0000022698-95-000017.txt : 19950815 0000022698-95-000017.hdr.sgml : 19950815 ACCESSION NUMBER: 0000022698-95-000017 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19950630 FILED AS OF DATE: 19950814 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: COMSAT CORP CENTRAL INDEX KEY: 0000022698 STANDARD INDUSTRIAL CLASSIFICATION: COMMUNICATION SERVICES, NEC [4899] IRS NUMBER: 520781863 STATE OF INCORPORATION: DC FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-04929 FILM NUMBER: 95562115 BUSINESS ADDRESS: STREET 1: 6560 ROCK SPRING DR CITY: BETHESDA STATE: MD ZIP: 20817 BUSINESS PHONE: 3012133000 MAIL ADDRESS: STREET 1: 6560 ROCK SPRING DRIVE CITY: BETHESDA STATE: MD ZIP: 20817 FORMER COMPANY: FORMER CONFORMED NAME: COMMUNICATIONS SATELLITE CORP /DE/ DATE OF NAME CHANGE: 19930719 10-Q 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 For Quarter Ended June 30, 1995 Commission File Number 1-4929 COMSAT CORPORATION 6560 Rock Spring Drive Bethesda, MD 20817 (301) 214-3000 District of Columbia 52-0781863 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve (12) months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past ninety (90) days. Yes X No 47,286,000 shares of the Registrant's common stock were outstanding as of June 30, 1995. Page 1 of 190 pages - Exhibit Index at page 17 PART I. FINANCIAL INFORMATION Item 1. Interim Financial Statements for the Corporation (Unaudited) COMSAT CORPORATION AND SUBSIDIARIES Condensed Consolidated Income Statements (In thousands, except per share amounts)
Quarter Ended June 30, Six Months Ended June 30, 1995 1994 1995 1994 Revenues $ 210,809 $ 207,861 $ 418,692 $ 408,356 ------- ------- ------- ------- Operating expenses: Cost of services 105,220 112,608 226,433 227,343 Depreciation and amortization 48,853 40,029 96,231 80,308 Research and development 6,031 3,706 10,636 6,949 General and administrative 5,766 5,361 10,696 10,725 Merger and integration costs - 4,264 - 4,264 ------- ------- ------- ------- Total operating expenses 165,870 165,968 343,996 329,589 ------- ------- ------- ------- Operating income 44,939 41,893 74,696 78,767 Interest and other income, net 743 447 2,772 1,684 Interest expense, net of amounts capitalized (10,374) (5,001) (19,249) (11,153) ------- ------ ------- ------- Income before taxes 35,308 37,339 58,219 69,298 Income tax expense (13,296) (15,722) (21,634) (27,500) ------- ------- ------- ------- Net income $ 22,012 $ 21,617 $ 36,585 $ 41,798 ====== ====== ====== ====== Earnings per share $ 0.46 $ 0.46 $ 0.77 $ 0.89 ====== ====== ====== ======
The accompanying notes are an integral part of these financial statements. Page 2 COMSAT CORPORATION AND SUBSIDIARIES Condensed Consolidated Balance Sheets (In thousands)
June 30, December 31, 1995 1994 ---- ---- ASSETS Current assets: Cash and cash equivalents $ 18,857 $ 18,658 Receivables 218,739 226,189 Inventories 25,769 21,933 Other 27,393 31,460 ------ ------ Total current assets 290,758 298,240 ------- ------- Property and equipment (net of accumulated depreciation of $1,064,985 in 1995 and $990,596 in 1994) 1,481,478 1,431,066 Investments 81,858 69,541 Goodwill 50,500 46,535 Franchise rights 38,145 39,119 Other assets 93,081 91,491 --------- --------- Total assets $ 2,035,820 $ 1,975,992 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current maturities of long-term obligations $ 6,863 $ 7,115 Commercial paper 130,924 121,356 Accounts payable and accrued liabilities 116,768 145,893 Due to related parties 9,423 36,750 Other 15,263 5,966 --------- --------- Total current liabilities 279,241 317,080 --------- --------- Long-term debt 590,084 515,542 Deferred income taxes and investment tax credits 122,150 122,798 Accrued postretirement benefit costs 49,184 50,817 Other long-term liabilities 116,869 112,824 --------- --------- Total liabilities 1,157,528 1,119,061 --------- --------- Minority interest 28,428 30,015 --------- --------- Stockholders' equity: Common stock 317,703 312,143 Retained earnings 550,437 532,229 Treasury stock (11,254) (12,502) Other (7,022) (4,954) --------- --------- Total stockholders' equity 849,864 826,916 --------- --------- Total liabilities and stockholders' equity $ 2,035,820 $ 1,975,992 ========= =========
The accompanying notes are an integral part of these financial statements. Page 3 COMSAT CORPORATION AND SUBSIDIARIES Condensed Consolidated Cash Flow Statements (In thousands)
Six Months Ended June 30, 1995 1994 ---- ---- Cash flows from operating activities: Net income $ 36,585 $ 41,798 Adjustment for depreciation and amortization 96,231 80,308 Changes in operating assets and liabilities (32,437) (45,960) Other 7,752 (2,067) ------- ------- Net cash provided by operating activities 108,131 74,079 ------- ------- Cash flows from investing activities: Purchase of property and equipment (158,402) (141,694) Decrease in INTELSAT ownership 17,132 12,777 Decrease (increase) in Inmarsat ownership (9,018) 3,389 Investments in unconsolidated businesses (20,109) (31,604) Other (1,466) (8,352) -------- -------- Net cash used in investing activities (171,863) (165,484) -------- -------- Cash flows from financing activities: Common stock issued 4,594 4,126 Cash dividends paid (18,365) (15,336) Proceeds from issuance of long-term debt 81,986 40,352 Repayment of long-term debt (8,870) (77,649) Net short-term borrowings 9,568 123,122 Borrowings against company-owned life insurance policies - 10,079 Other (4,982) - -------- -------- Net cash provided by financing activities 63,931 84,694 -------- -------- Net increase (decrease) in cash and cash equivalents 199 (6,711) Cash and cash equivalents, beginning of period 18,658 16,230 -------- -------- Cash and cash equivalents, end of period $ 18,857 $ 9,519 ======== ========
The accompanying notes are an integral part of these financial statements. Page 4 COMSAT CORPORATION AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) 1. Financial Statement Presentation These financial statements include the accounts of COMSAT Corporation and its majority-owned subsidiaries (COMSAT or the "corporation") and reflect all adjustments that are, in the opinion of management, necessary to fairly present the results of the periods covered. 2. INTELSAT and Inmarsat Share Changes The corporation's ownership share of INTELSAT has decreased from 20.1% at December 31, 1994 to 19.1% as of June 30, 1995. The corporation received cash proceeds of $17.1 million and has a $0.5 million receivable for the balance due. The corporation paid $9.0 million to increase its share in Inmarsat from 22.4% at December 31, 1994 to 24.0% as of June 30, 1995. 3. Inventories Inventories, stated at the lower of cost (first-in, first-out) or market, consist of the following (in thousands):
June 30, 1995 December 31, 1994 ------------- ----------------- Finished goods $ 5,893 $ 5,228 Work in progress 11,874 9,187 Raw materials 8,002 7,518 ----- ----- Total $ 25,769 $ 21,933 ====== ======
4. Investments In 1995 the corporation invested $12.8 million in a new company that will own and operate a satellite system affiliated with Inmarsat (see Note 8 to the 1994 financial statements). This includes the corporation's $2.0 million cash investment plus $9.4 million paid to Inmarsat for the corporation's share of Inmarsat's cash investment in the venture in addition to the corporation's $1.4 million share of a non-cash contribution made by Inmarsat. 5. Debt In February 1995, INTELSAT issued $200.0 million of 8.125% Eurobond notes due February 28, 2005. Interest is payable annually in arrears. The corporation has recorded its share of this long-term debt. Page 5 The corporation has issued four notes during the first half of 1995 under its medium-term note program. A $5.0 million 8.5% note was issued in February 1995, a $12.0 million 7.92% note was issued in March 1995 and a $9.0 million 7.77% note and a $16.0 million 7.7% note were issued in May 1995. These notes are due in 2007. The corporation has $26.0 million remaining under its medium-term note program. 6. Nonrecurring Transactions In May 1995, the National Basketball Association (NBA) approved the admission of two expansion teams into the NBA. Revenues for the second quarter of 1995 include the Denver Nuggets' $8.8 million share of the expansion fees ($125 million per team). Approximately one half of this amount was received in cash in June 1995 and the corporation has recorded a note receivable for the remainder. The note is due upon the earlier of (1) the completion of a collective bargaining agreement between the players and the NBA or (2) May 1, 1996. Cost of services for the second quarter of 1995 includes a $3.3 million credit for Inmarsat-related costs which were over-accrued during 1994 and the first quarter of 1995. Cost of services for the second quarter of 1995 also includes a $2.7 million benefit plan curtailment gain related to the reduction of pension benefits and the elimination of postretirement health care benefits for a group of employees. 7. Litigation As discussed in Note 9 to the corporation's 1994 financial statements, the corporation is engaged in an antitrust suit filed by Pan American Satellite (PanAmSat). Discovery in the suit ended in November 1994; however, PanAmSat has motions pending which, if granted, would result in additional discovery. In December 1994, the corporation filed a motion for summary judgment directed to dismissal of all claims in the complaint. PanAmSat has opposed the motion. A hearing on the motion was held in a U.S. District Court on August 3, 1995. In the opinion of management, the claims are without merit, and the ultimate disposition of this matter will not have a material effect on the corporation's financial statements. The corporation has been defending a patent and copyright infringement suit brought by Spectradyne, Inc. against its COMSAT Video Enterprises, Inc. and On Command Video Corporation (OCV) subsidiaries as discussed in Note 9 to the 1994 financial statements. In June 1995, all claims related to this suit were dismissed. 8. Subsequent Events On July 1, 1995, the corporation acquired a National Hockey League (NHL) franchise and related player contracts, management contracts and certain other assets from Le Club de Hockey Les Nordiques in Quebec, Canada for approximately $75 million. The franchise, which was known as the Quebec Nordiques, is being relocated to Denver, Colorado for the 1995-96 NHL season and will be known as the Colorado Avalanche. The acquisition was financed with the proceeds of a bank loan. Page 6 In July 1995, COMSAT Capital I, L.P. issued $200 million of Monthly Income Preferred Securities (MIPS). COMSAT Capital I, L.P. is a limited partnership formed for the sole purpose of issuing the MIPS and loaning the proceeds to COMSAT, the managing General Partner. The MIPS were issued at a par value of $25 per share and an annual dividend rate of 8.125%. The MIPS are callable by the issuer after July 2000 at par value. The proceeds of the MIPS were loaned to COMSAT under the terms of a 8.125%, 30-year subordinated debenture agreement. This agreement allows COMSAT to extend the maturity of the debentures until 2044, provided that COMSAT satisfies certain financial covenants. The proceeds have been used to repay commercial paper borrowings and the $75 million bank loan incurred in the acquisition of the NHL franchise and related assets. COMSAT Capital I, L.P. will be consolidated in the financial statements of COMSAT beginning with the third quarter of 1995. The loan between the partnership and COMSAT will be eliminated in consolidation. The $200 million of MIPS will be presented on the consolidated balance sheet as a minority interest. In July 1995, the corporation announced plans, subject to FCC review, to integrate its mobile communications businesses with COMSAT's other international communications services businesses. The corporation also announced that it has retained investment counsel to evaluate ways to unlock the value of the corporation's entertainment assets, to raise capital specifically to fund entertainment growth opportunities and potentially to monetize a portion of COMSAT's investment in these assets. In August 1995, the corporation increased its ownership percentage in OCV to approximately 85% through the contribution to OCV of substantially all of the corporation's other hotel in-room entertainment assets. The corporation plans to record a restructuring charge in the third quarter of 1995 related to the integration of its communications businesses and restructuring of its hotel in-room entertainment businesses. Page 7 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE QUARTER ENDED JUNE 30, 1995 ANALYSIS OF OPERATIONS Consolidated Operations Consolidated revenues for the second quarter of 1995 were $210.8 million, an increase of $3.0 million over last year's second quarter. The International Communications and Entertainment segments reported solid growth in revenues whereas Technology Services segment revenues fell from last year's second quarter. Mobile Communications segment revenues were even with last year's second quarter. Revenues for the second quarter of 1995 include the corporation's $8.8 million share of National Basketball Association expansion fees. Last year's second quarter revenues included $4.8 million of business interruption insurance income as discussed in Note 15 to the 1994 financial statements. Year-to-date revenues were $418.7 million, an increase of $10.4 million over the same period last year. The International Communications, Mobile Communications and Entertainment segments all reported revenue growth during this period, whereas Technology Services segment revenues were lower than last year. Operating income increased $3.0 million from the second quarter of 1994. The Mobile Communications and Entertainment segments reported growth in operating income offset by lower operating results for the International Communications and Technology Services segments. The NBA expansion revenues contributed directly to operating income as there were no related operating expenses. This year's second quarter also includes a $3.3 million credit for Inmarsat-related costs which were over-accrued during 1994 and the first quarter of 1995 and a $2.7 million benefit plan curtailment gain resulting from the reduction of pension benefits and the elimination of postretirement health care benefits for a group of employees. The second quarter of 1994 included a $4.3 million charge ($4.1 million after tax, or $0.08 per share) for merger and integration costs related to the merger with Radiation Systems, Inc. Operating income for the first half of 1995 decreased $4.1 million as compared to the same period last year. The Mobile Communications segment reported solid growth in operating income. The other segments reported lower results this year. Interest and other income increased $0.3 million in the second quarter of 1995, and $1.1 million in the first half of 1995 as compared to the same periods last year. This year's first quarter includes a $2.2 million gain from the sale of the corporation's interest in a communications venture in Chile offset by a $0.9 million accrual for a judgment in a lawsuit brought by a former employee of a subsidiary of the corporation. Page 8 Net interest expense for the second quarter increased $5.4 million over last year's second quarter and year-to-date net interest expense increased $8.1 million over the first half of 1994. These increases are due to increases in borrowings and interest rates and lower capitalized interest. The corporation's borrowings have grown to meet capital expenditure and investment requirements. Interest capitalized, primarily on satellite construction projects, has declined due to the completion of several INTELSAT satellites in the second half of 1994 and the first half of 1995. Segment Operating Results As discussed in Note 15 to the 1994 financial statements, the corporation reports operating results in four segments: International Communications, Mobile Communications, Entertainment and Technology Services. The method of allocating indirect corporate costs was changed in 1995. Segment operating results for 1994 have been restated for this change.
Results by Segment (in millions): Quarter Ended June 30, Six Months Ended June 30, 1995 1994 1995 1994 International Communications $ 71.2 $ 63.9 $ 141.8 $ 127.8 Mobile Communications 46.1 46.1 93.2 90.1 Entertainment 49.3 38.5 96.7 78.9 Technology Services 48.1 61.6 94.9 116.9 Eliminations and other (3.9) (2.3) (7.9) (5.4) ---- ---- ---- ---- Total revenues $ 210.8 $ 207.8 $ 418.7 $ 408.3 ===== ===== ===== ===== OPERATING INCOME (LOSS) International Communications $ 22.1 $ 26.2 $ 46.3 $ 50.4 Mobile Communications 17.6 11.0 30.2 22.5 Entertainment 6.3 5.4 3.1 8.0 Technology Services 6.5 9.8 9.1 14.6 --- --- --- ---- Total segment operating income 52.5 52.4 88.7 95.5 Merger and integration costs 0.0 (4.3) 0.0 (4.3) Other corporate (7.6) (6.2) (14.0) (12.4) ---- ---- ----- ----- Total operating income $ 44.9 $ 41.9 $ 74.7 $ 78.8 ==== ==== ==== ====
International Communications The International Communications segment includes the results of COMSAT World Systems (CWS) and COMSAT International Ventures (CIV). CWS's second quarter revenues increased $2.0 million over last year's second quarter. Year-to-date revenues for CWS increased $3.0 million over the first half of 1994. These improvements were primarily attributable to growth in digital circuits and the corporation's share of INTELSAT revenues which more than offset rate reductions under long-term agreements. CIV's second quarter revenues grew $5.3 million and its year-to-date revenues grew $11.0 million over the same periods last year. Approximately half of this growth came from improved results for the corporation's subsidiaries in Argentina and Brazil. The balance of the revenue improvement is primarily attributable to a subsidiary which was not consolidated until the fourth quarter of 1994. Page 9 Operating income for the segment declined $4.1 million in both the second quarter and the first half of 1995 as compared to the same periods last year. CWS's operating expenses for last year's second quarter included its $2.7 million share of a credit to pension expense recorded by INTELSAT. Absent this adjustment, CWS's operating income increased $1.5 million in the second quarter and increased $3.5 million in the first half of the year relative to the same periods in 1994. These changes are primarily due to the increase in revenues and a decline in operating expenses offset somewhat by higher depreciation. The decline in operating expenses was due in part to a reduction in staff late last year and other cost containment measures. The increase in depreciation was due to five new INTELSAT satellites that were launched and placed in service in 1994 and the first half of this year. CIV's operating income fell $2.9 million in the second quarter and $4.9 million in the first half of 1995 primarily due to the operating losses for the newly consolidated subsidiary. Mobile Communications Mobile Communications segment second quarter revenues were even with last year's second quarter. Year-to-date revenues increased $3.1 million over the same period last year primarily due to a growth in Inmarsat-C data services and the provision of additional space segment to AMSC and IDB. These improvements were partially offset by a decline in telephone revenues due to traffic shifts from higher-priced analog services to lower-priced digital services. However, overall telephone traffic increased approximately 7% this year versus the first half of 1994, with more than 6,800 digital standard M and B terminals now commissioned. Second quarter operating income increased $6.6 million and year-to-date operating income increased $7.7 million over the same periods in 1994. These increases are largely due to a $3.3 million credit recorded in the second quarter of 1995 for Inmarsat-related costs which were over-accrued during 1994 and the first quarter of 1995. Additionally, both the quarter and the year-to-date periods benefited from an increased share of Inmarsat operating results. The corporation increased its ownership share of Inmarsat from 22.4% at December 31, 1994 to 24.0% as of June 30, 1995. Operating margins from the improvement in revenues for the first half of the year also contributed to the year-to-date growth in operating results. All of these improvements were partially offset by higher depreciation expense related to upgrades to earth stations and a higher share of Inmarsat's depreciation expense. Entertainment Second quarter revenues for the Entertainment segment increased $10.8 million and year-to-date revenues increased $17.8 million as compared to the same periods last year. Revenues for the second quarter of 1995 include the corporation's $8.8 million share of NBA expansion fees discussed in Note 6 to the accompanying financial statements. The remainder of the revenue improvement is primarily attributable to increased revenues from the On Command Video (OCV) business which more than offset lower revenues for the Satellite Cinema business. The number of rooms installed with the OCV system increased by 121,000 rooms from June 30, 1994, to a total of 323,000 at June 30, 1995. An additional 119,000 rooms are Page 10 scheduled for OCV system installation, including 23,000 Satellite Cinema rooms scheduled for conversion. The revenue improvements for the hotel in-room entertainment business were partially offset by lower reported revenues from the NBC television distribution contract. Revenues recorded for this contract have dropped by $2.9 million per quarter because the contract has entered an option period. Operating income for this segment increased $0.9 million in the second quarter versus last year's second quarter, whereas operating income fell $4.9 million in the first six months of the year compared to the first half of 1994. The NBA expansion revenues contributed directly to operating income as there were no related operating expenses. Absent the expansion revenues, operating results decreased due to declining margins in the Satellite Cinema business, the reduction in reported revenues from the NBC contract and due to overhead costs for Beacon Communications Corp. (Beacon). The corporation acquired Beacon in December 1994 as discussed in Note 6 to the 1994 financial statements. Beacon overhead costs have totaled approximately $2.0 million per quarter. Technology Services Revenues for the Technology Services segment declined $13.5 million in the second quarter of 1995 and $22.0 million in the first half of 1995 as compared to the same periods last year. Revenues increased this year from satellite services for classified government users, earth station component sales and Intelesys, a VSAT manufacturer acquired in January 1995. These revenue improvements were more than offset by the lack of recurring revenues from several large international and U.S. Government projects which were completed in 1994 and delays in sales of microwave and cellular antennas. Additionally, the second quarter of 1994 included a $4.8 million insurance settlement. Operating income was down $3.3 million and $5.5 million for the second quarter and first half of 1995, respectively, as compared to the same periods last year. These declines were primarily due to lower revenues and to new product development costs associated with the newly acquired VSAT business. Additionally, operating income for this year's second quarter includes a $2.7 million credit for a benefit plan curtailment gain related to the reduction of pension benefits and the elimination of postretirement health care benefits for a group of employees. Revenues and operating income were lower than expected due to the cancellation late last year of an $18 million contract for satellite earth stations in Kuwait. Outlook In July 1995, the corporation announced plans, subject to FCC review, to integrate its mobile communications businesses with COMSAT's other international communications services businesses. The corporation also announced that it has retained investment counsel to evaluate ways to unlock the value of the company's entertainment assets, to raise capital specifically to fund entertainment growth opportunities and potentially to monetize a portion of COMSAT's investment in these assets. Page 11 In August 1995, the corporation increased its ownership percentage in OCV to approximately 85% through the contribution to OCV of substantially all of the corporation's other hotel in-room entertainment assets. The corporation plans to record a restructuring charge in the third quarter of 1995 related to the integration of its communications businesses and restructuring of its hotel in-room entertainment businesses. The corporation expects that the results for CWS will remain strong for the remainder of 1995 although quarterly results will be slightly less than this year's first two quarters. CIV will continue to seek new investment opportunities in emerging countries and to utilize the corporation's expertise to market a variety of products and services. CIV will also concentrate on the growth of its existing ventures and anticipates improvement in revenues and operating results from these businesses. The corporation expects to continue to face competition in its Mobile Communications business, however, the continued commissioning of digital terminals should sustain the growth in digital traffic. At the same time, the corporation is making progress on developing new products and services through its Mini-M and I-CO programs . In the Entertainment segment, OCV will continue to install its systems in hotel rooms which will boost revenues and increase depreciation expense for the remainder of the year. Beacon is expected to release a new film in the third quarter. The corporation plans to construct a new sports and entertainment complex in Denver, Colorado. Arrangements for the complex are not yet complete, therefore, groundbreaking will be delayed which will delay the opening of the complex beyond the start of the 1997-98 season. On July 1, 1995, the corporation acquired a National Hockey League (NHL) franchise and related assets as discussed in Note 8 to the accompanying financial statements. The NHL franchise is expected to make a significant contribution to revenues of the Entertainment segment, but will probably negatively impact operating results in the near term. The NBA has not reached a ratified collective bargaining agreement with its players and the players' union may be decertified as the bargaining agent for the players. If no collective bargaining agreement is reached, the NBA may cancel some or all of the 1995-96 season, which could adversely affect the financial results of the Entertainment segment. In the Technology Services segment, the corporation has been successful in winning new contracts this year and expects to continue to build its contract backlog throughout the rest of the year. LIQUIDITY AND CAPITAL RESOURCES The primary sources of cash in the second quarter of 1995 were operations, borrowings and proceeds from the decrease in INTELSAT ownership. Cash was expended primarily for property and equipment, investments in businesses, acquisition of additional Inmarsat ownership, repayment of long-term debt and quarterly dividends. Page 12 The corporation's working capital deficit of $18.8 million at December 31, 1994 improved to positive working capital of $11.5 million at June 30, 1995. This improvement is primarily due to decreases in accounts payable, accrued liabilities and amounts due to related parties partially offset by increases in commercial paper borrowings and other current liabilities. Accounts payable and accrued liabilities decreased primarily because of a reduction in deferred revenues related to the Denver Nuggets. Receipts for season tickets and sponsorship agreements are recorded as deferred revenues and recognized as games are played. Additionally, accrued liabilities at December 31, 1994 included an accrual for a $9.1 million payment in February 1995 to terminate the corporation's lease on its former headquarters building in Washington, D.C. Amounts due related parties decreased primarily due to a larger than normal payment to Inmarsat in the first quarter for the corporation's share of satellite utilization costs. The increase in other current liabilities is primarily due to income taxes accrued for the first half of 1995. In February 1995, INTELSAT issued $200.0 million of 8.125% notes. The corporation has recorded its share of these notes as long-term debt. The corporation received approximately $20.1 million of its share of the proceeds and used this amount to repay commercial paper. The balance of the proceeds was retained by INTELSAT for the corporation's share of satellite construction costs. The corporation has access to short- and long-term financing at favorable rates. The corporation's borrowing activities are regulated by the Federal Communications Commission. As of June 30, 1995, the corporation had $130.9 million in commercial paper borrowings under a $200 million commercial paper program. As discussed in Note 7 to the 1994 financial statements and to Note 5 to the accompanying financial statements, the corporation has a $100 million "medium-term note program." The corporation has issued $74.0 million of notes under this program. The proceeds of these notes have been used to repay commercial paper. In July 1995, COMSAT Capital I, L.P. issued $200 million of Monthly Income Preferred Securities (MIPS). COMSAT Capital I, L.P. is a limited partnership formed for the sole purpose of issuing the MIPS and loaning the proceeds to COMSAT, the managing General Partner. The MIPS were issued at a par value of $25 per share and an annual dividend rate of 8.125%. The MIPS are callable by the issuer after July 2000 at par value. The proceeds of the MIPS were loaned to COMSAT under the terms of a 8.125%, 30-year subordinated debenture agreement. This agreement allows COMSAT to extend the maturity of the debentures until 2044, provided that COMSAT satisfies certain covenants. The proceeds have been used to repay commercial paper borrowings and the $75 million bank loan incurred in the acquisition of the Nordiques. Page 13 Part II OTHER INFORMATION Item 1. Legal Proceedings See Note 7 on page 6 of this Form 10-Q incorporated herein by reference. Item 2. Change in Securities None Item 3. Defaults Upon Senior Securities None Item 4. Submission of Matters to a Vote of Security Holders At the Corporation's Annual Meeting of Shareholders held on May 19, 1995, all twelve of the Corporation's nominees for directors were elected and the following matters were approved: o adoption of the 1995 Key Employee Stock Plan, approved by a vote of 26,009,294 for, 6,947,759 against, and 556,267 abstentions, with 4,733,119 broker non-votes; and o appointment of Deloitte & Touche LLP as independent public accountants of the Corporation for the fiscal year ending December 31, 1995, approved by a vote of 37,967,777 for, 128,899 withheld, and 149,763 abstentions. A shareholder proposal requiring the reporting of governmental service during the past five years of certain of the Corporation's directors, officers and consultants was defeated by a vote of 3,334,401 for, 28,305,219 against, and 1,510,027 abstentions, with 5,096,792 broker non-votes. Item 5. Other Information None Item 6. (a) Exhibits No. 4 - Instruments Defining the Rights of Security Holders, including Indentures (a) Limited Partnership Agreement of COMSAT Capital I, L.P., dated as of July 18, 1995, relating to issuance of monthly income preferred securities. (b) Guarantee Agreement for Preferred Securities of COMSAT Capital I, L.P., dated as of July 18, 1995. (c) Indenture between Registrant and the First National Bank of Chicago, as Trustee, dated as of July 18, 1995. Page 14 Item 6. (a) Exhibits (continued) No. 10 - Material Contracts (a) Asset Purchase Agreement, dated as of May 24, 1995 between COMSAT Video Enterprises, Inc. and Le Club de Hockey Les Nordiques, Societe en Commandite (Limited Partnership). No. 11 - Computation of Earnings Per Share No. 27 - Financial Data Schedule (b) Reports on Form 8-K Press release dated May 25, 1995 describing an agreement pursuant to which COMSAT Entertainment Group, Inc., a wholly owned subsidiary of the Corporation, would purchase a National Hockey League franchise and related assets. Page 15 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. COMSAT Corporation By /s/ Allen E. Flower ----------------------- Allen E. Flower Controller Date: August 11, 1995 Page 16 EXHIBIT INDEX Sequential Exhibit No. Description Page Number 4(a) Limited Partnership Agreement of COMSAT 18 Capital I, L.P., dated as of July 18, 1995, relating to issuance of monthly income preferred securities. 4(b) Guarantee Agreement for Preferred Securities of 69 COMSAT Capital I, L.P., dated as of July 18, 1995. 4(c) Indenture between Registrant and the First National 79 Bank of Chicago, as Trustee, dated as of July 18, 1995. 10(a) Asset Purchase Agreement, dated as of May 24, 1995 157 between COMSAT Video Enterprises, Inc. and Le Club de Hockey Les Nordiques, Societe en Commandite (Limited Partnership). 11 Computation of Earnings Per Share 187 27 Financial Data Schedule 189 Page 17
EX-4 2 EXHIBIT 4(a) Page 18 AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF COMSAT CAPITAL I, L.P. Dated as of July 18, 1995 TABLE OF CONTENTS ARTICLE I DEFINED TERMS Section 1.1 Definitions................................................1 ARTICLE II CONTINUATION OF THE PARTNERSHIP; ADMISSION OF PREFERRED SECURITY HOLDERS Section 2.1 Continuation of the Partnership............................8 Section 2.2 Name ......................................................8 Section 2.3 Business of the Partnership................................8 Section 2.4 Term ......................................................9 Section 2.5 Registered Agent and Office................................9 Section 2.6 Principal Place of Business................................9 Section 2.7 Name and Business Address of General Partner...............................................9 Section 2.8 Qualification to Do Business...............................9 Section 2.9 Admission of Holders of Preferred Securities as Limited Partners........................9 ARTICLE III CAPITAL CONTRIBUTIONS; REPRESENTATION OF PREFERRED SECURITY HOLDER'S INTEREST; CAPITAL ACCOUNTS Section 3.1 Capital Contributions......................................10 Section 3.2 Preferred Security Holder's Interest Represented by LP Certificate.........................10 Section 3.3 Capital Accounts...........................................11 Section 3.4 Interest on Capital Contributions..........................11 Section 3.5 Withdrawal and Return of Capital Contributions.........................................11 ARTICLE IV ALLOCATIONS Section 4.1 Profits and Losses.........................................11 Section 4.2 Special Allocations........................................13 Section 4.3 Allocations for Income Tax Purposes........................14 Section 4.4 Withholding................................................14 -i- ARTICLE V DIVIDENDS AND DISTRIBUTIONS Section 5.1 Dividends..................................................15 Section 5.2 Limitations on Distributions...............................15 ARTICLE VI ISSUANCE OF PREFERRED SECURITIES Section 6.1 General Provisions Regarding Preferred Securities............................................15 Section 6.2 Preferred Securities.......................................17 ARTICLE VII BOOKS OF ACCOUNT, RECORDS AND REPORTS Section 7.1 Books and Records..........................................24 Section 7.2 Accounting Method..........................................24 ARTICLE VIII POWERS, RIGHTS AND DUTIES OF THE LIMITED PARTNERS Section 8.1 Limitations................................................25 Section 8.2 Liability..................................................25 Section 8.3 Priority...................................................25 ARTICLE IX POWERS, RIGHTS AND DUTIES OF THE GENERAL PARTNER Section 9.1 Authority..................................................25 Section 9.2 Powers and Duties of General Partner.......................25 Section 9.3 Expenses Payable by General Partner........................27 Section 9.4 Liability..................................................27 Section 9.5 Exculpation................................................27 Section 9.6 Fiduciary Duty.............................................28 Section 9.7 [Intentionally Omitted.]...................................29 Section 9.8 Investment Company or Tax Actions..........................29 Section 9.9 Outside Businesses.........................................29 Section 9.10 Limits on General Partner's Powers.........................30 Section 9.11 Tax Matters Partner........................................31 Section 9.12 Merger, Consolidation or Amalgamation of the Partnership.......................................32 -ii- ARTICLE X TRANSFERS OF INTERESTS BY PARTNERS Section 10.1 Transfer of Interests.....................................33 Section 10.2 Transfer of LP Certificates...............................33 Section 10.3 Persons Deemed Preferred Security Holders...............................................34 Section 10.4 Book-Entry Interests......................................34 Section 10.5 Notices to Clearing Agency................................35 Section 10.6 Appointment of Successor Clearing Agency..................35 Section 10.7 Definitive LP Certificates; Appointment of Paying Agent.......................................35 ARTICLE XI WITHDRAWAL; DISSOLUTION; LIQUIDATION AND DISTRIBUTION OF ASSETS Section 11.1 Withdrawal of Partners....................................36 Section 11.2 Dissolution of the Partnership............................36 Section 11.3 Liquidation...............................................38 Section 11.4 Distribution in Liquidation...............................39 Section 11.5 Rights of Limited Partners................................39 Section 11.6 Termination...............................................39 ARTICLE XII AMENDMENTS AND MEETINGS Section 12.1 Amendments................................................39 Section 12.2 Amendment of Certificate..................................40 Section 12.3 Meetings of Partners......................................40 ARTICLE XIII MISCELLANEOUS Section 13.1 Notices...................................................41 Section 13.2 Power of Attorney.........................................42 Section 13.3 Entire Agreement..........................................42 Section 13.4 GOVERNING LAW.............................................42 Section 13.5 Effect....................................................42 Section 13.6 Pronouns and Number.......................................42 Section 13.7 Captions..................................................43 Section 13.8 Partial Enforceability....................................43 Section 13.9 Counterparts..............................................43 Section 13.10 Waiver of Partition.......................................43 Section 13.11 Remedies..................................................43 ANNEX A - Form of LP Certificate Evidencing Preferred Securities -iii- AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF COMSAT CAPITAL I, L.P. AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP of COMSAT Capital I, L.P., a Delaware limited partnership (the "Partnership"), dated as of July 18, 1995, among COMSAT Corporation, a District of Columbia corporation ("COMSAT"), as the general partner, the Partnership and COMSAT SPV, Inc., a Delaware corporation, as the initial limited partner (the "Initial Limited Partner") and such other Persons (as defined herein) who become Limited Partners (as defined herein) as provided herein. WHEREAS, COMSAT and the Initial Limited Partner entered into a Limited Partnership Agreement, dated as of May 22, 1995 (the "Original Limited Partnership Agreement"); WHEREAS, the Certificate of Limited Partnership of the Partnership was filed with the Office of the Secretary of State of the State of Delaware on May 22, 1995; and WHEREAS, the Partners desire to continue the Partnership under the Act (as defined herein) and to amend and restate the Original Limited Partnership Agreement in its entirety. NOW, THEREFORE, in consideration of the agreements and obligations set forth herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree to amend and restate the Original Limited Partnership Agreement as follows: ARTICLE I DEFINED TERMS Section 1.1 Definitions. Unless the context otherwise requires, the terms defined in this Article I shall, for the purposes of this Agreement, have the meanings herein specified. "1940 Act" means the Investment Company Act of 1940, as amended. "Act" means the Delaware Revised Uniform Limited Partnership Act, as amended from time to time. "Additional Dividends" means Dividends that shall accrue on any Dividend arrearages in respect of the Preferred Securities (as defined herein) at the rate of 81/8% per annum, compounded monthly. "Additional Interest" means (i) interest that shall accrue on any interest on the Subordinated Debentures (as defined herein) that is not paid when due or not paid during an extension of an interest payment period, which in either case shall accrue at the rate of 81/8% per annum compounded monthly, and (ii) an amount equal to any amount that the Partnership would be required to pay in taxes, duties, assessments or governmental charges of whatever nature (other than withholding taxes) imposed by the United States or any other taxing authority such that the net amounts received and retained by the Partnership after paying any such taxes, duties, assessments or governmental charges will not be less than the amounts the Partnership would have received had no such taxes, duties, assessments or governmental charges been imposed. "Affiliate" means, with respect to a specified Person, (a) any Person directly or indirectly owning, controlling or holding with power to vote 10% or more of the outstanding voting securities or other ownership interests of the specified Person, (b) any Person 10% or more of whose outstanding voting securities or other ownership interests are directly or indirectly owned, controlled or held with power to vote by the specified Person, (c) any Person directly or indirectly controlling, controlled by, or under common control with the specified Person, (d) a partnership in which the specified Person is a general partner, (e) any officer or director of the specified Person and (f) if the specified Person is an officer, director, general partner or employee, any other entity for which the specified Person acts in any such capacity. "Agreement" means this Amended and Restated Agreement of Limited Partnership, as amended, modified, supplemented or restated from time to time in accordance with its terms. "Book-Entry Interest" means a beneficial interest in the LP Certificates (as defined herein), ownership of which shall be recorded and transfers of which shall be made through the book-entry system of a Clearing Agency (as defined herein) as described in Section 10.4. "Business Day" means any day other than a day on which banking institutions in The City of New York are authorized or required by law or executive order to close. -2- "Capital Account" has the meaning set forth in Section 3.3. "Certificate" means the Certificate of Limited Partnership of the Partnership filed with the Secretary of State of the State of Delaware on May 22, 1995, and any and all amendments thereto and restatements thereof. "Change in 1940 Act Law" has the meaning set forth in the definition of "Investment Company Event" below. "Clearing Agency" means an organization registered as a "Clearing Agency" pursuant to Section 17A of the Exchange Act (as defined herein) that is acting as depositary for the Preferred Securities and in whose name (or nominee's name) shall be registered one or more global LP Certificates and which shall undertake to effect book-entry transfers and pledges of the Preferred Securities. "Clearing Agency Participant" means a broker, dealer, bank, other financial institution or other Person for whom from time to time a Clearing Agency effects book- entry transfers and pledges of interests in securities deposited with the Clearing Agency. "Closing Date" means the "Time of Delivery" under the Underwriting Agreement (as defined herein). "Code" means the Internal Revenue Code of 1986, as amended from time to time, or any corresponding federal tax statute enacted after the date of this Agreement. A reference to a specific section (ss.) of the Code refers not only to such specific section, but also to any corresponding provision of any federal tax statute enacted after the date of this Agreement, as such specific section or corresponding provision is in effect on the date of application of the provisions of this Agreement containing such reference. "COMSAT" has the meaning set forth in the introductory paragraph of this Agreement. "COMSAT Common Stock" means the common stock, without par value, of COMSAT. "Covered Person" means any officers, directors, shareholders, partners, employees, representatives or agents of the General Partner or its Affiliates, or any employee or agent of the Partnership or its Affiliates. "Definitive LP Certificates" has the meaning set forth in Section 10.4 of this Agreement. -3- "Dividends" means the cumulative cash distribu- tions from the Partnership with respect to the Interests (as defined herein) represented by the Preferred Securities, accruing from the Closing Date and payable monthly in arrears on the last day of each calendar month of each year, commencing July 31, 1995, pursuant to Section 6.2. "Dividend Payment Date" has the meaning set forth in Section 6.2(b)(ii) of this Agreement. "DTC" means The Depository Trust Company, the initial Clearing Agency. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Fiscal Period" means each calendar month. "Fiscal Year" means (i) the period commencing upon the formation of the Partnership and ending on December 31, 1995, and (ii) any subsequent twelve (12) month period commencing on January 1 and ending on December 31. "General Partner" means COMSAT in its capacity as general partner of the Partnership, its permitted suc- cessors, or any successor general partner in the Partnership admitted as such pursuant to the applicable provisions of this Agreement. "Guarantee" means the Guarantee Agreement dated as of July 18, 1995 of COMSAT in favor of the Preferred Security Holders (as defined herein) with respect to the Preferred Securities. "Holder" or "Preferred Security Holder" means a Limited Partner in whose name an LP Certificate representing Preferred Securities is registered. "Indenture" means the Indenture, dated as of July 18, 1995, as amended or supplemented from time to time, between COMSAT and the Trustee and any supplemental Indenture thereto entered into by COMSAT pursuant to which Subordinated Debentures of COMSAT are to be issued. "Initial Limited Partner" has the meaning set forth in the introductory paragraph of this Agreement. "Interest" means the entire ownership interest of a Partner in the Partnership at any particular time, including, without limitation, its interest in the capital, profits, losses and distributions of the Partnership. -4- "Investment Company Event" means the occurrence of a change in law or regulation or a written change in interpretation or application of law or regulation by any legislative body, court, governmental agency or regulatory authority (a "Change in 1940 Act Law") to the effect that the Partnership is or will be considered an "investment company" which is required to be registered under the Investment Company Act of 1940, as amended (the "1940 Act"), which Change in 1940 Act Law becomes effective on or after July 13, 1995; provided, however, that no Investment Company Event shall be deemed to have occurred if the General Partner obtains a written opinion of nationally recognized independent counsel to the Partnership experienced in practice under the 1940 Act to the effect that, notwithstanding such Change in 1940 Act Law, the Partnership is not required to be registered as an "investment company" within the meaning of the 1940 Act. "Limited Partner" means any Person who is admitted to the Partnership as a Limited Partner pursuant to the terms of this Agreement. "Liquidation Distribution" has the meaning set forth in Section 4.1(c). "Liquidator" has the meaning specified in Section 11.3 of this Agreement. "LP Certificate" means a certificate substantially in the form attached hereto as Annex A, evidencing the Preferred Securities held by a Limited Partner. "Majority (or other stated Percentage) in Liquida- tion Preference" means Holder(s) of Preferred Securities who are the record owners of Preferred Securities whose aggregate liquidation preferences represent not less than 50% (or not less than the relevant stated percentage) of the aggregate liquidation preference of all Preferred Securities then outstanding. "Net Income" and "Net Loss", respectively, for any Fiscal Period means the income and loss, respectively, of the Partnership for such Fiscal Period as determined in accordance with the method of accounting followed by the Partnership for federal income tax purposes, including, for all purposes, any income exempt from tax and any expenditures of the Partnership which are described in Code Section 705(a)(2)(B); provided, however, that any item allocated under Section 4.2 shall be excluded from the computation of Net Income and Net Loss. "Notice of Redemption" has the meaning set forth in Section 6.2(d)(i) of this Agreement. -5- "NYSE" means the New York Stock Exchange, Inc. "Original Limited Partnership Agreement" has the meaning set forth in the recitals to this Agreement. "Partners" means the General Partner and the Limited Partners, collectively, where no distinction is required by the context in which the term is used. "Partnership" means the limited partnership formed under the Act pursuant to the Original Limited Partnership Agreement upon filing of the Certificate, and continued pursuant to this Agreement. "Person" means any individual, corporation, association, partnership, trust or other entity. "Power of Attorney" means the Power of Attorney granted pursuant to Section 13.2. "Preferred Securities" means the Interests of Limited Partners described in Article VI. "Preferred Security Owner" means, with respect to a Book-Entry Interest, a Person who is the beneficial owner of such Book-Entry Interest, as reflected on the books of the Clearing Agency, or on the books of a Person maintaining an account with such Clearing Agency (directly as a Clearing Agency Participant or as an indirect participant, in each case in accordance with the rules of such Clearing Agency or Clearing Agency Participant). "Purchase Price" for any Preferred Security means the amount paid per Preferred Security pursuant to the Underwriting Agreement, payment of which shall constitute the contribution to capital contemplated by Section 3.1(c). "Redemption Price" has the meaning set forth in Section 6.2(c) of this Agreement. "Securities Act" means the Securities Act of 1933, as amended. "Special Representative" means the Person appointed by the Preferred Security Holders pursuant to Section 6.2(f) of this Agreement. "Subordinated Debentures" means the 81/8% Junior Subordinated Deferrable Interest Debentures of COMSAT issued pursuant to the Indenture and sold by COMSAT to the Partnership in connection with the issuance and sale by the Partnership of the Preferred Securities. -6- "Successor Securities" has the meaning set forth in Section 9.12 of this Agreement. "Tax Event" means that the General Partner shall have obtained an opinion of nationally recognized independent tax counsel experienced in such matters to the effect that, as a result of (a) any amendment to, or change (including any announced prospective change) in, the laws (or any regulations thereunder) of the United States or any political subdivision or taxing authority thereof or therein, (b) any amendment to or change in an interpretation or application of such laws or regulations by any legislative body, court, governmental agency or regulatory authority (including the enactment of any legislation and the publication of any judicial decision or regulatory determination on or after July 13, 1995), or (c) any interpretation or pronouncement that provides for a position with respect to such laws or regulations that differs from the generally accepted position on July 13, 1995, which amendment or change is effective or such interpretation or pronouncement is announced on or after July 13, 1995, there is more than an insubstantial risk that (i) the Partnership is subject to federal income tax with respect to interest received on the Subordinated Debentures, (ii) interest payable to the Partnership on the Subordinated Debentures will not be deductible for federal income tax purposes or (iii) the Partnership is subject to more than a de minimis amount of other taxes, duties or other governmental charges. "Tax Matters Partner" means the General Partner designated as such in Section 9.11 hereof. "Transfer Agent" means The First National Bank of Chicago and its successors and assigns. "Treasury Regulations" means the income tax regulations, including temporary regulations, promulgated under the Code, as such regulations may be amended from time to time (including corresponding provisions of succeeding regulations). "Trustee" means The First National Bank of Chicago, the trustee under the Indenture, and its successors and assigns. "Underwriters" means the underwriters named in Schedule I to the Underwriting Agreement. "Underwriting Agreement" means the Underwriting Agreement dated July 13, 1995, among COMSAT, the Partnership and the several Underwriters named therein relating to the issuance of the Preferred Securities. -7- ARTICLE II CONTINUATION OF THE PARTNERSHIP; ADMISSION OF PREFERRED SECURITY HOLDERS Section 2.1 Continuation of the Partnership. The parties hereto agree to continue the Partnership in accordance with the terms of this Agreement. The General Partner, for itself and as agent for the Limited Partners, shall accomplish all filing, recording, publishing and other acts necessary or appropriate for effectiveness of this Agreement and for compliance with all the requirements for the continuation of the Partnership as a limited partnership under the Act and under all other laws of the State of Delaware or such other jurisdictions in which the General Partner determines that the Partnership may conduct busi- ness. The rights and duties of the Partners shall be as provided herein and, subject to the terms hereof, in the Act. Section 2.2 Name. The name of the Partnership is "COMSAT Capital I, L.P.", as such name may be modified from time to time by the General Partner following written notice to the Limited Partners. Section 2.3 Business of the Partnership. The purposes of the Partnership are (a) to issue limited partnership interests in the Partnership in the form of Preferred Securities, and to use the proceeds therefrom and the capital contributed to the Partnership by the General Partner to purchase Subordinated Debentures and (b) except as otherwise limited herein, to enter into, make and perform all contracts and other undertakings, and engage in all activities and transactions as the General Partner may reasonably deem necessary or advisable for the carrying out of the foregoing purposes of the Partnership. The Partnership may not conduct any other business or operations except as contemplated by the preceding sentence. Section 2.4 Term. The term of the Partnership commenced upon the filing of the Certificate in the Office of the Secretary of State of the State of Delaware and shall continue until December 31, 2094, unless dissolved before such date in accordance with the provisions of this Agreement. Section 2.5 Registered Agent and Office. The Partnership's registered agent and office in Delaware shall be The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, New Castle County, Delaware 19801. At any time, the General Partner may designate another registered agent and/or registered office. -8- Section 2.6 Principal Place of Business. The principal place of business of the Partnership shall be c/o COMSAT Corporation, 6560 Rock Spring Drive, Bethesda, MD 20817-1146. Upon ten days' written notice to the Partners, the General Partner may change the location of the Partnership's principal place of business, provided that such change has no material adverse effect upon any Partner. Section 2.7 Name and Business Address of General Partner. The name and address of the General Partner are as follows: COMSAT Corporation 6560 Rock Spring Drive Bethesda, Maryland 20817-1146 Attention: Chief Financial Officer The General Partner may change its name or business address from time to time, in which event the General Partner shall promptly notify the Limited Partners of any such change. Section 2.8 Qualification to Do Business. The General Partner shall cause the Partnership to become qualified, formed or registered under the applicable qualification, fictitious name or similar laws of any jurisdiction in which the Partnership transacts business. Section 2.9 Admission of Holders of Preferred Securities as Limited Partners. (a) Without execution of this Agreement, upon the acquisition of an LP Certificate by a Person, whether by purchase, gift, devise or otherwise, which acquisition shall be deemed to constitute a request by such Person that the books and records of the Partnership reflect such Person's admission as a Limited Partner, such Person shall be admitted to the Partnership as a Limited Partner and shall become bound by this Agreement. (b) Following the first admission of a Preferred Security Holder to the Partnership as a Limited Partner, the Initial Limited Partner shall receive the return of its capital contribution without interest or deduction and will cease to be a Limited Partner. (c) The name and mailing address of each Partner and the amount contributed by such Partner to the capital of the Partnership shall be listed on the books and records of the Partnership. The General Partner shall be required to update the books and records from time to time as necessary to accurately reflect such information. -9- ARTICLE III CAPITAL CONTRIBUTIONS; REPRESENTATION OF PREFERRED SECURITY HOLDER'S INTEREST; CAPITAL ACCOUNTS Section 3.1 Capital Contributions. (a) The General Partner has, on or prior to the Closing Date, contributed an aggregate of $100 to the capital of the Partnership. The General Partner shall, on or prior to the Closing Date, make such additional capital contribution as is necessary for the General Partner to have contributed an aggregate of 3% of the capital contributed by all Partners as of the Closing Date. (b) The Initial Limited Partner has, prior to the date hereof, contributed the amount of $100 to the capital of the Partnership, which amount will be returned to the Initial Limited Partner as contemplated by Section 2.9(b). (c) On the Closing Date, each Person who acquires a Preferred Security from the Partnership shall, as the consideration for the acquisition of such Preferred Security, contribute to the capital of the Partnership an amount in cash equal to the Purchase Price for such Preferred Security. (d) No Limited Partner shall at any time be required to make any additional capital contributions to the Partnership, except as may be required by law. Section 3.2 Preferred Security Holder's Interest Represented by LP Certificate. A Preferred Security Holder's Interest shall be represented by the LP Certificate held by or on behalf of such Holder. Each Preferred Security Holder's respective ownership of Preferred Securities shall be set forth on the books and records of the Partnership. Each Holder hereby agrees that its Interest represented by its LP Certificate shall for all purposes be personal property. A Preferred Security Holder shall have no interest in specific Partnership property. Section 3.3 Capital Accounts. An individual capital account (a "Capital Account") shall be established and maintained on the books of the Partnership for each Partner in compliance with Treasury Regulation ss.ss. 1.704-1(b)(2)(iv) and 1.704-2, as amended. Subject to the preceding sentence, each Capital Account will be increased by the amount of the capital contributions (including the Purchase Price) made by, and the Net Income allocated to, such Partner (or predecessor in interest) and reduced by the amount of distributions made by the Partnership, and Net Losses allocated, to the Partner (or -10- predecessor thereof). In addition, a Partner's Capital Account shall be increased or decreased, as the case may be, for any items specially allocated to such Partner under Section 4.2 of this Agreement, and, to the extent permitted under such Treasury Regulation, the General Partner's Capital Account will be increased to the extent the General Partner pays any costs or expenses of the Partnership directly out of the General Partner's own funds. Section 3.4 Interest on Capital Contributions. Except as provided herein, no Partner shall be entitled to interest on or with respect to any capital contribution to the Partnership. Section 3.5 Withdrawal and Return of Capital Contributions. Subject to Sections 2.9(b) and 3.1(b), no Partner shall be entitled to withdraw any part of such Partner's capital contribution to the Partnership or be entitled to receive any distributions from the Partnership, except as provided in this Agreement. ARTICLE IV ALLOCATIONS Section 4.1 Profits and Losses. After giving effect to the special allocations set forth in Section 4.2, (a) the Partnership's Net Income for each Fiscal Period of the Partnership shall be allocated as follows: (i) First, to each Holder, as of the close of business on the record date for such Fiscal Period, an amount of Net Income equal to the excess of (x) the Dividends accrued on such Holder's Preferred Securities from the Closing Date through and including the close of business on the record date for such Fiscal Period, including any Additional Dividends payable with respect thereto, over (y) the amount of Net Income allocated to each such Holder (or predecessor thereof) pursuant to this Section 4.1(a)(i) in all prior Fiscal Periods, including any Additional Dividends payable with respect thereto. (ii) Second, to each Holder, as of the close of business on the record date for such Fiscal Period, an amount of Net Income equal to the excess of (x) all Net Losses allocated to each such Holder (or predecessor thereof) from the date of issuance of each of such Holder's Preferred Securities through and including the close of such Fiscal Period pursuant to Section 4.1(b)(ii) over (y) the amount of Net Income allocated -11- to such Holder (or predecessor thereof) pursuant to this Section 4.1(a)(ii) in all prior Fiscal Periods. (iii) Any remaining Net Income shall be allocated to the General Partner. (b) The Partnership's Net Loss for any Fiscal Period shall be allocated as follows: (i) First, to the General Partner until the balance of the General Partner's Capital Account is reduced to zero. (ii) Second, among the Holders in proportion to their respective aggregate Capital Account balances, until the Capital Account balances of such Holders are reduced to zero; provided, however, that the General Partner shall make appropriate adjustments in these allocations, in accordance with Section 4.1(c), with respect to any Preferred Securities as to which Net Income has been allocated with respect to Dividends that accrued but were not paid. (iii) Any remaining Net Loss shall be allocated to the General Partner. (c) The General Partner shall make such changes to the allocations in Sections 4.1(a) and 4.1(b) as it deems reasonably necessary so that, in the year of the Partnership's dissolution, winding-up or termination, amounts distributed to the Preferred Security Holders in accordance with Section 11.4(a) shall equal the aggregate of the stated liquidation preference of $25 per Preferred Security and accrued and unpaid Dividends to the date of payment, including any Additional Dividends accrued thereon (the "Liquidation Distribution"), unless, in connection with such dissolution, winding-up or termination, Subordinated Debentures in a principal amount equal to the aggregate liquidation preference of the Preferred Securities have been distributed on a pro rata basis to the Holders. Section 4.2 Special Allocations. (a) All expenditures described in Code Section 705(a)(2)(B) and Section 9.3 hereof that are incurred by, or on behalf of, the Partnership shall be allocated entirely to the General Partner. (b) In the event any Holder unexpectedly receives any adjustments, allocations or distributions described in Treasury Regulation ss. 1.704-1(b)(2)(ii)(d)(4), (5) or (6), items of Partnership Net Income shall be specially allocated to such Holder in an amount and manner sufficient to elimi- -12- nate, to the extent required by the Treasury Regulations, the deficit, if any, in the balance of the Capital Account of such Holder as quickly as possible. This Section 4.2(b) is intended to comply with the qualified income offset provision in ss. 1.704-1(b)(2)(ii)(d) of the Treasury Regulations. (c) For purposes of determining the profits, losses or any other items allocable to any period, profits, losses and any such other items shall be determined on a daily, monthly or other basis, as determined by the General Partner using any method that is permissible under ss. 706 of the Code and the Treasury Regulations promulgated thereunder. Unless otherwise specified, such profits, losses or other items shall be determined for each Fiscal Period. (d) The Partners and Holders, by becoming parties to this Agreement, either by execution hereof or pursuant to Section 2.9, will be deemed to be aware of the income tax consequences of the allocations made by this Article IV and will be deemed to have agreed to be bound by the provisions of this Article IV in reporting their shares of Partnership Net Income and Net Loss for U.S. federal income tax purposes. (e) Notwithstanding anything to the contrary that may be expressed or implied in this Article IV, the interest of the General Partner in each item of income, gain, loss, deduction and credit will be equal to at least (i) at any time that aggregate capital contributions to the Partnership are equal to or less than $50,000,000, 1% of each such item and (ii) at any time that aggregate capital contributions to the Partnership are greater than $50,000,000, 1% of each such item, multiplied by a fraction (not exceeding one and not less than 0.2), the numerator of which is $50,000,000 and the denominator of which is the lesser of the aggregate Capital Account balances of the Capital Accounts of all Partners at such time and the aggregate capital contributions to the Partnership of all Partners at such time. (f) The Partners intend that the allocations under Section 4.1 conform to Treasury Regulations ss.ss. 1.704-1(b) and 1.704-2 (including, without limitation, the minimum gain chargeback, chargeback of partner nonrecourse debt minimum gain, qualified income offset and partner nonrecourse debt provisions of such Treasury Regulations), and the General Partner shall make such changes in the allocations under Section 4.1 as it believes are reasonably necessary to meet the requirements of such Treasury Regulations. -13- (g) Solely for the purpose of adjusting the Capital Accounts of the Partners, and not for tax purposes, if any property is distributed in kind to any Partner, the difference between its fair market value and its book value at the time of distribution shall be treated as gain or loss recognized by the Partnership and allocated pursuant to the provisions of Section 4.1. (h) In the event of a Code Section 708(b)(1)(B) termination, or a pro rata liquidating distribution of the Subordinated Debentures pursuant to Section 11.4 hereof, the fair market value of the Subordinated Debentures held by the Partnership shall be deemed to be the principal amount thereof. Section 4.3 Allocations for Income Tax Purposes. The income, gains, losses, deductions and credits of the Partnership shall be allocated in the same manner as the items entering into the computation of Net Income and Net Loss are allocated under Sections 4.1 and 4.2; provided, however, that solely for federal, state and local income and franchise tax purposes, but not for book or Capital Account purposes, income, gain, loss and deductions with respect to any property properly carried on the Partnership's books at a value other than the tax basis of such property shall be allocated in a manner determined in the General Partner's discretion, so as to take into account (consistently with Code Section 704(c) principles) the difference between such property's book value and its tax basis. Notwithstanding anything to the contrary set forth in this Agreement, the General Partner is authorized to modify the allocations of this Section 4.3, and Sections 4.1 and 4.2, if necessary or appropriate, in the General Partner's sole discretion, for the allocations to fairly reflect the economic gain, income or loss to each of the Partners, or as otherwise required by the Code or the Treasury Regulations. Section 4.4 Withholding. The Partnership shall comply with withholding requirements under federal, state and local law and shall remit amounts withheld to and file required forms with applicable jurisdictions. To the extent that the Partnership is required to withhold and pay over any amounts to any authority with respect to distributions or allocations to any Partner, the amount withheld shall be deemed to be a distribution in the amount of the withholding to the Partner. In the event of any claimed over-withholding, Partners shall be limited to an action against the applicable jurisdiction. If the amount withheld was not withheld from actual distributions, the Partnership may reduce subsequent distributions by the amount of such withholding. Each Partner agrees to furnish the Partnership with any representations and forms as shall reasonably be -14- requested by the Partnership to assist it in determining the extent of, and in fulfilling, its withholding obligations. ARTICLE V DIVIDENDS AND DISTRIBUTIONS Section 5.1 Dividends. Limited Partners shall receive periodic Dividends, if any, Additional Dividends, if any, redemption payments and liquidation distributions in accordance with the terms of the Preferred Securities set forth in Article VI. Subject to the rights of the Preferred Security Holders, all remaining cash shall be distributed to the General Partner at such time as the General Partner shall determine. Section 5.2 Limitations on Distributions. The Partnership shall not make a distribution to any Partner on account of such Partner's Interest if such distribution would violate Section 17-607 of the Act or other applicable law. ARTICLE VI ISSUANCE OF PREFERRED SECURITIES Section 6.1 General Provisions Regarding Preferred Securities. (a) There is hereby authorized for issuance and sale Preferred Securities having an aggregate liquidation preference not greater than $200,000,000 and having the designation, annual Dividend rate, liquidation preference, redemption terms and other powers, preferences and special rights and limitations set forth in this Article VI. (b) The payment of Dividends, Additional Dividends, if any, and payments of distributions by the Partnership in liquidation or on redemption in respect of Preferred Securities shall be guaranteed by COMSAT pursuant to, and to the extent provided in, the Guarantee. The Guarantee constitutes a guarantee of payment and not of collection. The Holders hereby authorize the General Partner to hold the Guarantee on behalf of the Holders. In the event of an appointment of a Special Representative pursuant to Section 6.2(f) to, among other things, enforce the rights of the Holders under the Guarantee, the Special Representative may take possession of the Guarantee for such purpose. If no Special Representative has been appointed to enforce the Guarantee, the General Partner has the right to enforce the Guarantee on behalf of the Holders. The Holders -15- of not less than 10% in aggregate liquidation preference of all outstanding Preferred Securities have the right to direct the time, method and place of conducting any proceeding for any remedy available in respect of the Guarantee, including the giving of directions to the General Partner or the Special Representative, as the case may be. If the General Partner or the Special Representative fails to enforce the Guarantee as provided above, a Holder may institute a legal proceeding directly against the guarantor under the Guarantee to enforce its rights under the Guarantee, without first instituting a legal proceeding against the Partnership or any other Person. The Preferred Security Holders, by acceptance of such Preferred Securities, acknowledge and agree to the subordination provisions and other terms of the Guarantee. (c) The proceeds received by the Partnership from the issuance of Preferred Securities, together with the proceeds of the capital contributed by the General Partner pursuant to Section 3.1(a) of this Agreement, shall be invested by the Partnership in Subordinated Debentures with (i) an aggregate principal amount equal to such aggregate invested proceeds and (ii) an interest rate at least equal to the Dividend rate of the Preferred Securities. (d) The Partnership may not issue any other limited partnership interests in or preferred securities of the Partnership, nor may it incur any indebtedness. All Preferred Securities shall rank senior to all other Interests in the Partnership in respect of the right to receive Dividends, Additional Dividends or other distributions (including, without limitation, any distribution out of the assets of the Partnership upon voluntary or involuntary liquidation, dissolution, winding-up or termination of the Partnership). All Preferred Securities redeemed, purchased or otherwise acquired by the Partnership shall be canceled. The Preferred Securities will be issued in registered form only. Dividends on all Preferred Securities shall be cumulative. (e) Notwithstanding that Holders of Preferred Securities are entitled to vote or consent as provided in this Agreement, any of the Preferred Securities that are owned by COMSAT or by any entity owned more than 50% by COMSAT, or by any entity controlled by COMSAT, either directly or indirectly, shall not be entitled to vote or consent and shall, for purposes of such vote or consent, be treated as if they were not outstanding. (f) No Holder shall be entitled as a matter of right to subscribe for or purchase, or have any preemptive right with respect to, any part of any new or additional limited partnership interests, or of securities convertible -16- into any Preferred Securities or other limited partnership interests, whether now or hereafter authorized and whether issued for cash or other consideration or by way of a Dividend. Section 6.2 Preferred Securities. (a) Designation. The Preferred Securities, liquidation preference $25 per Preferred Security, are hereby designated as "81/8% Cumulative Monthly Income Preferred Securities". (b) Dividends. (i) Preferred Security Holders shall be entitled to receive, when, as and if available and determined to be so payable by the General Partner, except as otherwise provided below, cumulative Dividends at a rate per annum of 81/8% of the stated liquidation preference of $25 per Preferred Security, calculated on the basis of a 360-day year consisting of 12 months of 30 days each. For any period shorter than a full monthly Dividend period, Divi- dends will be computed on the basis of the actual number of days elapsed in such period. Dividends shall be payable in United States dollars monthly in arrears on the last day of each calendar month of each year, commencing July 31, 1995. Such Dividends will accrue and be cumulative whether or not they have been declared and whether or not there are funds of the Partnership legally available for the payment of Dividends. Dividends on the Preferred Securities shall be cumulative and shall accrue from the Closing Date. Additional Dividends upon any Dividend arrearages shall be declared and paid in order to provide, in effect, monthly compounding on such Dividend arrearages at a rate of 81/8% per annum compounded monthly and such Additional Dividends shall accrue. In the event that any date on which Dividends are payable on the Preferred Securities is not a Business Day, then payment of the Dividend payable on such date will be made on the next succeeding day which is a Business Day (and without any interest or other payment in respect of any such delay) except that, if such Business Day is in the next succeeding calendar year, such payment shall be made on the immediately preceding Business Day, in each case with the same force and effect as if made on such date. (ii) Dividends on the Preferred Securities must be declared monthly and be paid on the last day of each calendar month (each a "Dividend Payment Date") to the extent that the Partnership has, on such date, (x) funds legally available for the payment of such Dividends and (y) cash on hand sufficient to permit such payments, it being understood that to the extent that funds are not available to pay in full all accrued and unpaid Dividends, the Partnership may pay partial pro rata Dividends to the extent of funds legally available therefor. Dividends will -17- be payable to the Holders as they appear on the books and records of the Partnership on the relevant record dates, which will be one Business Day prior to the relevant Dividend Payment Date. In the event the Preferred Securities shall not continue to remain in book-entry-only form as described in Section 10.4 hereof, the General Partner shall have the right to select relevant record dates, which shall be more than one Business Day prior to the relevant Dividend Payment Date. In the event of any extended interest payment period with respect to the Subordinated Debentures resulting in the deferral of the payment of Dividends on the Preferred Securities, the Partnership shall give written notice by first-class mail to the Holders as to such extended interest payment period no later than the last date on which it would be required to notify the NYSE of the record or payment date of the related Dividend on the Preferred Securities. (iii) The Partnership shall not: (A) pay, declare or set aside for payment, any dividends or other distributions on any other Interests in the Partnership; or (B) redeem, purchase or otherwise acquire any other Interests in the Partnership; until, in each case, such time as all accrued and unpaid Dividends on all of the Preferred Securities, including any Additional Dividends thereon, shall have been paid in full for all Dividend periods terminating on or prior to the date of such payment or the date of such redemption, purchase or acquisition, as the case may be. (c) Redemption. (i) The Preferred Securities are redeemable at the option of the Partnership, in whole or in part, from time to time, on or after July 18, 2000, at $25 per Preferred Security plus accrued and unpaid Dividends (whether or not earned or declared) to the date fixed for redemption, including any Additional Dividends accrued thereon (the "Redemption Price"). In the event that fewer than all the outstanding Preferred Securities are to be so redeemed, the Preferred Securities to be redeemed will be selected by lot. If a partial redemption would result in the delisting of the Preferred Securities, the Partnership may only redeem the Preferred Securities in whole. (ii) If a Tax Event shall occur and be continuing, the General Partner shall elect to (a) redeem the Preferred Securities in whole (and not in part) at the Redemption Price within 90 days following the occurrence of such Tax Event; provided that if at the time there is -18- available to the General Partner the opportunity to eliminate, within such 90-day period, the Tax Event by taking some ministerial action, such as filing a form or making an election, or pursuing some other similar reasonable measure, which has no adverse effect on the Partnership or COMSAT, the General Partner will pursue such measure in lieu of redemption; (b) dissolve the Partnership and cause the Subordinated Debentures to be distributed to the Holders in liquidation of the Partnership; or (c) cause the Preferred Securities to remain outstanding and pay Additional Interest on the Subordinated Debentures. (iii) If an Investment Company Event shall occur and be continuing, the General Partner shall elect to either (a) redeem the Preferred Securities in whole (and not in part) at the Redemption Price within 90 days following the occurrence of such Investment Company Event; provided that if at the time there is available to the General Partner the opportunity to eliminate, within such 90-day period, the Investment Company Event by taking some ministerial action, such as filing a form or making an election, or pursuing some other similar reasonable measure, which has no adverse effect on the Partnership or COMSAT, the General Partner will pursue such measure in lieu of redemption; or (b) dissolve the Partnership and cause the Subordinated Debentures to be distributed to the Holders in liquidation of the Partnership, within 90 days following the occurrence of such Investment Company Event. (iv) Upon the repayment of the Subordinated Debentures at maturity or upon any acceleration, earlier redemption or otherwise, the proceeds from such repayment shall be applied to redeem the Preferred Securities, in whole, at the Redemption Price. In the case of any redemption pursuant to this clause (iv), the Preferred Securities shall only be redeemed when repayment of the Subordinated Debentures has actually been received by the Partnership. (v) The Partnership may not redeem fewer than all the outstanding Preferred Securities unless all accrued and unpaid dividends have been paid on all Preferred Securities for all monthly dividend periods terminating on or prior to the date of redemption. (d) Redemption Procedures. (i) Notice of any redemption (a "Notice of Redemption") of the Preferred Securities to be redeemed pursuant to Section 6.2(c) will be given by the Partnership by first-class mail to each record Holder not fewer than 30 nor more than 60 days prior to the date fixed for redemption thereof. For purposes of the calculation of the date of redemption and the dates on which notices are given pursuant to this paragraph (d)(i), a -19- Notice of Redemption shall be deemed to be given on the day such notice is first mailed by first-class mail, postage prepaid, to each Holder. Each Notice of Redemption shall be addressed to each Holder at the address of the Holder appearing in the books and records of the Partnership. If all of the Preferred Securities are represented by Book- Entry Interests, Notices of Redemption shall be sent to the Clearing Agency. No defect in the Notice of Redemption or in the mailing thereof with respect to any Preferred Security shall affect the validity of the redemption proceedings with respect to any other Preferred Security. Subject to the last sentence of Section 6.2(c)(iv), any Notice of Redemption shall be irrevocable. (ii) If the Partnership gives a Notice of Redemption in respect of the Preferred Securities and all of the Preferred Securities are represented by Book-Entry Interests, then, by 12:00 noon, New York time, on the redemption date, the Partnership will irrevocably deposit with the Clearing Agency funds sufficient to pay the applicable Redemption Price and will give the Clearing Agency irrevocable instructions and authority to pay the Redemption Price to the Holders; if all of the Preferred Securities are not represented by Book-Entry Interests, the Partnership may pay the Redemption Price to a Holder by check upon presentation by a Holder of the corresponding LP Certificate. If a Notice of Redemption shall have been given and funds deposited as required, then upon the date of such deposit, all rights of the Preferred Security Holders who hold such Preferred Securities so called for redemption will cease, except the right of the Holders of such Preferred Securities to receive the Redemption Price, but without interest on such Redemption Price. In the event that any date fixed for redemption of Preferred Securities is not a Business Day, then payment of the Redemption Price payable on such date will be made on the next succeeding day which is a Business Day (and without any interest or other payment in respect of any such delay), except that, if such Business Day falls in the next calendar year, such payment will be made on the immediately preceding Business Day. In the event that payment of the Redemption Price in respect of Preferred Securities is improperly withheld or refused and not paid either by the Partnership or by COMSAT pursuant to the Guarantee, Dividends on such Preferred Securities (including any Additional Dividends thereon) will continue to accrue at the then applicable rate, from the original redemption date to the date of payment, in which case the actual payment date will be considered the date fixed for redemption for purposes of calculating the Redemption Price. (iii) Subject to the foregoing and applicable law (including, without limitation, United States federal securities laws), COMSAT or its subsidiaries may at any time -20- and from time to time purchase outstanding Preferred Securities by tender, in the open market or by private agreement. (e) Liquidation Rights. In the event of any voluntary or involuntary dissolution, winding-up or termination of the Partnership, the Holders will have the rights provided in Section 11.4 hereof. (f) Voting Rights -- Special Representative. (i) If (x) the Partnership fails to pay Dividends in full on the Preferred Securities for 18 consecutive months, (y) an Event of Default (as defined in the Indenture) occurs and is continuing on the Subordinated Debentures or (z) COMSAT is in default on any of its payment or other obligations under the Guarantee, then the Holders, upon the affirmative vote of at least a Majority in Liquidation Preference of the Preferred Securities, will be entitled to appoint and authorize a Special Representative to enforce the Partnership's rights as a creditor under the Indenture and the Subordinated Debentures, to enforce the rights of the Holders under the Guarantee and to enforce the rights of the Holders to receive Dividends (including Additional Dividends) on the Preferred Securities. The Special Representative shall not be admitted as a general partner in the Partnership or otherwise be deemed to be a general partner in the Partnership and shall have no liability for the debts, obligations or liabilities of the Partnership. (ii) In furtherance of the foregoing, and without limiting the powers of any Special Representative so appointed and for the avoidance of any doubt concerning the powers of the Special Representative, any Special Representative, in its own name and as Special Representative of the Partnership, may institute a proceeding, including, without limitation, any suit in equity, an action at law or other judicial or administrative proceeding, to enforce the Partnership's rights directly against COMSAT, or any other obligor in connection with such obligations on behalf of the Partnership, and may prosecute such proceeding to judgment or final decree, and enforce the same against COMSAT or any other obligor in connection with such obligations and collect, out of the property, wherever situated, of COMSAT or any such other obligor upon such obligations, the monies adjudged or decreed to be payable in the manner provided by law. (iii) For purposes of determining whether the Partnership has failed to pay Dividends in full for 18 consecutive months, Dividends shall be deemed to remain in arrears, notwithstanding any payments in respect thereof, until full cumulative Dividends have been or contemporaneously are paid with respect to all monthly Dividend periods -21- terminating on or prior to the date of payment of such full cumulative Dividends. Not later than 30 days after such right to appoint a Special Representative arises and upon not less than 15 days' written notice by first-class mail to the Holders, the General Partner will convene a meeting for the purpose of appointing a Special Representative. If the General Partner fails to convene such meeting within such 30-day period, the Holders of not less than 10% in Liquidation Preference of the Preferred Securities will be entitled to convene such meeting. Except as provided herein, the provisions of Section 12.3 relating to the convening and conduct of meetings of the Partners will apply with respect to any such meeting. Any Special Representati- ve so appointed shall cease to be a Special Representative of the Partnership and the Limited Partners if the Partnership (or COMSAT pursuant to the Guarantee) shall have paid in full all accrued and unpaid Dividends (including any Additional Dividends) on the Preferred Securities or such default or breach, as the case may be, shall have been cured and COMSAT, in its capacity as the General Partner, shall continue the business of the Partnership without dissolution. Notwithstanding the appointment of any such Special Representative, COMSAT shall continue as General Partner and shall retain all rights under the Indenture, including the right to extend the interest payment period from time to time to a period not exceeding 60 consecutive months. (g) Voting Rights -- Certain Amendments. (i) If any proposed amendment to this Agreement provides for, or the General Partner otherwise proposes to effect, (x) any action which would adversely affect the powers, preferences or special rights of the Preferred Securities, whether by way of amendment to this Agreement or otherwise (including, without limitation, the authorization or issuance of any limited partnership interests in the Partnership other than the Preferred Securities) or (y) the dissolution, winding-up or termination of the Partnership (other than in connection with the distribution of Subordinated Debentures upon the occurrence of a Tax Event or Investment Company Event, or as described in Section 9.12, then the Holders of outstanding Preferred Securities will be entitled to vote on such amendment or proposal of the General Partner (but not on any other amendment or proposal) and such amendment or proposal shall not be effective except with the approval of Holders of not less than 66 2/3% in Liquidation Preference of the Preferred Securities having a right to vote on the matter; provided, however, that no such approval shall be required if the dissolution, winding-up or termination of the Partnership is proposed or initiated pursuant to Section 11.2 hereof. -22- (ii) Any required approval of Holders may be given at a separate meeting of such Holders convened for such purpose, at a meeting of all of the Partners in the Partnership or pursuant to written consent. The Partnership will cause written notice of any meeting at which Holders are entitled to vote, or of any matter upon which action by written consent of such Holders is to be taken, to be mailed by first-class mail to each Holder of record of Preferred Securities at least 15 days prior to the date of such meeting or the date by which such action is to be taken. Each such notice will include a statement setting forth (x) the date of such meeting or the date by which such action is to be taken, (y) a description of any resolution proposed for adoption at such meeting on which such Holders are entitled to vote or of such matter upon which written consent is sought and (z) instructions for the delivery of proxies or consents. No vote or consent of the Holders will be required for the Partnership to redeem and cancel Preferred Securities in accordance with this Agreement. (iii) Except as provided in this Section 6.2, Holders shall have no voting rights, and the Holders may not remove or replace the General Partner. ARTICLE VII BOOKS OF ACCOUNT, RECORDS AND REPORTS Section 7.1 Books and Records. (a) Proper and complete records and books of account of the Partnership shall be kept by the General Partner in which shall be entered fully and accurately all transactions and other matters relative to the Partnership's business as are usually entered into records and books of account maintained by Persons engaged in businesses of a like character, including a Capital Account for each Partner. The books and records of the Partnership, together with a copy of this Agreement and of the Certificate, shall at all times be maintained at the principal office of the General Partner and shall be open to the inspection and examination of the Partners or their duly authorized representatives for a proper purpose during reasonable business hours. (b) The General Partner may, for such period of time that the General Partner deems reasonable, keep confidential from the Partners any information with respect to the Partnership the disclosure of which the General Partner reasonably believes is not in the best interests of the Partnership or is adverse to the interests of the Partner- -23- ship or which the Partnership or the General Partner is required by law or by an agreement with any Person to keep confidential. (c) Within three months after the close of each Fiscal Year, the General Partner shall transmit to each Partner a statement indicating such Partner's share of each item of Partnership income, gain, loss, deduction or credit for such Fiscal Year for federal income tax purposes. Section 7.2 Accounting Method. For both financial and tax reporting purposes and for purposes of determining profits and losses, the books and records of the Partnership shall be kept on the accrual method of accounting applied in a consistent manner and shall reflect all Partnership transactions and be appropriate and adequate for the Partnership's business. The Partnership's taxable year shall be the calendar year. ARTICLE VIII POWERS, RIGHTS AND DUTIES OF THE LIMITED PARTNERS Section 8.1 Limitations. Other than as set forth in this Agreement, the Limited Partners shall not participate in the management or control of the Partnership's business, property or other assets nor shall the Limited Partners transact any business for the Partnership, nor shall the Limited Partners have the power to act for or bind the Partnership, said powers being vested solely and exclusively in the General Partner. The Limited Partners shall have no interest in the properties or assets of the General Partner, or any equity therein, or in any proceeds of any sales thereof (which sales shall not be restricted in any respect, by virtue of acquiring or owning an Interest in the Partnership). Section 8.2 Liability. Subject to the provisions of the Act, no Limited Partner shall be liable for the repayment, satisfaction or discharge of any debts or other obligations of the Partnership in excess of the Capital Account balance of such Limited Partner. Section 8.3 Priority. No Limited Partner shall have priority over any other Limited Partner as to Partnership allocations or distributions. -24- ARTICLE IX POWERS, RIGHTS AND DUTIES OF THE GENERAL PARTNER Section 9.1 Authority. Subject to the limitations provided in this Agreement, the General Partner shall have exclusive and complete authority and discretion to manage the operations and affairs of the Partnership and to make all decisions regarding the business of the Partnership. Any action taken by the General Partner shall constitute the act of and serve to bind the Partnership. In dealing with the General Partner acting on behalf of the Partnership, no Person shall be required to inquire into the authority of the General Partner to bind the Partnership. Persons dealing with the Partnership are entitled to rely conclusively on the power and authority of the General Partner, as set forth in this Agreement. Section 9.2 Powers and Duties of General Partner. Except as otherwise specifically provided herein, the General Partner shall have all rights and powers of a general partner under the Act, and shall have all authority, rights and powers in the management of the Partnership business to do any and all other acts and things necessary, proper, convenient or advisable to effectuate the purposes of this Agreement, including by way of illustration but not by way of limitation, the following: (a) to secure the necessary goods and services required in performing the General Partner's duties for the Partnership; (b) to exercise all powers of the Partnership, on behalf of the Partnership, in connection with enforcing the Partnership's rights under the Subordinated Debentures and the Guarantee; (c) to issue Preferred Securities and to admit Limited Partners in connection therewith in accordance with this Agreement; (d) to act as registrar and transfer agent for the Preferred Securities or designate an entity to act as registrar and transfer agent; (e) to establish a record date with respect to all actions to be taken hereunder that require a record date be established, including with respect to Dividends and voting rights and to make determinations as to the payment of Dividends, and make or cause to be made all other required payments to Holders and to the General Partner; -25- (f) to open, maintain and close bank accounts and to draw checks and other orders for the payment of money; (g) to bring or defend, pay, collect, compromise, arbitrate, resort to legal action, or otherwise adjust claims or demands of or against the Partnership; (h) to deposit, withdraw, invest, pay, retain and distribute the Partnership's funds in a manner consistent with the provisions of this Agreement; (i) to take all action which may be necessary or appropriate for the preservation and the continuation of the Partnership's valid existence, rights, franchises and privileges as a limited partnership under the laws of the State of Delaware and of each other jurisdiction in which such existence is necessary to protect the limited liability of the Limited Partners or to enable the Partnership to conduct the business in which it is engaged; (j) to cause the Partnership to enter into and perform, on behalf of the Partnership, the Underwriting Agreement and to cause the Partnership to purchase the Subordinated Debentures without any further act, vote or approval of any Partner; and (k) to execute and deliver any and all documents or instruments, perform all duties and powers and do all things for and on behalf of the Partnership in all matters necessary or desirable or incidental to the foregoing. Section 9.3 Expenses Payable by General Partner. The General Partner hereby assumes and shall be liable for the debts, obligations and liabilities of the Partnership and agrees to pay to each Person or entity to whom the Partnership is now or hereafter becomes indebted or liable, whether such indebtedness, obligations or liabilities arise in contract, tort or otherwise, (including, without limitation, payment obligations arising under Section 7.3 of this Agreement, but excluding payment obligations of COMSAT to Holders of the Preferred Securities in such Holders' capacities as Holders, such obligations being separately guaranteed under the Guarantee) (the "Beneficiaries") the full payment of such indebtedness and any and all liabilities, when and as due. This agreement is intended to be for the benefit of and to be enforceable by all such Beneficiaries whether or not such Beneficiaries have received notice hereof. -26- Section 9.4 Liability. Except as expressly set forth in this Agreement, (a) the General Partner shall not be personally liable for the return of any portion of the capital contributions (or any return thereon) of the Limited Partners; (b) the return of such capital contributions (or any return thereon) shall be made solely from assets of the Partnership; and (c) the General Partner shall not be required to pay to the Partnership or to any Limited Partner any deficit in any Limited Partner's Capital Account upon dissolution or otherwise. Other than as provided under the Act, no Limited Partner shall have the right to demand or receive property other than cash for its respective Interest in the Partnership. Section 9.5 Exculpation. (a) No Covered Person shall be liable, responsible, or accountable in damages or otherwise to the Partnership or any Limited Partner (in its capacity as such) or any Affiliate of any Limited Partner for any loss, damages or claim incurred by reason of any act or omission performed or omitted by such Covered Person in good faith on behalf of the Partnership and in a manner reasonably believed to be within the scope of the authority conferred on such Covered Person by this Agreement or by law; provided, however, that a Covered Person shall be liable for any such loss, damage or claim incurred by reason of such Covered Persons's gross negligence or willful misconduct with respect to such acts or omissions. (b) No Covered Person shall be deemed to have acted with gross negligence or willful misconduct if such Covered Person relied in good faith upon the records of the Partnership and upon such information, opinions, reports or statements presented to the Partnership by any Person as to matters the Covered Person reasonably believes are within such other Person's professional or expert competence and who has been selected with reasonable care by or on behalf of the Partnership, including information, opinions, reports or statements as to the value and amount of the assets, liabilities, profits, losses, or any other facts pertinent to the existence and amount of assets from which distributions to Partners might properly be paid. Section 9.6 Fiduciary Duty. (a) To the extent that, at law or in equity, a Covered Person has duties (including fiduciary duties) and liabilities relating thereto to the Partnership or to any Limited Partner (in its capacity as such) or any Affiliate of any Limited Partner, a Covered Person acting under this Agreement shall not be liable to the Partnership or to any other Person for its good faith reliance on the provisions -27- of this Agreement. The provisions of this Agreement, to the extent that they restrict the duties and liabilities of a Covered Person otherwise existing at law or in equity, are agreed by the parties hereto to replace such other duties and liabilities of such Covered Person. (b) Unless otherwise expressly provided herein, (i) whenever a conflict of interest exists or arises between Persons, or (ii) whenever this Agreement or any other agreement contemplated herein or therein provides that a Covered Person shall act in a manner that is, or provides terms that are, fair and reasonable to the Partnership or any Partner, the Covered Person shall resolve such conflict of interest, taking such action or providing such terms, considering in each case the relative interest of each party (including its own interest) to such conflict, agreement, transaction or situation and the benefits and burdens relating to such interests, any customary or accepted industry practices, and any applicable generally accepted accounting practices or principles. In the absence of bad faith by the Covered Person, the resolution, action or terms so made, taken or provided by the Covered Person shall not constitute a breach of this Agreement or any other agreement contemplated herein or of any duty or obligation of the Covered Person at law or in equity or otherwise. (c) Whenever in this Agreement a Covered Person is permitted or required to make a decision (i) in its "discretion" or under a grant of similar authority, the Covered Person shall be entitled to consider only such interests and factors as it desires, including its own interests, and shall have no duty or obligation to give any consideration to any interest of or factors affecting the Partnership or any other Person, or (ii) in its "good faith" or under another express standard, the Covered Person shall act under such express standard and shall not be subject to any other or different standard imposed by this Agreement or other applicable law. Section 9.7 [Intentionally Omitted.] Section 9.8 Investment Company or Tax Actions. The General Partner is authorized and directed to conduct its affairs and to operate the Partnership in such a way that the Partnership would not be deemed to be an "invest- ment company" required to be registered under the 1940 Act or taxed as a corporation for federal income tax purposes and so that the Subordinated Debentures will be treated as indebtedness of COMSAT for federal income tax purposes. In this connection, the General Partner is authorized to take any action not inconsistent with applicable law, the Certificate of Limited Partnership or this Agreement, and that does not materially and adversely affect the interests -28- of Holders, that the General Partner determines in its discretion to be necessary or desirable for such purposes. Section 9.9 Outside Businesses. Any Partner or Affiliate thereof may engage in or possess an interest in other business ventures of any nature or description, independently or with others, similar or dissimilar to the business of the Partnership, and the Partnership and the Partners shall have no rights by virtue of this Agreement in and to such independent ventures or the income or profits derived therefrom and the pursuit of any such venture, even if competitive with the business of the Partnership, shall not be deemed wrongful or improper. No Partner or Affiliate thereof shall be obligated to present any particular invest- ment opportunity to the Partnership even if such opportunity is of a character that, if presented to the Partnership, could be taken by the Partnership, and any Partner or Affiliate thereof shall have the right to take for its own account (individually or as a partner or fiduciary) or to recommend to others any such particular investment opportunity. Section 9.10 Limits on General Partner's Powers. (a) Anything in this Agreement to the contrary notwithstanding, the General Partner shall not cause or permit the Partnership to: (i) acquire any assets other than as expressly provided herein; (ii) do any act which would make it impractical or impossible to carry on the ordinary business of the Partnership; (iii) possess Partnership property for other than a Partnership purpose; (iv) admit a Person as a Partner, except as expressly provided in this Agreement; (v) make any loans to the General Partner or its Affiliates, other than loans represented by the Subordinated Debentures; (vi) perform any act that would subject any Limited Partner to liability as a general partner in any jurisdiction; (vii) engage in any activity that is not consistent with the purposes of the Partnership, as set forth in Section 2.3; -29- (viii) without the written consent of 66 2/3% in Liquidation Preference of the Preferred Securities, have an order for relief entered with respect to the Partnership or commence a voluntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or consent to the entry of an order for relief in an involuntary case under any such law, or consent to the appointment of or taking possession by a receiver, trustee or other custodian for all or a substantial part of the Partnership's property, or make any assignment for the benefit of creditors of the Partnership; or (ix) borrow money or become liable for the borrowings of any third party or engage in any financial or other trade or business. (b) So long as the Subordinated Debentures are held by the Partnership, the General Partner shall not: (i) direct the time, method and place of conduct- ing any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred on the Trustee with respect to the Subordinated Debentures, (ii) waive any past default which is waivable under the Indenture, (iii) exercise any right to rescind or annul a declaration that the principal of the Subordinated Debentures shall be due and payable, (iv) consent to any amendment, modification or termination of the Indenture, where such consent shall be required, without, in each case, obtaining the prior approval of the Holders of not less than 66 2/3% in Liquidation Preference of the Preferred Securities; provided, however, that where a consent under the Indenture would require the consent of each holder of Subordinated Debentures affected thereby, no such consent shall be given by the General Partner without the prior consent of each Holder of Preferred Securities. (c) The General Partner shall not revoke any action previously authorized or approved by a vote of Holders without the approval of the Holders of not less than 66 2/3% in Liquidation Preference of the Preferred Securities. The General Partner shall notify all Holders of any notice of default received from the Trustee with respect to the Subordinated Debentures. -30- Section 9.11 Tax Matters Partner. (a) For purposes of Code ss. 6231(a)(7), the "Tax Matters Partner" shall be the General Partner as long as it remains the general partner of the Partnership. The Tax Matters Partner shall keep the Limited Partners fully informed of any inquiry, examination or proceeding. (b) The General Partner shall not make an elec- tion in accordance with ss. 754 of the Code. (c) The General Partner and the Preferred Security Holders acknowledge that they intend, for U.S. federal income tax purposes, that the Partnership shall be treated as a partnership and that the General Partner and the Preferred Security Holders shall be treated as Partners of such Partnership for such purposes. Section 9.12 Merger, Consolidation or Amalgamation of the Partnership. Except as permitted in this Section 9.12, the Partnership may not, and the General Partner shall not permit the Partnership to, consolidate, amalgamate, merge with or into, or be replaced by, or convey, transfer or lease its properties and assets substantially as an entirety to any corporation or other Person, except as described below. The Partnership may, without the consent of the Holders, consolidate, amalgamate, merge with or into, or be replaced by a limited partnership, a limited liability company or a trust organized as such under the laws of any state of the United States of America or of the District of Columbia; provided, that (i) such successor entity either (x) expressly assumes all of the obligations of the Partnership under the Preferred Secu- rities or (y) substitutes for the Preferred Securities other securities having substantially the same terms as the Preferred Securities (the "Successor Securities") so long as the Successor Securities rank, with respect to participation in the profits, dividends and assets of the successor entity, at least as high as the Preferred Securities rank with respect to participation in the profits, Dividends and assets of the Partnership, (ii) COMSAT expressly acknowledges such successor entity as the holder of the Subordinated Debentures, (iii) the Preferred Securities or any Successor Securities are listed, or any Successor Securities will be listed upon notification of issuance, on any national securities exchange or other organization on which the Preferred Securities are then listed, (iv) such merger, consolidation, amalgamation or replacement does not cause the Preferred Securities (including any Successor Securities) to be downgraded by any nationally recognized statistical rating organization, as that term is used in Rule 15c3-1(c)(2)(vi)(F) under the Exchange Act, (v) such merger, consolidation, amalgamation or replacement does not -31- adversely affect the powers, preferences and other special rights of Holders of Preferred Securities (including holders of any Successor Securities) in any material respect (other than with respect to any dilution of the Holders' interest in the new entity), (vi) such successor entity has a purpose substantially identical to that of the Partnership, (vii) COMSAT has provided a guarantee to the holders of the Successor Securities with respect to such successor entity having substantially the same terms as the Guarantee, and (viii) prior to such merger, consolidation, amalgamation or replacement, COMSAT has received an opinion of nationally recognized independent counsel to the Partnership experienced in such matters to the effect that (x) such successor entity will not be treated as an association taxable as a corporation for federal income tax purposes, (y) following such merger, consolidation, amalgamation or replacement, neither COMSAT nor such successor entity will be required to register as an investment company under the 1940 Act and (z) such merger, consolidation, amalgamation or replacement will not adversely affect the limited liability of the Holders. ARTICLE X TRANSFERS OF INTERESTS BY PARTNERS Section 10.1 Transfer of Interests. (a) Preferred Securities shall be freely trans- ferable by a Holder. (b) The General Partner may not assign its Interest in the Partnership in whole or in part under any circumstances except to a successor of COMSAT as permitted under the Indenture. The admission of such successor as a general partner of the Partnership shall be effective upon the filing of an amendment to the Certificate with the Secretary of State of the State of Delaware which indicates that such successor has been admitted as a general partner in the Partnership. If the General Partner assigns its entire Interest to a successor of COMSAT as permitted under the Indenture, the General Partner shall be deemed to have ceased to be a general partner in the Partnership simultaneously with the admission of the successor as a general partner in the Partnership and such successors assumption hereof. Any such successor general partner in the Partnership is hereby authorized to and shall continue the business of the Partnership without dissolution. (c) Except as provided above, no Interest shall be transferred, in whole or in part, except in accordance with the terms and conditions set forth in this Agreement. -32- Any transfer or purported transfer of any Interest not made in accordance with this Agreement shall be null and void. Section 10.2 Transfer of LP Certificates. The General Partner shall provide for the registration of LP Certificates and of transfers of LP Certificates without charge, but upon payment (with the giving of such indemnity as the Partnership or the General Partner may require) in respect of any tax or other government charges that may be imposed in relation to it. Upon surrender for registration of transfer of any LP Certificate, the General Partner shall cause one or more new LP Certificates to be issued in the name of the designated transferee or transferees. Every LP Certificate surrendered for registration of transfer shall be accompanied by a written instrument of transfer in form satisfactory to the General Partner duly executed by the Preferred Security Holder or his or her attorney duly authorized in writing. Each LP Certificate surrendered for registration of transfer shall be canceled by the General Partner. A transferee of an LP Certificate shall be admitted to the Partnership as a Limited Partner and shall be entitled to the rights and subject to the obligations of a Preferred Security Holder hereunder upon the receipt by a transferee of an LP Certificate. The Partnership will not be required to register or cause to be registered the transfer of Preferred Securities after such Preferred Securities have been called for redemption pursuant to Section 6.2. Section 10.3 Persons Deemed Preferred Security Holders. The Partnership may treat the Person in whose name any LP Certificate shall be registered on the books and records of the Partnership as the sole holder of such LP Certificate and of the Preferred Securities represented by such LP Certificate for purposes of receiving Dividends and for all other purposes whatsoever and, accordingly, shall not be bound to recognize any equitable or other claim to or interest in such LP Certificate or in the Preferred Securi- ties represented by such LP Certificate on the part of any other Person, whether or not the Partnership shall have actual or other notice thereof. Section 10.4 Book-Entry Interests. The LP Cer- tificates, on original issuance, will be issued in the form of a global LP Certificate or LP Certificates representing the Book-Entry Interests, to be delivered to DTC, the ini- tial Clearing Agency, by, or on behalf of, the Partnership. Such LP Certificate or LP Certificates shall initially be registered on the books and records of the Partnership in the name of Cede & Co., the nominee of DTC, and no Preferred Security Owner will receive a definitive LP Certificate representing such Preferred Security Owner's interests in such LP Certificate, except as provided in Section 10.7. -33- Unless and until definitive, fully registered LP Certifi- cates (the "Definitive LP Certificates") have been issued to the Preferred Security Owners pursuant to Section 10.7: (a) The provisions of this Section shall be in full force and effect; (b) The Partnership, the Special Representative and the General Partner shall be entitled to deal with the Clearing Agency for all purposes of this Agreement (including the payment of Dividends, Redemption Price and liquidation proceeds on the LP Certificates and receiving approvals, votes or consents hereunder) as the Preferred Security Holder and the sole holder of the LP Certificates and shall have no obligation to the Preferred Security Owner; (c) None of the Partnership, the General Partner, any Special Representative or any agent of the General Partner, the Partnership or any Special Representative shall have any liability with respect to or responsibility for the records of the Clearing Agency; and (d) To the extent that the provisions of this Section conflict with any other provisions of this Agreement, the provisions of this Section shall control. Section 10.5 Notices to Clearing Agency. Whenever a notice or other communication to the Preferred Security Holders is required under this Agreement, unless and until Definitive LP Certificates shall have been issued to the Preferred Security Owners pursuant to Section 10.7, the General Partner shall give all such notices and communications specified herein to be given to the Preferred Security Holders to the Clearing Agency, and shall have no obligations to the Preferred Security Owners. Section 10.6 Appointment of Successor Clearing Agency. If any Clearing Agency elects to discontinue its services as securities depository with respect to the Preferred Securities, the General Partner may, in its sole discretion, appoint a successor Clearing Agency with respect to the Preferred Securities. Section 10.7 Definitive LP Certificates; Appointment of Paying Agent. If (a) the Clearing Agency elects to discontinue its services as securities depository and no successor clearinghouse is obtained within 90 days after such discontinuance pursuant to Section 10.6 or (b) the Partnership elects to terminate the book-entry system through the Clearing Agency, then Definitive LP Certificates -34- shall be prepared by the Partnership. In each of the above circumstances, the General Partner will appoint a paying agent to pay Dividends, redemption payments or liquidation payments on behalf of the Partnership with respect to the Preferred Securities. Upon surrender of the global LP Certificate or LP Certificates representing the Book-Entry Interests by the Clearing Agency, accompanied by registration instructions, the General Partner shall cause Definitive LP Certificates to be delivered to Preferred Security Owners in accordance with the instructions of the Clearing Agency. Neither the General Partner nor the Partnership shall be liable for any delay in delivery of such instructions and may conclusively rely on, and shall be protected in relying on, such instructions. Any Person receiving a Definitive LP Certificate in accordance with this Article X shall be admitted to the Partnership as a Limited Partner upon receipt of such Definitive LP Certifi- cate and shall be registered on the books and records of the Partnership as a Preferred Security Holder. The Clearing Agency or the nominee of the Clearing Agency, as the case may be, shall cease to be a Limited Partner under this Section 10.7 at the time that at least one additional Person is admitted to the Partnership as a Limited Partner in accordance with this Section 10.7. The Definitive LP Certificates shall be printed, lithographed or engraved or may be produced in any other manner as may be required by any national securities exchange on which the Preferred Securities may be listed and is reasonably acceptable to the General Partner, as evidenced by its execution thereof. ARTICLE XI WITHDRAWAL; DISSOLUTION; LIQUIDATION AND DISTRIBUTION OF ASSETS Section 11.1 Withdrawal of Partners. The General Partner shall not at any time retire or withdraw from the Partnership except as otherwise permitted hereunder. If the General Partner retires or withdraws in contravention of this Section 11.1, it shall indemnify, defend and hold harmless the Partnership and the other Partners from and against any losses, expenses, judgments, fines, settlements or damages suffered or incurred by the Partnership or such other Partners arising out of or resulting from such retirement or withdrawal. Section 11.2 Dissolution of the Partnership. (a) The Partnership shall not be dissolved by the admission of Partners in accordance with the terms of this Agreement. Except as provided in Section 11.2(b), the death, retirement, resignation, expulsion, bankruptcy or -35- dissolution of a Partner, or the occurrence of any other event which terminates the Interest of a Partner in the Partnership, shall not cause the Partnership to be dissolved and its affairs wound up so long as the Partnership at all times has at least two Partners. Upon the occurrence of any such event, the business of the Partnership shall be continued without dissolution. (b) The Partnership shall be dissolved and termi- nated and its affairs shall be wound up upon the earliest to occur of any of the following events: (i) the expiration of the term of the Partner- ship, as provided in Section 2.4 of this Agreement; (ii) upon the bankruptcy, insolvency or dissolution of the General Partner; (iii) upon the assignment by the General Partner of its entire interest in the Partnership when the assignee is not admitted to the Partnership as a general partner of the Partnership in accordance with this Agreement, or the filing of a certificate of dissolution or its equivalent with respect to the General Partner, or the revocation of the General Partner's charter and the expiration of 90 days after the date of notice to the General Partner of revocation without a reinstatement of its charter, or any other event occurs which causes the General Partner to cease to be a general partner of the Partnership under the Act, unless the business of the Partnership is continued by a majority in interest of the remaining Partners in accordance with the Act; (iv) in accordance with the provisions of the Preferred Securities; (v) upon the entry of a decree of judicial dissolution under Section 17-802 of the Act; or (vi) upon the written consent of all Partners. For purposes of subparagraph (iii) above, "majority in interest" shall mean a majority of the profits interests and a majority of the capital interests owned by all the remaining Partners within the meaning of Rev. Proc. 94-46, 1994-28 I.R.B. 129. (c) Upon dissolution of the Partnership, the Liquidator shall promptly notify the Partners of such dissolution. -36- (d) After the date fixed for any distribution of Subordinated Debentures upon dissolution of the Partnership, (i) the Preferred Securities will no longer be deemed to be outstanding, (ii) DTC or its nominee, as the record holder of the Preferred Securities, will receive a registered global certificate or certificates representing the Subordinated Debentures to be delivered upon such distribution, and (iii) any certificates representing Preferred Securities not held by DTC or its nominee will be deemed to represent Subordinated Debentures having a principal amount equal to the aggregate of the stated liquidation preference of such Preferred Securities, with accrued and unpaid interest equal to the amount of accrued and unpaid Dividends on such Preferred Securities, until such certificates are presented to COMSAT or its agent for transfer or reissuance. Section 11.3 Liquidation. (a) In the event of the dissolution of the Partnership for any reason, the General Partner (or, if the Partnership is dissolved pursuant to Section 11.2(b)(ii), then a liquidating agent appointed by Holders of not less than 66 2/3% in Liquidation Preference of the Preferred Securities (the General Partner or such person so appointed is hereinafter referred to as the "Liquidator")) shall commence to wind up the affairs of the Partnership and to liquidate the Partnership's assets; provided, however, that a reasonable time shall be allowed for the orderly liquidation of the assets of the Partnership and the satisfaction of liabilities to creditors so as to enable the Partners to minimize the normal losses attendant upon liquidation. The Partners shall continue to share all income, losses and distributions during the period of liquidation in accordance with Articles IV and V. Subject to the provisions of this Article XI, the Liquidator shall have full right and unlimited discretion to determine the time, manner and terms of any sale or sales of Partnership property pursuant to such liquidation, giving due regard to the activity and condition of the relevant market and general financial and economic conditions. (b) The Liquidator shall have all of the rights and powers with respect to the assets and liabilities of the Partnership in connection with the liquidation and termina- tion of the Partnership that the General Partner would have with respect to the assets and liabilities of the Partner- ship during the term of the Partnership, and the Liquidator is hereby expressly authorized and empowered to execute any and all documents necessary or desirable to effectuate the liquidation and termination of the Partnership and the transfer of any assets. -37- (c) Notwithstanding the foregoing, a Liquidator that is not the General Partner shall not be deemed a Partner in this Partnership and shall not have any of the economic interests in the Partnership of a Partner; and such Liquidator may be compensated for its services to the Partnership at normal customary and competitive rates for its services to the Partnership as reasonably proposed by the General Partner and agreed to by a Majority in Liquidation Preference of the Preferred Securities. Section 11.4 Distribution in Liquidation. Subject to Section 9.3, the proceeds of liquidation shall be applied in the following order of priority (and without regard to the provisions of Section 17-804 of the Act): (a) to creditors of the Partnership, including Preferred Security Holders who are creditors, to the extent otherwise permitted by law, in satisfaction of the liabilities of the Partnership (whether by payment or the making of reasonable provision for payment thereof), other than liabilities for distributions (including Dividends) to Partners; and (b) following any allocations required under Section 4.1(c) of the Agreement, to the Partners in proportion to the Partners' positive Capital Account balances in accordance with Treasury Regulation ss. 1.704-1(b)(2)(ii)(b)(2). The distribution pursuant to this Section 11.4 may be made by distributing Subordinated Debentures on a pro rata basis to the Holders. Section 11.5 Rights of Limited Partners. Each Limited Partner shall look solely to the assets of the Partnership for all distributions with respect to the Part- nership and such Partner's capital contribution (including returns thereof), and such Partner's share of profits or losses thereof, and shall have no recourse therefor (upon dissolution or otherwise) against the General Partner, except under the Guarantee. No Partner shall have any right to demand or receive property other than cash upon dissolution and termination of the Partnership. Section 11.6 Termination. The Partnership shall terminate when all of the assets of the Partnership shall have been disposed of and the assets shall have been distributed as provided in Section 11.4. The Liquidator shall then execute and cause to be filed a certificate of cancellation of the Partnership. -38- ARTICLE XII AMENDMENTS AND MEETINGS Section 12.1 Amendments. Except as provided by Section 6.2(g), this Agreement may be amended by a written instrument executed by the General Partner without the consent of any Limited Partner; provided, however, that no amendment shall be made, and any such purported amendment shall be void and ineffective, to the extent the result thereof would be to cause the Partnership to be treated as anything other than a partnership for purposes of United States income taxation or require the Partnership to register under the 1940 Act. Section 12.2 Amendment of Certificate. In the event this Agreement shall be amended pursuant to Sec- tion 12.1, the General Partner shall amend the Certificate to reflect such change if it deems such amendment of the Certificate to be necessary or appropriate. Section 12.3 Meetings of Partners. (a) Meetings of the Limited Partners who are Holders may be called at any time by the General Partner to consider and act on any matter on which Limited Partners are entitled Act. t under the terms of this Agreement or the The General Partner shall call a meeting of Holders if directed to do so by Holders of not less than 10% in Liqui- dation Preference as permitted by this Agreement. Such direction shall be given by delivering to the General Partner a request in writing stating that the signing Limited Partners desire to call a meeting and indicating the general or specific purpose for which the meeting is to be called. (b) Unless otherwise specified herein, notice of any such meeting shall be given to all Partners not less than seven (7) Business Days nor more than 60 days prior to the date of such meeting. Each such notice shall set forth the date, time and place of the meeting, a description of any matter on which Holders are entitled to vote and instructions for the delivery of proxies or written consents. (c) Any action that may be taken at a meeting of the Limited Partners may be taken without a meeting if a consent in writing setting forth the action so taken is signed by Limited Partners owning not less than the minimum Interests that would be necessary to authorize or take such action at a meeting in which all Limited Partners having a right to vote thereon were present and voting. Prompt notice of the taking of action without a meeting shall be -39- given to the Limited Partners entitled to vote who have not consented in writing. The General Partner may provide that any written ballot submitted to the Limited Partners for the purpose of taking any action without a meeting shall be returned to the Partnership within a specified time. (d) Each Partner may authorize any Person to act for it by proxy on all matters as to which a Partner is entitled to participate, including waiving notice of any meeting, or voting or participating at a meeting. Every proxy must be signed by the Partner or its attorney-in-fact. No proxy shall be valid after the expiration of 11 months from the date thereof unless otherwise provided in the proxy. Every proxy shall be revocable at the pleasure of the Partner executing it. (e) Each meeting of Partners shall be conducted by the General Partner or by such other Person that the General Partner may designate. (f) The General Partner may establish all other reasonable procedures relating to meetings of Partners or the giving of written consents, in addition to those expressly provided, including notice of time, place or purpose of any meeting at which any matter is to be voted on by any Partners, waiver of any such notice, action by consent without a meeting, the establishment of a record date, quorum requirements, voting in person or by proxy or any other matter with respect to the exercise of any such right to vote. ARTICLE XIII MISCELLANEOUS Section 13.1 Notices. All notices provided for in this Agreement shall be in writing, and shall be delivered or mailed by first class or registered or certified mail or, with respect to the Partnership and General Partner, telecopied, as follows: (a) if given to the Partnership, in care of the General Partner at the Partnership's mailing address set forth below: COMSAT Capital I, L.P. c/o COMSAT Corporation 6560 Rock Spring Drive Bethesda, Maryland 20817-1146 Attention: Chief Financial Officer Telecopy: (301) 214-7132 -40- (b) if given to the General Partner, at its mailing address set forth below: COMSAT Corporation 6560 Rock Spring Drive Bethesda, Maryland 20817-1146 Attention: Chief Financial Officer Telecopy: (301) 214-7132 (c) if given to any other Partner, at the address set forth on the books and records of the Partnership. All such notices shall be deemed to have been given when received. Section 13.2 Power of Attorney. Each Holder does hereby constitute and appoint the General Partner and, if applicable, any Special Representative, as its true and lawful representative and attorney-in-fact, in its name, place and stead to make, execute, sign, deliver and file (a) any amendment of the Certificate required because of an amendment of this Agreement or in order to effect any change in the Partnership, (b) this Agreement, (c) any amendments to this Agreement and (d) all such other instruments, documents and certificates which from time to time may required by the laws of the United States of America, the State of Delaware or any other jurisdiction, or any political subdivision or agency thereof, to effectuate, implement and continue the valid and subsisting existence of the Partnership or to dissolve the Partnership for any other purpose consistent with this Agreement and the transactions contemplated hereby. The power of attorney granted hereby is coupled with an interest and shall (a) survive and not be affected by the subsequent death, incapacity, disability, dissolu- tion, termination, or bankruptcy of the Holder granting the same or the transfer of all or any portion of such Holder's Interest and (b) extend to such Holder's successors, assigns and legal representatives. Section 13.3 Entire Agreement. This Agreement constitutes the entire agreement among the parties. It supersedes any prior agreement or understandings among them, and it may not be modified or amended in any manner other than as set forth herein. Section 13.4 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE AND ALL RIGHTS AND REMEDIES SHALL BE GOVERNED BY SUCH LAWS WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAWS. -41- Section 13.5 Effect. Except as herein otherwise specifically provided, this Agreement shall be binding upon and inure to the benefit of the parties and their legal representatives, successors and assigns. Section 13.6 Pronouns and Number. Wherever from the context it appears appropriate, each term stated in either the singular or the plural shall include the singular and the plural, and pronouns stated in either the masculine, feminine or neuter shall include the masculine, feminine and neuter. Section 13.7 Captions. Captions contained in this Agreement are inserted only as a matter of convenience and in no way define, limit or extend the scope or intent of this Agreement or any provisions hereof. Section 13.8 Partial Enforceability. If any provision of this Agreement, or the application of such pro- vision to any Person or circumstance, shall be held invalid, the remainder of this Agreement, or the application of such provision to persons or circumstances other than those to which it is held invalid, shall not be affected thereby. Section 13.9 Counterparts. This Agreement may contain more than one counterpart of the signature page and this Agreement may be executed by the affixing of the signature of each of the Partners to one of such counterpart signature pages. All of such counterpart signatures pages shall be read as though one, and they shall have the same force and effect as though all of the signers had signed a single signature page. Section 13.10 Waiver of Partition. Each Limited Partner hereby irrevocably waives any and all rights (if any) that such Limited Partner may have to maintain any action for partition of any of the Partnership's property. Section 13.11 Remedies. The failure of any party to seek redress for violation of, or to insist upon the strict performance of, any provision of this Agreement shall not prevent a subsequent act, which would have originally constituted a violation, from having the effect of an original violation. The rights and remedies provided by this Agreement are cumulative and the use of any one right or remedy by any party shall not preclude or waive its right to use any or all other remedies. Said rights and remedies are given in addition to any other rights the parties may have by law, statute, ordinance or otherwise. -42- IN WITNESS WHEREOF, the parties hereto have executed this Amended and Restated Agreement of Limited Partnership as of the date first above stated. General Partner: COMSAT Corporation, a District of Columbia corporation By: /s/ Bruce L. Crockett Bruce L. Crockett President and Chief Executive Officer Initial Limited Partner: COMSAT SPV, Inc., a Delaware corporation By: /s/ Bruce L. Crockett Bruce L. Crockett President Partnership: COMSAT Capital I, L.P., a Delaware limited partnership By: COMSAT Corporation, General Partner By: /s/ Bruce L. Crockett Bruce L. Crockett President -43- Annex A [IF A GLOBAL LP CERTIFICATE ADD -- Unless this certificate is presented by an authorized representative of The Depository Trust Company, a New York corporation ("DTC"), to COMSAT Capital I, L.P. or its agent for registration of transfer, exchange, or payment, and any certificate issued is registered in the name of Cede & Co. (or in such other name as is requested by an authorized representative of DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an interest herein.] ============================================================================= Certificate Number Number of Preferred Securities ----------------------------------------------------------------------------- R-_ ============================================================================= CUSIP NO. 205930209 Certificate Evidencing Preferred Securities of COMSAT Capital I, L.P. 81/8% Cumulative Monthly Income Preferred Securities (liquidation preference $25 per Preferred Security) COMSAT Capital I, L.P., a limited partnership formed under the laws of the State of Delaware (the "Partnership"), hereby certifies that _____ (the "Holder") is the registered owner of _______ preferred securities of the Partnership representing limited partnership interests in the Partnership, which are designated the 81/8% Cumulative Monthly Income Preferred Securities (liquidation preference $25 per Preferred Security) (the "Preferred Securities"). The Preferred Securities are fully paid and are nonassess- able interests in the Partnership, as to which the Partners in the Partnership who hold the Preferred Securities (the "Preferred Security Holders"), in their capacities as A-1 Partners in the Partnership, will have no liability solely by reason of being Preferred Security Holders (subject to the obligation of a Preferred Security Holder to repay any funds wrongfully distributed to it), and are freely transferable on the books and records of the Partnership, in person or by a duly authorized attorney, upon surrender of this certificate duly endorsed and in proper form for transfer accompanied by a written instrument of transfer in form satisfactory to COMSAT Corporation, a District of Columbia corporation ("COMSAT"), duly executed by the Preferred Security Holder or a duly authorized attorney. The powers, preferences and special rights and limitations of the Preferred Securities are set forth in, and this certificate and the Preferred Securities represented hereby are issued and shall in all respects be subject to the terms and provisions of, the Amended and Restated Limited Partnership Agreement of the Partnership dated as of July 18, 1995, as the same may be amended from time to time in accordance with its terms (the "Limited Partnership Agreement"), authorizing the issuance of the Preferred Securities and determining the powers, preferences and other special rights and limitations, regarding Dividends, voting, return of capital and otherwise, and other matters relating to the Preferred Securities. Capitalized terms used herein but not defined herein shall have the meaning given them in the Limited Partnership Agreement. The Holder is entitled to the benefits of the Guarantee Agreement of COMSAT, dated as of July 18, 1995 (the "Guarantee") to the extent provided therein. The Partnership will furnish a copy of the Limited Partnership Agreement and the Guarantee to the Holder without charge upon written request to the Partnership at its principal place of business or registered office. The Holder, by accepting this certificate, is deemed to have agreed (i) to be bound by the provisions of the Limited Partnership Agreement and (ii) that the Subordinated Debentures acquired by the Partnership with the proceeds from the issuance of the Preferred Securities are subordinated and junior in right of payment to all Senior Indebtedness of COMSAT as and to the extent provided in the Subordinated Debentures and (iii) that the Guarantee ranks (x) subordinate and junior in right of payment to all liabilities of COMSAT, (y) pari passu with the most senior preferred or preference stock now or hereafter issued by COMSAT and with any guarantee now or hereafter entered into by COMSAT in respect of any preferred or preference stock or preference securities of any Affiliate of COMSAT, and (z) senior to COMSAT Common Stock and any other class or series of capital stock of COMSAT or any of its Affiliates which by its express terms ranks junior in the payment of dividends and amounts on liquidation, dissolution, and winding-up to the Preferred Securities, in each case, as and to the extent A-2 provided in the Guarantee. Upon receipt of this certificate, the Holder is admitted to the Partnership as a Limited Partner, is bound by the Limited Partnership Agreement and is entitled to the benefits thereunder. IN WITNESS WHEREOF, this certificate has been executed on behalf of the Partnership by its duly authorized General Partner and countersigned by a duly authorized officer of each of COMSAT Corporation, as Guarantor, and The First National Bank of Chicago, as Registrar and Transfer Agent, this _____ day of _________________, ____. COMSAT CAPITAL I, L.P. By: COMSAT CORPORATION, its General Partner By: Name: Title: COMSAT CORPORATION, as Guarantor By: Name: Title: Registered and Countersigned by THE FIRST NATIONAL BANK OF CHICAGO By: Authorized Signature A-3 EX-4 3 Exhibit 4(b) Page 69 GUARANTEE AGREEMENT GUARANTEE AGREEMENT (this "Guarantee"), dated as of July 18, 1995 is executed and delivered by COMSAT Corporation, a corporation organized under the laws of the District of Columbia ("COMSAT"), for the benefit of the Holders (as hereinafter defined) from time to time of the Preferred Securities (as hereinafter defined) of COMSAT Capital I, L.P., a Delaware limited partnership ("COMSAT Capital" or the "Partnership"). WHEREAS, COMSAT Capital is issuing up to 8,000,000 of its 81/8% Cumulative Monthly Income Preferred Securities, with a liquidation preference of $25 each (the "Preferred Securities"), and COMSAT desires to issue this Guarantee for the benefit of the Holders, as provided herein; WHEREAS, COMSAT Capital will purchase the Subordinated Debentures (as hereinafter defined) issued pursuant to the Indenture (as hereinafter defined) with the proceeds from the issuance and sale of the Preferred Securities and its other partnership interests (the "Partnership Interests"); and WHEREAS, COMSAT desires hereby unconditionally and irrevocably to agree, to the extent set forth herein, to pay to the Holders the Guarantee Payments (as hereinafter defined) and to perform the other obligations set forth herein. NOW, THEREFORE, in consideration of the purchase by each Holder of Preferred Securities, which purchase COMSAT hereby agrees shall benefit COMSAT, COMSAT executes and delivers this Guarantee for the benefit of the Holders. 1. Definitions. As used in this Guarantee, the terms set forth below shall, unless the context otherwise requires, have the following meanings. Capitalized terms used herein but not otherwise defined herein shall have the meanings ascribed to such terms in the Amended and Restated Agreement of Limited Partnership of COMSAT Capital I, L.P., dated as of July 18, 1995 (the "Limited Partnership Agreement"). 1.1 "Additional Dividends" means Dividends (as defined herein) that shall accumulate on any Dividend arrearages in respect of the Preferred Securities at the rate of 81/8% per annum, compounded monthly. Page 1 1.2 "Dividends" means the cumulative cash distributions from the Partnership with respect to the Preferred Securities, accumulating from July 18, 1995 and payable monthly in arrears on the last day of each calendar month of the year, commencing July 31, 1995. 1.3 "General Partner" means COMSAT in its capacity as general partner in COMSAT Capital or any permitted successor general partner in COMSAT Capital admitted as such pursuant to the applicable provisions of the Limited Partnership Agreement. 1.4 "Guarantee Payments" shall mean the following payments, without duplication, to the extent not paid by COMSAT Capital: (a) any accrued and unpaid Dividends (including any Additional Dividends accrued thereon) to the extent such Dividends have been declared by COMSAT Capital on the Preferred Securities out of moneys held by COMSAT Capital and legally available therefor; (b) the Redemption Price (as defined herein) (including all accrued and unpaid Dividends) payable out of funds legally available therefor with respect to any Preferred Securities called for redemption by COMSAT Capital; and (c) upon a liquidation of COMSAT Capital, the lesser of (i) the Liquidation Distribution (as defined herein) and (ii) the amount of assets of COMSAT Capital remaining available for distribution to Holders in liquidation of COMSAT Capital, except in the event that a Tax Event or an Investment Company Event has occurred and the General Partner has elected to dissolve COMSAT Capital and cause the Subordinated Debentures to be distributed to the Holders in liquidation of COMSAT Capital as provided in Clauses (ii) or (iii) of Section 6.2(c) of the Limited Partnership Agreement. 1.5 "Holder" shall mean the registered holder from time to time of any Preferred Securities of COMSAT Capital; provided, however, that in determining whether the Holders of the requisite percentage of Preferred Securities have given any request, notice, consent or waiver hereunder, "Holder" shall not include, and outstanding liquidation preference shall not include the liquidation preference of Preferred Securities held by, COMSAT or any Subsidiary thereof, either directly or indirectly. 1.6 "Indenture" shall mean the Indenture, dated as of July 18, 1995, between COMSAT and The First National Bank of Chicago, as trustee, relating to the Subordinated Debentures. 1.7 "Liquidation Distribution" shall mean the aggregate of the stated liquidation preference of $25 per Preferred Security, plus all accrued and unpaid Dividends on the Preferred Securities to the date of payment, including any Additional Dividends accrued thereon. Page 2 1.8 "Redemption Price" shall have the meaning ascribed to such term in the Limited Partnership Agreement. 1.9 "Special Representative" shall mean a special representative appointed by the Holders of the Preferred Securities pursuant to Section 6.2(f) of the Limited Partnership Agreement. 1.10 "Subordinated Debentures" shall mean the 81/8% Junior Subordinated Deferrable Interest Debentures issued pursuant to the Indenture. 1.11 "Subsidiary" of any Person means an entity more than 50% of the outstanding voting stock of which is owned, directly or indirectly, by such Person or by one or more other Subsidiaries, or by such Person and one or more other Subsidiaries. For the purposes of this definition, "voting stock" means stock which ordinarily has voting power for the election of directors, whether at all times or only so long as no senior class of stock has such voting power by reason of any contingency. 2. Guarantee. 2.1 General. COMSAT irrevocably and unconditionally agrees to pay in full to the Holders the Guarantee Payments, as and when due (except, subject to the proviso in Section 2.7 hereof, to the extent paid by COMSAT Capital), regardless of any defense, right of set-off or counterclaim which COMSAT Capital may have or assert. This Guarantee is continuing, irrevocable, unconditional and absolute. COMSAT's obligation to make a Guarantee Payment may be satisfied by direct payment of the required amounts by COMSAT to the Holders or by causing COMSAT Capital to pay such amounts to the Holders. 2.2 Waiver of Certain Rights. COMSAT hereby waives notice of acceptance of this Guarantee and of any liability to which it applies or may apply, presentment, demand for payment, protest, notice of nonpayment, notice of dishonor, notice of redemption and all other notices and demands. 2.3 Obligations Not Affected. The obligations, covenants, agreements and duties of COMSAT under this Guarantee shall in no way be affected or impaired by reason of the happening from time to time of any of the following: (a) the release or waiver, by operation of law or otherwise, of the performance or observance by COMSAT Capital of any express or implied agreement, covenant, term or condition relating to the Preferred Page 3 Securities to be performed or observed by COMSAT Capital; (b) the extension of time for the payment by COMSAT Capital of all or any portion of the Dividends (including any Additional Dividends), Redemption Price, Liquidation Distribution or any other sums payable under the terms of the Preferred Securities or the extension of time for the performance of any other obligation under, arising out of, or in connection with, the Preferred Securities; (c) any failure, omission, delay or lack of diligence on the part of the Holders or the Special Representative to enforce, assert or exercise any right, privilege, power or remedy conferred on such Holders or such Special Representative pursuant to the terms of the Preferred Securities or the Limited Partnership Agreement, or any action on the part of the Holders, the Special Representative or COMSAT Capital granting or consenting to indulgence or extension of any kind; (d) the voluntary or involuntary liquidation, dissolution, winding-up, sale of any collateral, receivership, insolvency, bankruptcy, assignment for the benefit of creditors, reorganization, arrangement, composition or readjustment of debt of, or other similar proceedings affecting, COMSAT Capital or any of the assets of COMSAT Capital; (e) any invalidity of, or defect or deficiency in, any of the Preferred Securities; or (f) the settlement or compromise of any obligation guaranteed hereby or hereby incurred. There shall be no obligation of the Holders to give notice to, or obtain any consent of, COMSAT with respect to the happening of any of the foregoing. 2.4 Guarantor, Special Representative or Holders May Proceed Directly Against COMSAT. This Guarantee is a guarantee of payment and not of collection. This Guarantee will be deposited with the General Partner to be held for the benefit of the Holders. In the event of an appointment of a Special Representative pursuant to the Limited Partnership Agreement to, among other things, enforce the rights of the Holders under this Guarantee, the Special Representative may take possession of this Guarantee for such purpose. If no Special Representative has been appointed to enforce this Guarantee, the General Partner has the right to enforce this Guarantee on behalf of the Holders. Page 4 The Holders of not less than 10% in liquidation preference of all outstanding Preferred Securities have the right to direct the time, method and place of conducting any proceeding for any remedy available in respect of this Guarantee, including the giving of directions to the General Partner or the Special Representative, as the case may be. If the General Partner or the Special Representative fails to enforce this Guarantee as provided above, any Holder may enforce this Guarantee directly against COMSAT as guarantor, and COMSAT waives any right or remedy to require that any action be brought against COMSAT Capital or any other person or entity before proceeding against COMSAT. Subject to Section 2.5 hereof, all waivers herein contained shall be without prejudice to the right of a Holder or the Special Representative, at its option, to proceed against COMSAT Capital, whether by separate action or by joinder. COMSAT agrees that this Guarantee shall not be discharged except by payment of the Guarantee Payments in full (to the extent not previously paid by COMSAT Capital, but subject to the proviso in Section 2.7 hereof) and by complete performance of all obligations under this Guarantee. 2.5 Subrogation. COMSAT shall be subrogated to all (if any) rights of the Holders against COMSAT Capital in respect of any amounts paid to the Holders by COMSAT under this Guarantee and shall have the right to waive payment of any amount of Dividends in respect of which payment has been made to the Holders by COMSAT pursuant to Section 2.1 hereof; provided, however, that COMSAT shall not (except to the extent required by mandatory provisions of law) exercise any rights which it may acquire by way of subrogation or any indemnity, reimbursement or other agreement, in all cases as a result of a payment under this Guarantee, if, at the time of any such payment, any amounts are due and unpaid under this Guarantee. If any amount shall be paid to COMSAT in violation of the preceding sentence, COMSAT agrees to hold such amount in trust for the Holders and to pay over such amount to the Holders. 2.6 Independent Obligations. COMSAT acknowledges that its obligations hereunder are independent of the obligations of COMSAT Capital with respect to the Preferred Securities and that COMSAT shall be liable as principal and sole debtor under this Guarantee to make Guarantee Payments pursuant to the terms of this Guarantee notwithstanding the occurrence of any event referred to in subsections (a) through (f), inclusive, of Section 2.3 hereof. 2.7 Termination. This Guarantee shall terminate as to each Holder and be of no further force and effect upon full payment of the Redemption Price of all Preferred Securities held by such Holder and will terminate completely upon full payment of the amounts payable upon liquidation of COMSAT Capital; provided, however, that this Guarantee shall continue to be effective or Page 5 shall be reinstated, as the case may be, if at any time any Holder must restore payment of any sums paid under the Preferred Securities or under this Guarantee for any reason whatsoever. 3. Certain Covenants of COMSAT. 3.1 Dividends and Other Payments. So long as any Preferred Securities remain outstanding, COMSAT will not declare or pay any dividend on, or redeem, purchase, acquire or make a liquidation payment with respect to, any of its capital stock (other than as a result of a reclassification of capital stock or the exchange or conversion of one class or series of capital stock for another class or series of capital stock) or make any guarantee payments with respect to the foregoing, if at such time (a) COMSAT has exercised its option to defer interest payments on the Subordinated Debentures and such deferral is continuing, (b) COMSAT shall be in default with respect to its payment or other obligations hereunder, or (c) there shall have occurred any event that, with the giving of notice or the lapse of time or both, would constitute an Event of Default under the Indenture. 3.2 Certain Other Covenants. COMSAT covenants that, so long as any Preferred Securities remain outstanding, it shall: (a) maintain direct 100% ownership of the Partnership Interests and any other interests in COMSAT Capital other than the Preferred Securities (except as permitted in the Limited Partnership Agreement); (b) cause at least 3% of the total value of COMSAT Capital and at least 3% of all interest in the capital, income, gain, loss, deduction and credit of COMSAT Capital to be held by COMSAT as General Partner; (c) not voluntarily dissolve, wind up or liquidate itself or COMSAT Capital; (d) remain the General Partner of COMSAT Capital and timely perform all of its duties as General Partner (including the duty to cause COMSAT Capital to declare and pay dividends on the Preferred Securities), unless a permitted successor General Partner is appointed pursuant to the Limited Partnership Agreement; and (e) subject to the terms of the Preferred Securities, use reasonable efforts to cause COMSAT Capital to remain a Delaware limited partnership and otherwise continue not to be treated as an association taxable as a corporation for United States federal income tax purposes, except, in all cases, in connection with certain mergers, consolidations or amalgamations permitted by the Limited Partnership Agreement. 4. Subordination. 4.1 Subordination. COMSAT covenants and agrees, and each Holder by his or her acceptance of such Preferred Securities shall be deemed to acknowledge and agree that for all purposes (including any bankruptcy, insolvency, or reorganization of Page 6 COMSAT) this Guarantee constitutes an unsecured obligation of COMSAT ranking (i) subordinate and junior in right of payment to all liabilities of COMSAT, (ii) pari passu with the most senior preferred or preference stock now or hereafter issued by COMSAT and with any guarantee now or hereafter entered into by COMSAT in respect of any preferred or preference stock or preferred securities of any affiliate of COMSAT and (iii) senior to COMSAT Common Stock. 5. Miscellaneous. 5.1 Third Party Beneficiaries. Subject to the limitations of Section 2.4, all of COMSAT's obligations under this Guarantee shall be directly enforceable by the Holders from time to time of the Preferred Securities. Each Holder is an intended third-party beneficiary of this Guarantee. 5.2 Successors and Assigns. All guarantees and agreements contained in this Guarantee shall bind the successors, assigns, receivers, trustees and representatives of COMSAT and shall inure to the benefit of the Holders then outstanding. Except as permitted by Section 5.4 hereof, COMSAT shall not assign its rights or delegate its obligations hereunder without the prior approval of the Holders of not less than 66-2/3% of the aggregate liquidation preference of the Preferred Securities then outstanding. 5.3 Amendments. Except with respect to any changes which do not adversely affect the rights of Holders (in which case no vote will be required), this Guarantee may only be amended with the prior approval of the Holders of not less than 66-2/3% of the aggregate liquidation preference of the Preferred Securities then outstanding, which approval shall be obtained as described in the Limited Partnership Agreement. 5.4 Consolidation, Merger or Sale of Assets. COMSAT, without the consent of any Holders, may merge or consolidate with or into another entity or may permit another entity to merge or consolidate with or into COMSAT, and may sell, transfer or lease all or substantially all of COMSAT's assets to another entity, if (a) at such time no Event of Default (as defined in the Indenture) shall have occurred and be continuing, or would occur as a result of such merger, consolidation or sale, transfer or lease and (b) the survivor of such merger or consolidation or entity to which COMSAT assets are sold, transferred or leased is an entity organized under the laws of the United States or any state thereof or the District of Columbia, becomes the General Partner (if COMSAT is then the General Partner), assumes all of COMSAT's obligations under this Guarantee and has a net worth equal to at least 10% of the total capital contributions to COMSAT Capital. Page 7 5.5 Notices. Any notice, request or other communication required or permitted to be given hereunder to COMSAT shall be given in writing by delivering the same against receipt therefor by registered mail, hand delivery, facsimile transmission (confirmed by registered mail) or telex, addressed to COMSAT, as follows (and if so given, shall be deemed given when mailed; upon receipt of facsimile confirmation, if sent by facsimile transmission; or upon receipt of an answer-back, if sent by telex): COMSAT Corporation 6560 Rock Spring Drive Bethesda, Maryland 20817 Attention: Chief Financial Officer Telecopy: (301) 214-7132 Any notice, request or other communication required or permitted to be given hereunder to the Holders shall be given by COMSAT in the same manner as notices are sent by COMSAT Capital to the Holders. 5.6 Genders. The masculine and neuter genders used herein shall include the masculine, feminine and neuter genders. 5.7 Guarantee Not Separately Transferable. This Guarantee is solely for the benefit of the Holders and is not separately transferable from the Preferred Securities. 5.8 Governing Law. THIS GUARANTEE SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. 5.9 Severability. In case any provision of this Guarantee shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. 5.10 Headings. The article and section headings herein are for convenience only and shall not affect the construction hereof. Page 8 IN WITNESS WHEREOF, COMSAT has caused this Guarantee to be duly executed as of the day and year first above written. COMSAT Corporation By: /s/ Bruce L. Crockett Bruce L. Crockett President and Chief Executive Officer ATTEST: /s/ Nancy E. Weber Assistant Secretary Page 9 EX-4 4 Exhibit 4(c) Page 79 ---------------------------------------------------------------------------- COMSAT Corporation, To The First National Bank of Chicago, Trustee Indenture Dated as of July 18, 1995 $206,200,000 8-1/8% Junior Subordinated Deferrable Interest Debentures Due July 18, 2025 ---------------------------------------------------------------------------- Certain Sections of this Indenture relating to Sections 310 through 318 of the Trust Indenture Act of 1939: Trust Indenture Indenture Act Section Section ------------------ ----------- Section 310 (a)(1)..................................................... 609 (a)(2)..................................................... 609 (a)(3)..................................................... N/A (a)(4)..................................................... N/A (b) ..................................................... 608,610 Section 311 (a) ..................................................... 613 (b) ..................................................... 613 Section 312 (a) ..................................................... 701 702(a) (b) ..................................................... 702(b) (c) ..................................................... 702(c) Section 313 (a) ..................................................... 703(a) (b) ..................................................... 703(a) (c) ..................................................... 703(a) (d) ..................................................... 703(b) Section 314 (a) ..................................................... 704 (b) ..................................................... N/A (c)(1)..................................................... 102 (c)(2)..................................................... 102 (c)(3)..................................................... N/A (d) ..................................................... N/A (e) ..................................................... 102 Section 315 (a) ..................................................... 601 (b) ..................................................... 602 (c) ..................................................... 601 (d) ..................................................... 601 (e) ..................................................... 514 Section 316 (a)(1)(A).................................................. 502 512 (a)(1)(B).................................................. 513 (a)(2)..................................................... N/A (b) ..................................................... 508 (c) ..................................................... 104(c) Section 317 (a)(1)..................................................... 503 (a)(2)..................................................... 504 (b) ..................................................... 1003 Section 318 (a) ..................................................... 107 Note: This reconciliation and tie shall not, for any purpose, be deemed to be a part of the Indenture. TABLE OF CONTENTS PAGE Parties................................................................ 1 Recitals of the Company and COMSAT Capital............................. 1 ARTICLE ONE DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION Section 101. Definitions............................................ 2 Act .............................................. 2 Additional Dividends................................... 2 Additional Interest.................................... 3 Affiliate.............................................. 3 Board of Directors..................................... 3 Board Resolution....................................... 3 Business Day........................................... 3 Capital Lease Obligation............................... 3 Commission............................................. 3 Common Stock........................................... 4 Company .............................................. 4 Company Request" or "Company Order................................................ 4 COMSAT Capital......................................... 4 Corporate Trust Office................................. 4 Corporation............................................ 4 Defaulted Interest..................................... 4 Designated Senior Holder............................... 4 Event of Default....................................... 4 General Partner........................................ 4 General Partner Contribution........................... 4 Holder .............................................. 4 Indenture.............................................. 4 Interest Payment Date.................................. 5 Limited Partnership Agreement.......................... 5 Maturity .............................................. 5 NYSE .............................................. 5 Officers' Certificate.................................. 5 Opinion of Counsel..................................... 5 Outstanding............................................ 5 Parent Guarantee....................................... 6 Paying Agent........................................... 6 Person .............................................. 6 Predecessor Security................................... 7 Preferred Securities................................... 7 Note: This table of contents shall not, for any purpose, be deemed to be a part of the Indenture. i Redemption Date........................................ 7 Redemption Price....................................... 7 Regular Record Date.................................... 7 Responsible Officer.................................... 7 Scheduled Maturity Date................................ 7 Securities............................................. 7 Securities Payment..................................... 7 Security Register" and Indebtedness........................................ 7 Senior Payment Default................................. 8 Special Record Date.................................... 8 Special Representative................................. 8 Stated Maturity........................................ 8 Subsidiary............................................. 8 Trustee .............................................. 9 Trust Indenture Act.................................... 9 -------------------------------------------------------------------------- .... 9 Section 102. Compliance Certificates and Opinions........................................... 9 Section 103. Form of Documents Delivered to Trustee............................................. 10 Section 104. Acts of Holders; Record Dates........................... 10 Section 105. Notices, etc., to Trustee, Company and COMSAT Capital.......................... 11 Section 106. Notice to Holders; Waiver............................... 12 Conflict with Trust Indenture Act................................................. 13 Section 109. Effect of Headings and Table of Contents......................................... 13 Section 110. Successors and Assigns.................................. 13 Section 111. Separability Clause..................................... 13 Section 112. Benefits of Indenture................................... 13 Section 113. Governing Law........................................... 14 Section 114. Legal Holidays.......................................... 14 ARTICLE TWO SECURITY FORMS Section 201. Forms Generally......................................... 14 Section 202. Form of Face of Security................................ 15 Section 203. Form of Reverse of Security............................. 18 Section 204. Form of Trustee's Certificate of Authentication................................... 20 Note: This table of contents shall not, for any purpose, be deemed to be a part of the Indenture. ii ARTICLE THREE THE SECURITIES Section 301. Title and Terms......................................... 21 Section 302. Denominations........................................... 24 Section 303. Execution, Authentication, Delivery and Dating................................... 24 Section 304. Temporary Securities.................................... 24 Section 305. Registration, Registration of Transfer and Exchange................................. 25 Section 306. Mutilated, Destroyed, Lost and Stolen Securities..................................... 26 Section 307. Payment of Interest; Interest Rights Preserved...................................... 27 Section 308. Persons Deemed Owners................................... 28 Section 309. Cancellation............................................ 28 Section 310. Computation of Interest................................. 29 ARTICLE FOUR SATISFACTION AND DISCHARGE Section 401. Satisfaction and Discharge of Indenture............................................. 29 Section 402. Application of Trust Money.............................. 30 Section 403. Defeasance and Discharge of Indenture............................................. 31 Section 404. Reinstatement........................................... 33 ARTICLE FIVE REMEDIES Section 501. Events of Default....................................... 34 Section 502. Acceleration of Maturity; Rescission and Annulment.............................. 35 Section 503. Collection of Indebtedness and Suits for Enforcement by Trustee...................... 36 Section 504. Trustee May File Proofs of Claim................................................. 37 Section 505. Trustee May Enforce Claims Without Possession of Securities...................... 37 Section 506. Application of Money Collected.......................... 37 Section 507. Limitation on Suits..................................... 38 Section 508. Unconditional Right of Holders to Receive Principal and Interest.............................................. 39 Note: This table of contents shall not, for any purpose, be deemed to be a part of the Indenture. iii Section 509. Restoration of Rights and Remedies.............................................. 39 Section 510. Rights and Remedies Cumulative............................................ 39 Section 511. Delay or Omission Not Waiver............................ 39 Section 512. Control by Holders...................................... 40 Section 513. Waiver of Past Defaults................................. 40 Section 514. Undertaking for Costs................................... 41 Section 515. Waiver of Stay or Extension Laws.................................................. 41 ARTICLE SIX THE TRUSTEE Section 601. Certain Duties and Responsibilities...................................... 41 Section 602. Notice of Defaults...................................... 43 Section 603. Certain Rights of Trustee............................... 43 Section 604. Not Responsible for Recitals or Issuance of Securities............................. 44 Section 605. May Hold Securities..................................... 44 Section 606. Money Held in Trust..................................... 44 Section 607. Compensation and Reimbursement......................................... 44 Section 608. Disqualification; Conflicting Interests............................................. 45 Section 609. Corporate Trustee Required; Eligibility........................................... 45 Section 610. Resignation and Removal; Appointment of Successor.............................. 45 Section 611. Acceptance of Appointment by Successor............................................. 47 Section 612. Merger, Conversion, Consolidation or Succession to Business.............................................. 47 Section 613. Preferential Collection of Claims Against Company................................ 48 ARTICLE SEVEN HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY Section 701. Company to Furnish Trustee Names and Addresses of Holders................................................. 48 Section 702. Preservation of Information; Communications to Holders............................ 48 Section 703. Reports by Trustee...................................... 49 Section 704. Reports by Company...................................... 49 Note: This table of contents shall not, for any purpose, be deemed to be a part of the Indenture. iv ARTICLE EIGHT CONSOLIDATION, MERGER, OR SALE OF ASSETS Section 801. No Restrictions......................................... 49 Section 802. Successor Substituted................................... 50 ARTICLE NINE SUPPLEMENTAL INDENTURES Section 901. Supplemental Indentures Without Consent of Holders........................... 51 Section 902. Supplemental Indentures with Consent of Holders................................... 52 Section 903. Execution of Supplemental Indentures........................................... 52 Section 904. Effect of Supplemental Indentures........................................... 53 Section 905. Conformity with Trust Indenture Act........................................ 53 Section 906. Reference in Securities to Supplemental Indentures.............................. 53 ARTICLE TEN COVENANTS; REPRESENTATIONS AND WARRANTIES Section 1001. Payment of Principal and Interest............................................. 54 Section 1002. Maintenance of Office or Agency............................................... 54 Section 1003. Money for Securities Payments to Be Held in Trust.................................. 54 Section 1004. Statement by Officers as to Default.............................................. 55 Section 1005. Existence............................................... 56 Section 1006. Additional Covenants.................................... 56 ARTICLE ELEVEN SUBORDINATION OF SECURITIES Section 1101. Securities Subordinate to Senior Indebtedness.................................. 57 Section 1102. Payment Over of Proceeds Upon Dissolution, Etc..................................... 58 Section 1103. No Payment When Senior Indebtedness in Default.............................. 59 Note: This table of contents shall not, for any purpose, be deemed to be a part of the Indenture. v Section 1104. Payment Permitted If No Default.............................................. 59 Section 1105. Subrogation to Rights of Holders of Senior Indebtedness....................... 60 Section 1106. Provisions Solely to Define Relative Rights...................................... 60 Section 1107. Trustee to Effectuate Subordination........................................ 61 Section 1108. No Waiver of Subordination Provisions........................................... 61 Section 1109. Notice to Trustee....................................... 62 Section 1110. Reliance on Judicial Order or Certificate of Liquidating Agent..................... 63 Section 1111. Trustee Not Fiduciary for Holders of Senior Indebtedness......................................... 63 Section 1112. Rights of Trustee as Holder of Senior Indebtedness; Preservation of Trustee's Rights............................................... 63 Section 1113. Article Applicable to Paying Agents............................................... 64 ARTICLE TWELVE REDEMPTION OF SECURITIES Section 1201. Mandatory Redemption; Optional Redemption........................................... 64 Section 1202. Applicability of Article................................ 65 Section 1203. Election to Redeem; Notice to Trustee.............................................. 65 Section 1204. Notice of Redemption.................................... 65 Section 1205. Deposit of Redemption Price............................. 66 Section 1206. Securities Payable on Redemption Date...................................... 66 ANNEX A: Form of Amended and Restated Agreement of Limited Partnership of COMSAT Capital I, L.P., dated as of July 18, 1995. Note: This table of contents shall not, for any purpose, be deemed to be a part of the Indenture. vi INDENTURE, dated as of July 18, 1995, between COMSAT Corporation, a corporation duly organized and existing under the laws of the District of Columbia (herein called the "Company" or "COMSAT"), currently having its principal office at 6560 Rock Spring Drive, Bethesda, Maryland 20817, and the general partner of COMSAT Capital I, L.P., a limited partnership organized under the laws of the State of Delaware (herein called "COMSAT Capital"), currently having its principal office at c/o COMSAT Corporation, 6560 Rock Spring Drive, Bethesda, Maryland 20817, and The First National Bank of Chicago, a national banking association duly organized and existing under the laws of the United States of America, as Trustee (herein called the "Trustee"). Unless otherwise defined herein, all capitalized terms used herein shall have the meanings ascribed to them in the Amended and Restated Agreement of Limited Partnership of COMSAT Capital I, L.P., dated as of July 18, 1995 (the "Limited Partnership Agreement"), as in effect on the date hereof, the form of which is attached as Annex A hereto. RECITALS OF THE COMPANY WHEREAS, COMSAT Capital may pursuant to the Underwriting Agreement dated July 13, 1995 (the "Underwriting Agreement") among the Company, COMSAT Capital and the Underwriters named therein issue up to $200,000,000 aggregate liquidation preference of its 81/8% Cumulative Monthly Income Preferred Securities (the "Preferred Securities") with a liquidation preference of $25 per Preferred Security; WHEREAS, the Company is guaranteeing the payment of Dividends on the Preferred Securities (if and to the extent declared from funds of COMSAT Capital legally available therefor), and payment of the Redemption Price (as defined herein) and payments on liquidation with respect to the Preferred Securities, to the extent provided in the Guarantee Agreement dated July 18, 1995 between the Company and COMSAT Capital (the "Parent Guarantee") for the benefit of the holders of the Preferred Securities; WHEREAS, the Company wishes to sell to COMSAT Capital Securities in an aggregate principal amount equal to the sum of the capital contributed by the Company to COMSAT Capital as the general partner thereof (the "General Partner Contribution") and the aggregate stated liquidation preference of the Preferred Securities issued and sold by COMSAT Capital pursuant to the Underwriting Agreement; WHEREAS, the Company has duly authorized the creation of an issue of its 81/8% Junior Subordinated Deferrable Interest Debentures Due July 18, 2025 (subject to extension) (the "Securities"), of substantially the tenor and amount hereinafter set forth and to provide therefor the Company has duly authorized the execution and delivery of this Indenture; and WHEREAS, all things necessary to make the Securities, when executed by the Company and authenticated and delivered hereunder and duly issued by the Company, the valid obligations of the Company, and to make this Indenture a valid agreement of the Company, in accordance with their and its terms, have been done. NOW, THEREFORE, THIS INDENTURE WITNESSETH: For and in consideration of the premises and the purchase of the Securities by the Holders thereof, it is mutually agreed, for the equal and proportionate benefit of all Holders of the Securities, as follows: ARTICLE ONE DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION Section 101. Definitions. For all purposes of this Indenture, except as otherwise expressly provided or unless the context otherwise requires: (1) the terms defined in this Article have the meanings assigned to them in this Article and include the plural as well as the singular; (2) all other terms used herein which are defined in the Trust Indenture Act (as defined herein), either directly or by reference therein, have the meanings assigned to them therein; (3) all accounting terms not otherwise defined herein have the meanings assigned to them in accordance with generally accepted accounting principles and, except as otherwise herein expressly provided, the term "generally accepted accounting principles" with respect to any computation required or permitted hereunder shall mean such accounting principles as are generally accepted at the date of such computation; and (4) the words "herein", "hereof" and "hereunder" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision. "Act", when used with respect to any Holder, has the meaning specified in Section 104. "Additional Dividends" means dividends that shall accrue on any dividend arrearages in respect of the Preferred Securities at the rate of 81/8% per annum compounded monthly. 2 "Additional Interest" means (i) interest that shall accrue on any interest on the Securities that is not paid when due or not paid during an extension of an interest payment period, which in either case shall accrue at the rate of 81/8% per annum compounded monthly, and (ii) an amount equal to any amount that COMSAT Capital would be required to pay in taxes, duties, assessments or governmental charges of whatever nature (other than withholding taxes) imposed by the United States or any other taxing authority such that the net amounts received and retained by COMSAT Capital after paying any such taxes, duties, assessments or governmental charges will not be less than the amounts COMSAT Capital would have received had no such taxes, duties, assessments or governmental charges been imposed. "Affiliate" of any specified Person (as defined herein) means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For the purposes of this definition, "Control" when used with respect to any specified Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "Controlling" and "Controlled" have meanings correlative to the foregoing. "Board of Directors" means either the board of directors of the Company or any duly authorized committee of that board. "Board Resolution" means a copy of a resolution certified by the Secretary or an Assistant Secretary of the Company to have been duly adopted by the Board of Directors and to be in full force and effect on the date of such certification, and delivered to the Trustee. "Business Day" means any day other than a day on which banking institutions in New York City are authorized or obligated by law or executive order to close. "Capital Lease Obligation" of any Person means the obligation to pay rent or other payment amounts under a lease of (or other indebtedness arrangements conveying the right to use) real or personal property of such Person which is required to be classified and accounted for as a capital lease or a liability on the face of a balance sheet of such Person in accordance with generally accepted accounting principles. "Commission" means the Securities and Exchange Commission, as from time to time constituted, created under the Securities Exchange Act of 1934, or, if at any time after the execution of this instrument such Commission is not existing and performing the duties now assigned to it under the Trust Indenture Act, then the body performing such duties at such time. 3 "Common Stock" includes any stock of any class of the Company which has no preference in respect of dividends or of amounts payable in the event of any voluntary or involuntary liquidation, dissolution or winding-up of the Company and which is not subject to redemption by the Company. "Company" or "COMSAT" means the Person named as the "Company" or "COMSAT" in the first paragraph of this instrument until a successor Person shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Company" or "COMSAT" shall mean such successor Person. "Company Request" or "Company Order" means a written request or order signed in the name of the Company by its Chairman of the Board, its Vice Chairman of the Board, its President or a Vice President, and by its Treasurer, an Assistant Treasurer, its Secretary or an Assistant Secretary, and delivered to the Trustee. "COMSAT Capital" means the Person specified as such in the first paragraph of this instrument or any successor thereto permitted pursuant to the Limited Partnership Agreement. "Corporate Trust Office" means the principal office of the Trustee in Chicago, Illinois, at which at any particular time its corporate trust business shall be administered. "Corporation" means a corporation, association, company, joint-stock company or business trust. "Defaulted Interest" has the meaning specified in Section 307. "Designated Senior Holder" means, with respect to any Senior Indebtedness, the Person designated as such in accordance with the terms of the instrument evidencing such Senior Indebtedness or, if no Person is so designated, any trustee, agent, fiduciary, representative, group or Person authorized to act on behalf of the holders of such Senior Indebtedness. "Event of Default" has the meaning specified in Section 501. "General Partner" has the meaning specified in the Limited Partnership Agreement. "General Partner Contribution" has the meaning specified in the Recitals to this instrument. "Holder" means a Person in whose name a Security is registered in the Security Register (as defined herein). "Indenture" means this instrument as originally executed or as it may from time to time be supplemented or 4 amended by one or more indentures supplemental hereto entered into pursuant to the applicable provisions hereof, including, for all purposes of this instrument and any such supplemental indenture, the provisions of the Trust Indenture Act that are deemed to be a part of and govern this instrument and any such supplemental indenture, respectively. "Interest Deferral Event" means failure of Holders of Preferred Securities (including any such failure following an election by the Company to extend interest payments on the Securities in accordance with their terms) to receive, for 18 consecutive months, the full amount of Dividends (including Additional Dividends) accumulated on the Preferred Securities. "Interest Payment Date" means the Stated Maturity (as defined herein) of each installment of interest on the Securities, which shall be on the last day of each calendar month of each year commencing July 31, 1995 until the principal of the Securities is paid or duly provided for. "Investment Grade" means with respect to any security a security that has been rated in one of the four highest rating categories by Standard & Poor's Corporation, Moody's Investors Service, Inc., Fitch Investor Services, Duff & Phelps Credit Rating Company or any other nationally recognized statistical rating organization. "Limited Partnership Agreement" has the meaning specified in the first paragraph of this instrument. "Maturity", when used with respect to any Security, means the date on which the principal of such Security becomes due and payable as therein or herein provided, whether at the Stated Maturity or by declaration of acceleration, call for redemption or otherwise. "NYSE" means the New York Stock Exchange. "Officers' Certificate" means a certificate signed by the Chairman of the Board, a Vice Chairman of the Board, the President or a Vice President, and by the Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary, of the Company, and delivered to the Trustee. One of the officers signing an Officers' Certificate given pursuant to Section 1004 shall be the principal executive, financial or accounting officer of the Company. "Opinion of Counsel" means a written opinion of counsel, who may be counsel for the Company, and who shall be acceptable to the Trustee. "Outstanding", when used with respect to Securities, means, as of the date of determination, all Securities 5 theretofore authenticated and delivered under this Indenture, except: (i) Securities theretofore cancelled by the Trustee or delivered to the Trustee for cancellation; (ii) Securities for whose payment or redemption money in the necessary amount has been theretofore deposited with the Trustee or any Paying Agent (other than the Company) in trust or set aside and segregated in trust by the Company (if the Company shall act as its own Paying Agent (as defined herein)) for the Holders of such Securities; provided, that, if such Securities are to be redeemed, notice of such redemption has been duly given pursuant to this Indenture or provision therefor satisfactory to the Trustee has been made; and (iii) Securities which have been paid pursuant to Section 306 or in exchange for or in lieu of which other Securities have been authenticated and delivered pursuant to this Indenture, other than any such Securities in respect of which there shall have been presented to the Trustee proof satisfactory to it that such Securities are held by a bona fide purchaser in whose hands such Securities are valid obligations of the Company; provided, however, that in determining whether the Holders of the requisite principal amount of the Outstanding Securities have given any request, demand, authorization, direction, notice, consent or waiver hereunder, Securities owned by the Company or any other obligor upon the Securities or any Affiliate of the Company or of such other obligor (other than COMSAT Capital) shall be disregarded and deemed not to be Outstanding, except that, in determining whether the Trustee shall be protected in relying upon any such request, demand, authorization, direction, notice, consent or waiver, only Securities which the Trustee knows to be so owned shall be so disregarded. Securities so owned which have been pledged in good faith may be regarded as Outstanding if the pledgee establishes to the satisfaction of the Trustee the pledgee's right so to act with respect to such Securities and that the pledgee is not the Company or any other obligor upon the Securities or any Affiliate of the Company or of such other obligor. "Parent Guarantee" has the meaning specified in the Recitals to this instrument. "Paying Agent" means any Person authorized by the Company to pay the principal of or interest on any Securities on behalf of the Company. "Person" means any individual, corporation, partnership, joint venture, trust, unincorporated organization or government or any agency or political subdivision thereof. 6 "Predecessor Security" of any particular Security means every previous Security evidencing all or a portion of the same debt as that evidenced by such particular Security; and, for the purposes of this definition, any Security authenticated and delivered under Section 306 in exchange for or in lieu of a mutilated, destroyed, lost or stolen Security shall be deemed to evidence the same debt as the mutilated, destroyed, lost or stolen Security. "Preferred Securities" has the meaning specified in the Recitals to this instrument. "Redemption Date", when used with respect to any Security to be redeemed, means the date fixed for such redemption by or pursuant to this Indenture. "Redemption Price", when used with respect to any Security to be redeemed, means the price at which it is to be redeemed pursuant to this Indenture. "Regular Record Date" for the interest payable on any Interest Payment Date means the Business Day next preceding such Interest Payment Date, subject to the proviso in Section 307. "Responsible Officer", when used with respect to the Trustee, means the chairman or any vice-chairman of the board of directors, the chairman or any vice-chairman of the executive committee of the board of directors, the chairman of the trust committee, the president, any vice president, the secretary, any assistant secretary, the treasurer, any assistant treasurer, the cashier, any assistant cashier, any trust officer or assistant trust officer, the controller or any assistant controller or any other officer of the Trustee customarily performing functions similar to those performed by any of the above designated officers and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of his knowledge of and familiarity with the particular subject. "Scheduled Maturity Date" means July 18, 2025. "Securities" has the meaning specified in the Recitals to this instrument. "Securities Payment" has the meaning specified in Section 1102. "Security Register" and "Security Registrar" have the respective meanings specified in Section 305. "Senior Indebtedness" means the principal of, premium, if any, interest on and any other payment due pursuant to any of the following, whether outstanding at the date of execution hereof or hereafter incurred: 7 (i) all indebtedness of the Company evidenced by notes, debentures, bonds or other securities sold by the Company for money; (ii) all Capital Lease Obligations of the Company; (iii) all obligations of others of the kinds described in the preceding clauses (i) and (ii) assumed by or guaranteed in any manner by the Company or in effect guaranteed by the Company; and (iv) all renewals, extensions or refundings of obligations of the kinds described in any of the preceding clauses (i), (ii) and (iii); provided, however, that the following shall not constitute Senior Indebtedness: (A) that percentage of any indebtedness of the Company to any Subsidiary (as defined herein) of the Company which is equal to the Company's percentage interest in such Subsidiary, or (B) any indebtedness which by the terms of the instrument creating or evidencing the same expressly provides that such indebtedness is not superior in right of payment to or is pari passu with the Securities. Senior Indebtedness shall continue to be Senior Indebtedness and entitled to the benefits of the subordination provisions irrespective of any amendment, modification or waiver of any term of such Senior Indebtedness. "Senior Payment Default" has the meaning specified in Section 1103. "Special Record Date" for the payment of any Defaulted Interest means a date fixed by the Trustee pursuant to Section 307. "Special Representative" means the Person appointed under the Limited Partnership Agreement to exercise the right of COMSAT Capital as a Holder of the Securities to accelerate the principal amount of the Securities upon an Event of Default, to enforce COMSAT Capital's creditors rights upon an Interest Deferral Event, and to enforce COMSAT Capital's other creditor rights hereunder and under the Securities and the Guarantee. "Stated Maturity", where used with respect to any Security or any installment of interest thereon, means the date specified in such Security as the fixed date on which the principal, together with any accrued and unpaid interest (including Additional Interest), of such Security or such installment of interest is due and payable. "Subsidiary" means a corporation more than 50% of the outstanding voting stock of which is owned, directly or indirectly, by the Company or by one or more other Subsidiaries, or by the Company and one or more other Subsidiaries. For the purposes of this definition, "voting stock" means stock which 8 ordinarily has voting power for the election of directors, whether at all times or only so long as no senior class of stock has such voting power by reason of any contingency. "Trustee" means the Person named as the "Trustee" in the first paragraph of this instrument until a successor Trustee shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Trustee" shall mean such successor Trustee. "Trust Indenture Act" means the Trust Indenture Act of 1939 as in force at the date as of which this instrument was executed; provided, however, that in the event the Trust Indenture Act of 1939 is amended after such date, "Trust Indenture Act" means, to the extent required by any such amendment, the Trust Indenture Act of 1939 as so amended. "U.S. Government Obligations" means direct obligations of or obligations of a Person controlled or supervised by and acting as an agency or instrumentality of (or certificates representing ownership interests in such obligations held by a custodian on behalf of the owners of such ownership interests provided that (except as required by law) such custodian is not authorized to make any deduction from the amount payable to the owner of such obligations from any amount received by the custodian in respect of the U.S. Government Obligation or the specific payment of principal of or interest on the U.S. Government Obligation evidenced by such certificate) the United States of America, (i) the timely payment of which is unconditionally guaranteed by the United States of America, (ii) for the payment of which the full faith and credit of the United States of America is pledged, and (iii) which are not callable or redeemable at the issuer's option. "Vice President", when used with respect to the Company or the Trustee, means any vice president, whether or not designated by a number or a word or words added before or after the title "vice president". Section 102. Compliance Certificates and Opinions. Upon any application or request by the Company to the Trustee to take any action under any provision of this Indenture, the Company shall furnish to the Trustee such certificates and opinions as may be required under the Trust Indenture Act. Each such certificate or opinion shall be given in the form of an Officers' Certificate, if to be given by an officer of the Company, or an Opinion of Counsel, if to be given by counsel, and shall comply with the requirements of the Trust Indenture Act and any other requirement set forth in this Indenture. 9 Section 103. Form of Documents Delivered to Trustee. In any case where several matters are required to be certified by, or covered by an opinion of, any specified Person, it is not necessary that all such matters be certified by, or covered by the opinion of, only one such Person, or that they be so certified or covered by only one document, but one such Person may certify or give an opinion with respect to some matters and one or more other such Persons as to other matters, and any such Person may certify or give an opinion as to such matters in one or several documents. Any certificate or opinion of an officer of the Company may be based, insofar as it relates to legal matters, upon a certificate or opinion of, or representations by, counsel, unless such officer knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to the matters upon which his certificate or opinion is based are erroneous. Any such certificate or opinion of counsel may be based, insofar as it relates to factual matters, upon a certificate or opinion of, or representations by, an officer or officers of the Company stating that the information with respect to such factual matters is in the possession of the Company, unless such counsel knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to such matters are erroneous. Where any Person is required to make, give or execute two or more applications, requests, consents, certificates, statements, opinions or other instruments under this Indenture, they may, but need not, be consolidated and form one instrument. Section 104. Acts of Holders; Record Dates. (a) Any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture to be given or taken by Holders may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Holders in person or by agent duly appointed in writing; and, except as herein otherwise expressly provided, such action shall become effective when such instrument or instruments are delivered to the Trustee and, where it is hereby expressly required, to the Company. Such instrument or instruments (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the "Act" of the Holders signing such instrument or instruments. Proof of execution of any such instrument or of a writing appointing any such agent shall be sufficient for any purpose of this Indenture and (subject to Section 601) conclusive in favor of the Trustee and the Company, if made in the manner provided in this Section. (b) The fact and date of the execution by any Person of any such instrument or writing may be proved by the affidavit 10 of a witness of such execution or by a certificate of a notary public or other officer authorized by law to take acknowledgments of deeds, certifying that the individual signing such instrument or writing acknowledged to him the execution thereof. Where such execution is by a signer acting in a capacity other than his individual capacity, such certificate or affidavit shall also constitute sufficient proof of his authority. The fact and date of the execution of any such instrument or writing, or the authority of the Person executing the same, may also be proved in any other manner which the Trustee deems sufficient. (c) The Company may, in the circumstances permitted by the Trust Indenture Act, fix any day as the record date for the purpose of determining the Holders entitled to give or take any request, demand, authorization, direction, notice, consent, waiver or other action, or to vote on any action, authorized or permitted to be given or taken by Holders. If not set by the Company prior to the first solicitation of a Holder made by any Person in respect of any such action, or, in the case of any such vote, prior to such vote, the record date for any such action or vote shall be the 30th day (or, if later, the date of the most recent list of Holders required to be provided pursuant to Section 701) prior to such first solicitation or vote, as the case may be. With regard to any record date, only the Holders on such date (or their duly designated proxies) shall be entitled to give or take, or vote on, the relevant action. (d) The ownership of Securities shall be proved by the Security Register. (e) Any request, demand, authorization, direction, notice, consent, waiver or other Act of the Holder of any Security shall bind every future Holder of the same Security and the Holder of every Security issued upon the registration of transfer thereof or in exchange therefor or in lieu thereof in respect of anything done, omitted or suffered to be done by the Trustee or the Company in reliance thereon, whether or not notation of such action is made upon such Security. Section 105. Notices, etc., to Trustee, Company and COMSAT Capital. Any request, demand, authorization, direction, notice, consent, waiver or Act of Holders or other document provided or permitted by this Indenture to be made upon, given or furnished to, or filed with, (1) the Trustee by any Holder or by the Company shall be sufficient for every purpose hereunder if made, given, furnished or filed in writing to or with the Trustee at its Corporate Trust Office, Attention: Corporate Trust Services Division, or 11 (2) the Company by the Trustee or by any Holder shall be sufficient for every purpose hereunder (unless otherwise herein expressly provided) if in writing and mailed, first-class postage prepaid, to the Company addressed to it at the address of its principal office specified in the first paragraph of this instrument or at any other address previously furnished in writing to the Trustee by the Company. Section 106. Notice to Holders; Waiver. Where this Indenture provides for notice to Holders of any event, such notice shall be sufficiently given (unless otherwise herein expressly provided) if in writing and mailed, first-class postage prepaid, to each Holder as to which such notice is required to be made, at his or her address as it appears in the Security Register, not later than the latest date (if any), and not earlier than the earliest date (if any), prescribed for the giving of such notice. In any case where notice to Holders is given by mail, neither the failure to mail such notice, nor any defect in any notice so mailed, to any particular Holder shall affect the sufficiency of such notice with respect to other Holders. Where this Indenture provides for notice in any manner, such notice may be waived in writing by the Person entitled to receive such notice, either before or after the event, and such waiver shall be the equivalent of such notice. Waivers of notice by Holders shall be filed with the Trustee, but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such waiver. In case by reason of the suspension of regular mail service or by reason of any other cause it shall be impracticable to give such notice by mail, then such notification as shall be made with the approval of the Trustee shall constitute a sufficient notification for every purpose hereunder. Section 107. Immunity of Shareholders, Officers and Directors. No recourse shall be had for the payment of the principal of or the interest, if any, on, any Security, or for any claim based thereon, or upon any obligation, covenant or agreement of this Indenture or any supplemental indenture, against any shareholder, officer or director, as such, past, present or future of the Company or of any successor corporation, either directly or indirectly through the Company or any successor corporation, whether by virtue of any constitution, statute or rule of law or by the enforcement of any assessment or penalty or otherwise; it being expressly agreed and understood that this Indenture and any supplemental indenture and all the Securities are solely corporate obligations, and that no personal liability whatever shall attach to, or is incurred by, any shareholder, officer or director, past, present or future, of the Company or of any successor corporation, either directly or 12 indirectly through the Company or any successor corporation, because of the incurring of the indebtedness hereby authorized or under or by reason of any of the obligations, covenants or agreements contained in this Indenture or in any of the Securities, or to be implied herefrom or therefrom; and that any and all such personal liability is hereby expressly released and waived as a condition of, and as part of the consideration for, the execution of this Indenture, any supplemental indenture and the issue of the Securities. Section 108. Conflict with Trust Indenture Act. If any provision hereof limits, qualifies or conflicts with a provision of the Trust Indenture Act that is required under such Trust Indenture Act to be a part of and govern this Indenture, the latter provision shall control. If any provision of this Indenture modifies or excludes any provision of the Trust Indenture Act that may be so modified or excluded, the latter provision shall be deemed to apply to this Indenture as so modified or to be excluded, as the case may be. Section 109. Effect of Headings and Table of Contents. The Article and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof. Section 110. Successors and Assigns. All covenants and agreements in this Indenture by the Company shall bind their respective successors and assigns, whether so expressed or not. Section 111. Separability Clause. In case any provision in this Indenture or in the Securities shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. Section 112. Benefits of Indenture. The Company's obligations under this Indenture and the Securities will also be for the benefit of the holders from time to time of the Preferred Securities. Nothing in this Indenture or in the Securities, express or implied, shall give to any Person, other than the parties hereto and their successors hereunder, the holders of Senior Indebtedness, the holders of Preferred Securities, the Special Representative and the Holders of Securities, any benefit or any legal or equitable right, remedy or claim under this Indenture. 13 Section 113. Governing Law. This Indenture and the Securities shall be governed by and construed in accordance with the laws of the State of New York. Section 114. Legal Holidays. In any case where any Interest Payment Date, Redemption Date or Stated Maturity of any Security shall not be a Business Day, then (notwithstanding any other provision of this Indenture or of the Securities) payment of interest or principal need not be made on such date, but may be made on the next succeeding Business Day (subject, in the case of an Interest Payment Date, to Section 301) with the same force and effect as if made on the Interest Payment Date or Redemption Date, or at the Stated Maturity, provided that no interest shall accrue for the period from and after such Interest Payment Date, Redemption Date or Stated Maturity, as the case may be. ARTICLE TWO SECURITY FORMS Section 201. Forms Generally. The Securities and the Trustee's certificates of authentication shall be in substantially the forms set forth in this Article, with such appropriate insertions, omissions, substitutions and other variations as are required or permitted by this Indenture, and may have such letters, numbers or other marks of identification and such legends or endorsements placed thereon as may be required to comply with the rules of any securities exchange or as may, consistently herewith, be determined by the officers executing such Securities, as evidenced by their execution of the Securities. The definitive Securities shall be printed, lithographed or engraved or produced by any combination of these or other methods, all as determined by the officers executing such Securities, as evidenced by their execution of such Securities. 14 Section 202. Form of Face of Security. COMSAT Corporation 81/8% Junior Subordinated Deferrable Interest Debenture Due July 18, 2025 No.R-$ COMSAT Corporation, a corporation duly organized and existing under the laws of the District of Columbia (herein called "COMSAT", which term includes any successor corporation under the Indenture hereinafter referred to), for value received, hereby promises to pay to , or registered assigns, the principal sum of Dollars on the earliest of (i) July 18, 2025 (the "Scheduled Maturity Date") (subject to extension, as provided herein) or (ii), except in the event that (A) a Tax Event or an Investment Company Event has occurred and the General Partner of COMSAT Capital I, L.P. ("COMSAT Capital") has elected to dissolve COMSAT Capital and cause the Securities to be distributed to the holders of the Preferred Securities in liquidation of COMSAT Capital as provided in Clauses (ii) or (iii) of Section 6.2(c) of the Limited Partnership Agreement or (B) COMSAT Capital is consolidated, amalgamated, merged with or into, or replaced by, or conveys, transfers or leases its properties and assets as an entirety to, any corporation or other body pursuant to Section 9.12 of the Limited Partnership Agreement, the date upon which COMSAT Capital is dissolved, wound up, liquidated or terminated (other than any termination within the meaning of section 708(b)(1)(B) of the Internal Revenue Code of 1986 or equivalent provision of subsequent law, which termination does not constitute a termination of COMSAT Capital for any other purpose), and to pay interest thereon at the rate of 81/8% per annum from July 18, 1995, payable monthly in arrears on the last day of each calendar month of each year (each an "Interest Payment Date"), commencing July 31, 1995, until the principal hereof is paid or made available for payment. Interest will compound monthly and will accrue at the rate of 81/8% per annum on any interest installment that is not paid at the end of any monthly interest period or when otherwise due. The amount of interest payable for any period will be computed on the basis of twelve 30-day months and a 360-day year and, for any period shorter than a full monthly interest period, will be computed on the basis of the actual number of days elapsed in such period. In the event that any date on which interest is payable on this Security is not a Business Day, then a payment of the interest payable on such date will be made on the next succeeding day which is a Business Day (and without any interest or other payment in respect of any such delay), except that, if such Business Day is in the next succeeding calendar year, such payment shall be made on the immediately preceding Business Day, in each case with the same force and effect as if 15 made on such date. A "Business Day" shall mean any day other than a day on which banking institutions in New York City are authorized or required by law or executive order to close. The interest so payable, and punctually paid or duly provided for, on any Interest Payment Date will, as provided in the Indenture, be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest, which shall be the Business Day next preceding such Interest Payment Date; provided, however, that if this Security shall not continue to remain in book-entry-only form, the Company shall have the right to select record dates which shall be more than one Business Day prior to the Interest Payment Date. Any such interest not so punctually paid or duly provided for will forthwith cease to be payable to the Holder on such Regular Record Date and may either be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on a Special Record Date for the payment of such Defaulted Interest to be fixed by the Trustee, notice whereof shall be given to Holders of Securities not less than 10 days prior to such Special Record Date, or be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Securities may be listed, and upon such notice as may be required by such exchange, all as more fully provided in said Indenture. The Company may, by Company Order, prior to the Scheduled Maturity Date, extend the maturity date of the Securities no more than one time, for up to an additional 19 years from the Scheduled Maturity Date, provided that at the time of such extension (i) no Event of Default or event which after notice or lapse of time, or both, would become an Event of Default specified in Section 501(5) or Section 501(6) shall have occurred and be continuing; (ii) the Company has made timely payments of interest (including Additional Interest) on the Securities during the immediately preceding 18 months without deferrals; (iii) COMSAT Capital is not in arrears on payments of distributions on the Preferred Securities; (iv) the Securities shall continue to pay Interest at least at a rate equal to the rate of distributions that accrue on the Preferred Securities; (v) the Securities are rated Investment Grade; and (vi) the final maturity of the Securities is not later than the 49th anniversary of the date of issuance of the Preferred Securities. COMSAT shall have the right at any time during the term of this Security to extend the interest payment period from time to time to a period not exceeding 60 consecutive months, during which periods interest will compound monthly, and at the end of which periods COMSAT shall pay all interest then accrued and unpaid (together with Additional Interest); provided that during any such extended interest payment period COMSAT shall not declare or pay any dividend on, or redeem, purchase, acquire or make a liquidation payment with respect to, any of its capital stock (other than as a result of a reclassification of such 16 capital stock or the exchange or conversion of one class or series of capital stock for another class or series of capital stock), or make any guarantee payments with respect to the foregoing (other than payments under the Parent Guarantee). Prior to the termination of any such extended interest payment period, COMSAT may further extend the interest payment period, provided that such extended interest payment period together with all such previous and further extensions thereof may not exceed 60 consecutive months, nor may such extended interest payment period extend the Stated Maturity of this Security. After COMSAT has paid all accrued and unpaid interest (including Additional Interest) following an extended interest payment period, it may again extend interest payment periods for up to 60 consecutive months, subject to the preceding sentence. If COMSAT Capital shall be the sole Holder of the Securities, COMSAT shall give COMSAT Capital notice of its selection of an extended interest payment period one Business Day prior to the earlier of (i) the date the dividends on the Preferred Securities are payable or (ii) the date COMSAT Capital is required to give notice to the NYSE or other applicable self-regulatory organization or to holders of the Preferred Securities of the record date or the date such dividend is payable, but in any event not less than one Business Day prior to such record date. COMSAT shall cause COMSAT Capital to give notice of COMSAT's selection of such extended interest payment period to the holders of the Preferred Securities. If COMSAT Capital is not the sole Holder of the Securities, COMSAT shall give the Holders of the Securities notice of its selection of such an extended interest payment period ten Business Days prior to the earlier of (i) the Interest Payment Date or (ii) the date COMSAT is required to give notice to the NYSE or other applicable self-regulatory organization, or to the Holders of the Securities, of the record or payment date of such related interest payment, but in any event not less than two Business Days prior to such record date. Payment of the principal of and interest on this Security issued as a global security will be made to DTC, as the depository for the Securities, in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts. If the Securities are issued in certificated form, principal and interest will be payable, the transfer of the Securities will be registrable and the Securities will be exchangeable for Securities of other denominations of a like aggregate principal amount at the corporate trust office of the Trustee in New York City; provided, however, that, unless the Securities are held by COMSAT Capital or any successor permissible under the Limited Partnership Agreement (in which case payment shall be made by wire transfer), payment of interest may, at the option of COMSAT, be made by check mailed to the address of the Persons entitled thereto as such address shall appear in the Security Register. Reference is hereby made to the further provisions of the Indenture summarized on the reverse hereof, which further 17 provisions shall for all purposes have the same effect as if set forth at this place. Unless the certificate of authentication hereon has been executed by the Trustee referred to on the reverse hereof by manual signature, this Security shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose. IN WITNESS WHEREOF, COMSAT has caused this instrument to be duly executed under its corporate seal. Dated: , 1995 COMSAT Corporation [SEAL] By: Name: Title: Attest: Section 203. Form of Reverse of Security. This Security is one of a duly authorized issue of Securities of COMSAT, designated as its 81/8% Junior Subordinated Deferrable Interest Debentures Due July 18, 2025 (subject to extension, as provided herein) (herein called the "Securities"), limited in aggregate principal amount to $206,200,000, issued and to be issued under an Indenture, dated as of July 18, 1995 (herein called the "Indenture"), between COMSAT and The First National Bank of Chicago, as Trustee (herein called the "Trustee", which term includes any successor trustee under the Indenture), to which Indenture and all indentures supplemental thereto reference is hereby made for a statement of the respective rights, limitations of rights, duties and immunities thereunder of COMSAT, the Trustee, the Holders of the Securities, the holders of Preferred Securities and the holders of Senior Indebtedness and of the terms upon which the Securities are, and are to be, authenticated and delivered. All terms used in this Security which are defined in the Indenture or in the Limited Partnership Agreement attached as Annex A thereto shall have the meanings assigned to them in the Indenture or the Limited Partnership Agreement, as the case may be. The indebtedness evidenced by this Security is, to the extent provided in the Indenture, subordinate and subject in right of payment to the prior payment in full of all Senior Indebtedness, and this Security is issued subject to the provisions of the Indenture with respect thereto. Each Holder of 18 this Security, by accepting the same, (a) agrees to and shall be bound by such provisions, (b) authorizes and directs the Trustee on his behalf to take such action as may be necessary or appropriate to effectuate the subordination so provided and (c) appoints the Trustee his attorney-in-fact for any and all such purposes. The Trustee or the Holders of not less than 25% in aggregate outstanding principal amount of the Securities may declare the principal of and interest (including any Additional Interest) on the Securities due and payable immediately on default with respect to such Securities; provided, however, that after such acceleration, but before a judgment or decree based on acceleration, the Holders of a majority in aggregate principal amount of outstanding Securities may, under certain circumstances, rescind and annul such acceleration if all Events of Default with respect to such Securities, other than the non-payment of accelerated principal, have been cured or waived as provided in the Indenture. The Indenture permits, with certain exceptions as therein provided, COMSAT and the Trustee, with the consent of the Holders of not less than a majority in principal amount of the Securities, to modify the Indenture or any supplemental indenture affecting the Securities or the rights of the Holders of Securities. Any such consent by the Holder of this Security shall be conclusive and binding upon such Holder and upon all future Holders of this Security and of any Security issued upon the registration of transfer hereof or in exchange herefor or in lieu hereof, whether or not notation of such consent is made upon this Security. The Securities shall be subject to redemption at the option of COMSAT without premium or penalty, in whole or in part, concurrent with the redemption by COMSAT Capital of the Preferred Securities (if any Preferred Securities are then outstanding), at any time or from time to time on or after July 18, 2000, as provided in the Indenture, upon not less than 30 days' nor more than 60 days' notice, at a Redemption Price equal to 100% of the principal amount to be redeemed, plus any accrued and unpaid interest (including Additional Interest, if any), to the Redemption Date, but interest installments whose Stated Maturity is on or prior to such Redemption Date will be payable to the Holders of such Securities of record at the close of business on the relevant Record Dates referred to on the face hereof, all as provided in the Indenture. The Company has covenanted to exercise such right to redeem if COMSAT Capital redeems its Preferred Securities. No reference herein to the Indenture and no provision of this Security or of the Indenture shall alter or impair the obligation of COMSAT, which is absolute and unconditional, to pay the principal of and interest on this Security at the times, place and rate, and in the coin or currency, herein prescribed. 19 As provided in the Indenture and subject to certain limitations therein set forth, the transfer of this Security is registrable in the Security Register, upon surrender of this Security for registration of transfer at the corporate trust office of the Trustee in New York City, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to COMSAT and the Security Registrar duly executed by the Holder hereof or his or her attorney duly authorized in writing, and thereupon one or more new Securities, of authorized denominations and for the same aggregate principal amount, will be issued to the designated transferee or transferees. The Securities, if distributed to holders of Preferred Securities in a dissolution of COMSAT Capital, will initially be issued as a global security. If the Securities are issued in certificated form, such Securities will be issued in denominations of $25 and integral multiples thereof. As provided in the Indenture and subject to certain limitations therein set forth, Securities are exchangeable for a like aggregate principal amount of Securities of a different authorized denomination, as requested by the Holder surrendering the same. No service charge shall be made for any such registration of transfer or exchange, but COMSAT may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. Prior to due presentment of this Security for registration of transfer, COMSAT, the Trustee and any agent of COMSAT or the Trustee may treat the Person in whose name this Security is registered as the owner hereof for all purposes, whether or not this Security be overdue, and neither COMSAT, the Trustee nor any such agent shall be affected by notice to the contrary. The Indenture contains provisions for defeasance at any time of the entire indebtedness of this Security upon compliance by COMSAT with certain conditions set forth therein. Section 204. Form of Trustee's Certificate of Authentication. This is one of the Securities referred to in the within-mentioned Indenture. The First National Bank of Chicago, as Trustee By: Authorized Officer 20 ARTICLE THREE THE SECURITIES Section 301. Title and Terms. The aggregate principal amount of Securities which may be authenticated and delivered under this Indenture is $206,200,000, except for Securities authenticated and delivered upon registration of transfer of, or in exchange for, or in lieu of, other Securities pursuant to Section 304, 305, 306 or 906. The Securities shall be known and designated as the "81/8% Junior Subordinated Deferrable Interest Debentures Due July 18, 2025" of the Company. Their Stated Maturity shall be the earliest of July 18, 2025 (subject to extension, as provided herein) or, except in the event that (A) a Tax Event or an Investment Company Event has occurred and the General Partner of COMSAT Capital has elected to dissolve COMSAT Capital and cause the Securities to be distributed to the holders of the Preferred Securities in liquidation of COMSAT Capital as provided in Clauses (ii) or (iii) of Section 6.2(c) of the Limited Partnership Agreement or (B) COMSAT Capital is consolidated, amalgamated, merged with or into, or replaced by, or conveys, transfers or leases its properties and assets as an entirety to, any corporation or other body pursuant to Section 9.12 of the Limited Partnership Agreement, the date upon which COMSAT Capital is dissolved, wound-up, liquidated or terminated (other than any termination within the meaning of section 708(b)(1)(B) of the Internal Revenue Code of 1986 or equivalent provision of subsequent law, which termination does not constitute a termination of COMSAT Capital for any other purpose), and they shall bear interest at the rate of 81/8% per annum, from July 18, 1995 or from the most recent Interest Payment Date to which interest has been paid or duly provided for, as the case may be, payable monthly, in arrears, on the last day of each calendar month of each year, commencing July 31, 1995 until the principal thereof is paid or made available for payment. Interest will compound monthly and will accrue at the annual rate of 81/8% on any interest installment that is not paid when due or during an extension of an interest payment period as set forth below in this Section 301. In the event that any date on which interest is payable on the Securities is not a Business Day, then payment of the interest payable on such date will be made on the next succeeding day which is a Business Day (and without any interest or other payment in respect of any such delay), except that, if such Business Day is in the next succeeding calendar year, such payment shall be made on the immediately preceding Business Day, in each case with the same force and effect as if made on such date. 21 If at any time COMSAT Capital shall be required to pay any interest on dividends in respect of the Preferred Securities pursuant to the terms thereof, then the Company will pay as interest to COMSAT Capital as the holder of the Securities Additional Interest. In addition, if COMSAT Capital would be required to pay any taxes, duties, assessments or governmental charges of whatever nature (other than withholding taxes) imposed by the United States, or any other taxing authority, then, in any such case, the Company also will pay as Additional Interest such amounts as shall be required so that the net amounts received and retained by COMSAT Capital after paying any such taxes, duties, assessments or governmental charges will be not less than the amounts COMSAT Capital would have received had no such taxes, duties, assessments or governmental charges been imposed. The obligations of the Company under this paragraph shall survive any satisfaction and discharge or any defeasance pursuant to Article Four hereof. The Company may, by Company Order, prior to the Scheduled Maturity Date, extend the maturity date of the Securities no more than one time, for up to an additional 19 years from the Scheduled Maturity Date, provided that at the time of such extension (i) no Event of Default or event which after notice or lapse of time, or both, would become an Event of Default specified in Section 501(5) or Section 501(6) shall have occurred and be continuing; (ii) the Company has made timely payments of interest (including Additional Interest) on the Securities during the immediately preceding 18 months without deferrals; (iii) COMSAT Capital is not in arrears on payments of distributions on the Preferred Securities; (iv) the Securities shall continue to pay Interest at least at a rate equal to the rate of distributions that accrue on the Preferred Securities; (v) the Securities are rated Investment Grade; and (vi) the final maturity of the Securities is not later than the 49th anniversary of the date of issuance of the Preferred Securities. The Company shall have the right, at any time during the term of the Securities, to extend the interest payment period from time to time to a period not exceeding 60 consecutive months, provided that during the period of any such extension, interest will continue to accrue and compound monthly. At the end of any such extended interest payment period, the Company shall pay all interest then accrued and unpaid (together with Additional Interest thereon); provided that during any such extended interest payment period COMSAT shall not declare or pay any dividend on, or redeem, purchase, acquire or make a liquidation payment with respect to, any of its capital stock (other than as a result of a reclassification of such capital stock or the exchange or conversion of one class or series of capital stock for another class or series of capital stock), or make any guarantee payments with respect to the foregoing (other than payments under the Parent Guarantee). Prior to the termination of any such extended interest payment period, the Company may further extend the interest payment period, provided 22 that such extended interest payment period together with all such previous and further extensions thereof may not exceed 60 consecutive months and provided, further, that in no event shall any extension of the interest payment period extend beyond the Stated Maturity of the Securities. After the Company has paid all accrued and unpaid interest (including Additional Interest) following an extended interest payment period, it may again extend interest payment periods for up to 60 consecutive months, subject to the preceding sentence. If COMSAT Capital shall be the sole Holder of the Securities, COMSAT shall give COMSAT Capital notice of its selection of an extended interest payment period one Business Day prior to the earlier of (i) the date the dividends on the Preferred Securities are payable or (ii) the date COMSAT Capital is required to give notice to the NYSE or other applicable self-regulatory organization or to holders of the Preferred Securities of the record date or the date such dividend is payable, but in any event not less than one Business Day prior to such record date. COMSAT shall cause COMSAT Capital to give notice of COMSAT's selection of such extended interest payment period to the holders of the Preferred Securities. If COMSAT Capital is not the sole Holder of the Securities, COMSAT shall give the Holders of the Securities notice of its selection of such an extended interest payment period ten Business Days prior to the earlier of (i) the Interest Payment Date or (ii) the date COMSAT is required to give notice to the NYSE or other applicable self-regulatory organization, or to the Holders of the Securities, of the record or payment date of such related interest payment, but in any event not less than two Business Days prior to such record date. The principal of and interest on the Securities issued as a global security will be made to DTC, as the depository for the Securities. The Trustee or the Holders of not less than 25% in aggregate outstanding principal amount of the Securities may declare the principal of and interest (including any Additional Interest) on the Securities due and payable immediately on any Event of Default; provided, however, that after such acceleration, but before a judgment or decree based on acceleration, the Holders of a majority in aggregate principal amount of outstanding Securities may, under certain circumstances, rescind and annul such acceleration if all Events of Default, other than the non-payment of accelerated principal, have been cured or waived as provided in the Indenture. Unless the Holder of the Preferred Securities is COMSAT Capital (in which case payment of interest shall be made by wire transfer), payment of interest may be made, at the option of the Company, by check mailed to the address of the Persons entitled thereto as such address shall appear in the Security Register. The Securities shall be subordinated in right of payment to Senior Indebtedness as provided in Article Eleven. The Securities shall be redeemable as provided in Article Twelve. 23 Section 302. Denominations. The Securities, if distributed to holders of Preferred Securities in a dissolution of COMSAT Capital, will initially be issued as a global security. If the Securities are issued in certificated form, such Securities will be issued only in registered form without coupons and only in denominations of $25 and integral multiples thereof. Section 303. Execution, Authentication, Delivery and Dating. The Securities shall be executed on behalf of the Company by its Chairman of the Board, its Vice Chairman of the Board, its President or one of its Vice Presidents, under its corporate seal reproduced thereon attested by its Secretary or one of its Assistant Secretaries. The signature of any of these officers on the Securities may be manual or facsimile. Securities bearing the manual or facsimile signatures of individuals who were at any time the proper officers of the Company shall bind the Company, notwithstanding that such individuals or any of them have ceased to hold such offices prior to the authentication and delivery of such Securities or did not hold such offices at the date of such Securities. At any time and from time to time after the execution and delivery of this Indenture, the Company may deliver Securities executed by the Company to the Trustee for authentication, together with a Company Order for the authentication and delivery of such Securities; and the Trustee in accordance with such Company Order shall authenticate and deliver such Securities as in this Indenture provided and not otherwise. Each Security shall be dated the date of its authentication. No Security shall be entitled to any benefit under this Indenture or be valid or obligatory for any purpose unless there appears on such Security a certificate of authentication substantially in the form provided for herein executed by the Trustee by manual signature, and such certificate upon any Security shall be conclusive evidence, and the only evidence, that such Security has been duly authenticated and delivered hereunder. Section 304. Temporary Securities. Pending the preparation of definitive Securities, the Company may execute, and upon Company Order the Trustee shall authenticate and deliver, temporary Securities which are printed, 24 lithographed, typewritten, mimeographed or otherwise produced, in any authorized denomination, substantially of the tenor of the definitive Securities in lieu of which they are issued and with such appropriate insertions, omissions, substitutions and other variations as the officers executing such Securities may determine, as evidenced by their execution of such Securities. If temporary Securities are issued, the Company will cause definitive Securities to be prepared without unreasonable delay. After the preparation of definitive Securities, the temporary Securities shall be exchangeable for definitive Securities upon surrender of the temporary Securities at any office or agency of the Company designated pursuant to Section 1002, without charge to the Holder. Upon surrender for cancellation of any one or more temporary Securities, the Company shall execute and the Trustee shall authenticate and deliver in exchange therefor a like principal amount of definitive Securities of authorized denominations. Until so exchanged the temporary Securities shall in all respects be entitled to the same benefits under this Indenture as definitive Securities. Section 305. Registration, Registration of Transfer and Exchange. The Company shall cause to be kept at the Corporate Trust Office of the Trustee a register (the register maintained in such office and in any other office or agency designated pursuant to Section 1002 being herein sometimes collectively referred to as the "Security Register") in which, subject to such reasonable regulations as it may prescribe, the Company shall provide for the registration of Securities and of transfers of Securities. The Trustee is hereby appointed "Security Registrar" for the purpose of registering Securities and transfers of Securities as herein provided. Upon surrender for registration of transfer of any Security at an office or agency of the Company designated pursuant to Section 1002 for such purpose, the Company shall execute, and the Trustee shall authenticate and deliver, in the name of the designated transferee or transferees, one or more new Securities of any authorized denominations and of a like aggregate principal amount. At the option of the Holder, Securities may be exchanged for other Securities of any authorized denominations and of a like aggregate principal amount, upon surrender of the Securities to be exchanged at such office or agency. Whenever any Securities are so surrendered for exchange, the Company shall execute, and the Trustee shall authenticate and deliver, the Securities which the Holder making the exchange is entitled to receive. 25 All Securities issued upon any registration of transfer or exchange of Securities shall be the valid obligations of the Company, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Securities surrendered upon such registration of transfer or exchange. Every Security presented or surrendered for registration of transfer or for exchange shall (if so required by the Company or the Trustee) be duly endorsed, or be accompanied by a written instrument of transfer, in form satisfactory to the Company and the Security Registrar, duly executed by the Holder thereof or his attorney duly authorized in writing. No service charge shall be made for any registration of transfer or exchange of Securities, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any registration of transfer or exchange of Securities, other than (i) exchanges pursuant to Section 304 or 906 not involving any transfer or (ii) transfers contemplated by Section 6.2(c) or 9.12 of the Limited Partnership Agreement. Section 306. Mutilated, Destroyed, Lost and Stolen Securities. If any mutilated Security is surrendered to the Trustee, the Company shall execute and the Trustee shall authenticate and deliver in exchange therefor a new Security of like tenor and principal amount and bearing a number not contemporaneously Outstanding. If there shall be delivered to the Company and the Trustee (i) evidence to their satisfaction of the destruction, loss or theft of any Security and (ii) such security or indemnity as may be required by them to save each of them and any agent of either of them harmless, then, in the absence of notice to the Company or the Trustee that such Security has been acquired,by a bona fide purchaser, the Company shall execute and the Trustee shall authenticate and deliver, in lieu of any such destroyed, lost or stolen Security, a new Security of like tenor and principal amount and bearing a number not contemporaneously outstanding. In case any such mutilated, destroyed, lost or stolen Security has become or is about to become due and payable, the Company in its discretion may, instead of issuing a new Security, pay such Security. Upon the issuance of any new Security under this Section, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Trustee) connected therewith. 26 Every new Security issued pursuant to this Section in lieu of any destroyed, lost or stolen Security shall constitute an original additional contractual obligation of the Company, whether or not the destroyed, lost or stolen Security shall be at any time enforceable by anyone, and shall be entitled to all the benefits of this Indenture equally and proportionately with any and all other Securities duly issued hereunder. The provisions of this Section are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities. Section 307. Payment of Interest; Interest Rights Preserved. Interest on any Security which is payable, and is punctually paid, on any Interest Payment Date shall be paid to the Person in whose name that Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest, which shall be the Business Day next preceding such Interest Payment Date; provided, however, that if the Securities shall not continue to remain in book-entry-only form, the Company shall have the right to select record dates which shall be more than one Business Day prior to the Interest Payment Date. Any interest on any Security which is payable, but is not punctually paid or duly provided for, on any Interest Payment Date (herein called "Defaulted Interest") shall forthwith cease to be payable to the Holder on the relevant Regular Record Date by virtue of having been such Holder, and such Defaulted Interest may be paid by the Company, at its election in each case, as provided in Clause (1) or (2) below: (1) The Company may elect to make payment of any Defaulted Interest to the Persons in whose names the Securities (or their respective Predecessor Securities) are registered at the close of business on a Special Record Date for the payment of such Defaulted Interest, which shall be fixed in the following manner. The Company shall notify the Trustee in writing of the amount of Defaulted Interest proposed to be paid on each Security and the date of the proposed payment, and at the same time the Company shall deposit with the Trustee an amount of money equal to the aggregate amount proposed to be paid in respect of such Defaulted Interest or shall make arrangements satisfactory to the Trustee for such deposit prior to the date of the proposed payment, such money when deposited to be held in trust for the benefit of the Persons entitled to such Defaulted Interest as provided in this Clause. Thereupon the Trustee shall fix a Special Record Date for the payment of such Defaulted Interest which shall be not more than 15 days and not less than 10 days prior to the date of the proposed payment and not less than 10 days after the receipt by the Trustee of the notice of the 27 proposed payment. The Trustee shall promptly notify the Company of such Special Record Date and, in the name and at the expense of the Company, shall cause notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor to be mailed, first-class postage prepaid, to each Holder at his address as it appears in the Security Register, not less than 10 days prior to such Special Record Date. Notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor having been so mailed, such Defaulted Interest shall be paid to the Persons in whose names the Securities (or their respective Predecessor Securities) are registered at the close of business on such Special Record Date and shall no longer be payable pursuant to the following Clause (2). (2) The Company may make payment of any Defaulted Interest in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Securities may be listed, and, if so listed, upon such notice as may be required by such exchange, if, after notice given by the Company to the Trustee of the proposed payment pursuant to this Clause, such manner of payment shall be deemed practicable by the Trustee. Subject to the foregoing provisions of this Section, each Security delivered under this Indenture upon registration of transfer of or in exchange for or in lieu of any other Security shall carry the rights to interest accrued and unpaid, and to accrue (including in each such case Additional Interest), which were carried by such other Security. Section 308. Persons Deemed Owners. Prior to due presentment of a Security for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name such Security is registered as the owner of such Security for the purpose of receiving payment of principal of and (subject to Section 307) interest (including Additional Interest) on such Security and for all other purposes whatsoever, whether or not such Security be overdue, and neither the Company, the Trustee nor any agent of the Company or the Trustee shall be affected by notice to the contrary. Section 309. Cancellation. All Securities surrendered for payment, redemption, registration of transfer or exchange shall, if surrendered to any Person other than the Trustee, be delivered to the Trustee and shall be promptly cancelled by it. The Company may at any time deliver to the Trustee for cancellation any Securities previously authenticated and delivered hereunder which the Company may have acquired in any manner whatsoever, and all Securities so 28 delivered shall be promptly cancelled by the Trustee. No Securities shall be authenticated in lieu of or in exchange for any Securities cancelled as provided in this Section, except as expressly permitted by this Indenture. All cancelled Securities held by the Trustee shall be disposed of as directed by a Company Order. Section 310. Computation of Interest. Interest on the Securities shall be computed on the basis of a 360-day year of twelve 30-day months and, for any period shorter than a full monthly interest period, shall be computed on the basis of the actual number of days elapsed in such period. ARTICLE FOUR SATISFACTION AND DISCHARGE Section 401. Satisfaction and Discharge of Indenture. This Indenture shall cease to be of further effect (except as to any surviving rights of registration of transfer or exchange of Securities herein expressly provided for, as to the obligations of the Company pursuant to Sections 306, 402, 1002 and 1003, and as to the obligation of the Company to pay Additional Interest when due), and the Trustee, on demand of and at the expense of the Company, shall execute proper instruments acknowledging satisfaction and discharge of this Indenture, when (1) either (A) all Securities theretofore authenticated and delivered (other than (i) Securities which have been destroyed, lost or stolen and which have been replaced or paid as provided in Section 306 and (ii) Securities for whose payment money has theretofore been deposited in trust or segregated and held in trust by the Company and thereafter repaid to the Company or discharged from such trust, as provided in Section 1003) have been delivered to the Trustee for cancellation; or (B) all such Securities not theretofore delivered to the Trustee for cancellation (i) have become due and payable, or (ii) will become due and payable at their Stated Maturity within one year, or 29 (iii) are to be called for redemption within one year under arrangements satisfactory to the Trustee for the giving of notice of redemption by the Trustee in the name, and at the expense, of the Company and the Company, in the case of (i), (ii) or (iii) above, has deposited or caused to be deposited with the Trustee as trust funds in trust for the purpose an amount sufficient to pay and discharge the entire indebtedness on such Securities not theretofore delivered to the Trustee for cancellation, for principal and interest (including Additional Interest) to the date of such deposit (in the case of Securities which have become due and payable) or to the Stated Maturity or Redemption Date, as the case may be; (2) the Company has paid or caused to be paid all other sums payable hereunder by the Company; and (3) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent herein provided for relating to the satisfaction and discharge of this Indenture have been complied with. Notwithstanding the satisfaction and discharge of this Indenture, the obligations of the Company to the Trustee under Section 607 and, if money shall have been deposited with the Trustee pursuant to subclause (B) of Clause (1) of this Section or if money and/or U.S. Government Obligations shall have been deposited with the Trustee pursuant to Section 403, the obligations of the Trustee under Section 402 and the last paragraph of Section 1003 shall survive. Section 402. Application of Trust Money. Subject to the provisions of the last paragraph of Section 1003, all money deposited with the Trustee pursuant to Section 401, all money and/or U.S. Government Obligations deposited with the Trustee pursuant to Section 403, and all money received by the Trustee in respect of U.S. Government Obligations deposited with the Trustee pursuant to Section 403 shall be held in trust and applied by it, in accordance with the provisions of the Securities and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as its own Paying Agent) as the Trustee may determine, to the Persons entitled thereto, of the principal and interest, if any, for whose payment such money has been deposited with the Trustee. The Trustee shall deliver or pay to the Company from time to time upon Company Request any money and/or U.S. 30 Government Obligations held by it as provided in Section 402 or in Section 403 which, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, are then in excess of the amount thereof which then would have been required to be deposited for the purpose for which such money and/or U.S. Government Obligations were deposited or received. Section 403. Defeasance and Discharge of Indenture. (1) Notwithstanding the provisions of Section 401 but subject to Section 403(2), the Company shall have the option, to be exercised by Board Resolution, to pay and discharge the entire indebtedness on all the Outstanding Securities; provided that the following conditions have been satisfied: (A) the Company shall have irrevocably deposited in trust with the Trustee as trust funds, for the purpose of making the following payments, specifically pledged as security for, and dedicated solely to, the benefit of Holders of Securities, money and/or U.S. Government Obligations for the payment of principal and each installment of interest on the Securities on their respective Stated Maturities, in accordance with this Indenture and the Securities; (B) the Company shall have delivered to the Trustee a certificate (addressed to the Trustee) from a nationally recognized firm of independent certified public accountants expressing their opinion that the payment of principal and interest when due and without reinvestment on the deposited U.S. Government Obligations plus any deposited money without investment will provide cash at such times and in such amounts (but, in the case of the option to defease the debt in its entirety only, not more than such amounts) as will be sufficient to pay principal and each installment of interest on all the Outstanding Securities on their respective Stated Maturities, in accordance with this Indenture and the Securities; (C) 91 days pass after the deposit is made or, if longer, the day following the expiration of the longest preference period applicable to the Company in respect of such deposit occurs (it being understood that the condition in this clause (C) is a condition subsequent and shall not be deemed satisfied until the expiration of such period), and during such period no Event of Default or event which after notice or lapse of time, or both, would become an Event of Default specified in Section 501(5) or Section 501(6) occurs which is continuing at the end of the period; (D) no Event of Default or event which after notice or lapse of time, or both, would become an Event of Default has occurred and is continuing on the date of such deposit and after giving effect thereto; 31 (E) the exercise of the defeasance options does not constitute a default under, or a breach or violation of, this Indenture or any other agreement or instrument to which the Company is a party or by which it is bound; (F) the Company delivers to the Trustee an Opinion of Counsel to the effect that the trust resulting from the deposit does not constitute, or is qualified as, a regulated investment company under the Investment Company Act of 1940; (G) the Company delivers to the Trustee an Opinion of Counsel to the effect that the Company has received from, or there has been published by, the United States Internal Revenue Service a ruling, or since the date of this Indenture there has been a change in tax law in either case to the effect that, and based thereon such opinion will confirm that, holders of Securities will not recognize gain or loss for federal income tax purposes as a result of such deposit, defeasance and discharge and will be subject to federal income tax on the same amount, in the same manner and at the same time as would have been the case if such deposit, defeasance and discharge was not to occur; (H) the Company shall have delivered to the Trustee an Officers' Certificate to the effect that such defeasance shall not cause any Securities then listed on any registered national securities exchange under the Securities Exchange Act of 1934, as amended, to be delisted; (I) such defeasance shall not cause the Trustee for the Securities to have a conflicting interest as specified in Section 608 or for the purposes of the Trust Indenture Act with respect to any securities of the Company; (J) the Company shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent and subsequent to the defeasance and discharge of the entire indebtedness on all Outstanding Securities as contemplated by this Section 403 have been complied with; (K) at the time of such deposit: (i) no default in the payment of all or a portion of principal of (or premium, if any) or interest on any Senior Indebtedness shall have occurred and be continuing, and no event of default with respect to any Senior Indebtedness shall have occurred and be continuing and shall have resulted in such Senior Indebtedness becoming or being declared due and payable prior to the date on which it would otherwise have become due and payable and (ii) no other event of default with respect to any Senior Indebtedness shall have occurred and be continuing permitting (after notice or the lapse of time, or both) the holders of such Senior Indebtedness (or a trustee on behalf of the holders thereof) to declare such Senior Indebtedness due and payable prior to the 32 date on which it would otherwise have become due and payable, or, in the case of either Clause (i) or Clause (ii) above, each such default or event of default shall have been cured or waived or shall have ceased to exist; and (L) Such defeasance shall not result in the trust arising from such deposit constituting an investment company as defined in the Investment Company Act of 1940, as amended, or such trust shall be qualified under such act or exempt from regulation thereunder. (2) Provided that all the conditions referred to in Clauses (A) through (L) of Section 403(1) have been satisfied, all of the provisions of this Indenture as they relate to the Outstanding Securities (except the provisions relating to (i) the rights of Holders of Securities to receive, from the trust funds described in Clause (A) of Section 403(1), payment of the principal of and any installment of interest on such Securities on the Stated Maturity or Redemption Date, as the case may be, of such principal or installment of interest in accordance with the terms of this Indenture and of the Securities, (ii) the Company's obligations with respect to such Securities under Section 304, Section 305, Section 306, Section 1002 and Section 1003 of this Indenture, (iii) the rights, powers, trusts, duties, and immunities of the Trustee under this Indenture, (iv) the Company's obligations to pay Additional Interest as and when due in accordance with the terms of this Indenture and the Securities, and (v) this Article Four) shall no longer be in effect with respect to the Securities, and the Trustee, at the expense of the Company, shall, upon Company Request, execute proper instruments acknowledging the same. Section 404. Reinstatement. If the Trustee or any Paying Agent shall be unable to apply any money or U.S. Government Obligations in accordance with Section 401 or Section 403 by reason of any legal proceeding or by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, the Company's obligations under the Securities and under this Indenture with respect thereto shall be revived and reinstated as though no deposit had occurred pursuant to Section 401 or Section 403, until such time as the Trustee or such Paying Agent shall be permitted to apply all such money or obligations in accordance with Section 401 or Section 403, provided, however, that if the Company shall have made any payment of principal of or interest on any Securities because of the reinstatement of its obligations, the Company shall be subrogated to the rights of the Holders of such Securities to receive such payment from the money or U.S. Government Obligations held by the Trustee or such Paying Agent. 33 ARTICLE FIVE REMEDIES Section 501. Events of Default. "Event of Default", wherever used herein, means any one of the following events (whatever the reason for such Event of Default and whether it shall be occasioned by the provisions of Article Eleven or be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body): (1) failure for 10 days to pay any interest on the Securities, including any Additional Interest in respect thereof, when due; provided that a valid extension of the interest payment period by the Company pursuant to this Indenture shall not constitute a default in the payment of interest for this purpose; or (2) failure to pay any principal or premium, if any, on the Securities when due, whether at maturity, upon redemption by declaration or otherwise; or (3) failure by the Company to observe or perform any other covenant contained herein for a period of 90 days after written notice to the Company from any Holder of the Securities or any holder of Preferred Securities; or (4) the dissolution, winding up, or termination (other than any termination within the meaning of section 708(b)(1)(B) of the Internal Revenue Code of 1986 or equivalent provision of subsequent law, which termination does not constitute a termination of COMSAT Capital for any other purpose) of COMSAT Capital, except in connection with the distribution of Securities to the holders of Preferred Securities in liquidation of COMSAT Capital pursuant to Section 6.2(c) or 9.12 of the Limited Partnership Agreement and in connection with certain mergers, consolidations or amalgamations permitted by Section 9.12 of the Limited Partnership Agreement; or (5) entry by a court having jurisdiction in the premises of (A) a decree or order for relief in respect of the Company in an involuntary case or proceeding under any applicable Federal or State bankruptcy, insolvency, reorganization or other similar law or (B) a decree or order adjudging the Company a bankrupt or insolvent, or approving as properly filed a petition seeking reorganization, arrangement, adjustment or composition of or in respect of the Company under any applicable Federal or State law, or appointing a custodian, receiver, liquidator, assignee, trustee, sequestrator or other similar official of the Company or of any substantial part of the property of either, or 34 ordering the winding up or liquidation of its affairs, and the continuance of any such decree or order for relief or any such other decree or order unstayed and in effect for a period of 60 consecutive days; or (6) the commencement by the Company of a voluntary case or proceeding under any applicable Federal or State bankruptcy, insolvency, reorganization or other similar law or of any other case or proceeding to be adjudicated a bankrupt or insolvent, or the consent by the Company to the entry of a decree or order for relief in respect of itself in an involuntary case or proceeding under any applicable Federal or State bankruptcy, insolvency, reorganization or other similar law or to the commencement of any bankruptcy or insolvency case or proceeding against the Company, or the filing by the Company of a petition or answer or consent seeking reorganization or relief under any applicable Federal or State law, or the consent by the Company to the filing of such petition or to the appointment of or taking possession by a custodian, receiver, liquidator, assignee, trustee, sequestrator or other similar official of the Company or of any substantial part of the property of the Company, or the making by the Company of an assignment for the benefit of creditors, or the admission by the Company in writing of its inability to pay its debts generally as they become due, or the taking of corporate action by the Company the Company in furtherance of any such action. Section 502. Acceleration of Maturity; Rescission and Annulment. If an Event of Default occurs and is continuing, then and in every such case, the Trustee or the Holders of not less than 25% in principal amount of the Outstanding Securities may declare the principal of, premium, if any, and interest (including any Additional Interest) on the Securities due and payable immediately, by a notice in writing to the Company (and to the Trustee if given by Holders), and upon any such declaration, such principal, premium, if any, and all accrued interest shall become immediately due and payable; provided, however, that after such acceleration, but before a judgment or decree based on acceleration, the Holders of a majority in aggregate principal amount of Outstanding Securities, by written notice to the Company and the Trustee, may rescind and annul such acceleration if (1) the Company has paid or deposited with the Trustee a sum sufficient to pay (A) all overdue interest (including any Additional Interest) on all Securities, (B) the principal of any Securities which have become due otherwise than by such declaration of 35 acceleration and interest thereon at the rate borne by the Securities, (C) to the extent that payment of such interest is lawful, interest upon overdue interest at the rate borne by the Securities, and (D) all sums paid or advanced by the Trustee hereunder and the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel; and (2) all Events of Default, other than the non-payment of the principal of Securities which have become due solely by such declaration of acceleration, have been cured or waived as provided in Section 513. No such rescission shall affect any subsequent default or impair any right consequent thereon. Section 503. Collection of Indebtedness and Suits for Enforcement by Trustee. The Company covenants that if (1) default is made in the payment of any interest (including any Additional Interest) on any Security when such interest becomes due and payable and such default continues for a period of 30 days, or (2) default is made in the payment of the principal of any Security at the Maturity thereof, the Company will, upon demand of the Trustee, pay to it, for the benefit of the Holders of such Securities, the whole amount then due and payable on such Securities for principal and interest (including any Additional Interest), and, to the extent that payment thereof shall be legally enforceable, interest on any overdue principal and on any overdue interest (including any Additional Interest), at the rate borne by the Securities, and, in addition thereto, such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel. If an Event of Default occurs and is continuing, the Trustee may in its discretion proceed to protect and enforce its rights and the rights of the Holders by such appropriate judicial proceedings as the Trustee shall deem most effectual to protect and enforce any such rights, whether for the specific enforcement of any covenant or agreement in this Indenture or in aid of the 36 exercise of any power granted herein, or to enforce any other proper remedy. Section 504. Trustee May File Proofs of Claim. In case of any judicial proceeding relative to the Company (or any other obligor upon the Securities), its property or its creditors, the Trustee shall be entitled and empowered, by intervention in such proceeding or otherwise, to take any and all actions authorized under the Trust Indenture Act in order to have claims of the Holders and the Trustee allowed in any such proceeding. In particular, the Trustee shall be authorized to collect and receive any moneys or other property payable or deliverable on any such claims and to distribute the same; and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Trustee and, in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 607. No provision of this Indenture shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Securities or the rights of any Holder thereof or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding. Section 505. Trustee May Enforce Claims Without Possession of Securities. All rights of action and claims under this Indenture or the Securities may be prosecuted and enforced by the Trustee without the possession of any of the Securities or the production thereof in any proceeding relating thereto, and any such proceeding instituted by the Trustee shall be brought in its own name as trustee of an express trust, and any recovery of judgment shall, after provision for the payment of the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, be for the ratable benefit of the Holders of the Securities in respect of which such judgment has been recovered. Section 506. Application of Money Collected. Subject to Article Eleven, any money collected by the Trustee pursuant to this Article shall be applied in the 37 following order, at the date or dates fixed by the Trustee and, in case of the distribution of such money on account of principal, premium, if any, or interest (including any Additional Interest), upon presentation of the Securities and the notation thereon of the payment if only partially paid and upon surrender thereof if fully paid: First: To the payment of all amounts due the Trustee under Section 607; and Second: To the payment of the amounts then due and unpaid for principal of and interest (including any Additional Interest) on the Securities in respect of which or for the benefit of which such money has been collected, ratably, without preference or priority of any kind, according to the amounts due and payable on such Securities for principal and interest (including any Additional Interest), respectively. Section 507. Limitation on Suits. No Holder of any Security will have any right to institute any proceeding with respect to this Indenture, or for any remedy hereunder, unless (1) such Holder shall have previously given written notice to the Trustee of a continuing Event of Default; (2) if COMSAT Capital is not the sole Holder of Securities, the Holders of at least 25% in aggregate principal amount of the Outstanding Securities shall have made written request to the Trustee to institute such proceedings in respect of such Event of Default in its own name as Trustee hereunder; (3) such Holder or Holders shall have offered to the Trustee reasonable indemnity against the costs, expenses and liabilities to be incurred in compliance with such request; (4) the Trustee shall not have received from the Holders of a majority in aggregate principal amount of the Outstanding Securities a direction inconsistent with such written request; and (5) the Trustee, for 60 days after its receipt of such notice, request and offer of indemnity, has failed to institute any such proceeding; it being understood and intended that no one or more Holders shall have any right in any manner whatever by virtue of, or by availing of, any provision of this Indenture to affect, disturb or prejudice the rights of any other Holders, or to obtain or to seek to obtain priority or preference over any other Holders or to enforce any right under this Indenture, except in the manner herein provided and for the equal and ratable benefit of all the 38 Holders. However, the limitations contained in the previous sentence do not apply to a suit instituted by a Holder of a Security for enforcement of payment of principal of or interest on such Security on or after the respective due dates expressed in such Security. Section 508. Unconditional Right of Holders to Receive Principal and Interest. Notwithstanding any other provision in this Indenture, the Holder of any Security shall have the right, which is absolute and unconditional, to receive payment of the principal of and (subject to Section 307) interest (including any Additional Interest) on such Security on the respective Stated Maturities expressed in such Security (or, in the case of redemption, on the Redemption Date) and to institute suit for the enforcement of any such payment, and such rights shall not be impaired without the consent of such Holder. Section 509. Restoration of Rights and Remedies. If the Trustee or any Holder has instituted any proceeding to enforce any right or remedy under this Indenture and such proceeding has been discontinued or abandoned for any reason, or has been determined adversely to the Trustee or to such Holder, then and in every such case, subject to any determination in such proceeding, the Company, the Trustee and the Holders shall be restored severally and respectively to their former positions hereunder and thereafter all rights and remedies of the Trustee and the Holders shall continue as though no such proceeding had been instituted. Section 510. Rights and Remedies Cumulative. Except as otherwise provided with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities in the last paragraph of Section 306, no right or remedy herein conferred upon or reserved to the Trustee or to the Holders is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy. Section 511. Delay or Omission Not Waiver. No delay or omission of the Trustee or of any Holder of any Security to exercise any right or remedy accruing upon any 39 Event of Default shall impair any such right or remedy or constitute a waiver of any such Event of Default or an acquiescence therein. Every right and remedy given by this Article or by law to the Trustee or to the Holders may be exercised from time to time, and as often as may be deemed expedient, by the Trustee or by the Holders, as the case may be. Section 512. Control by Holders. The Holders of a majority in aggregate principal amount of the Outstanding Securities shall have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on the Trustee, provided that (1) such direction shall not be in conflict with any rule of law or with this Indenture; (2) subject to the provisions of Section 601, the Trustee shall have the right to decline to follow any such direction if the Trustee determines that the action so directed may not be lawfully taken, or if a Responsible Officer or Officers determines that the action so directed would be unjustly prejudicial to the Holders of Securities not taking part in such direction or would involve the Trustee in personal liability; and (3) the Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction. Section 513. Waiver of Past Defaults. Subject to Section 1006 hereof, the holders of not less than a majority in aggregate outstanding principal amount of the Securities may, on behalf of the holders of all the Securities, waive any past default hereunder and its consequences, except a default (1) in the payment of the principal or interest (including any Additional Interest) on any Security; or (2) in respect of a covenant or provision hereof which under Article Nine cannot be modified or amended without the consent of the Holder of each Outstanding Security affected. Upon any such waiver, such default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured, for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other default or impair any right consequent thereon. 40 Section 514. Undertaking for Costs. In any suit for the enforcement of any right or remedy under this Indenture, or in any suit against the Trustee for any action taken, suffered or omitted by it as Trustee, a court may require any party litigant in such suit to file an undertaking to pay the costs of such suit, and may assess costs against any such party litigant, in the manner and to the extent provided in the Trust Indenture Act; provided, that neither this Section nor the Trust Indenture Act shall be deemed to authorize any court to require such an undertaking or to make such an assessment in any suit instituted by the Company or in any suit for the enforcement of the right to receive the principal of and interest (including any Additional Interest) on any Security. Section 515. Waiver of Stay or Extension Laws. The Company covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, or plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension law wherever enacted, now or at any time hereafter in force, which may affect the covenants or the performance of this Indenture; and the Company (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law and covenants that it will not hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted. ARTICLE SIX THE TRUSTEE Section 601. Certain Duties and Responsibilities. The Trustee, prior to the occurrence of an Event of Default with respect to Securities and after the curing of all Events of Default with respect to Securities which may have occurred, shall undertake to perform with respect to Securities only such duties as are specifically set forth in this Indenture and no implied covenants shall be read into this Indenture against the Trustee. In case an Event of Default with respect to Securities has occurred (which has not been cured or waived), the Trustee shall exercise with respect to Securities such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in their exercise, as a prudent individual would exercise or use under the circumstances in the conduct of his or her own affairs. 41 No provision of this Indenture shall be construed to relieve the Trustee from liability for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that: (a) prior to the occurrence of an Event of Default with respect to Securities and after the curing or waiving of all such Events of Default which may have occurred: (1) the duties and obligations of the Trustee shall with respect to the Securities be determined solely by the express provisions of this Indenture, and the Trustee shall not be liable with respect to such Securities except for the performance of such duties and obligations as are specifically set forth in this Indenture, and no implied covenants or obligations shall be read into this Indenture against the Trustee; and (2) in the absence of bad faith on the part of the Trustee, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon any certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture; but in the case of any such certificates or opinions which by any provision hereof are specifically required to be furnished to the Trustee, the Trustee shall be under a duty to examine the same to determine whether or not they conform to the requirements of this Indenture; (b) the Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer or Responsible Officers of the Trustee, unless it shall be proved that the Trustee was negligent in ascertaining the pertinent facts; (c) the Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of the Holders of not less than a majority in principal amount of the Securities at the time Outstanding relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee under this Indenture with respect to the Securities; and (d) none of the provisions contained in this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur personal financial liability in the performance of any of its duties or in the exercise of any of its rights or powers, if it shall have reasonable grounds for believing that the repayment of such funds or liability is not reasonably assured to it under the terms of this Indenture or adequate indemnity against such risk is not reasonably assured to it. 42 Section 602. Notice of Defaults. The Trustee shall give the Holders notice of any default hereunder as and to the extent provided by the Trust Indenture Act; provided, however, that in the case of any default of the character specified in Section 501(3), no such notice to Holders shall be given until at least 60 days after the occurrence thereof. For the purpose of this Section, the term "default" means any event which is, or after notice or lapse of time or both would become, an Event of Default. Section 603. Certain Rights of Trustee. Subject to the provisions of Section 601: (1) the Trustee may rely and shall be protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties; (2) any request or direction of the Company mentioned herein shall be sufficiently evidenced by a Company Request or Company Order and any resolution of the Board of Directors may be sufficiently evidenced by a Board Resolution; (3) whenever in the administration of this Indenture the Trustee shall deem it desirable that a matter be proved or established prior to taking, suffering or omitting any action hereunder, the Trustee (unless other evidence be herein specifically prescribed) may, in the absence of bad faith on its part, rely upon an Officers' Certificate; (4) the Trustee may consult with counsel and the written advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon; (5) the Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Holders pursuant to this Indenture, unless such Holders shall have offered to the Trustee reasonable indemnity against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction; (6) the Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other 43 evidence of indebtedness or other paper or document, but the Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit, and, if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled to examine the books, records and premises of the Company, personally or by agent or attorney; and (7) the Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys and the Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed with due care by it hereunder. Section 604. Not Responsible for Recitals or Issuance of Securities. The recitals contained herein and in the Securities, except the Trustee's certificates of authentication, shall be taken as the statements of the Company, and the Trustee assumes no responsibility for their correctness. The Trustee makes no representations as to the validity or sufficiency of this Indenture or of the Securities. The Trustee shall not be accountable for the use or application by the Company of Securities or the proceeds thereof. Section 605. May Hold Securities. The Trustee, any Paying Agent, any Security Registrar or any other agent of the Company, in its individual or any other capacity, may become the owner or pledgee of Securities and, subject to Sections 608 and 613, may otherwise deal with the Company with the same rights it would have if it were not Trustee, Paying Agent, Security Registrar or such other agent. Section 606. Money Held in Trust. Money held by the Trustee in trust hereunder need not be segregated from other funds except to the extent required by law. The Trustee shall be under no liability for interest on any money received by it hereunder except as otherwise provided herein or agreed with the Company. Section 607. Compensation and Reimbursement. The Company agrees (1) to pay to the Trustee from time to time reasonable compensation for all services rendered by it hereunder 44 (which compensation shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust); (2) except as otherwise expressly provided herein, to reimburse the Trustee upon its request for all reasonable expenses, disbursements and advances incurred or made by the Trustee in accordance with any provision of this Indenture (including the reasonable compensation and the expenses and disbursements of its agents and counsel), except any such expense disbursement or advance as may be attributable to its negligence or bad faith; and (3) to indemnify the Trustee for, and to hold it harmless against, any loss, liability or expense incurred without negligence or bad faith on its part, arising out of or in connection with the acceptance or administration of this trust, including the costs and expenses of defending itself against any claim or liability in connection with the exercise or performance of any of its powers or duties hereunder. Section 608. Disqualification; Conflicting Interests. If the Trustee has or shall acquire a conflicting interest within the meaning of the Trust Indenture Act, the Trustee shall either eliminate such interest or resign, to the extent and in the manner provided by, and subject to the provisions of, the Trust Indenture Act and this Indenture. Section 609. Corporate Trustee Required; Eligibility. There shall at all times be a Trustee hereunder which shall be a Person that is eligible pursuant to the Trust Indenture Act to act as such and has a combined capital and surplus of at least $50,000,000. If such Person publishes reports of condition at least annually, pursuant to law or to the requirements of said supervising or examining authority, then for the purposes of this Section, the combined capital and surplus of such Person shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section, it shall resign immediately in the manner and with the effect hereinafter specified in this Article. Section 610. Resignation and Removal; Appointment of Successor. (a) No resignation or removal of the Trustee and no appointment of a successor Trustee pursuant to this Article shall become effective until the acceptance of appointment by the successor Trustee under Section 611. 45 (b) The Trustee may resign at any time by giving written notice thereof to the Company. If an instrument of acceptance by a successor Trustee shall not have been delivered to the Trustee within 30 days after the giving of such notice of resignation, the resigning Trustee may petition any court of competent jurisdiction for the appointment of a successor Trustee. (c) The Trustee may be removed at any time by Act of the Holders of a majority in principal amount of the Outstanding Securities, delivered to the Trustee and to the Company. (d) If at any time: (1) the Trustee shall fail to comply with Section 608 after written request therefor by the Company or by any Holder who has been a bona fide Holder of a Security for at least six months, or (2) the Trustee shall cease to be eligible under Section 609 and shall fail to resign after written request therefor by the Company or by any such Holder, or (3) the Trustee shall become incapable of acting or shall be adjudged a bankrupt or insolvent or a receiver of the Trustee or of its property shall be appointed or any public officer shall take charge or control of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation, then, in any such case, (i) the Company by a Board Resolution may remove the Trustee, or (ii) subject to Section 514, any Holder who has been a bona fide Holder of a Security for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. (e) If the Trustee shall resign, be removed or become incapable of acting, or if a vacancy shall occur in the office of Trustee for any cause, the Company, by a Board Resolution, shall promptly appoint a successor Trustee if, within one year after such resignation, removal or incapability, or the occurrence of such vacancy, a successor Trustee shall be appointed by Act of the Holders of a majority in principal amount of the Outstanding Securities delivered to the Company and the retiring Trustee, the successor Trustee so appointed shall, forthwith upon its acceptance of such appointment, become the successor Trustee and supersede the successor Trustee appointed by the Company. If no successor Trustee shall have been so appointed by the Company or the Holders and accepted appointment in the manner hereinafter provided, any Holder who has been a bona fide Holder of a 46 Security for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the appointment of a successor Trustee. (f) The Company shall give notice of each resignation and each removal of the Trustee and each appointment of a successor Trustee to all Holders in the manner provided in Section 106. Each notice shall include the name of the successor Trustee and the address of its Corporate Trust Office. Section 611. Acceptance of Appointment by Successor. Every successor Trustee appointed hereunder shall execute, acknowledge and deliver to the Company and to the retiring Trustee an instrument accepting such appointment, and thereupon the resignation or removal of the retiring Trustee shall become effective and such successor Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Trustee; provided that, on request of the Company or the successor Trustee, such retiring Trustee shall, upon payment of its charges, execute and deliver an instrument transferring to such successor Trustee all the rights, powers and trusts of the retiring Trustee and shall duly assign, transfer and deliver to such successor trustee all property and money held by such retiring Trustee hereunder. Upon request of any such successor Trustee, the Company shall execute any and all Instruments for more fully and certainly vesting in and confirming to such successor Trustee all such rights, powers and trusts. No successor Trustee shall accept its appointment unless at the time of such acceptance such successor Trustee shall be qualified and eligible under this Article. Section 612. Merger, Conversion, Consolidation or Succession to Business. Any corporation into which the Trustee may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Trustee shall be a party, or any corporation succeeding to all or substantially all the corporate trust business of the Trustee, shall be the successor of the Trustee hereunder, provided that such corporation shall be otherwise qualified and eligible under this Article, without the execution or filing of any paper or any further act on the part of any of the parties hereto. In case any Securities shall have been authenticated, but not delivered, by the Trustee then in office, any successor by merger, conversion or consolidation to such authenticating Trustee may adopt such authentication and deliver the Securities so authenticated with the same effect as 47 if such successor Trustee had itself authenticated such Securities. Section 613. Preferential Collection of Claims Against Company. If and when the Trustee shall be or become a creditor of the Company (or any other obligor upon the Securities), the Trustee shall be subject to the provisions of the Trust Indenture Act regarding the collection of claims against the Company (or any such other obligor). ARTICLE SEVEN HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY Section 701. Company to Furnish Trustee Names and Addresses of Holders. The Company will furnish or cause to be furnished to the Trustee (a) semiannually, not later than January 15 and July 15 in each year, a list, in such form as the Trustee may reasonably require, of the names and addresses of the Holders as of a date not more than 15 days prior to the delivery thereof, and (b) at such other times as the Trustee may request in writing, within 30 days after the receipt by the Company of any such request, a list of similar form and content as of a date not more than 15 days prior to the time such list is furnished; excluding from any such list names and addresses received by the Trustee in its capacity as Security Registrar. Section 702. Preservation of Information; Communications to Holders. (a) The Trustee shall preserve, in as current a form as is reasonably practicable, the names and addresses of Holders contained in the most recent list furnished to the Trustee as provided in Section 701 and the names and addresses of Holders received by the Trustee in its capacity as Security Registrar. The Trustee may destroy any list furnished to it as provided in Section 701 upon receipt of a new list so furnished. (b) The rights of Holders to communicate with other Holders with respect to their rights under this Indenture or 48 under the Securities, and the corresponding rights and duties of the Trustee, shall be as provided by the Trust Indenture Act. (c) Every Holder of Securities, by receiving and holding the same, agrees with the Company and the Trustee that neither the Company nor the Trustee nor any agent of either of them shall be held accountable by reason of any disclosure of information as to names and addresses of Holders made pursuant to the Trust Indenture Act. Section 703. Reports by Trustee. (a) The Trustee shall transmit to Holders such reports concerning the Trustee and its actions under this Indenture as may be required pursuant to the Trust Indenture Act at the times and in the manner provided pursuant thereto. (b) A copy of each such report shall, at the time of such transmission to Holders, be filed by the Trustee with each stock exchange upon which the Securities are listed, with the Commission and with the Company. The Company will notify the Trustee when the Securities are listed on any stock exchange. Section 704. Reports by Company. The Company shall file with the Trustee and the Commission, and transmit to Holders, such information, documents and other reports, and such summaries thereof, as may be required pursuant to the Trust Indenture Act at the times and in the manner provided pursuant to the Trust Indenture Act; provided that any such information, documents or reports required to be filed with the Commission pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 shall be filed with the Trustee within 15 days after the same is so required to be filed with the Commission. ARTICLE EIGHT CONSOLIDATION, MERGER, OR SALE OF ASSETS Section 801. No Restrictions. Nothing contained in this Indenture or in any of the Securities shall prevent any consolidation or merger of the Company with or into any other corporation or corporations (whether or not affiliated with the Company), or successive consolidations or mergers in which the Company or its successor or successors shall be a party or parties, or shall prevent any sale, conveyance, transfer or other disposition of the property of the Company or its successor or successors as an entirety, or 49 substantially as an entirety, to any other corporation (whether or not affiliated with the Company or its successor or successors) authorized to acquire and operate the same; provided, however, the Company hereby covenants and agrees that, upon any such consolidation, merger, sale, conveyance, transfer or other disposition, the due and punctual payment of the principal of and interest on the Securities, according to their tenor, and the due and punctual performance and observance of all the covenants and conditions of this Indenture with respect to the Securities to be kept or performed by the Company, shall be expressly assumed, by supplemental indenture (which shall conform to the provisions of the Trust Indenture Act, as then in effect) satisfactory in form to the Trustee executed and delivered to the Trustee by the entity formed by such consolidation, or into which the Company shall have been merged, or by the entity which shall have acquired such property. Section 802. Successor Substituted. (1) Upon any such consolidation, merger, sale, conveyance, transfer or other disposition, in accordance with Section 801 and upon the assumption by the successor corporation, by supplemental indenture, executed and delivered to the Trustee and satisfactory in form to the Trustee, of the due and punctual payment of the principal of and interest on all of the Outstanding Securities and the due and punctual performance of all of the covenants and conditions of this Indenture with respect to the Securities to be kept or performed by the Company, the successor Person formed by such consolidation, merger, sale, conveyance, transfer or other disposition, shall succeed to, and be substituted for, and may exercise every right and power of, the Company under this Indenture with the same effect as if such successor Person had been named as the Company herein, and thereafter the predecessor Person shall be relieved of all obligations and covenants under this Indenture and the Securities. (2) In case of any such consolidation, merger, sale, conveyance, transfer or other disposition such changes in phraseology and form (but not in substance) may be made in the Securities thereafter to be issued as may be appropriate. (3) Nothing contained in this Indenture or in any of the Securities shall prevent the Company from merging into itself or acquiring by purchase or otherwise all or any part of the property of any other corporation (whether or not affiliated with the Company). 50 ARTICLE NINE SUPPLEMENTAL INDENTURES Section 901. Supplemental Indentures Without Consent of Holders. Without the consent of any Holders, the Company, when authorized by a Board Resolution, and the Trustee, at any time and from time to time, may enter into one or more indentures supplemental hereto, in form satisfactory to the Trustee, for any of the following purposes: (1) to evidence the succession of another Person to the Company and the assumption by any such successor of the covenants of the Company contained herein and in the Securities; or (2) to add to the covenants of the Company for the benefit of the Holders, or to surrender any right or power herein conferred upon the Company; or (3) to secure the Securities; or (4) to cure any ambiguity, to correct or supplement any provision herein which may be defective or inconsistent with any other provision contained herein, or to make any other provisions with respect to matters or questions arising under this Indenture which shall not be inconsistent with the provisions of this Indenture, provided that such action pursuant to this Clause (4) shall not adversely affect the interests of the Holders of the Securities. The Trustee is hereby authorized to join with the Company in the execution of any such supplemental indenture, and to make any further appropriate agreements and stipulations which may be therein contained, but the Trustee shall not be obligated to enter into any such supplemental indenture which affects the Trustee's own rights, duties or immunities under this Indenture or otherwise. Any supplemental indenture authorized by the provisions of this Section may be executed by the Company and the Trustee without the consent of the holders of any of the Securities at the time Outstanding, notwithstanding any of the provisions of Section 902. No consent of the holders of any Preferred Securities shall be required in connection with any supplemental indenture entered into pursuant to this Section 901. 51 Section 902. Supplemental Indentures with Consent of Holders. With the consent of the holders of not less than a majority in principal amount of the Outstanding Securities, by Act of said Holders delivered to the Company and the Trustee, the Company, when authorized by a Board Resolution, and the Trustee may from time to time and at any time enter into an indenture or indentures supplemental hereto (which shall conform to the provisions of the Trust Indenture Act as then in effect) for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Indenture or of any supplemental indenture or of modifying in any manner the rights of the Holders under this Indenture; provided, however, that no such modification shall, without the consent of the Holder of each Outstanding Security affected thereby, (1) extend the Stated Maturity of the principal of (other than in accordance with the provisions of Section 301) or any installment of interest (including any Additional Interest) on any Security or reduce the principal amount thereof, or reduce the rate or extend the time of payment of interest thereon; or (2) reduce the percentage in principal amount of the Outstanding Securities, the consent of whose Holders is required for any such supplemental indenture; or (3) modify any of the provisions of this Section, Section 513 or Section 1006, except to increase any such percentage or to provide that certain other provisions of this Indenture cannot be modified or waived without the consent of the Holder of each Outstanding Security affected thereby. It shall not be necessary for any Act of Holders under this Section to approve the particular form of any proposed supplemental indenture, but it shall be sufficient if such Act shall approve the substance thereof. Promptly after the execution by the Company and the Trustee of any supplemental indenture pursuant to the provisions of this Section, the Trustee shall transmit by mail, first-class postage prepaid, a notice, setting forth in general terms the substance of such supplemental indenture, to the Holders of all Outstanding the Securities as their names and addresses appear upon the Securities Register. Any failure of the Trustee to mail such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such supplemental indenture. Section 903. Execution of Supplemental Indentures. In executing, or accepting the additional trusts created by, any supplemental indenture permitted by this Article or the modifications thereby of the trusts created by this 52 Indenture, the Trustee shall be entitled to receive, and (subject to Section 601) shall be fully protected in relying upon, an Opinion of Counsel stating that the execution of such supplemental indenture is authorized or permitted by this Indenture. Upon the request of the Company, accompanied by a Board Resolution authorizing the execution of any such supplemental indenture, and upon the filing with the Trustee of evidence of the consent of Holders of the Securities required to consent thereto as aforesaid, the Trustee shall join with the Company in the execution of such supplemental indenture unless such supplemental indenture affects the Trustee's own rights, duties or immunities under this Indenture or otherwise, in which case the Trustee may in its discretion but shall not be obligated to enter into such supplemental indenture. Section 904. Effect of Supplemental Indentures. Upon the execution of any supplemental indenture under this Article, this Indenture shall be modified in accordance therewith, and such supplemental indenture shall form a part of this Indenture for all purposes; and the respective rights, limitations of rights, obligations, duties and immunities under this Indenture of the Trustee, the Company and the Holders of Securities shall thereafter be determined, exercised and enforced hereunder subject in all respects to such modifications and amendments. Section 905. Conformity with Trust Indenture Act. Every supplemental indenture executed pursuant to this Article shall conform to the requirements of the Trust Indenture Act. Section 906. Reference in Securities to Supplemental Indentures. Securities authenticated and delivered after the execution of any supplemental indenture pursuant to this Article may bear a notation in form approved by the Company, provided such form meets the requirements of any exchange upon which the Securities may be listed, as to any matter provided for in such supplemental indenture. If the Company shall so determine, new Securities so modified as to conform, in the opinion of the Board of Directors, to any such supplemental indenture may be prepared and executed by the Company and authenticated and delivered by the Trustee in exchange for Outstanding Securities. 53 ARTICLE TEN COVENANTS; REPRESENTATIONS AND WARRANTIES Section 1001. Payment of Principal and Interest. The Company will duly and punctually pay or cause to be paid the principal of and interest on the Securities in accordance with the terms of the Securities and this Indenture. Section 1002. Maintenance of Office or Agency. The Company will maintain in The City of New York an office or agency (i) where Securities may be presented or surrendered for payment, (ii) where Securities may be surrendered for registration of transfer or exchange, and (iii) where notices and demands to or upon the Company in respect of the Securities and this Indenture may be served. The Company will give prompt written notice to the Trustee of the location, and any change in the location, of such office or agency. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office of the Trustee, and the Company hereby appoints the Trustee as its agent to receive all such presentations, surrenders, notices and demands. The Company may also from time to time designate one or more other offices or agencies (in or outside The City of New York) where the Securities may be presented or surrendered for any or all such purposes and may from time to time rescind such designations; provided, however, that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in The City of New York for such purposes. The Company will give prompt written notice to the Trustee of any such designation or rescission and of any change in the location of any such other office or agency. Section 1003. Money for Securities Payments to Be Held in Trust. If the Company shall at any time act as its own Paying Agent, it will, on or before each due date of the principal of or interest on any of the Securities, segregate and hold in trust for the benefit of the Persons entitled thereto a sum sufficient to pay the principal or interest so becoming due until such sums shall be paid to such Persons or otherwise disposed of as herein provided and will promptly notify the Trustee of its action or failure so to act. 54 Whenever the Company shall have one or more Paying Agents, it will, prior to each due date of the principal of or interest on any Securities, deposit with a Paying Agent a sum sufficient to pay such amount, such sum to be held as provided by the Trust Indenture Act, and (unless such Paying Agent is the Trustee) the Company will promptly notify the Trustee of its action or failure so to act. The Company will cause each Paying Agent other than the Trustee to execute and deliver to the Trustee an instrument in which such Paying Agent shall agree with the Trustee, subject to the provisions of this Section, that such Paying Agent will (i) comply with the provisions of the Trust Indenture Act applicable to it as a Paying Agent and (ii) during the continuance of any default by the Company (or any other obligor upon the Securities) in the making of any payment in respect of the Securities, upon the written request of the Trustee, forthwith pay to the Trustee all sums held in trust by such Paying Agent as such. The Company may at any time, for the purpose of obtaining the satisfaction and discharge of this Indenture or for any other purpose, pay, or by Company Order direct any Paying Agent to pay, to the Trustee all sums held in trust by the Company or such Paying Agent, such sums to be held by the Trustee upon the same trusts as those upon which such sums were held by the Company or such Paying Agent; and, upon such payment by any Paying Agent to the Trustee, such Paying Agent shall be released from all further liability with respect to such money. Any money deposited with the Trustee or any Paying Agent, or then held by the Company, in trust for the payment of the principal of (or premium, if any) or interest on any Security and remaining unclaimed for two years after such principal or interest has become due and payable shall be paid to the Company on Company Request, or (if then held by the Company) shall be discharged from such trust; and the Holder of such Security shall thereafter, as an unsecured general creditor, look only to the Company for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money, and all liability of the Company as trustee thereof, shall thereupon cease. Section 1004. Statement by Officers as to Default. The Company will deliver to the Trustee, on or before May 15 in each calendar year in which any of the Securities are Outstanding, or on or before such other day in each calendar year as the Company and the Trustee may from time to time agree upon, an Officers' Certificate, stating whether or not to the best knowledge of the signers thereof the Company is in default in the performance and observance of any of the terms, provisions and conditions of this Indenture (without regard to any period of grace or requirement of notice provided hereunder) and, if the 55 Company shall be in default, specifying all such defaults and the nature and status thereof of which they may have knowledge. Section 1005. Existence. Subject to Article Eight, the Company will do or cause to be done all things necessary to preserve and keep in full force and effect its existence, rights (charter and statutory) and franchises; provided, however, that the Company shall not be required to preserve any such right or franchise if the Board of Directors shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company and that the loss thereof is not disadvantageous in any material respect to the Holders. Section 1006. Additional Covenants. The Company agrees it will not, directly or indirectly, declare or pay any dividend on, or redeem, purchase, acquire or make a distribution or liquidation payment with respect to, any of its Common Stock or preferred stock (other than as a result of a reclassification of such Common Stock or preferred stock or the exchange or conversion of one class or series of Common Stock or preferred stock for another class or series of Common Stock or preferred stock), or make any guarantee payments with respect to the foregoing, if at such time (a) there shall have occurred any event that, with the giving of notice or the lapse of time or both, would constitute an Event of Default hereunder, (b) the Company shall be in default with respect to its payment of any obligations under the Parent Guarantee or (c) the Company shall have given notice of its selection of an extended interest payment period as provided herein and such period, or any extension thereof, shall be continuing. The Company also covenants (i) to remain the sole General Partner of COMSAT Capital and maintain 100% ownership of the general partnership interests thereof; provided that any permitted successor of the Company under Article Eight may succeed to the Company's duties as General Partner, (ii) to contribute capital in an amount equal to at least 3% of the total capital contributions to COMSAT Capital, (iii) not to voluntarily dissolve, wind-up or terminate COMSAT Capital, except in connection with the distribution of Securities to the holders of Preferred Securities in liquidation of COMSAT Capital pursuant to Section 6.2(c) or 9.12 of the Limited Partnership Agreement and in connection with certain mergers, consolidations or amalgamations permitted by the Limited Partnership Agreement, (iv) to perform timely all of its duties as General Partner (including the duty to declare and pay Dividends on the Preferred Securities), and (v) to use its reasonable efforts to cause COMSAT Capital to remain a limited partnership except in connection with certain mergers, consolidations or amalgamations permitted by the Limited Partnership Agreement and otherwise to continue not to be treated 56 as an association taxable as a corporation for United States federal income tax purposes. The Company also covenants that so long as any Securities are held by COMSAT Capital, the General Partner shall not (i) direct the time, method and place of conducting any proceeding for any remedy available to the Trustee, or executing any trust or power conferred on the Trustee with respect to the Securities, (ii) waive any past default which is waivable under this Indenture, (iii) exercise any right to rescind or annul a declaration that the principal of all the Securities shall be due and payable, or (iv) consent to any amendment, modification or termination of this Indenture, where such consent shall be required, without, in each case, obtaining the prior approval of the holders of at least 66 2/3% or more in liquidation preference of the Preferred Securities then outstanding, provided, however, that where a consent under this Indenture would require the consent of each Holder affected thereby, no such consent shall be given by the General Partner without the prior consent of each holder of the Preferred Securities. The General Partner shall not revoke any action previously authorized or approved by a vote of the Preferred Securities, without the approval of the holders of Preferred Securities representing 66 2/3% or more of the aggregate liquidation preference of the Outstanding Preferred Securities. The General Partner shall notify all holders of the Preferred Securities of any notice of default received from the Trustee with respect to the Securities. The Company also covenants that if the Securities are distributed to the holders of the Preferred Securities upon the dissolution of COMSAT Capital, the Company will use its best efforts to list the Securities on the NYSE or on such other exchange as the Preferred Securities are then listed and traded on the same part of any such exchange. ARTICLE ELEVEN SUBORDINATION OF SECURITIES Section 1101. Securities Subordinate to Senior Indebtedness. The Company covenants and agrees, and each Holder of a Security, by his acceptance thereof, likewise covenants and agrees, that, to the extent and in the manner hereinafter set forth in this Article (subject to Article Four), the payment of the principal of, premium, if any, and interest (including any Additional Interest) on each and all of the Securities is hereby expressly made subordinate and junior in right of payment to the prior payment in full of all Senior Indebtedness of the Company, whether outstanding at the date of this Indenture or hereafter incurred. 57 Section 1102. Payment Over of Proceeds Upon Dissolution, Etc. Upon any payment by, or distribution of assets of, the Company to creditors upon any dissolution, winding-up, liquidation or reorganization of the Company, whether voluntary or involuntary or in bankruptcy, insolvency, receivership or other proceedings, all amounts due or to become due upon all Senior Indebtedness shall first be paid in full, or payment thereof provided for in money in accordance with its terms, before the Holders of the Securities are entitled to receive any payment or distribution of any kind or character whether in cash, property or securities, on account of the principal of or interest on the Securities or on account of any purchase, redemption or other acquisition of Securities by the Company, any Subsidiary of the Company, the Trustee or any Paying Agent (all such payments, distributions, purchases, redemptions and acquisitions herein referred to, individually and collectively, as a "Securities Payment"); any payment by, or distribution of assets of, the Company of any kind or character, whether in cash, property or securities, by set-off or otherwise, to which the Holders of the Securities or the Trustee would be entitled but for the provisions of this Article shall be paid by the Company or by any liquidating trustee or agent or other Person making such payment or distribution, or by the Holders of the Securities or by the Trustee under this Indenture if received by them or it, directly to the holders of Senior Indebtedness or their representative or representatives or to the trustee or trustees under any indenture under which any instruments evidencing any of such Senior Indebtedness may have been issued, ratably according to the aggregate amounts remaining unpaid on account of the Senior Indebtedness held or represented by each, to the extent necessary to pay all Senior Indebtedness in full, after giving effect to any concurrent payment to the holders of such Senior Indebtedness. In the event that, notwithstanding the foregoing provisions of this Section, the Trustee or the Holder of any Security shall have received any payment or distribution of assets of the Company of any kind or character, whether in cash, property or securities, prohibited by the foregoing before all Senior Indebtedness is paid in full or payment thereof provided for in cash, then and in such event such payment or distribution shall be paid over or delivered forthwith to the trustee in bankruptcy, receiver, liquidating trustee, custodian, assignee, agent or other Person making payment or distribution of assets of the Company for application to the payment of all Senior Indebtedness remaining unpaid, to the extent necessary to pay all Senior Indebtedness in full after giving effect to any concurrent payment to or for the holders of Senior Indebtedness. For purposes of this Article only, the words "any payment or distribution of any kind or character, whether in cash, property or securities" shall not be deemed to include a 58 payment or distribution of stock or securities of the Company provided for by a plan of reorganization or readjustment authorized by an order or decree of a court of competent jurisdiction in a reorganization proceeding under any applicable bankruptcy law or of any other corporation provided for by such plan of reorganization or readjustment which stock or securities are subordinated in right of payment to all then outstanding Senior Indebtedness to substantially the same extent, or to a greater extent than, the Securities are so subordinated as provided in this Article. The consolidation of the Company with, or the merger of the Company into, another Person or the liquidation or dissolution of the Company following the conveyance or transfer of all or substantially all of its properties and assets as an entirety to another Person upon the terms and conditions set forth in Article Eight hereof shall not be deemed a dissolution, winding-up, liquidation or reorganization for the purposes of this Section 1102 if the Person formed by such consolidation or into which the Company is merged or the Person which acquires by conveyance or transfer such Properties and assets, as the case may be, shall, as a part of such consolidation, merger, conveyance or transfer, comply with the conditions set forth in Article Eight. Section 1103. No Payment When Senior Indebtedness in Default. In the event that any Senior Payment Default (as defined below) shall have occurred, then no Securities Payment shall be made, nor shall any property of the Company or any Subsidiary of the Company be applied to the purchase, acquisition, retirement or redemption of the Securities, unless and until such Senior Payment Default shall have been cured or waived in writing or shall have ceased to exist or all amounts then due and payable in respect of such Senior Indebtedness (including amounts that have become and remain due by acceleration) shall have been paid in full in cash. "Senior Payment Default" means (a) any default in the payment of principal, premium, interest or any other payment due on any Senior Indebtedness continuing beyond the period of grace, if any, specified in the instrument evidencing such Senior Indebtedness, unless and until such default shall have been cured or waived or shall have ceased to exist, and (b) the acceleration of the maturity of any Senior Indebtedness because of a default. The provisions of this Section shall not apply to any payment on account of the principal or interest on the Securities with respect to which Section 1102 hereof would be applicable. Section 1104. Payment Permitted If No Default. Nothing contained in this Article or elsewhere in this Indenture or in any of the Securities shall prevent the Company, at any time except during the pendency of any dissolution, 59 winding-up, liquidation or reorganization of the Company referred to in Section 1102 hereof or under the conditions described in Section 1103 hereof, from making any payments on account of the principal or interest on the Securities. Section 1105. Subrogation to Rights of Holders of Senior Indebtedness. Subject to the payment in full of all Senior Indebtedness, the rights of the Holders of the Securities shall be subrogated to the rights of the holders of such Senior Indebtedness to receive payments and distributions of cash, property and securities applicable to the Senior Indebtedness until the principal of and interest on the Securities shall be paid in full. For purposes of such subrogation, no payments or distributions to the holders of the Senior Indebtedness of any cash, property or securities to which the Holders of the Securities or the Trustee would be entitled except for the provisions of this Article, and no payments over pursuant to the provisions of this Article to or for the benefit of the holders of Senior Indebtedness by Holders of the Securities or the Trustee, shall, as among the Company, its creditors other than holders of Senior Indebtedness and the Holders of the Securities, be deemed to be a payment or distribution by the Company to or on account of the Senior Indebtedness. Section 1106. Provisions Solely to Define Relative Rights. The provisions of this Article are and are intended solely for the purpose of defining the relative rights of the Holders on the one hand and the holders of Senior Indebtedness on the other hand. Nothing contained in this Article or elsewhere in this Indenture or in the Securities is intended to or shall (a) impair, as among the Company, its creditors other than holders of Senior Indebtedness and the Holders of the Securities, the obligation of the Company, which is absolute and unconditional, (and which, subject to the rights under this Article of the holders of Senior Indebtedness, is intended to rank equally with all other general obligations of the Company) to pay to the Holders of the Securities the principal of and interest (including any Additional Interest) on the Securities as and when the same shall become due and payable in accordance with their terms; or (b) affect the relative rights against the Company of the Holders of the Securities and creditors of the Company other than the holders of Senior Indebtedness; or (c) prevent the Trustee or the Holder of any Security from exercising all remedies otherwise permitted by applicable law upon default under this Indenture, subject to the rights, if any, under this Article of the holders of Senior Indebtedness to receive cash, property and securities otherwise payable or deliverable to the Trustee or such Holder. 60 Section 1107. Trustee to Effectuate Subordination. Each Holder of a Security by his or her acceptance thereof authorizes and directs the Trustee on his or her behalf to take such action as may be necessary or appropriate to effectuate the subordination provided in this Article and appoints the Trustee his attorney-in-fact for any and all such purposes, including, in the event of any dissolution, winding-up, liquidation or reorganization of the Company, whether in bankruptcy, insolvency, receivership proceedings, or otherwise, the timely filing of a claim for the unpaid balance of the Indebtedness of the Company owing to such Holder in the form required in such proceedings and the causing of such claim to be approved. If the Trustee does not file a proper claim at least 30 days before the expiration of the time to file such claim, then the holders of the Senior Indebtedness and their agents, trustees or other representatives are authorized to do so (but,shall in no event be liable for any failure to do so) for and on behalf of the Holders of the Securities. Section 1108. No Waiver of Subordination Provisions. No right of any present or future holder of any Senior Indebtedness to enforce subordination as herein provided shall at any time in any way be prejudiced or impaired by any act or failure to act on the part of the Company or by any act or failure to act, in good faith, by any such holder, or by any noncompliance by the Company with the terms, provisions and covenants of this Indenture, regardless of any knowledge thereof any such holder may have or be otherwise charged with. Without in any way limiting the generality of the foregoing paragraph, the holders of Senior Indebtedness may, at any time and from time to time, without the consent of or notice to the Trustee or the Holders of the Securities, without incurring responsibility to the Holders of the Securities and without impairing or releasing the subordination provided in this Article or the obligations hereunder of the Holders of the Securities to the holders of Senior Indebtedness, do any one or more of the following: (i) change the manner, place or terms of payment or extend the time of payment of, or renew or alter, Senior Indebtedness, or otherwise amend or supplement in any manner Senior Indebtedness or any instrument evidencing the same or any agreement under which Senior Indebtedness is outstanding; (ii) permit the Company to borrow, repay and then reborrow any or all of the Senior Indebtedness; (iii) sell, exchange, release or otherwise deal with any property pledged, mortgaged or otherwise securing Senior Indebtedness; (iv) release any Person liable in any manner for the collection of Senior Indebtedness; (v) exercise or refrain from exercising any rights against the Company and any other Person; and (vi) apply any sums received by them to Senior Indebtedness. 61 Section 1109. Notice to Trustee. The Company shall give prompt written notice to the Trustee of any fact known to the Company which would prohibit the making of any payment to or by the Trustee in respect of the Securities. Notwithstanding the provisions of this Article or any other provision of this Indenture, the Trustee shall not be charged with knowledge of the existence of any facts which would prohibit the making of any payment to or by the Trustee in respect of the Securities, unless and until a Responsible Officer of the Trustee shall have received written notice thereof from the Company, any holder of Senior Indebtedness, any Designated Senior Holder or any trustee, fiduciary or agent therefor; and, prior to the receipt of any such written notice, the Trustee, subject to the provisions of Section 601 hereof, shall be entitled in all respects to assume that no such facts exist; provided, however, that if the Trustee shall not have received the notice provided for in this Section at least three Business Days prior to the date upon which by the terms hereof any money may become payable for any purpose (including, without limitation, the payment of the principal of or interest on any Security), then, anything herein contained to the contrary notwithstanding, but without limiting the rights and remedies of the holders of Senior Indebtedness or any trustee, fiduciary or agent therefor, the Trustee shall have full power and authority to receive such money and to apply the same to the purpose for which such money was received and shall not be affected by any notice to the contrary which may be received by it within two Business Days prior to such date. Any notice required or permitted to be given to the Trustee by a holder of Senior Indebtedness or by any Designated Senior Holder shall be in writing and shall be sufficient for every purpose hereunder if in writing and either (i) sent via facsimile to the Trustee, the receipt of which shall be confirmed via telephone, or (ii) mailed, first class postage prepaid, or sent by overnight carrier, to the Trustee addressed to it at the address of its principal office specified in the first paragraph of this instrument or at any other address furnished in writing to such holder of Senior Indebtedness by the Trustee. Subject to the provisions of Section 601 hereof, the Trustee shall be entitled to rely on the delivery to it of a written notice by a Person representing himself to be a holder of Senior Indebtedness or Designated Senior Holder to establish that such notice has been given by a holder of Senior Indebtedness or Designated Senior Holder. In the event that the Trustee determines in good faith that further evidence is required with respect to the right of any Person as a holder of Senior Indebtedness or Designated Senior Holder to participate in any payment or distribution pursuant to this Article, the Trustee may request such Person to furnish evidence to the reasonable satisfaction of the Trustee as to the amount of Senior Indebtedness held by such Person, the extent to which such Person is entitled to participate in such payment or distribution and 62 any other facts pertinent to the rights of such Person under this Article, and if such evidence is not furnished, the Trustee may defer any payment to such Person pending judicial determination as to the right of such Person to receive such payment. Notwithstanding anything else contained herein, no notice, request or other communication to or with the Trustee shall be deemed given unless received by a Responsible officer at the Trustee's principal corporate trust office. Section 1110. Reliance on Judicial Order or Certificate of Liquidating Agent. Upon any payment or distribution of assets of the Company referred to in this Article, the Trustee, subject to the provisions of Section 601 hereof, and the Holders of the Securities shall be entitled to rely upon any order or decree entered by any court of competent jurisdiction in which such dissolution, winding-up, liquidation or reorganization proceedings are pending, or a certificate of the trustee in bankruptcy, receiver, liquidating trustee, custodian, assignee for the benefit of creditors, agent or other Person making such payment or distribution, delivered to the Trustee or to the Holders of Securities, for the purpose of ascertaining the Persons entitled to participate in such payment or distribution, the holders of the Senior Indebtedness and other indebtedness of the Company, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article. Section 1111. Trustee Not Fiduciary for Holders of Senior Indebtedness. The Trustee shall not be deemed to owe any fiduciary duty to the holders of Senior Indebtedness and shall not be liable to any such holders if it shall in good faith pay over or distribute to Holders of Securities or to the Company or to any other Person cash, property or securities to which any holders of Senior Indebtedness shall be entitled by virtue of this Article or otherwise. Section 1112. Rights of Trustee as Holder of Senior Indebtedness; Preservation of Trustee's Rights. The Trustee in its individual capacity shall be entitled to all the rights set forth in this Article with respect to any Senior Indebtedness which may at any time be held by it, to the same extent as any other holder of Senior Indebtedness, and nothing in this Indenture shall deprive the Trustee of any of its rights as such holder. 63 Nothing in this Article shall apply to claims of, or payments to, the Trustee under or pursuant to Section 607 hereof. Section 1113. Article Applicable to Paying Agents. In case at any time any Paying Agent other than the Trustee shall have been appointed by the Company and be then acting hereunder, the term "Trustee" as used in this Article shall in such case (unless the context otherwise requires) be construed as extending to and including such Paying Agent within its meaning as fully for all intents and purposes as if such Paying Agent were named in this Article in addition to or in place of the Trustee; provided, however, that Section 1111 hereof shall not apply to the Company or any Affiliate of the Company if it or such Affiliate acts as Paying Agent. Section 1114. Trust Moneys Not Subordinated. Notwithstanding anything contained herein to the contrary, payments from money or the proceeds of U.S. Government Obligations held in trust by the Trustee under Article Four for the payment of the principal of and interest (including Additional Interest) on the Securities shall not be subordinated to the prior payment of any Senior Indebtedness or subject to the restrictions set forth in this Article, and no Holder of Securities nor the Trustee shall be obligated to pay over any such amount to the Company, any holder of Senior Indebtedness, any Designated Senior Holder or any other creditor of the Company. ARTICLE TWELVE REDEMPTION OF SECURITIES Section 1201. Mandatory Redemption; Optional Redemption. (a) If COMSAT Capital redeems the Preferred Securities in accordance with the terms thereof, the Securities will become due and payable in a principal amount equal to the aggregate stated liquidation preference of the Preferred Securities so redeemed, together with any accrued and unpaid interest thereon, including Additional Interest, if any. Upon any such event, the Company shall redeem the Securities not later than the date of redemption of the Preferred Securities, and shall pay the Redemption Price therefor prior to 12:00 noon, New York City time, on the date of such redemption or at such other time on such earlier date as the Company and COMSAT Capital agree. (b) The Company shall have the right to redeem the Securities without premium or penalty, in whole or in part, 64 concurrent with the redemption by COMSAT Capital of the Preferred Securities (if any Preferred Securities are then outstanding), at any time or from time to time, on or after July 18, 2000, at a redemption price equal to 100% of the principal amount to be redeemed, plus any accrued and unpaid interest, including Additional Interest, if any, to the Redemption Date. In the event of any redemption in part, the Company shall not be required to (i) issue, register the transfer of or exchange any Security during a period beginning at the opening of business 15 days before any selection for redemption of Securities and ending at the close of business on the earliest date in which the relevant notice of redemption is deemed to have been given to all holders of Securities and (ii) register the transfer of or exchange any Securities so selected for redemption, in whole or in part, except the unredeemed portion of any Securities being redeemed in part. Section 1202. Applicability of Article. Redemption of Securities at the election of the Company, as permitted by Section 1201(b), shall be made in accordance with such provision and this Article. Section 1203. Election to Redeem; Notice to Trustee. The election of the Company to redeem Securities pursuant to Section 1201 shall be evidenced by a Board Resolution. In case of any redemption at the election of the Company, the Company shall, at least 30 days and no more than 60 days prior to the Redemption Date fixed by the Company, notify the Trustee of such Redemption Date and of the principal amount of Securities to be redeemed and provide a copy of the notice of redemption given to Holders of Securities to be redeemed pursuant to Section 1204. Section 1204. Notice of Redemption. Notice of redemption shall be given by first-class mail, postage prepaid, mailed not less than 30 nor more than 60 days prior to the Redemption Date, to each Holder of Securities to be redeemed, at his address appearing in the Security Register. All notices of redemption shall be irrevocable and shall state: (1) the Redemption Date, (2) the Redemption Price, 65 (3) that on the Redemption Date the Redemption Price will become due and payable upon each such Security to be redeemed and that interest thereon will cease to accrue on and after said date, and (4) the place or places where such Securities are to be surrendered for payment of the Redemption Price. Notice of redemption of Securities to be redeemed at the election of the Company shall be given by the Company or, at the Company's request, by the Trustee in the name and at the expense of the Company. Section 1205. Deposit of Redemption Price. Prior to any Redemption Date, the Company shall deposit with the Trustee or with a Paying Agent (or, if the Company is acting as its own Paying Agent, segregate and hold in trust as provided in Section 1003) an amount of money sufficient to pay the Redemption Price of, and (except if the Redemption Date shall be an Interest Payment Date) accrued interest on, all the Securities which are to be redeemed on that date. Section 1206. Securities Payable on Redemption Date. Notice of redemption having been given as aforesaid, the Securities so to be redeemed shall, on the Redemption Date, become due and payable at the Redemption Price therein specified, and from and after such date, unless the Company shall default in the payment of the Redemption Price and accrued interest, such Securities shall cease to bear interest. Upon surrender of any such Security for redemption in accordance with said notice, such Security shall be paid by the Company at the Redemption Price, together with accrued interest to the Redemption Date; provided, however, that installments of interest whose Stated Maturity is on or prior to the Redemption Date shall be payable to the Holders of such Securities, or one or more Predecessor Securities, registered as such at the close of business on the relevant record dates according to their terms and the provisions of Section 307. 66 If any Security called for redemption shall not be so paid upon surrender thereof for redemption, the principal shall, until paid, bear interest from the Redemption Date at the rate borne by the Security. 67 This instrument may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument. IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed, and their respective corporate seals to be hereunto affixed and attested, all as of the day and year first written above. COMSAT Corporation By: /s/ Bruce L. Crockett Bruce L. Crockett [SEAL] President and Chief Executive Officer Attest: /s/ Nancy E. Weber Assistant Secretary The First National Bank of Chicago By: /s/ John R. Prendiville [SEAL] Name: John R. Prendiville Its: Vice President Attest: /s/ Barbara G. Grosse 68 STATE OF MARYLAND ) ss.: COUNTY OF MONTGOMERY ) On the 14th day of July, 1995 before me personally came Bruce L. Crockett, to me known, who, being by me duly sworn, did depose and say that he is the President and Chief Executive Officer of COMSAT Corporation, a corporation described in and which executed the foregoing instrument; that he knows the seal of said corporation; that the seal affixed to said instrument is such corporate seal; that it was so affixed by order of the Board of Directors of said corporation; and that he signed his name thereto by authority of the Board of Directors of such corporation. /s/ Lesa D. Kopsidas [Seal] Notary Public ------------------ Lesa D. Kopsidas Notary Public State of Maryland My Commission Expires January 14, 1998 STATE OF ILLINOIS ) ss.: COUNTY OF COOK ) On the 13th day of July, 1995, before me personally came John Prendiville, to me known, who, being by me duly sworn, did depose and say that he is a Vice President of The First National Bank of Chicago, one of the corporations described in and which executed the foregoing instrument; that he knows the seal of said corporation; that the seal affixed to said instrument is such corporate seal; that it was so affixed by authority of the Board of Directors of said corporation, and that he signed his name thereto by like authority. /s/ Nilda Sierra [Seal] Notary Public Official Seal Nilda Sierra Notary Public, State of Illinois My Commission Expires 11/12/97 69 EX-10 5 Exhibit 10(a) Page 157 - 1 - ASSET PURCHASE AGREEMENT This Asset Purchase Agreement ("Agreement") is made and entered into as of May 24, 1995, by and between COMSAT Video Enterprises, Inc., a Delaware corporation ("Buyer"), and Le Club de Hockey Les Nordiques, Societe en Commandite (Limited Partnership) ("Seller"). WHEREAS, Seller is engaged in the business (the "Business") of operating two professional hockey teams playing under franchises with the National Hockey League (the "NHL") and the American Hockey League (the "AHL"); and WHEREAS, Seller wishes to sell to Buyer, and Buyer wishes to purchase from Seller, certain of Seller's assets and properties, subject to the assumption by Buyer of certain of the liabilities and obligations of Seller, all pursuant to the terms and conditions hereinafter set forth; and WHEREAS, Buyer would then relocate the professional hockey team playing under the NHL franchise to Denver, Colorado. NOW, THEREFORE, in consideration of the mutual covenants, agreements, representations and warranties contained herein, and other good and valuable consideration given and received by each party, the receipt of which is hereby acknowledged, the parties hereto agree as follows: ARTICLE 1 ACQUISITION ASSETS 1.1 Assets to be Conveyed. On the terms and subject to the conditions set forth in this Agreement, on the Closing Date (as hereinafter defined) Seller shall convey, transfer, assign, sell and deliver to Buyer, and Buyer shall acquire, accept and purchase from Seller, the following assets (collectively, the "Acquisition Assets"): (i) From the Closing Date, the right to membership and franchise in the NHL, to the full extent provided by the NHL Constitution, By-laws and rules (the "NHL Rules") (collectively, the "NHL Franchise"), including, without limitation: (a) Seller's right, title and interest in and to the National Hockey League Reserve Fund; (b) Seller's shares in National Hockey League Enterprises, Inc. ("NEI"); (c) Seller's shares in Intra-Continental Ensurer, Ltd. ("ICE"); and (d) Seller's right, title and interest in and to all claims, causes of action, choses in action, rights of recovery and rights of set-off of any kind, against any person or entity, which are owned or controlled by the NHL or its members as a collectivity of the NHL including, without - 2 - limitation, any such liens, security interests, pledges or other rights to payment or to enforce payment; provided, however, that Seller shall remain owner of all such right, title and interest in any and all amounts due, receivable or payable prior to the Closing Date even if paid after the Closing Date; (ii) From the Closing Date, the right to membership and franchise in the AHL, to the full extent provided by the AHL Constitution, By-laws and rules (the "AHL Rules") (collectively, the "AHL Franchise"), including, without limitation: (a) Seller's right, title and interest in and to the membership equity of the AHL; and (b) Seller's right, title and interest in and to all claims, causes of action, choses in action, rights of recovery and rights of set-off of any kind, against any person or entity, which are owned or controlled by the AHL or its members as a collectivity of the AHL including, without limitation, any such liens, security interests, pledges or other rights to payment or to enforce payment; provided, however, that Seller shall remain owner of all such rights, title and interest in any and all amounts due, receivable or payable prior to the Closing Date even if paid after the Closing Date; (iii) All of the agreements, contracts and leases listed on Schedule 1.1(iii) (collectively, the "Assumed Contracts"): (a) those employment agreements and contracts with hockey players, coaches, assistant coaches, trainers, scouts, and team staff listed on Schedule 1.1(iii) and in effect on the Closing Date; and (b) those agreements related to the operation of the AHL franchise in Cornwall, Quebec listed on Schedule 1.1(iii) and in effect on the Closing Date; (iv) Those books, records, ledgers, files, documents, correspondence, whether in printed or written form or stored in an electronic medium, relating to the operations of the AHL Franchise in Cornwall and related to the NHL franchise and reasonably necessary to the operation of the NHL Franchise in Denver, (collectively, "Books and Records"), including, without limitation: (a) all records and lists, if any, pertaining to the customers, suppliers or personnel of Seller in connection with the AHL Franchise; and (b) all books, ledgers, files, documents, correspondence and operating records of every kind maintained by Seller in connection with the AHL Franchise in Cornwall. (v) To the extent assignable, the insurance policy described on Schedule 1.1(v) as required by the NHL (the "Insurance Policy"); and (vi) To the extent assignable, all rights under or pursuant to all warranties, representations and guarantees made by suppliers in connection with the Acquisition Assets. - 3 - 1.2 Excluded Assets. For greater certainty, Seller is not selling, and Buyer is not purchasing, pursuant to this Agreement any assets of Seller not identified in Section 1.1, including, without limitation, the following, all of which shall be retained by Seller (collectively, the "Excluded Assets"): (i) Any rights, title and interest in any and all amounts, of any kind, due, receivable or payable to Seller prior to the Closing Date, even if paid after the Closing Date, by the NHL, AHL, NEI or ICE with respect to the operations of the Business, and specifically including any rights to the future payment of expansion fees to the AHL as set forth on Schedule 1.2(i); (ii) All accounts and notes receivable (whether current or noncurrent) arising in connection with the operations of the Business prior to the Closing Date; and (iii) any and all amounts receivable pursuant to those disputes listed on Schedule 1.2(iii) which are resolved by the NHL's arbitration process or before any court as pursued by the Buyer on behalf of the Seller at the sole cost of Seller. 1.3 Assumed Obligations. Upon the terms and subject to the conditions contained herein, at the Closing, Buyer shall assume and shall thereafter pay, perform and discharge when due the following, and only the following, liabilities and obligations of Seller (collectively, the "Assumed Obligations"): (i) All obligations and liabilities accruing, arising out of, or relating to events or occurrences happening on or after the Closing Date or resulting from the transaction contemplated herein under the Assumed Contracts, including (a) any unpaid amounts in U.S. dollars on the basis required by the NHL and the AHL without liability to Seller under the Assumed Contracts listed on Schedule 1.3(i) or which have not become due until on or after the Closing Date, (b) payment of players' remuneration and benefits from the Closing Date, in U.S. dollars on the basis required by the NHL and the AHL without liability to Seller, (c) all obligations and liabilities which are the responsibilities of a transferee club under the NHL Rules, the AHL Rules, the Collective Bargaining Agreement between the NHL and the National Hockey League Players' Associations ("NHLPA") (the "NHL CBA") and the Collective Bargaining Agreement between AHL and the Professional Hockey Players Association (the "AHL CBA"), and (d) any liabilities arising out or players' injuries or physical condition whether resulting from events or occurrences before or after the Closing Date; but specifically excluding for purposes of this Section 1.3(i) any other deferred compensation or other obligations or liabilities which arise out of or result from any action or inaction in breach or default of the Assumed Contracts, - 4 - the NHL Rules, AHL Rules, NHL CBA or AHL CBA which occurred prior to the Closing Date; (ii) All obligations and liabilities which relate to or arise out of the operations of the AHL Franchise in Cornwall, or the transfer of the NHL Franchise to Denver, Colorado, or the operations of the NHL Franchise under the NHL Rules, AHL Rules, NHL CBA or AHL CBA in each case commencing on and after the Closing Date; provided, however, that Buyer shall assume the following liabilities related to the transfer fee to be payable to the NHL for the transfer of the NHL Franchise and Buyer's contingent obligation to share with the NHL revenues in an amount equal to U.S.$8,000,000, payable on the following basis: (A) on or about the Closing, Seller shall pay the NHL U.S.$4,000,000 toward the transfer, and the NHL shall repay such amount to Seller out of proceeds from fees paid to the NHL by expansion teams and otherwise due to Buyer as its share of such fees, and from amounts repaid to the NHL by Buyer from proceeds received during the two years following the Closing, in the amount of U.S.$1,000,000 per expansion team, (B) the NHL shall retain out of proceeds from fees paid to the NHL by expansion teams entering the NHL and otherwise due to Buyer as its share of such fees, the amount of U.S.$2,000,000 per expansion team, up to a maximum of U.S.$8,000,000, out of which the NHL shall reimburse Seller $1,000,000 per expansion team, except that during the first two years following the Closing, Buyer shall receive its entire share of such proceeds, and owe U.S.$2,000,000 per expansion team to the NHL on the second anniversary of the Closing for distribution as described herein, and (C) Buyer agrees that the NHL's right to retain any such amounts, and the NHL's obligation to reimburse any such amounts to Seller, shall be irrevocable and survive any sale of the NHL Franchise and be binding upon the transferee, provided that Buyer shall incur no liability if the NHL refuses to agree to do so; and provided, further, that Buyer shall assume responsibility with respect to the NHL, but shall not assume any financial obligations or liabilities which shall remain the responsibilities of Seller, for those claims set forth on Schedule 1.2(iii) such that such actions may be pursued on behalf of Seller before the NHL's arbitrator or any court. (iii) All liabilities and obligations arising out of any and all claims, causes of action, choses in action, rights of recovery and rights of set-off of any kind, against the NHL or its members (including the Seller) as a collectivity before, on or after the Closing Date, including, without limitation, any such liabilities and obligations listed in Schedule 1.3(iii) provided, however, that Seller shall be responsible for any liabilities arising out of any such claims or other rights which have been finally resolved prior to the Closing Date but not yet assessed by the NHL. For the absence of doubt, the litigation between the NHL and the NHLPA regarding pension benefits and referred to as the Bathgate litigation is deemed to be - 5 - finally resolved, notwithstanding any ongoing appeals or actions against the NHL's counsel or advisors on that matter. 1.4 No Other Debt, Obligations or Liabilities Assumed. Notwithstanding any other provision of this Agreement, but except as expressly set forth in Section 1.3, Buyer shall not assume, or otherwise be liable or responsible for, any of the debts, obligations or liabilities of Seller of any kind or nature whatsoever, whether actual or contingent, matured or unmatured, liquidated or unliquidated, or known or unknown, whether arising out of occurrences prior to, at or after the date hereof specifically including, without limitation, any liability of Seller resulting from entering into, performing its obligations pursuant to, or consummating the transactions contemplated by, this Agreement (collectively, the "Excluded Liabilities"). ARTICLE 2 PURCHASE PRICE 2.1 Purchase Price. Upon the terms and subject to the conditions set forth herein, Buyer shall pay and deliver to Seller for the sale, transfer, conveyance and delivery of the Acquisition Assets, at the Closing, by wire transfer of immediately available funds to an account designated in writing by Seller at least five (5) business days prior to the Closing Date, cash in the amount of U.S.$75,234,190 (the "Purchase Price"). 2.2 Allocation of Purchase Price. Buyer and Seller shall agree upon the allocation of the Purchase Price among the Acquisition Assets and other assets acquired from Seller, if any, as required by Section 1060 of the Internal Revenue Code of 1986, as amended (the "Code"). Buyer and Seller shall timely report the amount of the Purchase Price and the manner of its allocation in accordance with applicable law. Buyer agrees to allocate not more than 45% of the Purchase Price to the players' contracts. 2.3 Closing Costs; Transfer Taxes and Fees. Seller shall be responsible for any documentary and transfer taxes and any sales, use or other taxes imposed by any Canadian federal, provincial or local authorities by reason of the transfers of the Acquisition Assets provided hereunder and any deficiency, interest or penalty asserted with respect thereto. Buyer shall be responsible for any documentary and transfer taxes and any sales, use or other taxes imposed by any United States federal, state, or local authorities by reason of the transfers of the Acquisition Assets provided hereunder and any deficiency, interest or penalty asserted with respect thereto. Buyer represents to Seller that it is a non-resident of Canada, that it is not registered for purposes of any Canadian federal or provincial sales tax and that it is not operating a business in Canada. If necessary, Seller will provide to Buyer all forms necessary for the payment of GST with respect to - 6 - the AHL assets, and Buyer will pay any tax due and seek a refund. If Buyer does not receive a refund of all amounts paid, then Seller shall indemnify Buyer accordingly. ARTICLE 3 CLOSING 3.1 Closing Place and Date; Effective Date. The closing of the transactions contemplated hereby ("Closing") shall be held at 10:00 a.m. local time, on July 1, 1995, at the offices of Buyer in Bethesda, Maryland, or at such other time and place as Buyer and Seller may agree to in writing; provided, however, that either party may, in its sole discretion, require the other party to agree to a closing on any day between July 1, 1995 and July 15, 1995. If the Closing is postponed under this Section, then notwithstanding the date to which it is postponed, the effective date of the Closing shall be July 1, 1995, and July 1, 1995 shall be the Closing Date for purposes of this Agreement. 3.2 Closing. Subject to the satisfaction or waiver of the conditions set forth in Articles 8, 9 and 10, as the case may be, to effect the sale and transfer referred to in Section 1.1 hereof, at the Closing, Seller and Buyer shall perform the following: (i) Seller shall execute and deliver the following conveyancing documents: (a) the assignment in the form set forth in Exhibit 3.2(i)(a) of the Acquisition Assets; (b) such termination statements, releases or other documents, if any, duly executed by Seller, as will enable Seller to convey the Acquisition Assets to Buyer free and clear, as of the Closing Date, of any claim, lien, pledge, option, charge, security interest, deed of trust, mortgage, encumbrance or other right of third parties (collectively, "Encumbrances") entered into by Seller or otherwise existing and not being assumed by Buyer; and (c) such other deeds, bills of sale, certificates, endorsements, assignments and other instruments of transfer and conveyance as shall be reasonably necessary in the opinions of Buyer's and Seller's counsel, to transfer all of Seller's right, title and interest in the Acquisition Assets to Buyer, subject only to the Assumed Obligations; (ii) Buyer shall execute and deliver the assumption in the form set forth in Exhibit 3.2(ii) providing for the assumption by Buyer of the Assumed Obligations; (iii) Seller shall deliver to Buyer originals, or copies if the originals have been filed with the NHL Central Registry, of all of the Assumed Contracts, Books and Records and the Insurance Policy included in the Acquisition Assets; - 7 - (iv) Seller shall deliver to Buyer certified copies of the authorizations referred to in Section 9.3; (v) Seller shall deliver to Buyer the opinion of counsel of Seller referred to in Section 9.6; (vi) Seller shall deliver to Buyer the certificates of good standing referred to in Section 9.5; (vii) Seller shall deliver to Buyer the closing certificate referred to in Section 9.7 in the form set forth in Exhibit 3.2(vii); (viii) Buyer and Seller shall execute and deliver the guarantee indemnification agreement described in Section 12.3 in the form set forth in Exhibit 12.3 (the "Guarantee Indemnification Agreement"); (ix) Buyer shall deliver to Seller the payment specified in Section 2.1; (x) Buyer shall deliver to Seller certified copies of the authorizations referred to in Section 10.3; (xi) Buyer shall deliver to Seller the opinion of counsel of Buyer referred to in Section 10.5; (xii) Buyer shall deliver to Seller the certificates of good standing referred to in Section 10.4; (xiii) Buyer shall deliver to Seller the closing certificate referred to in Section 10.6 in the form set forth in Exhibit 3.2(xiii). 3.3 No Equitable Conversion. Prior to the Closing, and unless the Closing occurs, neither the execution of this Agreement nor the performance of any provision contained herein shall cause Buyer to become liable for (i) the operations of the Business or any other business of Seller; (ii) the condition of the Acquisition Assets; or (iii) compliance with any laws, requirements or regulations of, or taxes, or assessments or other charges now or hereafter due to, any governmental authority with respect to the Business or the Acquisition Assets. 3.4 Risk of Loss. Except for the AHL Franchise (and other assets referred to in Section 1.1(ii)) and for the lease with the City of Cornwall which are covered by the provisions of Section 6.4(iii), in the event that Buyer receives notice that either all of the other Acquisition Assets, or a portion of the Acquisition Assets the absence of which would materially adversely impair the ability of the NHL Franchise to operate in Denver, it being understood that the failure of one or more parties to honor their - 8 - obligations under Assumed Contracts shall not be deemed to have such a material adverse effect, are not available to be transferred at the Closing, whether or not as a result of Seller's breach of this Agreement, Buyer shall be entitled to elect within five (5) days of written notice thereof to either (i) terminate this Agreement, in which case each party hereto shall pay its own expenses, or (ii) pursue the transactions contemplated herein without reduction in the Purchase Price. ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF SELLER As a material inducement to Buyer to enter into this Agreement and consummate the transactions contemplated hereby, Seller hereby represents and warrants to Buyer as set forth in this Article 4, except as otherwise set forth on the schedule attached hereto as Schedule 4 (the "Disclosure Schedule"), which representations and warranties are, as of the date hereof, and will be, as of the Closing Date, true and correct. As used in this Article 4, the term "best knowledge" shall mean to the actual knowledge of the party without obligation to make any search or enquiry and shall include the actual knowledge of the partners, officers and directors of Seller listed on Section 4.1(a) of the Disclosure Schedule; provided, however, that no person shall incur any personal liability to Buyer by reason of his name being included on Section 4.1(a) of the Disclosure Schedule. 4.1 Organization and Qualification. Seller is a limited partnership duly organized, validly existing, and in good standing under the laws of the Province of Quebec, with full power and authority to own its properties and to conduct its business in the manner and in the places where such properties are now owned and such business is now conducted. Seller has previously provided copies of the Seller's declaration of limited partnership which is accurate and complete. 4.2 Authorization. Subject to Section 4.3 hereof, Seller has full right, power and authority to own, lease and operate the Acquisition Assets, to execute, deliver and enter into this Agreement and each of the agreements, documents and instruments contemplated by this Agreement (collectively, the "Ancillary Agreements"), to consummate the transactions contemplated hereby and thereby and to perform its obligations hereunder and thereunder. This Agreement and the Ancillary Agreements have been duly and validly authorized by all necessary partnership or similar corporate action, including, without limitation, authorizations of Seller's partners, which authorizations remain in full force and effect. This Agreement constitutes, and each of the Ancillary Agreements when executed and - 9 - delivered will constitute, a valid and binding obligation of Seller enforceable against Seller in accordance with their respective terms. 4.3 Approvals and Consents. Except as set forth in Section 4.3 of the Disclosure Schedule, no authorization, consent or approval of or notification to any Canadian federal, provincial or local public body or authority or from any third party is necessary for the consummation by Seller of the transactions contemplated by this Agreement or the Ancillary Agreements, and, to the best knowledge of Seller, no authorization, consent or approval of or notification to any United States federal, state or local public body or authority is necessary for the consummation by Seller of the transactions contemplated by this Agreement or the Ancillary Agreements. 4.4 No Conflict or Violation. Except for any breaches, violations, defaults or Encumbrances which will not prevent the Buyer from consummating the transactions contemplated by this Agreement or which may not result in any action, suit, claim, proceeding, demand, assessment or enforcement action against the Buyer ("Adverse Claim") as a result of Buyer entering into this Agreement or consummating such transactions, neither the execution and delivery of this Agreement and the Ancillary Agreements, nor consummation by Seller of the transactions contemplated hereby and thereby, nor compliance with any of the provisions hereof or thereof will (a) conflict with or result in a breach or violation of, or default under, any of the terms, conditions or provisions of (i) except for the lease referred to in Section 4.4 of the Disclosure Schedule, any agreement or other instrument or any obligation to which Seller is a party or by which it is bound; (ii) Seller's organizational documents; or (iii) any judgment, order, injunction, decree, statute, rule or regulation applicable to Seller or any of its assets or properties; (b) violate or result in a failure to comply with any laws, common laws, statutes, rules, regulations, ordinances, codes or other requirements of any United States or Canadian federal, state, provincial or local governments and all agencies or instrumentalities thereof applicable to Seller; or (c) impose any Encumbrance on any of the Acquisition Assets. 4.5 Compliance With Laws and Franchises. Seller holds all licenses, franchises, permits and authorizations necessary for the lawful conduct and operation of the Acquisition Assets. Except for any violations which will not prevent the Buyer from consummating the transactions contemplated by this Agreement or which may not result in any Adverse Claim as a result of Buyer entering into this Agreement or consummating such transactions Seller has not violated, and is not in violation of, any applicable statutes, laws, ordinances, rules and regulations applicable to the Business (including, without limitation, any of the foregoing related to employment discrimination, occupational safety, environmental protection, conservation, antitrust or unfair - 10 - competition, labor practices or corrupt practices) of all federal, provincial, state and local governmental bodies, agencies and subdivisions thereof having jurisdiction over the Business and Seller is in full compliance with the duties and obligations imposed by the NHL Rules and the AHL Rules. Seller has not received any notice within three (3) years of the date hereof of any violation or noncompliance described in this Section 4.5. 4.6 Financial Information. Section 4.6 of the Disclosure Schedule contains certain unaudited financial information related to the operations of the AHL Franchise. The foregoing financial information (i) was prepared in accordance with the books and records of Seller; and (ii) fairly and accurately present those costs of operations for the fiscal year 1993-94. 4.7 Absence of Certain Changes or Events. Except for any changes, events or matters which will not prevent the Buyer from consummating the transactions contemplated by this Agreement or which may not result in any Adverse Claim as a result of Buyer entering into this Agreement or consummating such transactions, since June 30, 1994, there has not been (i) any material adverse change in the Acquisition Assets; (ii) any damage, destruction or loss, whether covered by insurance or not, materially and adversely affecting the Acquisition Assets; (iii) except in the ordinary course of business and in a manner consistent with past practices, any increase in the compensation payable or to become payable by Seller to any employee or player employed under an Assumed Contract, or any increase in any bonus, insurance, pension or other employee benefit plan, payment or arrangement made to, for or with any employee or player employed under an Assumed Contract; (iv) any labor dispute, other than routine matters, none of which is material with respect to the players or employees employed under an Assumed Contract, other than those referred to in Section 4.7 of the Disclosure Schedule; (v) except in the ordinary course of business and in a manner consistent with past practices, any termination, amendment, assignment or other transfer of any Assumed Contract; (vi) any other transaction not in the ordinary course of business and affecting the Acquisition Assets; (vii) any material change in the manner of keeping the books, accounts or records with respect to the Acquisition Assets; or (viii) any agreement to do any of the things described in this Section 4.7. 4.8 Title to Acquisition Assets. Subject to any provisions of the NHL Rules, the AHL Rules, the NHL CBA and the AHL CBA, Seller has, and will have at the time of Closing, good and marketable title to each of the Acquisition Assets, and the Acquisition Assets are, except for any Encumbrances or claims which will not prevent the Buyer from consummating the transactions contemplated by this Agreement or which may not result in any Adverse Claim as a result of Buyer entering into this Agreement or consummating such transactions , free and clear of all Encumbrances and claims of any kind or nature whatsoever and, upon delivery to - 11 - Buyer of the instruments of transfer of ownership contemplated by this Agreement, Buyer will acquire good title to the Acquisition Assets, free and clear of all Encumbrances. 4.9 Contracts. (i) Section 4.9 of the Disclosure Schedule contains true and complete copies of the Assumed Contracts. Except as set forth in Section 4.9 of the Disclosure Schedule, each Assumed Contract is valid and in full force and effect and is a valid and binding agreement of the Seller and, to Seller's best knowledge, of each other party thereto. Seller has duly performed its obligations required pursuant to each Assumed Contract to have been performed by Seller on its part prior to the date hereof, and Seller has no reason to believe that it will not be able to fulfill, when due, all of Seller's material obligations under the Assumed Contracts which remain to be performed after the date hereof prior to Closing. No violation, default or breach of any Assumed Contracts by Seller or, to the best knowledge of Seller, any other party has occurred and neither Seller nor any other party has repudiated any provisions thereof. (ii) Seller is not a party to, nor are any of the Acquisition Assets bound by, any agreement or arrangement which is or would be materially adverse to the operations, assets, prospects or financial condition of the Acquisition Assets. 4.10 Litigation. Except as set forth in Section 4.10 of the Disclosure Schedule and except for any claims, actions, suits, proceedings or arbitration which will not prevent the Buyer from consummating the transactions contemplated by this Agreement or which may not result in any Adverse Claim as a result of Buyer entering into this Agreement or consummating such transactions, there are no claims, actions, suits or proceedings pending or, to Seller's best knowledge, threatened against Seller, its partners or any of its employees, players or coaches, or relating to this Agreement or the transactions contemplated hereby or to the Business or the Acquisition Assets, at law or in equity or before or by any federal, state, local or foreign court or other governmental department, commission, board, agency, instrumentality or authority, nor any arbitration proceedings, nor, to Seller's best knowledge, is there any basis for any claim. Except for any judgments, orders, writs or decrees which will not prevent the Buyer from consummating the transactions contemplated by this Agreement or which may not result in any Adverse Claim as a result of Buyer entering into this Agreement or consummating such transactions, Seller is not subject to any judgment, order, writ, injunction or decree of any court or governmental body. 4.11 Taxes. Except for any nonfiling or nonpayment which will not prevent the Buyer from consummating the transactions contemplated by this Agreement or which may not result in any Adverse Claim as a result of Buyer entering into this Agreement or consummating such transactions, Seller has filed all tax returns - 12 - and reports (including with respect to payroll) required to be filed with respect to the Acquisition Assets or the Business and paid all taxes, including penalties, interest and assessments, required to be paid with respect to any of the Acquisition Assets or the Business, or adequate provision for the payment thereof has been made. 4.12 NHL and AHL Franchises. Each of the Seller's NHL Franchise and AHL Franchise is valid and in full force and effect. Seller has duly performed its obligations required pursuant to each of the franchises to have been performed by Seller on its part prior to the date hereof, and Seller has no reason to believe that it will not be able to fulfill, when due, all of Seller's material obligations under the franchises which remain to be performed by Seller after the date hereof prior to Closing. No violation, default or breach of either the NHL Franchise or the AHL Franchise by Seller or, to the best knowledge of Seller, any other party has occurred and neither Seller nor, to the best knowledge of Seller, any other party has repudiated any provisions thereof. 4.13 Brokers. No person or entity is entitled to any brokerage commission, finder's fee or like payment from Seller or Buyer in connection with the transactions contemplated by this Agreement other than as may be due to agreements or commitments made by Buyer. 4.14 Employees; Labor Matters. On or before June 1, 1995, Seller will provide to Buyer a list of all employees (other than players) who are employed by Seller under the Assumed Contracts, together with their base salary and bonus paid or payable for the most recent fiscal year, and the date upon which such compensation was last varied or increased, title, original date of hire and vacation benefits, and any agreed to current or future benefits or compensation of such employees. Except as set forth in this Agreement and in the Disclosure Schedule (including Section 4.10 of the Disclosure Schedule) and except as will not prevent the Buyer from consummating the transactions contemplated by this Agreement or may not result in any Adverse Claim as a result of Buyer entering into this Agreement or consummating such transactions: (i) there is no union other than the NHLPA and the Professional Hockey Players Association representing the interests of any of Seller's employees and, to the best knowledge of Seller, there are no employees of Seller seeking or attempting to organize union representation; (ii) there are neither pending nor, to the knowledge of Seller, threatened any strikes, work stoppages, work disruptions or employment disruptions by any of the employees of Seller that would materially impair the operations, prospects or financial condition of the Acquisition Assets; (iii) to the best knowledge of Seller, there are neither pending nor threatened any suits, actions, administrative proceedings, hearings, arbitrations or other proceedings between Seller and any of its employees involving a claim of $50,000 or more; (iv) with respect to its - 13 - employees, to the best knowledge of Seller, during the past five (5) years Seller (A) has complied with all Canadian federal, provincial, state and local laws and regulations relating to the employment of labor, including any provisions thereof relating to wages, hours, collective bargaining and the payment of social security and similar taxes, (B) is not liable for any arrears of wages or any taxes or penalties for failure to comply with any of the foregoing, and (C) has not committed any unfair labor practices; and (v) to the best knowledge of Seller, none of its employees has filed any complaint relating to Seller's employment of its employees with any governmental or regulatory authority or brought any action in law or in equity with respect thereto. 4.15 Employee Benefit Plans. Except as will not prevent the Buyer from consummating the transactions contemplated by this Agreement or may not result in any Adverse Claim as a result of Buyer entering into this Agreement or consummating such transactions, or except as expressly set forth in the Assumed Contracts: (i) Seller does not maintain or contribute to, have any obligation to contribute to, and has not incurred any material liability that was not satisfied to any employee benefit plan, program, scheme or arrangement (including, without limitation, any "employee benefit plans" as defined in Section 3(3) of Employee Retirement Income Security Act of 1974, as amended, or any similar or corresponding Canadian federal, provincial or local statute or regulation ("ERISA")) (collectively, the "Employee Benefit Plans"); (ii) No Employee Benefit Plan has been terminated so as to, and, to the best knowledge of Seller, no proceeding is pending or threatened which would, directly or indirectly, subject any of the Acquisition Assets to the imposition of any lien under Title IV of ERISA; (iii) Seller has not incurred any "withdrawal liability" (within the meaning of Section 4201(a) of ERISA) which has not been discharged in full prior to the date hereof; (iv) With respect to any Employee Benefit Plan which is subject to the funding requirements of either Section 412 of the Code or 302 of ERISA, Seller has not failed to timely make any contribution thereto that would result in the imposition of a lien on the Acquisition Assets if not timely made; (v) Seller has not made any guarantees or endorsements of the debts or obligations of any employees or former employees by the Seller; and (vi) Seller does not have any obligation to indemnify any person by reason of the fact that such person was a partner, trustee, officer, employee or agent of Seller or was serving at the request of Seller as a partner, trustee, director, officer, employee or agent of another entity. 4.16 Insurance. The Insurance Policy is in full force and effect and will remain so until the Closing Date. 4.17 Material Disclosure. Except as will not prevent the Buyer from consummating the transactions contemplated by this Agreement or as may not result in any Adverse Claim as a result of Buyer entering into this Agreement or consummating such - 14 - transactions, no statement, representation or warranty made by Seller in this Agreement, in any Exhibit hereto, in the Disclosure Schedule, or in any certificate, written statement, list, schedule or other document delivered or to be delivered to Buyer hereunder, contains any untrue statement of a material fact, or fails to state a material fact necessary to make the statements contained herein or therein, in light of the circumstances in which they are made, not misleading. 4.18 Players' Physical Condition. Except for Claude Lapointe, Seller is not aware of any claims by, or obligations to, any players party to the Assumed Contracts arising out of injuries or illness incurred prior to the Closing Date. Other than the foregoing, and notwithstanding any other representations in this Agreement, Seller has made no other representations with respect to the physical conditions of any parties to the Assumed Contracts. ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF BUYER Buyer hereby represents and warrants to Seller as set forth in this Article 5. As used in this Article 5., the term "best knowledge" shall mean to the actual knowledge of the party without obligation to make any search or enquiry, and shall include the actual knowledge of the officers and directors of Buyer listed on Exhibit 5; provided, however, that no person shall incur any personal liability to Buyer by reason of his name being included on Exhibit 5. 5.1 Organization and Qualification. Buyer is a corporation duly organized, validly existing and in good standing under the laws of Delaware with full corporate power to own its properties and to carry on its business as now owned and operated by it. Section 5.1 of the Disclosure Schedule contains copies of the Buyer's Articles of Incorporation and Bylaws. 5.2 Authorization. Except for approval of this Agreement and the transactions contemplated hereby by the Board of Directors of Buyer's ultimate sole shareholder, COMSAT Corporation (the "Shareholder Approval"), Buyer has full right, power and authority to execute, deliver and enter into this Agreement and each of the Ancillary Agreements, to consummate the transactions contemplated hereby and thereby and to perform its obligations hereunder and thereunder, and except for the Shareholder Approval, no approvals, authorizations or consents of any public body or of any other third party are necessary in connection therewith. This Agreement and the Ancillary Agreements have been duly and validly authorized by all necessary corporate action other than the - 15 - Shareholder Approval, which authorizations remain in full force and effect. If the Shareholder Approval is obtained, this Agreement will constitute, and each of the Ancillary Agreements when executed and delivered will constitute, a valid and binding obligation of Seller enforceable against Buyer in accordance with their respective terms. 5.3 Regulatory Approvals. No authorization, consent or approval of or notification to any United States federal, state or local public body or authority is necessary for the consummation by Buyer of the transactions contemplated by this Agreement or the Ancillary Agreements, and, to the best knowledge of Buyer, no authorization, consent or approval of or notification to any Canadian federal, provincial or local public body or authority is necessary for the consummation by Buyer of the transactions contemplated by this Agreement or the Ancillary Agreements. 5.4 No Conflict or Violation. If the Shareholder Approval is obtained, neither the execution and delivery of this Agreement and the Ancillary Agreements, nor consummation by Buyer of the transactions contemplated hereby and thereby, nor compliance with any of the provisions hereof or thereof will conflict with or result in a violation of: (i) Buyer's Certificate of Incorporation or By-laws; or (ii) any judgments, orders, injunctions, decrees, laws, statutes, rules, regulations, ordinances, codes or other requirements of any United States, Canadian or foreign federal, state, provincial or local governments and all agencies or instrumentalities thereof. 5.5 Brokers. No person or entity is entitled to any brokerage commission, finder's fee, or like payment from Seller or Buyer in connection with the transactions contemplated by this Agreement other than as may be due to agreements or commitments made by Seller. ARTICLE 6 OBLIGATIONS AND COVENANTS OF BUYER AND SELLER PRIOR TO THE CLOSING Seller hereby covenants to and agrees with Buyer, and Buyer hereby covenants to and agrees with Seller, that between the date hereof and the Closing: 6.1 Access to Properties and Records. Seller shall give to Buyer and its authorized representatives, reasonable access, during normal business hours and upon reasonable notice throughout the period prior to the Closing Date, to any and all of Seller's premises, properties, contracts, books and records relating to the Acquisition Assets and will cause its officers to furnish to Buyer - 16 - any and all data and information primarily pertaining to the Acquisition Assets that Buyer shall from time to time reasonably request in order to confirm the continuing accuracy of the representations and warranties set forth in Article 4. In connection with such access, Seller shall permit Buyer to discuss the affairs of the Acquisition Assets with designated employees, officers and directors of Seller; provided, however, that no investigation pursuant to this Section 6.1 or otherwise in connection with this Agreement or the transactions contemplated hereby shall diminish or modify the scope of, or in any manner whatsoever alter the effect of, any representation, certification, warranty, obligation, or agreement of the Seller set forth in this Agreement. 6.2 Conduct of Business. Except for actions contemplated or required to be taken pursuant to this Agreement, Seller shall conduct its hockey operations from the date hereof through the Closing Date in accordance with prior practice and in the ordinary course of business, and without limiting the generality of the foregoing, Seller shall not, with respect to the Acquisition Assets, except with the prior written consent of Buyer: (i) enter into any transaction not in the ordinary course of business; (ii) purchase, sell or dispose of any of the Acquisition Assets (including, without limitation, any of the Assumed Contracts); (iii) mortgage, pledge or encumber any of the Acquisition Assets, unless discharged before Closing; (iv) amend, modify, renew or terminate any Assumed Contract, other than in the ordinary course of business and consistent with past practice, or relinquish, forfeit or waive any right or increase any obligation under any Assumed Contract, other than in the ordinary course of business; (v) make any increase in, or any commitment to increase, the compensation payable to any of Seller's players or employees; (vi) materially alter the manner of keeping its books, accounts or records; or (vii) propose, authorize or commit, arrange or agree in writing or otherwise to take, any of the foregoing actions. 6.3 Preservation of Organization and Relationships. Seller will use its reasonable efforts to preserve intact the business of the AHL Franchise and to continue operation of the AHL Franchise substantially in accordance with prior practice and will use its best efforts to preserve for Buyer its existing relationships with suppliers, customers and others having business relations with the AHL Franchise. Seller will not do, and will use its best efforts not to permit to be done, any act which would cause the representations and warranties of Seller contained herein to become untrue or inaccurate. 6.4 Consents; Assumed Contracts. (i) Buyer and Seller will use their respective best efforts to obtain prior to the Closing Date any and all consents and releases required of third parties for the consummation of the transactions contemplated hereby including, without limitation: (a) any necessary consents - 17 - to the assignment of the Assumed Contracts; and (b) the consents of the NHL and the AHL to the transfers of the franchises. Buyer and Seller shall commence the process of obtaining the consents of the NHL and AHL within five business days of signing this Agreement, and Buyer agrees to cooperate to the fullest extent necessary to obtain such consents, including, without limitation to comply with all reasonable requirements contained in such consents and to provide any and all operating and financial information reasonably required in connection with such consents. (ii) Buyer and Seller will give any notices to, make any filings with, and use their respective best efforts to obtain any authorizations, consents and approvals of United States or Canadian federal, provincial, state and local governmental agencies and authorities necessary for the consummation of the transactions contemplated hereby. (iii) Notwithstanding any other provisions of this Agreement, the parties agree that the consent of the AHL to the transfer of the AHL Franchise and the consent of the City of Cornwall for the transfer of the lease with the City of Cornwall to Buyer are not essential conditions to this Agreement and the Parties agree to consummate the transactions contemplated by this Agreement (other than those related to such consents) without diminution in the Purchase Price and without indemnification of the Buyer by the Seller if those consents are not obtained. In the event that Seller is unable to obtain the consent to transfer of the AHL Franchise or of the City of Cornwall within one year following the Closing Date, Seller may then elect to sell the AHL Franchise to any other party with respect to whom the necessary consents may be obtained; provided, however, that the proceeds of such sale, if any, shall be remitted to Buyer immediately upon receipt by Seller. 6.5 Notice of Breaches. Promptly after becoming aware of any event and promptly after receiving any notice which would cause or constitute a material breach of any of the covenants set forth in this Article 6 or any of the representations and warranties set forth in Article 4, Seller will inform Buyer of such event and will send to Buyer a copy of such notice, and will use its best efforts promptly to remedy or to prevent the occurrence of such breach. If Buyer does not terminate this Agreement pursuant to Section 13.1 within 10 business days after receipt of such written notice, such written notice will be deemed to have amended the relevant disclosure statements set forth in the Disclosure Schedule, to have qualified the representations and warranties contained in Article 4, and to have cured any misrepresentation or breach of warranty that otherwise might have existed hereunder by reason of the subject matter of such notice. 6.6 Limitation on Solicitation. Until the Closing Date, neither Seller, nor any of its officers, directors, employees, - 18 - representatives, agents or affiliates, shall, directly or indirectly, recommend, propose, solicit, initiate or promote (or authorize any person or entity to recommend, propose, solicit, initiate or promote) any inquiry, proposal or offer from, or provide any information to, any corporation, partnership, person or other entity or group (other than the Buyer and its affiliates, representatives and agents) concerning any purchase or sale of material assets, merger, reorganization, consolidation, business combination or similar transaction involving the Acquisition Assets (collectively "Solicitation"). 6.7 Further Assurances. Buyer and Seller shall use their respective best efforts to take, or cause to be taken, all action and to do, or cause to be done, all things necessary, proper or advisable under applicable laws and regulations expeditiously to consummate and make effective the transactions contemplated by this Agreement. ARTICLE 7 OBLIGATIONS AND COVENANTS OF BUYER PRIOR TO CLOSING Buyer hereby covenants to and agree with Seller that between the date hereof and the Closing Date: 7.1 Confidentiality. Subject to Section 11.3, Buyer shall, and shall cause its employees, attorneys, accountants, advisors and other representatives to, keep confidential and not disclose to any person or entity (other than, with appropriate undertakings of confidentiality, their respective employees, attorneys, accountants and other advisers with reasonable need to know such information) all Confidential Information (as defined in Section 11.3) relating to the Seller and the Business obtained by it from Seller in preparation for, or in connection with, this Agreement and the transactions contemplated hereby, and use such information only in connection with such Agreement and transactions; provided that the provisions of this Section 7.1 relating solely to the Business shall cease to apply from and after the Closing. Buyer's obligations under this Section 7.1 shall expire two years from the date hereof. ARTICLE 8 CONDITIONS TO EACH PARTY'S OBLIGATIONS TO CLOSE The respective obligation of each party to consummate the transactions contemplated herein shall be subject to the - 19 - fulfillment at or prior to the Closing Date of the following conditions: 8.1 No Injunction. There shall be no effective injunction, writ, preliminary restraining order or other order of any nature issued by a court of competent jurisdiction directing that the transactions provided for at the Closing not be consummated as contemplated herein. 8.2 Consents Obtained. Seller shall have received, and furnished copies thereof to Buyer, of the NHL's consent to the assignment and transfer to Buyer of the NHL Franchise, in form and substance substantially similar to the form of consent provided to Buyer, with other reasonable and usual conditions usually requested by the NHL. ARTICLE 9 CONDITIONS PRECEDENT TO BUYER'S OBLIGATION TO CLOSE The obligation of Buyer hereunder to consummate the transactions contemplated by this Agreement are expressly subject to the satisfaction, on or prior to the Closing Date, of each of the conditions set forth below. Buyer may waive any or all of these conditions in whole or in part without prior notice; provided, however, that no such waiver of a condition shall constitute a waiver by Buyer of any other condition or of any of its rights or remedies, at law or in equity. 9.1 Representations and Warranties. The representations and warranties of Seller contained in this Agreement and the exhibits, schedules, certificates and other documents delivered by Seller to Buyer pursuant to the provisions of this Agreement shall be true and correct in all material respects on and as of the Closing Date as if made on and as of such date. 9.2 Performance of Covenants and Agreements. Seller shall have performed in all material respects its agreements and covenants contained in this Agreement required to be performed prior to the Closing Date. 9.3 Authority. All partnership or similar corporate actions required to be taken by, or on the part of, Seller to authorize the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby shall have been duly and validly taken by Seller. Buyer shall have received copies of all such authorizations, certified as of the date of the Closing Date as being in full force and effect by the General Partner of Seller. - 20 - 9.4 No Adverse Changes. Subject to the provisions of Sections 3.4 and 6.5, between the date of this Agreement and the Closing Date there shall not have occurred any damage, destruction, or loss of all or any material portion of the Acquisition Assets, whether or not covered by insurance, which has had a material and adverse effect on the Acquisition Assets. 9.5 Certificates of Good Standing. Seller shall have delivered to Buyer a certificate of the applicable governmental authority to the effect that Seller is a validly existing limited partnership in good standing under the laws of such jurisdiction. 9.6 Counsel Opinion. Buyer shall have received an opinion of Seller's counsel in substantially the form set forth in Exhibit 9.6. 9.7 Closing Certificate. Buyer shall have received a certificate in the form set forth in Section 3.2(vii) executed by Seller's General Partner and dated as of the Closing Date confirming the matters set forth in Sections 9.1, 9.2 and 9.3. 9.8 Absence of Litigation. There shall not be instituted or pending any action or proceeding before any United States or Canadian federal, provincial, state or foreign court or governmental agency or other regulatory or administrative agency or instrumentality challenging the transactions contemplated by this Agreement, seeking to restrain or prohibit consummation of the transactions contemplated by this Agreement, or seeking to impose any material limitations on any provision of this Agreement. 9.9 Shareholder Approval. This Agreement and the transactions contemplated hereby shall have been approved by the Board of Directors of COMSAT Corporation, the ultimate sole shareholder of Buyer; provided, however, that such approval shall be obtained prior to May 26, 1995, or Seller shall have the right to terminate this Agreement. ARTICLE 10 CONDITIONS PRECEDENT TO SELLER'S OBLIGATIONS TO CLOSE The obligations of Seller hereunder to consummate the transactions contemplated by this Agreement are expressly subject to the satisfaction, on or prior to the Closing Date, of each of the conditions set forth below. Seller may waive any or all of these conditions in whole or in part without prior notice; provided, however, that no such waiver of a condition shall constitute a waiver by Seller of any other condition or of any of its rights or remedies, at law or in equity. - 21 - 10.1 Representations and Warranties. The representations and warranties of Buyer contained in this Agreement and the exhibits, schedules, certificates and other documents delivered by Buyer to Seller pursuant to the provisions of this Agreement shall be true in all material respects on and as of the Closing Date as if made on and as of the Closing Date. 10.2 Performance of Covenants and Agreements. Buyer shall have performed in all material respects its agreements and covenants contained in this Agreement required to be performed prior to the Closing Date. 10.3 Authority. All actions required to be taken by, or on the part of, Buyer and Buyer's Board of Directors, and Buyer's sole shareholder to authorize the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby shall have been duly and validly taken by Buyer. 10.4 Certificates of Good Standing. Buyer shall have delivered to Seller a certificate of the Secretary of State of the State of Delaware to the effect that Buyer is a validly existing corporation in good standing under the laws of the State of Delaware. 10.5 Counsel Opinion. Seller shall have received an opinion of Buyer's counsel in substantially the form set forth in Exhibit 10.5. 10.6 Closing Certificate. Seller shall have received a certificate in form reasonably satisfactory to Seller executed by Buyer's President and dated as of the Closing confirming the matters set forth in Sections 10.1, 10.2 and 10.3. ARTICLE 11 OBLIGATIONS AND COVENANTS OF PARTIES AFTER CLOSING 11.1 Equitable Relief. Buyer's obligations contained in Section 7.1, and Seller's and Buyer's obligations in Section 11.3 are of a special and unique character which gives them a peculiar value to the respective parties, and each party cannot be reasonably or adequately compensated in damages in an action at law in the event of a breach of such obligations. The parties therefore expressly agree that, in addition to any other rights or remedies which they may possess, they shall respectively be entitled to injunctive and other equitable relief in the form of preliminary and permanent injunctions without bond or other security in the event of any actual or threatened breach of said obligations by the breaching party. - 22 - 11.2 Further Assurances. Buyer and Seller agree to do such further acts and things and to execute and deliver such additional agreements and instruments as Buyer or Seller reasonably may request to consummate, evidence or confirm the agreements contained in this Agreement in the manner contemplated hereby and the transfer of the Acquisition Assets to Buyer. 11.3 Confidentiality. (i) Subject to Section 11.3(ii), Seller shall, and shall cause its employees, attorneys, accountants, advisors and other representatives to, keep confidential and not disclose to any person or entity (other than, with appropriate undertakings of confidentiality, its employees and other representatives with a reasonable need to know such information) all Confidential Information relating to Buyer obtained by it from Buyer in preparation for, or in connection with, this Agreement or the transactions contemplated hereby, and use such information only in connection with this Agreement and such transactions. The obligations of Seller contained in this subsection 11.3(i) shall continue for a period of two years after the later of the date of this Agreement or the Closing. (ii) The obligations imposed by Sections 7.1 and 11.3(i) hereof shall not apply, or shall cease to apply, to any Confidential Information when, and to the extent that, such Confidential Information: (a) was known to the recipient prior to the receipt of the Confidential Information from the discloser thereof; or (b) was, or becomes through no breach of the recipient's obligations hereunder, known to the public; or (c) becomes known to the recipient from sources other than the discloser under circumstances not involving any breach of any confidentiality obligation known to the recipient between such source and the discloser; or (d) is required to be disclosed by law or applicable legal process; or (e) the discloser expressly consents thereto in writing. (iii) If the transactions contemplated by this Agreement are not consummated, then upon the request of either party, the other party shall, promptly return or destroy (at the election of the responding party) any written materials that it has received from the requesting party in connection with this Agreement or the transactions contemplated hereby, together with any copies of such materials made by it, and promptly destroy any analyses, studies or other documents prepared by such other party - 23 - with respect to, or based upon, such materials or other Confidential Information received from the requesting party, and shall promptly furnish the requesting party an officer's certificate confirming that such actions have been taken. (iv) For purposes of this Agreement, "Confidential Information" shall mean any and all information (excluding information in the public domain, except as a result of a breach by a party of this confidentiality obligation) relating to the parties which is confidential, proprietary or otherwise not generally available to the public but shall specifically exclude the negotiation process resulting in this Agreement, this Agreement and any and all information related to the operation of Seller in Quebec. 11.4 Bulk Sales Laws. Seller and Buyer hereby waive compliance with the bulk transfer law or statute of the Province of Quebec which requires notice to or provides for the rights of creditors of Seller in connection with the sale of the assets of Seller to Buyer. Such waiver shall not be deemed to waive Buyer's rights to indemnification against liabilities of Seller that are not Assumed Obligations pursuant to Section 12.2(i). ARTICLE 12 SURVIVAL OF REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS; INDEMNIFICATION 12.1 Survival of Representations, Warranties, Covenants and Agreements. The representations, warranties, covenants and agreements contained herein or in any exhibit, schedule, document, certificate or other instrument delivered pursuant to this Agreement shall survive the Closing and expire at 11:59 p.m. on the second anniversary of the Closing Date (the "Expiration Date"). From and after the Expiration Date, none of Seller or Buyer or any affiliate of Seller or Buyer shall be under any liability whatsoever with respect to any representation or warranty, except for claims, the existence of which any party shall have notified the other party in writing prior to the Expiration Date in the manner provided in Section 12.2. 12.2 Indemnification. (i) By Seller. From and after the Closing Date, Seller shall indemnify, save and hold harmless Buyer, and its employees, representatives, officers, directors and agents, from and against any and all actions, suits, claims, proceedings, demands, assessments and judgments, costs, losses, liabilities, damages, and expenses (including, without limitation, settlement costs and reasonable out-of-pocket legal or other expenses for investigating or defending any actions or threatened actions) in connection with, relating to or resulting from: - 24 - (a) any breach of any representation or warranty or the inaccuracy of any representation made by Seller in this Agreement or any certificates delivered pursuant to this Agreement; (b) any breach of any covenant or agreement of or made by Seller in or pursuant to this Agreement; (c) any Excluded Liability; or (d) if applicable, any failure to comply with the "bulk sales" requirements of the Province of Quebec. Notwithstanding the foregoing, Seller shall not be obligated to indemnify Buyer under this Agreement (A) for those Adverse Claims that are otherwise indemnifiable and which are: (1) disclosed to Buyer in this Agreement or the Disclosure Schedule or any Exhibit hereto, (2) accepted by Buyer according to Section 6.5, or (3) Assumed Obligations and (B) unless Buyer seeks such indemnification in good faith and on a reasonable basis. (ii) By Buyer. From and after the Closing, Buyer shall indemnify and save and hold harmless Seller, and its respective employees, representatives, officers, directors and agents, from and against any and all actions, suits, claims, proceedings, demands, assessments and judgments, costs, losses, liabilities, damages and expenses (including, without limitation, settlement costs and reasonable out-of-pocket legal or other expenses for investigating or defending any actions or threatened actions) in connection with, relating to or resulting from: (a) any breach of any representation or warranty or the inaccuracy of any representation made by Buyer in this Agreement or any certificates delivered pursuant to this Agreement; (b) any breach of any covenant or agreement of or made by Buyer in or pursuant to this Agreement; or (c) any Assumed Obligations. Notwithstanding the foregoing Buyer shall not be obligated to indemnify Seller under this Agreement (A) for any actions, suits, claims, proceedings, demands, assessments or enforcement actions against Seller that are otherwise indemnifiable and which are Excluded Liabilities and (B) unless Seller seeks such indemnification in good faith and on a reasonable basis. (iii) Defense of Claims. If any action, suit, claim, proceeding, demand, assessment or enforcement action (collectively, "Claims") is filed against any party entitled to the benefit of indemnity hereunder, the indemnified party shall give written notice thereof to the indemnifying party as promptly as practicable (and in any event within fifteen (15) days after the service of the citation or summons); provided, however, that the failure of any indemnified party to give timely notice shall not affect the rights to indemnification hereunder except and to the extent that the indemnifying party demonstrates actual damage caused by such failure. After such notice, if the indemnifying party acknowledges in writing to the indemnified party that it is obligated under the terms of its indemnity in this Agreement, the indemnifying party, shall be entitled, if it so elects, (a) to take control of the defense and investigation of such Claim, (b) to employ and engage attorneys of its own choice, subject to approval by the indemnified party, which approval shall not be unreasonably withheld to defend - 25 - the same, at the indemnifying party's cost, risk and expense, and (c) to compromise or settle such claim, which compromise or settlement shall be made only with the written consent of the indemnified party, such consent not to be unreasonably withheld. The indemnified party shall cooperate in all reasonable respects with the indemnifying party and its attorneys in the investigation, trial and defense of such Claim, and any appeal arising therefrom; provided, however, that the indemnified party may, at its own cost, participate in such investigation, trial and defense of such Claim, and any appeal arising therefrom; and provided further, that the indemnifying party shall have an obligation to keep the indemnified party reasonably apprised of the status of the Claim, to furnish the indemnified party with all documents and information that the indemnified party shall reasonably request in connection therewith, and to consult with the indemnified party prior to acting on major matters involved in such Claim, including settlement discussions. (iv) Limitations. Neither Buyer nor Seller shall be liable to the other under this section 12.2 until the aggregate amount otherwise due the party being indemnified exceeds U.S. $500,000; then the indemnifying party shall be obligated to pay such indemnification but only for what exceeds U.S. $500,000; provided, however, that this limitation shall not apply with respect to (a) indemnification arising out of a breach of a representation or warranty contained in Sections 4.11 or 4.15, (b) any Claims by any contracting party other than under an Assumed Contract for the provisions of goods or services to the Seller in the Province of Quebec, (c) any claim by a creditor based upon failure to comply with the "bulk sales" requirements of the Province of Quebec and (d) any Claim challenging the consummation of the transaction contemplated by this Agreement by or on behalf of Gilles Leger or any federal, provincial or local government or governmental agency. 12.3 Letter of Guarantee. Buyer and Seller shall enter into a Guarantee Indemnification Agreement substantially in the form of Exhibit 12.3 attached hereto under which Buyer will provide Seller with an irrevocable letter of guarantee for an amount of US$2,000,000. The parties agree and acknowledge that the irrevocable letter of guarantee shall not be Buyer's exclusive method of receiving indemnification from Seller pursuant to this Article 12 or otherwise. ARTICLE 13 TERMINATION OF AGREEMENT 13.1 Termination Events. Subject to the provisions of Section 13.2, this Agreement may, by written notice given at or - 26 - prior to the Closing in the manner hereinafter provided, be terminated and abandoned prior to the Closing: (i) By Buyer or Seller if the other party materially defaults or breaches with respect to the due and timely performance of any of its covenants, agreements and obligations contained herein, and such default cannot within a reasonable time period be cured (or after notice thereof and an opportunity of 15 calendar days thereafter to cure, has not been cured) and has not been waived; (ii) by mutual written consent of Buyer and Seller; (iii) by either Buyer or Seller if the Closing shall not have occurred on or before July 15, 1995, or such later date as may be agreed upon by the parties; or (iv) by Buyer in the event that the transfer fee imposed by the NHL in connection with granting its consent to the transfer to Buyer of the NHL Franchise and moving the NHL Franchise to Denver is greater than U.S.$8,000,000, payable on the terms set forth in Section 1.3(ii). 13.2 Effect of Termination. In the event this Agreement is terminated pursuant to Section 13.1, such termination shall be without any liability or obligation by the terminating party and all further obligations of the parties hereunder shall terminate, except that the obligations set forth in Sections 7.1, 11.3 and 14.13 hereof shall survive such termination and Buyer agrees not to bring any action or make any claim against Seller if Seller terminates pursuant to Section 13.1(iii) as a result of a failure of any conditions contained in Section 8 or Section 10 hereof. Notwithstanding the foregoing, if this Agreement is terminated by Buyer as a result of Seller's failure to consummate the transactions contemplated hereby as a result of Seller's voluntary decision to retain the NHL Franchise in Quebec or sell the NHL Franchise to any other party then Seller shall pay to Buyer U.S.$4,000,000 within 20 business days after such termination which will liquidate all damages. ARTICLE 14 GENERAL PROVISIONS 14.1 Construction. (i) Words. All references in this Agreement to the singular shall include the plural where applicable, and all references to gender shall include both genders and neuter. (ii) Cross-References. References in this Agreement to any Article shall include all Sections, Subsections - 27 - and Paragraphs in such Article; references in this Agreement to any Section shall include all Subsections and Paragraphs in such Section; and references in this Agreement to any Subsection shall include all Paragraphs in such Subsection. (iii) No Presumption. In interpreting any provision of this Agreement no presumption shall be drawn against the party drafting the provision. (iv) Headings. Article, Section and Subsection headings of this Agreement are for convenience only and are not to be construed as part of this Agreement or as defining or limiting in any way the scope or intent of the provisions hereof. (v) Exhibits. Exhibits and the Disclosure Schedule referred to herein are hereby incorporated into and made a part of this Agreement. 14.2 Notices. All communications provided for hereunder shall be sufficiently given if personally served, transmitted by facsimile (telephonically confirmed) or delivered by prepaid, nationally-recognized overnight courier or by United States mail, registered or certified, return receipt requested and with postage prepaid, to the respective parties as set forth below. Notice shall be deemed given on the date of receipt. To Buyer: COMSAT Video Enterprises, Inc. 6560 Rock Spring Drive Bethesda, MD 20817 Attention: President Fax: (301) 214-7120 With a copy to: COMSAT Corporation 6560 Rock Spring Drive Bethesda, MD 20817 Attention: Vice President and General Counsel Fax: (301) 214-7128 To Seller: Le Club de Hockey Les Nordiques 2205, avenue du Colisee Quebebc (Quebec) G1L 4W7 Attention: Marcel Aubut, president - 28 - With a copy to: Aubut Chabot 2, Place Quebec Bureau 600, C.P. 910 Quebec (Quebec) G1R 4T4 Attention: Counsel of Le Club de Hockey Les Nordiques, Societe en commandite 14.3 Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which taken together shall constitute but one and the same instrument. 14.4 Governing Law; Jurisdiction; Service of Process. This Agreement shall be governed by, interpreted under, and construed and enforced in accordance with the laws of the State of New York applicable to agreements made and to be performed wholly within the State of New York (without regard to the conflicts of laws principles thereof). Seller consents to personal jurisdiction in any action brought in any court, federal or state, within the State of New York having subject matter jurisdiction arising under this Agreement, and agrees not to contest the jurisdiction or venue of any such court on any basis. Seller consents to service of process in any action arising out of its obligations under this Agreement by registered mail to its address set forth in Section 14.2. 14.5 Entire Agreement. The terms of this Agreement are intended by the parties as a final expression of their agreement with respect to such terms as are included in this Agreement and may not be contradicted by evidence of any prior or contemporaneous agreement. 14.6 Modifications and Amendments. This Agreement may not be modified, changed or supplemented, nor may any obligations hereunder be waived or extensions of time for performance granted, except by written instrument signed by the party to be charged or by its agent duly authorized in writing or as otherwise expressly permitted herein. 14.7 Waivers and Extensions. No waiver of any breach of any agreement or provision herein contained shall be deemed a waiver of any preceding or succeeding breach thereof or of any other agreement or provision herein contained. No extension of time for performance of any obligations or acts shall be deemed an extension of the time for performance of any other obligations or acts. 14.8 Attorney's Fees. Should any party institute any action or proceeding to enforce this Agreement or any provision - 29 - hereof, or for damages by reason of any alleged breach of this Agreement or of any provision hereof, or for a declaration of rights hereunder, neither party in any such action or proceeding shall be entitled to receive from the other party any costs and expenses, including attorney's fees, incurred in connection with such action or proceeding. 14.9 Time. Time shall be of the essence in the performance of each party's respective obligations under this Agreement. 14.10 Severability. If any part of this Agreement for any reason shall be declared invalid, such decision shall not affect the validity of any remaining portion, which shall remain in full force and effect. 14.11 Assignment. This Agreement and the rights, duties and obligations hereunder may not be assigned or delegated by any party without the prior written consent of the other party or parties; provided, however, that Buyer shall be entitled without the consent of Seller to assign its rights, but not its obligations, to another entity wholly owned by Buyer or COMSAT Corporation for purposes of consummating the transactions contemplated by this Agreement. Subject to the foregoing sentence, any assignment of rights or delegation of duties or obligations hereunder made without the written consent of the other party hereto shall be void and be of no effect. 14.12 Successors and Assigns. This Agreement and the provisions hereof shall be binding upon each of the parties, their successors and permitted assigns. 14.13 Expenses. Except as otherwise set forth in Section 13.2, each party hereto shall pay its own expenses incident to the negotiation and preparation of this Agreement and all other documents necessary or appropriate to consummate the transactions contemplated hereby, and shall bear its own costs and expenses incurred in closing and carrying out the transactions contemplated by this Agreement; provided, however, that to the extent that this Agreement or any other agreements contemplated by this Agreement - 30 - are required by Seller to be translated into the French language, any expense related to such translation shall be borne by Seller. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written at 6:30 p.m. Eastern Daylight Savings Time. LE CLUB DE HOCKEY LES NORDIQUES SOCIETE EN COMMANDITE BY: 2627-9455 QUEBEC INC., ITS GENERAL PARTNER By: /s/ Marcel Aubut Name: Marcel Aubut Title: President COMSAT VIDEO ENTERPRISES, INC. By: /s/ Charlie Lyons Name: Charlie Lyons Title: President EX-11 6 Exhibit 11 Computation of Earnings Per Share Page 187 Exhibit 11 COMSAT CORPORATION AND SUBSIDIARIES Computation of Earnings Per Share (In thousands, except per share amounts)
Quarter Ended June 30, Six Months Ended June 30, 1995 1994 1995 1994 PRIMARY Earnings $ 22,012 $ 21,617 $ 36,585 $ 41,798 ====== ====== ====== ====== Shares: Weighted average number of common shares outstanding 47,179 46,555 47,084 46,481 Add shares issuable from assumed exercise of options 676 747 672 747 ------ ------ ------ ------ Weighted average shares 47,855 47,302 47,756 47,228 ====== ====== ====== ====== Primary earnings per share $ 0.46 $ 0.46 $ 0.77 $ 0.89 ====== ====== ====== ====== ASSUMING FULL DILUTION Earnings 22,012 $ 21,617 $ 36,585 $ 41,798 ====== ====== ====== ====== Shares: Weighted average number of common shares outstanding 47,179 46,555 47,084 46,481 Add shares issuable from assumed exercise of options 678 749 421 837 ------ ------ ------ ------ Weighted average shares 47,857 47,304 47,505 47,318 ====== ====== ====== ====== Fully diluted earnings per share $ 0.46 $ 0.46 $ 0.77 $ 0.88 ====== ====== ====== ======
EX-27 7
5 This schedule contains summary financial information extracted from the financial statements for the quarter ended June 30, 1995 and is qualified in its entirety by reference to such financial statements. 0000022698 COMSAT CORPORATION 1000 6-MOS 3-MOS DEC-31-1995 DEC-31-1995 JAN-1-1995 APR-1-1995 JUN-30-1995 JUN-30-1995 18,857 18,857 0 0 218,739 218,739 0 0 25,769 25,769 290,758 290,758 2,546,463 2,546,463 1,064,985 1,064,985 2,035,820 2,035,820 279,241 279,241 590,084 590,084 317,703 317,703 0 0 0 0 532,161 532,161 2,035,820 2,035,820 0 0 418,692 210,809 0 0 226,433 105,220 117,563 60,650 0 0 19,249 10,374 58,219 35,308 21,634 13,296 36,585 22,012 0 0 0 0 0 0 36,585 22,012 0.77 0.46 0.77 0.46