-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UDxzovbsuHPoL4l6Em11aFlxeln61nR6rsU0EYRh0HvW7AfYS0oczlgPd24sgebJ v1mTmd1kWQGFqEKgjLnmuQ== 0000022698-99-000004.txt : 19990817 0000022698-99-000004.hdr.sgml : 19990817 ACCESSION NUMBER: 0000022698-99-000004 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990816 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: SEC FILE NUMBER: 001-04929 FILM NUMBER: 99693206 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 COMSAT CORPORATION'S JUNE 30, 1999 FORM 10-Q 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, 1999 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 [ ] 52,745,780 shares of the Registrant's common stock were outstanding as of June 30, 1999. PART I. Financial Information Item 1. Interim Financial Statements for the Corporation (Unaudited) COMSAT CORPORATION AND SUBSIDIARIES Condensed Consolidated Income Statements
Three Months Ended June 30, Six Months Ended June 30, --------------------------- -------------------------- In thousands, except per share amounts 1999 1998 1999 1998 - -------------------------------------------------------------------------------------------------------------------------- Revenues $155,925 $151,045 $300,466 $295,762 --------- --------- --------- --------- Operating expenses: Cost of services 83,071 65,929 163,573 131,874 Depreciation and amortization 43,938 55,556 86,444 107,051 Research and development 2,183 2,549 3,903 4,347 General and administrative 6,727 6,049 11,928 11,852 Merger costs 2,057 - 3,893 - --------- --------- --------- --------- Total operating expenses 137,976 130,083 269,741 255,124 --------- --------- --------- --------- Operating income 17,949 20,962 30,725 40,638 Other income (expense), net 14,056 (1,015) 31,153 (3,840) Interest expense, net of amounts capitalized (9,605) (12,724) (19,382) (24,056) --------- --------- --------- --------- Income before income taxes 22,400 7,223 42,496 12,742 Income tax expense (10,431) (3,149) (18,501) (4,818) --------- ---------- --------- --------- Net income $ 11,969 $ 4,074 $ 23,995 $ 7,924 ========= ========= ========= ========= Earnings per common share: Basic $ 0.23 % 0.08 $ 0.46 $ 0.15 Assuming dilution 0.22 0.08 0.45 0.15
The accompanying notes are an integral part of these financial statements. 2
COMSAT CORPORATION AND SUBSIDIARIES Condensed Consolidated Balance Sheets In thousands June 30, December 31, 1999 1998 - ---------------------------------------------------------------------------------------------- ASSETS - ------ Current assets: Cash and cash equivalents $ 60,401 $ 30,795 Receivables 140,575 131,052 Other 36,000 37,118 ----------- ----------- Total current assets 236,976 198,965 ----------- ----------- Property and equipment (net of accumulated depreciation 934,806 1,209,462 of $1,128,765 in 1999 and $1,298,336 in 1998) Investments 372,351 249,064 Other assets 138,787 133,307 ----------- ----------- Total assets $ 1,682,920 $ 1,790,798 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current maturities of long-term debt $ 31,063 $ 14,962 Accounts payable and accrued liabilities 107,587 88,297 Due to related parties 36,361 30,424 Other 6,143 7,119 ----------- ----------- Total current liabilities 181,154 140,802 ----------- ----------- Long-term debt 379,376 446,832 Deferred income taxes and investment tax credits 127,281 133,509 Accrued post-retirement benefit costs 49,273 48,923 Other long-term liabilities 140,274 161,692 Preferred securities issued by subsidiary 200,000 200,000 Stockholders' equity: Common stock 435,491 430,537 Retained earnings 261,536 242,809 Treasury stock (6,094) (3,109) Unearned compensation (3,414) (4,652) Accumulated other comprehensive loss (81,957) (6,545) ------------ ------------ Total stockholders' equity 605,562 659,040 ------------ ------------ Total liabilities and stockholders' equity $ 1,682,920 $ 1,790,798 ============ ============
The accompanying notes are an integral part of these financial statements. 3
COMSAT CORPORATION AND SUBSIDIARIES Condensed Consolidated Cash Flow Statements Six Months Ended June 30, ---------------------------- In thousands 1999 1998 - ------------------------------------------------------------------------------------------------ Cash flows from operating activities: Net income $ 23,995 $ 7,924 Adjustments to reconcile net income to net cash provided by continuing operations: Depreciation and amortization 86,444 107,051 Equity in earnings of Inmarsat (9,024) - Gain on sale of investments (25,671) (919) Write-off of investment - 1,950 Changes in operating assets and liabilities 1,886 (1,611) Other 711 (2,550) ------------ ------------ Net cash provided by continuing operations 78,341 111,845 Net cash provided (used) by discontinued operations (6,208) 113,752 ------------ ------------ Net cash provided by operating activities 72,133 225,597 ------------ ------------ Cash flows from investing activities: Purchase of property and equipment (55,194) (119,435) Investments in unconsolidated businesses - (7,121) Proceeds from sale of investments 29,541 1,200 Increase in INTELSAT ownership (38,064) (689) Distribution from Inmarsat 31,248 - Decrease in Inmarsat ownership - 5,999 Other (676) 1,949 ------------ ------------ Net cash used in investing activities (33,145) (118,097) ------------ ------------ Cash flows from financing activities: Common stock issued 3,124 42,366 Cash dividends paid (5,268) (5,145) Repayment of long-term debt (7,238) (11,635) Net short-term borrowings (repayments) - (129,508) ------------ ------------ Net cash used by financing activities (9,382) (103,922) ------------ ------------ Net increase in cash and cash equivalents 29,606 3,578 Cash and cash equivalents, beginning of period 30,795 5,757 ------------ ------------ Cash and cash equivalents, end of period $ 60,401 $ 9,335 ============ ============ The accompanying notes are an integral part of these financial statements.
4 COMSAT CORPORATION AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) 1. Financial Statement Presentation The accompanying unaudited condensed consolidated financial statements have been prepared by COMSAT Corporation pursuant to the rules and regulations of the SEC. These financial statements should be read together with the financial statements and notes in our 1998 Annual Report on Form 10-K filed with the SEC. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. The accompanying condensed consolidated financial statements reflect all adjustments and disclosures which, in our opinion, are necessary for a fair presentation. All such adjustments are of a normal recurring nature. The results of operations for the interim periods are not necessarily indicative of the results of the entire year. 2. Agreement and Plan of Merger with Lockheed Martin Corporation COMSAT and Lockheed Martin Corporation entered into an Agreement and Plan of Merger on September 18, 1998. Under the terms of the merger agreement, Lockheed Martin will acquire all of the outstanding common stock of COMSAT in a two-step transaction. We incurred merger costs of $2.1 million in the second quarter of 1999 and $3.9 million in the first six months of 1999 in connection with the proposed merger. See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Outlook" on page 16 of this Form 10-Q and Note 2 to the financial statements in our 1998 Form 10-K for additional information regarding the merger. 3. Inmarsat Privatization Inmarsat completed its privatization on April 15, 1999. As a result, we now use the equity method of accounting to report our 22.2% ownership in the new company. Prior to 1999, we consolidated our share of the accounts of Inmarsat and reported our share of Inmarsat's revenues (net of space segment costs paid to Inmarsat), cost of services, depreciation and amortization and interest costs in the respective categories of our income statement. We now report our proportionate share of Inmarsat's net operating results as equity income in the "Other income (expense), net" category of our income statement. Space segment charges paid to Inmarsat are now reported in cost of services. Equity income from our investment in Inmarsat was $3.2 million for the three months and $9.0 million for the six months ended June 30, 1999. As a result of the privatization and consistent with the equity method of accounting, we reclassified Inmarsat related amounts from property and equipment, current maturities of long-term debt, due to related parties and long-term debt to form our investment in Inmarsat. 5 During March 1999, Inmarsat made a special cash distribution to the signatories. We recorded our share of the distribution of $31.2 million as a reduction of our investment in Inmarsat. 4. INTELSAT Share Change During 1999, we paid $38.1 million to increase our total ownership share of INTELSAT from 18.4% at December 31, 1998 to 20.4%. 5. Regulatory Environment and Litigation Regulatory Environment. Under the Communications Satellite Act of 1962, the International Maritime Satellite Telecommunications Act of 1978 and the Communications Act of 1934, COMSAT is subject to regulation by the Federal Communications Commission with respect to its capital and organizational structure, and with respect to its World Systems and Mobile Communications businesses. FCC decisions and policies have had and will continue to have a significant impact on COMSAT. In addition, the telecommunications companies which we operate in various developing countries are subject to regulation by the local regulatory bodies in those countries. Because the regulatory environment in those countries is rapidly evolving as the local economies are developing, these companies face increasing business uncertainties that could have an adverse effect on their operations. On October 28, 1998, the FCC issued a notice of proposed rulemaking that looks toward enabling users to have direct access to the INTELSAT system, which would end our status as the exclusive provider of INTELSAT services in the U.S. Legislation also has been passed by the Senate to amend the Satellite Act. We discuss these regulatory and legislative developments under "Management's Discussion and Analysis of Financial Condition and Results of Operations - Outlook" on page 19 of this Form 10-Q. Litigation. COMSAT and its subsidiaries are parties to various lawsuits and arbitration proceedings, and are subject to various claims and inquiries, which generally are incidental to the ordinary course of our business. See Note 8 for a description of an arbitration proceeding related to the Green Bank contract to which we are a party. The outcome of legal proceedings cannot be predicted with certainty. Based on currently available information, however, we do not believe that the outcome of any matter which is pending or threatened, either individually or in the aggregate, will have a material adverse effect on our long-term consolidated financial condition. Nevertheless, the outcome of such matters could materially affect our consolidated results of operations in a given year or quarter. In January 1999, the U.S. Department of Justice announced that it intended to join a lawsuit filed by former employees of Electromechanical Systems, Inc. under the qui tam provisions of the Civil False Claims Act. We acquired Electromechanical Systems in 1994 as part of our acquisition of Radiation Systems, Inc., which became part of 6 COMSAT RSI, Inc. We began accounting for COMSAT RSI as a discontinued operation in 1997 and retained Electromechanical Systems when we sold COMSAT RSI in 1998 (see Note 8). The lawsuit names Electromechanical Systems, COMSAT, COMSAT RSI, and several current and former Electromechanical Systems employees and seeks potential damages estimated at up to $40.0 million. The Department of Justice is expected to seek to stay the lawsuit pending the outcome of a separate criminal investigation into the same allegations that is currently being conducted by the U.S. Attorney's office in Tampa, Florida. We intend to vigorously defend this matter but cannot predict the ultimate outcome or estimate the amount of liability that could result from any civil or criminal sanctions the government may seek. 6. Earnings Per Share The following reconciliation illustrates the calculation of our basic and diluted earnings per share amounts for the three and six month periods ended June 30, 1999 and 1998:
Three Months Ended June 30, Six Months Ended June 30, --------------------------------------------------------------- In millions, except per share amounts 1999 1998 1999 1998 ----------------------------------------------------------------------------------------------------- Net income $ 12.0 $ 4.1 $ 24.0 $ 7.9 ========= ======== ========= ========== Basic: Weighted average shares outstanding 52.6 51.9 52.5 51.1 ========= ======== ========= ========== Per share $ 0.23 $ 0.08 $ 0.46 $ 0.15 ========= ======== ========= ========== Assuming dilution: Weighted average shares outstanding 52.6 51.9 52.5 51.1 Stock options 1.1 1.6 1.1 1.6 Restricted stock awards and units 0.1 0.2 0.1 0.2 --------- -------- --------- ---------- Total 53.8 53.7 53.7 52.9 ========= ======== ========= ========= Per share $ 0.22 $ 0.08 $ 0.45 $ 0.15 ========= ======== ========= =========
7 7. Comprehensive Income Comprehensive income consists of net income and other gains and losses affecting our stockholders' equity that, under generally accepted accounting principles, are excluded from net income. For COMSAT, such items consist primarily of foreign currency translation gains and losses and unrealized gains and losses on marketable equity securities. The components of total comprehensive income (loss) are presented in the following table:
Three Months Ended June 30, Six Months Ended June 30, ------------------------------------------------------------ In millions 1999 1998 1999 1998 ----------------------------------------------------------------------------------------------------------- Net income $ 12.0 $ 4.1 $ 24.0 $ 7.9 Other comprehensive income (loss): Unrealized gain (loss) on securities (14.4) 4.5 (24.9) 16.7 Foreign currency translation (0.1) (5.5) (50.5) (5.1) -------- ------- -------- ------- Total comprehensive income (loss) $ (2.5) $ 3.1 $ (51.4) $ 19.5 ======== ======= ======== ========
The foreign currency translation loss resulted from the devaluation of the Brazilian currency (the Real) this year. The unrealized loss on securities includes $8.2 million, net of tax, for the three months ended June 30, 1999 and $12.4 million, net of tax, for the six months ended June 30, 1999 to reflect COMSAT's investment in ICO Global Communications (Holdings) Limited at market value. See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Outlook - ICO Global Communications" on page 21 of this Form 10-Q. The unrealized loss on securities also includes reclassification adjustments of $8.5 million, net of tax, for the three months ended June 30, 1999 and $16.7 million, net of tax, for the six months ended June 30, 1999, related to the sale of stock in Viatel, Inc. 8. Discontinued Operations On June 25, 1998, we sold substantially all of COMSAT RSI, Inc. In connection with the sale, COMSAT and the purchaser agreed to indemnify each other against certain losses. Our indemnification obligations generally are limited to losses incurred in excess of an agreed threshold amount ($6.7 million) and are capped at a maximum agreed amount ($28.0 million) in respect of claims made within an agreed survival period (generally, approximately two years). In certain instances, however, our indemnification obligations are not subject to those limitations. Certain of COMSAT RSI's assets were excluded from the sale and retained by COMSAT, including Electromechanical Systems, Inc. and a long-term construction contract for a radio astronomy telescope in Green Bank, West Virginia. We also retained a claim against the prime contractor to recover $29.0 million in costs incurred in performing the Green Bank contract, which are in excess of the original contract value. The prime contractor has filed a counterclaim seeking $12.9 million in damages for delay. The claim and 8 counterclaim are currently in arbitration. We may not be successful in collecting all or any portion of this claim. The loss upon disposition of discontinued operations is based upon our best estimates of the costs to complete the Green Bank contract, the amount to be realized from the $29.0 million Green Bank contract arbitration claim, potential indemnification claims and other costs related to the discontinued operations. These estimates could change as additional costs are incurred to complete the Green Bank contract, upon resolution of the arbitration and upon resolution of other matters related to the COMSAT RSI discontinued operations. The net assets of COMSAT RSI remaining were $21.2 million at June 30, 1999 and $15.0 million at December 31, 1998. The net assets consist primarily of receivables on long-term contracts, fixed assets, current liabilities and the remaining reserve for the estimated loss on disposal. 9. New Accounting Pronouncements In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities. "The statement requires companies to recognize all derivatives as either assets or liabilities, with the instruments measured at fair value. The accounting for changes in fair value and gains or losses depends on the intended use of the derivative and its resulting designation. The statement was originally effective for fiscal years beginning after June 15, 1999. In June 1999, the Financial Accounting Standards Board issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133 an amendment of FASB Statement No. 133." SFAS No. 137 delays the effective date of SFAS No. 133 by one year, to June 15, 2000. We will adopt SFAS No. 133 in the first quarter of 2001. We are evaluating the impact that implementation of SFAS No. 133 will have on our consolidated financial statements. 9 10. Segment Information
Selected information regarding our operating segments, World Systems (CWS), Mobile Communications (CMC), International (CI) and Laboratories (Labs) follows: Three Months Ended Satellite Services -------------------- (in millions) CWS CMC Total CI Labs Other Total ----------------------------------------------------------------------------------------------------- June 30, 1999: Revenues: External customers $ 85.9 $ 30.7 $ 116.6 $ 27.7 $ 11.6 $ - $ 155.9 Intersegment 0.4 0.2 0.6 - 1.7 (2.3) - --------- -------- -------- -------- -------- -------- -------- Total $ 86.3 $ 30.9 $ 117.2 $ 27.7 $ 13.3 $ (2.3) $ 155.9 ======== ======== ======== ======== ======== ======== ======== Segment income (loss) $ 32.0 $ 4.1 $ 36.1 $ 9.5 $ (0.2) $ (23.0) $ 22.4 ======== ======== ======== ======== ======== ======== ======== June 30, 1998: Revenues: External customers $ 76.1 $ 39.4 $ 115.5 $ 27.1 $ 8.5 $ - $ 151.1 Intersegment 0.1 0.7 0.8 - 3.0 (3.8) - --------- -------- -------- -------- -------- -------- -------- Total $ 76.2 $ 40.1 $ 116.3 $ 27.1 $ 11.5 $ (3.8) $ 151.1 ========= ======== ======== ======== ======== ======== ======== Segment income (loss) $ 26.0 $ 7.4 $ 33.4 $ (3.8) $ 0.1 $ (22.5) $ 7.2 ========= ======== ======== ======== ======== ======== ======== Six Months Ended Satellite Services -------------------- (in millions) CWS CMC Total CI Labs Other Total ----------------------------------------------------------------------------------------------------- June 30, 1999: Revenues: External customers $ 164.3 $ 60.4 $ 224.7 $ 55.4 $ 20.3 $ - $ 300.4 Intersegment 0.9 0.2 1.1 - 2.9 (4.0) - --------- -------- -------- -------- -------- -------- -------- Total $ 165.2 $ 60.6 $ 225.8 $ 55.4 $ 23.2 $ (4.0) $ 300.4 ========= ======== ======== ======== ======== ======== ======== Segment income (loss) $ 61.3 $ 8.9 $ 70.2 $ 18.3 $ (1.7) $ (44.3) $ 42.5 ========= ======== ======== ======== ======== ======== ======== June 30, 1998: Revenues: External customers $ 148.5 $ 79.6 $ 228.1 $ 52.2 $ 15.5 $ - $ 295.8 Intersegment 0.7 1.3 2.0 - 5.0 (7.0) - --------- -------- -------- -------- -------- -------- -------- Total $ 149.2 $ 80.9 $ 230.1 $ 52.2 $ 20.5 $ (7.0) $ 295.8 ========= ======== ======== ======== ======== ======== ======== Segment income (loss) $ 52.0 $ 16.3 $ 68.3 $ (8.2) $ (2.4) $ (45.0) $ 12.7 ========= ======== ======== ======== ======== ======== ========
We evaluate the performance of our operating segments based on income (loss) before income taxes and interest costs. The "Other" column includes the elimination of intersegment revenues, corporate related items, and interest costs, net of amounts capitalized. We continue to report our proportionate share of Inmarsat's net operating results in the Mobile Communications' segment. 10 Mobile Communications' total assets declined from $454.7 million at December 31, 1998 to $327.5 million at June 30, 1999, primarily as a result of the Inmarsat privatization (see note 3). 11 Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations for the Quarter Ended June 30, 1999 ANALYSIS OF OPERATIONS Consolidated Operations Mobile Communications, one of our four operating segments, now uses the equity method to account for our 22.2% investment in Inmarsat. Prior to 1999, we used the pro rata method of consolidation to report our share of Inmarsat's operating results. While the change in accounting method did not affect our consolidated net income, it did affect certain categories on the income statement. We now report our proportionate share of Inmarsat's net operating results as equity income in the "Other income (expense), net" category of the income statement. Revenues Consolidated revenues in the second quarter of 1999 were $155.9 million, an increase of 3% when compared to the same period of 1998. For the six months ended June 30, 1999, revenues of $300.4 million were 2% higher than the comparative period of last year. Revenues improved in World Systems, International and Laboratories. Lower revenues in Mobile Communications partially offset the improvement in our other segments. Operating Income Operating income for the second quarter was $18.0 million, which was $2.9 million below the same period of last year. For the year-to-date period, operating income was $30.8 million, or $9.8 million below the comparative period of 1998. The change in the method of accounting for our investment in Inmarsat, lower Mobile Communications revenues and costs related to the proposed merger with Lockheed Martin Corporation predominately caused the decreases. Improved operating income in World Systems partially offset those items. Other Income (Expense), Net Other income was $14.0 million for the second quarter of 1999, as compared to expense of $1.0 million for the second quarter of 1998. The improvement in other income is the result of a $12.6 million pre-tax gain from Internationals sale of stock in Viatel, Inc. and $3.2 million of equity income from Mobile Communications investment in Inmarsat. For the six months ended June 30, 1999, other income was $31.1 million, which compares to an expense of $3.8 million for the same period in 1998. The year-to-date improvement includes $25.7 million in pre-tax gains from the sale of Viatel stock and $9.0 million in equity income from Mobile Communications investment in Inmarsat. Year-to-date 1998 results included a $2.0 million non-cash write-off of the Laboratories investment in Superconducting Core Technologies, Inc. in the first quarter of 1998. 12 Interest Costs, Net of Amounts Capitalized Interest costs, net of amounts capitalized for the second quarter of 1999, were $9.6 million, or $3.1 million lower than the second quarter of last year. For the first half of this year, interest costs, net of amounts capitalized were $19.4 million, or $4.7 million below the comparative period of 1998. Lower levels of borrowings and the reclassification of Mobile Communications' share of Inmarsat interest costs as a component of "Other income (expense), net" generated the improvement. Income before Income Taxes Income before income taxes for the second quarter was $22.4 million, an improvement of $15.2 million over the same period of 1998. For the year-to-date period, income before income taxes was $42.5 million, which was $29.8 million better than the first six months of 1998. The improvement in both periods was primarily the result of the gain from the sale of Viatel stock and higher earnings from World Systems. Lower Mobile Communications revenues and costs associated with the proposed merger with Lockheed Martin partially offset those items. Income Tax Expense For the second quarter of 1999, income tax expense was $10.4 million, or $7.3 million higher than the second quarter of 1998. Income tax expense for the first six months of this year was $18.5 million, which was $13.7 million more than the same period last year. Improved earnings and a higher effective tax rate than the comparative periods of 1998 led to the increases. Net Income Net income for the second quarter of 1999 was $12.0 million, an improvement of $7.9 million over the same period of 1998. For the six months ending June 30, 1999, net income was $24.0 million, which was $16.1 million better than the comparative period of last year. Earnings per share on a fully-diluted basis for the second quarter were $0.22, or $0.14 higher than the same period of 1998. For the first half of 1999, earnings per share on a fully-diluted basis were $0.45, which was an increase of $0.30 as compared to the same period in 1998. Segment Operating Results We report our operating results in four segments: World Systems, Mobile Communications, International and Laboratories. We evaluate the performance of our operating segments based on segment income (loss) before taxes and interest costs. In our 1998 Form 10-Q reports, we presented our operating results in two segments: Satellite Services and Network Services. The Satellite Services segment included World Systems and Mobile Communications. The Network Services segment included International, Laboratories and Government Programs. We began reporting International and Laboratories as 13 separate segments in the fourth quarter of 1998. We now include the results of Government Programs as part of the World Systems segment.
Results by Segment: Quarter Ended June 30, Six Months Ended June 30, ------------------------- --------------------------- In millions 1999 1998 1999 1998 - ----------------------------------------------------------------------------------------------------------- REVENUES Satellite Services: World Systems $ 86.3 $ 76.2 $ 165.2 $ 149.2 Mobile Communications 30.9 40.1 60.6 80.9 ----------------------------------------------------------- Total Satellite Services 117.2 116.3 225.8 230.1 ----------------------------------------------------------- International 27.7 27.1 55.4 52.2 Laboratories 13.3 11.5 23.2 20.5 Eliminations and other (2.3) (3.8) (4.0) (7.0) ----------------------------------------------------------- Total $ 155.9 $ 151.1 $ 300.4 $ 295.8 =========================================================== SEGMENT INCOME (LOSS) Satellite Services: World Systems $ 32.0 $ 26.0 $ 61.3 $ 52.0 Mobile Communications 4.1 7.4 8.9 16.3 ----------------------------------------------------------- Total Satellite Services 36.1 33.4 70.2 68.3 ----------------------------------------------------------- International 9.5 (3.8) 18.3 (8.2) Laboratories (0.2) 0.1 (1.7) (2.4) ----------------------------------------------------------- Total segment income 45.4 29.7 86.8 57.7 General and administrative expenses (6.7) (6.1) (11.9) (11.9) Merger costs (2.1) - (3.9) - Interest costs, net of amounts (9.6) (12.7) (19.4) (24.0) capitalized Other income (expense), net (4.6) (3.7) (9.1) (9.1) ----------------------------------------------------------- Total $ 22.4 $ 7.2 $ 42.5 $ 12.7 ===========================================================
World Systems Revenues in World Systems in the second quarter of this year were $86.3 million, an increase of 13% over the same period in 1998. For the first half of 1999, World Systems revenues were $165.2 million, which was an improvement of 11% as compared to the same period of last year. The improvement in revenues was primarily the result of increased demand for Internet services and other high-speed data traffic and our increased ownership in INTELSAT. In 1999, we paid $38.1 million to increase our total ownership share of INTELSAT from 18.4% to 20.4%. A slight decline in voice revenues partially offset these increases. Segment income in World Systems in the second quarter was $32.0 million, an increase of 23% as compared to second quarter of 1998. For the first six months of 1999, World Systems segment income was $61.3 million, or 18% higher than the first half of last year. Revenue growth, lower operating expenses and increased ownership in INTELSAT contributed to the improvement in segment income. 14 Mobile Communications Inmarsat completed its privatization on April 15, 1999. As a result, we now use the equity method of accounting to report our 22.2% ownership in the new company. Prior to 1999, we used the pro rata method of consolidation to report our share of Inmarsat's operating results. Under the pro rata method of consolidation, we reported our share of Inmarsat's revenues (net of the space segment charges that we paid to Inmarsat), cost of services, depreciation and amortization and interest costs in the appropriate categories of our income statement. We now report our proportionate share of Inmarsat's net operating results as equity income in "Other income (expense), net" within the Mobile Communications operating segment. The space segment charges that we pay to Inmarsat are now reported in cost of services. Our share of Inmarsat's interest costs and income taxes are now reported within the Mobile Communications segment. Prior to 1999, our share of Inmarsat's interest costs were reported in "Interest costs, net of amounts capitalized" and taxes related to our income from Inmarsat were reported in "Income tax expense." Revenues in Mobile Communications for the second quarter were $30.9 million, or 23% below the second quarter of 1998. Mobile Communications revenues in the first half of 1999 were $60.6 million, or 25% below the same period last year. Lower analog telephone traffic, principally due to lower usage in the U.S. Government sector, and lower amounts of carrier traffic primarily caused the declines. In addition, reporting Inmarsat's revenues using the equity method of accounting lowered Mobile Communications' revenues by $4.5 million in the second quarter and $6.1 million in the first six months of 1999. Mobile Communications' segment income in the second quarter of 1999 was $4.1 million, as compared to $7.4 million in the second quarter of 1998. For the six months ended June 30, 1999, Mobile Communications segment income was $8.9 million, versus $16.3 million in the same period of last year. The decline in Mobile Communications segment income was due to lower revenues, and reporting our share of Inmarsat's interest costs and income taxes within the Mobile Communications segment. Mobile Communications' results include interest costs and income taxes of $2.2 million for the second quarter and $3.2 million for the first half of 1999. The year-to-date 1998 results also included a non-recurring $1.0 million gain on the sale of an investment. International International's second quarter 1999 revenues were $27.7 million, or 2% higher than the second quarter of 1998. For the six months ended June 30, 1999 Internationals revenues were $55.4 million, or 6% better than the same period of last year. Revenues in International's company in Brazil decreased compared to last year due to the devaluation of the Brazilian currency. Improvements in Argentina, Mexico and Colombia offset lower revenues in Brazil. Segment income for International in the second quarter was $9.5 million, compared to a loss of $3.8 million for the same period of 1998. International's segment income for the first six months of 1999 was $18.3 million, which compares to a segment loss of $8.2 million in the first 15 half of 1998. During the second quarter of 1999, we sold our remaining investment in Viatel and recognized a gain of $12.6 million. For the six months ended June 30, 1999, our total gain on the sale of Viatel stock was $25.7 million. Excluding the gains on the sale of Viatel stock, International had segment losses of $3.1 million in the second quarter of 1999 and $7.4 million in the first half of 1999. Economic conditions in Latin America constrained growth in International's companies operating in Argentina, Brazil and Venezuela. Laboratories The Laboratories' revenues in the second quarter of 1999 were $13.3 million, or 16% higher than the second quarter of last year. For the six months ended June 30, 1999, Laboratories' revenues were $23.2 million, or 13% better than last year. The improvement in revenues was due to growth in our technical consulting and product businesses. The segment loss in the second quarter was $200,000, which compares to segment income of $100,000 in the second quarter of 1998. For the year-to-date period, the segment loss was $1.7 million, which was $700,000 better than the $2.4 million loss recorded in the first half of 1998. The prior year results included a $2.0 million non-cash write-off of our investment in Superconducting Core Technologies, Inc. Absent this write-off, the Laboratories' segment loss in the first half of 1999 was $1.3 million higher than the same period of 1998 and was primarily due to increased research and development costs. OUTLOOK Many of the statements that follow are forward looking and relate to anticipated future events and operating results. Statements that look forward in time are based on management's current expectations and assumptions, which may be affected by subsequent developments and business conditions, and necessarily involve risks and uncertainties. These statements and the corporation's future operating results may be affected by the timing and outcome of regulatory and other governmental proceedings, legislative actions, developments concerning the privatization of INTELSAT, the proposed acquisition of COMSAT by Lockheed Martin Corporation, international and domestic business conditions, increased competition from other satellite services providers, the disposition of assets and completion of contracts placed in discontinued operations, the effect of the year 2000 issue on COMSAT, litigation and other factors. Therefore, there can be no assurance that actual future results will not differ materially from anticipated results. Although we have attempted to identify some of the important factors that may cause actual results to differ materially from those anticipated, those factors should not be viewed as the only factors that may affect future operating results. Business Combination with Lockheed Martin COMSAT entered into an Agreement and Plan of Merger with Lockheed Martin Corporation on September 18, 1998. Under that agreement, Lockheed Martin agreed to acquire all of COMSAT's outstanding common stock in a two-step transaction. The first step is a tender offer, which was commenced on September 25, 1998, by a subsidiary of Lockheed Martin, Regulus LLC, to purchase up to 49% of COMSAT's outstanding 16 common stock at a price of $45.50 per share. The tender offer is currently scheduled to expire on August 31, 1999 but will be extended, as necessary, until September 18, 1999. The tender offer will be completed only if the conditions set forth in the merger agreement are satisfied. Some of those conditions are: o at least one-third of COMSAT's outstanding common stock must be tendered in the offer; o COMSAT shareholders must approve the merger; o receipt of all required consents and approvals from government authorities, including FCC approval for Lockheed Martin to become an authorized carrier and acquire up to 49% of COMSAT's common stock in the tender offer and expiration of all waiting periods under antitrust laws; and o there is no event that has had or would reasonably be expected to have a material adverse effect on COMSAT. The second step is a proposed merger pursuant to which COMSAT will merge with a wholly-owned subsidiary of Lockheed Martin. In the merger, shareholders will receive one share of Lockheed Martin common stock for each share of COMSAT common stock that they own. The merger will be completed only if the conditions set forth in the merger agreement are satisfied. Some of those conditions are: o completion of the tender offer; o amendment of the Communications Satellite Act of 1962 to permit completion of the merger; o receipt of all consents and approvals from governmental authorities; and o there is no event that has had or would reasonably be expected to have a significant adverse effect on COMSAT. We are working toward completing the tender offer and merger. However, we do not yet know when or whether the tender offer or merger will be completed as the conditions to each step are beyond our control. COMSAT and Lockheed Martin have estimated that the regulatory approvals necessary to complete the tender offer could be obtained in time to permit the tender offer to close before September 18, 1999. In January 1999, Representative Tom Bliley, Chairman of the House Committee on Commerce, and Senator Conrad Burns, Chairman of the Senate Commerce Subcommittee on Communications, sent a letter to William E. Kennard, Chairman of the FCC, urging the FCC not to take any action to permit Lockheed Martin to purchase more than 17 10 percent of COMSAT prior to Congress adopting new satellite legislation. If the FCC does not proceed with its review of Lockheed Martin's filings related to the tender offer, or if the FCC delays or slows its review or if it awaits Congressional action on legislation, the tender offer will not be completed by September 18, 1999. Moreover, the tender offer cannot be completed without requisite antitrust clearances, which have not been attained. The requisite FCC approvals and antitrust clearance may not be obtained before September 18, 1999. If Congress does not adopt amendments to the Satellite Act in the next few months, the merger will not occur in 1999, even if the tender offer is completed. If, however, Congress adopts amendments to the Satellite Act in the 1999 or 2000 legislative session, the merger may occur afterwards, depending upon when the FCC grants approvals necessary to complete the merger. No assurance can be given that the requisite legislation will be enacted. If legislation enabling the merger is enacted, FCC approval of the merger will be required in addition to the approvals required for the tender offer. While it is expected that the FCC would act promptly on the matter following enabling legislation, the FCC's response time could affect the estimated time frame for closing the merger. If the tender offer is not completed by September 18, 1999 or if the merger is not completed by September 18, 2000, either Lockheed Martin or COMSAT may terminate the merger agreement. Lockheed Martin or COMSAT may elect not to do this or together may elect to amend the merger agreement so that the tender offer or merger could be completed after those dates. Restructuring of Inmarsat and INTELSAT The privatization of Inmarsat was completed on April 15, 1999. We now own 22.2% of Inmarsat Holdings, Ltd., a new, independent commercial company based in London, England. The new company is not currently publicly traded but is expected to conduct an initial public offering within approximately two years of the privatization, subject to market conditions. As a result of the privatization, we are using the equity method to account for our investment in Inmarsat. We previously used the pro rata consolidation method. This reporting change is not expected to have a material effect on our net income. In November 1998, INTELSAT transferred six satellites (five currently in orbit and one expected to be launched during the 1999-2000 time frame) to New Skies Satellites N.V. New Skies, which is headquartered in the Netherlands, is an entirely separate, independent company spun off from INTELSAT. We use the cost method to account for our 16.6% direct ownership of New Skies. Prior to its creation, the assets and operating results relating to New Skies were included as part of the INTELSAT system and were accounted for using the pro rata consolidation method. During 1998, our share of pre-tax earnings related to the satellites transferred to New Skies was approximately $3 million. As a result of this change in accounting, World Systems' 1999 pre-tax earnings will be lower by approximately this amount in the absence of other factors that may affect operating results. 18 INTELSAT's management and Board of Governors are continuing efforts to transform INTELSAT from a treaty-based, intergovernmental organization to a fully-private, commercial company. At its June 1999 meeting, the INTELSAT Board of Governors decided to focus its restructuring efforts by developing a business plan which assumes that the new INTELSAT will be operated as some form of corporation. Based on the timetable approved at INTELSAT's April Meeting of Signatories, it appears that INTELSAT may be in a position to complete its restructuring prior to the end of 2001, the time frame we had previously established as our objective for privatizing INTELSAT. While the new privatized company initially will not be publically traded, it is expected that a initial public offering may be achievable in 2002, subject to market conditions and the actual date of incorporation of the restructured INTELSAT. We are committed to privatizing INTELSAT in a pro-competitive manner at the earliest possible time. As a minority shareholder and the U.S. Signatory to INTELSAT, however, we lack the ability to independently effect a restructuring of INTELSAT. The success of our efforts will depend on our ability to achieve a consensus among other Signatories and participating member governments. A two-thirds vote of the governments that are members of INTELSAT will be necessary for approval of any final privatization proposal. Legislative and Regulatory Developments On July 1, 1999, the U.S. Senate passed the Open-market Reorganization for the Betterment of International Telecommunications (ORBIT) Act (S. 376) by unanimous consent. Senator Conrad Burns, Chairman of the Senate Commerce Subcommittee on Communications, introduced the ORBIT legislation. COMSAT believes that the ORBIT legislation, on the whole, represents a constructive approach to the privatization of INTELSAT and deregulation of COMSAT. Significantly, the ORBIT legislation would repeal the ownership restrictions on COMSAT stock upon enactment and eliminate other outdated provisions in the Satellite Act. We do have concerns with some provisions of the bill, including a requirement that the President withdraw the U.S. from this international organization if the full privatization is not achieved by 2002. Although we believe privatization of INTELSAT will be completed rapidly, United States withdrawal from INTELSAT in 2002, if privatization is not completed, would have a substantial adverse effect on our financial condition and results of operations. Amendments to the ORBIT legislation addressed direct access and standards to govern FCC licensing of Inmarsat and New Skies as privatized companies and INTELSAT after that organization is privatized. The House of Representatives is expected to consider satellite legislation this year, most likely in the form of legislation being prepared by Representative Tom Bliley, Chairman of the House Committee on Commerce. At this time, Representative Bliley's timetable for introducing satellite legislation is unclear. Last year, the House passed a bill introduced by Representative Bliley entitled the Communications Satellite Competition and Privatization Act of 1998 (H.R. 1872). We opposed H.R. 1872 because it contained provisions that, in our view, would have adversely affected our results of operations and the value of our shareholders' investments in the INTELSAT and Inmarsat satellite systems. The Clinton Administration opposed H.R. 1872 in testimony before the Senate Commerce Committee late last year and in hearings on S. 376 in March of this year. 19 On October 28, 1998, the FCC issued a notice of proposed rulemaking that looks toward enabling users to have direct access to the INTELSAT system, which would end COMSAT's status as the exclusive provider of INTELSAT services in the United States. In the direct access notice, the FCC tentatively concluded, among other things, that it lacks the statutory authority to impose Level 4 direct access (by which users could invest and acquire an ownership interest in INTELSAT) but does have the authority to require Level 3 direct access (by which users could contract directly with INTELSAT for capacity and bypass COMSAT). The FCC sought comments on its tentative conclusion that it would serve the public interest to mandate Level 3 direct access. Some of COMSAT's largest customers and other users filed comments supporting direct access, and also urged the FCC to void COMSAT's long-term carrier contracts under the so-called "fresh look" doctrine. COMSAT filed comments contesting the basis for the FCC's proposal to implement Level 3 direct access and opposed the fresh look requests. Depending on form and timing, the imposition of direct access could have an adverse effect on our financial condition and results of operations. However, we do not believe that the FCC has authority under the Satellite Act to eliminate COMSAT's exclusive franchise access and would contest the exercise of such authority by the FCC as only Congress can modify the statutory scheme that applies to COMSAT. There is no assurance that our judicial challenge to direct access would succeed. In October 1998, Congress passed, and the President subsequently signed, the International Anti-Bribery Act of 1998. The Act provides that, as of May 1, 1999, an international organization providing commercial satellite services will not be accorded immunity from suit or legal process in connection with its provision of such service, except as required by international agreements to which the United States is a party that are so designated by the President. The Act requires the President to designate those agreements which are subject to the exception and directs the President to take all appropriate actions to reduce or eliminate all privileges and immunities that are not preserved by designation. COMSAT opposed prior versions of this legislation but supported it in the form ultimately passed by Congress. We do not believe that enactment of this legislation will have a material effect on our business, because Inmarsat was privatized before May 1, 1999, and the Department of State, acting under delegated authority, has now designated the INTELSAT Headquarters Agreement as an international agreement to which the United States is a party, thereby requiring the United States to continue to afford INTELSAT immunity from suit and legal process under the Act. In June 1998, the FCC issued a public notice requiring U.S. earth stations using INTELSAT satellites that were scheduled to be transferred to New Skies to file license modification applications in order to access the New Skies system. Several companies, including COMSAT, filed applications in response to this notice. On August 6, 1999, the FCC granted these applications for a three-year license term, finding that New Skies' entry into the U.S. market would not pose a very high risk to competition, but that New Skies was not yet fully independent of INTELSAT. U.S. earth stations may now access New Skies satellites for both domestic and international services. The Commission stated that it would consider extending these licenses for a full ten-year term upon an appropriate showing by New Skies. In the meantime, it directed New Skies to file quarterly status reports on its plans for an initial public offering and other steps toward independence. 20 1999 Earnings Outlook We expect earnings performance in the second half of 1999 to continue at approximately the same level as in the first half of 1999, excluding the one-time gains on our sale of Viatel, Inc. stock and costs associated with the proposed merger with Lockheed Martin. The instability of the Brazilian Real, as well as the current economic climate within Brazil, are expected to negatively impact growth and financial performance of International's operations in Brazil during 1999. The Brazilian Real has declined approximately 45% in value as compared to the U.S. Dollar between January 1, 1999 and June 30, 1999, and is no longer tied to a fixed trading range. In 1998, COMSAT Brazil was International's largest operating company, accounting for approximately 40% of International's revenues. In addition, we are beginning to see the effects of economic downturns in other Latin American countries such as Argentina and Venezuela. ICO Global Communications COMSAT has a 1.6% direct ownership interest in ICO Global Communications (Holdings) Limited. ICO is a development stage company, which was formed to provide hand-held satellite communications services. In addition to our direct investment in ICO, we have an indirect investment in ICO through our equity ownership in Inmarsat, which also is an ICO shareholder. To date, ICO has raised approximately $3 billion in financing. ICO has stated that it needs approximately $1.6 billion in additional funding in order to complete the development of its system and fund its operations through deployment. ICO also has stated that it will require substantial additional funding until it begins to generate positive cash flow from operations. ICO continues to seek the funds that will enable it to complete the system. ICO's ability to raise additional capital will be dependent upon market conditions and other factors which are potentially beyond its control. There can be no assurance that ICO will be successful in its efforts to raise additional capital. If ICO is unable to raise sufficient capital to complete the system, the value of our investment in ICO could be impaired or lost. At June 30, 1999, the market value of our direct investment in ICO was $16.2 million. Our cost basis for this investment was $36.0 million. During the first half of 1999, we recognized an unrealized loss of $12.4 million, net of taxes, in comprehensive income (loss) to account for a decline in the current market value of this investment. Under generally accepted accounting principles, unrealized gains (losses) on marketable securities are reported as a component of comprehensive income in stockholders' equity, but are excluded from net income. If the reduction in the market value of our investment in ICO is determined to be other than temporary, we will need to account for the reduction in ICO's market value as a charge to net income at that time. In addition, since we account for our ownership interest in Inmarsat using the equity method of accounting, we also would recognize a portion of any realized loss that Inmarsat would record related to its investment in ICO. Our cost basis for that indirect investment was $34.7 million. 21 Year 2000 Issue (Year 2000 Readiness Disclosure) The year 2000 issue stems from existing computer programs that were written using two digits rather than four digits to define the applicable year (e.g., "99" for 1999). Some computer programs that have date-sensitive software may not operate properly when the last two digits become "00," as will occur on January 1, 2000. To the extent that this situation exists, there is the potential for system failure or miscalculations, which could cause a disruption of operations. The problem is not limited to computer programs, as some computer and other operational equipment that have date-sensitive processors may not be able to process dates after December 31, 1999. In the second half of 1996, we initiated a program to identify and address year 2000 issues in order to avoid interruption to our operations at the turn of the century. Each of our operating segments, as well as our administrative functions, has completed the inventory and assessment phases of the year 2000 implementation plan and has completed remediation and testing of a majority of the critical non-compliant systems identified during these two phases. We presently believe that necessary changes to the remainder of our key computer and other operational systems and equipment will be completed and tested by the end of the third quarter of 1999. Our current estimate is that it will cost approximately $8 million prior to January 1, 2000 to modify in-house management information systems, customer products and other systems and equipment affected by the year 2000 issue. Of this amount, we have spent approximately $6. million, or 75% of the projected amount, through June 30, 1999. Year 2000 modifications and replacements are based on management's current expectations and assumptions, which were derived using assumptions of future events, including the continued availability of resources and the reliability of third-party modification plans. Future events that might cause material differences in management's current expectations and assumptions include, but are not limited to, the availability and cost of personnel with appropriate skills, the ability to locate and correct all relevant computer code, reliance on third parties and similar uncertainties. While we are devoting substantial resources to our own year 2000 compliance effort, COMSAT, as well as other international telecommunications carriers, will be dependent, in part, on foreign and other third-party telecommunications carriers being year 2000 compliant. The financial impact on World Systems and Mobile Communications of foreign or third-party telecommunications carriers failing to meet the year 2000 challenge would be realized in either of two ways: loss of revenue due to the inability to complete the up-link or down-link transmissions to or from a satellite and/or a decrease in our share of INTELSAT and Inmarsat operating results. In recognition of the potential financial exposure resulting from this dependency on foreign and third-party telecommunications carriers, we have undertaken, as part of our year 2000 efforts, an analysis of the year 2000 compliance efforts of these telecommunications carriers. In addition to this analysis, we are also utilizing the results of efforts undertaken by the International Telecommunication Union (ITU). World Systems derives in excess of 90% of its revenues under long-term contracts. Almost all of these revenues are dependent upon termination with a foreign telecommunication 22 carrier. Even though these long-term contracts are not subject to termination as a result of the year 2000 issue, a significant portion of the expected future World Systems revenues and our share of INTELSAT revenues is generated from services between the United States and areas of the world that may be subject to service interruptions resulting from year 2000 readiness issues. In addition, Mobile Communications derives a significant portion of its revenues from services either originating or terminating outside of the United States. If the originating or terminating carrier is unable to initiate or terminate a call, Mobile Communications, directly and indirectly through our share of Inmarsat revenues, would be adversely affected by reduced revenues. It is not possible for us to accurately quantify the amount, if any, of these exposures. International relies on third-party telecommunications carriers to provide services to their customers. We have sought, but have not yet received, final certification regarding year 2000 compliance from all of our third-party carriers. We are developing appropriate contingency plans to mitigate, to the extent possible, the effects of possible non-compliance by third-party carriers. LIQUIDITY AND CAPITAL RESOURCES The primary source of cash during the first six months of 1999 was cash from operations and the sale of Viatel stock. Our working capital at June 30, 1999 was $55.8 million, a decrease of $2.4 million from December 31, 1998. The decline in working capital was due to a $38 million increase in current assets primarily from the proceeds from sale of stock in Viatel, offset by higher current liabilities of $40.4 million. The increase in current liabilities was primarily from reclassifying the current portion of our share of INTELSAT's long-term debt and certain other noncurrent liabilities to current liabilities. We have access to short-term and long-term financing at favorable rates. Our current long-term debt ratings are A- from Standard and Poor's and A3 from Moody's. Our current commercial paper ratings are A2 from Standard and Poor's and P2 from Moody's. Following announcement of the proposed merger with Lockheed Martin, both Standard and Poor's and Moody's placed their ratings on our long-term debt under review for possible downgrades. The downgrades would take effect as a result of merging the corporation with a lower-rated parent company. The ratings for commercial paper are not under review at this time. The current ratings on the Monthly Income Preferred Securities issued by COMSAT Capital I, L.P. are BBB from Standard and Poor's and A3 from Moody's. Our $200 million commercial paper program had no borrowings outstanding at June 30, 1999. A $200 million credit agreement, expiring at the end of 1999, backs up our commercial paper program. We have an option to extend this credit agreement by one-year to December 31, 2000. We had $36 million remaining under a $100 million medium-term note program at June 30, 1999. The medium-term note program is part of a $200 million debt securities shelf registration program initiated in 1994. Our capital structure and debt-financing activities are regulated by the FCC. Under the currently approved FCC guidelines, we are subject to a limit of $200 million in short-term debt, a maximum long-term debt to total capital ratio of 45% and an interest coverage ratio of 2.3 to 1. 23 The latter two guidelines are measured at year end. We were in compliance with these guidelines as of June 30, 1999. If we were to fail to satisfy one or more of the FCC guidelines, we would be required to seek advance FCC approval of future financing activities on a case-by-case basis. 24 Item 3. Quantitative and Qualitative Disclosures About Market Risk We do not hold or issue derivative financial instruments. We finance our operations and manage our interest rates through a combination of short-term commercial paper, fixed-rate long-term debt and Monthly Income Preferred Securities (MIPS) issued by a subsidiary. The MIPS pay a fixed dividend. Borrowings under our short-term commercial paper program can expose our operating results to changes in short-term rates. At June 30, 1999, no commercial paper was outstanding. The corporation invests its excess cash in highly liquid investments with a maturity of three months or less. Such investments can expose our operating results to changes in short-term rates. International conducts its operations primarily through majority-owned and wholly-owned subsidiaries. We have financed International's subsidiaries through capital contributions. International's largest subsidiaries utilize the local currency as their functional currency. Therefore, fluctuations in exchange rates relative to the U.S. Dollar are recorded as cumulative translation adjustments as a component of our stockholders' equity. Fluctuations in exchange rates relative to the U.S. Dollar have not had a material impact on our cash flows or results of operations. 25 PART II. Other Information Item 1. Legal Proceedings ----------------- See note 5 of this Form 10-Q and Item 3 of our 1998 Form 10-K, which are 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 --------------------------------------------------- None Item 5. Other Information ----------------- None Item 6. Exhibits and Reports on Form 8-K -------------------------------- (a) Exhibits -------- 10.1 Land Earth Station Operator Agreement among COMSAT Corporation, Inmarsat Holdings LTD and Inmarsat LTD dated as of February 10, 1999. 10.2 Shareholders Agreement between INMARSAT ONE LTD, subsequently renamed Inmarsat Holdings LTD, and COMSAT Corporation dated as of February 9, 1999. 27 - Financial Data Schedule (b) Report on Form 8-K ------------------ Report dated June 11, 1999, announcing that our shareholders meeting originally scheduled for June 18, 1999, will now take place on August 20, 1999. 26 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, thereunto duly authorized. COMSAT Corporation By /s/ Alan G. Korobov Alan G. Korobov Controller Date: August 16, 1999 27 EX-10.1 2 LAND EARTH STATION OPERATOR AGREEMENT Exhibit 10.1 Inmarsat One Limited, to be renamed INMARSAT HOLDINGS LTD Inmarsat Two Company, to be renamed INMARSAT LTD and COMSAT Corporation, acting through its business unit, COMSAT Mobile Communications LAND EARTH STATION OPERATOR AGREEMENT Agreement for the provision of Services by the LESO via the Company's Space Segment LAND EARTH STATION OPERATOR AGREEMENT THIS AGREEMENT is made on 10th February 1999. AMONG Inmarsat One Limited, a limited liability company incorporated under the laws of England and Wales with registered number 3674573 whose registered office is at 99 City Road, London EC1Y 1AX, United Kingdom and, after the Effective Date, INMARSAT HOLDINGS LTD (the Parent), Inmarsat Two Company, a company incorporated under the laws of England and Wales with registered number 3675885 whose registered office is at 99 City Road, London, EC1Y 1AX, United Kingdom and, after the Effective Date, INMARSAT LTD (the Company); and COMSAT Corporation, acting through its business unit, COMSAT Mobile Communications, a public company incorporated under the laws of the District of Columbia, USA whose principal place of business is at 6560 Rock Spring Drive, Bethesda, Maryland MD 20817, USA (the LESO). The Parent, the Company and the LESO shall each be referred to herein individually as a "Party" and collectively as the "Parties". WHEREAS (A) The Company desires to provide telecommunication services via the Space Segment (as defined below) to the LESO; and (B) The LESO desires to obtain telecommunication services via the Space Segment from the Company and to distribute telecommunications services to its customers, including distress and safety services between maritime mobile terminals and national rescue agencies, in accordance with the terms and conditions of this Agreement. IT IS AGREED as follows: 1 DEFINITIONS 1.1 In this Agreement, including any exhibits and Annexes hereto, the following terms shall have the following meanings unless otherwise expressly provided: 1 Accounting Authority shall have the meaning set forth in Clause 5.3. Affiliate An "affiliate" of, or a Person "affiliated" with, a specified Person, is a Person that directly, or indirectly through one (1) or more intermediaries, controls, or is controlled by, or is under common control with, the specified Person. For purposes of the foregoing, "control" (including the terms "controlling," "controlled by," and "under common control with") means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise. Authorisation means the authorisation of the LESO to provide Services via the Space Segment pursuant to Clause 2. Authorized Credit Clearinghouse means an entity authorized by one or more LES Operators in writing to receive information related to service activation in accordance with Clause 5.3. Barring Procedures means the barring procedures set out in Annex A, as amended from time to time. Business Day means a day (excluding Saturdays and Sundays) on which banks generally are open in England and the country of the registered office/principal place of business of the LESO for the transaction of normal banking services. Charges means the charges payable by the LESO to the Company for the provision of telecommunications Services via the Space Segment pursuant to Clause 9. Effective Date means the date on which this Agreement becomes effective, as determined in accordance with the Master Transition Agreement. Evolved Services means (i) any service other than an Existing Service which is provided at any time during the Term of this Agreement via the Second or Third Generation Satellites, and (ii) any service that the Company, in its discretion, chooses to offer on Subsequent Generation Satellites provided that such service uses or is substantially based on the communications systems technology specified in the LES Technical Criteria and Operating Procedures (as amended from time to time). For avoidance of doubt, Radiodetermination Services are not Evolved Services. 2 Existing Services means any service listed in the schedule of Charges in Annex G as of the Effective Date, provided that, notwithstanding whether it is included in Annex G at the Effective Date, M4 and IPDS services shall be deemed to be Existing Services. Extended Term means the term referred to in Clause 4.2. Initial Term means the term referred to in Clause 4.1. IPDS means Inmarsat packet data service. IPR Licence Agreement shall have the meaning provided in Clause 18.1. ISP or Inmarsat Service Provider means an entity that has contracted with one or more LES Operators to distribute, promote, retail and bill Services to end-users and has received an ISP code from the Company. Lease means an agreement under which the Company agrees to provide Space Segment capacity for a fixed term in accordance with the terms and conditions set forth in such agreement. LES or Land Earth Station means the satellite antennas, switching facilities and related equipment located at a fixed location that form an interconnection point between the Satellites and the terrestrial telecommunications networks for the purpose of providing Services, or using Space Segment capacity pursuant to a Lease. LESO's Relevant Net Revenues shall have the meaning set forth in Clause 15.4. LES Operator means any operator of an LES, that enters into an agreement to obtain use of the Space Segment from the Company on the same terms and conditions as are set forth in this Agreement. In addition, any other entity that is a Signatory to the Organization prior to the Effective Date and notifies the Company as of the Effective Date of its intention to construct an LES during the Initial Term shall be considered an "LES Operator" hereunder after the date on which such entity constructs an LES and enters into an agreement with the Company on the same terms and conditions as are set forth herein. LES Technical Criteria and Operating Procedures means all relevant system definition manuals (SDMs), technical requirements documents and network operating procedures set out in the list in Annex B, as amended from time to time, as well as future SDMs and other related documents relating to Evolved Services. 3 LES User Group Meeting means a meeting between the Company and the LES Operators held in accordance with Annex K. M4 means multi-media mini-M, including a 64/56 Kbit data service. Marks shall have the meaning set forth in Clause 18. Master Transition Agreement means the Agreement executed among the Company, the Organization and the Signatories of the Organization to effectuate the transfer of the Organization's assets and liabilities to the Company. MES means a mobile earth station (including any SIM card that can be used in conjunction with an MES). Maritime Distress and Safety Services means the satellite radiocommunications capabilities that are described in the International Convention on the Safety of Life at Sea, 1974 (as amended from time to time) in order to implement the relevant requirements of the Global Maritime Distress and Safety System (GMDSS). New Services means any services introduced by the Company following the Effective Date of this Agreement other than the Services. Ocean Region means global beam satellite coverage areas of the Satellites at the locations set forth in Clause 13.3, and designated as the Atlantic Ocean Region-West, Atlantic Ocean Region-East, Indian Ocean Region and Pacific Ocean Region. Organization means the International Mobile Satellite Organization established by the Convention on the International Mobile Satellite Organization on 16 July 1979, as amended. Payment Due Date shall have the meanings given in Clauses 10.1 and 10.3, respectively. Person means any individual, corporation, partnership, joint venture, trust, unincorporated organization, association, pool, syndicate, sole proprietorship or government or agency or political subdivision thereof or any other form of organization not specifically listed. Points of Service Activation shall have the meaning set forth in Clause 5.2. Public Services Agreement shall have the meaning set forth in Clause 2.11(d). 4 Radiodetermination Services mean radiolocation and radionavigation services which are provided via dedicated satellite transponders on the Third or Subsequent Generation Satellites. Reseller means any entity engaged by the LESO to resell Services provided through the Land Earth Station of the LESO (whether on-demand or through Leases), including, without limitation, ISPs or tenant entities in Shared LES Agreements. Satellite means an object located beyond the earth's atmosphere that is used for radiocommunications and, more particularly for the purpose of this Agreement, includes any satellite that is owned, leased and/or operated by the Company now and in the future. Second Generation Satellites means those Satellites known, as of the Effective Date, as Inmarsat-2 F1 to F4. Services means Existing Services and Evolved Services, or any one of them as the context requires. Shared Base Station means each of the dual-region IPDS Base Stations owned and operated by the Company at the Effective Date. Shared LES Agreement means an agreement or arrangement between the LESO (as host) and a third party (as tenant, which in all cases shall be required to meet the criteria in Clause 2.4(b) hereof) whereby the LESO agrees to provide facilities at its Land Earth Station to the tenant to permit shared use of the host LES, while allowing the tenant to be identified by an LES identification code separate from that of the host's LES identification code for service provision and/or traffic management purposes. Notwithstanding the foregoing, the agreement of the host LESO to allocate a TNID programmed at its LES shall not be deemed to be a Shared LES Agreement for the purposes of this Agreement. Space Segment means the Satellites, and all other centralised infrastructure owned, leased or operated by or on behalf of the Company to support the operation of the Satellites as set forth in Clause 13.10 and the Services in all Ocean Regions. Subsequent Generation Satellites means any Satellites procured by the Company following the Effective Date. Subsidiary shall have the meaning given in Clause 2.9. Telecommunications Breakdown means any unavailability, delay, interruption, carried on the Space Segment provided that for the purpose of this Agreement, a Telecommunica- 5 tions Breakdown shall not include any unavailability or interruption of a Service that is caused by a decision of the Company to relocate a Satellite or to restrict or withdraw such Service under Clause 2.11 hereof. Term means the Initial Term of the Agreement or, as the context requires, the Initial Term and any Extended Term. Third Generation Satellites means those Satellites known, as of the Effective Date, as Inmarsat-3 F1 to F5. TNID means a terrestrial network identification number. Urgent Operational Case means a situation which, in the good faith opinion of the Company, on the basis of the information available to it, has caused or is likely imminently to cause damage to the Space Segment, a Telecommunications Breakdown, or major and sustained interference with Services provided by one or more LES Operators. Value Added Services means any products or services that the LESO offers for use in conjunction with the Services that are not inconsistent with the LES Technical Criteria and Operating Procedures. 1.2 Words in the singular include the plural and vice versa where the context requires. 1.3 Headings are for guidance only and do not affect the construction or interpretation of this Agreement. 1.4 In this Agreement, unless the context otherwise requires, references to Clauses, paragraphs and Annexes are to Clauses, paragraphs and Annexes of this Agreement. 1.5 The Annexes form part of this Agreement and any reference to this Agreement includes the Annexes. 2 AUTHORISATION TO PROVIDE SERVICES LESO Authorisation 2.1 Subject to the availability of Space Segment in accordance with the provisions of Clause 13, the Company authorises the LESO, on a non-exclusive basis, to procure telecommunication services provided by the Company via the Space Segment in order to provide Services via the LESO's Land Earth Stations identified in Clause 2.2. 6 2.2 The Authorisation provided by the Company herein is limited to the LESO's provision of telecommunication services via the Space Segment only through its Land Earth Stations existing as of the Effective Date and known as (i) Santa Paul Earth Station, Santa Paula CA, USA whose Ocean Region is Pacific Ocean Region; (ii) Southbury Coast Earth Station, Southbury, Connecticut, USA whose Ocean Regions are Atlantic Ocean-East and Atlantic Ocean-West; (iii) ATA, Turkey whose Ocean Region is Indian Ocean Region; and (iv) Kuantan, Malaysia whose Ocean Region is Indian Ocean Region. The Company shall allocate LES identification numbers (IDs) and/or access codes to the LESO for use in each of the LESO's LES(s) and, as necessary, for any arrangement made pursuant to a Shared LES Agreement duly authorised for operation through the LESO's LES(s). The LESO shall have the right to maintain any LES lDs allocated to it by the Organization that are in effect as of the Effective Date. The allocation and maintenance of LES lDs shall be in accordance with the criteria in Annex C. Such LES shall include any replacement antenna or switching facility. 2.3 The LESO shall provide no less than five (5) days prior written notice to the Company of any of the Services that it intends to provide via the Space Segment that is in addition to those Services that the LESO provides as of the Effective Date. Subject to Clause 8.1, the LESO does not need the Company's consent to provide such additional Services in accordance with the terms and conditions of this Agreement. 2.4 The LESO may enter into arrangements with any Reseller to provide Services through the LESO's Land Earth Stations, subject to the following terms and conditions: (a) ISPs. The LESO shall provide written notice to the Company of the identity of any entity with which the LESO enters into an ISP arrangement no less than five (5) days prior to the commencement of the provision of Services by such entity as an ISP. Following such notice, the Company shall allocate an ISP code to any such entity within five (5) days, provided that the LESO and such entity meet the Requirements specified in the ISP Mandatory Procedural Requirements set forth in Annex D hereof. The Company may publish the name of any ISP or the relationship of any ISP with the LESO unless the LESO instructs the Company in writing not to publish such information; provided, however, that the Company may in all cases disclose such information in connection with fraud prevention activities. (b) Shared LES Agreements. The LESO shall provide written notice to the Company of the identity of any entity with which the LESO enters into a Shared LES Agreement no less than five (5) days prior to commencement of LES authorisation testing preceding the provision of service under the Shared LES Agreement. The host entity shall apply to the Company to utilize an LES ID and 7 access code for the tenant entity in accordance with the procedures in Annex C. However, the tenant entity shall in all cases be required to be an LES Operator operating a physical LES with the same system definition as the hosted Service, including but without limitation, Inmarsat A, B, M mini-M and aeronautical, in order to commence service under a Shared LES Agreement. Alternatively, the tenant entity shall demonstrate to the Company that it has executed a legally binding and enforceable contract to build an LES with the same system definition and to begin to provide service via such LES no later than six (6) months following the date on which the Company allocates the Shared LES ID, failing which the Company shall withdraw such Shared LES ID immediately following the expiration of such six-month period. The Company shall attribute traffic to the tenant entity in the Shared LES Agreement for traffic aggregation purposes in accordance with the agreement of the host and tenant entities, or if no such agreement exists, to the LESO as host entity. (c) Other Reseller Arrangements. The LESO shall have the right to enter into --------------------------- any arrangement for the distribution of Services through the LESO's Land Earth Station(s) with any type of Reseller other than an ISP or tenant in a Shared LES Agreement, or to engage any other agent or representative for that purpose, without further notice to or consent of the Company. (d) Responsibility for Compliance with Agreement. The LESO shall be -------------------------------------------- responsible hereunder for the actions of any Resellers engaged by the LESO and shall assure the compliance of any such Reseller with the applicable terms and conditions of this Agreement, including without limitation, the LES Technical Criteria and Operating Procedures. 2.5 The Company shall consider any application by the LESO for the provision of New Services via the Space Segment on such terms and conditions as may be mutually agreed by the Parties, but the Company shall be under no obligation to grant such authorisations. 2.6 In connection with its provision of Services via the Space Segment, the LESO: (a) shall use reasonable efforts to promote the use of the Services that the LESO chooses to provide; (b) shall commit to work with the Company to achieve marketing goals when such goals are jointly agreed between the two Parties; and (c) may develop any Value Added Services based on the Services. 8 2.7 (a) The Company has the right to authorise other entities, on a non-exclusive basis, to construct a Land Earth Station in order to provide Services via the Space Segment, provided that no such entity may be an Affiliate of the Company and the Company may not have any direct or indirect ownership interest in such entity. Such authorisations shall be on terms and conditions which are no more favourable to the newly authorised entity than those provided to the LESO under this Agreement. The Company shall notify the LES Operators of any new authorisation and the terms and conditions upon which such authorisation is granted within thirty (30) days of any such authorisation along with a certification that the terms provided to the newly authorised entity are not more favourabie than those provided to the LESO herein. Any entity authorized by the Company to construct a Land Earth Station to provide Services via the Space Segment following the Effective Date shall be considered an "LES Operator" for the purposes of this Agreement after the date on which each entity constructs the LES and enters with an agreement with the Company on such terms and conditions. (b) The Parties acknowledge that any former Signatory of the Organization that does not, at the Effective Date, own and operate an LES but which has notified the Company by the Effective Date of such former Signatory's intention to construct an LES and has satisfied the conditions set forth in Annex P, shall be authorised by the Company to provide Services via the Space Segment upon constructing a Land Earth Station and executing an agreement with the Company on the same terms and conditions as set forth herein, including the same expiration date for the Initial Term as all other LES Operators. Establishment of LESs by the Company 2.8 During the Initial Term, the Company shall not be entitled to establish an LES or to acquire an existing LES or to become the Affiliate of (or have any other direct or indirect ownership interest in) an entity that operates an LES. 2.9 After the Initial Term, the Company shall be entitled to establish or acquire (directly or through an Affiliate) LESs without limitation subject to the following conditions: (a) In establishing or acquiring (directly or through an Affiliate) an LES, the Company shall be obligated to operate such LES through a structurally separate subsidiary (the "Subsidiary"); 9 (b) The Company shall apply no more favourable terms to such Subsidiary than it does to any other LES Operator; and (c) The Company shall procure that any relevant information, in any form whatsoever, including verbal information that is conveyed by it, its directors, officers, employees or agents to its Subsidiary, or the Subsidiary's directors, officers, employees or agents shall be contemporaneously made available to the LESO and all other LES Operators. For the purposes of this Clause, "relevant information" means any information which relates to LES operations and the provision of Services. 2.10 Throughout the Initial Term, neither the Company nor any Affiliate of the Company may act as a Reseller of Services, or otherwise provide Services directly to any entity that is not an LES Operator. In the event that the Company or any Affiliate is permitted to act as a Reseller at any time during the Extended Term, it shall do so only through a structurally separate Subsidiary that complies with the provisions in Clause 2.9 above. Any Shared Base Station ("SBS") will be used by the Company only for the purpose of routing traffic to the LESO and other LES Operators to enable the LESO and other LES Operators to provide IPDS or other relevant Services to their respective Resellers and end-users and the Company shall not permit the interconnection of the SBS with any entity that is not an LES Operator. Restriction or withdrawal of a Service 2.11 The Company has the right to restrict or withdraw a Service in one or more Ocean Regions subject to the following conditions: (a) The Company shall provide no less than one (1) year's written notice to the LESO and all LES Operators providing the Service to be restricted or withdrawn in the relevant Ocean Region(s) and specify the reasons for the restriction or withdrawal of the Service in question. (b) No later than thirty (30) days following the notice from the Company specified in paragraph (a) above, at the request of any LES Operator, the Company shall convene an LES User Group Meeting for the following purposes: (i) for the Company to consider the views of the LES Operators before implementing any proposed restriction or withdrawal; (ii) for the Company to demonstrate that the restriction or withdrawal satisfies the conditions in paragraph (c) below; and (iii) to define incentives to be offered to affected LESOs to facilitate orderly migration of end-users from a restricted or withdrawn service to another service, where possible, and a proposed transition schedule. 10 (c) The following conditions shall apply to any proposed restriction or withdrawal of service: (i) any restriction or withdrawal shall apply equally to all LES Operators which may have previously provided the Service within the relevant Ocean Region(s); (ii) The LESO shall be excused from any obligation to satisfy outstanding service and/or traffic commitments with respect to a withdrawn or restricted Service; and (iii) In determining whether to restrict or withdraw a Service, the Company shall take into account investments in equipment or facilities and contractual arrangements made by the LESO, other affected LES Operators and end-users in reliance upon the availability of the Service to be restricted or withdrawn and the possibility of continuing the Service in certain cases under mutually agreeable Lease arrangements. (d) The Company may restrict or withdraw a Service, unless doing so would conflict with its obligations under the Public Services Agreement between the Company and the Organisation ("Public Services Agreement") provided that a determination as to such a conflict shall be made solely by the parties to the Public Services Agreement in their absolute discretion. In the event that, following the Company's notification of its election to restrict or withdraw a Service in an ocean region, the Company becomes obligated by the Organization to maintain such Service to comply with the Public Services Agreement, and one or more LESOs wish to provide the Service in the ocean region, the Company shall be entitled to adjust the Charges for such Service but only in the ocean region in question, so as to enable it to recover all of its costs for providing the Service, plus a commercially reasonable rate of return (not to exceed 15 percent of actual costs to provide the Service in question). Competition 2.12 Nothing in this Agreement shall prevent the LESO from becoming a distributor of the services of, or holding any economic interest in, any entity that provides mobile satellite telecommunications services, regardless of whether such entity competes with the Company. 3 LEASE AGREEMENTS 11 3.1 The Parties acknowledge and agree that the LESO and the Organization entered into a number of Leases that have been novated by the Company as the Organization's successor-in-interest. Such Leases are listed in Annex 0 and will continue to be governed by the terms and conditions in such Leases. 3.2 Following the Effective Date, the Company and the LESO may enter into Leases at any time during the Term hereof provided that the Company shall make Leases for particular services available, subject to the availability of Space Segment capacity. to the LESO and all LES Operators on substantially equivalent terms and conditions and in accordance with the Company's lease policy, which as of the Effective Date shall be as set forth in Annex E. For this purpose, the LESO may install an additional antenna, as necessary, subject to compliance with the LES Technical Criteria and Operating Procedures. The Company shall not enter into any leasing arrangements with any Affiliate (or itself) in respect of the Space Segment capacity on the Satellites. The Company may also make Leases available, subject to the availability of Space Segment capacity, to any other entity, provided that any such Leases (i) shall be on terms and conditions which are no more favourable than those available to the LESO, and (ii) shall be conditioned on the entity providing its own LES for use of the leased capacity; any such entity may install an antenna, as necessary, for this purpose, subject to compliance with the LES Technical Criteria and Operating Procedures. Neither the Company nor any Affiliate of the Company may enter into a Lease with a Reseller or with any other entity that does not provide its own LES for use of the leased capacity. 3.3 The Company shall, and where appropriate after first consulting with the LESO, give the LESO written notification of any changes to the Lease Policy. 3.4 Notwithstanding anything to the contrary herein, the Charges for Leases shall not be included in, or subject to, Clauses 9.5 and 9.6. 3.5 The Parties acknowledge that Existing Services listed in Annex G are not Leases within the meaning of this Agreement. 4 TERM Initial Term 4.1 This Agreement shall have an Initial Term of five (5) years commencing on the Effective Date. Extended Term 12 4.2 Subject to Clauses 4.3 and 4.4, the LESO shall have the option, upon giving written notice to the Company, to extend the Initial Term for a further fixed period of five (5) years ("Extended Term") based on the standard terms and conditions decided between the Company and the LES Operators pursuant to Clause 4.3 or, if the circumstances in Clause 4.4 apply, based on mutually agreed terms. 4.3 In accordance with the procedures and time schedule set out in Annex F, the LES Operators and the Company shall enter into negotiations to agree standard terms and conditions (to apply during an Extended Term as defined below) prior to the start of the fifth year of the Initial Term. Where standard terms and conditions are agreed, the LESO shall then decide whether to exercise its option in Clause 4.2 and shall notify the Company within sixty (60) days after the conclusion of the meeting described in Annex F. If standard terms and conditions are not agreed, Clause 4.4 shall apply. 4.4 If the Company and the LES Operators do not agree to standard terms and conditions to apply during an Extended Term pursuant to the procedures set forth in Annex F, then the Company and the LESO may negotiate during the fifth year of the Initial Term to extend the Initial Term for a further fixed period of five (5) years (the "Extended Term") on mutually agreeable terms and conditions; provided that any such terms and conditions shall be no less favourable to the LESO than those provided or offered to other LES Operators. 4.5 The Company may not enter into an agreement with any Affiliate of the Company for the provision of Services for the Extended Term nor provide Services itself until such agreements have been concluded with LES Operators providing thirty (30) percent of the Company"s total revenues derived from all LESO Agreements in the prior calendar year. Prior to entering into an agreement with an Affiliate hereunder, the Company shall provide notice to all LES Operators concerning (i) the Company's total revenues during the prior year; and (ii) the contribution to the Company's total revenues during the previous year of the LES Operators with which the Company has concluded agreements for the Extended Term. Any agreement between the Company and its Affiliate must be approved by the Board of the Company and must contain the limitations and procedural safeguards on the actions of the Affiliate that apply to the Company's separate Subsidiary in Clause 2.9 hereof. This Clause shall survive termination of the Initial Term. 4.6 If an Extended Term is agreed between the Company and the LESO pursuant to Clause 4.3 or Clause 4.4, provisions similar to those contained in Clauses 2.9 and 7 shall be incorporated in the terms and conditions for such extension. The terms and conditions shall also incorporate a provision that in the event that the Company or any Affiliate is permitted to act as a Reseller at any time during the Extended Term, it shall do 13 so only through a structurally separate Subsidiary that complies with the provisions in Clause 2.9 above. 5 SERVICE ACTIVATION AND PROVISION 5.1 The Parties shall make arrangements to permit end-users to use the Services provided through the Space Segment and the LESO's Land Earth Station. The LESO shall have full rights and responsibility to establish the service rates at which the LESO distributes Services to its Resellers and end-users. The Parties shall cooperate to provide for the minimization of credit risks associated with the provision of Services to end-users in accordance with this Clause 5. 5.2 The Company shall authorize such number of routing organizations or other Points of Service Activation as may be necessary to facilitate widespread activation of end-user MESs, consistent with applicable law, (for the purpose of this Agreement, each routing organization and other Point of Service Activation shall be referred to individually as a "PSA", and collectively as "PSAs") and shall appoint the LESO to act as a PSA, upon the LESO's request and if permitted by applicable national law, provided, however, that (i) the Company shall impose on each PSA, as a condition of its appointment, the Points of Service Activation Criteria in Annex Q and (ii) the LESO, as a condition of such appointment, shall comply with the Points of Service Activation Criteria in Annex Q. The Parties acknowledge that, within a particular national regulatory framework, a PSA may be required to include a national regulatory authority, in which case the term "PSA", as used hereunder, shall be deemed to include, collectively, such national regulatory authority and such other entity that complies with the Points of Service Activation Criteria in Annex Q. The Company shall monitor and enforce compliance with the Points of Service Activation Criteria throughout the term hereof. 5.2.1 The Company shall treat all information relating to the identity and corporate or personal details relating to end-users that the Company receives from a PSA, including all such information (including commissioning data-bases) obtained by the Company from the Organization in accordance with the transactions contemplated in the Master Transition Agreement, as Confidential Information (within the meaning of Clause 17) hereunder for the benefit of the LESO and other LES Operators and shall not, without the consent of the LESO and other LES Operators acting through an LES User Group Meeting, (i) disclose such information to any third party (other than to maritime safety and distress rescue agencies for the purpose of assisting in distress and safety missions) or (ii) allow such information to be provided to the Company's Subsidiary (within the meaning of Clauses 2.9., 2.10 and 4.5) except on terms that are identical to those on which such information is provided to the LESO and other LES Operators. 14 5.3 Following notification by a PSA of a prospective end-user's valid application for service in accordance with the Points of Service Activation Criteria in Annex Q, and subject to any procedures as the Company deems appropriate to verify that the PSA has complied with the criteria and procedures required hereunder (and the receipt of any other authorization or approval required under applicable law), the Company shall facilitate the activation of such end-user's MES by providing in electronic form to the LESO, other LES Operators and (upon the LESO's-written request) any Authorized Credit Clearinghouse organized by the LESO or other LES Operators, the MES identification number, recognized billing entity (including, without limitation, Accounting Authority code or ISP code), and other information as may be necessary for service activation of such MES. For the purpose of this Agreement, the term "Accounting Authority" shall mean an Accounting Authority within the meaning of ITU-T Recommendation D.90. The Company shall not activate any MES that is not associated with an ISP or Accounting Authority or other entity approved by the Company, and which accepts financial responsibility for payment of end-user charges in a manner consistent with the requirements of the Points of Service Activation Criteria in Annex Q. With respect to MESs that are activated prior to the Effective Date, the Company shall use its best efforts to impose the Points of Service Activation Criteria on any PSA in existence as of the Effective Date ("Existing PSAs") and shall keep the LESOs informed following the Effective Date of the identities of any Existing PSA that has not agreed to the Points of Service Active Criteria (a "non-compliant PSA"). The Company shall provide without delay to the LESO, immediately upon the presentation by the LESO of reasonable proof of non-payment by the owner of any MES associated with any non-compliant PSA, the corporate and personal details of such MES owner for the LESO's debt collection purposes. Following the date that is one (1) year after the Effective Date, the Company shall not activate any MES associated with an Existing PSA that remains a non-compliant PSA, unless the Company has undertaken the necessary steps to verify the information concerning an MES owner or operator that is required to be verified by the PSA using the procedures outlined in Annex Q. 5.4 The LESO shall not activate any MES that has not been authorized through the Company's service activation procedures, as notified to the LESO from time to time. 5.5 The LESO shall not be obliged to provide Services to any MES that does not meet the LESO's own criteria (such as the creditworthiness of the end-user or responsible billing entity associated with such MES) so long as the LESO does so in a manner that is consistent with the LESO's obligations to provide distress and safety service under its national laws and regulations. 5.6 Except as expressly provided to the contrary in Clauses 5.8 and 6 of this Agreement, the LESO shall be responsible to the Company for payment of all Charges 15 arising from the LESO's provision of Services to any MES through the LESO's Land Earth Station. 5.7 If an MES has been refused access by the LESO in accordance with the LESO's own criteria (such as creditworthiness of the end-user), and provided that such MES has not been subject to a mandatory financial bar (as provided for in Annex A), the LESO shall continue to provide access to such MES for fixed-to-mobile traffic, but only if it can do so under circumstances in which (i) the LESO is not exposed to the risk of non-payment associated with such traffic, or (ii) the MES has no outstanding debt to the LESO. 5.8 In order to achieve the purpose set out in paragraph 1 of Annex A, the Parties shall implement the financial Barring Procedures set forth in Annex A. In the event that the Company notifies the LESO of a mandatory financial bar on an MES in accordance with such procedures, the Company shall impose financial penalties on the LESO or any LES Operator which violates such bar, including without limitation any entity that is authorized by the Company to operate an LES in accordance with Clause 2.7 hereof, and shall impose the same conditions on the LESO and all LES Operators with respect to the maintenance and lifting of such bar as provided for in the Barring Procedures set forth in Annex A. In the event that the LESO provides service to an MES that is subject to a mandatory financial bar in violation of the requirements of the Barring Procedures, then the LESO agrees that it shall pay to the Company the penalty Charges provided for in Annex G. In the event that the Company fails to notify the LESO of the lifting of a mandatory financial bar under the circumstances required by the procedures set forth in Annex A, then the Company shall not be entitled to receive the penalty Charges from the LESO from the date on which the Company should have provided such notice in accordance with such procedures. 5.9 Notwithstanding the foregoing, in the event that the Company fails to notify the LESO or the other LES Operators of the implementation of a mandatory financial bar under the circumstances required by the Barring Procedures set forth in Annex A, then the LESO shall not be obligated to pay Charges for Services provided to any MES that would have been subject to the mandatory financial bar. The Company shall have no other liability for failure to provide notice of the implementation or lifting of a mandatory financial bar except as expressly provided for in this Clause 5. 6 TECHNOLOGICAL FRAUD MANAGEMENT 6.1 The Parties shall use their best endeavours to eliminate economic losses, and inconvenience to legitimate end-users, arising from technological fraud, such as, without limitation, the cloning of MESs and theft of MES identification codes. The Company shall 16 use its reasonable endeavours to develop and implement where possible technical means for detection and prevention of such technological fraud (such as MES fingerprinting). 6.2 The LESO shall have no obligation to pay Charges for Services in cases where the LESO has unknowingly carried traffic to or from an MES through which technological fraud has been perpetrated, provided that the LESO shall immediately notify the Company in the event that the LESO knows or suspects that a particular MES is fraudulent or is being fraudulently operated and shall provide reasonable proof to the Company that fraud has occurred. 6.3 The LESO shall comply with the Technological Fraud Prevention Procedures set forth in Annex R, as amended from time to time in accordance with Clause 20. 6.4 Notwithstanding the foregoing, the LESO shall have an obligation to pay Charges under the circumstances outlined in Clause 6.2 in the event that (i) the LESO receives non-refundable payment for the Services provided from the end-user in question; or (ii) the LESO provides Services to the MES in question after the Company informs the LESO that the Company has reason to believe that such MES is fraudulent or is being fraudulently operated, or (iii) the LESO's failure to comply with the Technological Fraud Prevention Procedures in Annex R has allowed such technological fraud to take place. 6.5 The LESO shall not provide Services to an MES that the LESO knows or has reason to believe is fraudulent or fraudulently operated. 6.6 The Parties shall assist legitimate end-users whose MESs may be compromised by technological fraud, including (i) on the LESO's part (with the assistance of the Company upon the LESO's request), contacting such end-users or Resellers to inform them of the existence of the fraud; (ii) assisting such end-users with deactivation and reactivation of their MESs with new access numbers and codes and any other relevant facilities and (iii) providing general information concerning fraud avoidance. In the event that an end-users MES must be deactivated and reactivated as the result of technological fraud arising from the LESO's failure to comply with the Technological Fraud Prevention Procedures in Annex R, then the LESO shall reimburse the Company for administrative costs associated with such deactivation and reactivation and reasonable costs incurred by the end-user in connection therewith (provided that such costs shall be demonstrated to be reasonably incurred). 7 RENEWAL OF THIS AGREEMENT 7.1 This Agreement may be renewed upon the expiry of the Extended Term on any terms and conditions as may be mutually agreed between the Company and the LESO. 17 In order to facilitate the orderly renewal of this Agreement, the Parties agree to comply with the procedures described in this Clause provided, however, that neither Party shall be under a binding obligation to agree to any renewal of this Agreement and nothing in this Clause shall preclude the Parties from mutually agreeing to any other procedure for the negotiation and execution of such renewal. 7.2 If, not less than eighteen (18) months before the expiry of the Extended Term, the LESO, gives the Company written notice requesting the renewal of this Agreement, the Company shall, at least fifteen (15) months before such expiry, give the LESO written notice stating either the terms and conditions upon which the Company is willing to grant a renewal to the Agreement pursuant to this Clause or that the Company is not willing to grant such renewal and the reasons for such decision. If the Company is willing to grant a renewal, the Parties shall each use their best efforts to conclude any agreement for renewal at least twelve (12) months before the expiry of the Extended Term. In considering the request for a renewal, the Company shall, consistent with the objects set forth in its Memorandum of Association, take into account the desirability of the LESO continuing to provide Maritime Distress and Safety Services. 8 AUTHORISATION SUBJECT TO COMPLIANCE 8.1 Subject to Clause 8.4 below, the Authorisation shall be conditional upon compliance by the LESO with the LES Technical Criteria and Operating Procedures in respect of all Services being provided by the LESO, or by a Reseller using the LESO's Land Earth Stations. The LESO shall also use reasonable endeavours to comply with the minimum LES Technical Performance Objectives in Annex M. Subject to Clauses 8.4 and 20, the Company shall apply the same LES Technical Criteria and Operating Procedures to all LES Operators for Services provided through the Land Earth Stations of such LES Operators. 8.2 If the LESO fails to comply with its obligations under Clause 8.1: (i) The Company shall give notice to the LESO requiring its non-compliance to be remedied within a reasonable time (which shall not be less than ten (10) days except in Urgent Operational Cases) taking into account all of the circumstances, and after consultation with the LESO. (ii) If the non-compliance continues after the time specified in the Company's notice in sub-paragraph (i), the Company shall have the right, with immediate effect: (a) to suspend the Authorisation for non-compliant Services in respect of the LES or LESs concerned; or 18 (b) to suspend the Authorisation with respect to any tenant entity in a Shared LES Agreement with the LESO in the event that such non-compliance is caused by the tenant entity; or (c) to suspend the entire Authorisation where the non-compliance affects all the Services provided and all of the LESs operated by the LESO. (iii) Notice of suspension shall be given by the Company to the LESO immediately after any such action and such suspension shall continue until the date on which the LESO resumes compliance with the LES Technical Criteria and Operating Procedures, as determined by the Company acting in good faith. (iv) This Sub-Clause 8.2 shall be without prejudice to the applicable provisions of Clause 21. 8.3 Notwithstanding the foregoing and subject to the provisions of Clause 8.2(iii) above, the Company shall have the right to suspend the Authorisation with respect to Services provided, or Land Earth Stations operated, by the LESO without notice in the event that such Services or Land Earth Stations are not compliant with the requirements of the LES Technical Criteria and Operating Procedures and such failure of compliance has led to the occurrence of an Urgent Operational Case. 8.4 The obligation of the LESO to comply with the requirements of the LES Technical Criteria and Operating Procedures shall be subject to any waivers from compliance with such requirements granted by the Organization to the LESO. In addition, the Company may grant waivers to the LES Technical Criteria and Operating Procedures after the Effective Date of this Agreement, provided that any such waiver (or a functionally equivalent waiver) that is granted to other LES Operators shall be granted to the LESO if the LESO demonstrates similar hardship in similar circumstances. Upon request by the LESO at the time that the LESO seeks a waiver, the Company shall disclose the existence of waivers granted to other LES Operators that are similar to the waiver requested by the LESO. 9 9 CHARGES 9.1 The LESO shall pay to the Company, subject to the provisions of this Clause 9, the Charges calculated in accordance with Annex G for services via the Space Segment provided hereunder to the LESO by the Company (as such Charges may be adjusted from time to time in accordance with Clauses 9.5 and 9.6). The LESO shall be responsible for the payment of all Charges to the Company for all Services that are provided via the Space Segment using its LES (including those Services provided by Resellers). The Charges 19 shall be paid to the Company in US dollars or in any other freely convertible currency that is acceptable to the Company and otherwise in accordance with the invoice procedures in Clause 10. 9.2 The Company may offer price incentives to the LESO and other LES Operators, as set forth below: A. Performance Incentives. The Company shall be free to introduce price ----------------------- incentives based on the contribution of the LESO and other LES Operators in meeting performance objectives defined by the Company with the aim of expanding the overall traffic or customer base for the Services, provided that any such price incentives are made available to all LES Operators based on the same criteria. B. Take-or-pay and Modified Take-or-pay. The Company shall be ------------------------------------- free to introduce further price incentives based on firm commitments by the LESO to deliver a specified volume of traffic for a defined Service over a specified period of time, and, where the Parties determine that such an arrangement would be desirable, to modify the take-or-pay commitment such that the penalty amount payable by the LESO for any shortfall in traffic delivered is an agreed fraction of the actual shortfall amount. Any such take-or-pay or modified take-or-pay commitments shall be offered by the Company to all LES Operators on an equal basis at least thirty (30) days prior to the introduction of such scheme for any LES Operator, subject to the availability of Space Segment capacity. Taxes and Tax Credits 9.3 All Charges payable by the LESO under this Agreement shall be paid free and clear of all taxes, levies, duties, costs, charges, withholdings, deductions or any charges of equivalent effect (tax or taxes) imposed on the Services by any authority having the power to impose such taxes, provided that the Company shall remain responsible for any income tax imposed on it. 9.4 If, and to the extent that, the LESO pays a tax in accordance with Clause 9.3 and the Company receives and retains the benefit of a refund of a tax or credit against tax on its overall net income which is attributable to the tax paid by the LESO (a Tax Credit), then the Company shall reimburse such amount to the LESO or, at the LESO's option, the LESO may deduct the applicable amount from amounts payable to the Company in accordance with Clause 10. The LESO may identify a Tax Credit for which the Company may be eligible and assist the Company in claiming such Tax Credit. The Company shall use reasonable endeavours to claim any such Tax Credit to the fullest extent permitted by 20 applicable law. In the event that the LESO claims a reimbursement hereunder, the LESO shall identify any such Tax Credit to the Company and provide all necessary information and assistance to the Company to claim such Tax Credit. In the event of an audit by any relevant taxing authority related to taxes (other than income taxes) or Tax Credits related to the Services provided by the LESO, the Parties shall provide such information to each other as may be necessary to comply with such audit, subject only to limitations imposed by law. Changes to the Charges 9.5 The Charges set forth in Annex G shall be modified each year of the Term on the date that is the anniversary of the Effective Date (a "Modification Date") in accordance with the following formula: [FORMULA] where: j = price component (including both fixed and variable components); t = year following the Modification Date; t-1 = year ending on the Modification Date; t* = year extending from fifteen (15) calendar months prior to the Modification Date to three (3) calendar months prior to the Modification Date (the "Measurement Year"); Vj,t*= volume of component j in the Measurement Year t*; and Pj,t = wholesale price of component j in year t (US dollars of year t), which shall be undiscounted except as permitted under Article 9.6.3. 9.6.1 At least thirty (30) days before the Modification Date, the Company shall provide to the LESO the following information: (i) the Charges (for each price component, i.e. for Demand-Assigned Services, Full-Period Services and Fixed Charges) during the year ending on the Modification Date; 21 (ii) the total Service volumes of the Company (for each price component) during the Measurement Year; (iii) the calculation of Charges for the year commencing on the Modification Date in accordance with the formula in Clause 9.5 and shown in sufficient detail that the LESO can verify the calculation based on the information supplied in accordance with (i) and (ii); and (iv) a report from the Company's auditors stating that in their opinion the information supplied in accordance with (i) to (iii) fairly presents the revenues earned by the Company and the application of the formula in Clause 9.5. The Company shall provide the information required in paragraphs (i) to (iv) to the LESO in a manner and at location(s) that protect the confidentiality thereof. The Parties agree that all such information provided shall be deemed to be Confidential Information and shall be protected as required by Clause 17 of this Agreement. 9.6.2 The Company shall be free on a Modification Date to adjust the Charges of any individual Service and to adjust the fixed and variable components of any Charge for any individual Service, so long as the formula in Clause 9.5 is satisfied. 9.6.3 In implementing the formula in Clause 9.5, the Company shall not take account of Charges or volumes that are based upon take-or-pay, or modified take-or-pay commitments between the Company and individual LES Operators pursuant to Clause 9.2B unless such commitments are expressly set forth in Annex G. 9.6.4 In the event that the Company adds Evolved Services to Annex G in accordance with this Agreement, then any such Services shall be subject to the price formula in Clause 9.5 on any Modification Date failing more than six (6) months after the date on which the Service is added to Annex G. 9.6.5 In the absence of an arithmetic or other clerical error in the application of the formula in Clause 9.5, the new Charges developed by the Company as revised to reflect the requirements of Clause 9.5 shall be final and binding on the Parties and shall not be subject to dispute under Clause 30 of this Agreement. The Company shall provide to the LESO a revised Annex G reflecting the new Charges at least ten (10) days before the Modification Date, and such revised Annex shall constitute an amendment to this Agreement. Introduction of New Charges 22 9.7 If the Company introduces an Evolved Service for which no Charge is listed in Annex G as of the Effective Date, the Company shall establish the initial Charge for that Service, subject to prior consultation with the LESO. Once such a Charge is established, Annex G shall be modified accordingly and the Charge shall be subject to Clauses 9.5 and 9.6, provided that the Company shall be free at any time to offer reduced promotional levels of Charges on a temporary basis to facilitate the introduction of newly-offered Services, provided further, however, that the Company shall notify the LESO in advance of the period of validity of any such promotional Charge and that the Company may not increase the promotional rate more than one time to establish the "initial Charge" under Annex G. Non-discrimination 9.8 In establishing Charges, the Company will not discriminate on the basis of the nationality of LES Operators. Notwithstanding the foregoing, the Company shall have the right to offer different Charges for the same Service in defined geographical regions in which end-user calls or messages originate or terminate and which are technically verifiable, provided that (i) every LES Operator that provides such Service in the relevant defined (and technically verifiable) geographical region shall be entitled to receive such Charge; (ii) consistent with this Clause 9, the Company shall modify Annex G as necessary to reflect such price differentiation(s) on an ongoing basis and publish the same to every LES Operator, and (iii) the Company may implement differential prices only if it is consistent with the Company's obligation under applicable law. 9.9 For the purpose of determining the amount of payments due under Clause 10 hereof, the LESO's use of the Space Segment for provision of the Services shall be measured in accordance with the procedures set forth in Annex H. 10 PAYMENT OF CHARGES 10.1 With respect to Demand-Assigned Services as set out in Part A of Annex G, excepting invoices for volume commitments, the Company shall invoice the LESO on a monthly basis. Each invoice shall be dated as of the day that it is produced and shall be sent by courier to the LESO on that date. All invoices for a calendar quarter shall be due for payment sixty (60) days after the date of the last invoice for that calendar quarter (Payment Due Date). Each invoice shall contain a traffic statement for the month covered by the invoice prepared in accordance with Clause 9.9. Each traffic statement shall include a summary of traffic volume by Service per LES in units of minutes or kilobits (with separate details for chargeable and non-chargeable traffic), details of the Charges for each Service and the total amount in US dollars due to the Company. 23 10.2 With respect to invoices for volume commitments, the Company shall ordinarily invoice the LESO at least thirty (30) days in advance of the period to which the volume commitment refers to. Each invoice shall be dated as of the day that it is produced and shall be sent by courier to the LESO on that date. Each invoice shall be due for payment on the last business day prior to the period to which the volume commitment refers (Payment Due Date). 10.3 With respect to Full Period Services and Fixed Charges as set out in Part B of Annex G, the Company shall ordinarily invoice the LESO at least thirty (30) days in advance of the start of the period to which the service refers. Each invoice shall be dated as of the day that it is produced and shall be sent by courier to the LESO on that date. Such services shall be due for payment in full on the last business day prior to the start of the period to which the service refers (Payment Due Date). 10.4 An interest charge shall be imposed, at a rate of the current three (3) month US dollar London Inter-Bank Offer Rate (LIBOR) plus twelve (12) percentage points per annum calculated daily, on any payment due under this Agreement remaining unpaid after the Payment Due Date. Such interest charge shall be computed commencing on the first day following the Payment Due Date. 10.5 Any payment to be made under this Agreement shall be made by wire transfer directly to the bank account designated by the Company in writing and shall be deemed to be received by the Company on the date the amount is credited to the Company's bank account. 10.6 If any payment required under this Agreement has not been received by the Company by the Payment Due Date, the Company may serve a written demand for payment. Subject to Clauses 10.7-10.9, if the payment to which such written demand refers remains outstanding for thirty (30) days following receipt of such written demand, the Company may suspend the Authorisation. In the case where payment remains outstanding for more than ninety (90) days after the date on which the Company becomes entitled to suspend the Authorisation, the Company shall have a right to terminate the Agreement in accordance with Clause 22.1. Invoice disputes 10.7 The LESO shall notify the Company as soon as possible but no later than thirty (30) days after the receipt of an invoice in the event of any dispute regarding the Charges payable by the LESO, to the Company for the provision of Services via the Space Segment. The Company and the LESO shall enter into discussions and shall use their best efforts, including reciprocal provision of relevant records, to resolve disputes within ninety 24 (90) days from the date of receipt of the invoice. In the event that, as a result of such discussions, it is determined that the LESO should pay any amount to the Company, the LESO shall pay interest to the Company in the amount set forth in Clause 10.4 for any amounts paid after the Payment Due Date notwithstanding initiation of such discussions. Any such notice in writing shall include the reasons for the dispute and a preliminary quantification of the disputed amount by means of a comparison of the Company's traffic statement underlying the invoice, or part thereof, with the LESO's own call data records. 10.8 The LESO shall pay the undisputed amount of any invoice by the relevant Payment Due Date. In the event that the Parties are unable to resolve a dispute concerning all or a portion of an invoice within the ninety (90) day period set forth in Clause 10.7, then such dispute will be deemed to be a formal dispute. In the event of a formal dispute, the Company and the LESO, acting through their respective chief financial officers (or their designates), shall act in good faith to attempt to resolve the dispute within thirty (30) days following initiation of the formal dispute. 10.9 In the event that the Company and the LESO are unable to resolve the formal dispute in accordance with Clause 10.8 within the thirty (30) day period specified therein, the dispute shall be determined by an expert in accordance with Clause 30.2. Where any payment made in accordance with Clause 10.8 has resulted in either an underpayment or an overpayment by the LESO, such underpayment or overpayment shall be paid by the LESO or refunded by the Company, as appropriate, including accrued interest calculated in accordance with Clause 10.4 from the Payment Due Date (if the payment is made by the LESO) or from the later of the date of the overpayment by the LESO or the Payment Due Date (if the payment is made by the Company), within fourteen (14) days of the determination resolving the dispute. 11 ADDITIONAL OBLIGATIONS OF LESO In addition to other obligations of the LESO set forth herein, the LESO agrees as follows: (a) if the LESO chooses to provide Services via the Space Segment, it shall do so subject to any applicable national laws and regulations, and shall use reasonable efforts to give effect to the Company's obligations (i) to provide Services without discrimination on the basis of nationality, and (ii) to have regard to the principle of acting exclusively for peaceful purposes, taking into account the past practice of the Organization and the practice of the Company; (b) to obtain, and to use reasonable endeavours to require its Resellers to obtain, all necessary licenses and approvals and otherwise to comply with all statutes, 25 by-laws, regulations and requirements of any government or other competent authority applicable to the LESO and to the provision of Services via the Space Segment by the LESO; (c) not to hold itself out as agent for the Company in any correspondence or other dealings relating directly or indirectly to the provision of the Services via the Space Segment; provided that the LESO may use the Marks subject to the provisions of Clause 18 hereof; and (d) the LESO shall be fully responsible for terrestrial interconnection of its LES(s) for the purpose of originating or terminating traffic, subject to applicable national law. 12 ADDITIONAL OBLIGATIONS OF THE COMPANY In addition to other obligations set forth herein, the Company agrees as follows: (a) To procure and maintain all licenses, approvals and government authorisations necessary to provide the Space Segment for provision of the Services by the LESO hereunder and to comply with all statutes, by-laws, regulations and requirements of any government or other competent authority applicable to the Company; (b) To use its best efforts in undertaking such steps as are necessary to assure that the Company is entitled (i) to maintain orbital slots for the Satellites at the orbital positions contemplated in this Agreement and to undertake such steps as are necessary to maintain those slots throughout the Term of this Agreement, (ii) to maintain the numbering schemes of the Organization in effect prior to the Effective Date, and (iii) to maintain the authority to allocate MES identification numbers after the Effective Date as necessary to perform its obligations hereunder; (c) To comply with the terms of any agreements that the Company may have undertaken with the Organization; (d) Not to hold itself out as agent or principal of the LESO in any correspondence or other dealings relating to the provision of Services via the Space Segment; and (e) Throughout the Initial Term, not to (i) engage in any direct marketing, canvassing or solicitation to any individuals or entities with respect to sale of the 26 Services (provided that the Company shall be permitted to engage in generic marketing to support and promote the Company's brand in support to the LESO, and other LES Operators; and provided further that the term "generic marketing" shall be deemed to include working in conjunction with the LESO on joint marketing activities), (ii) enter into any contracts with MES end-users or any of the LESO's Resellers or agents in respect of the Services other than the standard terms and conditions necessary for service activation or to become a PSA, (iii) knowingly contact MES end-users in the ESAS database directly for the purpose of conducting marketing surveys without the written consent of the LESO, provided, however, that the Company shall be free to conduct marketing surveys for the benefit of the LESOs from other available sources of information, and provided further that the Company shall make available to the LESO and all LES Operators the results of its marketing surveys, both parties being subject to the provisions of Clause 14 hereof, and (iv) distribute customer leads to the LESO and other LES Operators except on an impartial and uniform basis, unless this is not appropriate or practical, and in such cases full disclosure of the reasons and logistics behind such distribution shall be made to the LESO. Nothing in this provision shall prevent the Company from interfacing directly with manufacturers of LESs, MESs and other equipment related to the Services and their agents. 13 SPACE SEGMENT MANAGEMENT Provision of Space Segment Capacity 13.1 The Company shall, in accordance with this Clause, provide Space Segment capacity on Second Generation and Third Generation Satellites to enable the LESO to provide Services. The Company shall also provide Space Segment capacity on Subsequent Satellites, if the Company chooses to offer Existing or Evolved Services on such Satellites, in a manner consistent with the Authorization and the terms and conditions of this Agreement. 13.2 The characteristics of Second and Third Generation Satellites and their capacity are defined in Annex L. The primary aim of the Company with respect to Space Segment management shall be to continue to provide Space Segment capacity to the LESO and all other LES Operators with Inmarsat-3 Satellites, or with Inmarsat-2 Satellites in the event of Inmarsat-3 Satellite failures or other capacity shortfall. The Company shall use its reasonable endeavours to provide that capacity in accordance with the Network Performance Objectives described in Annex N. Nothing herein shall require the Company to procure additional satellite capacity. 27 Use of Third Generation Satellites 13.3 The Company shall provide Space Segment capacity for Services on Third Generation Satellites at the following orbital locations with: (a) the station keeping to two tenths (0.2) of a degree at the equatorial crossing; and (b) an orbital inclination less than two point seven (2.7) degrees: AOR-West Region at 54 degrees West AOR-East Region at 15.5 degrees West IOR Region at 64 degrees East POR Region at 178 degrees East 13.4 The location of the fifth Third Generation Satellite, located initially at 25 degrees East, shall be at the discretion of the Company, subject to Clause 13.6 (a). Use of Second Generation Satellites 13.5 The Second Generation Satellites shall be deployed, at the discretion of the Company, and subject to Clause 13.6 (b), at any of the following orbital locations, respectively: (a) locations adjacent to the four Third Generation Satellites referred to in Clause 13.3: * AOR-West Region at 55 degrees West; * AOR-East Region at 17 degrees West; * IOR Region at 65 degrees East; * POR Region at 179 degrees East. (b) Alternative Locations. The Company shall have discretion to locate the Second Generation Satellites, consistent with the Company's obligations to provide sparing hereunder, at the following alternative locations: * 25 degrees East; * 110 degrees East; * 98 degrees West; * 142 degrees West. Non-availability of Third Generation Satellites 28 13.6 If, for any reason, a Third Generation Satellite at one of the locations described in Clause 13.3 ceases to operate or, if the capacity on that Satellite is permanently or indefinitely degraded, or if the capacity is or becomes insufficient to satisfy all the LESO's traffic requirements at any time, the Company shall use its reasonable endeavours to replace or augment the capacity in conformity with the Network Performance Objectives referred to in Annex N in the Ocean Region concerned by using one or more of the following means available to it, depending on the operational circumstances: (a) Use of a fifth Third Generation Satellite If a Third Generation Satellite whose location is specified in Clause 13.3 ceases to operate or becomes permanently or indefinitely degraded, the primary means of providing replacement capacity shall be the deployment of the fifth Third Generation Satellite to the location concerned (as defined in Clause 13.3), if the fifth Third Generation Satellite is functioning normally and if it has not already been deployed to one of the locations defined in Clause 13.3. (b) Use of a Second Generation Satellite (i) If a fifth Third Generation Satellite is not available for the purpose mentioned in sub-paragraph (a), either the adjacent Second Generation Satellite, if any, shall be used, or a Second Generation Satellite shall be deployed at the location concerned, in order to provide capacity for the Services to the maximum level available on the Second Generation Satellite, subject to the availability of sufficient fuel to enable such deployment to be made. The Company may, in its discretion, deploy more than one Second Generation Satellite for that purpose. (ii) The Parties acknowledge that Second Generation Satellites have limited capacity compared to Third Generation Satellites and cannot carry Services designed solely for spot-beam operation. (c) The maximum time needed to relocate a Second or Third Generation Satellite for the above purposes shall be thirty (30) days, subject to the availability of sufficient fuel to effect the relocation within that time and maintain station-keeping after the relocation. (d) Capacity Augmentation (i) If capacity on a Third Generation Satellite is or becomes insufficient to carry the LESO's traffic requirements at any time, although the Satellite 29 is functioning nominally, the Company may optimise Space Segment capacity using the general guidelines in Annex I. Except in an Urgent Operational Case, the Company shall consult with the LESO prior to taking any such measures. (ii) If capacity on a deployed Second Generation Satellite or Satellites used in accordance with paragraph 13.6 (b), is insufficient to carry the nominal traffic load in accordance with the Network Performance Objectives in Annex N, the Company may optimise the capacity of any such Satellites using the general guidelines set out in Annex I. The nominal traffic load in this context means the average bouncing busy hour volume of traffic for particular Services that had been carried by the Third Generation Satellite concerned during the three (3) months immediately prior to the start of the use of the Second Generation Satellites under paragraph 13.6 (b). Except in an Urgent Operational Case, the Company shall consult with the LESO prior to taking any optimisation measures. (iii)Alternatively to sub-paragraphs 13.6 (d) (i) and (ii), in order to augment capacity in the Ocean Region concerned so as to accommodate the LESO's traffic requirements, the Company may deploy an additional Second or Third Generation Satellite to that Ocean Region, at an orbital location determined by the Company from amongst the locations defined in Clause 13.5. The LESO may elect to operate on one or both Satellites in that Ocean Region. (e) Consultations with LESO ------------------------ The Company shall notify the LESO of the occurrence of any of the above events. Except in an Urgent Operational Case, the Company shall consult with the LESO before taking any of the above actions. The consultations and subsequent actions by the Company shall take into account the need to preserve coverage for the LESO and all other LESO Operators and also the need to ensure continuity of Maritime Distress and Safety Services and any other safety-related communications services. Company's Right to Replace Capacity 13.7 Subject to the requirements of Clause 13.6 and the Network Performance Objectives in Annex N, the Company shall have discretion to interchange any of the Third Generation Satellites at any of the locations referred to in Clause 13.3 or to interchange 30 any of the Second Generation Satellites at any of the locations referred to in Clause 13.5 in the light of joint interests of the Company and all LES Operators. 13.8 Except in an Urgent Operational Case, the Company shall give the LESO reasonable prior notice of any proposed replacement of a Satellite, and shall consult with the LESO prior to such replacement, and take into account any reasonable request made by the LESO in relation to the proposed replacement. Use of Spare Capacity of Second and Third Generation Satellites 13.9 The use of spare capacity on any Satellite not required by any LES Operator for the provision of Services shall be at the discretion of the Company. Leasing of capacity shall be subject to the Company's lease policy, described in Annex E, as may be modified by the Company from time to time. Operations Infrastructure 13.10 The Company shall provide, or shall procure the provision of, the operations infrastructure necessary to support the operation of the Satellites through which the Services are provided, and shall use its reasonable endeavours to achieve the Network Performance Objectives set out in Annex N. Liability 13.11 Other than as provided for in Clause 13.12, the Company shall not incur any financial liability to the LESO if the performance of any of the Satellites or of the operations infrastructure fails to achieve the Network Performance Objectives specified in Annex N. 13.12 In the event that the Company fails to meet the minimum Network Performance Objectives set forth in Annex N, then the LESO shall receive outage credits for any traffic commitment or other fixed-period service affected by such outage as follows: No allowance or credit will be made for any unavailability, delay or interruption in the availability of the service which is of less than one hour's duration. Any such unavailability, delay or interruption which is of one hour or more duration shall be credited to the LESO in an amount equal to the proportionate charge in one hour multiples for each one hour, or major fraction thereof during which such unavailability, delay or interruption has occurred. In addition to the foregoing, in the event that the Company relocates a Satellite or substitutes a Satellite of one generation with a Satellite of another generation and, as a result thereof, the LESO is unable to meet a traffic commitment that it undertakes prior to such relocation or substitution, then the LESO shall be excused from such traffic commitment. 31 14 REPRESENTATIONS, WARRANTIES AND UNDERTAKINGS 14.1 The Company represents and warrants to the LESO that the following statements are true and accurate as regards the Company as of the date of the signing of this Agreement and are deemed to be repeated on the Effective Date: (a) the execution, delivery and performance of this Agreement have been duly authorised by all necessary corporate action on the part of the Company; (b) the Company owns or leases the Satellites and has a right to use the orbital slots and associated frequency spectrum for the Satellites throughout the Initial and Extended Terms of this Agreement; (c) this Agreement constitutes the legal, valid and binding obligations of the Company; (d) the Company has obtained all clearances, telecommunications and other licences, consents and approvals necessary to enable it to operate the Space Segment for the provision of the Services and to perform its other obligations under this Agreement; (e) the Company is in compliance with any applicable telecommunications or other law and regulation of the United Kingdom and any other relevant country governing any ground-based part of the Space Segment; and (f) the Company has received from the European Commission in terms reasonably satisfactory to it and the LESO either: (i) a formal decision or and administrative letter indicating that Article 85(1) or Article 86 of the EC Treaty is not applicable to the Agreement, or (ii) a formal decision granting an exemption for the Agreement under Article 85(3) of the EC Treaty; or (iii) an administrative letter indicating that the European Commission considers that the conditions for an exemption under Article 85(3) of the EC Treaty are fulfilled or that the European Commission proposes to take no action in relation to the Agreement. 32 14.2 The LESO represents and warrants to the Company that the following statements are true and accurate as regards the LESO as of the date of signing of this Agreement and are deemed to be repeated on the Effective Date: (a) the execution, delivery and performance of this Agreement have been duly authorised by all necessary corporate action on the part of the LESO; (b) this Agreement constitutes legal, valid and binding obligations of the LESO, (c) the LESO has obtained all clearances, telecommunication and other licences, consents and approvals necessary to enable the LESO to operate its Land Earth Station(s), to provide the Services via the Space Segment and to perform any other obligation under this Agreement; and (d) the LESO has complied with any applicable law and regulation of any country in which it operates. 15 DISCLAIMERS OF LIABILITY Telecommunications Breakdown and Application of Barring Procedures 15.1 Subject to this Clause 15, the LESO agrees that the Company (for itself and as trustee for the benefit of the other indemnitees, as defined in Section 15.8) shall not be liable on any basis whatsoever to the LESO, its Affiliates, Resellers, customers or other end-users for any direct, indirect or consequential loss, damage or expense, including, without limitation, loss of profits or revenues, loss of distribution rights, abortive expenditure or damage to property and injury or death to persons, arising from or in connection with (i) any Telecommunications Breakdown, regardless of cause including, but without limitation, satellite or other equipment failure or malfunction, or any unavailability, delay or interruption of telecommunication services caused as a result thereof, or (ii) any suspension of service to a mobile earth station resulting from actions by the Company acting in good faith at the request of the LESO or other LES Operators in accordance with the Barring Procedures. 15.2 Notwithstanding Clause 15.1, the Company shall compensate the LESO for loss in the event that the Telecommunications Breakdown described in Clause 15.1 above is caused by the wilful or reckless act or knowing or reckless omission of the Company in circumstances where the Company knew that such act would have such effect or was reckless as to whether or not such act or omission would have such effect. 15.3 In the event of the Company becoming liable in accordance with Clause 15.2 to compensate the LESO, the loss suffered by the LESO shall be deemed to be, and limited 33 to, a proportionate part of the LESO's relevant net revenues (as defined in Clause 15.4) calculated by reference to each hour or fraction of an hour (being not less than one quarter) during the period of time in which the Telecommunications Breakdown occurred. The Company shall pay such amount to the LESO, provided that in no circumstances shall the aggregate amount payable by the Company to the LESO and all other LES Operators affected by such Telecommunications Breakdown under this Clause 15.3 in respect of all occurrences or series of occurrences arising out of the same proximate cause in any calendar year, exceed U.S. $10 million. In calculating the amount payable, account will be taken of variations in the volumes of traffic at different times based on the average diurnal profile for the Ocean Region in which the LESO is located. 15.4 For the purpose of Clause 15.3, the term "LESO's relevant net revenues" means the LESO's proportional share (based on overall system traffic) of the gross revenues received by all LES Operators affected by such Telecommunications Breakdown from the provision of Services by all affected LES Operators during the twelve (12) months preceding the first incident giving rise to the claim less (i) the amount of Charges that were payable to the Company in relation to such revenues and (ii) the variable land-line charges associated therewith (subject to the $10 million limitation set forth in Clause 15.3). Disclaimers to be Passed on to End-Users 15.5 (a) The LESO shall incorporate, and require that Resellers incorporate, in the terms and conditions applicable to any customers to which the LESO or its Resellers provide Services following the Effective Date, disclaimers of liability substantially similar to (but in no case less broad than) that set forth in Clause 15.1 in favour of the Company, the Company's Affiliates and itself. Such disclaimers shall be in form or substance consistent with the disclaimer set forth in Annex J, or as close to such form as is permitted by the applicable law. (b) The Company shall, through the PSA, procure that any end-user of the Services, as a condition of service activation, must sign a written waiver of liability vis-a-vis the Company and the LESO (or all LES Operators collectively) for any loss, damages or associated costs arising in connection with the provision of Services to the maximum extent to which the Company and the LESO are legally permitted to waive such liability. Damage to Space Segment or Loss of Services 34 15.6 The LESO shall be liable to the Company, and shall indemnify and hold the Company harmless vis-a-vis claims by any third party (including but not limited to other LES Operators) against the Company, for any loss or damage to the Space Segment caused by any act or omission of the LESO, its Resellers, contractors, employees, agents, lessees or assignees, or any of them (which in no case shall exceed $100 million in any calendar year), except that the LESO shall have no liability to the Company for loss or damage arising out of the provision of Services by the LESO via the Space Segment in a manner authorised by this Agreement (subject to Clause 8.4), the LES Technical Criteria and Operating Procedures or as otherwise authorised in writing by the Company. 15.7 (a) Nothing in this Agreement shall exclude or limit the liability of either Party for death or personal injury resulting from such Party's own negligence in any jurisdiction where, as a matter of law, such liability cannot be excluded or limited. (b) Neither Party shall be liable for any indirect, special, punitive, incidental or consequential damages arising out of or under this Agreement. Indemnities 15.8 As used in this Clause 15, the term the other indemnitees mean any Affiliate, or director, officer, employee or agent of an Indemnified Party (as defined below) or of its Affiliate. 15.9 Either Party (the "Indemnifying Party") shall indemnify the other Party (the Indemnified Party") and the other indemnitees from and against any direct, or indirect loss, damage, liability or expense arising from any claim by a third party, pursuant to or in connection howsoever with: (a) any libel, slander, or invasion of privacy or any allegation thereof by the Indemnifying Party, its Affiliates, Resellers or customers, as the case may be, arising in connection with the provision of Services via the Space Segment (provided that, for the purpose of this Agreement, other LES Operators shall not be deemed to be the "customers" of the Company and the Company shall not be obligated to indemnify the LESO for claims arising hereunder that are attributable to another LES Operator); or (b) any infringement or alleged infringement of any patent, copyright, design, trademark or other industrial or intellectual property rights whatsoever of any other person by the Indemnifying Party, including without limitation, infringement or alleged infringement arising in connection with combining or using in 35 connection with the provision of Services via the Space Segment as authorised hereunder, any apparatus and systems of the Indemnifying Party, its Affiliates, Resellers or customers (provided that, for the purpose of this Agreement, other LES Operators shall not be deemed to be the "customers" of the Company and the Company shall not be obligated to indemnify the LESO for claims arising hereunder that are attributable to another LES Operator). Notwithstanding the foregoing, neither Party shall be under any obligation to indemnify the other Party or the other indemnitees of the other Party under this Clause if any such claim would have arisen against the Party seeking indemnification under this Clause 15 regardless of the alleged acts or omissions of the Party from which indemnification is sought or those of its Affiliates, Resellers or customers. 15.10 The LESO shall indemnify the Company and the other indemnitees from and against all direct or indirect loss, damage, liability or expense arising from any claim by any third party resulting from or arising in connection with any event which is required to be disclaimed under Clause 15.5 hereunder. For the purpose of this Clause 15.10, the LESO shall be deemed to be the Indemnifying Party and the Company shall be deemed to be the Indemnified Party. Defence of Indemnified Claims 15.11 With respect to any claim for damage or loss that is required to be indemnified hereunder, the indemnifying Party shall, at its own expense, defend any such claim subject to the conditions that the Indemnified Party (or, as the case may be, the other indemnitees) shall give the Indemnifying Party reasonable notice of the receipt of any such claim, and provide such cooperation to the Indemnifying Party as is reasonably necessary for the defence of the claim, including, without prejudice to the generality of the foregoing, the filing of all pleadings and other court processes, the provision of all relevant information and documents, and providing reasonable access to relevant employees. 15.12 If, in the event of any claim subject to Clause 15.11, the applicable law does not permit the Indemnifying Party to defend the claim as contemplated herein, then the Indemnified Party shall conduct its defence under instructions from the Indemnifying Party and shall not make any admissions, settlements or compromises without the written consent of the Indemnifying Party. 15.13 The provisions of Clause 15.6 to Clause 15.12 regarding indemnification shall survive the expiration or termination of the Agreement. 16 INSURANCE 36 16.1 The Company and the LESO shall each maintain liability insurance from a third party insurer or self-insurance in an amount sufficient to cover the indemnities which each Party has granted, respectively, under this Agreement, to the other Party. Each Party shall, upon request of the other Party, provide the other Party with evidence of such insurance or, as the case may be, net asset value that is sufficient to cover the indemnities granted under this Agreement. 16.2 In addition to the insurance described in Clause 16.1, the Company shall obtain and maintain insurance (in a commercially reasonable amount that is standard for the satellite communication services industry) to cover third party claims resulting from telecommunications breakdown of any nature whatsoever that relates to the availability of the Space Segment. At its option, the LESO shall be named as an additional insured on such policy, in which event, the LESO may be required to contribute, along with other LES Operators, to the cost of such insurance policy. Any such contribution will become payable within thirty (30) days of the date of the receipt by the LESO of an invoice from the Company. The Company shall also provide such other information about such insurance policy as the LESO may reasonably request. 17 CONFIDENTIALITY 17.1 (a) The Company and the LESO hereby agree that it may be necessary to the performance of this Agreement for a Party (the "Disclosing Party") to disclose to the other Party (the "Receiving Party") certain information that the Disclosing Party deems to be confidential and proprietary. The Receiving Party shall maintain the security and confidentiality of all Confidential Information (as defined below) received from the Disclosing Party hereunder. (b) For purposes hereof "Confidential Information" shall include (i) information deemed to be Confidential Information under Clause 5.2.1, and (ii) technical information, customer lists and other business information or data relating to the Disclosing Party, its Affiliates or other representatives that is reduced to writing and marked "Confidential" or with a similar designation by the Disclosing Party. Notwithstanding anything contained herein to the contrary, Confidential Information shall not include (i) information developed independently by the Receiving Party or lawfully received from a third party not under an obligation of confidentiality; or (ii) information in the public domain; or (iii) information disclosed pursuant to law, judicial order or governmental regulation. 37 (c) The Receiving Party shall not use or communicate, directly or indirectly, any of the Confidential Information to any third party without the prior written consent of the Disclosing Party. The Receiving Party shall use its best efforts to prevent inadvertent disclosure of all or any part of the Confidential Information to any third party. 17.2 The Company shall treat all information that the Company receives from the LESO specifically relating to the LESO's customers or Resellers as Confidential Information hereunder and shall use such information only for the purpose intended by the LESO. The Company shall not, without the written consent of the LESO, disclose such information to any third party (including any other LES Operator) or (i) allow such information to be provided to the Company's Subsidiary (within the meaning of Clauses 2.9, 2.10 and 4.5), or (ii) to any governmental, international or intergovernmental agency or authority, unless required by law. 17.3 Notwithstanding anything else in this Agreement, the obligations contained in this Clause 17 shall survive the termination or expiration of this Agreement for a period of three (3) years. 18 INTELLECTUAL PROPERTY 18.1 The Company represents and warrants that it owns or has a valid license to use, certain patents, trade secrets, copyrights and other intellectual property embodied in the LES Technical Criteria and Operating Procedures. This Agreement confers upon the LESO the right to enter into a royalty-free license agreement with the Company, the form of which is set forth in Annex U (IPR License Agreement) (as amended from time to time to cover Evolved Services offered by the LESO), to use such patents, trade secrets, copyrights or other intellectual property embodied in the LES Technical Criteria and Operating Procedures as may be necessary for the LESO to provide Services in accordance with the terms and conditions of this Agreement and shall provide no other rights of ownership or of use unless otherwise expressly provided for herein or as otherwise mutually agreed by the Parties. 18.2 The Company represents and warrants, and the LESO acknowledges and agrees, that the Company owns or has authority to use or to sub-license the Marks set forth in Annex S. The LESO shall not obtain any ownership interest in or any license to use the Marks, except as provided for in the Trademark License Agreement, a form of which is set forth in Annex T, which the LESO and the Company have executed on the Effective Date. The LESO shall have no authority to authorise any Reseller, Customer, agent or other entity to use the Marks, except as expressly permitted by the Company in 38 an executed license agreement between the Company and such Reseller, customer, agent or other entity. 19 TIME LIMITS Any period of time referred to in this Agreement shall be counted from the day following the event marking the start of the period of time and shall end on the last day of the period laid down. When the last day of a period of time is not a Business Day, the period shall be extended to the next Business Day. 20 AMENDMENTS 20.1 The terms and conditions of this Agreement shall not be amended or modified in any manner by the Parties except if such amendment or modification is part of an agreed change to standard terms and conditions applicable to all LES Operators or as otherwise expressly provided for herein. 20.1.1 The Company or the LESO may at any time propose an amendment to this Agreement, including its Annexes, except where express provision is otherwise made for amendment to any provision of this Agreement or to any Annex. Any such proposal shall be promptly circulated by the Company to all LES Operators. If at least three LES Operators so request, or if the Company so decides, the Company shall convene a meeting open to all LES Operators to consider the proposal. If the proposed amendment or addition is agreed to in writing by the Company and by at least two-thirds of the LES Operators providing between them at least two-thirds of the Company's total revenues derived from all LES Operator Agreements in the twelve (12) months immediately preceding the date of the circulation of the proposal, the amendment shall take effect in this Agreement and all other LES Operator Agreements, on a date to be determined by the Company and the LES Operators which agree to the amendment. 20.2 Notwithstanding Clause 20.1, the LES Technical Criteria and Operating Procedures may be amended from time to time by the Company subject to and in accordance with the provisions of this Clause 20. 20.3 Save as provided in Clause 20.6, the Company shall not adopt any change or addition to the LES Technical Criteria and Operating Procedures without first convening a LES User Group Meeting, in accordance with the procedures set out in Annex K, provided however that the Company shall not be obligated to convene such a meeting if it is not requested by a minimum of two (2) LES Operators. The Company shall convene such a meeting periodically to discuss, and to consult with affected LES Operators concerning, the technical and financial consequences of each proposed change or 39 addition. A change or addition to the LES Technical Criteria and Operating Procedures can be proposed by either the Company or the LESO. Prior to convening a LES User Group Meeting, the Company shall, as soon as practicable, provide the affected LES Operators with (a) notice of any proposed changes or additions to the LES Technical Criteria and Operating Procedures, including any proposed implementation schedule, and (b) sufficient information to enable the affected LES Operators to evaluate the technical and financial consequences of the proposed change or addition. 20.4 Subject to Clause 20.6, where a proposed change or addition to the LES Technical Criteria and Operating Procedures would be mandatory thereby requiring compliance by all LES Operators offering the affected Service, and would result in either: (a) a typical implementation cost (as defined below) to be incurred by the affected LES Operators in excess of US$250,000; or (b) an aggregate of the typical implementation cost of the proposed change or addition and all other mandatory changes or additions to the LES Technical Criteria and Operating Procedures introduced in the immediately preceding twelve (12) months to be incurred by LES Operators in excess of US$500,000; the Company shall not make the proposed change or addition without the consent of a simple majority of those LES Operators attending and voting at the LES User Group Meeting which offer the relevant Services affected by the proposed change or addition or which intend to offer the relevant Services and have a demonstrated financial commitment to do so. For the purposes of sub-paragraphs (a) and (b), the "typical implementation cost" shall be the cost agreed between both the Company and a simple majority of the LES Operators affected by the proposed change or addition and who are present and voting at the Meeting. In the absence of such agreement, the typical implementation cost shall be determined by an expert in accordance with Clause 30.2. 20.5 Subject to Clause 20.6, where either: (a) the proposed change or addition to the LES Technical Criteria and Operating Procedures would involve a typical implementation cost less than or equal to the thresholds described in Clause 20.4; or (b) the proposed change or addition to the LES Technical Criteria and Operating Procedures would not be mandatory; the Company may adopt the proposed change or addition, following the expiry of twenty-one (21) days from the date on which notice of the proposed change or addition has been 40 given, or as the case may be, following the LES User Group Meeting at which such proposed change or addition was presented to the LES Operators. 20.6 Notwithstanding any other provision of this Clause 20, the Company may adopt any change or addition to the LES Technical Criteria and Operating Procedures without prior consultation with the LESO where the Company reasonably determines that an Urgent Operational Case has arisen. However, where any change or addition to the LES Technical Criteria and Operating Procedures would, but for the provisions of this Clause, have required a consent of the LES Operators pursuant to Clause 20.4, a LES User Group Meeting shall be convened as soon as possible at which the Company shall provide evidence of the Urgent Operational Case and consider alterations to the change or addition. 20.7 The Company shall define a reasonable period applicable to all LES Operators by which the LESO shall implement a mandatory change or addition to the LES Technical Criteria and Operating Procedures, in consultation with those LES Operators present at the Meeting, and shall formally notify all LES Operators within ten (10) days after the Meeting. If the LESO does not comply with the implementation period, Clause 8 shall apply. 21 SUSPENSION OF AUTHORIZATION 21.1 If the LESO fails to comply with any material term of this Agreement, then the Company may give to the LESO written notice which shall specify the term or terms of this Agreement in respect of which the LESO is not compliant. If the LESO fails to cure the lack of compliance within a period of thirty (30) days from the date of such notice (or such longer period as may be permitted by the Company), the Company may suspend the Authorisation at any time thereafter upon giving written notice to the LESO, except that such thirty (30) day period may be shortened in the Urgent Operational Cases or as otherwise provided for in this Agreement, particularly in Clauses 8 and 10.6. 21.2 The Company's right of suspension in this Clause 21 shall operate without prejudice to the rights of the Company to suspend the Authorisation under other express provisions of this Agreement or to terminate this Agreement in accordance with Clause 22. Notwithstanding the foregoing, in the event that the Company does not terminate the Agreement in whole or in part, or cannot do so consistent with Clause 22, then the Company shall lift the suspension of the Authorisation on the date on which the LESO resumes compliance with the terms of this Agreement. 22 TERMINATION 41 Termination for Cause 22.1 Either Party (the "Terminating Party") may terminate the Agreement where the other Party (The "Defaulting Party") is in default in the performance of any material term under this Agreement and has failed to cure the default within sixty (60) days from the date of written notice from the Terminating Party; provided that if the Defaulting Party is the LESO and the cause of the default is failure of payment of the Charges, then the applicable cure period shall be reduced as provided for in Clause 10.6. 22.2 The Terminating Party may terminate the Agreement by written notice to the Defaulting Party if: (a) an encumbrancer takes possession or a receiver is appointed over any of the property or assets of the Defaulting Party; or (b) the Defaulting Party makes any voluntary arrangement with its creditors or becomes subject to an administration order within the meaning of the bankruptcy laws of the United Kingdom or an equivalent order under the laws of the jurisdiction in which the LESO or Company (as the case may be) operates; or (c) the Defaulting Party goes into liquidation (except for the purposes of an amalgamation, reconstruction or other reorganization and in such manner that the entity resulting from the reorganization effectively agrees to be bound by or to assume the obligations imposed on the Defaulting Party under this Agreement); or (d) the Defaulting Party ceases, or threatens to cease, to carry on business. Termination for Convenience 22.3 During the Initial Term, the LESO may terminate this Agreement for its convenience upon at least twelve (12) months written notice to the Company. 23 CONSEQUENCES OF TERMINATION Payment of Charges 23.1 Upon the termination or expiration of this Agreement for whatever reason, any outstanding indebtedness of the Parties to one another shall become immediately due and payable together with any interest due (calculated in accordance with Clause 10.4) up until 42 the date of payment, provided that the Company shall refund the LESO the amount of any Charges that the LESO has prepaid for any period of time after the date of termination (provided that, in the event that the Agreement is terminated due to the default of the LESO or at the LESO's convenience, then such amount shall be subject to adjustments to recapture the pro rata amounts of any discount that the LESO may have received by virtue of such prepayment). 23.2 The amounts payable by the LESO to the Company upon termination or expiration of this Agreement shall include any Charges that would have been payable in accordance with the terms of any traffic commitments (such as take-or-pay commitments) mutually agreed by the Parties, subject to the relevant provisions of this Agreement unless the Agreement is terminated due to a material default by the Company, in which case, such traffic commitment-related Charges that are in excess of the Services actually taken in accordance with such commitment shall not be payable. Other Consequences 23.3 Upon the termination or expiration of this Agreement for whatever reason, the Company shall no longer be obligated to provide telecommunication services via the Space Segment to the LESO and the LESO shall cease to provide Services via the Space Segment through those of its LES(s) that are within the scope of the termination. In addition: (a) The Trademark License Agreement and the IPR License Agreement shall immediately terminate in accordance with their terms. (b) The Parties shall each return to the other or, if requested by the Disclosing Party (as defined in Clause 17), destroy all Confidential Information belonging to the other Party. Any destruction of documents must be confirmed in writing to the Disclosing Party. 23.4 Upon termination of this Agreement, the LESO shall have the right to make any transitional arrangements that it deems fit with respect to its customers, unless otherwise mutually agreed by the Parties. 23.5 The rights set forth in this Clause 23 shall not prejudice any other right or remedy of either Party, at law, subject to Clause 30. 24 ASSIGNMENTS AND SUBCONTRACTING 43 24.1 Subject to Clause 24.2, neither Party shall assign, transfer or charge all or any of its rights and/or obligations under the Agreement without the prior written consent of the other Party, and further provided that any such assignment, transfer, or charge shall not relieve the assigning Party from liability for the performance of any of its past, present or future obligations (including financial obligations) or duties under the Agreement. Notwithstanding the foregoing, the Company may assign its right to receive payment of the Charges from the LESO hereunder subject to the provision of prior notice to the LESO and the Company's agreement to hold the LESO harmless from any claims from the assignee of such right or its Affiliates (other than claims related to failure of payment by the LESO hereunder or claims against the LESO that are unrelated to this Agreement). 24.2 The consent required for assignment under Clause 24.1 shall not be withheld unreasonably where the assignment or charge is to an Affiliate of the assigning Party or an entity that is the result of a merger or reorganization of the assigning Party. 25 WAIVER 25.1 No delay in exercising or failing to exercise by either Party of any right or remedy hereunder and no custom or practice of the Parties at variance with the terms hereof shall constitute a waiver of any of the Parties' rights or remedies hereunder. 25.2 No waiver by either Party of any particular default by the other Party shall affect or impair either Party's rights in respect of any subsequent default of any kind by the other Party, nor shall any delay or omission of either Party to exercise any rights arising from any default affect or impair a Party's rights in respect of the said default or any other default of the other Party hereunder. Subsequent acceptance by the Company of any payments by the LESO shall not be deemed a waiver of any preceding breach by the LESO of any of the terms or conditions of this Agreement. 26 INVALIDITY 26.1 Should any provision of this Agreement be found to be invalid, illegal or unenforceable under the laws of any relevant jurisdiction in any respect, the invalid, illegal or unenforceable aspects of such provision shall be given no effect and shall be deemed not to be included in this Agreement without invalidating any of the remaining provisions of this Agreement. The Parties shall forthwith enter into good faith negotiations to amend the Agreement in such a way that, as amended, is valid, legal, enforceable, and, to the maximum extent possible, reflects the intended effect of the invalid, illegal or unenforceable provision. 27 NOTICES 44 27.1 Any notice served under this Agreement (including invoices and any other written communications required under this Agreement) shall be in writing and shall be given by fax, international courier (such as TNT, DHL or Federal Express) or air mail to the fax number or address specified below for each Party, or such other address or fax number as may be notified by either Party in writing to the other Party. A notice will be deemed to have been received on the Business Day following the transmission of the notice by fax or the day that it is delivered to the applicable address by international courier or five (5) days after it has been dispatched by air mail. 27.2 The Parents' and the Company's addresses and fax numbers for the service of any notice by the LESO under this Agreement shall be: 99 City Road London EC1Y 1AX Fax:+44 171 728 1602 27.3 The LESO's address and fax number for the service of any notice by the Company under this Agreement shall be: COMSAT Mobile Communications COMSAT Corporation 6560 Rock Spring Drive Bethesda, Maryland 20817 USA Attn: Contracts Department Fax:+1 301 214 7143 28 LANGUAGE AND COMMUNICATIONS 28.1 All documentation and communications required under this Agreement shall be in the English language. 28.2 All communications pertinent to the Authorisation shall be made or confirmed in writing. 29 ENTIRE AGREEMENT AND RELATIONSHIP OF PARTIES 29.1 This Agreement, together with its Annexes, constitutes the entire agreement between the Parties and supersedes any prior understandings and communications, whether written or oral, between the Parties relating to the matters addressed herein. 45 29.2 The Parties intend that the relationship created between them by this Agreement shall be as independent contractors. This Agreement is not to be construed in any way as creating any partnership, principal-agent, master-servant, joint venture or other similar relationship between the Parties. 30 SETTLEMENT OF DISPUTES 30.1 The Parties shall use all reasonable endeavours to resolve any dispute, which shall include mediation where appropriate. Disputes to be determined by an expert 30.2 With respect to any matter or dispute that is required by the express terms of this Agreement to be resolved by an expert under this Clause, the matter or dispute, on the application of either Party, shall be referred for resolution to an independent firm of internationally recognised chartered accountants in London that is agreeable to both Parties, or, failing agreement within thirty (30) days from the date on which the matter or dispute arises, to be selected by the President (for the time being) of the Institute of Chartered Accountants in England and Wales. Once engaged, the firm shall act as an expert and not as an arbitrator and shall be charged by the Parties to render its decision within ninety (90) days of the date of submission of the matter or dispute in question or within such shorter period as may be agreed by the Parties. Any determination rendered by the expert shall be binding on the Parties, provided that either Party may invoke the arbitration procedures under Clause 30.5 to review the decision of the expert; provided further, however, that the appealing Party shall bear all of the expenses of the arbitration and of the other Party (in relation to its participation in the arbitration) (the amount of which is to be determined by the arbitral tribunal) in the event that the arbitration affirms the determination of the expert (notwithstanding the provisions of Clause 30.4). 30.3 The LESO and the Company undertake to give all necessary information and assistance to the expert, including making all relevant accounting records available on a timely basis in order to resolve the matter in dispute. 30.4 Except as provided in Clause 30.2 above, the Company and the LESO shall each bear their own costs and expenses in connection with the resolution of the dispute. The costs and expenses of the expert shall be paid in equal shares by the Parties. Disputes to be determined by arbitration 30.5 Subject to Clause 30.6, any dispute, controversy or claim arising out of or relating to this Agreement, or the breach, termination or invalidity thereof, shall be referred 46 to and finally resolved by arbitration in accordance with the Arbitration Rules of the London Court of International Arbitration (LCIA) presently in force ("the Rules"). The appointing authority shall be the LCIA. Unless otherwise agreed by the Parties, the number of arbitrators shall be three (3) (of whom each Party shall select one (1) and the third to be agreed by the other two (2) arbitrators). The language of the arbitration shall be English and the place of arbitration shall be London. Any arbitration award rendered in accordance with this Clause shall be final and binding on the Parties. The Parties waive irrevocably their right to any form of appeal, review or recourse to any state court or other judicial authority, insofar as such waiver may be validly made. 30.6 For the avoidance of doubt, any dispute, controversy or claim which is required by the terms of this Agreement to be resolved by an expert under Clause 30.2 may be referred to arbitration in accordance with Clause 30.5 only after the expert has rendered his determination under Clause 30.2. 30.7 Notwithstanding Article 25.3 of the Rules, any Party may apply to any state court or other judicial authority for interim or conservatory measures at any stage prior to, or after, the commencement of an arbitration under Clause 30.5. 30.8 The LESO irrevocably: (a) consents generally in accordance with the State Immunity Act 1978 to relief being given against it in England or any other jurisdiction by way of injunction or order for specific performance or for the recovery of any property whatsoever or other provisional or protective measures and to its property being subject to any process for the enforcement of a judgment or any process effected in the course or as a result of any action in rem; (b) waives and agrees not to claim any immunity from suits and proceedings (including actions in rem) in England or any other jurisdiction and from all forms of execution, enforcement or attachment to which it or its property is now or may hereafter become entitled under the laws of any jurisdiction and declares that such waiver shall be effective to the fullest extent permitted by such laws, and in particular the United States Sovereign Immunities Act of 1976. 30.9 The LESO irrevocably waives any objections to the jurisdiction of any court referred to in Clause 30.7. 47 31 GOVERNING LAW 31.1 This Agreement shall be governed by, and shall be construed in accordance with, the laws of England. 31.2 The LESO shall, within thirty (30) days of execution of this Agreement, appoint an agent for service of process or any other document or proceedings in England in relation to the subject matter of this Agreement, and shall notify the Parent and the Company forthwith. The addresses of the Parent and the Company for service of such process and any other such document or proceedings shall be those specified in Clause 27, unless and until any alternative addresses are notified to the LESO for that purpose. 32 COUNTERPARTS 32.1 This Agreement may be entered into by the Parties to it on separate counterparts, each of which, when executed and delivered, shall be an original, but all the counterparts shall together constitute one and the same instrument. 33 FORCE MAJEURE 33.1 Neither Party shall be liable for failure to perform under this Agreement due to any act, event or cause beyond its reasonable control ("Force Majeure Event") including, but not limited to: Acts of God, peril of the sea, accident of navigation, war, terrorism, riot, insurrection, civil commotion, national emergency (whether in fact or by law), martial law, fire, lightning, flood, cyclone, earthquake, landslide, storm or other adverse weather conditions, explosion, power shortage, strike or other labour difficulty (whether or not involving Company or LESO employees), epidemic, quarantine, radiation or radioactive contamination; Action or inaction of any government or other competent authority, (including any court of competent jurisdiction), including expropriation, restraint, prohibition, intervention, requisition, requirement, direction or embargo by legislation, regulation, decree or other legally enforceable order, or refusal to grant or revoke a license if such refusal is not occasioned by failure of the Party to apply therefor, prosecute applications as necessary or to comply with applicable law or regulation; and Externally caused transmission interference or satellite failure, or satellite launch failure or delay, or satellite malfunction. 48 33.2 In the event that a Force Majeure Event exceeds thirty (30) consecutive days, then following such thirty (30) day period, the Parties shall meet and negotiate the continuation, suspension, termination, restructuring or other disposition of this Agreement. Upon removal or cessation of the Force Majeure Event, all obligations under this Agreement shall resume. 34 GUARANTEE (i) The Parent hereby guarantees the performance by the Company of the Company's obligations hereunder. (ii) In addition, the Parent shall not take any action (which shall include a failure to act) that will undermine or otherwise frustrate the ability, or cause the failure, of the Company to perform its obligations under this Agreement. 49 AS WITNESS duly authorised representatives of the Parties have signed this Agreement on the day and year above written. SIGNED by ) for and on behalf of )../s/ Nick Palmer.................. the Parent ) SIGNED by ) for and on behalf of )../s/ Ramin Khadem................. the Company ) SIGNED by ) for and on behalf of )../s/ Thomas Collins............... COMSAT Corporation, ) acting through its business unit, ) COMSAT Mobile Communications ) - ------------------------------ 50 EX-10.2 3 SHAREHOLDERS' AGREEMENT Exhibit 10.2 INMARSAT ONE LTD. THE PERSONS whose names are set out herein SHAREHOLDERS' AGREEMENT FRESHFIELDS CONTENTS Clause Page 1. Interpretation 2 Definitions 2 2. Implementation of Restructuring Directives 5 3. Intention to Pursue and Ipo 6 4. Shareholders' Obligations 7 5. Directions to Trustee 9 6. Termination of Trust Deed 1 9 7. Amendments to Schedules 9 8. Third Party Purchaser 9 9. Conflict With New Memorandum and Articles 10 10. Notices 10 11. No Partnership or Agency 12 12. Announcements 12 13. Further Assurance 12 14. Remedies 13 15. Waiver of Right to Challenge Provisional Application 13 16. No Assignment 14 17. No Waiver 14 18. Costs 14 19. Invalidity 14 20. Warranties and Representations 15 21. Duration 15 22. Counterparts 15 23. Entire Agreement 15 24. Agreement to Arbitrate 16 25. Governing Law 16 1 THIS AGREEMENT is made BETWEEN: (1) INMARSAT ONE LTD. (company number 3674573), whose registered office is at 99 City Road, London EC1Y 1AX; (2) THE PERSONS whose names are set out in Part A in Schedule 1 (and their respective successors and assigns) (the Shareholders, and each a Shareholder); and (3) THE PERSONS whose names are set out in Part B of Schedule 1 (and their respective successors and assigns) (the Beneficiaries and each a Beneficiary) (Inmarsat One Ltd, the Shareholders and the Beneficiaries shall each be referred to herein as a Party and collectively as the Parties). Whereas: (A) The Assembly and Council of the International Mobile Satellite Organization (the IGO) have adopted the Restructuring Directives (as defined in the Master Transition Agreement) in order to provide for the restructuring of the IGO by means of the transfer of all the assets and liabilities of the IGO to Inmarsat Two Company (the Company) upon satisfaction of certain conditions precedent which are set forth in the Master Transition Agreement (as defined below). Immediately prior to the implementation of an IPO (as defined below), Inmarsat One Ltd. shall be re-registered as a public limited company and shall hereinafter be referred to as Holdings. (B) In accordance with the Restructuring Directives, the Master Transition Agreement and the Business Transfer Agreement (as defined below), the entire Business and undertaking of the IGO will, with effect from Completion (as such expression is defined in the Master Transition Agreement) be transferred to the Company, the Investment Shares of the former Signatories of the IGO will be extinguished and the Signatories will receive Holdings Ordinary Shares (as defined below). (C) In order to develop the Business through the raising of external finance, the Shareholders and Holdings have agreed that Holdings should undertake an IPO (as defined below) and that the Shareholders should exercise their voting 1 rights in Holdings in connection with an IPO on the terms set out in this Agreement. (D) This Agreement further documents the agreement of the parties in relation to the implementation of other aspects of the Restructuring Directives. It Is Agreed as follows: Interpretation Definitions 1.1 In this Agreement unless the context otherwise requires: Business shall have the meaning ascribed to it in the Business Transfer Agreement; Business Transfer Agreement shall have the meaning ascribed to it in the Master Transition Agreement; Company's Board means the board of directors of the Company or any duly appointed committee thereof; Company Ordinary Shares means ordinary shares of (pound)1 each in the capital of the Company; Convention shall have the meaning ascribed to it in the Master Transition Agreement; Directors means the directors of Holdings from time to time; Governmental Beneficiary means a Beneficiary that is a government or government entity or an emanation of State; Governmental Shareholder means a Shareholder that is a government or a government entity or an emanation of state; Effective Date means the date of Completion as defined in the Master Transition Agreement; 2 Holdings Board means the board of directors of Holdings or any duly appointed committee thereof; Holdings Subscriber means Nicholas Leonard Rowe; Holdings Subscriber Share means one ordinary share of (pound)1 in the capital of Holdings in the name of the Holdings Subscriber; Holdings Ordinary Shares means ordinary share of (pound)1 each in the capital of Holdings; IPO (or Initial Public Offering) means the admission of Holdings Ordinary Shares to listing, or the giving effect to trading arrangements in relation to Holdings Ordinary Shares, on any Relevant Exchange whether or not including a sale of issued Holdings Ordinary Shares or the subscription for new Holdings Ordinary Shares; Master Transition Agreement means the agreement between each of Holdings, the Company, the IGO and the Signatories defining the conditions precedent to and transactions necessary for the restructuring of the IGO as required by the Restructuring Directives; Member of the Same Group shall have the meaning ascribed to it in the Master Transition Agreement; New Holdings Articles means the Articles of Association of the Company in the form, or substantially the form, set out in Schedule 2; New Holdings Memorandum means the Memorandum of Association of Holdings in the form, or substantially the form, set out in Schedule 3; New Company Articles means the Articles of Association of the Company in the form, or substantially the form, set out in Schedule 4; New Company Memorandum means the memorandum of Association of the Company in the form, or substantially the form, set out in Schedule 5; Operating Agreement shall have the meaning ascribed to it in the Master Transition Agreement; 3 Relevant Exchange means any of the London Stock Exchange Limited, the New York Stock Exchange, NASDAQ, the Hong Kong Stock Exchange, the Tokyo Stock Exchange and the Singapore Stock Exchange, or any other exchange which the Holdings Board in its discretion considers to constitute a relevant exchange; Restructuring Agreements shall have the meaning ascribed to it in the Master Transition Agreement; Restructuring Directives shall have the meaning ascribed to it in the Master Transition Agreement; Satellites shall have the meaning ascribed to it in the Business Transfer Agreement; Signatory means either a Party or an entity designated in accordance with the Convention, for which the Operating Agreement has entered into force and Signatories shall be construed accordingly; Trust Deed 1 shall have the meaning ascribed to it in the Master Transition Agreement; Trust Deed 2 shall have the meaning ascribed to it in the Master Transition Agreement; Trustee means the trustee of Trust Deed 1 or, as the case may be, Trust Deed 2. 1.2 In this Agreement: (a) abreferences to persons shall include individuals, bodies corporate (wherever incorporated), unincorporated associations, partnerships and government entities; (b) the headings are inserted for convenience only and shall not affect the interpretation of this Agreement; (c) any references to an enactment is a reference to it as from time to time amended, consolidated or re-enacted (with or without modification) and includes all instruments or orders made under such enactment; 4 (d) references to any English legal term for any action, remedy, method of judicial proceeding, legal document, legal status, court, official or any other legal concept shall, in respect of any jurisdiction other than England, be deemed to include the legal concept which most nearly approximates in that jurisdiction to the English legal term. (e) the schedules and annexes to which reference is made herein form part of this Agreement. Implementation of restructuring directives 2.1 Each Shareholder shall, in relation to sub-paragraphs (a) and (b), on the Effective Date and, in relation to sub-paragraph (c), on a date falling no earlier than 60 days prior to the implementation of an IPO or a public offering of debt securities on any Relevant Exchange by Holdings, exercise all voting rights and powers, direct and indirect, available to it to procure: (a) the adoption by Holdings of the New Holdings Memorandum and the New Holdings Articles; (b) the purchase by Holdings and the sale by the Holdings Subscriber of the Holdings Subscriber Share; (c) the re-registration of Holdings as a public limited company. 2.2 Holdings shall, on the Effective Date, exercise all voting rights and powers, direct and indirect, available to it to procure the adoption by the Company of the New Company Memorandum and the New Company Articles. 2.3 Holdings shall, by not less than two but no more than ten days following the Effective Date, further exercise all such voting rights to procure the re-registration of the Company as a limited company. 2.4 Each Shareholder shall exercise all voting rights and powers, direct and indirect, available to it to procure the purchase (or, as the case may be, redemption) by Holdings from time to time of Holdings Ordinary Shares pursuant to the provisions of Trust Deed 2 in accordance with the terms thereof. 5 2.5 Each Shareholder and Holdings hereby agrees to ratify and confirm any decision of the Holdings Board and the Company's Board respectively taken in connection with the implementation of the Restructuring Directives, in particular (and without prejudice to the generality of the foregoing) the entering into by Holdings or, as the case may be, the Company of those Restructuring Agreements to which they are party (including, for the avoidance of doubt, the LESO Agreements (as such expression is defined in the Master Transition Agreement). 2.6 Holdings hereby agrees to ratify and confirm any decision of the boards of Inmarsat Trustee Company Limited and Inmarsat Inc. taken in connection with the implementation of the Restructuring Directives. INTENTION TO PURSUE AND IPO 3.1 Each of the Parties acknowledges and agrees that Holdings should be managed and the Business should be developed so that the Holdings Ordinary Shares may be listed on a Relevant Exchange within approximately two (2) years from the Effective Date (the IPO Period). 3.2 By a date that is no later than one hundred eighty (180) days following the Effective Date, Holdings shall procure that the Board establishes and circulates to the Shareholders by written notice an indicative timetable for any IPO. 3.3 By a date that is no later than one hundred eight (180) days following the Effective Date, Holdings shall procure that the Holdings Board appoints an internationally recognised investment bank (the Bank), inter alia, to assess the feasibility and desirability of implementing an IPO within the IPO Period and shall promptly inform the Shareholders by written notice of such appointment. 3.4 Following the appointment of, and receipt of advice from, the Bank pursuant to clause 3.3 and prior to the date that is one hundred eighty (180) days prior to the last day of the IPO Period, Holdings shall procure that the Board convenes a meeting and votes on whether or not to undertake an IPO by the end of the IPO Period. Notwithstanding the foregoing, the Holdings Board shall retain discretion as to whether or not to undertake an IPO within the IPO Period. The Holdings Board shall exercise its discretion reasonably, based upon the advice of the Bank, and bear in mind the decision of the Twelfth Session of the Inmarsat Assembly of Parties (ASSEMBLY/12/20 paragraph 8.2.4.) to rely 6 on "natural dilution" through an IPO and voluntary share trading to achieve broader ownership in Holdings. Following the Holdings Board's decision, Holdings and its officers and directors shall (a) cause a meeting of the Shareholders to be duly convened as soon as possible for the purpose of informing the Shareholders of the Holdings Board's decision and entertaining any Shareholder proposals in relation thereto; and (b) if the Holdings Board has voted to undertake an IPO, recommend approval of the IPO to the Shareholders and to seek to obtain the necessary approval and adoption by the Shareholders of the measures necessary to undertake the IPO. 3.5 In the event that the Holdings Board decides to undertake an IPO, Holdings shall use all reasonable endeavors to prepare all necessary documentation, convene and hold any necessary meetings of the Holdings Board or the Shareholders and take such action as is necessary (or desirable) to ensure the complete and punctual fulfillment of the IPO. 3.6 Holdings shall co-operate with relevant competition authorities in monitoring progress towards increasing investment in Holdings by non-Shareholders to appropriate levels. 3.7 Without prejudice to the rights of Shareholders to direct the Holdings Board by special resolution pursuant to Article 138 of the New Holdings Articles in relation to the timing, pricing and other significant conditions of the IPO, the Shareholders hereby agree to ratify and confirm any decision of the Holdings Board to proceed with an IPO in accordance with this clause 3 and agree not to challenge any determination or decision relating thereto. Shareholders' Obligations 4.1 Without prejudice to the rights of Shareholders to direct the Holdings Board by special resolution pursuant to Article 138 of the New Holdings Articles in relation to the timing, pricing and other significant conditions of the IPO and the Shareholders' obligations contained in Clause 2, the Shareholders agree that, in the event that the Holdings board resolves to undertake an IPO (whether, or not within the IPO Period), the shareholders shall exercise all voting rights and power, direct and indirect, available to them to support the Holdings Board's decision and to ensure the complete and punctual fulfilment of the IPO. This clause shall apply to all matters which require Shareholder approval for the 7 fulfilment of the IPO and includes, without limitation to the generality of the foregoing, those matters described below: (a) conferring on the Holdings Board the authority to allot relevant securities in Holdings; (b) conferring on the Holdings Board the authority to allot equity securities for cash as if section 89(1) of the Act did not apply to such allotment; (c) an increase in Holdings' authorised share capital to an amount in excess of the amount set out in Article 4 of the New Holdings Articles; (d) the effecting of a split or consolidation of the Holdings Ordinary Shares in order to facilitate the trading of the Holdings Ordinary Shares on a Relevant Exchange; (e) the amendment of the New Memorandum or Articles to accommodate the rules or other requirements of a Relevant Exchange or any amendment suggested by the Holdings Board or required by sponsors/brokers to the IPO; and (f) effecting the re-registration of Holdings as a public limited company. 4.2 The Shareholders agree that, if the Holdings Board decides to undertake an IPO (whether or not within the IPO Period), the Shareholders shall take such action, and execute such documents as may be reasonably recommended by the Holdings Board or as required by the rules of any Relevant Exchange and are reasonably necessary (or desirable) to give effect to the IPO in accordance with any reasonable timetable adopted by the Holdings Board from time to time, including being bound by any restrictions on sale in respect of their Holdings Ordinary Shares for a transitional period following the IPO as shall be deemed necessary or desirable by the Holdings Board or the investment bank appointed pursuant to clause 3.2 or as required from time to time by any Relevant Exchange or regulatory authority PROVIDED THAT no Shareholder shall be obliged without its agreement (which it may give or withhold as it thinks fit in its absolute discretion) to dispose of any of its Holdings Ordinary Shares. 8 DIRECTIONS TO TRUSTEE 5. Each Beneficiary undertakes to procure that, for so long as that Beneficiary's Holdings Ordinary Shares are held on trust pursuant to the provisions of Trust Deed 1, the Trustee shall comply in all respects with this Agreement in relation to that Beneficiary's Holdings Ordinary Shares. TERMINATION OF TRUST DEED 1 6. If at any time any Beneficiary's Holdings Ordinary Shares cease to be subject to the trust created by Trust Deed 1, with effect from such time the Beneficiary shall be deemed to become a Shareholder, as such expression is defined in this Agreement. AMENDMENTS TO SCHEDULES 7. Each of the signatories and the Beneficiaries hereby appoint Holdings as its agent for the purpose of updating or supplementing the Schedules to this Agreement. THIRD PARTY PURCHASER 8.1 If any Shareholder (or, as the case may be, a Beneficiary through a Trustee) transfers any of its Holdings Ordinary Shares to a third Party (in accordance with the New Holdings Articles) (a Transferor), it shall procure that such third party shall first have entered into a deed poll in the form or substantially the form set out in Schedule 6 and into such agreement(s) with the other Parties to this Agreement as may be necessary to ensure that such third Party is bound by provisions corresponding to provisions of this Agreement, whether by executing a deed poll in relation to the Agreement or otherwise. The continuing Parties hereby agree to release and discharge the Transferor (save in relation to any antecedent breach) from all its obligations under this Agreement provided the relevant third party enters into a deed poll as required by this Clause. 8.2 Holdings shall refuse to register the transfer of any Holdings Ordinary Shares by any Shareholder (or, as the case may be, a Beneficiary through a Trustee) to a third Party in the event that such transfer occurs other than in a manner consistent with the obligations in Clause 8.1 until such time as such transferring Shareholder complies with the requirements of Clause 8.1 hereunder 9 and Holdings shall require any such Shareholder to provide written proof of compliance with Clause 8.1. Any Shareholder whose proposed transfer of shares is refused by Holdings pursuant to this Clause 8.2 hereby waives all claims or other recourse against Holdings or the other Shareholders with respect to such refusal. CONFLICT WITH NEW MEMORANDUM AND ARTICLES 9. In the event of any conflict between the provisions of this Agreement and any of the New Holdings Memorandum, the New Holdings Articles, the New Company Memorandum and the New Holdings Articles, the provisions of this Agreement shall prevail as between the Parties. NOTICES 10.1 Any notice, direction, request or other communication to be given under this Agreement (other than service of process or any other documents in connection with proceedings in any court or in connection with any arbitration under Clause 24, in relation to which the provisions of Clause 10.2 shall apply) shall be deemed sufficiently given or made if in writing and signed by or on behalf of the Party giving it and may be served by leaving it or sending it by fax, prepaid recorded delivery or registered post to the address and for the attention of the relevant Party set out in clause 10.4 (or, in relation a Shareholder or, as the case may be, Beneficiary, to the address set out alongside that Shareholder's or Beneficiary's name in Schedule 1) (or as otherwise notified from time to time hereunder). Any notice so served by fax or post shall be deemed to have been received: (a) in the case of fax, twelve (12) hours after the time of despatch; (b) in the case of recorded delivery or registered post within the UK, forty eight (48) hours from the date of posting; (c) in the case of recorded delivery or registered post outside the UK, five (5) days from the date of posting. 10.2(a) The Shareholders and Beneficiaries irrevocably consent to service of process or any other documents in connection with proceedings in any court by personal service, delivery at any address specified in this 10 Agreement, mail or in any other manner permitted by English law, the law of the place of service or the law of the jurisdiction where proceedings are instituted. (b) Articles 1 and 4 of the Rules (as defined in Clause 24.1) shall apply to the service of process or any other documents in connection with any arbitration under Clause 24.1. Each Shareholder and Beneficiary agrees that process or any other documents in connection with any arbitration under Clause 24.1 may be served on its agent for service of process in accordance with Clause 10.3. 10.3 Each Shareholder and Beneficiary shall, within thirty (30) days of execution of this Agreement by that Shareholder or Beneficiary, appoint an agent for the service of process or any other documents or proceedings in England in relation to the subject matter of this Agreement (an Agent) and shall notify Holdings of the address of the Agent forthwith. Any writ, judgment or notice of legal process shall be sufficiently served on a Shareholder or Beneficiary if delivered to its Agent at the Agent's address, or any other address provided by the Agent from time to time or any other manner permitted by English law. If any Shareholder or Beneficiary has not appointed an Agent pursuant to this clause, Holdings shall be entitled to serve process in accordance with Clause 10.2. If an Agent ceases to act as such for any reason, and provided the relevant Signatory has not appointed a replacement agent, Holdings shall be entitled to appoint a replacement agent on the relevant Signatory's behalf. 10.4 The address for Holdings for the purposes of clause 10.1 is as follows: Address: 99 City Road, London EC1Y 1AX England United Kingdom For the attention of: Alan Auckenthaler Esq (fax no 44 171 728 1602) 10.5 The addresses for the Shareholders and Beneficiaries for the purposes of clause 10.1 are set out in Parts A and B of Schedule 1 respectively. 11 10.6 In proving such service it shall be sufficient to prove that the envelope containing such notice was properly addressed and delivered either to the address shown thereon or into the custody of the postal authorities as a pre-paid recorded delivery or registered post letter, or that the facsimile transmission was made after obtaining in person or by telephone appropriate evidence of the capacity of the addressee to receive the same, as the case may be. NO PARTNERSHIP OR AGENCY 11. Nothing in this Agreement shall be deemed to constitute a partnership between the Parties or constitute either Party the agent of the other Party for any purpose or entitle either Party to commit or bind the other Party in any manner. ANNOUNCEMENTS 12. No formal public announcement or press release in connection with the signature or subject matter of this Agreement shall be made or issued by or on behalf of any Shareholder without the prior written approval of Holdings except insofar as the disclosure of such information may be required by law or by any stock exchange or governmental or other regulatory or supervisory body or authority of competent jurisdiction to whose rules such Shareholder is subject, whether or not having the force of law or which is already in the public domain. FURTHER ASSURANCE 13.1 Each Shareholder undertakes with each other that (so far as it is legally able) it will exercise all voting rights and powers, direct and indirect, available to it in relation to any Member of the Same Group and to Holdings so as to ensure the complete and punctual fulfilment, observance and performance of the provisions of this Agreement and generally that full effect is given to this Agreement. 13.2 Each Party hereby undertakes with each other Party to take, do and execute, and procure that taking, doing and executing of, all such actions, documents and things as are necessary or desirable in order to implement the provisions and intentions of this Agreement. 13.3 Where any obligation pursuant to this Agreement is expressed to be undertaken or assumed by any Party, such obligation shall be construed as 12 requiring the Party concerned to exercise all rights and powers of control over the affairs of any other person which that Party is able to exercise (whether directly or indirectly) in order to secure performance of that obligation. REMEDIES 14.1 Each Party agrees that the other Parties hereto would be irreparably injured by a breach of this Agreement and that the such other Parties shall be entitled to equitable relief, including injunctive relief and specific performance, in the event of any breach of the provisions of this Agreement. Such remedies shall not be deemed to be the exclusive remedies for a breach of this Agreement by any Party, but shall be in addition to all other remedies available at law or equity. 14.2 Each Party shall have the right to enforce all the terms of this Agreement. WAIVER OF RIGHT TO CHALLENGE PROVISIONAL APPLICATION 15.1 Each of the Parties hereto irrevocably waives any rights that it may have under the laws of any applicable jurisdiction or under any principles of public international law to challenge in any legal, governmental, judicial, regulatory, arbitral or other proceeding between such Party and Parties and Holdings or any entity that is an affiliate, successor-in-interest or Member of the Same Group as Holdings on the basis of the provisional application of the amendments to the Convention and Operating Agreement adopted as part of the Restructuring Directives: (i) the validity or effectiveness of this Agreement; or (ii) the right of Holdings to enter into this Agreement. 15.2 Each Governmental Shareholder and Governmental Beneficiary hereby acknowledges and agrees that it has entered into this Agreement on a commercial basis and hereby expressly and irrevocably: (a) consents generally in accordance with the State Immunity Act 1978 to relief being given against it in England or any other jurisdiction by way of injunction or order for specific performance or for the recovery of any property whatsoever or other provisional or protective measures and to its property being subject to any process for the enforcement of a judgment or any process effected in the course or as a result of any action in rem; 13 (b) waives and agrees not to claim any immunity from suits and proceedings including actions in rem) in England or any other jurisdiction and from all forms of execution, enforcement or attached to which it or its property is now or may hereafter become entitled under the laws of any jurisdiction and declares that such waiver shall be effective to the fullest extent permitted by such laws, and in particular the United States Foreign Sovereign Immunities Act of 1976. NO ASSIGNMENT 16. No Shareholder or, as the case may be, Beneficiary shall assign any of it rights under this Agreement in whole or in part without the approval in writing of Holdings. NO WAIVER 17. No waiver by a Party or failure by the other Parties to perform any provision of this Agreement shall operate or be construed as a waiver in respect of any other or further failure whether of a like or different character. COSTS 18. Holdings shall bear all costs incurred in connection with the implementation of an IPO to the extent permitted by any applicable law. INVALIDITY 19. If any of the provisions of this Agreement is held to be invalid or unenforceable, then such provision shall, (so far as invalid or unenforceable) be given no effect and shall be deemed not to be included in this Agreement but without invalidating any of the remaining provisions of this Agreement. The Parties shall then use all reasonable endeavors to replace the invalid or unenforceable provision by a valid provision the effect of which is as close as possible to the intended effect of the invalid or unenforceable provision. 14 WARRANTIES AND REPRESENTATIONS 20.1 Holdings represents and warrants that it has full corporate power and authority to enter into this Agreement and to carry out the transactions contemplated hereby. The Holdings Board has taken all requisite action to authorise the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby and this Agreement is a valid and binding agreement of Holdings enforceable against Holdings in accordance with its terms. 20.2 Each Shareholder and Beneficiary severally represents and warrants to Holdings that it has full beneficial title to its shareholding in Holdings and has full power and authority to enter into, undertaken and perform its obligations set out in this Agreement and that this Agreement is a valid and binding agreement of such Shareholder enforceable against the Shareholder in accordance with its terms. DURATION 21. This Agreement shall continue in full force and effect until the admission of Holdings Ordinary Shares to listing on any Relevant Exchange whereupon it shall terminate and cease to be of any effect, save that this shall not: (a) relieve any Party from any liability or obligation in respect of any matters, undertakings or conditions which shall not have been done, observed or performed by that Party prior to such termination; or (b) affect the terms of clause 12 of this Agreement (Announcements). COUNTERPARTS 22. This Agreement may be entered into in any number of counterparts, each of which, when executed and delivered, shall be an original, but all the counterparts shall together constitute one and the same instrument. ENTIRE AGREEMENT 23. This Agreement sets out the entire agreement and understanding between the Parties with respect to the subject matter thereto. This Agreement supersedes all previous agreements, agreements and understandings between the Parties with 15 respect to the subject of this Agreement, which shall cease to have any further force or effect. None of the Parties has entered into this Agreement in reliance upon any representation, warranty or undertaking of the other Party which is not expressly set out or referred to in this Agreement. AGREEMENT TO ARBITRATE 24.1 Subject to Clause 24.2 any dispute, controversy or claim arising out of or relating to this Agreement including any question regarding its existence, validity or termination shall be referred to and finally resolved by arbitration in accordance with the Arbitration Rules of the London Court of International Arbitration (LCIA) presently in force (the Rules). The appointing authority shall be the LCIA. Unless otherwise agreed by the Parties, the tribunal shall be three (3) arbitrators. The language of the arbitration shall be English and the place of arbitration shall be London. Any arbitration award rendered in accordance with this Clause shall be final and binding on the Parties. The Parties waive irrevocably their right to any form of appeal, review or recourse to any state court or other judicial authority, insofar as such waiver may validly be made. 24.2 Notwithstanding Article 25.3 of the Rules, any Party may apply to any state court or other judicial authority for interim or conservatory measures at any stage prior to, or after, the commencement of an arbitration under Clause 24.1. 24.3 Each Party irrevocably waives nay objections to the jurisdiction of any court referred to in Clause 24.2. GOVERNING LAW 25. This Agreement and the relationship between the Parties shall be governed by and construed in accordance with English law. 16 AS WITNESS this Agreement has been executed on the dates indicated. SIGNED by NICHOLAS PALMER ) for and on behalf of ) INMARSAT ONE LTD. ) on 20 January 1999 ) SIGNED by Thomas Collins ) for and on behalf of ) COMSAT Corporation ) on: 9 February 1999 ) 17 Schedule 3 THE COMPANIES ACTS 1985 TO 1989 ---------------------------------------------- PRIVATE LIMITED COMPANY (Incorporated 20 November 1998) ---------------------------------------------- ---------------------------------------------- MEMORANDUM OF ASSOCIATION OF INMARSAT HOLDINGS LTD ---------------------------------------------- THE COMPANIES ACTS 1985 TO 1989 ---------------------------------------------- PRIVATE LIMITED COMPANY ---------------------------------------------- MEMORANDUM OF ASSOCIATION OF INMARSAT HOLDINGS LTD ---------------------------------------------- 1. The name of the Company is INMARSAT HOLDINGS LTD. 2. The registered office of the Company is to be situated in England and Wales. 3. The objects for which the Company is established are: (1) To carry on the business or businesses of a holding and investment company in all its branches and to acquire by purchase, lease, concession, grant, licence or otherwise such businesses, options, rights, privileges, shares, debentures, debenture Stock, bonds, obligations, securities, reversionary interests, annuities. policies of assurance and other property and rights in property as the Company shall deem fit and generally to hold, manage, develop, lease, sell or dispose of the same; and to vary any of the investments of the Company, to act as trustees of any deeds constituting or securing any debentures, debenture stock or other securities or obligations; to enter into, assist or participate in financial, commercial, mercantile, industrial and other transactions, undertakings and businesses of every description, and to establish, carry on, develop and extend the same or sell, dispose of or otherwise turn the same to account, and to co-ordinate the policy and administration of any companies of which this Company is a member or which are in any manner controlled by or connected with the Company, and to carry on all or any of the businesses of capitalists, trustees, financiers, financial agents, company promoters, bill discounters, insurance brokers and agents, mortgage brokers, rent and debt collectors, stock and share brokers and dealers and commission and general agents, merchants and traders; and to manufacture, buy, sell, maintain, repair and deal in plant machinery, tools, articles and things of All kinds capable of being used for the purposes of the above-mentioned businesses or any of them, or likely to be required by customers of or persons having dealings with the Company. (2) To provide and support global, regional and domestic satellite services, including, without limitation, maritime, aeronautical, land based communications services, radiodetermination (including radionavigation) and distress and safety services and all related and associated infrastructure wherever located. (3) To conduct, and to promote the conduct by other persons of, research and development in connection with any of the activities of the Company authorised in this Memorandum and in any 1 other area which might benefit the business of the Company or of persons having or likely to have dealings with the Company; to establish, maintain and operate research stations, laboratories, plants, workshops, field stations, testing sites, facilities and establishments and generally to engage in research and development for the Company and for other persons and to turn to account the results thereof. (4) To provide for the benefit of other persons consultancy, advisory, training and management services concerning or connected with anything that the Company does in the exercise of its powers or has power to do, or in which the Company has gained or developed expertise in the course of its business, and to provide training and educational courses, instruction, documentation and material for employees of the Company and for other persons in matters which in the opinion of the Company are connected with, or concern or are of benefit to, the businesses and activities of the Company or which utilize the Company's communications systems or services. (5) To accept, design, display, publish, broadcast, transmit, distribute or reproduce in any form whatsoever advertisements and publicity and promotional material of the Company; to acquire, dispose of and use advertising time and space in any media; to develop, produce and undertake advertising, publicity and promotional campaigns and competitions for itself, and to undertake, promote and sponsor any product, service, event, individual or publication which in the opinion of the Company will promote advance or publicise any activity of the Company. (6) To invent, design, develop, construct, manufacture, produce, erect, assemble, test, import, export, alter, install, maintain, repair, renovate, refurbish,'recondition, utilise, operate, manage, purchase, sell, hire, hire out, supply and otherwise deal in all kinds of equipment, apparatus, plant, machinery, appliances, articles, things, accessories, components, fittings, tools, materials, substances, products, computers, computer programs and software which are required or are likely to be required by the Company or other persons for the purposes of or in connection with, any of the businesses of the Company or which in the opinion of the Company may be conveniently or advantageously dealt with by the Company in connection or association with any of its objects or the objects of any of its subsidiaries. (7) To represent persons at meetings of local, national and international organisations and bodies concerned with activities connected or associated with any of the businesses of the Company, to provide services of all kinds to such organisations and bodies and to negotiate and enter into national and international agreements and standards relating to matters of concern or interest to the Company or persons represented by, or having dealings with, the Company. (8) To carry on all or an-, of the businesses of, and provide services associated with, engineers (including without limitation, telecommunications, mechanical chemical, electrical, civil, heating and ventilation engineers). (9) To purchase, take on lease or otherwise acquire, or occupy, any estates, lands, buildings, easements or other interests in, or rights or privileges relating to, real estate; to purchase, take on lease or otherwise acquire and exploit natural resources of any kind, and to occupy, build, construct, erect, develop, design, equip, execute, carry out, demolish, reconstruct, adapt, improve, work, maintain, repair, renovate, administer, manage or control offices, exchanges of 2 any kind, telecommunication systems, repeater stations, radio stations, satellite tracking stations, earth stations, warehouses, depots, works, plants, factories, garages, motor vehicle workshops., jetties, roads, railways, wharves, piers, docks, towers, retail premises, dwellings and other building structures, erections, installations or facilities of all kinds, whether for the purposes of the Company or for sale, letting or hiring to others or for any other purpose, and to contribute to or assist in (financially or otherwise) or carry out any part of, any such operation, and to purchase, take on lease, or otherwise acquire personal property of all kinds, and to sell, let on lease or otherwise dispose of, or grant rights over, or develop or exploit, the whole or any part of any real or personal property belonging to the Company or in respect of which the Company has any interest or which may be of benefit to the Company or any such property in which the Company has no interest but which may conveniently or advantageously be developed or turned to account with real or personal property in respect of which the Company does have an interest. (10)To apply for and take out, purchase or otherwise acquire any patents, patent rights, inventions, secret processes, designs, copyrights, trade marks, service marks, commercial names and designations, formulae, licences, concessions and the like (and any interest therein) or any exclusive or non exclusive or limited right to use, or any secret or other information as to, any invention or secret process of any kind and to use, exercise, develop, or grant licences in respect of, or otherwise turn to account or deal with, the property, rights or information so acquired. (11)To borrow or raise money or secure or discharge any debt or obligation (whether of the Company or of any other person) in such manner as may be thought fit by the Company and in particular (but without prejudice to the generality of the foregoing) by the issue of securities of any kind or mortgages or charges (fixed or floating) founded or based upon all or any part of the undertaking, property, assets and rights (present and future) of the Company including its uncalled capital or without any such security and upon such terms as to priority or otherwise as the Company shall think fit; and to receive money on deposit and advance payments with or without allowance of interest thereon. (12)To enter into any guarantee, contract of indemnity or suretyship and in particular (without prejudice to the generality of the foregoing) to guarantee, support or secure, with or without consideration, whether by personal obligation or by mortgaging or charging all or any part of the undertaking, property and assets (present and future) and uncalled capital of the Company or by both such methods or in any other manner, the performance of any contracts, obligations or commitments of, and the repayment or payment of the principal amounts of and any premiums, interest, dividends and other moneys payable on or in respect of any securities or liabilities of, any person, including (without prejudice to the generality of the foregoing) any company which is for the time being a subsidiary or a holding company of the Company or another subsidiary of a holding company of the Company or otherwise associated with the Company and whether or not any consideration or advantage is received by the Company. (13)To advance, lend or deposit money, and to give credit or financial accommodation to any person with or without taking any security therefor and upon such other terms as may be thought fit by the Company. (14)To subscribe, underwrite, purchase or otherwise acquire, and to accept, take, hold, charge, mortgage, sell, dispose of and deal with, any obligations, securities or other investments of any 3 nature whatsoever and any options or rights in respect thereof, and to buy, sell, deal in and invest in foreign currencies and exchange. (15)To draw, accept, make, endorse, discount, negotiate, execute, issue, buy, sell and deal in bins of exchange, cheques and promissory notes and other negotiable or transferable instruments. (16)To accept securities of any person or any property or interest therein of whatsoever nature in payment or part payment for any services rendered or for any sale or supply made to, or debt owing from, any such person. (17)To insure any property, asset, matter or interest and against any potential liability or loss of the Company or of any other person and the life or health of any person for the benefit of the Company. (18)To apply for, secure, acquire by grant, legislative enactment, assignment, transfer, purchase or otherwise, and to exercise, carry out and enjoy, any licence, franchise, concession, right, privilege, authority, charter or power which any person may be empowered to grant; and to pay for, aid in and contribute towards carrying the same into effect and do all things required of the Company thereunder. (19)To apply for, promote and obtain (alone or with others) any statute, order, by-law, charter, regulation or other authorization or enactment which may seem calculated directly or indirectly to benefit the Company and (alone or with others) to oppose any bills., proceedings or applications which may seem calculated or likely directly or indirectly to prejudice the interests of the Company or persons having dealings with the Company. (20)To sell, dispose of or transfer the business, property and undertaking of the Company or any asset or part thereof for any consideration which the Company may see fit to accept, and in particular (but without prejudice to the generality of the foregoing) to sell or otherwise dispose of any of -the debts due or to become due to the Company to factors or others for collection and to act as agents for such factors or others in the collection of debts so sold and to enter into any obligations or recourse or otherwise in connection therewith. (21)To promote, establish., acquire, subscribe to or take any interest in, alone or with others, any company, body corporate, fund, trust, or other person or body of persons whether incorporated or not incorporated and whether or not having objects similar to those of the Company; to purchase or otherwise acquire all or any of the business, property and liabilities of any person carrying on a business including all or any part of the purposes within the objects of the Company or a business which in the opinion of the Company may be conveniently or advantageously carried on by the Company or a business having, rights in assets the acquisition of which is in the opinion of the Company likely to be in its interests, and to conduct. carry on and expand or liquidate and wind up any such business. (22)To enter into and carry into effect any arrangement for partnership or joint working in business or for the sharing of profits or for amalgamation with any other person. (23)To establish agencies and local boards in the United Kingdom and elsewhere in any part of the 4 world and to regulate and discontinue the same; to procure the registration, incorporation or recognition of the company in, or under the laws of any place outside England. (24)To establish, purchase, maintain and contribute to any pension, superannuation, retirement, redundancy, injury, death benefit or insurance funds, trusts, schemes or policies for the benefit of, and to give or procure the giving of pensions, annuities, allowances, gratuities, donations, emoluments, benefits of any description (whether in kind or otherwise), incentives, bonuses, assistance (whether financial or otherwise) and accommodation in such manner and on such terms as it thinks fit to, and to make payments for or towards the insurance of any individuals who are or were at any time in the employment of, or directors or officers of (or held comparable or equivalent office in), or acted as consultants or advisers to or agents for, the Company or any company which is its holding company or is a subsidiary of the Company or any such holding company, or any person to whose business the Company or any subsidiary of the Company is, in whole or in part, a successor directly or indirectly or any person which is otherwise allied to or associated with the Company and to other individuals whose service has been of benefit to the Company or who the Company considers have a moral ' claim on the Company, and the spouses, widows, widowers, families and dependents of any such individuals as aforesaid, and to establish, provide, manage and maintain and provide financial assistance to welfare, sports and social facilities, associations, clubs, funds and institutions which the Company considers likely to benefit or further the interests of any of the aforementioned individuals and spouses, widows, widowers, families and dependents of any such aforementioned individuals, and to manage, maintain, support and provide financial assistance to any such facility, association, club, fund or institution which has been established, provided for, managed, maintained, supported or subscribed to by any person to whose business the Company or any subsidiary of the Company is, in whole or in part, a successor. (25)To establish, contribute to, maintain, advise and assist schemes for the acquisition by employees, former employees and directors or by trustees of shares in the Company or its holding company to be held by or for the benefit of such employees, former employees and directors as aforesaid of the Company or of any of the Company's subsidiaries or its holding company or of any subsidiaries of its holding company and to lend money to any such employees, former employees and directors to enable them to acquire shares in the Company or in its holding company and to establish, implement and assist (financially or otherwise) the administration and running of any schemes for sharing profits of the Company or any other such company as aforesaid with any such employees, former employees and directors. (26)From time to time to subscribe or contribute (in cash or in kind) to, or to promote, any charitable, benevolent or useful object of a public character or any object which may in the opinion of the Company be likely directly or indirectly to further the interests of the Company, its employees or its members. (27)To do all or any of the matters hereby authorised in any part of the world either alone or in conjunction with, or as factors, contractors, trustees, principals or agents for, any other persons, or by or through factors, trustees or agents, and to act as directors of or secretary, manager, registrar, or transfer agent for, or adviser or consultant to, any person, and to act as trustees of any kind and to undertake and execute any trust. 5 (28)To pay and discharge all or any expenses, costs and disbursements, to pay commissions and to remunerate any person for services rendered or to be rendered in connection with the formation, promotion and flotation of the Company and the underwriting or placing or issue at any time of any securities of the Company or of any other person. (29)To issue, allot and grant options over securities of the Company for cash or otherwise or in payment or part payment for any real or personal property or rights therein purchased or otherwise acquired by the Company or any services rendered to, or at the request of, or for the benefit of, the Company or as security for, or indemnity for, or towards satisfaction of any liability or obligation undertaken or agreed to be undertaken by or for the benefit of the Company, for any obligation (even if less than the nominal value of such securities) or for any other purpose. (30)To invest the moneys and utilise the property and assets of the Company not immediately required in such a manner as the Company may from time to time determine. (31)To distribute in specie or otherwise by way of dividend or bonus or reduction of capital all or any of the property or assets of the Company among its members and particularly, but without prejudice to the generality, of the foregoing, securities of any other company formed to take over the whole or any part of the assets or liabilities of the Company or any proceeds of sale or other disposal of any property or assets of the Company. (32)Generally to do all such other things as in the opinion of the Company are or may be incidental or conducive to the attainment of the above objects or any of them. 4. The liability of the members shall be limited to the paid-up value of their shares. 5. The authorised share capital of the Company is (pound)20,000,001, divided into 20,000,000 ordinary shares of (pound)1 each and one special rights non-voting redeemable preference share of (pound)1. The issued share capital is (pound)10,000,001, divided into 10,000,000 ordinary shares of (pound)l each and one special rights nonvoting redeemable preference share of (pound)1. The Company shall have the power from time to time to divide the original or any increased capital into classes, and to attach thereto any preferential, deferred, qualified or other special rights, privileges, restrictions and conditions. 6. It is hereby declared that in this Memorandum: (a) The expressions subsidiary and subsidiary undertaking shall in this Memorandum bear the meanings given to them in the Companies Act 1985 (as amended). (b) References to person or persons shall where the context permits include but not be limited to individuals, firms, partnerships, companies, corporations, governments, and other authorities or agencies supreme, municipal, local or otherwise, undertakings, societies, clubs, associations, organisations (local, national and international), statutory, public and other bodies (and outside the United Kingdom their equivalent) and any legal entity whether or not incorporated. (c) References to securities shall where the context permits; include but not be limited to any fully, partly or nil paid or no par value share, stock, unit. debenture, debenture or loan stock (perpetual 6 or terminable), bond, deposit receipt, bill, note, warrant, coupon, right to subscribe or convert, or similar right or obligation. (d) References to and and or shall mean and/or where the context so permits. (e) References to other and otherwise shall not be construed ejusdem genenis where a wider construction is possible. (f) The Organization means the International Mobile Satellite Organization (formerly known as the International Maritime Satellite Organization) established by the Convention. (g) Convention means the Convention (as amended) on the International Mobile Satellite Organization which entered into force on 16 July 1979. (h) GMDSS means Global Maritime Distress and Safety System as established by the International Maritime Organization. 7. In carrying out its objects as specified in Clause 3, the Company shall have regard to the following basic principles: (a) ensuring the continued provision of global maritime distress and safety satellite communications services, in particular those which are specified in the International Convention for the Safety of Life at Sea, 1974, as amended from time to time, and the Radio Regulations annexed to the International Telecommunication Constitution and Convention, as amended from time to time, relative to the GMDSS; (b) providing services without discrimination on the basis of nationality. Notwithstanding the foregoing, the Company shall have the right to offer different charges for the same service in defined geographical regions in which end-user calls or messages originate or terminate and which are technically verifiable; (c) acting exclusively for peaceful purposes, taking into account the past practices of the Organization and the practice of the Company; (d) seeking to serve all areas where there is a need for mobile satellite communications, giving due consideration to the rural and the remote areas of developing countries; and (e) operating in a manner consistent with fair competition, subject, to applicable laws and regulations. 7 Schedule 4 Company No. 3675885 ----------------------------------------------- ARTICLES OF ASSOCIATION OF INMARSAT LTD ----------------------------------------------- Incorporated 24 November 1998 As adopted by special resolution passed on 8 April 1999 FRESHFIELDS ----------------------------------------------- A Private Company Limited by Shares ----------------------------------------------- ARTICLES OF ASSOCIATION OF INMARSAT LTD (Adopted by special resolution passed on [8 April 1999]) ----------------------------------------------- Preliminary 1. The regulations in Table A in the schedule to the Table A Companies (Table A to F) Regulations 1985 as amended before the date of adoption of these Articles (Table A) apply to the Company except to the extent that they are excluded or modified by these Articles. No other regulations which would constitute the Company's Articles because of s8(2) of the Act apply to the Company. 2. The following parts of Table A do not apply to the Table A Company: exclusions (a in regulation 1, the definitions of the Articles, executed and the seal; (b regulation 24; (c) regulations 60 and 61; (d) regulation 64; (e) regulation 65 to 69 inclusive; (f) regulation 70; (g) regulation 72; 2 (h) regulations 73 to 80 inclusive; (i) regulation 81; (j) regulations 84 to 86 inclusive; (k) regulations 88 to 90 inclusive; (l) regulations 94 to 98 inclusive; (m) regulation 101; (n) regulations 111 and 112; and (o) regulation 115. 3. In these Articles: Construction (a) Shareholder means Inmarsat Holdings Ltd; (b) Organization means the International Mobile Satellite (formerly known as the International Maritime Satellite Organization) established by the Convention (as amended) on the International Mobile Satellite Organization which entered into force on July 16, 1979; (c) Act means the Companies Act 1985 including any modification or re-enactment thereof for the time being in force; (d) Articles means these articles of association, incorporating Table A (as applicable to the Company), as altered from time to time by special resolution, auditors means the auditors of the Company, Director means a Director of the Company, the Directors means the Directors or any of them acting as the board of Directors of the Company, dividend means dividend or bonus, paid means paid or credited as paid and seal means the common seal of the Company and includes any official seal kept by the Company by virtue of section 39 or 40 of the Act; (e) IPO means the admission of ordinary shares in the Shareholder from time to time to listing, or the giving effect to trading arrangements in such shares, on any Relevant Exchange whether or not including a sale of issued shares or the subscription of new shares in the Shareholder; (f) Relevant Exchange means any of the London Stock Exchange Limited, the New York Stock Exchange, NASDAQ, the Hong Kong Stock Exchange, the Tokyo Stock Exchange and the Singapore Stock Exchange, or any other exchange which the Board of the Shareholder in its discretion considers to constitute a relevant exchange; 3 (g) unless expressly defined in the Articles, words or expressions that are defined in the Act bear the same meaning as in the Act but excluding any statutory modification of the Act not in force when the Articles become binding on the Company; (h) references to a document being executed include references to its being executed under hand or under seal or by any other method; (i) words denoting the singular number include the plural number and vice versa, words denoting the masculine gender include the feminine gender and words denoting persons include corporations; (j) headings and marginal notes are inserted for convenience only and do not affect the construction of these Articles; (k) powers of delegation shall not be restrictively construed but the widest interpretation shall be given to them; (l) the word Directors in the context of the exercise of any power contained in these Articles includes any committee consisting of one or more Directors, any Director holding executive office and any local or divisional board, manager or agent of the Company to which or, as the case may be, to whom the power in question has been delegated; (m) no power of delegation shall be limited by the existence or, except where expressly provided by the terms of delegation, the exercise of that or any other power of delegation; and (n) except where expressly provided by the terms of delegation, the delegation of a power shall not exclude the concurrent exercise of that Power by any other body or person who is for the time being authorised to exercise it under these Articles or under another delegation of the power. 4. If at any time and for so long as the Company has a Single member single member, all the provisions of the Articles shall (in the absence of any express provision to the contrary) apply with such modification as may be necessary in relation to a Company with a single member. Share capital 5. Regulation 2 of Table A is amended by the addition at Shares with the end of the regulation of the words "or, subject to and special rights in default of such determination, as the Directors shall determine". 6. The Directors are hereby generally and unconditionally Section 80 authorised pursuant to Section 80 pursuant to of the Act to authority allot relevant securities (within the authority meaning of section 80) up to an aggregate nominal amount equal to the authorised share capital of the Company at the date of adoption of these Articles for a period expiring (unless previously renewed, varied or revoked by the Company in general meeting) five years after the date of adoption of these Articles. 4 7. The pre-emption provisions in section 89(l) of the Act Section 89 and the provisions of sub-sections 90(l) to 90(6) inclusive exclusion of the Act shall not apply exclusion to any allotment of the Company's equity securities. 8. Before the expiry of the authority granted by article 6 Allotment after the Company may make an offer or agreement which would or expiry might require relevant securities to be allotted after that expiry and the Directors may allot relevant securities in pursuance of that offer or agreement as if that authority had not expired. 9. Subject to the provisions of Articles 6, 7 and 8, Residual regulation 3 of Table A, the provisions of the Act and to allotment powers any resolution of the Company in general allotment power meeting passed pursuant to those provisions: (a) all unissued shares for the time being in the capital of the Company (whether forming part of the original or any increased share capital) shall be at the disposal of the Directors; and (b) the Directors may allot (with or without conferring a right of renunciation), grant options over, or other-wise dispose of them to such persons on such terms and conditions and at such times as they think fit. Share certificates 10. In the second sentence of regulation 6 of Table A, the Execution of words "sealed with the seal" are Execution of deleted and certificates replaced by the words "executed under the seal or otherwise in accordance with the certificates Act or in such other manner as the Directors may approve". Transfer of shares 11. The Directors may, in their absolute discretion and Registration of without giving any reason, refuse to Registration of transer register the transfer of a share to any person, whether or not it is fully paid or a share on transfer which the Company has a lien. General meetings 12. Regulation 38 of Table A is amended: Period of notice (a) by deleting from the first sentence "or a resolution appointing a person as a Director"; (b) and by adding at the end of paragraph (b) of regulation 38 "or such other majority as has been decided on by elective resolution of the members under the Act". 13. Notices of general meetings need not be given to To whom must Directors or auditors and regulation 38 of Table A is notice be given amended accordingly. 5 14. Where for any purpose an ordinary resolution of the Effectiveness of Company is required, a special or extraordinary resolution special and shall also be effective. Where for any purpose an extraordinary extraordinary resolution is required a special resolution resolutions shall also be effective. Votes of members 15. An instrument appointing a proxy shall be in writing Appointment of under the hand of the appointing member or his attorney or, proxy if the appointing member is a corporation, either under its common seal or the hand of a duly authorised officer, attorney or other person authorised to sign it. 16. Instruments of proxy shall be in any usual form or in Form of proxy any other form of which the Directors may approve. 17. Regulation 62 of Table A is amended: Delivery of proxy (a) Delivery of proxy in each of paragraphs (a), by the deletion of the words "deposited at" and the substitution for them of the words "left at or sent by post or facsimile transmission to"; (b) in paragraph (a), by the deletion of the words "not less than 48 hours"; (c) in paragraph (b), by the deletion of the words "deposited as aforesaid" and the substitution for them of the words "left at or sent by post or facsimile transmission to the registered office of the Company or at such other place within the United Kingdom as is specified in the notice convening the meeting or in any instrument of proxy sent out by the Company in relation to the meeting"; and (d) in paragraph (b), by the deletion of the words "not less than 24 hours". 18. An instrument appointing a proxy shall be deemed to Validity of form include the right to demand, or join in demanding, a poll. of proxy The instrument of proxy shall also be deemed to confer authority to vote on any amendment of a resolution put to the meeting for which it is given as the proxy thinks fit. The instrument of proxy shall, unless it provides to the contrary, be valid for any adjournment of the meeting as well as for the meeting to which it relates. Deposit of an instrument of proxy does not preclude a member from attending and voting at the meeting to which it relates or any adjournment of that meeting. Number of Directors 19. The number of Directors shall be the same as the number Number of of Directors of the Shareholder from time to time. Directors 6 Powers of the Board 19(A). Subject to the provisions of the Companies Acts, the Business to be Memorandum and these Articles and to any directions given by managed by special resolution, business of the Company shall be managed Board by the Board which may exercise all the powers of the Company, PROVIDED THAT the following shall first require the approval of the Company by ordinary resolution: (a) any acquisition or disposal (whether in a single Reserved transaction or series of transactions) by the Company matters of any business (or any material part of any business) or of any shares in any Company where the value of the consideration or disposal exceeds US$500,000,000; and (b) any proposal which may have a material adverse effect upon the provision by the Company of any of the Public Service Obligations (as defined in Article 19(B)) (the Reserved Matters). 19(B). In exercising the powers of the Company, the Basic principles Company shall procure that the Board shall have regard to the following basic principles: (a) ensuring the continued provision of global maritime distress and safety satellite communications services, in particular those which are specified in the International Convention for the Safety of Life at Sea, 1974, as amended from time to time, and the Radio Regulations annexed to the International Telecommunication Constitution and Convention, as amended from time to time, relative to the GMDSS; (b) providing services without discrimination on the basis of nationality. Notwithstanding the foregoing, the Company shall have the night to offer different charges for the same service in defined geographical regions in which end-user calls or messages originate or terminate and which are technically verifiable; (c) acting exclusively for peaceful purposes, taking into account the past practices of the Organization and the practice of the Company; (d) seeking to serve all areas where there is a need for mobile satellite communications, giving due consideration to the rural and the remote areas of developing countries; (e) and operating in a manner consistent with fair competition, subject to applicable laws and regulations (together the Public Service Obligations). Alternate Directors 20. Any Director (other than an alternate Director) may Power to appoint any other Director, or any other person approved by appoint resolution of the Board and willing to act, to be an alternates alternate Director and may remove from office an alternate Director so appointed by him. 7 21. An alternate Director shall be entitled to receive Alternates notice of all meetings of the Board and of all meetings of entitled to committees of the Board of which his appointor is a member, receive notice to attend and vote at any such meeting at which his appointor is not personally present, and generally to perform all the functions of his appointor (except as regards power to appoint an alternate) as a Director in his absence. 22. A Director or any other person may act as alternate Alternates Director to represent more than one Director, and an representing alternate Director shall be entitled at meetings of the more than one Board or any committee of the Board to one vote for every Director Director whom he represents (and who is not present) in addition to his own vote (if any) as a Director, but he shall count as only one for the purpose of determining whether a quorum is present. 23. An alternate Director may be repaid by the Company Expenses of such expenses as might properly have been repaid to him if alternates he had been a Director but shall not in respect of his services as an alternate Director be entitled to receive any remuneration from the Company except such part (if any) of the remuneration other-wise payable to his appointor as such appointor may by notice in writing to the Company from time to time direct. An alternate Director shall be entitled to be indemnified by the Company to the same extent as if he were a Director. 23A. The ordinary remuneration of the Directors who do not Remuneration hold executive office for their services (excluding amounts payable under any other provision of these Articles) shall be determined by the Board, or as the Company may from time to time by ordinary resolution determine. 24. An alternate Director shall cease to be an alternate Termination of Director: appointment (a) if his appointor ceases to be a Director; but, if a Director retires by rotation or otherwise but is reappointed or deemed to have been reappointed at the meeting at which he retires, any appointment of an alternate Director made by him which was in force immediately prior to his retirement shall continue after his reappointment; or (b) on the happening of any event which, if he were a Director, would cause him to vacate his office as Director; or (c) if he resigns his office by notice to the Company. 25. Any appointment or removal of an alternate Director Method of shall be by notice to the Company signed by the Director appointment and making or revoking the appointment and shall take effect in revocation accordance with the terms of the notice (subject to any approval required by Article 21) upon receipt of such notice at the office. 8 26. Save as otherwise expressly provided in these Articles, Alternate not an an alternate Director shall be deemed for all purposes to be agent or a Director and, accordingly, except where the context appointor otherwise requires, references to a Director shall be deemed to include a reference to an alternate Director. An alternate Director shall alone be responsible for his own acts and defaults and he shall not be deemed to be the agent of the Director appointing him. 27.(A) The Directors may exercise the voting power conferred Exercise by by the shares in any body corporate held or owned by the Company of Company in such manner in all respects as they think fit voting rights (including without limitation the exercise of that power in favour of any resolution appointing its members or any of them Directors of such body corporate, or voting or providing for the payment of remuneration to the Directors of such body corporate). Delegation of Directors' powers 28. The Board may delegate any of its powers to any Committees of committee consisting of one or more Directors. The Board may the Directors also delegate to any Director holding any executive office such of its powers as the Board considers desirable to be exercised by him. Any such delegation shall, in the absence of express provision to the contrary in the terms of delegation, be deemed to include authority to sub-delegate to one or more Directors (whether or not acting as a committee) or to any employee or agent of the Company all or any of the powers delegated and may be made subject to such conditions as the Board may specify, and may be revoked or altered. Subject to any conditions imposed by the Board, the proceedings of a committee with two or more members shall be governed by these Articles regulating the proceedings of Directors so far as they are capable of applying. 29. The Directors may appoint any person to any office or Offices employment having a designation or title including the word including the "Director" or attach such a designation or title to any title "Director" existing office or employment with the Company and may terminate any such appointment or the use of any such designation or title. The inclusion of the word "Director" in the designation or title of any such office or employment shall not imply that the holder is a Director of the Company, and the holder shall not thereby be empowered in any respect to act as, or be deemed to be, a Director of the Company for any of the purposes of these Articles. Establishment of Committees 29A. Subject always to Article 28, the Board shall Establishment of establish a committee in relation to matters concerning Land Committees Earth Stations as such expression is defined in the Articles of Association of the Shareholder. 29A.2 The LES Committee shall have general responsibility for overseeing contracts between the Company and the Land Earth Station Operators, and shall be responsible specifically for approving the following, on recommendations from the management of the Company: 9 (a) terms and conditions in material agreements between the Company and any Land Earth Station Operator that are negotiated, renegotiated or entered into after the Effective Date; (b) termination of Land Earth Station Operator agreements; (c) establishment of Land Earth Station facilities in addition to those existing or authorised as of the Effective Date; and (d) the wholesale pricing arrangements of the Company in relation to the Land Earth Station Operators. 29A.3 Prior to the undertaking of an IPO by the Shareholder, the LES Committee shall comprise one Independent Director appointed pursuant to Article 115 of the Articles of Association of the Shareholder, a Director who is the Chief Executive Officer of the Shareholder or a Director not connected with a Land Earth Station Operator, and any one other Director. A Director shall be deemed to be connected with a Land Earth Station Operator, inter alla, if he is a director, officer or employee or has an interest in the shares of any person which (a) owns. or otherwise has an economic interest in, the relevant Land Earth Station, or (b) has a contractual relationship with the relevant Land Earth Station Operator or any Member of the Same Group as that person. In this Article, Member of the Same Group shall have the meaning ascribed to it in Article 54 of the Articles of Association of the Shareholder. Appointment and Removal of Directors 30. The Board shall appoint as Directors of the Company those Appointment and persons who are Directors of the Appointment and Shareholder removal by and shall remove them if they cease to be Directors of the Shareholder Shareholder. removal by 31. The Directors shall also have power to appoint any person Appointment by who is willing to act to be a Director, either to fill a the Directors vacancy or as an addition to the existing Directors, subject to any maximum for the time being in force, and any Director so appointed shall hold office until he is removed in accordance with Article 30. 32. No person shall be disqualified from being appointed a Age limit Director, and no Director shall be required to vacate that office, by reason only of the fact that he has attained the age of 70 years or any other age nor shall it be necessary by reason of his age to give special notice under the Act of any resolution. Disqualification and Removal of Directors 33. In addition to the provisions of the Acts the office of a Director shall be vacated if for any reason he ceases to be a director of the Shareholder. 10 34. The Company may, in accordance with and subject to the provisions of the Companies Acts, by ordinary resolution of which special notice has been given remove any Director from office (notwithstanding any provision of these Articles) and, by ordinary resolution, appoint another person in place of a Director so removed from office provided always that such a person is a Director of the Shareholder. Directors' Interests 35. Subject to the provisions of the Companies Acts and Directors may Article 44 (concerning the circumstances Directors may contract with warranting recusal), and provided that he has disclosed to Company the Board the nature and extent of contract with the any material interest of his, a Director, notwithstanding his office: (a) Company may be a party to, or otherwise be interested in, any transaction or arrangement with the Company or in which the Company is otherwise interested; (b) may act by himself or his firm in a professional capacity for the Company (otherwise than as auditor) and he or his firm shall be entitled to remuneration for professional services as if he were not a Director, (c) may be a Director or other officer of or employed by, or a party to any transaction or arrangement with, or otherwise interested in, any body corporate promoted by the Company or in which the Company is otherwise interested; and (d) shall not, by reason of his office, be accountable to the Company for any benefit which he derives from any such office or employment or from any such transaction or arrangement or from any interest in any such body corporate and no such transaction or arrangement shall be liable to be avoided on the ground of any such interest or benefit. 36. For the purposes of Article 35: Notification of interests (a) a general notice given to the Board that a Director is to be regarded as having an interest of the nature and extent specified in the notice in any transaction or arrangement in which a specified person or class of persons is interested shall be deemed to be a disclosure that the Director has an interest in any such transaction of the nature and extent so specified; and (b) an interest of which a Director has no knowledge and of which it is unreasonable to expect him to have knowledge shall not be treated as an interest of his. 11 Benefits and Insurance 37. The Board may (by establishment of or maintenance of Gratuities and schemes or otherwise) provide benefits, whether by the pensions payment of gratuities or pensions or by insurance or otherwise, for any past or present Director or employee of the Company or any of its subsidiaries or any body corporate associated with, or any business acquired by, any of them, and for any member of his family (including a spouse and a former spouse) or any person who is or was dependent on him, and may (as well before as after he ceases to hold such office or employment) contribute to any fund and pay premiums for the purchase or provision of any such benefit in accordance with the recommendations of the Remuneration Committee. 38. Without prejudice to the provisions of Regulation 118 Insurance of Table A, the Board shall have the power to purchase and maintain insurance for or for the benefit of any persons who are or were at any time Directors, officers or employees or auditors of the Company, or of any other Company which is its holding Company or in which the Company or such holding Company has any interest whether direct or indirect or which is in any way allied to or associated with the Company, or of any subsidiary undertaking of the Company or any such other Company, or who are or were at any time trustees of any pension fund or employee share scheme in which employees of the Company or any such other Company or subsidiary undertaking are interested, including (without prejudice to the generality of the foregoing) insurance against any liability incurred by such persons in respect of any act or omission in the actual or purported execution or discharge of their duties or in the exercise or purported exercise of their powers or otherwise in relation to their duties, powers or offices in relation to the Company or any such other Company, subsidiary undertaking, pension fund or employee share scheme. 39. No Director or former Director shall be accountable to Directors not the Company or the members for any benefit provided pursuant liable to to Articles 37 and 38 and the receipt of any such benefit account shall not disqualify any person from being or becoming a Director of the Company. 12 Proceedings of Directors 40. Subject to the provisions of these Articles, the Board Convening may regulate its proceedings as it thinks fit. A Director meetings may, and the secretary at the request of a Director shall, Convening call a meeting of the Board. Notice of a Board meeting shall meetings be deemed to be properly given to a Director if it is sent in writing to him at his last known address or any other address given by him to the Company for this purpose at least fourteen (14) days in advance of the meeting, except in urgent circumstances (as determined by the Company and ratified by a simple majority of the Board). A Director absent or intending to be absent from the United Kingdom may request of the Board that notices of Board meetings shall during his absence be sent in writing to him at an address given by him to the Company for this purpose, but such notices need not be given any earlier than notices given to Directors not so absent. Questions arising at a meeting shall be decided by a majority of votes, except in relation to any proposal for the amendment of these Articles which shall only be decided by a majority of more than two-thirds of the Directors present and voting at a meeting of the Board at which the necessary quorum is present. In the case of an equality of votes, the chairman shall have a second or casting vote. Any Director may waive notice of a meeting and any such waiver may be retrospective. 41. The quorum for the transaction of the business of the Quorum Board may be fixed by the Board and unless so fixed at any other number shall be a majority of Directors. A person who holds office only as an alternate Director shall, if his appointor is not present, be counted in the quorum. Any Director who ceases to be a Director at a Board meeting may continue to be present and to act as a Director and be counted in the quorum until the termination of the Board meeting if no Director objects. 42. The continuing Directors or a sole continuing Director Powers of may act notwithstanding any vacancies in their number, but, Directors if if the number of Directors is less than the number fixed as number falls the quorum, the continuing Directors or Director may act below minimum only for the purpose of filling vacancies or of calling a general meeting. 43. All acts done by a meeting of the Board, or of a Validity of acts committee of the Board, or by a person acting as a Director of the Board or alternate Director, shall, notwithstanding, that it be afterwards discovered that there was a defect in the appointment of any Director or any member of the committee or alternate Director or that any of them were disqualified from holding office, or had vacated office, or were not entitled to vote, be as valid so long as the acts done by the Board, or committee thereof, were properly adopted, validated or ratified by the required number of duly appointed and qualified Directors or, as the case may be, alternate Directors who were also present at the meeting and entitled to vote. 44. A Director shall not vote at a meeting of the Board or Directors' a committee of the Board on any resolution of the Board power to vote on concerning a matter in which he has an interest (other than contracts in by virtue of his interests in shares or debentures or other which they are securities of or otherwise in or through the Company) which interested (together with any interest of any person connected with him) is to his knowledge material unless his interest arises only because the resolution concerns one or more of the following matters: 13 (a) the giving of a guarantee, security or indemnity in respect of money lent or obligations incurred by him or any other person at the request of or for the benefit of, the Company or any of its subsidiary undertakings; or (b) the giving of a guarantee, security or indemnity in respect of a debt or obligation of the Company or any of its subsidiary undertakings for which the Director has assumed responsibility (in whole or part and whether alone or jointly with others) under a guarantee or indemnity or by the giving of security; or (c) a contract, arrangement, transaction or proposal concerning an offer of shares, debentures or other securities of the Company or any of its subsidiary undertakings for subscription or purchase, in which offer he is or may be entitled to participate as a holder of securities or in the underwriting or sub-underwriting of which he is to participate; or (d) a contract, arrangement, transaction or proposal concerning any other body corporate in which he or any person connected with him is interested, directly or indirectly, and whether as an officer, shareholder, creditor or otherwise, if he and any persons connected with him do not to his knowledge hold an interest (as that term is used in sections 198 to 211 of the Act) representing one per cent or more of either any class of the equity share capital of such body corporate (or any other body corporate through which his interest is derived) or of the voting rights available to members of the relevant body corporate (any such interest being deemed for the purpose of this Article to be a material interest in all circumstances); or (e) contract, arrangement, transaction or proposal for the benefit of employees of the Company or of any of its subsidiary undertakings and does not award him any privilege or benefit not generally accorded to the employees to whom the arrangement relates; or (f) a contract, arrangement, transaction or proposal concerning any insurance which the Company is empowered to purchase or maintain for or, for the benefit of, any Directors of the Company or for persons who include Directors of the Company. For the purposes of this Article, an interest of a Interests of person who is, for any purpose of the Companies Acts connected person (excluding any statutory modification of the Companies and alternate Acts not in force when this Article is adopted), Director connected with a Director shall be treated as an interest of the Director and, in relation to an alternate Director, an interest of his appointor shall be treated as an interest of the alternate Director without prejudice to any interest which the alternate Director has otherwise. 45. A Director shall not be counted in the quorum present Rxclusion of at a meeting in relation to a resolution Exclusion of on Director which he is not entitled to vote. 14 45.(A) Where proposals are under consideration concerning the Division of appointment (including fixing Division of or varying the proposals terms of appointment) of two or more Directors to offices or employments with proposals the Company or any body corporate in which the Company is interested, the proposals may be divided and considered in relation to each Director separately and in such cases each of the Directors concerned shall be entitled to vote and be counted in the quorum in respect of each resolution except that concerning his own appointment. 45.(B) If a question arises at a meeting of the Board or of a Decision of committee of the Board as to the Decision of entitlement of chairman final a Director to vote or be counted in a quorum, the question and conclusive may, before the chairman final conclusion of the meeting, be referred to the chairman of the meeting and his ruling in and conclusive relation to any Director other than himself shall be final and conclusive except in a case where the nature or extent of the interests of the Director concerned have not been fairly disclosed. If any such question arises in respect of the chairman of the meeting, it shall be decided by resolution of the Board (on which the chairman shall not vote) and such resolution will be final and conclusive except in a case. where the nature and extent of the interests of the chairman have not been fairly disclosed. The Seal, Deeds and Certification 46. The seal shall only be used by the authority of a Authority resolution of the Directors. The Directors Authority may required for determine who shall sign any instrument executed under the execution of seal. If they do not, it shall required for be signed by at deed least one Director and the secretary or by at least two Directors. Any execution of document may be executed under the seal by impressing, the seal by mechanical means or by deed printing the seal or a facsimile of it on the document or by applying the seal or a facsimile of it by any other means to the document. A document signed, with the authority of a resolution of the Directors, by a Director and the secretary or by two Directors and expressed (in whatever form of words) to be executed by the Company has the same effect as if executed under the seal. For the purpose of the preceding sentence only, "secretary"' shall have the same meaning as in the Act and not the meaning given to it by regulation 1 of Table A. 47. The Company may exercise the powers conferred by Official seal section 39 of the Act with regard to having an official seal for use abroad for use abroad. 15 48. Any Director or the secretary, or any person appointed by Certified copies the Directors for the purpose, shall have power to authenticate any documents affecting the constitution of the Company and any resolutions passed by the Company (or the holders of any class of shares of the Company) or the Directors or any committee of the Directors, and any books, records, documents and accounts relating to the business of the Company, and to certify copies of or extracts from them as true copies or extracts. A document purporting to be a copy of a resolution, or the minutes of or an extract from the minutes of a meeting of the Company (or the holders of any class of shares of the Company) or of the Directors or any committee of the Directors that is certified in this way shall be conclusive evidence in favour of all persons dealing with the Company in reliance on it that such resolution has been duly passed or, as the case may be, that such minutes or extract is a true and accurate record of proceedings at a duly constituted meeting. Record Dates 49. Notwithstanding any other provision of these Record dates for Articles, the Company or the Directors may fix Record dates dividends, etc. for any date as the record date for any dividend, distribution, allotment or issue, which may be on or at any time before or after any date on which the dividend, distribution, allotment or issue is declared. paid or made. Notices 50. Any notice to be given to or by any person pursuant to Method of giving the Articles shall be in writing which includes, without notice limitation, telex, facsimile and electronic mail and any other visible substitute for writing, A notice may be partly in one form and partly in another. 51. The Company may give any notice to a member: (a) personally; or (b) by sending it by post in a prepaid envelope addressed to the member at his registered address or by leaving it at that address; (c) or by sending it by telex, facsimile or electronic mail to a number or address supplied to the Company by the member for that purpose. In the case of Joint holders of a share, all notices shall be given to the joint holder whose name stands first in the register of members in respect of the joint holding and notice so given shall be sufficient notice to all the joint holders. 52. Proof that an envelope containing a notice was properly When notice by addressed, prepaid and posted shall be conclusive evidence post deemed that the notice was given. A notice sent by post shall be served deemed given: (a) if sent by first class post from an address in the United Kingdom to another address in the United Kingdom, on the day following that on which the envelope containing it was posted, 16 (b) if sent by the equivalent of first class post from an address in another country to another address in that country, on the day following that on which the envelope containing it was posted; (c) if sent by airmail from an address in the United Kingdom to an address outside the United Kingdom, or to an address in the United Kingdom from an address outside the United Kingdom, on the third day following that on which the envelope containing it was posted; (d) and in any other case. on the fifth day following that on which the envelope containing it was posted. 53. A notice sent by telex, facsimile or electronic When other mail transmission to a member to a number or address notices deemed supplied to the Company by the member for that purpose shall given be deemed given twelve hours after the time of despatch or at such earlier time as receipt is acknowledged. A notice left at the registered address of a member shall be deemed given when delivered. US Tax Election 54. The Company shall shall elect to be treated as a partnership for United States tax purposes until such time as the Shareholder re-registers as a public limited Company. 17 Schedule 5 THE COMPANIES ACTS 1985 TO 1989 ----------------------------------------------- PRIVATE LIMITED COMPANY (Incorporated on 24 November 1998) ----------------------------------------------- ----------------------------------------------- MEMORANDUM OF ASSOCIATION OF INMARSAT LTD ----------------------------------------------- THE COMPANIES ACTS 1985 TO 1989 ----------------------------------------------- PRIVATE LIMITED COMPANY ----------------------------------------------- MEMORANDUM OF ASSOCIATION OF INMARSAT LTD ----------------------------------------------- 1. The name of the Company is INMARSAT LTD. 2. The registered office of the Company is to be situated in England and Wales. 3. The objects for which the Company is established are: (1) To provide and support global, regional and domestic satellite services, including, without limitation, maritime, aeronautical, land based communications services, radiodetermination (including radionavigation) and distress and safety services and all related and associated infrastructure wherever located. (2) To conduct, and to promote the conduct by other persons of, research and development in connection with any of the activities of the Company authorised in this Memorandum and in any other area which might benefit the business of the Company or of persons having or likely to have dealings with the Company; to establish, maintain and operate research stations, laboratories, plants, workshops, field stations, testing sites, facilities and establishments and generally to engage in research and development for the Company and for other persons and to turn to account the results thereof. (3) To provide for the benefit of other persons consultancy, advisory, training and management services concerning or connected with anything that the Company does in the exercise of its powers or has power to do, or in which the Company has gained or developed expertise in the course of its business, and to provide training and educational courses, instruction, documentation and material for employees of the Company and for other persons in matters which in the opinion of the Company are connected with, or concern or are of benefit to, the businesses and activities of the Company or which utilize the Company's communications systems or services. (4) To accept, design, display, publish, broadcast, transmit, distribute or reproduce in any form whatsoever advertisements and publicity and promotional material of the Company; to acquire, dispose of and use advertising time and space in any media; to develop, produce and undertake advertising, publicity and promotional campaigns and competitions for itself; and to undertake, promote and sponsor any product, service, event, individual or publication which in the opinion of the Company will promote, advance or publicise any activity of the Company. (5) To invent, design, develop, construct, manufacture, produce, erect, assemble, test, import, export, alter, install, maintain, repair, renovate, refurbish, recondition, utilise, operate, manage, purchase, sell, hire, hire out, supply and otherwise deal in all kinds of equipment, apparatus, plant, machinery, appliances, articles, things, accessories, components, fittings, tools, materials, substances, products, computers, computer programs and software which are required or are likely to be required by the Company or other persons for the purposes of, or in connection with, any of the businesses of the Company or which in the opinion of the Company may be conveniently or advantageously dealt with by the Company in connection or association with any of its objects or the objects of any of its subsidiaries. (6) To represent persons at meetings of local, national and international organisations and bodies concerned with activities connected or associated with any of the businesses of the Company, to provide services of all kinds to such organisations and bodies and to negotiate and enter into national and international agreements and standards relating to matters of concern or interest to the Company or persons represented by, or having dealings with, the Company. (7) To carry on all or any of the businesses of, and provide services associated with, engineers (including without limitation, telecommunications, mechanical, chemical, electrical, civil, heating and ventilation engineers). (8) To purchase, take on lease or otherwise acquire, or occupy, any estates, lands, buildings, easements or other interests in, or rights or privileges relating to, real estate; to purchase, take on lease or otherwise acquire and exploit natural resources of any kind, and to occupy, build, construct, erect, develop, design, equip, execute, carry out, demolish, reconstruct, adapt, improve, work, maintain, repair, renovate, administer, manage or control offices, exchanges of any kind, telecommunication systems, repeater stations, radio stations, satellite tracking stations, earth stations, warehouses, depots, works, plants, factories, garages, motor vehicle workshops, jetties, roads, railways, wharves, piers, docks, towers, retail premises, dwellings and other building structures, erections, installations or facilities of all kinds, whether for the purposes of the 2 Company or for sale, letting or hiring to others or for any other purpose, and to contribute to or assist in (financially or otherwise) or carry out any part of any such operation, and to purchase, take on lease, or otherwise acquire personal property of all kinds, and to sell, let on lease or otherwise dispose of, or grant rights over, or develop or exploit, the whole or any part of any real or personal property belonging to the Company or in respect of which the Company has any interest or which may be of benefit to the Company or any such property in which the Company has no interest but which may conveniently or advantageously be developed or turned to account with real or personal property in respect of which the Company does have an interest. (9) To apply for and take out, purchase or otherwise acquire any patents, patent rights, inventions, secret processes, designs, copyrights, trade marks, service marks, commercial names and designations, formulae, licences, concessions and the like (and any interest therein) or any exclusive or non exclusive or limited right to use, or any secret or other information as to, any invention or secret process of any kind and to use, exercise, develop, or grant licences in respect of, or otherwise turn to account or deal with, the property, rights or information so acquired. (10) To borrow or raise money or secure or discharge any debt or obligation (whether of the Company or of any other person) in such manner as may be thought fit by the Company and in particular (but without prejudice to the generality of the foregoing) by the issue of securities of any kind or mortgages or charges (fixed or floating) founded or based upon all or any part of the undertaking, property, assets and rights (present and future) of the Company including its uncalled capital or without any such security and upon such terms as to priority or otherwise as the Company shall think fit; and to receive money on deposit and advance payments with or without allowance of interest thereon. (11) To enter into any guarantee, contract of indemnity or suretyship and in particular (without prejudice to the generality of the foregoing) to guarantee, support or secure, with or without consideration, whether by personal obligation or by mortgaging or charging all or any part of the undertaking, property and assets (present and future) and uncalled capital of the Company or by both such methods or in any other manner, the performance of any contracts, obligations or commitments of, and the repayment or payment of the principal amounts of and any premiums, interest, dividends and other moneys payable on or in respect of any securities or liabilities of, any person, including (without prejudice to the generality of the foregoing) any company which is for the time being a subsidiary or a holding company of the Company or another subsidiary of a holding company of the Company or otherwise associated with the Company and whether or not any consideration or advantage is received by the Company. (12) To advance, lend or deposit money, and to give credit or financial accommodation to any person with or without taking any security therefor and upon such other terms as 3 may be thought fit by the Company. (13) To subscribe, underwrite, purchase or otherwise acquire, and to accept, take, hold, charge, mortgage, sell, dispose of and deal with, any obligations, securities or other investments of any nature whatsoever and any options or rights in respect thereof, and to buy, sell, deal in and invest in foreign currencies and exchange. (14) To draw, accept, make, endorse, discount, negotiate, execute, issue, buy, sell and deal in bills of exchange, cheques and promissory notes and other negotiable or transferable instruments. (15) To accept securities of any person or any property or interest therein of whatsoever nature in payment or part payment for any services rendered or for any sale or supply made to, or debt owing from, any such person. (16) To insure any property, asset, matter or interest and against any potential liability or loss of the Company or of any other person and the life or health of any person for the benefit of the Company. (17) To apply for, secure, acquire by grant, legislative enactment, assignment, transfer, purchase or otherwise, and to exercise, carry out and enjoy, any licence, franchise, concession, right, privilege, authority, charter or power which any person may be empowered to grant; and to pay for, aid in and contribute towards carrying the same into effect and do all things required of the Company thereunder. (18) To apply for, promote and obtain (alone or with others) any statute, order, by-law, charter, regulation or other authorisation or enactment which may seem calculated directly or indirectly to benefit the Company and (alone or with others) to oppose any bills, proceedings or applications which may seem calculated or likely directly or indirectly to prejudice the interests of the Company or persons having dealings with the Company. (19) To sell, dispose of or transfer the business, property and undertaking of the Company or any asset or part thereof for any consideration which the Company may see fit to accept, and in particular (but without prejudice to the generality of the foregoing) to sell or otherwise dispose of any of the debts due or to become due to the Company to factors or others for collection and to act as agents for such factors or others in the collection of debts so sold and to enter into any obligations or recourse or otherwise in connection therewith. (20) To promote, establish, acquire, subscribe to or take any interest in, alone or with others, any company, body corporate, fund, trust, or other person or body of persons whether incorporated or not incorporated and whether or not having objects similar to 4 those of the Company; to purchase or otherwise acquire all or any of the business, property and liabilities of any person carrying on a business including all or any part of the purposes within the objects of the Company or a business which in the opinion of the Company may be conveniently or advantageously carried on by the Company or a business having rights in assets the acquisition of which is in the Company likely to be in its interests, and to conduct, carry on and expand or liquidate and wind up any such business. (21) To enter into and carry into effect any arrangement for partnership or joint working in business or for the sharing of profits or for amalgamation with any other person. (22) To establish agencies and local boards in the United Kingdom and elsewhere in any part of the world and to regulate and discontinue the same; to procure the registration, incorporation or recognition of the Company in, or under the laws of, any place outside England. (23) To establish, purchase, maintain and contribute to any pension, superannuation, retirement, redundancy, injury, death benefit or insurance funds, trusts, schemes or policies for the benefit of, and to give or procure the giving of pensions, annuities, allowances, gratuities, donations, emoluments, benefits of any description (whether in kind or otherwise), incentives, bonuses, assistance (whether financial or otherwise) and accommodation in such manner and on such terms as it thinks fit to, and to make payments for or towards the insurance of, any individuals who are or were at any time in the employment of, or directors or officers of (or held comparable or equivalent office in), or acted as consultants or advisers to or agents for, the Company or any company which is its holding company or is a subsidiary of the Company or any such holding company, or any person to whose business the Company or any subsidiary of the Company is, in whole or in part, a successor directly or indirectly or any person which is otherwise allied to or associated with the Company and to other individuals whose service has been of benefit to the Company or who the Company considers have a moral claim on the Company, and the spouses, widows, widowers, families and dependents of any such individuals as aforesaid, and to establish, provide, manage and maintain and provide financial assistance to welfare, sports and social facilities, associations, clubs, funds and institutions which the Company considers likely to benefit or further the interests of any of the aforementioned individuals and spouses, widows, widowers, families and dependents of any such aforementioned individuals, and to manage, maintain, support and provide financial assistance to any such facility, association, club, fund or institution which has been established, provided for, managed, maintained, supported or subscribed to by any person to whose business the Company or any subsidiary of the Company is, in whole or in part, a successor. (24) To establish, contribute to, maintain, advise and assist schemes for the acquisition by employees, former employees and directors or by trustees of shares in the Company or 5 its holding company to be held by or for the benefit of such employees, former employees and directors as aforesaid of the Company or of any of the Company's subsidiaries or its holding company or of any subsidiaries of its holding company and to lend money to any such employees, former employees and directors to enable them to acquire shares in the Company or in its holding company and to establish, implement and assist (financially or otherwise) the administration and running of any schemes for sharing profits of the Company or any other such company as aforesaid with any such employees, former employees and directors. (25) From time to time to subscribe or contribute (in cash or in kind) to, or to promote, any charitable, benevolent or useful object of a public character or any object which may in the opinion of the Company be likely directly or indirectly to further the interests of the Company, its employees or its members. (26) To do all or any of the matters hereby authorised in any part of the world either alone or in conjunction with, or as factors, contractors, trustees, principals or agents for, any other persons, or by or through factors, trustees or agents, and to act as directors of or secretary, manager, registrar, or transfer agent for, or adviser or consultant to, any person, and to act as trustees of any kind and to undertake and execute any trust. (27) To pay and discharge all or any expenses, costs and disbursements, to pay commissions and to remunerate any person for services rendered or to be rendered in connection with the formation, promotion and flotation of the Company and the underwriting or placing or issue at any time of any securities of the Company or of any other person. (28) To issue, allot and grant options over securities of the Company for cash or otherwise or in payment or part payment for any real or personal property or rights therein purchased or otherwise acquired by the Company or any services rendered to, or at the request of, or for the benefit of, the Company or as security for, or indemnity for, or towards satisfaction of, any liability or obligation undertaken or agreed to be undertaken by or for the benefit of the Company, for any obligation (even if less than the nominal value of such securities) or for any other purpose. (29) To invest the moneys and utilise the property and assets of the Company not immediately required in such a manner as the Company may from time to time determine. (30) To distribute in specie or otherwise by way of dividend or bonus or reduction of capital all or any of the property or assets of the Company among its members and particularly, but without prejudice to the generality of the foregoing, securities of any other company formed to take over the whole or any part of the assets or liabilities of the Company or any proceeds of sale or other disposal of any property or assets of the Company. 6 (31) Generally to do all such other things as in the opinion of the Company are or may be incidental or conducive to the attainment of the above objects or any of them. 4. The liability of the members shall be limited to the paid-up value of their shares. 5. The authorised share capital of the Company is (pound)100,000,000 divided into 100,000,000 ordinary shares of (pound)1 each. The issued share capital is (pound)100,000,000 divided into 100,000,000 ordinary shares of (pound)1 each. The Company shall have the power from time to time to divide the original or any increased capital into classes, and to attach thereto any preferential, deferred, qualified or other special rights, privileges, restrictions and conditions. 6. It is hereby declared that in this Memorandum: (a) The expressions subsidiary and subsidiary undertaking shall in this Memorandum bear the meanings given to them in the Companies Act 1985 (as amended). (b) References to person or persons shall where the context permits include but not be limited to individuals, firms, partnerships, companies, corporations, governments, and other authorities or agencies supreme, municipal, local or otherwise, undertakings, societies, clubs, associations, organisations (local, national and international), statutory, public and other bodies (and outside the United Kingdom their equivalent) and any legal entity whether or not incorporated. (c) References to securities shall where the context permits include but not be limited to any fully, partly or nil paid or no par value share, stock, unit, debenture, debenture or loan stock (perpetual or terminable), bond, deposit receipt, bill, note, warrant, coupon, right to subscribe or convert, or similar right or obligation. (d) References to and and or shall mean and/or where the context so permits. (e) References to other and otherwise shall not be construed ejusdem generis where a wider construction is possible. (f) The Organization means the International Mobile Satellite Organization (formerly known as the International Maritime Satellite Organization) established by the Convention. (g) Convention means the Convention (as amended) on the International Mobile Satellite Organization which entered into force on 16 July 1979. (h) GMDSS means Global Meantime Distress and Safety System as established by the 7 International Maritime Organization. 7(1) In carrying out its objects as specified in Clause 3, the Company shall have regard to the following basic principles: (a) ensuring the continued provision of global maritime distress and safety satellite communications services, in particular those which are specified in the International Convention for the Safety of Life at Sea, 1974, as amended from time to time, and the Radio Regulations annexed to the International Telecommunication Constitution and Convention, as amended from time to time, relative to the GMDSS; (b) providing services without discrimination on the basis of nationality. Notwithstanding the foregoing, the Company shall have the right to offer different charges for the same service in defined geographical regions in which end-user calls or messages originate or terminate and which are technically verifiable; (c) acting exclusively for peaceful purposes, taking into account the past practices of the Organization and the practice of the Company; (d) seeking to serve all areas where there is a need for mobile satellite communications, giving due consideration to the rural and the remote areas of developing countries; and (e) operating in a manner consistent with fair competition, subject to applicable laws and regulations. 8 EX-27 4 FDS --
5 This schedule contains summary financial information extracted from the financial statements for six months ended June 30, 1999 and is qualified in its entirety by reference to such financial statements. 0000022698 COMSAT Corporation 1,000 U.S. Dollars Year Dec-31-1999 Jan-01-1999 Jun-30-1999 1 60,401 0 140,575 0 0 236,976 2,063,571 1,128,765 1,682,920 181,154 379,376 0 0 435,491 170,071 1,682,920 0 300,466 0 163,573 106,168 0 19,382 42,496 18,501 23,995 0 0 0 23,995 0.46 0.45
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