Mr. SUNDLUN. That is clearly the expectation of the Congress. The CHAIRMAN. Clearly the expectation of the Congress and, therefore, the bylaws are clearly in violation of this expectation, are they not?

Mr. SUNDLUN. I would not feel that they were, sir; and I would submit, respectfully, sir, that had we written the language you suggest, into the articles and the bylaws it would have gone beyond the act, in that it would be mandatory where the act is merely permissive. The CHAIRMAN. Will they have contravened the purposes of the act? Mr. SUNDLUN. That is a matter of judgment which I can only render a personal observation on. In my opinion, it is not possible either through the statute or by corporate articles to compel the carriers or anyone else to spend their money to buy stock in this corporation.

The CHAIRMAN. Did you have legal advice that you could not write in there a requirement that the carriers must purchase as much as the public purchases? You have a provision in there that they can buy as much as the public. Did you ever consider in return for that permission that they could be required to buy as much as the public? If you have an attorney here who wants to testify on that legal point, fine. I am not a lawyer, but I have a great interest in these things.

Would you identify the lawyer for the record, please?

Mr. SUNDLUN. Yes, sir. The attorney is Lloyd N. Cutler, a member of the bar of the District of Columbia.

The CHAIRMAN. Were you the one, was it your firm, who drew the original draft?

Mr. CUTLER. Yes, sir; it was, Mr. Chairman.

The CHAIRMAN. And submitted it to American Telephone & Telegraph and the other carriers?

Mr. CUTLER. We submitted it to the incorporators, who submitted it to the Government, and to counsel for the carriers.

The CHAIRMAN. Was it your view that putting in a requirement that the carriers in return for electing six directors would have to put up as much money as the public would put up in electing six directors would violate the act?

Mr. CUTLER. It is our judgment that it would violate section 303 (a). The CHAIRMAN. Read the section, please.

Mr. CUTLER. I would refer you to section 303 (a) on page 5 of the printed public law of the act; it is the third sentence of 303 (a) reading:

Six members of the board shall be elected annually by those stockholders who are communications common carriers and six shall be elected annually by the other stockholders of the corporation.

The CHAIRMAN. You would not sit here and tell this committee that you thought that sentence prevented the corporation from having a requirement that the carriers would have to buy as much stock as the public buys, would you?

Mr. CUTLER. I believe that sentence, sir, does prevent the incorporators from putting into the articles something contrary to the express language of the sentence.

The CHAIRMAN. It says how many directors they can elect; it does not say how much stock they can own. Isn't it possible in forming a

corporation that you could specify that a man has to own a thousand shares of stock in order to be a director?

Mr. CUTLER. But we felt that we could not very well specify how many shares the carriers must own to elect a director.

The CHAIRMAN. You mean you cannot specify how many shares he has to own to be a director? I get a form every once in a while from a company in which I am a director which makes me specify that a director has to own a certain amount of stock. Is that contrary to the law?

Mr. CUTLER. Mr. Chairman, may I also refer you to section 304 (b) (2), and the last sentence saying that

At no time after the initial issue is completed shall the aggregate of the shares of voting stock of the corporation owned by authorized carriers directly or indirectly through subsidiaries or affiliated companies, nominees, or any persons subject to their direction or control exceed 50 percent of such shares issued and outstanding.

The CHAIRMAN. You are not going to contend that does it, are you, as a lawyer?

Mr. CUTLER. As a lawyer, sir, and I might add that these articles have been approved by the Attorney General as reasonably designed

to

The CHAIRMAN. Well, Mr. Katzenbach

Mr. CUTLER (Continuing). To carry out the purposes of the act.

The CHAIRMAN. Mr. Katzenbach came before us and testified that he had never seen a proposal like this in his whole life. We asked him if he had ever seen a corporation in which one man might have one amount of stock and another man have another amount of stock in which each man could elect six directors. He said he had never seen anything like it.

Have you ever seen anything like this in your practice?

Mr. CUTLER. Yes, sir.

The CHAIRMAN. Where one person has an option to buy one-halfMr. CUTLER. Yes, sir. The articles of the Columbia Broadcasting System provided substantially that, until recently.

I hope you will understand, Mr. Chairman, I am not trying to express an opinion on the merits of this provision. We felt ourselves confined by the wording of the act. It may be that

The CHAIRMAN. Do you feel you were confined to give the carriers an option to buy up to a half, but not a requirement to buy anything? Mr. CUTLER. Yes, sir.

The CHAIRMAN. They could own one share of stock.

Mr. CUTLER. We did do this, Mr. Chairman, we did not give the carriers a permanent option to buy half.

MEANING OF WORD "RESERVE"

The CHAIRMAN. I asked about this word "reserve." What do you think it means?

Mr. CUTLER. We construe it as meaning only that when the corporation offers shares to be purchased on the terms set by the corporation, the carriers will have the right to buy 50 percent of the shares so offered.

The CHAIRMAN. And no obligation to buy any more than $100 worth.

Mr. CUTLER. If they do not buy any they lose their right, and those shares can be sold to the public. They do not have any indefinite right to buy shares.

The CHAIRMAN. I realize the great disadvantage I have in arguing with a lawyer and not being one.

Senator KEATING. You are doing all right.

"STATUTE OF LIMITATIONS" IMPOSED BY INCORPORATORS

The CHAIRMAN. The language is reasonably plain. Section 304 (b) (2) says that it shall be reserved for the purchase by authorized

carriers.

Do you find a statute of limitations in there?

Mr. CUTLER. We imposed a statute of limitations.

The CHAIRMAN. You impose it by what authority?

Mr. CUTLER. We construed that provision to mean that the carriers were to be given an opportunity to buy. If they did not buy they lose their right to buy. The carriers agreed to that interpretation.

The CHAIRMAN. Will you point to the language that says that. There are certain lands in the United States that have been reserved for public use. If the United States does not move onto them do you contend that it loses them?

Mr. CUTLER. We construed that as a first option, and the carriers themselves agreed with that interpretation, and the Attorney General agreed with it, and it is now incorporated in our articles in section 5.03 (d) on page 12 of the printed articles.

The CHAIRMAN. Well, what you are trying to say is that you took this to mean a limited option?

Mr. CUTLER. Yes, sir.

The CHAIRMAN. And the language of the law is an unrestricted option. Didn't you rewrite what Congress had written?

Mr. CUTLER. We did not believe we did, sir, and the Attorney General agreed with us. We did not believe

The CHAIRMAN. Are you referring to Mr. Kennedy now or Mr. Katzenbach?

Mr. CUTLER. Mr. Kennedy, on the advice of Mr. Katzenbach. We did not believe, sir, that you would have meant to give the carriers a permanent unrestricted option, and they agreed with that. We have provided that in this section 5.03 (d) that I mentioned, that when we make an offering we will give the carriers an opportunity to buy half. If they do not buy within the time specified in that offer we may then reoffer those same shares to the members of the public, not the carriers.

The CHAIRMAN. Yes. You did give the public a good chance to get its money in this, but you did not require the carriers to.

Mr. CUTLER. We saw no way under the act, sir, to require the carriers to buy. In the unlikely event that the carriers do not buy their full half we would then have the question presented whether the law should be changed to require that the carriers cannot have equal representation on the board. That would be a question for this committee and the Congress to decide.

The CHAIRMAN. You do not feel there should be any requirement that if one man is going to have six directors and the other is going

to have six directors that subscriptions to stock should be somewhat parallel or equivalent?

Mr. CUTLER. I personally think, sir, that makes a good deal of sense. But I think it is a matter for the Congress to decide in the legislation. The CHAIRMAN. You do not think the Congress thought it decided it?

Mr. CUTLER. I do not believe so, sir.

The CHAIRMAN. Did you examine the extensive Senate debate on this?

Mr. CUTLER. Yes, sir. We examined everything we could, and we were fully aware of this issue, Mr. Chairman, and debated it at great length, but felt we had no alternative.

The CHAIRMAN. Do you think if it was brought out on the floor of the Senate that the carrier, by putting up $1,000 could get what the public would get by putting up $500 million, that the filibuster might have gone on a little longer?

Mr. CUTLER. Yes, sir. I believe, however, that it was brought out in the debate.

Secretary SYMINGTON. If the chairman would yield, when you studied this, Mr. Cutler, did you point out to the incorporators, the public reaction that might result from your interpretation?

Mr. CUTLER. We discussed, Senator Symington, I think, all aspects of this problem.

Senator SYMINGTON. Thank you, Mr. Chairman.

COMMUNICATIONS SATELLITE R. & D. REQUEST FOR NASA

The CHAIRMAN. I am not going to take up all the time this morning. I do want to ask just a couple of other questions on another matter, Mr. Sundlun, and I will get on.

The budget for fiscal year 1964 carries $55,771,000 for research and development for communications satellites. Would any of that be for, or would any of that expenditure inure to, the benefit of the satellite corporation which has been formed and of which you are an incorporator?

Mr. SUNDLUN. It will be a matter for the Congress to determine whether that money is appropriated or not.

The CHAIRMAN. I will change the question in view of that answer and ask it again. If it should happen that the money is appropriated, $55 million, would the money so appropriated inure to the benefit of the corporation of which you are an incorporator?

Mr. SUNDLUN. Without making a careful study of what it is that we are talking about within those budgetary matters that you make reference to, sir, I do not know, honestly, how we can be prepared to answer that.

The CHAIRMAN. Would you state that no member of the satellite corporation has made a careful study of the amounts of money for communication satellite research that are in the budget request of NASA for fiscal year 1964?

Mr. SUNDLUN. We were informed at the Commerce Committee hearing of the fact that there had been a request from NASA, which has thus been brought to our attention. We consider that this entire subject of research and development is one of the highest priority

subjects to which our management must address itself as soon as it is formed.

The CHAIRMAN. I do not believe that quite answers the question, does it?

The provision in the Satellite Corporation Act says NASA will cooperate with the corporation research and development to the extent deemed appropriate by the administration in the public interest.

Do you think this $55 million is deemed appropriate this year? Mr. SUNDLUN. Without knowing and carefully studying what is involved in that $50 million, sir, to what it is addressed and what it is not addressed, which would require a fairly detailed study by technically competent people, we would be guessing on that.

The CHAIRMAN. Well, has there been any effort made by the satellite corporation to deal with NASA and find out whether this is of benefit to you?

Mr. SUNDLUN. As I stated in my prepared statement, we did receive briefings from NASA, and it was clear from the statement made by representatives of NASA at those briefings that they looked forward to cooperating and participating with us on research and development questions.

In direct answer to your question I do not think that there have as yet been any formal meetings or discussions in depth with NASA by our management as to the details of how this corporation provided for under the statute is to be implemented, what particularly it is to cover and not cover. Obviously the ultimate decision lies with the administration and the Congress to determine what is and is not in the national interest under the language of the act.

The CHAIRMAN. Well, before long, this committee and another committee will be considering authorizing and appropriating $41,145,000 for a system called SYNCOM. Is that of interest to this corporation?

Mr. SUNDLUN. Senator, is it fair for me to interpret your question as going directly to the subject that we are well aware of and that is this continued contribution of the Government in research and development, and if

The CHAIRMAN. We have already established by the questions this morning that the corporation incorporators feel that the communication carriers could put up $500 and the public put up $500 million. I wonder if the taxpayers are going to come up and put up $250 or $300 million a year besides? How long do you think it will be before the corporation starts putting up a little of its own money?

Mr. SUNDLUN. Can I, if I might, sir, anticipating a question on this research subject, read to you a statement which does represent the position of the incorporators?

The CHAIRMAN. It would be very helpful, I am sure.

INCORPORATORS STATEMENT ON R. & D. HELP FROM THE GOVERNMENT

Mr. SUNDLUN. Mr. Chairman, we have been enormously busy with the organizational stages of our work, and have not engaged in extensive discussions or reached any decision with regard to operational matters, such as the corporation's research and development program. As a result of recent hearings before the Communications Subcom