, without limitation, by entering into any options with respect
thereto);
(b) enter into any voting rights, proxy or other agreement with respect
to the voting of any of the INTELSAT Interests or the Inmarsat Interests
that would be binding on Lockheed Martin, COMSAT or their respective
Subsidiaries following the Merger;
(c) enter into any lock-up, standstill or other similar agreement (a
"Lock-Up Agreement") with respect to the INTELSAT Interests or the Inmarsat
Interests that would be binding on Lockheed Martin, COMSAT or their
respective Subsidiaries following the Merger; provided that COMSAT or its
Subsidiaries may enter into a Lock-Up Agreement in connection with an
initial public offering by INTELSAT, Inmarsat or New Skies Satellites,
N.V., on terms that are usual and customary to those entered into by
directors, affiliates or significant shareholders in similar transactions;
or
(d) take any other action or omit to take any action (including by way
of votes in the INTELSAT Board of Governors or Meeting of Signatories, or
the Inmarsat Council, in either case except to the extent instructed to the
contrary by the United States Government, pursuant to the Satellite Act)
which would reasonably be expected to materially impair the economic value
of or any of the rights associated with the INTELSAT Interests or the
Inmarsat Interests; provided, that COMSAT shall not be required to force a
vote to be held on a matter in any of the foregoing bodies where consistent
with past practice such decision would be decided by consensus rather than
a vote.
(e) For purposes of this Agreement, capitalized terms have the following
meaning:
(i) "ICO" shall mean ICO Global Communications (Holdings) Limited.
(ii) "Inmarsat Convention" shall mean the Convention on the
International Maritime Satellite Organization (Inmarsat) which entered
into force on July 16, 1979, last amended by amendments thereto which
entered into force on June 26, 1997.
(iii) "Inmarsat Existing Documents" shall mean the Inmarsat
Convention, the Operating Agreement on Inmarsat which entered into
force on July 16, 1979, as last amended by amendments thereto which
entered into force on June 26, 1997, the Headquarters Agreement Between
Inmarsat and the government of the United Kingdom, Great Britain and
Northern Ireland which entered into force on February 25, 1980, and all
existing policies and procedures approved by the Inmarsat Council
pursuant to the foregoing.
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(iv) "Inmarsat Interests" shall mean the Inmarsat Investment Share
owned by COMSAT (or all of the shares of Inmarsat PLC received by
COMSAT in lieu thereof pursuant to the Inmarsat Privatization) and all
rights and obligations associated therewith, including, prior to the
Inmarsat Privatization, COMSAT's rights as an Inmarsat Signatory (as
defined in the Inmarsat Convention).
(v) "Inmarsat Investment Share" shall mean an investment share
described in the Inmarsat Operating Agreement.
(vi) "Inmarsat Privatization" shall mean the restructuring of
Inmarsat contemplated by the Inmarsat Restructuring Documents.
(vii) "Inmarsat Restructuring Documents" shall mean, in each case
substantially in the form of the draft made available by the General
Counsel to the Inmarsat parties as of August 26, 1998, the Master
Transition Agreement, to be entered into between Inmarsat and Inmarsat
PLC, together with (a) the following documents that are defined in such
Master Transition Agreement: the Business Transfer Agreement, the LESO
Agreement, the License Agreement, the New Memorandum and Articles of
Association, the Public Services Agreement, the Shareholders' Agreement
and the Trust Deeds and (b) the Memoranda and Articles of Association
of Inmarsat One Limited, Inmarsat Two Company, Inmarsat Three Limited
and Inmarsat Limited and each as subsequently amended in accordance
with the decisions of the Inmarsat Council.
(viii) "INTELSAT Existing Documents" shall mean the Agreement
Relating to the International Telecommunications Satellite Organization
(INTELSAT) (the "INTELSAT Agreement") which entered into force on
February 12, 1973, the Operating Agreement Relating to the
International Telecommunications Satellite Organization (INTELSAT) (the
"INTELSAT Operating Agreement") which entered into force on February
12, 1973, and the Headquarters Agreement between the Government of the
United States of America and INTELSAT which entered into force on
November 24, 1976, and all existing policies and procedures approved by
the INTELSAT Board of Governors pursuant to the foregoing.
(ix) "INTELSAT Interests" shall mean the INTELSAT Investment Share
owned by COMSAT, any ownership or other interests received by COMSAT
relating to any entity created pursuant to any partial or full
privatization of INTELSAT (including New Skies Satellites, N.V.), any
ownership or other interests received by COMSAT relating to any other
entity created pursuant to the full or partial privatization of
INTELSAT, and in each case all rights and obligations associated
therewith, including, prior to the full privatization of INTELSAT,
COMSAT's rights as an INTELSAT Signatory (as defined in the INTELSAT
Agreement).
(x) "INTELSAT Investment Share" shall mean an investment share
described in the INTELSAT Operating Agreement.
(xi) "New Skies Documents" shall mean, in each case, in
substantially the same form of the draft contained in the Report of the
New INTELSAT 2000 Working Part to the Twenty-Second Assembly of
Parties, AP-22-7E S/3/98, 24 February 1998; the Draft Trust Agreement,
the Ensured Capacity Rights (ECR) Contract, the Draft Satellite
Operational Services Contract, the Draft Transition Services Agreement,
the Draft INC Subscription Agreement, the INC Articles of Association,
the Leaseback Equalization Arrangements/Transponder Leasing Agreement,
along with the Record of Decisions of the Twenty-Second (Extraordinary)
Meeting of the INTELSAT Assembly of Parties, AP-22-3E FINAL S/3/98, 30-
31 March 1998 and each as subsequently amended in accordance with the
decisions of the INTELSAT Assembly of Parties.
Section 6.3 Conduct of Business of Lockheed Martin. Except as otherwise
contemplated by this Agreement, during the period from the date of this
Agreement to the Effective Time, unless COMSAT has consented thereto in writing
(which consent shall not be unreasonably withheld or delayed), Lockheed Martin
shall not and shall cause each of its Subsidiaries not to:
(a) adopt a plan of complete or partial liquidation, dissolution,
merger, consolidation, restructuring, recapitalization or other material
reorganization of Lockheed Martin;
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(b) take any action which would make any representation or warranty of
Lockheed Martin contained herein untrue or incorrect as of the Effective
Time;
(c) fail to take reasonable efforts to cause the Merger to constitute a
reorganization within the meaning of Section 368(a) of the Code; and
(d) enter into a legally binding commitment with respect to, or any
agreement to take, any of the foregoing actions.
Section 6.4 No Solicitation.
(a) COMSAT shall, and shall cause its Subsidiaries and their respective
officers, directors, employees, consultants, investment bankers, accountants,
attorneys and other advisors, representatives and agents (collectively, "COMSAT
Representatives") to immediately cease any discussions or negotiations with any
Person that may be ongoing with respect to any Acquisition Proposal (as defined
below). COMSAT shall not, nor shall it permit any of its Subsidiaries to, nor
shall it authorize or permit any COMSAT Representative to, directly or
indirectly, (i) solicit or initiate, or knowingly encourage the submission of,
any Acquisition Proposal or (ii) participate in any discussions or negotiations
regarding, or furnish to any Person (other than Lockheed Martin or its
representatives or affiliates) any information, that may reasonably be expected
to lead to, an Acquisition Proposal; provided, however, that if, prior to the
COMSAT Shareholders Meeting, the Board of Directors of COMSAT determines in
good faith, based upon advice of independent counsel, that it is necessary to
do so in order to comply with its fiduciary duties to COMSAT's shareholders
under applicable Law, the Board of Directors of COMSAT may permit COMSAT in
response to an Acquisition Proposal that was not solicited by COMSAT or its
officers, directors or employees (x) to furnish information (including any non-
public information) with respect to COMSAT (including its Subsidiaries) and
afford access to its properties, books and records pursuant to a
confidentiality agreement designed to reasonably protect the confidentiality of
such information, and (y) to participate in discussions or negotiations
regarding such Acquisition Proposal. For purposes of this Agreement, the term
"Acquisition Proposal" means any proposal or offer from any Person (other than
Lockheed Martin or its representatives or affiliates) to acquire, directly or
indirectly, in one or more transactions, Assets (including, without limitation,
the capital stock of Subsidiaries) of COMSAT or any of its Subsidiaries having
an aggregate value equal to more than 10% of the market capitalization of
COMSAT, any tender offer or exchange offer that if consummated would result in
any Person beneficially owning more than 10% of any class of Equity Securities
of COMSAT, any merger, consolidation, business combination, sale of all or
substantially all the Assets, recapitalization, liquidation, dissolution or
similar transaction involving COMSAT, other than the transactions contemplated
by this Agreement; provided that no transaction specified in Section 6.1A of
the COMSAT Disclosure Schedule shall be deemed to be an Acquisition Proposal.
(b) Except as set forth in this Section 6.4, neither the Board of Directors
of COMSAT nor any committee thereof shall (i) withdraw, modify or materially
qualify (or publicly propose to withdraw, modify or materially qualify) its
approval or recommendation of the Offer, the Merger or this Agreement, (ii)
approve or recommend, or publicly propose to approve or recommend, any
Acquisition Proposal or (iii) enter, or publicly propose to enter, into any
agreement with respect to any Acquisition Proposal. Notwithstanding the
foregoing, in the event that, prior to the COMSAT Shareholders Meeting, the
Board of Directors of COMSAT determines in good faith, based upon advice of
independent counsel, that it is necessary to do so in order to comply with its
fiduciary duties to COMSAT's shareholders under applicable Law, the Board of
Directors of COMSAT may terminate this Agreement pursuant to Section 7.1(d)(ii)
hereof solely in order to concurrently enter into a definitive agreement to
effect a Superior Proposal. For purposes of this Agreement, the term "Superior
Proposal" means any bona fide proposal or offer from one or more Persons (other
than Lockheed Martin and its affiliates) to acquire, directly or indirectly, in
one or more transactions for consideration consisting of cash and/or
securities, more than 50% of the shares of COMSAT Common Stock then outstanding
or all or substantially all the Assets of COMSAT and its Subsidiaries taken as
a whole, and otherwise on terms which the Board of Directors of COMSAT
determines in its good faith judgment (based on the advice of a financial
advisor of nationally recognized reputation) to be more favorable to the
holders of COMSAT Common Stock
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than are the Offer and the Merger and for which financing, to the extent
required, is then committed or which, in the good faith judgment of the Board
of Directors of COMSAT (based on the advice of a financial advisor of
nationally recognized reputation), is reasonably capable of being financed by
such Person.
(c) In addition to the obligations of COMSAT set forth in paragraphs (a) and
(b) of this Section 6.4, COMSAT shall promptly advise Lockheed Martin orally
and in writing of COMSAT's receipt of any Acquisition Proposal, any request for
information or an inquiry that could lead to or is otherwise related to any
Acquisition Proposal, the identity of the Person making such request or
Acquisition Proposal and the material terms of any such Acquisition Proposal.
COMSAT shall keep Lockheed Martin fully informed of the status and terms
(including amendments) of any such request or Acquisition Proposal, unless the
Board of Directors determines in good faith, based upon advice of independent
counsel, that it is necessary not to do so in order to comply with its
fiduciary duties to COMSAT's shareholders under applicable Law.
(d) Nothing contained in this Section 6.4 shall prohibit COMSAT from taking
and disclosing to its shareholders a position contemplated by Rule 14e-2(a)
promulgated under the Exchange Act or issuing a communication meeting the
requirements of Rule 14d-9(e) promulgated under the Exchange Act; provided,
however, neither COMSAT nor its Board of Directors nor any committee thereof
shall, except as permitted by Section 6.4(b) hereof, withdraw, modify or
materially qualify, or publicly propose to withdraw, modify or materially
qualify, its position with respect to the Offer, the Merger or this Agreement
or to approve or recommend, or publicly propose to approve or recommend, an
Acquisition Proposal.
Section 6.5 Preparation of Proxy Statement; COMSAT Shareholders Meeting.
(a) As promptly as practicable following the date hereof, Lockheed Martin
shall, in cooperation with COMSAT, prepare and file with the SEC preliminary
proxy materials which shall constitute the Proxy Statement/Prospectus in
connection with the Merger (such proxy statement/prospectus, and any amendments
or supplements thereto, the "Proxy Statement/Prospectus") and a registration
statement on Form S-4 with respect to the issuance of Lockheed Martin Common
Stock in the Merger (the "Form S-4"), together with any other materials
required to be filed with the SEC in connection with the Merger. The
ProxyStatement/Prospectus will be included inthe Form S-4 as Lockheed Martin's
prospectus. The Form S-4 and the Proxy Statement/Prospectus shall comply as to
form in all material respects with the applicable provisions of the Securities
Act and the Exchange Act. Each of Lockheed Martin and COMSAT shall use all
reasonable efforts to have the Form S-4 cleared by the SEC as promptly as
practicable after filing with the SEC and to keep the Form S-4 effective as
long as is necessary to consummate the Merger. Lockheed Martin shall, as
promptly as practicable after receipt thereof, provide copies of any written
comments received from the SEC with respect to the Proxy Statement/Prospectus
to COMSAT and advise COMSAT of any oral comments with respect to the Proxy
Statement/Prospectus received from the SEC. None of the information supplied or
to be supplied by Lockheed Martin in writing specifically for inclusion or
incorporation by reference in the Proxy Statement/Prospectus and each amendment
or supplement thereto, at the time of mailing thereof and at the time of the
COMSAT Shareholders Meeting, will contain an untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. None of the information supplied or to be
supplied by COMSAT in writing specifically for inclusion or incorporation by
reference in the Proxy Statement/Prospectus and each amendment or supplement
thereto, at the time of mailing thereof and at the time of the COMSAT
Shareholders Meeting, will contain an untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they
were made, not misleading. Lockheed Martin shall advise COMSAT in writing,
promptly after it receives notice thereof, of the time when the Form S-4 has
become effective or any supplement or amendment thereto has been filed, the
issuance of any stop order, the suspension of the qualification of the Lockheed
Martin Common Stock issuable in connection with the Merger for offering or sale
in any jurisdiction, or any request by the SEC for amendment of the Proxy
Statement/Prospectus or the Form S-4 or comments thereon and responses thereto
or requests by the SEC for additional information. Lockheed Martin shall
provide COMSAT with a reasonable opportunity to review and comment on any
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amendment or supplement to the Proxy Statement/Prospectus prior to filing such
with the SEC, and shall provide COMSAT with a copy of all such filings made
with the SEC. No amendment or supplement to the information supplied by COMSAT
for inclusion in the Proxy Statement/Prospectus shall be made without the
approval of COMSAT, which approval shall not be unreasonably withheld or
delayed.
(b) Subject to Sections 6.4 and 7.1(d)(ii) hereof, COMSAT shall, at such
time as determined by Lockheed Martin after consultation with COMSAT, duly
call, give notice of, convene, hold, postpone, adjourn and reconvene a meeting
or meetings of its shareholders (the "COMSAT Shareholders Meeting") for the
purpose of considering and taking action with respect to the Merger and this
Agreement, shall take reasonable efforts to solicit the adoption of this
Agreement by its shareholders (including, but not limited to, employing the
services of a proxy solicitation firm), and the Board of Directors of COMSAT
shall recommend adoption of the Merger and this Agreement by the shareholders
of COMSAT. Without limiting the generality of the foregoing but subject to its
rights pursuant to Sections 6.4 and 7.1(d)(ii) hereof, the obligations of
COMSAT to duly call, give notice of, convene, hold, postpone, adjourn and
reconvene the COMSAT Shareholders Meeting pursuant to the first sentence of
this Section 6.5(b) shall not be affected by the commencement, public proposal,
public disclosure or communication to COMSAT of any Acquisition Proposal.
Section 6.6 Access to Information.
(a) Between the date of this Agreement and the Effective Time, upon
reasonable notice and at reasonable times, and subject to any access,
disclosure, copying or other limitations imposed by applicable Law or any of
the contracts of COMSAT and its Subsidiaries, COMSAT shall give Lockheed
Martin, Acquisition Sub and their authorized representatives reasonable access
to all offices and other facilities and to all books and records of it and its
Subsidiaries and to employees of COMSAT and its Subsidiaries, and will permit
Lockheed Martin, Acquisition Sub or their authorized representatives, as the
case may be, to make such inspections as it or they may reasonably require, and
shall cause its officers and those of its Subsidiaries to furnish Lockheed
Martin, Acquisition Sub and their authorized representatives with such
financial and operating data and other information with respect to any of
COMSAT and its Subsidiaries as Lockheed Martin, Acquisition Sub or their
authorized representatives, as the case may be, may from time to time
reasonably request; provided that to the extent that access, disclosure or
copying of any of the foregoing is limited by applicable Law or contract,
COMSAT shall take reasonable efforts to provide a summary of such information
to Lockheed Martin within the limits of applicable Law or contract. Lockheed
Martin, Acquisition Sub and their authorized representatives shall conduct all
such inspections in a manner which shall minimize any disruptions of the
business and operations of COMSAT and its Subsidiaries.
(b) Lockheed Martin, Acquisition Sub and COMSAT agree that each of the
Confidentiality Agreements (as hereinafter defined), other than Sections 3 and
7 thereof, shall remain binding and in full force and effect.
Section 6.7 Reasonable Efforts. Subject to the terms and conditions of this
Agreement, each of the parties hereto agrees to use all reasonable efforts to
take, or cause to be taken, all actions, and to do, or cause to be done, all
things reasonably necessary, proper or advisable under applicable Law to
consummate and make effective the transactions contemplated by this Agreement
(including, without limitation, (i) cooperating in the preparation and filing
of the Offer Documents, the Schedule 14D-9, the Proxy Statement/Prospectus, the
Form S-4 and any amendments to any thereof, (ii) taking of all action
reasonably necessary, proper or advisable to secure any necessary consents or
waivers under existing debt obligations of COMSAT and its Subsidiaries or amend
the notes, indentures or agreements relating thereto to the extent required by
such notes, indentures or agreements or redeem or repurchase such debt
obligations, (iii) contesting any pending legal proceeding relating to any
transaction contemplated by this Agreement and (iv) executing any additional
instruments necessary to consummate the transactions contemplated hereby). In
case at any time after the Effective Time any further action is necessary to
carry out the purposes of this Agreement or the Carrier Acquisition Agreement,
the proper officers and directors of each party hereto shall use all reasonable
efforts to take all such necessary action.
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Section 6.8 Listing Application. Lockheed Martin shall prepare and submit to
the NYSE a listing application covering the shares of Lockheed Martin Common
Stock issuable in the Merger and shall use commercially reasonable efforts to
obtain, prior to the Effective Time, approval for the listing of such Lockheed
Martin Common Stock, subject to official notice of issuance.
Section 6.9 Consents and Approvals.
(a) In furtherance of and not in limitation of the agreements of the parties
contained in Section 6.7 hereof, the parties shall each cooperate and use its
respective reasonable efforts to promptly seek the amendment or repeal of the
Satellite Act and other applicable Laws, including any regulations of the FCC
or other Governmental Authority, or the applicable provisions thereof, that
would prohibit or limit the ability of Lockheed Martin to (x) acquire and own
all of the Equity Securities of COMSAT, (y) appoint all of the officers and
directors of COMSAT following the Merger, or (z) consummate the transactions
contemplated by this Agreement.
(b) In furtherance of and not in limitation of the agreements of the parties
contained in Section 6.7 hereof, the parties shall each cooperate and use its
respective reasonable efforts to promptly make all filings and obtain all
consents and approvals of Governmental Authorities (including, without
limitation, the FCC) and other Persons necessary to consummate the transactions
contemplated by this Agreement including, without limitation, to permit
Lockheed Martin and Offer Subsidiary to consummate the Carrier Acquisition, to
cause Offer Subsidiary to become an Authorized Carrier and to consummate the
Offer and the Merger. Each of the parties hereto will furnish to the other
parties such necessary information and reasonable assistance as such other
Persons may reasonably request in connection with the foregoing.
(c) In furtherance of and not in limitation of the agreements of the parties
contained in Section 6.7 hereof, the parties shall each (i) take promptly all
actions necessary to make the filings required of such party or any of their
affiliates under the applicable Antitrust Laws, (ii) comply at the earliest
practicable date with any request for additional information or documentary
material received by such party or any of their affiliates from the Federal
Trade Commission or the Antitrust Division of the Department of Justice
pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act") or other Governmental Authority pursuant to Antitrust
Laws, and (iii) cooperate with the other parties hereto in connection with any
filings under applicable Antitrust Laws and in connection with resolving any
investigation or other inquiry concerning any transaction contemplated by this
Agreement commenced by any of the Federal Trade Commission, the Antitrust
Division of the Department of Justice, state attorneys general, or other
Governmental Authorities. For purposes of this Agreement, the term "Antitrust
Laws" means the Sherman Act, as amended, the Clayton Act, as amended, the HSR
Act, the Federal Trade Commission Act, as amended, EC Merger Regulations and
all other federal, state and foreign Laws that are designed or intended to
prohibit, restrict or regulate actions having the purpose or effect of
monopolization or restraint of trade. For purposes of this Agreement, "EC
Merger Regulations" mean Council Regulation (EEC) No. 4064/89 of December 21,
1989 on the Control of Concentrations Between Undertakings, OJ (1989) L 395/1
and the regulations and decisions of the Council or Commission of the European
Community (the "CCEC") or other organs of the European Union or European
Community implementing such regulations.
(d) In furtherance of and not in limitation of the agreements of the parties
contained in Section 6.7 hereof the parties shall each use all reasonable
efforts to resolve such objections, if any, as may be asserted under any
Antitrust Law or any other applicable Law, with respect to any transaction
contemplated by this Agreement. If any administrative, judicial or legislative
action or proceeding is initiated (or threatened to be initiated) or any other
action is taken by any Person challenging any transaction contemplated by this
Agreement as violative of any Antitrust Law or any other applicable Law, the
parties shall each cooperate to contest and resist any such action or
proceeding, and to have vacated, lifted, reversed or overturned any decree,
judgment, injunction, ruling, decision, finding or other order (whether
temporary, preliminary or permanent) (any such decree, judgment, injunction,
ruling, decision, finding or other order is hereafter referred to as an
"Order") or other official action or decision of any Governmental Authority
that is in effect and that restricts, prevents or
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prohibits consummation of any transaction contemplated by this Agreement,
including, without limitation, by pursuing all reasonable avenues of
administrative and judicial appeal.
(e) Notwithstanding anything in this Agreement to the contrary:
(i) In no event shall any of Lockheed Martin and its Subsidiaries be
required to agree to hold separate or to divest any of their respective
businesses or Assets, or agree to any other restriction or condition with
respect to the acquisition or ownership of any of their respective
businesses or Assets or the conduct or operation of any of their respective
businesses or Assets, or following the consummation of the Offer or the
Effective Time, of COMSAT or any of its Subsidiaries, as may be required
(i) by any applicable Governmental Authority (including, without
limitation, the Federal Trade Commission, the Antitrust Division of the
Department of Justice or any state attorney general) in order to resolve
such objections as such Governmental Authority may have to such
transactions under any Antitrust Law, or (ii) by any domestic or foreign
court or other tribunal, in any action or proceeding brought by any Person
challenging such transactions as violative of any Antitrust Law, in order
to avoid the entry of, or to effect the dissolution, vacating, lifting,
altering or reversal of, any Order that has the effect of restricting,
preventing or prohibiting the consummation of any transaction contemplated
by this Agreement, if the Board of Directors of Lockheed Martin determines
in good faith that any such agreement to hold separate or to divest or
agreement to other restriction or condition is not in the best interests of
Lockheed Martin.
(ii) Except for seeking review by the full FCC of any FCC staff
decision denying any application to permit Lockheed Martin or Offer
Subsidiary to consummate the Carrier Acquisition, to cause Offer Subsidiary
to become an Authorized Carrier or to consummate the Offer, Lockheed Martin
shall not be required to undertake or continue any contest or resistance of
an action or proceeding or take any other action, in each case of the type
referred to in Section 6.7 hereof (including, but not limited to, Section
6.7(iii) hereof) or Section 6.9 hereof (including, but not limited to,
Section 6.9(d) hereof) if, after taking into account advice of independent
counsel with respect to relevant matters, including, without limitation,
the likely outcome of the action or proceeding, the timing thereof and the
likely costs related thereto, the Board of Directors of Lockheed Martin
determines in good faith that undertaking or continuing any such contest or
resistance or taking any such other action is not in the best interests of
Lockheed Martin.
(f) Each of COMSAT, Lockheed Martin and Acquisition Sub shall promptly
inform the other parties of any material communication received by such party
from the Federal Trade Commission, the Antitrust Division of the Department of
Justice, the FCC or any other Governmental Authority or INTELSAT or Inmarsat
regarding any transaction contemplated by this Agreement, along with copies of
any written communications received with respect thereto and written summaries
of any oral communications with respect thereto.
Section 6.10 Public Announcements. The initial press release relating to
this Agreement shall be a joint press release and thereafter COMSAT, Lockheed
Martin and Acquisition Sub shall consult with each other before issuing any
press release or otherwise making any public statements with respect to any
transaction contemplated by this Agreement and shall not issue any such press
release or make any such public statement prior to such consultation, except as
may be required by Law or by obligations pursuant to any listing agreement with
any securities exchange; provided that the statements included in any such
press release or the public statement made in compliance with this Section 6.10
may be published, reiterated or restated, in whole or in part, without the
necessity of further complying with this Section 6.10.
Section 6.11 Notification. COMSAT shall give prompt notice to Lockheed
Martin and Lockheed Martin shall give prompt notice to COMSAT, in each case,
after it has actually become aware, of (i) any representation or warranty made
by it contained in this Agreement that is qualified as to materiality becoming
untrue or inaccurate in any respect or any such representation or warranty that
is not so qualified becoming untrue or inaccurate in any material respect or
(ii) the failure by it to comply with or satisfy in any material respect any
covenant, condition or agreement to be complied with or satisfied by it under
this Agreement; provided, however, that no such notification shall affect the
representations, warranties, covenants or agreements of the parties or the
conditions to the obligations of the parties under this Agreement.
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Section 6.12 Certain Litigation. The parties shall cooperate in the defense
of any litigation commenced after the date hereof against either party or any
of their respective directors by any shareholder of COMSAT or Lockheed Martin
relating to any transaction contemplated by this Agreement and shall not settle
any such litigation without the prior written consent of the other party. In
addition, subject to its rights under Section 6.4 hereof, COMSAT shall not
voluntarily cooperate with any other Person that may hereafter seek to restrain
or prohibit or otherwise oppose any transaction contemplated by this Agreement
and shall cooperate with Lockheed Martin and Acquisition Sub to resist any such
effort to restrain or prohibit or otherwise oppose such transaction.
Section 6.13 Employee and Benefit Matters; Stock Options and Awards.
(a) Stock Options and Awards. Except as provided in Section 6.13(b) hereof,
as of the Effective Time, Lockheed Martin shall assume all COMSAT Stock Plans
and the COMSAT Stock Options. Each COMSAT Stock Option outstanding at the
Effective Time shall be deemed to constitute an option to acquire, on the same
terms and conditions, mutatis mutandis, as were applicable under such COMSAT
Stock Option prior to the Effective Time, (i) the number of shares of Lockheed
Martin Common Stock as the holder of such COMSAT Stock Option would have been
entitled to receive pursuant to the Merger had such holder exercised such
COMSAT Stock Option in full immediately prior to the Effective Time (not taking
into account whether or not such option was in fact then exercisable), (ii) at
a price per share equal to (x) the aggregate exercise price for COMSAT Common
Stock otherwise purchasable pursuant to such COMSAT Stock Option divided by (y)
the number of shares of Lockheed Martin Common Stock deemed purchasable
pursuant to such assumed COMSAT Stock Option, provided that the number of
shares of Lockheed Martin Common Stock that may be purchased upon exercise of
any such Lockheed Martin Stock Option shall not include any fractional share
and, upon exercise of any such Lockheed Martin Stock Option, a cash payment
shall be made for any fractional share based on the last sale price per share
of Lockheed Martin Common Stock on the trading day immediately preceding the
date of exercise. COMSAT shall use its reasonable efforts to provide, on or
prior to the Effective Time, a written acknowledgement of each holder of a
COMSAT Stock Option that such COMSAT Stock Option from and after the Effective
Time will be exercisable for shares of Lockheed Martin Common Stock as provided
herein, provided that COMSAT need not do so if Lockheed Martin determines to
its reasonable satisfaction that the terms of such COMSAT Stock Option or
COMSAT Stock Plan provides that, after giving effect to any permitted action by
the COMSAT board of directors or committee thereof, from and after the
Effective Time, such COMSAT Stock Option shall be exercisable only for shares
of Lockheed Martin Common Stock and not for shares of common stock of the
Surviving Corporation or any other Person. COMSAT shall amend each other Plan,
agreement or arrangement that provides benefits or payments by reference to the
price of COMSAT Common Stock, other than the COMSAT Stock Option Plans, to
provide that as of and after the Effective Time, the payments or benefits shall
be measured by reference to the price of Lockheed Martin Common Stock,
determined in like manner to the adjustments prescribed above with respect to
the exercise price of COMSAT Stock Options and the number of shares of COMSAT
Common Stock into which COMSAT Stock Options are exercisable. In respect of
each COMSAT Stock Option to be converted into options or rights to acquire
Lockheed Martin Common Stock, Lockheed Martin shall file as soon as practicable
after the Effective Time with the SEC, and keep current the effectiveness of, a
registration statement on Form S-8 or other appropriate form for as long as
such options or rights remain outstanding (and maintain the current status of
the prospectus with respect thereto). Lockheed Martin agrees to reserve for
issuance a number of shares of Lockheed Martin Common Stock equal to the number
of shares of Lockheed Martin Common Stock issuable under the COMSAT Stock
Options.
(b) Employee Stock Purchase Plan. COMSAT shall terminate each employee stock
purchase plan COMSAT maintains for its or any of its Subsidiaries' employees no
later than the Effective Time.
(c) Change in Control. COMSAT shall cause to be amended each of the Plans
listed in Section 6.13(c) of the COMSAT Disclosure Schedule and/or the Board of
Directors of COMSAT shall adopt a resolution to provide that (i) for purposes
of the Plans listed in Section 6.13(c)(1) of the COMSAT Disclosure Schedule,
neither the execution of this Agreement, the consummation of the transactions
contemplated by this Agreement
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nor approval of this Agreement or the transactions contemplated hereby by the
Board of Directors or shareholders of COMSAT shall be a "Change in Control" of
COMSAT (or any similar triggering event resulting in the acceleration or other
change in the terms of benefits payable under the Plans); and (ii) for the
purposes of the Plans listed in Section 6.13(c)(2) of the COMSAT Disclosure
Schedule, a "Change in Control" of COMSAT (or any similar triggering event
resulting in the acceleration or other change in the terms of benefits payable
under the Plans) shall occur at the Effective Time.
(d) Service Credit. Following the Effective Time, Lockheed Martin shall, or
shall cause the Surviving Corporation, to recognize the service of current or
former employees of COMSAT and any of its Subsidiaries (the "COMSAT Employees")
for purposes of participation, eligibility and vesting under any benefit Plan
(including eligibility for benefit levels under any severance, retiree medical
or vacation pay plans to the extent based on length of service) in which such
employees may then be eligible to participate, except to the extent that such
service was not taken into account under the comparable Plan immediately prior
to the Effective Time. A COMSAT Employee who has accrued but unused vacation
time under a Plan at the Effective Time shall retain such accrued but unused
vacation after the Effective Time.
(e) Pre-Existing Condition Limitations; Deductibles. With respect to any
Plans of Lockheed Martin in which the COMSAT Employees participate effective as
of the Effective Time, Lockheed Martin shall, or shall cause the Surviving
Corporation to: (i) not impose any requirements under the Plans more onerous
than those currently in effect with respect to pre-existing condition
limitations or exclusions and waiting periods with respect to eligibility and
participation applicable to COMSAT Employees, and (ii) recognize credit toward
satisfying any applicable co-payment, deductible expense requirement, out-of-
pocket expense limit and maximum lifetime benefit limits of each COMSAT
Employee or their eligible dependents as and to the extent any payment would
have been previously recognized under the applicable COMSAT welfare benefit
Plans prior to the Effective Time.
(f) Assumption of Plans. As of the Effective Time, Lockheed Martin shall
assume and shall cause the Surviving Corporation to assume in accordance with
their terms all Plans and agreements listed in Section 6.13(f) of the COMSAT
Disclosure Schedule.
(g) Benefit Continuation. For a period of at least one year following the
Effective Time, Lockheed Martin shall, or shall cause the Surviving Corporation
to, provide each COMSAT Employee with qualified plan and employee welfare plan
benefits (other than plans provided exclusively to management) which are
comparable in the aggregate to the qualified plan and welfare plan benefits
(other than plans provided exclusively to management) provided to such COMSAT
Employee immediately prior to the Effective Time.
Section 6.14 No Restrictions. COMSAT shall not intentionally take any
action, or omit to take any action, if the result of such action or omission
could reasonably be expected to result in any restriction or limitation on the
ability of Lockheed Martin or its Subsidiaries to vote any of the Shares
purchased by any of Lockheed Martin and its Subsidiaries in the Offer.
Section 6.15 Advice of Changes. COMSAT shall cause its senior officers to
use reasonable efforts to promptly advise Lockheed Martin of any change or
occurrence that would reasonably be expected to have a Material Adverse Effect
on COMSAT and, to the extent permitted by Law, to meet from time to time with
Lockheed Martin's senior officers to discuss COMSAT's business.
Section 6.16 Indemnification.
(a) From and after the Effective Time, Lockheed Martin shall cause the
Surviving Corporation to indemnify, defend and hold harmless the present and
former officers, directors, employees and agents of COMSAT and its Subsidiaries
(the "Indemnified Parties") against all losses, claims, damages, expenses or
liabilities arising out of or related to actions or omissions or alleged
actions or omissions occurring at or prior to the Effective Time to the same
extent and on the same terms and conditions (including with respect to
advancement of expenses) provided for in COMSAT's Articles of Incorporation and
By-Laws and agreements
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in effect on the date hereof (to the extent consistent with applicable Law as
of the Effective Time), which provisions will survive the Merger and continue
in full force and effect after the Effective Time, in each case consistent with
Applicable Law. Without limiting the foregoing, (i) Lockheed Martin shall, and
shall cause the Surviving Corporation to, periodically advance expenses
(including attorneys' fees) as incurred by an Indemnified Party with respect to
the foregoing to the extent required under COMSAT's Articles of Incorporation
and Bylaws in effect on the date hereof (to the extent consistent with
applicable Law) and (ii) any determination required to be made with respect to
whether an Indemnified Party shall be entitled to indemnification shall, if
requested by such Indemnified Party, be made by independent legal counsel
selected by the Surviving Corporation and reasonably satisfactory to such
Indemnified Party. Lockheed Martin hereby guarantees the obligation of the
Surviving Corporation provided for under this Section 6.16(a).
(b) For a period of six years after the Effective Time, Lockheed Martin
shall use reasonable efforts to cause to be maintained in effect the current
policies of directors and officers liability insurance maintained by COMSAT
(provided that Lockheed Martin may substitute therefor policies with reputable
and financially sound carriers of at least the same coverage and amounts
containing terms and conditions which are no less advantageous in the
aggregate) with respect to claims arising from or related to facts or events
which occurred at or before the Effective Time; provided, that Lockheed Martin
shall not be obligated to make annual premium payments for such insurance to
the extent such premiums exceed 150% of the annual premiums paid as of the date
hereof by COMSAT for such insurance (the "Maximum Amount"). If the amount of
the annual premiums necessary to maintain or procure such insurance coverage
exceeds the Maximum Amount, Lockheed Martin and the Surviving Corporation shall
maintain the most advantageous policies of directors, and officers' insurance
obtainable for an annual premium equal to the Maximum Amount.
(c) The provisions of this Section 6.16 are intended to be for the benefit
of, and shall be enforceable by, each Indemnified Party, his or her heirs and
his or her representatives.
Section 6.17 No Control. Prior to the Effective Time, Lockheed Martin shall
not and shall not permit any of its Subsidiaries to, directly or indirectly,
control, supervise or direct, or attempt to control, supervise or direct, the
operations of COMSAT or of any common carrier activities or licensed facilities
authorized by the FCC, in contravention of applicable Law; those operations,
including complete control and supervision of common carrier activities, FCC-
licensed facilities, employees and policies shall be the sole responsibility of
COMSAT and its Subsidiaries.
Section 6.18 Accountant's Letters. Each of COMSAT and Lockheed Martin shall
use all reasonable efforts to cause to be delivered to the other party two
letters from its independent public accountants, one dated the date on which
the Form S-4 shall become effective and one dated the Closing Date, each
addressed to COMSAT and Lockheed Martin, in form and substance reasonably
satisfactory to the other party and customary in scope and substance for
comfort letters delivered by independent public accountants in connection with
registration statements similar to the Form S-4.
Section 6.19 North American Numbering Plan. COMSAT acknowledges that an
affiliate of Lockheed Martin is party to a contract pursuant to which it acts
as administrator of the North American Numbering Plan. Lockheed Martin shall
take such actions as are necessary so that the existence of the aforementioned
contract does not prevent or delay consummation of the Offer or the Merger.
Section 6.20 Affiliate Letters. On or prior to the date of the COMSAT
Shareholders Meeting, COMSAT will deliver to Lockheed Martin a letter
identifying all Persons who may be deemed to be "affiliates" of COMSAT for
purposes of Rule 145 under the Securities Act as of the date of the COMSAT
Shareholders Meeting (the "COMSAT Affiliate Letter"). On or prior to the
Closing Date, COMSAT will use all reasonable efforts to cause each Person
identified as an "affiliate" in the COMSAT Affiliate Letter to deliver a
written agreement acknowledging the restrictions on affiliates under Rule 145
under the Securities Act.
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ARTICLE VII
TERMINATION; AMENDMENT; WAIVER
Section 7.1 Termination. This Agreement may be terminated and the Offer and
the Merger may be abandoned at any time (notwithstanding approval of the Merger
by the shareholders of COMSAT) prior to the Effective Time:
(a) by mutual written consent of COMSAT and Lockheed Martin;
(b) by COMSAT or Lockheed Martin if any court of competent jurisdiction in
the United States of America or other United States Governmental Authority
shall have issued a final Order or taken any other final action restraining,
enjoining or otherwise prohibiting the consummation of the Offer or the Merger
and such Order or other action is or shall have become nonappealable;
(c) by Lockheed Martin if, due to an occurrence or circumstance which would
result in a failure to satisfy any of the conditions set forth in Exhibit A
hereto, Lockheed Martin shall have (i) failed to commence the Offer within the
time required by Regulation 14D under the Exchange Act, (ii) terminated the
Offer without the purchase of any Shares thereunder or (iii) failed to accept
for payment and pay for Shares pursuant to the Offer prior to the one year
anniversary of the date hereof; provided that Lockheed Martin may not terminate
pursuant to this Section 7.1(c) if Lockheed Martin is in material breach of
this Agreement;
(d) by COMSAT if (i) there shall not have occurred a material breach of any
representation, warranty, covenant or agreement of COMSAT or any of its
Subsidiaries contained in this Agreement and Lockheed Martin shall have (A)
failed to commence the Offer within the time required by Regulation 14D under
the Exchange Act, (B) terminated the Offer without the purchase of any Shares
thereunder or (C) failed to accept for payment and pay for Shares pursuant to
the Offer on or prior to the one year anniversary of the date hereof or (ii)
prior to the purchase of Shares pursuant to the Offer, the Board of Directors
of COMSAT or any committee thereof shall have (A) determined that an
Acquisition Proposal is a Superior Proposal, and approved a definitive
agreement to effect such Superior Proposal and directed the authorized officers
of COMSAT to execute and deliver such definitive agreement concurrently with
the effectiveness of the termination of this Agreement pursuant to this Section
7.1(d)(ii) or (B) adopted any resolution to effect any of the foregoing;
provided, that such termination under this clause (ii) shall not be effective
until payment of the fee required by Section 7.3(a) hereof;
(e) by Lockheed Martin prior to the purchase of Shares pursuant to the
Offer, if (i) there shall have occurred a breach of any representation or
warranty of COMSAT or its Subsidiaries contained in this Agreement that would
reasonably be expected to have a Material Adverse Effect on COMSAT or would
reasonably be expected to materially adversely affect (or materially delay) the
consummation of the Offer, (ii) there shall have occurred a breach of any
covenant or agreement of COMSAT or its Subsidiaries contained in this Agreement
that has or would reasonably be expected to have a Material Adverse Effect on
COMSAT or that would reasonably be expected to materially adversely affect (or
materially delay) the consummation of the Offer, which shall not have been
cured prior to the earlier of (A) 10 days following notice of such breach and
(B) two business days prior to the date on which the Offer expires, (iii) the
Board of Directors of COMSAT or any committee thereof shall have (A) determined
that an Acquisition Proposal is a Superior Proposal, (B) withdrawn, modified or
materially qualified (including by amendment of the Schedule 14D-9) in a manner
adverse to Lockheed Martin or Acquisition Sub its approval or recommendation of
the Offer, the Merger or this Agreement, (C) recommended to COMSAT's
shareholders another Acquisition Proposal, (D) adopted any resolution to effect
any of the foregoing, or (iv) the Minimum Condition shall not have been
satisfied upon the expiration of the Offer and at or prior to such time a
Person or group (other than Lockheed Martin or Acquisition Sub) shall have
commenced, publicly proposed or publicly disclosed an Acquisition Proposal;
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(f) by COMSAT prior to the purchase of Shares pursuant to the Offer, if (i)
there shall have occurred a breach of any representation or warranty of
Lockheed Martin or Acquisition Sub contained in this Agreement that would
reasonably be expected to materially adversely affect (or materially delay) the
consummation of the Offer or (ii) there shall have occurred a material breach
of any covenant or agreement of Lockheed Martin or Acquisition Sub contained in
this Agreement that would reasonably be expected to materially adversely affect
(or materially delay) the consummation of the Offer which shall not have been
cured prior to the earlier of (A) 10 days following notice of such breach and
(B) two business days prior to the date on which the Offer expires;
(g) by Lockheed Martin or COMSAT if the shareholders of COMSAT shall not
have approved the Merger and this Agreement at the COMSAT Shareholders Meeting,
including any postponement or adjournment thereof, on or before the one year
anniversary of the date hereof;
(h) by COMSAT or Lockheed Martin if (i) there shall not have occurred a
material breach of any representation, warranty, covenant or agreement of such
party contained in this Agreement and (ii) the Effective Time shall not have
occurred on or before the two year anniversary of the date hereof;
Section 7.2 Effect of Termination. In the event of the termination and
abandonment of this Agreement pursuant to Section 7.1 hereof, this Agreement
shall forthwith become void and have no effect, without any Liability on the
part of any party hereto or its affiliates, directors, officers or
shareholders, other than the provisions of this Section 7.2 and Sections
6.6(b), 7.3, 8.2, 8.11 and 8.12 hereof. Nothing contained in this Section 7.2
shall relieve any party from Liability for any willful breach of this
Agreement.
Section 7.3 Fees and Expenses.
(a) If any of the following shall occur:
(i) COMSAT or Lockheed Martin terminates this Agreement pursuant to
Section 7.1(e)(iv) or Section 7.1(g) and, within 12 months thereafter,
COMSAT or any of its Subsidiaries enters into an agreement with respect to
an Acquisition Proposal, or an Acquisition Proposal is consummated,
involving any Person or affiliate, or any group in which such Person (or
any affiliate thereof, or any group in which such Person or affiliate is a
member) (A) with whom COMSAT or any COMSAT Representative had discussions
with respect to an Acquisition Proposal, (B) to whom COMSAT or any COMSAT
Representative furnished information with respect to an Acquisition
Proposal or (C) who had commenced, publicly proposed or publicly disclosed
an Acquisition Proposal or expressed to COMSAT an interest in an
Acquisition Proposal, in the case of each of clauses (A), (B) and (C) after
the date hereof and prior to such termination; or
(ii) COMSAT terminates this Agreement pursuant to Section 7.1(d)(ii)
hereof;
then, in each case, COMSAT shall pay to Lockheed Martin, within one business
day following the execution and delivery of such agreement or such occurrence,
as the case may be, or simultaneously with such determination pursuant to
Section 7.1(d)(ii) hereof, a fee, in cash, of $75 million (the "Termination
Fee"); provided, that COMSAT in no event shall be obligated to pay more than
one such Termination Fee with respect to all such agreements and occurrences
and such termination.
(b) Except as specifically provided in this Section 7.3(b) or the
Registration Rights Agreement, each party shall bear its own expenses incurred
in connection with the transactions contemplated by the Transaction Agreements,
including, without limitation, out-of-pocket costs, and fees and expenses of
investment bankers, finders, brokers, agents, representatives, counsel and
accountants as well as fees and expenses incident to the negotiation,
preparation and execution of the Transaction Agreements and related
documentation, preparation of filings and consents with Governmental
Authorities and other Persons, and any litigation resulting from the execution
of the Transaction Agreements; provided, that in the event the Termination Fee
becomes payable, COMSAT shall, upon the receipt of documentation in form
reasonably satisfactory to COMSAT, promptly reimburse Lockheed Martin and its
Subsidiaries in cash in immediately available funds, for any of the foregoing
expenses of Lockheed Martin or its Subsidiaries, up to $5.0 million in the
aggregate.
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(c) Notwithstanding anything to the contrary contained in this Agreement,
upon payment by COMSAT in full of the amounts referred to in Sections 7.3(a)
and 7.3(b) hereof, COMSAT shall be released from all Liability hereunder,
including any Liability for any claims by Lockheed Martin, Acquisition Sub or
any of their affiliates based upon or arising out of any breach of this
Agreement.
(d) The agreements contained in this Section 7.3 are an integral part of the
transactions contemplated by this Agreement and constitute liquidated damages
and not a penalty. In the event of any dispute as to whether any fee or other
amount due under this Section 7.3 is due and payable, the prevailing party
shall be entitled to receive from the other party the reasonable costs and
expenses (including reasonable legal fees and expenses) in connection with any
action, including the filing of any lawsuit or other legal action, relating to
such dispute. Interest shall be paid on the amount any unpaid fee at the
publicly announced prime rate of Citibank, N.A. from the date such fee was
required to be paid.
Section 7.4 Amendment. This Agreement may be amended by action taken by
COMSAT, Lockheed Martin and Acquisition Sub at any time before or after
approval of the Merger and this Agreement by the shareholders of COMSAT, if
any; provided that after the date of approval of the Merger and this Agreement
by the shareholders of COMSAT, no amendment shall be made which decreases the
amount or changes the form of the Merger Consideration or which adversely
affects the rights of COMSAT's shareholders hereunder without the approval of
such shareholders. This Agreement may not be amended except by an instrument in
writing signed on behalf of the parties.
Section 7.5 Extension; Waiver. At any time prior to the Effective Time, the
parties may (i) extend the time for the performance of any of the obligations
or other acts of the other parties hereto, (ii) waive any inaccuracies in the
representations and warranties of the other parties contained herein or in any
document, certificate or writing delivered pursuant hereto or (iii) waive
compliance with any of the agreements or conditions of the other parties hereto
contained herein; provided that after the date of approval of the Merger and
this Agreement by the shareholders of COMSAT, no extensions or waivers shall be
made which adversely affect the rights of COMSAT's shareholders hereunder
without the approval of such shareholders. Any agreement on the part of any
party to any such extension or waiver shall be valid only if set forth in an
instrument in writing signed on behalf of such party.
ARTICLE VIII
MISCELLANEOUS
Section 8.1 Survival. The representations, warranties, covenants and
agreements made herein shall not survive beyond the Effective Time; provided,
that the covenants and agreements contained in Section 6.16 hereof shall
survive beyond the Effective Time without limitation.
Section 8.2 Entire Agreement. Except for the Confidentiality Agreements
dated as of August 5, 1997 between Lockheed Martin and COMSAT (the
"Confidentiality Agreements"), which shall continue in full force and effect
other than Sections 3 and 7 thereof (which are superseded hereby), the
Transaction Agreements (including the schedules and exhibits and the agreements
and other documents referred to therein) embody the entire agreement and
understanding of the parties, and supersede all prior agreements or
understandings, with respect to the subject matters thereof.
Section 8.3 Governing Law. This Agreement shall be governed by and construed
in accordance with the internal laws of the State of Delaware except for
internal corporate matters, which shall be governed by the Laws of the
respective parties' jurisdictions of incorporation.
Section 8.4 Notices. In any case where any notice or other communication is
required or permitted to be given hereunder (including, without limitation, any
change in the information set forth in this Section 8.4), such notice or
communication shall be in writing and (i) personally delivered, (ii) sent by
postage prepaid certified or registered mail, return receipt requested, (iii)
sent by recognized overnight courier, or (iv) transmitted by telecopier, with a
copy sent by postage prepaid certified or registered mail, return receipt
requested, or by recognized overnight courier, as follows:
I-35
(a) If to the Lockheed Martin or Acquisition Sub, to:
Lockheed Martin Corporation
6801 Rockledge Drive
Bethesda, Maryland 20817
Telephone:(301) 897-6000
Telecopy:(301) 897-6791
Attention: General Counsel
with a copy to:
O'Melveny & Myers LLP
555 13th Street, N.W., Suite 500W
Washington, D.C. 20004-1109
Telephone:(202) 383-5300
Telecopy:(202) 383-5414
Attention: David G. Litt, Esq.
(b) If to COMSAT, to:
COMSAT Corporation
6560 Rock Spring Drive
Bethesda, Maryland 20817
Telephone:(301) 214-3000
Telecopy:(301) 214-7128
Attention: General Counsel
with a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, New York 10022
Telephone:(212) 735-3000
Telecopy:(212) 735-2000
Attention: Richard L. Easton, Esq.
Section 8.5 Successors and Assigns; No Third Party Beneficiaries. This
Agreement and all of the provisions hereof shall be binding upon and inure to
the benefit of the parties and their respective successors and permitted
assigns, but neither this Agreement nor any of the rights, interests or
obligations hereunder shall be assigned by any party (whether by operation of
Law or otherwise) without the prior written consent of the other party;
provided, that Lockheed Martin may assign its rights and obligations hereunder
or those of Acquisition Sub to Lockheed Martin or any Subsidiary of Lockheed
Martin, but in each case no such assignment shall relieve Lockheed Martin or
Acquisition Sub, of its obligations hereunder. This Agreement shall be binding
upon and inure solely to the benefit of each party hereto, and except for
Section 6.16 hereof nothing in this Agreement, express or implied, is intended
to or shall confer upon any other Person any rights, benefits or remedies of
any nature whatsoever under or by reason of this Agreement.
Section 8.6 Counterparts. This Agreement may be signed in any number of
counterparts, each of which shall be an original, with the same effect as if
all signatures were on the same instrument.
Section 8.7 Interpretation. Article and section headings in this Agreement
are included for the convenience of reference only and do not constitute a part
of this Agreement for any other purpose. References to parties and articles and
sections in this Agreement are references to the parties to or the articles and
sections of this Agreement, as the case may be, unless the context shall
require otherwise.
Section 8.8 Schedules. The COMSAT Disclosure Schedule shall be construed
with and as an integral part of this Agreement to the same extent as if the
same had been set forth verbatim herein.
I-36
Section 8.9 Legal Enforceability. Any provision of this Agreement that is
prohibited or unenforceable in any jurisdiction shall, as to that jurisdiction,
be ineffective to the extent of the prohibition or unenforceability without
invalidating the remaining provisions of this Agreement or affecting the
validity or enforceability of the provision in any other jurisdiction.
Section 8.10 No Waivers; Remedies; Specific Performance.
(a) No failure or delay by any party in exercising any right, power or
privilege under this Agreement shall operate as a waiver of such right, power
or privilege. A single or partial exercise of any right, power or privilege
shall not preclude any other or further exercise of such right, power or
privilege or the exercise of any other right, power or privilege. The rights
and remedies provided in this Agreement shall be cumulative and not exclusive
of any rights or remedies available at law or in equity.
(b) In view of the uniqueness of the agreements contained in this Agreement
and the transactions contemplated hereby and the fact that each party would not
have an adequate remedy at law for money damages in the event that any
obligation under this Agreement is not performed in accordance with its terms,
each party therefore agrees that the other parties to this Agreement shall be
entitled to specific enforcement of the terms of this Agreement in addition to
any other remedy to which any of them may be entitled, at law or in equity.
Section 8.11 Exclusive Jurisdiction. Each party (i) agrees that any action
with respect to this Agreement or transactions contemplated by this Agreement
shall be brought exclusively in the courts of the State of Delaware or of the
United States of America for the State of Delaware, (ii) accepts for itself and
in respect of its property, generally and unconditionally, the jurisdiction of
those courts, (iii) irrevocably waives any objection, including, without
limitation, any objection to the laying of venue or based on the grounds of
forum non conveniens, which it may now or hereafter have to the bringing of any
action in those jurisdictions; provided, however, that each party may assert in
an action in any other jurisdiction or venue each mandatory defense, third-
party claim or similar claim that, if not so asserted in such action, may not
be asserted in an original action in the courts referred to in clause (i)
above. Lockheed Martin and COMSAT each hereby appoints Corporation Trust
Company as its agent for service of process in the State of Delaware in
connection with any such action.
Section 8.12 Waiver of Jury Trial. Each party waives any right to a trial by
jury in any action to enforce or defend any right under this Agreement or any
amendment, instrument, document or agreement delivered, or which in the future
may be delivered, in connection with this Agreement and agrees that any action
shall be tried before a court and not before a jury.
----------------
[The remainder of this page has been left blank intentionally.]
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IN WITNESS WHEREOF, each of the parties has caused this Agreement and Plan
of Merger to be executed on its behalf by its officers thereunto duly
authorized, all as of the day and year first above written.
COMSAT CORPORATION
By: /s/ Betty C. Alewine
----------------------------------
Name:Betty C. Alewine
Title:President and
Chief Executive Officer
LOCKHEED MARTIN CORPORATION
By: /s/ Vance D. Coffman
----------------------------------
Name:Vance D. Coffman
Title:Chairman and
Chief Executive Officer
DENEB CORPORATION
By: /s/ John V. Sponyoe
----------------------------------
Name:John V. Sponyoe
Title:Chief Executive Officer
I-38
EXHIBIT A
CONDITIONS OF THE OFFER
Notwithstanding any other provision of the Offer, Lockheed Martin shall not
be required to accept for payment or pay for, and may delay the acceptance for
payment of (whether or not any Shares have theretofore been accepted for
payment), or the payment for, any Shares tendered, and may terminate or extend
the Offer and not accept for payment any Shares, if:
(i) immediately prior to the expiration of the Offer (as extended in
accordance with the terms of the Offer and the Merger Agreement), (A) any
applicable waiting period under the Antitrust Laws shall not have
terminated or expired and all consents or approvals required under the
Antitrust Laws shall not have been received, (B) fewer than one third (1/3)
of the outstanding shares of COMSAT Common Stock shall have been validly
tendered and not withdrawn (the "Minimum Condition"), (C) the shareholders
of COMSAT shall not have approved the Merger and this Agreement pursuant to
Section 29-367 of the DCBCA, (D) Lockheed Martin and Offer Subsidiary shall
not have received all approvals of the FCC necessary for them to consummate
the Carrier Acquisition, (E) the Carrier Acquisition shall not have been
consummated, (F) Offer Subsidiary shall not have been approved by the FCC
to be an Authorized Carrier, (G) Offer Subsidiary shall not have been
authorized by the FCC to acquire the maximum number of shares of COMSAT
Common Stock to be purchased pursuant to the Offer (the affirmative
obligations of subsections (D)-(G) shall be referred to as (the "Authorized
Carrier Conditions"), or (H) Lockheed Martin or its Subsidiaries shall not
have the right to vote any of the shares without restriction or limitation
except as expressly set forth in Section 303 of the Satellite Act (47
U.S.C. (S) 733); or
(ii) on or after the date of the Merger Agreement and prior to the
acceptance for payment of Shares, any of the following conditions exist:
(a) any of the representations or warranties of COMSAT contained in
the Merger Agreement shall not have been true and correct at the date
when made or (except for those representations and warranties made as
of a particular date which need only be true and correct as of such
date) shall cease to be true and correct (without giving effect to any
limitation as to "materiality" or "Material Adverse Effect" set forth
therein) at any time prior to consummation of the Offer, except for
changes permitted by the Merger Agreement and except where the failure
to be so true and correct would not, either individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect on
COMSAT; provided, that if any such failure to be so true and correct
(without giving effect to any limitation as to "materiality" or
"Material Adverse Effect" set forth therein) is curable by COMSAT
through the exercise of its reasonable efforts, then Lockheed Martin
may not terminate the Offer under this subsection (a) until 10 business
days after written notice thereof has been given to COMSAT by Lockheed
Martin and unless at such time the matter has not been cured; or
(b) COMSAT shall have breached any of its covenants or agreements
contained in the Merger Agreement, except for any such breaches that,
individually or in the aggregate, would not reasonably be expected to
have a Material Adverse Effect on COMSAT; provided that, if any such
breach is curable by COMSAT through the exercise of its reasonable
efforts, then Lockheed Martin may not terminate the Offer under this
subsection (b) until 10 business days after written notice thereof has
been given to COMSAT by Lockheed Martin and unless at such time the
breach has not been cured; or
(c) (A) after the date of the Merger Agreement, there shall have
been any change in existing Law or any new Law promulgated, enacted,
enforced or deemed applicable to COMSAT or to the transactions
contemplated by the Merger Agreement or (B) INTELSAT or Inmarsat shall
have adopted a plan for privatization, or have been privatized, in
whole or in part, in a manner or pursuant to terms and conditions (or,
in the case of an adopted plan, proposed terms and conditions), in the
case of either clause (A) or clause (B) that Lockheed Martin determines
in good faith (after
I-A-1
consultation with COMSAT) would reasonably be expected to have a
Material Adverse Effect on COMSAT; or
(d) any fact or circumstance exists or shall have occurred that has
or would reasonably be expected to have a Material Adverse Effect on
COMSAT; or
(e) there shall have occurred (i) any general suspension of trading
in securities on the NYSE (other than intra-day trading halts), (ii)
the declaration of a banking moratorium or any suspension of payments
in respect of banks in the United States of America (whether or not
mandatory), (iii) the commencement of a war, armed hostilities or other
international or national calamity directly or indirectly involving the
United States of America and that would reasonably be expected to have
a Material Adverse Effect on COMSAT or would reasonably be expected to
materially adversely affect (or materially delay) the consummation of
the Offer, (iv) any limitation or proposed limitation (whether or not
mandatory) by any Governmental Authority or other instrumentality of
the United States of America that materially adversely affects
generally the extension of credit by banks or other financial
institutions, or (v) in the case of any of the situations described in
clauses (i) through (iv) inclusive, existing at the date of the
commencement of the Offer, a material acceleration, escalation or
worsening thereof; or
(f) (i) there shall have been a decline in the Standard & Poor's 500
Index of at least 27% from the date hereof through any given day (a
"Measurement Date") prior to the termination or expiration of the
Offer, and (ii) the Standard & Poor's 500 Index shall also be at least
27% lower than on the date hereof on the earlier of (A) the close of
trading on the next trading date at least 30 calendar days from such
Measurement Date, and (B) the close of trading on the trading date
immediately prior to the date on which the Offer Closing Time would
otherwise occur, but for the failure of this condition; or
(g) prior to the purchase of Shares pursuant to the Offer, the Board
of Directors of COMSAT shall have (1) recommended an Acquisition
Proposal that is a Superior Proposal, (2) withdrawn, modified or
materially qualified (including by amendment of the Schedule 14D-9) in
a manner adverse to Lockheed Martin its approval or recommendation of
the Offer, the Merger or the Merger Agreement, (3) recommended to
COMSAT's shareholders another offer, or (4) adopted any resolution to
effect any of the foregoing which, in the sole judgment of Lockheed
Martin in any such case, and regardless of the circumstances (including
any action or omission by Lockheed Martin) giving rise to any such
condition, makes it inadvisable to proceed with such acceptance for
payment; or
(h) the Merger Agreement shall have been terminated in accordance
with its terms.
The foregoing conditions are for the sole benefit of Lockheed Martin and may
be asserted by Lockheed Martin regardless of the circumstances giving rise to
such conditions, or may be waived by Lockheed Martin in whole or in part at any
time and from time to time in its sole discretion.
I-A-2
APPENDIX II
SECTION 29-373 OF THE DISTRICT OF COLUMBIA BUSINESS CORPORATION ACT
TITLE 29. CORPORATIONS
CHAPTER 3. BUSINESS CORPORATIONS (1954)
MERGER OR CONSOLIDATION--RIGHTS OF DISSENTING SHAREHOLDERS.
(a) If a shareholder of a corporation which is a party to a merger or
consolidation shall file with the corporation, prior to or at the meeting of
shareholders at which the plan of merger or consolidation is submitted to a
vote, a written objection to the plan of merger or consolidation, and shall not
vote in favor of the plan, and the shareholder, within 20 days after the merger
or consolidation is effected, shall make written demand on the surviving or new
corporation for payment of the fair value of his shares as of the day prior to
the date on which the vote was taken approving the merger or consolidation, the
surviving or new corporation shall pay to the shareholder the fair value of the
shares forthwith, in the case of holders of uncertificated shares, or upon
surrender of the certificate or certificates representing the shares, in the
case of holders of shares represented by certificates. Such a demand shall
state the number and class of the shares owned by the dissenting shareholder.
Any shareholder failing to make demand within the 20-day period shall be bound
by the terms of the merger or consolidation.
(b) If within 30 days after the date on which the merger or consolidation
was effected the value of the shares is agreed upon between the dissenting
shareholder and the surviving or new corporation payment therefor shall be made
within 90 days after the date on which the merger or consolidation was
effected, in the case of holders of uncertificated shares, or upon surrender of
the certificate or certificates representing the shares, in the case of holders
of shares represented by certificates. Upon payment of the agreed value, the
dissenting shareholder shall cease to have any interest in the shares of the
corporation.
(c) If within the period of 30 days the shareholder and the surviving or new
corporation do not agree, the dissenting shareholder may, within 60 days after
the expiration of the 30-day period, file a petition in any court of competent
jurisdiction within the District of Columbia asking for a finding and
determination of the fair value of the shares, and shall be entitled to
judgment against the surviving or new corporation for the amount of the fair
value as of the day prior to the date on which the vote was taken approving the
merger or consolidation, together with interest at the rate of 5% per annum to
the date of the judgment. The judgment shall be payable forthwith, in the case
of holders of uncertificated shares, or upon surrender of the certificate or
certificates representing the shares to the surviving or new corporation, in
the case of holders of shares represented by certificates. Upon payment of the
judgment, the dissenting shareholder shall cease to have any interest in the
shares or in the surviving or new corporation. The shares may be held and
disposed of by the surviving or new corporation as it may see fit. Unless the
dissenting shareholder shall file the petition within the time herein limited,
the shareholder and all persons claiming under him shall be bound by the terms
of the merger or consolidation.
(d) The right of a dissenting shareholder to be paid the fair value of his
shares as herein provided shall cease if and when the corporation shall abandon
the merger and consolidation.
II-1
APPENDIX III
Donaldson, Lufkin & Jenrette
Donaldson, Lufkin & Jenrette Securities Corporation
277 Park Avenue, New York, New York 10172 - (212) 892-3000
As of July 7, 1999
Board of Directors
COMSAT Corporation
6560 Rock Spring Drive
Bethesda, MD 20817
Ladies and Gentlemen:
You have requested our opinion as to the fairness, from a financial point of
view, to the stockholders of COMSAT Corporation (the "Company") of the
Consideration (as defined below) to be received by such stockholders pursuant
to the terms of the Agreement and Plan of Merger, dated as of September 18,
1998 (the "Agreement"), among Lockheed Martin Corporation ("Lockheed Martin"),
DENEB Corporation ("DENEB"), a wholly owned subsidiary of Lockheed Martin, and
the Company, pursuant to which the Company will be merged with and into DENEB
(or, if certain conditions in the Agreement are not satisfied, DENEB will be
merged with and into the Company) (the "Merger").
Pursuant to the Agreement, Lockheed Martin, through a wholly owned, single
member Delaware limited liability company ("Offer Subsidiary"), commenced on
September 25, 1998 a cash tender offer (the "Tender Offer") for up to the
number of shares of the Company's common stock, without par value (the "Company
Common Stock"), that is equal to the remainder of (i) 49% of the number of
shares of Company Common Stock outstanding at the close of business on the date
of purchase pursuant to the Tender Offer minus (ii) the number of shares of
Company Common Stock then owned of record by "authorized carriers" (as defined
in the Communications Satellite Act of 1962, as amended) as evidenced by
issuance of shares of Series II Company Common Stock minus (iii) the number of
shares of Company Common Stock with respect to which written demand shall have
been made and not withdrawn under the District of Columbia Business Corporation
Act ("Dissenting Shares"), at a price of not less than $45.50 per share, net to
the seller in cash (the "Tender Offer Consideration").
Pursuant to the Agreement, subsequent to the Tender Offer and subject to the
satisfaction of the conditions contained in the Agreement, the Company shall be
merged with and into DENEB (or, if certain conditions in the Agreement are not
satisfied, DENEB shall be merged with and into the Company) and each share of
Company Common Stock issued and outstanding (other than shares of Company
Common Stock held in the treasury of the Company, held by Offer Subsidiary,
held by Lockheed Martin, if any, and Dissenting Shares) shall, by virtue of the
Merger and without any action on the part of the holder thereof, be converted
into the right to receive 1.0 (the "Exchange Ratio") share of Lockheed Martin
Common Stock, par value $1 per share (the "Lockheed Martin Common Stock") (the
"Merger Consideration"). The Exchange Ratio reflects the two-for-one stock
split of the Lockheed Martin Common Stock effected on December 31, 1998. The
Tender Offer Consideration and the Merger Consideration are collectively
referred to as the "Consideration" and the Tender Offer and the Merger are
collectively referred to as the "Transaction."
In arriving at our opinion, we have reviewed the Agreement and the exhibits
thereto, and the June 18, 1999 draft of the proxy statement/prospectus relating
to the Company's Annual Meeting of Shareholders to be held in connection with
the Merger. We also have reviewed financial and other information that was
publicly available or furnished to us by the Company and Lockheed Martin,
including information provided during discussions with their respective
managements. Included in the information provided during discussions with the
Company's management were certain financial projections of business units of
the Company prepared by
III-1
the management of the Company. In addition, we have compared certain financial
and securities data of the Company with various other companies whose
securities are traded in public markets, reviewed the historical stock prices
and trading volumes of the respective common stocks of the Company and Lockheed
Martin and conducted such other financial studies, analyses and investigations
as we deemed appropriate for purposes of this opinion. We were not requested
to, nor did we, solicit the interest of any other party in acquiring the
Company.
In rendering our opinion, we have relied upon and assumed the accuracy and
completeness of all of the financial and other information that was available
to us from public sources, that was provided to us by the Company and Lockheed
Martin or their respective representatives, or that was otherwise reviewed by
us. With respect to the financial projections supplied to us, we have assumed
that they have been reasonably prepared on the basis reflecting the best
currently available estimates and judgments of the management of the Company as
to the future operating and financial performance of the Company. We have not
assumed any responsibility for making any independent evaluation of any assets
or liabilities of either the Company or Lockheed Martin or for making any
independent verification of any of the information reviewed by us. We have also
assumed that the Tender Offer and the Merger and the other transactions
contemplated by the Agreement will be consummated as described in the
Agreement. We have relied as to certain legal matters on advice of counsel to
the Company.
Our opinion is necessarily based on economic, market, regulatory, financial
and other conditions as they exist on, and on the information made available to
us as of, the date of this letter. It should be understood that, although
subsequent developments may affect this opinion, we do not have any obligation
to update, revise or reaffirm this opinion. We are expressing no opinion herein
as to the prices at which Lockheed Martin Common Stock will actually trade at
any time. Our opinion does not address the relative merits of the Transaction
and the other business strategies being considered by the Company's Board of
Directors, nor does it address the Board's decision to proceed with the
Transaction. Our opinion does not constitute a recommendation to any
stockholder as to how such stockholder should vote on the proposed transaction.
Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"), as part of its
investment banking services, is regularly engaged in the valuation of
businesses and securities in connection with mergers, acquisitions,
underwritings, sales and distributions of listed and unlisted securities,
private placements and valuations for corporate and other purposes. DLJ has
performed investment banking and other services for the Company in the past and
has received customary compensation for such services.
Based on the foregoing and such other factors as we deem relevant, we are of
the opinion that, as of the date hereof, the Consideration to be received by
the stockholders of the Company pursuant to the Agreement is fair to such
stockholders from a financial point of view.
Very truly yours,
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
/s/ Douglas V. Brown
By__________________________________
Douglas V. Brown
Managing Director
III-2
APPENDIX IV
RESTATED ARTICLES OF INCORPORATION
OF
COMSAT CORPORATION
To:Department of Consumer
and Regulatory Affairs
Corporations Division
We, the undersigned natural persons of the age of eighteen years or more,
authorized to act on behalf of the corporation described below, present the
following Restated Articles of Incorporation duly proposed and adopted in
accordance with all applicable provisions of Title 29, Chapter 3 of the
District of Columbia Code, as amended.
ARTICLE I
Section 1.01. The name of the corporation is:
COMSAT Corporation (the "Corporation").
Section 1.02. The Articles of Incorporation of the Corporation were
originally filed with the Department of Consumer and Regulatory Affairs of the
District of Columbia on February 1, 1963.
ARTICLE II
Section 2.01. The period of duration of the Corporation is perpetual.
ARTICLE III
Section 3.01. The Restated Articles of Incorporation were advised by the
Board of Directors of the Corporation and approved by a vote of the
shareholders of the Corporation in accordance with Section 29-358.1 of the
District of Columbia Business Corporation Act.
ARTICLE IV
Section 4.01. The purposes for which the Corporation is organized are:
(a) to plan, initiate, construct, own, manage, and operate, itself or in
conjunction with foreign governments or with business entities, a
commercial communications satellite system; and
(b) to do everything necessary, desirable, advisable, or convenient for
the furtherance and accomplishment of such purposes and the achievement of
such objectives, and to do all other things which are incidental thereto,
are connected therewith, and which are not forbidden by applicable law or
these Articles, including without limitation to acquire, own, use, convey,
and otherwise dispose of and deal in real property or any interest therein.
IV-1
Section 4.02. In order to further and carry out any or all of the purposes
of the Corporation, the Corporation shall have the power to:
(a) furnish, for hire, channels of communication to United States
communications common carriers and to other authorized entities, foreign
and domestic;
(b) own and operate satellite terminal stations;
(c) conduct or contract for research and development related to its
mission;
(d) acquire the physical facilities, equipment, and devices necessary to
its operations, including communications satellites and associated
equipment and facilities, whether by construction, purchase, or gift;
(e) purchase satellite launching and related services;
(f) contract with users, including among others the United States
Government, for the services of the communications satellite system and of
satellite terminal stations;
(g) develop plans for the terminal specifications of all elements of the
communications satellite system and of satellite terminal stations;
(h) engage, to the extent permitted by applicable law, in any other
phase of telecommunications or telecommunications research that may further
or carry out any or all of the purposes of the Corporation;
(i) have perpetual succession by its corporate name;
(j) sue and be sued, complain and defend, in its corporate name;
(k) have a corporate seal, which may be altered at pleasure, and use the
same by causing it, or a facsimile thereof, to be impressed or affixed or
in any other manner reproduced;
(l) purchase, take, receive, lease, take by gift, devise, or bequest, or
otherwise acquire, and own, hold, improve, use, and otherwise deal in and
with real or personal property, or any interest therein, wherever situated;
(m) sell, convey, mortgage, pledge, lease, exchange, transfer, and
otherwise dispose of all or any part of its property and assets;
(n) acquire (by purchase, exchange, lease, hire, or otherwise), hold,
use, sell, assign, lease, and grant the absolute interest in and to, and
license or sublicense in respect of, franchises, indeterminate permits,
certificates of convenience and necessity, certificates of authority,
letters patent, patent rights, licenses, privileges, inventions,
improvements, processes, copyrights, trademarks, and trade names;
(o) lend money to, and otherwise assist, its employees, other than its
officers and directors;
(p) purchase, take, receive, subscribe for, or otherwise acquire, own,
hold, vote, use, employ, sell, mortgage, loan, pledge, or otherwise dispose
of, and otherwise use and deal in and with, shares or other interests in,
or obligations of, other corporations organized under the laws of the
District of Columbia, or of any State, Territory, district, or possession
of the United States, or of the Commonwealth of Puerto Rico, foreign
corporations, and associations, partnerships, or individuals;
(q) make contracts and incur liabilities; borrow money at such rates of
interest as the Corporation may determine without regard to the
restrictions of any usury law; determine without regard to the restrictions
of any usury law; issue its notes, bonds, and other obligations, and secure
any of its obligations by mortgage or pledge of all or any of its property,
franchises, and income;
(r) invest its surplus funds from time to time and lend money for its
corporate purposes, and take and hold real and personal property as
security for the payment of funds so invested or loaned;
(s) subject to applicable law, conduct its business, carry on its
operations, and have offices and exercise its powers within and without the
district of Columbia, including any State, Territory, district, or
possession of the United States, the Commonwealth of Puerto Rico, and any
foreign country;
IV-2
(t) elect or appoint officers and agents of the Corporation, and define
their duties and fix their compensation;
(u) make and alter By-laws, not inconsistent with applicable law or
these Articles, for the administration and regulation of the affairs of the
Corporation;
(v) make contributions to charitable, scientific, and educational
organizations, and transact any lawful business in aid of the United States
and furthering the purposes and objectives of the Satellite Act;
(w) cease its corporate activities and surrender its corporate
franchise;
(y) indemnify any and all of its incorporators, directors, or officers,
or former incorporators, directors, or officers, or any person who may have
served at its request as an incorporator, director, or officer of another
corporation in which its owns shares of capital stock or of which it is a
creditor, against expenses actually and necessarily incurred by them in
connection with the defense of any action, suit, or proceeding in which
they, or any of them, are made parties, or a party, by reason of being or
having been incorporators, directors, or officers, or an incorporator,
director, or officer of the Corporation, or of such other corporation,
except in relation to matters as to which any such incorporator, director,
or officer, or former incorporator, director, or officer, or person shall
be adjudged in such action, suit, or proceeding to be liable for negligence
or misconduct in the performance of duty to the Corporation or to such
other corporation. Such indemnification shall not be deemed exclusive of
any other rights to which those indemnified may be entitled, under any By-
law, agreement, vote of shareholders, or otherwise;
(z) subject to the provisions of applicable law and these Articles,
purchase, take, receive, or otherwise acquire, hold, own, pledge, transfer,
or otherwise dispose of its own shares;
(aa) act in the District of Columbia and in any State, Territory,
district, or possession of the United States, or in the Commonwealth of
Puerto Rico, or in any foreign country, in the capacity of agent or
representative for any government, individual, corporation, association,
partnership, or other entity, respecting any business the purpose of which
is related to the purposes set forth in this Article;
(bb) enter into any lawful arrangement for sharing profits, union of
interest, reciprocal association, or cooperative association with any
government, individual, corporation, association, partnership, or other
entity, and enter into any general or limited partnership, for the carrying
on of any business or activity within the authority of the Corporation;
(cc) make any guaranty respecting stocks, dividends, securities,
indebtedness, interest, contracts, or other obligations created by any
individual, corporation, association, partnership, or other entity, to the
extent that such guaranty is made in pursuance of the purposes set forth in
this Article;
(dd) subject to the provisions of applicable law and these Articles,
issue shares of stock to such persons and on such terms as may be in the
interest of the Corporation;
(ee) subject to the provisions of applicable law and these Articles, pay
pensions and establish pension plans, pension trusts, profitsharing plans,
stock bonus plans, stock option plans, and other incentive plans for any or
all of is officers and employees; provided that nothing herein shall be
construed to authorize the Corporation to engage in the business of banking
or insurance or the acceptance and execution of trusts; and
(ff) without limiting the foregoing in any way, perform such other acts,
engage in such other operations, and exercise such other powers as are or
may be authorized or as are not forbidden by applicable law, and as may be
necessary, desirable, advisable, or convenient to further carry out any or
all of the purposes of the Corporation.
Section 4.03. (a) To the full extent permitted by law, the Corporation shall
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding (including
civil, criminal, administrative or investigative actions, suits or proceedings)
brought by or in the right of the Corporation or any wholly owned subsidiary of
the Corporation (a "Subsidiary") or otherwise, by reason of the fact that such
person (hereinafter, a "Person Entitled to Indemnification") is or was
IV-3
or has agreed to become a director, advisory director, or officer of the
Corporation, or is or was a director or officer of a Subsidiary, or is or was
serving or has agreed to serve at the request of the Corporation or a
Subsidiary as a director, officer, trustee or other fiduciary of another
corporation, partnership, joint venture, trust or other enterprise, including
employee benefit plans, or by reason of any action alleged to have been taken
or omitted in such capacity, against costs, charges and expenses (including
attorneys' fees) reasonably incurred by him or on his behalf in connection with
the defense or settlement of any threatened, pending or completed action, suit
or proceeding, and any appeal therefrom, or in defense or settlement of any
claim, issue or matter, except that no indemnification pursuant to this
paragraph shall be made in respect of any claim, issue or matter as to which
such person shall have been adjudged liable for negligence or misconduct in the
performance of duty by a court of competent jurisdiction. The termination of
any claim, action, suit or proceeding by settlement, conviction or upon a plea
of nolo contendere or its equivalent shall not, in itself, create a presumption
that any such person was adjudged liable for negligence or misconduct in the
performance of duty.
(b) To the full extent permitted by law, the Corporation shall, upon
request, pay costs, charges and expenses (including attorneys' fees) incurred
by Persons Entitled to Indemnification in advance of the final disposition of
any such action, suit or proceeding; provided, however, that the payment of
such costs, charges and expenses incurred by a Person Entitled to
Indemnification in the capacity in which he became entitled to indemnification
(and not in any other capacity in which service was or is rendered by such
person) in advance of the final disposition of such action, suit or proceeding
shall be made only upon receipt of an undertaking by or on behalf of such
person to repay all amounts so advanced in the event that it shall ultimately
be determined that he is not entitled to be indemnified by the Corporation
pursuant to this Section 4.03, or otherwise.
(c) To the full extent permitted by law, the Corporation, in the sole
discretion of the Board of Directors, may indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed actin, suit or proceeding (including civil, criminal, administrative
or investigative actions, suits or proceedings) brought by or in the right of
the Corporation or a Subsidiary, or otherwise, by reason of the fact that such
person is or was or has agreed to become an employee or agent of the
Corporation or a Subsidiary, or is or was serving or has agreed to serve at the
request of the Corporation or a Subsidiary as an employee, agent, trustee or
other fiduciary of another corporation, partnership, joint venture, trusts or
other enterprise, including employee benefit plans, or by reason of any action
alleged to have been taken or omitted in such capacity, against all costs,
charges and expenses (including attorneys' fees) reasonably incurred by him or
on his behalf in connection with the defense or settlement of any threatened,
pending or completed actin, suit or proceeding, and any appeal therefrom or in
defense or settlement of any claim, issue or matter, except that no
indemnification pursuant to this paragraph shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged liable
for negligence or misconduct in the performance of duty by a court of competent
jurisdiction. The termination of any claim, action, suit or proceeding by
settlement, conviction or upon a plea of nolo contendere or its equivalent,
shall not in itself create a presumption that any such person was adjudged
liable for negligence or misconduct in the performance of duty.
(d) To the full extent permitted by law, the Corporation may, upon request,
pay costs, charges and expenses (including attorneys' fees) incurred by persons
entitled to indemnification pursuant to paragraph (c) of this Section 4.03 in
advance of the final disposition of such action, suit or proceeding; provided,
however, that the payment of such costs, charges and expenses incurred by any
such person in the capacity in which he became entitled to indemnification (and
not in any other capacity in which service was or is rendered by such person)
in advance of the final disposition of such action, suit or proceeding shall be
made only upon receipt of an undertaking by or on behalf of such person to
repay all amounts so advanced in the event that it shall ultimately be
determined that he is not entitled to be indemnified by the Corporation
pursuant to this Section 4.03, or otherwise.
(e) Any indemnification or advance of costs, charges and expenses provided
for in paragraphs (a) and (b) of this Section 4.03 shall be made promptly, and
in any event within sixty (60) days, upon the written request
IV-4
of the Person Entitled to Indemnification; the right to indemnification or
advances as granted by paragraphs (a) and (b) of this Section 4.03 shall be
enforceable by the Person Entitled to Indemnification in any court of competent
jurisdiction. If the Corporation denies such request, in whole or in part, or
if no disposition thereof is made within sixty (60) days, such Person Entitled
to Indemnification's costs, charges and expenses incurred in indemnification,
in whole or in part, in any such action shall also be indemnified by the
Corporation, it shall be a defense to any such action (other than an action
brought to enforce a claim for the advance of costs, charges and expenses under
paragraph (b) of this Section 4.03 where the required undertaking, if any, has
been received by the Corporation) that the Person Entitled to Indemnification
has not met the standard set forth in paragraph (a) of this Section 4.03, but
the burden of proving such defense shall be on the Corporation. Neither the
failure of the Corporation (including its Board of Directors, its independent
legal counsel, and its shareholders) to have made a determination prior to the
commencement of such action that indemnification of the claimant is proper in
the circumstances because he has met the applicable standard of conduct set
forth in paragraph (a) of this Section 4.03, nor the fact that there has been
an actual determination by the Corporation (including its Board of Directors,
its independent legal counsel, and its shareholders) that the claimant has not
met such applicable standard of conduct, shall be a defense to the action or
create a presumption that the claimant has not met the applicable standard of
conduct.
(f) The provisions of paragraphs (a) and (b) of this Section 4.03 shall be
applicable to claims, actions, suits or proceedings made or commenced after the
adoption hereof, whether arising from acts or omissions occurring before or
after the adoption hereof.
(g) The indemnification and advancement of expenses provided by this Section
4.03 shall not be deemed exclusive of any other rights to which a person
seeking indemnification or advancement of expenses may be entitled under any
law (present or future, common or statutory), by-law, agreement, vote of
shareholders or otherwise and shall continue as to a person who has ceased to
serve in the capacity making him eligible for indemnification, and shall inure
to the benefit of the estate, heirs, executors and administrators of such
person. To the full extent permitted by law, the Corporation may enter into and
perform agreements with persons, including, without limitation, present and
former officers, directors and employees of the Corporation and its
Subsidiaries and of companies acquired by or merged with the Corporation or any
of its subsidiaries, obligating the Corporation, among other things, to provide
indemnification and advancement of costs, charges and expenses to such persons
in addition to any indemnification or advancement which may be available to
such person under this Section 4.03.
(h) All rights to indemnification under this Section 4.03 shall be deemed to
be a contract between the Corporation and each Person Entitled to
Indemnification who serves or served in such capacity at any time while this
Section 4.03 is in effect. Any repeal or modification of this Section 4.03 or
any repeal or modification of the relevant provisions of the District of
Columbia Business Corporation Act or of any other applicable law shall not in
any way diminish any rights to indemnification of any person or the obligation
of the Corporation arising prior to such repeal or modification.
(i) If this Section 4.03 or any portion hereof shall be invalidated on any
ground in any court of competent jurisdiction, then the Corporation shall
nevertheless indemnify each Person Entitled to Indemnification, and may
nevertheless indemnify each person whom the Corporation has determined to
indemnify pursuant to paragraphs (c) and (g) of this Section 4.03, to the full
extent permitted by any applicable portion of this Section 4.03 that shall not
have been so invalidated (whether under paragraphs (c) or (g) or any other
applicable provision of this Section 4.03), and to the full extent permitted by
applicable law.
ARTICLE V
Section 5.01. The restated aggregate number of shares which the Corporation
is authorized to issue is 1,000, all of which are without par value and are of
the same class and are to be shares of Common Stock.
IV-5
ARTICLE VI
Section 6.01. The Corporation will not commence business until at least One
Thousand Dollars ($1,000.00) has been received by it in consideration for the
issuance of shares.
ARTICLE VII
Section 7.01. No shareholder of the Corporation shall, by reason of his
ownership of shares, have a preemptive or preferential right to purchase,
subscribe to, or take any shares of stock of the Corporation, whether now or
hereafter authorized, or any part of the notes, debentures, bonds or other
securities of the Corporation, whether or not convertible into or carrying
options or warrants to purchase shares of stock, other than such rights, if
any, and at such price and other terms, as the Board of Directors, in its
discretion, from time to time may determine, and the Board of Directors may
issue such shares or other securities without offering them in whole or in part
to the shareholders of the Corporation.
ARTICLE VIII
Section 8.01. The address, including street and number, of the initial
registered office of the Corporation is:
United States Corporation Company
National Press Building
1346 F Street, N.W.
Washington, D.C.
and the name of its initial registered agent at such address is:
United States Corporation Company.
ARTICLE IX
Section 9.01. The Corporation reserves the right to amend, alter, change, or
repeal any provision contained in these Articles in the manner now or hereafter
prescribed by law.
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IN WITNESS WHEREOF, the undersigned has set his hand this day of ,
199 .
(Corporate Seal) Comsat Corporation
By: _________________________________
Name: ____________________________
Its: President [or Vice
President]
Attest:
By: _________________________________
Name: ____________________________
Its: Secretary [or Assistant Secretary]
IV-7
DIRECTIONS TO THE COMSAT BUILDING
6560 ROCK SPRING DRIVE--BETHESDA, MARYLAND
The COMSAT Building at Rock Spring Plaza in Bethesda, Maryland, is located
on the corner of Rock Spring Drive and Fernwood Road. Shareholders who wish to
use public transportation may take the Red Line of the Washington Metro to the
Medical Center Station. Take the Metro Bus J2 (destination Montgomery Mall),
which stops at the first bus shelter at the top of the escalator, to the corner
of Fernwood Road and Rock Spring Drive. To return to the Medical Center
Station, you may take Metro Bus J2 (destination Silver Spring), which stops on
Fernwood Road on the Marriott side of the street.
Set forth below is a map and instructions on how to get there by car. The
COMSAT garage will be open for shareholders' parking on the first level (P1).
[MAP SHOWING DIRECTIONS TO COMSAT BUILDING APPEARS HERE]
From Frederick/I-270 South:
Take I-270 East toward Silver Spring. Exit at Old Georgetown Road and turn
right. At the second light turn right on Democracy Boulevard. At the second
light turn right on Fernwood Road. Just beyond the first light turn right onto
the driveway that leads to the COMSAT garage entrance.
From Silver Spring/I-495 West:
Take I-495 West to Exit 36 (Old Georgetown Road). Turn right on Old
Georgetown Road (toward Rockville). At third light turn left on Democracy
Boulevard. At second light turn right on Fernwood Road. Just beyond the first
light turn right onto the driveway that leads to the COMSAT garage entrance.
From Northern Virginia/I-495 North:
Take I-495 North to I-270 Spur North. Take the first exit off of I-270 Spur
(Democracy Boulevard East). At first intersection light, which immediately
follows the light at the Fire Station, turn left on Fernwood Road. Just beyond
the first light turn right onto the driveway that leads to the COMSAT garage
entrance.
