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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED MARCH 31, 1996
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Commission file number 1-14180
LORAL SPACE & COMMUNICATIONS LTD.
600 Third Avenue
New York, New York 10016
Telephone: (212) 697-1105
Jurisdiction of incorporation: Bermuda
IRS identification number: 13-3867424
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Securities registered pursuant to Section 12(b) of the Act:
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NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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Common Stock, $.01 par value...................................... New York Stock Exchange
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The registrant has filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the preceding 12 months or
such shorter period. The registrant has not been subject to such filing
requirements for the past 90 days.
No disclosure of delinquent filers pursuant to Item 405 of Regulation S-K
is contained herein, and will not be contained, to the best of registrant's
knowledge, in information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K.
At May 31, 1996, 183,592,308 common shares were outstanding, and the
aggregate market value of such shares (based upon the closing price on the New
York Stock Exchange) held by non-affiliates of the registrant was approximately
$2,894,000,000.
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PART I
ITEM 1. BUSINESS
THE COMPANY
Loral Space & Communications Ltd. ("Loral SpaceCom" or the "Company")
manages and is the largest equity owner of both Globalstar, L.P. ("Globalstar")
and Space Systems/Loral, Inc. ("SS/L") (together the "Operating Affiliates").
The Company will also act as a Globalstar service provider in Canada, Brazil and
Mexico, and is evaluating additional satellite-based service opportunities.
Loral SpaceCom was formed to effectuate the distribution of Loral Corporation's
("Loral") space and telecommunications businesses (the "Distribution") to
shareholders of Loral and holders of options to purchase Loral common stock
pursuant to a merger agreement (the "Merger") dated January 7, 1996 between
Loral and Lockheed Martin Corporation ("Lockheed Martin").
Globalstar and SS/L have established strategic alliances with world-class
telecommunications service providers and equipment manufacturers and with
leading aerospace companies. In addition, the Company has established a
relationship with Lockheed Martin through which the Company and its Operating
Affiliates will have certain rights to use intellectual property and access to
research and development, technical consulting and support services.
The Company, in partnership with established international
telecommunications companies, as well as local wireless or telephone companies,
will act as a Globalstar service provider in several key territories, including
Canada, Brazil and Mexico. The Company, together with QUALCOMM Incorporated
("Qualcomm"), also has the exclusive right to provide in-flight phone service
using Globalstar in the United States.
The Company also intends to pursue additional satellite-based
communications services opportunities, including (i) CyberStar, a proposed
high-speed satellite-delivered communications system designed to provide users
with communications services such as desktop video-conferencing, high-data rate
computer networking and data transmission; (ii) domestic and international
direct broadcast services; and (iii) telecommunications satellites for voice
telephony, video teleconferencing, transmission to television networks and cable
head-ends and remote news and sports feeds.
The Distribution of approximately 183.6 million shares of Loral SpaceCom
common stock was made on April 23, 1996 (the "Distribution Date"). In connection
with the Distribution, Lockheed Martin contributed $612 million in cash to the
Company. Of the amount contributed, $344 million represented the purchase of a
20% fully-diluted equity interest in the Company in the form of Loral SpaceCom
Series A Convertible Preferred Stock. Such stock is subject to certain voting
limitations, restrictions on transfer and standstill provisions. The Company has
invested its $612 million in marketable securities pending investment in the
Company's satellite telecommunications programs and opportunities. The Company
also holds $102.5 million principal amount of Globalstar Telecommunications
Limited's ("GTL") 6 1/2% Convertible Preferred Equivalent Obligations and a
minority non-controlling equity investment in K&F Industries, Inc. ("K&F").
GLOBALSTAR
Globalstar is building and preparing to launch and operate a worldwide,
low-earth orbit ("LEO") satellite-based digital telecommunications system (the
"Globalstar(TM) System"). The Globalstar System is designed to enable local
service providers to offer low-cost, high quality wireless voice telephony and
data services in virtually every populated area of the world. The Globalstar
System's worldwide coverage is designed to enable its service providers to
extend modern telecommunications services to people who currently lack basic
telephone service and to enhance wireless telecommunications in areas
underserved or not served by existing or future cellular systems, providing a
telecommunications solution in parts of the world where the build-out of
terrestrial systems cannot be economically justified.
The Company owns, directly and indirectly, 33.7% of Globalstar's
outstanding equity and has overall management responsibility for the design,
construction, deployment and operation of the Globalstar System. A
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portion of the Company's interest in Globalstar is held through GTL, a Bermuda
company traded on the Nasdaq National Market.
Globalstar users will make and receive calls through a variety of
Globalstar phones, including hand-held and vehicle-mounted units similar to
today's cellular telephones, fixed telephones similar either to phone booths or
ordinary wireline telephones, and data terminals and facsimile machines
(collectively, the "Globalstar Phones"). Dual-mode Globalstar Phones will
provide access to both the Globalstar System and the subscriber's land-based
cellular service. Each Globalstar Phone will communicate through one or more
satellites to a local Globalstar service provider's interconnection point (known
as a gateway) which will, in turn, connect into existing telecommunications
networks.
Globalstar is on schedule to begin launching satellites in the second half
of 1997, to commence commercial operations in the second half of 1998 (the
"In-Service Date") and to have its full constellation of 48 satellites, plus
eight in-orbit spare satellites, launched by the end of 1998 (the "Full
Constellation Date"). Significant regulatory and licensing milestones have been
achieved for the Globalstar System, including allocation of required frequencies
by the Federal Communications Commission ("FCC") and the 1995 World
Radiocommunication Conference ("WRC '95"). To date, Globalstar has raised or
received commitments for approximately $1.4 billion in equity, debt and vendor
financing, representing over 75% of the total external financing expected to be
required to complete the system and to achieve worldwide operations. Globalstar
intends to raise the balance of its external financing needs in the capital
markets and may also seek financing support from its strategic partners.
Full satellite critical design review has been successfully completed,
manufacturing of long-lead-time components of the Globalstar satellites has
commenced, engineering models are under construction and the non-recurring
design phase of the satellite contract is close to completion. Definitive
agreements have been reached with three launch providers for the launch of the
full Globalstar satellite constellation. These agreements provide for a variety
of launch options, giving Globalstar considerable launch flexibility.
Internationally, Globalstar's partners have been seeking alliances in their
assigned territories with service providers and have entered into such
agreements in certain territories. Globalstar believes these relationships with
in-country service providers may facilitate the granting of local regulatory
approval for operation of the Globalstar System and provide local marketing and
technical expertise.
The Globalstar System has been designed to address the substantial and
growing demand for telecommunications services worldwide, particularly in
developing countries. More than 3 billion people today live without residential
telephone service, many of them in rural areas where the cost of installing
wireline service is prohibitively high. Moreover, even where telephone
infrastructure is available in developing countries, outdated equipment often
leads to unreliable local service and limited international access. The number
of worldwide fixed phone lines has increased from 473 million to 647 million
since 1988 and is projected to increase to one billion by 2002. Nonetheless,
since 1988, waiting lists for fixed service have increased from 36 million to 46
million, resulting in an average waiting time before installation of
approximately one and a half years. Similarly, the cellular market has grown
from 4 million worldwide subscribers in 1988 to an estimated 87 million in 1995
and is projected to increase to 334 million by 2001. At that time, it is
projected that only 40% of the world's population will live in areas with
cellular coverage. The remaining 60% of the world population will have access to
wireless telephone service principally through satellite-based systems like the
Globalstar System. Globalstar's business plan requires penetration of only a
small fraction of these potential markets to achieve its objectives.
The Globalstar System has been designed with attributes which the Company
believes compare favorably to other proposed global mobile satellite service
systems including: (i) Globalstar's unique combination of code division multiple
access ("CDMA") technology and path diversity through multiple satellite
coverage will reduce call interruptions and signal blockage from obstructions
and will use satellite power more efficiently; (ii) a proven space segment
design without complex intersatellite links or on-board call processing and a
ground segment with flexible, low-cost gateways and competitively priced
Globalstar Phones; (iii) lower average wholesale prices than other proposed
mobile satellite service ("MSS") systems; and (iv) gateways installed in most
major countries, minimizing tail charges (i.e. amounts charged by carriers other
than the
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Globalstar service provider for connecting a Globalstar call through its
network), resulting in low costs for domestic and regional calls, which will
account for the vast majority of Globalstar's anticipated usage.
Globalstar is a development stage company and has no operating history. It
has incurred net losses from inception and expects such losses to continue until
commercial service operations have commenced. Globalstar will require
expenditures of significant funds for development, construction, testing and
deployment before commercialization. Globalstar does not expect to commence
operations before 1998 or to achieve positive cash flow before 1999. There can
be no assurance that Globalstar will achieve its objectives by the target dates.
In March and April, 1996, GTL sold a total of $310,000,000 of its 6 1/2%
Convertible Preferred Equivalent Obligations due 2006 in a Rule 144A offering,
of which the Company purchased $102,500,000 principal amount. These securities
are convertible into GTL common stock at any time after 60 days from the date of
original issuance and prior to maturity at $65.00 per share. GTL utilized the
proceeds of this offering to purchase Redeemable Preferred Partnership Interests
in Globalstar, the terms of which are generally similar to those of the
securities issued in the offering, and Globalstar will use such proceeds for the
design, construction and deployment of the Globalstar System. On June 21, 1996,
GTL filed a registration statement on Form S-3 to register its 6 1/2%
Convertible Preferred Equivalent Obligations and the shares of GTL common stock
issuable upon the conversion thereof.
THE GLOBALSTAR SYSTEM
The Globalstar System is comprised of the Space Segment, consisting of 48
satellites and eight in-orbit spare satellites, and the Ground Segment
consisting of two Satellite Operations Control Centers ("SOCCs") and two Ground
Operations Control Centers ("GOCCs"), Globalstar gateways in each region served,
and mobile and fixed Globalstar Phones. Globalstar will own and operate the
satellite constellation, the SOCCs and the GOCCs, as well as one gateway; the
remaining elements of the system will be owned by Globalstar's service providers
and their subscribers. The descriptions of the Globalstar System are based upon
current design and are subject to modification in light of future technical and
regulatory developments.
Globalstar's most important service will be voice telephony service, which
Globalstar expects to offer through telephone booth-like installations and other
fixed telephones located in areas without any landline or cellular telephone
coverage, and through hand-held and vehicle-mounted units, similar to existing
cellular telephones. Globalstar is also expected to offer paging, facsimile and
messaging services and position location capabilities, which may be integrated
with its voice services or marketed separately, as well as environmental and
asset monitoring from remote locations and other forms of data transmission.
VOICE SERVICES
The majority of the world's population does not have ready access to any of
the basic telephone services that are available to most residents of developed
nations. Public installations of one or more Globalstar Phones, configured as
telephone booths, powered by local generators or solar panels and connected to a
directional antenna aimed at the satellites overhead, would be important
resources for remote villages currently lacking basic telephone service.
Government officials, among other individuals, as well as commercial enterprises
in remote areas such as mining and logging operations, are expected to utilize
fixed Globalstar Phones which will operate like landline telephones, but will be
connected to a directional Globalstar antenna. Directional antennae also provide
for more efficient use of the system's capacity.
In certain regions, land-based cellular systems cannot be justified
economically because of their population density or geographic characteristics.
As a satellite-based system with worldwide coverage, Globalstar can efficiently
offer both hand-held and vehicle-mounted mobile service in these areas through
its single-mode mobile Globalstar Phones. These units are expected to be similar
in size, function and cost to today's full-featured cellular telephones. Unlike
any cellular telephone in existence today, however, these units are designed to
have the ability to operate (both for making and receiving calls) in virtually
every inhabited area of the world where Globalstar service is authorized.
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The Globalstar mobile telephone will be equipped with an omnidirectional
antenna, similar to a cellular telephone antenna. Each mobile telephone is
designed to communicate with all satellites in view and will have the built-in
signal processing intelligence to constantly seek out and select the strongest
signal transmitted from overhead, combining the signals received to ensure
maximum service quality. Further, Globalstar Phones will automatically vary
their power output as necessary to maintain call quality and connectivity.
Current cellular system subscribers who need a mobile telephone that also
works when they travel to areas without compatible cellular coverage (or that
have no cellular coverage at all) will be offered Globalstar service through
dual-mode handsets and vehicle-mounted units. A dual-mode telephone will also
permit the user to access Globalstar service when cellular access is temporarily
blocked by interference, terrain or over-capacity. Like Globalstar's single-mode
mobile telephones, dual-mode telephones are designed to enable the user to make
and receive calls through a unique access number anywhere in the world where
service is authorized.
Dual-mode Globalstar Phones can be programmed by the service provider to
automatically utilize the chosen land-based cellular service whenever it is
available and to otherwise process the call through Globalstar; they can also be
programmed for manual selection between Globalstar and the land-based cellular
system. Dual-mode Globalstar Phones are being developed for the most
widely-based conventional cellular modulation. The dual-mode pairs are expected
to include: Globalstar/CDMA, Globalstar/Advanced Mobile Phone Systems (AMPS) and
Globalstar/Global System for Mobile Communications (GSM).
Based on terrestrial simulations of the Globalstar System, Globalstar
expects that its digital voice services will have a clarity and quality better
than those of analog land-based cellular systems currently in use. Moreover, the
system has been designed to minimize call interruptions ("dropped calls")
resulting from movements on the part of the user or the satellites. Nonetheless,
obstacles such as buildings, trees or mountainous terrain may degrade service
quality, as they would in the case of terrestrial cellular systems, and service
may not be available in the core of high-rise buildings. Globalstar is expected
to offer the full range of voice services provided by modern land-based
telephone networks, including options such as call forwarding, conferencing,
call waiting, call transfer and reverse charging (collect calls). Globalstar's
voice services will be digital in nature and therefore difficult for
unauthorized listeners to intercept and decode and as a result will be more
secure than those offered by analog systems such as existing cellular
telephones.
By planning for volume production and utilizing commercially available
off-the-shelf components where possible, Globalstar expects that its Globalstar
Phones will be priced comparably to current state-of-the-art digital cellular
telephones. Qualcomm has agreed to design and manufacture a number of versions
of Globalstar Phones. It has recently granted a license to Orbitel Mobile
Communications Ltd., an affiliate of L.M. Ericsson, to manufacture Globalstar
Phones and has also agreed to license at commercially reasonable royalty rates
at least two other qualified Globalstar Phone manufacturers.
OTHER SERVICES
Messaging and Paging Services. In addition to supporting voice services,
the Globalstar System is also expected to function as a worldwide paging and
alphanumeric messaging service. Hand-held or vehicle-mounted Globalstar Phones
are currently being designed with a built-in paging and messaging feature that
allows the user to receive a page or a short alphanumeric message while the unit
is in a very-low-power "quiet listening only" mode. Separate Globalstar
messaging and paging units may also be developed by Globalstar or by third party
vendors. The Globalstar System can readily support these functions without
taxing system resources since, as compared with voice services, messages and
pages have a relatively low data content and do not require instantaneous,
two-way transmission.
Remote Monitoring. Globalstar data terminals integrated with automatic
sensing equipment of various kinds can provide a continuous stream of valuable
information concerning natural events such as weather conditions, seismic shifts
and forest fires, as well as the condition of remote assets, such as oil and gas
pipelines and electric utility transmission lines.
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Facsimile and Other Data Services. The Globalstar System is expected to
support fax traffic, as well as transmissions of digital computer data.
Position Location. Frequent, accurate readings of position location for
large numbers of vehicles is critical information for the efficient management
of fleets of trucks and railcars. Qualcomm's OmniTRACS system, which relays
position location information to a central location and offers messaging
capabilities, will be offered to Globalstar service providers to address this
need.
GLOBALSTAR SYSTEM CAPACITY
The estimated capacity of the Globalstar System is anticipated to be in the
range of approximately 800 million to 1 billion call minutes per month assuming
equal fixed and mobile usage. However, Globalstar's total effective system
capacity will depend on a number of variables. The number of call minutes per
month the system can support will depend primarily on (i) the total bandwidth
available to CDMA MSS systems, (ii) the number of systems sharing that
bandwidth, (iii) the total number of subscribers, (iv) the type of Globalstar
Phones (fixed or mobile) they use and (v) the level of average system
availability required. Capacity will also depend upon a number of other
variables, including (i) the peak hour system utilization pattern, (ii) average
call length and (iii) the distribution of Globalstar Phones in use over the
surface of the Earth.
COMPETITION
Competition in the telecommunications industry is intense, fueled by rapid
and continuous technological advances and alliances between industry
participants seeking to implement such advances on an international scale.
Although no present participant is currently providing the same global personal
telecommunications service to be provided by Globalstar, it is anticipated that
one or more additional competing MSS systems will be launched and that the
success, or anticipated success, of Globalstar and its direct competitors could
attract other entrants. Although not anticipated, if any of Globalstar's
competitors succeed in marketing and deploying their systems substantially
earlier than Globalstar, Globalstar's ability to compete in areas served by such
competitors may be adversely affected.
Globalstar's most direct competitors are: the two other FCC-licensed MSS
applicants, Motorola, Inc.'s ("Motorola") Iridium system and TRW, Inc.'s ("TRW")
Odyssey system; and I-CO Global Communication's ICO system. ICO was not an
applicant or a licensee before the FCC, and is seeking to operate in a different
frequency band not available for use by MSS systems. A number of other
satellite-based telecommunications systems have been proposed using
geosynchronous satellites. Because some of these proposed systems involve
relatively simple ground control requirements and are expected to deploy no more
than two satellites, they may succeed in deploying and marketing their systems
before Globalstar. In addition, coordination of standards among regional
geostationary systems could enable these systems to provide worldwide service to
their subscriber base, thereby increasing the competition to Globalstar.
It is expected that as land-based telecommunications service expands to
regions currently not served by wireline or cellular services, demand for
Globalstar service in those regions may be reduced. If such systems are
constructed at a more rapid rate than that anticipated by Globalstar, the demand
for Globalstar service may be reduced at rates higher than those assumed by
Globalstar. Globalstar may also face competition in the future from companies
using new technologies and new satellite systems. New technology could render
Globalstar obsolete or less competitive by satisfying consumer demand in
alternative ways, or through the introduction of incompatible telecommunications
standards. A number of these new technologies, even if they are not ultimately
successful, could have an adverse effect on Globalstar as a result of their
initial marketing efforts.
REGULATION
United States FCC Regulation. On January 31, 1995, the FCC authorized the
construction, launch and operation of the Globalstar System and assigned bands
of the radio frequency spectrum for the user links (the "FCC License"). This
license is currently held by L/Q Licensee, Inc. ("L/Q Licensee"), a subsidiary
of the Company which has agreed to use the FCC License exclusively for the
benefit of Globalstar. The FCC is the
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United States agency with jurisdiction over commercial uses of the radio
spectrum. All commercial MSS systems such as Globalstar must obtain an
authorization from the FCC to construct and launch their satellites and to
operate the satellites to provide MSS services in assigned spectrum segments in
the United States. The FCC may also adopt from time to time rules applicable to
MSS systems, which may impose constraints on the operation of Globalstar
satellites, subscriber terminals and/or gateway earth stations.
The Globalstar System requires regulatory authorization for two pairs of
frequencies: user links (from the user to the satellites, and vice versa) and
feeder links (from the gateways to the satellites, and vice versa). The FCC
License grants authority to construct, launch and operate the Globalstar System
with user links in the 1 and 2 GHz bands, consistent with the United States band
plan for MSS Above 1 GHz Systems. At the time it granted the FCC License in
January of 1995, the FCC deferred action on feeder link assignments until after
the WRC '95 (which, in October of that year, allocated such frequencies
internationally), but granted authority to construct the system at Globalstar's
own risk using the feeder link bands originally requested. L/Q Licensee has
applied to the FCC for feeder links in the 5 GHz and 7 GHz bands, consistent
with the international allocation for non-geostationery MSS feeder links adopted
at WRC '95, and has filed a request for an appropriate modification of its
interim construction authority.
The authorization granted by the FCC to LQP for Globalstar requires that
construction, launch and operation of the system must be accomplished in
accordance with the technical specifications set forth in the Globalstar FCC
application, as amended, and consistent with the FCC's rules unless specifically
waived. During the process of constructing the Globalstar System, there may be
certain modifications to the design set forth in the application on file with
the FCC which may require filing an application to modify the authorization,
such as the application for feeder link assignments. There can be no assurance
that the FCC will grant these requests or do so in a timely manner. Denial of
such requests or delay in grant of such requests could adversely affect the
performance of the Globalstar System or result in schedule delays or cost
increases. In addition, use and operation of Globalstar's feeder and user links
are subject to FCC regulations regarding interference protection and
coordination with other systems which may have an adverse effect on the
usefuless of such frequencies.
LQP's MSS application was one of six considered concurrently by the FCC. On
January 31, 1995, Motorola and TRW also were granted FCC licenses for MSS above
1 GHz systems. The applications of three other applicants were deferred and
these three applicants were given until January 1996 to establish that they are
financially qualified to receive an MSS license. In January 1996, at the request
of two of the deferred applicants, the FCC granted an extension of the deadline
for demonstrating financial qualification.
The FCC License only authorizes the construction, launch and operation of
the Globalstar System's satellite constellation. Separate authorizations must be
obtained from the FCC for operation of gateways and Globalstar Phones in the
United States. Globalstar's authorized service provider, AirTouch Communications
("AirTouch"), Globalstar's service provider in the United States, will apply for
the required regulatory authorizations for gateways and Globalstar Phones, and
the manufacturer will apply for equipment authorization for Globalstar Phones.
Failure to obtain, or delay in obtaining, such licenses would adversely affect
the implementation of the Globalstar System. Similar procedures are expected to
apply internationally.
Globalstar proposes to operate on an international basis, but the FCC
License only authorizes construction and launch of the system for operation in
the United States. Even though the Globalstar System is licensed to operate in
the United States by the FCC, in order to provide MSS service in other
countries, Globalstar or its service providers must obtain the required
regulatory authorizations in those countries. There can be no assurance that the
required regulatory authorizations will be obtained in any other country in
which Globalstar proposes to operate, or that they will be obtained in a timely
manner, or that, if granted, they will authorize MSS service on the same terms
as the U.S. license. Failure or delay in obtaining licenses for the Globalstar
System in other countries or grant of licenses on substantially different terms
and conditions would have an adverse effect on Globalstar.
In May 1996, the FCC initiated a notice-and-comment rulemaking to adopt
rules governing procedures to authorize service in the United States by
satellite systems licensed by foreign countries. If a foreign satellite
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system were authorized to operate in the United States on frequencies assigned
to Globalstar, additional coordination obligations may be required.
In its order (the "Order") adopting rules and policies for MSS above 1 GHz,
the FCC stated that an MSS above 1 GHz license would impose implementation
milestones on licensed systems. If these milestones are not met, the FCC has
stated that the license would be deemed null and void. Globalstar's current
estimated implementation schedule falls within the milestones adopted by the
FCC. Moreover, the milestone schedule will not become effective until Globalstar
is granted an unconditional authorization which includes an assignment of feeder
link frequencies. Delays in construction, launch or commencing operations of the
Globalstar System could result in loss of the FCC License. The FCC License will
be effective for 10 years from the date on which the licensee certifies to the
FCC that its initial satellite has been successfully placed into orbit and that
the operations of that satellite conform to the terms and conditions of its MSS
license. While a licensee may apply to replace its MSS license to continue
operations beyond the initial 10-year license term, there can be no assurance
that, if applied for, such a replacement license would be granted.
The rules and policies adopted for MSS above 1 GHz in the Order have been
challenged in a judicial appeal and were the subject of petitions for
reconsideration at the FCC. On February 15, 1996, the FCC released an order
resolving petitions for reconsideration of the Order. Three petitions seeking
further reconsideration or clarification of the Order have been filed. Judicial
appeals regarding the FCC's decision on the petitions for reconsideration may
also be filed. In the event that the FCC were to be judicially required to
reconsider its licensing procedures as a result of the pending judicial appeal,
or an appeal of the orders on reconsideration, there is a risk that the FCC
would reprocess the MSS applicants and adopt a different licensing procedure.
Under these circumstances, there can be no assurance that the FCC would not use
an auction procedure to award licenses. If the FCC were to use an auction
procedure, there can be no assurance that Globalstar or its affiliates would be
willing or able to outbid other applicants to obtain a license for the spectrum
needed to operate the Globalstar System. In addition, even if Globalstar or its
affiliates were successful in obtaining an MSS license in the spectrum auction,
the increased cost and expenses incurred in bidding for the license would
adversely affect Globalstar.
Applicable statutes and regulations permit a judicial appeal of the grant
of the FCC License in order to seek reversal of the FCC's decision to grant the
license. Petitions for reconsideration and an application for review of the
order granting the FCC License were filed and have been denied. A judicial
appeal of the order resolving these petitions and application is possible. There
can be no assurance that such appeals will not be filed, or, if filed, that such
appeals will not be granted. Furthermore, there can be no assurance that if such
appeals are filed, the court will take timely action. If such an appeal were
successful, there can be no assurance that on remand the FCC would not decide to
deny the application for the Globalstar System, or that on remand the FCC would
take action on the application in a timely manner.
UNITED STATES INTERNATIONAL TRAFFIC IN ARMS REGULATIONS
The United States International Traffic in Arms Regulations under the
United States Arms Export Control Act authorize the President of the United
States to control the export and import of articles and services that can be
used in the production of arms. Among other things, these regulations limit the
ability to export certain articles and related technical data to certain
nations. The scope of these regulations is very broad and extends to certain
spacecraft, including certain satellites. Certain information involved in the
performance of Globalstar's operations will fall within the scope of these
regulations. As a result, Globalstar may have to restrict access to that
information.
EXPORT REGULATION
From time to time, Globalstar requires import licenses and general
destination export licenses to receive and deliver components of the Globalstar
System.
The United States Department of Commerce has imposed restrictions on
certain transfer of technology, including rocket technology, to China and
certain republics of the former Soviet Union. Because Globalstar's launch
strategy contemplates using Chinese and Ukrainian launch providers with launch
sites located in China
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and Kazakhstan, special export licenses are required to be obtained by SS/L in
connection with these launches.
While Globalstar and SS/L have received informal confirmations from various
governmental officials that all necessary permits should be forthcoming, and
Globalstar has no reason to believe such permits will not be obtained, there can
be no assurance that such export licenses will be granted, or, once granted,
that the United States will not impose additional restrictions or trade
sanctions against China or republics of the former Soviet Union in the future
that would adversely affect the planned launches of the Globalstar satellite
constellation.
The Export Administration Act and the regulations thereunder control the
export and re-export of United States-origin technology and commodities capable
of both civilian and military applications (so-called "dual use" items). These
regulations may prohibit or limit export and re-export of certain
telecommunications equipment and related technology which are not affected by
the International Traffic in Arms Regulations by requiring a license from the
Department of Commerce before controlled items may be exported or re-exported to
certain destinations. Although these regulations should not affect Globalstar's
ability to deploy the satellite constellation, the export or re-export of
Globalstar Phones, as well as gateways and related equipment and technical data,
may be subject to these regulations, if such equipment is manufactured in the
United States and then exported or re-exported. These regulations may also
affect the export, from one country outside the United States to another, of
United States-origin technical data or the direct products of such technical
data. As a result, Globalstar may not be able to ensure the unrestricted
availability of such equipment or technical data to certain customers and
suppliers. The Company does not believe that these regulations will have a
material adverse effect on Globalstar's operations.
INTERNATIONAL COORDINATION
The Globalstar System proposes to operate in frequencies which were
allocated on an international basis for MSS user links at World Administrative
Radio Conference '92 and for MSS feeder links at WRC '95. Globalstar is required
to engage in international coordination procedures with other proposed MSS
systems under the aegis of the International Telecommunications Union (the
"ITU").
Because Globalstar's proposed feeder link bands are allocated on an
international basis for low-earth orbit ("LEO") MSS feeder links, foreign LEO
MSS systems may also seek to use these bands for MSS feeder links. ICO has filed
with the ITU its plans to use the same feeder link spectrum as Globalstar.
Globalstar will be required to coordinate the use of its feeder links with ICO
and any other foreign system which has similar plans. Both a Russian and a
Brazilian low-earth orbit MSS system have filed with the ITU their intention to
use the same feeder link spectrum as Globalstar. There can be no assurance that
such coordination will not adversely affect the use of these bands by
Globalstar.
Pursuant to the Intelsat and Inmarsat treaties, international satellite
operators are required to demonstrate that they will not cause economic or
technical harm to Inmarsat or Intelsat and to coordinate with Intelsat and
Inmarsat under obligations imposed on United States satellite systems by
international treaties. Globalstar will engage in technical coordination of its
feeder downlinks with Intelsat, which uses the same frequency band for an
uplink. Globalstar believes that the proposed provision of competitive MSS
service by ICO, in which Inmarsat is a significant investor, may effectively
eliminate the requirement to demonstrate lack of economic harm. Globalstar
expects such coordination to be successful.
EUROPEAN UNION
European Union competition law proscribes agreements that have the effect
of appreciably restricting or distorting competition in the European Union.
Globalstar has received an inquiry from the Commission of the European Union
requesting information regarding its activities. A violation of European Union
competition law could subject Globalstar to fines or enforcement actions that
could result in expenses to Globalstar, delay the commencement of Globalstar
service in western Europe, and/or depending on the circumstances, adversely
affect Globalstar's contractual rights vis-a-vis its European strategic
partners. In addition, the Commission has proposed legislation at the European
Union level which, if adopted, would give the Commission broad regulatory
authority over "satellite PCS" systems such as Globalstar. The Commission's
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investigation and proposed legislation are in their preliminary stages, and the
Company is unable to predict what effect, if any, the results of such
investigation or proposed legislation may have on Globalstar's operations.
REGULATION OF SERVICE PROVIDERS
In order to operate gateway earth stations, including the user uplink
frequency, the Globalstar service provider in each country will be required to
obtain a license from that country's telecommunications authority. In addition,
the Globalstar service provider will need to enter into appropriate
interconnection and financial settlement agreements with local and interexchange
telecommunications providers. Globalstar intends to use in-country service
providers to facilitate the obtaining of such licenses and agreements.
Although many countries have moved to privatize the provision of
telecommunications service and to permit competition in the provision of such
service, some countries continue to require that all telecommunications service
be provided by a government-owned entity. While service providers have been
selected, in part, based upon their perceived qualifications to obtain the
requisite local approvals, there can be no assurance that they will be
successful in doing so. If a service provider does not obtain a license,
Globalstar will have the right to substitute another service provider to attempt
to obtain such a license, but if no service provider in a territory is
successful in obtaining the requisite local authorization, Globalstar service
will not be available in such territory. In that event, depending upon
geographical and market considerations, Globalstar may or may not have the
ability to redirect the system capacity that such territories would have
otherwise used to serve territories in which service is authorized.
SPACE SYSTEMS/LORAL, INC.
SS/L is a worldwide leader in the design, manufacture and systems
integration of telecommunications, weather and direct broadcast satellites. The
Company believes that SS/L's technical expertise, advanced manufacturing and
testing facilities and long-term customer relationships have enabled SS/L to
compete effectively in the commercial space systems marketplace. The Company has
a 32.7% beneficial equity interest in SS/L, and receives a management fee from
SS/L ranging from 0.5% to 1% of revenue, as defined. See "Item 13 -- Certain
Relationships and Related Transactions."
SPACE SYSTEMS ALLIANCE
In 1991, SS/L entered into a strategic alliance with three major European
space systems manufacturers: Aerospatiale Societe Nationale Industrielle
("Aerospatiale"), Alcatel Espace ("Alcatel") and Finmeccanica S.p.A.
("Finmeccanica") (the "Alliance Partners"). In 1992, Daimler-Benz Aerospace AG
("DASA") joined the Alliance Partners. The Alliance Partners hold an aggregate
of 49% of the common stock of SS/L. With certain exceptions, SS/L and the
Alliance Partners have agreed generally to bid and operate as a team on
satellite programs worldwide, to coordinate research and development activities
and to share technological resources. SS/L believes that this strategic alliance
enhances its technological and manufacturing capabilities and marketing
resources, and affords it access to international government and commercial
customers more effectively than its U.S.-based competitors.
PROGRAMS
Some of SS/L's current programs include:
Telecommunications
Telstar. This new generation telecommunications satellite to be built for
AT&T will provide service to the United States, the Caribbean, Mexico and
Southern Canada.
Apstar-IIR. SS/L is building a telecommunications satellite for a
consortium comprised of Chinese state-owned companies and commercial firms based
in Taiwan, Thailand, Macau and Singapore, that will provide regional and
international telecommunications services to the Asia-Pacific region. Once
operational, the Apstar-IIR will provide regional voice, video and data
services.
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Mabuhay. SS/L is currently under contract with the Mabuhay Philippines
Satellite Corp. to build the Mabuhay satellite, a telecommunications satellite
that will provide commercial telephone, broadcasting and data services in the
Philippines and the South China region.
PAS-7 and PAS-8. SS/L has entered into an agreement with PanAmSat for the
PAS-7 and PAS-8 spacecraft which will be used for various applications as part
of PanAmSat's basic constellation.
Direct Broadcast Satellites (DBS)
SS/L is currently building DBS satellites for MCI/News Corp. and Tempo
Satellite, Inc. to serve the U.S. markets and for PanAmSat to serve the Central
and South American markets.
Globalstar
SS/L is the prime contractor for the design and manufacture of Globalstar's
56-satellite low-earth orbit constellation.
Weather and Environment
GOES Weather Satellites. SS/L is the prime contractor for NOAA's next
generation of advanced weather and environmental GOES satellites. These
satellites will provide 24-hour monitoring and measurement of dynamic weather
events in real time. The first satellite in the five-member series, GOES-8, was
launched in April 1994 and the second, GOES-9 in May 1995.
MTSAT. In February 1995, Japan's Ministry of Transport awarded a contract
for the Multifunctional Transport Satellite (MTSAT) to SS/L. This advanced
geostationary satellite will provide enhancement of communication and position
information to Japan's air traffic capability. MTSAT will also provide weather
observation and meteorological data transmission for the region. In addition to
its advanced imaging capability, MTSAT is a complete data collection and
dissemination system. MTSAT will broadcast processed data and imagery to users
through the Asia-Pacific region, including airports, weather forecasting
agencies and ships at sea.
International Space Station Alpha
SS/L has contracted with the Rocketdyne Division of Rockwell International
to develop flight equipment for International Space Station Alpha's on-board
electrical power systems. The program includes the design, development and
production of nickel-hydrogen batteries, power control and power conditioning
electronics equipment, and consolidated procurement of electronic parts for the
entire power system.
Payload Subcontracts
SS/L has leveraged its alliance relationship with Aerospatiale to enter the
payload business in support of Aerospatiale's prime contracts from the Eutelsat,
Thaicom and Sirius programs.
SS/L has been a subcontrator to NASA, supporting lunar, Mars and deep space
programs. Teamed with Aerospatiale, SS/L provided the payload and subsystems for
the Arab Satellite Organization ("Arabsat") regional communications and
television broadcast system. SS/L also provides components as a subcontractor to
other space systems manufacturers for defense and other applications.
CUSTOMERS
Sales to the U.S. government represented 10%, 23% and 23% of revenues from
contracts for the years ended March 31, 1996, 1995 and 1994, respectively. Sales
to foreign customers, primarily in Asia, represented 27%, 15% and 31% of
revenues from contracts for the years ended March 31, 1996, 1995 and 1994,
respectively. In 1996, two commercial customers represented 30% and 13% of
revenues from contracts. In 1995, four commercial customers represented 23%,
20%, 15% and 13% of revenues from contracts. Two commercial customers
represented 35% and 29% of revenues from contracts in 1994.
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COMPETITION
Competition in the commercial satellite industry is intense. Among SS/L's
significant competitors are Hughes Electronics Corporation ("Hughes"), Lockheed
Martin, Matra Marconi and TRW, many of which have significantly greater
financial, manufacturing, marketing and technical resources than those of SS/L.
To the extent these companies offer products and services that are more
sophisticated, cost-effective, efficient or reliable than those now offered or
to be offered by SS/L, they could have a material adverse effect on SS/L.
Further, SS/L's telecommunications satellites face competition from alternative
technologies, including fiber optics cable technology, which could reduce demand
for the services of SS/L's customers and thus for SS/L's telecommunications
products.
SATELLITE CONTRACTS
SS/L's major contracts fall into two categories: firm fixed-price contracts
and cost-plus-award-fee contracts. Under firm fixed-price contracts, work
performed and products shipped are paid for at a fixed price without adjustment
for actual costs incurred in connection with the contract. Risk of loss due to
increased cost, therefore, is borne by SS/L. Under fixed-price contracts
requiring work with lead times in excess of six months prior to delivery, SS/L
may receive progress payments, generally in an amount equal to between 80% and
95% of monthly costs, or it may receive milestone payments upon the occurrence
of certain program achievements. Under a cost-plus-award-fee contract, the
contractor recovers its actual costs incurred and receives a fee consisting of a
base amount that is fixed at the inception of the contract (the base amount may
be zero) and an award amount that is based on the customer's subjective
evaluation of the contractor's performance in terms of the criteria stated in
the contract.
Many of SS/L's contracts and subcontracts provide that such contracts and
subcontracts may be terminated at will by the customer or the prime contractor,
respectively. In the event of a termination at will, SS/L is normally entitled
to recognize the purchase price for delivered items, reimbursement for allowable
costs for work in process and an allowance for profit thereon or adjustment for
loss if completion of performance would have resulted in a loss. While SS/L has
not experienced material contract terminations in the past, no assurance can be
given that such terminations will not occur in the future.
REGULATION
SS/L's business activities are regulated by various agencies and
departments of the U.S. government. Operation of commercial communications
satellites requires licenses from the FCC and frequently requires the approval
of international regulatory authorities as well. Private land remote sensing
satellites require a license from the Department of Commerce. Exports of
space-related products, services and technical information frequently require
licenses from the Department of State or the Department of Commerce. There is no
assurance that SS/L will be able to obtain necessary licenses or regulatory
approvals. The inability of SS/L to secure any necessary licenses or approvals
could have a material adverse effect on its business. In addition, certain of
the products or components produced or used by SS/L may become subject to
limitations on production or deployment as a result of international agreements
or treaties to which the United States is, or may become, a party.
In addition, since the Alliance Partners are owned and controlled by
foreign entities, two of which are foreign governments, SS/L is subject to
compliance with certain regulations and to government oversight to which it
would not be subject if its stockholders were all U.S. citizens. SS/L has
established certain procedures to comply with various defense related
regulations, to negate the risks of foreign control, ownership and influence, to
ensure that it will be able to maintain the security clearances necessary for
continued work on classified programs and to protect classified information and
export-controlled technical data. Specifically, SS/L and the Alliance Partners
have entered into a memorandum of agreement with the DOD with respect to
security matters. Pursuant to such agreement, certain protections have been
established to control the actions of SS/L and the Alliance Partners, including,
among others: (a) policies and practices by SS/L to safeguard classified
information and export-controlled technical data; (b) exclusion of the Alliance
Partners and their agents and representatives from access to classified
information and export-controlled technical data entrusted
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to SS/L, except as may be permitted by law; and (c) establishment of a permanent
Government Security Committee, composed of seven resident United States citizens
who hold (or will obtain) personnel security clearances, which reviews and
monitors the adequacy and implementation of SS/L's security procedures to ensure
that it maintains policies, practices and procedures adequate to safeguard the
classified information and export-controlled technical data entrusted to it.
The memorandum of agreement provides that the Government Security Committee
will hold periodic meetings and report annually to the DIS Cognizant Security
Office as to the operation of SS/L's security procedures. In addition, the
Government Security Committee is charged with monitoring compliance with the
International Traffic in Arms Regulations and the Export Administration
Regulations. The memorandum of agreement also contemplates that SS/L and the
Alliance Partners will create, with the approval of the Department of Defense,
formal arrangements to ensure proper record keeping by SS/L and monitoring by
the Government Security Committee with regard to visits between SS/L personnel
and personnel of the Alliance Partners, who are not directors, officers,
employees or resident contractors of SS/L, at a cleared facility or dealing with
the disclosure of classified information or export-controlled technical data.
The nominees of the Company on SS/L's Board of Directors have the sole
responsibility for the supervision, implementation and performance of: (a)
classified work by SS/L under all contracts and agreements with the U.S.
government, (b) research programs by SS/L for the U.S. government to the extent
that any classified information is utilized or produced therefrom, (c)
resolutions of SS/L's Board of Directors under the Defense Industrial Security
Program to exclude non-U.S. persons and the Alliance Partners and their
representatives from access to classified data and export-controlled technical
data in the custody of SS/L and (d) all other United States national security
policy matters and matters affecting the safeguarding of classified information.
All of SS/L's major programs and proposed ventures are commercial rather
than military or intelligence related, so that classified work is not a material
part of SS/L's business.
RESEARCH AND DEVELOPMENT
SS/L's internally-funded research and development expenditures were
approximately $11.2 million, $9.5 million and $6.7 million, respectively, for
the fiscal years ended March 31, 1996, 1995 and 1994.
BACKLOG
As of March 31, 1996 and 1995, SS/L's funded backlog was approximately $1.2
billion. Backlog consists of aggregate contract values for firm product orders,
excluding the portion previously included in operating revenues on the basis of
percentage of completion accounting and priced options not awarded.
Approximately $902 million of total backlog as of March 31, 1996 is currently
scheduled to be performed within the next 12 months.
EXPORT SALES
Export sales, principally to Asia, were $301 million, $98 million and $186
million for the years ended March 31, 1996, 1995 and 1994, respectively.
RAW MATERIALS
SS/L generally obtains the raw materials required for use in satellite
construction, such as aluminum, graphite, resins and epoxies, from distributors
of such materials and occasionally directly from suppliers. SS/L is not
dependent on any one source for supply of such materials and has not in the
past, and does not expect in the future to have, difficulty in obtaining such
materials.
K&F INDUSTRIES, INC.
K&F, through its wholly owned subsidiary, Aircraft Braking Systems
Corporation, is one of the world's leading manufacturers of aircraft wheels,
brakes and anti-skid systems for commercial transport, general
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aviation and military aircraft. K&F sells its products to virtually all major
airframe manufacturers and most commercial airlines and to the United States and
certain foreign governments. In addition, K&F through its wholly owned
subsidiary, Engineered Fabrics Corporation ("Engineered Fabrics"), is one of the
leading worldwide manufacturer of aircraft fuel tanks, supplying approximately
90% of the worldwide general aviation and commercial transport market and nearly
one-half of the domestic military market. Engineered Fabrics also manufactures
and sells iceguards and specialty coated fabrics used for storage, shipping,
environmental and rescue applications for commercial and military uses. Some of
K&F's customers include American Airlines, Delta Air Lines, Alitalia, Lufthansa,
Swissair, Northwest Airlines, United Airlines and USAir. Its products are also
used in a number of military aircraft, including the F-14, F-16, F-18 and the
C-130. Backlog at March 31, 1996 and 1995 amounted to approximately $150.5
million and $151.4 million, respectively. Backlog consists of firm orders for
K&F's products which have not been shipped. Approximately 84% of total backlog
at March 31, 1996 is expected to be shipped during the fiscal year ended March
31, 1997, with the balance expected to be shipped over the subsequent two-year
period.
PATENTS AND PROPRIETARY RIGHTS
In connection with the Globalstar System, Globalstar's and SS/L's design
and development efforts have yielded five patents issued and 22 patents pending
in the United States, as well as one patent issued and 91 patents pending
internationally for various aspects of communication satellite system design and
implementation of CDMA technology relating to the Globalstar System. Qualcomm
has obtained 42 issued patents and 179 patents pending in the United States
applicable to Qualcomm's implementation of CDMA. The issued patents cover, among
other things, Globalstar's process of combining signals received from multiple
satellites to improve the signal received and minimize call fading.
SS/L relies, in part, on patents, trade secrets and know-how to develop and
maintain its competitive position. It holds 119 patents in the U.S. and 123
patents abroad and has applications for 39 patents pending in the U.S. and 122
patents pending abroad. SS/L holds patents relating to communications, station
keeping, power, control systems, antennae, filters and oscillators, phase arrays
and thermal control as well as assembly and inspections technology. The SS/L
patents that are currently in force expire between 1996 and 2015.
There can be no assurance that any of the pending patent applications by
Globalstar or SS/L will be issued. Moreover, because the U.S. patent application
process is confidential, there can be no assurance that third parties, including
competitors of Globalstar and SS/L, do not have patents pending that could
result in issued patents which Globalstar or SS/L would infringe.
PERSONNEL
As of May 31, 1996, the Company had approximately 50 full-time employees,
none of whom is subject to any collective bargaining agreement. The Company's
management considers its relations with its employees to be good.
As of March 31, 1996, Globalstar had approximately 100 full-time employees,
none of whom is subject to any collective bargaining agreement. Globalstar's
management considers its relations with its employees to be good.
As of March 31, 1996, SS/L had approximately 2,400 full-time employees none
of whom is subject to any collective bargaining agreement. SS/L's management
considers its relations with its employees to be good.
CERTAIN FACTORS THAT MAY EFFECT FUTURE RESULTS
This annual report on Form 10-K contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. In addition,
from time to time, the Company or its representatives have made or may make
forward-looking statements, orally or in writing. Such forward-looking
statements may be included in, but are
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not limited to, various filings made by the Company with the Securities and
Exchange Commission, press releases or oral statements made by or with the
approval of an authorized executive officer of the Company. Actual results could
differ materially from those projected or suggested in any forward-looking
statements as a result of a wide variety of factors and conditions, including,
but not limited to, the factors summarized below. These factors and other
factors and conditions have been described in the section of the Company's
Information Statement, dated April 12, 1996, entitled, "Risk Factors" and other
documents the Company files from time to time with the Securities and Exchange
Commission including the Company's annual reports on Form 10-K, quarterly
reports on Form 10-Q and current reports on Form 8-K, and the shareholder is
specifically referred to these documents with regard to the factors and
conditions that may affect future results.
COMPANY
Conflicts of Interest. Shareholders and partners of the Operating
Affiliates, and shareholders of the Company are principal suppliers to,
subcontractors for, and customers of or service providers for the Operating
Affiliates. In addition, SS/L is the prime contractor for Globalstar's satellite
constellation and SS/L and its subcontractors have provided vendor financing to
Globalstar in connection therewith. As a result, conflicts of interest may arise
with respect to such contracts and arrangements. The Globalstar partnership
agreement and the SS/L stockholders agreement provide for certain procedures
relating to the approval of agreements entered into by Globalstar and its
partners, and by SS/L and its stockholders.
Limited Control over Operating Affiliates. While the Company manages the
Operating Affiliates, the Globalstar partnership agreement and the SS/L
stockholders agreement limit the ability of the Company to take certain actions
without the approval of, in the case of Globalstar, at least one Independent
Representative (as defined) to the General Partners' Committee (as defined) or,
in the case of SS/L, at least two and in some cases all, of the directors
appointed by the Alliance Partners. As a result, the Company may be unable to
cause the Operating Affiliates to take actions which the Company might deem to
be in its best interests.
Additional Financing Requirements. Although the Company commenced
operations with $612 million in cash, the financing requirements of all of the
various opportunities it is currently considering, if funded solely by the
Company, when combined with the obligations that the Company may incur to fund
certain SS/L stockholders puts, may exceed such amount. The extent of such total
capital requirements cannot be quantified at this time since many of these
opportunities are at an early stage of consideration. The financial requirements
to satisfy any SS/L stockholder puts if validly exercised will depend upon the
fair market value of SS/L and the decision of such stockholders regarding the
exercise of their put rights. In order to fully fund all such projects and to
provide for any such contingencies, the Company may need to issue debt or equity
securities or engage in other financing activities, which may include offerings
of debt or equity securities by its Operating Affiliates. Any such issuance of
equity securities by the Operating Affiliates may result in a dilution of the
Company's equity interest to the extent the Company does not participate
therein. There can be no assurance that such financing will be available on
favorable terms or on a timely basis, if at all. A shortfall in meeting such
capital needs would prevent completion of some or all of the projects currently
being pursued by the Company.
Future FCC Proceedings. The Company has several applications to construct
and operate satellite systems pending before the FCC, including its application
for CyberStar. There can be no assurance that any of these licenses will be
granted. Several competing FCC applicants have filed objections to the financial
qualification of Loral in these proceedings, arguing that the current assets of
Loral were inadequate to satisfy the FCC financial requirements with respect to
all systems, including Globalstar, for which Loral had submitted applications.
The Company, which succeeded Loral as the applicant under these applications
before the FCC, has current assets substantially less than those of Loral. There
can be no assurance that challenges to the Company's financial qualifications
may not adversely affect or delay the Company's ability to be granted additional
FCC licenses, thus limiting a portion of the Company's future opportunities.
Certain Antitakeover Provisions. The Company's classified Board of
Directors, voting provisions with respect to certain business combinations and
the Company's rights plan, may have the effect of making more difficult or
discouraging an acquisition of the Company deemed undesirable by the Board.
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Reliance on Key Personnel. The success of the Company's business will be
partially dependent upon the ability of the Company to attract and retain highly
qualified technical and management personnel. Except for Mr. Bernard L.
Schwartz, the Company's Chairman and Chief Executive Officer, none of the
Company's officers has an employment contract with the Company nor does the
Company expect to maintain "key man" insurance with respect to any such
individuals. The loss of any of these individuals and the subsequent effect on
business relationships could have a material adverse effect on the Company's
business.
Rights of Shareholders under Bermuda Law. The Company is incorporated
under the laws of the Islands of Bermuda. Principles of law relating to such
matters as the validity of corporate procedures, the fiduciary duties of the
Company's management, directors and controlling shareholders, and the rights of
its shareholders, are governed by Bermuda law and the Company's Memorandum of
Association and Bye-Laws. Such principles of law may differ from those that
would apply if the Company were incorporated in a jurisdiction in the United
States. In addition, there is uncertainty as to whether the courts of Bermuda
would enforce (i) judgments of United States courts obtained against the Company
or its officers and directors resident in foreign countries predicated upon the
civil liability provisions of the securities laws of the United States or (ii)
in original actions brought in Bermuda, liabilities against the Company or such
persons predicated upon the securities laws of the United States or any state.
Tax Considerations. Special U.S. tax rules apply to U.S. taxpayers who own
stock in a "passive foreign investment company" (a "PFIC"). Although the Company
believes that it will not be a PFIC because it expects through Globalstar, SS/L
and other businesses to earn sufficient active business income and to hold
sufficient active business assets to avoid PFIC status, there is a risk that it
may be a PFIC. In such an event, a U.S. shareholder would be subject at his
election either to (i) a current tax on undistributed earnings or (ii) a tax
deferral charge on certain distributions and on gains from a sale of shares of
the Common Stock (taxed as ordinary income).
Investment Company Act Considerations. The Company believes that it is not
an investment company within the meaning of the Investment Company Act of 1940,
as amended (the "Investment Company Act") and intends to conduct its business in
such a manner as to avoid becoming an investment company. Any determination that
the Company were an investment company would have a material adverse effect on
the tax status of the Company and its contractual relationships with its
affiliates.
GLOBALSTAR
Development Stage Company; Expectation of Continued Losses; Negative Cash
Flow. Globalstar is a development stage company and has no operating history.
It has incurred net losses from inception and expects such losses to continue
until commercial service operations have commenced. Globalstar will require
expenditures of significant funds for development, construction, testing and
deployment before commercialization. Globalstar does not expect to commence
operations before 1998 or to achieve positive cash flow before 1999. There can
be no assurance that Globalstar will achieve its objectives by the targeted
dates.
Additional Financing Requirements. Globalstar expects to require total
capital of approximately $2.2 billion for capital expenditures, development and
operating costs of the system through 1998. Globalstar has raised approximately
$1.4 billion through March 31, 1996, representing over 75% of the total external
financing requirement. Globalstar believes that its current capital base is
sufficient to fund its requirements into the first quarter of 1997. Additional
funds of $828 million to complete the Globalstar System are expected to be
obtained from a combination of sources including over $400 million from
projected service provider payments, projected net service revenues from initial
operations and anticipated payments from the sale of gateways and Globalstar
Phones. There can be no assurance that additional funds required to complete the
Globalstar System from external or internal sources will be available at
favorable terms or on a timely basis, if at all. Globalstar is presently
evaluating a plan to purchase long-lead-time component parts for possible use in
constructing 6 to 12 additional satellites. The current estimated additional
cost for these components is approximately $75 to $120 million, depending upon
the quantity purchased. The plan has two purposes: (i) to enable Globalstar to
have on-orbit at least 38 to 44 satellites during 1999, even in the event of
launch failures of up to two launches of 12 satellites each, and (ii) to provide
ground spares that would be readily available to replenish the satellite
constellation in the event of satellite attrition during the first generation or
if there are opportunities for increasing capacity. If Globalstar were to
experience a launch failure, the long-lead-time
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components would be used to build replacement satellites and the cost associated
with the construction and launch of such satellites would be reimbursed through
insurance.
Sources of Possible Delay and Increased Cost. There may be problems,
delays, and expenses encountered by Globalstar, many of which may be beyond
Globalstar's control. These may include, but are not limited to, problems
related to technical development of the system, testing, regulatory compliance,
manufacturing and assembly, the competitive and regulatory environment in which
Globalstar will operate, marketing problems and costs and expenses that may
exceed current estimates. Delay in the timely design, construction, deployment,
commercial operation and achievement of positive cash flow of the Globalstar
System could result from a variety of causes, including delays associated with
the regulatory process in various jurisdictions, delay in the integration of the
Globalstar System into the land-based network, changes in the technical
specifications of the Globalstar System due to regulatory developments or
otherwise, delays encountered in the construction, integration or testing of the
Globalstar System by Globalstar vendors, delayed or unsuccessful launches,
delays in financing, insufficient or ineffective service provider marketing
efforts, slower-than-anticipated consumer acceptance of Globalstar service and
other events beyond Globalstar's control. Substantial delays in any of the
foregoing matters would delay Globalstar's achievement of profitable operations.
Worldwide Regulatory Approvals Required to Operate. The operations of the
Globalstar System are and will continue to be subject to United States and
foreign regulation. In order to operate in the United States and on an
international basis, the Globalstar System must be authorized to provide MSS in
each of the jurisdictions in which its service providers intend to operate. Even
though the Globalstar System has been authorized by the FCC to launch and
operate for the purpose of providing MSS in the United States, there can be no
assurance that the further regulatory approvals required for worldwide
operations will be obtained, or that they will be obtained in a timely manner or
in the form necessary to implement Globalstar's proposed operations.
Satellite Launch Risks; Limited Life of Satellites. Satellite launches are
subject to significant risks, including damage to or loss of the satellites
("hot failures"). Historically, launch failure ("hot failure") rates on low
earth orbit and geostationary satellite launches have been approximately 10%.
However, launch failure rates may vary depending on the particular launch
vehicle. Globalstar currently anticipates launching satellites in groups of
either four satellites or 12 satellites in each launch. Satellite launches of
more than eight commercial satellites have not been attempted before. There is
no assurance that Globalstar satellite launches will be successful or that its
launch failure rate will not exceed the industry average.
A number of factors will affect the useful lives of Globalstar's
satellites. Random failure of satellite components could result in partial or
total failure of a satellite ("cold failure"). The first-generation satellite
constellation (including spares) is designed to operate at full performance for
a minimum of 7 1/2 years, after which performance is expected to gradually
decline. However, there can be no assurance of the constellation's specific
longevity. Globalstar's operating results would be adversely affected in the
event the useful life of the satellites is significantly shorter than 7 1/2
years.
Limited Insurance. Globalstar will obtain insurance against launch failure
which would cover the cost of relaunch and the replacement cost of lost
satellites in the event of hot failures for 56 satellites in its constellation.
However, Globalstar may self-insure for hot failures for up to 12 such
satellites. Globalstar's contract with SS/L provides for the construction and
launch of eight spare satellites to minimize the effect of any launch or orbital
failures. Globalstar currently does not intend to purchase insurance to cover
any cold failures that may occur once the satellites have been successfully
deployed from the launch vehicle. There can be no assurance that additional
satellites and launches will not be required. In such an event, in addition to
the replacement costs incurred by Globalstar, the date for commencement of full
commercial operations may be delayed.
Substantial Leverage. Globalstar has entered into an agreement with a bank
syndicate for a $250 million credit facility expiring on December 15, 2000 (the
"Globalstar Credit Agreement"). Globalstar also
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<PAGE> 18
expects to utilize $310 million of committed vendor financing provided by SS/L
and its subcontractors. In March and April, 1996, Globalstar received net
proceeds of $300 million from the offering of GTL 6 1/2% Convertible Preferred
Equivalent Obligations due March 1, 2006. Significant additional debt is
expected to be incurred in the future. As a result, Globalstar will be highly
leveraged. Globalstar will be dependent on its cash flow from operations to
service this debt. Any significant delay in the commencement of operations will
adversely affect Globalstar's ability to service its debt obligations. The
Globalstar Credit Agreement and other debt financing that Globalstar may incur
in the future may restrict or limit Globalstar's ability to make payments,
including distributions to its partners, including the Company, incurring
additional indebtedness and entering into certain other transactions. There can
be no assurance that Globalstar's leverage and such restrictions will not
materially and adversely affect Globalstar's ability to finance its future
operations or capital needs or to engage in other business activities.
Competition. Competition in the telecommunications industry is intense,
fueled by rapid and continuous technological advances and alliances between
industry participants on an international scale. Although no present industry
participant is currently providing the same global personal telecommunications
service expected to be provided by Globalstar, it is anticipated that one or
more additional competing MSS systems will be launched and that the success, or
anticipated success, of Globalstar and its competitors could attract other
entrants. If any of Globalstar's competitors succeed in marketing and deploying
their systems substantially earlier than Globalstar, Globalstar's ability to
compete in areas served by such competitors may be adversely affected. A number
of satellite-based telecommunications systems have also been proposed, using
geostationary satellites, or, in one case, a mid-earth orbit system.
Some of these potential competitors have financial, personnel and other
resources substantially greater than those of Globalstar. Many of these
competitors are raising capital and may compete with Globalstar for service
providers and financing. Technological advances and a continuing trend toward
strategic alliances in the telecommunications industry could give rise to
significant new competitors. There can be no assurance that some of these
competitors will not provide a more efficient or less expensive service.
However, Globalstar believes that based upon the public FCC filings of the other
MSS applicants, Globalstar will be a low-cost provider.
Satellite-based telecommunications systems are characterized by high
up-front costs and relatively low marginal costs of providing service. Several
systems are being presently proposed, and, while the proponents of these systems
foresee substantial demand for the services they will provide, the actual level
of demand will not become known until such systems are constructed, launched and
begin operations. If the capacity of Globalstar and any competing systems
exceeds demand, price competition could be particularly intense.
Compliance with European Union Competition Laws. European Union
competition law proscribes agreements that have the effect of appreciably
restricting or distorting competition in the European Union. Globalstar has
received an inquiry from the Commission of the European Union requesting
information regarding its activities. A violation of European Union law could
subject Globalstar to fines or enforcement actions that could result in expenses
to Globalstar, delay the commencement of Globalstar service in western Europe,
and/or depending on the circumstances, adversely affect Globalstar's contractual
rights vis-a-vis its European strategic partners. In addition, the Commission
has proposed legislation at the European Union level which, if adopted, would
give the Commission broad regulatory authority over "satellite PCS" systems such
as Globalstar. The Commission's investigation and proposed legislation are in
their preliminary stages, and the Company is unable to predict what effect, if
any, the results of such investigation or proposed legislation may have on
Globalstar's operations.
Future Operating Risks. Globalstar's ability to succeed after commencement
of operations will depend upon numerous factors, including the cooperation,
operational and marketing efficiency, competitiveness, finances and regulatory
status of Globalstar's service providers, who are the parties responsible for
obtaining all necessary local regulatory approval for, and the marketing and
distribution of, Globalstar service. Subscriber acceptance of the Globalstar
System, which is dependent upon price, demand for service and the availability
of alternatives, will also have a direct impact on Globalstar's operations and
cash flow. Because Globalstar's largest potential markets are in developing
countries, Globalstar and its service providers may face market, inflation,
interest rate and currency fluctuation, government policy, expropriation and
other economic, political
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<PAGE> 19
or diplomatic conditions that are significantly more volatile than those
commonly experienced in the United States and other industrialized countries.
Globalstar may also incur risks related to currency fluctuations as a result of
operations in such countries. Pricing risks, whether arising from the recent
downward pricing trend in the telecommunications industry or the limitations on
Globalstar's ability to increase its pricing to service providers, may result in
a material adverse effect on Globalstar's business.
Risk of Accelerated Build-Out and Competing Technological Advances. It is
expected that as land-based telecommunications services expand to regions
currently underserved or not served by wireline or cellular services, demand for
Globalstar service in those regions may be reduced. If such systems are
constructed at a more rapid rate than that anticipated by Globalstar, the demand
for Globalstar service may be reduced at rates higher than those assumed in
Globalstar's market analysis. Globalstar may also face competition in the future
from companies using new technologies and new satellite systems. New technology
could render Globalstar obsolete or less competitive by satisfying consumer
demand in alternative ways or through the introduction of incompatible
telecommunications standards. A number of these new technologies, even if they
are not ultimately successful, could have an adverse effect on Globalstar as a
result of their initial marketing efforts. Globalstar's business would be
adversely affected if competitors begin operations or existing or new
telecommunications service providers penetrate Globalstar's target markets
before completion of the Globalstar System.
SS/L
Dependence on Limited Number of Customers and Programs. The Company
historically has derived a large portion of its total revenues from a limited
number of customers. Sales to the U.S. government represented 10%, 23% and 23%
of revenues from contracts for the years ended March 31, 1996, 1995 and 1994,
respectively. Sales to foreign customers, primarily in Asia, represented 27%,
15% and 31% of revenues from contracts for the years ended March 31, 1996, 1995
and 1994, respectively. In 1996, two commercial customers represented 30% and
13% of revenues from contracts. In 1995, four commercial customers represented
23%, 20%, 15% and 13% of revenues from contracts. Two commercial customers
represented 35% and 29% of revenues from contracts in 1994.
Although SS/L is currently pursuing a significant number of new programs,
there can be no assurance that SS/L will be successful in capturing any of these
new programs to replace the revenue lost by the completion of its current
programs. Certain of SS/L's customers prefer to alternate satellite
manufacturers they employ in order to reduce dependence on any single
manufacturer. This may have an adverse effect on SS/L's ability to obtain future
program awards from its current customers.
Competition. Competition in the commercial satellite industry is intense.
Among SS/L's significant competitors are Hughes, Lockheed Martin, Matra Marconi
and TRW. Some of SS/L's competitors have significantly greater financial,
manufacturing, marketing and technical resources than those of SS/L. To the
extent these companies offer products and services that are more sophisticated,
cost-effective, efficient or reliable than those now offered or to be offered by
SS/L, they could have a material adverse effect on SS/L. Further, SS/L's
telecommunications satellites face competition from alternative technologies,
including fiber optic cable technology, which could reduce demand for the
services of SS/L's customers and thus for SS/L's telecommunications products.
Risk of Loss of Revenues Due to Satellite Malfunction or Launch
Failure. Certain of SS/L's contracts provide that up to one-quarter of the
total contract price is payable in the form of orbital payments, earned during
the life of the satellite in orbit as its mission is performed. Although SS/L
generally receives the present value of orbital payments in the event of launch
failure or a failure caused by an operator error by the customer, it forfeits
orbital revenues in the event of a loss caused by system failure or an error on
its part. While insurance against loss of orbital revenues has been available in
the past, its cost and availability are subject to substantial fluctuations. In
addition, SS/L is prohibited under agreements with certain of its customers from
insuring its orbital incentives. Moreover, certain of SS/L's contracts call for
on-orbit delivery, allocating launch risk to SS/L. It is SS/L's intention to
obtain insurance for this exposure. However, SS/L cannot predict whether, and
there can be no assurance that, insurance against launch failure and loss of
orbital revenues will continue to be available on commercially reasonable terms.
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<PAGE> 20
Regulation. The ability of SS/L and its customers to pursue their business
activities is regulated by various agencies and departments of the U.S.
government. Operation of commercial communications satellites requires licenses
from the FCC and frequently requires the approval of foreign regulatory
authorities as well. Private land remote sensing satellites require a license
from the Department of Commerce. Exports of space-related products, services and
technical information frequently require licenses from the Department of State
or the Department of Commerce. There is no assurance that SS/L or its customers
will be able to obtain necessary licenses or regulatory approvals. The inability
of SS/L or its customers to secure any necessary licenses or approvals could
have a material adverse effect on its business.
SS/L and the Alliance Partners have entered into a memorandum of agreement
with the U.S. Department of Defense ("DOD") with respect to security matters. In
addition, because the Alliance Partners are foreign entities, two of which are
owned and controlled by foreign governments, SS/L is subject to certain
regulations and to U.S. government oversight to which it would not be subject if
substantially all of its stockholders were United States citizens.
Dependence on Subcontractors and Alliance Partners. SS/L depends on other
companies, including its Alliance Partners, for the development and manufacture
of various products that are material to its business. The failure of a
subcontractor to perform at expected levels could under certain circumstances
have a material adverse effect on SS/L's profitability and its ability to win
future program awards.
Dependence on Long-Term Fixed-Price Contracts. The financial results of
long-term fixed-price contracts are recognized using the cost-to-cost
percentage-of-completion method. Revisions in revenue and profit estimates are
reflected in the period in which the conditions that require the revision become
known and are estimable. Adjustments for profits or losses may therefore have a
material effect on results for the quarter in question. The risks inherent in
long-term fixed-price contracts include the forecasting costs and schedules,
contract revenues related to contract performance (including revenues from
orbital payments) and the potential for component obsolescence in connection
with long-term procurements.
Competitive Bidding. SS/L generally obtains its contracts through the
process of competitive bidding. There can be no assurance that SS/L will
continue to be successful in having its bids accepted or, if accepted, that
awarded contracts will generate sufficient revenues to result in profitability
for SS/L. SS/L has in the past submitted bids which would result in minimal or
no profitability due to a high level of non-recurring engineering costs. Such
contracts are generally bid with the expectation of more profitable follow-on
satellite contracts as to which there is generally no contractual assurance in
advance. To the extent that actual costs exceed the projected costs on which
bids or contract prices were based, SS/L's profitability could be materially
adversely affected.
Launch Vehicle Access. SS/L's ability to perform its on-orbit delivery
contracts depends on the timely availability of appropriate launch vehicles and
the availability of the requisite launch insurance. In the past, launch slots
have been in limited supply, and the launch insurance market has been subject to
considerable fluctuation. Moreover, the availability and pricing of launch
vehicles from the former Soviet Union and the People's Republic of China are
effected by U.S. government policies and international agreements. To the extent
appropriate launch services and insurance become unavailable or prohibitively
expensive, SS/L's business would be materially adversely affected.
Technological Developments. The nature of the commercial satellite
industry is such that, with each new generation of satellites, satellite
manufacturers are expected to offer substantial improvements and innovations at
lower effective cost. SS/L's success therefore depends on its ability to design,
manufacture and introduce innovative new products and services on a
cost-effective and timely basis. There can be no assurance that SS/L will be
able to continue to achieve the technological advances necessary to remain
competitive or that its products will not be subject to technological
obsolescence.
ITEM 2. PROPERTIES
The Company sub-leases office space from Lockheed Martin at 600 Third
Avenue, New York, New York 10016 sufficient to allow it to carry on its
operations.
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<PAGE> 21
Globalstar currently leases approximately 56,000 square feet of office
space in San Jose, California from a subsidiary of Lockheed Martin.
SS/L's research production and testing facilities are carried on in
SS/L-owned facilities covering approximately 28.4 acres in Palo Alto,
California. In addition, SS/L leases 371,000 square feet of space from various
third parties.
ITEM 3. LEGAL PROCEEDINGS
CCD Lawsuits. On September 12, 1991, Loral Fairchild Corp. ("Loral
Fairchild"), a subsidiary of Loral, filed suit (the "CCD Lawsuit") against a
number of companies including Sony Corporation ("Sony"), Matsushita Electronics
Corporation ("Matsushita") and NEC Corp. ("NEC") claiming that such companies
had infringed Loral Fairchild's patents for a "charged coupled device" ("CCD"),
commonly used as an optical sensor in video cameras and fax machines. Although
the CCD patents have expired, Loral Fairchild is seeking reasonable royalties
through the expiration date from a number of defendants. On February 22, 1996, a
jury in the United States District Court for the Eastern District of New York
found unanimously that Sony had infringed the CCD patents. After a trial on
certain equitable defenses, the case will be certified for interlocutory appeal
and, thereafter, a jury trial will be held on the issue of damages. Loral
Fairchild's claims against other defendants remain pending. Matsushita has been
granted a declaratory judgment that it has a valid and enforceable license under
the CCD patents. In addition, a trial on Matsushita's claim against Loral
Fairchild for tortious interference is expected to begin on July 22, 1996.
Lockheed Martin has agreed in connection with the Merger to grant to the
Company the right to all proceeds or awards resulting from the CCD Lawsuit as
well as complete and exclusive control and management thereof. The Company has
agreed to pay all fees and expenses relating to the CCD Lawsuit and to indemnify
Lockheed Martin and Loral from any losses relating thereto.
None of the Operating Affiliates is a party to any pending legal
proceedings material to its financial condition or results of operation.
Environmental Regulation. Manufacturing operations managed by corporations
in which the Company has an interest are subject to regulation by various
federal, state and local agencies concerned with environmental control. The
Company believes that these facilities are in substantial compliance with all
existing federal, state and local environmental regulations. With regard to
certain sites, environmental remediation is being performed by prior owners who
retained liability for such remediation arising from occurrences during their
period of ownership. To date, these prior owners have been fulfilling such
obligations and the size and current financial condition of the prior owners
make it probable that they will be able to complete their remediation
obligations without cost to the Company or its Operating Affiliates.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS
(A) MARKET PRICE AND DIVIDEND INFORMATION
The Company's common stock is listed on the NYSE under the symbol LOR and
began trading on April 15, 1996 on a when-issued basis.
The Company does not currently anticipate paying any dividends or
distributions prior to the time that Globalstar commences operations and
achieves positive cash flow. To date, neither Globalstar nor SS/L has paid any
dividends or distributions since their respective dates of inception. Globalstar
intends to distribute to its partners its net cash received from operations,
less amounts required to repay outstanding indebtedness, pay
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<PAGE> 22
distributions on its Redeemable Preferred Partnership Interests, satisfy other
liabilities and fund capital expenditures. The Globalstar Credit Agreement and
the SS/L credit facility impose restrictions on Globalstar's and SS/L's
respective ability to pay distributions or dividends to its partners and
stockholders, including to the Company.
(B) APPROXIMATE NUMBER OF HOLDERS OF COMMON STOCK
At May 31, 1996, there were approximately 5,950 holders of record of the
Company's common stock.
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data has been derived from, and should be
read in conjunction with, the related financial statements. Historical
information for Loral Space & Communications Ltd. represents the space and
communications operations of Loral Corporation.
LORAL SPACE & COMMUNICATIONS LTD.
(IN THOUSANDS)
<TABLE>
<CAPTION>
AS OF AND FOR THE YEARS ENDED MARCH 31,
-----------------------------------------------------------------
ACTUAL
PRO FORMA ----------------------------------------------------
1996(1) 1996 1995 1994 1993 1992
---------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Management fee from affiliate.... $ 5,608 $ 5,608 $ 3,169 $ 2,981 $ 2,576 $ 1,953
Equity in net income (loss) of
affiliates(2).................. (16,936) (8,628) (8,988) 1,174 663 (1,319)
Loss before cumulative effect of
accounting change(3)........... (32,349) (13,785) (7,873) (3,694) (5,242) (4,992)
Net loss......................... (32,349) (13,785) (7,873) (3,694) (12,001) (4,992)
BALANCE SHEET DATA:
Cash and cash equivalents........ $ 612,286 $ -- $ -- $ -- $ -- $ --
Investment in Globalstar(2)...... 197,646 195,221 110,970 25,288 -- --
Investment in SS/L............... 144,051 144,051 140,007 138,191 137,017 133,669
Total assets..................... 1,001,638 354,384 251,819 163,479 137,017 133,669
Long-term debt................... -- -- -- -- -- --
Invested equity.................. -- 354,384 251,819 159,198 137,017 133,669
Shareholders' equity............. 988,638
</TABLE>
- ---------------
(1) The pro forma information includes certain adjustments to the historical
information of the space and communications operations of Loral Corporation
reflecting the Merger (see Note 1 to Loral Space & Communications Ltd.
Balance Sheet).
(2) Globalstar commenced operations on March 23, 1994.
(3) Before the effect of adopting Statement of Financial Accounting Standards
No. 106 "Accounting for Postretirement Benefits Other than Pensions," in
fiscal 1993 net of related income taxes.
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SELECTED FINANCIAL DATA (CONTINUED)
GLOBALSTAR, L.P.
(A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS CUMULATIVE
ENDED MARCH 23 MARCH 23, 1994
MARCH 31, (COMMENCEMENT (COMMENCEMENT
----------------- YEAR ENDED OF OPERATIONS) TO OF OPERATIONS) TO
1996 1995 DECEMBER 31, 1995 DECEMBER 31, 1994 MARCH 31, 1996
------- ------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues....................... $ -- $ -- $ -- $ -- $ --
Operating expenses............. 15,401 19,395 80,226 28,027 123,654
Interest income................ 1,449 2,159 11,989 1,783 15,221
Net loss....................... 13,952 17,236 68,237 26,244 108,433
Preferred distribution and
related increase on
redeemable preferred
partnership interests........ 1,424 -- -- -- 1,424
Net loss applicable to ordinary
partnership interests........ 15,376 17,236 68,237 26,244 109,857
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, ---------------------
1996 1995 1994
--------- -------- --------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.................................. $ 247,108 $ 71,602 $ 73,560
Working capital............................................ 206,786 17,687 35,423
Globalstar System Under Construction....................... 508,822 400,257 71,996
Total assets............................................... 791,674 505,391 151,271
Vendor financing liability................................. 61,584 42,219 --
Partners' capital.......................................... 662,886 386,838 112,944
</TABLE>
SPACE SYSTEMS/LORAL, INC.
(IN THOUSANDS)
<TABLE>
<CAPTION>
AS OF AND FOR THE YEARS ENDED MARCH 31,
------------------------------------------------------
1996 1995 1994 1993 1992
---------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues................................... $1,121,619 $633,717 $596,267 $517,242 $390,583
Gross profit............................... 34,406 27,785 24,964 19,855 14,851
Income (loss) before cumulative effect of
change in accounting(1).................. 12,367 5,554 3,591 2,594 (2,586)
Net income (loss).......................... 12,367 5,554 3,591 (18,076) (2,586)
BALANCE SHEET DATA:
Cash and cash equivalents.................. $ 126,863 $ 52,222 $ 26,578 $ 10,121 $ 8,420
Total assets............................... 908,677 766,475 743,016 640,499 579,647
Long-term debt............................. 65,052 34,040 92,249 73,000 141,000
Shareholders' equity....................... 447,868 435,501 429,947 426,356 327,765
</TABLE>
- ---------------
(1) Before the effect of adopting Statement of Financial Accounting Standards
No. 106 "Accounting for Postretirement Benefits Other than Pensions" in
fiscal 1993 net of related income taxes.
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<PAGE> 24
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Except for the historical information contained herein, the matters
discussed in the following Management's Discussion and Analysis of Financial
Condition and Results of Operations of the Company, Globalstar and SS/L, and
elsewhere in this Form 10-K, are forward-looking statements that involve risks
and uncertainties, many of which may be beyond the companies' control. The
actual results that the companies achieve may differ materially from any
forward-looking projections due to such risks and uncertainties.
LORAL SPACE & COMMUNICATIONS LTD.
Loral SpaceCom manages and is the largest equity owner of both Globalstar
and SS/L. The Company will also act as a Globalstar service provider in Canada,
Brazil and Mexico, and is evaluating additional satellite-based service
opportunities. Loral SpaceCom was formed to effectuate the distribution of
Loral's space and telecommunications businesses to shareholders of Loral and
holders of options to purchase Loral common stock pursuant to a merger agreement
(the "Merger") dated January 7, 1996 between Loral and Lockheed Martin. The
Distribution of approximately 183.6 million shares of Loral SpaceCom common
stock was made on April 23, 1996. In connection with the Distribution, Lockheed
Martin contributed $612 million in cash to the Company. Of the amount
contributed, $344 million represented the purchase of a 20% fully-diluted equity
interest in the Company in the form of Loral SpaceCom Series A Convertible
Preferred Stock. Such stock is subject to certain voting limitations,
restrictions on transfer and standstill provisions.
Loral SpaceCom records its investments in Globalstar and SS/L using the
equity method of accounting. Accordingly, Loral SpaceCom's results of operations
reflects its proportionate share of the results of operations of its affiliates
on an equity accounting basis. References to Loral SpaceCom or the Company prior
to the Distribution refer to the space and communications operations of Loral
Corporation. Included separately are the Management's Discussion and Analysis of
Financial Condition and Results of Operations ("MD&A") for Globalstar and SS/L.
The MD&A for Loral SpaceCom should be read in conjunction with the MD&As of
Globalstar and SS/L.
LIQUIDITY AND CAPITAL RESOURCES
Loral SpaceCom commenced operations on April 23, 1996 with $612 million of
unrestricted cash, investments in affiliates totaling $342 million, $13 million
in liabilities and shareholders' equity of $989 million.
Loral SpaceCom intends to utilize its existing capital base and access to
the capital markets to support the financing requirements of the Operating
Affiliates (principally Globalstar) and to finance new business opportunities in
satellite-based communications either directly or through the Operating
Affiliates. It is also anticipated that the Operating Affiliates will directly
access the capital markets to satisfy their own financing requirements, and may
further seek financial support from their strategic partners, including the
Company. Loral SpaceCom's Operating Affiliates are currently financed without
recourse to Loral SpaceCom other than the $56.3 million indemnification provided
to Lockheed Martin in connection with the Globalstar Credit Agreement.
Loral SpaceCom's Operating Affiliates have no history of paying dividends
and are not expected to pay dividends in the near future. The Globalstar Credit
Agreement and the SS/L credit facility impose restrictions on Globalstar's and
SS/L's respective ability to pay distributions or dividends to its partners and
stockholders. In addition, Globalstar does not expect to make distributions
prior to the time it commences full commercial operations. It is anticipated
that Loral SpaceCom will initially fund its operating requirements (principally
consisting of management compensation and corporate overhead expenses) from
interest income generated from the temporary investment of cash balances and the
receipt of SS/L management fees.
As part of its investment in Globalstar, Loral SpaceCom, as a founding
service provider, acquired exclusive service provider rights to Mexico and
Brazil. Further, in June 1995, Loral SpaceCom paid Globalstar an initial $9.8
million for exclusive service provider rights to Canada. Loral SpaceCom, in
joint
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<PAGE> 25
venture with local telephony service providers and international
telecommunications businesses, intends to establish Globalstar service
operations in such territories.
In September 1994, Loral Corporation exchanged its holdings in K&F's
convertible subordinated debentures for cash and common stock representing a
22.5% equity interest in K&F. (See Note 3 to the Loral Corporation -- Space and
Communications Operations Financial Statements, (the "Financial Statements").
K&F is principally engaged in the manufacture of aircraft braking systems for
commercial and military aircraft.
Cash Provided and Used. Cash used in operating activities for the years
ended March 31, 1996, 1995 and 1994 was $1.3 million, $8.4 million and $.6
million, respectively, primarily due to the items discussed in Results of
Operations, below.
Cash used in investing activities for the years ended March 31, 1996, 1995
and 1994 was $115.0 million, $92.1 million and $25.3 million, respectively,
primarily due to investments in Globalstar. Investments in Globalstar totaled
$105.2 million, $103.6 million and $25.3 million in the years ended March 31,
1996, 1995 and 1994 respectively, and include an aggregate of $10.3 million of
capitalized costs, principally interest.
Net cash provided by financing activities for the years ended March 31,
1996, 1995 and 1994 was $116.3 million, $100.5 million and $25.9 million,
respectively, representing the advances from Loral Corporation to fund the
above-mentioned activities.
Investment in Globalstar. At March 31, 1996 Loral SpaceCom's investment in
Globalstar was $195.2 million. (See Note 3 to the Financial Statements.)
Additionally, Loral SpaceCom holds an indirect 1.4% interest in Globalstar
through its ownership of SS/L.
Globalstar is building and preparing to launch and operate a worldwide,
low-earth orbit satellite-based digital telecommunications system. The
Globalstar System has an estimated total cost of $2.2 billion for capital
expenditures, development costs and operating costs through the end of 1998,
when full commercial service is scheduled to commence. Globalstar has raised a
total of $1.4 billion of financing consisting of $480 million of equity, $310
million of vendor financing, a $250 million bank credit facility, commitments
for $33 million of service provider advance payments, net proceeds of $300
million from the sale of GTL 6 1/2% Convertible Preferred Equivalent
Obligations. (See Note 3 to the Financial Statements.) Globalstar estimates that
it will require an additional $414 million to complete its external financing
requirements and that its remaining financing requirement will come from a
combination of sources, including advance payments from service providers,
anticipated payments associated with the sale of Globalstar Phones and gateways,
placements of limited partnership interests with new and existing strategic
investors and from net service revenues from initial operations.
Commencing on the In-Service Date, as defined, Globalstar will allocate to
its managing general partner an amount equal to 2.5% of Globalstar's revenues up
to $500 million plus 3.5% of revenues in excess of $500 million. Loral SpaceCom
and Qualcomm will receive 80% and 20% of such allocation, respectively.
Globalstar has not made any cash distributions to date, and none are anticipated
prior to 1999.
On December 15, 1995, Globalstar entered into a $250 million credit
agreement with a group of banks (the "Globalstar Credit Agreement"). The
Globalstar Credit Agreement provides that Globalstar may select loans at varying
interest rates, including the Eurodollar rate plus 5/8%. Globalstar pays a
commitment fee on the unused portion. The Globalstar Credit Agreement contains
covenants requiring Globalstar to meet certain financial ratios including
minimum net worth of $200 million and limits additional indebtedness and the
payment of cash distributions. The Globalstar Credit Agreement expires on
December 15, 2000.
Following the consummation of the Merger, Lockheed Martin guaranteed $206.3
million of Globalstar's obligation under the Globalstar Credit Agreement, and
SS/L and certain other Globalstar strategic partners guaranteed $11.7 million
and $32 million, respectively, of Globalstar's obligation. In addition, Loral
SpaceCom has agreed to indemnify Lockheed Martin for liability in excess of $150
million under Lockheed Martin's guarantee.
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<PAGE> 26
In connection with such guarantees and indemnity of the Globalstar Credit
Agreement, GTL issued to Loral SpaceCom, Lockheed Martin, SS/L and the other
strategic partners participating in such guarantee or indemnity, warrants (the
"GTL Guarantee Warrants") to purchase 4,185,318 shares of GTL common stock. The
GTL Guarantee Warrants have an exercise price of $26.50, are subject to certain
vesting requirements, expire on April 19, 2003, are not exercisable until six
months after Globalstar commences initial operations unless accelerated at the
sole discretion of the managing general partner of Globalstar and may not be
transferred to third parties prior to such exercise date. In connection with the
issuance of GTL Guarantee Warrants, GTL received (i) warrants to acquire
4,185,318 ordinary partnership interests in Globalstar plus (ii) additional
warrants (the "Additional Warrants") to purchase an additional 1,131,168
ordinary partnership interests, on terms and conditions generally similar to
those of the GTL Guarantee Warrants. In addition, Globalstar has also agreed to
pay to Loral SpaceCom and the other guaranteeing partners a fee equal to 1.5%
per annum of the average quarterly amount outstanding under the Globalstar
Credit Agreement.
Investment in SS/L. The Company currently holds 32.7% of the economic
interest in SS/L. (See Note 3 to the Financial Statements.) SS/L is engaged in
the design, manufacture and systems integration for telecommunications, weather
and direct broadcast television satellites. A subsidiary of Loral SpaceCom is
paid a management fee from SS/L based on SS/L's total adjusted revenues.
SS/L is the prime contractor for the design and construction of
Globalstar's 56 satellites. In connection therewith, SS/L and its subcontractors
have committed $310 million of vendor financing to Globalstar, of which $121
million of such vendor financing is effectively borne by the subcontractors. As
of March 31, 1996, $62 million of such vendor financing has been utilized by
Globalstar.
In 1991 and 1992, Loral Corporation sold 49% of SS/L's equity to four
European companies involved in aerospace, telecommunications and space
communications (the "Alliance Partners"). Under a stockholders agreement, a
change of control of Loral Corporation within the meaning of such agreement
would provide each of the Alliance Partners with the right to (i) put their
equity interests back to SS/L at fair market value, or (ii) purchase a pro rata
share of Loral's equity interest in SS/L for fair market value (subject to
receiving certain authorizations including U.S. government approval). While it
is not certain that the change of control provisions are applicable, the Company
and SS/L are seeking an amendment to the stockholders agreement acknowledging
the transfer of Loral's interests in SS/L to Loral SpaceCom and a waiver of any
applicable put and purchase option rights. In the event that any of SS/L's
Alliance Partners put their interests back to SS/L, Loral SpaceCom will acquire
such interests. The Company does not expect all the Alliance Partners to
exercise their put rights in connection with the Distribution, but, if all such
put rights, if any, were exercised, the Company believes its obligations
pursuant to these rights would be less than $250 million.
Certain partnerships affiliated with Lehman Brothers Inc. (the "Lehman
Partnerships") hold Series S Preferred Stock of a Loral SpaceCom subsidiary.
Each share of Series S Preferred Stock represents a beneficial interest in one
share of common stock of SS/L. As a result of the issuance of the Series S
Preferred Stock, the Lehman Partnerships have no economic interest in the
subsidiary other than with respect to the SS/L operations. If the Lehman
Partnerships continue to hold the Series S Preferred Stock after January 1, 1998
or after a change in control of the Company, they will have the right to request
that the Company purchase their Series S Preferred Stock at fair market value.
In such event, the Company may elect to purchase such Series S Preferred Stock
at fair market value, or if the Company elects not to purchase the stock, the
Lehman Partnerships may require the combined interests of the Company and the
Lehman Partnerships in SS/L to be sold to a third party. (See Notes 3 and 7 to
the Financial Statements.) The Lehman Partnerships have advised the Company that
they do not intend to request that the Company purchase their Series S Preferred
Stock. The Company currently has no intention of selling its interest in SS/L.
Other Business Opportunities. Loral SpaceCom is currently evaluating
several new business initiatives including joint ventures to provide
"direct-to-home" ("DTH") television service in certain regions of the world, a
proposed digital communications service using a high-speed, satellite-delivered
communications system called CyberStar and a proposed hybrid communications
satellite. These ventures are in formative
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stages and there can be no assurance that they will be further developed or
licensed, or that the necessary capital to complete such ventures will be
available.
RESULTS OF OPERATIONS
The results of operations include the proportionate share of net income
(loss) of Globalstar and SS/L using the equity method of accounting. Such
results also include certain allocated costs and expenses representing an
allocation of Loral Corporation corporate office expenses based primarily on the
allocation methodology prescribed by government regulations pertaining to
government contractors. Allocated interest expense has been based on Loral
Corporation's actual weighted average debt rate applied to the average
investment in affiliate balance during the period. Accordingly, such results of
operations are not necessarily representative of all revenues and expenses that
would have occurred had the Space and Communications Operations been an
independent entity. Additionally, such results of operations exclude certain
revenues and expenses anticipated when Loral SpaceCom commences operations such
as interest income from the temporary investment of $612 million of cash
balances and other additional operating expenses.
Future operating results of Loral SpaceCom will be dependent on a number of
factors including the results of operations of the Operating Affiliates, the
level of corporate operating expenses, the utilization of the available cash
balances and the extent of interest income or other investment income. Loral
SpaceCom currently anticipates generating net income during the balance of
calendar year 1996; however, this result may be adversely impacted by the
outcome of these factors.
Taxation. Loral SpaceCom will be subject to U.S. federal, state and local
income taxation at regular corporate rates on any income from sources within the
United States that is effectively connected with the conduct of its U.S. trade
or business. When such income is deemed removed from the U.S. business, it will
be subject to an additional 30 percent "branch profits" tax. While, Loral
SpaceCom expects that most of its income from Globalstar will be from sources
outside the United States, some portion of such foreign source income will be
subject to taxation by certain foreign countries.
Also, any U.S. subsidiary formed to conduct Loral SpaceCom's U.S.
activities will be subject to U.S. taxation at regular corporate rates. In
addition, a 30% U.S. withholding tax will apply to dividends received from K&F,
SS/L, or any other U.S. corporation.
Furthermore, Loral SpaceCom has obtained an assurance from the Minister of
Finance under the Exempted Undertakings Tax Protection Act of 1996 that Bermuda
will not subject the company to any tax computed on profits or income, or
computed on any capital asset, gain or appreciation, or any tax in the nature of
estate duty or inheritance tax until at least March 28, 2016 except insofar as
such tax applies to persons ordinarily resident in Bermuda and holding such
shares, debentures or other obligations of the Company or any land leased or let
to the Company. As an exempted company, the Company is liable to pay in Bermuda
a registration fee based upon its authorized share capital and the premium on
its issued shares. Based upon the authorized share capital of the Company, the
annual registration fee payable by the Company will be $15,000.
Comparison of Results for the Years Ended March 31, 1996 and March 31, 1995
The results of operations reflect a net loss of $13.8 million for the year
ended March 31, 1996 as compared to a net loss of $7.9 million for 1995. The
increase in the 1996 loss is primarily due to the 1995 non-recurring gain of
$6.9 million net of taxes resulting from the exchange of K&F debentures for cash
and equity (see Note 3 to the Financial Statements).
Management fees earned from SS/L are based on a percentage of SS/L's
revenues, as defined. During fiscal 1996, management fees totaled $5.6 million
as compared to $3.2 million in 1995 reflecting an increase in SS/L's revenues to
$1.1 billion in 1996 from $633.7 million in 1995.
Allocated costs and expenses decreased to $3.0 million in 1996 from $3.2
million in 1995 due to changes in both the level of Loral Corporation corporate
office expenses and changes in the proportional factors within the allocation
formula. Allocated interest expense increased to $10.5 million in 1996 from $9.5
million in 1995,
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primarily as a result of Loral Corporation's increased effective borrowing rate
applied to its investment in SS/L.
For the year ended March 31, 1996, the effective income tax rate was
(35.0)% compared to 44.9% in 1995. The change in the effective rate for 1996 as
compared to 1995 is primarily a result of the proportionate impact of taxes on
undistributed earnings of affiliates (SS/L) for the year.
The equity in net loss of affiliates in 1996 of $8.6 million as compared to
$9.0 million in 1995 reflects Loral SpaceCom's proportionate share of higher
Globalstar costs for the design, development and construction of the Globalstar
System offset by the proportionate share of higher SS/L income.
Comparison of Results for the Fiscal Years Ended March 31, 1995 and March 31,
1994
The results of operations reflect a net loss of $7.9 million for the year
ended March 31, 1995 as compared to a net loss of $3.7 million for 1994. The
increase in the 1995 loss is primarily due to the equity in net loss of
Globalstar of $10.8 million offset by the non-recurring gain of $6.9 million net
of taxes resulting from the exchange of K&F debentures for cash and equity. (See
Note 3 to the Financial Statements.)
Management fees during the fiscal years ended March 31, 1995 and 1994 of
$3.2 million and $3.0 million, respectively, represent management fees earned
from SS/L reflecting SS/L's total revenues which increased to $633.7 million in
1995 from $596.3 million in 1994.
Allocated costs and expenses increased to $3.2 million in 1995 from $2.6
million in 1994 due to changes in both the level of Loral Corporation corporate
office expenses and changes in the proportional factors within the allocation
formula. Allocated interest expense increased to $9.5 million in 1995 from $8.3
million in 1994, primarily as a result of Loral Corporation's increased
effective borrowing rate applied to its investment in SS/L.
For the year ended March 31, 1995, the effective income tax rate was 44.9%
compared to 38% in 1994. The increase in the 1995 effective rate resulted from
the increase in the proportionate impact of taxes on undistributed earnings of
affiliates (SS/L) for the year.
The equity in net loss of affiliates in 1995 of $9.0 million as compared to
equity in net income of $1.2 million in 1994 reflects Loral SpaceCom's
proportionate share of Globalstar's costs for the design, development and
construction of the Globalstar System.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF GLOBALSTAR
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1996, cash and cash equivalents increased to $247.1 million
from $71.6 million at December 31, 1995. The net increase is a result of the
receipt of $290.0 million from the sale of 4,615,385 Redeemable Preferred
Partnership Interests, advance payments received for option territories of $1.7
million and interest on outstanding cash balances of $1.4 million, offset by the
expenditures for operations and the Globalstar System Under Construction.
Payables to affiliates and accrued expenses decreased by $10.8 million from
$54.4 million to $43.6 million during the three months ended March 31, 1996, as
a result of the timing of payments to Globalstar contractors.
Globalstar anticipates that the cost for the design, construction and
deployment of the Globalstar System, excluding working capital, cash interest on
anticipated borrowings and operating expenses to be approximately $1.8 billion.
Actual amounts may vary from this estimate and additional funds would be
required in the event of unforeseen delays, cost overruns, launch failures or
other technological risks or adverse regulatory developments, or to meet
unanticipated expenses.
Through March 31, 1996, Globalstar incurred costs of approximately $612
million for the design and construction of the satellite constellation, launch
vehicle payments and portions of the two SOCCs, two GOCCs, Globalstar Phones and
four gateways that make up part of the Globalstar ground segment. Costs incurred
during the first quarter 1996 were approximately $121 million (including $19.4
million accrued under vendor financing arrangements) as satellite production
activities continued, including pre-production model construction and test,
parts procurement and subassembly construction of the satellites. Expenditures
for the GOCCs and SOCCs included costs for software integration and test. Total
1996 system costs are expected to approximate $566 million and include an
estimated $90.1 million of accrued costs under vendor financing arrangements.
Satellite production, integration and testing will continue during the year.
Ground Segment activities in 1996 will include the development of laboratory
prototypes of the Globalstar Phones and the completion of SOCC installation and
checkout.
In addition to the above capital requirements, Globalstar will require
funds for its working capital, interest and preferred distributions on the
Redeemable Preferred Partnership Interests and future financings, repayment of a
portion of vendor financing and operating expenses through the Full
Constellation Date, currently estimated to be approximately $293 million.
Globalstar and its strategic service providers intend to jointly finance
the procurement of 25 gateways and long-lead-time parts for 25 additional
gateways for resale to service providers, thereby accelerating the deployment of
gateways around the world prior to the In-Service Date. The cost of this program
before financing costs is expected to be approximately $160 million, of which
Globalstar has agreed to finance approximately $80 million. Globalstar expects
to recover its investment in this gateway financing program from the resale of
these gateways to service providers. Globalstar is presently evaluating a plan
to purchase long-lead-time component parts for possible use in constructing 6 to
12 additional satellites. The current estimated additional cost for these
components is approximately $75 to $120 million, depending upon the quantity
purchased. The plan has two purposes: (i) to enable Globalstar to have on-orbit
at least 38 to 44 satellites during 1999, even in the event of launch failures
of up to two launches of 12 satellites each, and (ii) to provide ground spares
that would be readily available to replenish the satellite constellation in the
event of satellite attrition during the first generation or if there are
opportunities for increasing capacity. If Globalstar were to experience a launch
failure, the long-lead-time components would be used to build replacement
satellites and the cost associated with the construction and launch of such
satellites would be reimbursed through insurance.
This information represents Globalstar's current anticipated cash
requirements. Actual amounts may vary from these estimates and additional funds
would be required in the event of unforeseen delays, cost overruns,
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launch failures or other technological risks or adverse regulatory developments,
or to meet unanticipated expenses.
Through March 31, 1996, Globalstar has obtained a total of $1.4 billion of
financing consisting of $480 million of equity, $310 million of vendor
financing, a $250 million credit facility (the "Globalstar Credit Agreement"),
guaranteed by certain parties, commitments for approximately $33 million of
advance payments associated with certain Globalstar service territories, net
proceeds of $290 million from the sale of Redeemable Preferred Partnership
Interests to GTL, which was purchased by GTL with the proceeds from the sale of
its 6 1/2% Convertible Preferred Equivalent Obligations (the "Securities") and
on April 3, 1996, an additional $9.7 million from the sale of Redeemable
Preferred Partnership Interests to GTL from the proceeds from an additional sale
of the Securities.
Globalstar believes that its current capital, vendor financing commitments
and the availability of the Globalstar Credit Agreement are sufficient to fund
its requirements into the first quarter of 1997. Of such financing commitments,
a substantial portion of the vendor financing will not be utilized until 1997
and 1998. Additional funds to complete the Globalstar System are expected to be
obtained through a combination of debt issuance (which may include an equity
component), projected service provider payments, projected net service revenues
from initial operations, anticipated payments received from the sale of gateways
and Globalstar Phones and placement of limited partnership interests with new
and existing strategic investors. Although Globalstar believes it will be able
to obtain this additional financing, there can be no assurance that the
financing will be available on favorable terms or on a timely basis, if at all.
RESULTS OF OPERATIONS
Comparison of Results for the Three Months Ended March 31, 1996 and 1995
Globalstar is a development stage partnership and has not commenced
commercial service operations. For the period March 23, 1994 (commencement of
operations) to March 31, 1996, Globalstar has recorded cumulative net losses of
$108.4 million. The net loss for the quarter ended March 31, 1996 decreased to
$14.0 million from $17.2 million in the quarter ended March 31, 1995 as a result
of timing of work performed by Globalstar contractors. Globalstar is expending
significant funds for the design, construction, testing and deployment of the
Globalstar System and expects such losses to continue until commencement of
service operations.
Globalstar has earned interest income of $15.2 million since commencement
of operations on cash balances and short term investments. Interest income for
the quarter ended March 31, 1996 was $1.4 million as compared to $2.2 million
earned during the quarter ended March 31, 1995. Interest income has decreased
from the quarter ended March 31, 1995 as a result of lower cash balances within
the quarter ended March 31, 1996.
Operating Expenses. Development costs of $11.4 million for the quarter
ended March 31, 1996, represent the development of certain technologies under a
cost sharing arrangement in Globalstar's contract with Qualcomm, the development
of Globalstar Phones and Globalstar's continuing in-house engineering. This
compares with $16.2 million of development costs incurred during the quarter
ended March 31, 1995.
Marketing, general and administrative expenses were $4.0 million for the
quarter ended March 31, 1996 as compared to $3.2 million incurred during the
quarter ended March 31, 1995. The increase from the quarter ended March 31, 1995
is a result of both increased marketing and personnel costs, consistent with the
higher level of activity at Globalstar.
Depreciation. Globalstar intends to capitalize all costs, including
interest as applicable, associated with the design, construction and deployment
of the Globalstar System, except costs associated with the development of the
Globalstar Phones and certain technologies under a cost sharing arrangement with
Qualcomm. Globalstar will not record depreciation expense on the Globalstar
System Under Construction until the commencement of initial service operations,
as assets are placed into service.
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Income Taxes. Globalstar was organized as a limited partnership. As such,
no income tax provision (benefit) is included in the accompanying financial
statements since U.S. income taxes are the responsibility of its partners.
Generally, taxable income (loss), deductions and credits of Globalstar will be
passed through to its partners.
Comparison of Results for the Year Ended December 31, 1995 to the Period March
23, 1994 (commencement of operations) to December 31, 1994
For the period March 23, 1994 (commencement of operations) to December 31,
1995, Globalstar has recorded cumulative net losses of $94.5 million. The net
loss for the year ended December 31, 1995 increased to $68.2 million from $26.2
million in the prior period March 23, 1994 (commencement of operations) to
December 31, 1994 (the "Prior Period"). Globalstar is expending significant
funds for the design, construction, testing and deployment of the Globalstar
System and expects such losses to continue until commencement of service
operations.
Globalstar has earned interest income amounting to $13.8 million since
commencement of operations on cash balances and short term investments. Interest
income for the year ended December 31, 1995 was $12.0 million as compared to
$1.8 million earned during the Prior Period. Interest income has increased
significantly from the Prior Period as a result of higher cash balances invested
due to the sale of 10,000,000 partnership interests to GTL for $185.8 million
during the first quarter and the receipt of payments against capital
subscriptions of $133.8 million.
Operating Expenses. Development costs of $62.9 million for the year ended
December 31, 1995, represent the development of certain technologies under a
cost sharing arrangement in Globalstar's contract with Qualcomm, the development
of Globalstar Phones and Globalstar's continuing in-house engineering. This
compares with $21.3 million of development costs incurred during the Prior
Period. The increase as compared to the Prior Period is primarily related to the
technologies being developed under the cost sharing arrangement with Qualcomm.
Marketing, general and administrative expenses were $17.4 million for the
year ended December 31, 1995 as compared to $6.7 million incurred during the
Prior Period. The increase from the Prior Period is a result of both increased
marketing and personnel costs consistent with the higher level of activity at
Globalstar.
Depreciation. Globalstar intends to capitalize all costs, including
interest as applicable, associated with the design, construction and deployment
of the Globalstar System, except costs associated with the development of
certain technologies under a cost sharing arrangement with Qualcomm and costs of
the Globalstar Phones. Globalstar will not record depreciation expense on the
Globalstar System under construction until the commencement of initial service
operations, as assets are placed into service.
Income Taxes. Globalstar was organized as a limited partnership. As such,
no income tax provision (benefit) is included in the accompanying financial
statements since U.S. income taxes are the responsibility of its partners.
Generally, taxable income (loss), deductions and credits of Globalstar will be
passed through to its partners.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF SS/L
LIQUIDITY AND CAPITAL RESOURCES
For the years ended March 31, 1996, 1995 and 1994, SS/L's operations
provided cash of $67.8 million, $115.8 million and $19.3 million, respectively.
For these same periods, income before depreciation, amortization, taxes,
minority interest and equity in loss of affiliates was $58.4 million, $48.7
million and $42.2 million, respectively. The significant fluctuations between
such amounts arise primarily from the timing of payments and advances received
and costs incurred on contracts in process including long-term receivables; such
changes increased (decreased) cash by $(47.7) million, $42.0 million and $(18.3)
million in the respective periods. It is common in the satellite industry that
certain contracts have terms deferring payment of a portion of the contract
price until delivery, or in some cases until after delivery, in the form of
orbitals. Contracts in process, net increased by $47.9 million in the year ended
March 31, 1996, primarily due to working capital requirements of various
commercial programs, offset by milestone payments received from customers.
Contracts in process, net decreased $44.0 million in the year ended March 31,
1995, primarily due to milestone payments received from customers and the
reallocation of long-term receivables related to orbitals, offset by working
capital requirements of various commercial programs. Long-term receivables
increased $10.2 million and $41.7 million in the years ended March 31, 1996 and
1995, respectively, due to increases in long-term receivables related to
orbitals primarily for the Intelsat VII series of satellites. Accounts payable,
accrued payroll and other current liabilities increased $76.0 million and $27.5
million in the years ended March 31, 1996 and 1995, respectively, primarily due
to increased payables to subcontractors for Globalstar and other commercial
programs. Customer advances increased by $10.4 million and $39.7 million in the
years ended March 31, 1996 and 1995, respectively, due to advances on new
program awards during the periods.
In the years ended March 31, 1996, 1995 and 1994, SS/L expended $24.2
million, $23.4 million and $22.6 million for capital equipment and facilities
expansion. In fiscal 1995 and 1994, SS/L contributed a total of $6.0 million for
an 11% limited partnership interest in LQSS, a general partner of Globalstar. In
fiscal 1995, SS/L also purchased a 5% interest in Orion Network Systems, Inc.
for $5.0 million.
Cash provided by (used in) financing activities for the years ended March
31, 1996, 1995 and 1994 was $31.0 million, $(58.2) million and $22.1 million,
respectively, primarily due to debt borrowings and repayment activities in each
of the periods.
At March 31, 1996, SS/L had cash and cash equivalents of $126.9 million and
had $65.1 million of long-term debt outstanding, with $171.6 million available
under its credit facilities. Under a revolving credit agreement with a group of
banks, interest is charged at various rates based on the lead bank's prime rate,
or margins over the Federal Funds rate or LIBOR, at SS/L's option. The LIBOR
interest rate is subject to a reduction of 1/10% on SS/L's achievement of a
certain financial covenant which has been achieved by SS/L.
SS/L believes its revolving credit agreement, which expires in December
1997, and other credit facilities are adequate to meet its financing needs for
the next twelve months. Subsequent to March 31, 1996, SS/L received
authorization under its credit facilities to permit the transaction under the
Distribution Agreement, described below.
In 1991 and 1992, Loral Corporation sold 49% of SS/L's equity to the
Alliance Partners. Under a stockholders agreement, a change of control of Loral
Corporation within the meaning of such agreement would provide each of the
Alliance Partners with the right to (i) put their equity interests back to SS/L
at fair market value, or (ii) purchase a pro rata share of Loral's equity
interest in SS/L for fair market value (subject to receiving certain
authorizations including U.S. government approval). While it is not certain that
the change of control provisions are applicable, the Company and SS/L are
seeking an amendment to the stockholders agreement acknowledging the transfer of
Loral's interests in SS/L to Loral SpaceCom. In the event that any of SS/L's
Alliance Partners put their interests back to SS/L, Loral SpaceCom will acquire
such interests. The Company does not expect all the Alliance Partners to
exercise their put rights, if any, in connection with the Distribution, but, if
all such put rights were exercised, the Company believes its obligations
pursuant to these rights would be less than $250 million.
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BACKLOG
Funded backlog at March 31, 1996 and 1995 was $1.2 billion. Approximately
74% of the total backlog was for six commercial contracts. Foreign customers
accounted for 29% and 43% of the total backlog in 1996 and 1995, respectively.
Awards for the year ended March 31, 1996 were $1.1 billion, primarily consisting
of bookings, including the design, fabrication, test and delivery of satellites
for the MCI/News Corp., PanAmSat 7 & 8 and Apstar IIR programs and specific
payload equipment for the Yamal, Sirius and Eutelsat programs. Awards also
include additional funding for the Globalstar, GOES and Space Station programs.
RESULTS OF OPERATIONS
Comparison of Results for the Fiscal Years Ended March 31, 1996 and March 31,
1995
During the year ended March 31, 1996, revenues from contracts increased to
$1.1 billion from $633.7 million for the year ended March 31, 1995. Gross profit
increased to $34.4 million from $27.8 million in the prior year. The changes in
sales and gross profit primarily result from a change in the current program mix
and increased sales volume for launch vehicles and risk management on programs
requiring in-orbit satellite delivery; such sales typically have
lower-than-average fee rates.
The increases in revenues are attributable to higher volume on commercial
satellite programs of $521.4 million, including the Globalstar program of $239.7
million, offset by lower volume on both the GOES weather satellite program of
$18.9 million and the Space Station program of $14.6 million.
Interest income net of interest expense increased $5.0 million to $6.3
million from $1.3 million for the same period in the prior year, primarily
attributable to increased investment income of $2.6 million resulting from
increased invested cash balances and $2.4 million of interest income associated
with orbital receipts.
Equity in net loss of affiliate represents SS/L's proportionate share of
Globalstar's net loss; SS/L made this investment in March 1994.
As a result of the above, net income increased to $12.4 million from $5.6
million in the comparable period of the prior year.
SS/L's effective tax rate decreased to 53.4% in fiscal 1996 from 62.2% in
the prior year. Income before income taxes increased in the same period from
$19.2 million to $28.4 million resulting in a decreased impact on the effective
tax rate of the non-deductible goodwill amortization and the losses of ISTI (see
Note 5 to the SS/L Financial Statements).
Comparison of Results for the Fiscal Years Ended March 31, 1995 and March 31,
1994.
During fiscal 1995, revenues from contracts increased to $633.7 million
from $596.3 million in the prior year. Net income increased to $5.6 million
compared with $3.6 million in the prior year.
The increase in revenues of $37.4 million is attributable to higher volume
on commercial satellite programs of $29.2 million, the Space Station program of
$4.6 million and the GOES weather satellite program of $3.6 million.
Gross profit increased to $27.8 million from $25.0 million in the prior
year. Gross profit as a percentage of sales increased to 4.4% from 4.2%,
resulting primarily from both the increase in sales volume and an increase in
gross margins on newly awarded programs.
Interest income, net of interest expense increased $2.7 million to $1.3
million from net expense of $1.4 million in the prior year, primarily resulting
from increased interest income from orbital receipts for newly launched
satellites of $1.5 million, and increased investment income resulting from
cashflow of $1.2 million.
Equity in net loss of affiliate represents SS/L's proportionate share of
Globalstar's net loss; SS/L made this investment in March 1994.
SS/L's effective tax rate decreased to 62.2% in fiscal 1995 from 75.8% in
the prior year. On August 10, 1993, the Omnibus Budget Reconciliation Act of
1993 was signed into law, including a provision that
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increased the Federal corporate rate by 1% to 35% effective January 1, 1993. In
fiscal 1994, the net deferred tax liabilities were revalued at the higher rate,
resulting in an increase to the effective tax rate. In fiscal 1995, such
revaluation was not required. Additionally, the impact on the effective tax rate
of the non-deductible goodwill amortization and the losses of ISTI decreased
resulting from an increase in income before income taxes (see Note 5 to the SS/L
Financial Statements).
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to Financial Statements on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following persons, all of whom, previously served as directors of
Loral, have been elected to serve as the directors of the Company. As provided
in the Company's Bye-laws, the holders of the Company's common stock elect the
directors. Approximately one-third of the Company's Board is elected each year
to serve for a three-year period. Initially, however, members of all three
classes were elected by Loral as sole shareholder of the Company prior to the
Distribution. The directors were elected to three classes as follows: three
directors, constituting the "Class I Directors," were elected for a term
expiring at the 1997 Annual Meeting, three directors, constituting the "Class II
Directors," were elected for a term expiring at the 1998 Annual Meeting, and
four directors, constituting the "Class III Directors," were elected for a term
expiring at the 1999 Annual Meeting. At each Annual Meeting beginning in 1997,
directors will be elected to succeed those whose terms expire, with each newly
elected director to serve a three-year term. The Series A Preferred Stock issued
to Lockheed Martin may be voted without restriction on all matters submitted to
shareholders for approval, except that it may not vote for the election of
directors. After the conversion of the Series A Preferred Stock into common
stock, the common stock may vote without restriction on all matters, including
the election of directors, except that in the event of an election contest,
Lockheed Martin and its affiliates have agreed, pursuant to a shareholders
agreement, that they will, subject to certain exceptions, vote any of the common
stock, at their option, either (i) as recommended by the Board of Directors or
management of the Company, or (ii) in the same proportions as the holders of the
Company's equity securities vote their securities.
The following table sets forth the directors and executive officers of the
Company as of June, 1996:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------- --- -----------------------------------------
<S> <C> <C>
Bernard L. Schwartz (Class III).......... 70 Chairman of the Board of Directors and
Chief Executive Officer
Michael B. Targoff....................... 51 President and Chief Operating Officer
Howard Gittis (Class I).................. 61 Director
Robert B. Hodes (Class II)............... 70 Director
Gershon Kekst (Class I).................. 60 Director
Charles Lazarus (Class II)............... 71 Director
Malvin A. Ruderman (Class III)........... 68 Director
E. Donald Shapiro (Class III)............ 63 Director
Arthur L. Simon (Class I)................ 63 Director
Thomas J. Stanton, Jr. (Class III)....... 67 Director
Daniel Yankelovich (Class II)............ 70 Director
Michael P. DeBlasio...................... 59 Senior Vice President and Chief Financial
Officer
Nicholas C. Moren........................ 49 Vice President and Treasurer
Harvey B. Rein........................... 42 Vice President and Controller
Eric J. Zahler........................... 45 Vice President, General Counsel and
Secretary
</TABLE>
33
<PAGE> 35
Mr. Schwartz has been the Chairman and Chief Executive Officer of the
Company since January of 1996 and had been Chairman and Chief Executive Officer
of Loral since 1972. Mr. Schwartz has been Chairman of the Board of Directors of
SS/L since February 1991. He is also Chairman and Chief Executive Officer of
Globalstar, GTL and K&F, and serves as a director of Reliance Group Holdings,
Inc. and certain of its subsidiaries, Sorema International Holding N.V. and
First Data Corporation. Mr. Schwartz is also a Trustee of New York University
Medical Center. Mr. Schwartz has been a director and Vice Chairman of Lockheed
Martin Corporation since April 1996.
Mr. Targoff has been President and Chief Operating Officer of the Company
since March of 1996 and had been Senior Vice President and Secretary of Loral
since 1992 and prior thereto held other executive officer positions with Loral.
Mr. Targoff is also a director of SS/L and GTL.
Mr. Gittis has been Vice Chairman and Chief Administrative Officer of
MacAndrews & Forbes Holdings Inc. since 1984. He is also a director of Andrews
Group Incorporated, Consolidated Cigar Corporation, First Nationwide Holdings,
Inc., First Nationwide Bank, Jones Apparel Group, Inc., Mafco Worldwide
Corporation, National Health Laboratories Holdings, Inc., NWCG Holdings
Corporation, New World Communications Group Incorporated, New World Television
Incorporated, Revlon Consumer Products Corporation and Revlon Worldwide
Corporation.
Mr. Hodes became Counsel to Willkie Farr & Gallagher in 1995. He was a
partner in Willkie Farr & Gallagher since 1956. He is also a director of
Aerointernational, Inc., W.R. Berkeley Corporation, Crystal Oil Company, GTL,
R.V.I. Guaranty, Ltd., LCH Investments N.V., Mueller Industries, SS/L, Inc. and
Restructured Capital Holdings, Ltd.
Mr. Kekst is President of Kekst and Company Incorporated, a corporate and
financial communications consulting company which was established in 1970.
Mr. Lazarus has been Chairman of Toys "R" Us, Inc. since 1974. He is also a
director of Automatic Data Processing, Inc.
Mr. Ruderman has been Professor of Physics, Columbia University since 1969.
Mr. Shapiro is the Joseph Solomon Distinguished Professor of Law (since
1983) and Dean/Professor of Law (1973-1983) of New York Law School. He is also a
director of Bank Leumi Trust Co., Eyecare Products PLC, Vasomedical, Inc.,
Kranzco Realty Trust, MacroChem Corporation and Premier Laser Systems.
Mr. Simon is an independent consultant and was a partner of Coopers &
Lybrand, L.L.P. from 1968 to 1994.
Mr. Stanton has been Chairman Emeritus of National Westminster Bancorp NJ
since 1990. He is also a director of Reliance Group Holdings, Inc. and Reliance
Insurance Co.
Mr. Yankelovich is Chairman of DYG, Inc., a market, consumer and opinion
research firm. He is also Director Emeritus of U.S. West Inc., Meredith
Corporations and Arkla, Inc.
Mr. DeBlasio has been Senior Vice President and Chief Financial Officer of
the Company since March of 1996 and had been Senior Vice President-Finance of
Loral since 1979. Mr. DeBlasio is also a director of SS/L and GTL.
Mr. Moren has been Vice President and Treasurer of the Company since March
of 1996 and had been Vice President and Treasurer of Loral since 1991.
Mr. Rein has been Vice President and Controller of the Company since June
of 1996, and had been Assistant Controller of Loral since 1985.
Mr. Zahler has been Vice President, General Counsel and Secretary of the
Company since March of 1996 and had been Vice President and General Counsel of
Loral since 1992. From 1984 to 1992, Mr. Zahler was a partner in the law firm of
Fried, Frank, Harris, Shriver & Jacobson.
34
<PAGE> 36
Directors of the Company will be paid a fixed annual retainer fee of
$25,000 per year. Non-employee directors will also be paid a per meeting
attendance fee of $6,000. The Company expects to provide life insurance and
medical benefits to non-employee directors on substantially the same basis that
such benefits were provided by Loral. Non-employee directors will also have the
opportunity to elect to defer their annual fees and have them credited toward
the purchase of Common Stock, which will be delivered after termination of
directorship.
ITEM 11. EXECUTIVE COMPENSATION
Because the Company is newly formed, historical information on executive
compensation paid by the Company is not available. Compensation for the
Company's Chief Executive Officer has been established by the Board of Directors
and the Compensation Committee, and compensation for the other principal
executive officers has been maintained at their prior levels pending review by
the Board of Directors and the Compensation Committee.
Set forth below are the names and titles of the Company's five most highly
compensated executive officers and the annual base salary as of May 31, 1996,
for each such executive officer:
<TABLE>
<CAPTION>
CURRENT
NAME AND TITLE ANNUAL SALARY
----------------------------------------------------------------------- -------------
<S> <C>
Bernard L. Schwartz, Chairman and Chief Executive Officer.............. $ 956,300
Michael B. Targoff, President and Chief Operating Officer.............. 400,000
Michael P. DeBlasio, Senior Vice President and Chief Financial
Officer.............................................................. 434,000
Nicholas C. Moren, Vice President and Treasurer........................ 214,000
Eric J. Zahler, Vice President, General Counsel and Secretary.......... 240,000
</TABLE>
BONUS ARRANGEMENTS
Pursuant to the Merger Agreement, the Company has paid to employees of
Loral who become employees of the Company and its subsidiaries all bonus
compensation payable for the fiscal year of Loral ended March 31, 1996, under
any bonus program of Loral or its subsidiaries in which the employee
participated prior to the merger, or under any employment agreement applicable
to such employee. Lockheed Martin has agreed to reimburse the Company for the
amount of such bonuses paid to all employees.
The Company intends to adopt an annual bonus plan for executive officers
and other key employees. The bonus program will be adopted by the Board of
Directors and approved by the Company's Compensation Committee. Executive
officers will also participate in the Company's 1996 Stock Option Plan, which is
described below. The level of participation of each executive officer in the
1996 Stock Option Plan will be determined by the Compensation Committee of the
Board of Directors (the "Compensation Committee").
1996 STOCK OPTION PLAN
Prior to the Distribution, the 1996 Stock Option Plan (the "SOP") was
adopted by the Board of Directors. The SOP provides for the grant of
non-qualified stock options ("NQSOs") and incentive stock options as defined in
Section 422 of the Code ("ISOs"). The SOP is administered by the Compensation
Committee of the Company, which consists of at least two directors of the
Company, each of whom must be a "disinterested person" within the meaning of
Rule 16b-3 promulgated under the Exchange Act. Key employees and officers of the
Company are eligible to participate in the SOP. Management of the Company
believe that the SOP is important to provide an inducement to obtain and retain
the services of qualified employees and officers. At present, all the officers
and approximately 800 other key employees of the Company and its Operating
Affiliates are eligible to participate in the SOP. The SOP (but not outstanding
options) will terminate on the tenth anniversary of its adoption. The Company
has reserved 12,000,000 shares of Common Stock for issuance upon the exercise of
options under the SOP.
Recipients of options under the SOP ("Optionees") are selected by the
Compensation Committee. The Compensation Committee determines the terms of each
option grant including (1) the purchase price of shares subject to options, (2)
the dates on which options become exercisable, and (3) the expiration date of
each option (which may not exceed ten years from the date of grant). The
Compensation Committee has the
35
<PAGE> 37
power to accelerate the exercisability of outstanding options at any time. The
number of shares for which options may be granted under the SOP to any single
Optionee during any partial or full calendar year that the SOP is in effect may
not exceed 2,000,000 (subject to adjustment for capital changes).
The purchase price of the shares of Common Stock subject to options will be
fixed by the Compensation Committee, in its discretion, at the time options are
granted; provided, that (i) in no event shall the per share purchase price of an
ISO be less than the Fair Market Value (as defined in the SOP) of a share of
Common Stock on the date of grant; (ii) in no event shall the per share purchase
price of a NQSO be less than the lower of (A) 50% of the Fair Market Value of a
share of a Common Stock on the date of grant, and (B) $20 below the aforesaid
Fair Market Value; and (iii) in no event shall the per share purchase price of
any option be less than the par value per share of the Common Stock.
Optionees will have no voting, dividend, or other rights as shareholders
with respect to shares of Common Stock covered by options prior to becoming the
holders of record of such shares. All option grants will permit the purchase
price to be paid in cash, by tendering stock, or by brokered or "cashless"
exercise. The number of shares covered by options will be appropriately adjusted
in the event of any merger, recapitalization or similar corporate event.
The Board of Directors of the Company may at any time terminate the SOP or
from time to time make such modifications or amendments to the SOP as it may
deem advisable; provided that the Board may not, without the approval of the
Company's shareholders, (i) increase the maximum number of shares of Common
Stock for which options may be granted under the SOP or (ii) reduce the minimum
purchase price at which options may be granted under the SOP.
Options granted under the SOP will be evidenced by a written option
agreement between the Optionee and the Company. Subject to limitations set forth
in the SOP, the terms of option agreements will be determined by the
Compensation Committee, and need not be uniform among Optionees.
The Compensation Committee made the following stock option grants to the
Company's named executive officers at an exercise price of $10.50 per share:
Bernard L. Schwartz 1,200,000 shares, Michael B. Targoff 800,000 shares, Michael
P. DeBlasio 800,000 shares, Nicholas C. Moren 500,000 shares and Eric J. Zahler
500,000 shares.
The following is a brief discussion of the Federal income tax consequences
of transactions under the SOP based on the Code. The SOP is not qualified under
Section 401(a) of the Code.
No taxable income is realized by an Optionee upon the grant or exercise of
an ISO. If Common Stock is issued to an Optionee pursuant to the exercise of an
ISO, and if no disqualifying disposition of such shares is made by such Optionee
within two years after the date of grant or within one year after the transfer
of such shares to such Optionee, then (i) upon sale of such shares, any amount
realized in excess of the option price will be taxed to such Optionee as a
long-term capital gain and any loss sustained will be a long-term capital loss,
and (ii) no deduction will be allowed to the Optionee's employer for Federal
income tax purposes.
If the Common Stock acquired upon the exercise of an ISO is disposed of
prior to the expiration of either holding period described above, generally (i)
the Optionee will realize ordinary income in the year of disposition in an
amount equal to the excess (if any) of the fair market value of such shares at
exercise (or, if less, the amount realized on the disposition of such shares)
over the option price paid for such shares, and (ii) the Optionee's employer
will be entitled to deduct such amount for Federal income tax purposes if the
amount represents an ordinary and necessary business expense. Any further gain
(or loss) realized by the Optionee will be taxed as short-term or long-term
capital gain (or loss), as the case may be, and will not result in any deduction
by the employer.
With respect to NQSOs, (i) no income is realized by an Optionee at the time
the Option is granted; (ii) generally, at exercise, ordinary income is realized
by the Optionee in an amount equal to the difference between the option price
paid for the shares and the fair market value of the shares, if unrestricted, on
the date of exercise, and the Optionee's employer is generally entitled to a tax
deduction in the same amount subject to applicable tax withholding requirements;
and (iii) at sale, appreciation (or depreciation) after the date of
36
<PAGE> 38
exercise is treated as either short-term or long-term capital gain (or loss)
depending on how long the shares have been held. Deductions for compensation
attributable to NQSOs (or disqualified ISOs) granted to the Company's named
executive officers may be subject to the deduction limits of Section 162(m) of
the Code, unless such compensation qualifies as "performance-based" as defined
therein.
EMPLOYMENT AGREEMENTS
The Company has entered into an employment agreement with Mr. Schwartz,
which will expire on April 23, 2001. Beginning April 23, 1996, Mr. Schwartz'
initial annual base salary is $956,300, and will be increased annually by the
percentage change in a specified consumer price index.
Pursuant to the agreement, if Mr. Schwartz is removed as Chairman of the
Board of Directors or as Chief Executive Officer other than for cause, or if his
duties, authorities or responsibilities are diminished, or if there is a change
of control (as defined to encompass the Company becoming a subsidiary of another
company, the acquisition of 35% or more of the voting securities of the Company
by a particular stockholder or group, or a change in 35% of the Company's
directors at the insistence of the shareholder group), Mr. Schwartz may elect to
terminate the agreement. In any such event, or upon his death or disability, Mr.
Schwartz will be entitled to receive a lump sum payment discounted at 9% per
annum, in an amount equal to his base salary as adjusted for defined consumer
price index changes for the remainder of the term, an amount of incentive bonus
equal to the highest received by Mr. Schwartz in any of the prior three years,
times the number of years (including partial fiscal years) remaining during the
term, and an amount calculated to approximate the annual compensation element
reflected in the difference between fair market value and exercise price of
stock options granted to Mr. Schwartz. All such sums are further increased to
offset any tax due by Mr. Schwartz under the excise tax and related provisions
of Section 4999 of the Internal Revenue Code.
GTL OPTIONS
On September 12, 1995, Loral granted to each of Mr. Schwartz and six other
executives of Loral an option to purchase 20,000 shares of GTL common stock
owned by Loral (the "GTL Options"). The GTL Options were granted at an exercise
price of $20 per share. The closing price of GTL common stock on the Nasdaq
National Market System on September 12, 1995 was $19 per share. The GTL Options
were immediately exercisable as of the date of grant, and have a maximum term of
12 years from the date of grant. In the event of the option holder's death, the
GTL Options are exercisable by the option holder's estate or beneficiary for a
period of one year from the date of death. Loral's obligations under the GTL
Options have been assumed by Loral SpaceCom in connection with the Distribution.
On December 12, 1995, Loral granted to each outside director of Loral an
option to purchase 20,000 shares of GTL Common Stock owned by Loral at an
exercise price of $33.375 per share and otherwise on terms substantially
identical to that of the GTL Options described above.
COMPANY PENSION PLAN
The Company adopted a defined benefit pension plan and trust (the "Pension
Plan") that is qualified under Section 401(a) of the Code. The Pension Plan will
provide retirement benefits for eligible employees of the Company and the
Operating Affiliates, including executive officers. The benefit formula for
executive officers for the period ending December 31, 1995 will generally
provide an annual benefit equal to the greater of (A) or (B), where (A) equals
(i) 1.2% of compensation up to the Social Security Wage Base and 1.45% of
compensation in excess of the Social Security Wage Base for each year of
participation up to 15 years of employment, plus (ii) 1.5% of compensation up to
the Social Security Wage Base and 1.75% of compensation in excess of the Social
Security Wage Base for each year of participation in excess of 15 years of
employment; and (B) equals (i) 1.2% of average annual compensation paid during
1991-1995 up to the 1995 Social Security Wage Base and 1.45% of average annual
compensation paid during 1991-1995 in excess of the 1995 Social Security Wage
Base for each year of participation up to 15 years of employment, plus (ii) 1.5%
of average annual compensation paid during 1991-1995 up to the 1995 Social
Security Wage Base and 1.75% of average annual compensation paid during
1991-1995 in excess of the 1995 Social Security Wage Base for each
37
<PAGE> 39
year of participation in excess of 15 years of employment. The benefit for
periods subsequent to December 31, 1995 will be based on (A) above. Executive
officers will also participate in a supplemental executive retirement plan (the
"SERP") which provides supplemental retirement benefits due to certain
reductions in retirement benefits under the Pension Plan that are caused by
various limitations imposed by the Code. Compensation used in determining
benefits under the Pension Plan and SERP primarily includes salary and bonus.
The estimated annual benefit upon retirement under the Pension Plan and
SERP is $2,421,000 for Mr. Schwartz, $413,000 for Mr. Targoff, $401,000 for Mr.
DeBlasio, $177,000 for Mr. Moren and $221,000 for Mr. Zahler. This retirement
benefit has been computed assuming that (i) employment with the Company will be
continued until normal retirement, or until the expiration of any current
employment agreement, if later and (ii) current levels of creditable
compensation and the Social Security Wage Base will continue without increases
or adjustments throughout the remainder of the computation period.
SUPPLEMENTAL LIFE INSURANCE PROGRAM
The Company maintains a contributory supplemental life insurance program
for certain key employees, including Messrs. Schwartz, Targoff, DeBlasio, Moren
and Zahler. The program is funded with "split-dollar" or "universal" life
insurance policies which were transferred to the Company following the
Distribution Date with respect to the Loral employees who became employed by the
Company after the Distribution Date. The face amounts of the policies for
Messrs. Schwartz, Targoff, DeBlasio, Moren and Zahler are $20,500,000,
$1,450,000, $1,060,000, $500,000 and $500,000, respectively.
COMMON STOCK PURCHASE PLAN FOR NON-EMPLOYEE DIRECTORS
The Company's Board of Directors adopted the Common Stock Purchase Plan for
Non-Employee Directors (the "Director Plan").
The Director Plan is designed to encourage stock ownership by the Company's
nonemployee directors. As of the date of this Information Statement, nine
non-employee directors were eligible to participate in the Director Plan.
Under the terms of the Director Plan, each non-employee director of the
Company is entitled to make an election to defer up to 100% of his annual fees
and have such amounts credited to a deferral account maintained under the plan.
Participation in the Director Plan is voluntary and all amounts deferred are
fully vested. For purposes of the Director Plan, a "non-employee director" is
defined as a member of the Company's Board of Directors who is not an employee
of the Company or any affiliate thereof.
The Director Plan will be administered by a committee selected by the Board
(the "Committee"). The Committee will interpret the terms and conditions of the
Director Plan and shall have all powers necessary to do so. The Committee will
furnish to each director participating in the Director Plan, promptly after the
end of each calendar year, a statement indicating the amounts credited to the
director's deferral account and the status of his account.
The portion of a director's annual fees that he elects to defer will be
credited to his deferral account as of the date such fees would otherwise have
been paid. The remaining portion of the fee, if any, will be paid to the
director in cash in accordance with his election. Amounts so credited during
each calendar quarter will be converted on the last day of each calendar quarter
(each, a "Director Purchase Date") into a number of "Stock Equivalents"
calculated by dividing the amounts so credited by 95% of the fair market value
of one share of Common Stock on such date. Upon payment, a non-employee director
will receive one share of Common Stock for each Stock Equivalent so credited.
With respect to each Stock Equivalent so credited, an amount equal to any
dividends declared in respect of a share of Common Stock will be credited to the
director's deferral account as of the date such dividends are paid.
A participant in the Director Plan may elect that payments from his
deferral account be made in the form of a lump sum or in up to five annual
installments commencing on any specific day selected by the participant which is
not earlier than six months following the last Director Purchase Date which
occurred prior to the
38
<PAGE> 40
termination of his position as a non-employee director of the Company, and not
later than two years following such termination.
Each participant may designate one or more beneficiaries to receive amounts
to be distributed from the participant's deferral account. If a participant in
the Director Plan dies before payment of his deferral account is completed, the
balance remaining in such account will be paid to his beneficiary as soon as
practicable following the participant's death.
The Director Plan is not scheduled to expire on any particular date. The
Board of Directors may amend, modify, suspend or terminate the Director Plan
without the consent of any participants provided that such action may not
materially and adversely affect a participant's rights with respect to amounts
already credited to his deferral account.
The rights and interests of a participant in the Director Plan may not be
transferred, encumbered or alienated other than by the laws of descent and
distribution, provided that a participant may designate a beneficiary.
No participant has any of the rights or privileges of a stockholder as a
result of his participation in the Director Plan until Common Stock is actually
distributed under the plan. Moreover, nothing in the Director Plan confers any
right upon any participant in the plan to continue as a member of the Board of
Directors. All expenses and costs incurred in connection with the Director Plan
will be borne by the Company.
Participants in the Director Plan will generally recognize ordinary income
at the time payments are made from their deferral accounts, based on the fair
market value of Common Stock and the amount of cash (if any) so paid, and the
Company will generally be entitled to a corresponding deduction for tax purposes
at such time.
39
<PAGE> 41
ITEM 12. SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table presents the number of shares of the Company's common
stock beneficially owned by the directors, the named executive officers, and all
directors and officers as a group as of May 31, 1996. Individuals have sole
voting and investment power over the stock unless otherwise indicated in the
footnotes.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT
NAME OF INDIVIDUAL BENEFICIAL OWNERSHIP(1)(2) OF CLASS
- -------------------------------------------------------- -------------------------- ---------
<S> <C> <C>
Bernard L. Schwartz..................................... 3,448,015(3) 1.9%
Michael B. Targoff...................................... 199,027(4) *
Howard Gittis........................................... 6,000 *
Robert B. Hodes......................................... 20,200(5) *
Gershon Kekst........................................... 20,000 *
Charles Lazarus......................................... 10,000 *
Malvin A. Ruderman...................................... 32,000(6) *
E. Donald Shapiro....................................... 20,000 *
Arthur L. Simon......................................... 7,000 *
Thomas J. Stanton, Jr. ................................. 24,000 *
Daniel Yankelovich...................................... 30,000 *
Michael P. DeBlasio..................................... 107,462(7) *
Nicholas C. Moren....................................... 81,710(8) *
Eric J. Zahler.......................................... 82,542(9) *
All Directors and Executive Officers
as a Group (15 persons)............................... 4,131,117(10) 2.3%
</TABLE>
- ---------------
* Represents holdings of less than one percent.
(1) Includes shares which, as of May 31, 1996, may be acquired within sixty
days upon the exercise of options (which shares are treated as outstanding
for the purposes of determining beneficial ownership and computing the
percentage set forth); shares held by trusts of which Directors and their
wives are trustees; shares held by a trust in which an officer or Director
is a trustee; and shares held for the benefit of officers as of April 22,
1996 in the Loral Master Savings Plan (the "Savings Plan").
(2) Except as noted, all shares are owned directly with sole investment and
voting power.
(3) Includes 160,000 shares held by Mr. Schwartz' wife and 12,512 shares held
in the Savings Plan.
(4) Includes 135 shares held in the Savings Plan.
(5) Includes 200 shares held by a trustee.
(6) Includes 12,000 shares owned jointly with Mr. Ruderman's wife.
(7) Includes 7,462 shares held in the Savings Plan.
(8) Includes 1,310 shares held in the Savings Plan.
(9) Includes 942 shares held in the Savings Plan.
(10) Includes 24,922 shares held in the Savings Plan.
PRINCIPAL SHAREHOLDERS OF THE COMPANY, GTL, SS/L AND K&F
AND PRINCIPAL PARTNERS OF GLOBALSTAR
COMPANY
Loral SpaceCom was formed to effectuate the Distribution. After the
Distribution, Lockheed Martin holds Series A Preferred Stock representing a 20%
fully-diluted equity interest in the Company.
On April 23, 1996 the Company and an affiliate of Lockheed Martin entered
into a Shareholders Agreement which establishes, among other things, certain
conditions with respect to the relationship between the Company, on the one
hand, and Lockheed Martin and its affiliates (the "Subject Shareholders"), on
the other hand. The Shareholders Agreement limits the ability of the Subject
Shareholders, during the term of the Shareholders Agreement to acquire any
voting securities or assets of, or solicit proxies or make a public announcement
of a proposal of any extraordinary transaction with respect to, the Company. The
Series A Preferred Stock issued to Lockheed Martin may be voted without
restriction on all matters submitted to shareholders for approval, except that
it may not vote for the election of directors. Subject Shareholders may vote
their shares of common stock on all matters, including the election of
directors, except that in the event of
40
<PAGE> 42
an election contest, the Subject Shareholders have agreed, pursuant to the
Shareholders Agreement, that they will, subject to certain exceptions, vote any
of the Company's equity securities, at the option of the Subject Shareholders,
either (i) as recommended by the Board of Directors or management of the
Company, or (ii) in the same proportions as the holders of the Company's equity
securities vote their securities. The Shareholders Agreement also limits the
ability of the Subject Shareholders to transfer the equity securities of the
Company held by the Subject Shareholders except pursuant to a registered public
offering. The Shareholders Agreement provides that if, within one year following
the date thereof, the Subject Shareholders vote against any transaction
involving (i) a merger, consolidation, corporate reorganization or similar
transaction or (ii) a sale, lease, exchange, transfer or other disposition of
all or substantially all of the assets of the Company or any of its affiliates,
in either case between the Company, on the one hand, and SS/L, K&F, GTL,
Globalstar and certain other subsidiaries and affiliates of the Company, on the
other hand, the Company shall have the right to purchase from the Subject
Shareholders all of the equity securities of the Company held by the Subject
Shareholders for a price equal to $344 million plus all amounts expended by the
Subject Shareholders following the date of the Shareholders Agreement in
connection with the acquisition of equity securities (other than acquisitions
from another Subject Shareholder) following the date of the Shareholders
Agreement minus any net sales proceeds received by the Subject Shareholders
following the date of the Shareholders Agreement in connection with the sale of
equity securities (other than sales to another Subject Shareholder) following
the date of the Shareholders Agreement. The agreement also provides that if,
within five years following the date thereof, any transaction occurs involving
(i) a merger, consolidation, corporate reorganization or similar transaction,
(ii) a sale, lease, exchange, transfer or other disposition of all or
substantially all of the assets of the Company, Globalstar or any of their
respective affiliates or (iii) the liquidation or dissolution of the Company
(each of the transactions set forth in clauses (i) through (iii) referred to as
a "Triggering Transaction"), in each case, involving as parties, the Company or
any of its affiliates, on the one hand, and either GTL or Globalstar or any of
their respective subsidiaries on the other hand, Lockheed Martin shall have the
right to purchase from the Company (including any successor to the rights and
obligations of the Company) a sufficient number of shares of the Company (or
such successor) to prevent dilution at a per share price equal to (x) if the
Triggering Transaction shall occur on a date prior to the first anniversary
thereof, $6.00, subject to antidilution adjustments and (y) if the Triggering
Transaction shall occur after the first anniversary, but prior to the fifth
anniversary thereof, 80% of the per share price of the Company implicit in the
Triggering Transaction. The Shareholders Agreement also provides that in the
event of certain transactions, the Subject Shareholders shall have the right to
require the Company to purchase the GTL Guarantee Warrants issued to Lockheed
Martin at fair market value. The Shareholders Agreement also provides that under
certain circumstances involving the repurchase by the Company of its equity
securities, the Subject Shareholders will sell to the Company such number of
Company equity securities held by them sufficient to reduce the Subject
Shareholders' ownership of Company equity securities to 20%, at a price equal to
the repurchase price offered by the Company. If the repurchase price is less
than the purchase price initially paid by the Subject Shareholders for the
Series A Preferred Stock, compounded at 10% per annum, then the Subject
Shareholders may, in lieu of selling the securities to the Company, sell them to
third parties in the market. The Shareholders Agreement further provides that
under certain circumstances and subject to certain conditions the Subject
Shareholders may require the Company to register under the Securities Act any
Company securities held by the Subject Shareholders. The Company Shareholders
Agreement provides, subject to certain exceptions, that, in the event of a
tender offer, if Subject Shareholders wish to sell or transfer any Company
securities pursuant to the tender offer the Subject Shareholders must first
offer the shares for sale to the Company. The term of the Company Shareholders
Agreement will continue until the earlier of (x) the date on which the voting
power of the equity securities owned by the Subject Shareholders represents, on
a fully-diluted basis, less than five percent (5%) of the total voting power,
(y) the tenth anniversary of the date of the agreement, or (z) a change of
control the Company.
After the seventh anniversary of the date of the Shareholders Agreement,
the Subject Shareholders shall have the right to propose for election to the
Board of Directors in opposition to management's nominees the number of
directors that is proportionate to the percentage of voting securities of the
Company then held by the Subject Shareholders and to vote in favor of their
election to the Board.
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<PAGE> 43
The Company and Lockheed Martin entered into an Exchange Agreement
providing that, in the event that the Company is required to purchase additional
shares of SS/L common stock held by the Alliance Partners or the Lehman
Partnerships (a "Put Transaction"), and such Put Transaction requires a filing
with, or the approval of, any antitrust authorities having jurisdiction over the
matter, the parties will cooperate to comply with informational requirements and
jointly attempt to resolve any objections raised without any change in Lockheed
Martin's ownership interest in the Company. If such a change is nonetheless
required to obtain antitrust approval of the Put Transaction, Lockheed Martin
will be required to transfer to the Company some or all of the shares of the
Company securities beneficially owned by it in exchange for shares of GTL Common
Stock or, if the use of GTL Common Stock as consideration is inconsistent with
obtaining antitrust approval for the Put Transaction, in exchange for cash. The
shares of Company securities so transferred will be valued at the greater of
fair market value or the original purchase price thereof in connection with the
Distribution, increased at the rate of 10% per annum, compounded annually, from
the date of the consummation of the tender offer.
GLOBALSTAR AND GTL
GTL's authorized capital stock consists of 60,000,000 shares of Common
Stock. As of May 31, 1996, there were 10,000,000 shares of Common Stock
outstanding. Except as set forth below, there are no other persons known to GTL,
based upon SEC filings received by the Company, who are beneficial owners of 5%
or more of the Common Stock.
<TABLE>
<CAPTION>
SHARES OF
COMMON STOCK PERCENT OF
NAME AND ADDRESS BENEFICIALLY OWNED COMMON STOCK
- ---------------------------------------------------------------- ------------------ ------------
<S> <C> <C>
Loral Space & Communications Ltd................................ 1,674,400(1) 16.74%
600 Third Avenue
New York, New York 10016
Cumberland Associates........................................... 621,400(2) 6.21%
1114 Avenue of the Americas
New York, New York 10036
</TABLE>
- ---------------
(1) Of such amount, 340,000 represent shares of Common Stock subject to options
granted by Loral to certain of its executive officers and directors.
(2) As stated in filing with the SEC.
The following table presents the number of shares of GTL common stock
beneficially owned by GTL's directors, GTL's named executive officers, and all
directors and officers of GTL as a group as of May 31, 1996. Individuals have
sole voting and investment power over the stock unless otherwise indicated in
the footnotes.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT
NAME OF INDIVIDUAL BENEFICIAL OWNERSHIP(1) OF CLASS
- ---------------------------------------------------------------- ----------------------- --------
<S> <C> <C>
Bernard L. Schwartz............................................. 37,600 *%
Michael B. Targoff.............................................. 24,000 *
Michael P. DeBlasio............................................. 24,000 *
Robert B. Hodes................................................. 21,000 *
A. Robert Towbin................................................ 5,600(2) *
Douglas G. Dwyre................................................ 100 *
Edward Hirshfield............................................... 800(3) *
Anthony J. Navarra.............................................. 1,000 *
Robert A. Wiedeman.............................................. 850 *
All Directors and Executive Officers
as a Group (16 persons)....................................... 160,950 1.6%
</TABLE>
- ---------------
* Represents holdings of less than one percent.
(1) Includes shares which, as of May 31, 1996, may be acquired within 60 days
upon the exercise of options granted by Loral: 20,000 each to Messrs.
Schwartz, Targoff and DeBlasio and Hodes and 120,000 to all Directors and
Executive Officers as a group. Mr. Targoff's options are held by a trust to
which he disclaims beneficial ownership.
(2) Includes 2,100 shares held in a trust, as to which he disclaims beneficial
ownership.
(3) Includes 100 shares owned by Mr. Hirshfield's wife, as to which he disclaims
beneficial ownership.
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<PAGE> 44
The following table sets forth, as of May 31, 1996, certain information
regarding the beneficial ownership of ordinary partnership interests in
Globalstar. Globalstar has been involved in ongoing discussions with certain
potential strategic partners and other strategic investors regarding
transactions involving, among other things, possible investments in Globalstar
Ordinary Partnership Interests.
GLOBALSTAR, L.P.(1)
<TABLE>
<CAPTION>
INTEREST PARTNERSHIP INTERESTS PERCENTAGE
-------------------------------------------------------- --------------------- ----------
<S> <C> <C>
Loral SpaceCom.......................................... 17,412,783(2) 35.8%
Public Stockholders of GTL.............................. 11,517,907(3) 22.9
Qualcomm................................................ 3,726,000 7.9
Vodafone................................................ 3,540,000 7.5
AirTouch................................................ 3,000,000 6.4
Finmeccanica............................................ 2,800,000 6.0
Hyundai................................................. 2,400,000(4) 5.1
Alcatel................................................. 2,190,000(5) 4.7
DASA.................................................... 1,720,000(6) 3.7
France Telecom.......................................... 1,530,000(7) 3.2
SS/L.................................................... 1,332,540(8) 2.8
Dacom................................................... 600,000(9) 1.3
</TABLE>
- ---------------
(1) Includes impact of the conversion of the Securities and Preferred
Partnership Interests issuable in connection therewith and excludes the
issuance of the GTL Guarantee Warrants and the Additional Warrants, as such
warrants are not exercisable within 60 days. Beneficial ownership of
partnership interests has been calculated pursuant to Regulation 13d-3 under
the Securities Exchange Act of 1934, as amended, which provides that: "Any
securities not outstanding which are subject to such options, warrants,
rights or conversion privileges shall be deemed to be outstanding for the
purpose of computing the percentage of outstanding securities of the class
owned by such person but shall not be deemed to be outstanding for the
purpose of computing the percentage of the class by any other person."
(2) Of the amount held by Loral SpaceCom (i) 2,000,000 partnership interests
represent Loral SpaceCom's allocable share of the 3,000,000 partnership
interests held by Loral/DASA Globalstar, L.P., a joint venture between Loral
SpaceCom and DASA which is 66.7% owned by Loral SpaceCom and 33.3% owned by
DASA, (ii) 647,460 partnership interests represent Loral SpaceCom's indirect
interest in 1,980,000 partnership interests held by SS/L, (iii) 1,674,400
partnership interests represent Loral SpaceCom's holdings of Common Stock of
the Company, without giving effect to the grant by Loral SpaceCom to certain
of its executive officers and directors of options to acquire an aggregate
of 340,000 shares of Common Stock (none of such options have yet been
exercised) and (iv) 1,576,923 partnership interests represent the conversion
of $102.5 million principal amount Convertible Preferred Equivalent
Obligations.
(3) Includes 3,192,307 partnership interests which represent the conversion of
the $207.5 million principal amount of Convertible Preferred Equivalent
Obligations. Does not include partnership interests attributed to Loral
SpaceCom described in note (2)(iii) and (iv) above.
(4) Represents Hyundai's allocable share of the 3,000,000 partnership interests
held by Hyundai/Dacom, a joint venture which is 80% owned by Hyundai and 20%
owned by Dacom.
(5) Of the amount held by Alcatel, 1,470,000 partnership interests represent
Alcatel's allocable share of the 3,000,000 partnership interests held by
TESAM, which is 51% owned by France Telecom and 49% owned by Alcatel.
(6) Of the amount held by DASA, 1,000,000 partnership interests represent DASA's
allocable share of the 3,000,000 partnership interests held by Loral/DASA
Globalstar, L.P.
(7) Represents France Telecom's allocable share of the 3,000,000 partnership
interests held by TESAM.
(8) Excludes 647,460 partnership interests attributable to Loral's 32.7%
interest in SS/L.
(9) Represents Dacom's allocable share of the 3,000,000 partnership interest
held by Hyundai/Dacom.
SS/L
Each of Aerospatiale, Alcatel, Finmeccanica and DASA owns 12.25% of the
outstanding common stock of SS/L. While the Company holds, through SS/L Bermuda
Ltd., the remaining 51% of the outstanding common stock of SS/L, its effective
economic interest in SS/L is 32.7%. 18.3% is effectively held by the Lehman
Partnerships which hold tracking stock representing 18.3% of the outstanding
capital stock of SS/L Bermuda.
K&F INDUSTRIES
Bernard L. Schwartz owns 27.12% of the capital stock of K&F in the form of
Class A common stock. Loral SpaceCom owns 22.5% of K&F's capital stock in the
form of Class B common stock. The Lehman Partnerships own 48.17% of K&F's
capital stock in the form of preferred stock.
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<PAGE> 45
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
SS/L Agreement and Subcontracts. Globalstar has entered into an agreement
with SS/L to design, manufacture, test and launch its satellite constellation.
The price of the contract consists of three parts, the first for non-recurring
work at a price not to exceed $115.7 million, the second for recurring work at a
fixed price of approximately $15.6 million per satellite (including certain
performance incentives of up to approximately $1.9 million per satellite) and
the third for launch and insurance. SS/L will design, build and launch the 56
satellites in Globalstar's constellation, which are designed to have a minimum
life-span of 7 1/2 years. SS/L has agreed to obtain insurance on Globalstar's
behalf for the cost of replacing satellites lost in hot failures and any
relaunch costs not covered by the applicable launch contract for an estimated
premium of $92 million, in certain circumstances subject to an equitable
adjustment in light of future market conditions. SS/L has also agreed pursuant
to the agreement to obtain launch vehicles and arrange for the launch of
Globalstar's satellites on Globalstar's behalf at an estimated total cost of
$302 million for all 56 satellites, subject to an equitable adjustment in light
of future market conditions, which may, in turn, be influenced by international
political developments. Termination by Globalstar of this agreement will result
in termination fees, which may be substantial. Such termination fees are
generally limited to SS/L's cost incurred and uncancellable obligations under
subcontracts and outstanding orders for satellite materials at the time of
termination plus a reasonable fee.
Globalstar has granted to SS/L an irrevocable, royalty-free, non-exclusive
license to use certain intellectual property expressly developed in connection
with the SS/L agreement provided that SS/L will not use, or permit others to
use, such license for the purpose of engaging in any business activity that
would be in material competition with Globalstar. Globalstar has similarly
agreed that it will not license such intellectual property if it will be used
for the purpose of designing or building satellites that would be in competition
with SS/L.
SS/L has subcontracted the design and integration of the payload modules to
Alcatel who will manufacture Globalstar's satellite communication equipment at a
fixed price of approximately $208 million, subject to certain adjustments.
Subcontracts have also been awarded to Alenia ($202 million) for final assembly,
integration and testing of the Globalstar satellites, DASA ($178 million) for
providing Globalstar's satellite power propulsion elements and solar arrays, and
Aerospatiale ($41 million) for designing and manufacturing the satellite bus
structure and communication support panels. Globalstar, SS/L and Hyundai have
also entered into a subcontract ($44 million) under which Hyundai will provide
certain electronic components for the Globalstar satellites. Globalstar and SS/L
have further agreed to support Hyundai in its efforts as a satellite vendor,
including providing training and transferring certain technological know-how to
Hyundai at a compensation to be agreed upon among the parties.
The agreement provides for liquidated damages to Globalstar in the event
SS/L fails to supply the satellites at the times specified in the contract.
Liquidated damages of approximately $45,000 are payable by SS/L for each day of
delay, subject to an overall cap of approximately $33 million. Such liquidated
damages are Globalstar's exclusive remedies in the face of any delay by SS/L in
the delivery of the satellites or for any events of default specified in the
agreement.
SS/L and its subcontractors have committed $310 million of vendor financing
to Globalstar, of which $220 million will be non-interest bearing. Globalstar
will repay the non-interest bearing portions as follows: $49 million following
the launch and acceptance of 24 or more satellites, $61 million upon the launch
and acceptance of 48 or more satellites, and the remainder in equal installments
over the five-year period following acceptance of the preliminary and final
Globalstar constellations. The remaining $90 million will bear interest, the
payment of which will be deferred until the Full Constellation Date or December
31, 1998, whichever is earlier. Thereafter, interest and principal will be
repaid in equal quarterly installments during the next five years.
Qualcomm Agreement. Globalstar and Qualcomm have entered into an agreement
providing for the design, development, manufacture, installation, testing and
maintenance by Qualcomm of four gateways, two ground operations control centers
and 100 pre-production Globalstar Phones (the "Qualcomm Segment"). A portion of
the GOCC is being developed and manufactured by Globalstar. The contract is a
cost-plus-fee
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<PAGE> 46
contract that provides for payment to Qualcomm of a 12% fee, along with
reimbursement for costs incurred in performing such contract, such as labor,
material, travel, license fees, royalties and general administrative expenses.
The contract also includes a cost sharing arrangement for certain technologies
being developed by Qualcomm. Globalstar estimates the eventual total contract
payments to be $350 million. As manager of Globalstar, Loral SpaceCom is
bringing its management's substantial experience in the oversight of cost-type
contracts to insure that the costs incurred under the Qualcomm agreement are
reasonable.
Except for the intellectual property contained in certain software relating
to the public switched networks and the GOCCs (excluding any software or
technical data contained in Qualcomm's CDMA technology) which will be owned by
Globalstar, Qualcomm retains all intellectual property in the Qualcomm Segment.
However, Qualcomm has granted Globalstar an exclusive license to use its CDMA
technology for MSS commercial applications.
Globalstar has granted to Qualcomm an irrevocable, non-exclusive, worldwide
perpetual license to intellectual property owned by Globalstar in the Qualcomm
Segment and developed pursuant to the Qualcomm agreement. Qualcomm may, pursuant
to such grant, use the intellectual property for applications other than the
Globalstar System provided that Qualcomm may not for a period of three years
after its withdrawal as a strategic partner or prior to the third anniversary of
the Full Constellation Date, whichever is earlier, engage in any business
activity that would be in competition with the Globalstar System. The grant of
intellectual property to Qualcomm described above is generally royalty free.
Under certain specified circumstances, however, Qualcomm will be required to pay
a 3% royalty fee on such intellectual property.
Qualcomm has agreed to grant at least one vendor a nonexclusive worldwide
license to use Qualcomm's intellectual property to manufacture and sell gateways
to Globalstar's service providers. The foregoing licenses will be granted by
Qualcomm to one or more such vendors on reasonable terms and conditions, which
will in any event not provide for royalty fees in excess of 7% of a gateway's
sales price (not including the approximately $400,000 in recoupment expenses
payable to Globalstar). Qualcomm has granted a license to manufacture Globalstar
Phones to Orbitel and has also agreed to grant similar licenses to at least two
additional qualified manufacturers to enable them to manufacture and sell the
Globalstar Phones to service providers. On March 23, 1994, a letter agreement
was entered into among Qualcomm, Globalstar and Hyundai pursuant to which
Hyundai may elect to become a licensee authorized to manufacture and sell
Globalstar Phones to service providers. Should Hyundai so elect, it would, for a
five year period following Globalstar's In-Service Date, be the exclusive
licensee authorized to manufacture and sell such units in South and North Korea.
Globalstar will receive a payment of approximately $400,000 on each
installed gateway sold to a Globalstar service provider. Globalstar will also
receive up to $10 on each Globalstar Phone, which will be payable until
Globalstar's funding of that design has been recovered.
The agreement provides for liquidated damages to Globalstar in the event
Qualcomm fails to supply the Qualcomm Segment at the times specified in the
contract. Liquidated damages of approximately $29,000 are payable by Qualcomm
for each day of delay, subject to an overall cap of approximately $11 million.
Such liquidated damages are Globalstar's exclusive remedies in the face of any
delay by Qualcomm in the delivery of the Qualcomm Segment or for any other
events of default specified in the agreement. Qualcomm's obligation to license
the intellectual property necessary to manufacture gateways and Globalstar
Phones to Globalstar or a third-party manufacturer will continue even upon a
default or breach by Qualcomm under the agreement. Termination by Globalstar of
this agreement will result in termination fees, which may be substantial.
Gateway Program. Globalstar and its service provider partners intend to
jointly finance the procurement of 25 gateways and long-lead parts for 25
additional gateways for resale to service providers, thereby accelerating the
deployment of gateways around the world prior to the In-Service Date. The cost
of this program before financing costs is expected to be approximately $160
million, of which Globalstar has agreed to finance approximately $80 million.
Globalstar expects to recover its investment in this gateway financing program
from such resales.
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<PAGE> 47
Qualcomm Support Agreement. A support agreement was entered into among
Qualcomm, Loral and Globalstar pursuant to which Qualcomm agreed to (i) assist
Globalstar and SS/L with Globalstar's system design, (ii) support Globalstar and
Loral with respect to various regulatory matters, including the FCC application
and (iii) assist Globalstar and Loral in their marketing efforts with respect to
Globalstar. As compensation for its efforts, Qualcomm would be paid an amount
equal to the costs incurred in rendering such support and assistance.
Contract for the Development of Satellite Operations Control
Centers. Globalstar has entered into an agreement with a subsidiary of Loral
(which following the Merger, became a Lockheed Martin subsidiary) for the
development and delivery of two SOCCs and 33 Telemetry and Command units for the
Globalstar System. This contract is a cost-plus-fee contract with a maximum
price of $25.1 million which includes a fee of 12% under the contract, 6% of
which would be payable at the time the costs are incurred with the remainder
payable upon achievement of certain milestones. Globalstar will own any
intellectual property produced under the contract.
Contract for S-Band Beam Forming Network Engineering Model. Globalstar
entered into an agreement with a subsidiary of Loral (which, following the
Merger, became a Lockheed Martin subsidiary) for an S-Band Beam Forming Network
Engineering Model. The contract is a firm fixed-price contract for approximately
$463,000.
Consulting Contracts. Globalstar has entered into consulting agreements
with Vodafone for approximately $650,000 under which Vodafone will develop
Globalstar's security architecture design and billing system requirements. Under
a consulting contract estimated at $845,000, a joint venture formed by France
Telecom and Alcatel is providing Globalstar with various services including
engineering support at WRC '95, quality of services studies and European
regulatory support services.
OmniTRACS Services Agreement. Globalstar has granted Qualcomm the
worldwide exclusive right to utilize the Globalstar System to provide
OmniTRACS-like services, including certain data-messaging and
position-determination services offered by Qualcomm, primarily to fleets of
motor vehicles and rail cars and/or vessels and supervisory control and data
acquisition services. Qualcomm will utilize the Globalstar System in particular
territories to provide its OmniTRACS-like services if the Globalstar service
provider in such region or country offers pricing that is the most favorable
rate charged by it for a comparable service and that is at least as favorable as
the pricing then charged to Qualcomm for geostationary satellite capacity in the
United States. In the event Qualcomm and the service provider fail to reach an
agreement with respect to such access, Globalstar has agreed to provide Qualcomm
with access to the Globalstar System at Globalstar's most favorable rates. To
the extent consistent with Qualcomm's prior commitments, Qualcomm has also
agreed to offer each Globalstar service provider certain rights of first refusal
to participate with Qualcomm in the provision of OmniTRACS-like services using
the Globalstar System in the service provider's territory.
Office Leases. Globalstar currently leases approximately 56,000 square
feet of office space from a subsidiary of Lockheed Martin at a cost of
approximately $72,000 per month. This space is leased pursuant to an agreement
that expires in August 2000 (with an option to extend for two additional five
year periods). Globalstar paid a total of $650,000 and $275,000, for the
calendar years 1995 and 1994, respectively, under such lease.
Conflicts of Interest. The Globalstar partnership agreement provides that
Globalstar cannot enter into any agreement involving amounts in excess of
$1,000,000 with any partner, any strategic partner (including any direct or
indirect corporate parent of such partner or strategic partner), any Alliance
Partner or any of their respective affiliates unless the terms and conditions of
such transaction have been first approved by a vote of the disinterested
partners.
Guarantee Fee and Warrants. On December 15, 1995, Globalstar entered into
the Globalstar Credit Agreement providing for a $250 million credit facility.
Following the consummation of the Merger, Lockheed Martin guaranteed $206.3
million of Globalstar's obligation under the Globalstar Credit Agreement, and
SS/L and certain other Globalstar strategic partners guaranteed $11.7 million
and $32 million, respectively, of
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<PAGE> 48
Globalstar's obligation. In addition, Loral SpaceCom has agreed to indemnify
Lockheed Martin for liability in excess of $150 million under Lockheed Martin's
guarantee of the Globalstar Credit Agreement.
In connection with such guarantees and indemnity of the Globalstar Credit
Agreement, GTL issued to Loral SpaceCom, Lockheed Martin, SS/L and the other
strategic partners participating in such guarantee or indemnity, warrants (the
"GTL Guarantee Warrants") to purchase 4,185,318 shares of GTL common stock. The
GTL Guarantee Warrants have an exercise price of $26.50, are subject to certain
vesting requirements, expire on April 19, 2003, are not exercisable until six
months after Globalstar commences initial operations unless accelerated at the
sole discretion of the managing general partner of Globalstar and may not be
transferred to third parties prior to such exercise date. In connection with the
issuance of GTL Guarantee Warrants, GTL received (i) warrants to acquire
4,185,318 ordinary partnership interests in Globalstar plus (ii) additional
warrants (the "Additional Warrants") to purchase an additional 1,131,168
ordinary partnership interests, on terms and conditions generally similar to
those of the GTL Guarantee Warrants. In addition, Globalstar has also agreed to
pay to Loral SpaceCom and the other guaranteeing partners a fee equal to 1.5%
per annum of the average quarterly amount outstanding under the Globalstar
Credit Agreement (the "Guarantee Fee").
Globalstar Managing Partner's Allocation and Distribution. Commencing on
the In-Service Date, Globalstar will make distributions to LQSS equal to 2.5% of
Globalstar's revenues up to $500 million plus 3.5% of revenues in excess of $500
million. Loral SpaceCom and Qualcomm ultimately will receive 80% and 20% of such
distribution, respectively. Should Globalstar incur a net loss in any year
following commencement of operations, the distribution for that year will be
reduced by 50% and Globalstar will be reimbursed for Managing Partner's
Allocations, if any, made in any prior quarter of such year, sufficient to
reduce the Managing Partner's Allocation for such year by 50%. Any Managing
Partner's Allocation may be deferred (with interest at 4% per annum) in any
quarter in which Globalstar would report negative cash flow from operations if
the Managing Partner's Allocation were made.
LQSS has a right to a preferred allocation of gross operating revenue until
such allocated revenue cumulatively equals LQSS's distributions payable (whether
or not deferred for a shortfall in cash flow from operations). To the extent
that distributions exceed such allocated profit, they will be charged against
LQSS's capital account and will not be allocated among the Globalstar partners
as a Globalstar expense.
Relationship with SS/L's Alliance Partners. In 1991 and 1992, Loral sold
49% of SS/L's equity to the Alliance Partners and in connection therewith
entered into a stockholders agreement (the "SS/L Stockholders Agreement")
governing the relationship among the parties thereto. Under the SS/L
Stockholders Agreement, a change of control of Loral Corporation within the
meaning of such agreement would provide each of the Alliance Partners with the
right to (i) put their equity interests back to SS/L at fair market value, or
(ii) purchase a pro rata share of Loral's equity interest in SS/L for fair
market value (subject to receiving certain authorizations including U.S.
government approval) and would terminate SS/L's obligations to pay the
management fees described below. While it is not certain that the change of
control provisions are applicable, the Company and SS/L are seeking an amendment
to the stockholders agreement acknowledging the transfer of Loral's interests in
SS/L to Loral SpaceCom that occurred in connection with the Distribution, a
waiver of any applicable put and purchase option rights and certain changes
relating to management fees and reimbursement of expenses. In the event that any
of SS/L's Alliance Partners put their interests back to SS/L, SS/L would thereby
have the right to put such interests to Loral SpaceCom. The Company does not
expect all the Alliance Partners to exercise their put rights in connection with
the Distribution, but, if all such put rights were exercised, the Company
believes its obligations pursuant to these rights would be less than $250
million.
In return for managing and operating SS/L, the Company is entitled to
receive an annual management fee consisting of (i) a basic management fee equal
to (a) 0.5% of SS/L's total sales for the fiscal year minus SS/L's total
purchases of certain non-standard equipment and (b) 1.5% of the aggregate
purchases by SS/L from the Alliance Partners of products or services for such
fiscal year (such basic management fee not to exceed 0.5% of SS/L's gross sales
for such fiscal year) and (ii) an incentive management fee equal to (x) 0.5% of
SS/L's gross sales if SS/L's profit margin equals or exceeds 10.5% or (y) 0.25%
of SS/L's gross sales if SS/L's profit margin equals 7% or (z) a percentage
determined by linear interpolation between 0.25%
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<PAGE> 49
and 0.5% of SS/L's gross sales if the profit margin is between 7% and 10.5%. In
addition to the management fee, SS/L is obligated to pay to the Company, subject
to certain limitations, the amount of corporate overhead which the Company
allocates to SS/L as required by applicable United States government accounting
regulations.
SS/L and the Alliance Partners have agreed to enter into teaming
arrangements with respect to proposals or bids submitted either by SS/L or the
Alliance Partners to certain customers. Subject to commercial practicability,
such arrangements are intended to provide for a certain level of subcontractor
participation by the Alliance Partners in programs for which SS/L serves as
prime contractor and a certain level of subcontractor participation by SS/L in
programs for which one of the Alliance Partners serves as prime contractor.
Through these teaming arrangements, SS/L expects to achieve a greater presence
in new markets in Europe and other regions and to significantly increase the
volume of its participation in the construction of commercial satellites.
Relationship with Lehman Partnerships. The Lehman Partnerships exchanged
their Series S preferred stock in the holding company that held 51% of SS/L for
Series S Preferred Stock (the "Series S Preferred Stock") of SS/L Bermuda
pursuant to a stockholders agreement (the "SS/L Bermuda Stockholders Agreement")
among the Company, SS/L Bermuda and the Lehman Partnerships. The SS/L Bermuda
Stockholders Agreement restricts transfers of the Series S Preferred Stock and
SS/L Bermuda's common stock of SS/L (the "SS/L Common Stock"), and provides
rights to purchase and requires the purchase of the Series S Preferred Stock in
certain events. SS/L Bermuda is a holding company whose assets consist of 51% of
the outstanding shares of SS/L Common Stock and a 22.5% equity interest in K&F.
The shares of Series S Preferred Stock held by the Lehman Partnerships represent
an effective 18.3% interest in SS/L.
The terms of the Series S Preferred Stock provide that each share of Series
S Preferred Stock issued by SS/L Bermuda is entitled to receive all cash
dividends and other distributions of property as are received by SS/L Bermuda
with respect to SS/L on a pro rata basis. The Series S Preferred Stock will not
have any voting right with respect to SS/L. The Series S Preferred Stock will
vote together with the common stock of SS/L Bermuda, with each share being
entitled to one vote.
The SS/L Bermuda Stockholders Agreement requires the Company to provide
written notice to the Lehman Partnerships of certain actions taken by SS/L. Such
actions include mergers, material acquisitions or divestitures, certain changes
in the capital stock of SS/L, incurrence of material indebtedness or liens,
certain transactions with affiliates, appointment of any successor to the
Chairman of the Board of Directors or Chief Executive Officer of SS/L and
settlement of material claims. If SS/L takes one of these actions, the Lehman
Partnerships may require the Company to purchase the Series S Preferred Stock
then held by the Lehman Partnerships at a per share purchase price equal to at
least the appraised fair market value of the common stock of SS/L Bermuda.
Commencing on the earlier of a change of control and January 1, 1998, the
Lehman Partnerships will have the option to require the Company to purchase all
of the Series S Preferred Stock then held by the Lehman Partnerships at a fair
market value. In addition, the Lehman Partnerships will be entitled to require
the Company to purchase all other securities and assets (other than cash)
distributed to the Lehman Partnerships in respect of the Series S Preferred
Stock. The Lehman Partnerships also have a special put option with respect to
their Series S Preferred Stock upon the failure by SS/L to maintain its security
clearance.
K&F Convertible Debentures. In September, 1994, the Company exchanged the
$30 million 14.75% pay-in-kind Subordinated Convertible Debenture due 2004 (the
"Debenture") issued in 1989 by K&F in connection with the purchase by K&F of
certain divisions of Loral. The Debenture was exchanged for $11.5 million in
cash, net of expenses, and 458,994 shares of Class B common stock of the company
representing 22.5% of the outstanding capital stock of the company. Bernard L.
Schwartz, Chairman and Chief Executive Officer of the Company, holds 27.12% of
the outstanding shares of capital stock of K&F.
48
<PAGE> 50
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) 1. Financial Statements
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Index to Financial Statements........................................................ F-1
Loral Space & Communications Ltd.
Independent Auditors' Report......................................................... F-2
Balance Sheet as of March 31, 1996................................................... F-3
Notes to Balance Sheet............................................................... F-4
Loral Corporation -- Space & Communications Operations
Annual Financial Statements:
Independent Auditors' Report....................................................... F-6
Combined Balance Sheets as of March 31, 1996 and 1995.............................. F-7
Combined Statements of Operations and Invested Equity for the years ended March 31,
1996, 1995 and 1994............................................................... F-8
Combined Statements of Cash Flows for the years ended March 31, 1996, 1995 and
1994.............................................................................. F-9
Notes to Combined Financial Statements............................................. F-10
Globalstar, L.P. (A development stage limited partnership)
Annual Financial Statements:
Independent Auditors' Report....................................................... F-17
Balance Sheets as of December 31, 1995 and 1994.................................... F-18
Statements of Operations for the year ended December 31, 1993 and the period from
January 1, 1994 to March 22, 1994 (pre-capital subscription periods); for the
period March 23, 1994 (commencement of operations) to December 31, 1994, for the
year ended December 31, 1995 and cumulative....................................... F-19
Statements of Partners' Capital and Subscriptions Receivable for the period March
23, 1994 (commencement of operations) to December 31, 1995........................ F-20
Statements of Cash Flows for the period March 23, 1994 (commencement of operations)
to December 31, 1994, for the year ended December 31, 1995 and cumulative......... F-21
Notes to Financial Statements...................................................... F-22
Interim Financial Statements:
Condensed Balance Sheets as of March 31, 1996 and December 31, 1995................ F-32
Condensed Statements of Operations for the three months ended March 31, 1996 and
1995.............................................................................. F-33
Condensed Statements of Cash Flows for the three months ended March 31, 1996 and
1995.............................................................................. F-34
Notes to Condensed Financial Statements............................................ F-35
Space Systems/Loral, Inc.
Annual Financial Statements:
Independent Auditors' Report....................................................... F-38
Consolidated Balance Sheets as of March 31, 1996 and 1995.......................... F-39
Consolidated Statements of Income for the years ended March 31, 1996, 1995 and
1994.............................................................................. F-40
Consolidated Statements of Shareholders' Equity for the years ended March 31, 1996,
1995 and 1994..................................................................... F-41
Consolidated Statements of Cash Flows for the years ended March 31, 1996, 1995 and
1994.............................................................................. F-42
Notes to Consolidated Financial Statements......................................... F-43
</TABLE>
(a) 3. Exhibits
Exhibits 10.11 through 10.13 are management compensation plans.
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
- -------------- ---------------------------------------------------------------------------------------
<C> <S>
2.1 Agreement and Plan of Merger, dated as of January 7, 1996, among Loral Corporation,
Lockheed Martin Corporation and LAC Acquisition Corporation+
2.2 Restructuring, Financing and Distribution Agreement, dated as of January 7, 1996, among
Loral Corporation, Loral Aerospace Holdings, Inc., Loral Aerospace Corp., Loral General
partner, Inc., Loral Globalstar L.P., Loral Globalstar Limited, the Registrant and
Lockheed Martin Corporation+
2.3 Amendment to Merger Agreement***
2.4 Amendment to Distribution Agreement***
3.1 Memorandum of Association of Registrant+
3.2 Form of Memorandum of Increase of Share Capital+
3.3 Amended and Restated Bye-laws of Registrant***
4 Rights Agreement+
</TABLE>
49
<PAGE> 51
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
- -------------- ---------------------------------------------------------------------------------------
<C> <S>
10.1 Tax Sharing Agreement***
10.2 Shareholders Agreement between the Registrant and Loral Corporation***
10.3 SS/L Stockholders Agreement+
10.4 Lehman Stockholders Agreement***
10.5 Amended and Restated Agreement of Limited Partnership of Globalstar, L.P.*
10.6 Subscription Agreements by and between Globalstar, L.P. and each of Globalstar
Telecommunications Limited, AirTouch Communications, Alcatel Spacecom, Loral General
Partner, Inc., Hyundai/Dacom, Vodastar Limited, Loral/Qualcomm Satellite Services, L.P.
and Finmeccanica S.p.A.*
10.7 Service provider agreements by and between Globalstar, L.P. and each of AirTouch
Satellite Services, Finmeccanica S.p.A., Loral General Partner, Inc., Loral/DASA
Globalstar, L.P., Hyundai/Dacom, TE.SA.M and Vodastar Limited*
10.8 Development Agreement by and between QUALCOMM Incorporated and Globalstar, L.P.*
10.9 Contract between Globalstar, L.P. and Space Systems/Loral, Inc.*
10.10 Credit Agreement among Globalstar, L.P. and various banks and Loral Guarantee+
10.11 Registrant's 1996 Stock Option Plan+
10.12 Registrant's Common Stock Purchase Plan for Non-Employee Directors+
10.13 Employment Agreement between the Registrant and Bernard L. Schwartz+
10.14 Exchange Agreement among the Registrant, Lockheed Martin Corporation and Loral
Corporation***
10.15 Amendment to Partnership Agreement of Globalstar, dated March 6, 1996***
10.16 Amendment of Globalstar Credit Agreement***
10.17 Lockheed Martin Guarantee***
20 Documents or Statements to Shareholders**
21 List of Subsidiaries of the Registrant***
27 Financial Data Schedule***
</TABLE>
- ---------------
*Incorporated by reference to the Registration Statement on Form S-1 filed by
Globalstar Telecommunications Limited (File No. 33-86808).
**Incorporated by reference to Loral's Solicitation/Recommendation Statement on
Schedule 14D-9 dated January 12, 1996.
***Filed herewith.
+Incorporated by reference to the Registration Statement on Form 10 filed by
the Company. (1-14180)
(b) Reports on Form 8-K
None
50
<PAGE> 52
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
LORAL SPACE & COMMUNICATIONS LTD.
By: BERNARD L. SCHWARTZ
------------------------------------
Bernard L. Schwartz
(Chairman of the Board and
Chief Executive Officer)
Date: June 28, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- ------------------------------------------ --------------------------------------- --------------
<C> <S> <C>
BERNARD L. SCHWARTZ Chairman of the Board, Chief Executive June 28, 1996
- ------------------------------------------ Officer and Director
Bernard L. Schwartz
HOWARD GITTIS Director June 28, 1996
- ------------------------------------------
Howard Gittis
Director
- ------------------------------------------
Robert B. Hodes
Director
- ------------------------------------------
Gershon Kekst
CHARLES LAZARUS Director June 28, 1996
- ------------------------------------------
Charles Lazarus
Director
- ------------------------------------------
Malvin A. Ruderman
E. DONALD SHAPIRO Director June 28, 1996
- ------------------------------------------
E. Donald Shapiro
ARTHUR L. SIMON Director June 28, 1996
- ------------------------------------------
Arthur L. Simon
THOMAS J. STANTON JR. Director June 28, 1996
- ------------------------------------------
Thomas J. Stanton Jr.
DANIEL YANKELOVICH Director June 28, 1996
- ------------------------------------------
Daniel Yankelovich
MICHAEL P. DEBLASIO Principal Financial Officer June 28, 1996
- ------------------------------------------
Michael P. DeBlasio
HARVEY B. REIN Principal Accounting Officer June 27, 1996
- ------------------------------------------
Harvey B. Rein
</TABLE>
51
<PAGE> 53
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Loral Space & Communications Ltd.
Independent Auditors' Report........................................................ F-2
Balance Sheet as of March 31, 1996.................................................. F-3
Notes to Balance Sheet.............................................................. F-4
Loral Corporation -- Space & Communications Operations
Annual Financial Statements:
Independent Auditors' Report..................................................... F-6
Combined Balance Sheets as of March 31, 1996 and 1995............................ F-7
Combined Statements of Operations and Invested Equity for the years ended March
31, 1996, 1995 and 1994......................................................... F-8
Combined Statements of Cash Flows for the years ended March 31, 1996, 1995 and
1994............................................................................ F-9
Notes to Combined Financial Statements........................................... F-10
Globalstar, L.P. (A development stage limited partnership)
Annual Financial Statements:
Independent Auditors' Report..................................................... F-17
Balance Sheets as of December 31, 1995 and 1994.................................. F-18
Statements of Operations for the year ended December 31, 1993 and the period from
January 1, 1994 to March 22, 1994 (pre-capital subscription periods); for the
period March 23, 1994 (commencement of operations) to December 31, 1994, the
year ended December 31, 1995 and cumulative..................................... F-19
Statements of Partners' Capital and Subscriptions Receivable for the period March
23, 1994 (commencement of operations) to December 31, 1995...................... F-20
Statements of Cash Flows for the period March 23, 1994 (commencement of
operations) to December 31, 1994, the year ended December 31, 1995 and
cumulative...................................................................... F-21
Notes to Financial Statements.................................................... F-22
Interim Financial Statements:
Condensed Balance Sheets as of March 31, 1996 and December 31, 1995.............. F-32
Condensed Statements of Operations for the three months ended March 31, 1996 and
1995............................................................................ F-33
Condensed Statements of Cash Flows for the three months ended March 31, 1996
and 1995....................................................................... F-34
Notes to Condensed Financial Statements.......................................... F-35
Space Systems/Loral, Inc.
Annual Financial Statements:
Independent Auditors' Report..................................................... F-38
Consolidated Balance Sheets as of March 31, 1996 and 1995........................ F-39
Consolidated Statements of Income for the years ended March 31, 1996, 1995 and
1994............................................................................ F-40
Consolidated Statements of Shareholders' Equity for the years ended March 31,
1996, 1995 and 1994............................................................. F-41
Consolidated Statements of Cash Flows for the years ended March 31, 1996, 1995
and 1994........................................................................ F-42
Notes to Consolidated Financial Statements....................................... F-43
</TABLE>
F-1
<PAGE> 54
INDEPENDENT AUDITORS' REPORT
To the Shareholders of Loral Space & Communications Ltd.:
We have audited the accompanying balance sheet of Loral Space &
Communications Ltd. (a Bermuda company) as of March 31, 1996. This balance sheet
is the responsibility of the Company's management. Our responsibility is to
express an opinion on this financial statement based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, such balance sheet presents fairly, in all material
respects, the financial position of Loral Space & Communications Ltd. as of
March 31, 1996, in conformity with accounting principles generally accepted in
the United States of America.
DELOITTE & TOUCHE LLP
New York, New York
June 27, 1996
F-2
<PAGE> 55
LORAL SPACE & COMMUNICATIONS LTD.
BALANCE SHEET
MARCH 31, 1996
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<S> <C>
ASSETS
Cash................................................................................... $12
---
Total assets................................................................. $12
===
SHAREHOLDER'S EQUITY
Commitments and contingencies (Note 3)
Shareholders' equity (Note 2):
Series A convertible preferred stock, $.01 par value; 150,000,000 shares authorized
and unissued...................................................................... $--
Series B preferred Stock, $.01 par value; 750,000 shares authorized and unissued..... --
Common stock, $.01 par value; 750,000,000 shares authorized, 12,000 shares issued and
outstanding....................................................................... --
Paid-in capital...................................................................... 12
Retained earnings.................................................................... --
---
Total shareholder's equity................................................... $12
===
</TABLE>
See notes to balance sheet.
F-3
<PAGE> 56
LORAL SPACE & COMMUNICATIONS LTD.
NOTES TO BALANCE SHEET
1. FORMATION OF LORAL SPACE & COMMUNICATIONS LTD.
Loral Space & Communications Ltd. ("Loral SpaceCom" or the "Company")
manages and is the largest equity owner of both Globalstar, L.P. ("Globalstar")
and Space Systems/Loral, Inc. ("SS/L") (together, the "Operating Affiliates").
The Company will also act as a Globalstar service provider in Canada, Brazil and
Mexico, and is evaluating additional satellite-based service opportunities.
Loral SpaceCom was formed to effectuate the distribution of Loral Corporation's
("Loral") space and telecommunications businesses (the "Distribution") to
shareholders of Loral and holders of options to purchase Loral common stock
pursuant to a merger agreement (the "Merger") dated January 7, 1996 between
Loral and Lockheed Martin Corporation ("Lockheed Martin").
The Distribution of approximately 183.6 million shares of Loral SpaceCom
common stock was made on April 23, 1996 (the "Distribution Date"). In connection
with the Distribution, Lockheed Martin contributed $612 million in cash to the
Company. Of the amount contributed, $344 million represented the purchase of a
20% fully-diluted equity interest in the Company in the form of Loral SpaceCom
Series A Convertible Preferred Stock. Such stock is subject to certain voting
limitations, restrictions on transfer and standstill provisions. The Company has
invested its $612 million in marketable securities pending investment in the
Company's satellite telecommunications programs and opportunities. The Company
also holds $102.5 million principal amount of Globalstar Telecommunications
Limited ("GTL") 6 1/2% Convertible Preferred Equivalent Obligations and a
minority non-controlling equity investment in K&F Industries, Inc. ("K&F").
On January 12, 1996 Loral SpaceCom was incorporated as an exempted company
under the Companies Act 1981 of Bermuda. As of March 31, 1996, the only
transaction of Loral SpaceCom was the sale of 12,000 shares of common stock to
Loral. Accordingly, no statement of operations or of cash flows have been
presented. As a result of the Distribution, the financial statements of the
space and communications operations of Loral (presented herein) will become the
historical financial statements of the Company.
The following unaudited pro forma condensed balance sheet information gives
effect to the Distribution and the purchase of GTL's Convertible Preferred
Obligations as if they had occurred as of March 31, 1996, and includes both the
Space and Communications Operations of Loral as well as the transfer of other
assets of Loral to Loral SpaceCom (in thousands):
<TABLE>
<S> <C>
Cash and equivalents............................................. $ 612,286
Investment in affiliates......................................... 341,697
Total assets..................................................... 1,001,638
Shareholders' equity............................................. 988,638
</TABLE>
The following unaudited pro forma statement of operations information gives
effect to the Distribution as if it had occurred at the beginning of fiscal
1996, and includes both the Space and Communications Operations of Loral and
estimated additional corporate expenses which would have been incurred on a
stand-alone basis, however, in accordance with SEC regulations, no interest
income has been reflected on the anticipated cash balances of the Company (in
thousands):
<TABLE>
<S> <C>
Management fee from affiliate..................................... $ 5,608
Loss before income taxes and equity in net loss of affiliates..... 15,413
Equity in net loss of affiliates.................................. 16,936
Net loss.......................................................... 32,349
</TABLE>
The pro forma financial information has been prepared in accordance with
SEC regulations and may not be indicative of the results of operations that
actually would have occurred if the Distribution had been in effect on the dates
indicated or results that may be obtained in the future.
F-4
<PAGE> 57
2. SHAREHOLDERS' EQUITY
Loral SpaceCom has authorized 150,000,000 shares of Series A Convertible
Preferred Stock and 750,000 shares of Series B Preferred Stock. Significant
terms of the Series A include voting rights restricted to only selected matters
such as merger, liquidation or sale of the company; a liquidation preference of
$.01 per share prior to pro rata participation with the Common Stock; and the
ability to convert to Common Stock upon the receipt of certain antitrust
clearance or upon sales to an unaffiliated third party. The Series B Preferred
Stock will, if issued, be junior to any other series of Preferred Stock which
may be authorized and issued.
Loral SpaceCom has reserved 12,000,000 shares of Common Stock for future
grants of options to purchase shares of stock at fair market value as of the
grant date.
3. CREDIT GUARANTEE AND OTHER COMMITMENTS
Under the Merger Agreement, Loral SpaceCom assumed certain commitments and
contingencies associated with the Loral Corporation -- Space & Communications
Operations, as described below.
On December 15, 1995, Globalstar entered into a $250,000,000 credit
agreement (the "Credit Agreement") with a group of banks. Following the
consummation of the Merger, Lockheed Martin guaranteed $206.3 million of
Globalstar's obligation under the Globalstar Credit Agreement, and SS/L and
certain other Globalstar strategic partners guaranteed $11.7 million and $32
million, respectively, of Globalstar's obligation. In addition, Loral SpaceCom
has agreed to indemnify Lockheed Martin for liability in excess of $150 million
under Lockheed Martin's guarantee of the Globalstar Credit Agreement.
In connection with such guarantees and indemnity of the Globalstar Credit
Agreement, GTL issued to Loral SpaceCom, Lockheed Martin, SS/L and the other
strategic partners participating in such guarantee or indemnity, warrants (the
"GTL Guarantee Warrants") to purchase an aggregate of 4,185,318 shares of GTL
common stock, of which Loral SpaceCom received a warrant to purchase 942,428
shares. The GTL Guarantee Warrants have an exercise price of $26.50, are subject
to certain vesting requirements, expire on April 19, 2003, are not exercisable
until six months after Globalstar commences initial operations unless
accelerated at the sole discretion of the managing general partner of Globalstar
and may not be transferred to third parties prior to such exercise date. In
connection with the issuance of GTL Guarantee Warrants, GTL received (i)
warrants to acquire 4,185,318 ordinary partnership interests in Globalstar plus
(ii) additional warrants (the "Additional Warrants") to purchase an additional
1,131,168 ordinary partnership interests, on terms and conditions generally
similar to those of the GTL Guarantee Warrants. In addition, Globalstar has also
agreed to pay Loral SpaceCom and the other guaranteeing partners a fee equal to
1.5% per annum of the average quarterly amount outstanding under the Globalstar
Credit Agreement.
Under a shareholders agreement among SS/L's equity investors, a change of
control of Loral SpaceCom within the meaning of such agreement would provide
each of SS/L's equity investors other than Loral SpaceCom (the "Alliance
Partners") with the right to (i) put their equity interests back to SS/L at fair
market value, or (ii) purchase a pro rata share of Loral SpaceCom's equity
interest in SS/L for fair market value (subject to receiving certain
authorizations including U.S. government approval). In the event that any of
SS/L's Alliance Partners put their interests back to SS/L, Loral SpaceCom will
acquire such interests.
Certain partnerships affiliated with Lehman Brothers Inc. (the "Lehman
Partnerships") hold Series S Preferred Stock of a Loral SpaceCom subsidiary.
Each share of Series S Preferred Stock represents a beneficial interest in one
share of common stock of SS/L. If the Lehman Partnerships continue to hold the
Series S Preferred Stock after January 1, 1998, or after a change in control of
Loral SpaceCom, they will have the right to request that the Company purchase
their Series S Preferred Stock at fair market value. In such event, the Company
may elect to purchase such Series S Preferred Stock at fair market value, or if
the Company elects not to purchase the stock, the Lehman Partnerships may
require the combined interests of the Company and the Lehman Partnerships in
SS/L to be sold to a third party.
The Company adopted a defined benefit pension plan to provide retirement
benefits to eligible employees of the Company and its Operating Affiliates. The
plan will receive the assets and assume the obligations of such employees
currently held by other benefit plans of Loral.
F-5
<PAGE> 58
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of
Directors of Loral Corporation:
We have audited the accompanying combined balance sheets of the Space &
Communications Operations of Loral Corporation as of March 31, 1996 and 1995,
and the related combined statements of operations and invested equity and of
cash flows for each of the three years in the period ended March 31, 1996. These
financial statements are the responsibility of Loral Corporation's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such combined financial statements present fairly, in all
material respects, the financial position of the Space & Communications
Operations of Loral Corporation at March 31, 1996 and 1995, and the results of
their operations and their cash flows for each of the three years in the period
ended March 31, 1996 in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
New York, New York
June 27, 1996
F-6
<PAGE> 59
LORAL CORPORATION -- SPACE & COMMUNICATIONS OPERATIONS
COMBINED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31,
-------------------
1996 1995
-------- --------
<S> <C> <C>
ASSETS
Investment in affiliates................................................. $339,272 $250,977
Other assets............................................................. 9,800 --
Deferred income taxes.................................................... 5,312 842
-------- --------
Total assets................................................... $354,384 $251,819
======== ========
LIABILITIES AND INVESTED EQUITY
Commitments and contingencies (Note 7)
Invested equity.......................................................... $354,384 $251,819
-------- --------
Total liabilities and invested equity.......................... $354,384 $251,819
======== ========
</TABLE>
See notes to combined financial statements.
F-7
<PAGE> 60
LORAL CORPORATION -- SPACE & COMMUNICATIONS OPERATIONS
COMBINED STATEMENTS OF OPERATIONS AND INVESTED EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED MARCH 31,
------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Management fee from affiliate.................................. $ 5,608 $ 3,169 $ 2,981
Allocated costs and expenses, net.............................. (3,021) (3,202) (2,583)
Gain on exchange of affiliate's debentures..................... 11,514
Allocated interest expense..................................... (10,524) (9,456) (8,253)
-------- -------- --------
Income (loss) before income taxes and equity in net income
(loss)
of affiliates................................................ (7,937) 2,025 (7,855)
Provision (benefit) for income taxes........................... (2,780) 910 (2,987)
-------- -------- --------
Income (loss) before equity in net income (loss) of
affiliates................................................... (5,157) 1,115 (4,868)
Equity in net income (loss) of affiliates...................... (8,628) (8,988) 1,174
-------- -------- --------
Net loss....................................................... (13,785) (7,873) (3,694)
Invested equity -- beginning of year........................... 251,819 159,198 137,017
Advances from Loral Corporation................................ 116,350 100,494 25,875
-------- -------- --------
Invested equity -- end of year................................. $354,384 $251,819 $159,198
======== ======== ========
</TABLE>
See notes to combined financial statements.
F-8
<PAGE> 61
LORAL CORPORATION -- SPACE & COMMUNICATIONS OPERATIONS
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED MARCH 31,
-----------------------------------
1996 1995 1994
--------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss................................................ $ (13,785) $ (7,873) $ (3,694)
Equity in net loss (income) of affiliates............... 8,628 8,988 (1,174)
Tax benefit of Globalstar partnership losses............ 8,308 7,083
Deferred income taxes................................... (4,470) (5,123) 4,281
Gain on exchange of affiliate's debentures.............. (11,514)
--------- -------- --------
Net cash used in operating activities..................... (1,319) (8,439) (587)
--------- -------- --------
Investing activities:
Payment for Globalstar option territory................. (9,800)
Cash received on exchange of affiliate's debentures..... 11,514
Investment in affiliates................................ (105,231) (103,569) (25,288)
--------- -------- --------
Net cash (used in) provided by investing activities....... (115,031) (92,055) (25,288)
--------- -------- --------
Financing activities:
Advances from Loral Corporation......................... 116,350 100,494 25,875
--------- -------- --------
Net cash provided by financing activities................. 116,350 100,494 25,875
--------- -------- --------
Net change in cash........................................ $ -- $ -- $ --
========= ======== ========
</TABLE>
See notes to combined financial statements.
F-9
<PAGE> 62
LORAL CORPORATION -- SPACE & COMMUNICATIONS OPERATIONS
NOTES TO COMBINED FINANCIAL STATEMENTS
1. FORMATION OF LORAL SPACE & COMMUNICATIONS LTD.
Loral Space & Communications Ltd. ("Loral SpaceCom" or the "Company")
manages and is the largest equity owner of both Globalstar, L.P. ("Globalstar")
and Space Systems/Loral, Inc. ("SS/L") (together the "Operating Affiliates").
The Company will also act as a Globalstar service provider in Canada, Brazil and
Mexico, and is evaluating additional satellite-based service opportunities.
Loral SpaceCom was formed to effectuate the distribution of Loral Corporation's
("Loral") space and telecommunications businesses (the "Distribution") to
shareholders of Loral and holders of options to purchase Loral common stock
pursuant to a merger agreement (the "Merger") dated January 7, 1996 between
Loral and Lockheed Martin Corporation ("Lockheed Martin").
The Distribution of approximately 183.6 million shares of Loral SpaceCom
common stock was made on April 23, 1996 (the "Distribution Date"). In connection
with the Distribution, Lockheed Martin contributed $612 million in cash to the
Company. Of the amount contributed, $344 million represented the purchase of a
20% fully-diluted equity interest in the Company in the form of Loral SpaceCom
Series A Convertible Preferred Stock. Such stock is subject to certain voting
limitations, restrictions on transfer and standstill provisions.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying combined financial statements reflect that portion of the
space and communications assets and operations (the "Space & Communications
Operations") included in Loral's historical financial statements that will be
spun-off to Loral SpaceCom.
Certain other non-operating assets of Loral were distributed to Loral
SpaceCom on the Distribution Date. However, those assets, consisting of certain
fixed assets and other miscellaneous assets, have not been included in the
accompanying financial statements since those assets have been principally used
in the Loral operations acquired by Lockheed Martin.
Investment in Affiliates
Investment in affiliates are accounted for using the equity method. Income
and losses of the affiliates are recorded based on Loral's beneficial ownership
interests. Intercompany profits arising from transactions between affiliates are
eliminated to the extent of the Company's beneficial interests. Equity in losses
of affiliates is not recognized after the carrying value has been reduced to
zero, unless guarantees or other obligations exist.
Allocation of Certain Expenses
The Space & Communications Operations as presented herein, include
allocations and estimates of certain expenses of Loral based upon estimates of
actual services performed by Loral. The amount of corporate office expenses
reflected in these financial statements have been estimated based primarily on
the allocation methodology prescribed by government regulations pertaining to
government contractors, which management of Loral believes to be a reasonable
allocation method. However, the financial position and results of operations, as
presented herein may not be the same as would have occurred had the Space &
Communications Operations been an independent entity.
Interest Expense
Interest has been allocated to the Space & Communications Operations based
upon Loral's historical weighted average debt cost applied to the average
investment in affiliates for each period, which management
F-10
<PAGE> 63
LORAL CORPORATION -- SPACE & COMMUNICATIONS OPERATIONS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
of Loral believes to be a reasonable allocation method. Interest related to the
investment in Globalstar prior to the commencement of operations has been
capitalized.
Income Taxes
The Space & Communications Operations are included in the consolidated U.S.
Federal income tax return and certain combined and separate state and local
income tax returns of Loral. However, for purposes of these financial
statements, the provision (benefit) for income taxes is computed as if the Space
and Communications Operations were a separate taxpayer; accordingly, the
provision (benefit) for income taxes is based upon reported income (loss) before
income taxes. Current income tax liabilities (benefits) are considered to have
been paid (received) by Loral and are recorded through the invested equity
account with Loral. Deferred income taxes reflect the tax effect of temporary
differences between the carrying amount of assets and liabilities for financial
and income tax reporting and are measured by applying tax rates in effect at the
end of each year.
3. INVESTMENT IN AFFILIATES
Investment in affiliates is summarized as follows (in thousands):
<TABLE>
<CAPTION>
MARCH 31,
-------------------
1996 1995
-------- --------
<S> <C> <C>
SS/L............................................................. $144,051 $140,007
Globalstar....................................................... 195,221 110,970
K&F.............................................................. 22,937 24,290
Deferred K&F gain................................................ (22,937) (24,290)
-------- --------
$339,272 $250,977
======== ========
</TABLE>
Equity in net income (loss) of affiliates consists of (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
----------------------------
1996 1995 1994
-------- -------- ------
<S> <C> <C> <C>
SS/L..................................................... $ 4,044 $ 1,816 $1,174
Globalstar............................................... (20,980) (17,887)
Tax benefit of Globalstar partnership losses............. 8,308 7,083
-------- -------- ------
$ (8,628) $ (8,988) $1,174
======== ======== ======
</TABLE>
GLOBALSTAR
In March 1994, Loral and seven other partners made capital commitments
totaling $275,000,000 to Globalstar, a limited partnership of which Loral is the
managing general partner, which plans to design and
F-11
<PAGE> 64
LORAL CORPORATION -- SPACE & COMMUNICATIONS OPERATIONS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
3. INVESTMENT IN AFFILIATES (CONTINUED)
operate a worldwide satellite-based telecommunications system (the "Globalstar
System"). On January 31, 1995, the U.S. Federal Communications Commission issued
a license to construct, launch and operate the Globalstar System. The Globalstar
System, consisting of 48 low-earth-orbit satellites and 8 in-orbit spares, will
offer voice, data, paging and geolocation services to both handheld and fixed
terminals. Loral as the managing general partner of Globalstar is entitled to
receive a managing partner's allocation, upon commencement of commercial
operations, determined in accordance with the partnership agreement.
At March 31, 1994, Loral had an effective 42% equity interest in Globalstar
and had a total capital commitment of $107,000,000, of which $25,288,000 had
been funded. The remaining commitment was funded in two installments, in
November 1994 and March 1995.
At March 31, 1996 and 1995, Loral has a 32.3% interest in Globalstar. In
fiscal 1995, Globalstar received $479,500,000 in equity from Loral and
Globalstar's other partners including GTL, a public company that acts as a
general partner of Globalstar. Loral has contributed $126,816,000 to Globalstar,
including $32,316,000 for 1,674,400 shares of common stock of GTL. At March 31,
1996, the market value, based on the last reported sales price of Loral's GTL
common shares was $88,743,200. As a result Loral has an effective ownership of
15,188,400 ordinary partnership interests of the total 47,000,000 Globalstar
ordinary partnership interests outstanding. In March 1996, Loral purchased
$100,000,000 principal amount of GTL 6 1/2% Convertible Preferred Equivalent
Obligations for $97,000,000. The GTL Convertible Preferred Equivalent
Obligations must be redeemed by GTL on March 1, 2006 and may be converted, at
Loral's option, at any time into 1,538,461 shares of GTL common stock. At March
31, 1996, Loral's investment in Globalstar of $195,221,000 includes $10,272,000
of capitalized costs, principally interest, and is net of Loral's share of
Globalstar's cumulative pre-tax losses of $38,867,000.
In September 1995, Loral, in its capacity as managing general partner,
granted certain directors and officers options to purchase 340,000 shares of the
GTL Common Stock owned by Loral at a weighted average exercise price of $27.87
(such prices were greater than or equal to the market price at grant date). Such
options are immediately exercisable, and expire 12 years from date of grant: no
options were exercised or cancelled during the year.
Globalstar has awarded SS/L the prime contract to design, construct and
launch the satellite constellation. SS/L has awarded and expects to award
subcontracts to third parties, including other investors in Globalstar, for
substantial portions of its obligations under the contract. Through SS/L, Loral
has an additional 1.4% indirect interest in Globalstar.
The Globalstar System has an estimated total cost of $2.2 billion for
capital expenditures, development costs and operating costs through the end of
1998, when full commercial service is scheduled to commence. Globalstar has
obtained a total of $1.4 billion of financing through March 31, 1996, consisting
of $480 million of equity, $310 million of vendor financing, a $250 million bank
credit facility, commitments for $33 million of service provider advance
payments, net proceeds of $290 million from the sale of GTL 6 1/2% Convertible
Preferred Equivalent Obligations (the "Securities") and on April 3, 1996, an
additional $9.7 million net proceeds from the additional sale of the Securities.
Globalstar estimates that it will require an additional $414 million to complete
its external financing requirements and that its remaining financing requirement
will come from a combination of sources, including advance payments from service
providers, anticipated payments associated with the sale of Globalstar Phones
and gateways, placements of limited partnership interests with new and existing
strategic investors and from net service revenues from initial operations.
F-12
<PAGE> 65
LORAL CORPORATION -- SPACE & COMMUNICATIONS OPERATIONS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
3. INVESTMENT IN AFFILIATES (CONTINUED)
SS/L
SS/L, a company owned by Loral and four international aerospace and
communications companies (the "Alliance Partners"), designs and produces
geosynchronous and low-earth orbit satellites and subsystems for communications,
remote earth sensing and direct-to-home broadcast television. Loral, through its
wholly owned subsidiaries Loral Aerospace Holdings, Inc. ("LAH") and Loral
Aerospace Corp. ("Loral Aerospace"), owns 51% of the common stock of SS/L.
Certain partnerships affiliated with Lehman Brothers Holdings Inc. (the "Lehman
Partnerships") own 627.3 shares of LAH Series S Preferred Stock. Each share of
Series S Preferred Stock represents a beneficial interest in one share of common
stock of SS/L.
Due to the LAH Series S Preferred Stock held by the Lehman Partnerships,
Loral has an effective 32.7% economic interest in SS/L. Further, LAH and Loral
Aerospace have agreed not to cause SS/L to take certain actions without the
concurrence of three, or in some cases all, of the SS/L directors appointed by
the four other equity investors. Accordingly, Loral accounts for its investment
in SS/L under the equity method.
K&F
In 1989, Loral sold certain of its divisions to K&F for cash of
$430,000,000 and a $30,000,000 14.75% pay-in-kind Subordinated Debenture due
2004 (the "Debenture"). K&F was formed specifically to effect the purchase of
these divisions through the issuance of approximately $400,000,000 of debt,
including the Debenture, and $65,000,000 of equity. Because K&F was
highly-leveraged, uncertainties existed at the time regarding the ultimate
collectibility of the Debenture and, accordingly, Loral deferred any gain
recognition from the sale relating to the Debenture, as well as any pay-in-kind
interest earned on the Debenture. In September 1994, the Debenture was exchanged
for $11,514,000 in cash, net of expenses, and a 22.5% voting equity interest in
K&F. The cash proceeds were recorded as a non-recurring gain representing the
receipt of sale proceeds deferred in the 1989 transaction. The 22.5% voting
equity interest was recorded at estimated fair value, determined by independent
investment bankers engaged by the Loral Board of Directors. Based on the
financial position of K&F at the time of the exchange, Loral has continued to
record a deferred gain for the $25,000,000 estimated fair value of the stock
received. Loral is using the equity method of accounting for its investment in
K&F and accordingly, both the investment in K&F and the related deferred gain
have been adjusted by Loral's share of net loss and amortization, over a 35 year
period, of goodwill inherent in the fair value recorded. However, no equity
income will be recognized until K&F has positive net worth. The Chairman of
Loral is a principal shareholder of K&F and after the exchange owns
approximately 27% of K&F. In addition, certain executive officers of Loral own
rights to purchase approximately 4% of K&F's capital stock. Summarized financial
information for K&F as of March 31, 1996 and 1995 and for the years then ended
is as follows, respectively: Current assets $101,804,000 and $104,914,000;
Noncurrent assets $313,233,000 and $324,160,000; Current liabilities $65,477,000
and $56,889,000; Long-term debt $294,000,000 and $310,000,000; Postretirement
benefits other than pensions $75,390,000 and $77,717,000; Other noncurrent
liabilities $20,871,000 and $19,216,000; Sales $264,736,000 and $238,756,000;
Cost of sales $180,435,000 and $164,697,000; and Net loss $1,406,000 and
$10,173,000.
4. MANAGEMENT FEES AND ALLOCATION OF CORPORATE EXPENSES
Pursuant to stockholder and partnership agreements, Loral is responsible
for managing the operations of SS/L and Globalstar. Such agreements indicate the
amounts that can be charged to Globalstar and SS/L in return for such services.
In the case of Globalstar, Loral is entitled to receive a management fee upon
commencement of commercial operations. In the case of SS/L, Loral can charge a
management fee based on a formula related to sales and an allocation of certain
overhead costs. The Chairman of Loral and certain of its executive officers
receive compensation from K&F for rendering advisory services to K&F.
F-13
<PAGE> 66
LORAL CORPORATION -- SPACE & COMMUNICATIONS OPERATIONS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
4. MANAGEMENT FEES AND ALLOCATION OF CORPORATE EXPENSES (CONTINUED)
The following summarizes the management fee and allocated costs and
expenses, net reflected in the statement of operations (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
---------------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Management fee from affiliate............................. $ 5,608 $ 3,169 $ 2,981
======= ======= =======
Allocated costs and expenses.............................. $ 6,448 $ 6,489 $ 6,095
Allocated costs and expenses charged to affiliates........ (3,427) (3,287) (3,512)
------- ------- -------
Allocated costs and expenses, net......................... $ 3,021 $ 3,202 $ 2,583
======= ======= =======
</TABLE>
5. RELATED PARTY TRANSACTIONS
In addition to the transactions described in Note 4, Loral has a number of
other transactions with its affiliates. Loral believes that the arrangements are
as favorable to Loral as could be obtained from unaffiliated parties. The
following describes the related-party transactions included in the financial
statements of the affiliates.
Two of Loral's divisions have entered into contracts, totaling $28,744,000,
to construct a portion of the Globalstar System. Sales to Globalstar for the
years ended March 31, 1996 and 1995 were $8,182,000 and $7,429,000,
respectively.
LAH bills certain operational, executive, administrative, financial, legal
and other services to SS/L and SS/L charges LAH certain overhead costs. Net
costs billed to SS/L were $7,066,000, $8,518,000 and $5,934,000 in 1996, 1995
and 1994, respectively. In addition, Loral Corporation sells products to SS/L;
net sales to SS/L were $27,132,000, $26,528,000 and $15,769,000 in 1996, 1995
and 1994, respectively. LAH and SS/L have a tax sharing agreement whereby
certain tax liabilities and benefits are shared equitably.
Loral and K&F have agreements covering various real property occupancy
arrangements and agreements under which Loral and K&F provide certain services,
such as benefits administration, treasury, accounting and legal services to each
other. The charges for these services, as agreed to by Loral and K&F, are based
upon the actual cost incurred in providing the services without a profit. These
transactions between Loral and K&F were not significant.
6. INCOME TAXES
The provision (benefit) for income taxes consists of the following (in
thousands):
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
---------------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Current:
U.S. Federal............................................ $(5,772) $ 3,730 $(6,490)
State and local......................................... (660) 426 (778)
------- ------- -------
(6,432) 4,156 (7,268)
------- ------- -------
Deferred, principally U.S. Federal........................ 3,652 (3,246) 4,281
------- ------- -------
Total provision (benefit) for income taxes...... $(2,780) $ 910 $(2,987)
======= ======= =======
</TABLE>
The provision for income taxes excludes a current tax benefit of $186,000
and $5,206,000 for 1996 and 1995, respectively, and a deferred tax benefit of
$8,122,000 and $1,877,000 for 1996 and 1995, respectively related to the
Globalstar partnership loss which is included in equity in loss of affiliates.
F-14
<PAGE> 67
LORAL CORPORATION -- SPACE & COMMUNICATIONS OPERATIONS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
6. INCOME TAXES (CONTINUED)
A reconciliation from the statutory U.S. Federal income tax rate to Loral
SpaceCom's effective income tax rate follows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
-------------------------
1996 1995 1994
----- ----- -----
<S> <C> <C> <C>
Statutory U.S. Federal income tax rate...................... (35.0)% 35.0% (35.0)%
State and local income taxes, net of Federal income tax..... (4.0) 4.0 (4.2)
Undistributed income of affiliates.......................... 4.0 7.0 1.2
Other, net.................................................. (1.1)
----- ----- -----
Effective income tax rate................................... (35.0)% 44.9% (38.0)%
===== ===== =====
</TABLE>
The deferred tax (asset) liability on the accompanying balance sheet arises
from the tax effect of the temporary differences between the carrying amount of
investment in affiliates for financial and income tax reporting.
7. COMMITMENTS AND CONTINGENCIES
Under a shareholders agreement among SS/L's equity investors (see Note 3),
a change of control of Loral SpaceCom within the meaning of such agreement would
provide each of SS/L's Alliance Partners with the right to (i) put their equity
interests back to SS/L at fair market value, or (ii) purchase a pro rata share
of Loral SpaceCom's equity interest in SS/L for fair market value (subject to
receiving certain authorizations including U.S. government approval). While it
is not certain that the change of control provisions are applicable, Loral and
SS/L are seeking an amendment to the shareholders agreement to acknowledge the
proposed transfer of Loral's interest in SS/L to Loral SpaceCom as contemplated
by the Distribution Agreement and a waiver of such put and purchase option
rights. In the event that any of SS/L's Alliance Partners put their interests
back to SS/L, Loral SpaceCom will acquire such interests.
In addition, if the Lehman Partnerships continue to hold LAH Series S
Preferred Stock (see Note 3) after January 1, 1998, or after a change in control
of Loral, they will have the right to request that Loral purchase their Series S
Preferred Stock at fair market value. In such event, Loral may elect to purchase
such Series S Preferred Stock at fair market value, or if Loral elects not to
purchase the stock, the Lehman Partnerships may require the combined interests
of Loral and the Lehman Partnerships in SS/L to be sold to a third party.
Globalstar Credit Agreement
On December 15, 1995, Globalstar entered into a $250,000,000 credit
agreement (the "Credit Agreement") with a group of banks. Following the
consummation of the Merger, Lockheed Martin guaranteed $206.3 million of
Globalstar's obligation under the Globalstar Credit Agreement, and SS/L and
certain other Globalstar strategic partners guaranteed $11.7 million and $32
million, respectively, of Globalstar's obligation. In addition, Loral SpaceCom
has agreed to indemnify Lockheed Martin for liability in excess of $150 million
under Lockheed Martin's guarantee of the Globalstar Credit Agreement.
In connection with such guarantees and indemnity of the Globalstar Credit
Agreement, GTL issued to Loral SpaceCom, Lockheed Martin, SS/L and the other
strategic partners participating in such guarantee or indemnity, warrants (the
"GTL Guarantee Warrants") to purchase an aggregate of 4,185,318 shares of GTL
common stock, of which Loral SpaceCom received a warrant to purchase 942,428
shares. The GTL Guarantee Warrants have an exercise price of $26.50, are subject
to certain vesting requirements, expire on April 19, 2003, are not exercisable
until six months after Globalstar commences initial operations unless
F-15
<PAGE> 68
LORAL CORPORATION -- SPACE & COMMUNICATIONS OPERATIONS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
7. COMMITMENTS AND CONTINGENCIES (CONTINUED)
accelerated at the sole discretion of the managing general partner of Globalstar
and may not be transferred to third parties prior to such exercise date. In
connection with the issuance of the GTL Guarantee Warrants, GTL received (i)
warrants to acquire 4,185,318 ordinary partnership interests in Globalstar plus
(ii) additional warrants (the "Additional Warrants") to purchase an additional
1,131,168 ordinary partnership interests, on terms and conditions generally
similar to those of the GTL Guarantee Warrants. In addition, Globalstar has also
agreed to pay to Loral SpaceCom and the other guaranteeing partners a fee equal
to 1.5% per annum of the average quarterly amount outstanding under the
Globalstar Credit Agreement.
F-16
<PAGE> 69
INDEPENDENT AUDITORS' REPORT
To the Partners of Globalstar, L.P.:
We have audited the accompanying balance sheets of Globalstar, L.P. (a
development stage limited partnership) as of December 31, 1995 and 1994, and the
related statements of operations, partners' capital and subscriptions receivable
and cash flows for the period from March 23, 1994 (commencement of operations)
to December 31, 1994, the year ended December 31, 1995 and cumulative. We have
also audited the accompanying statements of operations for the year ended
December 31, 1993 and the period from January 1, 1994 to March 22, 1994
(pre-capital subscription period). These financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Globalstar, L.P. at December 31, 1995 and
1994, and the results of its operations and its cash flows for the periods
stated above in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
San Jose, California
January 26, 1996
(March 6, 1996 as to Note 11)
F-17
<PAGE> 70
GLOBALSTAR, L.P.
(A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1995 1994
-------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................... $ 71,602 $ 73,560
Other current assets................................................ 506 190
------- --------
Total current assets........................................... 72,108 73,750
Property and equipment, net........................................... 1,509 1,004
Globalstar System Under Construction:
Space segment....................................................... 348,434 59,335
Ground segment...................................................... 51,823 12,661
------- --------
400,257 71,996
Deferred FCC license costs............................................ 7,056 4,521
Deferred financing costs.............................................. 24,461 --
------- --------
Total assets................................................... $505,391 $ 151,271
======= ========
LIABILITIES and PARTNERS' CAPITAL
Current liabilities:
Payable to affiliates............................................... $ 49,639 $ 34,987
Accrued expenses.................................................... 4,782 3,340
------- --------
Total current liabilities...................................... 54,421 38,327
Deferred revenues..................................................... 21,913 --
Vendor financing liability............................................ 42,219 --
Commitments and contingencies (Notes 4,5,6,7,9 and 10)
Partners' Capital:
General partners (28,000 interests outstanding at December 31, 1995
and 18,000 interests outstanding at December 31, 1994)........... 173,118 26,487
Limited partners (19,000 interests outstanding)..................... 191,119 220,237
Warrants............................................................ 22,601 --
------- --------
386,838 246,724
Less subscriptions receivable....................................... -- (133,780)
------- --------
Total partners' capital........................................ 386,838 112,944
------- --------
Total liabilities and partners' capital........................ $505,391 $ 151,271
======= ========
</TABLE>
See notes to financial statements.
F-18
<PAGE> 71
GLOBALSTAR, L.P.
(A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1994
---------------------------------- CUMULATIVE
MARCH 23 MARCH 23, 1994
PRE-CAPITAL SUBSCRIPTION PERIOD
---------------------------------- (COMMENCEMENT OF (COMMENCEMENT OF
YEAR ENDED JANUARY 1 TO OPERATIONS) TO YEAR ENDED OPERATIONS) TO
DECEMBER 31, 1993 MARCH 22, 1994 DECEMBER 31, 1994 DECEMBER 31, 1995 DECEMBER 31, 1995
----------------- -------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C>
Operating expenses:
Development costs... $ 6,140 $4,057 $21,279 $62,854 $84,133
Marketing, general
and
administrative... 5,370 2,815 6,748 17,372 24,120
------ ------- ------ ------ -------
Total operating
expenses............ 11,510 6,872 28,027 80,226 108,253
Interest income....... -- -- 1,783 11,989 13,772
------ ------- ------ ------ -------
Net loss.............. $11,510 $6,872 $26,244 $68,237 $94,481
====== ======= ====== ====== =======
</TABLE>
See notes to financial statements.
F-19
<PAGE> 72
GLOBALSTAR, L.P.
(A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
STATEMENTS OF PARTNERS' CAPITAL AND SUBSCRIPTIONS RECEIVABLE
(IN THOUSANDS)
Partners' Capital
<TABLE>
<CAPTION>
GENERAL LIMITED
PARTNERS PARTNERS WARRANTS TOTAL
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Capital subscription, March 23, 1994
(18,000 interests -- general partner, and
18,000 interests -- limited partners)..... $ 50,000 $225,000 $275,000
Cost of raising capital........................ (1,200) (1,200) (2,400)
Net losses -- pre-capital subscription period:
Year ended December 31, 1993................. (5,755) (5,755) (11,510)
January 1, 1994 to March 22, 1994............ (3,436) (3,436) (6,872)
Net loss -- March 23, 1994 (commencement of
operations) to December 31, 1994............. (13,122) (13,122) (26,244)
Capital subscription, December 31, 1994
(1,000 partnership interests -- limited
partner).................................. -- 18,750 18,750
-------- -------- -------- --------
Capital balances, December 31, 1994............ 26,487 220,237 246,724
Sale of interests to GTL, February 22,1995
(10,000 general partnership interests)....... 185,750 -- 185,750
Warrant agreement in connection with debt
guarantee.................................... -- -- $ 22,601 22,601
Net loss -- Year ended December 31, 1995....... (39,119) (29,118) -- (68,237)
-------- -------- -------- --------
Capital balances, December 31, 1995............ $173,118 $191,119 $ 22,601 $386,838
======== ======== ======= ========
<CAPTION>
Subscriptions Receivable
<S> <C> <C> <C> <C>
Capital subscriptions:
March 23, 1994............................... $ 50,000 $225,000 $275,000
December 31, 1994............................ -- 18,750 18,750
-------- -------- --------
Total subscriptions.......................... 50,000 243,750 293,750
-------- -------- --------
Cash received................................ (23,691) (124,970) (148,661)
Credit for pre-capital subscription costs.... (11,309) -- (11,309)
-------- -------- --------
(35,000) (124,970) (159,970)
-------- -------- --------
Subscriptions receivable, December 31, 1994.... 15,000 118,780 133,780
Cash received................................ (15,000) (118,780) (133,780)
-------- -------- --------
Subscriptions receivable, December 31, 1995.... $ -- $ -- $ --
======== ======== ========
</TABLE>
See notes to financial statements.
F-20
<PAGE> 73
GLOBALSTAR, L.P.
(A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 23, 1994
(COMMENCEMENT OF CUMULATIVE MARCH 23, 1994
OPERATIONS) TO (COMMENCEMENT OF
DECEMBER 31, YEAR ENDED OPERATIONS) TO
1994 DECEMBER 31, 1995 DECEMBER 31, 1995
---------------- ----------------- -------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss................................ $(26,244) $ (68,237) $ (94,481)
Deferred revenues....................... -- 21,913 21,913
Depreciation and amortization........... 115 398 513
Changes in operating assets and
liabilities:
Other current assets................. -- (506) (506)
Payable to affiliates................ 637 5,722 6,359
Accrued expenses..................... 2,440 2,342 4,782
-------- --------- ---------
Net cash used in operating activities..... (23,052) (38,368) (61,420)
-------- --------- ---------
Investing activities:
Globalstar system under construction.... (71,996) (328,261) (400,257)
Payable to affiliates for Globalstar
System under construction............ 25,042 8,930 33,972
Vendor financing liability.............. -- 42,219 42,219
-------- --------- ---------
Cash used for Globalstar System.... (46,954) (277,112) (324,066)
Purchases of property and equipment..... (1,119) (888) (2,007)
Deferred FCC license costs.............. (2,286) (2,535) (4,821)
Purchases of investments................ -- (126,923) (126,923)
Maturity of investments................. -- 126,923 126,923
Other current assets.................... (190) 190 --
-------- --------- ---------
Net cash used in investing activities..... (50,549) (280,345) (330,894)
-------- --------- ---------
Financing activities:
Deferred line of credit fees............ -- (1,875) (1,875)
Proceeds from capital subscriptions
receivable........................... 148,661 133,780 282,441
Payment of accrued capital raising
costs................................ (1,500) (900) (2,400)
Sale of partnership interests to
Globalstar Telecommunications
Limited.............................. -- 185,750 185,750
-------- --------- ---------
Net cash provided by financing
activities.............................. 147,161 316,755 463,916
-------- --------- ---------
Net increase (decrease) in cash and cash
equivalents............................. 73,560 (1,958) 71,602
Cash and cash equivalents, beginning of
period.................................. -- 73,560 --
-------- --------- ---------
Cash and cash equivalents, end of
period.................................. $ 73,560 $ 71,602 $ 71,602
======== ========= =========
Noncash transactions:
Payable to affiliates................... $ 9,308 $ 9,308
======== =========
Accrual of capital raising costs........ $ 2,400 $ 2,400
======== =========
Deferred FCC license costs.............. $ 2,235 $ 2,235
======== =========
Warrant agreement in connection with
debt guarantee....................... $ 22,601 $ 22,601
========= =========
</TABLE>
See notes to financial statements.
F-21
<PAGE> 74
GLOBALSTAR, L.P.
(A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND BUSINESS
Globalstar, L.P. ("Globalstar" or the "Partnership"), a Delaware limited
partnership with a December 31 fiscal year end, was formed in November 1993. It
had no activities until March 23, 1994, when it received capital subscriptions
for $275 million and commenced operations. The accompanying financial statements
reflect the operations of the Partnership from that date. In addition, the
statements of operations for the year ended December 31, 1993 and the period
January 1, 1994 to March 22, 1994 (the "Pre-Capital Subscription Period")
reflect certain costs incurred by Loral Corporation ("Loral") and QUALCOMM
Incorporated ("Qualcomm") and reimbursed by Globalstar through a capital
subscription credit or agreement for reimbursement, as described in Note 8,
"Partners' Capital".
The managing general partner of Globalstar is Loral/QUALCOMM Satellite
Services, L.P. ("LQSS"). The general partner of LQSS is Loral/QUALCOMM
Partnership, L.P. ("LQP"), a Delaware limited partnership comprised of
subsidiaries of Loral and Qualcomm. The general partner of LQP is Loral General
Partner, Inc. ("LGP"), a subsidiary of Loral (see Note 11 -- Subsequent Events).
Globalstar was founded to design, construct and operate a worldwide,
low-earth orbit ("LEO") satellite-based wireless digital telecommunications
system (the "Globalstar System"). The Globalstar System's world-wide coverage is
designed to enable its service providers to extend modern telecommunications
services to significant numbers of people who currently lack basic telephone
service and to enhance wireless communications in areas underserved or not
served by existing or future cellular systems, providing a telecommunications
solution in parts of the world where the build-out of terrestrial systems cannot
be economically justified. On January 31, 1995, the U.S. Federal Communications
Commission ("FCC") granted the necessary license to LQP to construct, launch and
operate the Globalstar System. LQP has agreed to use such license for the
exclusive benefit of Globalstar.
On November 23, 1994, Globalstar Telecommunications Limited ("GTL") was
incorporated as an exempted company under the Companies Act 1981 of Bermuda.
GTL's sole business is acting as a general partner of Globalstar. On February
14, 1995, GTL completed an initial public offering of 10,000,000 shares of
common stock, of which Loral purchased 1,674,400 shares, resulting in net
proceeds of $185,750,000. Effective February 22, 1995, GTL purchased 10,000,000
partnership interests from Globalstar with the net proceeds of the initial
public offering.
The partners in Globalstar have the right to convert their partnership
interests into shares of GTL on a one-for-one basis following the Full Coverage
Date, as defined, of the Globalstar System and after at least two consecutive
reported fiscal quarters of positive net income, subject to certain annual
limitations.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Development Stage Company
The Partnership is devoting substantially all of its present efforts to the
design, licensing, construction, and financing of the Globalstar System, and
establishing its business. Its planned principal operations have not commenced.
Accordingly, Globalstar is a development stage company as defined in Statement
of Financial Accounting Standards (SFAS) No. 7 "Accounting and Reporting by
Development Stage Enterprises."
Globalstar may encounter problems, delays and expenses, many of which may
be beyond Globalstar's control. These may include, but are not limited to,
problems related to technical development of the system, testing, regulatory
compliance, manufacturing and assembly, the competitive and regulatory
environment in which Globalstar will operate, marketing problems and costs and
expenses that may exceed current estimates. There can be no assurance that
substantial delays in any of the foregoing matters would not delay Globalstar's
achievement of profitable operations.
F-22
<PAGE> 75
GLOBALSTAR, L.P.
(A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Use of Estimates in Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the amounts of expenses reported for the period. Actual results
could differ from estimates.
Net (Loss) Income Allocation
Net losses of the Partnership are allocated among the partners in
proportion to their percentage interests until the adjusted capital account of a
partner is reduced to zero, then in proportion to, and to the extent of,
positive adjusted capital account balances and then to the general partners.
Net income of the Partnership is allocated among the partners in proportion
to, and to the extent of, the distributions made to the partners from
distributable cash flow for the period, as defined, then in proportion to and to
the extent of negative adjusted capital account balances and then in accordance
with percentage interests.
Under the terms of the Partnership Agreement, adjusted partners' capital
accounts are calculated in accordance with the principles of U.S. Treasury
Regulations governing the allocation of taxable income and loss including
adjustments to reflect the fair market value (including intangibles) of
partnership assets upon certain capital transactions including a sale of
partnership interests. Such adjustments are not permitted under generally
accepted accounting principles and, accordingly, are not reflected in the
accompanying financial statements.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash on hand and highly liquid
investments with original maturities of three months or less.
Property and Equipment
Property and equipment are stated at cost. Depreciation is provided using
the straight-line method over the estimated useful lives of the respective
assets, generally three to eight years. Leasehold improvements are amortized
over the shorter of the lease term or the estimated useful lives of the
improvements.
Globalstar System Under Construction
Globalstar System Under Construction expenditures include and will include
progress payments and costs for the design, manufacture, test, launch and launch
insurance for 48 low-earth orbit satellites, plus eight in-orbit spares (the
"Space Segment"), and ground and satellite operations control centers, gateways
and subscriber terminals (handsets) (the "Ground Segment").
The Partnership intends to depreciate the Space Segment over 7 1/2 years
and to capitalize costs of the Ground Segment over eight years as assets are
placed in service. Service is currently anticipated to commence in 1998.
Costs incurred related to the development of certain technologies, pursuant
to a cost sharing arrangement included in Globalstar's contract with Qualcomm
and for the engineering and development of subscriber terminals, are being
charged to operations as incurred.
F-23
<PAGE> 76
GLOBALSTAR, L.P.
(A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Financing Costs and Interest
Deferred financing costs represent costs incurred in obtaining a long-term
credit facility and the estimated fair value of a warrant agreement in
connection with a guarantee of this facility (see Note 6-Credit Facility). Such
costs are being amortized over the term of the credit facility as interest.
Interest costs incurred during the construction of the Globalstar System
are capitalized. Total interest costs capitalized for the year ended December
31, 1995 was approximately $300,000. No interest was capitalized for the period
ending December 31, 1994.
FCC License Costs
Expenditures, including license fees, legal fees and direct engineering and
other technical support, for obtaining the required FCC licenses are capitalized
and will be amortized over 7 1/2 years, the expected life of the first
generation satellites.
Deferred Revenues
Advance payments from Globalstar strategic partners to secure exclusive
rights to Globalstar service territories are deferred. These advance payments
are recoverable by the service providers through credits against a portion of
the service fees payable to Globalstar after the commencement of services.
Vendor Financing
Globalstar's Space Segment contract with Space Systems/Loral, Inc. ("SS/L")
calls for a portion of the contract price to be deferred as vendor financing and
repaid, over as long as a five-year period, commencing upon the initial service
and full coverage dates of the Globalstar System. Amounts deferred as vendor
financing are capitalized as costs of the Globalstar System Under Construction
as incurred.
Income Taxes
Globalstar was organized as a Delaware limited partnership. As such, no
income tax provision (benefit) is included in the accompanying financial
statements since U.S. income taxes are the responsibility of its partners.
Generally, taxable income (loss), deductions and credits of Globalstar will be
passed proportionately through to its partners.
Accounting Pronouncements
In October 1995, the Financial Accounting Standards Board issued Statement
No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), which is
required to be adopted by fiscal 1996. SFAS 123 establishes accounting and
disclosure requirements using a fair value based method of accounting for stock
based employee compensation plans, including stock arrangements by investors for
the benefit of their investees. Under SFAS 123 Globalstar may either adopt the
new fair value based accounting method or continue the intrinsic value based
method and provide pro forma disclosures of net income (loss) as if the
accounting provisions of SFAS 123 had been adopted. Globalstar intends to elect
to continue the intrinsic value method of accounting for stock based employee
compensation plans and provide the required pro-forma disclosures; therefore
such adoption will have no effect on Globalstar's operations. Globalstar
accounts for equity transactions with non-employees under SFAS 123.
F-24
<PAGE> 77
GLOBALSTAR, L.P.
(A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1995 1994
------ ------
(IN THOUSANDS)
<S> <C> <C>
Property and equipment consists of:
Leasehold improvements........................................... $ 401 $ 396
Furniture and office equipment................................... 1,606 723
------ ------
2,007 1,119
Accumulated depreciation and amortization........................ (498) (115)
------ ------
$1,509 $1,004
====== ======
</TABLE>
Depreciation and amortization expense for the year ended December 31, 1995,
and for the period March 23 to December 31, 1994, was $383,000 and $115,000,
respectively.
4. GLOBALSTAR SYSTEM UNDER CONSTRUCTION
The Space Segment
Globalstar has entered into a contract with SS/L, an affiliate of Loral and
a limited partner of LQSS, to design, manufacture, test and launch its satellite
constellation. The price of the contract consists of three parts, the first for
non-recurring work at a price not to exceed $115.7 million, the second for
recurring work at a fixed price of $15.6 million per satellite (including
certain performance incentives of up to approximately $1.9 million per
satellite) and the third for launch services and insurance. The total contract
price reflects certain scope of work claims negotiated with SS/L during 1995.
Under the contract, SS/L will design, build and launch Globalstar's 56
satellites. SS/L has agreed to obtain launch vehicles and arrange for the launch
of Globalstar's satellites on Globalstar's behalf at an estimated total cost of
$302 million for all 56 satellites, and obtain insurance to cover the
replacement cost of satellites or launch vehicles lost in the event of a launch
failure for an estimated cost of $92 million. In certain circumstances these
amounts are subject to equitable adjustment in light of future market
conditions, which may, in turn, be influenced by international political
developments. Any change in such assumptions may result in an increase in the
costs paid by Globalstar, which may be substantial. Termination by Globalstar of
this contract would result in termination fees, which may be substantial.
SS/L has entered into subcontracts with certain of Globalstar's direct or
indirect limited partners. The design and manufacture of the payload modules
will be performed by Alcatel Espace at a fixed price of approximately $208
million, subject to certain adjustments. Fixed price subcontracts in the amounts
of $202 million, $178 million and $41 million have also been awarded to Alenia
Spazio S.p.A., Daimler-Benz Aerospace AG and Aerospatiale, respectively.
Globalstar, SS/L and Hyundai Electronics Industries Co. Ltd. ("Hyundai") have
entered into a subcontract providing work for Hyundai in an amount of
approximately $44 million. Globalstar and SS/L have further agreed to support
Hyundai in its efforts as a satellite vendor, including providing training and
transferring certain technology know-how to Hyundai for compensation to be
agreed upon among the parties.
The Ground Segment
Globalstar has entered into a contract with Qualcomm providing for the
design, development, manufacture, installation, testing and maintenance of four
gateways, two ground operations control centers and 100 pre-production
subscriber terminals. A portion of the ground operations control center software
is being developed by Globalstar. The contract provides for reimbursement to
Qualcomm for contract costs incurred
F-25
<PAGE> 78
GLOBALSTAR, L.P.
(A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. GLOBALSTAR SYSTEM UNDER CONSTRUCTION (CONTINUED)
such as labor, material, travel, license fees, royalties and general and
administrative expenses, plus a 12% fee thereon. The contract also includes a
cost sharing arrangement for certain technologies being developed by Qualcomm.
As of December 31, 1995, Globalstar estimates that payments under the contract
will total approximately $309 million. Termination by Globalstar of its contract
with Qualcomm would result in termination fees, which may be substantial.
A letter agreement among Qualcomm, Globalstar and Hyundai grants to Hyundai
an option to become a licensee authorized to manufacture and sell Globalstar
subscriber terminals to service providers. Should Hyundai choose to exercise
this option, it would, for a five year period following Globalstar's In-Service
date, be the exclusive licensee authorized to manufacture and sell subscriber
terminals in South and North Korea.
Globalstar will receive from Qualcomm or its licensee(s) a payment of
approximately $400,000 for each installed gateway sold to a Globalstar service
provider. In addition, Globalstar will receive a payment of up to $10 on each
Globalstar subscriber terminal sold, until Globalstar's funding of that design
has been recovered.
Globalstar has entered into an agreement with a subsidiary of Loral for the
development and delivery of two satellite operations control centers and 33
telemetry and command units for the Globalstar System. The maximum contract
price is $25.1 million and provides for reimbursement to the Loral subsidiary
for contract costs incurred such as labor, materials, travel, license fees,
royalties and general and administrative expenses. The Loral subsidiary will
receive a 12% fee under the contract, 6% of which is payable at the time the
costs are incurred, with the remainder payable upon achievement of certain
milestones. Globalstar will own any intellectual property produced under the
contract.
Total System Cost
At December 31, 1995, Globalstar has estimated the cost for the design,
construction and deployment of the Globalstar System, excluding working capital,
cash interest on anticipated borrowings and operating expenses to be
approximately $1.8 billion. Actual amounts may vary from this estimate and
additional funds would be required in the event of unforeseen delays, cost
overruns, launch failures or other technological risks or adverse regulatory
developments, or to meet unanticipated expenses.
Additional funds to complete the Globalstar System are expected to be
obtained through a combination of debt issuance, which may include an equity
component, projected service provider payments, projected net service revenues
from initial operations, anticipated payments received from the sale of gateways
and Globalstar subscriber terminals and placements of limited partnership
interests with new and existing strategic investors. Although Globalstar
believes it will be able to obtain this additional financing, there can be no
assurance that the financing will be available on favorable terms or on a timely
basis, if at all.
5. VENDOR FINANCING LIABILITY
Globalstar's space segment contract with SS/L calls for approximately $310
million of the contract price to be deferred as vendor financing. Of the $310
million, $90 million is interest bearing at the 30-day LIBOR rate plus 3% per
annum. The remaining $220 million of vendor financing is non-interest bearing.
Globalstar will repay the non-interest bearing portions as follows: $49 million
following the launch and acceptance of 24 or more satellites (the "Preliminary
Constellation"), $61 million upon the launch and acceptance of 48 or more
satellites (the "Full Constellation"), and the remainder in equal installments
over the five-year period following acceptance of the Preliminary and Full
Constellations. Payment of the $90 million interest bearing vendor financing
will be deferred until December 31, 1998 or the Full Constellation Date,
whichever is earlier. Thereafter, interest and principal will be repaid in
twenty equal quarterly installments over the next five years.
At December 31, 1995, approximately $21.5 million of the vendor financing
liability is interest bearing.
F-26
<PAGE> 79
GLOBALSTAR, L.P.
(A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
6. CREDIT FACILITY
On December 15, 1995, Globalstar entered into a $250 million credit
agreement (the "Credit Agreement") with a group of banks, which was guaranteed
by Loral (see Note 11 -- Globalstar Credit Agreement). The Credit Agreement
provides that Globalstar may select loan arrangements at varying interest rates,
including the Eurodollar rate plus 5/8%. Globalstar pays a commitment fee on
the unused portion. The Credit Agreement contains covenants requiring Globalstar
to meet certain financial ratios including minimum net worth of $200 million and
limits additional indebtedness and the payment of cash dividends. The Credit
Agreement expires on December 15, 2000.
In exchange for the guarantee, Globalstar and GTL entered into an agreement
to issue warrants to Loral to purchase an effective 8% interest in Globalstar on
a fully diluted basis. Subject to the approval of GTL's shareholders, warrants
to purchase 4,185,318 shares of GTL common stock at $26.50 per share will be
issued to Loral. Proceeds received by GTL for warrants exercised will in turn be
used to purchase Globalstar partnership interests under a one-for-one exchange
arrangement. Upon such shareholder approval, GTL will be issued warrants to
purchase an additional 1,131,168 general partnership interests in Globalstar
(representing an approximate 2% equity interest in Globalstar). If GTL
shareholder approval is not obtained, Globalstar will issue to Loral warrants to
purchase 4,086,957 partnership interests and no Globalstar warrants will be
issued to GTL. The warrants are subject to a vesting schedule, with 50% of the
warrants vesting on the date that loans are first made by the banks pursuant to
the Credit Agreement (the "Funding Date"), an additional 25% vesting on the
first anniversary of the Funding Date and the remaining 25% vesting on the
second anniversary of the Funding Date. Notwithstanding the foregoing, if the
Globalstar Credit Agreement shall not be in effect on any vesting date, the
warrants which would have otherwise vested on such date will be deemed to be
cancelled. The warrants may not be exercised until six months after Globalstar
commences initial operations and may not be transferred to third parties until
such exercise date. The estimated fair value of the warrant agreement with Loral
in exchange for its guarantee has been recorded as a deferred financing cost in
the accompanying financial statements. Globalstar has also agreed to pay Loral a
fee equal to 1.5% per annum of the average amount outstanding guaranteed under
the bank financing. Such fee will be deferred and will be paid with interest
commencing 90 days after the expiration of the bank financing. It is expected
that Globalstar's other strategic partners will assume a portion of the
guarantee; in such case, rights to a proportionate amount of the warrants and
fees will also be transferred. In addition, as a result of the Merger Agreement
(see Note 11 -- Subsequent Events), Globalstar is seeking an amendment to the
Credit Agreement. If such amendment is not obtained and the Credit Agreement is
cancelled, all warrants issued and issuable will be cancelled.
7. COMMITMENTS
The following is a schedule by years of future minimum lease payments (in
thousands) required under an operating lease that has an initial lease term in
excess of one year.
<TABLE>
<S> <C>
1996................................................ $ 869
1997................................................ 891
1998................................................ 914
1999................................................ 936
2000................................................ 633
------
Total minimum payments required..................... $4,243
======
</TABLE>
Rent expense for the year ended December 31, 1995, and the period March 23
to December 31, 1994, was approximately $934,000 (including $650,000 paid to
Loral subsidiaries), and $373,000 (including $275,000 paid to Loral
subsidiaries), respectively.
F-27
<PAGE> 80
GLOBALSTAR, L.P.
(A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
8. PARTNERS' CAPITAL
Initial Capital Subscriptions
Prior to the commencement of Globalstar's operations on March 23, 1994,
Loral and Qualcomm undertook independent efforts at their own risk to explore
the feasibility of a Globalstar-type system. Efforts to develop the Globalstar
System were formalized with the initial funding of Globalstar on March 23, 1994
through capital subscriptions of $50,000,000 for 18,000,000 general partner
interests and $225,000,000 for an aggregate of 18,000,000 limited partner
interests. In connection with the initial capital subscriptions, the partners of
Globalstar agreed to reimburse Loral and Qualcomm for certain expenditures
totaling $18,382,000, incurred related to such efforts from January 1, 1993
through March 22, 1994. These expenditures included development costs and
marketing, general and administrative expenses related to the Globalstar System.
The statements of operations include the costs for these periods under the
heading Pre-Capital Subscription Period.
In addition, costs of $2,235,000 were incurred in connection with the FCC
license application. The aggregate expenditures by Loral and Qualcomm of
$20,617,000 were reimbursed through a credit of $11,309,000 issued to the
general partner as a reduction of its required capital subscription payment and
an agreement to repay Qualcomm $9,308,000 over a one-year period ($2,499,000 of
which remained outstanding at December 31, 1994). The reimbursed expenses of
$18,382,000 have been charged to partners' capital as of the date of the capital
subscription agreement and allocated to the partners' capital accounts in
accordance with the partnership agreement. The $2,235,000 of costs relating to
the FCC license application are included in the Partnership's balance sheet.
Stock Option Arrangements
Officers and employees of Globalstar are eligible to participate in GTL's
1994 Stock Option Plan (the "Plan"), which provides for nonqualified and
incentive stock options. The plan is administered by a stock option committee
(the "Committee"), appointed by the Board of Directors of GTL. The Committee
determines the option price (provided that in no event shall such option price
be less than the fair market value of the shares of common stock as of the date
such option is granted), the option's exercise date and the expiration date of
each option (provided no option shall be exercisable after the expiration of ten
years from the date of grant). Proceeds received by GTL for options exercised
will in turn be used to purchase Globalstar partnership interests under a
one-for-one exchange arrangement.
In September 1995, options to purchase 110,400 shares of GTL Common Stock
were granted under the Plan at an exercise price of $16.625. No options were
exercised or cancelled during the year. The options generally expire ten years
from the date of grant and become exercisable over the period stated in each
option, generally ratably over a five-year period. All options granted during
the year were non-qualified stock options. As of December 31, 1995, 139,600
shares of common stock were available for future grant under the Plan.
In September 1995, Loral, in its capacity as managing general partner,
granted certain directors and officers options to purchase 340,000 shares of the
GTL Common Stock owned by Loral at a weighted average exercise price of $27.87
(such prices were greater than or equal to the market price at grant date). Such
options are immediately exercisable, and expire 12 years from date of grant; no
options were exercised or cancelled during the year.
9. RELATED PARTY TRANSACTIONS
In addition to the transactions described in Notes 4, 5, 6, 7 and 8,
Globalstar has a number of other transactions with its affiliates. Globalstar
believes that the arrangements are as favorable to Globalstar as could be
obtained from unaffiliated parties. The following describes these related-party
transactions.
F-28
<PAGE> 81
GLOBALSTAR, L.P.
(A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
9. RELATED PARTY TRANSACTIONS (CONTINUED)
Globalstar has granted to SS/L an irrevocable, royalty-free, non-exclusive
license to use certain intellectual property expressly developed in connection
with the SS/L agreement provided that SS/L will not use, or permit others to
use, such license for the purpose of engaging in any business activity that
would be in material competition with Globalstar. Globalstar has similarly
agreed that it will not license such intellectual property if it will be used
for the purpose of designing or building satellites that would be in competition
with SS/L.
Globalstar has granted to Qualcomm an irrevocable, non-exclusive, worldwide
perpetual license to intellectual property owned by Globalstar in the Ground
Segment and developed pursuant to the Qualcomm agreement. Qualcomm may, pursuant
to such grant, use the intellectual property for applications other than the
Globalstar System provided that Qualcomm may not for a period of three years
after its withdrawal as a strategic partner or prior to the third anniversary of
the Full Constellation Date, whichever is earlier, engage in any business
activity that would be in competition with the Globalstar System. The grant of
intellectual property to Qualcomm described above is generally royalty free.
Under certain specified circumstances, however, Qualcomm will be required to pay
a 3% royalty fee on such intellectual property.
A support agreement was entered into among Qualcomm, Loral and Globalstar
pursuant to which Qualcomm agreed to (i) assist Globalstar and SS/L with
Globalstar's system design, (ii) support Globalstar and Loral with respect to
various regulatory matters, including the FCC application and (iii) assist
Globalstar and Loral in their marketing efforts with respect to Globalstar. For
the year ended December 31, 1995, and for the period March 23 through December
31, 1994, Qualcomm has received approximately $2,712,000 and $2,431,000,
respectively, for costs incurred in rendering such support and assistance.
Certain of Globalstar's limited partners have signed agreements granting
them the right to provide Globalstar System services to users in specific
countries on an exclusive basis, as long as specified minimum levels of
subscribers are met. These service providers will receive certain discounts from
Globalstar's expected pricing schedule generally over a five-year period.
Globalstar has entered into consulting agreements with certain limited
partners. Costs incurred under these arrangements for the year ended December
31, 1995, and for the period March 23 through December 31, 1994, were $1,411,000
and $471,000, respectively. Globalstar anticipates that similar agreements may
be entered into with other strategic partners in the future.
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1995 1994
------- -------
(IN THOUSANDS)
<S> <C> <C>
Current payable to affiliates consisted of:
SS/L................................................... $26,126 $22,046
Qualcomm............................................... 21,443 11,795
Other Loral affiliates................................. 2,070 1,146
------- -------
Total.................................................. $49,639 $34,987
======= =======
</TABLE>
Commencing after the initiation of Globalstar services, LQP, the general
partner of LQSS, will be paid an annual management fee equal to 2.5% of
Globalstar's revenues up to $500 million plus 3.5% of revenues in excess of $500
million. Should Globalstar incur a net loss in any year following commencement
of services, the management fee for that year will be reduced by 50% and LQP
will reimburse Globalstar for management fee payments, if any, received in any
prior quarter of such year, sufficient to reduce its management fee for the year
to 50%. No management fees have been paid to date.
F-29
<PAGE> 82
GLOBALSTAR, L.P.
(A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
9. RELATED PARTY TRANSACTIONS (CONTINUED)
Globalstar employees are eligible to participate in the employee benefit
plans of a Loral subsidiary. Globalstar is charged for the actual costs of these
benefits which for the period March 23 through December 31, 1994, amounted to
$321,000, including $55,000 relating to pensions and retiree health care and
life insurance benefits. The costs incurred for the year ended December 31, 1995
amounted to $710,000, including $121,000 relating to pensions and retiree health
care and life insurance benefits. Globalstar employees are eligible to
participate in a defined benefit pension plan with voluntary contributions if
they are over 21 years old and have one year of service. Benefits are generally
based on participants' compensation, years of service and voluntary
contributions. Globalstar employees are also eligible for retiree health care
and life insurance benefits upon retirement from active service with at least 10
years of service. These benefits are funded primarily on a pay-as-you-go basis
with the retiree generally paying a portion of the cost through contributions,
deductibles and coinsurance provisions.
Globalstar leases its facility from a Loral subsidiary under an operating
lease requiring monthly payments of approximately $72,000. The lease expires in
August 2000; however Globalstar has the option to renew the lease for two
additional five-year periods.
10. REGULATORY MATTERS
Globalstar and its operations are, and will be, subject to substantial U.S.
and international regulation, including required regulatory approvals in each
country in which Globalstar intends to provide service. Globalstar's business
may be significantly affected by regulatory activities.
11. SUBSEQUENT EVENTS
Merger Agreement
On January 7, 1996, Loral and Lockheed Martin Corporation ("Lockheed
Martin") entered into a definitive Agreement and Plan of Merger (the "Merger
Agreement") among Loral, Lockheed Martin and LAC Acquisition Corporation
("LAC"), a wholly owned subsidiary of Lockheed Martin, providing for the
transactions that will result in the defense electronics and systems integration
businesses of Loral becoming a subsidiary of Lockheed Martin. Concurrently with
the execution of the Merger Agreement, Loral, certain wholly-owned subsidiaries
of Loral and Lockheed Martin, entered into the Restructuring, Financing and
Distribution Agreement (the "Distribution Agreement"), which provides, among
other things, for (i) the transfer of Loral's space and communications
businesses, including its direct and indirect interests in Globalstar, GTL, SS/L
and other affiliated businesses, as well as certain other assets, to Loral Space
& Communications Ltd., a Bermuda company ("Loral SpaceCom"), (ii) the
distribution of all of the shares of Loral SpaceCom common stock to holders of
Loral common stock and persons entitled to acquire shares of Loral common stock
on a one-for-one basis (the "Spin-Off") each as of a record date (the "Spin-Off
Record Date") to be declared by the Board of Directors of Loral and to be a date
on or immediately prior to the consummation of the tender offer, and (iii) the
contribution by Lockheed Martin of $712,400,000, subject to reduction, to Loral
SpaceCom on or before the closing of the Merger, of which $344,000,000
represents payment for preferred stock, convertible into a 20% equity interest
in Loral SpaceCom, to be retained by Lockheed Martin following the Spin-Off and
the Merger. The contribution from Lockheed Martin is subject to reduction for
capital contributions by Loral to its space and communications businesses. On
March 6, 1996, Loral purchased $100,000,000 principal amount of GTL's 6 1/2%
Convertible Preferred Equivalent Obligations for $97,000,000 in cash (see
below).
Under the terms of the Merger Agreement, LAC commenced a cash tender offer
on January 12, 1996 for all outstanding shares of common stock, par value $.25
per share, of Loral at a price of $38.00 per share.
F-30
<PAGE> 83
GLOBALSTAR, L.P.
(A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
11. SUBSEQUENT EVENTS (CONTINUED)
Consummation of the tender offer is subject to, among other things, at least
two-thirds of the shares of Loral common stock, determined on a fully-diluted
basis, being validly tendered and not withdrawn prior to the expiration of the
tender offer, applicable regulatory approvals and the occurrence of the Spin-Off
Record Date.
Globalstar Credit Agreement
Under the terms of the Merger Agreement, Lockheed Martin agreed to assume
the obligations of Loral as a guarantor under the Credit Agreement (see Note
6 -- Credit Facility). Loral has agreed to assume approximately $88,600,000 of
this guarantee obligation and SS/L and certain other Globalstar strategic
partners have agreed to assume approximately $11,700,000 and $49,700,000
thereof, respectively. In return for providing the guarantee, the guarantors
will share proportionately in the warrants. Globalstar is seeking an amendment
to the Credit Agreement to permit the transactions contemplated in the Merger
Agreement and Distribution Agreement and believes that it will receive
satisfactory consents from the bank syndicate prior to the Distribution.
However, failure to obtain such consents would result in an event of default at
the time these transactions occur.
Sale of GTL Convertible Preferred Equivalent Obligations
On March 6, 1996, GTL issued Convertible Preferred Equivalent Obligations
(the "Securities") with a face value totaling $300,000,000 in a private
placement of which $100,000,000 principal amount was purchased by Loral at a
cost of $97,000,000. The Securities are subordinated to existing and future debt
obligations of GTL, are convertible into 4,615,385 shares of GTL Common Stock at
a conversion price of $65.00 per share, bear interest at 6 1/2% per annum
payable quarterly, are redeemable (at a premium which declines over time) by GTL
beginning in 2000 (or beginning in 1997 if GTL's stock price exceeds certain
defined price ranges), and, if still outstanding, must be redeemed by GTL on
March 1, 2006. Interest and redemption payments may be made by GTL in cash or
shares of stock (see below). In the event of a change in control of GTL (as
defined in the Securities agreement), holders may elect to convert their
Securities into shares of GTL Common Stock based on the then average market
price of GTL's stock, subject to GTL's option to redeem such obligations. GTL
has agreed to file a Registration Statement with the U.S. Securities and
Exchange Commission covering the Securities within 120 days.
The net proceeds of $290,000,000 from the issuance of the Securities were
used by GTL to purchase 4,615,385 Preferred Partnership Interests in Globalstar.
These Preferred Partnership Interests will convert to ordinary partnership
interests on a one-for-one basis upon any conversion of the Securities, will pay
a quarterly preferred distribution to GTL of 6 1/2% per annum, will be allocated
losses of the partnership only after all adjusted capital accounts of the
ordinary partnership interests have been reduced to zero, and are redeemable on
terms comparable to the Securities. Globalstar may elect to make the quarterly
preferred distribution to GTL in cash or general partnership interests. If such
distribution is made in cash, GTL must make its interest payment on the
Securities in Cash. Globalstar may elect to defer payment of the preferred
distribution; in such case, GTL may also elect to defer interest payment on the
Securities, however, holders of the Securities are entitled to certain
representation rights on the General Partners' Committee of Globalstar in the
event six consecutive interest payments are deferred.
F-31
<PAGE> 84
GLOBALSTAR, L.P.
(A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
CONDENSED BALANCE SHEETS
(In thousands, except partnership interest data)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
------------ ------------
(Unaudited) (Note)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents..................................... $247,108 $ 71,602
Other current assets.......................................... 3,230 506
------------ ------------
Total current assets..................................... 250,338 72,108
Property and equipment, net...................................... 1,597 1,509
Globalstar System Under Construction:
Space segment................................................. 441,345 348,434
Ground segment................................................ 67,477 51,823
------------ ------------
508,822 400,257
Deferred FCC license costs....................................... 7,632 7,056
Deferred financing costs......................................... 23,285 24,461
------------ ------------
Total assets............................................. $791,674 $505,391
============ ============
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Payable to affiliates......................................... $ 36,961 $ 49,639
Accrued expenses.............................................. 6,591 4,782
------------ ------------
Total current liabilities................................ 43,552 54,421
Deferred revenues................................................ 23,652 21,913
Vendor financing liability....................................... 61,584 42,219
Commitments and contingencies (Note 4)
Partners' capital:
Redeemable preferred partnership interests
(4,615,385 outstanding at March 31, 1996)................... 291,424 --
Ordinary partnership interests (47,000,000 outstanding)....... 348,861 364,237
Warrants...................................................... 22,601 22,601
------------ ------------
Total partners' capital.................................. 662,886 386,838
------------ ------------
Total liabilities and partners' capital.................. $791,674 $505,391
============ ============
</TABLE>
Note: The December 31, 1995 balance sheet has been derived from audited
financial statements at that date.
See notes to condensed financial statements.
F-32
<PAGE> 85
GLOBALSTAR, L.P.
(A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
CONDENSED STATEMENTS OF OPERATIONS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
CUMULATIVE
MARCH 23, 1994
(COMMENCEMENT OF
THREE MONTHS ENDED THREE MONTHS ENDED OPERATIONS) TO
MARCH 31, 1996 MARCH 31, 1995 MARCH 31, 1996
------------------ ------------------ ----------------
<S> <C> <C> <C>
Operating expenses:
Development costs........................ $ 11,377 $ 16,198 $ 95,510
Marketing, general and administrative.... 4,024 3,197 28,144
------- ------- --------
Total operating expenses................... 15,401 19,395 123,654
Interest income............................ 1,449 2,159 15,221
------- ------- --------
Net loss................................... 13,952 17,236 108,433
------- ------- --------
Preferred distribution and related increase
on redeemable preferred partnership
interests................................ 1,424 -- 1,424
------- ------- --------
Net loss applicable to ordinary partnership
interests................................ $ 15,376 $ 17,236 $109,857
======= ======= ========
</TABLE>
See notes to condensed financial statements.
F-33
<PAGE> 86
GLOBALSTAR, L.P.
(A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
CUMULATIVE
MARCH 23, 1994
(COMMENCEMENT OF
THREE MONTHS ENDED THREE MONTHS ENDED OPERATIONS) TO
MARCH 31, 1996 MARCH 31, 1995 MARCH 31, 1996
------------------ ------------------ ----------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss.................................. $ (13,952) $ (17,236) $ (108,433)
Deferred revenues......................... 1,739 -- 23,652
Depreciation and amortization............. 1,568 73 2,081
Changes in operating assets and liabilities:
Other current assets...................... (2,724) (985) (3,230)
Payable to affiliates..................... (4,225) 6,476 2,134
Accrued expenses.......................... 1,809 294 6,591
--------- --------- ---------
Net cash used in operating activities....... (15,785) (11,378) (77,205)
--------- --------- ---------
Investing activities:
Globalstar System Under Construction...... (108,565) (42,511) (508,822)
Payable to affiliates for Globalstar
System Under Construction.............. (8,453) (2,340) 25,519
Vendor financing liability................ 19,365 -- 61,584
--------- --------- ---------
Cash used for Globalstar System........ (97,653) (44,851) (421,719)
Purchases of property and equipment....... (230) (73) (2,237)
Deferred FCC license costs................ (576) (539) (5,397)
Purchases of investments.................. -- (127,734) (126,923)
Maturity of investments................... -- -- 126,923
Other current assets...................... -- 190 --
--------- --------- ---------
Net cash used in investing activities....... (98,459) (173,007) (429,353)
--------- --------- ---------
Financing activities:
Deferred financing costs.................. (250) -- (2,125)
Proceeds of capital subscriptions
receivable............................. -- 131,980 282,441
Payment of accrued capital raising
costs.................................. -- -- (2,400)
Sale of partnership interests to
Globalstar Telecommunications
Limited................................ -- 185,750 185,750
Sale of redeemable preferred partnership
interests.............................. 290,000 -- 290,000
--------- --------- ---------
Net cash provided by financing activities... 289,750 317,730 753,666
--------- --------- ---------
Net increase in cash and cash equivalents... 175,506 133,345 247,108
Cash and cash equivalents, beginning of
period.................................... 71,602 73,560 --
--------- --------- ---------
Cash and cash equivalents, end of period.... $ 247,108 $ 206,905 $ 247,108
========= ========= =========
Noncash transactions:
Payable to affiliates..................... $ 9,308
=========
Accrual of capital raising costs.......... $ 2,400
=========
Deferred FCC license costs................ $ 2,235
=========
Warrants issued in exchange for debt
guarantee.............................. $ 22,601
=========
</TABLE>
See notes to condensed financial statements.
F-34
<PAGE> 87
GLOBALSTAR, L.P.
(A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. The accompanying unaudited condensed financial statements have been prepared
by Globalstar, L.P. ("Globalstar") pursuant to the rules of the Securities and
Exchange Commission ("SEC") and, in the opinion of Globalstar, include all
adjustments (consisting of normal recurring accruals) necessary for a fair
presentation of financial position, results of operations and cash flows.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such SEC rules. Globalstar believes
that the disclosures made are adequate to keep the information presented from
being misleading. The results of operations for the three months ended March 31,
1996 are not necessarily indicative of the results to be expected for the full
year. It is suggested that these financial statements be read in conjunction
with the audited financial statements and notes thereto included in the annual
report of Globalstar Telecommunications Limited (the "Company" or "GTL").
2. ORGANIZATION AND BUSINESS
Globalstar, founded by Loral Corporation ("Loral") and QUALCOMM
Incorporated ("Qualcomm"), is building, and is preparing to launch and operate a
worldwide, low-earth orbit satellite-based wireless digital telecommunications
system (the "Globalstar System").
Globalstar, a Delaware limited partnership with a December 31 fiscal year
end, was formed in November 1993. It had no activities until March 23, 1994,
when it received capital subscriptions for $275 million and commenced
operations. The accompanying financial statements reflect the operations of
Globalstar from that date.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Development Stage Company
Globalstar is devoting substantially all of its present efforts to the
design, licensing, construction, testing and financing of the Globalstar System,
and establishing its business. Its planned principal operations have not
commenced. Accordingly, Globalstar is a development stage company as defined in
Statement of Financial Accounting Standards No. 7 "Accounting and Reporting by
Development Stage Enterprises".
Globalstar may encounter problems, delays and expenses, many of which may
be beyond Globalstar's control. These may include, but are not limited to,
problems related to technical development of the system, testing, regulatory
compliance, manufacturing and assembly, the competitive and regulatory
environment in which Globalstar will operate, marketing problems and costs and
expenses that may exceed current estimates. There can be no assurance that
substantial delays in any of the foregoing matters would not delay Globalstar's
achievement of profitable operations.
Preferred Partnership Distribution
Distributions accrue on the Redeemable Preferred Partnership Interests at
6 1/2% per annum, in addition Globalstar is increasing the carrying value to its
ultimate redeemable value. The distributions are recorded as reductions against
the ordinary partnership capital accounts.
4. GLOBALSTAR SYSTEM UNDER CONSTRUCTION
The Space Segment
Globalstar has entered into a contract with Space Systems/Loral, Inc.
("SS/L"), an affiliate of Loral and a limited partner of Loral/Qualcomm
Satellite Services, L.P., the managing general partner of Globalstar, to design,
manufacture, test and launch its 56 satellite constellation. The price of the
contract consists of three parts, the first for non-recurring work at a price
not to exceed $115.7 million, the second for recurring work at a fixed price of
$15.6 million per satellite (including certain performance incentives of up to
approximately
F-35
<PAGE> 88
GLOBALSTAR, L.P.
(A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
NOTES TO CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
4. GLOBALSTAR SYSTEM UNDER CONSTRUCTION -- (CONTINUED)
$1.9 million per satellite) and the third for launch services and insurance. The
total contract price reflects certain scope of work claims negotiated with SS/L
during 1995. Termination by Globalstar of this contract would result in
termination fees, which may be substantial.
SS/L has agreed to obtain launch vehicles and arrange for the launch of
Globalstar's satellites on Globalstar's behalf at an estimated total cost of
$302 million for all 56 satellites, and obtain insurance to cover the
replacement cost of satellites or launch vehicles lost in the event of a launch
failure for an estimated cost of $92 million. In certain circumstances these
amounts are subject to equitable adjustment in light of future market
conditions, which may, in turn, be influenced by international political
developments. Any change in such assumptions may result in an increase in the
costs paid by Globalstar, which may be substantial. SS/L has entered into
subcontracts with certain of Globalstar's limited partners or affiliates
thereof. The design and manufacture of the payload modules will be performed by
Alcatel Espace at a fixed price of approximately $208 million, subject to
certain adjustments. Fixed price subcontracts in the amounts of $202 million,
$178 million and $41 million have also been awarded to Alenia Spazio S.p.A.,
Daimler-Benz Aerospace AG and Aerospatiale, respectively. Globalstar, SS/L and
Hyundai Electronics Industries Co. Ltd. ("Hyundai") have entered into a
subcontract providing work for Hyundai in an amount of approximately $44
million. Globalstar and SS/L have further agreed to support Hyundai in its
efforts as a satellite vendor, including providing training and transferring
certain technology know-how to Hyundai for compensation to be agreed upon among
the parties.
Globalstar's space segment contract with SS/L calls for a portion of the
contract price to be deferred as vendor financing and repaid over as long as a
five-year period, commencing upon the initial service and full coverage dates of
the Globalstar satellite constellations. Globalstar has agreements for
approximately $310 million of vendor financing from SS/L and its subcontractors,
$90 million of which is interest bearing.
The Ground Segment
Globalstar has entered into a contract with Qualcomm providing for the
design, development, manufacture, installation, testing and maintenance of four
gateways, two ground operations control centers and 100 pre-production
subscriber terminals. The contract provides for reimbursement to Qualcomm,
subject to a cap for certain joint development efforts, for contract costs
incurred, plus a 12% fee thereon and is currently estimated to total $350
million. The contract also includes a cost sharing arrangement for certain
technologies being developed by Qualcomm. Termination by Globalstar of its
contract with Qualcomm would result in delays and termination fees, which may be
substantial. A portion of the ground operations control center software is being
developed by Globalstar.
A letter agreement among Qualcomm, Globalstar and Hyundai grants to Hyundai
an option to become a licensee authorized to manufacture and sell Globalstar
subscriber terminals to service providers. Should Hyundai choose to exercise
this option, it would, for a five year period following Globalstar's In-Service
date, be the exclusive licensee authorized to manufacture and sell subscriber
terminals in South and North Korea.
Globalstar will receive from Qualcomm or its licensee(s) a payment of
approximately $400,000 for each installed gateway sold to a Globalstar service
provider. In addition, Globalstar will receive a payment of up to $10 on each
Globalstar subscriber terminal sold, until Globalstar's funding of that design
has been recovered.
Globalstar has entered into an agreement with a subsidiary of Loral for the
development and delivery of two satellite operations control centers and 33
telemetry and command units for the Globalstar System. The maximum contract
price is $25.1 million and provides for reimbursement to the Loral subsidiary
for contract costs incurred such as labor, materials, travel, license fees,
royalties and general and administrative expenses. The Loral subsidiary will
receive a 12% fee under the contract, 6% of which is payable at the time the
costs are
F-36
<PAGE> 89
GLOBALSTAR, L.P.
(A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
NOTES TO CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
4. GLOBALSTAR SYSTEM UNDER CONSTRUCTION -- (CONTINUED)
incurred, with the remainder payable upon achievement of certain milestones.
Globalstar will own any intellectual property produced under the contract.
Total System Cost
At March 31, 1996, Globalstar had estimated the cost for the design,
construction and deployment of the Globalstar System, excluding working capital,
cash interest on anticipated borrowings and operating expenses to be
approximately $1.8 billion. Actual amounts may vary from this estimate and
additional funds would be required in the event of unforeseen delays, cost
overruns, launch failures or other technological risks or adverse regulatory
developments, or to meet unanticipated expenses.
Additional funds to complete the Globalstar System are expected to be
obtained through a combination of debt issuance, which may include an equity
component, projected service provider payments, projected net service revenues
from initial operations, anticipated payments received from the sale of gateways
and Globalstar subscriber terminals and placements of limited partnership
interests with new and existing strategic investors. Although Globalstar
believes it will be able to obtain this additional financing, there can be no
assurance that the financing will be available on favorable terms or on a timely
basis, if at all.
5. PARTNERS' CAPITAL
Sale of Redeemable Preferred Partnership Interests
On March 6, 1996, GTL purchased 4,615,385 Redeemable Preferred Partnership
Interests ("RPPIs") in Globalstar with the net proceeds of GTL's sale of
Convertible Preferred Equivalent Obligations (the "Securities") in the amount of
$290,000,000. The RPPIs will convert to ordinary general partnership interests
on a one-for-one basis upon any conversion of the Securities, will pay a
quarterly preferred distribution to GTL of 6 1/2% per annum, will be allocated
losses of the partnership only after all adjusted capital accounts of the
ordinary partnership interests have been reduced to zero, and are redeemable on
terms comparable to the Securities. If still outstanding, the RPPIs must be
redeemed by Globalstar on March 1, 2006 for the aggregate amount of
$300,000,000, plus all unpaid distributions. Globalstar may elect to make the
quarterly preferred distribution to GTL in cash or general partnership
interests. If such distribution is made in cash, GTL must make its interest
payment on the Securities in cash. Globalstar may elect to defer payment of the
preferred distribution; in such case, GTL may also elect to defer interest
payment on the Securities, however, holders of the Securities are entitled to
certain representation rights on the General Partners' Committee of Globalstar
in the event six consecutive interest payments are deferred.
6. SUBSEQUENT EVENTS
Sale of Redeemable Preferred Partnership Interests
On April 3, 1996, GTL purchased an additional 153,846 RPPIs in Globalstar
with the net proceeds from the additional sale of the Securities in the amount
of $9,700,000. All obligations and rights are consistent with the original
offering, see Note 5 -- Partners' Capital.
Effective Date of the Merger
On April 23, 1996, the merger between Loral and Lockheed Martin Corporation
was completed. In conjunction with the merger, Loral's space and communications
businesses, including its direct and indirect interests in Globalstar, GTL, SS/L
and other affiliated businesses, as well as certain other assets, have been
transferred to Loral Space & Communications Ltd., a Bermuda corporation.
F-37
<PAGE> 90
INDEPENDENT AUDITORS' REPORT
Space Systems/Loral, Inc.:
We have audited the accompanying consolidated balance sheets of Space
Systems/Loral, Inc. and its subsidiaries as of March 31, 1996 and 1995, and the
related consolidated statements of operations, shareholders' equity and cash
flows for each of the three years in the period ended March 31, 1996. These
financial statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Space Systems/Loral, Inc. and
its subsidiaries at March 31, 1996 and 1995, and the results of their operations
and their cash flows for each of the three years in the period ended March 31,
1996 in conformity with generally accepted accounting principles.
San Jose, California
April 29, 1996
F-38
<PAGE> 91
SPACE SYSTEMS/LORAL, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
MARCH 31,
---------------------
1996 1995
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................ $126,863 $ 52,222
Contracts in process, net............................................ 251,271 203,406
Inventories.......................................................... 36,582 9,853
Deposits and other current assets.................................... 11,698 20,129
-------- --------
Total current assets.............................................. 426,414 285,610
Property, plant and equipment.......................................... 269,532 247,851
Less accumulated depreciation and amortization......................... 111,293 90,530
-------- --------
158,239 157,321
Cost in excess of net assets acquired, less amortization............... 232,662 239,406
Long-term receivables.................................................. 63,127 52,900
Investments............................................................ 6,284 7,837
Prepaid pension costs and other assets................................. 21,951 23,401
-------- --------
$908,677 $766,475
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable..................................................... $132,640 $ 63,344
Accrued payroll...................................................... 24,157 17,812
Customer advances.................................................... 126,318 115,950
Income taxes payable................................................. 3,529 87
Deferred income taxes................................................ 45,364 50,280
Other current liabilities............................................ 7,227 6,860
-------- --------
Total current liabilities......................................... 339,235 254,333
Long-term debt......................................................... 65,052 34,040
Deferred income taxes.................................................. 20,944 6,335
Postretirement and other liabilities................................... 33,463 34,000
Minority interest in ISTI.............................................. 2,115 2,266
Commitments and contingencies (Note 8)
Shareholders' equity:
Preferred stock, $.10 par value; 100,000 authorized and unissued
shares............................................................ -- --
Common stock, $.10 par value; 100,000 shares authorized, 4,000 shares
issued and outstanding............................................ 466,668 466,668
Accumulated deficit.................................................. (18,800) (31,167)
-------- --------
Total shareholders' equity........................................ 447,868 435,501
-------- --------
$908,677 $766,475
======== ========
</TABLE>
See notes to consolidated financial statements.
F-39
<PAGE> 92
SPACE SYSTEMS/LORAL, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED MARCH 31,
------------------------------------
1996 1995 1994
---------- -------- --------
<S> <C> <C> <C>
Revenues from contracts................................... $1,121,619 $633,717 $596,267
Contract costs............................................ 1,087,213 605,932 571,303
---------- -------- --------
Gross profit.............................................. 34,406 27,785 24,964
Amortization of cost in excess of net assets acquired..... 6,744 6,744 6,744
Management fee............................................ 5,608 3,169 2,981
---------- -------- --------
Operating income.......................................... 22,054 17,872 15,239
Interest income........................................... 9,652 4,538 1,962
Interest expense.......................................... 3,301 3,214 3,396
---------- -------- --------
Income before income taxes, minority interest and equity
in net loss of affiliate................................ 28,405 19,196 13,805
Provision for income taxes................................ 15,180 11,946 10,458
---------- -------- --------
Income before minority interest and equity in net loss of
affiliate............................................... 13,225 7,250 3,347
Minority interest in losses of ISTI....................... 151 360 244
Equity in net loss of affiliate........................... (1,009) (2,056)
---------- -------- --------
Net income................................................ $ 12,367 $ 5,554 $ 3,591
========== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-40
<PAGE> 93
SPACE SYSTEMS/LORAL, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED MARCH 31, 1996, 1995 AND 1994
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK
-------------------
SHARES ACCUMULATED
ISSUED AMOUNT DEFICIT TOTAL
------ -------- ----------- --------
<S> <C> <C> <C> <C>
Balance March 31, 1993........................... 4,000 $466,668 $ (40,312) $426,356
Net income....................................... 3,591 3,591
----- -------- -------- --------
Balance March 31, 1994........................... 4,000 466,668 (36,721) 429,947
Net income....................................... 5,554 5,554
----- -------- -------- --------
Balance March 31, 1995........................... 4,000 466,668 (31,167) 435,501
Net income....................................... 12,367 12,367
----- -------- -------- --------
Balance March 31, 1996........................... 4,000 $466,668 $ (18,800) $447,868
===== ======== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-41
<PAGE> 94
SPACE SYSTEMS/LORAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED MARCH 31,
------------------------------------
1996 1995 1994
-------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income............................................. $ 12,367 $ 5,554 $ 3,591
Depreciation and amortization.......................... 29,993 29,468 28,393
Deferred income taxes.................................. 10,237 11,507 9,270
Minority interest in losses of ISTI.................... (151) (360) (244)
Equity in net loss of LQSS............................. 1,009 2,056
Changes in operating assets and liabilities:
Contracts in process, including long-term
receivables....................................... (58,092) 2,293 (84,430)
Inventories......................................... (26,729) 9,919 (48)
Deposits and other current assets................... 8,431 (13,359) (3,846)
Prepaid pension cost and other assets............... 1,450 2,687 (1,160)
Accounts payable and other current liabilities...... 79,450 27,539 2,199
Customer advances................................... 10,368 39,685 66,115
Postretirement and other liabilities................ (537) (1,150) (533)
-------- --------- ---------
Net cash provided by operating activities................ 67,796 115,839 19,307
-------- --------- ---------
Investing activities:
Capital expenditures................................... (24,167) (23,386) (22,569)
Investment in LQSS..................................... (3,600) (2,400)
Investment in Orion.................................... (5,000)
-------- --------- ---------
(24,167) (31,986) (24,969)
-------- --------- ---------
Financing activities:
Proceeds from borrowings............................... 100,740 151,791 364,249
Repayment of debt...................................... (69,728) (210,000) (345,000)
Sale of minority interest in ISTI...................... 2,870
-------- --------- ---------
31,012 (58,209) 22,119
-------- --------- ---------
Net increase in cash and cash equivalents................ 74,641 25,644 16,457
Cash and cash equivalents, beginning of year............. 52,222 26,578 10,121
-------- --------- ---------
Cash and cash equivalents, end of year................... $126,863 $ 52,222 $ 26,578
======== ========= =========
Supplemental information:
Interest paid during the year, net of amounts
capitalized......................................... $ 2,440 $ 2,099 $ 2,813
======== ========= =========
Income taxes paid during the year...................... $ 1,501 439 --
======== ========= =========
</TABLE>
See notes to consolidated financial statements.
F-42
<PAGE> 95
SPACE SYSTEMS/LORAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Presentation:
Space Systems/Loral, Inc. ("SS/L"), a corporate joint venture owned by
Loral Corporation ("Loral") (see Note 11) and four international aerospace and
communications companies (the "Alliance Partners"), designs and produces
geosynchronous and low-earth orbit satellites and subsystems for communications,
remote earth sensing and direct-to-home broadcast television. Loral, through its
wholly owned subsidiaries Loral Aerospace Holdings, Inc. ("LAH") and Loral
Aerospace Corp. ("Loral Aerospace"), owns 51% of the common stock of SS/L.
Certain partnerships affiliated with Lehman Brothers Holdings Inc. (the "Lehman
Partnerships") own 627.3 shares of LAH Series S Preferred Stock. Each share of
Series S Preferred Stock represents a beneficial interest in one share of common
stock of SS/L. Due to the LAH Series S Preferred Stock held by the Lehman
Partnerships, Loral has an effective 32.7% economic interest in SS/L. SS/L
operates under various agreements which specify actions which can be taken by it
or its equity investors. The consolidated financial statements include the
accounts of SS/L, its wholly owned foreign sales corporation subsidiary, and
International Space Technology, Inc. ("ISTI"), a partially owned, corporate
joint venture. Investments in partnerships are accounted for on the equity
method. All significant intercompany balances and transactions have been
eliminated.
Use of Estimates in Preparation of Financial Statements:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the amounts of expenses reported for the period. Actual results
could differ from estimates.
Cash and Cash Equivalents:
Cash equivalents consist of money market investments with an original
maturity of less than 90 days.
Financial Instruments:
SS/L's financial instruments consist of cash equivalents, foreign exchange
contracts, contracts-in-process, long-term receivables and long-term debt.
Except as discussed in Note 4, SS/L believes that the carrying value of its
financial instruments approximates fair value.
Concentration of Credit Risk and Major Customers:
Financial instruments which potentially subject SS/L to concentrations of
credit risk consist principally of cash and cash equivalents, foreign exchange
contracts (See Note 4) and contracts in process and long-term receivables
("Contract Receivables"). SS/L's cash and cash equivalents are maintained with
high-credit-quality financial institutions. SS/L's customers are U.S. and
foreign governments and large multinational corporations. The credit worthiness
of such institutions is generally substantial and management believes that its
credit evaluation, approval and monitoring processes mitigate potential credit
risks. SS/L generally obtains insurance to mitigate collection risk associated
with the in-orbit delivery of satellites.
Sales to the U.S. government represented 10%, 23% and 23% of revenues from
contracts for the years ended March 31, 1996, 1995 and 1994, respectively. Sales
to foreign customers, primarily in Asia, represented 27%, 15% and 31% of
revenues from contracts for the years ended March 31, 1996, 1995 and 1994,
respectively. In 1996, two commercial customers represented 30% and 13% of
revenues from contracts. In 1995, four commercial customers represented 23%,
20%, 15% and 13% of revenues from contracts. Two commercial customers
represented 35% and 29% of revenues from contracts in 1994.
F-43
<PAGE> 96
SPACE SYSTEMS/LORAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
Inventories:
Inventories consist principally of high reliability parts and are valued at
the lower of cost or market. Cost is determined using the first-in-first-out
(FIFO) or average cost method.
Revenue Recognition:
Revenue under long-term fixed-price contracts is recognized using the
cost-to-cost percentage-of-completion method. Contract revenue includes
estimated orbital incentives discounted to present value at the launch date.
Contract costs include the development effort required for the production of
high-technology satellites, non-recurring engineering and design efforts in
early periods of contract performance, as well as the cost of qualification
testing requirements.
Revenue under cost-reimbursable type contracts is recognized as costs are
incurred; incentive fees are estimated and recognized over the contract term.
A significant portion of SS/L's revenue is associated with long-term
contracts in which there are inherent risks. These risks include forecasting
costs and schedules, contract revenue related to contract performance (including
orbital incentives), the potential for component obsolescence in connection with
long-term procurements and other factors characteristic of the industry.
Contracts with the U.S. government are subject to termination by the U.S.
government for convenience or for default. Other government contract risks
include dependence on future appropriations and administrative allotment of
funds and changes in government policies. Costs incurred under U.S. government
contracts are subject to audit. Management believes the results of such audits
will not have a material effect on SS/L's financial position or results of
operations.
Losses on contracts are recognized when determined. Revisions in profit
estimates are reflected in the period in which the conditions that require the
revision become known and are estimable.
In accordance with industry practice, contracts-in-process include unbilled
amounts relating to contracts and programs with long production cycles, a
portion of which may not be billable within one year.
Property, Plant and Equipment:
Property, plant and equipment are stated at cost. Generally, when assets
are retired or otherwise disposed of, the cost and accumulated depreciation are
eliminated from the accounts and any gain or loss is included in the results of
operations. Depreciation is provided using predominantly accelerated methods
over the estimated useful lives of the related assets (buildings and
improvements 20 to 45 years; all other assets 2 to 10 years). Leasehold
improvements are amortized over the shorter of the lease term or the estimated
useful lives of the improvements.
Foreign Exchange Contracts:
SS/L enters into foreign exchange contracts as hedges against exchange rate
fluctuations of future accounts receivable and accounts payable denominated in
foreign currencies. Realized and unrealized gains and losses on foreign exchange
contracts designated as hedges are deferred and recognized over the lives of the
related contracts in process.
F-44
<PAGE> 97
SPACE SYSTEMS/LORAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
Cost in Excess of Net Assets Acquired:
Cost in excess of the fair value of net assets acquired is being amortized
over 40 years using the straight-line method. Accumulated amortization was
$36,825,000 and $30,081,000 at March 31, 1996 and 1995, respectively.
The carrying amount of Cost in Excess of Net Assets Acquired is evaluated
on a recurring basis. Current and future profitability as well as current and
future undiscounted cash flows, excluding financing costs, are primary
indicators of recoverability. For the three years ended March 31, 1996, there
was no adjustment to the carrying amount of the Cost in Excess of Net Assets
Acquired resulting from these evaluations.
Accounting Pronouncements:
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" ("SFAS 121"),
which is required to be adopted by fiscal 1997. SFAS 121 establishes the
accounting standards for the impairment of long-lived assets, certain intangible
assets and cost in excess of net assets acquired to be held and used, and for
long-lived assets and certain intangible assets to be disposed of. SS/L does not
expect the adoption of SFAS 121 to have a material impact on its financial
position or results of operations.
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"), which is required to be adopted by fiscal 1997. SFAS
123 establishes accounting and disclosure requirements using a fair value based
method of accounting for stock based employee compensation plans, including
stock arrangements by investors for the benefit of their investees. Under SFAS
123, SS/L may either adopt the new fair value based accounting method or
continue the intrinsic value based method and provide pro forma disclosures of
net income as if the accounting provisions of SFAS 123 had been adopted. SS/L
intends to elect to continue the intrinsic value method of accounting for stock
based employee compensation plans and provide the required pro forma
disclosures; therefore such adoption will have no effect on SS/L's operations.
2. CONTRACTS-IN-PROCESS:
<TABLE>
<CAPTION>
MARCH 31,
---------------------
1996 1995
-------- --------
(IN THOUSANDS)
<S> <C> <C>
U.S government contracts:
Amounts billed............................................... $ 11,374 $ 8,319
Unbilled contract receivables................................ 12,927 15,562
-------- --------
24,301 23,881
-------- --------
Commercial contracts:
Amounts billed............................................... 122,313 35,217
Unbilled contract receivables................................ 104,657 144,308
-------- --------
226,970 179,525
-------- --------
$251,271 $203,406
======== ========
</TABLE>
F-45
<PAGE> 98
SPACE SYSTEMS/LORAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. CONTRACTS-IN-PROCESS: (CONTINUED)
Unbilled amounts include recoverable costs and accrued profit on progress
completed which has not been billed. Such amounts are billed upon shipment of
the product, achievement of contractual milestones, or completion of the
contract and are reclassified to billed receivables.
Payment terms and conditions vary between contracts, however, SS/L
generally requires, for commercial contracts, advance deposits equal to varying
percentages of the total contract amount.
Billed receivables relating to long-term contracts shown above are expected
to be collected within one year. Upon launch of a satellite, SS/L reclassifies
the orbital component of unbilled receivables to long term. During the years
ended March 31, 1996 and 1995, $10,227,000 and $41,973,000, respectively, were
reclassified to long-term receivables. Unbilled receivables include $5,871,000
of orbital receivables expected to be collected in fiscal 1997. Long-term
receivable balances related to satellite orbitals at March 31, 1996 are
scheduled to be received as follows (in thousands):
<TABLE>
<S> <C>
1998...................................................... $ 7,863
1999...................................................... 7,817
2000...................................................... 7,194
2001...................................................... 7,080
Thereafter................................................ 33,173
------
$ 63,127
======
</TABLE>
Selling, general and administrative expenses for the years ended March 31,
1996, 1995 and 1994 were $40,273,000, $31,163,000 and $26,398,000 and include
independent research and development costs of $11,171,000, $9,471,000 and
$6,697,000, respectively.
3. PROPERTY, PLANT AND EQUIPMENT:
<TABLE>
<CAPTION>
MARCH 31,
----------------------
1996 1995
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Land........................................................... $ 22,300 $ 22,300
Buildings and improvements..................................... 58,721 57,331
Machinery, equipment, furniture and fixtures................... 167,406 151,389
Leasehold improvements......................................... 5,317 5,133
Construction-in-process........................................ 15,788 11,698
-------- --------
$ 269,532 $ 247,851
======== ========
</TABLE>
Depreciation and amortization expense was $23,249,000, $22,724,000 and
$21,649,000 and capitalized interest costs were $127,000, $100,000 and $373,000
for the years ended March 31, 1996, 1995 and 1994, respectively.
4. FINANCING ARRANGEMENTS:
Foreign currency exchange facilities:
At March 31, 1996 and 1995, SS/L had foreign currency exchange contracts
(forwards and swaps) with several banks to purchase and sell foreign currencies,
primarily Japanese yen, aggregating $246,483,000 and $296,349,000, respectively.
Such contracts were designated as hedges of certain foreign contracts and
subcontracts to be performed through May 2006. The fair value of these
contracts, based on quoted market prices, was $217,382,000 and $352,273,000 at
March 31, 1996 and 1995, respectively. At March 31, 1996
F-46
<PAGE> 99
SPACE SYSTEMS/LORAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. FINANCING ARRANGEMENTS: (CONTINUED)
deferred gains on forward contracts to sell yen were $23,995,000 and deferred
losses on forward contracts to purchase foreign currencies, primarily yen, were
$5,106,000. At March 31, 1995 deferred losses on forward contracts to sell yen
were $53,836,000 and deferred gains on forward contracts to purchase yen were
$2,088,000. SS/L is exposed to credit-related losses in the event of
nonperformance by counter parties to these financial instruments, but does not
expect any counter party to fail to meet its obligation.
The maturity of foreign currency exchange contracts held at March 31, 1996
is consistent with the contractual or expected timing of the transactions being
hedged, principally receipt of customer payments under long-term contracts and
payments to vendors under subcontracts. These foreign exchange contracts mature
as follows (in thousands):
<TABLE>
<CAPTION>
TO PURCHASE TO SELL
-------------------- ---------------------
AT AT AT AT
YEARS CONTRACT MARKET CONTRACT MARKET
TO MATURITY RATE RATE RATE RATE
------------------------------------------ -------- ------- -------- --------
<S> <C> <C> <C> <C>
1......................................... $ 40,157 $37,712 $ 97,734 $ 87,595
2 to 5.................................... 20,461 17,800 67,330 56,007
6 to 10................................... 15,127 14,064
Thereafter................................ 5,674 4,204
------- ------- -------- --------
$ 60,618 $55,512 $185,865 $161,870
======= ======= ======== ========
</TABLE>
Debt
Long-term debt comprises:
<TABLE>
<CAPTION>
MARCH 31,
-------------------
1996 1995
------- -------
(IN THOUSANDS)
<S> <C> <C>
Export -- Import credit facility
(weighted average interest rate of 5.8% and 5.0%,
respectively).................................................. $32,184 $34,040
Note purchase facility
(weighted average interest rate of 4.26%)...................... 25,868
Revolving credit agreement
(weighted average interest rate of 8.25%)...................... 7,000
------- -------
$65,052 $34,040
======= =======
</TABLE>
SS/L borrowed a total of $42,912,000 under an export-import credit facility
("the EX-IM Facility") with a Japanese bank. The EX-IM Facility is fully secured
by a letter of credit arrangement with another bank. At March 31, 1996, no
amounts remained available for borrowing under this facility. Principal is to be
repaid in semiannual installments through November 1, 2005. Interest is charged
at the London Interbank Offer Rate (LIBOR) less 1/4% and is payable
semiannually on May 1 and November 1.
In 1994 SS/L entered into a $140,000,000 note purchase facility (the "Note
Purchase Facility") with an Italian bank. Borrowings are determined by formula
and are made in accordance with a specified schedule through the earlier of June
30, 1998, or until the facility is fully disbursed. Principal is to be repaid on
the earlier of twenty three months from the final acceptance date of certain
satellite deliveries or April 30, 2000. Interest is charged at a weighted
average rate of 4.26% and is payable semiannually. There were no borrowings
under this facility during the year ended March 31, 1995. All borrowings under
this facility reduce the amount available under SS/L's Revolving Credit
Agreement (see below).
F-47
<PAGE> 100
SPACE SYSTEMS/LORAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. FINANCING ARRANGEMENTS: (CONTINUED)
SS/L has a $250,000,000 revolving credit facility ("the Revolving Credit
Agreement") with a group of banks, which provides for borrowings through
December 23, 1997 at which time the Revolving Credit Agreement expires.
Borrowings are unsecured and bear interest, at SS/L's option, at various rates
based on the lead bank's prime rate, or margins over the Federal Funds rate or
LIBOR. SS/L pays a commitment fee on the unused portion of the Revolving Credit
Agreement. The LIBOR interest rate is subject to a reduction of one-tenth of 1%
based on the achievement of a specific financial covenant. SS/L achieved this
covenant for the years ended March 31, 1995 and 1996. The Revolving Credit
Agreement contains customary covenants requiring SS/L to maintain specified net
worth and debt to equity ratios, an interest coverage ratio and a current asset
to debt ratio. In addition, the Revolving Credit Agreement limits amounts that
may be paid as dividends and advances to and from affiliates. The Revolving
Credit Agreement further provides that the total advances and letters of credit
outstanding may not exceed $250,000,000.
Subsequent to March 31, 1996, SS/L received authorization under the EX-IM
Facility, the Note Purchase Facility and the Revolving Credit Agreement to
permit the transaction under the definitive Agreement and Plan of Merger
described in Note 11.
The aggregate maturities of long-term debt for the years 1998 through 2001
are as follows: $22,020,000, $2,145,000, $2,146,000 and $28,013,000.
SS/L has other outstanding letters of credit of approximately $61,728,000
at March 31, 1996.
5. INCOME TAXES:
The components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-------------------------------
1996 1995 1994
------- ------- -------
(IN THOUSANDS)
-------------------------------
<S> <C> <C> <C>
Current:
Federal............................................. $ 1,836 $ 198
State, local & foreign.............................. 3,107
------- -------
4,943 198
Deferred, principally federal......................... 10,237 $11,946 10,260
------- ------- -------
Total............................................... $15,180 $11,946 $10,458
======= ======= =======
</TABLE>
The provision for income taxes excludes a deferred tax benefit of $544,000
and $1,107,000 for the years ended March 31, 1996 and 1995, respectively,
related to SS/L's share of Globalstar, L.P. losses (see Note 6).
F-48
<PAGE> 101
SPACE SYSTEMS/LORAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. INCOME TAXES: (CONTINUED)
The income tax provision differs from the amount computed by applying the
statutory federal income tax rate to income before income taxes for the
following reasons:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-------------------------------
1996 1995 1994
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Provision at statutory federal income tax rate........ $ 9,942 $ 6,719 $ 4,832
State income taxes, net of federal income tax
benefit............................................. 2,219 1,767 1,300
Non-deductible goodwill amortization.................. 2,360 2,360 2,360
Impact of increase in federal rate on deferred tax
liability........................................... 956
Losses of ISTI........................................ 330 875 672
Other................................................. 329 225 338
------- ------- -------
Total provision for income taxes............ $15,180 $11,946 $10,458
======= ======= =======
</TABLE>
Deferred income taxes have been calculated using an asset and liability
method. The deferred tax liability on the accompanying balance sheet arises from
the tax effect of the temporary differences between the carrying amounts of
assets and liabilities for financial and income tax reporting purposes, and is
principally related to use of the long-term contract method of accounting for
tax purposes, the liability for other postretirement benefits and differences in
tax and book bases of assets and liabilities acquired.
At March 31, 1996, the reported deferred tax liability is net of future tax
benefits of $6,864,000 arising from net operating loss carryforwards which
expire beginning in 2007. Tax carryforward benefits will be used in the periods
that net deferred tax liabilities mature.
The significant components of the deferred income tax assets and
liabilities are:
<TABLE>
<CAPTION>
MARCH 31,
-------------------
1996 1995
------- -------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Postretirement benefits other than pensions.................... $13,719 $13,313
Net operating loss carryforwards............................... 6,864 16,212
Compensation and benefits...................................... 4,681 3,355
Other, net..................................................... 4,376 1,449
------- -------
29,640 34,329
Deferred tax liabilities:
Income recognition on long-term contracts...................... 60,315 56,791
Property, plant and equipment.................................. 26,869 26,032
Pension costs.................................................. 8,764 8,121
------- -------
95,948 90,944
------- -------
Net deferred income tax liability................................ $66,308 $56,615
======= =======
</TABLE>
6. INVESTMENTS:
In March 1994, SS/L agreed to purchase an 11% limited partnership interest
in Loral Qualcomm Satellite Services, L.P. ("LQSS") for $6,000,000. LQSS's only
asset is 18,000,000 general partnership interests in Globalstar, L.P.
("Globalstar"), which represents a 38.3% interest in Globalstar at March 31,
1996 and 1995. Globalstar was formed to design, construct and operate a
worldwide, low-earth orbit satellite-
F-49
<PAGE> 102
SPACE SYSTEMS/LORAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. INVESTMENTS: (CONTINUED)
based digital telecommunications system. SS/L's investment is net of its share
of Globalstar's pretax losses of $1,553,000 and $3,163,000 in the years ended
March 31, 1996 and 1995, respectively.
In connection with the construction of the Globalstar system, Globalstar
entered into a $1.4 billion contract with SS/L to design, manufacture, test and
obtain launch vehicles and launch services for its constellation of 56
satellites. Under the contract, SS/L has agreed to act as Globalstar's agent to
obtain launch vehicles, arrange for the launch of Globalstar satellites and
obtain insurance to cover the replacement cost of satellites or launch vehicles
lost in the event of a launch failure. SS/L has entered into subcontracts with
certain of Globalstar's direct or indirect limited partners, some of whom are
shareholders of SS/L. Revenue recorded under the Globalstar contract for the
years ended March 31, 1996, 1995 and 1994 was $336,977,000, $97,258,000 and
$9,522,000, respectively. Billed and unbilled receivables from Globalstar were
$10,082,000 and $72,535,000, and $9,700,000 and $20,579,000 at March 31, 1996
and 1995, respectively.
Globalstar's space segment contract with SS/L calls for approximately $310
million of the contract billings to be deferred as vendor financing. Of the $310
million, $90 million is interest bearing at the 30-day LIBOR rate plus 3% per
annum. The remaining $220 million of vendor financing is non-interest bearing.
Globalstar will repay the non-interest bearing portions as follows: $49 million
following the launch and acceptance of 24 or more satellites (the "Preliminary
Constellation"), $61 million upon the launch and acceptance of 48 or more
satellites (the "Full Constellation"), and the remainder in equal installments
over the five-year period following acceptance of the Preliminary and Full
Constellations. SS/L's subcontractors have assumed a portion of this vendor
financing which totals approximately $121 million and will be paid on similar
terms. Payment of the $90 million interest bearing vendor financing will be
deferred until December 31, 1998 or the Full Constellation Date, whichever is
earlier. Thereafter, interest and principal will be repaid in twenty equal
quarterly installments over the next five years.
At March 31, 1996, $33,849,000 of the vendor financing receivable is
interest bearing.
SS/L has agreed to guarantee approximately $11,700,000 of Globalstar's
obligation under a $250,000,000 credit agreement. In return for providing such
guarantee, SS/L will receive warrants to purchase 195,094 shares of Globalstar
Telecommunications Limited common stock at $26.50 per share.
In April 1994, SS/L purchased common stock representing a five percent
interest in Orion Network Systems, Inc. for $5,000,000. At March 31, 1996, the
carrying value of the investment approximated market value. The investment is
accounted for using the cost method.
7. RELATED PARTY TRANSACTIONS:
SS/L, its shareholders, and Loral have entered into a stockholders'
agreement ("the Stockholders' Agreement") which provides for management fees to
be paid to Loral, ranging from 0.5% to 1% of sales, as defined, depending upon
SS/L's operating performance. Such management fees were $5,608,000, $3,169,000
and $2,981,000 for the years ended March 31, 1996, 1995 and 1994, respectively.
The Stockholders' Agreement also requires SS/L to pay Loral an annual fee
for overhead reimbursement, not to exceed 1% of SS/L's adjusted sales, as
defined, for each fiscal year. This fee amounted to $3,427,000, $3,287,000 and
$3,512,000 for the years ended March 31, 1996, 1995 and 1994, respectively.
SS/L was billed for certain operational, executive, administrative,
financial, legal and other services provided by LAC and other Loral divisions,
and SS/L charged LAC certain overhead costs. Net costs billed to SS/L by LAC and
other Loral divisions were $7,066,000, $8,518,000 and $5,934,000 for the years
ended March 31, 1996, 1995, and 1994, respectively.
F-50
<PAGE> 103
SPACE SYSTEMS/LORAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. RELATED PARTY TRANSACTIONS: (CONTINUED)
In connection with contract performance, SS/L provides services to and
acquires services from Loral and its affiliated companies. A summary of such
transactions and balances is as follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-------------------------------
1996 1995 1994
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenue from services sold............................ $ 1,096 $ 1,103 $ 672
Cost of purchased services............................ 28,228 27,631 16,441
Balances at year end:
Receivable.......................................... $ 430 $ 724 $ 2,875
Payable............................................. 15,823 7,272 10,272
------- ------- -------
Due to Loral affiliates, net.......................... $15,393 $ 6,548 $ 7,397
======= ======= =======
</TABLE>
SS/L's sales to, purchases from, and balances with the Alliance partners
are as follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
--------------------------------
1996 1995 1994
-------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenue from services sold........................... $ 32,561 $ 3,073 $ 1,420
Cost of purchased services........................... 249,092 85,489 63,255
Balances at year end:
Receivable......................................... $ 15,066 $ 840 $ 571
Payable............................................ 38,257 19,521 8,541
</TABLE>
Loral granted certain key employees of SS/L options to purchase shares of
Loral common stock. At March 31, 1996, 1995 and 1994, options to purchase
466,304, 445,788 and 387,996 shares of Loral common stock were outstanding,
respectively, (adjusted for a two for one stock split in each of fiscal years
1996 and 1994). SS/L has agreed to pay Loral any difference between the market
value of Loral stock at the time of exercise and the option price for up to
200,000 shares authorized by SS/L's stockholders, and to reimburse Loral for any
tax benefit resulting from shares granted in excess of that amount. For the
years ended March 31, 1996, 1995 and 1994, $4,510,000, $726,000 and $533,000,
respectively, of compensation expense was accrued for the excess of market value
of Loral stock over exercise prices for options exercisable subject to the
authorized limitation.
8. COMMITMENTS AND CONTINGENCIES:
At March 31, 1996, SS/L was party to various noncancellable real estate
leases with minimum aggregate rental commitments payable as follows (in
thousands):
<TABLE>
<S> <C>
1997............................................................... $ 5,935
1998............................................................... 3,906
1999............................................................... 1,996
2000............................................................... 1,827
2001............................................................... 1,488
Thereafter......................................................... 14,880
-------
$ 30,032
=======
</TABLE>
F-51
<PAGE> 104
SPACE SYSTEMS/LORAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. COMMITMENTS AND CONTINGENCIES: (CONTINUED)
Leases covering major items of real estate contain renewal and/or purchase
options which may be exercised by SS/L. Rent expense was $6,440,000, $4,805,000
and $4,731,000 for the years ended March 31, 1996, 1995, and 1994, respectively.
Due to the long lead times required to produce purchased parts, SS/L has
entered into various purchase commitments with suppliers. These commitments
aggregated $841,376,000 at March 31, 1996.
SS/L is party to various litigation arising in the normal course of its
operations. In the opinion of management, the ultimate liability for these
matters, if any, will not have a material adverse effect on SS/L's financial
position or results of operations.
Under the Stockholders' Agreement, a change of control of Loral Corporation
within the meaning of such agreement would provide each of SS/L's Alliance
Partners with the right to (i) put their equity interests back to SS/L at fair
market value or (ii) purchase a pro rata share of Loral's equity interest in
SS/L for fair market value (subject to receiving certain authorizations
including U.S. government approval). In addition, an Alliance Partner which
dissents against certain actions of the Board of Directors approved by Loral and
at least two other Alliance Partners, including material changes in SS/L's
strategic plan and related lines of business, a merger, sale of substantially
all assets of SS/L, or sale of stock which increases outstanding shares by more
than 10%, may offer its interests to the other Alliance Partners at 90% of fair
market value; if not purchased by the Alliance Partners, SS/L would be required
to repurchase such shares at that price. In the event any of SS/L's Alliance
Partners put their interests back to SS/L, Loral will acquire such interests.
(See Note 11.)
9. PENSIONS AND OTHER EMPLOYEE BENEFITS:
Pensions:
SS/L maintains a contributory defined benefit pension plan covering
substantially all employees. Benefits are based on members' salaries and years
of service. This plan is administered under the direction of LAH. SS/L's funding
policy is generally to contribute in accordance with cost accounting standards
that affect government contractors, subject to the Internal Revenue Code and
regulations thereon. Contributions for the year ended March 31, 1996, 1995 and
1994 were $3,990,000, $58,000 and $3,993,000, respectively. Plan assets are
invested primarily in U.S. government and agency obligations and listed stocks
and bonds.
Net pension costs include the following components:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
----------------------------------
1996 1995 1994
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost -- benefits earned during the
period........................................... $ 3,676 $ 3,950 $ 2,897
Interest cost on projected benefit obligation...... 10,070 9,025 8,199
Actual loss (return) on plan assets................ (27,838) 372 (13,184)
Net amortization and deferral...................... 18,110 (10,672) 3,610
-------- -------- --------
Net pension costs.................................. $ 4,018 $ 2,675 $ 1,522
======== ======== ========
</TABLE>
F-52
<PAGE> 105
SPACE SYSTEMS/LORAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. PENSIONS AND OTHER EMPLOYEE BENEFITS: (CONTINUED)
The following table sets forth the Plan's funded status:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
--------------------------------
1996 1995 1994
-------- ------- -------
(IN THOUSANDS)
--------------------------------
<S> <C> <C> <C>
Actuarial present value of benefit obligations:
Vested benefits.................................... $128,032 $98,540 $92,745
-------- ------- -------
Accumulated benefits............................... $129,290 $99,279 $93,412
Effect of projected future salary increases........ 17,711 13,908 15,243
-------- ------- -------
Projected benefits................................. 147,001 113,187 108,655
Plan assets at fair value............................ 140,934 112,837 115,030
-------- ------- -------
Plan assets (less than) in excess of projected
benefit obligation................................. (6,067) (350) 6,375
Unrecognized net prior service cost.................. 63 (40) (900)
Unrecognized net loss................................ 27,347 21,760 18,513
-------- ------- -------
Prepaid pension cost included in other assets in the
accompanying balance sheet......................... $ 21,343 $21,370 $23,988
======== ======= =======
The principal actuarial assumptions are as follows:
Discount rate...................................... 7.50% 8.50% 7.75%
Rate of increase in compensation levels............ 4.50% 4.75% 4.75%
Expected long-term rate of return on plan assets... 9.50% 9.50% 9.50%
</TABLE>
Postretirement Health Care and Life Insurance Cost:
In addition to providing pension benefits, SS/L provides certain health
care and life insurance benefits for retired employees and dependents.
Participants are eligible for these benefits when they retire from active
service and meet the eligibility requirements for SS/L's pension plans. These
benefits are funded primarily on a pay-as-you-go basis with the retiree
generally paying a portion of the cost through contributions, deductibles and
coinsurance provisions.
In March 1993, SS/L adopted various plan amendments resulting in
unrecognized prior service gains, which are being amortized commencing in 1994.
Postretirement health care and life insurance costs include the following
components:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-------------------------------
1996 1995 1994
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost -- benefits earned during the period..... $ 405 $ 386 $ 364
Interest cost on accumulated postretirement benefit
obligation.......................................... 1,549 1,445 1,682
Net amortization and deferrals........................ (1,316) (1,481) (1,311)
------- ------- -------
Total postretirement health care and life insurance
costs............................................... $ 638 $ 350 $ 735
======= ======= =======
</TABLE>
F-53
<PAGE> 106
SPACE SYSTEMS/LORAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. PENSIONS AND OTHER EMPLOYEE BENEFITS: (CONTINUED)
The following table reconciles the amounts recognized in the balance sheet:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-------------------------------
1996 1995 1994
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Accumulated postretirement benefit obligation:
Retirees............................................ $13,539 $10,562 $13,510
Fully eligible plan participants.................... 3,229 2,805 3,181
Other active plan participants...................... 6,031 4,275 5,915
------- ------- -------
Total accumulated postretirement benefit obligation... 22,799 17,642 22,606
Fair value of assets.................................. (1,868) (1,348) (997)
------- ------- -------
Unfunded accumulated postretirement benefit
obligation.......................................... 20,931 16,294 21,609
Unrecognized prior service gain related to plan
amendments.......................................... 13,696 14,968 16,240
Unrecognized net (loss) gain.......................... (1,164) 2,738 (2,699)
------- ------- -------
Accrued postretirement health care and life insurance
costs............................................... $33,463 $34,000 $35,150
======= ======= =======
</TABLE>
The principal assumptions used in determining the pension benefit
obligation are as follows:
<TABLE>
<S> <C> <C> <C>
Discount rate......................................... 7.50% 8.50% 7.75%
Rate of increase in compensation levels............... 4.50% 4.75% 4.75%
Present healthcare cost trend rate.................... 10.59% 11.73% 12.36%
Ultimate trend rate by the year 2004.................. 5.50% 6.00% 6.00%
</TABLE>
Changing the assumed health care cost trend rate by 1% in each year would
change the accumulated postretirement benefit obligation by approximately
$2,150,000 and the aggregate service and interest cost components for 1996 by
approximately $240,000.
Postemployment Benefits:
Effective April 1, 1994, SS/L adopted Statement of Financial Accounting
Standards No. 112, "Employers' Accounting for Postemployment Benefits" ("SFAS
112"). SFAS 112 requires that the costs of benefits provided to employees after
employment but before retirement be recognized in the financial statements on an
accrual basis. The adoption of SFAS 112 did not have a material impact to the
financial position or results of operations of SS/L.
Employee Savings Plan:
SS/L employees participate in the Loral Aerospace Savings Plan ("the
Plan"). Under the Plan, SS/L matches 60% of participating SS/L employees'
contributions, up to 6% of base pay. SS/L's matching contributions made in Loral
common stock were $2,852,000, $2,976,000 and $2,782,000 for the years ended
March 31, 1996, 1995 and 1994, respectively.
10. INTERNATIONAL SPACE TECHNOLOGY, INC. COMMON STOCK TRANSACTIONS:
In September 1993 and March 1994, International Space Technology, Inc.
("ISTI"), a corporate joint venture with unrelated third parties, entered into
agreements to sell, in installments, a 22.8% equity interest in ISTI to two
unaffiliated entities. Under the first installment, ISTI sold 267.85 common
shares for $2.9 million in 1994, representing a 17.6% equity interest in ISTI.
In November 1994, in conjunction with the stock sales agreements, ISTI issued an
additional 28.95 common shares to one of the minority shareholders, increasing
F-54
<PAGE> 107
SPACE SYSTEMS/LORAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. INTERNATIONAL SPACE TECHNOLOGY, INC. COMMON STOCK TRANSACTIONS: (CONTINUED)
the minority interest in ISTI by 1.6% to 19.2%. Accordingly, 17.6% of the losses
of ISTI incurred subsequent to the sale and prior to November 8, 1994, and 19.2%
of such incurred losses after November 7, 1994, have been allocated to the
minority interest. Additional sales of shares under the agreements are
contingent upon completion of certain product qualifications by SS/L.
11. SUBSEQUENT EVENTS:
On April 22, 1996, Loral Corporation ("Loral") and Lockheed Martin
Corporation ("Lockheed Martin") consummated a definitive Agreement and Plan of
Merger (the "Merger Agreement") among Loral, Lockheed Martin and LAC Acquisition
Corporation, a wholly owned subsidiary of Lockheed Martin, providing for the
transactions that resulted in the defense electronics and systems integration
businesses of Loral becoming a subsidiary of Lockheed Martin. Concurrently with
the execution of the Merger Agreement, Loral, certain wholly-owned subsidiaries
of Loral and Lockheed Martin entered into the Restructuring, Financing and
Distribution Agreement (the "Distribution Agreement"), which provides, among
other things, for (i) the transfer of Loral's space and communications
businesses, including its direct and indirect interests in Globalstar, L.P.
("Globalstar"), Globalstar Telecommunications Limited ("GTL"), Space Systems/
Loral, Inc. ("SS/L") and other affiliated businesses, as well as certain other
assets to Loral Space & Communications Ltd., a Bermuda company ("Loral
SpaceCom"), (ii) the distribution of all of the shares of Loral SpaceCom common
stock to holders of Loral common stock and persons entitled to acquire shares of
Loral common stock on a one-for-one basis (the "Spin-Off") each as of a record
date (the "Spin-Off Record Date"), and (iii) the contribution by Lockheed Martin
of $612,274,000, of which $344,000,000 represents payment for preferred stock,
convertible into a 20% equity interest in Loral SpaceCom, to be retained by
Lockheed Martin following the Spin-Off and the Merger.
On April 23, 1996, the merger between Loral and Lockheed Martin was
completed. In conjunction with the merger, Loral's space and communications
businesses, including its direct and indirect interests in Globalstar, GTL, SS/L
and other affiliated businesses, as well as certain other assets, have been
transferred to Loral Space & Communications Ltd., a Bermuda corporation.
F-55
<PAGE> 108
EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
- -------------- ---------------------------------------------------------------------------------------
<C> <S>
2.1 Agreement and Plan of Merger, dated as of January 7, 1996, among Loral Corporation,
Lockheed Martin Corporation and LAC Acquisition Corporation+
2.2 Restructuring, Financing and Distribution Agreement, dated as of January 7, 1996, among
Loral Corporation, Loral Aerospace Holdings, Inc., Loral Aerospace Corp., Loral General
partner, Inc., Loral Globalstar L.P., Loral Globalstar Limited, the Registrant and
Lockheed Martin Corporation+
2.3 Amendment to Merger Agreement***
2.4 Amendment to Distribution Agreement***
3.1 Memorandum of Association of Registrant+
3.2 Form of Memorandum of Increase of Share Capital+
3.3 Amended and Restated Bye-laws of Registrant***
4 Rights Agreement+
10.1 Tax Sharing Agreement***
10.2 Shareholders Agreement between the Registrant and Loral Corporation***
10.3 SS/L Stockholders Agreement+
10.4 Lehman Stockholders Agreement***
10.5 Amended and Restated Agreement of Limited Partnership of Globalstar, L.P.*
10.6 Subscription Agreements by and between Globalstar, L.P. and each of Globalstar
Telecommunications Limited, AirTouch Communications, Alcatel Spacecom, Loral General
Partner, Inc., Hyundai/Dacom, Vodastar Limited, Loral/Qualcomm Satellite Services, L.P.
and Finmeccanica S.p.A.*
10.7 Service provider agreements by and between Globalstar, L.P. and each of AirTouch
Satellite Services, Finmeccanica S.p.A., Loral General Partner, Inc., Loral/DASA
Globalstar, L.P., Hyundai/Dacom, TE.SA.M and Vodastar Limited*
10.8 Development Agreement by and between QUALCOMM Incorporated and Globalstar, L.P.*
10.9 Contract between Globalstar, L.P. and Space Systems/Loral, Inc.*
10.10 Credit Agreement among Globalstar, L.P. and various banks and Loral Guarantee+
10.11 Registrant's 1996 Stock Option Plan+
10.12 Registrant's Common Stock Purchase Plan for Non-Employee Directors+
10.13 Employment Agreement between the Registrant and Bernard L. Schwartz+
10.14 Exchange Agreement among the Registrant, Lockheed Martin Corporation and Loral
Corporation***
10.15 Amendment to Partnership Agreement of Globalstar, dated March 6, 1996***
10.16 Amendment of Globalstar Credit Agreement***
10.17 Lockheed Martin Guarantee***
20 Documents or Statements to Shareholders**
21 List of Subsidiaries of the Registrant***
27 Financial Data Schedule***
</TABLE>
- ---------------
*Incorporated by reference to the Registration Statement on Form S-1 filed by
Globalstar Telecommunications Limited (File No. 33-86808).
**Incorporated by reference to Loral's Solicitation/Recommendation Statement on
Schedule 14D-9 dated January 12, 1996.
***Filed herewith.
+Incorporated by reference to the Registration Statement on Form 10 filed by
the Company. (1-14180)
<PAGE> 1
Exhibit 2.3
LORAL CORPORATION
600 Third Avenue
New York, New York 10016
as of April 15, 1996
Lockheed Martin Corporation
LAC Acquisition Corporation
6801 Rockledge Drive
Bethesda, Maryland 20817
Re: Amendment of Agreement and Plan of Merger dated as of
January 7, 1996
Ladies and Gentlemen:
Reference is made to the Agreement and Plan of Merger dated as of
January 7, 1996 (the "Merger Agreement") among Lockheed Martin Corporation
("Parent"), LAC Acquisition Corporation ("Purchaser") and Loral Corporation (the
"Company"). Terms not specifically defined herein shall have the meanings set
forth in the Merger Agreement. The following sets forth our mutual agreement
with respect to certain matters relating to the Merger Agreement.
1. The parties agree that the parenthetical contained in the
second sentence of Section 2.10 of the Merger Agreement shall be amended to read
as follows:
"(including, if so authorized by the Company's Board of
Directors, holders who are subject to the reporting requirements
of Section 16(a) of the Exchange Act)."
Please indicate your acceptance of and agreement to the foregoing
Amendment of Agreement and Plan of Merger by signing below.
Very truly yours,
LORAL CORPORATION
By: /s/ Eric J. Zahler
----------------------------
Name: Eric J. Zahler
Title: Vice President and
General Counsel
<PAGE> 2
Lockheed Martin Corporation
LAC Acquisition Corporation
as of April 15, 1996
Page 2
ACCEPTED AND AGREED
AS OF APRIL 15, 1996:
LOCKHEED MARTIN CORPORATION
By: /s/ Frank H. Menaker, Jr.
----------------------------
Name: Frank H. Menaker, Jr.
Title: Vice President and
General Counsel
LAC ACQUISITION CORPORATION
By: /s/ Stephen M. Piper
----------------------------
Name: Stephen M. Piper
Title: Assistant Secretary
<PAGE> 1
Exhibit 2.4
Amendment to Distribution Agreement
LOCKHEED MARTIN CORPORATION
6801 ROCKLEDGE DRIVE
BETHESDA, MARYLAND 20817
as of April 15, 1996
Loral Corporation
Loral Space & Communications Ltd.
Loral Aerospace Holdings, Inc.
Loral Aerospace Corp.
Loral General Partner, Inc.
Loral Globalstar, L.P.
600 Third Avenue
New York, New York 10016
Loral Globalstar Limited
P.O. Box 309
Ugland House
South Church Street
Grand Cayman Islands
British West Indies
Re: Waiver With Respect to and Amendment
of Distribution Agreement
Ladies and Gentlemen:
Reference is made to the Restructuring, Financing and Distribution
Agreement (the "Distribution Agreement"), dated as of January 7, 1996, by and
among Lockheed Martin Corporation ("Lockheed Martin"), Loral Corporation
("Loral"), Loral Aerospace Holdings, Inc., Loral Aerospace Corp., Loral General
Partner, Inc., Loral Globalstar, L.P., Loral Globalstar Limited and Loral Space
& Communications Corp. ("Loral SpaceCom Corp."). Terms not specifically defined
herein shall have the meanings set forth in the Distribution Agreement. The
following sets forth our mutual agreement with respect to certain matters
relating to the Distribution Agreement.
1. Subject to the provisions of paragraph 2 below, Lockheed
Martin hereby waives the provisions of Section 2.6(a) and (b) of the
Distribution Agreement insofar as such provisions would otherwise prohibit,
restrict or delay the assignment, conveyance or transfer of shares (the "SS/L
Shares") of capital stock of Space Systems/Loral, Inc. ("SS/L") to Loral Space &
Communications Ltd., a Bermuda company ("Loral SpaceCom") or a Loral SpaceCom
subsidiary prior to the Distribution Date if waivers of all Third Party Call
Rights or Third Party Put Rights with respect to such SS/L Shares have not been
received prior to the time of such assignment, conveyance or transfer.
<PAGE> 2
2. The parties consent to the prior assignment by Loral SpaceCom
Corp. of all of its rights and obligations under the Distribution Agreement to
Loral SpaceCom and agree that all references to Spinco in the Distribution
Agreement shall be deemed to be references to Loral SpaceCom. SpaceCom hereby
reaffirms and acknowledges its agreement that (x) it shall, pursuant to the
provisions of Section 2.6(c) of the Distribution Agreement, indemnify the
Company and all Parent Indemnified Parties for all Indemnifiable Losses arising
out of, relating to or resulting from the exercise or purported exercise of any
Third Party Call Right or any Third Party Put Right and (y) prior to the
exercise or the receipt of waivers of Third Party Call Rights, it shall not
assign, convey or transfer the applicable SS/L Shares to any third party or
otherwise take any action that would have the effect of denying or materially
adversely affecting the Third Party Call Rights set forth in the SS/L
Stockholders Agreements. Loral SpaceCom further agrees that it shall indemnify
and hold harmless the Company and all Parent Indemnified Parties from and
against all Indemnifiable Losses (whether as a result of injunctive action or
otherwise) arising out of, relating to or resulting from the transfer of the
SS/L Shares to Loral SpaceCom prior to the receipt by the Company or Loral
SpaceCom of all waivers and consents otherwise required prior to such transfer,
including without limitation, the continuation of the Company after the
Distribution Date as a party to the SSL Stockholder Agreements. Notwithstanding
anything to the contrary contained herein or in the Distribution Agreement,
Loral SpaceCom shall indemnify the Company and the Parent Indemnified Parties
for costs, fees and expenses of attorneys, accountants, consultants and other
similar persons engaged by the Company or the Parent Indemnified Parties with
respect to the matters set forth in this Paragraph 2 or in Section 2.6 of the
Distribution Agreement if any only to the extent that they relate to (x) claims
or inquires initiated by a third-party not affiliated with the Company or
Lockheed Martin or (y) Actions.
3. The parties agree that:
(a) Section 6.7(d) of the Distribution Agreement shall be
amended by adding the following as the last sentence thereof:
"Notwithstanding anything to the contrary contained
in this Section 6.7(d), the obligations and rights of
the parties arising under this Section 6.7(d) shall
be qualified in their entirety by and subject to the
limitations with respect thereto set forth in the
Agreement Containing Consent Order to be entered into
between Parent and the Federal Trade Commission (File
No. 961-0026)."
(b) Section 2.1(a) is hereby amended by deleting such
Section 2.1(a) in its entirety and substituting therefor the new Section 2.1(a)
contained in Annex I hereto.
(c) Section 5.2(a)(v) is hereby amended by adding at the
end of such clause the following additional language:
"or the continuation of the Company, LAC or Holdings
as parties to the SSL Stockholders Agreements on or
after the Distribution Date."
----------------
-2-
<PAGE> 3
Please indicate your acceptance of and agreement to the foregoing
Waiver With Respect to and Amendment of the Restructuring, Financing and
Distribution Agreement by signing below.
Very truly yours,
LOCKHEED MARTIN CORPORATION
By: /s/ Frank H. Menaker, Jr.
-----------------------------------------
Name: Frank H. Menaker, Jr.
Title: Vice President and General Counsel
ACCEPTED AND AGREED
AS OF THE DATE FIRST
ABOVE WRITTEN:
LORAL CORPORATION
By: /s/ Eric J. Zahler
-----------------------------------------
Name: Eric J. Zahler
Title: Vice President, General Counsel and
Assistant Secretary
LORAL SPACE & COMMUNICATIONS LTD.
By: /s/ Eric J. Zahler
-----------------------------------------
Name: Eric J. Zahler
Title: Vice President, General Counsel and
Secretary
LORAL AEROSPACE HOLDINGS, INC.
By: /s/ Eric J. Zahler
-----------------------------------------
Name: Eric J. Zahler
Title: Vice President and Assistant Secretary
S-1
<PAGE> 4
LORAL AEROSPACE CORP.
By: /s/ Eric J. Zahler
------------------
Name: Eric J. Zahler
Title: Vice President and Assistant Secretary
LORAL GENERAL PARTNER, INC.
By: /s/ Eric J. Zahler
------------------
Name: Eric J. Zahler
Title: Vice President and Assistant Secretary
LORAL GLOBALSTAR L.P.
By: /s/ Eric J. Zahler
------------------
Name: Eric J. Zahler
Title: Vice President and Assistant Secretary
LORAL GLOBALSTAR LIMITED
By: /s/ Eric J. Zahler
------------------
Name: Eric J. Zahler
Title: Vice President
S-2
<PAGE> 5
ANNEX 1
Section 2.1. Transfer of Assets
(a) Subject to the terms and conditions of this Agreement:
(i) prior to the Distribution Date, Loral shall
form SS/L Bermuda, Ltd. ("SS/L Bermuda") and LGP Bermuda, Ltd. ("LGPB")
as wholly-owned Bermuda corporations and Loral SpaceCom Corporation, as
a wholly-owned Delaware corporation ("Loral SpaceCom-US");
(ii) prior to the Distribution Date, Loral shall
form Loral SpaceCom DBS Holdings, Inc. ("SpaceCom DBS Holdings") as a
wholly-owned subsidiary of Loral SpaceCom and Loral SpaceCom DBS, Inc.
("SpaceCom DBS") as a wholly-owned subsidiary of SpaceCom DBS Holdings;
(iii) prior to the Distribution Date, LG shall
transfer to LGP all of its right, title and interest in and to all
shares of capital stock owned by LG in GTL, by means of a
non-liquidating distribution to LGP of such equity securities;
(iv) following the action referred to in the
immediately preceding clause, Cayman shall transfer to LGP all of its
assets, including all of its right, title and interest in and to its
partnership interest in LG, by means of a liquidating distribution in
dissolution of Cayman under local law;
(v) following the action referred to in the
immediately preceding clause, LG shall dissolve under Delaware law,
pursuant to which LG shall transfer its right, title and interest in
and to its partnership interests in LQP, LQSS, Globalstar, Loral/Dasa
Globalstar, L.P. ("Dasa") and in and to any other Spinco Asset owned by
LG to LGP (provided, however, that the transfers of such partnership
interests pursuant to this subsection (a) shall be preceded by the
written consent to such transfer by the other partners, but only to the
extent such consent is required under the relevant partnership
agreements);
(vi) following the action referred to in the
immediately preceding clause, LGP shall distribute as a dividend all of
its right, title and interest in and to (a) all properties received
from LG pursuant to clause 2.1(a)(iii) hereof; (b) all properties
received from LG pursuant to clause 2.1(a)(v) hereof; and (c) from its
retained 2% interest in LQP, a 1% capital interest and a 1.75% profits
interest in LQP to Aerospace;
(vii) following the action referred to in the
immediately preceding clause, Aerospace shall distribute as a dividend
all of its right, title and interest in and to (a) all properties
received from LGP pursuant to clause 2.1(a)(vi) hereof; and (ii) all
shares of capital stock owned by Aerospace in SS/L to Holdings;
(viii) following the action referred to in the
immediately preceding clause, Loral DBS, Inc. ("DBS") shall distribute
all right, title and interest in and to its properties in liquidation
of DBS to Holdings, including any interest it may hold in Continental;
(ix) following the action referred to in the
immediately preceding clause, LAH shall distribute all right, title and
interest in and to (a) all of the capital stock of
Annex - 1
<PAGE> 6
Continental; (b) all properties received from Aerospace pursuant to
clause 2.1(a)(vii) hereof; (c) all shares of capital stock owned by
Holdings in SS/L (excluding the 731.85 shares to be transferred to SS/L
Bermuda in exchange for a like number of SS/L Tracking Shares of SS/L
Bermuda); (d) all shares of capital stock owned by Holdings in R/L DBS,
L.L.C. ("R/L DBS"); and (e) all properties received from DBS pursuant
to clause 2.1(a)(viii) hereof to Loral;
(x) following the action referred to in the
immediately preceding clause, Loral Globalstar Canada, L.P., a Delaware
limited partnership ("Canada"), shall dissolve under Delaware law,
pursuant to which Canada shall distribute all right, title and interest
and to any Spinco Asset owned by Canada to GC One, Inc., a Delaware
corporation ("GC-1"), and GC Two, Inc. a Delaware corporation ("GC-2"),
respectively;
(xi) following the action referred to in the
immediately preceding clause, GC-1 and GC-2 shall transfer all
properties received from Canada pursuant to clause 2.1(a)(x) hereof to
Loral by means of a liquidating distribution in dissolution of GC-1 and
GC-2 under Delaware law;
(xii) following the action referred to in the
immediately preceding clause, Loral Fairchild, Inc., a Delaware
corporation and indirect, wholly-owned subsidiary of Loral
("Fairchild"), shall distribute its entire beneficial interest in the
CCD Lawsuit to Loral;
(xiii) following the action referred to in the
immediately preceding clause, Loral shall cause any Subsidiary to
distribute all right, title and interest in and to any Spinco Asset
(other than the interest in LGP which is being contributed pursuant to
clause (xvi) hereof) of such Subsidiary to Loral, to the extent not
previously distributed to Loral pursuant to any of the preceding
clauses of this Section 2.1(a);
(xiv) following the action referred to in the
immediately preceding clause, Loral shall contribute all right, title
and interest in and to (a) all shares of capital stock owned by Loral
in SS/L and K&F to SS/L Bermuda; and (b) a 1% capital interest and
1.75% profits interest in LQP and all partnership interests in LQSS to
LGPB as capital contributions to each entity;
(xv) following the action referred to in the
immediately preceding clause, Parent shall transfer to Loral, as a
capital contribution, $712,400,000 in immediately available funds, less
any amount which the parties hereto have at such time agreed is owed to
Parent pursuant to the provisions of Sections 4.1(a) and 4.1(c) hereof
(the aggregate of such cash amount being hereinafter referred to as the
"Spinco Cash Amount") and Loral shall then contribute all right, title
and interest in and to (a) all properties described in clause 2.1
(a)(viii), clause (xi) and clause (xiii) hereof; (b) all properties
received from LAH pursuant to clause 2.1(a)(ix) hereof (to the extent
not previously contributed to SS/L Bermuda or LGPB pursuant to clause
2.1(a)(xiv) hereof); (c) all shares of capital stock in SS/L Bermuda
and LGPB; (d) all shares of capital stock of Loral Travel Services,
Inc., a Delaware corporation ("Travel"); (e) the entire beneficial
interest in the CCD Lawsuit; (f) the 6.5% GTL Convertible Preferred
Equivalent Obligations due 2006 owned by Loral; (g) all of the capital
stock of Loral SpaceCom-US; (h) any other Spinco Asset owned by Loral
to the extent not specifically referred to in any of the preceding or
subsequent clauses of this Section 2.1(a); and (i) the Spinco Cash
Amount to Loral SpaceCom in exchange for Loral SpaceCom Common Stock
and Loral SpaceCom Preferred Stock, provided, however, that
$344,000,000 of the
Annex - 2
<PAGE> 7
Spinco Cash Amount shall be in exchange for the Loral SpaceCom
Preferred Stock and the balance shall be treated as additional
consideration for the Loral SpaceCom Common Stock;
(xvi) following the action referred to in the
immediately preceding clause, Aerospace shall distribute all right,
title and interest in and to all of the capital stock of LGP to
Holdings;
(xvii) following the action referred to in the
immediately preceding clause, Holdings shall distribute all right,
title and interest in and to all properties received from Aerospace
pursuant to clause 2.1(a)(xvi) hereof to Loral; and
(xviii) following the action referred to in the
immediately preceding clause, Loral shall contribute all right, title
and interest in and to all properties received from Holdings pursuant
to clause 2.1(a)(xvii) hereof to Loral SpaceCom as a capital
contribution.
Annex - 3
<PAGE> 1
Exhibit 3.3
SECOND AMENDED AND RESTATED BYE-LAWS
OF
LORAL SPACE & COMMUNICATIONS LTD.
As adopted by the sole
shareholder of the above
Company by written
consent dated April 15,
1996.
<PAGE> 2
TABLE OF CONTENTS
Page
----
INTERPRETATION............................................ 1
REGISTERED OFFICE......................................... 3
SHARE CAPITAL AND VARIATION OF RIGHTS..................... 3
SHARES.................................................... 5
CERTIFICATES.............................................. 6
LIEN...................................................... 8
CALLS ON SHARES........................................... 10
FORFEITURE OF SHARES...................................... 11
REGISTER OF SHAREHOLDERS.................................. 13
REGISTER OF DIRECTORS AND OFFICERS........................ 14
TRANSFER OF SHARES........................................ 14
TRANSMISSION OF SHARES.................................... 15
INCREASE OF CAPITAL....................................... 17
ALTERATION OF CAPITAL..................................... 18
REDUCTION OF CAPITAL...................................... 19
GENERAL MEETINGS.......................................... 20
NOTICE OF GENERAL MEETINGS................................ 21
PROCEEDINGS AT GENERAL MEETINGS........................... 22
VOTING.................................................... 27
PROXIES AND CORPORATE REPRESENTATIVES..................... 29
APPOINTMENT AND REMOVAL OF DIRECTORS...................... 32
RESIGNATION AND DISQUALIFICATION OF DIRECTORS............. 34
ALTERNATE DIRECTORS....................................... 35
DIRECTORS' FEES AND ADDITIONAL REMUNERATION AND EXPENSES.. 36
(i)
<PAGE> 3
Page
----
DIRECTORS' INTERESTS...................................... 37
POWERS AND DUTIES OF THE BOARD............................ 39
DELEGATION OF THE BOARD'S POWERS.......................... 41
PROCEEDINGS OF THE BOARD.................................. 42
OFFICERS.................................................. 45
MINUTES................................................... 46
SECRETARY................................................. 46
THE SEAL.................................................. 47
DIVIDENDS AND OTHER PAYMENTS.............................. 48
RESERVES.................................................. 50
CAPITALIZATION OF PROFITS................................. 51
RECORD DATES.............................................. 52
ACCOUNTING RECORDS........................................ 52
AUDIT..................................................... 53
SERVICE OF NOTICES AND OTHER DOCUMENTS.................... 53
WINDING UP................................................ 55
INDEMNITY................................................. 55
ALTERATION OF BYE-LAWS.................................... 57
SCHEDULE I SERIES A PREFERRED SHARES
SCHEDULE II SERIES B PREFERRED SHARES
(ii)
<PAGE> 4
SECOND AMENDED AND RESTATED
BYE-LAWS
OF
LORAL SPACE & COMMUNICATIONS LTD.
INTERPRETATION
1. In these Bye-Laws unless the context otherwise requires:
(a) "Bermuda" means the Islands of Bermuda;
(b) "Board" means the Board of Directors of the Company or the
Directors present at a meeting of Directors at which there is a quorum;
(c) "Bye-Laws" means these Second Amended and Restated Bye-Laws in
their present form or as from time to time amended;
(d) "Common Shares" means the Common Shares of par value $0.01 per
share;
(e) "the Companies Acts" means every Bermuda statute from time to time
in force concerning companies insofar as the same applies to the Company;
(f) "Company" means the company incorporated in Bermuda under the name
of LORAL SPACE & COMMUNICATIONS LTD. on the 12th day of January, 1996;
(g) "paid up" means paid up or credited as paid up;
(h) "Preferred Shares" means the Series A Preferred Shares, the Series
B Preferred Shares and any other series of
<PAGE> 5
preferred shares of the Company designated as such by Resolution adopted from
time to time.
(i) "Register" means the Register of Shareholders of the Company;
(j) "Registered Office" means the registered office for the time being
of the Company;
(k) "Resolution" means a resolution of the Shareholders or, where
required, of a separate class or separate classes of Shareholders, adopted in
general meeting in accordance with the provisions of these Bye-Laws;
(l) "Seal" means the common seal of the Company and includes any
duplicate thereof;
(m) "Secretary" includes a temporary or assistant Secretary and any
person appointed by the Board to perform any of the duties of the Secretary;
(n) "Series A Preferred Shares" means the Series A Convertible
Non-Voting Preferred Shares of par value $0.01 per share;
(o) "Series B Preferred Shares" means the Series B Preferred Shares of
par value $0.01 per share issued in accordance with the shareholders right plan
referred to in Bye-law 4;
(p) "Shareholder" means a shareholder or member of the Company;
(q) "shares" means Common Shares or Preferred Shares, or both, as the
case may be.
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<PAGE> 6
2. For the purposes of these Bye-Laws:
(a) A corporation shall be deemed to be present in person if its
representative duly authorized pursuant to the Companies Acts is present;
(b) Words importing only the singular number include the plural number
and vice versa;
(c) Words importing only the masculine gender include the feminine and
neuter genders respectively;
(d) Words importing persons include companies or associations or bodies
of persons, whether corporate or un-incorporate;
(e) Reference to writing shall include typewriting, printing,
lithography, photography and other modes of representing or reproducing words in
a legible and non-transitory form;
(f) Any words or expressions defined in the Companies Acts in force at
the date when these Bye-Laws or any part thereof are adopted shall bear the same
meaning in these Bye-Laws or such part (as the case may be).
REGISTERED OFFICE
3. The Registered Office shall be at such place in Bermuda as the Board
shall from time to time appoint.
SHARE CAPITAL AND VARIATION OF RIGHTS
4. (a) Subject to Bye-Law 43, any share in the Company may be issued with
such preferential, deferred, qualified or special rights, privileges or
conditions as the Directors may
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<PAGE> 7
from time to time determine. The respective rights and restrictions attached to
the Series A Preferred Shares and Series B Preferred Shares are set forth in
Schedules I and II (as the same may be amended from time to time) to these
Bye-Laws, which Schedules shall be deemed to be incorporated in and form part of
this Bye-law 4.
(b) Without limiting the foregoing and subject to the Companies Acts,
the Company may issue Preferred Shares which:
(i) are liable to be redeemed on the happening of a specified event or on a
given date; and/or
(ii) are to be redeemed at the option of the Company.
The terms and manner of redemption of shares of any class of share capital of
the Company the terms of which are set forth in the Company's Bye-Laws may only
be modified by way of amendment to such Bye-Laws.
5. The Company may adopt a scheme or arrangement (hereinafter called a
"shareholder rights plan") providing for the creation and issuance of rights
entitling the Shareholders of the Company or certain of them, to purchase from
the Company shares of any class or assets of the Company or a subsidiary of the
Company or otherwise, and the terms and conditions of such shareholder rights
plan and the rights may be amended or modified as the Directors or any committee
thereof may determine.
6. Subject to the Companies Acts, all or any of the special rights for the
time being attached to any class of shares for the time being issued may, unless
otherwise provided in the rights attaching to or by the term of issue of the
shares of that
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<PAGE> 8
class, from time to time (whether or not the Company is being wound up), be
altered or abrogated with the sanction of a Resolution passed at a separate
general meeting of the holders of shares of that class by a majority of the
votes cast. To any such separate general meeting, all the provisions of these
Bye-Laws as to general meetings of the Company shall mutatis mutandis apply, but
so that the necessary quorum shall be two or more persons holding or
representing by proxy thirty-three per cent of the shares of the relevant class;
provided, however, that if the Company or a class of Shareholders shall have
only one Shareholder present in person or by proxy, one Shareholder shall
constitute the necessary quorum.
7. The special rights conferred upon the holders of any shares or class of
shares shall not, unless otherwise expressly provided in the rights attaching to
or the terms of issue of such shares, be deemed to be altered by the creation or
issue of further shares ranking pari passu therewith.
SHARES
8. (a) Subject to the provisions of these Bye-Laws, the unissued shares of
the Company (whether forming part of the original capital or any increased
capital) shall be at the disposal of the Board, which may offer, allot, grant
options over or otherwise dispose of them to such persons, at such times and for
such consideration and upon such terms and conditions as the Board may
determine.
(b) The Board may issue its shares in fractional denominations and deal
with such fractions to the same extent as
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<PAGE> 9
its whole shares and shares in fractional denominations shall have in proportion
to the respective fractions represented thereby all the rights of the whole
shares including (but without limiting the generality of the foregoing) the
right to vote, to receive dividends and distributions and to participate in a
winding up.
9. The Board may in connection with the issue of any shares exercise all
powers of paying commission and brokerage conferred or permitted by law.
10. The Company shall be entitled to treat the holder of record of any
share or shares of capital stock as the holder in fact thereof. Accordingly,
except as ordered by a court of competent jurisdiction or as required by law, no
person shall be recognized by the Company as holding any share upon trust and
the Company shall not be bound by or required in any way to recognize (even when
having notice thereof) any equitable, contingent, future or partial interest in
any share or any interest in any fractional part of a share or (except only as
otherwise provided in these Bye-Laws or by law) any other right in respect of
any share except an absolute right to the entirety thereof in the registered
holder.
CERTIFICATES
11. The shares shall be issued in registered form and shall be evidenced
by share certificates in such form as the Directors may from time to time
prescribe. The preparation, issue and delivery of share certificates shall be
governed by the Companies Acts. In the case of a share held jointly by several
persons,
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<PAGE> 10
delivery of a certificate to one of several joint holders shall be sufficient
delivery to all.
12. If a share certificate is defaced, lost or destroyed, it may be
replaced without fee but on such terms (if any) as to evidence and indemnity and
to payment of the costs and out of pocket expenses of the Company in
investigating such evidence and preparing such indemnity as the Board or the
Company's transfer agent may think fit and, in case of defacement, on delivery
of the old certificate to the Company.
13. All certificates for shares (other than letters of allotment, scrip
certificates and other like documents) shall, except to the extent that the
terms and conditions for the time being relating thereto otherwise provide, be
issued under the Seal. Each certificate shall be signed by the Chairman of the
Board, President or a Vice-President and also by the Secretary or an Assistant
Secretary or the Treasurer or an Assistant Treasurer, and shall be sealed with
the seal of the Company, which may be facsimile. If the certificate is signed by
either a transfer agent or a transfer clerk acting on behalf of the Company and
a registrar, the signature or any such officer of the Company and the signature
of a transfer agent acting on behalf of the Company may be facsimile. In the
case of any officer or officers who shall have signed, or whose facsimile
signature or signatures shall have been used on, any such certificate or
certificates shall cease to be such officer or officers of the Company, whether
because of death, resignation or otherwise, such certificate or certificates may
nevertheless be adopted by the
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<PAGE> 11
Company and be used and delivered as though the officer or officers who signed
the said certificate or certificates or whose facsimile signature or signature
shall have been used thereon had not ceased to be such officer or officers of
the Company. The Board may by resolution determine, either generally or in any
particular case, that any signatures on any such certificates need not be
autographic but may be affixed to such certificates by some mechanical means or
may be printed thereon or that such certificates need not be signed by any
persons.
LIEN
14. The Company shall have a first and paramount lien on every share (not
being a fully paid share) for all moneys, whether presently payable or not,
called or payable, at a date fixed by or in accordance with the terms of issue
of such share in respect of such share, and the Company shall also have a first
and paramount lien on every share (other than a fully paid share) standing
registered in the name of a Shareholder, whether singly or jointly with any
other person, for all the debts and liabilities of such Shareholder or his
estate to the Company, whether the same shall have been incurred before or after
notice to the Company of any interest of any person other than such Shareholder,
and whether the time for the payment or discharge of the same shall have
actually arrived or not, and notwithstanding that the same are joint debts or
liabilities of such Shareholder or his estate and any other person, whether a
Shareholder or not. The Company's lien on a share shall extend to all dividends
payable thereon. The Board may at any time, either generally or
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<PAGE> 12
in any particular case, waive any lien that has arisen or declare any share to
be wholly or in part exempt from the provisions of this Bye-Law.
15. The Company may sell, in such manner as the Board may think fit, any
share on which the Company has a lien but no sale shall be made unless some sum
in respect of which the lien exists is presently payable nor until the
expiration of fourteen days after a notice in writing, stating and demanding
payment of the sum presently payable and giving notice of the intention to sell
in default of such payment, has been served on the holder for the time being of
the share.
16. The net proceeds of sale by the Company of any shares on which it has
a lien shall be applied in or towards payment or discharge of the debt or
liability in respect of which the lien exists so far as the same is presently
payable, and any residue shall (subject to a like lien for debts or liabilities
not presently payable as existed upon the share prior to the sale) be paid to
the holder of the share immediately before such sale. For giving effect to any
such sale the Board may authorize some person to transfer the share sold to the
purchaser thereof. The purchaser shall be registered as the holder of the share
and he shall not be bound to see to the application of the purchase money, nor
shall his title to the share be affected by any irregularity or invalidity in
the proceedings relating to the sale.
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<PAGE> 13
CALLS ON SHARES
17. The Board may from time to time make calls upon the Shareholders in
respect of any moneys unpaid on their shares (whether on account of the par
value of the shares or by way of premium) and not by the terms of issue thereof
made payable at a date fixed by or in accordance with such terms of issue, and
each Shareholder shall (subject to the Company serving upon him at least
fourteen days' notice specifying the time or times and place of payment) pay to
the Company at the time or times and place so specified the amount called on his
shares. A call may be revoked or postponed as the Board may determine.
18. A call may be made payable by installments and shall be deemed to have
been made at the time when the resolution of the Board authorizing the call was
passed.
19. The joint holders of a share shall be jointly and severally liable to
pay all calls in respect thereof.
20. If a sum called in respect of the share shall not be paid before or on
the day appointed for payment thereof the person from whom the sum is due shall
pay interest on the sum from the day appointed for the payment thereof to the
time of actual payment at such rate as the Board may determine, but the Board
shall be at liberty to waive payment of such interest wholly or in part.
21. Any sum which, by the terms of issue of a share, becomes payable on
allotment or at any date fixed by or in accordance with such terms of issue,
whether on account of the nominal amount of the share or by way of premium,
shall for all
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<PAGE> 14
the purposes of these Bye-Laws be deemed to be a call duly made, notified and
payable on the date on which, by the terms of issue, the same becomes payable
and, in case of non-payment, all the relevant provisions of these Bye-Laws as to
payment of interest, forfeiture or otherwise shall apply as if such sum had
become payable by virtue of a call duly made and notified.
22. The Board may on the issue of shares differentiate between the
allottees or holders as to the amount of calls to be paid and the times of
payment.
FORFEITURE OF SHARES
23. If a Shareholder fails to pay any call or installment of a call on the
day appointed for payment thereof, the Board may at any time thereafter during
such time as any part of such call or installment remains unpaid serve a notice
on him requiring payment of so much of the call or installment as is unpaid,
together with any interest which may have accrued.
24. The notice shall name a further day (not being less than 14 days from
the date of the notice) on or before which, and the place where, the payment
required by the notice is to be made and shall state that, in the event of
nonpayment on or before the day and at the place appointed, the shares in
respect of which such call is made or installment is payable will be liable to
be forfeited. The Board may accept the surrender of any share liable to be
forfeited hereunder and, in such case, references in these Bye-Laws to
forfeiture shall include surrender.
25. If the requirements of any such notice as aforesaid are not complied
with, any share in respect of which such notice has
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<PAGE> 15
been given may at any time thereafter, before payment of all calls or
installments and interest due in respect thereof has been made, be forfeited by
a resolution of the Board to that effect. Such forfeiture shall include all
dividends declared in respect of the forfeited shares and not actually paid
before the forfeiture.
26. When any share has been forfeited, notice of the forfeiture shall be
served upon the person who was before forfeiture the holder of the share; but no
forfeiture shall be in any manner invalidated by any omission or neglect to give
such notice as aforesaid.
27. A forfeited share shall be deemed to be the property of the Company
and may be sold, re-offered or otherwise disposed of either to the person who
was, before forfeiture, the holder thereof or entitled thereto or to any other
person upon such terms and in such manner as the Board shall think fit, and at
any time before a sale, re-allotment or disposition the forfeiture may be
canceled on such terms as the Board may think fit.
28. A person whose shares have been forfeited shall thereupon cease to be
a Shareholder in respect of the forfeited shares but shall, notwithstanding the
forfeiture, remain liable to pay to the Company all moneys which at the date of
forfeiture were presently payable by him to the Company in respect of the shares
with interest thereon at such rate as the Board may determine from the date of
forfeiture until payment, and the Company may enforce payment without being
under any obligation to make any allowance for the value of the shares
forfeited.
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<PAGE> 16
29. An affidavit in writing that the deponent is a Director or the
Secretary and that a share has been duly forfeited on the date stated in the
affidavit shall be conclusive evidence of the facts therein stated as against
all persons claiming to be entitled to the share. The Company may receive the
consideration (if any) given for the share on the sale, re-allotment or
disposition thereof and the Board may authorize some person to transfer the
share to the person to whom the same is sold, re-allotted or disposed of, and he
shall thereupon be registered as the holder of the share and shall not be bound
to see to the application of the purchase money (if any) nor shall his title to
the share be affected by any irregularity or invalidity in the proceedings
relating to the forfeiture, sale, re-allotment or disposal of the share.
REGISTER OF SHAREHOLDERS
30. The Register of Shareholders of the Company containing the names and
addresses of the Shareholders and the number of shares held by them
respectively, shall be kept in the manner prescribed by the Companies Acts at
the Registered Office by the Secretary or at the offices of the transfer agent
of the Company or at such other location as may be authorized by the Board from
time to time. Unless the Board otherwise determines, the Register of
Shareholders shall be open to inspection at the Registered Office of the Company
in the manner prescribed by the Companies Acts between 10:00 a.m. and 12:00 noon
on every working day. Unless the Board so determines, no Shareholder or
intending Shareholder shall be entitled to have entered in the Register any
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<PAGE> 17
indication of any trust or any equitable, contingent, future or partial interest
in any share or any interest in any fractional part of a share and if any such
entry exists or is permitted by the Board it shall not be deemed to abrogate any
provisions of Bye-Law 10.
REGISTER OF DIRECTORS AND OFFICERS
31. The Secretary shall establish and maintain a register of the Directors
and Officers of the Company as required by the Companies Acts. The register of
Directors and Officers shall be open to inspection in the manner prescribed by
the Companies Acts between 10:00 a.m. and 12:00 noon on every working day.
TRANSFER OF SHARES
32. Subject to the Companies Acts and to such of the restrictions
contained in these Bye-Laws as may be applicable, any Shareholder may transfer
all or any of his shares by an instrument of transfer in the usual common form
or in any other form which the Board may approve or in accordance with the
general rules and standard practices of any exchange on which such shares are
then listed.
33. The instrument of transfer of a share shall be signed by or on behalf
of the transferor and where any share is not fully paid the transferee, and the
transferor shall be deemed to remain the holder of the share until the name of
the transferee is entered in the Register in respect thereof. All instruments of
transfer when registered may be retained by the Company. The Board may, in its
absolute discretion and without assigning any reason therefor, decline to
register any transfer of any share
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<PAGE> 18
which is not a fully-paid share. The Board may also decline to register any
transfer unless:
(a) the instrument of transfer is duly stamped, if required, and lodged
with the Company, accompanied by the certificate for the shares to which it
relates, and such other evidence as the Board may reasonably require to show the
right of the transferor to make the transfer,
(b) the instrument of transfer is in respect of only one class of
share,
(c) where applicable, the permission of the Bermuda Monetary Authority
with respect thereto has been obtained. Subject to any directions of the Board
from time to time in force, the Secretary may exercise the powers and
discretions of the Board under this Bye-Law and Bye-Laws 32 and 34.
34. If the Board declines to register a transfer it shall, within three
months after the date on which the instrument of transfer was lodged, send to
the transferee notice of such refusal.
35. No fee shall be charged by the Company for registering any transfer,
probate, letters of administration, certificate of death or marriage, power of
attorney, distringas or stop notice, order of court or other instrument relating
to or affecting the title to any share, or otherwise making an entry in the
Register relating to any share.
TRANSMISSION OF SHARES
36. In the case of the death of a Shareholder, the survivor or survivors,
where the deceased was a joint holder, and the
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<PAGE> 19
estate representative, where he was sole holder, shall be the only person
recognized by the Company as having any title to his shares; but nothing herein
contained shall release the estate of a deceased holder (whether the sole or
joint) from any liability in respect of any share held by him solely or jointly
with other persons. For the purpose of this Bye-Law, estate representative means
the person to whom probate or letters of administration has or have been granted
in Bermuda or, failing any such person, such other person as the Board may in
its absolute discretion determine to be the person recognized by the Company for
the purpose of this Bye-Law.
37. Any person becoming entitled to a share in consequence of the death of
a Shareholder or otherwise by operation of applicable law may, subject as
hereafter provided and upon such evidence being produced as may from time to
time be required by the Board as to his entitlement, either be registered
himself as the holder of the share or elect to have some person nominated by him
registered as the transferee thereof. If the person so becoming entitled elects
to be registered himself, he shall deliver or send to the Company a notice in
writing signed by him stating that he so elects. If he shall elect to have his
nominee registered, he shall signify his election by signing an instrument of
transfer of such share in favor of his nominee. All the limitations,
restrictions and provisions of these Bye-Laws relating to the right to transfer
and the registration of transfer of shares shall be applicable to any such
notice or instrument of transfer as aforesaid as if the death of the
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<PAGE> 20
Shareholder or other event giving rise to the transmission had not occurred and
the notice or instrument of transfer was an instrument of transfer signed by
such Shareholder.
38. A person becoming entitled to a share in consequence of the death of a
Shareholder or otherwise by operation of applicable law shall (upon such
evidence being produced as may from time to time be required by the Board as to
his entitlement) be entitled to receive and may give a discharge for any
dividends or other moneys payable in respect of the share, but he shall not be
entitled in respect of the share to receive notices of or to attend or vote at
general meetings of the Company or, save as aforesaid, to exercise in respect of
the share any of the rights or privileges of a Shareholder until he shall have
become registered as the holder thereof. The Board may at any time give notice
requiring such person to elect either to be registered himself or to transfer
the share and if the notice is not complied with within sixty days the Board may
thereafter withhold payment of all dividends and other moneys payable in respect
of the shares until the requirements of the notice have been complied with.
39. Subject to any directions of the Board from time to time in force, the
Secretary may exercise the powers and discretions of the Board under Bye-Laws
36, 37 and 38.
INCREASE OF CAPITAL
40. The Company may from time to time increase its capital by such sum to
be divided into shares of such par value as the Company by Resolution shall
prescribe.
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<PAGE> 21
41. The Company may, by the Resolution increasing the capital, direct that
the new shares or any of them shall be offered in the first instance either at
par or at a premium or (subject to the provisions of the Companies Acts) at a
discount to all the holders for the time being of shares of any class or classes
in proportion to the number of such shares held by them respectively or make any
other provision as to the issue of the new shares.
42. The new shares shall be subject to all the provisions of these Bye-Laws
with reference to lien, the payment of calls, forfeiture, transfer, transmission
and otherwise.
ALTERATION OF CAPITAL
43. The Company may from time to time by Resolution:
(a) divide its shares into several classes and attach thereto
respectively any preferential, deferred, qualified or special rights, privileges
or conditions;
(b) consolidate and divide all or any of its share capital into shares
of larger par value than its existing shares;
(c) sub-divide its shares or any of them into shares of smaller par
value than is fixed by its memorandum, so, however, that in the sub-division the
proportion between the amount paid and the amount, if any, unpaid on each
reduced share shall be the same as it was in the case of the share from which
the reduced share is derived;
(d) make provision for the issue and allotment of shares which do not
carry any voting rights;
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<PAGE> 22
(e) cancel shares which, at the date of the passing of the Resolution
in that behalf, have not been taken or agreed to be taken by any person, and
diminish the amount of its share capital by the amount of the shares so
canceled; and
(f) change the denomination of its share capital. Where any difficulty
arises in regard to any division, consolidation, or sub-division under this
Bye-Law, the Board may settle the same as it thinks expedient and, in
particular, may arrange for the sale of the shares representing fractions and
the distribution of the net proceeds of sale in due proportion amongst the
Shareholders who would have been entitled to the fractions, and for this purpose
the Board may authorize some person to transfer the shares representing
fractions to the purchaser thereof, who shall not be bound to see to the
application of the purchase money nor shall his title to the shares be affected
by any irregularity or invalidity in the proceedings relating to the sale.
44. Subject to the Companies Acts and to any confirmation or consent
required by law or these Bye-Laws, the Company may by Resolution from time to
time convert any preference shares into redeemable preference shares.
REDUCTION OF CAPITAL
45. Subject to the Companies Acts, its memorandum and any confirmation or
consent required by law or these Bye-Laws, the Company may from time to time by
Resolution authorize the reduction of its issued share capital or any capital
redemption
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<PAGE> 23
reserve fund or any share premium or contributed surplus account in any manner.
46. In relation to any such reduction, the Company may by Resolution
determine the terms upon which such reduction is to be effected including in the
case of a reduction of part only of a class of shares, those shares to be
affected.
GENERAL MEETINGS
47. (a) The Board shall convene and the Company shall hold general meetings
as Annual General Meetings in accordance with the requirements of the Companies
Acts at such times and places as the Board shall appoint. The Board may,
whenever it thinks fit, and shall, at the written request of shareholders
holding not less than 10% of the paid-up capital of the Company carrying the
right to vote at such proposed meeting, convene general meetings other than
Annual General Meetings which shall be called Special General Meetings. With
respect to Special General Meetings, any written request by a Shareholder under
the Act shall not be valid unless it states the purpose of the proposed meeting
and is delivered to the Chairman of the Board at the registered office of the
Company no less than six weeks nor more than ten weeks prior to the date
proposed for such meeting or the latest date at which such meeting must be held
at the request of such shareholders pursuant to the provisions of the Companies
Act and shall otherwise comply with the provisions of U.S. securities laws. Any
Shareholder's notice relating to the conduct of business other than the election
of Directors must contain certain information about such business and about the
proposing
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<PAGE> 24
Shareholders including, without limitation, a brief description of the business
such Shareholder proposed to bring before the meeting, the reasons for
conducting such business at such meeting, the name and address of such
shareholder, the class and number of shares of the Company beneficially owned by
the such Shareholder, and any material interest of such Shareholder in the
business so proposed. If the Chairman of the Board or other officer presiding at
such meeting determines that any business brought before a meeting was not
brought in accordance with the provisions set forth above, such business will
not be conducted at the meeting.
(b) Until such time as the appointment by the Company of a resident
representative under section 130 (2) of the Companies Act becomes effective, the
Company may act by resolution in writing signed by all the shareholders who at
the date of such resolution would be entitled to attend a shareholder meeting.
Thereafter, the taking of shareholder action by way of written resolution shall
be expressly prohibited.
NOTICE OF GENERAL MEETINGS
48. An Annual General Meeting shall be called by not less than 20 days'
notice in writing and a Special General Meeting shall be called by not less than
30 days' notice in writing. The notice shall be exclusive of the day on which it
is served or deemed to be served and of the day for which it is given, and shall
specify the place, day and time of the meeting, and, in the case of a Special
General Meeting, the general nature of the business to be considered. Notice of
every general meeting shall
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be given in any manner permitted by Bye-Laws 124, 125 and 126 to all
Shareholders other than those which, under the provisions of these Bye-Laws or
the terms of issue of the shares they hold, are not entitled to receive such
notice from the Company. Notwithstanding that a meeting of the Company is called
by shorter notice than that specified in this Bye-Law, it shall be deemed to
have been duly called if it is so agreed:
(i) in the case of a meeting called as an Annual General Meeting, by all the
shareholders entitled to attend and vote thereat;
(ii) in the case of any other meeting, by a majority in number of the
Shareholders having the right to attend and vote at the meeting, being a
majority together holding not less than 95% in nominal value of the shares
giving that right.
49. The accidental omission to give notice of a meeting or (in cases where
instruments of proxy are sent out with the notice) the accidental omission to
send such instrument of proxy to, or the non-receipt of notice of a meeting or
such instrument of proxy by, any person entitled to receive such notice shall
not invalidate the proceedings at that meeting.
PROCEEDINGS AT GENERAL MEETINGS
50. (a) No business shall be transacted at any Annual General Meeting of
the Shareholders unless such business has been brought before the meeting by, or
at the direction of the Chairman of the Board or by Shareholders who have given
written notice of their intent to bring such business before the meeting not
less than 6 weeks nor more than 10 weeks prior to the first
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anniversary of the previous year's Annual General Meeting. No business shall be
transacted at any special general meeting of the Shareholders unless such
business has been stated in the notice of such meeting sent to the Shareholders
prior to the meeting.
(b) No business shall be transacted at any general meeting unless a
quorum is present when the meeting proceeds to business, but the absence of a
quorum shall not preclude the appointment, choice or election of a chairman
which shall not be treated as part of the business of the meeting. Save as
otherwise provided by these Bye-Laws, Shareholders together representing in
person or by proxy and entitled to vote more than 50% of the voting capital of
the Company shall be a quorum for all purposes; provided, however, that if the
Company shall have only one Shareholder, one Shareholder present in person or by
proxy shall constitute the necessary quorum.
51. If within five minutes (or such longer time as the chairman of the
meeting may determine to wait) after the time appointed for the meeting, a
quorum is not present, the meeting, if convened on the requisition of
Shareholders, shall be dissolved. In any other case, it shall stand adjourned to
such other day and such other time and place as the chairman of the meeting may
determine, without notice other than announcement at the meeting, until a quorum
shall be present. At such adjourned meeting at which a quorum shall be present,
any business may be transacted which might have been transacted at the meeting
as originally called.
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52. Except as otherwise provided in these Bye-Laws and subject to the
provisions of the Companies Act, any question proposed for the consideration by
the Shareholders shall be decided on by a simple majority of the votes cast by
Shareholders entitled to vote at such meeting.
53. (a) Notwithstanding the provisions of these Bye-laws, the affirmative
vote of Shareholders holding at least 80% of the shares of the Company carrying
voting rights then outstanding shall be necessary to approve any Business
Combination proposed by an Interested Shareholder, as these terms are defined
below, provided that such additional voting requirement shall not apply if: (i)
the Business Combination was approved by not less than a majority of the
Continuing Directors (as defined below) or (ii) a series of conditions are
satisfied requiring (1) that the consideration to be paid to the Company's
Shareholders in the Business Combination must be at least equal to the higher of
(x) the highest per-share price paid by the Interested Shareholder in acquiring
any Common Shares during the two years prior to the announcement date of the
Business Combination or in the transaction in which it became an Interested
Shareholder (the "Determination Date"), whichever is higher or (y) the fair
market value per Common Shares on the announcement date or Determination Date,
whichever is higher, in either case appropriately adjusted for any shares
dividend, stock split, combination of shares or similar event (any non-cash
consideration is treated similarly) and (2) certain "procedural" requirements
are complied with, such as the solicitation of proxies pursuant to the rules of
the
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Securities and Exchange Commission and no decrease in regular dividends (if any)
after the Interested Shareholder became an Interested Shareholder (except as
approved by a majority of the Continuing Directors).
(b) An "Interested Shareholder" is defined as anyone who is the
beneficial owner of more than 15% shares carrying voting rights, other than the
Company and any employee stock plans sponsored by the Company, and includes any
person who is an assignee of, or has succeeded to any voting shares in a
transaction not involving a public offering that were at any time within the
prior two-year period beneficially owned by, an Interested Shareholder. The term
"beneficial owner" includes persons directly and indirectly owning or having the
right to acquire or vote the shares. Interested Shareholders participate fully
in all shareholder voting.
(c) A "Business Combination" includes the following transactions: (i)
merger or consolidation of the Company or subsidiary with an Interested
Shareholder or with any other corporation or entity which is, or after such
merger or consolidation would be, an affiliate of an Interested Shareholder;
(ii) the sale or other disposition by the Company or subsidiary of assets having
a fair market value of $5,000,000 or more if an Interested Shareholder (or an
affiliate thereof) is a party to the transaction; (iii) the adoption of any plan
or proposal for the liquidation or dissolution of the Company proposed by or on
behalf of an Interested Shareholder (or an affiliate thereof); or (iv) any
reclassification of securities,
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recapitalization, merger with a subsidiary, or other transaction which has the
effect, directly or indirectly, of increasing the proportionate share of any
class of the outstanding shares (or securities convertible into shares) of the
Company or a subsidiary owned by an Interested Shareholder (or an affiliate
thereof). Determinations of the fair market value of any non-cash consideration
are made by a majority of the Continuing Directors.
(d) As used in these Bye-Laws, the term "Continuing Directors", means
any member of the Board of Directors of the Company, while such person is a
member of the Board, who is not an affiliate or associate or representative of
the Interested Shareholder and was a member of the Board prior to the time that
the Interested Shareholder became an Interested Shareholder, and any successor
of a Continuing Director while such successor is a member of the Board, who is
not an affiliate or associate or representative of the Interested Shareholder
and is recommended or elected to succeed the Continuing Director by a majority
of Shareholder Continuing Directors.
54. A meeting of the Shareholders or any class thereof may be held by means
of such telephone, electronic or other communication facilities as permit all
persons participating in the meeting to communicate with each other
simultaneously and instantaneously and participation in such a meeting shall
constitute presence in person at such meeting.
55. Each Director shall be entitled to attend and speak at any general
meeting of the Company.
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56. The Chairman (if any) of the Board or, in his absence, the President
shall preside as chairman at every general meeting. If there is no such Chairman
or President, or if at any meeting neither the Chairman nor the President is
present within five minutes after the time appointed for holding the meeting, or
if neither of them is willing to act as chairman, the Directors present shall
choose one of their number to act or if one Director only is present he shall
preside as chairman if willing to act. If no Director is present or if each of
the Directors present declines to take the chair, the persons present and
entitled to vote on a poll shall elect one of their number to be chairman.
57. The chairman of the meeting may, with the consent of any meeting at
which a quorum is present (and shall if so directed by the meeting), adjourn the
meeting from time to time and from place to place but no business shall be
transacted at any adjourned meeting except business which might lawfully have
been transacted at the meeting from which the adjournment took place. When a
meeting is adjourned for three months or more, notice of the adjourned meeting
shall be given as in the case of an original meeting.
58. Save as expressly provided by these Bye-Laws, it shall not be necessary
to give any notice of an adjournment or of the business to be transacted at an
adjourned meeting.
VOTING
59. Save where a greater majority is required by the Companies Acts or
these Bye-Laws, any question proposed for
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consideration at any general meeting shall be decided as set forth in Bye-Law 52
above.
60. At any general meeting, a Resolution put to the vote of the meeting
shall be decided on a poll in accordance with the provisions of the Companies
Act.
61. Each Shareholder present in person or by proxy shall have one vote for
each share held. The result of the poll shall be deemed to be the Resolution of
the meeting at which the poll demanded.
62. Votes may be cast either personally or by proxy.
63. A person entitled to more than one vote need not use all his votes or
cast all the votes he uses in the same way.
64. In the case of an equality of votes at a general meeting, the chairman
of such meeting shall not be entitled to a second or casting vote.
65. In the case of joint holders of a share, the vote of the senior who
tenders a vote, whether in person or by proxy, shall be accepted to the
exclusion of the votes of the other joint holders, and for this purpose
seniority shall be determined by the order in which the names stand in the
Register in respect of the joint holdings.
66. A Shareholder who is a patient for any purpose of any statute or
applicable law relating to mental health or in respect of whom an order has been
made by any Court having jurisdiction for the protection or management of the
affairs of persons incapable of managing their own affairs may vote, whether on
a show of hands or on a poll, by his receiver, committee, curator bonis or other
person in the nature of a receiver, committee or curator
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bonis appointed by such Court and such receiver, committee, curator bonis or
other person may vote on a poll by proxy, and may otherwise act and be treated
as such Shareholder for the purpose of general meetings.
67. No Shareholder shall, unless the Board otherwise determines, be
entitled to vote at any general meeting unless all calls or other sums presently
payable by him in respect of shares in the Company have been paid.
68. If (i) any objection shall be raised to the qualification of any voter
or (ii) any votes have been counted which ought not to have been counted or
which might have been rejected or (iii) any votes are not counted which ought to
have been counted, the objection or error shall not vitiate the decision of the
meeting or adjourned meeting on any Resolution unless the same is raised or
pointed out at the meeting or, as the case may be, the adjourned meeting at
which the vote objected to is given or tendered or at which the error occurs.
Any objection or error shall be referred to the chairman of the meeting and
shall only vitiate the decision of the meeting on any Resolution if the chairman
decides that the same may have affected the decision of the meeting. The
decision of the chairman on such matters shall be final and conclusive.
PROXIES AND CORPORATE REPRESENTATIVES
69. The instrument appointing a proxy shall be in writing under the hand of
the appointor or of his attorney authorized by him in writing or, if the
appointor is a corporation, either
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under its seal or under the hand of an officer, attorney or other person
authorized to sign the same.
70. Any Shareholder may appoint a standing proxy or (if a corporation)
representative by depositing at the Registered Office a proxy or (if a
corporation) an authorization and such proxy or authorization shall be valid for
all general meetings and adjournments thereof as the case may be, until notice
of revocation is received at the Registered Office. Where a standing proxy or
authorization exists, its operation shall be deemed to have been suspended at
any general meeting or adjournment thereof at which the Shareholder is present
or in respect to which the Shareholder has specially appointed a proxy or
representative. The Board may from time to time require such evidence as it
shall be necessary as to the due execution and continuing validity of any such
standing proxy or authorization and the operation of any such standing proxy or
authorization shall be deemed to be suspended until such time as the Board
determines that it has received the requested evidence or other evidence
satisfactory to it.
71. Subject to Bye-Law 70, the instrument appointing a proxy together with
such other evidence as to its due execution as the Board may from time to time
require, shall be delivered at the Registered Office (or at such place as may be
specified in the notice convening the meeting or in any notice of any
adjournment or, in either case, in any document sent therewith) prior to the
holding of the relevant meeting or adjourned meeting at which the person named
in the instrument proposes to vote or,
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in the case of a poll taken subsequently to the date of a meeting or adjourned
meeting, before the time appointed for the taking of the poll and in default the
instrument of proxy shall not be treated as valid.
72. Instruments of proxy shall be in any common form or in such other form
as the Board may approve and the Board may, if it thinks fit, send out with the
notice of any meeting forms of instruments of proxy for use at that meeting. The
instrument of proxy shall be deemed to confer authority to demand or join in
demanding a poll and to vote on any amendment of a Resolution put to the meeting
for which it is given as the proxy think fit. The instrument of proxy shall
unless the contrary is stated therein be valid as well for any adjournment of
the meeting as for the meeting to which it relates.
73. A vote given in accordance with the term of an instrument of proxy
shall be valid notwithstanding the previous death or insanity of the principal,
or revocation of the instrument of proxy or of the authority under which it was
executed, provided that no instrument in writing of such death, insanity or
revocation shall have been received by the Company at the Registered Office (or
such other place as may be specified for the delivery of instruments of proxy in
the notice convening the meeting or other documents sent therewith) one hour at
least before the commencement of the meeting or adjourned meeting, or the taking
of the poll.
74. Subject to the Companies Acts, the Board may at its discretion waive
any of the provisions of these Bye-Laws related
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to proxies or authorizations and, in particular, may accept such verbal or other
assurances as it thinks fit as to the right of any person to attend and vote on
behalf of any Shareholder at general meetings.
APPOINTMENT AND REMOVAL OF DIRECTORS
75. The number of Directors shall be such number not less than two nor more
than 15 as the Company by Resolution may from time to time determine and shall
serve unless removed until their successors are appointed in accordance with the
provisions of these Bye-Laws.
76. Nominations of persons for election to the Board at an Annual General
Meeting may be made by the Board and any number of Shareholders holding at least
5% of the total voting rights of all Shareholders or no less than 100
Shareholders who have given written notice to the Secretary of the Company not
less than 6 weeks nor more than 10 weeks prior to the anniversary of the
previous year's Annual General Meeting, provided that no person other than a
Director whose term shall have expired at an Annual General Meeting shall be
eligible for election by the Shareholders unless the person has been recommended
by the Directors in the notice of Annual General Meeting sent to the
Shareholders.
77. Any Shareholder's notice to the Company proposing to nominate a person
for election as a Director must contain the identity and address of the
nominating shareholder, the class and number of shares of the Company which are
owned by such Shareholder and all information regarding the proposed nominee
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that would be required to be included in a proxy statement soliciting proxies
for the proposed nominee and such other information as shall be necessary to
enable the Board to evaluate the proposed nomination. If the Chairman of the
Board or other officer presiding at a meeting determines that a person was not
nominated in accordance with the provisions set forth above, such person will
not be eligible for election as a Director.
78. The Directors shall be divided into three classes, as nearly equal to
in number as possible. One class of Directors shall be elected for term expiring
at the Annual General Meeting of the Shareholders to be held in 1997, another
class shall be elected for a term expiring at the Annual General Meeting of the
shareholders to be held in 1998, and another class shall be elected for a term
expiring at the Annual General Meeting of the Shareholders to be held in 1999.
Members of each class shall hold office unless earlier removed until their
successors are elected or appointed. At each succeeding Annual General Meeting
the successors of the class of Directors whose term expires at the meeting shall
be elected by a majority vote of all votes cast at such meeting to hold office
for a term expiring at the Annual General Meeting of the Shareholders held in
the third year following the year of their election.
79. The Company shall at the Annual General Meeting and may by Resolution
determine the number of Directors and may by Resolution determine that one or
more vacancies in the Board shall be deemed casual vacancies for the purposes of
these Bye-Laws. Without prejudice to the power of the Company by
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Resolution in pursuance of any of the provisions of these Bye-Laws to appoint
any person to be a Director, any vacancy on the Board may be filled by the
Directors, so long as a quorum of Directors remains in office.
80. Directors may be removed by the vote of the Shareholders at a Special
General Meeting specifically called for that purpose and only for cause. A
Director may not be removed at a Special General Meeting unless notice of any
such meeting shall have been served upon the Director concerned not less than 14
days before the meeting and such Director has been given an opportunity to be
heard at that meeting. Any Resolution contemplating the removal of any Director
must be adopted by Shareholders holding not less than eighty percent (80%) of
the shares of the Company at the time in issue and outstanding and entitled to
vote generally in the election of Directors. Any vacancy created by the removal
of a Director at a Special General Meeting may be filled at such meeting by the
election of another Director in his or her place, or in the absence of such
election, by the Board.
RESIGNATION AND DISQUALIFICATION OF DIRECTORS
81. The office of a Director shall be vacated upon the happening of any of
the following events:
(a) if he resigns his office by notice in writing delivered to the
Registered Office or tendered at a meeting of the Board;
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(b) if he becomes of unsound mind or a patient for any purpose of any
statute or applicable law relating to mental health and the Board resolves that
his office is vacated;
(c) if he becomes bankrupt or compounds with his creditors;
(d) if he is prohibited by law from being a Director;
(e) if he ceases to be a Director by virtue of the Companies Acts or is
removed from office pursuant to these Bye-Laws.
ALTERNATE DIRECTORS
82. The Company may by Resolution elect any person or persons to act as
Directors in the alternative to any of the Directors or may authorize the Board
to appoint such Alternate Directors and a Director may appoint and remove his
own Alternate Director. Any appointment or removal of an Alternate Director by a
Director shall be effected by depositing a notice of appointment or removal with
the Secretary at the Registered Office, signed by such Director, and such
appointment or removal shall become effective on the date of receipt by the
Secretary. Any Alternate Director may be removed by Resolution of the Company
and, if appointed by the Board, may be removed by the Board. Subject as
aforesaid, the office of Alternate Director shall continue until the next annual
election of Directors or, if earlier, the date on which the relevant Director
ceases to be a Director. An Alternate Director may also be a Director in his own
right and may act as alternate to more than one Director.
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83. An Alternate Director shall be entitled to receive notices of all
meetings of Directors, to attend, be counted in the quorum and vote at any such
meeting at which any Director to whom he is alternate is not personally present,
and generally to perform all the functions of any Director to whom he is
alternate in his absence.
84. Every person acting as an Alternate Director shall (except as regards
powers to appoint an alternate and remuneration) be subject in all respects to
the provisions of these Bye-Laws relating to Directors and shall alone be
responsible to the Company for his acts and defaults and shall not be deemed to
be the agent of or for any Director for whom he is alternate. An Alternate
Director may be paid expenses and shall be entitled to be indemnified by the
Company to the same extent mutatis mutandis as if he were a Director. Every
person acting as an Alternate Director shall have one vote for each Director for
whom he acts as alternate (in addition to his own vote if he is also a
Director). The signature of an Alternate Director to any resolution in writing
of the Board or a committee of the Board shall, unless the terms of his
appointment provides to the contrary, be as effective as the signature of the
Director or Directors to whom he is alternate.
DIRECTORS' FEES AND ADDITIONAL REMUNERATION AND EXPENSES
85. The amount, if any, of Directors' fees shall from time to time be
determined by the Board and in the absence of a determination to the contrary,
such fees shall be deemed to accrue from day to day. Each Director may be paid
his reasonable
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traveling, hotel and incidental expenses in attending and returning from
meetings of the Board or committees constituted pursuant to these Bye-Laws or
general meetings and shall be paid all expenses properly and reasonably incurred
by him in the conduct of the Company's business or in the discharge of his
duties as a Director. Any Director who, by request, goes or resides abroad for
any purposes of the Company or who performs services which in the opinion of the
Board go beyond the ordinary duties of a Director may be paid such extra
remuneration (whether by way of salary, commission, participation in profits or
otherwise) as the Board may determine, and such extra remuneration shall be in
addition to any remuneration provided for by or pursuant to any other Bye-Law.
DIRECTORS' INTERESTS
86. (a) A Director may hold any other office or place of profit with the
Company (except that of auditor) in conjunction with his office of Director for
such period and upon such terms as the Board may determine, and may be paid such
extra remuneration therefor (whether by way of salary, commission, participation
in profits or otherwise) as the Board may determine, and such extra remuneration
shall be in addition to any remuneration provided for by or pursuant to any
other Bye-Law.
(b) A Director 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.
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(c) Subject to the provisions of the Companies Acts, a Director may
notwithstanding his office be a party to, or otherwise interested in, any
transaction or arrangement with the Company or in which the Company is otherwise
interested; and 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 interested. The
Board may also cause the voting power conferred by the shares in any other
Company held or owned by the Company to be exercised in such manner in all
respects as it thinks fit, including the exercise thereof in favor of any
resolution appointing the Directors or any of them to be Directors or officers
of such other company, or voting or providing for the payment of remuneration to
the Directors or officers of such other company.
(d) So long as, where it is necessary, he declares the nature of his
interest at the first opportunity at a meeting of the Board or by writing to the
Directors as required by the Companies Acts, a Director shall not by reason of
his office be accountable to the Company for any benefit which he derives from
any office or employment to which these Bye-Laws allow him to be appointed or
from any transaction or arrangement in which these Bye-Laws allow him to be
interested, and no such transaction or arrangement shall be liable to be avoided
on the ground of any interest or benefit.
(e) Subject to the Companies Acts and any further disclosure required
thereby, a general notice to the Directors by
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a Director or officer declaring that he is a Director or officer or has an
interest in a person and is to be regarded as interested in any transaction or
arrangement made with that person, shall be a sufficient declaration of interest
in relation to any transaction or arrangement so made.
POWERS AND DUTIES OF THE BOARD
87. Subject to the provisions of the Companies Acts and these Bye-Laws, the
Board shall manage the business of the Company and may pay all expenses incurred
in promoting and incorporating the Company and may exercise all the powers of
the Company. No alteration of these Bye-Laws shall invalidate any prior act of
the Board which would have been valid if that alteration had not been made. The
powers given by this Bye-Laws shall not be limited by any special power given to
the Board by these Bye-Laws and a meeting of the Board at which a quorum is
present shall be competent to exercise all the powers, authorities and
discretions for the time being vested in or exercisable by the Board.
88. The Board may exercise all the powers of the Company to borrow money
and to mortgage or charge all or any part of the undertaking, property and
assets (present and future) and uncalled capital of the Company and to issue
debentures and other securities, whether outright or as collateral security for
any debt, liability or obligation of the Company or of any other persons.
89. All checks, promissory notes, drafts, bills of exchange and other
instruments, whether negotiable or transferable or not,
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and all receipts for money paid to the Company shall be signed, drawn, accepted,
endorsed or otherwise executed, as the case may be, in such manner as the Board
shall from time to time by resolution determine.
90. The Board on behalf of the Company may provide benefits, whether by the
payment of gratuities or pensions or otherwise, for any person including any
Director or former Director who has held any executive office or employment with
the Company or with any body corporate which is or has been a subsidiary or
affiliate of the Company or a predecessor in the business of the Company or of
any such subsidiary or affiliate, and to any member of his family or any person
who is or was dependent on him, and may contribute to any fund and pay premiums
for the purchase or provision of any such gratuity, pension or other benefit, or
for the insurance of any such person.
91. The Board may from time to time appoint one or more of its body to hold
an executive office with the Company for such period and upon such terms as the
Board may determine and may revoke or terminate any such appointments. Any such
revocation or termination as aforesaid shall be without prejudice to any claim
for damages that such Director may have against the Company or the Company may
have against such Director for any breach of any contract of service between him
and the Company which may be involved in such revocation or termination. Any
person so appointed shall receive such remuneration (if any) (whether by way of
salary, commission, participation in profits or otherwise)
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as the Board or any committee thereof may determine, and either in addition to
or in lieu of his remuneration as a Director.
DELEGATION OF THE BOARD'S POWERS
92. The Board may by power of attorney appoint any company, firm or person
or any fluctuating body of persons, whether nominated directly or indirectly by
the Board, to be the attorney or attorneys of the Company for such purposes and
with such powers, authorities and discretions (not exceeding those vested in or
exercisable by the Board under these Bye-Laws) and for such period and subject
to such conditions as it may think fit, and any such power of attorney may
contain such provisions for the protection and convenience of persons dealing
with any such attorney and of such attorney as the Board may think fit, and may
also authorize any such attorney to sub-delegate all or any of the powers,
authorities and discretions vested in him.
93. The Board may entrust to and confer upon any Director or officer any of
the powers exercisable by it upon such terms and conditions with such
restrictions as it thinks fit, and either collaterally with, or to the exclusion
of, its own powers, and may from time to time revoke or vary all or any of such
powers but no person dealing in good faith and without notice of such revocation
or variation shall be affected thereby.
94. The Board may delegate any of its powers, authorities and discretions
to committees, consisting of such person or persons (whether a member or members
of its body or not) as it thinks fit. Any committee so formed shall, in the
exercise of
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the powers, authorities and discretions so delegated, conform to any regulations
which may be imposed upon it by the Board.
PROCEEDINGS OF THE BOARD
95. The Board may meet for the dispatch of business, adjourn and otherwise
regulate its meetings as it thinks fit. Questions arising at any meeting shall
be determined by a majority of the votes cast. In the case of an equality of
votes the motions shall be deemed to have been lost. A Director may, and the
Secretary on the requisition of a Director shall, at any time summon a meeting
of the board.
96. Notice of a meeting of the board shall be deemed to be duly given to a
Director if it is given to him personally or by word of mouth or sent to him by
post, cable, telex, telecopier or other mode of representing or reproducing
words in a legible and non-transitory form at his last known address or any
other address given by him to the Company for this purpose. A Director may waive
notice of any meeting either prospectively or retroactively or at such meeting
to which the notice would have applied.
97. (a) The quorum necessary for the transaction of business at any meeting
of the Board shall be two individuals until such time as the appointment by the
Company of a resident representative under section 130(2) of the Companies Acts
becomes effective. Thereafter, the quorum shall be a majority of the Board. Any
Director who ceases to be a Director at a meeting of the Board may continue to
be present and to act as a Director and be counted in the quorum until the
termination of the meeting if
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no other Director objects and if otherwise a quorum of Directors would not be
present.
(b) A Director who to his knowledge is in any way, whether directly or
indirectly, interested in a contract or proposed contact, transaction or
arrangement with the Company and has complied with the provisions of the
Companies Acts and these Bye-Laws with regard to disclosure of his interest
shall be entitled to vote in respect of any contract, transaction or arrangement
in which he is so interested and if he shall do so his vote shall be counted,
and he shall be taken into account in ascertaining whether a quorum is present.
98. So long as a quorum of Directors remains in office, the continuing
Directors may act notwithstanding any vacancy in the Board but, if no such
quorum remains, the continuing Directors or a sole continuing Director may act
only for the purpose of calling a general meeting.
99. The Chairman (if any) of the Board or, in his absence, the President
shall preside as chairman at every meeting of the Board. If there is no such
Chairman or President, or if at any meeting the Chairman or the President is not
present within five minutes after the time appointed for holding the meeting, or
is not willing to act as chairman, the Directors present may choose one of their
number to be chairman of the meeting.
100. The meetings and proceedings of any committee consisting of two or
more members shall be governed by the provisions contained in these Bye-Laws for
regulating the meetings and proceedings of the Board so far as the same are
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applicable and are not superseded by any regulations imposed by the Board.
101. A resolution in writing signed by all the Directors for the time being
entitled to receive notice of a meeting of the Board or by all the members of a
committee for the time being shall be as valid and effectual as a resolution
passed at a meeting of the Board or, as the case may be, of such committee duly
called and constituted. Such resolution may be contained in one document or in
several documents in the like form each signed by one or more of the Directors
or members of the committee concerned.
102. A meeting of the Board or a committee appointed by the Board may be
held by means of such telephone, electronic or other communication facilities as
permit all persons participating in the meeting to communicate with each other
simultaneously and instantaneously and participation in such a meeting shall
constitute presence in person at such meeting.
103. All acts done by the Board or by any committee or by any person acting
as a Director or member of a committee or any person duly authorized by the
Board or any committee, shall, notwithstanding that it is afterwards discovered
that there was some defect in the appointment of any member of the Board or such
committee or person acting as aforesaid or that they or any of them were
disqualified or had vacated their office, be as valid as if every such person
had been duly appointed and was qualified and had continued to be a Director,
member of such committee or person so authorized.
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OFFICERS
104. (a) The officers of the Company shall include a President and a
Vice-President or a Chairman of the Board of Directors and a Deputy Chairman who
shall be Directors and, subject to Bye-Law 104(c) below, who may be elected by
the Board as soon as possible after each Annual General Meeting. In addition,
the Board may appoint any person whether or not he is a Director to hold such
office as the Board may from time to time determine. Any person elected or
appointed pursuant to this Bye-Law shall hold office for such period and upon
such terms as the Board may determine and the Board may revoke or terminate any
such election or appointment with or without cause, at any time by the
affirmative vote of a majority of the Directors then in office. If the office of
any officer becomes vacant for any reason, the vacancy may be filled by the
Board. Any such revocation or termination shall be without prejudice to any
claim for damages that such officer may have against the Company or the Company
may have against such officer for any breach of any contract of service between
him and the Company which may be involved in such revocation or termination.
Save as provided in the Companies Acts or these Bye-Laws, the powers and duties
of the officers of the Company shall be such (if any) as are determined from
time to time by the Board.
(b) Any officer may resign at any time. Such resignation shall be made
in writing and shall take effect at the time specified therein and, if no time
be specified at the time of its receipt by the president, vice-president or
secretary, the
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acceptance of which resignation shall not be necessary to make it effective.
(c) Until such time as the appointment by the Company of a resident
representative under section 130 (2) of the Companies Act becomes effective, the
Shareholder of the Company may appoint the officers of the Company upon such
terms and conditions as the Shareholder may determine.
(d) The salaries of the Chairman of the Board, the Chairman of the
Executive Committee, if any, the President, any Vice-President, the Secretary
and the Treasurer shall be fixed by the Board. The salaries of all other
officers and agents of the Company shall be fixed by the Board or by such
officer or officers as the Board may designate.
MINUTES
105. The Directors shall cause minutes to be made and books kept for the
purpose of recording:
(a) all appointments of officers made by the Directors;
(b) the names of the Directors and other persons (if any) present at
each meeting of Directors and of any committee;
(c) of all proceedings at meetings of the Company, of the holders of
any class of shares in the Company, and of committees;
(d) of all proceedings of managers (if any).
SECRETARY
106. The Secretary shall be appointed by the Board at such remuneration (if
any) and upon such terms as it may think fit and
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any Secretary so appointed may be removed by the Board. The duties of the
Secretary shall be those prescribed by the Companies Acts together with such
other duties as shall from time to time be prescribed by the Board.
107. A provision of the Companies Acts or these Bye-Laws requiring or
authorizing a thing to be done by or to a Director and the Secretary shall not
be satisfied by its being done by or to the same person acting both as Director
and as, or in the place of, the Secretary.
THE SEAL
108. (a) The Seal shall consist of a circular metal device with the name of
the Company around the outer margin thereof and the country and year of
incorporation across the center thereof. Should the Seal not have been received
at the Registered Office in such form at the date of adoption of this Bye-Law
then, pending such receipt any document requiring to be scaled with the Seal
shall be sealed by affixing a red wafer seal to the document with the name of
the Company, and the country and year of incorporation type written across the
center thereof.
(b) The Board shall provide for the custody of every Seal. A Seal
shall only be used by authority of the Board or of a committee constituted by
the Board. Subject to Companies Acts, any instrument to which a Seal is affixed
may be signed by a Director or an Officer of the Company, or by any person who
has been authorized by the Board either generally or specifically to attest to
the use of a Seal.
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DIVIDENDS AND OTHER PAYMENTS
109. The Board may from time to time declare cash dividends or
distributions out of contributed surplus to be paid to the Shareholders
according to their rights and interests including such interim dividends as
appear to the Board to be justified by the position of the Company. The Board
may also pay any fixed cash dividend which is payable on any shares of the
Company half yearly or on such other dates, whenever the position of the
Company, in the opinion of the Board, justifies such payment.
110. Except insofar as the rights attaching to, or the terms of issue of,
any share otherwise provide:
(a) all dividends or distributions out of contributed surplus may be
declared and paid according to the amounts paid-up on the shares in respect of
which the dividend or distribution is paid, and an amount paid-up on a share in
advance of calls may be treated for the purpose of this Bye-Law as paid-up on
the share;
(b) dividends or distributions out of contributed surplus may be
apportioned and paid pro rata according to the amounts paid-up on the shares
during any portion or portions of the period in respect of which the dividend or
distribution is paid.
111. The Board may deduct from any dividend, distribution or other moneys
payable to a Shareholder by the Company on or in respect of any shares all sums
of money (if any) presently payable by him to the Company on account of calls or
otherwise in respect of shares of the Company.
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112. No dividend, distribution or other moneys payable by the Company on or
in respect of any Common Share shall bear interest against the Company.
113. Any dividend, distribution, interest or other sum payable in cash to
the holder of shares may be paid by check, warrant or other means approved by
the Board, in the case of a check or warrant sent through the post addressed to
the holder at his address in the Register or, in the case of joint holders,
addressed to the holder whose name stands first in the Register in respect of
the shares at his registered address as appearing in the Register or addressed
to such person at such address as the holder or joint holders may in writing
direct. Every such check or warrant shall, unless the holder or joint holders
otherwise direct, be made payable to the order of the holder or, in the case of
joint holders, to the order of the holder whose name stands first in the
Register in respect of such shares, and shall be sent at his or their risk and
payment of the check or warrant by the bank on which it is drawn shall
constitute a good discharge to the Company. Any one of two or more joint holders
may give effectual receipts for any dividends, distributions or other moneys
payable or property distributable in respect of the shares held by such joint
holders.
114. Any dividend or distribution out of contributed surplus unclaimed for
a period of six years from the date of declaration of such dividend or
distribution shall be forfeited and shall revert to the Company and the payment
by the Board of any unclaimed dividend, distribution, interest or other sum
payable
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on or in respect of the share into a separate account shall not constitute the
Company a trustee in respect thereof.
115. The Board may direct payment or satisfaction of any dividend or
distribution out of contributed surplus wholly or in part by the distribution of
specific assets, and in particular of paid-up shares or debentures of any other
company, and where any difficulty arises in regard to such distribution or
dividend the Board may settle it as it thinks expedient, and in particular, may
authorize any person to sell and transfer any fractions or may ignore fractions
altogether, and may fix the value for distribution or dividend purposes of any
such specific assets and may determine that cash payments shall be made to any
Shareholders upon the footing of the values so fixed in order to secure equality
of distribution and may vest any such specific assets in trustees as may seem
expedient to the Board.
RESERVES
116. The Board may, before recommending or declaring any dividend or
distribution out of contributed surplus, set aside such sums as it thinks proper
as reserves which shall, at the discretion of the Board, be applicable for any
purpose of the Company and pending such application may, also at such
discretion, either be employed in the business of the Company or be invested in
such investments as the Board may from time to time think fit. The Board may
also without placing the same to reserve carry forward any sums which it may
think it prudent not to distribute.
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CAPITALIZATION OF PROFITS
117. The Company may, upon the recommendation of the Board, at any time and
from time to time pass a Resolution to the effect that it is desirable to
capitalize all or any part of any amount for the time being standing to the
credit of any reserve or fund which is available for distribution or to the
credit of any share premium account or any capital redemption reserve fund and
accordingly that such amount be set free for distribution amongst the
Shareholders or any class of Shareholders who would be entitled thereto if
distributed by way of dividend and in the same proportions, on the footing that
the same be not paid in cash but be applied either in or towards paying up
amounts for the time being unpaid on any shares in the Company held by such
Shareholders respectively or in payment up in full of unissued shares,
debentures or other obligations of the Company, to be allotted, distributed and
credited as fully paid amongst such Shareholders, or partly in one way and
partly in the other, and the Board shall give effect to such Resolution,
provided that for the purpose of this Bye-Law, a share premium account and a
capital redemption reserve fund may be applied only in paying up of unissued
shares to be issued to such Shareholders credited as fully paid and provided
further that any sum standing to the credit of a share premium account may only
be applied in crediting as fully paid shares of the same class as that from
which the relevant share premium was derived.
118. Where any difficulty arises in regard to any distribution under the
last preceding Bye-Law, the Board may
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settle the same as it thinks expedient and, in particular, may authorize any
person to sell and transfer any fractions or may resolve that the distribution
should be as nearly as may be practicable in the correct proportion but not
exactly so or may ignore fractions altogether, and may determine that cash
payments should be made to any Shareholders in order to adjust the rights of all
parties, as may seem expedient to the Board. The Board may appoint any person to
sign on behalf of the persons entitled to participate in the distribution any
contract necessary or desirable for giving effect thereto and such appointment
shall be effective and binding upon the Shareholders.
RECORD DATES
119. Notwithstanding any other provisions of these Bye-Laws, the Company
may by Resolution or the Board may fix any date as the record date for any
dividend, distribution, allotment or issue and for the purpose of identifying
the persons entitled to receive notices of general meetings. Any such record
date may be on or at any time before or after any date on which such dividend,
distribution, allotment or issue is declared, paid or made or such notice is
dispatched.
ACCOUNTING RECORDS
120. The Board shall cause to be kept accounting records sufficient to give
a true and fair view of the state of the Company's affairs and to show and
explain its transactions, in accordance with the Companies Acts and the
provisions of United States securities laws.
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121. The records of account shall be kept at the Registered Office or at
such other place or places as the Board thinks fit, and shall at all times be
open to inspection by the Directors: PROVIDED that if the records of account are
kept at some place outside Bermuda, there shall be kept at an office of the
Company in Bermuda such records as will enable the Directors to ascertain with
reasonable accuracy the financial position of the Company at the end of each
three-month period. No Shareholder (other than an officer of the Company) shall
have any right to inspect any accounting record or book or document of the
Company except as conferred by law or authorized by the Board or by Resolution.
122. A copy of every balance sheet and statement of income and expenditure,
including every document required by law to be annexed thereto, which is to be
laid before the Company in general meeting, together with a copy of the
auditors' report, shall be sent to each person entitled thereto in accordance
with the requirements of the Companies Acts.
AUDIT
123. Save and to the extent that an audit is waived in the manner permitted
by the Companies Acts, auditors shall be appointed and their duties regulated in
accordance with the Companies Acts, any other applicable law and such
requirements not inconsistent with the Companies Acts as the Board may from time
to time determine.
SERVICE OF NOTICES AND OTHER DOCUMENTS
124. Any notice or other document (including a share certificate) may be
served on or delivered to any Shareholder by
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the Company either personally or by sending it through the post (by air mail
where applicable) in a pre-paid letter addressed to such Shareholder at his
address as appearing in the Register or by delivering it to or leaving it at
such registered address. In the case of joint holders of a share, service or
delivery of any notice or other document on or to one of the joint holders shall
for all purposes be deemed as sufficient service on or delivery to all the joint
holders. Any notice or other document if sent by post shall be deemed to have
been served or delivered seven days after it was put in the post, and in proving
such service or delivery, it shall be sufficient to prove that the notice or
document was properly addressed, stamped and put in the post.
125. Any notice of a general meeting of the Company shall be deemed to be
duly given to a Shareholder if it is sent to him by cable, telex, telecopier or
other mode of representing or reproducing words in a legible and non-transitory
form at his address as appearing in the Register or any other address given by
him to the Company for this purpose. Any such notice shall be deemed to have
been served twenty-four hours after its dispatch.
126. Any notice or other document delivered, sent or given to a Shareholder
in any manner permitted by these Bye-Laws shall, notwithstanding that such
Shareholder is then dead or bankrupt or that any other event has occurred, and
whether or not the Company has notice of the death or bankruptcy or other event,
be deemed to have been duly served or delivered in respect of any share
registered in the name of such Shareholder as sole or joint holder unless his
name shall, at the time of the service or
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delivery of the notice or document, have been removed from the Register as the
holder of the share, and such service or delivery shall for all purposes be
deemed as sufficient service or delivery of such notice or document on all
persons interested (whether jointly with or as claiming through or under him) in
the share.
WINDING UP
127. If the Company shall be wound up, the liquidator may, with the
sanction of a Resolution of the Company and any other sanction required by the
Companies Acts, divide amongst the Shareholders in specie or kind the whole or
any part of the assets of the Company (whether they shall consist of property of
the same kind or not) and may for such purposes set such values as he deems fair
upon any property to be divided as aforesaid and may determine how such division
shall be carried out as between the Shareholders or different classes of
Shareholders. The liquidator may, with the like sanction, vest the whole or any
part of such assets in trustees upon such trust for the benefit of the
contributories as the liquidator, with the like sanction, shall think fit, but
so that no Shareholder shall be compelled to accept any shares or other assets
upon which there is any liability.
INDEMNITY
128. (a) Subject to the proviso below, every Director, officer of the
Company and member of a committee constituted under Bye-Law 94 shall be
indemnified out of the funds of the Company against all civil liabilities, loss,
damage or expense
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(including but not limited to liabilities under contract, tort and statute or
any applicable foreign law or regulation and all reasonable legal and other
costs and expenses properly payable) incurred or suffered by him as such
Director, officer or committee member and the indemnity contained in this
Bye-Law shall extend to any person acting as a Director, officer or committee
member in the reasonable belief that he has been so appointed or elected
notwithstanding any defect in such appointment or election PROVIDED ALWAYS that
the indemnity contained in this Bye-Law shall not extend to any matter which
would render it void pursuant to the Companies Acts.
(b) The rights to indemnification, reimbursement or advancement of
expenses provided by, or granted pursuant to, this Bye-Law shall not be deemed
exclusive of any other rights to which a person seeking indemnification or
reimbursement or advancement of expenses may have or hereafter be entitled.
129. Every Director, officer and member of a committee duly constituted
under Bye-Law 94 of the Company shall be indemnified out of the funds of the
Company against all liabilities incurred by him as such Director, officer or
committee member in defending any proceedings, whether civil, criminal or
administrative, in which judgment is given in his favor, or in which he is
acquitted, or in connection with any application under the Companies Acts in
which relief from liability is granted to him by the court.
130. To the extent that any Director, officer or member of a committee duly
constituted under Bye-Law 94 is entitled to claim
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an indemnity pursuant to these Bye-laws in respect of amounts paid or discharged
by him, the relative indemnity shall take effect as an obligation of the Company
to reimburse the person making such payment or effecting such discharge.
ALTERATION OF BYE-LAWS
131. The Directors may from time to time revoke, alter, amend or add to
these Bye-laws provided that no such revocation, alteration, amendment or
addition with respect to Bye-laws 47(b), 53 and 75 to 81 (inclusive) and shall
be operative unless and until it is confirmed at subsequent general meeting of
the Company where the amendments have been approved by Shareholders holding not
less than 80% of the shares of the Company issued and outstanding and entitled
to vote generally; and all other Bye-Law amendments shall be approved by
Shareholders holding not less than a majority of the shares issued and
outstanding and entitled to vote.
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SCHEDULE I
SERIES A PREFERRED SHARES
1. Number and Designation. The Company shall have a class of Series A
Preferred Shares with such number of shares authorized as shall be set from time
to time by Resolution adopted at a general meeting of the Shareholders and as
set forth in the Bye-Laws of the Company.
2. Dividends and Distributions. (a) Subject to sections (2)(b) and (4)
below, the Company shall pay, and the holders of the Series A Preferred Shares
shall be entitled to receive, and to share equally and ratably, share for share
with the Common Shares, in such dividends and distributions on the Common Shares
or the Series A Preferred Shares as may be declared from time to time by the
Board of Directors, whether payable in cash, property or securities of the
Company. The record date for determining the holders of Series A Preferred
Shares entitled to receive dividends and distributions shall be the same as the
record date for determining the holders of Common Shares entitled to receive
dividends and distributions. Dividends and distributions shall be paid to the
holders of Series A Preferred Shares entitled to receive such dividends and
distributions at the close of business on the date on which such dividends and
distributions are paid or made by the Company in respect of the Common Shares.
(b) In the event that the Company declares and pays a dividend or makes
any distribution on its Common Shares in the form of (x) additional Common
Shares, (y) options, warrants or
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rights to acquire Common Shares or (z) other securities of the Company
convertible into or exchangeable for Common Shares, the holders of the Series A
Preferred Shares shall receive in lieu of such securities: (1) an equal number
of shares of additional Series A Preferred Shares, in the case of clause (x)
above; (2) options, warrants or rights to acquire an equal number of additional
Series A Preferred Shares on terms otherwise identical to such options, warrants
or rights distributed to the holders of Common Shares, in the case of clause (y)
above; and (3) securities convertible into or exchangeable for an equal number
of Series A Preferred Shares on terms otherwise identical to the convertible or
exchangeable securities distributed to the holders of Common Shares, in the case
of clause (z) above.
(c) All dividends or distributions paid with respect to the Series A
Preferred Shares shall be paid pro rata to the holders entitled thereto.
(d) Each fractional Series A Preferred Share outstanding shall be
entitled to a ratable proportionate amount of all dividends and other
distributions accruing, paid or made with respect to each outstanding Series A
Preferred Share and all such dividends and other distributions with respect to
such outstanding fractional shares shall be payable in the same manner and at
such times as provided for in sections (2)(a), (2)(b) and (4) hereof with
respect to dividends and other distributions on each outstanding Series A
Preferred Share.
3. Voting Rights. (a) Each issued and outstanding Series A Preferred Share
shall be entitled to one vote for each Common
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Share into which such Series A Preferred Share is convertible, with respect to
any matter presented to the shareholders of the Company for their action or
consideration and shall be included in determining the number of shares voting
or entitled to vote on any such matter; provided, however, that holders of
Series A Preferred Shares shall not vote with respect to the election of
directors of the Company. Except as otherwise provided herein or by law, the
holders of the Series A Preferred Shares shall vote together with the holders of
the Common Shares as a single class.
(b) In addition to the voting rights set forth above, the consent of
the holders of at least a majority of the Series A Preferred Shares at the time
outstanding voting together as a single class, shall be necessary for any
amendment to the Memorandum of Association or Bye-laws of the Company, if such
amendment would adversely affect the rights, powers, privileges or preferences
of the Series A Preferred Shares.
4. Rights on Liquidation. In the event of any liquidation, dissolution or
winding up of the Company, whether voluntary or involuntary, the holders of the
Series A Preferred Shares then outstanding shall be entitled to receive, prior
and in preference to any distribution of any of the assets of the Company to the
holders of the Common Shares by reason of their ownership thereof, an amount
equal to $.01 per share for each outstanding Series A Preferred Share. If upon
the occurrence of such event the assets thus distributed among the holders of
Series A Preferred Shares shall be insufficient to permit the payment to such
holders of the full preferential amount, the
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entire assets of the Company legally available for distribution shall be
distributed ratably among the holders of the Series A Preferred Shares. After
the payment or distribution to the holders of the Series A Preferred Shares of
such preferential amount and the payment (the "Other Liquidating Preference
Payment") of the lesser of (i) the liquidation preference or (ii) the par value
of any other preferred shares then outstanding (the "Other Preferred Shares"),
if any, then the holders of the Series A Preferred Shares, the holders of the
Other Preferred Shares and the holders of Common Shares shall be entitled to
receive ratably (based, in the case of the Series A Preferred Shares and the
Other Preferred Shares, if they are convertible into Common Shares, on the
number of Common Shares into which such Series A Preferred Shares and Other
Preferred Shares were last convertible) all remaining assets of the Company to
be distributed; provided, however, that if any Other Preferred Shares shall have
priority liquidation rights vis-a-vis the Common Shares (other than the Other
Liquidating Preference Payment), then the Series A Preferred Shares shall, in a
liquidating distribution, be treated ratably with the most senior of such Other
Preferred Shares.
5. Conversion. (a) Each Series A Preferred Share may be converted, at the
option of the holder thereof, at any time (i) after the HSR Clearance Date or
(ii) upon the transfer (in accordance with the provisions of the Shareholders
Agreement) of such Series A Preferred Share to a Person other than a Shareholder
or any Affiliate thereof, in the manner hereinafter
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provided, into one (subject to any adjustment required below) fully paid and
nonassessable Common Shares; provided however, that on any liquidation of the
Company, the right of conversion shall terminate at the close of business on the
business day immediately preceding the date fixed for the payment of any amounts
distributable on liquidation to the holders of the Series A Preferred Shares.
(b) Each conversion of Series A Preferred Shares into Common Shares
shall be effected by the prior written notice thereof by the holder of the
Series A Preferred Shares and the surrender of the certificates representing the
shares to be converted at the principal office of the Company (or such other
office or agency of the Company as the Company may designate by notice in
writing to the holders of the Series A Preferred Shares as shown on the books of
the Company) at any time during normal business hours. Such notice shall state
the name or names (with addresses) and denominations in which the certificate or
certificates for such Common Shares are to be issued and shall include
instructions for reasonable delivery thereof. Each conversion shall be deemed to
have been effected as of the close of business on the date on which such
certificates have been surrendered and such notice has been received. At such
time, the rights of the holders of the surrendered Series A Preferred Shares as
such holder shall cease, and the Person in whose name the certificates for
Common Shares will be issued upon such conversion shall be deemed to have become
the holder of record of the Common Shares represented thereby.
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(c) Promptly after the surrender of the certificates and the receipt of
written notice, the Company shall issue and deliver in accordance with the
surrendering holder's instructions (i) the certificates for the Common Shares
issuable upon such conversion and (ii) certificates representing any surrendered
Series A Preferred Shares which were delivered to the Company in connection with
such conversion but which were not requested to be converted and, therefore,
were not converted.
(d) The issuance of certificates for Common Shares upon conversion of
Series A Preferred Shares shall be made without charge to the holders of such
shares for any cost incurred by the Company in connection with such conversion
and the related issuance of Common Shares.
(e) The Company shall at all times reserve and keep available out of
its authorized but unissued Common Shares, solely for the purpose of issuance
upon the conversion of the Series A Preferred Shares, such number of Common
Shares issuable upon conversion of all outstanding Series A Preferred Shares.
All Common Shares which are so issuable shall, when issued, be duly and validly
issued, fully paid and nonassessable and free from all taxes, liens and charges.
The Company shall take all such actions as may be necessary to assure that all
such Common Shares may be so issued without violation of any applicable law or
governmental regulation or any requirement of any domestic securities exchange
upon which Common Shares may be listed (except for official notice of issuance
which shall be immediately transmitted by the Company upon issuance).
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(f) The Company shall not close its books against the transfer of
Series A Preferred Shares in any manner which would interfere with the timely
conversion of any Series A Preferred Shares. The Company shall assist and
cooperate with any holder of Series A Preferred Shares required to make any
governmental filings or obtain any governmental approval prior to or in
connection with any conversion of Series A Preferred Shares hereunder
(including, without limitation, making any filings required to be made by the
Company).
6. Share Splits; Adjustments. (a) If the Company shall in any manner
subdivide (by share split, share dividend or otherwise) or combine (by reverse
share split or otherwise) the outstanding Common Shares, the outstanding Series
A Preferred Shares shall be proportionately subdivided or combined, as the case
may be, and effective provision shall be made for the protection of all
conversion and voting rights of the Series A Preferred Shares hereunder.
(b) If the Company shall issue any shares of its capital shares in a
reclassification of the Common Shares (including any such reclassification in
connection with a merger, consolidation or other business combination involving
the Company), or in any other similar transaction affecting the Company or the
number or value of Common Shares outstanding, effective provision shall be made
for the protection of all conversion and voting rights of the Series A Preferred
Shares hereunder.
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(c) The terms "HSR Clearance Date" and "HSR Act" as used herein shall
have the meanings set forth in the Shareholders Agreement.
7. General Provisions. (a) The term "Affiliate" as used herein shall have
the meaning set forth in the Shareholders Agreement.
(b) The term "Antitrust Authority" as used herein shall have the
meaning set forth in the Shareholders Agreement.
(c) The term "Person" as used herein means an individual or a company,
partnership, association, trust or any other entity or organization.
(d) The term "outstanding" when used herein with reference to shares,
shall mean issued shares.
(e) The term "Shareholders Agreement" as used herein means that certain
Shareholders Agreement to be entered into between Loral Corporation ("Loral")
and the Company substantially in the form attached to that certain Distribution
Agreement dated as of January 7, 1996 between Loral and the Company.
(f) The term "Shareholders" as used herein shall have the meaning set
forth in the Shareholders Agreement.
(g) Subject to Section 3 hereof, any right, preference, privilege or
power of, or restriction provided for the benefit of, the Series A Preferred
Shares set forth herein may be amended and the observance thereof may be waived
(either generally or in a particular instance and either retroactively or
prospectively) with the consent of the holders of not less than a majority of
the Series A Preferred Shares then outstanding, and
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any amendment or waiver so effected shall be binding upon the Company and all
holders of Series A Preferred Shares.
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SCHEDULE II
SERIES B PREFERRED SHARES
1. Number and Designation. The Company shall have a class of preferred
shares denominated "Series B Preferred Shares" with such number of shares
authorized as shall be set from time to time by Resolution adopted at a general
meeting of the Shareholders of the Company
2. Dividends and Distributions. (a) Subject to the prior and superior
rights of the holders of any shares of any series of preferred shares ranking
prior and superior to the Series B Preferred Shares with respect to dividends,
the holders of Series B Preferred Shares, shall be entitled to receive, when, as
and if declared by the Board of Directors out of funds legally available for the
purpose, quarterly dividends payable in cash on the fifteenth day of January,
April, July and October in each year (each such date being referred to herein as
a "Quarterly Dividend Payment Date"), commencing on the first Quarterly Dividend
Payment Date after the first issuance of a Series B Preferred Share or a
fraction thereof, in an amount per Share (rounded to the nearest cent), subject
to the provision for adjustment hereinafter set forth, equal to 1,000 times the
aggregate per Share amount of all cash dividends, and 1,000 times the aggregate
per Share amount (payable in kind) of all non-cash dividends or other
distributions other than a dividend payable in Common Shares or a subdivision of
the outstanding Common Shares (by
<PAGE> 71
reclassification or otherwise), declared on the Common Shares since the
immediately preceding Quarterly Dividend Payment Date, or, with respect to the
first Quarterly Dividend Payment Date, since the first issuance of any Series B
Preferred Share or a fraction thereof. In the event the Company shall at any
time (i) declare any dividend on Common Shares payable in Common Shares, (ii)
subdivide the outstanding Common Shares, or (iii) combine the outstanding Common
Shares into a smaller number of Shares, then in each such case the amount to
which holders of Series B Preferred Shares were entitled immediately prior to
such event pursuant to the preceding sentence shall be adjusted by multiplying
such amount by a fraction the numerator of which is the number of Common Shares
outstanding immediately after such event and the denominator of which is the
number of Common Shares that were outstanding immediately prior to such event.
(b) The Company shall declare a dividend or distribution on
the Series B Preferred Shares as provided in paragraph (a) above immediately
after it declares a dividend or distribution on the Common Shares (other than a
dividend payable in Common Shares).
(c) Dividends shall begin to accrue and be cumulative on the
outstanding Series B Preferred Shares from the Quarterly Dividend Payment Date
next preceding the date of issue of such Series B Preferred Shares, unless the
date of issue of such Shares is prior to the record date for the first Quarterly
Dividend Payment Date, in which case dividends on such Shares shall begin to
accrue from the date of issue of such Shares, or
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unless the date of issue is a Quarterly Dividend Payment Date or is a date after
the record date for the determination of holders of Series B Preferred Shares
entitled to receive a quarterly dividend and before such Quarterly Dividend
Payment Date, in either of which events such dividends shall begin to accrue and
be cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid
dividends shall not bear interest. Dividends paid on the Series B Preferred
Shares in an amount less than the total amount of such dividends at the time
accrued and payable on such Shares shall be allocated pro rata on a
share-by-share basis among all such Shares at the time outstanding. The Board of
Directors may fix a record date for the determination of holders of Series B
Preferred Shares entitled to receive payment of a dividend or distribution
declared thereon, which record date shall be no more than 30 days prior to the
date fixed for the payment thereof.
3. Voting Rights. The holders of Series B Preferred Shares shall have the
following voting rights:
(a) Subject to the provision for adjustment hereinafter set forth, each
Series B Preferred Share shall entitle the holder thereof to 1,000 votes on all
matters submitted to a vote of the Shareholders of the Company. In the event the
Company shall at any time (i) declare any dividend on Common Shares payable in
Common Shares, (ii) subdivide the outstanding Common Shares, or (iii) combine
the outstanding Common Shares into a smaller number of Shares, then in each such
case the number of votes per Share to which holders of the Series
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B Preferred Shares were entitled immediately prior to such event shall be
adjusted by multiplying such number by a fraction the numerator of which is the
number of Common Shares outstanding immediately after such event and the
denominator of which is the number of Common Shares that were outstanding
immediately prior to such event.
(b) Except as otherwise provided herein or by law, the holders of
Series B Preferred Shares and the holders of Common Shares shall vote together
as one class on all matters submitted to a vote of Shareholders of the Company.
(c) (i) If at any time dividends on any Series B Preferred Shares shall
be in arrears in an amount equal to six quarterly dividends thereon, the
occurrence of such contingency shall mark the beginning of a period (herein
called a "default period") which shall extend until such time when all accrued
and unpaid dividends for all previous quarterly dividend periods and for the
current quarterly dividend period on all Series B Preferred Shares then
outstanding shall have been declared and paid or set apart for payment. During
each default period, holders of the Series B Preferred Shares with dividends in
arrears in an amount equal to six quarterly dividends thereon, together with
holders of any other shares of the Company upon which similar voting rights have
been conferred and are exercisable (collectively, the "Defaulted Shares") voting
as a class, irrespective of series, shall have the right to elect two Directors.
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(ii) During any default period, such voting right of the holders of
Series B Preferred Shares may be exercised initially at a special general
meeting called pursuant to subparagraph (iii) of this Section 3(c) or at any
Annual General Meeting of Shareholders, and thereafter at Annual General
Meetings of Shareholders, provided that neither such voting right nor the right
of the holders of any other shares upon which similar voting rights have been
conferred, if any, to increase, in certain cases, the authorized number of
Directors shall be exercised unless the holders of 10% in number of the
Defaulted Shares outstanding shall be present in person or by proxy. The absence
of a quorum of the holders of Common Shares shall not affect the exercise by the
holders of the Defaulted Shares of such voting right. At any meeting at which
the holders of the Defaulted Shares shall exercise such voting right initially
during an existing default period, they shall have the right, voting as a class,
to elect Directors to fill such vacancies, if any, in the Board as may then
exist up to two Directors or, if such right is exercised at an Annual General
Meeting, to elect two Directors. If the number which may be so elected at any
special general meeting does not amount to the required number, the holders of
the Defaulted Shares shall have the right to make such increase in the number of
Directors as shall be necessary to permit the election by them of the required
number. After the holders of the Defaulted Shares shall have exercised their
right to elect Directors in any default period and during the continuance of
such period, the number of Directors shall not be
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increased or decreased except by vote of the holders of the Defaulted Shares as
herein provided or pursuant to the rights of any equity securities ranking
senior to or pari passu with the Series B Preferred Shares.
(iii) Unless the holders of the Defaulted Shares shall, during an
existing default period, have previously exercised their right to elect
Directors, the Board may order, or any Shareholder or Shareholders owning in the
aggregate not less than 10% of the total number of Defaulted Shares outstanding,
irrespective of series, may request, the calling of a special meeting of the
holders of the Defaulted Shares, which meeting shall thereupon be called by the
Chairman of the Board of the Company. Notice of such meeting and of any Annual
General Meeting at which holders of the Defaulted Shares are entitled to vote
pursuant to this paragraph (c)(iii) shall be given to each holder of record of
Defaulted Shares by mailing a copy of such notice to him at his last address as
the same appears on the books of the Company. Such meeting shall be called for a
time not earlier than 30 days and not later than 40 days after such order or
request or in default of the calling of such meeting within 40 days after such
order or request, such meeting may be called on similar notice by any
Shareholder or Shareholders owning in the aggregate not less than 10% of the
total number of Defaulted Shares outstanding and at least 50% of the total
voting rights held by all such Shareholders. Notwithstanding the provisions of
this paragraph (c)(iii), no such special general meeting shall be called during
the period within 60 days
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immediately preceding the date fixed for the next Annual General Meeting of the
Shareholders.
(iv) In any default period, the holders of Common Shares, and other
classes of shares of the Company if applicable, shall continue to be entitled to
elect the whole number of Directors until the holders of the Defaulted Shares
shall have exercised their right to elect two Directors voting as a class, after
the exercise of which right (x) the Directors so elected by the holders of
Defaulted Shares shall continue in office until their successors shall have been
elected by such holders or until the expiration of the default period, and (y)
any vacancy in the Board of Directors may (except as provided in paragraph
(c)(ii) of this section 3) be filled by vote of a majority of the remaining
Directors theretofore elected by the holders of the class of shares which
elected the Director whose office shall have become vacant. References in this
paragraph (c) to Directors elected by the holders of a particular class of
shares shall include Directors elected by such Directors to fill vacancies as
provided in clause (y) of the foregoing sentence.
(v) Immediately upon the expiration of a default period, (x) the
right of the holders of Defaulted Shares as a class to elect Directors shall
cease, (y) the term of any Directors elected by the holders of Defaulted Shares
as a class shall terminate, and (z) the number of Directors shall be such number
as may be provided for in the Bye-laws irrespective of any increase made
pursuant to the provisions of paragraph (c)(ii) of this section 3 (such number
being subject, however, to change
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thereafter in any manner provided by law or in the Bye-laws). Any vacancies in
the Board of Directors affected by the provisions of clauses (y) and (z) in the
preceding sentence may be filled by a majority of the remaining Directors.
(d) Except as set forth herein, holders of Series B Preferred Shares
shall have no special voting rights and their consent shall not be required
(except to the extent they are entitled to vote with holders of Common Shares as
set forth herein) for taking any corporate action
4. Certain Restrictions. (a) Whenever quarterly dividends or other
dividends or distributions payable on the Series B Preferred Shares as provided
in section 2 are in arrears, thereafter and until all accrued and unpaid
dividends and distributions, whether or not declared, on the Series B Preferred
Shares outstanding shall have been paid in full, the Company shall not:
(i) declare or pay dividends on, make any other distributions on, or
redeem or purchase or otherwise acquire for consideration any shares of stock
ranking junior (either as to dividends or upon liquidation, dissolution or
winding up) to the Series B Preferred Shares;
(ii) declare or pay dividends on or make any other distributions on any
shares of stock ranking on a parity (either as to dividends or upon liquidation,
dissolution or winding up) with the Series B Preferred Shares, except dividends
paid ratably on the Series B Preferred Shares and all such parity shares on
which dividends are payable or in arrears in proportion to the
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total amounts to which the holders of all such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for consideration shares
of any stock ranking on a parity (either as to dividends or upon liquidation,
dissolution or winding up) with the Series B Preferred Shares, provided that the
Company may at any time redeem, purchase or otherwise acquire shares of any such
parity shares in exchange for shares of any stock of the Company ranking junior
(either as to dividends or upon dissolution, liquidation or winding up) to the
Series B Preferred Shares;
(iv) purchase or otherwise acquire for consideration any Series B
Preferred Shares, or any shares of stock ranking on a parity with the Series B
Preferred Shares, except in accordance with a purchase offer made in writing or
by publication (as determined by the Board) to all holders of such shares upon
such terms as the Board, after consideration of the respective annual dividend
rates and other relative rights and preferences of the respective series and
classes, shall determine in good faith will result in fair and equitable
treatment among the respective series or classes.
(b) The Company shall not permit any subsidiary of the Company to
purchase or otherwise acquire for consideration any shares of the Company unless
the Company could, under paragraph (a) of this section 4, purchase or otherwise
acquire such shares at such time and in such manner.
5. Reacquired Shares. Any Series B Preferred Share purchased or otherwise
acquired by the Company in any manner
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whatsoever shall be retired and cancelled promptly after the acquisition
thereof.
6. Liquidation, Dissolution or Winding-up. (a) Upon any liquidation
(voluntary or otherwise), dissolution or winding-up of the Company, no
distribution shall be made to the holders of shares ranking junior (either as to
dividends or upon liquidation, dissolution or winding-up) to the Series B
Preferred Shares unless, prior thereto, the holders of Series B Preferred Shares
shall have received $1.00 per Share, plus an amount equal to accrued and unpaid
dividends and distributions thereon, whether or not declared, to the date of
such payment. Thereafter, the holders of Series B Preferred Shares shall be
entitled to receive an aggregate amount per Share, subject to the provision for
adjustment hereinafter set forth, equal to 1,000 times the aggregate amount to
be distributed per Share to holders of Common Shares. Following the payment of
the foregoing, holders of Series B Preferred Shares and holders of Common Shares
shall receive their ratable and proportionate share of the remaining assets to
be distributed.
(b) In the event however, that there are not sufficient assets
available to permit payment in full of the Series B Preferred Shares liquidation
preference and the liquidation preferences of all other series of preferred
shares, if any, which rank on a parity with the Series B Preferred Shares, then
such remaining assets shall be distributed ratably to the holders of such parity
shares in proportion to their respective liquidation preferences.
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(c) In the event the Company shall at any time (i) declare any dividend
on Common Shares payable in Common Shares, (ii) subdivide the outstanding Common
Shares (by reclassification or otherwise), or (iii) combine the outstanding
Common Shares into a smaller number of Shares, then in each such case the
aggregate amount to which holders of Series B Preferred Shares were entitled
immediately prior to such event shall be adjusted by multiplying such amount by
a fraction the numerator of which is the number of Common Shares outstanding
immediately after such event and the denominator of which is the number of
Common Shares that were outstanding immediately prior to such event.
7. Consolidation, Merger, etc. In case the Company shall enter into any
consolidation, merger, combination or other transaction in which the Common
Shares are exchanged for or changed into other shares or securities, cash and/or
any other property, then in any such case the Series B Preferred Shares shall at
the same time be similarly exchanged or changed in an amount per Share (subject
to the provision for adjustment hereinafter set forth) equal to 1,000 times the
aggregate amount of shares, securities, cash and/or any other property (payable
in kind), as the case may be, into which or for which each Common Share is
changed or exchanged. In the event the Company shall at any time (i) declare any
dividend on Common Shares payable in Common Shares, (ii) subdivide the
outstanding Common Shares (by reclassification or otherwise), or (iii) combine
the outstanding Common Shares into a smaller number of Shares, then in each such
case the amount set forth in the preceding sentence with respect
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to the exchange or change of Series B Preferred Shares shall be adjusted by
multiplying such amount by a fraction the numerator of which is the number of
Common Shares outstanding immediately after such event and the denominator of
which is the number of Common Shares that were outstanding immediately prior to
such event.
8. No Redemption. The Series B Preferred Shares shall not be redeemable.
9. Ranking. The Series B Preferred Shares shall rank junior to all other
series of the Company's preferred shares as to payment of dividends and the
distribution of assets, unless the terms of any such series shall provide
otherwise.
10. Amendment. The Bye-Laws of the Company shall not be amended in any
manner which would materially alter or change the powers, preferences or special
rights of the Series B Preferred Shares so as to affect them adversely without
the affirmative vote of the holders of a majority or more of the outstanding
Series B Preferred Shares voting separately as a class.
11. Fractional Shares. Series B Preferred Shares may be issued in
fractions of a Share which shall entitle the holder, in proportion to such
holder's fractional shares, to exercise voting rights, receive dividends,
participate in distributions and to have the benefit of all other rights of
holders of Series B Preferred Shares.
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Exhibit 10.1
TAX SHARING AGREEMENT
TAX SHARING AGREEMENT ("the Agreement") dated as of January 7, 1996 by
and among Wings Corporation, a New York corporation (the "Company"), Spinco
Corporation, a Delaware corporation and a wholly-owned subsidiary of the Company
("Spinco"), Rotors Corporation, a Maryland corporation ("Parent") and LAC
Acquisition Corporation, a New York corporation and a wholly-owned subsidiary of
Parent (the "Purchaser").
WHEREAS, in connection with the restructuring of the Company pursuant
to the Restructuring, Financing and Distribution Agreement, dated as of April
15, 1996 (the "Distribution Agreement"), the Company, Spinco and certain other
parties have agreed to the assignment and transfer by the Company to Spinco of
the Spinco Assets, including, without limitation, the Spinco Subsidiaries, in
the manner set forth in the Distribution Agreement (the "Transfer"), in exchange
for Spinco Common Stock and the assumption of certain liabilities of the Company
by Spinco;
WHEREAS, the Company will retain its stock in all of its subsidiaries
other than the Spinco Subsidiaries (the "Retained Subsidiaries");
WHEREAS, in accordance with the terms of the Agreement and Plan of
Merger dated as of January 7, 1996 (the "Merger Agreement"), the Purchaser will
commence and consummate the Offer and the Company will complete the Transfer;
WHEREAS, pursuant to the Merger Agreement, and in accordance with New
York law, the Purchaser will merge with and into the Company after certain
conditions are satisfied at the Effective Time (the "Merger"), whereby each
share of common stock of the Company issued and outstanding immediately prior to
the Effective Time will be converted into the right to receive cash and, as a
result of such Merger, the Company, as the surviving corporation, will become
wholly-owned by Parent;
WHEREAS, immediately after the consummation of the Offer and the
Form 10 having been declared effective by the SEC, the Company will distribute
the shares of Spinco to the Company shareholders;
<PAGE> 2
WHEREAS, at the end of the day on which Parent acquires stock of the
Company satisfying the requirements of Section 1504(a)(2) of the Internal
Revenue Code of 1986, as amended (the "Code"), the consolidated group of which
the Company is the common parent will terminate and the members of the Company
Group will become members of the Parent Group;
WHEREAS, the parties hereto wish to provide for the payment of tax
liabilities and entitlement to refunds, allocate responsibility and provide for
cooperation in the filing of tax returns, provide for the realization and
payment of tax benefits arising out of adjustments to the tax returns of the
parties and provide for certain other matters;
NOW, THEREFORE, in consideration of the premises and the
representations, covenants and agreements herein contained, and intending to be
legally bound hereby, the Company, Spinco, Parent, and the Purchaser hereby
agree as follows:
1. Certain Definitions.
(a) The following terms used herein shall have the meanings set
forth below (such terms to be equally applicable to the singular and plural
forms of the terms defined or referred to below):
"Agreement" shall have the meaning set forth in the recitals to this
Agreement.
"Code" shall have the meaning set forth in the recitals to this Agreement.
"Company" shall have the meaning set forth in the recitals to this
Agreement.
"Company Group" means the Retained Subsidiaries, together with the
Company.
"Consolidated Group" or "consolidated group" means a consolidated group
within the definition of Treasury Regulation Section 1.1502-1(h).
"Distribution" shall have the meaning set forth in the Distribution
Agreement.
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<PAGE> 3
"Distribution Agreement" shall have the meaning set forth in the recitals
to this Agreement.
"Effective Time" shall have the meaning set forth in the Merger Agreement.
"Form 10" shall have the meaning set forth in the Distribution Agreement.
"Group Termination Date" means the end of the day on which Parent acquires
stock of the Company satisfying the requirements of Section 1504(a)(2) of the
Code.
"Income Taxes" means any and all taxes based upon or measured by net income
(including, without limitation, alternative minimum tax under Section 55 of the
Code) imposed by or payable to the U.S., or any state, county, local or foreign
government or any subdivision or agency thereof (including any U.S. possession),
and such term shall include any interest (whether paid or received), penalties
or additions to tax attributable thereto.
"Income Tax Liabilities" means all liabilities for Income Taxes.
"Indemnified Party" means the party that is entitled to indemnification by
another party pursuant to this Agreement.
"Indemnifying Party" means the party that is required to indemnify another
party pursuant to this Agreement.
"Independent Accounting Firm" means a "big six" independent accounting
firm, jointly selected by the parties; or, if the parties cannot agree on such
accounting firm, Spinco and Parent shall each submit the name of a "big six"
independent accounting firm that does not at the time and has not in the prior
two years provided services to any member of the Spinco Group or the Parent
Group, and the firm shall be selected by lot from these two firms.
"Independent Law Firm" means a nationally-recognized independent law firm,
jointly selected by the parties; or, if the parties cannot agree on such law
firm, Spinco and Parent shall each submit the name of a nationally-
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<PAGE> 4
recognized independent law firm that does not at the time and has not in the
prior two years provided services to any member of the Spinco Group or the
Parent Group, and the firm shall be selected by lot from these two firms.
"Information Return" means any report, return, declaration or other
information or filing (other than a Tax Return) required to be supplied to any
taxing authority or jurisdiction.
"Merger" shall have the meaning set forth in the recitals to this
Agreement.
"Merger Agreement" shall have the meaning set forth in the recitals to this
Agreement.
"Offer" shall have the meaning set forth in the Merger Agreement.
"Old Company Group" means the Company Group, together with the Spinco
Group, prior to and including the Group Termination Date.
"Other Taxes" means any and all taxes, levies or other like assessments,
charges or fees, other than Income Taxes, including, without limitation, any
excise, real or personal property, gains, sales, use, license, real estate or
personal property transfer, net worth, stock transfer, payroll, ad valorem and
other governmental taxes and any withholding obligation imposed by or payable to
the U.S., or any state, county, local or foreign government or subdivision or
agency thereof, and any interest (whether paid or received).
"Parent" shall have the meaning set forth in the recitals to this
Agreement.
"Parent Group" means the Company Group, together with Parent and all other
Subsidiaries of Parent, immediately following the Group Termination Date.
"Post-Group-Termination Period" means any taxable period beginning after
the Group Termination Date and any portion of a Straddle Period beginning after
the Group Termination Date.
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<PAGE> 5
"Pre-Group-Termination Period" means any taxable period ending on or before
the Group Termination Date and any portion of a Straddle Period prior to and
including the Group Termination Date.
"Proceeding" means any audit or other examination, judicial or
administrative proceeding or determination relating to liability for or refunds
or adjustments with respect to Other Taxes or Income Taxes.
"Purchaser" shall have the meaning set forth in the recitals to this
Agreement.
"Refund" means any refund of Income Taxes and Other Taxes.
"Retained Subsidiaries" shall have the meaning set forth in the recitals to
this Agreement.
"SEC" means the Securities and Exchange Commission.
"Spinco" shall have the meaning set forth in the recitals to this
Agreement.
"Spinco Assets" shall have the meaning set forth in the Distribution
Agreement.
"Spinco Common Stock" shall have the meaning set forth in the Distribution
Agreement.
"Spinco Group" means the Spinco Subsidiaries, together with Spinco and any
direct or indirect subsidiaries of Spinco or the Spinco Subsidiaries.
"Spinco Subsidiaries" shall have the meaning set forth in the Distribution
Agreement.
"Straddle Period" means any taxable period that includes but does not end
on the Group Termination Date.
"Subsidiary" or "subsidiary" shall have the meaning set forth in the
Distribution Agreement.
"Tax Benefit" means, in the case of separate state, local or other Income
Tax Returns, the sum of the amount by which the tax liability (after giving
effect to any alternative minimum or similar tax) of a corporation to
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<PAGE> 6
the appropriate taxing authority is reduced (including, without limitation, by
deduction, entitlement to refund, credit or otherwise, whether available in the
current taxable year, as an adjustment to taxable income in any other taxable
year or as a carryforward or carryback, as applicable) plus any interest from
such government or jurisdiction relating to such tax liability, and in the case
of a consolidated federal Income Tax Return or similar state, local or other
Income Tax Return, the sum of the amount by which the tax liability of the
affiliated group (within the meaning of Section 1504(a) of the Code) or other
relevant group of corporations to the appropriate government or jurisdiction is
reduced (including, without limitation, by deduction, entitlement to refund,
credit or otherwise, whether available in the current taxable year, as an
adjustment to taxable income in any other taxable year or as a carryforward or
carryback, as applicable) plus any interest from such government or jurisdiction
relating to such tax liability.
"Tax Return" means any report, return, declaration or other information or
filing required to be supplied to any taxing authority or jurisdiction with
respect to the liability of any member of the Old Company Group, the Company
Group, the Spinco Group or the Parent Group for Income Taxes or Other Taxes,
including, without limitation, any documents with respect to or accompanying
payments of estimated Income Taxes or Other Taxes, or with respect to or
accompanying requests for the extension of time in which to file any such
report, return, declaration or other document.
"Transfer" shall have the meaning set forth in the recitals to this
Agreement.
"U.S." means the United States of America.
"Underpayment Rate" means the rate specified under Section 6621(a)(2) of
the Code for underpayments of tax.
2. Cooperation.
(a) Parent and Spinco shall, and shall cause the members of the
Parent Group and the Spinco Group, respectively, to, provide the requesting
party with such assistance and documents, without charge, as
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<PAGE> 7
may be reasonably requested by such party in connection with the preparation of
any Tax Return or any Information Return; the conduct of any Proceeding; any
matter relating to Income Taxes, Other Taxes or Information Returns of any
member of the Old Company Group, the Company Group, the Spinco Group or the
Parent Group; and any other matter that is a subject of this Agreement. Such
cooperation and assistance shall be provided to the requesting party promptly
upon its request. Parent and the Company, on the one hand, and Spinco, on the
other hand, shall retain or cause to be retained all Tax Returns, Information
Returns, schedules and workpapers, and all material records or other documents
relating thereto, until the expiration of the statute of limitations (including
any waivers or extensions thereof) of the taxable years to which such Tax
Returns, Information Returns, and other documents relate or until the expiration
of any additional period that any party reasonably requests, in writing, with
respect to specific material records or documents. A party intending to destroy
any material records or documents shall provide the other party with advance
notice and the opportunity to copy or take possession of such records and
documents. The parties hereto will notify each other in writing of any waivers
or extensions of the applicable statute of limitations that may affect the
period for which the foregoing records or other documents must be retained.
3. Timing of Group Termination Date; Certain State and Local Matters.
The parties hereby agree that, for federal income tax purposes (and, to the
extent permissible under applicable law, for state, local and other tax
purposes), the consolidated group of which the Company is the common parent
prior to the Group Termination Date shall terminate on the Group Termination
Date, in accordance with the rule of Treasury Regulation Section
1.1502-76(b)(1). To the extent permissible under applicable law, all taxable
income attributable to the Transfer and the Distribution shall be reported on
the Tax Returns of the Old Company Group for the period that ends on the Group
Termination Date.
4. Filing of Income Tax Returns; Payment of Income Taxes.
(a) Pre-Group-Termination Periods. To the extent not filed before
the Group Termination Date,
7
<PAGE> 8
Spinco shall, on behalf of the Old Company Group, prepare and file or cause to
be prepared and filed all Tax Returns with respect to Income Taxes for the Old
Company Group (or any member thereof) for all taxable periods ending on or
before the Group Termination Date. To the extent permissible under applicable
law, all such Tax Returns shall be prepared and filed consistently with past
practice. Spinco shall pay or cause to be paid all Income Taxes shown to be due
and payable by any member of the Old Company Group on such Tax Returns.
(b) Post-Group-Termination Periods. Parent shall prepare and file or
shall cause to be prepared and filed Tax Returns with respect to Income Taxes
for the Company Group for taxable periods beginning after the Group Termination
Date and shall pay or cause to be paid all Income Taxes shown to be due and
payable by any member of the Parent Group on such Tax Returns. Spinco shall
prepare and file or cause to be prepared and filed Tax Returns with respect to
Income Taxes for the Spinco Group for taxable periods beginning after the Group
Termination Date and shall pay or cause to be paid all Income Taxes shown to be
due and payable by any member of the Spinco Group on such Tax Returns.
(c) Straddle Periods. Parent shall prepare and file or cause to be
prepared and filed all Tax Returns with respect to Income Taxes for the Company
Group (or any member thereof) for any Straddle Period and shall pay or cause to
be paid all Income Taxes shown to be due and payable by any member of the
Company Group on such Tax Returns. Spinco shall prepare and file or cause to be
prepared and filed all Tax Returns with respect to Income Taxes for the Spinco
Group (or any member thereof) for any Straddle Period and shall pay or cause to
be paid all Income Taxes shown to be due and payable for any member of the
Spinco Group on such Tax Returns.
5. Filing of Other Tax Returns; Payment of Other Taxes. To the extent
not filed before the Group Termination Date, Spinco shall prepare and file or
cause to be prepared and filed all Tax Returns with respect to Other Taxes of
the Old Company Group attributable to any Pre-Group-Termination Period, and all
Tax Returns with respect to Other Taxes of the Spinco Group attributable to any
taxable period, and shall pay all Other Taxes shown to be due and payable by any
member of the Old
8
<PAGE> 9
Company Group or the Spinco Group on such Tax Returns. Parent shall prepare and
file or cause to be prepared and filed all Tax Returns with respect to Other
Taxes of the Company Group attributable to any Post-Group-Termination Period and
shall pay all Other Taxes shown to be due and payable by any member of the
Company Group on such Tax Returns.
6. Filing of Information Returns. Spinco shall file all Information
Returns required to be filed by any member of the Old Company Group on or before
the Group Termination Date and by any member of the Spinco Group after the Group
Termination Date, as well as any Information Returns required to be filed by the
Old Company Group (or any member thereof) with respect to the information of the
Spinco Group or the Merger. Except as otherwise provided in the preceding
sentence, Parent shall file all Information Returns required to be filed by any
member of the Company Group after the Group Termination Date. Any party required
to file any Information Return pursuant to this Section 6 shall pay any fees or
charges required in connection with such filing and shall indemnify and hold the
other party harmless against any penalties, fees or other charges resulting from
the failure to pay such fees or charges or the failure to file such Information
Returns in a correct or timely fashion, unless such failure results from the
failure of the other party to provide correct information on a timely basis.
7. Indemnification for Taxes.
(a) Income Taxes. The Spinco Group shall pay, and shall indemnify
and hold the Parent Group harmless against, (i) all Income Tax Liabilities of
any member of the Old Company Group for Pre-Group-Termination Periods; (ii) all
Income Tax Liabilities incurred, pursuant to Treasury Regulation Section
1.1502-6 or similar provisions, as a result of any member of the Old Company
Group having been a member of a group (other than the Parent Group) filing a
consolidated federal (or other combined) income tax return; (iii) all Income Tax
Liabilities of any member of the Old Company Group or the Parent Group arising
from the Transfer and the Distribution, regardless of when recognized; and (iv)
all Income Tax Liabilities of any member of the Spinco Group. Except as
otherwise provided in the preceding sentence, the Parent
9
<PAGE> 10
Group shall pay, and shall indemnify and hold the Spinco Group harmless against,
all Income Tax Liabilities of (i) Parent and its subsidiaries (other than the
members of the Company Group) for all taxable periods and (ii) the Company Group
(or any member thereof) for Post-Group- Termination Periods. For purposes of
this Agreement, Income Tax Liabilities for the Pre-Group-Termination Period
portion of any Straddle Period shall be the amount of Income Taxes that would
have been imposed on or with respect to the relevant group (or member(s)
thereof) in the relevant jurisdiction if the taxable year had ended on and
included the Group Termination Date, and Income Tax Liabilities for the
Post-Group-Termination portion of any Straddle Period shall be the amount of
Income Taxes that would have been imposed on or with respect to the relevant
group (or member(s) therof) in the relevant jurisdiction if the taxable year had
begun after the Group Termination Date.
(b) Other Taxes. Except as provided in Section 7(a), the Parent
Group shall pay, and shall indemnify and hold the Spinco Group harmless against,
all liabilities for all Other Taxes attributable to the income, property or
activities of any member of the Company Group for all Post-Group-Termination
Periods. The Spinco Group shall pay, and shall indemnify and hold the Parent
Group harmless against (i) all liabilities for all Other Taxes attributable to
the income, property or activities of any member of the Spinco Group for all
taxable periods; (ii) all liabilities for all Other Taxes attributable to the
income, property or activities of any member of the Old Company Group for any
Pre-Group-Termination Period; and (iii) all Other Taxes, if any, arising from
the Transfer or the Distribution. For purposes of this Section 7(b), the
determination of the amount of Other Taxes for Straddle Periods shall be made,
in the case of Other Taxes other than property, ad valorem, and similar Other
Taxes, based on the amount of Other Taxes that would be due if the
Pre-Group-Termination Period portion of the relevant Straddle Period had ended
on and included the Group Termination Date and that Post-Group-Termination
Period portion of the Straddle Period had begun after the Group Termination
Date; and, in the case of property, ad valorem, and similar Other Taxes, by
prorating (on a daily basis) the amount of Other Taxes due for the entire period
in accordance with Section 164(d) of the Code.
10
<PAGE> 11
(c) To the extent that the Indemnifying Party is required to
indemnify another party pursuant to this Section 7, the Indemnifying Party shall
pay to the Indemnified Party, no later than 10 days prior to the due date of the
relevant Tax Return or estimated Tax Return or 10 days after the Indemnifying
Party receives the Indemnified Party's calculations, whichever occurs later, the
amount that the Indemnifying Party is required to pay the Indemnified Party
under this Section 7. The Indemnified Party shall submit its calculations of the
amount required to be paid pursuant to this Section 7, showing such calculations
in sufficient detail so as to permit the Indemnifying Party to understand the
calculations. If the Indemnifying Party disagrees with such calculations, it
must notify the Indemnified Party of its disagreement in writing within 15 days
of receiving such calculations. Any dispute regarding such calculations shall be
resolved in accordance with Section 10 of this Agreement.
8. Carryovers. In the event of the realization of any loss or credit
for tax purposes by a party for any taxable period beginning on or after the
Group Termination Date, the party realizing such loss or credit may, in its sole
discretion, to the extent permitted under applicable tax law, elect not to carry
back such loss or credit.
9. Refunds of Income Taxes or Other Taxes. The Spinco Group shall be
entitled to all Refunds attributable to the Spinco Group, and the Parent Group
shall be entitled to all Refunds attributable to the Parent Group. The Spinco
Group shall be entitled to all Refunds attributable to the Old Company Group or
any member thereof for any Pre-Group-Termination Period. Notwithstanding the
foregoing, the Parent Group shall be entitled to Refunds attributable to the Old
Company Group that result from the carryback of a tax attribute by the Company
Group from a Post-Group-Termination Period, and the Spinco Group shall be
entitled to Refunds attributable to the Old Company Group that result from the
carryback of a tax attribute by the Spinco Group from a Post-Closing Tax Period.
Refunds for any Straddle Period shall be equitably apportioned between the
Parent Group and the Spinco Group in accordance with the provisions of this
Agreement governing such periods. A party receiving a Refund to which another
party is entitled pursuant to
11
<PAGE> 12
this Agreement shall pay the amount to which such other party is entitled within
five days after the receipt of the refund.
10. Disputes. If the parties disagree as to the amount of any payment
to be made under, or any other matter arising out of, this Agreement, the
parties shall attempt in good faith to resolve such dispute, and any agreed-upon
amount shall be paid to the appropriate party. If such dispute is not resolved
within 15 days thereafter, the parties shall jointly retain the Independent
Accounting Firm to resolve the dispute. If and to the extent that the dispute
presents legal issues, the Independent Accounting Firm shall have the authority
to consult the Independent Law Firm. The fees of the Independent Accounting Firm
and the Independent Law Firm shall be borne equally by the Spinco Group and the
Parent Group, and the decision of such Independent Accounting Firm and
Independent Law Firm shall be final and binding on all parties. Following the
decision of the Independent Accounting Firm and/or the Independent Law Firm, the
parties shall each take or cause to be taken any action that is necessary or
appropriate to implement such decision of the Independent Accounting Firm and
the Independent Law Firm, including, without limitation, the prompt payment of
underpayments or overpayments, with interest calculated on such overpayments and
underpayments at the Underpayment Rate from the date such payment was due
through the date such underpayment or overpayment is paid or refunded.
11. Control of Proceedings. In the case of any Proceeding with respect
to Income Taxes or Other Taxes of the Parent Group or the Old Company Group for
any taxable period for which Spinco is or may be liable for such Income Taxes or
Other Taxes pursuant to this Agreement, Parent or Spinco, as the case may be,
shall promptly inform the other party, and Parent shall execute or cause to be
executed any powers of attorney or other documents necessary to enable Spinco to
take all actions desired by Spinco with respect to such Proceeding to the extent
such Proceeding may affect the amount of Income Taxes or Other Taxes for which
Spinco is liable pursuant to this Agreement; Spinco shall have the right to
control any such Proceeding, and, if there is a reasonable basis therefor, to
initiate any claim for refund, file any amended return or take any other action
that it deems
12
<PAGE> 13
appropriate with respect to such taxable years, provided, however, that Spinco
shall consult with Parent, and Parent shall have the right to participate at its
own expense, with respect to any Proceeding that may affect the Parent Group and
Spinco shall not take any such action that may affect the Parent Group without
the consent of Parent, which consent may not be unreasonably withheld. Any
Proceeding with respect to Income Taxes or Other Taxes of the Company Group or
the Old Company Group for a Straddle Period shall be controlled jointly by
Parent and Spinco unless the issue relates solely to a Pre-Group-Termination
Period or a Post-Group-Termination Period, in which case such proceeding shall
be controlled by Parent or Spinco, as the case may be, in accordance with the
principles of the first sentence of this section 11. Notwithstanding the
foregoing provisions, Spinco shall not have the right to control any Proceeding,
to initiate any claim for refund, to file any amended return or to take any
other action if such Proceeding, claim for refund, amended return or other
action would be likely to increase the amount of Income Taxes or other Taxes
payable by any member of the Parent Group for a taxable period other than a
Pre-Group-Termination Period.
12. Timing Adjustment.
(a) If an audit or other examination of any Income Tax Return of
the Parent Group or a Proceeding for any period shall result (by settlement or
otherwise) in any adjustment that (A) decreases deductions, losses or tax
credits or increases income, gains or recapture of tax credits for such period
and (B) will permit the Spinco Group to increase deductions, losses or tax
credits or decrease income, gains or recapture of tax credits that would
otherwise (but for such adjustment) have been taken or reported with respect to
the Spinco Group for one or more taxable periods, Parent shall notify Spinco
(Parent and Spinco, for purposes of this Section 12(a), shall be deemed to
include, where appropriate, the affiliated, unitary, combined or other group of
which such party is a member) and provide it with adequate information so that
it can reflect on the Income Tax Returns of the Spinco Group such increases in
deductions, losses or tax credits or decreases in income, gains, or recapture of
tax credits. With respect to such increases or decreases on Income Tax Returns,
Spinco shall, and shall cause the Spinco Group to, pay to Parent the amounts of
13
<PAGE> 14
any Tax Benefits that result therefrom, within ten days of the date on which
such Tax Benefits are realized.
(b) If an audit or other examination of any Income Tax Return of
the Old Company Group or a Proceeding for any period for which Spinco is
responsible shall result (by settlement or otherwise) in any adjustment that (A)
decreases deductions, losses or tax credits or increases income, gains or
recapture of tax credits for such period, and (B) will permit the Spinco Group
to increase deductions, losses or tax credits or decrease income, gains or
recapture of tax credits that would otherwise (but for such adjustment) have
been taken or reported with respect to the Spinco Group for one or more taxable
periods, Spinco will notify Parent (Spinco and Parent, for purposes of this
Section 12(b), shall be deemed to include, where appropriate, the affiliated,
unitary, combined or other group of which such party is a member) and provide it
with adequate information so that it can reflect on the Income Tax Returns of
the Parent Group such increases in deductions, losses or tax credits or
decreases in income, gains, or recapture of tax credits. With respect to such
increases or decreases on Income Tax Returns, Parent shall, and shall cause the
Parent Group to, pay to Spinco the amounts of any Tax Benefits that result
therefrom, within ten days of the date such Tax Benefits are realized.
(c) No later than 30 days after the date on which Spinco or Parent,
as the case may be, receives notice pursuant to section 12(a) or (b) that a Tax
Benefit may be available to the Spinco Group or Parent Group, respectively,
Spinco or Parent, as the case may be, shall, and shall cause such members of the
Parent Group or the Spinco Group or, in the case of Spinco, such members of the
Old Company Group, as the case may be, to, as promptly as practicable, take such
steps (including, without limitation, the filing of amended returns or claims
for refunds where the amount of the Tax Benefit for any company in the aggregate
exceeds [$25,000]) necessary or appropriate to obtain such Tax Benefit.
Thereafter, Spinco or Parent, as the case may be, shall, and shall cause the
Parent Group or the Spinco Group or, in the case of Spinco, the Old Company
group, as the case may be, to, file all Income Tax Returns to obtain at the
earliest possible time such Tax Benefit to the maximum extent available.
Notwithstanding anything to the con-
14
<PAGE> 15
trary in this Section 12, either party may, at its election, pay the amount of
any Tax Benefit to the other party rather than filing amended returns or
otherwise reflecting adjustments or taking positions on its Tax Returns. If such
an election is made by a party, the party will be treated as having realized a
Tax Benefit at the time such Tax Benefit would have been realized if such party
had chosen to file amended returns or otherwise to reflect adjustments or to
take positions on its Tax Returns; provided, however, that such party shall pay
to the other party, no later than 20 days after such party receives notice from
the other party that a Tax Benefit may be available, the amount of Tax Benefit
that such party would have obtained if such party had filed an amended Tax
Return. Notwithstanding the foregoing, a party shall not be required to take
steps to obtain a Tax Benefit or to pay the other party, if, in the opinion of
such party's counsel, which counsel shall be reasonably acceptable to the other
party, there is not substantial authority to seek such Tax Benefit.
(d) For purposes of this Agreement, a Tax Benefit shall be deemed
to have been realized at the time any refund of Taxes is received or applied
against other Taxes due, or at the time of filing of an Income Tax Return
(including any relating to estimated Taxes) on which a loss, deduction or credit
is applied in reduction of Taxes which would otherwise be payable; provided,
however, that, where a party has other losses, deductions, credits or similar
items available to it, deductions, credits or items for which the other party
would be entitled to a payment under this Agreement shall be treated as the last
items utilized to produce a Tax Benefit. In accordance with the provisions of
this subsection (d), Spinco and Parent agree that where a Tax Benefit may be
realized that may result in a payment to, or reduce a payment by, the other
party hereto, each party will as promptly as practicable take or cause its
affiliate to take such reasonable or appropriate steps (including, without
limitation, the filing of an amended return or claim for refund) to obtain at
the earliest possible time any such reasonably available Tax Benefit. In the
event that after payment of a Tax Benefit under this subsection (d), such Tax
Benefit is reduced or eliminated because of a final decree or agreement of a
taxing authority or the carryback of losses or credits, then the party to whom
the Tax Benefit was paid shall pay
15
<PAGE> 16
to the other party the amount by which the Tax Benefit was reduced or eliminated
plus interest on the amount returned at the Underpayment Rate from the date of
payment to the date of repayment.
13. Payments.
(a) Any payment required by this Agreement that is not made on or
before the date provided hereunder shall bear interest after such date at the
Underpayment Rate. In the case of any payment required hereunder to be made
"promptly," such payment shall be considered late for purposes of this Agreement
if not made 20 days after notice that such payment is due is provided. All
payments made pursuant to this Agreement shall be made in immediately available
funds.
(b) All payments made pursuant to this Agreement shall be treated
as adjustments to the purchase price paid by Parent, and the parties shall not
file any Tax Returns or Information Returns inconsistent with this position.
14. Termination of Prior Tax Sharing Agreements. This Agreement shall
take effect on the Group Termination Date and shall replace all other
agreements, whether or not written, in respect of any Income Taxes or Other
Taxes between or among any members of the Old Company Group, or their respective
predecessors or successors, other than any such agreements made exclusively
between or among any members of the Spinco Group. All such replaced agreements
shall be cancelled as of the Group Termination Date, and any rights or
obligations existing thereunder thereby shall be fully and finally settled
without any payment by any party thereto.
15. Notices. All notices, requests, demands and other communications
required or permitted under this Agreement will be made in the manner provided
in Section 11.5 of the Distribution Agreement.
16. Entire Agreement; Amendments. This Agreement constitutes the entire
agreement of the parties concerning the subject matter hereof and supersedes all
prior agreements, whether or not written, concerning such subject matter. This
Agreement may not be amended except by an agreement in writing, signed by the
parties.
16
<PAGE> 17
17. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York regardless of the laws that
might otherwise govern under applicable New York principles of conflicts of law.
18. Counterparts. This Agreement may be exe- cuted in one or more
counterparts, each of which shall be an original and all of which shall
constitute together the same document.
19. Effective Date. This Agreement shall become effective only upon the
occurrence of the Group Termination Date and shall terminate and be null and
void and of no force and effect upon any termination of the Merger Agreement.
20. Successors and Assigns. This Agreement and all of the provisions
hereof shall be binding upon and inure to the benefit of the parties and their
respective successors and permitted assigns, provided, however, that no party
may assign any of its rights, benefits or obligations hereunder without first
obtaining consent of the other party.
17
<PAGE> 18
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
LORAL CORPORATION
By: /s/ Eric J. Zahler
--------------------------------
Name: Eric J. Zahler
Title: Vice President and
General Counsel
LORAL SPACE & COMMUNICATIONS
By: /s/ Eric J. Zahler
--------------------------------
Name: Eric J. Zahler
Title: Vice President and
General Counsel
LOCKHEED MARTIN CORPORATION
By: /s/ Frank H. Menaker, Jr.
--------------------------------
Name: Frank H. Menaker, Jr.
Title: Vice President and
General Counsel
LAC ACQUISITION CORPORATION
By: /s/ Stephen M. Piper
--------------------------------
Name: Stephen M. Piper
Title: Assistant Secretary
18
<PAGE> 1
Exhibit 10.2
EXECUTION COPY
SHAREHOLDERS AGREEMENT
dated as of April 23, 1996
by and among
LORAL CORPORATION,
and
LORAL SPACE & COMMUNICATIONS LTD.
<PAGE> 2
SHAREHOLDERS AGREEMENT
SHAREHOLDERS AGREEMENT, dated as of April 23, 1996 (the "AGREEMENT"),
by and among Loral Corporation, a New York corporation ("LORAL"), and Loral
Space & Communications Ltd., a Bermuda company (the "COMPANY"). Loral and those
of its Affiliates who are transferees with respect to any of the Equity
Securities (as defined below), are sometimes collectively referred to herein as
the "SHAREHOLDERS".
RECITALS:
WHEREAS, Lockheed Martin Corporation, a Maryland corporation ("LMC"),
Loral and certain subsidiaries of Loral entered into a Restructuring, Financing
and Distribution Agreement, dated as of January 7, 1996 (the "RESTRUCTURING
AGREEMENT"; all capitalized terms used in this Agreement but not otherwise
defined herein, shall have the respective meanings assigned to such terms in the
Restructuring Agreement), pursuant to which, after giving effect to the
Restructuring and the Distribution, Loral acquired 45,896,978 shares of Series A
Convertible Preferred Stock, par value $0.01 per share, of the Company (the
"PREFERRED STOCK"); and
WHEREAS, the Company and Loral desire to establish in this Agreement
certain conditions with respect to the relationship between the Shareholders and
the Company;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein and in the Restructuring Agreement, the parties hereto agree as
follows:
<PAGE> 3
I.
STANDSTILL AND VOTING PROVISIONS
1.1. Restrictions on Certain Actions by the Shareholders. (a)
During the Term (as defined in Article V below), each Stockholder will not, and
will cause each of its Affiliates (such term, as used in this Agreement, as
defined in Rule 12b-2 of the General Rules and Regulations under the Exchange
Act) not to, singly or as part of a partnership, limited partnership, syndicate
or other group (as those terms are used in Section 13(d)(3) of the Exchange
Act), directly or indirectly:
(i) acquire, offer to acquire, or agree to acquire, by
purchase, gift or otherwise, any Equity Securities (as defined below in
Section 1.1(c)), except pursuant to a stock split, stock dividend,
rights offering, recapitalization, reclassification, merger,
consolidation, corporate reorganization or similar transaction;
provided that at any time in which the Shareholders hold, in the
aggregate, less than twenty percent (20%) of the Total Voting Power,
then the Shareholders may acquire Equity Securities so that the
Shareholders hold, in the aggregate, up to twenty percent (20%) of the
Total Voting Power;
(ii) make, or in any way actively participate in, any
"solicitation" of "proxies" to vote (as such terms are defined in Rule
14a-1 under the Exchange Act), solicit any consent or communicate with
or seek to advise or influence any third party with respect to the
voting of any Equity Securities or become a "participant" in any
"election contest" (as such terms are defined or used in Rule 14a-11
under the Exchange Act), in each case with respect to the Company,
except as expressly provided in Section 1.7;
(iii) form, join or encourage the formation of, any
"person" or "group" within the meaning of Section 13(d) of the Exchange
Act with respect to any Equity Securities; provided that this Section
1.1(a)(iii) shall not prohibit any such arrangement solely among the
Shareholders and any of their respective Affiliates;
(iv) deposit any Equity Securities into a voting trust or
subject any such Equity Securities to any arrangement or agreement with
respect to the voting thereof; provided that this Section 1.1(a)(iv)
shall not prohibit any such arrangement solely among the Shareholders
and any of their respective Affiliates;
(v) initiate, propose or otherwise solicit Shareholders
for the approval of one or more stockholder proposals with respect to
the Company as described in Rule 14a-8 under the Exchange Act, or
induce or attempt to induce
<PAGE> 4
any other third party to initiate any stockholder proposal, except as
expressly provided in Section 1.7;
(vi) except as otherwise contemplated or permitted by this
Agreement (including, without limitation, pursuant to Section 1.2 or
1.7 hereof), seek to place a representative on the Board of Directors
of the Company or seek the removal of any member of the Board of
Directors of the Company, except with the approval of the Board of
Directors or management of the Company;
(vii) except with the approval of the Board of Directors or
management of the Company, call or seek to have called any meeting of
the Shareholders of the Company;
(viii) except through its representatives on the Board of
Directors (or any committee thereof) of the Company (if any) and except
as otherwise contemplated by this Agreement or the Restructuring
Agreement (including the agreements and other documents referred to
therein, including, without limitation, the Tax Sharing Agreement),
otherwise act to seek to control the management or policies of the
Company, except with the approval of the Board of Directors or
management of the Company;
(ix) sell or otherwise transfer in any manner any Equity
Securities to any "person" (within the meaning of Section 13(d)(3) of
the Exchange Act) who, immediately following such sale or transfer,
would, to the best of the Stockholder's knowledge, own more than four
percent (4%) of any class of Equity Securities or who, without the
approval of the Board of Directors of the Company, (A) has publicly
proposed a business combination or similar transaction with, or a
change of control of, the Company or who has publicly proposed a tender
offer for Equity Securities or (B) who has discussed with Loral or any
of its respective Affiliates the possibility of proposing a business
combination or similar transaction with, or a change in control of, the
Company;
(x) sell or otherwise transfer in any manner to any
person (as defined in clause (ix) above) in any single transaction or
series of related transactions more than 2% of the outstanding Equity
Securities;
(xi) solicit, seek to effect, negotiate with or provide
any information to any other party with respect to, or make any
statement or proposal, whether written or oral, to the Board of
Directors of the Company or any director or officer of the Company or
otherwise make any public announcement or proposal whatsoever with
respect to, any form of business combination transaction involving the
Company, including, without limitation, a merger, exchange offer or
liquidation of the Company's assets, or any
2
<PAGE> 5
corporate reorganization or similar transaction with respect to the
Company, except in each case with the approval of the Board of
Directors or management of the Company; or
(xii) instigate or encourage any third party to do any of
the foregoing.
Notwithstanding clauses (ix) and (x) above, the Shareholders may effect
any transaction contemplated by Article III hereof.
(b) Notwithstanding the provisions of this Section 1.1, nothing
herein shall apply with respect to any Equity Securities acquired from any
person other than a Stockholder (x) held by any pension, retirement or other
benefit plan managed by any Stockholder or any of its subsidiaries or other
Affiliates or (y) held in any account managed for the benefit of another person,
by any subsidiary or other Affiliate of any of the Shareholders which is engaged
in the financial services business. In addition, notwithstanding the provisions
of this Section 1.1, nothing herein shall prohibit or restrict any transfer of
Equity Securities to or among any of the subsidiaries or other Affiliates of any
of the Shareholders (provided that such subsidiary or Affiliate agrees to be
bound to the provisions of this Agreement, upon which such subsidiary or
Affiliate shall be entitled to all rights and benefits, and shall be subject to
all obligations, of a Stockholder under this Agreement).
(c) For the purposes of this Agreement, (i) the term "EQUITY
SECURITIES" shall mean the Preferred Stock and any securities entitled to vote
generally in the election of directors of the Company, or any direct or indirect
rights or options to acquire any such securities or any securities convertible
or exercisable into or exchangeable for such securities (provided that, in the
event that the Guaranty Warrants (as defined below) become warrants to acquire
Equity Securities, such Guaranty Warrants and any securities issued pursuant to
the exercise of such Guaranty Warrants, shall not (so long, in each case, as
they are held by the Stockholder) constitute Equity Securities for purposes of
determining the appropriate number of shares of Common Equity Securities which
Loral is entitled to acquire hereunder, including in connection with the
determination of the Target Percentage pursuant to Section 1.4(a) hereof), (ii)
the term "VOTING POWER" shall mean the voting power in the general election of
directors of the Company, (iii) the term "TOTAL VOTING POWER" shall mean the
total combined Voting Power of all the Equity Securities then outstanding,
including, without limitation, the Preferred Stock, and, insofar as the
Preferred Stock is concerned, it is deemed to have Voting Power equal to that of
the Common Stock into which it is convertible, (iv) the term "CHANGE OF CONTROL"
shall mean the occurrence of any of the following events: (A) any "person" or
3
<PAGE> 6
"group" (as such terms are used in Sections 13(d) and 14(d) of the Exchange Act)
is or becomes the beneficial owner of Equity Securities which represent at least
forty percent (40%) of the Total Voting Power, or (B) during any one-year
period, individuals who at the beginning of such period constituted the Board of
Directors of the Company (together with any new directors whose election by such
Board of Directors or whose nomination for election by the shareholders of the
Company was approved by a vote of a majority of the directors of the Company
then still in office who were either directors at the beginning of such period
or whose election or nomination for election was previously so approved) cease
for any reason to constitute a majority of the Board of Directors of the Company
then in office, (v) the term "BENEFICIAL OWNER", and terms having similar
import, shall mean any direct or indirect "beneficial owner", as such term is
defined in Rules 13d-3 and 13d-5 under the Exchange Act, and (vi) the term
"GUARANTY WARRANTS" shall mean those warrants which accrue to the benefit of the
Company in connection with the Globalstar Bank Guarantee, as described in the
Globalstar Warrant Memorandum.
1.2. HSR Clearance.
(a) At any time after the date hereof (but subject to the
provisions of Section 1.2(b) below), following a written request by Loral to the
Company (such request, the "HSR NOTICE"), the Company and the Shareholders will
(i) take promptly all actions necessary to make the filings required of the
Shareholders, the Company or any of their respective Affiliates under the HSR
Act (as defined in the Merger Agreement) with respect to the right to convert
Preferred Stock and continue to own the securities so received, the ownership
and voting of Equity Securities by the Shareholders, any of the transactions
contemplated by this Agreement or any other similar matters (all such exercise,
ownership, voting, transaction and other similar matters, the "FILING Matters"),
(ii) comply at the earliest practicable date with any request for additional
information or documentary material received by the Company or the Shareholders
or any of their Affiliates from any of the Federal Trade Commission, the
Antitrust Division of the Department of Justice, state attorneys general, the
Commission, or other governmental or regulatory authorities (all such
authorities, the "ANTITRUST AUTHORITIES"), and (iii) cooperate with each other
in connection with any of the filings referred to in clause (i) above and in
connection with resolving any investigation or other inquiry commenced by any of
the Antitrust Authorities. To the extent reasonably requested by Loral, the
Company shall use all reasonable efforts to resolve such objections, if any, as
may be asserted with respect to the Filing Matters. If any administrative,
judicial or legislative action or proceeding is instituted (or threatened to be
instituted) challenging any aspect of the Filing Matters as violative of any
Antitrust Law, each of the Shareholders and the Company shall cooperate with
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each other to contest and resist any such action or proceeding, and to have
vacated, lifted, reversed or overturned any decree, judgment, injunction or
other order (whether temporary, preliminary or permanent) that is in effect and
that restricts, prevents or prohibits the exercise by the Shareholders of the
right to convert Preferred Stock and continue to own the securities so received,
or the exercise by Loral of its rights with respect to the ownership and voting
of Equity Securities or any of the transactions contemplated by this Agreement
(any such decree, judgment, injunction or other order is hereafter referred to
as an "ORDER"), including, without limitation, by pursuing all reasonable
avenues of administrative and judicial appeal, provided that nothing contained
in this Section 1.2(a) shall be construed to require any party hereto to hold
separate or divest any of their respective assets or businesses or agree to any
substantive restriction thereon or on the conduct thereof. Each of the Company
and Loral shall promptly inform the other party of any material communication
received by such party from any Antitrust Authority regarding any of the Filing
Matters or any of the other transactions contemplated hereby. For the purposes
of this Agreement, the term "HSR CLEARANCE DATE" shall mean the first date on
which (x) any applicable waiting period under the HSR Act with respect to the
Filing Matters shall have expired or been terminated, (y) there shall not be
pending any Action commenced by any Antitrust Authority relating to any of the
Filing Matters or any of the other transactions contemplated hereby, and (z)
there shall not be in effect any Order.
(b) Notwithstanding the provisions of Section 1.2(a) above, in the
event that Loral delivers the HSR Notice to the Company, the Company shall be
entitled to postpone for a reasonable period of time (but in no event later than
45 days), any filing referred to in Section 1.2(a)(i) above if the Company
determines in its reasonable judgment and in good faith that such filing would
delay the obtaining of any approval from an Antitrust Authority with respect to
any announced or imminent material acquisition or disposition which would
require a filing by the Company under the HSR Act. In the event of such
postponement, Loral shall have the right to withdraw its HSR Notice and may
deliver any such HSR Notice at any time thereafter.
1.3. Voting.
(a) General Voting Provisions. Prior to the HSR Clearance Date, no
Stockholder shall have the right to convert Preferred Stock into common stock or
the right to vote any Equity Securities with respect to the election of
directors of the Company. Following the HSR Clearance Date, each Stockholder
shall have the right to vote its Equity Securities to the extent permitted by
the terms thereof on any matters submitted to a vote of the Shareholders of the
Company, provided that following the HSR Clearance Date any Stockholder shall
have the right to vote
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<PAGE> 8
any Equity Securities to the extent permitted by the terms thereof with respect
to the election of directors of the Company without restriction, provided that,
except as expressly provided in Section 1.7, in the event of an "election
contest" (as such term is used in Rule 14a-11 under the Exchange Act) each
Stockholder shall have the right to vote in the election contest only (i) as
recommended by the Board of Directors or management of the Company or (ii) in
the same proportions as the holders of Equity Securities (other than
Shareholders) vote their Securities. On each matter with respect to which a
Stockholder is entitled to vote pursuant to this Section 1.3, each such
Stockholder shall be present, in person or represented by proxy, at all such
stockholder meetings of the Company so that all Equity Securities beneficially
owned by it shall be counted for the purpose of determining the presence of a
quorum at such meetings. For purposes of this Section 1.3, all references to the
term "vote" shall include the execution and delivery of any written consent with
respect to the taking of any shareholder action in lieu of a meeting of
shareholders.
(b) Company Call. If, within one year following the date hereof,
the Shareholders vote against any Call Event Triggering Transaction (as defined
below), the Company shall have the right, for 10 days following the date on
which such vote is held, to purchase, and the Shareholders shall be required to
sell to the Company, all, but not less than all, of the Equity Securities held
by the Shareholders at a per share cash price equal to the Call Event Trigger
Price (as defined below). The Company may exercise such right by delivering to
each Stockholder, within such 10-day period, a written notice stating that the
Company has irrevocably agreed to purchase in cash all (but not less than all)
of the Equity Securities held by the Shareholders at the Call Event Trigger
Price upon the terms and conditions set forth in this Section 1.3(b). The
closing with respect to the purchase of Equity Securities by the Company
pursuant to this Section 1.3(b) shall be on a mutually determined closing date
which shall not be more than 15 days after the date on which the Company's
written notice referred to above is delivered to the Shareholders. The closing
shall be held at 10:00 A.M., local time, at the principal office of the Company,
or at such other time or place as the parties mutually agree. On such closing
date, each Stockholder shall deliver (i) certificates representing the shares of
Equity Securities being sold, free and clear of any lien, claim or encumbrance,
and (ii) such instruments of transfer and evidence of ownership and authority as
the Company may reasonably request. The purchase price shall be paid by the
Company to each Stockholder by wire transfer of immediately available funds no
later than 2:00 P.M. on the closing date to the account(s) designated by the
Shareholders prior to such closing date.
(c) Certain Definitions. For purposes of Section 1.3,
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(i) the term "CALL EVENT TRIGGERING TRANSACTION" shall
mean a transaction between the Company, on the one hand, and any Spinco
Company (or any other Subsidiary of either the Company or a Spinco
Company), on the other hand, involving (x) any merger, consolidation,
corporate reorganization or similar transaction involving the Company;
or (y) any sale, lease, exchange, transfer or other disposition,
directly or indirectly, in a single transaction or series of related
transactions, of all or substantially all of the assets of the Company
or any of its Affiliates; provided that the term "Call Event Triggering
Transaction" shall not include any transaction involving any party
which is not a Spinco Company (or any other Subsidiary of either the
Company or a Spinco Company); and
(ii) the term "CALL EVENT TRIGGER PRICE" shall mean the
sum of (x) $344,000,000.00, plus (y) all amounts expended by the
Shareholders following the date hereof in connection with the
acquisition of Equity Securities other than acquisitions from another
Stockholder following the date hereof, minus (z) any net sales proceeds
received by the Shareholders following the date hereof in connection
with the sale of Equity Securities (other than sales to another
Stockholder) following the date hereof.
1.4. Loral Option.
(a) General Provisions Relating to Loral Option. If, within five
years following the date hereof, any Option Event Triggering Transaction (as
defined below) occurs, Loral shall have the right, within 90 days after the
consummation of the Option Event Triggering Transaction, to purchase, and the
Company (for purposes of this Section 1.4, all references to the "COMPANY" shall
be deemed to include the Surviving Corporation (as defined below), shall be
required to sell to Loral, a number of shares of Preferred Stock which would
cause Loral to own Equity Securities with Voting Power equal to the Target
Percentage (as defined below) of the Total Voting Power immediately after giving
effect to the consummation of the Option Event Triggering Transaction, at a per
share cash price equal to the Option Event Trigger Price (as defined below).
Loral may exercise such right by delivering to the Company, within such 90-day
period, a written notice stating that Loral (or any Subsidiary of Loral
designated by Loral; for purposes of this Section 1.4, all references to "LORAL"
shall be deemed to include such designated Subsidiary) has irrevocably agreed to
purchase in cash the number of shares of Preferred Stock specified in the
preceding sentence, at the Option Event Trigger Price, upon the terms and
conditions set forth in this Section 1.4. The closing with respect to the
purchase of Preferred Stock by the Company pursuant to this Section 1.4 shall be
on a mutually determined closing date which shall not be more than 15 days after
the date on which Loral's written notice referred to above is delivered to
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<PAGE> 10
the Company. The closing shall be held at 10:00 A.M., local time, at the
principal office of the Company, or at such other time or place as the parties
mutually agree. On such closing date, the Company shall issue to Loral
certificates representing the shares of Preferred Stock being sold, which shall
be validly issued, fully paid and non-assessable and free and clear of any lien,
claim or encumbrance. The purchase price shall be paid by Loral to the Company
by wire transfer of immediately available funds no later than 2:00 P.M. on the
closing date to the account designated in writing by the Company prior to such
closing date. For purposes of this Section 1.4,
(i) the term "OPTION EVENT TRIGGERING TRANSACTION" shall
mean a transaction involving as parties, among others, the Company or
any of its Affiliates (other than GTL and Globalstar), on the one hand,
and either GTL or Globalstar or any of their respective Subsidiaries,
on the other hand, involving either (x) a Call Event Triggering
Transaction (including, without limitation, a similar transaction
involving the merger, consolidation, reorganization, sale, lease,
exchange, transfer or other disposition of all or substantially all of
the assets, of Globalstar, GTL or their respective Subsidiaries) or the
liquidation or (y) dissolution of the Company;
(ii) the term "OPTION EVENT TRIGGER PRICE" shall mean with
respect to an Option Event Trigger Transaction occurring (x) on or
prior to the first anniversary hereof, a $6.00 per share cash purchase
price, subject to adjustment pursuant to the provisions of Section
1.4(b) hereof or (y) after the first anniversary hereof but on or prior
to the fifth anniversary hereof, a per share price equal to 80% of the
per share price of the Company implicit in the Option Event Triggering
Transaction;
(iii) the term "SURVIVING CORPORATION" shall mean any
successor to the rights and obligations of the Company as a result of
or in connection with any Option Event Triggering Transaction; and
(iv) the term "TARGET PERCENTAGE" shall mean a percentage
amount equal to the percentage of the Total Voting Power represented by
the Equity Securities held by the Shareholders immediately prior to the
closing of the Option Event Triggering Transaction; provided, however,
that if there has occurred within the five days preceding such closing
an event that diluted the Voting Power of the Equity Securities held by
the Shareholders, the Target Percentage shall be determined as of the
date five days prior to the closing of such Option Event Triggering
Transaction.
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(b) Adjustment of Loral Option Event Trigger Price. The Option
Event Trigger Price shall be equitably adjusted from time to time after the date
hereof to take into account of any of the following events: (i) if the Company
shall pay a dividend or make any other distribution with respect to any Equity
Securities which is payable in the form of Equity Securities or in the form of
any other Asset (other than normal, periodic cash dividends of the Company),
(ii) if the Company shall subdivide its outstanding common stock, (iii) if the
Company shall combine its outstanding common stock into a smaller number of
shares, (iv) if the Company shall issue any shares of its capital stock in a
reclassification of the Common Stock (including any such reclassification in
connection with a merger, consolidation or other business combination involving
the Company), or (v) in any other similar transaction affecting the Company or
the number or value of the outstanding Equity Securities. The parties
acknowledge and agree that each such equitable adjustment shall preserve for
Loral the economic benefits of the Loral option set forth in Section 1.4(a)
above.
1.5. Globalstar Warrant Put Option. In the event of any of the
following transactions (each such transaction, a "WARRANT TRIGGER EVENT"):
(i) any merger, consolidation, corporate reorganization
or similar transaction involving Globalstar or GTL;
(ii) any sale, lease, exchange, transfer or other
disposition, directly or indirectly, of all or substantially all of the
assets of Globalstar or GTL; or
(iii) any liquidation or dissolution of Globalstar or GTL;
in which it is proposed that the Globalstar Warrants be converted into cash or
the right to receive cash, or any other interest (or the right to receive any
other interest) in Globalstar other than common stock thereof the Shareholders
shall have the right (the "LIMITED WARRANT PUT") to require the Company to
purchase the Globalstar Warrants for a price equal to their Option Privilege
Value (as defined below). The Shareholders may exercise the Limited Warrant Put
by delivering to the Company, at least 10 days prior to the scheduled closing of
the Warrant Trigger Event, a notice to such effect accompanied by appropriate
documentation or certificates evidencing the Globalstar Warrants. The Option
Privilege Price shall be payable by the Company 10 days after the determination
thereof. As used herein, the term "OPTION PRIVILEGE PRICE" means the greater of
(x) the consideration payable in respect of the Globalstar Warrants in the
Warrant Trigger Event and (y) the hypothetical fair market value that would be
assigned to the Globalstar Warrants at the date of the
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Warrant Trigger Event assuming (1) that no Warrant Trigger Event were to occur
then or at any time prior to the expiration of the Globalstar Warrants, (2) that
the Globalstar Warrants would remain outstanding until such expiration in
accordance with their terms, exercisable for shares of or interests in the
issuer thereof, and (3) that such issuer would remain a public company during
such period. The Option Privilege Price shall be determined by an investment
banking firm of national standing selected by agreement of the Company and the
Shareholders or, failing such agreement, by agreement of Bear Stearns Co. Inc.
and Lehman Brothers. Such investment banking firm shall, in determining the
Option Privilege Price, give full effect to (i) the spread between the exercise
price and the fair market value of the securities into which the Globalstar
Warrants are exercisable and (ii) the value of the "option privilege" in the
Globalstar Warrants (that is, the value of the right, without risking any
capital, to speculate on and benefit from appreciation in the underlying
securities).
1.6. Required Sales by Shareholders.
(a) Immediately following any repurchase by the Company of any of
its outstanding Equity Securities which repurchase has the effect of increasing
the Total Voting Power of all Shareholders to an amount in excess of 20% of
Total Voting Power (a "REPURCHASE EVENT"), the Company shall give written notice
(the "REPURCHASE EVENT NOTICE") thereof to each Stockholder. The Repurchase
Event Notice shall set forth in reasonable detail the transactions resulting in
the Repurchase Event, specify the Repurchase Price (as defined in Section 1.6(c)
hereof) and set a date (the "REPURCHASE DATE") for the repurchase by the Company
of the Adjustment Securities (as defined in Section 1.6(b) hereof) as
contemplated by Section 1.6(b) hereof. The Repurchase Date shall be not sooner
than 15 nor later than 25 business days after either (i) the date the Repurchase
Event Notice is sent to the Stockholder or (ii) if the provisions of Section
1.6(d)(ii) hereof are applicable, the Section 16(d) Date (as defined in Section
1.6(d)(ii) hereof).
(b) Subject to the provisions of Section 1.6(c) and (d) hereof, on
the Repurchase Date the Company shall purchase from each Stockholder and each
Stockholder shall sell to the Company, a number of shares of Equity Securities
(the "ADJUSTMENT SECURITIES") held by the Stockholder equal to the product of
(i) the aggregate number of shares of Equity Securities of all Shareholders less
the aggregate number of shares of Equity Securities constituting 20% of the
Total Voting Power, multiplied by (ii) the number of shares of Equity Securities
held by the Stockholder divided by the number of shares of Equity Securities
held by all Shareholders. The closing with respect to the purchase of Adjustment
Securities shall be held on the Repurchase Date at 10:00 a.m. local time at the
principal office of the Company, or at such other place and time as the parties
mutually
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agree. On the Repurchase Date each Stockholder (other than an Electing
Stockholder (as defined in Section 1.6(d) hereof)) shall deliver (i)
certificates representing the Adjustment Securities free and clear of any lien,
claim or encumbrance, and (ii) such instruments of transfer and evidence of
ownership and authority as the Company may reasonably request. The Company shall
pay the purchase price to the Stockholder by wire transfer of immediately
available funds no later than 2:00 p.m. on the Repurchase Date to an account
designated by the Stockholder prior to the Repurchase Date.
(c) The per share repurchase price of the Adjustment Securities
(the "REPURCHASE PRICE") shall be equal to the per share price paid by the
Company in respect of the repurchase of Equity Securities resulting in the
Repurchase Event; provided, that if after the immediately preceding Repurchase
Event (or if none, the date of this Agreement) (the "PRIOR REPURCHASE EVENT")
the Company has repurchased Equity Securities at different prices, then the
Repurchase Price shall be equal to the highest per share price paid by the
Company to repurchase Equity Securities after the Prior Repurchase Event
(exclusive of repurchases after which the Stockholder's Total Voting Power was
less than or equal to 20%); provided, however, that if pursuant to the preceding
provisions of this Section 1.6(c) the Repurchase Price would be less than the
Initial Purchase Price (as defined below), then each Stockholder may elect to
sell the Adjustment Securities in accordance with the provisions of Section
1.6(d) hereof in lieu of selling the Adjustment Securities to the Company by
giving written notice to the Company (the "MARKET SALE NOTICE"), within 10
business days after receipt of the Repurchase Event Notice, that the Stockholder
has elected to sell the Adjustment Securities pursuant to the provisions of
Section 1.6(d) hereof. For purposes of this Agreement, the "INITIAL PURCHASE
PRICE" means the price paid by the Stockholder (or its Affiliate) for the
Adjustment Securities, increased at the rate of 10% per annum, compounded
annually, from the date of the acquisition thereof through the date of the
Repurchase Event Notice; it being understood that to the extent the Adjustment
Securities include Equity Securities acquired by the Stockholder (or its
Affiliate) on or before the Distribution Date (as defined in the Distribution
Agreement), then (i) the Initial Purchase Price therefor shall be equal to $344
million divided by the number of shares of Equity Securities beneficially owned
by the Shareholders immediately after the Distribution (subject to adjustment to
reflect (1) the 10% annual compound rate of increase, (2) any of the events
contemplated by Section 1.4(b) hereof, and (3) any stock splits, reverse stock
splits, stock dividends or other similar events), and (ii) the date of
acquisition thereof shall be the Distribution Date.
(d) If a Stockholder delivers the Market Sale Notice to the
Company in the time required by Section 1.6(c) hereof (the "ELECTING
STOCKHOLDER"), then the Electing Stockholder may sell
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its Adjustment Securities to any one or more third parties not Affiliates of the
Shareholders; provided, that such sale of Adjustment Securities shall be
completed on or before the date that is the later of (i) the six-month
anniversary of the Repurchase Event Notice (the "FIRST DATE"), (ii) the earliest
date after the First Date on which Adjustment Securities can be sold by the
Electing Stockholder without liability resulting therefrom under Section 16(b)
of the Securities Exchange Act of 1934, as amended, and the rules and
regulations promulgated thereunder (the "SECTION 16(B) DATE"), (iii) provided
the Electing Stockholder has requested in the Market Sale Notice the
registration of the Adjustment Securities pursuant to Article III hereof, the
six-month anniversary of the effective date of a registration statement filed
with respect to the Adjustment Securities under the Securities Act of 1933, as
amended, which registration statement has not after it becomes effective been
interfered with by any stop order, injunction or other order or requirement of
the SEC or other governmental agency or court for any reason other than a
misrepresentation or omission by the Electing Stockholder and, as a result
thereof, the Adjustment Securities cannot be distributed in accordance with the
plan of distribution, and (iv) provided clause (iii) of this Section 1.6(d) is
not applicable, the earliest date after the Repurchase Event Notice which is the
end of a period during which the Adjustment Securities could have been sold
pursuant to Rule 144 (or any similar provision then in force).
(e) The Electing Stockholder may demand that Adjustment Securities
be registered under the Securities Act pursuant to Article III hereof; provided,
that a registration of Adjustment Securities pursuant to Article III hereof
shall not be (i) subject to the limitation set forth in Section 3.1(a) hereof on
the minimum number of shares that can be registered pursuant to Article III, and
(ii) counted as one of the five requests for registration permitted under
Section 3.1(a) hereof.
(f) Except to the extent otherwise expressly provided in this
Section 1.6, the provisions of this Agreement shall not in any manner limit or
otherwise restrict the rights of an Electing Stockholder to transfer Adjustment
Securities
1.7. Special Nominating and Voting Rights.
(a) Notwithstanding anything to the contrary contained in this
Agreement, from and after the seventh anniversary of the date hereof, the
Shareholders shall have the right to nominate for election to the Board of
Directors a Proportionate Number (as defined below) of nominees ("STOCKHOLDER
NOMINEES") and to vote their Equity Securities in favor of their election.
(b) With respect to each meeting of shareholders of the Company at
which directors are to be elected which occurs on or after the seventh
anniversary of the date hereof, the Company
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will give the Shareholders 30 days' prior written notice of the filing with the
SEC of proxy materials with respect thereto. On or before the 10th day following
receipt of such notice the Shareholders shall notify the Company if they intend
to propose Stockholder Nominees and within 10 days thereafter shall supply the
Company with the Special Nominee Information (as defined below). The Company
will include the Special Nominee Information in its proxy materials with respect
to such meeting, and the Shareholders will not engage in any action otherwise
prohibited by Section 1.1(ii) or (v) with respect to the Stockholder Nominees or
otherwise.
(c) In the event that, following any election of Stockholder
Nominees to the Board of Directors and before the next meeting of shareholders
at which directors are elected, the size of the Board of Directors is increased
so as to increase the Proportionate Number of directors, the Company will use
its best efforts to create additional seats on the Board of Directors, offer the
Shareholders the right to propose additional Stockholder Nominees to fill such
vacancies and use its best efforts to cause such vacancies to be filled by any
such nominees so that the Stockholder Nominees would constitute a Proportionate
Number of the enlarged Board.
(d) The Company will not propose, and will use its best efforts to
prevent, the adoption of any amendment of any of the charter documents of the
Company that would adversely affect the rights of the Shareholders under this
Agreement.
(e) As used in this Section 1.7, the following terms are used as
defined below:
"PROPORTIONATE NUMBER" means a number of directors or nominees, as the
case may be, rounded up to the nearest whole number, that would represent a
proportion of the entire Board of Directors (after giving effect to the election
of Directors or enlargement of the Board in question) equal to the proportion of
the Total Voting Power of the Company that is represented by the Voting Power of
the Equity Securities beneficially owned by the Shareholders, provided, that if
the Proportionate Number (as calculated above) would otherwise be reduced if the
total number of members of the Board of Directors were reduced by a single
member, the Proportionate Number will be calculated by rounding down, rather
than rounding up, to the nearest whole number.
"SPECIAL NOMINEE INFORMATION" means the information as to each nominee
for director required to be included in the Company's proxy materials under the
Exchange Act and the rules and regulations thereunder, and may include a brief
statement as to the qualifications of the Stockholder Nominees and the
Shareholders' reasons for seeking their election to the board, but shall not
include any invidious comparisons between the Stockholder Nominees and other
nominees for director or any
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criticism of the other nominees for director or of incumbent management, its
policies or the Company's performance.
II.
TRANSFER RESTRICTIONS
2.1. Certain Transactions. Notwithstanding anything contained in
this Agreement to the contrary, a Stockholder may without restriction:
(i) assign, pledge, mortgage, hypothecate, or otherwise
encumber or transfer all or any of its Equity Securities in connection
with any bona fide financing arrangement entered into by such person or
otherwise in connection with any indebtedness owed by such Stockholder;
provided that in the event that the Stockholder in question defaults,
the creditor's rights and obligations with respect to the voting and
transfer of such Equity Securities and the registration thereof shall
be the same as the Stockholder in question had under the provisions of
this Agreement and the creditor in question shall be deemed to be a
Stockholder under this Agreement for such purposes;
(ii) transfer any Equity Securities to another Stockholder
or any subsidiary or other Affiliate thereof (provided that such
subsidiary or Affiliate agrees to be bound to the provisions of this
Agreement, upon which such subsidiary or Affiliate shall be entitled to
all rights and benefits, and shall be subject to all obligations, of a
Stockholder under this Agreement);
(iii) transfer any Equity Securities pursuant to any
registered public offering in connection with the provisions of Article
III hereof or pursuant to the provisions of Rule 144 (or any similar
provision then in force) under the Securities Act provided that such
transfer under Rule 144 or any similar provision meets the volume
restrictions set forth in Rule 144 as in effect on the date hereof; or
(iv) transfer any Equity Securities pursuant to any
merger, consolidation, corporate reorganization, restructuring or any
other similar transaction affecting the Company or pursuant to any
involuntary transfer.
2.2. Rights Pursuant to a Tender Offer. Each Stockholder (any such
Stockholder shall, for purposes of this Section 2.2, be referred to as a
"TENDERING STOCKHOLDER") shall have the right to sell or exchange all its Equity
Securities pursuant to a tender or exchange offer for the Equity Securities
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(an "OFFER"). However, during the Term, prior to such sale or exchange, the
Tendering Stockholder shall give the Company the opportunity to purchase such
Equity Securities in the following manner:
(i) The Tendering Stockholder shall give notice (the
"TENDER NOTICE") to the Company in writing of its intention to sell or
exchange Equity Securities in response to an Offer no later than three
calendar days prior to the latest time (including any extensions) by
which Equity Securities must be tendered in order to be accepted
pursuant to such Offer, specifying the amount of Equity Securities
proposed to be tendered by the Tendering Stockholder (the "TENDERED
SHARES") and the purchase price per share specified in the Offer at the
time of the Tender Notice.
(ii) If the Tender Notice is given, the Company shall have
the right to purchase all, but not less than all, of the Tendered
Shares exercisable by giving written notice (an "EXERCISE NOTICE") to
the Tendering Stockholder at least two calendar days prior to the
latest time after delivery of the Tender Notice by which Equity
Securities must be tendered in order to be accepted pursuant to the
Offer (including any extensions thereof) and depositing in any escrow
or similar arrangement reasonably acceptable to the Tendering
Stockholder, a sum in cash sufficient to purchase all Tendered Shares
at the price then being offered in the Offer, without regard to any
provision thereof with respect to proration or conditions to the
offeror's obligation to purchase. The delivery by the Company of an
Exercise Notice and deposit of funds as provided above will, except as
provided below, constitute an irrevocable agreement by the Company to
purchase, and the Tendering Stockholder to sell, the Tendered Shares in
accordance with the terms of this Section 2.2, whether or not the Offer
or any other tender or exchange offer (a "COMPETING TENDER OFFER") for
Equity Securities that was outstanding during the Offer is consummated.
(iii) The purchase price to be paid by the Company for any
Equity Securities purchased by it pursuant to this Section 2.2 shall be
the highest price offered or paid in the Offer or in any Competing
Tender Offer. For purposes hereof, the price offered or paid in a
tender or exchange offer for Voting Shares shall be deemed to be the
price offered or paid pursuant thereto, without regard to any
provisions thereof with respect to proration or conditions to the
offeror's obligation to purchase. If the purchase price per share
specified in the Offer includes any property other than cash (the
"OFFER NONCASH PROPERTY"), the purchase price per share at which the
Company shall be entitled to purchase all, but not less than all, of
the Equity Securities specified in the Tender Notice shall be
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<PAGE> 18
(y) the amount of cash per share, if any, specified in such Offer (the
"CASH PORTION"), plus (z) an amount of cash per share equal to the
value of the Offer Noncash Property per share (the "CASH VALUE OF OFFER
NONCASH PROPERTY"), as determined in good faith by the mutual agreement
of the parties hereto, or if the parties cannot agree, by an
independent, nationally recognized investment banking firm selected by
the Tendering Shareholders and reasonably acceptable to the Company. If
the Company exercises its right of first refusal by giving an Exercise
Notice, the closing of the purchase of the Equity Securities with
respect to such right (the "CLOSING") shall take place at 3:00 p.m.,
local time (or, if earlier, two hours before the latest time by which
Equity Securities must be tendered in order to be accepted pursuant to
the Offer), on the last day on which Equity Securities must be tendered
in order to be accepted pursuant to the Offer (including any extensions
thereof) (the "LAST TENDER DATE"), and the Company shall pay the
purchase price for the Equity Securities specified above. The Tendering
Stockholder shall be entitled to rescind its Tender Notice at any time
prior to the Last Tender Date by notice in writing to the Company;
provided that if on or before the Last Tender Date, the Company
publicly announces that the Company has approved, proposed or entered
into an agreement with respect to (either individually or together with
any other persons) a recapitalization, reorganization or business
combination with respect to the Company or all or substantially all of
its assets, or a self-tender offer, the Tendering Stockholder shall be
entitled to rescind its Tender Notice by notice in writing to the
Company at any time prior to the Closing on the Last Tender Date. If
the Tendering Stockholder rescinds its Tender Notice pursuant to the
immediately preceding sentence, the Company's Exercise Notice with
respect to such Offer shall be deemed to be immediately rescinded and
the Tendering Stockholder's disposition of its Equity Securities in
response to the Offer with respect to which the Tender Notice is
rescinded or any other Offer shall again be subject to all of the
provisions of this Section 2.2.
(iv) If the Company does not exercise its right of first
refusal set forth in this Section 2.2 within the time specified for
such exercise by giving an Exercise Notice, then the Tendering
Stockholder shall be free to accept, for all its Equity Securities, the
Offer with respect to which the Tender Notice was given or any
Competing Tender Offer (including any increases and extensions
thereof).
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<PAGE> 19
III.
REGISTRATION RIGHTS
3.1. Registration Upon Request.
(a) At any time commencing on the date hereof and continuing
thereafter, each Stockholder (any such Stockholder, whether registering
securities pursuant to this Section 3.1 or Section 3.2, shall be referred to as
a "REGISTERING STOCKHOLDER") shall have the right to make written demand upon
the Company, on not more than five separate occasions (subject to the provisions
of this Section 3.1), to register under the Securities Act, any common stock or
other securities of the Company held by it (the securities subject to such
demand hereunder or subject to the provisions of Section 3.2 being referred to
in each case as the "SUBJECT SECURITIES"), and the Company shall use its best
efforts to cause such securities to be registered under the Securities Act as
soon as reasonably practicable so as to permit the sale thereof promptly;
provided that each such demand shall cover at least the lesser of (i) 10 million
shares of Common Stock or Preferred Stock convertible into 10 million shares of
Common Stock and (ii) shares having a market value of $150 million shares of
Common Stock (subject to adjustment for stock splits, reverse stock splits,
stock dividends and similar events after the date hereof). In connection
therewith, the Company shall prepare, and as soon as reasonably practicable but
in no event later than 90 days of the receipt of the request, file, on Form S-3
if permitted or otherwise on the appropriate form, a registration statement
under the Securities Act to effect such registration. Such registration shall be
effected in accordance with the intended method or methods of disposition
specified by the Registering Shareholders (including, but not limited to, an
offering on a delayed or continuous basis pursuant to Rule 415 (or any successor
rule to similar effect) promulgated under the Securities Act). Each Registering
Stockholder agrees to provide all such information and materials and to take all
such action as may be reasonably required in order to permit the Company to
comply with all applicable requirements of the Securities Act and the SEC and to
obtain any desired acceleration of the effective date of such registration
statement. If the offering to be registered is to be underwritten, the managing
underwriter shall be selected by the Registering Shareholders and shall be
reasonably satisfactory to the Company. Notwithstanding the foregoing, the
Company (i) shall not be obligated to prepare or file more than one registration
statement other than for purposes of a stock option or other employee benefit or
similar plan during any twelve-month period, (ii) shall be entitled to postpone
for a reasonable period of time (but in no event later than 60 days), the filing
of any registration statement otherwise required to be prepared and filed by the
Company if (A) the Company is, at such time, conducting or about to conduct an
underwritten public offering of securities and is advised by its
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<PAGE> 20
managing underwriter or underwriters in writing (with a copy to the Registering
Shareholders), that such offering would, in its or their opinion, be materially
adversely affected by the registration so requested, or (B) the Company
determines in its reasonable judgment and in good faith that the registration
and distribution of the Subject Securities would interfere with any announced or
imminent material financing, acquisition, disposition, corporate reorganization
or other material transaction of a similar type involving the Company. In the
event of such postponement, the Registering Shareholders shall have the right to
withdraw the request for registration by giving written notice to the Company
within 20 days after receipt of the notice of postponement (and, in the event of
such withdrawal, such request shall not be counted for purposes of determining
the number of registrations to which the Registering Shareholders are entitled
pursuant to this Section 3.1).
(b) The Company shall not grant to any other holder of its
securities, whether currently outstanding or issued in the future, any
incidental or piggyback registration rights with respect to any registration
statement filed pursuant to a demand registration under this Section 3.1 and
without the prior consent of the Registering Shareholders, the Company will not
itself, and will not permit any other holder of its securities to, participate
in any offering made pursuant to a demand registration under this Section 3.1.
The Company may grant to other holders of its securities incidental or piggyback
registration rights on a primary offering by the Company which are no more
favorable to such holders than the provisions set forth in Section 3.2 are to
the Shareholders. If the Registering Shareholders consents to the inclusion of
offers and sales of any other securities in a registration pursuant to this
Section 3.1 and the underwriter(s) retained in connection with such registration
subsequently advise the Registering Shareholders that such offering would be
adversely affected by the inclusion of such other securities, the Registering
Shareholders may in their sole discretion exclude all or some of such securities
from such registration.
(c) Any registration requested by any Registering Stockholder
pursuant to this Section 3.1 shall not be deemed to have been effected (and,
therefore, not requested for purposes of this Section 3.1), (i) unless it has
become effective, (ii) if after it has become effective such registration is
interfered with by any stop order, injunction or other order or requirement of
the SEC or other governmental agency or court for any reason other than a
misrepresentation or an omission by the Registering Shareholders and, as a
result thereof, the Subject Securities requested to be registered cannot be
completely distributed in accordance with the plan of distribution set forth in
the related registration statement or (iii) if the closing pursuant to the
purchase agreement or underwriting agreement entered into in connection with
such registration does not occur. Any registration effected pursuant to Section
3.2 shall not be deemed
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<PAGE> 21
to have been requested by a Registering Stockholder for purposes of this Section
3.1.
3.2. Incidental Registration Rights. If the Company proposes to
register any of its Equity Securities under the Securities Act for its own
account (other than (i) pursuant to Section 3.1 hereof, (ii) securities to be
issued pursuant to a stock option or other employee benefit or similar plan, and
(iii) securities proposed to be issued in exchange for securities or assets of,
or in connection with a merger or consolidation with, another corporation), the
Company shall, as promptly as practicable, give written notice to the
Registering Shareholders of the Company's intention to effect such registration.
If, within 15 days after receipt of such notice, a Registering Stockholder
submits a written request to the Company specifying the amount of Equity
Securities that it proposes to sell or otherwise dispose of in accordance with
this Section 3.2, the Company shall use its best efforts to include the
securities specified in the Registering Stockholder's request in such
registration. If the offering pursuant to such registration statement is to be
made by or through underwriters, the managing underwriters shall be chosen by
the Company and shall be reasonably satisfactory to the Registering Shareholders
and the Company, and the Registering Shareholders and such underwriter shall
execute an underwriting agreement in customary form. If the managing underwriter
reasonably determines in good faith and advises the Registering Shareholders in
writing that the inclusion in the registration statement of all the Equity
Securities proposed to be included would interfere with the successful marketing
of the securities proposed to be registered, then the Company and the
Registering Shareholders shall negotiate in good faith to agree upon an
equitable adjustment in the number or amount of securities of each to be
included in such underwriting (provided that in the event that the Company and
the Registering Shareholders are unable to agree upon an equitable adjustment in
the number or amount of securities of each to be included in such underwriting,
then the number of securities which the Company and the Registering Shareholders
propose to register shall be reduced pro rata (based upon the respective market
values of each party's respective share of the total number of securities
proposed to be registered). No registration effected under this Section 3.2
shall relieve the Company of its obligation to effect any registration upon
request under Section 3.1. If the Registering Shareholders are permitted to
participate in a proposed offering pursuant to this Section 3.2, the Company
thereafter may determine either not to file a registration statement relating
thereto, or to withdraw such registration statement, or otherwise not to
consummate such offering, without any liability hereunder. Any underwriters
participating in a distribution of the Subject Securities pursuant to Sections
3.1 and 3.2 hereof shall use all reasonable efforts to effect as wide a
distribution as is reasonably practicable, and in no event shall any sale of
Subject Securities be made knowingly to any person (including its Affiliates and
any
19
<PAGE> 22
group in which that person or its Affiliates shall be a member, or the
Registering Shareholders or the underwriters know of the existence of such a
group or Affiliate) that, immediately prior to giving effect to any such sale,
beneficially owned Equity Securities representing five percent (5%) or more of
the Total Voting Power. The Registering Shareholders and the Company shall use
all reasonable efforts to secure the agreement of the underwriters, in
connection with any underwritten offering of its Equity Securities, to comply
with the foregoing.
3.3. Registration Mechanics. (a) In connection with any offering of
Subject Securities registered pursuant to Section 3.1 or 3.2 herein, the Company
shall (i) furnish to the Registering Shareholders such number of copies of any
prospectus (including preliminary and summary prospectuses) and conformed copies
of the registration statement (including amendments or supplements thereto and,
in each case, all exhibits) and such other documents as any Registering
Stockholder may reasonably request; (ii)(A) use its best efforts to register or
qualify the Subject Securities covered by such registration statement under such
blue sky or other state securities laws for offer and sale as the Registering
Shareholders shall reasonably request and (B) keep such registration or
qualification in effect for so long as the registration statement remains in
effect; provided that the Company shall not be obligated to qualify to do
business as a foreign corporation under the laws of any jurisdiction in which it
shall not then be qualified or to file any general consent to service of process
in any jurisdiction in which such a consent has not been previously filed or
subject itself to taxation in any jurisdiction wherein it would not otherwise be
subject to tax but for the requirements of this Section 3.3; (iii) use its best
efforts to cause all Subject Securities covered by such registration statement
to be registered with or approved by such other federal or state government
agencies or authorities as may be necessary, in the opinion of counsel to the
Registering Shareholders, to enable the Registering Shareholders to consummate
the disposition of such Subject Securities; (iv) notify the Registering
Shareholders any time when a prospectus relating thereto is required to be
delivered under the Securities Act upon discovery that, or upon the happening of
any event as a result of which, the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a material fact or
omits to state any material fact required to be stated therein or necessary to
make the statements therein not misleading, in the light of the circumstances
under which they were made, and (subject to the good faith determination of the
Company's Board of Directors as to whether to permit sales under such
registration statement), at the request of any Registering Stockholder promptly
prepare and furnish to it a reasonable number of copies of a supplement to or an
amendment of such prospectus as may be necessary so that, as thereafter
delivered to the purchasers of such securities, such prospectus shall not
include an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make
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<PAGE> 23
the statements therein not misleading, in light of the circumstances under which
they were made; (v) otherwise use its best efforts to comply with all applicable
rules and regulations of the SEC; (vi) use its best efforts to list the Subject
Securities covered by such registration statement on the New York Stock Exchange
or on any other Exchange on which the Subject Securities are then listed, if
required by the rules of any such Exchange; (vii) use its best efforts to obtain
a "cold comfort" letter from the independent public accountants for the Company
in customary form and covering matters of the type customarily covered by such
letters as may be reasonably requested by the Registering Shareholders, in the
event of a registration effected pursuant to Section 3.1 hereof; (viii) execute
and deliver all instruments and documents (including in an underwritten offering
an underwriting agreement in customary form) and take such other actions and
obtain such certificates and opinions as the Registering Shareholders reasonably
request in order to effect an underwritten public offering; and (ix) before
filing any registration statement or any amendment or supplement thereto, and as
far in advance as is reasonably practicable, furnish to each Registering
Stockholder and its counsel copies of such documents. In connection with any
offering of Subject Securities registered pursuant to Section 3.1 or 3.2, the
Company shall (x) furnish to the underwriter, if any, unlegended certificates
representing ownership of the Subject Securities being sold in such
denominations as requested and (y) instruct any transfer agent and registrar of
the Subject Securities to release any stop transfer orders with respect to such
Subject Securities. Upon any registration becoming effective pursuant to Section
3.1, the Company shall use its best efforts to keep such registration statement
current for a period of 60 days (or 90 days, if the Company is eligible to use a
Form S-3, or successor form) or such shorter period as shall be necessary to
effect the distribution of the Subject Securities.
(a) Before filing with the SEC any registration statement referred
to herein or any amendments or supplements thereto, the Company shall furnish to
the Registering Shareholders or their respective counsel copies of all such
documents proposed to be filed, in order to give the Registering Shareholders or
their respective counsel sufficient time to review such documents, and such
documents may thereafter be filed subject to any timely and reasonable comments
of the Registering Shareholders or their respective counsel. The Company shall
(i) deliver promptly to the Registering Shareholders or their respective counsel
copies of all written communications between the Company and the SEC relating to
the registration statement, and (ii) advise the Registering Shareholders or
their respective counsel promptly of, and provide the Registering Shareholders
or their respective counsel with the opportunity to participate in (to the
extent reasonably practicable), all telephonic and other non-written
communications between the Company and the SEC relating to such registration
statement. The Company shall
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<PAGE> 24
respond promptly to any comments from the SEC with respect thereto, after
consultation with the Registering Shareholders or their respective counsel, and
shall take such other actions as shall be reasonably required in order to have
each such registration statement declared effective under the Securities Act as
soon as reasonably practicable following the date hereof.
(b) Each Registering Stockholder agrees that upon receipt of any
notice from the Company of the happening of any event of the kind described in
subdivision (iv) of this Section 3.3, it will forthwith discontinue its
disposition of Subject Securities pursuant to the registration statement
relating to such Subject Securities until its receipt of the copies of the
supplemented or amended prospectus contemplated by subdivision (iv) of this
Section 3.3 and, if so directed by the Company, will deliver to the Company all
copies (other than permanent file copies) then in its possession of the
prospectus relating to such Subject Securities current at the time of receipt of
such notice. If any Registering Stockholder's disposition of Subject Securities
is discontinued pursuant to the foregoing sentence unless the Company thereafter
extends the effectiveness of the registration statement to permit dispositions
of Subject Securities by the Registering Stockholder for an aggregate of 60 days
(or 90 days, if the Company is eligible to use a Form S-3, or successor form),
whether or not consecutive, the registration statement shall not be counted for
purposes of determining the number of registrations to which the Registering
Shareholders are entitled pursuant to Section 3.1.
3.4. Expenses. The Registering Shareholders shall pay all agent
fees and commissions and underwriting discounts and commissions related to
Subject Securities being sold by the Registering Shareholders and the fees and
disbursements of its counsel and accountants and the Company to the extent
permitted by applicable law shall pay all fees and disbursements of its counsel
and accountants in connection with any registration pursuant to this Article
III. All other fees and expenses in connection with any registration statement
(including, without limitation, all registration and filing fees, all printing
costs, all fees and expenses of complying with securities or blue sky laws)
shall to the extent permitted by applicable law (i) in the case of a
registration pursuant to Section 3.1, be borne equally by the Registering
Shareholders and the Company and (ii) in the case of a registration pursuant to
Section 3.2, be shared pro rata based upon the respective market values of the
securities to be sold by the Company, the Registering Shareholders and any other
holders participating in such offering; provided that the Registering
Shareholders shall not be obligated to pay any expenses relating to work that
would otherwise be incurred by the Company including, but to limited to, the
preparation and filing of periodic reports with the SEC.
3.5. Indemnification and Contribution. (a) In the case of any
offering registered pursuant to this Article III, the
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<PAGE> 25
Company agrees to indemnify and hold each Registering Stockholder, each
underwriter, if any, of the Subject Securities under such registration and each
person who controls any of the foregoing within the meaning of Section 15 of the
Securities Act, and any officer, employee or partner of the foregoing, harmless
against any and all losses, claims, damages, or liabilities (including
reasonable legal fees and other reasonable expenses incurred in the
investigation and defense thereof) to which they or any of them may become
subject under the Securities Act or otherwise (collectively "LOSSES"), insofar
as any such Losses shall arise out of or shall be based upon (i) any untrue
statement or alleged untrue statement of a material fact contained in the
registration statement relating to the sale of such Subject Securities (as
amended if the Company shall have filed with the SEC any amendment thereof), or
the omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading or
(ii) any untrue statement or alleged untrue statement of a material fact
contained in the prospectus relating to the sale of such Subject Securities (as
amended or supplemented if the Company shall have filed with the SEC any
amendment thereof or supplement thereto), or the omission or alleged omission to
state therein a material fact necessary in order to make the statements therein,
in light of the circumstances under which they were made, not misleading;
provided that the indemnification contained in this Section 3.5 shall not apply
to such Losses which shall arise primarily out of or shall be based primarily
upon any such untrue statement or alleged untrue statement, or any such omission
or alleged omission, which shall have been made in reliance upon and in
conformity with information furnished in writing to the Company by the
Registering Shareholders or any such underwriter, as the case may be,
specifically for use in connection with the preparation of the registration
statement or prospectus contained in the registration statement or any such
amendment thereof or supplement therein.
(a) In the case of each offering registered pursuant to this
Article III, the Registering Shareholders and each underwriter, if any,
participating therein shall agree, substantially in the same manner and to the
same extent as set forth in the preceding paragraph, severally to indemnify and
hold harmless the Company and each person, if any, who controls the Company
within the meaning of Section 15 of the Securities Act, and the directors and
executive officers of the Company, with respect to any statement in or omission
from such registration statement or prospectus contained in such registration
statement (as amended or as supplemented, if amended or supplemented as
aforesaid) if such statement or omission shall have been made in reliance upon
and in conformity with information furnished in writing to the Company by the
Registering Shareholders or such underwriter, as the case may be, specifically
for use in connection with the preparation of such registration statement or
23
<PAGE> 26
prospectus contained in such registration statement or any such amendment
thereof or supplement thereto.
(b) Each party indemnified under this Section 3.5 shall, promptly
after receipt of notice of the commencement of any claim ("CLAIM") against such
indemnified party in respect of which indemnity may be sought hereunder, notify
the indemnifying party in writing of the commencement thereof. The failure of
any indemnified party to so notify an indemnifying party shall not relieve the
indemnifying party from any liability in respect of such Claim which it may have
to such indemnified party on account of the indemnity contained in this Section
3.5, unless (and only in the event) the indemnifying party was materially
prejudiced by such failure, and in no event shall such failure relieve the
indemnifying party from any other liability which it may have to such
indemnified party. In case any Claim in respect of which indemnification may be
sought hereunder shall be brought against any indemnified party and it shall
notify an indemnifying party of the commencement thereof, the indemnifying party
shall be entitled to participate therein and, to the extent that it may desire,
jointly with any other indemnifying party similarly notified, to assume the
defense thereof through counsel reasonably satisfactory to the indemnified party
by notifying the indemnified party in writing of such election within 10 days
after receipt of the indemnified party's initial notice of the Claim, and after
such notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party shall not be
liable to such indemnified party under this Section 3.5 for any legal or other
expenses subsequently incurred by such indemnified party in connection with the
defense thereof, other than reasonable costs of investigation (unless such
indemnified party reasonably objects to such assumption on the grounds that
there may be defenses available to it which are different from or in addition to
those available to such indemnifying party in which event the indemnified party
shall be reimbursed by the indemnifying party for the reasonable expenses
incurred in connection with retaining separate legal counsel). If the
indemnifying party undertakes to defend against such Claim within such 10-day
period, the indemnifying party shall control the investigation, defense and
settlement thereof; provided that (i) the indemnifying party shall use its
reasonable efforts to defend and protect the interests of the indemnified party
with respect to such Claim, (ii) the indemnified party, prior to or during the
period in which the indemnifying party assumes control of such matter, may take
such reasonable actions as the indemnified party deems necessary to preserve any
and all rights with respect to such matter, without such actions being construed
as a waiver of the indemnified party's rights to defense and indemnification
pursuant to this Agreement, and (iii) the indemnifying party shall not, without
the prior written consent of the indemnified party, consent to any settlement
which (A) imposes any Liabilities on the indemnified party (other than those
24
<PAGE> 27
Liabilities which the indemnifying party agrees to promptly pay or discharge),
and (B) with respect to any non-monetary provision of such settlement, would be
likely, in the indemnified party's reasonable judgment, to have an adverse
effect on the business operations, assets, properties or prospects of any
Stockholder (in the event that a Registering Stockholder or any of its
Affiliates is the indemnified party), or the Company (in the event that the
Company is an indemnified party), or such indemnified party. If the indemnifying
party does not undertake within such 10-day period to defend against such Claim,
then the indemnifying party shall have the right to participate in any such
defense at its sole cost and expense, but the indemnified party shall control
the investigation, defense and settlement thereof (provided that the indemnified
party may not settle any such Claim without obtaining the prior written consent
of the indemnifying party (which consent shall not be unreasonably withheld by
the indemnifying party; provided that in the event that the indemnifying party
is in material breach at such time of the provisions of this Section 3.5, then
the indemnified party shall not be obligated to obtain such prior written
consent of the indemnifying party) at the reasonable cost and expense of the
indemnifying party (which shall be paid by the indemnifying party promptly upon
presentation by the indemnified party of invoices or other documentation
evidencing the amounts to be indemnified). In addition to the foregoing, no
indemnifying party shall, without the prior written consent of the indemnified
party, effect any settlement of any pending or threatened proceeding in respect
of which the indemnified party could have been a party and indemnity could have
been sought hereunder by such indemnified party, unless such settlement includes
an unconditional release of such indemnified party from all liability arising
out of such claim or proceeding.
(c) If the indemnification provided for in this Section 3.5 is
unavailable to an indemnified party or is insufficient to hold such indemnified
party harmless from any Losses in respect of which this Section 3.5 would
otherwise apply by its terms (other than by reason of exceptions provided
herein), then each applicable indemnifying party, in lieu of indemnifying such
indemnified party, shall have a joint and several obligation to contribute to
the amount paid or payable by such indemnified party as a result of such Losses,
in such proportion as is appropriate to reflect the relative benefits received
by and fault of the indemnifying party, on the one hand, and such indemnified
party, on the other hand, in connection with the offering to which such
contribution relates as well as any other relevant equitable considerations. The
relative benefit shall be determined by reference to, among other things, the
amount of proceeds received by each party from the offering to which such
contribution relates. The relative fault shall be determined by reference to,
among other things, each party's relative knowledge and access to information
concerning the matter with respect to which the claim was asserted, and the
opportunity to correct and prevent any statement or omission.
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The amount paid or payable by a party as a result of any Losses shall be deemed
to include any legal or other fees or expenses incurred by such party in
connection with any investigation or proceeding, to the extent such party would
have been indemnified for such expenses if the indemnification provided for in
this Section 3.5 was available to such party.
(d) The parties hereto agree that it would not be just and
equitable if contribution pursuant to this Section 3.5 were determined by pro
rata allocation or by any other method of allocation that does not take account
of the equitable considerations referred to in the immediately preceding
paragraph. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation.
3.6. Rule 144. The Company covenants that it will file the reports
required to be filed by it under the Securities Act and the Exchange Act and the
rules and regulations adopted by the Commission thereunder (or, if the Company
is not required to file such reports, it will, upon the request of any
Stockholder, make publicly available other information), and it will take such
further action as any Stockholder may reasonably request, all to the extent
required from time to time to enable such Stockholder to sell Subject Securities
without registration under the Securities Act within the limitation of the
exemptions provided by (i) Rule 144 under the Securities Act, as such Rule may
be amended from time to time, or (ii) any similar rule or regulation hereafter
adopted by the Commission. Upon the request of any Stockholder, the Company will
deliver to such Stockholder a written statement as to whether it has complied
with such requirements.
3.7. Holdback Agreement. The Company agrees that it and its
Affiliates will not effect any sale, offer for sale, or grant any option to
purchase any shares of common stock (or securities convertible into or
exchangeable or exercisable for common stock) (collectively, "SALES") during the
10-day period prior to, and the 90-day period (or such longer period, not to
exceed 120 days, as the managing underwriter(s) therefor determines) beginning
on the effective date of a registration statement filed pursuant to Section 3.1
without the consent of such managing underwriter(s). The Shareholders agree not
to effect any Sales during the 10-day period prior to, and the 90-day period (or
such longer period, not to exceed 120 days, as the managing underwriter(s)
therefor determines) beginning on the effective date of a registration statement
relating to a primary offering (other than one described in clauses (i), (ii) or
(iii) of the first sentence of Section 3.2 hereof) without the consent of such
managing underwriter(s); provided that this sentence shall be of no force and
effect if the Company effects a Sale or
26
<PAGE> 29
files any registration statement for the benefit of any other party during such
120-day period.
IV.
REPRESENTATIONS AND WARRANTIES
4.1. Representations and Warranties of the Company. The Company
hereby represents and warrants to each of the Shareholders as follows:
(a) The execution, delivery and performance by the Company of this
Agreement and the consummation by the Company of the transactions contemplated
by this Agreement are within its corporate powers and have been duly authorized
by all necessary corporate action on its part. This Agreement constitutes a
legal, valid and binding agreement of the Company, enforceable against the
Company in accordance with its terms, (i) except as limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws now or
hereafter in effect relating to or affecting creditors' rights generally,
including the effect of statutory and other laws regarding fraudulent
conveyances and preferential transfers, and (ii) subject to the limitations
imposed by general equitable principles (regardless of whether such
enforceability is considered in a proceeding at law or in equity).
(b) The execution, delivery and performance of this Agreement by
the Company does not and will not contravene or conflict with or constitute a
default under the Company's Memorandum of Association or Bye-laws or any of its
material Contracts.
(c) Immediately after giving effect to both the Restructuring and
the Distribution (including, without limitation, after giving effect to the
distribution of shares of Spinco Common Stock to the holders of common stock of
Loral and the holders of options with respect to common stock of Loral, who or
which may be entitled to receive shares of Spinco Common Stock pursuant to or in
connection with the Distribution Agreement, the Merger Agreement or otherwise),
(i) the Company's authorized capital stock shall consist of 750,000,000 shares
of Spinco Common Stock, 150,000,000 shares of Preferred Stock and 750,000 shares
of Series B Preferred Stock, par value $.01 per share (the "Series B Preferred
Stock"), of which 183,587,910 shares of Spinco Common Stock and 45,896,978
shares of Preferred Stock shall be issued and outstanding and no shares of
Series B Preferred Stock shall be issued and outstanding, (ii) Loral will be the
record and beneficial owner of 45,896,978 shares of Preferred Stock, all of
which will be validly issued and fully paid and nonassessable and all of which
will be free of all Liens, (iii) except for the shares of Spinco Common Stock,
the
27
<PAGE> 30
shares of Preferred Stock and the Series B Preferred Stock specified in clause
(i) above, there will be no other Equity Securities, and (iv) the Wing
Shareholders will hold, in the aggregate, at least twenty percent (20%) of the
Total Voting Power.
V.
TERM
5.1. Term. The term (the "TERM") of this Agreement shall commence
on the date hereof and shall continue until the earlier of (x) the date on which
the Voting Power of the Equity Securities, on a fully diluted basis,
beneficially owned by Loral and its Affiliates shall represent less than five
percent (5%) of the Total Voting Power, (y) the tenth anniversary of the date
hereof, or (z) a Change of Control (as defined in Section 1.1(c) above). Upon
expiration of the Term, the provisions of this Agreement shall terminate, and be
of no further force or effect, automatically without any further action on the
part of any parties hereto; provided that the provisions of Articles III and VI
shall continue without regard to the term limitation set forth in this sentence;
provided further that no such termination shall relieve any party of any
liability to the other parties hereto, to the extent such liability is incurred
prior to the expiration of the Term.
VI.
MISCELLANEOUS
6.1. Certain Restrictions. The Company shall not take or recommend
to its Shareholders any action, including any amendment of its Memorandum of
Association, Bye-laws or stockholder rights plan, if any, which would impose
restrictions applicable to Loral and not to other securityholders generally
based upon the size of Loral' security holdings, the business in which it is
engaged or other considerations applicable to it and not to securityholders
generally. In addition, the Company shall not take or recommend to its
Shareholders any action, including any amendment of its Certificate of
Incorporation, By-laws or stockholder rights plan, if any, which would likely
adversely affect in any material respect, either directly or indirectly, any of
the rights or obligations of the Shareholders under the provisions of this
Agreement.
The Shareholders agree that the Company may adopt a Shareholders rights
plan similar to the Shareholders rights plan adopted by Loral except that Loral
(and its Affiliates and associates) shall not be deemed to be an "ACQUIRING
PERSON" unless Loral and its Affiliates become the beneficial owner of
28
<PAGE> 31
25% or more of the outstanding shares of common stock of the Company.
6.2. Entire Agreement. This Agreement and the Restructuring
Agreement (including the schedules and exhibits and the agreements and other
documents referred to therein, including, without limitation, the Tax Sharing
Agreement and the Transition Services Agreements) constitutes the entire
agreement among the parties with respect to the subject matter hereof and
supersedes all other prior negotiations, commitments, agreements and
understandings, both written and oral, between the parties or any of them with
respect to the subject matter hereof.
6.3. Fees and Expenses. Except as otherwise provided in this
Agreement, all costs and expenses incurred by the Shareholders and the Company
in connection with consummating such party's obligations hereunder or otherwise
shall be paid by the party incurring such cost or expense.
6.4. Access to Information. During the Term, the Company shall
provide to each Stockholder reasonable access to the books and records of the
Company and its subsidiaries during the regular business hours of the Company
and such subsidiaries, following the Company's receipt of a written notice from
such Stockholder requesting such access; provided that the Company shall not be
required to provide any confidential information if the Company reasonably
determines that the providing of such information would result in (x) a
violation of applicable antitrust laws or (y) create a substantial likelihood of
a significant adverse effect on the Company; provided, further, that the
Stockholder shall keep confidential any confidential information disclosed to it
except as required by law, service of process, interrogatories, or similar legal
process, and except for any such information which becomes publicly available
through no fault of the Stockholder.
6.5. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
INTERPRETED AND ENFORCED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS OF THE STATE OF
NEW YORK WITHOUT GIVING EFFECT TO THE CHOICE OF LAW PRINCIPLES THEREOF (EXCEPT
IN THOSE CIRCUMSTANCES WHERE THE CORPORATE LAW OF THE COMPANY'S JURISDICTION OF
ORGANIZATION REQUIRES THE APPLICATION OF THE LAW OF THE COMPANY'S JURISDICTION
OF ORGANIZATION WITH RESPECT TO A PARTICULAR MATTER).
6.6. Notices. All notices and other communications hereunder shall
be in writing and shall be deemed given upon (a) transmitter's confirmation of a
receipt of a facsimile transmission, (b) confirmed delivery by a standard
overnight carrier or when delivered by hand or (c) the expiration of five
Business Days after the day when mailed by certified or registered mail, postage
prepaid, addressed at the following addresses (or at such other address for a
party as shall be specified by like notice):
29
<PAGE> 32
(a) If to any of the Shareholders, to:
Loral Corporation
c/o Lockheed Martin Corporation
6801 Rockledge Drive
Bethesda, MD 20817
Telephone: (301) 897-6125
Telecopy No.: (301) 897-6333
Attention: General Counsel
and to:
Skadden, Arps, Slate, Meagher
& Flom
919 Third Avenue
New York, New York 10022
Telephone: (212) 735-3000
Telecopy No.: (212) 735-2000
Attention: Peter Allan Atkins, Esq.
Lou R. Kling, Esq.
and to:
O'Melveny & Myers
153 E. 53rd Street
New York, New York 10022
Telephone: (212) 326-2000
Telecopy No.: (212) 326-2160
Attention: C. Douglas Kranwinkle, Esq.
Jeffrey J. Rosen, Esq.
If to the Company, to:
Loral Space & Communications Corporation
600 Third Avenue
New York, New York
Telephone: (212) 697-1105
Telecopy No.: (212) 602-9805
Attention: General Counsel
with a copy to:
Willkie Farr & Gallagher
153 E. 53rd Street
New York, New York 10022
Telephone: (212) 821-8000
Telecopy No.: (212) 821-8111
Attention: Robert B. Hodes, Esq.
Bruce R. Kraus, Esq.
In addition to providing any notice required to be given by the Company
pursuant to its Certificate of Incorporation in the manner specified therein,
the Company shall send to each
30
<PAGE> 33
Stockholder by telecopy in accordance with this Section 6.6 a copy of each such
notice.
6.7. Successors and Assigns; Reclassifications; No Third Party
Beneficiaries. This Agreement and all of the provisions hereof shall be binding
upon and inure to the benefit of the parties and their respective successors and
permitted assigns, but neither this Agreement nor any of the rights, interests
or obligations hereunder shall be assigned by any party hereto (whether by
operation of law or otherwise) without the prior written consent of the other
parties hereto (which consent may not be unreasonably withheld), except that any
party shall have the right, without the consent of any other party hereto, to
assign all or a portion of its rights, interests and obligations hereunder to
one or more direct or indirect subsidiaries, but no such assignment of
obligation shall relieve the assigning party from its responsibility therefor.
In the event of any recapitalization or reclassification of any Equity
Securities, or any merger, consolidation or other transaction with like effect,
the securities issued in replacement or exchange for such Equity Securities
shall be deemed Equity Securities hereunder. This Agreement shall be binding
upon and inure solely to the benefit of each party hereto, and nothing in this
Agreement, express or implied, is intended to or shall confer upon any other
person any rights, benefits or remedies of any nature whatsoever under or by
reason of this Agreement; provided that the indemnified parties referred to in
Section 3.5 hereof are intended to be third party beneficiaries of the
provisions of Section 3.5 hereof, and shall have the right to enforce such
provisions as if they were parties hereto.
6.8. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
6.9. Further Assurances. Each party hereto or person subject hereto
shall do and perform or cause to be done and performed all such further acts and
things and shall execute and deliver all such other agreements, certificates,
instruments and documents as any other party hereto or person subject hereto may
reasonably request in order to carry out the intent and accomplish the purposes
of this Agreement and the consummation of the transactions contemplated hereby.
6.10. Interpretation. The descriptive headings herein are inserted
for convenience of reference only and are not intended to be part of or to
affect the meaning or interpretation of this Agreement. Unless otherwise
specified in this Agreement, all references in this Agreement to "DAYS" shall be
deemed to be references to calendar days.
31
<PAGE> 34
6.11. Legal Enforceability. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
affecting the validity or enforceability of the remaining provisions hereof. Any
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction. If any provision
of this Agreement is so broad as to be unenforceable, the provision shall be
interpreted to be only so broad as is enforceable.
6.12. Consent to Jurisdiction. Each of the parties hereto
irrevocably and unconditionally (a) agrees that all suits, actions or other
legal proceedings arising out of this Agreement or any of the transactions
contemplated hereby (a "SUIT") shall be brought and adjudicated solely in the
United States District Court for the District of Delaware, or, if such court
will not accept jurisdiction, in the Delaware Chancery Court or any court of
competent civil jurisdiction sitting in New Castle County, Delaware, (b) submits
to the non-exclusive jurisdiction of any such court for the purpose of any such
Suit and (c) waives and agrees not to assert by way of motion, as a defense or
otherwise in any such Suit, any claims that it is not subject to the
jurisdiction of the above courts, that such Suit is brought in an inconvenient
forum or that the venue of such Suit is improper. Each of the parties hereto
also irrevocably and unconditionally consents to the service of any process,
summons, pleadings, notices or other papers in a manner permitted by the notice
provisions of Section 6.6 hereof and agrees that any such form of service shall
be effective in connection with any such Suit; provided that nothing contained
in this Section 6.12 shall affect the right of any party to serve process,
pleadings, notices or other papers in any other manner permitted by applicable
Law.
6.13. Specific Performance. Each of the parties hereto acknowledges
and agrees that in the event of any breach of this Agreement, each non-breaching
party would be irreparably and immediately harmed and could not be made whole by
monetary damages. It is accordingly agreed that the parties hereto (a) will
waive, in any action for specific performance, the defense of adequacy of a
remedy at law and (b) shall be entitled, in addition to any other remedy to
which they may be entitled at law or in equity, to compel specific performance
of this Agreement in any action instituted in any court referred to in Section
6.12 hereof.
32
<PAGE> 35
IN WITNESS WHEREOF, each of the parties has caused this Shareholders
Agreement to be executed on its behalf by its officers thereunto duly
authorized, all as of the day and year first above written.
LORAL CORPORATION (to be
renamed Lockheed Martin
Tactical Systems, Inc.)
By: /s/ Stephen M. Piper
------------------------
Name: Stephen M. Piper
Title: Vice President and
Assistant Treasurer
LORAL SPACE & COMMUNICATIONS
LTD.
By: /s/ Eric J. Zahler
------------------------
Name: Eric J. Zahler
Title: Vice President, General
Counsel & Secretary
33
<PAGE> 1
EXHIBIT 10.4
STOCKHOLDERS AGREEMENT
DATED AS OF APRIL 22, 1996
By and Among
LORAL SPACE & COMMUNICATIONS LTD.,
SS/L (BERMUDA) LTD.,
LEHMAN BROTHERS CAPITAL PARTNERS II, L.P.,
LEHMAN BROTHERS
MERCHANT BANKING PORTFOLIO PARTNERSHIP L.P.,
LEHMAN BROTHERS OFFSHORE INVESTMENT PARTNERSHIP L.P.,
and
LEHMAN BROTHERS OFFSHORE INVESTMENT
PARTNERSHIP-JAPAN L.P.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.1. Definitions . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE II. RESTRICTIONS ON TRANSFERS . . . . . . . . . . . . . . . 9
Section 2.1. Transfers in Accordance with this Agreement . . . . . 9
Section 2.2. Agreement to be Bound . . . . . . . . . . . . . . . . 9
Section 2.3. Legend . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 2.4. Certain Permitted Transfers . . . . . . . . . . . . . 10
Section 2.5. Transfers by Lehman Investors to Third Parties;
Rights Of First Offer . . . . . . . . . . . . . . . 10
Section 2.6. Public Offering . . . . . . . . . . . . . . . . . . . 12
Section 2.7. Tag-Along Rights . . . . . . . . . . . . . . . . . . . 12
Section 2.8. Rights to Compel Sale . . . . . . . . . . . . . . . . 13
Section 2.9. Put Option . . . . . . . . . . . . . . . . . . . . . . 15
Section 2.10. Special Put Option . . . . . . . . . . . . . . . . . . 18
Section 2.11. Offering Memorandum . . . . . . . . . . . . . . . . . 19
Section 2.12. SP Stockholders Agreement . . . . . . . . . . . . . . 19
ARTICLE III. CLOSING . . . . . . . . . . . . . . . . . . . . . . . 20
Section 3.1. Closing . . . . . . . . . . . . . . . . . . . . . . . 20
Section 3.2. Deliveries at Closing; Method of Payment of
Purchase Price . . . . . . . . . . . . . . . . . . . 20
ARTICLE IV. ADDITIONAL RIGHTS AND OBLIGATIONS OF STOCKHOLDERS
AND THE COMPANY . . . . . . . . . . . . . . . . . . . 20
Section 4.1. Investment Banking Services . . . . . . . . . . . . . 20
Section 4.2. Furnishing of Information . . . . . . . . . . . . . . 21
Section 4.3. Regulatory Compliance . . . . . . . . . . . . . . . . 21
Section 4.4. Capital Contributions . . . . . . . . . . . . . . . . 22
ARTICLE V. CERTAIN AGREEMENTS . . . . . . . . . . . . . . . . . . . . 24
Section 5.1. Charter and By-laws . . . . . . . . . . . . . . . . . 24
Section 5.2. Corporate Actions . . . . . . . . . . . . . . . . . . 24
Section 5.3. Notice . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 5.4. Material Action Put Option . . . . . . . . . . . . . . 27
Section 5.5. SS/L Information . . . . . . . . . . . . . . . . . . . 27
Section 5.6. Loral Space Guarantee . . . . . . . . . . . . . . . . 28
Section 5.7. Tax Indemnity . . . . . . . . . . . . . . . . . . . . 28
ARTICLE VI. TERMINATION . . . . . . . . . . . . . . . . . . . . . . 31
Section 6.1. Termination . . . . . . . . . . . . . . . . . . . . . 31
ARTICLE VII. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . 32
Section 7.1. No Inconsistent Agreements . . . . . . . . . . . . . . 32
Section 7.2. Recapitalization, Exchange, etc. . . . . . . . . . . . 32
Section 7.3. Remedies . . . . . . . . . . . . . . . . . . . . . . . 32
Section 7.4. Successors and Assigns . . . . . . . . . . . . . . . . 32
Section 7.5. No Waivers; Amendments . . . . . . . . . . . . . . . . 33
Section 7.6. Notices . . . . . . . . . . . . . . . . . . . . . . . 33
</TABLE>
- i -
<PAGE> 3
<TABLE>
<S> <C>
Section 7.7. Inspection . . . . . . . . . . . . . . . . . . . . . 34
Section 7.8. Governing Law . . . . . . . . . . . . . . . . . . . . 34
Section 7.9. Section Headings . . . . . . . . . . . . . . . . . . 34
Section 7.10. Entire Agreement . . . . . . . . . . . . . . . . . . 34
Section 7.11. Severability . . . . . . . . . . . . . . . . . . . . 34
Section 7.12. Counterparts . . . . . . . . . . . . . . . . . . . . 34
Section 7.13. Confidentiality . . . . . . . . . . . . . . . . . . . 34
Exhibit A - Form of Schedule I to the By-Laws of SS/L (Bermuda) Ltd.
Exhibit B - Form of Agreement to be Bound
</TABLE>
- ii -
<PAGE> 4
STOCKHOLDERS AGREEMENT
STOCKHOLDERS AGREEMENT dated as of April 22, 1996 by and among SS/L
(Bermuda) Ltd., a Bermuda company (together with its successors, the
"Company"), Loral Space & Communications Ltd., a Bermuda company (together with
its successors, "Loral Space"), Lehman Brothers Capital Partners II, L.P.
("Capital Partners"), Lehman Brothers Merchant Banking Portfolio Partnership
L.P. ("Merchant Banking"), Lehman Brothers Offshore Investment Partnership L.P.
("Offshore Investment") and Lehman Brothers Offshore Investment
Partnership-Japan, L.P. ("Offshore Japan"). Capital Partners, Merchant
Banking, Offshore Investment and Offshore Japan are sometimes hereinafter
referred to collectively as the "Lehman Partnerships". Each of the parties to
this Agreement (including, with respect to its ownership of SS/L Common Stock
(as defined below), the Company) and any other Person who shall become a party
to or agree to be bound by the terms of this Agreement after the date hereof is
sometimes hereinafter referred to as a "Stockholder".
W I T N E S S E T H:
WHEREAS, the parties hereto are parties to an Agreement dated as of
April 22, 1996 (the "Transaction Agreement") providing, among other things, for
the exchange by Loral Aerospace Holdings, Inc. a Delaware corporation ("LAH"),
of 731.85 shares of SS/L Common Stock held by LAH for 731.85 shares of Series S
Preferred Stock (as defined below) of the Company and for the exchange by the
Lehman Partnerships of 731.85 shares of Series S Redeemable Preferred Stock of
LAH owned by the Lehman Partnerships for 731.85 shares of Series S Preferred
Stock of the Company;
WHEREAS, as of the date hereof, the Company has authorized capital
stock consisting of 1,000,000 shares of Common Stock, par value $.10 per share
(the "Common Stock"), and 1,000 shares of preferred stock, par value $.10 per
share (the "Preferred Stock") (all shares of Common Stock and Preferred Stock
at any time issued by the Company and any successor thereto being referred to
as the "Shares");
WHEREAS, the parties hereto desire to restrict the sale, assignment,
transfer, encumbrance or other disposition of the Shares and SS/L Common Stock,
including both issued and outstanding Shares and SS/L Common Stock as well as
Shares and SS/L Common Stock which may be issued hereafter, and to provide for
certain rights and obligations in respect thereto as hereinafter provided;
<PAGE> 5
NOW, THEREFORE, in consideration of the mutual covenants and
agreements contained herein, the parties hereto agree as follows:
ARTICLE I.
DEFINITIONS
Section 1.1. Definitions. As used in this Agreement, the following
terms have the following meanings:
"Adverse Clearance Status" shall have the meaning set forth in Section
2.10.
"Affiliate", as applied to any Person, shall mean any other Person
directly or indirectly controlling, controlled by, or under common control
with, that Person. For the purposes of this definition "control" (including,
with correlative meanings, the terms "controlling", "controlled by" and "under
common control with"), as applied to any Person, means the possession, directly
or indirectly, of the power to direct or cause the direction of the management
and policies of that Person whether through the ownership of voting securities,
by contract or otherwise.
"Alternative Investment Bank" shall have the meaning set forth in
Section 2.9(c).
"Associated SS/L Shares" shall mean the shares of SS/L Common Stock
associated with shares of Series S Preferred Stock, as set forth in Schedule I
to the Company's By-Laws. For purposes of Section 5.7, "Associated SS/L
Shares" shall mean the shares of SS/L Common Stock (i) associated, during or
subsequent to the Exchange Transaction, with shares of the Series S Preferred
Stock, as set forth in Schedule I to the Company's By-Laws, and (ii)
associated, during or prior to the Exchange Transaction, with shares of LAH
Series S Preferred Stock, as set forth in the Certificate of Designation of
such Stock.
"August 1992 Exchange" shall mean the exchange on August 14, 1992 by
the Lehman Partnerships of 6,150,000 shares of the Common Stock of Loral for
285,187.4 shares of the Class B Common Stock of LAH.
"Business Day" means each day other than Saturdays, Sundays and days
when commercial banks are authorized to be closed for business in New York, New
York.
"Buyer's Notice" shall have the meaning set forth in Section 2.5 (c).
"Change of Control" shall mean the occurrence of one or more of the
following events: (A) with respect to Loral Space, (i) a Person or group (as
that term is used in Section 13(d)(3)
- 2 -
<PAGE> 6
of the Exchange Act) of Persons shall have become the beneficial owner of
securities of Loral Space representing a majority of the combined voting power
of the outstanding securities of Loral Space ordinarily having the right to
vote in the election of directors or (ii) directors (other than Continuing
Directors) representing a Person or group (as so defined) of Persons shall
constitute a majority of the Board of Directors of Loral Space or (iii) any
sale, lease, exchange or other transfer (in one transaction or a series of
related transactions) of all, or substantially all, of the assets of Loral
Space to any Person or group (as so defined) of Persons (other than any
wholly-owned Subsidiary of Loral Space); (B) with respect to the Company or
SS/L, as the case may be, (i) a Person or group (as that term is used in
Section 13(d)(3) of the Exchange Act) of Persons (other than Loral Space in the
case of the Company and the Company in the case of SS/L) shall have the right
to exercise a majority of the combined voting power of the outstanding
securities of the Company or SS/L, as the case may be, ordinarily having the
right to vote in the election of directors or (ii) directors representing a
Person or group (as so defined) of Persons (other than Loral Space in the case
of the Company and the Company in the case of SS/L) shall constitute a majority
of the Board of Directors of the Company or SS/L, as the case may be; (C) with
respect to Loral Space, the Company or SS/L, as the case may be, (i) any sale,
lease, exchange or other transfer (in one transaction or a series of related
transactions) of all, or substantially all, of the assets of Loral Space, the
Company or SS/L, as the case may be, to any Person or group (as so defined) of
Persons or (ii) the shareholders of Loral Space, the Company or SS/L, as the
case may be, shall approve any plan or proposal for the liquidation or
dissolution of Loral Space, the Company or SS/L, as the case may be, or the
liquidation, dissolution or winding-up of Loral Space, the Company or SS/L
shall be ordered, (D) an event which constitutes a "Change of Control" under the
SP Stockholders Agreement as the same may be amended from time to time
(provided that references to Loral in the definition of "Change of Control" in
the SP Stockholders Agreement shall be deemed, for purposes of this Agreement,
to refer to Loral Space), or (E) the Company shall cease to be a Subsidiary of
Loral Space.
"Charter Documents" shall have the meaning set forth in Section
5.1(a).
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Commission" shall mean the Securities and Exchange Commission.
"Common Stock" shall have the meaning set forth in the preamble.
"Company" shall have the meaning set forth in the preamble.
- 3 -
<PAGE> 7
"Compelled Sale Transfer Notice" shall have the meaning set forth in
Section 2.8(b).
"Compelled Sale Transfer Offer" shall have the meaning set forth in
Section 2.8(a).
"Confidential Information" shall have the meaning set forth in Section
7.13.
"Continuing Directors" shall mean those Directors of Loral Space as of
the date hereof (the "Current Board") or such Directors who are recommended or
endorsed for election to the Board of Directors of Loral Space by a majority of
the Current Board or their successors so recommended or endorsed.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
"ERISA Stockholder" shall have the meaning set forth in Section
2.8(c).
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Exchange Transaction" shall have the meaning set forth in the
Transaction Agreement.
"First Investment Bank" shall have the meaning set forth in Section
2.9(c).
"FOCI" shall have the meaning set forth in Section 2.10.
"Funding Date" shall have the meaning set forth in Section 4.4(a).
"Initial Public Offering" shall mean, with respect to any Person, the
initial sale of equity securities by such Person pursuant to an effective
registration statement under the Securities Act (other than a registration
statement on Form S-8 or otherwise relating to equity securities issuable under
any employee benefit plan of such Person).
"LAH Series S Preferred Stock" shall mean the Series S Redeemable
Preferred Stock of LAH, the terms of which are set forth in the Certificate of
Designation for such stock.
"LBH" shall mean Lehman Brothers Holdings Inc., a Delaware
corporation, or any successor.
"LAC" shall mean Loral Aerospace Corp., a Delaware corporation.
- 4 -
<PAGE> 8
"LAH" shall have the meaning set forth in the preamble.
"Lehman Indemnitees" shall have the meaning set forth in Section
5.7(a).
"Lehman Investor" shall mean each of the Lehman Partnerships and its
Permitted Transferees.
"Lehman Partnerships" shall have the meaning set forth in the
preamble.
"Loral" shall mean Loral Corporation, a New York corporation.
"Loral Space" shall have the meaning set forth in the preamble.
"Material Action" shall have the meaning set forth in Section 5.2.
"Material Action Put Notice" shall have the meaning set forth in
Section 5.4.
"1992 Lehman Stockholders Agreement" shall mean the Stockholders
Agreement dated as of November 13, 1992 by and among LAH, LAC, Loral and the
Lehman Partnerships.
"Notice of Material Event" shall have the meaning set forth in
Section 5.3.
"Notice of Proposed Action" shall have the meaning set forth in
Section 5.3.
"November 1992 Exchange" shall mean the exchange on November 13, 1992
by the Lehman Partnerships of 107,737.5 shares of the Class B Common Stock of
LAH for 627.3 shares of the LAH Series S Preferred Stock.
"Offer Price" shall have the meaning set forth in Section 2.5(b).
"Offered Shares" shall have the meaning set forth in Section 2.5(b).
"Other Compelled Sale Notice" shall have the meaning set forth in
Section 2.9(g).
"Permitted Transferee" shall mean (i) in the case of any Stockholder
that is not an individual, any Affiliate thereof; and, in addition, (ii) in the
case of each Lehman Partnership, (A) LBH and its Affiliates and (B) the general
or limited partners of such Lehman Partnership in a dissolution, winding up or
termination of such partnership; provided, that any such Transferee agrees in
writing that such Transferee shall be bound
- 5 -
<PAGE> 9
by the terms of this Agreement in accordance with section 2.2 hereof.
"Person" shall mean an individual or a corporation, partnership,
trust, or any other entity or organization, including a government or political
subdivision or an agency or instrumentality thereof.
"Preferred Stock" shall have the meaning set forth in the preamble.
"Proposed Purchaser" shall mean a Person or group of Persons to which
the Company or any of its Permitted Transferees proposes to Transfer shares of
SS/L Common Stock in accordance with Section 2.7(a).
"Public Offering" shall mean, with respect to the Company or SS/L, any
underwritten public offering of equity securities of the Company or SS/L, as
the case may be, pursuant to an effective registration statement under the
Securities Act.
"Put Notice" shall have the meaning set forth in Section 2.9(a).
"Put Option" shall have the meaning set forth in Section 2.9(a).
"Qualified Third-Party" shall mean a Third Party whose status as a
holder of SS/L Common Stock or whose acquisition of SS/L Common Stock would not
be expected, in the reasonable judgment of the Board of Directors of Loral
Space after (i) consultation with such Third Party and the potential seller of
Associated SS/L Shares to such Third Party and (ii) if requested by such Third
Party, discussions with appropriate representatives of the Department of
Defense involving Loral Space, such Third Party and such potential seller, to
cause or require the Department of Defense to revoke SS/L's facility clearances
in accordance with such Department's security rules and regulations (as
determined by the Defense investigative Service).
"Reduced Transfer Price" shall have the meaning set forth in Section
2.5(d).
"Reduced Transfer Price Notice" shall have the meaning set forth in
Section 2.5(d).
"Relevant Time Period" shall have the meaning set forth in Section
2.5(d).
"Remaining Holders" shall have the meaning set forth in Section
2-9(g).
"Required SP Transfer" shall mean any sale of SS/L common Stock to a
Strategic Participant required under the
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provisions of Section 2.6 or 2.7 of the SP Stockholders Agreement as in effect
on the date hereof.
"Rule 144 Open Market Transaction" shall mean, with respect to Shares,
any sale of Shares in an open market transaction under Rule 144 of the
Securities Act (or any successor rule) if such sale is in compliance with the
requirements of such Rule.
"Schedule I to the Company's By-Laws" shall mean Schedule I to the
Company's By-Laws setting forth the terms of the Series S, Preferred Stock, a
copy of which is attached as Exhibit A hereto.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Sellers" shall have the meaning set forth in Section 2.5(b).
"Sellers' Notice" shall have the meaning set forth in Section 2.5(b).
"Series S Preferred Stock" shall mean the Series S Redeemable Preferred
Stock of the Company, the terms of which are set forth in Schedule I to the
Company's By-Laws.
"Shares" shall have the meaning set forth in the preamble.
"SP Stockholders Agreement" shall mean the Stockholders Agreement
dated as of April 22, 1991, as amended by Amendment No. 1 thereto dated as of
November 10, 1992, among Loral, LAH, SS/L and the Strategic Participants, and
by Amendment No. 2 thereto dated on or about the date hereof and as the same
may be further amended from time to time.
"Special Put Notice" shall have the meaning set forth in Section 2.10.
"SS/L" shall mean Space Systems/Loral, Inc., a Delaware corporation,
together with its successors.
"SS/L Appraised Value" shall have the meaning set forth in Section
2.9(b).
"SS/L Common Stock" shall mean the Common Stock, par value $0.10 per
share, of SS/L.
"Stockholder" shall have the meaning set forth in the preamble.
"Strategic Participants" shall mean Aerospatiale Societe Nationale
Industrielle, Alcatel Espace, Alenia Aeritalia
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& Selenia S.p.A., Deutsche Aerospace AG and all other Persons who become
Strategic Participants under the SP Stockholders Agreement, their successors
and duly permitted transferees of SS/L Common Stock under the SP Stockholders
Agreement, including any SP U.S. Assignee (as such term is defined in the SP
Stockholders Agreement).
"Subsidiary" shall mean, with respect to any Person, any corporation
or other entity of which a majority of the capital stock or other ownership
interests having ordinary voting power to elect a majority of the board of
directors or other persons performing similar functions are at the time
directly or indirectly owned by such Person.
"Tag-Along Notice" shall have the meaning, set forth in Section
2.7(b).
"Tag-Along Stockholder" shall have the meaning set forth in Section
2.7(b).
"Tax" shall mean any net income, alternative, add-on minimum, gross
income, gross receipts, sales, use, ad valorem, value added, transfer,
franchise, corporation, metropolitan and other municipal surcharge, profits,
license, withholding on amounts paid to or by any Person, payroll, employment,
excise, severance, stamp, occupation, premium, property, environmental or
windfall profit tax, custom, duty or other tax, governmental fee or other like
assessment or like charge of any kind whatsoever, together with any interest or
any penalty, addition to tax or additional amount imposed by any governmental
authority responsible for the imposition of any such tax (domestic or foreign).
"Taxing Authority" shall mean any governmental authority (whether
domestic or foreign) responsible for the imposition of Taxes, including,
without limitation, the United States internal Revenue service, United States
state and local taxing authorities, and the taxing authorities of Bermuda.
"Third Party" shall mean any prospective purchaser of Shares that is
not a Permitted Transferee of a Stockholder in an arm's length purchase from
such Stockholder.
"Transaction Agreement" shall have the meaning set forth in the
preamble.
"Transfer" shall have the meaning set forth in Section 2.1.
"Transfer Closing Date" shall have the meaning set forth in Section
3.1.
"Transferee" shall have the meaning set forth in Section 2.1.
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"Transferor" shall have the meaning set forth in Section 2.7(b).
"Unaffiliated Transaction, shall have the meaning set forth in
Section 4.4(b).
ARTICLE II.
RESTRICTIONS ON TRANSFERS
Section 2.1. Transfers in Accordance with this Agreement. No
Stockholder shall, directly or indirectly transfer, sell, assign, pledge,
hypothecate, encumber, or otherwise dispose of any Shares or shares of SS/L
Common Stock to any Person (any such act by a Stockholder being referred to as
a "Transfer" and any Person acquiring Shares or shares of SS/L Common Stock
from a Stockholder and any subsequent transferee of any such Person being
referred to as a "Transferee" of such Stockholder), except in compliance with
the Securities Act, applicable state and foreign securities laws and this
Agreement; provided that nothing in this Agreement shall prohibit any Required
SP Transfer. Any attempt to Transfer any Shares or shares of SS/L Common Stock
not in compliance with this Agreement" shall be null and void and the Company
shall not, and shall ensure that neither SS/L nor any transfer agent shall,
register upon its books any Transfer of Shares or shares of SS/L Common Stock,
as the case may be, by a Stockholder to any Person except a Transfer in
accordance with this Agreement or a Required SP Transfer.
Section 2.2. Agreement to be Bound. No Transfer of Shares or shares
of SS/L Common Stock (other than Transfers pursuant to a Public Offering,
pursuant to Rule 144 Open Market Transactions, to the Company, or a Required
SP Transfer) shall be effective unless (i) the certificates representing such
Shares or shares of SS/L Common Stock issued to the Transferee shall bear the
legend provided in Section 2.3, if required by such Section, (ii) the
Transferee (if not already a party hereto) shall have executed and delivered to
each other party hereto, as a condition precedent to such Transfer, an
instrument or instruments substantially in the form of Exhibit B hereto or
otherwise reasonably satisfactory to such parties confirming that the
Transferee agrees to be bound by the terms of this Agreement and (iii) in the
case of a Transfer of SS/L Common Stock, the Transferee is a Qualified Third
Party.
Section 2.3. Legend. A copy of this Agreement shall be filed with the
Secretary of the Company and the Secretary of SS/L and kept with the records of
each of the Company and SS/L. Each of the Stockholders hereby agrees that each
outstanding certificate representing Shares or shares of SS/L Common Stock
issued to any Stockholder, any certificate for Shares issued in
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exchange for any similarly legended certificate, or any certificate for SS/L
Common Stock issued to a Stockholder in exchange for any similarly legended
certificate, shall, unless sold pursuant to a Public Offering or pursuant to a
Rule 144 Open Market Transaction, bear a legend reading substantially as
follows:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AM MAY BE OFFERED AND
SOLD ONLY IF SO REGISTERED OR AN EXEMPTION FROM REGISTRATION IS
AVAILABLE. THE SHARES REPRESENTED BY THIS CERTIFICATE ALSO ARE
SUBJECT TO ADDITIONAL RESTRICTIONS ON TRANSFER AS SET FORTH IN THE
STOCKHOLDERS AGREEMENT OF SS/L (BERMUDA) LTD. DATED AS OF APRIL 22,
1996, COPIES OF WHICH MAY BE OBTAINED FROM THE COMPANY. NO TRANSFER
OF SUCH SHARES WILL BE MADE ON THE BOOKS OF THE COMPANY UNLESS
ACCOMPANIED BY EVIDENCE OF COMPLIANCE WITH THE TERMS OF SUCH
AGREEMENT.
Section 2.4. Certain Permitted Transfers. None of the restrictions
contained in this Agreement with respect to Transfers of Shares or shares of
SS/L Common Stock (other than those set forth in Section 2.3, if required by
such Section and the requirement of compliance with applicable law) shall apply
to any Transfer:
(i) at any time, by any Stockholder to any of its Permitted
Transferees, except for any such Transfer that would result in
a requirement to register the Shares or shares of SS/L Common
Stock under Section 12(g) of the Securities Exchange Act of
1934, as amended;
(ii) at any time, by any Stockholder to the company;
(iii) pursuant to a Public Offering;
(iv) pursuant to Rule 144 Open Market Transactions following an
Initial Public Offering; and
(v) at any time following an Initial Public Offering, of Shares or
shares of SS/L Common Stock, as the case may be, acquired in
connection with market-making, broker/dealer, investment
banking, capital markets or investment management activities
in the ordinary course of business.
Section 2.5. Transfers by Lehman Investors to Third Parties; Rights of
First Offer. (a) The Lehman Investors may not Transfer shares of Series S
Preferred Stock, or cause the
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Company to Transfer Associated SS/L Shares, prior to October 23, 1993,
except as otherwise permitted pursuant to Section 2.4. Commencing on October
23, 1993, the Lehman Investors may Transfer shares of Series S Preferred Stock,
or cause the Company to Transfer Associated SS/L Shares, to any Third Party,
subject to the provisions, first, of this Section 2.5 and second, to the extent
applicable, of Section 2.12.
(b) Lehman Investors (the "Sellers") desiring to Transfer any
shares of Series S Preferred Stock (or to cause the Company to Transfer any
underlying Associated SS/L Shares) then owned by such Lehman Investors to any
Third Party shall give written notice (a "Sellers' Notice") to Loral Space (i)
stating that such Sellers desire to make such Transfer, and (ii) setting forth
the number of shares of Series S Preferred Stock (or Associated SS/L Shares)
proposed to be Transferred (together, the "Offered Shares") and the cash price
per share that such Sellers propose to be paid for such Offered Shares (the
"Offer Price") and the other terms and conditions of such Transfer. Each
Sellers' Notice shall constitute an irrevocable offer by the Sellers to Loral
Space of the Offered Shares at the Offer Price in cash.
(c) Within 10 days after receipt of a Sellers' Notice, Loral Space
may elect to purchase all (but not less than all) of the Offered Shares at the
Offer Price in cash by delivery of a notice (a "Buyer's Notice") to the Sellers,
with a copy to the Company, stating (i) that Loral Space elects to purchase all
of the Offered Shares at the Offer Price in cash, (ii) that such election is
irrevocable and (iii) the source of financing for such purchase. Delivery of a
Buyer's Notice shall constitute a contract among the Sellers and Loral Space for
the sale and purchase of the Offered Shares at the Offer Price in cash and upon
the other applicable terms and conditions set forth in the Sellers' Notice.
(d) If Loral Space fails to elect to purchase all of the Offered
Shares within the time period specified in Section 2.5(c), then the Sellers may,
within the Relevant Time Period (but subject, in the case of any proposed
Transfer of Associated SS/L shares, to Section 2.12), Transfer (or enter into an
agreement to Transfer) all or any Offered Shares to one or more Third Parties;
provided that if the purchase price per share (the "Reduced Transfer Price") to
be paid by any such Third Party for Offered Shares is less than 90% of the Offer
Price, the Sellers shall promptly provide written notice (the "Reduced Transfer
Price Notice") to Loral Space of such intended Transfer (including the material
terms and conditions thereof) and Loral Space shall have the right, exercisable
by delivery of a written election notice to the Sellers within five days of
receipt of such notice, to purchase such Offered Shares at the Reduced Transfer
Price and otherwise in accordance with the terms and conditions of the intended
Transfer to such Third Party.
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<PAGE> 15
"Relevant Time Period" shall mean (i) with respect to Series S
Preferred Stock, a period of 120 days following the expiration of the time
period specified in Section 2.S(c) and (ii) with respect to Associated SS/L
Shares, a period of 120 days beginning 45 days after the expiration of the time
period specified in Section 2.5(c).
(e) If Loral Space fails to elect to purchase the Offered Shares
at the Offer Price (or, if applicable, the Reduced Transfer Price) in cash and
the Seller shall not have Transferred or entered into an agreement to Transfer
the Offered Shares to any Transferee prior to the expiration of the 120 day
period specified in Section 2.5(d), the rights of first offer under this
Section 2.5 shall again apply, subject to the provisions of Section 2.5(f), in
connection with any subsequent Transfer or offer to Transfer shares of Series S
Preferred Stock (or Associated SS/L Shares) by such Sellers or, in the case of
Associated SS/L Shares, by the Company.
(f) If any Lehman Investor shall exercise its rights under this
Section 2.5 by delivery of a Seller's Notice, no Lehman Investor shall be
permitted to commence a further first offer procedure under this Section 2.5
until the expiration of one year from the later of the date of (x) such
Seller's Notice and (y) the applicable Reduced Transfer Price Notice.
(g) Shares of Series S Preferred Stock (or Associated SS/L Shares)
held by Third Party Transferees (other than the Strategic Participants) of
Offered Shares pursuant to this Section 2.5 shall be subject to the provisions
of this Section 2.5, but shall not be subject to the provisions of Section 2.8.
Section 2.6. Public Offering. The Company shall not effect, and shall
not permit SS/L to effect, and Loral Space shall not permit the Company or SS/L
to effect, any Public Offering unless the holders of at least a majority of the
shares of Series S Preferred Stock then held by the Lehman Partnerships shall
have given their prior written consent to such Public Offering.
Section 2.7. Tag-Along Rights. (a) Except for Required SP Transfers,
the Company and its Permitted Transferees may not Transfer shares of SS/L
Common Stock on or prior to October 23, 1993. Thereafter, if, at any time, the
Company or any of its Permitted Transferees proposes to Transfer shares of SS/L
Common Stock to any Proposed Purchaser in any transaction or series of related
or similar transactions (other than (x) sales pursuant to a Public Offering and
(y) Transfers to Permitted Transferees), the Company or any such Permitted
Transferee shall afford each of the Lehman Investors the opportunity to
participate proportionately in such Transfer in accordance with this Section
2.7.
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<PAGE> 16
(b) Each Lehman Investor, with respect to proposed Transfers
described in paragraph (a) above (each, a "Tag-Along Stockholder"), shall have
the right to cause the Company to Transfer, at the same price and upon
identical terms and conditions as such proposed Transfer, the number of
Associated SS/L Shares owned indirectly (by virtue of ownership of Series S
Preferred Stock) by such Tag-Along Stockholder equal to (x) the total number
of shares of SS/L Common Stock to be Transferred multiplied by (y) a fraction,
the numerator of which is the total number of Associated SS/L Shares then owned
indirectly by such Tag-Along Stockholder and the denominator of which is the
total number of Associated SS/L Shares then owned indirectly by the Lehman
Investors plus the total number of shares of SS/L Common Stock then owned by
the Company and its Permitted Transferees.
At the time of any proposed Transfer to a Proposed Purchaser, the
Company or such Permitted Transferee (each, a "Transferor") shall give notice to
each Tag-Along Stockholder of its right to sell (the "Tag-Along Notice") which
notice shall identify the Proposed Purchaser and state the number of shares of
SS/L Common Stock proposed to be Transferred, the proposed offering price and
any other material terms and conditions of the proposed Transfer. The Tag-Along
Notice shall also contain a true and correct copy of any offer to the Transferor
by the Proposed Purchaser to purchase such shares of SS/L Common Stock.
(c) Within 10 days after the date of delivery of a Tag-Along
Notice, any of the Tag-Along Stockholders may elect to participate in such
Transfer pursuant to the terms and conditions of such Tag-Along Notice by
delivery of a notice to the Transferor. Each participating Tag-Along
Stockholder shall not be required to make any representations and warranties to
any Person in connection with such Transfer except as to good title of the
Series S Preferred Stock applicable to the Associated SS/L Shares to be
Transferred and as to the existence of such Tag-Along Stockholder and the
authority for and the validity and binding effect of any agreements entered
into by such Tag-Along Stockholder in connection with such Transfer, and the
Tag-Along Stockholders shall not be required to provide any indemnities in
connection with such Transfer except for breach of such representations and
warranties. Upon consummation of any Transfer of Associated SS/L Shares
contemplated by this Section 2.7, the Lehman Investors on whose behalf such
Transfer is made shall deliver to the Company the certificates for the shares
of Series S Preferred Stock corresponding to the Associated SS/L Shares
Transferred against delivery to such Lehman Investors of the proceeds of any
such Transfer in accordance with Schedule I to the Company's By-Laws.
Section 2.8. Rights to Compel Sale. (a) If at any time on or after
October 23, 1993, the Company shall receive a written offer from a Third Party
to acquire for cash all shares of SS/L Common Stock then held by the Company and
its Permitted Transferees (each, a "Compelled Sale Transfer Offer"), the
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<PAGE> 17
Company shall have the right, exercisable as set forth below, but subject to
Section 2.8(c) hereof, to require each of the Lehman Investors to permit the
Company to sell all Associated SS/L Shares then held indirectly (by virtue of
their ownership of Series S Preferred Stock) by such Lehman Investors to the
Third Party, and the Lehman Investors shall permit the Company to sell such
Associated SS/L Shares on the same terms and conditions and for the same
consideration as the Company and its Permitted Transferees sell its or their
shares of SS/L Common Stock; provided, that the per share purchase price
payable for Associated SS/L Shares (except for the purchase price payable in
any sale to a Strategic Participant pursuant to Section 2.7 of the SP
Stockholders Agreement) shall in no event be less than $116,667 (as adjusted to
reflect any stock dividend, stock split or similar event) compounded at a rate
of 15% per annum from August 14, 1992 (in the case of the Associated SS/L
Shares underlying 627.3 shares of Series S Preferred Stock) and from December
18, 1992 (in the case of the Associated SS/L Shares underlying 104.55 shares of
Series S Preferred Stock) to and including the date of purchase by such Third
Party; and provided, further, that no Lehman Investor shall be required to
permit the Company to sell any Associated SS/L Shares to any such Third Party
if such Lehman Investor shall determine in good faith that such sale could
constitute a violation of applicable law or regulation or otherwise subject
such Lehman Investor to any material liability.
(b) (i) The Company shall exercise its rights pursuant to Section
2.8(a) hereof by delivery of written notice (the "Compelled Sale Transfer
Notice") to each Lehman Investor setting forth the consideration per share to
be paid by the Third Party and attaching a copy of the Compelled Sale Transfer
Offer.
(ii) Promptly after the consummation of the sale of SS/L
Common Stock (including Associated SS/L Shares) pursuant to this
Section 2.8, Loral Space shall give notice thereof to the Lehman
Investors and shall furnish such other evidence of the completion and
time of completion of such sale and the terms thereof as may be
reasonably requested by such Lehman Investors. Upon consummation of
any Transfer of Associated SS/L Shares contemplated by this Section
2.8, the Lehman Investors on whose behalf such Transfer is made shall
deliver to the Company the certificates for the shares of Series S
Preferred Stock corresponding to the Associated SS/L Shares Transferred
against delivery to such Lehman Investors of the proceeds of any such
Transfer in accordance with Schedule I to the Company's By-Laws.
(c) Notwithstanding the foregoing provisions of this Section 2.8,
no Lehman Investor which is a trust under an employee benefit plan or whose
holding of Series S Preferred Stock or indirect holding of Associated SS/L
Shares constitutes plan assets subject to ERISA (an "ERISA Stockholder") shall
be obligated to permit the Company to sell any Associated SS/L Shares pursuant
to this Section 2.8 if such ERISA Stockholder
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determines in good faith, upon advice of counsel, that such sale could
constitute a prohibited or a party-in-interest transaction or would otherwise
contravene ERISA and gives the Company notice thereof within 20 days after
receiving a Compelled Sale Transfer Notice. Notwithstanding the foregoing
provisions of this Section 2.8(c), such ERISA Stockholder shall, if requested
by the Company, use reasonable efforts to obtain an appropriate exemption from
any such ERISA restriction, and the Company and such ERISA Stockholder shall
cooperate with each other in seeking to obtain such exemption; provided that
none of them shall be required to take any action which it determines in good
faith to be contrary to its best interests or would otherwise require the
incurrence of material liability or expense.
Section 2.9. Put Option. (a) Commencing on the earlier of (i) a Change
of Control, (ii) January 1, 1998, (iii) any election by any Strategic
Participant to exercise its rights under Section 2.7 of the SP Stockholders
Agreement as in effect on the date hereof as a result of the acquisition by
Lockheed Martin Corporation of Loral pursuant to the Agreement and Plan of
Merger dated as of January 7, 1996 among Loral, Lockheed Martin Corporation and
LAC Acquisition Corporation, (iv) any amendment of the SP Stockholders
Agreement that results in an adverse effect on the rights of the Lehman
Investors that is disproportionate to any adverse effect on the interests of
Loral Space resulting therefrom and (v) any event in which any Strategic
Participant has the right, under the SP Stockholders Agreement, as the same may
be amended from time to time, to cause SS/L or an Affiliate of SS/L to purchase
the shares of SS/L Common Stock then held by such Strategic Participant, the
Lehman Investors shall have the option, upon written notice to Loral Space (a
"Put Notice") to require Loral Space to purchase (the "Put Option") all (but
not less than all) of the shares of Series S Preferred Stock then held by the
Lehman Investors at a purchase price per share in cash equal to SS/L Appraised
Value.
(b) SS/L Appraised Value shall mean the fair market value, as of
the date of the Put Notice, of the SS/L Common Stock, which value shall be
determined as if SS/L and its interest in its Subsidiaries were to be sold in
their entirety with a reasonable amount of time available to negotiate and
consummate such sale; provided that such valuation shall exclude the effect of
(i) the event or action giving rise to the Put Notice, (ii) payment by SS/L or
its Subsidiaries of any management fees to Loral Space (or any of its
Affiliates) pursuant to the SP Stockholders Agreement or otherwise, (iii) any
payment by SS/L or any of its Subsidiaries to Loral Space or any of its
Affiliates in respect of corporate overhead in excess of the amounts paid by
SS/L to Loral Space in accordance with Section 4.5(a) of the SP Stockholders
Agreement, (iv) any contingent liabilities of SS/L or any Subsidiary of SS/L
(determined in accordance with the Letter Agreement dated October 23, 1990
among LAH, LAC, SS/L, Loral and the Lehman Partnerships, as amended), (v) any
payment by SS/L to Loral pursuant to the
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final sentence of Section 3.2(b)(ii) of the SP Stockholders Agreement, (vi) any
obligations of SS/L under Section 2.7 of the SP Stockholders Agreement and (vii)
any restrictions, among other things, on the transfer or voting of SS/L Common
Stock set forth in this Agreement or the SP Stockholders Agreement.
SS/L Appraised Value shall be determined on the basis of the accounting
methods, practices and policies of SS/L as in effect on October 23, 1990, except
for any change after such date required by reason of a concurrent change in
generally accepted accounting principles.
(c) Subject to the next succeeding sentence, SS/L Appraised Value
shall be determined jointly by LBH or a Subsidiary of LBH and a nationally
recognized investment bank selected by Loral Space within two days of delivery
of the Put Notice (the "First Investment Bank"). If LBH or such Subsidiary of
LBH and the First investment Bank fail to agree on an SS/L Appraised Value
within 15 days of delivery of the Put Notice, SS/L Appraised Value shall be
determined by such nationally recognized investment bank as the Lehman Investors
and Loral Space shall select jointly within 20 days of delivery of the Put
Notice (the "Alternative Investment Bank"), provided that SS/L Appraised Value
as determined by the Alternative Investment Bank shall be not greater than the
highest SS/L Appraised Value determined by LBH or such Subsidiary of LBH and not
less than the lowest SS/L Appraised Value determined by the First Investment
Bank. Loral Space and the Lehman Investors shall use their best efforts to
cause the determination of SS/L Appraised Value by the Alternative Investment
Bank to be completed within 30 days of delivery of the Put Notice.
(d) The Company shall cause SS/L to cooperate with LBH or such
Subsidiary of LBH, the First Investment Bank and any Alternative Investment Bank
in connection with the determination of SS/L Appraised Value and to give LBH or
such Subsidiary of LBH, the First Investment Bank and any Alternative Investment
Bank access to the books, records and personnel of SS/L and its Subsidiaries
(including all historical and projected financial and operating information
reasonably necessary to determine Appraised Value) and the Company shall pay all
fees and expenses of LBH (or such Subsidiary), the First Investment Bank and any
Alternative Investment Bank incurred in connection with the determination of
SS/L Appraised Value.
(e) Within 5 days following a Change of Control, Loral Space shall
provide a notice to each Lehman Investor stating:
(i) that a Change of Control has occurred and that such Stockholder
has the right to require Loral Space to purchase such Stockholder's Series S
Preferred Stock at SS/L Appraised Value; and
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(ii) the circumstance and relevant facts regarding such Change
of Control (including information with respect to pro forma historical
income, cash flow and capitalization of Loral Space, the Company or
SS/L, as the case may be, after giving effect to such Change of Control).
The Lehman Investors may elect to exercise their rights under this Section 2.9
by delivery of a Put Notice to Loral Space at any time following a Change of
Control or January 1, 1998, or the occurrence of the events described in clauses
(iii), (iv) or (v) of Section 2.9(a) as the case may be, provided that such
right to deliver a Put Notice in respect of a Change of Control shall expire 60
days after receipt by the Lehman Investors of notice of such Change of Control
pursuant to this Section 2.9(e).
(f) In addition to the right to require Loral Space to purchase all
shares of Series S Preferred Stock then held by the Lehman Investors in
accordance with the terms of this Section 2.9, the Put Option shall entitle the
Lehman Investors to require Loral Space to purchase all other securities and
assets (other than cash) distributed to the Lehman Investors in respect of the
Associated SS/L Shares held (indirectly) by the Lehman Investors at the then
fair market value of such other securities or assets. The fair market value of
securities of SS/L shall be determined in accordance with the procedures set
forth in Sections 2.9(b), (c) and (d), and the fair market value of any other
property or assets shall be determined in accordance with the procedures set
forth in Sections 2.9(c) and (d).
(g) In the event that Loral Space does not consummate the purchase
of the Lehman Investors' Series S Preferred Stock in accordance with this
Section 2.9 and Article III, the Lehman Investors may (i) Transfer their Series
S Preferred Stock (and cause the Company to transfer any underlying Associated
SS/L Shares) to one or more Third Parties (or Qualified Third Parties, in the
case of any Transfer of Associated SS/L Shares) without regard to any of the
restrictions contained in this Agreement with respect to Transfers of Series S
Preferred Stock or (except for the restrictions in Section 2.12) Associated SS/L
Shares and (ii) require each of the remaining Stockholders (the "Remaining
Holders") to sell (subject to Section 2.12) all shares of SS/L Common Stock then
held by such Remaining Holders to such Third Party or Qualified Third Party, as
the case may be, and the Remaining Holders shall sell such shares of SS/L Common
Stock on the same terms and conditions and for the same consideration as the
Lehman Investors sell their shares of Series S Preferred Stock or the Company
shall sell the underlying Associated SS/L Shares, as the case may be. The
Lehman Investors shall exercise their rights pursuant to this Section 2.9(g)(ii)
by delivery of written notice (the "Other Compelled Sale Notice") to each
Remaining Holder setting forth the consideration per share to be paid by the
Third Party or Third Parties and attaching a copy of any written offer received
by the Lehman Investors in respect of such proposed sale. Promptly after the
consummation of the sale
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of the shares of SS/L Common Stock pursuant to this Section 2.9(g)(ii), the
Lehman Investors shall give notice thereof to the Remaining Holders, shall
remit to each of the Remaining Holders the total sales price of the shares of
SS/L Common Stock of such Remaining Holders sold pursuant thereto, and shall
furnish such other evidence of the completion and time of completion of such
sale and the terms thereof as may be reasonably requested by such Remaining
Holders. The Lehman Investors acknowledge and agree that their rights under
this Section 2.9(g) are their sole and exclusive rights, and that they shall
not have any further or other rights or remedies, in the event that Loral Space
does not consummate the purchase of the Lehman Investors' Series S Preferred
Stock in accordance with this Section 2.9 and Article III.
Section 2.10. Special Put Option. If (a) any of the Lehman
Investors, the Company, Loral Space or SS/L receives notification from a
representative of the Department of Defense or any other U.S. government
department, agency or authority that the ownership of Shares by one or more of
the Lehman Investors or the terms and provisions of this Agreement or the
Charter Documents (i) causes the Company or SS/L to be under impermissible
foreign ownership, control or influence within the meaning of Section 721 of
Title VII of the Defense Production Act of 1950, as amended by Section 5021 of
the Omnibus Trade and Competitiveness Act of 1988 ("FOCI") or (ii) materially
adversely affects the ability of SS/L to maintain or obtain Department of
Defense or other U.S. government department, agency or authority security
clearances of the level held by SS/L on the date hereof or which are necessary
or desirable for SS/L to perform and to bid competitively on U.S. government
contracts and to participate in joint ventures formed to bid on or perform U.S.
government contracts of the type SS/L is eligible to bid on or participate in,
respectively, on the date hereof (any of the matters described in this clause
(ii) being referred to as "Adverse Clearance Status"), and such FOCI or Adverse
Clearance Status is not a result of a change in (A) the ownership of LBH or the
Lehman Investors from the ownership thereof as it exists as of the date hereof
(other than as a result of a public offering of equity securities of LBH or any
of its Affiliates) or (B) applicable law, regulations and decrees as in effect
as of the date hereof, the Lehman Investors may at any time, upon delivery of a
written notice (a "Special Put Notice") to Loral Space, require Loral Space to
purchase such portion of the Series S Preferred Stock then held by the Lehman
Investors required to eliminate such FOCI or Adverse Clearance Status at a
purchase price equal to the greater of (x) SS/L Appraised Value, as determined
pursuant to the procedures set forth in Section 2.9 (except that references to
"Put Notice" in Section 2.9 shall be deemed to be references to "Special Put
Notice") and (y) $116,667 per share (as adjusted to reflect any stock dividend,
stock split or similar event) compounded at a rate of 15% per annum from August
14, 1992 (in the case of the Associated SS/L Shares underlying 627.3 shares of
Series S Preferred Stock) and from
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December 18, 1992 (in the case of the Associated SS/L Shares underlying 104.55
shares of Series S Preferred Stock) to and including the date of purchase by
Loral Space, provided, that prior to delivery of any Special Put Notice the
Lehman Investors shall have complied with Section 4.3 hereof. The provisions
of Section 2.9(f) shall apply to Loral Space upon the delivery of a Special Put
Notice to the same extent as they apply upon the delivery of a Put Notice.
Section 2.11. Offering Memorandum. The Company will cooperate (and
will cause SS/L to cooperate) with the Lehman Investors and make available on a
timely basis, subject to appropriate confidentiality agreements, such
information as the Lehman Investors may reasonably request to facilitate the
Transfer of shares of Series S Preferred Stock or Associated SS/L Shares, as
the case may be, to Third Parties pursuant to Section 2.5 hereof, including, in
the case of any Transfer of Series S Preferred Stock or Associated SS/L Shares
representing at least 5% of the issued and outstanding shares of SS/L Common
Stock, (i) prompt preparation of an offering memorandum relating to the shares
of Series S Preferred Stock or Associated SS/L Shares, as the case may be, the
Company and SS/L that contains such information as is required by the
Securities Act and other applicable laws and such other information reasonably
requested by the Lehman Investors, and (ii) making available to any proposed
purchaser of such Series S Preferred Stock or Associated SS/L Shares reasonable
access to management of the Company, SS/L and their Subsidiaries. The Company
shall represent and warrant to the selling Lehman Investors and any purchaser
of such shares of Series S Preferred Stock or Associated SS/L Shares that the
information provided by the Company or SS/L in connection with such sale
(including the information in the offering memorandum) does not contain any
untrue statement of a material fact or omit to state a material fact necessary
in order to make the statements therein, in light of the circumstances under
which they were made, not misleading, and shall indemnify each of the selling
Lehman investors, the purchaser and their representatives and agents from and
against any loss, claim, damage, liability or expense incurred by any of them
as a result of any breach of such representation and warranty.
Section 2.12. SP Stockholders Agreement. (a) The Lehman Investors
acknowledge that Transfers by the Company of SS/L Common Stock are subject to
the satisfaction of the provisions of Section 2.6 of the SP Stockholders
Agreement, as such provisions are in effect on the date hereof, and that all
shares of SS/L Common Stock, including without limitation the Associated SS/L
Shares, are subject to all provisions of the SP Stockholders Agreement as in
effect on the date hereof.
(b) In the event that the Lehman Investors elect to cause the
Company to Transfer Associated SS/L Shares in accordance with the terms of this
Agreement, Loral Space and the Company agree to take all action necessary or
appropriate
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(including, without limitation, delivery of required notices to the Strategic
Participants) to permit the Company to sell Associated SS/L Shares on behalf of
the Lehman Investors (if the Lehman Investors request that any such Shares be
sold) in accordance with the terms of the SP Stockholders Agreement.
ARTICLE III.
CLOSING
Section 3.1. Closing. In connection with any purchase or sale of
Series S Preferred Stock or Associated SS/L Shares pursuant to Article II
involving any Stockholders and Loral Space, the parties to such transaction
shall mutually determine a closing date (the "Transfer Closing Date") which,
subject to any applicable regulatory waiting periods and except as otherwise
provided in Article II, shall not be more than 15 days after the last notice is
given with respect to such purchase or after the expiration of the last notice
period applicable to such purchase. The closing shall be held at 10:00 a.m.,
local Lime, on the Transfer Closing Date at the principal office of the
Company, or at such other time or place as the parties mutually agree.
Section 3.2. Deliveries at Closing; Method of Payment of Purchase
Price. On the Transfer Closing Date, each selling Stockholder shall deliver
(i) if shares of Series S Preferred Stock are to be sold, certificates
representing such shares of Series S Preferred Stock being sold, free and clear
of any lien, claim or encumbrance, and (ii) if shares of Series S Preferred
Stock or SS/L Common Stock are to be sold, such other documents, including
evidence of ownership and authority, as the purchasers may reasonably request.
The purchase price shall be paid by wire transfer of immediately available
funds no later than 2:00 P.M. on the Transfer Closing Date.
ARTICLE IV.
ADDITIONAL RIGHTS AND OBLIGATIONS
OF STOCKHOLDERS AND THE COMPANY
Section 4.1. Investment Banking Services. The Company agrees to
retain or employ, and to cause each of its Subsidiaries (other than SS/L and
its Subsidiaries) to retain or employ, Lehman Brothers Inc. or one of its
Affiliates as exclusive financial advisor or investment banker in connection
with any financial, capital markets or acquisition or divestiture activities
with respect to which the Company or any Subsidiary (other than SS/L and its
Subsidiaries) determines to retain or employ a financial advisor or investment
banker, in accordance with Lehman Brothers Inc.'s or such Affiliate's customary
compensation and on other customary terms and conditions, so long
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as the Lehman Investors own Series S Preferred stock representing 10% or more
of the outstanding shares of SS/L Common Stock.
Section 4.2. Furnishing of Information. The Company agrees with each
Lehman Partnership that for so long as such Lehman Partnership shall hold any
Shares the Company will cause SS/L to deliver to each Lehman Partnership:
(a) within 45 days after the close of each quarterly accounting
period ending after the date hereof, the consolidated balance sheet of SS/L as
at the end of such quarterly period and the related consolidated statements of
income, shareholders' equity and cash flow for such quarterly period and for
the elapsed portion of the fiscal year ended with the last day of such
quarterly period, and in each case setting forth comparative figures for the
related periods in the prior fiscal year, all of which shall be certified by
the chief financial officer of SS/L to have been prepared in accordance with
generally accepted accounting principles (but not including footnotes), subject
to year-end audit adjustments;
(b) within 30 days after the close of each semiannual accounting
period ending after the date hereof, a report certified by an executive officer
of SS/L setting forth in reasonable detail a description of each cooperative or
joint program with a value in excess of $5 million entered into by SS/L or any
Subsidiary of SS/L with Loral Space or any Affiliate thereof;
(c) within 90 days after the close of each fiscal year of SS/L,
the consolidated balance sheet of SS/L as of the end of such fiscal year and
the related consolidated statements of income, shareholders' equity and cash
flow for such fiscal year, in each case setting forth comparative figures for
the preceding fiscal year, and certified by independent certified public
accountants of recognized national standing;
(d) no later than five days after transmission thereof, copies of
all financial statements, proxy statements, notices and reports as SS/L shall
send to its debt or equity holders and copies of all registration statements
(without exhibits), other than on Form S-8 or any similar successor form, and
all reports which SS/L files with the Commission; and
(e) from time to time, such other information or documents
(financial or otherwise) with respect to SS/L as any Stockholder may reasonably
request.
Section 4.3. Regulatory Compliance. (a) If any of the circumstances
described in Section 2.10 occur and would (x) cause the Company or SS/L or
their respective Subsidiaries to be under FOCI or (y) result in Adverse
Clearance Status and such FOCI and Adverse Clearance Status, if any, may be
eliminated to the complete satisfaction of all applicable U.S. government
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departments, agencies or authorities by the adoption by the applicable Lehman
Investors or the Board of Directors of the Company or SS/L, as the case may be,
of governance procedures or board resolutions insulating the Company or SS/L,
as the case may be, from impermissible control or influence of either or both
of Offshore Investment or Offshore Japan, then the Lehman Investors or the
Board of Directors of the Company or SS/L shall adopt such procedures or board
resolutions, provided that such procedures and/or board resolutions do not
contravene and are consistent with applicable law and, in the sole reasonable
judgment of the Lehman Investors, do not contravene and are consistent with the
agreements governing the Lehman Investors, and provided, further, that such
procedures and/or board resolutions, in the sole judgment of the Lehman
Investors, do not materially alter the governance and other rights (whether
exercised directly or in accordance with such procedures) of the Lehman
Investors contained in this Agreement and the Charter Documents and any other
agreements or documents relating thereto.
(b) If such FOCI and Adverse Clearance Status, if any, are not
eliminated following compliance with paragraph (a) above, and such FOCI and
Adverse Clearance Status, if any, may be eliminated by a Transfer of Shares
held by one or more Lehman Investors to other Lehman Investors, the Lehman
Investors shall use their reasonable efforts to effectuate such Transfer,
provided that any such Transfer shall not contravene, and is made in compliance
with, the agreements and investment guidelines governing the applicable Lehman
Investors.
Section 4.4. Capital Contributions. (a) If the Company, Loral Space or
any Affiliate (excluding SS/L) of either intends to purchase (whether pursuant
to a rights offering or otherwise) any equity securities of SS/L (or rights to
acquire equity securities of SS/L or securities convertible into or
exchangeable for equity securities of SS/L), the Company or Loral Space shall
provide written notice of such determination to the Lehman Investors no later
than the earlier of (i) the date that the Company, Loral Space or any such
Affiliates determines that it intends to effect such a purchase and (ii) 5 days
prior to the expected closing date of such purchase (which notice shall provide
the Lehman Investors with a description of all material terms of such
transaction, shall indicate the expected closing date for such transaction (the
"Funding Date") and shall be accompanied by copies of all documentation related
to such transaction) and shall permit the Lehman Investors to participate in
such transaction (through the purchase of additional shares of Series S
Preferred Stock) on the same terms on a pro rata basis based on direct and
indirect (by virtue of ownership of Series S Preferred Stock) percentage
ownership interests in SS/L Common Stock then outstanding. The Lehman
Investors shall notify the Company no later than two days prior to the Funding
Date of their decision as to participation in the transaction, which
determination shall be binding and irrevocable; provided that the Lehman
Investors shall not be obligated to effect any such
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transaction if the actual terms of such transaction differ in any material
respect from those set forth in the notice relating thereto provided to the
Lehman Investors pursuant to this section 4.4 (a). The Lehman Investors shall
be notified promptly in the event of any material change in the terms of the
proposed transaction from those set forth in such notice, regardless of whether
the Lehman Investors elect to participate in such transaction. In the event of
such a material change, the Lehman Investors shall have an additional two days
to determine whether they desire to participate (on the terms set forth in this
Section 4.4(a)) in the transaction (as so modified), and any closing of such
transaction shall not occur until the end of such two-day period. If the
Lehman Investors elect to participate in any such transaction, they shall also
be provided with copies of all drafts of documentation for such transaction as
promptly as is possible after such drafts are prepared. In no event shall any
of the Lehman Investors be obligated to make any capital contribution, extend
any loan or make any other financial accommodation to SS/L or any of its
Affiliates except as otherwise contemplated by Section 4 of the Transaction
Agreement.
(b) In the event that the Company, Loral Space or any Affiliate of
either intends to purchase any equity securities of SS/L (or rights to acquire
equity securities of SS/L or securities convertible into or exchangeable for
equity securities of SS/L) from SS/L (whether pursuant to a rights offering or
otherwise) and the Lehman Investors determine not to participate in such
transaction, LBH (or a Subsidiary of LBH) shall determine (not less than two
days prior to the Funding Date for such transaction) in good faith (on the
basis of information then available to the Lehman Partnerships) whether the
terms of such transaction are materially less favorable to SS/L than could
reasonably be expected to have been obtained in a transaction (other than a
rights offering) between SS/L and a Third Party which is not an Affiliate of
the Company, Loral Space or SS/L (an "Unaffiliated Transaction"). If LBH (or
such Subsidiary) determines in good faith that the proposed transaction
includes terms that are materially less favorable to SS/L than could reasonably
be expected to have been obtained in an Unaffiliated Transaction, (i) LBH shall
so notify the Company in writing, (ii) Loral Space, the Company and the Lehman
Investors shall cause the SS/L Appraised Value of the securities to be issued
to the Company or Loral Space (or the relevant Affiliate) to be determined as
promptly as is practicable, (iii) Loral Space and the Company shall cause the
closing of such proposed transaction to be delayed until such SS/L Appraised
Value is determined and (iv) Loral Space and the Company shall permit such
transaction to be effected only if it is structured in a manner such that the
securities to be purchased in such transaction are purchased at a price at
least equal to their SS/L Appraised Value; provided that if the Board of
Directors of Loral Space certifies in writing to the Lehman Partnerships that
(A) delay in effecting the proposed transaction until SS/L Appraised Value may
be determined would have a material adverse effect on SS/L's business and (B)
SS/L is
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prohibited under loan documents then in effect from borrowing any portion of
the funds which would be provided in the proposed transaction, the proposed
transaction may be effected prior to the determination of SS/L Appraised Value;
provided further that the entity purchasing securities in such transaction
shall pay to SS/L an amount equal to the excess of SS/L Appraised Value over
the original purchase price promptly, but in no event more than five days,
after the determination of SS/L Appraised Value. SS/L Appraised Value shall be
determined in accordance with the procedures set forth in Section 2.9; provided
that the references to "Put Notice" in Section 2.9 shall be deemed to refer to
the written notice specified in clause (i) above.
(c) The Lehman Investors acknowledge that their indirect
percentage ownership Interest in SS/L may be reduced relative to that of Loral
Space, the Company and their Affiliates as a result of any determination by the
Lehman Investors not to participate in a capital contribution.
ARTICLE V.
CERTAIN AGREEMENTS
Section 5.1. Charter and By-laws. (a) The company has heretofore
delivered to the Lehman Partnerships true and correct copies of (i) the
Memorandum of Association and By-Laws of the Company and the Certificate of
Incorporation and By-Laws of SS/L in the form in which they are in effect on
the date hereof (the "Charter Documents"), and (ii) the SP Stockholders
Agreement, in the form in which it is in effect on the date hereof.
(b) Loral Space will cause the Company to act in accordance with
its Charter Documents, and the Company will cause SS/L to act in accordance
with its Charter Documents, as amended from time to time, and the SP
Stockholders Agreement.
Section 5.2. Corporate Actions. Loral Space and the Company shall
comply with Sections 5.3 and 5.4 with respect to the occurrence of any of the
following events (each, a "Material Action"):
(i) any merger or consolidation of SS/L with or into any
other Person or any recapitalization or other reorganization of SS/L,
other than any such transaction involving the issuance to any Person
of securities having a value of less than $75 million in which SS/L is
the surviving entity;
(ii) any sale, lease, exchange, transfer, pledge,
contribution to a joint venture or other disposition of assets of
SS/L, the fair market value of which is greater than $50 million;
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(iii) any acquisition by SS/L of stock or assets (whether
by means of a stock purchase, asset purchase or otherwise) having a
fair market value greater than $75 million;
(iv) (A) any Public Offering by SS/L, or (B) any other
issuance or sale by SS/L of capital stock or securities convertible
into, exchangeable for or otherwise granting the right to acquire
capital stock (including options, warrants and other rights) as a
result of which Persons other than the Company, Loral Space, the
Lehman Investors and the Strategic Participants own or have the right
to acquire 25% or more of the outstanding capital stock (on a fully
diluted basis) of SS/L;
(v) any repurchase of capital stock or securities
convertible into, exchangeable for or otherwise granting the right to
acquire capital stock of SS/L (including options, warrants and other
rights), other than any repurchase pursuant to the provisions of the
SP Stockholders Agreement or any repurchase the fair market value of
which is less than $35 million, and any payment of any dividend or
other distribution on any capital stock, of SS/L the fair market value
of which is in excess of $35 million;
(vi) any amendment of any Charter Document of SS/L or the
SP Stockholders Agreement or similar governing documents of SS/L that
would adversely affect the Lehman Investors;
(vii) any incurrence (including by guarantee or assumption)
by SS/L of indebtedness in excess of $50 million in the aggregate,
other than the refinancing of existing loans, or the refinancing of
existing loans in excess of $150 million on terms materially less
favorable to SS/L than those included in the loan being refinanced;
(viii) any material transaction between SS/L and Loral
Space, the Company or any Affiliate of Loral Space or the Company on
terms that are less than favorable to SS/L than could have been
obtained had such transaction been effected between SS/L and a Person
which was not an Affiliate of the Company or Loral Space;
(ix) the taking of any corporate action by the Company or
SS/L or any of its Subsidiaries for the (A) commencement of a
voluntary case under any applicable bankruptcy, insolvency or similar
law now or hereafter in effect, (B) consent to the entry of any order
for relief in an involuntary case under any such law, (C) consent to
the appointment or taking possession by a receiver, liquidator,
assignee, custodian, trustee, sequestrator (or similar official) of
SS/L or any of its Subsidiaries or of any substantial part of the
property of SS/L or any of its Subsidiaries or (D) making by SS/L or
any of its
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Subsidiaries of a general assignment for the benefit of creditors;
(x) (A) Bernard Schwartz ceases to be chief executive
officer of SS/L and within 6 months thereafter a permanent replacement
chief executive officer reasonably satisfactory to the Lehman
Investors shall not have been appointed and (B) the temporary chief
executive officer of SS/L (if any) at the time a Material Action Put
Notice (as defined below) is delivered in respect of the matters
referred to in this Section 5.3(x) is not reasonably satisfactory to
the Lehman Investors (it being understood that Frank C. Lanza, Michael
B. Targoff, Robert E. Berry and James W. Reynolds will be considered
reasonably satisfactory temporary chief executive officers of SS/L,
provided that the appointment of any such Person to such position is
not opposed by any Strategic Participant);
(xi) designees of the Company or Loral Space no longer
constitute a majority of the Board of Directors of SS/L;
(xii) the Company or Loral Space is in breach of any of its
material obligations under this Agreement; and
(xiii) the SP Stockholders Agreement shall have terminated
and Loral Space is not entitled, directly or indirectly, to appoint a
majority of the members of the Board of Directors of SS/L.
Section 5.3. Notice. If the Company or Loral Space shall at any time
(i) have knowledge of any facts that could give rise to the taking or occurrence
of any Material Action, the Company or Loral Space, as the case may be, shall
promptly inform the Lehman Investors in writing of such facts, and (ii) desire
to take any Material Action, the Company or Loral Space, as the case may be,
shall provide to the Lehman Investors reasonable prior written notice (a
"Notice of Proposed Action") of such proposed Material Action. The Company
shall also cause SS/L to deliver a Notice of Proposed Action to the Lehman
Investors promptly after SS/L has knowledge of any facts referred to in clause
(i) or desires to take any Material Action. Such Notice of Proposed Action
shall contain (i) a detailed description of such proposed Material Action and
the reasons therefor and any business or financial analysis related thereto
(including specific reference to the clause of Section 5.2 of this Agreement
applicable to such proposed Material Action) and (ii) the proposed time for the
taking of such Material Action. Upon the occurrence of any Material Action
referred to in Sections 5.2(x), (xi), (xii) or (xiii), the Company shall cause
SS/L to promptly provide the Lehman Investors with written notice of such event
(a "Notice of Material Event"), which notice shall include a detailed
description of such event.
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Section 5.4. Material Action Put Option. (a) If the Lehman Investors
(i) deem inadvisable, in their sole discretion, the taking of any proposed
Material Action described in any Notice of Proposed Action or (ii) deem adverse
to their interests, in their sole discretion, any occurrence referred to in a
Notice of Material Event, the Lehman Investors shall have the option, upon
written notice to Loral Space (a "Material Action Put Notice"), given to Loral
Space within 30 days after delivery to Lehman Investors of the Notice of
Proposed Action or the Notice of Material Event, as the case may be, to require
Loral Space to purchase the Series S Preferred Stock then held by Lehman
Investors at a per share purchase price equal to the greater of (x) SS/L
Appraised Value, determined pursuant to the procedures set forth in Section 2.9
(except that references to "Put Notice" in Section 2.9 shall be deemed to be
references to "Material Action Put Notice") and (y) $116,667 (as adjusted from
time to time to reflect any stock dividend, stock split or similar event)
compounded at a rate of 15% per annum from August 14, 1992 (in the case of the
Associated SS/L Shares underlying 627.3 shares of Series S Preferred Stock) and
from December 18, 1992 (in the case of the Associated SS/L Shares underlying
104.55 shares of Series S Preferred Stock) to and including the date of
purchase by Loral Space.
(b) The closing for the purchase and sale transaction contemplated
by the Material Action Put Notice shall be ten Business Days after the receipt
thereof by Loral Space.
(c) On the closing date, the Lehman Investors shall deliver (i)
certificates representing the Series S Preferred Stock being sold free and
clear of any lien, claim or encumbrance, and (ii) such other documents,
including evidence of ownership and authority, as Loral Space may reasonably
request. The purchase price shall be paid by wire transfer of immediately
available funds no later than 2:00 P.M. on the closing date.
(d) The provisions of Section 2.9(f) shall apply to Loral Space
upon the delivery of a Material Action Put Notice to the same extent as they
apply upon the delivery of a Put Notice.
Section 5.5. SS/L Information. (a) Loral Space or the Company, as the
case may be, shall deliver to the Lehman Investors, within one Business Day
after receipt by Loral Space or the Company, as the case may be, copies of all
notices, requests and communications delivered to Loral Space or the Company,
as the case may be, in connection with the Subscription Agreement dated March
28, 1991 among Loral, LAH, SS/L and the Strategic Participants, as the same may
be amended from time to time, and any exhibits thereto (including the SP
Stockholders Agreement).
(b) Loral Space or the Company, as the case may be, shall deliver
to the Lehman Investors, within one Business Day after receipt by any nominee
of Loral Space or the Company, at
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the case may be, to the Board of Directors of SS/L a copy of each amended and
updated Strategic Plan (as defined in the SP Stockholders Agreement) of SS/L
prepared in accordance with the SP Stockholders Agreement.
(c) The Company shall cause SS/L to provide the Lehman
Partnerships (or LBH or an Affiliate of LBH on such Partnerships' behalf) with
bi-monthly briefings by appropriate executive personnel of SS/L with respect to
the business, results of operations and prospects of SS/L and its Subsidiaries;
provided that this Section 5.5(c) shall not obligate the Company to require
SS/L to disclose to the Lehman Partnerships (or LBH or an Affiliate of LBH on
such Partnerships' behalf) material non-public information with respect to SS/L.
Such briefings shall take place as promptly as is practicable after receipt by
the Company of a written or oral request from LBH or any affiliate of LBH for
such a briefing. The first briefing shall occur in November 1992.
Section 5.6. Loral Space Guarantee. (a) Loral Space hereby guarantees
the due and punctual payment and performance of all of the obligations of the
Company under Schedule I to the Company's By-Laws (including, without
limitation, the due and punctual payment and performance of all of the
obligations of the Company to make payments and other distributions to the
holders of Series S Preferred Stock as set forth in Schedule I to the Company's
By-Laws). For purposes of the foregoing, the Company's obligations under
Schedule I to the Company's By-Laws shall be determined without regard to
whether or not the Company has available sufficient capital or surplus to honor
such obligations and without regard to any other legal, contractual or other
restriction on the ability of the Company to honor such obligations.
(b) Any amount required to be paid by Loral Space pursuant to this
Section 5.6 shall be payable in the form of Loral Space common stock. The
Loral Space common stock to be issued shall be deemed to have a value equal to
(i) the average closing sale price for such common stock on the New York Stock
Exchange (or such other national securities exchange or over-the-counter market
as then constitutes the principal domestic trading market for Loral Space
common stock) during the 10 trading days preceding the payment of such amount
minus (ii) the costs that a seller of such Loral Space common stock could
reasonably be expected to incur in connection with the sale of such stock
(other than pursuant to a Public Offering) on the date of payment (whether or
not such common stock is, in fact, sold).
Section 5.7. Tax Indemnity. (a) Loral Space hereby indemnifies and
agrees to hold the Lehman Partnerships and all general and limited partners
thereof (the Lehman Partnerships and such partners, collectively, the "Lehman
Indemnitees") harmless from any Tax, together with all reasonable costs and
expenses (including, without limitation, reasonable attorney's fees)
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incurred in connection therewith or resulting therefrom, that (1) results from
a failure of the August 1992 Exchange to qualify as a reorganization within the
meaning of Section 368(a)(1)(B) of the Code by reason of the grant, exercise
or performance by any party to the 1992 Lehman Stockholders Agreement of any
right or any action in accordance with Section 5.06 or Section 5.07 of such
Agreement, or (2) is imposed on any of the Lehman Indemnitees at any time as a
result of or in connection with the Exchange Transaction, the ownership of the
Series S Preferred Stock or the LAH Series S Preferred Stock, any receipt of
Associated SS/L Shares, any Transfer of Associated SS/L Shares, any
distribution by SS/L of cash or other property in respect of SS/L Common Stock
or any other transaction involving Series S Preferred Stock, LAH Series S
Preferred Stock or Associated SS/L Shares, which Tax would not have been
payable if (i) the November 1992 Exchange had been treated for Tax purposes as
a redemption of Class B Common Stock of LAH for SS/L Common Stock, (ii) during
the period from the November 1992 Exchange through the Exchange Transaction,
the Lehman Partnerships had been treated as owners of SS/L Common Stock for Tax
purposes, and (iii) following the Exchange Transaction, the Lehman Partnerships
had continued to be treated as owners of SS/L Common Stock for Tax purposes.
For the avoidance of doubt, Taxes subject to indemnity under this Section
5.7(a) include, without limitation, (i) any gain recognized under Section 1001
of the Code by reason of the treatment of the Exchange Transaction as a "sale
or exchange" thereunder, (ii) any Tax resulting from the treatment of the
Company as a controlled foreign corporation or passive foreign investment
company within the meaning of Sections 957 and 1296 of the Code, respectively,
for United States federal income tax purposes, and (iii) any withholding taxes,
whether imposed pursuant to any law in effect prior to the Exchange Transaction
or otherwise, imposed by Bermuda on dividends received by the Lehman
Partnerships in respect of the Series S Preferred Stock or imposed by a United
States Taxing Authority on dividends received by the Company in respect of the
Associated SS/L Shares. The Lehman Indemnitees hereby release Loral from its
obligations under Section 5.07 of the 1992 Lehman Stockholders Agreement.
(b) (1) Loral Space shall discharge its obligation to indemnify
the Lehman Indemnitees under Section 5.7(a) by paying the amount required to be
indemnified thereunder grossed-up for any (a) Taxes payable upon payment,
receipt or accrual of such indemnification payment plus (b) any additional
amount of Tax payable upon payment, receipt or accrual of any payment required
to be paid pursuant to this Section 5.7(b)(1).
(2) Any payment required to be made to the Lehman Indemnitees
under this Section 5.7 shall be paid in cash. Without limiting the generality
of the foregoing, Loral Space shall provide the Lehman Indemnitees, within 10
days of receipt of written request, with the full amount of any payments to a
Taxing Authority from which an indemnification obligation by Loral Space
pursuant to this Section 5.7 would arise, it being
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<PAGE> 33
understood that funds advanced by Loral Space pursuant to this Section
5.7(b)(2) shall give rise to no obligation on the Lehman Indemnitees' part to
pay interest and shall only give rise to an obligation to return to Loral Space
any refund by a Taxing Authority of such payment (including any interest
included in such refund).
(c) If Loral Space makes any indemnification payment to a Lehman
Indemnitee pursuant to this Section 5.7 and the Lehman Indemnitee realizes a
Tax benefit (as, for example, the Lehman Indemnitee realizing less taxable gain
or more taxable loss on a disposition of the Series S Preferred Stock by reason
of having a higher Tax basis therein) from the transaction or status from which
Loral Space's indemnification obligation pursuant to this Section 5.7 arose,
the Lehman Indemnitee shall pay over to Loral Space the Tax benefit actually
received by such Lehman Indemnitee. The amount of the Tax benefit shall
include any Tax benefit resulting from any payments to Loral Space hereunder.
The Lehman Indemnitee shall not be required to make any payment in excess of
the indemnity payment received from Loral Space, and any payment may be made by
offset against a payment owed by Loral Space. Any payment to be made pursuant
to this Section 5.7(c) shall be made at the time a Tax payment to be remitted
by such Lehman Indemnitee is actually reduced as a result of the Tax benefit or
the Lehman Indemnitee receives a refund of Tax as a result of the Tax benefit
(and the amount of such payment in respect of a Tax benefit shall not exceed
the amount of such reduction or refund). If the Tax benefit may be realized by
a refund claim by a Lehman Indemnitee, the Lehman Indemnitee shall take
reasonable steps and measures, at Loral Space's expense, to obtain such refund.
(d) (i) Each of Loral Space, the Company and the Lehman
Partnerships agrees that for United States federal income tax purposes
(including, without limitation, for purposes of filing any federal income tax
return), the Exchange Transaction shall not be treated as a taxable "sale or
exchange" under Section 1001 of the Code and that the Series S Preferred Stock
shall be treated as SS/L Common Stock; provided that the Lehman Partnerships
shall not be required to comply with this Section 5.7(d)(1) unless (i) prior to
the date hereof Willkie Farr & Gallagher shall have delivered an opinion
reasonably satisfactory to the Lehman Partnerships to the effect that (A) for
United States federal income tax purposes it is more likely than not that (I)
the exchange of LAH Series S Preferred Stock for Series S Preferred Stock will
not be treated as a sale or exchange (under Section 1001 of the Code or
otherwise), and (II) following the Exchange Transaction the Lehman Partnerships
will be treated as continuing to hold the SS/L Common Stock, and (B) the Lehman
Indemnitees will not be subject to penalties in respect of any Taxes for taking
the positions set forth in clause (A) above, and (ii) Willkie Farr & Gallagher
or other nationally recognized independent tax counsel to Loral Space
reasonably satisfactory to the Lehman Partnerships delivers, at such times as
may be
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<PAGE> 34
reasonably requested by such Partnerships (in light of any change in law or
other circumstances or any proposed disposition, exchange or other transaction
involving the Series S Preferred Stock or Associated SS/L Shares), an opinion
satisfactory in form and substance to such Partnerships to the effect that
continuing to treat the Series S Preferred Stock as SS/L Common Stock will not
subject a Lehman Indemnitees to penalties in respect of Taxes. The fees and
expenses of such counsel shall be borne by Loral Space.
(2) Loral Space shall have no obligation to indemnify any Lehman
Indemnitee under this Section 5.7 for any Tax other than a Tax imposed by the
United States or Bermuda, unless such Lehman Indemnitee shall have treated the
Series S Preferred Stock as SS/L Common Stock for such Tax purposes.
(e) Each limited or general partner of each Lehman Partnership
shall be a third-party beneficiary of this Section 5.7.
ARTICLE VI.
TERMINATION
Section 6.1. Termination. (a) This Agreement shall terminate (and the
Lehman Investors shall be entitled to receive the Associated SS/L Shares
underlying their shares of Series S Preferred Stock) after a Public Offering of
the Company or SS/L as a result of which Persons other than Stockholders (in
the case of the Company) or Stockholders and parties to the SP Stockholders
Agreement (in the case of SS/L) are entitled to (i) cast more than 50% of the
votes for directors of the Company or SS/L, as the case may be, (ii) receive
more than 50% of the assets available for distribution to holders of equity
securities of SS/L or the Company, as the case may be, upon a liquidation of
such entity or (iii) receive more than 50% of the regular dividends payable on
the then outstanding shares of Common Stock or SS/L Common Stock, as the case
may be, in each case after giving effect to such offering, provided that (x)
the provisions of Section 7.13 shall survive for a period of three years from
the date of termination of this Agreement and (y) the provisions of Sections
5.6, 5.7 shall survive without limitation.
(b) Except as otherwise provided in Section 2.12, the Lehman
Investors shall be entitled to terminate the restrictions on Transfers of
Series S Preferred Stock and Associated SS/L Shares by the Lehman Investors in
the event of a breach by Loral Space of its obligation to purchase shares of
Series S Preferred Stock held by the Lehman Investors set forth in Section 5.4.
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<PAGE> 35
ARTICLE VII.
MISCELLANEOUS
Section 7.1. No Inconsistent Agreements. Each of the Company and
Loral Space will not hereafter, and will cause their respective Subsidiaries not
to, enter into any agreement with respect to its securities which is
inconsistent with the rights granted to Stockholders in this Agreement. Each of
the Company and Loral Space represents and warrants to each Stockholder that it
has not, and their respective Subsidiaries have not, entered into any agreement
with respect to any of its debt or equity securities granting registration
rights to any Person.
Section 7.2. Recapitalization, Exchange, etc. In the event that any
capital stock or other securities are issued in respect of, in exchange for, or
in substitution of, any Shares by reason of any reorganization,
recapitalization, reclassification, merger, consolidation, spin-off, partial or
complete liquidation, stock dividend, split-up, sale of assets, distribution to
shareholders or combination of the Shares or any other change in capital
structure of the Company, appropriate adjustments shall be made with respect to
the relevant provisions of this Agreement so as to fairly and equitably
preserve, as far as practicable, the original rights and obligations of the
parties hereto under this Agreement and the term "Shares," as used herein,
shall be deemed to include shares of such capital stock or other securities, as
appropriate.
Section 7.3. Remedies. The Company and the Stockholders acknowledge
and agree that in the event of any breach of this Agreement by any one of them,
the Company or the appropriate Stockholders, as the case may be, would be
irreparably harmed and could not be made whole by monetary damages. The
Company and the Stockholders accordingly agree (i) to waive the defense in any
action for specific performance that a remedy at law would be adequate, and
(ii) that the Company and the Stockholders, in addition to any other remedy to
which they may be entitled at law or in equity, shall be entitled to compel
specific performance of this Agreement in any action instituted in the United
States District Court for the Southern District of New York, or, in the event
said Court would not have jurisdiction for such action, in any court of the
United States or any state thereof having subject matter jurisdiction for such
action. The Company and the Stockholders consent to non-exclusive personal
jurisdiction in any such action brought in the United States District Court of
the Southern District of New York, or any such other court.
Section 7.4. Successors and Assigns. This Agreement, and all
obligations and rights hereunder, shall be binding upon and shall inure to the
benefit of the parties hereto, and their respective successors and permitted
assigns; provided that (i) neither this Agreement nor any rights or
obligations hereunder
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<PAGE> 36
may be transferred or assigned by the Company or Loral Space and (ii) no rights
of any Stockholder under this Agreement may be assigned except that any
Stockholder may transfer or assign its rights and obligations hereunder, in
whole or in part, to a Transferee pursuant to a Transfer of Shares or
Associated SS/L Shares made in compliance with all of the provisions of this
Agreement to a Person (i) who is or thereby becomes a Stockholder or (ii) who
is a Person described in clause (ii) of the definition of Permitted Transferee;
provided that the Lehman investors may only transfer or assign their rights
under Section 5.4 to a Transferee or group of related Transferees of 50% or
more of the Shares or Associated SS/L Shares underlying Shares, as the case may
be, held by the Lehman Investors as of the date hereof. If any Stockholder
shall acquire additional Shares, such Shares shall, except as expressly
provided herein, be held subject to all of the terms of this Agreement.
Section 7.5. No Waivers; Amendments. (a) No failure or delay by any
party in exercising any right, power or privilege hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise thereof preclude any
other or further exercise thereof or the exercise of any other right, power or
privileges. The rights and remedies herein provided shall be cumulative and not
exclusive of any rights or remedies provided by law.
(b) This Agreement may not be amended, modified or supplemented
other than by a written instrument signed by each party hereto.
(c) Any provision of this Agreement may be waived if, but only
if, such waiver is in writing and is signed by the party against whom the
enforcement of such waiver is sought.
Section 7.6. Notices. All notices, requests and other communications
to any party hereunder shall be in writing (including telex, telecopier or
similar writing) and shall be given to such party at its address, telex or
telecopier number set forth below, or such other address, telex or telecopier
number as such party may hereinafter specify for the purpose to the party
giving such notice. Each such notice, request or other communication shall be
effective (i) if given by telex or telecopy, when such telex or telecopy is
transmitted to the telex or telecopy number specified in this Section and the
appropriate answerback is received or, (ii) if given by mail, 72 hours after
such communication is deposited in the mails with first class postage prepaid,
addressed as aforesaid or, (iii) if given by any other means, when delivered at
the address specified in this Section 7.6.
Notices to the Company or Loral Space shall be addressed to the
Company or Loral Space, respectively, at Loral Space & Communications Ltd., 600
Third Avenue, New York, New York 10016, Attention: Michael B. Targoff,
President (telecopier no.
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<PAGE> 37
(212) 682-9805), with a copy thereof to Willkie Farr & Gallagher, One Citicorp
Center, 153 East 53rd Street, New York, New York 10022-4669, Attention: Bruce
R. Kraus (telecopier no. (212) 821-8111); and notices to the Lehman Investors
shall be addressed to the Lehman Investors c/o Lehman Brothers Holdings Inc.,
American Express Tower, 3 World Financial Center, 200 Vesey Street, New York,
New York 10205, Attention: Alan H. Washkowitz (telecopier (212) 526-3836), with
a copy thereof to Davis Polk & Wardwell, 450 Lexington Avenue, New York, New
York 10017, Attention: Paul R. Kingsley (telecopier no. (212) 450-4800).
Section 7.7. Inspection. So long as this Agreement shall be in
effect, this Agreement and any amendments hereto shall be made available for
inspection by a Stockholder at the principal offices of the Company, Loral
Space and SS/L.
Section 7.8. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York.
Section 7.9. Section Headings. The section headings contained in this
Agreement are for reference purposes only and shall not affect the meaning or
interpretation of this Agreement.
Section 7.10. Entire Agreement. This Agreement and the Transaction
Agreement constitutes the entire agreement and understanding among the parties
hereto and supersedes any and all prior agreements (including, without
limitation, the Stockholders Agreement dated as of October 23, 1990, as
amended, and the 1992 Lehman Stockholders Agreement) and understandings,
written or oral, relating to the subject matter hereof.
Section 7.11. Severability. Any term or provision of this Agreement
which is invalid or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without rendering invalid or unenforceable the remaining terms
and provisions of this Agreement or affecting the validity or enforceability of
any of the terms or provisions of this Agreement in any other jurisdictions, it
being intended that all rights and obligations of the parties hereunder shall
be enforceable to the fullest extent permitted by law.
Section 7.12. Counterparts. This Agreement may be signed in
counterparts, each of which shall constitute an original and which together
shall constitute one and the same agreement.
Section 7.13. Confidentiality. To the extent that any Stockholder
receives proprietary or confidential information ("Confidential information")
from the Company, Loral Space or SS/L, pursuant to Section 5.5 hereof or
otherwise, such Stockholder agrees that it will not utilize in its respective
business or otherwise, disclose or submit to, or file with, any
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<PAGE> 38
other Person (other than its respective employees, attorneys, and other
professional advisors, who shall be informed of the confidential nature of such
information) any Confidential Information, without the prior written consent of
the Company, Loral Space, or SS/L as the case may be, except where disclosure
may be required by law, as may be necessary for such Stockholder to enforce its
rights under this Agreement (or any documents executed in connection herewith)
or otherwise in connection with its direct or indirect interest in the Company
or SS/L. Notwithstanding the foregoing, the following will not constitute
"Confidential Information" for purposes of this Agreement:
(i) information which was already in the possession of
the Stockholder prior to the date hereof and which was not acquired or
obtained from the Company, Loral Space or SS/L;
(ii) information which is obtained or was previously
obtained by the Stockholder from a third person who, insofar as is
known to the Stockholder, is not prohibited from transmitting the
information to the Stockholder by a contractual, legal or fiduciary
obligation to the Company, SS/L or Loral Space; and
(iii) information which is or becomes generally available
to the public other than as a result of a disclosure by the
Stockholder or its agents or employees in violation of this Section
7.13.
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<PAGE> 39
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date set forth above.
LORAL SPACE & COMMUNICATIONS LTD.
By: /s/ Eric J. Zahler
Title: Vice President
SS/L (BERMUDA) LTD.
By: /s/ Eric J. Zahler
Title: Vice President
LEHMAN BROTHERS
CAPITAL PARTNERS II, L.P.
By Lehman Brothers Holdings Inc.
By: /s/ Alan Washkowitz
Title: Vice President
LEHMAN BROTHERS MERCHANT BANKING
PORTFOLIO PARTNERSHIP L.P.
By LB I Group Inc.
By: /s/ Alan Washkowitz
Title: Vice President
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<PAGE> 40
LEHMAN BROTHERS OFFSHORE
INVESTMENT PARTNERSHIP L.P.
By Lehman Brothers Offshore
Partners Ltd.
By: /s/ N.G. Trollope
Title: Director/President
LEHMAN BROTHERS OFFSHORE
INVESTMENT PARTNERSHIP-JAPAN L.P.
By Lehman Brothers Offshore
Partners Ltd.
By: /s/ N.G. Trollope
Title: Director/President
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<PAGE> 1
EXHIBIT 10.14
EXCHANGE AGREEMENT
EXCHANGE AGREEMENT, dated as of April 22, 1996 (the
"AGREEMENT"), by and among Loral Space & Communications Ltd., a Bermuda company
which is the successor-in-interest to Loral Space & Communications, Inc., a
Delaware corporation ("SPACECOM"), Lockheed Martin Corporation, a Maryland
corporation ("LMC"), and Loral Corporation, a New York corporation ("LORAL").
R E C I T A L S:
WHEREAS, each of Loral, LMC, and LAC Acquisition Corporation,
a New York corporation ("LAC"), are parties to that certain Agreement and Plan
of Merger, dated as of January 7, 1996, as amended (the "MERGER AGREEMENT");
WHEREAS, Loral, LMC, SpaceCom and certain affiliates of
SpaceCom are parties to the Restructuring, Financing and Distribution Agreement
dated as of January 6, 1996, as amended (the "DISTRIBUTION AGREEMENT");
WHEREAS, concurrently with the consummation of the
Distribution (as defined in the Distribution Agreement), Loral and SpaceCom
will enter into the Stockholders Agreement (as defined in the Distribution
Agreement; for purposes of this Agreement, the "SPACECOM STOCKHOLDERS
AGREEMENT");
WHEREAS, immediately following the Distribution, Loral will
own all of the issued and outstanding shares of Series A Non-Voting Convertible
Preferred Stock of SpaceCom (the "SPACECOM PREFERRED SHARES"), which, subject
to certain conditions set forth in the Certificate of Designation of the
SpaceCom Preferred Shares and the SpaceCom Stockholders Agreement, are
convertible into shares of SpaceCom common stock, $.0l par value per share (the
"SPACECOM COMMON STOCK"; collectively, the SpaceCom Preferred Shares and the
SpaceCom Common Stock are the "SPACECOM SECURITIES");
WHEREAS, immediately following the Distribution, SpaceCom will
own all of the issued and outstanding common stock, $.0l par value per share
(the "SS/L BERMUDA COMMON STOCK"), of SS/L (Bermuda) Ltd., a Bermuda company
("SS/L BERMUDA");
WHEREAS, immediately following the Distribution all of the
issued and outstanding shares of Series S Preferred Stock (as defined below) of
SS/L Bermuda will be owned by Lehman Brothers Capital Partners, II, L.P.,
Lehman Brothers Merchant Banking Portfolio Partnership, L.P., Lehman Brothers
Offshore Investment Partnership, L.P. and Lehman Brothers Offshore Investment
Partnership-Japan L.P. (collectively, the "LEHMAN PARTNERSHIPS");
<PAGE> 2
WHEREAS, immediately following the Distribution, SpaceCom,
SS/L Bermuda and the Lehman Partnerships will be parties to the Second Amended
and Restated Agreement dated as of November 13, 1992, as amended as of April
22, 1996 (the "SS/L BERMUDA STOCKHOLDERS AGREEMENT");
WHEREAS, pursuant to Sections 2.9, 2.10 and 5.4 of the SS/L
Bermuda Stockholders Agreement, the Lehman Partnerships have, under certain
circumstances and subject to certain conditions, the right to require SS/L to
purchase from the Lehman Partnerships all of the Series S Preferred Stock;
WHEREAS, immediately following the Distribution, each of SS/L
Bermuda, Aerospatiale Societe Nationale Industrielle, Alcatel Espace,
Daimler-Benz Aerospace A.G. and Finmeccanica S.p.A. (collectively, the
"STRATEGIC PARTNERS") will own shares of common stock, $.10 par value per share
("SS/L COMMON STOCK"), of Space Systems/Loral, Inc., a Delaware corporation
("SS/L");
WHEREAS, SpaceCom, SS/L Bermuda and SS/L intend to enter into
an agreement with the Strategic Partners to amend that certain Stockholders
Agreement, dated as of April 22, 1991, as amended November 2, 1992 (as amended
by such contemplated amendment, the "SS/L STOCKHOLDERS AGREEMENT");
WHEREAS, pursuant to Section 4.4 of the SS/L Stockholders
Agreement each of the Strategic Partners has, under certain circumstances and
subject to certain conditions, the right to require SS/L to purchase from the
Strategic Partner shares of SS/L Common Stock beneficially owned by the
Strategic Partner (the "STRATEGIC PARTNER PUT RIGHTS");
WHEREAS, if SpaceCom acquires any of the ownership interests
of the Lehman Partnerships or the Strategic Partners in SS/L Bermuda or SS/L,
respectively, SpaceCom's direct or indirect ownership interest in SS/L will
increase;
WHEREAS, while each of the parties hereto believe that an
increase in the ownership by SpaceCom of SS/L would be entirely consistent with
all applicable law and policies of the Antitrust Authorities (as defined in
Section 2.1(a)), the parties have agreed to enter into this Agreement to
provide for any contingencies that may hereinafter arise;
NOW THEREFORE, in consideration of the foregoing premises and
for other good and valuable consideration, the sufficiency of which is hereby
acknowledged, LMC, Loral and SpaceCom agree as follows:
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ARTICLE I
DEFINITIONS
SECTION 1.1 GENERAL. For convenience and brevity, certain
terms used in various parts of this Agreement are listed in alphabetical order
and defined or referred to below (such terms to be equally applicable to both
singular and plural forms of the terms defined or referred to):
"CHANGE OF CONTROL" has, with respect to the Lehman Put
Rights, the meaning assigned to the term in the SS/L Bermuda Stockholders
Agreement and has, with respect to the Strategic Partner Put Rights, the
meaning assigned to that term in the SS/L Stockholders Agreement.
"CLOSING MARKET PRICE" for each day for any publicly traded
security means the last reported sales price regular way or, in case no such
sale takes place on such day, the average of the closing bid and asked prices
regular way, in either case on the principal national securities exchange on
which the shares of the publicly traded security are listed or admitted to
trading, or, if not listed or admitted to trading on any national securities
exchange, on the Nasdaq National Market or, if the shares of the publicly
traded security are not listed or admitted to trading on any national
securities exchange or quoted on the Nasdaq National Market, the average of the
closing, bid and asked prices as furnished by any New York Stock Exchange
member firm selected from time to time by LMC for such purpose.
"DISTRIBUTION DATE" has the meaning assigned to that term in
the Distribution Agreement.
"EXERCISE" means (i) the valid exercise by the Lehman
Partnerships of the Lehman Put Rights or by a Strategic Partner of the
Strategic Partner Put Rights for reasons unrelated to a Change of Control other
than the Change of Control resulting from the consummation of the Offer (as
defined in the Merger Agreement) and/or (ii) the repurchase of SS/L Securities
from the Lehman Partnerships by SpaceCom, SS/L Bermuda or SS/L otherwise than
pursuant to an exercise of the Lehman Put Rights.
"FAIR MARKET VALUE" means (i) with respect to any publicly
traded security, the average of the Closing Market Prices of such security for
the 10 consecutive trading days ended immediately before the date of the
Requirement Notice, and (ii) with respect to a security not publicly traded,
the fair market value, as of the date of the Requirement Notice, determined as
if the Company whose security is being valued were to be sold in its entirety
with a reasonable amount of time available to negotiate and consummate such
sale; provided, that for purposes of clauses (i) and (ii) of this definition,
the Fair Market Value of SpaceCom Preferred Shares shall be deemed to be equal
to the Fair Market Value of SpaceCom Common Stock into which they are
convertible.
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<PAGE> 4
"GTL" means Globalstar Telecommunications Limited, a company
organized under the laws of Bermuda.
"GTL COMMON STOCK" means the common stock, $1.00 par value
per share, of GTL.
"LEHMAN PUT RIGHTS" means the rights of the Lehman
Partnerships to require SpaceCom, SS/L, SS/L Bermuda or any affiliate of
SpaceCom to purchase SS/L Securities beneficially owned by the Lehman
Partnerships pursuant to Sections 2.9, 2.10 or 5.4 of the SS/L Bermuda
Stockholders Agreement as in effect on the date hereof or as such agreement may
be amended from time to time hereafter with respect to (i) the conditions
precedent to the Lehman Partnerships' right to require the repurchase of the
SS/L Securities, (ii) the times at which such repurchase must occur and (iii)
the number of shares of SS/L Securities required to be sold in connection with
the exercise of any such rights.
"OWNERSHIP INCREASE" means any increase in the beneficial
ownership of equity securities of SS/L, or, as the context shall require, any
binding agreement (an "OWNERSHIP INCREASE AGREEMENT") to enter into a
transaction or series of transactions that would result in such an increase.
"REQUIREMENT NOTICE" has the meaning set forth in Section 3.2
hereof.
"SERIES S PREFERRED STOCK" means the shares of Series S
Redeemable Preferred Stock, par value $.0l per share, of SS/L Bermuda.
"SS/L SECURITIES" means equity securities of either SS/L
Bermuda or SS/L.
"STRATEGIC PARTNER PUT RIGHTS" means the rights of a Strategic
Partner to require SpaceCom, SS/L, SS/L Bermuda or any affiliate of SpaceCom to
purchase SS/L Securities beneficially owned by the Strategic Partner pursuant
to Section 4.4 of the SS/L Stockholders Agreement as in effect on the date
hereof or as such agreement may be amended from time to time hereafter with
respect to (i) the conditions precedent to the Strategic Partner's right to
require the repurchase of the SS/L Securities, (ii) the times at which such
repurchase must occur and (iii) the number of shares of SS/L Securities
required to be sold in connection with the exercise of any such rights.
"TRANSFERRED SHARES" has the meaning set forth in Section 3.1(a)
hereof.
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ARTICLE II
ANTITRUST APPROVAL AND REVIEW
SECTION 2.1 ANTITRUST APPROVAL.
(a) The parties acknowledge and agree that an Ownership
Increase could result in a requirement on the part of SS/L, SpaceCom and other
parties to abide by a waiting period imposed under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR ACT"), and to make
certain filings required thereunder, and could otherwise be subject to approval
by the relevant governmental or supragovernmental antitrust authorities of the
United States or the European Community (the "ANTITRUST AUTHORITIES"). Any
such approval with respect to an Ownership Increase resulting from an Exercise
and the lapse or early termination of the HSR Act waiting period with respect
thereto is hereinafter referred to as an "APPROVAL".
(b) SpaceCom agrees that it shall not seek Approval
unless it shall have received the prior written opinion of Willkie Farr &
Gallagher (and/or such other counsel reasonably acceptable to LMC) that absent
such Approval, the Ownership Increase would constitute a violation of law (the
"OPINION").
SECTION 2.2 ANTITRUST REVIEW.
(a) SpaceCom will give LMC prompt written notice of any
Ownership Increase resulting from an Exercise and a copy of any Opinion
received in connection therewith.
(b) Following delivery of the Opinion to LMC, LMC and
SpaceCom will (i) take promptly all actions necessary to make the filings
required of LMC, SpaceCom or any of their affiliates necessary to obtain the
Approval, (ii) comply at the earliest practicable date with any request from
the Antitrust Authorities for additional information or documentary material
related to the Ownership Increase, and (iii) cooperate in connection with any
filing required by the Antitrust Authorities in connection with the Approval
and in connection with resolving any investigation or other inquiry commenced
by the Antitrust Authorities concerning the Ownership Increase.
(c) In furtherance and not in limitation of the covenants
of LMC and SpaceCom contained in Section 2.2(b) hereof, LMC and SpaceCom shall
each use reasonable efforts to resolve such objections, if any, as may be
asserted with respect to the Ownership Increase. SpaceCom shall use its
reasonable efforts to obtain the Approval without the Approval being
conditioned upon a change in LMC's ownership interest in SpaceCom, including,
without limitation, SpaceCom's agreeing to reasonable alternative conditions or
proposals of the Antitrust Authorities not involving any change in LMC's
ownership interest in SpaceCom; provided, that SpaceCom shall not be required
to take any action or agree to any alternative conditions or proposals that
would have a material adverse effect on SpaceCom.
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<PAGE> 6
LMC will, and will cause its subsidiaries, to use reasonable efforts to assist
SpaceCom in obtaining the Approval without the Approval being conditioned upon
any change in LMC's ownership interest in SpaceCom including, without
limitation, agreeing to reasonable alternative conditions or proposals of the
Antitrust Authorities not involving any reduction in LMC's ownership of
SpaceCom Securities; provided that LMC shall not be required to take any
action, or agree to any alternative conditions or proposals, that could, in the
reasonable judgment of LMC, have a material adverse effect on LMC's investment
in SpaceCom.
ARTICLE III
EXCHANGE
SECTION 3.1 EXCHANGE.
(a) If, following an Ownership Increase resulting from an
Exercise and receipt of the Opinion, an Antitrust Authority requires as a
condition to the Approval that the indirect ownership interest of LMC in SS/L
be reduced below the indirect ownership interest that would otherwise result
from the Ownership Increase (the "ANTITRUST REQUIREMENT"), then LMC shall be
required to transfer to SpaceCom shares of SpaceCom Securities beneficially
owned by LMC as specified in Section 3.1(c) hereof in exchange for shares of
GTL Common Stock; provided, however, that no such transfer shall be required if
the transactions contemplated by an Ownership Increase Agreement are not
completed.
(b) SpaceCom shall provide prompt written notice of the
Antitrust Requirement to LMC and shall include therein reasonable evidence of
the Antitrust Requirement (the "REQUIREMENT NOTICE").
(c) The number of shares of SpaceCom Securities to be
transferred by or on behalf of LMC (the "TRANSFERRED SHARES") shall be the
minimum number of shares necessary to reduce LMC's indirect ownership interest
in SS/L to the maximum ownership interest therein permitted by the Antitrust
Authorities as a condition necessary to the Approval; it being understood that
nothing in this Agreement will require LMC to reduce its fully-diluted
ownership interest in SpaceCom below 20% unless, prior to such reduction,
appropriate modification of Section 1.4 of the SpaceCom Stockholders Agreement
shall have been made that preserves the economic benefits to Loral of the
option contained in such Section 1.4. The number of shares of GTL Common Stock
to be delivered to LMC in exchange for the Transferred Shares shall be a number
of shares of GTL Common Stock having a Fair Market Value equal to the Fair
Market Value of the Transferred Shares.
(d) Notwithstanding the provisions of Section 3.1(a)
hereof, SpaceCom shall not be required to deliver shares of GTL Common Stock to
LMC as required thereunder if an Antitrust Authority from which Approval is
requested, as a condition to the Approval, prohibits the exchange of GTL Common
Stock for the Transferred Shares. In such event, in lieu of transferring GTL
Common Stock to LMC in exchange for the Transferred Shares,
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<PAGE> 7
SpaceCom shall pay LMC, upon surrender and transfer of the Transferred Shares
to SpaceCom, cash in an amount equal to the greater of (i) the Fair Market
Value of the Transferred Shares and (ii) the original purchase price of the
Transferred Shares, increased at the rate of 10% per annum, compounded
annually, from the date of the consummation of the Offer (as defined in the
Merger Agreement) through the date of the transfer of the Transferred Shares to
SpaceCom. The parties agree that for the purposes of this Section 3.1(d) the
aggre-gate original purchase price of the SpaceCom Securities owned
beneficially by LMC on the Distribution Date is $344 million.
SECTION 3.2 DETERMINATION OF CONSIDERATION. Following receipt
of the Requirement Notice by LMC, each of LMC and SpaceCom will use their
reasonable efforts to reach an agreement on the number of shares of GTL Common
Stock to be transferred, or the amount of cash to be paid, as the case may be,
pursuant to Section 3.1(c) hereof, to LMC in exchange for the Transferred
Shares. If, within 10 business days after the date of delivery of the
Requirement Notice, LMC and SpaceCom cannot agree on the number of shares of
GTL Common Stock or amount of cash, as the case may be, to be received by LMC
in consideration of the Transferred Shares pursuant to Section 3.1 hereof (the
"CONSIDERATION"), then the Consideration shall be determined by such nationally
recognized investment bank as LMC and SpaceCom shall jointly select (the
"DESIGNATED INVESTMENT BANK"). LMC and SpaceCom shall use their best efforts to
cause the determination of the Consideration by the Designated Investment Bank
to be completed in five business days if SpaceCom Securities and GTL Common
Stock are both publicly traded securities and otherwise in 60 days, in each
case, after the date of engagement of the Designated Investment Bank. The
determination of the Designated Investment Bank shall be final and binding on
the parties hereto. One-half of the fees and expenses of the Designated
Investment Bank shall be paid by each of LMC and SpaceCom.
SECTION 3.3 NEW REGISTRATION RIGHTS. If the Consideration is
shares of GTL Common Stock, then on or before the date the Consideration is
received by LMC, SpaceCom shall cause GTL to enter into an agreement with LMC
and Loral providing for LMC and Loral to have registration rights with respect
to all of the shares of GTL Common Stock received in exchange for the
Transferred Shares, the terms of which shall be substantially identical to the
registration rights of Loral with respect to the SpaceCom Securities set forth
in Article III of the SpaceCom Stockholders Agreement; provided, that the
minimum number of shares and minimum value of shares of GTL Common Stock
required to be included in any registration shall be adjusted in direct
proportion to the difference, if any, in the market capitalization of GTL as
compared to the market capitalization of SpaceCom, on the date of the
Requirement Notice.
SECTION 3.4 CLOSING OF EXCHANGE. The closing with respect to
the exchange of the Transferred Shares for the Consideration pursuant to
Article III hereof shall be on a mutually determined closing date which shall
be the later of a date not more than 15 days after (i) the date on which LMC
and SpaceCom agree on the Consideration or, if applicable, the Designated
Investment Bank determines the Consideration and (ii) the consummation of the
transactions resulting in the Ownership Increase. The closing shall be held at
10:00 a.m.,
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<PAGE> 8
local time, at the principal office of SpaceCom, or at such other time or place
as LMC and SpaceCom mutually agree. On such closing date, LMC and, if
applicable, SpaceCom shall deliver (i) certificates representing the shares of
SpaceCom Securities and, if applicable, GTL Common Stock, respectively, which
shares shall be free and clear of any lien, claim or encumbrance, and in the
case of the GTL Common Stock, shall be validly issued, fully paid and
non-assessable, and (ii) such instruments of transfer and evidence of ownership
and authority as the other party may reasonably request. In the event the
Consideration is cash, then SpaceCom shall pay the Consideration to LMC by wire
transfer of immediately available funds no later than 2:00 p.m. on the closing
date to the account designated by LMC prior to such closing date.
ARTICLE IV
MISCELLANEOUS
SECTION 4.1 ENTIRE AGREEMENT. This Agreement, the
Distribution Agreement and the SpaceCom Stockholders Agreement (including the
schedules and exhibits and the agreements and other documents referred to
therein) constitute the entire agreement among the parties with respect to the
subject matter hereof and supersedes all other prior negotiations, commitments,
agreements and understandings, both written and oral, between the parties or
any of them with respect to the subject matter hereof.
SECTION 4.2 FEES AND EXPENSES. Except as otherwise provided
in the last sentence of Section 3.2 hereof, all reasonable costs and expenses
incurred by the parties hereto in connection with consummating such party's
obligations hereunder or otherwise shall be paid by SpaceCom; provided,
however, that upon the request of SpaceCom, LMC shall advise SpaceCom from time
to time of the extent of the activities of LMC's outside advisors in connection
with LMC satisfying its obligations under Section 2.2(b) hereof, and provided
further, that LMC shall consider in good faith the reasonable requests of
SpaceCom with respect to reducing the costs and expenses being incurred by LMC
in connection therewith.
SECTION 4.3 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED
BY AND INTERPRETED AND ENFORCED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS OF THE
STATE OF NEW YORK WITHOUT GIVING EFFECT TO THE CHOICE OF LAW PRINCIPLES THEREOF
(EXCEPT IN THOSE CIRCUMSTANCES WHERE THE CORPORATE LAW OF THE COMPANY'S
JURISDICTION OR ORGANIZATION REQUIRES THE APPLICATION OF THE LAW OF THE
COMPANY'S JURISDICTION OF ORGANIZATION WITH RESPECT TO A PARTICULAR MATTER).
SECTION 4.4 NOTICES. All notices and other communications
hereunder shall be in writing and shall be deemed given upon (a) transmitter's
confirmation of a receipt of a facsimile transmission, (b) confirmed delivery
by a standard overnight carrier or when delivered by hand or (c) the expiration
of five Business Days after the day when mailed by
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<PAGE> 9
certified or registered mail, postage prepaid, addressed at the following
addresses (or at such other address for a party as shall be specified by like
notice):
(i) If to LMC or Loral, to:
Lockheed Martin Corporation
6801 Rockledge Drive
Bethesda, MD 20817
Telephone: (301) 897-6125
Telecopy No.: (301) 897-6333
Attention: Frank H. Menaker, Jr., General Counsel
and to:
Skadden, Arps, Slate, Meagher
& Flom
919 Third Avenue
New York, New York 10022
Telephone: (212) 735-3000
Telecopy No.: (212) 735-2000
Attention: Peter Allan Atkins, Esq.
and to:
O'Melveny & Myers
One Citicorp Center
153 E. 53rd Street
New York, New York 10022
Telephone: (212) 326-2000
Telecopy No.: (212) 326-2160
Attention: Jeffrey J. Rosen, Esq.
(ii) If to SpaceCom, to:
Loral Space & Communications Ltd.
600 Third Avenue
New York, New York
Telephone: (212) 697-1105
Telecopy No.: (212) 602-9805
Attention: Eric J. Zahler, General Counsel
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<PAGE> 10
with a copy to:
Willkie Farr & Gallagher
One Citicorp Center
153 E. 53rd Street
New York, New York 10022
Telephone: (212) 821-8000
Telecopy No.: (212) 821-81 11
Attention: Robert Hodes, Esq.
Bruce R. Kraus, Esq.
SECTION 4.5 SUCCESSORS AND ASSIGNS; RECLASSIFICATIONS; NO
THIRD PARTY BENEFICIARIES. This Agreement and all of the provisions hereof
shall be binding upon and inure to the benefit of the parties and their
respective successors and permitted assigns, but neither this Agreement nor any
of the rights, interests or obligations hereunder shall be assigned by any
party hereto (whether by operation of law or otherwise) without the prior
written consent of the other parties hereto (which consent may not be
unreasonably withheld), except that any party shall have the right, without the
consent of any other party hereto, to assign all or a portion of its rights,
interests and obligations hereunder to one or more direct or indirect
subsidiaries, but no such assignment of obligation shall relieve the assigning
party from its responsibility therefor. In the event of any recapitalization
or reclassification of any SpaceCom Securities, or any merger, consolidation or
other transaction with like effect, the securities issued in replacement or
exchange for such SpaceCom Securities shall be deemed SpaceCom Securities
hereunder. This Agreement shall be binding upon and inure solely to the
benefit of each party hereto, and nothing in this Agreement, express or
implied, is intended to or shall confer upon any other person any rights,
benefits or remedies of any nature whatsoever under or by reason of this
Agreement.
SECTION 4.6 COUNTERPARTS. This Agreement may be executed in
two or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
SECTION 4.7 FURTHER ASSURANCES. Each party hereto or person
subject hereto shall do and perform or cause to be done and performed all such
further acts and things and shall execute and deliver all such other agreements,
certificates, instruments and documents as any other party hereto or person
subject hereto may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
SECTION 4.8 INTERPRETATION. The descriptive headings herein
are inserted for convenience of reference only and are not intended to be part
of or to affect the meaning or interpretation of this Agreement. Unless
otherwise specified in this Agreement, all references in this Agreement to
"days" shall be deemed to be references to calendar days.
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<PAGE> 11
SECTION 4.9 SUMMARY PROCEEDING. No dispute arising with
respect to this Agreement where the amount in controversy as to at least one
party, exclusive of interest and costs, exceeds One Million Dollars ($1,000,000)
(a "SUMMARY PROCEEDING"), shall be litigated except in the Superior Court of the
State of Delaware (the "DELAWARE SUPERIOR COURT") as a summary proceeding
pursuant to Rules 124-131 of the Delaware Superior Court, or any successor rules
(the "SUMMARY PROCEEDING RULES"). Each of the parties hereto hereby irrevocably
and unconditionally (i) submits to the jurisdiction of the Delaware Superior
Court for any Summary Proceeding, (ii) agrees not to commence any Summary
Proceeding except in the Delaware Superior Court, (iii) waives, and agrees not
to plead or to make, any objection to the venue of any Summary Proceeding in the
Delaware Superior Court, (iv) waives, and agrees not to plead or to make, any
claim that the Delaware Superior Court lacks personal jurisdiction over it, and
(iv) waives its right to remove any Summary Proceeding to the federal courts
except where such courts are vested with sole and exclusive jurisdiction by
statute.
SECTION 4.10 SPECIFIC PERFORMANCE. Each of the parties
hereto acknowledges and agrees that in the event of any breach of this
Agreement, each non-breaching party would be irreparably and immediately harmed
and could not be made whole by monetary damages. It is accordingly agreed that
the parties hereto (a) will waive, in any action for specific performance, the
defense of adequacy of a remedy at law and (b) shall be entitled, in addition
to any other remedy to which they may be entitled at law or in equity, to
compel specific performance of this Agreement in any action instituted in any
court referred to in Section 4.9 hereof.
--------------------------------
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<PAGE> 12
IN WITNESS WHEREOF, each of the parties has caused this
Exchange Agreement to be executed on its behalf by its officers thereunto duly
authorized, all as of the day and year first above written.
LORAL SPACE & COMMUNICATIONS
LTD.
By: /s/ Eric J. Zahler
----------------------------
Name: Eric J. Zahler
Title: Vice President &
General Counsel
LOCKHEED MARTIN CORPORATION
By: /s/ Frank H. Menaker, Jr.
----------------------------
Name: Frank H. Menaker, Jr.
Title: Vice President and
General Counsel
LORAL CORPORATION
By: /s/ Eric J. Zahler
----------------------------
Name: Eric J. Zahler
Title: Vice President &
General Counsel
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<PAGE> 1
EXHIBIT 10.15
AMENDMENT
to the
AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP
of
GLOBALSTAR, L.P., DATED AS OF DECEMBER 31, 1994
This Amendment ("Amendment") to the Amended and Restated Agreement of
Limited Partnership of Globalstar, L.P. (the "Partnership"), dated as of
December 31, 1994 ("Agreement") by and among Loral/QUALCOMM Satellite Services,
L.P., a Delaware limited partnership ("LQSS" or the "Managing General
Partner"), Globalstar Telecommunications Limited, a company organized under the
laws of Bermuda ("GTL" and together with LQSS, the "General Partners"), and all
of the limited partners set forth on the signature pages hereto (collectively
referred to herein as the "Limited Partners" and, together with the General
Partners, the "Partners"), shall be effective as of the 6th day of March, 1996
on the following terms and conditions:
WHEREAS, GTL has made an offering (the "Offering") of 6 1/2%
Convertible Preferred Equivalent Obligations due 2006 (the "CPEOs");
WHEREAS, the Partnership requires additional capital to accomplish its
purposes;
WHEREAS, it is in the best interest of the Partnership to acquire such
additional capital by contribution from GTL and to issue to GTL preferred
partnership interests as described herein; and
WHEREAS, the parties hereto desire to effect this Amendment for the
purposes of issuing such preferred partnership interests to GTL;
NOW, THEREFORE, the Partners, in consideration of the premises and
their mutual agreements as hereinafter set forth, do hereby agree to amend the
Partnership Agreement as follows:
1. All references to "Loral" or "Loral Corporation" in the Partnership
Agreement shall be deemed to refer to Loral Space & Communications Ltd. ("Loral
SpaceCom") upon the transfer of Partnership Interests by Loral Corporation or
its subsidiaries to Loral SpaceCom or its subsidiaries, all as contemplated in
that certain Restructuring, Financing and Distribution Agreement, dated as of
January 7, 1996, among Lockheed Martin Corporation, Loral and certain
subsidiaries of Loral.
<PAGE> 2
2. The following definitions in ARTICLE II of this Agreement are hereby
amended in their entirety to read as follows:
"Authorized Partnership Interests" means the sum of (i) 55,448,837,
(ii) 4,230,769.231 (or up to 5,076,923.077 to the extent that the
over-allotment option granted to the Initial Purchasers is exercised) and (iii)
the number of Ordinary Partnership Interests issuable upon exercise of the
warrants issuable to certain Partners or Affiliates thereof and to GTL in
connection with the guarantee of the Partnership's obligations under the
Globalstar Credit Agreement, provided that any greater number of Authorized
Partnership Interests may be authorized from time to time with the Consent of
the Partners.
"Certificate of Limited Partnership" means the Certificate of Limited
Partnership of Globalstar, L.P. filed with the Secretary of State of the State
of Delaware on December 31, 1994 pursuant to the Delaware Act, as it may be
amended from time to time.
"Minimum Gain" has the meaning specified in Treasury Regulation
Section 1.704-2(b)(2) for "partnership minimum gain".
"Partnership Interest" means an interest (whether ordinary or
preferred as the context may require) in the Partnership of a General Partner,
a Limited Partner, or both, as the context may require, provided however, that
with respect to matters relating to the voting of Partnership Interests, except
as provided in Section 13.02, the term shall refer only to Ordinary Partnership
Interests. The Partners' respective equity interests in the Partnership are
represented by the Partnership Interests they hold, as set forth on Schedule A
of this Agreement.
"Percentage Interest" means the ratio, expressed as a percentage, that
the number of Ordinary Partnership Interests held by a Partner bears to the
total number of Ordinary Partnership Interests outstanding.
3. ARTICLE II--DEFINITIONS of the Partnership Agreement is amended by
adding thereto the following definitions:
"Accounting Period" means a period beginning on the first day after
the end of the prior Accounting Period and ending on the earlier of (i) the end
of the PartnershipGs fiscal year, (ii) the end of the Partnership's tax year,
(iii) the day prior to the day on which there is a material adjustment to the
Book Values of the PartnershipGs assets under Section 8.05(c) or (iv) such
other date as determined by the Committee.
"Adjusted Income" means the excess, if any, of the sum of (a)
Operating Income plus (b) Capital Transaction Gain plus (c) the deductions for
depreciation and amortization taken into account in computing Operating Loss
over the sum of (d) Operating Loss and (e) Capital Transaction Loss. All the
elements of
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<PAGE> 3
Adjusted Income are reduced by the amounts thereof allocated under Sections
5.02, 5.04 and Section 8.05(c).
"Average Market Value" means the arithmetic average of the Current
Market Value of the GTL Common Stock for the ten Trading Days ending on the
second Business Day prior to the applicable date of payment.
"Conversion Ratio" has the meaning ascribed to such term in Section
3.1 of Schedule C to this Agreement.
"CPE Representative" means the representative on the Committee
designated by the holders of CPEOs following a GTL Deferral Trigger Event.
"CPEO Effective Date" means the date on which the CPEOs are issued and
GTL contributes the net proceeds from the sale of such CPEOs to the
Partnership.
"Current Market Value" means the average of the high and low sales
prices of the GTL Common Stock as reported on the Nasdaq National Market or any
national securities exchange upon which the GTL Common Stock is then listed for
the Trading Day in question.
"Distribution Arrearages" means the amount of Scheduled Distributions
that the Partnership has elected to defer that remain unpaid.
"Distribution Make-Whole Payment" means the payment due to GTL with
respect to the PPIs called for redemption pursuant to a Provisional Redemption,
which payment shall be equal to the present value of the aggregate amount of
Scheduled Distributions thereafter payable on such PPIs during the Distribution
Make-Whole Period, which shall be calculated using the bond equivalent yield on
U.S. Treasury Notes or Bills having a term nearest in length to that of the
Distribution Make-Whole Period as of the Notice Date.
"Distribution Make-Whole Period" means the period of time from the
Provisional Redemption Date to the third anniversary of the date on which CPEOs
are first issued by GTL.
"Globalstar Credit Agreement" means that certain Credit Agreement
dated as of December 15, 1995, among the Partnership, Chemical Bank and the
banks signatories thereto.
"Globalstar Interest Payment Notice" means written notice delivered to
GTL, with a copy to the Trustee, by the Partnership notifying GTL of (i)
whether the Partnership has elected to defer the applicable Scheduled
Distribution pursuant to the provisions of this Agreement and (ii) if it has
not elected to defer such Scheduled Distribution, whether it will pay such
Scheduled Distribution (A) in cash, (B) by delivery of Ordinary Partnership
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<PAGE> 4
Interests or (C) through any combination of the foregoing. Such Notice shall
be delivered at least 20 Business Days prior to the applicable Scheduled
Distribution Payment Date and shall contain any other information required by
Section 2.3 of Schedule C to this Agreement.
"Globalstar Redemption Notice" means written notice delivered to GTL
by the Partnership notifying GTL of (i) the Partnership's election to redeem
any Preferred Partnership Interests pursuant to the provisions of this
Agreement and (ii) whether it will make such redemption (A) in cash, (B) by
delivery of Ordinary Partnership Interests or (C) through any combination of
the foregoing. Such Notice shall be delivered at least 20 Business Days prior
to the applicable Redemption Date and shall contain the information required by
Section 2.3 of Schedule C to this Agreement.
"GTL Common Stock" means the common stock, par value $1.00 per share,
of GTL.
"GTL Conversion Price" shall mean the conversion price of the CPEOs,
adjusted upon the occurrence of certain dilutive events as set forth in the
Indenture.
"GTL Deferral Election" means the election of the Board of Directors
of GTL to defer the payment of an installment of interest due on the CPEOs on
an interest payment date, or any portion due thereof.
"GTL Deferral Trigger Event" means the deferral by GTL of the payment
of interest due on the CPEOs in an aggregate equal to six quarterly interest
payments.
"GTL Interest Payment Notice" means written notice delivered to the
holders of the CPEOs and the Partnership notifying them (i) whether GTL has
elected to defer the payment of an interest payment pursuant to a GTL Deferral
Election and (ii) if it has not elected to defer such interest, whether GTL is
paying the installment of interest due on the applicable interest payment date
in (A) cash, (B) GTL Common Stock or (C) through any combination of the
foregoing. Such Notice shall be delivered at least 12 Business Days prior to
the applicable interest payment date and shall contain any information
pertinent to such payment.
"GTL Response Redemption Notice" means written notice delivered to the
holders of the CPEOs and the Partnership, with a copy to the Trustee, notifying
them of whether GTL is paying the redemption price of and interest (including
any applicable interest make-whole payment) on such CPEOs in (i) cash, (ii) GTL
Common Stock or (iii) through any combination of the foregoing. Such Notice
shall be delivered at least 12 Business Days prior to the applicable redemption
date and shall contain any information pertinent to such redemption.
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<PAGE> 5
"Indenture" means that certain Indenture, dated as of March 6, 1996,
between GTL and the Trustee.
"Initial Purchasers" means the initial purchasers of the CPEOs set
forth in the Purchase Agreement.
"Mandatory Redemption Date" means March 1, 2006; provided, however,
that, if such date shall not be a Business Day, then the Mandatory Redemption
Date shall be the next Business Day.
"Notice Date" means the date of mailing of a notice of provisional
redemption of CPEOs by GTL to the holders of CPEOs.
"Offering Memorandum" means the offering memorandum, dated February
29, 1996, relating to the CPEOs.
"Optional Redemption" has the meaning specified in Section 2.7 of
Schedule C to this Agreement.
"Optional Redemption Date" means the Redemption Date for an Optional
Redemption as specified in Section 2.7 of Schedule C to this Agreement.
"Ordinary Partnership Interests" or "OPIs" means partnership
interests, general or limited, as the case may be, in the Partnership, which
interests are not entitled to the preferential allocation of profits and losses
set forth in Section 5.01(a).
"Outstanding" when used with respect to PPIs means, as of the date of
determination, all PPIs issued pursuant to this Agreement except PPIs
theretofore canceled by the Partnership or delivered to the Partnership for
cancellation, pursuant to redemption or conversion.
"Preferred Partnership Interests" or "PPIs" means general partnership
interests in the Partnership, the capital contributions for which are set forth
in Section 4.01(d) and for which separate Capital Accounts will be maintained
and that have the rights to convert into Ordinary Partnership Interests as set
forth in Article III of Schedule C hereto, the rights to distributions set
forth in Section 5.05(a) and the right to allocations set forth in Section
5.01(a) and that are subject to redemption under Article II of Schedule C
hereto.
"Provisional Redemption" has the meaning specified in Section 2.6 of
Schedule C to this Agreement.
"Provisional Redemption Date" means the Redemption Date for a
Provisional Redemption as specified in Section 2.6 of Schedule C to this
Agreement.
"Purchase Agreement" means that certain Purchase Agreement, dated
February 29, 1996, among GTL, the Partnership and Lehman Brothers Inc., Bear,
Stearns & Co. Inc., Donaldson, Lufkin &
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<PAGE> 6
Jenrette Securities Corporation and Unterberg Harris as the Initial Purchasers.
"Redemption Date", when used with respect to any PPI to be redeemed,
means the date fixed for such redemption by or pursuant to this Agreement and
includes the Provisional Redemption Date, the Optional Redemption Date and
Mandatory Redemption Date, as the case may be.
"Redemption Price", when used with respect to any PPI to be redeemed,
means the price at which it is to be redeemed pursuant to this Agreement.
"Regular Record Date" for the distribution payable on any Scheduled
Distribution Payment Date means February 15, May 15, August 15 or November 15
(whether or not a Business Day), as the case may be, next preceding such
Scheduled Distribution Payment Date.
"Scheduled Distribution" means the distribution payable on a Scheduled
Distribution Date by the Partnership in respect of the PPIs, which payment,
subject to Section 5.05(d), may be deferred by the Committee in its sole
discretion.
"Scheduled Distribution Payment Date" means March 1, June 1, September
1 and December 1, commencing June 1, 1996; provided, however, that if such date
shall not be a Business Day, then such date shall be the next Business Day.
"Stated Value" shall equal $275,000,000 in the aggregate (and if the
over-allotment option granted to the Initial Purchasers is exercised from time
to time, plus such additional amount as shall equal the principal amount of the
additional CPEOs purchased upon exercise of such option).
"Trading Day" means (a) if the GTL Common Stock is listed or admitted
for trading on the New York Stock Exchange or another national securities
exchange, a day on which such GTL Common Stock actually trades on the New York
Stock Exchange or another national securities exchange, (b) if the GTL Common
Stock is quoted on the Nasdaq National Market, a day on which the GTL Common
Stock actually trades or (c) if the GTL Common Stock is not so listed, admitted
for trading or quoted, any Business Day on which the GTL Common Stock actually
trades.
"Trigger Percentages" means the percentages set forth in Section 2.6
of Schedule C to this Agreement that triggers the Partnership's option to
redeem the PPIs pursuant to a Provisional Redemption.
"Trustee" means the Person named as the "Trustee" in the Indenture and
any successor Trustee.
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<PAGE> 7
4. ARTICLE II--DEFINITIONS of the Partnership Agreement is further
amended by deleting therefrom the following definition:
"Discontinuing Partner"
5. Article IV, Section 4.01(a) is hereby amended in its entirety to read
as follows:
LQSS has made, or will make, at the times and in the amounts set forth
in its Subscription Agreement, cash Capital Contributions to the
Partnership in the amount set forth in Schedule A hereto in return for
18,000,000 Ordinary Partnership Interests.
6. Article IV, Section 4.01(c) is hereby renamed "(d)" and amended in its
entirety to read as follows:
"(c) GTL has made cash Capital Contributions to the Partnership in
the amount of $186 million in return for 10,000,000 Ordinary
Partnership Interests."
7. Article IV, Section 4.01 is hereby amended by adding thereto a new
section (d):
"(d) On the CPEO Effective Date, GTL will contribute the net proceeds
of the Offering to the Partnership as described in the Offering
Memorandum in return for PPIs with an aggregate face amount equal to
the principal amount of the CPEOs issued by GTL in the Offering. The
face amount of each PPI shall be $65. The aggregate contribution and
face amount of the PPIs shall be set forth in an amendment to Schedule
A. If on or after the CPEO Effective Date, the over-allotment option
granted to the Initial Purchasers is exercised (as described in the
Offering Memorandum), in full or in part, then GTL shall contribute
the additional net proceeds from the exercise of such option to the
Partnership in return for additional PPIs which shall be reflected in
a similar manner in Schedule A."
8. Article IV, Section 4.02 is hereby amended in its entirety to read as
follows:
"Each Limited Partner has made, or will make at the times and in the
amounts set forth in its Subscription Agreement, cash Capital
Contributions to the Partnership in the amount set forth on Schedule A
hereto in return for the number of Ordinary Partnership Interests set
forth on such Schedule A. The total number of such Partnership
Interests is 19,000,000."
-7-
<PAGE> 8
9. Article IV, Section 4.05(a) is hereby amended in its entirety to read
as follows:
The Partnership shall maintain a separate account for each class of
Partnership Interests held by a Partner as part of its books and
records. A Partner's "Capital Account" for a class of Partnership
Interests shall be credited with (a) the amount of cash contributed to
the Partnership by the Partner, and, in addition in the case of LQSS,
the Book Value of any property contributed and the amount referred to
in Section 4.01(b)(iii), (b) allocations of Adjusted Income, Operating
Income, Capital Transaction Gain and COD Income to the Partner and (c)
the amount of any Partnership liabilities assumed (or taken subject
to) by such Partner and shall be debited with (d) allocations of
Operating Loss and Capital Transaction Loss to the Partner and (e) the
amount of cash distributions and the fair market value of any property
distributed to the Partner and (f) the amount of any Partner
liabilities assumed (or taken subject to) by the Partnership. The
foregoing provisions and the other provisions of this Agreement
relating to the maintenance of Capital Accounts are intended to comply
with Treasury Regulations under Section 704(b) of the Code and, to the
extent not inconsistent with the provisions of this Agreement, shall
be interpreted and applied in a manner consistent with such
Regulations.
10. Article IV, Section 4.05(c) is hereby amended in its entirety to read
as follows:
"If the Partnership distributes OPIs with respect to PPIs under
Section 5.05(a)(iii), a portion of the Adjusted Capital Account for
such PPIs will be transferred to such OPIs. The transferred amount
shall be equal to the lesser of: (i) the amount of the cash
distribution obligation on the PPIs discharged by the distribution of
such OPIs, (ii) the excess, if any, of the prior allocations of
Adjusted Income to such PPIs under Sections 5.01(a)(i) and (iii) over
the sum of the prior allocations of Loss to such PPIs under Section
5.01(c)(iii), prior and current distributions on such PPIs under
Section 5.05(a)(ii) not paid in OPIs and the initial Adjusted Capital
Accounts of OPIs previously issued in payment of distributions under
Section 5.05(a)(ii) or (iii) an amount per distributed OPI equal to
the Adjusted Capital Account for outstanding OPI with the highest
Adjusted Capital Account. Any excess of (ii) over the lesser of (i)
or (iii), shall be transferred among the Partnership Interests as
provided in Subsection (e)."
11. Article IV, Section 4.05 is further amended by adding thereto a new
section (d):
"If the Partnership distributes OPIs in connection with a redemption
or conversion of PPIs under Article II or III of
-8-
<PAGE> 9
Schedule C hereto, the Adjusted Capital Account of the redeemed or
converted PPIs (after reduction for any cash or the fair market value
of other property paid by the Partnership as part of the redemption or
conversion) shall be transferred to such distributed OPIs; provided,
however, that the amount transferred shall not exceed an amount per
distributed OPI equal to the Adjusted Capital Account for the
outstanding OPI with the highest Adjusted Capital Account. Any
portion of the Adjusted Capital Account of the redeemed or converted
PPI that cannot be transferred to the distributed OPIs, shall be
transferred among the Partnership Interests as provided in Subsection
(e)."
12. Article IV, Section 4.05 is further amended by adding thereto a new
section (e):
"The excess amounts described in Subsections (c) and (d) shall be
transferred first to the PPIs as if it were Adjusted Income to the
extent provided for in the allocation of Adjusted Income under Section
5.01(a), then under Section 5.01(b) and then to all OPIs (including
the OPIs being distributed) in accordance with their Percentage
Interests."
13. Article V, Section 5.01 is hereby amended in its entirety to read as
follows:
SECTION 5.01. Allocations Generally. After the allocations in
Sections 5.02 and 5.04 at the end of each Accounting Period, Adjusted
Income, Operating Income, Operating Loss, Capital Transaction Gain and
Capital Transaction Loss will be allocated as follows:
(a) Allocation of Adjusted Income to PPIs. Adjusted Income
will be allocated to the Capital Account maintained for the
outstanding PPIs:
(i) in the amount equal to the excess of prior
allocations of Operating Loss and Capital Transaction Loss to
currently outstanding PPIs under subsections (c)(iii) over
prior allocations to them under this subsection (a)(i);
(ii) then in the amount necessary to bring the
Capital Account of each outstanding PPI to $65;
(iii) then in an amount equal to a cumulative 6 and
1/2% per annum simple interest return on the face amount of
each outstanding PPI; this return shall be computed on the
basis of a 360-day year with twelve 30-day months;
(iv) then in an amount equal to the excess of (x) the
cumulative United States federal, state and local income taxes
imposed on the cumulative excess of the
-9-
<PAGE> 10
amounts of income allocated to PPIs under this Agreement
(including allocations under this Subsection (a)(iv) and
Subsection (a)(v))that are subject to tax by those
jurisdictions over the amounts of tax losses allocated to the
PPIs pursuant to this Agreement that, under the laws of the
particular jurisdiction, could be carried back or carried over
to offset such taxable income by a Bermuda company holding the
PPIs that was not engaged in business in the United States
otherwise than by being a Partner in the Partnership over (y)
prior allocations under this Section 5.01 (a)(iv).
(v) then in an amount equal to the excess of the sum
of (x) the cumulative amounts of branch profits taxes that
were imposed on the holder of each outstanding PPI under
Section 884 of the Code for prior and current actual or deemed
distributions with respect to such interest and (y) the branch
profits tax that will be imposed on the holder of such
interest under Code section 884 upon the future actual or
deemed distribution of taxable amounts allocated to such
interests under this Agreement (including allocations under
Subsection (a)(iv) (excluding allocations for federal income
taxes) and this Subsection (a)(v)) over (z) prior allocations
under this Section 5.01(a)(v).
(b) Allocation of Adjusted Income to OPIs. Adjusted Income
will then be allocated to OPIs that were issued under Section
5.05(a)(iii), Section 1.2(b) of Schedule C or Article III of Schedule
C, in proportion to, and to the extent that, the Adjusted Capital
Account for each such OPI is less than the Adjusted Capital Account
for the outstanding OPI with the highest Adjusted Capital Account.
(c) Operating Loss and Capital Transaction Loss. Operating
Loss in excess of any remaining Operating Income after the allocations
set forth above and then Capital Transaction Loss in excess of any
remaining Capital Transaction Gain after the allocations set forth
above shall be allocated:
(i) among the Partners holding OPIs in accordance
with their Percentage Interests until the Adjusted Capital
Account for the OPIs of such a Partner is reduced to zero;
(ii) then, among such Partners in proportion to, and
to the extent of, their Adjusted Capital Accounts for their
OPIs;
(iii) then, to the holders of outstanding PPIs in
proportion to, and to the extent of, the Adjusted Capital
Accounts for their PPIs; and
-10-
<PAGE> 11
(iv) then, among the General Partners in proportion
to their Percentage Interests.
(d) Operating Income. Any Operating Income remaining after
the allocations set forth above in excess of Operating Loss will be
allocated among the Partners holding Ordinary Partnership Interests in
proportion to, and to the extent of, distributions to be made with
respect to such OPIs under Section 5.05(c), then in proportion to, and
to the extent that, negative Adjusted Capital Account balances with
respect to one or more OPIs exceed the holder's share of Minimum Gain
and Partnership Minimum Gain, and then in accordance with Percentage
Interests.
(e) Capital Transaction Gain. Any Capital Transaction Gain
remaining after the allocations set forth above in excess of Capital
Transaction Loss will be allocated among the Partners holding OPIs
(other than a Delinquent Partner);
(i) In proportion to, and to the extent that,
negative Adjusted Capital Account balances with respect to one
or more OPIs exceed the holder's share of Minimum Gain and
Partnership Minimum Gain;
(ii) Then, in proportion to the relative amount for
each holder of an OPI that is equal to the excess of its
Capital Commitment for that OPI over the sum of its Adjusted
Capital Account balance for that OPI and prior distributions
to it under Section 5.05 until the Adjusted Capital Accounts
of the Limited Partners and GTL with respect to OPIs acquired
on or prior to the GTL Effective Date are equal to the excess
of their Capital Commitments with respect to such OPIs over
prior distributions to them with respect to such OPIs under
Section 5.05;
(iii) Then, to LQSS until the Adjusted Capital
Account of LQSS with respect to its OPIs acquired prior to the
GTL Effective Date is equal to the excess of its Capital
Commitment with respect to such Partnership Interests over
prior distributions to it with respect to such OPIs under
Section 5.05;
(iv) Then, 75% to LQSS and 25% to the other Partners
until the ratio of LQSS's Adjusted Capital Account for its
OPIs to the Adjusted Capital Accounts of all OPIs is equal to
the ratio of LQSS's OPIs to outstanding OPIs; and
(v) Then, in accordance with Percentage Interests.
14. The introductory language in Article V, Section 5.04 is hereby amended
in its entirety to read as follows:
-11-
<PAGE> 12
"If a Foreign Taxing Jurisdiction imposes a tax upon the Partnership,
upon a subsidiary of the Partnership or upon payments to one of the
foregoing and such tax is not borne by a third party as a result of a
"gross up" provision, tax indemnity or otherwise, then, to the extent
that such tax would not have been imposed on income allocated with
respect to an Ordinary Partnership Interest if any Partner holding
such Partnership Interests or a direct or indirect partner in such
Partner were subject only to United States income taxes on the income
or payments subject to tax by the Foreign Taxing Jurisdiction:"
15. Article V, Section 5.04(a) is hereby amended in its entirety to read
as follows:
"(a) the amount of such tax shall be charged against the Capital
Account of such Partner for such Ordinary Partnership Interest and
shall reduce the amounts distributable to it under Section 5.05; and"
16. Article V, Section 5.05 is hereby amended by adding thereto a new
section (a):
"(a) Distributions to Holders of PPIs.
(i) The Partnership shall distribute pro rata on the PPIs an
amount such that the cumulative distributions under this Subsection
(a)(i) equal the sum of (x) the cumulative United States federal,
state and local income taxes imposed on the cumulative excess of the
amounts of income allocated to the PPIs under this Agreement that are
subject to tax by those jurisdictions over the amounts of tax losses
allocated to the PPIs pursuant to this Agreement that, under the laws
of the particular jurisdiction, could be carried back or carried over
to offset such taxable income by a Bermuda company holding the PPIs
that was not engaged in business in the United States otherwise than
by being a Partner in the Partnership and (y) the cumulative branch
profits taxes imposed with respect to PPIs under Section 884 of the
Code. Distributions under this Subsection (a)(i) shall be made prior
to the time that the holder of the PPI is required to make payments to
the relevant taxing authority.
(ii) Then, on each Scheduled Distribution Payment Date,
Distributable Cash Flow and Distributable Capital Proceeds shall be
distributed to the holder of each outstanding PPI, until cumulative
distributions under this Subsection (a)(ii) give each such holder a
cumulative return in an amount equal to a cumulative 6 and 1/2% per
annum simple interest return on the face amount of each outstanding
PPI; this return shall be computed on the basis of a 360-day year with
twelve 30-day months.
-12-
<PAGE> 13
(iii) The Committee may determine to pay all or any portion of
the amount of the distributions described above in OPIs, under the
procedures set forth in Section 1.2 of Schedule C hereto. Cash
distributions under this Section (a) shall first be made from
Distributable Cash Flow and then from Distributable Capital Proceeds.
(iv) Each holder of a PPI must receive the amount described
in Subsection (a)(i) prior to, or contemporaneously with, any
distributions with respect to the OPIs and, except for distributions
to permit the payment of taxes imposed on the Partners by the
jurisdictions in which the Partnership does business, each holder of a
PPI must receive the amount described in Subsection (a)(ii) prior to,
or contemporaneously with, any other distributions with respect to the
OPIs."
17. Article V, Section 5.05(a), (b) and (c) are hereby renamed (b) and (c)
and (d) and amended in its entirety to read as follows:
"(b) Distributions of any remaining Distributable Cash Flow shall be
made among the Partners holding OPIs in accordance with their
Percentage Interests.
(c) Distributions of any Distributable Capital Proceeds remaining
after the distributions set forth above shall be made after making the
allocations under Article V through the date of distribution among the
Partners holding OPIs in accordance with their Percentage Interests
until the Adjusted Capital Account of a Partner with respect to its
OPIs is reduced to zero and then in proportion to, and to the extent
of, any positive Adjusted Capital Account balances for OPIs held by
the other Partners and then, in accordance with Percentage Interests.
(d) For any year, the Partnership shall distribute all Distributable
Cash Flow, provided that, except as contemplated in the following
sentence, without the Consent of the Partners, the Partnership will
not establish any reserves more than 10% in excess of the amount of
reserves for expenditures contemplated by the Business Plan currently
in effect for such period unless the establishment of reserves in a
greater amount is required in accordance with generally accepted
accounting principles in the United States ("GAAP"), as confirmed in
writing by the Partnership's independent accountants, the Partnership
specifies in writing to the Partners the contingency for which such
reserve is required and undertakes to release the reserve at such time
as it is no longer required in respect of such contingency. If the
Partnership shall seek to establish reserves at a level that exceeds
either the 10% or the GAAP level described above and such reserves
shall not have been approved by the Consent of the Partners ("Excess
-13-
<PAGE> 14
Reserve"), the Partnership may require, as a condition to the
distribution of such Excess Reserve, the indemnification of the
Partnership by each of the Partners for their share of such Excess
Reserve by an 18-month surety bond or other instrument or security
reasonably acceptable to the Partnership. In order to trigger such
indemnification, the Partnership must (1) have itemized the
liabilities which prompted its call for the Excess Reserve and (2)
existing reserves must be exhausted. Only then and only to the extent
necessary may such indemnification be called upon. In any event, the
period of such indemnification or the term of any surety bond
purchased pursuant to this Section shall not exceed eighteen months."
18. Article V, Section 5.05 is further amended by adding thereto a new
section (e):
"(e) No distribution shall be made to a Partner with respect to either
a PPI or an OPI under this Section or a payment or redemption under
Article I and II of Schedule C hereto, if such distribution or payment
would reduce the Adjusted Capital Account for such Partnership
Interest to less than zero or such distribution is otherwise
prohibited by the Globalstar Credit Agreement or any other applicable
indenture or credit agreement that the Partnership may enter into from
time to time."
19. Article V is further amended by deleting therefrom section 5.06.
20. Article V is further amended by changing the number of section 5.07 to
5.06.
21. Article V is further amended by adding thereto a new section 5.07:
"SECTION 5.07. Terms of PPIs. The PPIs shall have the additional
terms set forth in Schedule C hereto."
22. Article VI, Section 6.03(c) is hereby amended in its entirety to read
as follows:
"(c) Upon a GTL Change of Control or a Reduction in Interest, GTL
will become a Limited Partner and will lose all of its rights as a
General Partner under this Agreement, including the right to appoint
representatives to serve on the Committee and, through the GTL
Independent Directors, to veto certain actions of the Partnership.
The Committee will thereby dissolve and all actions previously
authorized to be taken by the Committee will thereupon be taken by the
Managing General Partner as the sole General Partner. In addition,
upon a GTL Change of Control or a Reduction in Interest, any PPIs then
held by GTL would automatically convert into preferred limited
partnership interests and any
-14-
<PAGE> 15
OPIs then held by GTL would automatically convert into limited OPIs.
GTL's preferred limited partnership interests will have the same terms
as the PPIs except that they will convert into, and payments of any
OPIs with respect thereto, would be made in limited OPIs rather than
general OPIs."
23. Article VIII, Section 8.05(c) is hereby amended in its entirety to
read as follows:
"(c) The Book Values of all of the Partnership's assets shall be
adjusted by the Partnership to equal their respective gross fair
market values as of the following times: (a) the admission of a new
Partner to the Partnership or acquisition by an existing Partner of an
additional interest in the Partnership from the Partnership (including
the acquisition of PPIs as set forth in Section 4.01(d)); (b) the
distribution by the Partnership of money or property to a withdrawing,
retiring or continuing Partner in consideration for the retirement of
all or a portion of such Partner's interest in the Partnership; and
(c) the termination of the Partnership for Federal income tax purposes
pursuant to section 708(b)(1)(B) of the Code; provided, however, that
no adjustment shall be made upon the issue of an OPI pursuant to
Section 5.05(a)(iii) or Section 1.2(b) of Schedule C. The Partnership
will not be required to make an adjustment upon the exercise of a
warrant to acquire an OPI or upon a conversion of a PPI pursuant to
Article III of Schedule C until the sum of the cumulative face amount
of PPIs converted and the exercise price of warrants exercised since
the last adjustment exceeds $15,000,000. In such case, the
Partnership shall make at least one adjustment during the year and, if
no other adjustment event occurs during the year and after the
$15,000,000 threshold was reached, a required adjustment shall be made
as of the date of the last PPI conversion or warrant exercise during
the year. Upon a conversion of a PPI and an adjustment to the Book
Values of Partnership assets under this Section, any resulting Capital
Transaction Loss shall be first allocated to holders of OPIs whose
Adjusted Capital Accounts are higher than the Adjusted Capital
Accounts of the OPIs acquired on exercise of a warrant or on
conversion in amounts and proportions to reduce the differences
between such Adjusted Capital Accounts and any resulting Capital
Transaction Gain shall first be allocated to the Capital Account of
the OPIs acquired on exercise of a warrant and on conversion in an
amounts to reduce or eliminate the amount by which the Adjusted
Capital Accounts for such OPIs are less than the Capital Account for
the outstanding OPI with the highest Adjusted Capital Account. Any
remaining Capital Transaction Gain or Loss shall be allocated under
Section 5.01. The Partnership will promptly report any such
adjustment to the Partners."
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<PAGE> 16
24. Article XIII, Section 13.02 is hereby amended in its entirety to read
as follows:
"To the extent permitted by the Delaware Act, upon dissolution of the
Partnership in accordance with Section 13.01(b), (d) or (e), the
remaining Partners may elect to reconstitute the Partnership and
continue its business on the same terms and conditions set forth in
this Agreement if holders of a majority of the outstanding PPIs and a
Majority in Interest of the Partners agree in writing (1) to continue
the business of the Partnership and (2) to the appointment, if
necessary, effective as of the date of withdrawal, of a successor
Managing General Partner. Unless such an election is made within 90
days after dissolution, the Partnership shall conduct only activities
necessary to wind up its affairs. If such an election is made within
90 days after dissolution, then:"
25. A new Schedule A, in the form attached hereto, shall replace the
existing Schedule A to the Partnership Agreement.
26. Schedule C, in the form attached hereto, shall be added as a schedule
to the Partnership Agreement.
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<PAGE> 17
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date first above written.
LORAL/QUALCOMM SATELLITE SERVICES, L.P.
Managing General Partner
By: /s/ Michael B. Targoff
------------------------------------
Name: Michael B. Targoff
Title: Authorized Signatory
GLOBALSTAR TELECOMMUNICATIONS LIMITED
General Partner
By: /s/ Michael B. Targoff
------------------------------------
Name: Michael B. Targoff
Title:
AIRTOUCH SATELLITE SERVICES
Limited Partner
By: /s/ Eric Zahler
------------------------------------
Name: Eric Zahler
Title:
SAN GIORGIO S.A.
Limited Partner
By: : /s/ Eric Zahler
------------------------------------
Name: Eric Zahler
Title:
HYUNDAI/DACOM
Limited Partner
By: /s/ Eric Zahler
------------------------------------
Name: Eric Zahler
Title:
<PAGE> 18
LORAL/DASA GLOBALSTAR, L.P.
by LORAL GLOBALSTAR, L.P., its
general partner
by LORAL GENERAL PARTNER, INC.,
its general partner
Limited Partner
By: /s/ Michael B. Targoff
------------------------------------
Name: Michael B. Targoff
Title:
LORAL GLOBALSTAR, L.P.
by LORAL GENERAL PARTNER, INC.,
its general partner
Limited Partner
By: /s/ Michael B. Targoff
------------------------------------
Name: Michael B. Targoff
Title:
TE.SA.M.
Limited Partner
By: /s/ Eric Zahler
------------------------------------
Name: Eric Zahler
Title:
VODASTAR LIMITED
Limited Partner
By: /s/ Eric Zahler
------------------------------------
Name: Eric Zahler
Title:
<PAGE> 19
SCHEDULE A
SCHEDULE OF PARTNERS
<TABLE>
<CAPTION>
Partner Capital Contribution Interests
<S> <C> <C>
AirTouch Satellite $ 37,500,000 3,000,000 OPIs
Services
San Giorgio S.A. $ 18,750,000 1,000,000 OPIs
GTL $186,000,000* 10,000,000 OPIs
4,615,384.615 PPIs**
Hyundai/DACOM $ 37,500,000 3,000,000
Loral/DASA $ 37,500,000 3,000,000
Global Star, L.P.
Loral Globalstar, $ 37,500,000 3,000,000
L.P.
LQSS $ 50,000,000 18,000,000
TESAM $ 37,500,000 3,000,000
Vodastar Limited $ 37,500,000 3,000,000
</TABLE>
- --------------------
* Plus the net proceeds from the offering as declared in the
Offering Memorandum
** Will be increased to 5,076,923.077 PPIs if the Initial Purchasers' remaining
over-allotment option is exercised in full.
<PAGE> 20
SCHEDULE C
ARTICLE I
Covenants
SECTION 1.1. Distributions on PPIs. Cumulative accrued distributions
shall be payable on the PPIs as set forth in Section 5.05(a)(ii) of this
Agreement on each Scheduled Distribution Payment Date commencing on June 1,
1996 (or, if such date is not a Business Day, on the next succeeding Business
Day). Subject to Section 5.05 of this Agreement, distributions on the PPIs
shall occur, as and if designated by the Committee in its sole discretion.
Distributions on the PPIs will accrue on a [daily] basis (without interest or
compounding) whether or not there are unrestricted funds legally available for
the payment of such distributions and whether or not such distributions are
declared. Distribution Arrearages shall also not accrue interest.
SECTION 1.2. Payment of Redemption Price and Distributions. (a) The
Partnership will duly and punctually pay or cause to be paid by no later than
one Business Day prior to the date such payment is due the Redemption Price of,
and Scheduled Distributions, including any Distribution Make-Whole Payment, on
the PPIs, in accordance with the terms of this Agreement; provided, however,
that the Partnership may defer paying Scheduled Distributions on any Scheduled
Distribution Payment Date if the Committee so determines in its sole
discretion, but so long as any Distribution Arrearage remains outstanding,
except as set forth in Section 5.05(a)(iv) of this Agreement and Section 4.1 of
this Schedule C, the Partnership will be prohibited from paying distributions
on (i) its OPIs or (ii) preferred partnership interests that may be issued in
the future other than pro rata based on the redemption amount of such preferred
partnership interests.
(b) The Partnership may elect, at its option, to pay the Redemption
Price of, and Scheduled Distributions, including any Distribution Make-Whole
Payment, on the PPIs, (i) in cash, (ii) by delivery of OPIs (in the manner
described in paragraph (c) of this Section 1.2) or (iii) through any
combination of the foregoing forms of consideration elected by the Committee in
its sole discretion.
(c) If the Partnership elects to deliver any OPIs in lieu of a cash
payment on the applicable date of payment, the Partnership shall deliver, in
the aggregate, the number of OPIs equal to (i) the amount of payment that is
not being paid in cash, (ii) divided by: (A) in the case of Scheduled
Distributions and any Distribution Make-Whole Payment, 90% of the Average
Market Value of the GTL Common Stock; (B) in the case of all other payments,
100% of the Average Market Value of the GTL
<PAGE> 21
Common Stock; provided, however, if the Partnership shall have received a GTL
Interest Payment Notice or a GTL Response Redemption Notice which indicates
that GTL shall have elected to make its corresponding payment from the proceeds
from the sale of any issuance of GTL Common Stock, then the valuation of the
OPIs to be issued by the Partnership pursuant to Section 1.2(b)(ii) shall be
based upon the actual price at which such GTL Common Stock is sold.
SECTION 1.3. Certain Accompanying Payments. PPIs surrendered for
conversion during the period from the close of business on any Regular Record
Date next preceding any Distribution Payment Date to the opening of business on
such Distribution Payment Date (except PPIs called for redemption on a
Redemption Date within such period) must be accompanied by payment in cash of
an amount equal to the distribution thereon which GTL is entitled to receive;
provided, that no payment shall be owed or payable to GTL if the Committee
shall have elected to defer the distribution to be made on such Distribution
Payment Date. No other adjustment for distributions, including any
Distribution Arrearages, is to be made upon conversion.
ARTICLE II
Redemption of PPIs
SECTION 2.1. Right of Redemption; Mechanics of Redemption. (a) The
PPIs may be redeemed, pursuant to either a Provisional Redemption (as described
in Section 2.6 of this Schedule C, any such Provisional Redemption shall
include the Distribution Make-Whole Payment) or Optional Redemption (as
described in Section 2.7 of this Schedule C), at the election of the
Partnership, in whole or from time to time in part and shall be redeemed at the
Mandatory Redemption Date, at the Redemption Prices specified in this Article
II, together with accrued Scheduled Distributions to the Redemption Date.
(b) The Partnership shall deliver a Globalstar Redemption Notice to
GTL 20 Business Days prior to any such Redemption Date.
SECTION 2.2. Selection by the Managing General Partner of PPIs to be
Redeemed. If any PPI selected for partial redemption is converted in part
before termination of the conversion right with respect to the portion of the
PPI so selected, the converted portion of such PPI shall be deemed (so far as
may be) to be the portion selected for redemption. PPIs which have been
converted during a selection of PPIs to be redeemed shall be treated by the
Managing General Partner as Outstanding for the purpose of such selection, but
not for the purpose of paying the Redemption Price thereof.
For all purposes of this Agreement, unless the context otherwise
requires, all provisions relating to the redemption of PPIs shall relate, in
the case of any PPIs redeemed or to be
-2-
<PAGE> 22
redeemed only in part, to the portion of the redemption amount of such PPI
which has been or is to be redeemed.
SECTION 2.3. Notice of Redemption. Whenever a Globalstar Redemption
Notice is required to be delivered to GTL, such Notice shall state:
(1) the Redemption Date;
(2) the Redemption Price;
(3) if less than all the Outstanding PPIs are to be redeemed,
the identification (and, in the case of partial redemption, the
redemption amounts) of the particular PPIs to be redeemed;
(4) that on the Redemption Date the Redemption Price, together
with (unless the Redemption Date shall be a Scheduled Distribution
Payment Date) distributions accrued and unpaid to the Redemption Date,
will become due and payable upon each such PPI to be redeemed and that
distributions thereon will cease to accrue on and after said date;
(5) the Conversion Ratio, the date on which the right to
convert the Stated Value of the PPIs to be redeemed will terminate and
the place or places where such PPIs may be surrendered for conversion;
and
(6) the place or places where such PPIs are to be surrendered
for payment of the Redemption Price.
SECTION 2.4. Deposit of Redemption Price. Prior to any Redemption
Date, the Partnership shall deposit with the Trustee or with GTL's paying agent
(or, to GTL if GTL is acting as its own paying agent with respect to the CPEOs)
an amount of consideration sufficient to pay, in the case of a cash payment, or
deliver, in the case of delivery of OPIs, the Redemption Price of and (except
if the Redemption Date shall be a Scheduled Distribution Payment Date) the
accrued Scheduled Distribution on all the PPIs which are to be redeemed on that
date (other than any PPIs called for redemption on that date which have been
converted prior to the date of such deposit, except with respect to any
applicable Distribution Make-Whole Payment).
If any PPI called for redemption is converted, any cash or OPIs
deposited with the Trustee, GTL's paying agent or with GTL shall (subject to
any right of GTL to receive distributions as provided in Section 1.3 of this
Schedule C) be paid or delivered to the Partnership upon its request. Any
Distribution Make-Whole Payment will be paid to GTL on the date of conversion
or Redemption Date, as the case may be.
-3-
<PAGE> 23
SECTION 2.5. PPIs Payable on Redemption Date. Notice of redemption
having been given as aforesaid, the PPIs so to be redeemed shall, on the
Redemption Date, become due and payable at the Redemption Price therein
specified, and from and after such date (unless the Partnership shall default
in the payment of the Redemption Price and accrued Scheduled Distributions,
including any Distribution Make-Whole Payment) no further distributions shall
be payable or accrue with respect to such PPIs. Upon surrender of any such PPI
for redemption in accordance with said notice, such PPI shall be paid, subject
to Section 1.3, by the Partnership at the Redemption Price, together with
accrued Scheduled Distributions to the Redemption Date.
If any PPI called for redemption shall not be so paid upon surrender
thereof for redemption, the Redemption Price (but not any unpaid Scheduled
Distributions or any Distribution Make-Whole Payment) shall, until paid, bear
interest from the Redemption Date at 6 1/2% per annum.
SECTION 2.6. Provisional Redemption. The Partnership may redeem, in
whole or in part (a "Provisional Redemption"), at any time prior to March 2,
1999, at the Redemption Price of 103% of the aggregate Stated Value of the PPIs
to be redeemed plus accrued and unpaid Scheduled Distributions, if any, to the
date of Provisional Redemption (the "Provisional Redemption Date"), in the
event that the Current Market Value of the GTL Common Stock equals or exceeds
the following Trigger Percentages of the GTL Conversion Price for at least 20
Trading Days in any consecutive 30 Trading Day period ending on the Trading Day
prior to the date of mailing of the Globalstar Redemption Notice if called for
Provisional Redemption in the 12-month period ending March 1 of the following
years:
<TABLE>
<CAPTION>
Year Trigger Percentage
---- ------------------
<S> <C>
1997 170%
1998 160%
1999 150%
</TABLE>
Upon any Provisional Redemption, the Partnership shall make the
Distribution Make-Whole Payment with respect to the PPIs called for redemption.
The Partnership shall make the Distribution Make-Whole Payment on all PPIs
called for Redemption, regardless of whether such PPIs are converted prior to
the Provisional Redemption Date.
SECTION 2.7 Optional Redemption. Commencing March 2, 1999, the PPIs
will be redeemable at any time, in whole or in part, at the election of the
Partnership (the "Optional Redemption"), at a Redemption Price equal to the
percentage of the Stated Value set forth below plus accrued and unpaid
Scheduled Distributions, if any, to the date of Optional
-4-
<PAGE> 24
Redemption (the "Optional Redemption Date") if redeemed in the 12-month period
ending March 1 of the following years:
<TABLE>
<CAPTION>
Year Redemption Price
---- ----------------
<S> <C>
2000 103%
2001 102%
2002 101%
</TABLE>
and thereafter at a Redemption Price equal to 100% of the Stated Value plus
accrued and unpaid Scheduled Distributions, if any, to the Optional Redemption
Date.
SECTION 2.8. Mandatory Redemption. Each PPI (if not earlier redeemed
or converted) will be mandatorily redeemed by the Partnership on the Mandatory
Redemption Date at a Redemption Price of 100% of the Stated Value plus accrued
and unpaid Scheduled Distributions, if any (including all Distribution
Arrearages), to the Mandatory Redemption Date.
ARTICLE III
Conversion of PPIs
SECTION 3.1. Conversion Privilege and Conversion Price. Subject to
and upon compliance with the provisions of this Article, one PPI shall be
convertible into one OPI (the "Conversion Ratio") which Conversion Ratio shall
be adjusted in certain circumstances as provided in Section 3.4. Upon any
conversion of CPEOs by a holder thereof, GTL shall convert a proportionate
amount of PPIs into OPIs. Such conversion right shall expire at the close of
business on the Business Day preceding the Mandatory Redemption Date. In case
a PPI or portion thereof is called for redemption, such conversion right in
respect of the PPI or portion so called shall expire at the close of business
on the Business Day preceding the Redemption Date, unless the Partnership
defaults in making the payment due upon redemption.
SECTION 3.2. Exercise of Conversion Privilege. PPIs surrendered for
conversion during the period from the close of business on any Regular Record
Date next preceding any Scheduled Distribution Payment Date to the opening of
business on such Scheduled Distribution Payment Date shall (except in the case
of PPIs or portions thereof which have been called for redemption on a
Redemption Date within such period) be accompanied by payment in New York
Clearing House funds or other funds acceptable to the Partnership of an amount
equal to the Scheduled Distribution payable on such Scheduled Distribution
Payment Date on the Stated Value of PPIs being surrendered for conversion.
Except as provided in the preceding sentence and subject to Section 1.3 of this
Schedule, no payment or adjustment shall be made upon any
-5-
<PAGE> 25
conversion on account of any Scheduled Distribution accrued on the PPIs
surrendered for conversion or on account of any Scheduled Distributions on the
OPIs issued upon conversion. In no event shall the Partnership be obligated to
pay any converting Holder any unpaid Distribution Arrearages upon conversion.
PPIs shall be deemed to have been converted immediately prior to the
close of business on the day of surrender of such PPIs for conversion in
accordance with the foregoing provisions, and at such time the rights of GTL
with respect to such PPIs shall cease, and OPIs issuable upon conversion shall
be treated for all purposes as having been issued at such time.
SECTION 3.3. Fractions of Interests. In the event that GTL shall be
required to pay a cash adjustment in lieu of any issuance of fractional
interests in GTL Common Stock as provided in the Indenture and GTL shall not
have cash available to make such payment, then the Partnership shall make a
cash distribution to GTL, in lieu of a payment of such amount in OPIs under
this Agreement and to the extent that funds shall be legally available thereof,
to allow GTL to make such cash adjustments.
SECTION 3.4. Adjustment of Conversion Ratio. Upon an adjustment of
the GTL Conversion Price (a "GTL Adjustment Event"), the Conversion Ratio shall
be adjusted so that the ratio of the number of OPIs issuable upon conversion of
a PPI after the GTL Adjustment Event to the number of shares of Common Stock
issuable upon conversion of a CPEO after the GTL Adjustment Event shall equal
the ratio of the number of OPIs issuable upon conversion of a PPI immediately
prior to the GTL Adjustment Event to the number of shares of Common Stock
issuable upon conversion of a CPEO immediately prior to the GTL Adjustment
Event.
SECTION 3.5. Provisions in Case of Consolidation, Merger or
Conveyance or Transfer of Properties and Assets. In case of any consolidation
of the Partnership with, or merger of the Partnership into, any other
partnership or other business entity, or in case of any merger of another
partnership or other business entity into the Partnership (other than a merger
which does not result in any reclassification, conversion, exchange or
cancellation of outstanding Partnership Interests or a transaction governed by
Section 6.13 of this Agreement), or in case of any conveyance or transfer of
the properties and assets of the Partnership substantially as an entirety, the
partnership, corporation, or other business entity formed by such consolidation
or resulting from such merger or which acquires by conveyance or transfer such
properties and assets, as the case may be, shall execute and deliver to GTL an
agreement providing that GTL shall have the right thereafter, during the period
PPIs shall be convertible as specified in this Article III, to convert such
PPIs only into the kind and amount of securities, cash and other property
receivable upon such consolidation, merger, conveyance or transfer by a Partner
holding OPIs immediately prior to such consolidation, merger, conveyance or
transfer,
-6-
<PAGE> 26
assuming such Partner failed to exercise its rights of election, if any, as to
the kind or amount of partnership interests, securities, cash and other
property receivable upon such consolidation, merger, conveyance or transfer
(provided that, if the kind or amount of securities, cash and other property
receivable upon such consolidation, merger, conveyance or transfer is not the
same for each unit of Ordinary Partnership Interests in respect of which such
rights of election shall not have been exercised ("nonelecting share"), then
for the purpose of this Section the kind and amount of partnership interests,
cash and other property receivable upon such consolidation, merger, conveyance
or transfer by each nonelecting OPI shall be deemed to be the kind and amount
so receivable per share by a plurality of the nonelecting OPIs). Such
agreement shall provide for adjustments which, for events subsequent to the
effective date of such agreement, shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Article. The above
provisions of this Section shall similarly apply to successive consolidations,
mergers, conveyances or transfers. The Partnership will not become a party to
any consolidation or merger unless the terms of such consolidation or merger
are consistent with this Section.
SECTION 3.6. Taxes on Conversions. The Partnership will pay any and
all taxes that may be payable in respect of the issue or delivery of OPIs on
conversion of PPIs pursuant hereto.
ARTICLE IV
Subordination of PPIs
SECTION 4.1. PPIs Subordinate to All Liabilities. The PPIs shall be
subordinated and subject, to the extent and in the manner herein set forth, in
right of payment to the prior payment in full of all existing and future
liabilities of the Partnership, including without limitation (i) certain
distributions made to partners in respect of taxes levied upon the operations
of Globalstar; (ii) distributions of the Management Fee; and (iii) guarantee
fees to be made to partners and other persons in connection with their
guarantee of the Partnership's obligations under the Globalstar Credit
Agreement.
SECTION 4.2. No Payments When Liabilities in Default; Payment Over of
Proceeds upon Dissolution, etc. In the event the Partnership shall default in
the payment of any liabilities of the Partnership when the same becomes due and
payable, whether at maturity or at a date fixed for prepayment or by
declaration or otherwise, then, unless and until such default shall have been
cured or waived or shall have ceased to exist, no direct or indirect payment
(in cash or property, by setoff or otherwise) need be made or agreed to be made
on account of the PPIs (excepting cash payment for fractional interests as set
forth in Section 3.3 above).
-7-
<PAGE> 27
Upon the happening of an event of default with respect to any
liability, as defined therein or in the instrument under which the same is
outstanding, permitting the holders thereof to accelerate the maturity thereof
(under circumstances when the terms of the preceding paragraph are not
applicable), unless and until such event of default shall have been cured or
waived or shall have ceased to exist, no direct or indirect payment (in cash or
property, by setoff or otherwise) need be made or agreed to be made on account
of the PPIs (excepting cash payment for fractional interests as set forth in
Section 3.3 above).
In the event of:
(a) any insolvency, bankruptcy, receivership, liquidation,
reorganization, readjustment, composition or other similar proceeding
relating to the Partnership or its property;
(b) any proceeding for the liquidation, dissolution or other winding
up of the Partnership or its property;
(c) any assignment by the Partnership for the benefit of creditors; or
(d) any other marshaling of the assets of the Partnership;
all liabilities (including any interest thereon accruing after the commencement
of any such proceedings) shall first be paid in full before any payment or
distribution (direct or indirect), whether in cash or property, by setoff or
otherwise, need be made on account of any PPIs.
SECTION 4.3. Voting Rights. Except as required by law, the
PPIs will not have any voting rights. Upon a GTL Deferral Trigger Event, (i)
the number of members of the Committee will be increased by one and the holders
of the CPEOs, voting separately as a class with the holders of any other
securities upon which similar voting rights have been conferred and are
exercisable, will be entitled to elect one representative to the Committee (the
"CPE Representative"). The CPE Representative will promptly resign upon
receipt of notice from GTL that all Distribution Arrearages with respect to the
PPIs have been paid.
-8-
<PAGE> 1
EXHIBIT 10.16
FIRST AMENDMENT TO THE GLOBALSTAR, L.P.
REVOLVING CREDIT AGREEMENT
FIRST AMENDMENT, dated as of March 25, 1996 (the "Amendment") to the
Revolving Credit Agreement, dated as of December 15, 1995 (as such agreement may
be amended, supplemented or otherwise modified from time to time, the "Credit
Agreement") among GLOBALSTAR, L.P., a Delaware limited partnership (the
"Borrower"), the several financial institutions parties from time to time
thereto (the "Banks") and CHEMICAL BANK, a New York banking corporation, as
administrative agent (the "Administrative Agent").
W I T N E S S E T H :
WHEREAS, pursuant to the Credit Agreement, the Banks have severally
agreed to make Loans to the Borrower upon the terms and subject to the
conditions set forth therein;
WHEREAS, Loral Corporation ("Loral") has guaranteed payment of the
Obligations (as hereinafter defined) pursuant to the Guarantee dated as of
December 15, 1995 (the "Loral Guarantee") by Loral in favor of the
Administrative Agent;
WHEREAS, contemporaneous with the execution and effectiveness of this
Amendment, Loral is being acquired by Lockheed Martin Corporation, a Maryland
corporation ("Lockheed Martin"), and Loral has requested that the Banks and the
Administrative Agent consent to the amendments to the Credit Agreement contained
herein and the termination and release of the Loral Guarantee as provided
herein, and the Banks and the Administrative Agent are willing to do so;
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the sufficiency of which is hereby acknowledged, the
Banks, the Administrative Agent and the Borrower hereby agree as follows:
SECTION 1. DEFINED TERMS
Unless otherwise defined herein, terms defined in the Credit
Agreement shall have such meanings when used herein.
SECTION 2. AMENDMENTS
2.1 General. All references in the Credit Agreement (including,
but not limited to, those references in subsections 1.1, 2.2, 2.6, 3.4, 5.2,
Section 8, Sections 10.1, 10.2 and 10.6) to (i) the name "Loral" shall be
deleted and replaced by the name "Lockheed Martin", except that the definition
of "Loral" in Section 1.1 of the Credit Agreement shall remain unchanged, the
<PAGE> 2
reference to Loral in the definition of "Loan Parties" shall remain unchanged,
and the references to Loral in Section 4.1 shall remain unchanged, (ii) the term
"Loral Guarantee" shall be deleted and replaced by the term "Lockheed Martin
Guarantee" except that in Sections 4.1(a), (g) and (h) the term "Loral
Guarantee" shall be replaced by the term "Original Loral Guarantee" and (iii)
the term "Loral Credit Agreement" shall be deleted and replaced by the term
"Lockheed Martin Credit Agreement".
2.2 Amendments to Section 1.1. Section 1.1 of the Credit
Agreement is hereby amended by:
(a) deleting the date "September 1, 1995" from clause (iii)
of the definition of "Change of Control" and substituting the phrase
"the date the Tender Offer (as defined in the Lockheed Martin Credit
Agreement) is consummated" therefor and deleting the name "Loral" from
clauses (iii) and (iv) of such definition and substituting the name
"Loral Space & Communications Ltd." therefor;
(b) deleting the definition of "Loan Parties" in its entirety
and substituting therefor the following:
"Loan Parties": the Borrower and, prior to the Release
Date, (i) each Subsidiary of the Borrower which is a party to a
Loan Document, (ii) from the Closing Date through the date on
which the Original Loral Guarantee is released, Loral, and,
thereafter, Lockheed Martin and (iii) the other Partner
Guarantors.
(c) deleting the defined terms "Loral Credit Agreement" and
"Loral Guarantee" in their entirety;
(d) deleting the words "or Loral" from the definition of
"Obligations";
(e) deleting the name "Loral" from the definition of "Partner
Collateral Account" and substituting the name Loral Space &
Communications Ltd. therefor;
(f) deleting the name "Loral" from the definitions of
"Partner Guarantee" and "Partner Guarantor" and substituting the name
"Loral Space & Communications Ltd." therefor;
(g) inserting the phrase ", Loral" immediately following the
phrase "(or their Affiliates)" appearing in the definition of "Partner
Guarantor Fee Arrangement" and inserting the phrase "and certain other
parties" immediately after the phrase "and/or another Partner" in such
definition;
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<PAGE> 3
(h) deleting the words "the Loral Guarantee or other" from
clause (i) of the definition of "Release Date Conditions Precedent" and
substituting the word "any" therefor; and
(i) adding thereto in alphabetical order the following
defined terms:
"Guaranteed Obligations": the collective reference to
the unpaid principal of and interest on the Loans and all other
obligations and liabilities of the Borrower to the Administrative
Agent and the Banks (including, without limitation, interest
accruing at the then applicable rate provided in this Agreement
after the maturity of the Loans and interest accruing at the then
applicable rate provided in this Agreement after the filing of
any petition in bankruptcy, or the commencement of any
insolvency, reorganization or like proceeding, relating to the
Borrower whether or not a claim for post-filing or post-petition
interest is allowed in such proceeding), whether direct or
indirect, absolute or contingent, due or to become due, or now
existing or hereafter incurred, which may arise under, out of, or
in connection with, this Agreement or the Notes, in each case
whether on account of principal, interest, reimbursement
obligations, fees, indemnities, costs, expenses or otherwise
(including, without limitation, all fees and disbursements of
counsel to the Administrative Agent or to the Banks that are
required to be paid by the Borrower or pursuant to the terms of
this Agreement).
"Lockheed Martin": Lockheed Martin Corporation, a
Maryland corporation.
"Lockheed Martin Credit Agreement": the Revolving
Credit Agreement (Five Year) to be dated as of a date in April,
1996, and substantially in the form delivered to the Banks on
March 25, 1996, among Lockheed Martin, LAC Acquisition
Corporation, as guarantor thereunder, the several financial
institutions parties from time to time thereto, Morgan Guaranty
Trust Company of New York, as Documentation Agent, and Bank of
America National Trust and Savings Association, as Administrative
Agent, as amended, modified and supplemented from time to time in
accordance with the terms thereof but without giving effect to
any cancellation or termination thereof.
"Lockheed Martin Guarantee": the Guarantee to be
executed and delivered by Lockheed Martin, substantially in the
form of Exhibit A to the First Amendment dated as of March 25,
1996 to this
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<PAGE> 4
Agreement, as the same may be amended, supplemented or otherwise
modified from time to time.
"Original Loral Guarantee": the guarantee executed and
delivered by Loral, substantially in the form of Exhibit E, dated
as of December 15, 1995.
"Preferred Equity Interests": any Equity Interests of
the Borrower that are preferred or senior in right of payment to
any other Equity Interests of the Borrower and which have the
following characteristics:
(a) such Equity Interests are not mandatorily
redeemable or redeemable at the option of the holder thereof
prior to 90 days after the Termination Date;
(b) dividends thereon are payable no more
frequently than quarterly;
(c) the dividend rate thereon is a market rate at
the time of issuance; and
(d) such Equity Interests have other terms
satisfactory to the Administrative Agent (the Banks hereby
acknowledging that the terms of the Preferred Equity
Interests to be issued by the Borrower to Globalstar
Telecommunications, Ltd. ("GTL") in connection with the
issuance by GTL of its $300,000,000 % Convertible
Preferred Equivalent Obligation due 2006 are satisfactory).
2.3 Amendments to Section 2. Section 2 of the Credit Agreement is
hereby amended by:
(a) (i) inserting the word "Guaranteed" immediately following
the phrases "Payment of all the" and "no more than 60% of the" and "no
less than 40% of the" in Section 2.2(a) and (ii) inserting the words
"or the Applicable Partner" immediately following the phrase "(unless
Obligations are otherwise due) if the Borrower" appearing in the first
sentence of Section 2.2(e) and deleting the word "principal" from the
last sentence of Section 2.2(e); and
(b) (i) deleting the word "At" at the beginning of Section
2.6(c) and substituting the word "Upon" therefor, (ii) deleting the
word "and" immediately preceding the "(iii)" appearing therein and
substituting a "," therefor
-4-
<PAGE> 5
and (iii) inserting immediately after the end of clause (iii) of such
subsection the following:
or by other guarantees, collateral or credit support
satisfactory to the Required Banks and (iv) if the Commitments
would exceed $250,000,000 after giving effect to such increase,
Lockheed Martin consents to such increase.
2.4 Amendment to Section 6.6. Section 6.6 of the Credit Agreement
is hereby amended by deleting the word "or" immediately preceding the "(b)"
appearing therein and substituting a "," therefor and inserting at the end of
the first sentence of such subsection the following:
or (c) in respect of Preferred Equity
Interests.
2.5 Amendments to Section 8. Section 8 of the Credit Agreement is
hereby amended by:
(a) deleting from clause (a)(iii) thereof the phrase:
or Loral shall default in the observance or
performance of any agreement contained in Section 10 of the Loral
Guarantee incorporated from Section 6 of the Loral Credit
Agreement; or
(b) deleting from clause (a)(iv) thereof the phrase:
or Loral shall default in the observance or
performance of any agreement contained in Section 10 of the Loral
Guarantee incorporated from Section 5 of the Loral Credit
Agreement, and such default shall continue unremedied for a
period of 30 days;
(c) deleting clause (a)(ix) thereof in its entirety and
substituting therefor the following:
(ix) An Event of Default under Section 11 of the
Lockheed Martin Guarantee shall occur.
and (d) deleting the "s" from the word "paragraphs" appearing
in clause (A) of Section 8(b)(i) and deleting the phrase ", (a)(iii) or
(a)(iv)" appearing in such clause.
2.6 Amendments to Section 10. Section 10 of the Credit Agreement
is hereby amended by:
-5-
<PAGE> 6
(a) inserting immediately before the word "or" at the end of
clause (a) which appears in the second sentence of Section 10.1 the
following:
and in the case of any extension of the Termination Date,
the written extension of the time of payment of interest on any
Loan in an aggregate amount exceeding $15,000,000 for more than
six months or the extension of the Commitment Period, without the
written consent of Lockheed Martin
(b) deleting from Section 10.1 all of clause (b) which
appears in the second sentence thereof and substituting therefor the
phrase "(b) [INTENTIONALLY OMITTED]";
(c) inserting at the end of clause (d) which appears in the
second sentence of Section 10.1 the following:
amend, modify or waive any provision of this Section 10.1
that requires the consent of Lockheed Martin without the written
consent of Lockheed Martin or
(d) inserting the words "and Lockheed Martin" immediately
before the word "or" appearing at the end of clause (g) which appears
in the second sentence of Section 10.1;
(e) inserting the phrase "or Section 2.6(a) or Section
2.6(c)" immediately following the words "amend Section 2.2" appearing
in clause (h) which appears in the second sentence of Subsection 10.1;
(f) deleting from Subsection 10.2 the reference to Loral and
its address therein and substituting therefor the following:
Lockheed Martin Corporation
6801 Rockledge Drive
Bethesda, Maryland 20817
Attention: Treasurer
(g) deleting the word "Clause" from the last sentence of
Section 10.6(a) and substituting therefor the phrase "Sections 2.2 and
2.6 and Clauses (a), (d), (g) and" therefor and inserting the phrase
"to the extent provided therein" at the end of such sentence.
-6-
<PAGE> 7
SECTION 3. TERMINATION AND RELEASE OF THE LORAL GUARANTEE
The Banks hereby agree that upon satisfaction of all the conditions
precedent in Section 4 hereof the Loral Guarantee shall be terminated and
released as of the Amendment Effective Date.
SECTION 4. CONDITIONS TO EFFECTIVENESS
This Amendment shall become effective, and the Loral Guarantee shall be
terminated and released, on the first day (the "Effective Date") that the
following conditions precedent are satisfied:
4.1 Consent of all the Banks. The Administrative Agent shall have
received an executed counterpart of this Amendment signed by the Borrower and
each Bank.
4.2 Lockheed Martin Guarantee. The Administrative Agent shall have
received an executed copy of the Lockheed Martin Guarantee.
4.3 Legal Opinion. The Administrative Agent shall have received
executed legal opinions of counsel to Lockheed Martin substantially in the form
of Exhibit B hereto.
4.4 Closing Certificate. The Administrative Agent shall have received a
Closing Certificate of Lockheed Martin, dated the date hereof, substantially in
the form of Exhibit C hereto, with appropriate insertions and attachments,
satisfactory in form and substance to the Administrative Agent and its counsel,
executed by a duly authorized officer of Lockheed Martin.
4.5 No Proceeding or Litigation; No Injunctive Relief. No action, suit
or proceeding before any arbitrator or any Governmental Authority shall have
been commenced, no investigation by any Governmental Authority shall have been
commenced, no action, suit, proceeding or investigation by any Governmental
Authority shall have been threatened and no Requirement of Law shall have been
enacted or proposed, in each case as of the Effective Date (i) seeking to
restrain, prevent or change the transactions contemplated by the Credit
Agreement (including the Satellite Project) in whole or in part or questioning
the validity or legality of the transactions contemplated by the Credit
Agreement or seeking damages in connection with such transactions or seeking to
restrain, prevent or change the execution, delivery and performance of the
Lockheed Martin Guarantee or (ii) which could reasonably be expected to have a
Material Adverse Effect.
-7-
<PAGE> 8
4.6 Audited Financial Statements of Lockheed Martin. The Administrative
Agent shall have received, with a copy for each Bank, the consolidated balance
sheet of Lockheed Martin and its consolidated Subsidiaries as at December 31,
1995 and the related consolidated statements of income and of cash flows for the
fiscal year ended on such date, reported on by Ernst & Young LLP, which
financial statements shall have been reported on without a "going concern" or
like qualification or exception, or qualification arising out of the scope of
the audit.
4.7 Tender Offer. The Tender Offer (as defined in the Lockheed Martin
Credit Agreement) shall have been consummated.
SECTION 5. MISCELLANEOUS
5.1 Representations and Warranties. The Borrower hereby confirms that
all of the representations and warranties made by the Loan Parties contained in
the Loan Documents are true and correct in all material respects on and as of
the date hereof (other than representations as are made as of a specific date)
after giving effect to this Amendment.
5.2 No Default. The Borrower hereby confirms that no Default or Event
of Default shall have occurred and be continuing on the date hereof or after
giving effect to this Amendment.
5.3 Subsidiary Guarantee. Globalstar Capital Corporation hereby
confirms that the Subsidiary Guarantee to which it a party is in full force and
effect and will continue to be in full force and effect after giving effect to
this Amendment and the transactions contemplated hereby.
5.4 Counterparts. This Amendment may be executed by one or more of the
parties hereof on any number of separate counterparts and all such counterparts
shall be deemed to be one and the same instrument.
5.5 GOVERNING LAW. This Guarantee shall be governed by, and construed
and interpreted in accordance with, the law of the State of New York.
-8-
<PAGE> 9
IN WITNESS WHEREOF, the undersigned have caused this Amendment to be
duly executed and delivered by their respective duly authorized officer as of
the day and year first above written.
GLOBALSTAR, L.P.
By: LORAL/QUALCOMM SATELLITE
SERVICES L.P., as Managing
General Partner
By: LORAL/QUALCOMM PARTNERSHIP,
L.P., as General Partner
By: LORAL GENERAL PARTNER, INC.,
as General Partner
By: /s/Nick Moren
-------------------------------
Title: Vice President
CHEMICAL BANK, as
Administrative Agent and as
a Bank
By: /s/Chemical Bank
-------------------------------
Title:
BANK OF AMERICA ILLINOIS
By: /s/Steve Aronowitz
-------------------------------
Title: Vice President
MORGAN GUARANTY TRUST
COMPANY OF NEW YORK
By: /s/Diana M. Imhof
-------------------------------
Title: Vice President
THE BANK OF NEW YORK
By: /s/Ken Sneider
-------------------------------
Title: Vice President
-9-
<PAGE> 10
THE BANK OF NOVA SCOTIA
By: /s/J. Alan Edwards
--------------------------------
Title:
BARCLAYS BANK PLC
By: /s/John C. Livingston
--------------------------------
Title: Director
BAYERISCHE LANDESBANK
GIROZENTRALE
By: /s/Peter Obermann
--------------------------------
Title: Senior Vice President
Manager, Lending Division
BANQUE NATIONALE de PARIS
By: /s/Richard L. Sled
--------------------------------
Title: Senior Vice President
By: /s/Thomas N. George
--------------------------------
Title: Vice President
THE CHASE MANHATTAN BANK, N.A.
By: /s/Richard C. Smith
--------------------------------
Title: Vice President
CIBC INC.
By: /s/Marisa Harney
--------------------------------
Title: Director
CITICORP USA, INC.
By: /s/Marjorie Futornick
--------------------------------
Title: Vice President
-10-
<PAGE> 11
CREDIT LYONNAIS
CAYMAN ISLAND BRANCH
By: /s/Credit Lyonnais Cayman Island Bank
-------------------------------------
Title:
CREDIT LYONNAIS
NEW YORK BRANCH
By: /s/Credit Lyonnais New York Branch
-------------------------------------
Title:
CREDIT SUISSE
By: /s/ Hamilton Crawford
-------------------------------------
Title: Associate
By: /s/ Michael C. Mast
-------------------------------------
Title: Member of Senior Management
THE DAI-ICHI KANGYO BANK,
LIMITED, NEW YORK BRANCH
By: /s/Kim Lehry
-------------------------------------
Title: Vice President
THE FUJI BANK, LIMITED
NEW YORK BRANCH
By: /s/Teiji Teramoto
-------------------------------------
Title: Vice President & Manager
BAYERISCHE HYPOTHEKEN-UND WECHSEL-BANK
AKTIENGESELLSCHAFT, NEW YORK BRANCH
By: /s/Bayerische Hypotheken-Und
-------------------------------------
Wechsel-Bank Aktiengesellschaft,
New York Branch
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<PAGE> 12
THE INDUSTRIAL BANK OF JAPAN,
LIMITED - NEW YORK BRANCH
By: /s/John V. Veltri
-------------------------------------
Title: Senior Vice President
LTCB TRUST COMPANY
By: /s/Rene O. LeBlanc
-------------------------------------
Title: Senior Vice President
MELLON BANK, N.A.
By: /s/David N. Smith
-------------------------------------
Title: Vice President
THE MITSUBISHI TRUST AND
BANKING CORPORATION
By: /s/Patricia Loret de Mola
-------------------------------------
Title: Senior Vice President
NATIONAL CITY BANK
By: /s/Joseph D. Robinson
-------------------------------------
Title: Vice President
NATIONSBANK, N.A.
By: /s/Mary E. Mandanos
-------------------------------------
Title: Vice President
PNC BANK, NATIONAL ASSOCIATION
By: /s/M. J. Williams
-------------------------------------
Title: Vice President
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<PAGE> 13
ROYAL BANK OF CANADA
By: /s/John P. Page
-------------------------------------
Title: Senior Manager
ISTITUTO BANCARIO SAN PAOLO
DI TORINO S.P.A.
By: /s/Wendell Jones
-------------------------------------
Title: Vice President
By: /s/Roberto Gorlier
-------------------------------------
Title: F.V.P. & Deputy G.M.
THE SANWA BANK, LIMITED
By: /s/Dominic J. Sorresso
-------------------------------------
Title: Vice President
SOCIETE GENERALE
By: /s/Bruce Drossman
-------------------------------------
Title: Vice President
THE SUMITOMO BANK, LIMITED
By: /s/The Sumitomo Bank, Limited
-------------------------------------
Title:
By: /s/Herman White, Jr.
-------------------------------------
Title: Vice President
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<PAGE> 14
TORONTO DOMINION (TEXAS), INC.
By: /s/Toronto Dominion (Texas), Inc.
-------------------------------------
Title:
THE YASUDA TRUST & BANKING
COMPANY, LIMITED
By: /s/The Yasuda Trust & Banking
-------------------------------------
Company, Limited
-----------------
Title:
CONFIRMATION OF SUBSIDIARY GUARANTEE:
GLOBALSTAR CAPITAL CORPORATION
By: /s/Nick Moran
-------------------------------------
Title: Vice President & Treasurer
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<PAGE> 1
EXHIBIT 10.17
GUARANTEE
GUARANTEE, dated as of April 23, 1996, made by Lockheed Martin
Corporation, a Maryland corporation (the "Guarantor"), in favor of CHEMICAL
BANK, as agent (in such capacity, the "Administrative Agent") for the lenders
(the "Banks") from time to time parties to the Credit Agreement, dated as of
December 15, 1995 (as amended, supplemented or otherwise modified from time to
time, the "Credit Agreement"), among Globalstar, L.P., a Delaware limited
partnership (the "Borrower"), the Banks and the Administrative Agent.
W I T N E S S E T H:
WHEREAS, pursuant to the Credit Agreement, the Banks have severally
agreed to make Loans to the Borrower upon the terms and subject to the
conditions set forth therein;
WHEREAS, Loral Corporation ("Loral") has guaranteed payment of the
Obligations (as hereinafter defined) pursuant to the Guarantee dated as of
December 15, 1995 (the "Loral Guarantee") by Loral in favor of the
Administrative Agent;
WHEREAS, the Guarantor and Loral have entered into an Agreement and
Plan of Merger, dated as of January 7, 1996 (the "Merger Agreement"), pursuant
to which a subsidiary of the Guarantor, contemporaneously with the execution of
this Guarantee is acquiring, on a fully diluted basis, at least two thirds of
the outstanding shares of common stock of Loral;
WHEREAS, in accordance with the terms and conditions of the Merger
Agreement, contemporaneously with the execution of the Merger Agreement, Loral,
Guarantor, and certain subsidiaries of Loral entered into a Restructuring,
Financing and Distribution Agreement, dated as of January 7, 1996 (the
"Distribution Agreement");
WHEREAS, pursuant to the Distribution Agreement Loral is contributing
certain assets to Loral Telecommunications Acquisition, Inc. (together with its
successors, "Spinco") and Spinco is assuming certain obligations of Loral such
that Spinco and its subsidiaries thereafter will own substantially all of the
space and satellite related assets, liabilities and businesses and certain other
assets of Loral;
WHEREAS, the Distribution Agreement, among other things, contemplates
that following consummation of the tender offer provided for in the Merger
Agreement, Loral will distribute
<PAGE> 2
shares of common stock of Spinco to the stockholders of Loral, and that Loral
and Spinco will take certain actions in respect of the Credit Agreement and the
Loral Guarantee, including the execution of the amendment to the Credit
Agreement being entered into contemporaneously with this Guarantee ("Amendment
No. 1");
WHEREAS, the Distribution Agreement contemplates that under certain
circumstances the Guarantor will enter into this Guarantee;
WHEREAS, it is a condition precedent to the execution of Amendment No.
1 to the Credit Agreement that the Guarantor shall have executed and delivered
this Guarantee to the Administrative Agent for the ratable benefit of the Banks;
WHEREAS, in order to induce Loral to enter into the Merger Agreement
and the Distribution Agreement and to consummate the transactions contemplated
thereby, the Guarantor agreed, under certain circumstances, to enter into this
Guarantee;
WHEREAS, the Guarantor, as a result of the consummation of the tender
offer contemplated by the Merger Agreement, contemporaneously with the execution
of this Guarantee is becoming the parent company of Loral, Loral is acquiring a
substantial equity interest in Spinco, and a Subsidiary of Spinco is the sole
managing general partner in the Borrower;
WHEREAS, in order to induce the Administrative Agent and the Banks to
terminate the Loral Guarantee, the Guarantor has agreed to execute and deliver
this Guarantee;
WHEREAS, it is a condition precedent to the obligation of the Banks to
make their respective Loans to the Borrower under the Credit Agreement that the
Guarantor shall have executed and delivered this Guarantee to the Administrative
Agent for the ratable benefit of the Banks; and
WHEREAS, the Guarantor directly or indirectly owns a substantial
interest in the Borrower, and it is to the advantage of the Guarantor that the
Banks continue to make the Loans available to the Borrower.
NOW, THEREFORE, in consideration of the premises and to induce the
Administrative Agent and the Banks to enter into Amendment No. 1 to the Credit
Agreement and to induce the Banks to continue to make their respective Loans
available to the Borrower under the Credit Agreement and to terminate the Loral
Guarantee, the Guarantor hereby agrees with the Administrative Agent, for the
ratable benefit of the Banks, as follows:
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<PAGE> 3
1. Defined Terms. (a) Unless otherwise defined herein, terms defined in
the Credit Agreement and used herein shall have the meanings given to them in
the Credit Agreement.
(a) As used herein, "Obligations" means the collective reference to
the unpaid principal of and interest on the Loans and all other obligations and
liabilities of the Borrower to the Administrative Agent and the Banks
(including, without limitation, interest accruing at the then applicable rate
provided in the Credit Agreement after the maturity of the Loans and interest
accruing at the then applicable rate provided in the Credit Agreement after the
filing of any petition in bankruptcy, or the commencement of any insolvency,
reorganization or like proceeding, relating to the Borrower whether or not a
claim for post-filing or post-petition interest is allowed in such proceeding),
whether direct or indirect, absolute or contingent, due or to become due, or now
existing or hereafter incurred, which may arise under, out of, or in connection
with, the Credit Agreement or the Notes, in each case whether on account of
principal, interest, reimbursement obligations, fees, indemnities, costs,
expenses or otherwise (including, without limitation, all reasonable fees and
disbursements of counsel to the Administrative Agent or to the Banks that are
required to be paid by the Borrower or the Guarantor pursuant to the terms of
the Credit Agreement or this Agreement). Notwithstanding the foregoing, the
aggregate principal amount of the Loans that shall constitute Obligations
hereunder shall be limited to $250,000,000, the interest on the Loans that shall
constitute Obligations hereunder shall be limited to interest on $250,000,000
and the commitment fees under Section 2.5 of the Credit Agreement that shall
constitute Obligations shall be commitment fees that accrue on the first
$250,000,000 of the aggregate Commitments. If the Commitments under the Credit
Agreement are voluntarily reduced pursuant to Section 2.6(a) thereof, then the
obligations of the Guarantor under this Guarantee shall not be increased upon
subsequent increase in the Commitments under the Credit Agreement.
(b) The words "hereof," "herein" and "hereunder" and words of
similar import when used in this Guarantee shall refer to this Guarantee as a
whole and not to any particular provision of this Guarantee, and section and
paragraph references are to this Guarantee unless otherwise specified.
(c) The meanings given to terms defined herein shall be equally
applicable to both the singular and plural forms of such terms.
2. Guarantee. (a) The Guarantor hereby unconditionally and irrevocably
guarantees to the Administrative Agent, for the ratable benefit of the Banks and
their respective successors, indorsees, transferees and assigns, the prompt and
complete payment and performance by the Borrower when due (whether at the
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<PAGE> 4
stated maturity, by acceleration or otherwise) of the Obligations.
(a) The Guarantor further agrees to pay any and all expenses
(including, without limitation, all reasonable fees and disbursements of
counsel) which may be paid or incurred by the Administrative Agent or any Bank
in enforcing, or obtaining advice of counsel in respect of, any rights with
respect to, or collecting, any or all of the Obligations and/or enforcing any
rights with respect to, or collecting against, the Guarantor under this
Guarantee. This Guarantee shall remain in full force and effect until the
Obligations are paid in full and the Commitments are terminated, notwithstanding
that from time to time prior thereto the Borrower may be free from any
Obligations, subject to the provisions of Sections 2(e) and (f) of this
Guarantee.
(b) No payment or payments made by the Borrower or any other Person or
received or collected by the Administrative Agent or any Bank from the Borrower
or any other Person by virtue of any action or proceeding or any set-off or
appropriation or application, at any time or from time to time, in reduction of
or in payment of the Obligations shall be deemed to modify, reduce, release or
otherwise affect the liability of the Guarantor hereunder which liability shall
continue, notwithstanding any such payment or payments, until the Obligations
are paid in full and the Commitments are terminated, subject to Sections 2(e)
and (f) of this Guarantee.
(c) The Guarantor agrees that whenever, at any time, or from time to
time, it shall make any payment to the Administrative Agent or any Bank on
account of its liability hereunder, it will notify the Administrative Agent and
such Bank in writing that such payment is made under this Guarantee for such
purpose.
(d) Section 2.2 of the Credit Agreement sets forth the terms on which
the obligations of the Guarantor under this Guarantee may be reduced and
increased and certain other arrangements with respect to this Guarantee and
other matters. Each of the Guarantor and the Banks acknowledges and agrees to
the provisions of Section 2.2 and to be bound by the provisions thereof. No
amendment of Section 2.2 of the Credit Agreement shall be effective as to the
Guarantor without its consent.
(e) This Guarantee shall terminate, and the obligations of the
Guarantor hereunder (including under Sections 9 and 10 hereof) shall be
released, on the Release Date.
3. [INTENTIONALLY OMITTED].
4. Limitation on Rights of Subrogation. Notwithstanding any payment or
payments made by the Guarantor hereunder, or any set-off or application of funds
of the Guarantor by the
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<PAGE> 5
Administrative Agent or any Bank, the Guarantor shall not be entitled to be
subrogated to any of the rights of the Administrative Agent or any Bank against
the Borrower or against any collateral security or guarantee or right of offset
held by the Administrative Agent or any Bank for the payment of the Obligations,
nor shall the Guarantor seek or be entitled to seek any contribution or
reimbursement from the Borrower in respect of payments made by the Guarantor
hereunder, until all amounts owing to the Administrative Agent and the Banks by
the Borrower on account of the Obligations are paid in full and the Commitments
are terminated. If any amount shall be paid to the Guarantor on account of such
subrogation rights at any time when all of the Obligations shall not have been
paid in full, such amount shall be held by the Guarantor in trust for the
Administrative Agent and the Banks, segregated from other funds of the
Guarantor, and shall, forthwith upon receipt by the Guarantor, be turned over to
the Administrative Agent in the exact form received by the Guarantor (duly
indorsed by the Guarantor to the Administrative Agent, if required), to be
applied against the Obligations, whether matured or unmatured, in such order as
the Administrative Agent may determine.
5. Amendments, etc. with respect to the Obligations; Waiver of Rights.
The Guarantor shall remain obligated hereunder notwithstanding that, without any
reservation of rights against the Guarantor, and without notice to or further
assent by the Guarantor, (a) any demand for payment of any of the Obligations
made by the Administrative Agent or any Bank may be rescinded by the
Administrative Agent or such Bank, and any of the Obligations continued, (b) the
Obligations, or the liability of any other Person upon or for any part thereof,
or any collateral security or guarantee therefor or right of offset with respect
thereto, may from time to time, in whole or in part (without limiting the rights
of the Guarantor under Section 10.1 of the Credit Agreement), be renewed,
extended, amended, modified, accelerated, compromised, waived, surrendered or
released by the Administrative Agent or any Bank, (c) without limiting the
rights of the Guarantor under Section 10.1 of the Credit Agreement, the Credit
Agreement, any Notes, and the other Loan Documents and any other documents
executed and delivered in connection therewith may be amended, modified,
supplemented or terminated, in whole or in part, as the Administrative Agent (or
the Required Banks, Majority Banks or Banks, as the case may be) may deem
advisable from time to time, and (d) any collateral security, guarantee or right
of offset at any time held by the Administrative Agent or any Bank for the
payment of the Obligations may be sold, exchanged, waived, surrendered or
released. Neither the Administrative Agent nor any Bank shall have any
obligation to protect, secure, perfect or insure any Lien at any time held by it
as security for the Obligations or for this Guarantee or any property subject
thereto. Subject to Section 2.2 of the Credit Agreement, when making any demand
hereunder against the Guarantor, the Administrative Agent or any Bank may, but
shall be under no obligation to, make a similar demand on the Borrower or
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<PAGE> 6
any other guarantor, and any failure by the Administrative Agent or any Bank to
make any such demand or to collect any payments from the Borrower or any such
other guarantor or any release of the Borrower or such other guarantor shall not
relieve the Guarantor of its obligations or liabilities hereunder, and shall not
impair or affect the rights and remedies, express or implied, or as a matter of
law, of the Administrative Agent or any Bank against the Guarantor. For the
purposes hereof "demand" shall include the commencement and continuance of any
legal proceedings.
6. Guarantee Absolute and Unconditional. Without limiting the rights of
the Guarantor under Sections 2.2, 2.6 and 10.1 of the Credit Agreement, the
Guarantor waives any and all notice of the creation, renewal, extension or
accrual of any of the Obligations and notice of or proof of reliance by the
Administrative Agent or any Bank upon this Guarantee or acceptance of this
Guarantee; the Obligations, and any of them, shall conclusively be deemed to
have been created, contracted or incurred, or renewed, extended, amended or
waived, in reliance upon this Guarantee; and all dealings between the Borrower
or the Guarantor, on the one hand, and the Administrative Agent and the Banks,
on the other, shall likewise be conclusively presumed to have been had or
consummated in reliance upon this Guarantee. The Guarantor waives diligence,
presentment, protest, demand for payment and notice of default or nonpayment to
or upon the Borrower or the Guarantor with respect to the Obligations. This
Guarantee shall be construed as a continuing, absolute and unconditional
guarantee of payment without regard to (a) the validity, regularity or
enforceability of the Credit Agreement, any Note, or any other Loan Document,
any of the Obligations or any other collateral security therefor or guarantee or
right of offset with respect thereto at any time or from time to time held by
the Administrative Agent or any Bank, (b) any defense, set-off or counterclaim
(other than a defense of payment or performance) which may at any time be
available to or be asserted by the Borrower against the Administrative Agent or
any Bank, or (c) any other circumstance whatsoever (with or without notice to or
knowledge of the Borrower or the Guarantor) which constitutes, or might be
construed to constitute, an equitable or legal discharge of the Borrower for the
Obligations, or of the Guarantor under this Guarantee, in bankruptcy or in any
other instance. Subject to Section 2.2 of the Credit Agreement, when pursuing
its rights and remedies hereunder against the Guarantor, the Administrative
Agent and any Bank may, but shall be under no obligation to, pursue such rights
and remedies as it may have against the Borrower or any other Person or against
any collateral security or guarantee for the Obligations or any right of offset
with respect thereto, and any failure by the Administrative Agent or any Bank to
pursue such other rights or remedies or to collect any payments from the
Borrower or any such other Person or to realize upon any such collateral
security or guarantee or to exercise any such right of offset, or any release of
the Borrower or any such other Person or of any such collateral security,
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<PAGE> 7
guarantee or right of offset, shall not relieve the Guarantor of any liability
hereunder, and shall not impair or affect the rights and remedies, whether
express, implied or available as a matter of law, of the Administrative Agent or
any Bank against the Guarantor. This Guarantee shall remain in full force and
effect and be binding in accordance with and to the extent of its terms upon the
Guarantor and its successors and assigns thereof, and shall inure to the benefit
of the Administrative Agent and the Banks, and their respective successors,
indorsees, transferees and assigns, until all the Obligations and the
obligations of the Guarantor under this Guarantee shall have been satisfied by
payment in full and the Commitments shall be terminated, subject to the
provisions of Sections 2(e) and (f) of this Guarantee and notwithstanding that
from time to time during the term of the Credit Agreement the Borrower may be
free from any Obligations. The Guarantor shall not be released from its
obligations under this Guarantee because of the failure of any other Guarantor
(as defined in the Credit Agreement) to perform its obligations under its
Guarantee (as defined in the Credit Agreement).
7. Reinstatement. This Guarantee shall continue to be effective, or be
reinstated, as the case may be, if at any time payment, or any part thereof, of
any of the Obligations is rescinded or must otherwise be restored or returned by
the Administrative Agent or any Bank upon the insolvency, bankruptcy,
dissolution, liquidation or reorganization of the Borrower or upon or as a
result of the appointment of a receiver, intervenor or conservator of, or
trustee or similar officer for, the Borrower or any substantial part of its
property, or otherwise, all as though such payments had not been made.
8. Payments. The Guarantor hereby agrees that the Obligations will be
paid to the Administrative Agent without set-off or counterclaim in U.S. Dollars
at the office of the Administrative Agent located at 270 Park Avenue, New York,
New York 10017.
9. Representations and Warranties. The Guarantor hereby makes, for the
benefit of the Administrative Agent and the Banks, all of the representations
and warranties of the Guarantor made in ARTICLE IV of the Revolving Credit
Agreement (Five Year) dated as of April 15, 1996, among the Guarantor, LAC
Acquisition Corporation, as guarantor, Morgan Guaranty Trust Company of New
York, as Documentation Agent, Bank of America National Trust and Savings
Association, as Administrative Agent, and the several Banks named therein (the
"Lockheed Martin Credit Agreement"), in the form of such representations and
warranties (including all defined terms referred to therein) as they exist on
the date of this Guarantee. Unless otherwise stated in this Guarantee, all
capitalized terms in this Section 9 shall have the meanings set forth in the
Lockheed Martin Credit Agreement. Such representations and warranties (including
all defined terms and schedules referred to therein) are hereby, mutatis
mutandis,
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<PAGE> 8
incorporated herein by reference with appropriate substitutions, including the
following:
(i) the terms "Company" and "Banks" or "Agents" as they appear
in ARTICLE IV of the Lockheed Martin Credit Agreement (and related
defined terms) shall, for the purposes of this Section 9, be replaced
by the terms "Guarantor" and "Administrative Agent," respectively;
(ii) references to the "Guarantor" as they appear in ARTICLE IV
of the Lockheed Martin Credit Agreement (and related defined terms)
shall, for purposes of this Section 9, be deleted and of no effect;
(iii) the phrase "Agreement and any Notes," each reference to
"this Agreement" and to the words "herein" and "hereunder," each
reference to "Notes", the phrase "financing contemplated hereby" and
similar words and phrases as they appear in ARTICLE IV of the Lockheed
Martin Credit Agreement (and related defined terms) shall be replaced
by the word "Guarantee" and deemed to be references to this Guarantee
and the term "Banks" in ARTICLE IV of the Lockheed Martin Credit
Agreement shall refer to the Banks party to the Credit Agreement;
(iv) Section 4.03 of the Lockheed Martin Credit Agreement shall
be replaced in its entirety by the following:
"The Guarantor has the corporate power and authority
and the legal right to make, deliver and perform this Guarantee
and has taken all necessary corporate action to authorize the
execution, delivery and performance of this Guarantee. No consent
or authorization of, filing with or other act by or in respect of
any Governmental Authority is required in connection with the
execution, delivery, performance, validity or enforceability of
this Guarantee, other than those which have been obtained or made
and are in full force and effect. This Guarantee has been duly
executed and delivered on behalf of the Guarantor. This Guarantee
constitutes a legal, valid and binding obligation of the
Guarantor enforceable against the Guarantor in accordance with
its terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar
laws affecting the enforcement of creditor's rights generally and
by general equitable principles (whether enforcement is sought by
proceedings in equity or law)."; and
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<PAGE> 9
(v) The clause beginning with ";" at the end of Section 4.01 and
Sections 4.06, 4.07 and 4.10 of the Lockheed Martin Credit Agreement,
are deleted for purposes of the Guarantee only.
The Guarantor agrees that the foregoing representations and warranties
shall be deemed to have been made by the Guarantor on the date on which this
Guarantee is executed and delivered to the Administrative Agent.
10. Covenants. The Guarantor hereby covenants and agrees with the
Administrative Agent and the Banks that, until the Obligations are paid in full
and the Commitments are terminated, it will perform all of the covenants and
agreements of the Guarantor contained in ARTICLE V of the Lockheed Martin Credit
Agreement, as such covenants and related defined terms exist as of the date
hereof and as they may hereafter be amended from time to time (but without
giving effect to any termination, cancellation, discharge or replacement of the
Lockheed Martin Credit Agreement, it being agreed that such covenants and
agreements shall survive any such event). Unless otherwise stated in this
Guarantee, all capitalized terms in this Section 10 shall have the meaning set
forth in the Lockheed Martin Credit Agreement. Such covenants (including all
defined terms referred to therein) are hereby, mutatis mutandis, incorporated
herein by reference with appropriate substitutions, including the following:
(i) the terms "Company" and "Administrative Agent" or
"Documentation Agent" as they appear in ARTICLE V of the Lockheed
Martin Credit Agreement (and related defined terms) shall, for the
purposes of this Section 10, be replaced by the terms "Guarantor" and
"Administrative Agent," respectively;
(ii) the terms "Bank" or "Banks" as they appear in ARTICLE V of
the Lockheed Martin Credit Agreement (and related defined terms) shall,
for the purpose of this Section 10, refer to the Banks party to the
Credit Agreement;
(iii) the terms "Agreement" and "Notes" as they appear in ARTICLE
V of the Lockheed Martin Credit Agreement shall be replaced by the term
"Guarantee", and each reference in ARTICLE V of the Lockheed Martin
Credit Agreement to "this Agreement" and to the words "herein" and
"hereunder" and similar words and phrases shall be deemed to be
references to this Guarantee;
(iv) the term "Default" as it appears in ARTICLE V shall be
deemed to include Defaults under the Lockheed Martin Credit Agreement
and defaults by the Guarantor under this Guarantee;
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<PAGE> 10
(v) the phrase "so long as any Commitments of the Banks shall
be outstanding and until the payment in full of all Loans outstanding
under this Agreement and the performance of all other obligations of
the Company under this Agreement" in the introductory language in
ARTICLE V shall be replaced with the phrase "until payment in full of
all amounts owed by the Guarantor under this Guarantee and the
termination of this Guarantee";
(vi) references to the "Guarantor" as they appear in ARTICLE V
(other than Section 5.04 thereof) of the Lockheed Martin Credit
Agreement (and related defined terms) shall, for purposes of this
Section 10, be deleted and of no effect;
(vii) Section 5.01(d) and Section 5.10 of the Lockheed Martin
Credit Agreement are deleted for purposes of this Guarantee only; and
(viii) the reference to "Loans" in Section 5.08(i) of the
Lockheed Martin Credit Agreement shall be deemed to be a reference to
the obligations of the Guarantor under this Guarantee.
11. Events of Default. The occurrence of the following shall constitute
an Event of Default under this Guarantee:
(a) Subject to the delivery of any required notice, the passage of
applicable grace periods, and the failure to cure any default, each as provided
in the Lockheed Martin Credit Agreement, the Guarantor shall default in the
observance or performance of any agreement or covenant contained in Section 10
hereof; or
(b) Any Material Debt (as such term is defined in the Lockheed Martin
Credit Agreement) shall become due before stated maturity by the acceleration of
the maturity thereof by reason of default, or any Material Debt shall become due
by its terms and shall not be paid and, in the case aforesaid in this clause
(b), corrective action satisfactory to the Required Banks shall not have been
taken within five days after written notice of the situation shall have been
given to the Guarantor by the Administrative Agent at the request of the
Required Banks.
12. Authority of Administrative Agent. The Guarantor acknowledges that
the rights and responsibilities of the Administrative Agent under this Guarantee
with respect to any action taken by the Administrative Agent or the exercise or
non-exercise by the Administrative Agent of any option, right, request, judgment
or other right or remedy provided for herein or resulting or arising out of this
Guarantee shall, as between the Administrative Agent and the Banks, be governed
by the Credit
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<PAGE> 11
Agreement and by such other agreements with respect thereto as may exist from
time to time among them, but, as between the Administrative Agent and the
Guarantor, the Administrative Agent shall be conclusively presumed to be acting
as agent for the Banks with full and valid authority so to act or refrain from
acting, and the Guarantor shall not be under any obligation, or entitlement, to
make any inquiry respecting such authority.
13. Notices. All notices, requests and demands to or upon the
Administrative Agent, any Bank or the Guarantor to be effective shall be in
writing (or by telex, fax or similar electronic transfer confirmed in writing)
and shall be deemed to have been duly given or made (1) when delivered by hand
or (2) if given by mail, when deposited in the mails by certified mail, return
receipt requested, or (3) if by telex, fax or similar electronic transfer, when
sent and receipt has been confirmed, addressed as follows:
(a) if to the Administrative Agent or any Bank, at its address or
transmission number for notices provided in Section 11.2 of the Credit
Agreement; and
(b) if to the Guarantor, at its address or transmission number for
notices set forth under its signature below.
The Administrative Agent, each Bank and the Guarantor may change its
address and transmission numbers for notices by notice in the manner provided in
this Section.
14. Severability. Any provision of this Guarantee which is prohibited
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
15. Integration. This Guarantee (including the portions of the Lockheed
Martin Credit Agreement incorporated herein by reference), the Credit Agreement
and the Notes represent the agreement of the Guarantor, the Administrative Agent
and the Banks with respect to the subject matter hereof, and there are no
promises, undertakings, representations or warranties by the Guarantor, the
Administrative Agent or any Bank relative to subject matter hereof not expressly
set forth or referred to herein or in such other documents.
16. Amendments in Writing; No Waiver; Cumulative Remedies. (a) None of
the terms or provisions of this Guarantee may be waived, amended, supplemented
or otherwise modified except by a written instrument executed by the Guarantor
and the Administrative Agent, provided that (i) such waiver, amendment,
supplement or other modification is consented to by the Required Banks and (ii)
such waiver may be communicated by the
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<PAGE> 12
Administrative Agent and the Banks in a letter or agreement executed by the
Administrative Agent or by telex or facsimile transmission from the
Administrative Agent. The Administrative Agent and the Banks acknowledge that
the provisions of the Lockheed Martin Credit Agreement incorporated by reference
in this Guarantee pursuant to Sections 9 and 10 hereunder may be amended from
time to time in accordance with the terms of the Lockheed Martin Credit
Agreement, without any action or approval of the Banks (except to the extent
that the provisions of the Lockheed Martin Credit Agreement incorporated by
reference pursuant to Section 10 hereunder survive any termination,
cancellation, discharge or replacement of the Lockheed Martin Credit Agreement).
(b) Neither the Administrative Agent nor any Bank shall by any act
(except by a written instrument pursuant to paragraph 16(a) hereof), delay,
indulgence, omission or otherwise be deemed to have waived any right or remedy
hereunder or to have acquiesced in any Default or Event of Default or in any
breach of any of the terms and conditions hereof. No failure to exercise, nor
any delay in exercising, on the part of the Administrative Agent or any Bank,
any right, power or privilege hereunder shall operate as a waiver thereof. No
single or partial exercise of any right, power or privilege hereunder shall
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege. A waiver by the Administrative Agent or any Bank of
any right or remedy hereunder on any one occasion shall not be construed as a
bar to any right or remedy which the Administrative Agent or such Bank would
otherwise have on any future occasion.
(c) The rights and remedies herein provided are cumulative, may be
exercised singly or concurrently and are not exclusive of any other rights or
remedies provided by law.
17. Section Headings. The section headings used in this Guarantee are
for convenience of reference only and are not to affect the construction hereof
or be taken into consideration in the interpretation hereof.
18. Successors and Assigns. This Guarantee shall be binding upon the
permitted successors and assigns of the Guarantor and shall inure to the benefit
of the Administrative Agent and the Banks and their successors and assigns. The
Guarantor may not transfer or assign any of its rights or obligations under this
Guarantee without the written consent of each Bank, except in accordance with
Sections 5.04 and 5.07 of the Lockheed Martin Credit Agreement as incorporated
by reference pursuant to Section 10, it being acknowledged that any such
successor shall assume all of the obligations of the Guarantor under the
Lockheed Martin Credit Agreement and this Guarantee. Any Person so assuming such
obligations shall deliver to the Banks legal opinions, incumbency certificates
and resolutions comparable to those delivered in connection with this Guarantee
-12-
<PAGE> 13
and shall make representations and warranties to the Banks comparable to those
set forth in Section 9.
19. Governing Law. This Guarantee shall be governed by, and construed
and interpreted in accordance with, the law of the State of New York.
20. Submission To Jurisdiction; Waivers. The Guarantor hereby
irrevocably and unconditionally:
(a) submits for itself and its property in any legal action or
proceeding relating to this Guarantee and the other Loan Documents to which it
is a party, or for recognition and enforcement of any judgement in respect
thereof, to the non-exclusive general jurisdiction of the Courts of the State of
New York, the courts of the United States of America for the Southern District
of New York, and appellate courts from any thereof;
(b) consents that any such action or proceeding may be brought in
such courts and waives any objection that it may now or hereafter have to the
venue of any such action or proceeding in any such court or that such action or
proceeding was brought in an inconvenient court and agrees not to plead or claim
the same;
(c) agrees that service of process in any such action or proceeding
may be effected by mailing a copy thereof by registered or certified mail (or
any substantially similar form of mail), postage prepaid, to the Guarantor at
its address set forth under its signature below or at such other address of
which the Administrative Agent shall have been notified pursuant thereto;
(d) agrees that nothing herein shall affect the right to effect
service of process in any other manner permitted by law or shall limit the right
to sue in any other jurisdiction; and
(e) waives, to the maximum extent not prohibited by law, any right
it may have to claim or recover in any legal action or proceeding referred to in
this subsection any special, exemplary, punitive or consequential damages.
21. Acknowledgements. The Guarantor hereby acknowledges that:
(a) it has been advised by counsel in the negotiation, execution
and delivery of this Guarantee;
(b) neither the Administrative Agent nor any Bank has any fiduciary
relationship with or duty to the Guarantor arising out of or in connection with
this Guarantee or any of the other Loan Documents, and the relationship between
Administrative Agent and Banks, on one hand, and the Guarantor, on the other
-13-
<PAGE> 14
hand, in connection herewith or therewith is solely that of debtor and creditor;
and
(c) no joint venture is created hereby or by the other Loan
Documents or otherwise exists by virtue of the transactions contemplated hereby
among the Lenders or among the Guarantor and the Lenders.
22. WAIVERS OF JURY TRIAL. THE GUARANTOR, THE ADMINISTRATIVE AGENT AND
THE BANKS HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY
LEGAL ACTION OR PROCEEDING RELATING TO THIS GUARANTEE AND FOR ANY COUNTERCLAIM
THEREIN.
IN WITNESS WHEREOF, the undersigned has caused this Guarantee to be
duly executed and delivered by its duly authorized officer as of the day and
year first above written.
LOCKHEED MARTIN CORPORATION
By: /s/Walter E. Skowronski
----------------------------------
Title:
Walter E. Skowronski
Vice President and Treasurer
Address for Notices:
Lockheed Martin Corporation
6801 Rockledge Drive
Bethesda, Maryland 20817
Attention: Vice President and Treasurer
Fax: 301-897-6651
with a copy to:
Lockheed Martin Corporation
6801 Rockledge Drive
Bethesda, Maryland 20817
Attention: Vice President and General
Counsel
Fax: 301-897-6333
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<PAGE> 1
EXHIBIT 21
LORAL SPACE & COMMUNICATIONS LTD.
As of May 31, 1996, active subsidiaries, all 100% owned directly or
indirectly (except as noted below) consist of the following:
<TABLE>
<CAPTION>
STATE OR COUNTRY
OF INCORPORATION
----------------
<S> <C>
Loral SpaceCom Corporation ............................... Delaware
Loral General Partner, Inc. ............................ Delaware
Loral Travel Services, Inc. ............................ Delaware
Globalstar, L.P.(1) ...................................... Delaware
Globalstar Telecommunications Limited(2) ................. Bermuda
LGP (Bermuda) Ltd. ....................................... Bermuda
LQ Licensee, Inc.(3) ..................................... Delaware
Loral SpaceCom DBS Holdings, Inc. ........................ Delaware
R/L DBS Company L.L.C.(4) .............................. Delaware
Loral SpaceCom DBS, Inc. ............................... Delaware
Continental Satellite Corporation(5) ................. California
SS/L (Bermuda) Ltd. ...................................... Bermuda
K&F Industries, Inc.(6) ................................ Delaware
Space Systems/Loral, Inc.(3) ........................... Delaware
International Space Technology, Inc.(7) .............. Delaware
Cosmotech(7) ....................................... Russian Federation
SS/L Export Corporation(3) ........................... U.S. Virgin Islands
</TABLE>
(1) Only 33.6% owned directly or indirectly
(2) Only 22% owned directly or indirectly
(3) Only 51% owned directly or indirectly
(4) Only 50% owned directly or indirectly
(5) Only 86% owned directly or indirectly
(6) Only 22.5% owned directly or indirectly
(7) Only 22.9% owned directly or indirectly
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF LORAL COMMUNICATIONS, LTD. FOR THE YEAR ENDED MARCH 31,
1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 12
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 12
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 12
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 12
<TOTAL-LIABILITY-AND-EQUITY> 12
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
