No stockholder who is a communications common carrier and no trustee for such a stockholder shall vote, either directly or indirectly, through the votes of subsidiaries or affiliated companies, nominees, or any persons subject to his direction or control, for more than three candidates for membership on the board, except that in the event the number of shares of the voting capital stock of the corporation issued and outstanding and owned either directly or indirectly by communications common carriers as of the record date for the annual meeting is less than 8 per centum of the total number of shares of the voting capital stock of the corporation issued and outstanding, any stockholder who is a (communications common carrier shall be entitled to vote at such meeting for candidates for membership on the board in the same manner as all other stockholders. Subject to the foregoing limitations, the articles of incorporation of the corporation shall provide for cumulative voting under section 27 (d) of the District of Columbia Business Corporation Act (D.C. Code, sec. 29-911(d)). The articles of incorporation of the corporation may be amended, altered, changed, or repealed by a vote of not less than 66% per centum of the outstanding shares of the voting capital stock of the corporation owned by stockholders who are communications common carriers and by stockholders who are not communications common carriers, voting together, if such vote complies with all other requirements of this Act and of the articles of incorporation of the corporation with respect to the amendment, alteration, change, or repeal of such articles. The corporatio may adopt such by-laws as shall, notwithstanding the provisions of section 3 of the District of Columbia Business Corporation Act (D.C. Code, sec. 29-916d provide in the event of a national emergency for the continued ability of th board to transact business." SEC. 2. As promptly as the board of directors of the Communications Satellit Corporation shall determine to be practical after the date of the enactment this Act, a meeting of the stockholders of the corporation shall be called for th purpose of electing twelve members of the board in accordance with subsectio (a) of section 303 of the Communications Satellite Act of 1962 as amended b the first section of this Act. The members of the board elected at such meetin shall serve until the next annual meeting of stockholders or until their successor have been elected and qualified. SEC. 3. The status and authority of the members of the board of directors o the Communications Satellite Corporation who were elected to the board befor the date of the enactment of this Act and who are serving as members of the boar on such date shall not be in any way impaired or affected until their successor have been elected and qualified in accordance with section 2 of this Act. [S. 17, 91st Cong., first sess.] AN ACT To amend the Communications Satellite Act of 1962 with respect to the election of the boar of the Communications Satellite Corporation Be it enacted by the Senate and House of Representatives of the United States o America in Congress assembled, That section 303(a) of the Communication Satellite Act of 1962 (47 U.S.C. 733(a)) is amended to read as follows: "SEC. 303. (a) The corporation shall have a board of directors consisting o fifteen individuals who are citizens of the United States, of whom one shall b elected annually by the board to serve as chairman. Three members of the boar shall be appointed by the President of the United States, by and with the advic and consent of the Senate, effective the date on which the other members ar are elected, and for terms of three years or until their successors have been ap pointed and qualified, and any member so appointed to fill a vacancy shall b appointed only for the unexpired term of the director whom he succeeds. Th remaining twelve members of the board shall be elected annually by the stock holders. Six of such members shall be elected by those stockholders who are no communications common carriers, and the remaining six such members shall be elected by the stockholders who are communications common carriers, excep that if the number of shares of the voting capital stock of the corporation issue and outstadning and owned either directly or indirectly by communications com mon carriers as of the record date for the annual meeting of stockholders is les than 45 per centum of the total number of shares of the voting capital stock o the corporation issued and outstanding, the number of members to be elected at such meeting by each group of stockholders shall be determined in accordance with the following table: No stockholder who is a communications common carrier and no trustee for such a stockholder shall vote, either directly or indirectly, through the votes of subsidiaries or affiliated companies, nominees, or any persons subject to his direction or control, for more than three candidates for membership on the board, except that in the event the number of shares of the voting capital stock of the corporation issued and outstanding and owned either directly or indirectly by communications common carriers as of the record date for the annual meeting is less than 8 per centum of the total number of shares of the voting capital stock of the corporation issued and outstanding, any stockholder who is a communications common carrier shall be entitled to vote at such meeting for candidates for membership on the board in the same manner as all other stockholders. Subject to the foregoing limitations, the articles of incorporation of the corporation shall provide for cumulative voting under section 27(d) of the District of Columbia Business Corporation Act (D.C. Code, sec. 29-911(d)). The articles of incorporation of the corporation may be amended, altered, changed, or repealed by a vote of not less than 66% per centum of the outstanding shares of the voting capital stock of the corporation owned by stockholders who are communications common carriers and by stockholders who are not communications common carriers, voting together, provided that such vote complies with all other requirements of this Act and of the articles of incorporation of the corporation with respect to the amendment, alteration, change, or repeal of such articles. The corporation may adopt such bylaws as shall, notwithstanding the provisions of section 36 of the District of Columbia Business Corporation Act (D.C. Code, sec. 29-916d), provide in the event of a national emergency for the continued ability of the board to transact business." SEC. 2. As promptly as the board of directors of the Communications Satellite Corporation shall determine to be practical after this Act takes effect, a meeting of the stockholders of the corporation shall be called for the purpose of electing twelve members of the board in accordance with section 1 of this Act. The members of the board elected at such meeting shall serve until the next annual meeting of stockholders or until their successors have been elected and qualified. SEC. 3. The status and authority of the members of the board of the Communications Satellite Corporation who were elected in conformity with the provisions of the Communications Satellite Act of 1962 prior to amendment by this Act and who are serving when this Act takes effect shall not be in any way impaired or affected until their sucessors have been elected and qualified in accordance with section 2 of this Act. Passed the Senate January 31, 1969. FRANCIS R. VALEO, Secretary. FEDERAL COMMUNICATIONS COMMISSION, Hon. HARLEY O. STAGGERS, Chairman, Committee on Interstate and Foreign Commerce, House of Representatives, Washington, D.C. DEAR MR. CHAIRMAN: This refers to your letter of February 12, 1969 requesting the Commission's views on H.R. 4214, a bill to amend the Communications Satellite Act of 1962 with respect to the election of the board of the Communications Satellite Corporation. Basically, H.R. 4214 would amend section 303(a) of the Communications Satellite Act of 1962 to provide that the number of future directors of ComSat elected by common carrier stockholders will be reduced as carrier ownership of voting capital stock falls below 50% and will be based on the aggregate ComSat voting capital stock owned by such carriers. In thus attempts to create a more equitable voting formula for the election of directors as between private and common carrier stockholders. In addition, the bill contains a provision explaining the procedure and vote necessary to amend the articles of incorporation. Section I of the bill also seeks authority to change the Corporation's existing by-laws to enable it to conduct its business, in the event of a national emergency, without a quorum of directors present. Section 303(a) of the Communications Satellite Act presently provides for appointment of three directors by the President and election of 12 directors by vote of the stockholders. Six of the 12 elected directors are elected by stockholders who are communications common carriers. The remaining six are elected by the non-carrier stockholders. Initially 50% of the voting stock was reserved for purchase by communications common carriers. At no time shall communications common carriers own in excess of 50% of the outstanding stock of ComSat which has voting rights. The carriers initially purchased the full 50% of the stock to which they were entitled. Implicit in the Communications Satellite Act is the assumption that communications common carriers would at all times exercise their right to own 50% of the outstanding voting stock of ComSat. However, as of December of 1968 the carriers had reduced their aggregate holdings to approximarely 38% of the total voting stock. As the Act stands now the carriers are still entitled to elect 50% of the elective board of directors of the Corporation. The fact that this 50% ownership expectation has not been realized is a valid reason for the proposed amendment. The Commission agrees that at some point when carrier ownership of capital stock falls below 50%, this stockholder group should be entitled to elect fewer than six members of the board of directors, and that the remaining stockholders should be entitled to elect a correspondingly increased number of directors in excess of six. H.R. 4214 contains a formula proposed to be introduced into section 303 (a) of the Communications Satellite Act which changes the number of directors to be elected by each group of stockholders of ComSat as the proportion of outstanding stock held by carriers falls below 50%. As you know, this formula is almost identical to one proposed for consideration in the original bill (H.R. 11040) considered by the House in 1962. The only difference is that H.R. 11040 did not require the complete elimination of carrier representation when their aggregate holdings fell below 8%. In the course of Senate confirmation hearings the proposed incorporators of the Corporation represented that should disparate board representation occur, corrective legislation would be offered. By requesting enactment of H.R. 4214, ComSat is fulfilling its promise made at that time. Enactment of H.R. 4214 will ensure that the public's interests will be proportionately represented on the ComSat board of directors. I therefore wholeheartedly urge that this legislative proposal be enacted into law. The Bureau of the Budget advises that there is no objection to the submission of this report from the standpoint of the Administration's program. Sincerely yours, ROSEL H. HYDE, Chairman. SECURITIES AND EXCHANGE COMMISSION, Re H.R. 4214 and S. 17, 91st Congress. Chairman, Committee on Interstate and Foreign Commerce, DEAR MR. CHAIRMAN: In response to your letter of February 12, 1969, requesting the Commission's views on H.R. 4214, we have examined the bill, together with S.17 which appears to be substantially identical to the House bill and which, we understand, was passed by the Senate and is now before your Committee. Neither of these bills would appear to affect the Commission's administration of the federal securities laws. Accordingly, the Commission has no comment on these bills. Sincerely, MANUEL F. COHEN, Chairman. The CHAIRMAN. These bills would amend the Communications Satellite Act of 1962 so as to- (1) Assure, insofar as possible, that the board of directors of Comsat reflects the relative stockholdings of communications common carriers and of noncommunications common carriers; (2) Clarify the act by specifying that Comsat's articles of incorporation may be amended by a vote of two-thirds or more of all outstanding shares voting as a single class; and (3) Permit Comsat to adopt bylaws which would allow its board of directors to transact business in the event of a national emergency. The board of directors of Comsat consists of 15 members. Three members are appointed by the President of the United States by and with the advice and consent of the Senate for terms of 3 years. The other 12 members are elected annually by Comsat stockholders. Under existing law, six members are elected by stockholders who are communications common carriers, and six are elected by stockholders who are not communications common carriers, regardless of the relative stockholdings of the two groups. In 1962, the House version (H.R. 11040, 87th Cong.) of the legislation which became the Communications Satellite Act of 1962, provided that the communications common carriers representation on the board of directors would be relative to their ownership of stock in Comsat. Those provisions were not in the legislation as it was finally enacted. The bills before us would almost take us back to the original House version by establishing a formula to relate the number of Comsat directors elected by carriers and noncarriers to their respective Comsat stockownership. Originally the communications common carriers owned about 50 percent of Comsat's stock, but they have reduced their holdings until now they own approximately 38 percent of Comsat stock. A bill similar to those now before us was introduced in the last Congress but because of the pressure of other business was not acted upon. I understand that there is no opposition to these bills and that the management of Comsat is very desirous of early action on them so that they will not have to call an extra stockholders meeting which would entail considerable expense to the Corporation. Our first witness is Mr. James McCormack, chairman of the Communications Satellite Corp. Mr. McCormack, would you take the stand, please, identify yourself and the gentleman you have with you for the record, please. You may proceed. 26-211-69- -2 STATEMENT OF JAMES MCCORMACK, CHAIRMAN, COMMUNICATIONS SATELLITE CORP.; ACCOMPANIED BY DAVID C. ACHESON, VICE PRESIDENT AND GENERAL COUNSEL Mr. McCORMACK. Thank you, Mr. Chairman. I am James McCormack, chairman of Comsat. With me is Mr. David C. Acheson, general counsel. Mr. Chairman, I would like to present this in whatever way best suits the purposes of the committee. You have in fact in your opening remarks made the principal points. if The CHAIRMAN. If the gentleman will yield there, I might say that you have a prepared statement of any length, if you would care to insert it in the record and summarize it, it would be fine with the committee, I am sure. Mr. McCORMACK. All right, sir. We will do that. (Mr. McCormack's prepared statement follows:) STATEMENT OF JAMES MCCORMACK, CHAIRMAN, COMMUNICATIONS SATELLITE CORP. I am James McCormack, Chairman of the Communications Satellite Corporation. We appreciate this early opportunity to appear here and urge favorable action on H.R. 4214 and S. 17, companion bills to amend the Communications Satellite Act of 1962. The major objective of these bills is to assure that the composition of the Board of Directors of Comsat will reflect as fully as possible the relative holdings of stock by stockholders who are communications common carriers and stockholders who are not communications common carriers. This is an objective in which the Congress, the Executive Branch, the Federal Communications Commission and all the Directors of Comsat appear to share a common, favorable interest. The Satellite Act, which provided for the creation of Comsat, authorizes the Corporation to issue stock and provides that 50% of the stock authorized for issuance at any time be reserved for purchase by communications common carriers. Section 303(a) of the Act provides that the Corporation shall be managed by a 15 member Board of Directors. Three members are to be appointed by the President of the United States, by and with the advice and consent of the Senate. Of the remaining twelve members, six are to be elected annually by those stockholders who are communications common carriers and six by those stockholders who are not carriers. In February, 1963, Comsat was incorporated in the District of Columbia. Its Articles of Incorporation provided for one class of no par value common stock and its initial offering in June, 1964, consisted of 10 million shares. As the Congress had anticipated, the established carriers subscribed to 50% of the stock and the general public bought the remaining 50%. Thus, representation on the Board of carrier and non-carrier stockholders by the twelve elected directors was proportionate to the shareholdings of the two groups. The question was raised by Congress in 1962 whether carrier representation on the Board should be reduced if carrier shareholdings were to become substantially diminished. In fact, the House version of the Satellite Act contained a provision which, from the outset, would have related carrier representation on the Board to carrier shareholdings. These present bills are largely based upon the formula in the 1962 House version of the Satellite Act. The incorporators of Comsat and the Department of Justice also noted concern about the relationship of representation to ownership. Mr. Sam Harris, Vice Chairman of the incorporators, advised Senator Anderson, Chairman of the Senate Space Committee, by letter dated March 30, 1963, that the incorporators would request that the Act be amended to reduce the number of carrier directors, if 50% of the initial offering was not subscribed to by the carriers. The Department of Justice, for its part, advised Senator Anderson by letter dated April 1, 1963 that the Department would recommend such an amendment at any time when carrier shareholdings might be significantly reduced. Early in 1967, and again early in 1968, International Telephone and Telegraph Co. made sales of Comsat stock aggregating approximately one half million shares. |