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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
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DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): JUNE 9, 1998
LORAL SPACE & COMMUNICATIONS LTD.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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ISLANDS OF BERMUDA 1-14180 13-3867424
(STATE OR OTHER (COMMISSION (IRS EMPLOYER
JURISDICTION OF FILE NUMBER) IDENTIFICATION
INCORPORATION) NUMBER)
600 THIRD AVENUE, NEW YORK, NEW YORK 10016
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
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REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 697-1105
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ITEM 5. OTHER EVENTS.
On February 15, 1996, a Chinese Long March rocket carrying an Intelsat
satellite built by Space Systems/Loral Inc. ("SS/L") crashed seconds after
launch. Thereafter, at the request of insurance companies concerned about
underwriting future Long March launches, the manufacturer of the Long March,
China Great Wall Industries Corporation ("CGWIC"), asked SS/L employees and
personnel from other interested companies to serve on a committee formed to
consider whether studies of the crash made by the Chinese had correctly
identified the cause of the failure. In meetings with CGWIC, the committee
reviewed CGWIG's launch failure analysis, which consisted of a preliminary
explanation for the crash (a failed solder joint) and CGWIC's plan for further
studies it planned to make.
In May 1996, an SS/L employee transmitted a copy of the committee's
preliminary report to the members of the committee and, contrary to the
intentions of SS/L's management, to CGWIC before consulting with the U.S. State
Department. Upon becoming apprised of the facts, SS/L immediately informed the
State Department, and thereafter submitted a detailed voluntary written
disclosure to the State Department that included copies of the written materials
provided to CGWIC and descriptions of the committee's meetings with the Chinese
and of the events surrounding disclosure of the preliminary report. For the next
18 months, Loral had no notice of any adverse action being taken or contemplated
in connection with the matter.
A grand jury convened by the U.S. Attorney for the District of Columbia is
investigating whether an unlawful transfer of technology occurred in connection
with the committee's work. Loral and several of its employees have received
subpoenas from that grand jury. SS/L is not in a position to predict the outcome
of this investigation. If SS/L were to be indicted and convicted of a criminal
violation of the Arms Export Control Act, it would be subject to a fine of $1
million for each violation, and could be debarred from certain export privileges
and, possibly, from participation in government contracts. Since many of SS/L's
satellites are built for foreign customers and/or launched on foreign rockets,
such a debarment would have a material adverse effect on SS/L's business, which
is important to Loral. Indictment for such violations would subject SS/L to
discretionary debarment from further export licenses. Whether or not SS/L is
indicted or convicted, SS/L will remain subject to the State Department's
general statutory authority to prohibit exports of satellites and related
services if it finds a violation of the Arms Export Control Act that puts the
exporter's reliability in question, and it can suspend export privileges
whenever it determines that grounds for debarment exist and that such suspension
"is reasonably necessary to protect world peace or the security or foreign
policy of the United States."
As far as SS/L can determine, no sensitive information or technology was
conveyed to the Chinese, and no secret or classified information was discussed
with, or reported to, them. SS/L believes that its employees acted openly and in
good faith and that none engaged in intentional misconduct. Accordingly, Loral
does not believe that SS/L has committed a criminal violation of the export
control laws. Loral does not expect the grand jury investigation or its outcome
to result in a material adverse effect upon its business. However, especially in
view of the early stage of the proceedings, there can be no assurance as to
those conclusions.
In May of 1997, SS/L applied for an export license for the launch of
another SS/L satellite in China, which was granted following the required
Presidential waiver in February 1998. Loral believes that the authorizations
were properly granted, and does not believe that it or any of its officers acted
improperly in obtaining them. The policy of the Bush administration, which has
been continued under President Clinton, has been to grant such waivers routinely
as being in the national interest; indeed, Loral is unaware of any requested
waiver for a Chinese satellite launch ever having been denied. According to
press reports, President Bush signed three waivers covering nine Long March
launches, and President Clinton has signed eight waivers covering 11 Long March
launches. This policy has, until recently, also enjoyed bipartisan Congressional
support.
On May 21, 1998, the House of Representatives passed a bill which, if
passed by the Senate and enacted into law, would prohibit exports of satellites
of U.S. origin to the People's Republic of China, whether or not an export
license had theretofore been obtained. The United States Senate has not acted on
this bill. If enacted into law, these provisions would prohibit further launches
of U.S.-made satellites, including those manufactured by SS/L, on the Long March
rocket. SS/L is under contract to build one satellite which is to
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be launched on a Long March rocket, for which SS/L currently holds an export
license. As of May 31, 1998, SS/L has expended $63.6 million on the satellite,
of which $48.9 million has been used to acquire parts that could be applied to
other satellite programs if this program is canceled. In addition, SS/L has
expended $48.7 million in connection with the launcher. If the House bill or
similar legislation is enacted, or if SS/L's export license is revoked
administratively, the satellite's buyers may be entitled to terminate this
contract for cause, and required SS/L to refund approximately $119 million as of
May 31, 1998. In such an event, SS/L would attempt to resell the satellite and
launcher to other parties and/or use some or all of the parts on other programs.
Such resales or reuse would be likely result in a loss to SS/L, which could be
substantial, and the amount of which would be affected by a number of factors
beyond the control of Loral, including the date on which the program is
terminated and how long any embargo on Chinese launchers would last, as well as
market conditions for satelites and launchers. Loss of Long March availability
would disable all U.S. satellite manufacturers, including SS/L, from competing
for satellite contract awards from customers who, for political or economic
reasons, desire such launches and would benefit foreign satellite manufacturers
at the expense of Loral and other domestic manufacturers.
Several Congressional committees have held hearings or announced plans to
hold herings on these matters, and Loral cannot predict what, if any,
legislation will result from these hearings, although they could result in
passage of the house bill described above or other action that could adversely
affect the Loral's business.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed by the undersigned hereunto
duly authorized.
LORAL SPACE & COMMUNICATIONS LTD.
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(Registrant)
Date: June 9, 1998 by /s/ ERIC J. ZAHLER
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Senior Vice President, General
Counsel and Secretary
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