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LORAL SPACE & COMMUNICATIONS LTD.
Exchange Offer for
$350,000,000
9 1/2% Senior Notes Due 2006
This is an offer to exchange the outstanding, unregistered 9 1/2% Senior
Notes you now hold for new, substantially identical 9 1/2% Senior Notes that
will be free of the transfer restrictions that apply to the old notes. This
offer will expire at 5:00 p.m., New York City time, on May 17, 1999, unless we
extend it. You must tender your old, unregistered notes by the deadline to
obtain new, registered notes and the liquidity benefits they offer.
We agreed with the initial purchasers of the old notes to make this offer
and register the issuance of the new notes following the closing. This offer
applies to any and all old notes tendered by the deadline.
The new notes will not trade on any established exchange. The new notes
have the same financial terms and covenants as the old notes, and are subject to
the same business and financial risks.
A DESCRIPTION OF THOSE RISKS BEGINS ON PAGE 10.
NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR
DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
April 15, 1999
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TABLE OF CONTENTS
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PAGE
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Prospectus Summary.......................................... 1
Risk Factors................................................ 10
Use of Proceeds............................................. 21
Capitalization.............................................. 22
Business.................................................... 23
The Exchange Offer.......................................... 26
Description of the Notes.................................... 40
Book-Entry; Delivery and Form............................... 89
Description of Other Indebtedness........................... 91
Material United States Federal Income Tax Consequences...... 95
Plan of Distribution........................................ 99
Incorporation of Material Documents by Reference............ 101
Where You Can Find More Information......................... 101
Legal Matters............................................... 102
Experts..................................................... 102
</TABLE>
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PROSPECTUS SUMMARY
This summary highlights selected information from this prospectus, but does
not contain all information that may be important to you. We encourage you to
read the entire prospectus.
ABOUT LORAL
We are one of the world's leading satellite communications companies, with
substantial activities in satellite manufacturing and satellite-based
communications services.
In 1998, we organized into four operating business segments:
- Satellite Manufacturing and Technology. We design and build satellite
systems and develop satellite technology for a broad variety of customers and
applications through our subsidiary, Space Systems/Loral.
- Fixed Satellite Services. We lease transmission capacity on satellites
and provide additional services to customers for a variety of applications,
including the distribution of broadcast, data, cable, direct-to-home and
Internet applications. We offer one-stop convenience for our customers through
the Loral Global Alliance, a network managed by our subsidiary Loral Skynet and
that includes Loral Skynet's Telstar fleet and Loral Orion's satellites along
with those of our 49% owned affiliate, Satelites Mexicanos, and in the future,
those of Europe*Star, a joint venture with Alcatel, in which we own a 47%
interest.
- Data Services. Our business in development, we provide managed
communications networks and Internet and intranet services through our
subsidiary, Loral Orion, and deliver high-speed broadband data communications
through our 82% owned subsidiary, CyberStar.
- Global Mobile Telephony. Our 43% owned affiliate, Globalstar, is
preparing to provide worldwide wireless mobile telephone service and narrow-
band data communication commencing in September 1999.
Loral was incorporated on January 12, 1996 as a Bermuda exempt company and
has its registered and principal executive offices at Cedar House, 41 Cedar
Avenue, Hamilton HM12, Bermuda. The executive office of Loral Spacecom
Corporation, our principal U.S. subsidiary, is located at 600 Third Avenue, New
York, New York 10016, and its telephone number is (212) 697-1105.
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THE EXCHANGE OFFER
The Exchange Offer.............. This is an offer to exchange our
unregistered 9 1/2% senior notes due 2006
that you now hold for new notes of equal
principal amount whose issuance has been
registered with the SEC. The old notes were
issued on January 21, 1999 in a private
offering.
In order to exchange your unregistered
notes, you must follow the instructions
contained in this prospectus and the
accompanying letter of transmittal.
The new notes have the same financial terms
and covenants as the old notes, and are
subject to the same business and financial
risks, but will not bear legends restricting
their transfer.
Expiration and Exchange Dates... This offer will expire at 5:00 p.m., New
York City time, on May 17, 1999, unless we
extend it, and we will consummate the
exchange on the next business day.
Conditions of the Exchange
Offer........................ This offer is unconditional, as long as it
does not violate the securities laws. The
offer applies to any and all old notes
tendered by the deadline.
Withdrawal Rights............... You may withdraw your tender of old notes
at any time before the offer expires.
Federal Income Tax
Consequences................. The exchange will not be a taxable event for
U.S. federal income tax purposes or for
Bermuda tax purposes. You will not recognize
any taxable gain or loss or any interest
income as a result of this exchange.
Representations................. If you desire to participate in the exchange
offer, you will be required to make the
following representations:
- You are not one of our "affiliates";
- You are not engaged in, do not intend to
engage in, and have no arrangement or
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understanding with any person to
participate in, a distribution of the new
notes; and
- You are acquiring the new notes in the
ordinary course of your business.
Transfer Restrictions on New
Notes........................ If you can make the above representations,
you should be able to resell your new notes
freely without having to deliver a copy of
this prospectus to the purchaser. Otherwise,
prospectus delivery requirements under the
securities laws may apply, and we will not
be responsible if you violate those
requirements.
Broker-dealers who exchange old notes they
acquired for their own account through
market-making or other trading activities
must agree to deliver a copy of this
prospectus in connection with any resale of
the new notes.
Failure to Exchange Will Affect
You Adversely................ We agreed with the initial purchasers of the
old notes to make this exchange offer in
order to provide noteholders with the
opportunity to obtain registered securities.
Once the exchange offer is over, you will no
longer have any registration or exchange
rights, and, if you have failed to tender
any of your old notes, the untendered notes
will remain subject to significant
restrictions on transfer. If there is any
trading market for old notes after the
exchange offer, old notes are likely to
trade at a discount from the new notes, due
to these restrictions.
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THE NEW NOTES
Issuer.......................... Loral Space & Communications Ltd.
Maturity........................ January 15, 2006.
Interest........................ Interest accrues from January 21, 1999 at
the rate of 9 1/2% per year, payable semi-
annually in arrears on each January 15 and
July 15, beginning on July 15, 1999.
Ranking......................... The new notes will be unsecured and will
not be guaranteed by us or any of our
operating subsidiaries. As such, they will
be:
- equal in right of payment with any future
senior indebtedness we incur;
- senior in right of payment to any of our
future debt which is junior in right of
payment by its terms to senior Loral
indebtedness; and
- effectively junior in right of payment to
all indebtedness and liabilities
(including trade payables) of our
subsidiaries and future secured
indebtedness at the Loral level.
Optional Redemption............. From and after January 15, 2003, we will
have the right to redeem any or all of the
new notes at their principal amount plus
accrued interest and a premium, initially
equal to 4.75% and declining thereafter.
In addition, prior to January 15, 2002, we
have the right to use the net cash proceeds
of certain kinds of equity offerings to
redeem up to 35% of the new notes originally
outstanding at their principal amount plus
accrued interest and a premium of 9.5%.
Change of Control............... If an event treated as a change of control
under the indenture occurs, we must make an
offer to purchase any and all of the new
notes then outstanding at 101% of their
aggregate principal amount, plus accrued and
unpaid interest, if any, to the date of
purchase.
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Covenants....................... The indenture under which the old notes
have been and the new notes are being issued
contains covenants which, subject to
numerous and significant exceptions,
restrict our ability and the ability of our
subsidiaries to:
- borrow money;
- pay dividends on stock or purchase stock;
- make investments;
- use assets as security in other
transactions; and
- sell certain assets or merge with or into
other companies.
The indenture allows modification and
amendment of these and other covenants by a
vote of holders of a majority in aggregate
principal amount of the notes, subject to
certain exceptions described in the
indenture. Also, holders of a majority in
aggregate principal amount of the notes may
waive our compliance with certain other
restrictive covenants in the indenture.
No Withholding Tax Expected;
Special Tax Redemption....... We expect to make payments with respect
to the new notes without any tax
withholding. If withholding is required as a
result of a change to current law or policy,
we will generally pay enough additional
interest so that the net amount received by
the affected noteholders will not be
reduced. If that occurs, however, we will
have the right to redeem the affected notes
at 100% of their principal amount plus
accrued interest.
Mandatory Offer to Repurchase... If we sell certain assets or experience
certain kinds of changes in control, we must
offer to repurchase the new notes at the
prices listed in this prospectus under the
heading "Description of the
Notes -- Mandatory Redemption."
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For additional information regarding the notes, see "Description of the
Notes" and "Material United States Federal Income Tax Consequences."
RISK FACTORS
See "Risk Factors" immediately following this summary beginning on page 10
for a discussion of risks relating to the new notes, all of which apply to the
old notes as well.
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SELECTED FINANCIAL DATA
The following summary historical financial information of Loral has been
derived from, and should be read in conjunction with, the related financial
statements and other financial information incorporated by reference herein.
Financial information as of and for the years ended March 31, 1996 and 1995
represents the space and communications operations of Loral Corporation and has
been derived from financial statements not included or otherwise incorporated by
reference in this prospectus. On March 20, 1998, Loral acquired all of the
outstanding stock of Loral Orion in exchange for Loral common stock. The 1998
financial information includes Loral Orion from April 1, 1998. In 1997, Loral
increased its ownership in SS/L to 100% and, accordingly, the 1997 financial
information includes the results of SS/L. In prior years SS/L was accounted for
under the equity method of accounting. On March 14, 1997, Loral acquired Loral
Skynet from AT&T; Loral's financial information includes the results of Loral
Skynet from that date.
LORAL SPACE & COMMUNICATIONS LTD.
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND RATIOS)
<TABLE>
<CAPTION>
YEARS ENDED NINE MONTHS YEARS ENDED
DECEMBER 31, ENDED MARCH 31,(1)
------------------------- DECEMBER 31, -------------------
1998 1997 1996 1996 1995
---------- ------------ ------------ -------- --------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues................................................ $1,301,702 $1,312,591
Management fee from affiliate........................... $ 5,088 $ 5,608 $ 3,169
Operating income (loss)................................. (33,780) 13,552 (12,201) 2,587 (33)
Equity in net loss of affiliates(2)..................... (120,417) (49,037) (4,709) (8,628) (8,988)
Net income (loss)....................................... (138,798) 40,004 8,877 (13,785) (7,873)
Preferred dividends and accretion(3).................... (46,425) (26,315)
Net income (loss) applicable to common stockholders..... (185,223) 13,689 8,877 (13,785) (7,873)
Earnings (loss) per share -- basic and diluted.......... (.68) .06 .04 (.08) N/A
CASH FLOW DATA:
Provided by (used in) operating activities.............. $ 4,417 $ (230,248) $ (3,003) $ (1,319) $ (8,439)
Used in investing activities............................ 473,235 1,022,772 1,962 115,031 92,055
Provided by (used in) equity transactions............... 589,187 (18,097) 602,413 116,362 100,494
Provided by financing transactions...................... 199,856 316,912 583,292
Dividends paid per common share......................... N/A N/A
OTHER DATA:
EBITDA for operating segments before development and
start-up costs and affiliate and intercompany
eliminations(4)....................................... $ 233,027 $ 135,825 $ 66,103
EBITDA(4)............................................... 101,249 76,316 (11,150)
Depreciation and amortization........................... 135,029 62,764 1,051
Capital expenditures.................................... 489,448 255,340 (540)
Ratio of earnings to fixed charges...................... 1.9x 3.7x
Deficiency of earnings to cover fixed charges........... 140,438
</TABLE>
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<TABLE>
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DECEMBER 31, MARCH 31,(1)
-------------------------------------- --------------------
1998 1997 1996 1996 1995
---------- ---------- ---------- -------- --------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents...................... $ 546,772 $ 226,547 $1,180,752 $ 12
Total assets................................... 5,229,215 3,010,447 1,699,326 354,396 $251,819
Recourse debt(5)............................... 622,280 435,398
Non-recourse debt of Loral Orion............... 933,495
Total debt..................................... 1,555,775 435,398
Non-current liabilities........................ 236,160 221,211 26,834
Convertible preferreds(3)...................... 583,292
Shareholders' equity(6)/Invested equity........ 2,935,721 1,980,520 1,070,069 354,396 251,819
</TABLE>
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(1) Financial information as of and for the two years in the period ended March
31, 1996 represents the space and communications operations of Loral
Corporation and includes allocations and estimates of certain expenses of
Loral based upon estimates of actual services performed by Loral Corporation
on behalf of Loral. Interest expense was allocated to Loral based on Loral
Corporation's historical weighted average interest rate applied to the
average investment in affiliates.
(2) Loral's principal affiliates are Globalstar, Satelites Mexicanos ("SatMex")
since November 17, 1997 and Europe*Star since December 1998. Loral also has
an investment in SkyBridge Limited Partnership which is accounted for under
the equity method. Loral sold its interest in K&F Industries, Inc. in 1997.
(3) Convertible preferred equivalent obligations were exchanged for 6% Series C
Preferred Stock and were reclassified to shareholders' equity in 1997 upon
approval by Loral's shareholders.
(4) Earnings before interest, taxes, depreciation and amortization ("EBITDA"),
which is equivalent to operating income (loss) before depreciation and
amortization, is provided because it is a measure commonly used in the
communications industry to analyze companies on the basis of operating
performance, leverage and liquidity and is presented to enhance the
understanding of Loral's operating results. However, EBITDA should not be
construed as an alternative to net income as an indicator of a company's
operating performance, or cash flow from operations as a measure of a
company's liquidity. EBITDA may be calculated differently and, therefore,
may not be comparable to similarly titled measures reported by other
companies and may not be the same as "Consolidated Cash Flow" as defined in
the indenture. EBITDA for operating segments before development and start-up
costs and affiliate and intercompany eliminations includes EBITDA for
Loral's affiliates SatMex and Europe*Star, and excludes CyberStar's
development costs. See Note 15 of Loral's 1998 consolidated financial
statements incorporated by reference herein.
(5) Includes the debt of Loral SpaceCom Corporation and its subsidiaries.
(6) As of December 31, 1998, the book value per share of the Series A Preferred
Stock and the common stock (which Loral is required to disclose herein in
accordance with applicable Bermuda law) was $7.57 and $7.56, respectively.
Book value per share represents the quotient obtained by dividing
shareholders' equity, reduced by the Series C Preferred Stock redemption
value, by the number of outstanding shares of common stock, giving effect to
the conversion of the Series A Preferred Stock, plus, in the case of such
preferred stock, the $.01 liquidation preference thereof.
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UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma statement of operations data reflects the
acquisition of Loral Orion on March 20, 1998, as if the acquisition had occurred
on January 1, 1998. Such unaudited pro forma statement of operations data may
not be indicative of the results that actually would have occurred if the
acquisition had taken place on January 1, 1998, or future results. This
unaudited pro forma information has been derived from and should be read in
conjunction with Loral's audited consolidated financial statements, which are
incorporated by reference herein.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1998
------------------------
ACTUAL PRO FORMA
---------- ----------
(IN THOUSANDS EXCEPT PER
SHARE AMOUNTS)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.................................................... $1,301,702 $1,320,492
Operating loss.............................................. (33,780) (48,929)
Equity in net loss of affiliates............................ (120,417) (120,417)
Net loss.................................................... (138,798) (162,644)
Preferred dividends and accretion........................... (46,425) (46,425)
Net loss applicable to common shareholders.................. (185,223) (209,069)
Loss per share -- basic and diluted......................... (.68) (.75)
</TABLE>
The following unaudited as adjusted balance sheet data presents the effects
of the offering of the old notes and Loral's purchase of $150 million face
amount of convertible preferred stock of Globalstar Telecommunications Limited,
which occurred in January 1999, as if such transactions had occurred as of
December 31, 1998.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1998
-------------------------
ACTUAL AS ADJUSTED
---------- -----------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 546,772 $ 743,772
Total assets................................................ 5,229,215 5,572,215
Investments in affiliates................................... 707,917 853,917
Recourse debt(1)............................................ 622,280 965,280
Non-recourse debt of Orion.................................. 933,495 933,495
Total debt.................................................. 1,555,775 1,898,775
Shareholders' equity........................................ 2,935,721 2,935,721
</TABLE>
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(1) Includes the debt of Loral SpaceCom Corporation and its subsidiaries.
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RISK FACTORS
The new notes, like the old notes, entail the following risks:
LAUNCH FAILURES HAVE DELAYED SOME OF OUR OPERATIONS IN THE PAST, AND MAY DO SO
AGAIN IN THE FUTURE.
Satellite launches are risky. About 15% of launch attempts end in failure.
We ordinarily insure against launch failures, but at considerable cost. The cost
and the availability of insurance vary depending on market conditions and the
launch vehicle used. Our insurance typically does not cover business
interruption, and so both launch failures and in-orbit satellite failures result
in uninsured losses. Replacement of a lost satellite typically requires up to 18
months from the time a contract is executed until the launch date of the
replacement satellite.
- LORAL ORION. Orion 3 is scheduled to be launched on the second flight
of a Delta 3 rocket in April 1999. A Delta 3 rocket failed in August 1998
on its maiden flight. Although the manufacturer has assured us that the
cause of that failure has been identified and corrected, we can't be
certain that the second flight will succeed.
The launch of Orion 3, originally scheduled for April 5, 1999, was
delayed due to a malfunction in the Air Force's ground equipment at Cape
Canaveral. We expect that the launch will be rescheduled later in the
month. If Orion 3 is not launched by May 31, 1999, or if the related
transponders are not ready for operation by June 30, 1999, DACOM will
have the right to terminate its agreement to buy eight Orion 3
transponders for $89 million. In the event of such a termination, Loral
Orion would have to refund to DACOM amounts received to date ($35.5
million as of December 31, 1998) and those eight transponders would then
be available for lease to others.
- LORAL SKYNET. Loral Skynet's Telestar 7 is currently scheduled to be
launched on the maiden flight of an Atlas IIIA. We cannot be certain that
the maiden flight will succeed.
- GLOBALSTAR. As of April 15, 1999, Globalstar needs to launch 12 more
satellites aboard four launch vehicles before commercial operations can
begin. Although Globalstar has contracted for the necessary launch
vehicles and developed contingency plans, launch failures could delay
Globalstar's start of commercial operations. In September 1998, a
malfunction of a Zenit 2 rocket resulted in the loss of 12 Globalstar
satellites shortly after lift-off from Kazakhstan and resulted in a delay
in Globalstar's program schedule.
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GOVERNMENT POLICIES AND REGULATIONS MAY LIMIT OR DELAY LAUNCHES AND/OR INCREASE
LAUNCH-RELATED COSTS.
We depend on third parties, in the United States and abroad, to launch our
satellites. Foreign launches have been politically sensitive because of the
relationship between launch technology and missile technology. In the U.S.,
government policy has limited, and is likely in the future to limit, launches
from the former Soviet Union and China. For example, the most recent Globalstar
launch from Kazakhstan was delayed when the U.S. government stopped granting
case-by-case approval of launches from that location pending an
intergovernmental agreement covering technology security matters. Changes in
governmental policies, political leadership or legislation in the United States,
Russia, Kazakhstan or China could adversely affect our ability to launch from
these countries or materially increase the costs of doing so.
AFTER LAUNCH, OUR SATELLITES REMAIN VULNERABLE TO IN-ORBIT FAILURE.
Random failure of satellite components may result in damage to or loss of a
satellite before the end of its expected life. Satellites are carefully built
and tested and have certain redundant systems in case of failure. However,
in-orbit failure may result from various causes including:
- component failure;
- loss of power or fuel;
- inability to control positioning of the satellite;
- solar and other astronomical events; and
- space debris.
Repair of satellites in space is not feasible. Many factors affect the useful
lives of our satellites. These factors include:
- the quality of construction;
- gradual degradation of solar panels; and
- the durability of components.
Although some failures may be covered in part by insurance, they may result in
uninsured losses as well. For example, when Skynet experienced the total loss of
two satellites in 1994 and 1997 while under AT&T's ownership, it suffered a
substantial drop in its profits.
Our geosynchronous satellites generally have an expected life of between 15
to 20 years. Some of the satellites we currently have in orbit have experienced
operational problems:
- In November 1995, a component on Orion 1 malfunctioned, resulting in a
two-hour service interruption. Full service was restored using a back-
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up component. If the back-up component fails, Orion 1 would lose a
significant amount of usable capacity.
- SatMex's Solidaridad 1 satellite has experienced problems and mechanical
difficulties that could shorten its operational life.
GLOBALSTAR SATELLITES HAVE A SHORTER DESIGN LIFE AND GLOBALSTAR MAY NOT BE ABLE
TO REPLACE ITS SATELLITES AT THE END OF THEIR USEFUL LIVES.
Globalstar's satellites have a minimum life-span of seven and one-half
years. Globalstar plans to use funds from operations and possibly, proceeds from
additional financings, to deploy a second generation of satellites to replace
its first generation satellite constellation. However, enough money might not be
available when needed, leaving Globalstar without a second-generation
constellation.
SPACESYSTEMS/LORAL MAY FORFEIT PAYMENTS FROM CUSTOMERS DUE TO SATELLITE FAILURES
OR LOSSES AFTER LAUNCH, AND THESE LOSSES MAY BE UNINSURED.
Some of Space Systems/Loral's satellite manufacturing contracts provide
that some of the total price is payable as "incentive" payments earned
throughout the life of the satellite. While insurance against loss of these
payments has been available in the past, the cost and availability of such
insurance are subject to wide fluctuations. In addition, Space Systems/Loral is
sometimes prohibited from insuring orbital incentive payments. Some of Space
Systems/Loral's contracts call for in-orbit delivery, transferring the launch
risk to Space Systems/Loral. Space Systems/Loral generally insures against this
exposure.
Space Systems/Loral records as revenue the present value of incentive
payments as the costs associated with these incentive payments are incurred.
Space Systems/Loral generally receives the present value of these incentive
payments if there is a launch failure or a failure is caused by customer error.
However, Space Systems/Loral forfeits these payments if the loss is caused by
satellite failure or as a result of its own error. For example, in 1998, a
satellite built by Space Systems/Loral experienced problems with two of its
antennae. Space Systems/Loral currently estimates that this degradation could
result in the loss of about 25% of the incentive payments under that contract.
Further warranty claims by the customer may also be possible.
WE ARE A HOLDING COMPANY WITH SUBSTANTIAL DEBT AND COMMITMENTS AT OUR OPERATING
LEVELS AND THIS FACT INCREASES THE RISK OF NONPAYMENT OF THE NOTES.
We and our subsidiaries and operating affiliates have a significant amount
of outstanding debt and commitments, including those described below. This fact
creates a risk that the holders of the notes will not be paid on time or at
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all if we do not have sufficient funds to repay our debts. Since we are only a
holding company, we depend on the ability of our operating subsidiaries and
affiliates to provide us with the necessary funds to repay our debt obligations.
However, our operating subsidiaries and affiliates are obligated to repay their
own creditors before any of their funds can be dividended up to us for the
repayment of our obligations to you or to our other creditors. The notes,
therefore, are junior in right of repayment to all of the debt of our
subsidiaries and affiliates by virtue of our corporate structure.
- As of December 31, 1998, our outstanding consolidated debt, including the
current portion, was $1.6 billion, all of which represents obligations of
our subsidiaries to their creditors. In addition, we issued $350 million
of the notes in January 1999.
- As of December 31, 1998, our unconsolidated affiliates, SatMex and
Globalstar, had outstanding debt, including the current portion, of $2.0
billion, and Globalstar had vendor financing of $371 million, both which
are also senior to the notes by virtue of our structure.
- We have a $115 million secured standby bank credit facility, which was
undrawn as of December 31, 1998, supporting a guarantee of a $115 million
term loan.
- Space Systems/Loral has guaranteed $11.7 million under Globalstar's $250
million credit facility. In addition, we have a contingent liability of
up to $56 million to Lockheed Martin Corporation under its guarantee of
the Globalstar credit facility.
- We have agreed to maintain certain assets in a trust to collateralize a
$129.9 million obligation of Servicios Corporativos Satelitales, S.A. de
C.V., in which we have a 65% economic interest. This obligation has a
seven-year term and bears interest at 6.03%.
We are allowed to incur substantial additional debt. This debt would be
repaid on a proportional basis with the notes and therefore your risk of non-
reimbursement would increase. Further, if we granted a security interest in any
of our assets against any newly-incurred debt, the new debt would have priority
of repayment over the notes, to the extent of the value of the assets granted as
collateral, in a liquidation scenario.
The ability of our subsidiaries and affiliates to pay dividends to us or
otherwise support our obligations is limited by the terms of our debt
instruments. We intend to use our available cash to help pay for the growth and
operation of our businesses. If any of our subsidiaries or affiliates finds
itself faced with an imminent payment default, we might be faced with a choice
between making additional equity investments in a troubled company or accepting
the loss of some or all of our equity investment.
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IF OUR BUSINESS PLAN DOES NOT SUCCEED, OUR OPERATIONS MIGHT NOT GENERATE ENOUGH
CASH TO PAY OUR OBLIGATIONS, INCLUDING THE NOTES.
For the year ended December 31, 1998, we had a deficiency of earnings to
cover fixed charges of $140 million, before taking into account the $350 million
of notes we issued in January 1999. Our core businesses are capital intensive
and need substantial investment before returns on investment can be realized. We
are subject to substantial financial risks from possible delays or reductions in
revenue, unforeseen capital needs or unforeseen expenses. Our ability to meet
our obligations and execute our business plan could depend upon our ability and
that of our operating subsidiaries and affiliates to raise cash in the capital
markets. We can't be certain that this source of cash would be available in the
future on favorable terms, if at all.
Our ability to satisfy our obligations will depend upon our future
financial performance which is subject to:
- the successful execution of our business plan and those of our
affiliates;
- general economic conditions; and
- financial, business, regulatory and other factors, including
international conditions.
These factors are to some extent beyond our control, and as a result, we
cannot guarantee that we will be able to repay or refinance the notes or our
other indebtedness at their maturity.
WE CURRENTLY DEPEND HEAVILY ON SPACE SYSTEMS/LORAL FOR A LARGE PORTION OF OUR
REVENUE AND OPERATING INCOME.
Currently, Space Systems/Loral generates a significant part of our revenue
and operating income. Space Systems/Loral, in turn, has historically derived a
large part of its revenues from a few customers. As a result, its revenues and
operating results would be hurt if completed or canceled contracts are not
promptly replaced with new orders.
Space Systems/Loral's accounting for long-term contracts sometimes requires
adjustments to profit and loss based on revised estimates during the performance
of the contract. These adjustments may have a material effect on our results of
operations in the period they are made. The estimates giving rise to these
risks, which are inherent in long-term, fixed-price contracts, include the
forecasting of costs and schedules, contract revenues related to contract
performance, including revenues from orbital incentives, and the potential for
component obsolescence due to procurements long ahead of assembly.
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<PAGE> 17
GLOBALSTAR IS A DEVELOPMENT STAGE COMPANY THAT HAS NOT BEGUN COMMERCIAL
OPERATIONS.
Until the Globalstar System is fully deployed and tested, we cannot be
certain that it will perform as designed. Even if the system operates as it
should, we can't be certain that the market will develop as we anticipate. The
Globalstar System is still being deployed, and cannot begin commercial
operations until:
- at least 32 satellites are working in orbit;
- the necessary ground equipment and user terminals are in place; and
- the service provider is fully licensed in each country to be served.
The cost of building the Globalstar system has been revised upward from original
estimates, and further increases are possible.
Barring unexpected adverse developments, Globalstar will need approximately
$600 million more in capital before it can begin commercial service in September
1999 as planned. As of December 31, 1998, and including the effect of a
preliminary revision to Qualcomm's cost estimate, Globalstar's budgeted
expenditures were $3.17 billion for the design, construction and deployment of
the Globalstar system to commence commercial service and $340 million for
budgeted financing costs. More money will be needed if Globalstar experiences
delays in beginning commercial service, and in any event, after the commencement
of commercial service and before positive cash flow is achieved. Although
Globalstar believes it will be able to obtain the money it needs, we cannot be
certain that it will be available on favorable terms or on a timely basis, if at
all.
Globalstar depends on independent service providers to supply the ground
equipment and user terminals and market Globalstar service in each country where
they plan to operate. We don't know whether these service providers will be
successful. We expect that Globalstar service providers will operate in more
than 100 countries, many of which have developing economies. Globalstar's
strategy of focusing on areas which lack basic telephone service exposes it to
the risk that customers in these economies will not be able to afford the
service.
THERE ARE RISKS IN CONDUCTING BUSINESS INTERNATIONALLY.
Some of our business is conducted outside the United States, which imposes
more risks. We could be harmed financially and operationally by changes in
foreign regulations and telecommunications standards, tariffs or taxes and other
trade barriers. Customers in developing countries could have difficulties in
obtaining the U.S. dollars they owe us, including as a result of exchange
controls. Additionally, exchange rate fluctuations may adversely affect the
ability of our customers to pay us in U.S. dollars. Moreover, if we ever need to
pursue legal remedies against our foreign business partners or
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<PAGE> 18
customers, we may have to sue them abroad, where it could be hard for us to
enforce our rights.
WE ARE SUBJECT TO EXPORT CONTROLS, WHICH MAY RESULT IN DELAYS, UNFORESEEN
ADDITIONAL COSTS AND UNCERTAINTIES TO SELL IN CERTAIN MARKETS.
Like other exporters of space-related products and services, Space
Systems/Loral needs licenses from the U.S. government whenever it sells a
satellite to a foreign customer or launches a satellite abroad. Satellite export
licensing has lately been politically controversial, resulting in delays of some
approvals, and creating uncertainties about the continuing ability of U.S.
satellite manufacturers to sell in certain markets.
Space Systems/Loral has manufacturing relationships with foreign companies
with regard to a number of its satellite contracts, which have also been
impacted by the recent changes in U.S. export control laws. As a result, Space
Systems/Loral must now obtain licenses from the U.S. Department of State in
order to export certain satellite components to these foreign manufacturers. We
cannot assure you that this licensing process will not result in delays to Space
Systems/Loral's satellite program schedule. If Space Systems/Loral is unable to
deliver its satellites or satellite components on a timely basis, Space
Systems/Loral may incur penalties or lose incentive payments under its
contracts.
On December 23, 1998, the Office of Defense Trade Controls of the U.S.
Department of State temporarily suspended the previously approved technical
assistance agreement under which Space Systems/Loral had been preparing for the
launch of the ChinaSat-8 satellite. According to the agency, the purpose of the
temporary suspension is to permit it to review the agreement for conformity with
newly-enacted legislation (Section 74 of the Arms Export Control Act) as to the
export of missile equipment or technology. This suspension has delayed Space
Systems/Loral's performance of its contractual obligations. If our customer
terminates the ChinaSat-8 contract because of this delay, Space Systems/Loral
will have to refund advances it has received from ChinaSat. These advances
totaled $124 million as of December 31, 1998. In addition, Space Systems/Loral
may incur penalties of up to $12 million upon such termination. Space
Systems/Loral believes that it would cost about $38 million to refurbish and
retrofit the satellite so that it could be sold to another customer. We cannot
guarantee that Space Systems/Loral would find a replacement customer.
The U.S. government recently announced that it will not grant an export
license to Hughes Space & Communications, Inc. for a telecommunications
satellite it is building for Asia Pacific Mobile Telecommunications. We do not
know what this denial may mean for future applications of export licenses to
Chinese customers or the resolution of the ChinaSat-8 suspension. If the U.S.
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<PAGE> 19
government continues to deny export licenses for satellites sold to the Chinese
or other markets, Space Systems/Loral's business could be hurt.
SPACE SYSTEMS/LORAL IS THE TARGET OF A GRAND JURY INVESTIGATION; CONGRESS HAS
HELD RELATED HEARINGS.
Space Systems/Loral could be accused of criminal violations of the export
control laws arising out of the participation of its employees in a committee
formed to review the findings of the Chinese regarding the 1996 crash of a Long
March rocket in China. Whether or not Space Systems/Loral is indicted or
convicted, Space Systems/Loral will remain subject to the State Department's
general statutory authority to prohibit exports of satellites and related
services if it finds that Space Systems/Loral has violated the Arms Export
Control Act. Further, the State Department can suspend export privileges
whenever it determines that grounds for debarment exist and that suspension "is
reasonably necessary to protect world peace or the security or foreign policy of
the United States." If Space Systems/Loral were to be indicted and convicted of
a criminal violation of the Arms Export Control Act, it:
- would be subject to a fine of up to $1 million per violation;
- could be debarred from certain export privileges; and
- could be debarred from participation in government contracts.
Since many of Space Systems/Loral's satellites are built for foreign customers
and/or launched on foreign rockets, a debarment would have a material adverse
effect on Space Systems/Loral's business, which in turn would affect us.
A committee of the U.S. House of Representatives, chaired by Representative
Cox, is investigating U.S. satellite export policy toward China. The committee
recently issued a report which has been declassified in part. The other portions
of the report, which could be issued shortly, could contain negative comments
about Space System/Loral's compliance with the export control laws.
Further, we can't assure you that future licenses for satellites will be
granted in the same manner and time frame, if at all, as in the past after the
State Department takes over the licensing from the Commerce Department in March
1999.
WE SHARE CONTROL OF OUR AFFILIATES WITH THIRD PARTIES.
Third parties have significant ownership, voting and other rights in many
of our subsidiaries and affiliates. As a result, we do not always have full
control over management of these entities and the rights of these third parties
and fiduciary duties under applicable law could result in these entities taking
actions not in our best interests or in refraining to take actions that we deem
advisable.
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To the extent that these entities are or become customers of Space Systems/
Loral, these conflicts could become acute. For example:
- Although we are the managing general partner and largest equity owner of
Globalstar, our control is limited by the supermajority rights of
Globalstar's limited partners.
- Primary operational control of SatMex is vested in Mexican nationals, as
required by Mexican law, subject to certain supermajority rights which we
retain.
- The Europe*Star joint venture, initiated by Alcatel, is under its
control, subject to our supermajority rights.
- Future joint ventures between Alcatel and us within the Loral Global
Alliance will be controlled by the initiating party, subject to
supermajority rights in favor of the non-initiating party.
- Alcatel is an investor in CyberStar, and has supermajority rights in it.
THERE ARE POTENTIAL CONFLICTING COMMERCIAL INTERESTS AMONG OUR SUBSIDIARIES AND
AFFILIATES.
Loral Skynet, SatMex, Loral Orion and Europe*Star have adopted a marketing
policy that provides for collaboration and cross-selling of capacity among the
Loral Global Alliance members. If, however, the members of the Loral Global
Alliance do not collaborate but rather compete in areas of overlapping capacity,
conflicting commercial interests among our subsidiaries and affiliates may
arise. Both Loral Skynet and Loral Orion own or are building satellites whose
coverage areas overlap with those of SatMex and Europe*Star. If Loral Skynet and
Loral Orion do not collaborate with SatMex and Europe*Star, or vice versa, under
the Loral Global Alliance, Loral Skynet and Loral Orion might compete directly
with Europe*Star and SatMex for customers.
Partners and affiliates of Globalstar, including companies affiliated with
us, will be among Globalstar's service providers and may, therefore, have
conflicts with Globalstar and/or us over service provider agreements.
OUR BUSINESS IS REGULATED, CAUSING UNCERTAINTY AND ADDITIONAL COSTS.
Our business is regulated by authorities in more than 100 jurisdictions,
including the Federal Communications Commission, the International
Telecommunications Union and the European Union. As a result, some of the
activities which are important to our strategy are beyond our control. The
following are some strategically important activities which are regulated by
various government authorities:
- the expansion of Loral Skynet's operations beyond the domestic U.S.
market;
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<PAGE> 21
- the proposed launch and operation of Orion 2 and Orion 3;
- the international service offered by Loral Orion;
- the manufacture and export of satellites;
- the launch of Globalstar satellites; and
- the expansion of SatMex's Latin American presence.
Regulatory authorities in the various jurisdictions in which we operate can
modify, withdraw or impose charges or conditions upon the licenses which we
need, and so increase our cost of doing business. The regulatory process also
requires that we negotiate with third parties operating or intending to operate
satellites at or near orbital locations where we place our satellites so that
the frequencies of the satellites do not interfere. Because we cannot guarantee
the results of negotiations with third parties, "frequency coordination" is an
additional source of uncertainty. We cannot guarantee successful frequency
coordination for our satellites. In particular, we have learned that Eutelsat,
which may claim a priority filing with the International Telecommunications
Union, has recently placed a satellite that is beyond its useful life at 12.5
degrees W.L., near the 12 degrees W.L. orbital location intended for Orion 2. If
Eutelsat launches a replacement satellite into the 12.5 degrees W.L. orbital
location, it would interfere with the Orion 2 satellite at 12 degrees W.L. We
have entered into discussions with Eutelsat to resolve the issues relating to
this orbital location; however, we cannot guarantee a successful resolution.
Failure to successfully coordinate our satellites' frequencies or to
resolve other required regulatory approvals could have a material adverse effect
on our financial condition and on our results of operations.
SPACE SYSTEMS/LORAL COMPETES WITH LARGE MANUFACTURERS WITH SIGNIFICANT
RESOURCES.
In the manufacture of our satellites, we compete with very large well-
capitalized companies, including several of the world's largest corporations,
such as Hughes Space & Communications, Inc., a subsidiary of General Motors
Corporation, and Lockheed Martin Corporation. These companies have considerable
financial resources which they may use to gain advantages in marketing and in
technological innovation. Space Systems/Loral's success will depend on its
ability to innovate on a cost-effective and timely basis.
WE COMPETE WITH A NUMBER OF SERVICE PROVIDERS FOR MARKET SHARE AND CUSTOMERS;
TECHNICAL DEVELOPMENTS FROM COMPETITORS OR OTHERS MAY REDUCE DEMAND FOR
SATELLITE-BASED SERVICES.
When Globalstar enters the satellite-based mobile phone business, it will
face intense competition for customers from various companies, and in particular
Iridium LLC, ICO Global and providers of land-based mobile phone
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<PAGE> 22
services. We cannot assure you that Globalstar will attract enough subscribers
either to compete effectively or to implement its current business plan.
We face competition in the provision of fixed-satellite services from
companies such as PamAmSat Corporation, GE Americom, SES Astra and
quasi-governmental organizations such as Intelsat. Because this market is
mature, competition may cause downward price pressures, which may adversely
affect our profits.
We, through Loral Orion and our affiliate CyberStar, also face competition
in the provision of high-speed data communications, such as Internet
applications, from providers of land-based data communications services, such as
cable operators and traditional telephone service providers. In addition, Loral
Orion and CyberStar may face competition in the future from Teledesic
Corporation's proposed system and Hughes's Spaceway system. We cannot assure you
that Loral Orion or CyberStar will attract enough customers either to compete
effectively or to implement their business plans.
As land-based telecommunications services expand, demand for some
satellite-based services may be reduced. New technology could render satellite-
based services less competitive by satisfying consumer demand in other ways or
through the use of incompatible standards.
We also compete for local regulatory approval in places in which both we
and a competitor may want to operate. We also compete for scarce frequency
assignments and fixed orbital positions.
THE YEAR 2000 PROBLEM.
Many computer systems and software programs may not function properly in
the year 2000 and beyond because of a once common programming standard which
used two digits instead of four digits to signify a year. These computer systems
and software programs read the year 1999 as "99" and not "1999". Because of
this, the year 2000 may appear as the year 1900, which could result in system
failures or disruptions. This problem is often referred to as the "Year 2000"
issue.
If we are unable to fix a material Year 2000 problem, we could experience
an interruption or failure of our business operations. Likewise, if our
suppliers are unable to fix a material Year 2000 problem, a resulting
interruption or failure of their business could hurt us.
WE RELY ON KEY PERSONNEL.
We need highly qualified personnel. Except for Mr. Bernard L. Schwartz, our
Chairman and Chief Executive Officer, none of our officers has an employment
contract, and we do not maintain "key man" life insurance on any of our
personnel. The departure of any of our key executives could have an adverse
effect on our business.
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<PAGE> 23
THERE ARE RISKS REGARDING FORWARD-LOOKING STATEMENTS.
Some statements or information contained in this prospectus are not
historical facts but are "forward-looking statements" (as such term is defined
in the Private Securities Litigation Reform Act of 1995). They can be identified
by the use of forward-looking words such as "believes", "expects", "plans",
"may", "will", "should", or "anticipates" or their negatives or other variations
of these words or other comparable words, or by discussions of strategy that
involve risks and uncertainties. Some of the factors which may cause future
results and performance to differ from what we may imply here are:
- the space environment, where our satellites operate, is a harsh
environment;
- governments may change regulations or institute new rules, which could
have an impact on our operations;
- we need to be able to have access to scarce rockets to launch our
satellites;
- Globalstar is a development-stage company that may continue to lose
money, have negative cash flow, require additional money and suffer
delays in meeting its targets;
- we depend on Space Systems/Loral for operating income;
- there is severe competition in our business; and
- our subsidiaries and affiliates owe significant amounts of money.
We warn you that forward-looking statements are only predictions. Actual
events or results may differ materially as a result of risks that we face,
including those presented above. These are representative of factors that could
affect the outcome of the forward-looking statements.
USE OF PROCEEDS
We will not receive any cash proceeds from the issuance of the new notes as
described in this prospectus. The proceeds from the old notes were used to
purchase $150 million face amount of convertible preferred stock of Globalstar
Telecommunications Limited and to pursue satellite service opportunities
worldwide. You will receive in exchange for the old notes new notes in like
principal amount. The old notes surrendered in exchange for new notes will be
retired and canceled and cannot be reissued. Accordingly, the issuance of the
new notes will not result in any change in the indebtedness of Loral.
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CAPITALIZATION
The following table presents, as of December 31, 1998, the actual cash and
cash equivalents and capitalization of Loral and as adjusted to give effect to
the net proceeds of the offering of the old notes and Loral's purchase of $150
million face amount of convertible preferred stock of Globalstar
Telecommunications Limited.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1998
-------------------------
ACTUAL AS ADJUSTED
---------- -----------
(IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents............................. $ 546,772 $ 743,772
========== ==========
Debt
Recourse debt(1)
Term loan(2)(3).................................. $ 275,000 $ 275,000
Revolving credit facility(2)(3).................. 205,000 205,000
Note purchase facility(3)........................ 126,657 126,657
Other(3)(4)...................................... 15,623 15,623
9 1/2% senior notes due 2006 ($350 million
principal amount).............................. -- 343,000
---------- ----------
Total recourse debt............................ 622,280 965,280
---------- ----------
Non-recourse debt(5)
Loral Orion 11 1/4% senior notes due 2007 ($443
million principal amount)...................... 507,573 507,573
Loral Orion 12 1/2% senior discount notes due
2007 ($484 million principal amount)........... 408,812 408,812
Loral Orion -- other............................. 17,110 17,110
---------- ----------
Total non-recourse debt........................ 933,495 933,495
---------- ----------
Total debt, including current portion....... 1,555,775 1,898,775
Shareholders' equity.................................. 2,935,721 2,935,721
---------- ----------
Total capitalization.................................. $4,491,496 $4,834,496
========== ==========
</TABLE>
- -------------------------
(1) Includes debt of Loral SpaceCom Corporation and its subsidiaries.
(2) Loral SpaceCom Corporation has an $850 million credit facility. The facility
consists of a $500 million revolving credit facility, a $275 million term
loan facility and a $75 million letter of credit facility.
(3) See Note 7 of Loral's 1998 annual consolidated financial statements
incorporated by reference in this prospectus.
(4) In addition, Loral has a $115 million secured standby credit facility, which
was undrawn as of December 31, 1998, supporting a guarantee of a $115
million term loan.
(5) In connection with the Loral Orion acquisition, Loral did not assume Loral
Orion's senior notes and senior discount notes or Loral Orion's other debt.
Such debt remains outstanding and is non-recourse to Loral. The carrying
value of the Loral Orion senior notes and senior discount notes was
increased to reflect a fair value adjustment aggregating $153 million based
on quoted market prices at the date of acquisition.
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<PAGE> 25
BUSINESS
Loral is one of the world's leading satellite communications companies
operating in four business segments:
SATELLITE MANUFACTURING AND TECHNOLOGY
Space Systems/Loral, our wholly-owned subsidiary is a worldwide leader in
the design, manufacture and integration of satellites and space systems. Space
Systems/Loral draws on a 40-year history, during which satellites manufactured
by Space Systems/Loral have achieved more than 650 years of cumulative on-orbit
experience. Space Systems/Loral manufactures satellites that provide
telecommunications, weather forecasting, and direct broadcast services. Space
Systems/Loral is the leading supplier of satellites to Intelsat, an
international consortium of 135 member nations which is currently the world's
largest operator of communications satellites.
Space Systems/Loral has a reputation for technical excellence, a long
record of reliable performance and offers its customers competitive pricing and
on-orbit delivery packages. We believe that Space Systems/Loral's advanced
manufacturing and testing facilities and long-term customer relationships have
enabled it to compete effectively in the commercial space systems marketplace.
FIXED SATELLITE SERVICES
We provide fixed satellite services through our wholly-owned subsidiaries,
Loral Skynet and Loral Orion, Inc., and our affiliate, Satelites Mexicanos, S.A.
de C.V., which together with the newly founded Europe*Star joint venture between
us and Alcatel, comprise the Loral Global Alliance. The Loral Global Alliance
provides for cross-selling arrangements among its members' respective sales
forces and for cooperative marketing and promotional activities to offer
customers "one stop shopping" for their local, regional and global needs.
Loral Global Alliance members currently have seven satellites in orbit. In
addition, Loral Skynet and Loral Orion expect to launch three additional
satellites in the next six months. Together, these satellites will have
footprints covering virtually all of the world's population.
Customers in the developed world use our geosynchronous satellites
(satellites whose high orbits enable them to remain fixed over a single point
over the earth's equator) primarily to distribute television programming and to
collect live video feeds from breaking news and sporting events. In the
developing world a large portion of geosynchronous satellite capacity is also
dedicated to long-distance telephone service. Geosynchronous satellites are
increasingly used for international Internet communications, high-speed data
services and for business and educational television.
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<PAGE> 26
DATA SERVICES
Through our data services segment, which is a business in development, we
intend to capitalize on the increasing worldwide demand for information and
Internet access by providing satellite-based end-to-end customer solutions
through Loral Orion and CyberStar. Loral Orion is a leading provider of
satellite-based data transport services in Europe, providing multinational
corporations with managed communications networks capable of carrying high-
speed data, fax, video teleconferencing, voice and other specialized services.
Loral Orion also provides the fast growing Internet service provider market with
Internet access via its satellites. With the launch of Orion 3 and Orion 2,
which is expected to occur in the second and third quarters of 1999,
respectively, Loral Orion will expand its service offering into Asia and Latin
America.
Our subsidiary, CyberStar, provides a high-speed data communications
system. CyberStar will offer its customers a variety of services that enhance
corporate communications and provide for the efficient, secure and timely
exchange of information. We own approximately 82% of CyberStar and act as its
managing general partner.
GLOBAL MOBILE TELEPHONY
Globalstar has begun to launch and is preparing to operate an innovative
satellite constellation that will create a wireless digital telephone system
serving most of the populated areas of the world. The Globalstar(TM) System has
now launched 20 of the 52 satellites (including four in-orbit spares) that will
complete its full constellation, and is scheduled to commence service in
September 1999 with at least 32 satellites. We own approximately 43% of
Globalstar and act as its managing general partner.
Globalstar service will be marketed through service providers which
Globalstar expects will focus their efforts on extending service to the millions
of people who currently lack basic telephone service. Accordingly, Globalstar
plans to keep its wholesale price for capacity low and to provide service both
to mobile handsets and fixed terminals in remote locations.
Globalstar satellites orbit the earth at much lower altitudes than
geosynchronous satellites and move relative to the earth's surface.
Consequently, the low orbit satellites in Globalstar's constellation are
designed with the ability to hand calls off from one satellite to another to
provide continuous coverage.
BUSINESS STRATEGY
Our goal is to assemble the building blocks essential to the creation of a
seamless, global networking capability for the information age. Our strategy is
to capitalize on our innovative capabilities, market position and advanced
technologies to offer value-added satellite-based services as part of the
evolving worldwide communications networks. In addition, we plan to form
strategic
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alliances with major telecommunications service providers and equipment
manufacturers in order to enhance and expand our satellite communications
service opportunities.
We believe that demand for satellite-based communications services will
continue to grow due to:
- growing demand for Internet and intranet services, especially outside the
United States;
- increased size and scope of television programming distribution;
- worldwide deregulation of telecommunications markets;
- continuing technological advancement; and
- accelerating demand for high speed data services.
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THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
We sold the old notes on January 21, 1999 to the initial purchasers, who
placed the old notes with certain institutional investors. In connection with
this sale, we entered into a registration rights agreement with the initial
purchasers. Under this registration rights agreement we agreed, for the benefit
of the holders of the old notes, that we would, at our sole cost, within 90 days
following the original issuance of the old notes, file with the SEC an exchange
offer registration statement -- of which this prospectus is a part -- under the
Securities Act. This exchange offer registration statement is filed with respect
to an issue of a series of our new notes identical in all material respects to
the series of old notes. We agreed further that we would use our reasonable best
efforts to cause the exchange offer registration statement to become effective
under the Securities Act at the earliest possible time, but in no event later
than 210 days following the original issuance of the old notes. Upon the
effectiveness of the exchange offer registration statement, we will offer to the
holders of the old notes the opportunity to exchange their old notes for a like
principal amount of new notes. The new notes will be issued without a
restrictive legend and may, subject to certain exceptions described below, be
reoffered and resold by their holders without restrictions or limitations under
the Securities Act.
RESALE OF THE NEW NOTES
Each holder desiring to participate in the exchange offer will be required
to represent, among other things, that
(1) it is not an "affiliate" (as defined in Rule 405 of the Securities Act)
of ours;
(2) it is not engaged in, and does not intend to engage in, and has no
arrangement or understanding with any person to participate in, a
distribution of the new notes; and
(3) it is acquiring the new notes in the ordinary course of its business.
A holder unable to make the above representations is referred to as a
restricted holder. A restricted holder will not be able to participate in the
exchange offer, and may only sell its old notes under a registration statement
containing the selling securityholder information required by Item 507 of
Regulation S-K of the Securities Act, or under an exemption from the
registration requirement of the Securities Act.
Each participating broker-dealer is required to acknowledge in the letter
of transmittal that it acquired the old notes as a result of market-making
activities or other trading activities and that it will deliver a prospectus in
connection with the resale of the new notes. Based upon interpretations by the
staff of the SEC, we believe that new notes issued under the exchange offer to
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<PAGE> 29
participating broker-dealers may be offered for resale, resold, and otherwise
transferred by a participating broker-dealer upon compliance with the prospectus
delivery requirements, but without compliance with the registration requirements
of the Securities Act.
We have agreed that for a period of 180 days following completion of the
exchange offer we will make this prospectus available to participating broker-
dealers for use in connection with any such resale. During the period, delivery
of this prospectus, as it may be amended or supplemented, will satisfy the
prospectus delivery requirements of a participating broker-dealer engaged in
market-making or other trading activities.
Based upon interpretations by the staff of the SEC, we believe that new
notes issued pursuant to the exchange offer may be offered for resale, resold
and otherwise transferred by a holder of the new notes -- other than a
participating broker-dealer -- without compliance with the registration and
prospectus delivery requirements of the Securities Act.
If prior to the completion of the exchange offer, existing SEC
interpretations are changed in such a way that the new notes received by holders
other than restricted holders in the exchange offer are not or would not be,
upon receipt, transferable by each such holder without restriction under the
Securities Act, we could file with the SEC a shelf registration statement. We
are further required under the exchange offer registration rights agreement to
use our reasonable best efforts to cause the shelf registration statement to be
declared effective at the earliest possible time, but in no event later than 210
days after such obligation arises and to keep such shelf registration
continuously effective for a period ending on the earlier of the second
anniversary of the issuance of the old notes or when there are no longer any
registrable securities outstanding.
Registrable securities means the old notes, unless
- the old notes are sold pursuant to Rule 144 -- or any successor
provision -- under the Securities Act under circumstances in which any
legend borne by such notes relating to restrictions on their
transferability, under the Securities Act or otherwise, is removed by us,
- or in accordance with the indenture,
- or if the notes are eligible to be sold pursuant to paragraph (k) of Rule
144, or
- or when these notes shall cease to be outstanding.
SHELF REGISTRATION STATEMENT
If the shelf registration statement is filed, we will provide to each
holder of registrable securities covered by the shelf registration statement
copies of any shelf registration statement or any prospectus which is a part of
the shelf
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<PAGE> 30
registration statement. We will further notify each holder when the shelf
registration statement has become effective and take other actions as are
required to permit unrestricted resales of registrable securities. A holder of
registrable securities that sells those registrable securities pursuant to the
shelf registration statement generally will be required to be named as a selling
security holder in the related prospectus and to deliver a prospectus to the
purchaser. This holder will also be subject to some of the civil liability
provisions under the Securities Act in connection with these sales and will be
bound by the provisions of the exhange offer registration rights agreement which
are applicable to it, including some indemnification obligations. In addition,
holders of registrable securities will be required to deliver information to be
used in connection with the shelf registration statement and to provide comments
on the shelf registration statement within the time periods set forth in the
exchange offer registration rights agreement in order to have their registrable
securities included in the shelf registration statement and benefit from the
provisions regarding liquidated damages, if any, set forth in the following
paragraph.
If
(1) we are required to file the shelf registration statement and
(2) the shelf registration has not become effective or been declared
effective by the SEC on or before the 210th day after the obligation to
file a shelf registration statement arises, or
(3) the shelf registration statement is filed and declared effective but
shall thereafter cease to be effective -- except as specifically
permitted in the exchange offer registration rights
agreement -- without being succeeded promptly by an additional
registration statement filed and declared effective, then interest
referred to as Liquidated Damages will accrue in addition to any stated
interest on the Securities.
We call each of the events referred to in clauses (1) through (3) a
"Registration Default." Liquidated Damages will accrue at the rate of $.05 per
week per $1,000 principal amount of the notes. It will accrue for the period
from the occurrence of the Registration Default until such time as no
Registration Default is in effect, after which time no Liquidated Damages will
accrue. After the first 90-day period during which Liquidated Damages accrue,
Liquidated Damages will increase by an additional $.05 per week per $1,000 of
principal amount of the notes, provided that Liquidated Damages will not exceed
a maximum of $.50 per week per $1,000 principal amount of the notes. The
Liquidated Damages will be payable in cash semi-annually in arrears on each
March 15 and September 15 in accordance with the exchange offer registration
rights agreement. Liquidated Damages will be paid at the increased rate until
the shelf registration has become or has been declared effective.
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Payment of Liquidated Damages is the sole remedy available to the holders
of registrable securities in the event that we do not comply with the deadlines
set forth in the exchange offer registration rights agreement with respect to
the registration of registrable securities for resale under the shelf
registration statement.
BERMUDA REGULATORY REQUIREMENTS
The exchange offer will be subject to the filing of a copy of this
prospectus with the Registrar of Companies in Bermuda, together with
confirmation from our Bermuda attorneys that the SEC, as a competent regulatory
authority under section 26(2)(b) of the Companies Act 1981, has received or
otherwise accepted this prospectus as a basis for offering the new notes to the
public.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this prospectus
and in the letter of transmittal, we will accept any and all old notes validly
tendered and not withdrawn prior to 5:00 p.m., New York City time, on the
expiration date. We will issue $1,000 principal amount at stated maturity of new
notes in exchange for each $1,000 principal amount at stated maturity of
outstanding old notes accepted in the exchange offer. Holders may tender some or
all of their old notes pursuant to the exchange offer. However, old notes may be
tendered only in integral multiples of $1,000 at stated maturity.
The form and terms of the new notes will be identical in all material
respects (including principal amount, interest rate, maturity and ranking) to
the terms of the old notes for which they may be exchanged pursuant to the
exchange offer, except that the new notes will have been registered under the
Securities Act. Therefore, they will not bear legends restricting their transfer
and will not contain terms providing for an increase in the interest rate on the
old notes under circumstances described in the exchange offer registration
rights agreement. The new notes will evidence the same debt as the old notes and
will be entitled to the benefits of the indenture under which the old notes
were, and the new notes will be, issued.
As of the date of this prospectus, $350 million aggregate principal amount
of the old notes is outstanding. We have fixed the close of business on April
15, 1999 as the record date for the exchange offer for purposes of determining
the persons to whom this prospectus, together with the letter of transmittal,
will initially be sent.
Holders of the old notes do not have any appraisal or dissenters' rights
under law or the indenture in connection with the exchange offer. We intend to
conduct the exchange offer in accordance with the applicable requirements of the
Exchange Act and the rules and regulations of the SEC.
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Holders who tender old notes in the exchange offer will not be required to
pay a brokerage commission or fees or, subject to the instructions in the letter
of transmittal, transfer taxes with respect to the exchange of old notes
pursuant to the exchange offer. We will pay all charges and expenses, other than
certain applicable taxes, in connection with the exchange offer. See "-- Fees
and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "expiration date" shall mean 5:00 p.m., New York City time, on May
17, 1999, unless we will, in our reasonable discretion, extend the exchange
offer, in which case the term expiration date will mean the latest date and time
to which the exchange offer is extended.
In order to extend the exchange offer, we will notify the exchange agent of
any extension by oral or written notice and will make a public announcement of
this fact prior to 9:00 a.m., New York City time, on the next business day after
each previously scheduled expiration date, unless otherwise required by
applicable law or regulation.
We reserve the right, in our reasonable discretion,
(1) to delay accepting any old notes, to extend the exchange offer or, if
in our reasonable judgment, any of the conditions described below under
the caption "-- Conditions" are not satisfied, to terminate the
exchange offer, by giving oral or written notice of this delay,
extension or termination to the exchange agent, or
(2) to amend the terms of the exchange offer in any manner. Any such delay
in acceptance, extension, termination or amendment will be followed as
promptly as practicable by a public announcement thereof.
If the exchange offer is amended in a manner determined by us to constitute
a material change, we will promptly disclose such amendment by means of a
prospectus supplement that will be distributed to the registered holders. In
addition, we will extend the exchange offer for a period of five to ten business
days, depending upon the significance of the amendment and the manner of
disclosure to the registered holders, if the exchange offer would otherwise
expire during such five to ten business day period.
Without limiting the manner in which we may choose to make a public
announcement of any delay, extension, termination or amendment of the exchange
offer, we have no obligation to publish, advertise or otherwise communicate any
such public announcement, other than by making a timely release to the Dow Jones
News Service.
PROCEDURES FOR TENDERING
Only a holder of old notes may tender such old notes in the exchange offer.
A holder who wishes to tender old notes for exchange pursuant to the
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exchange offer must transmit a properly completed and duly executed letter of
transmittal, or a facsimile thereof, together with any required signature
guarantees, or, in the case of a book-entry transfer, agent's message, and any
other required documents, to the exchange agent prior to midnight, New York City
time, on the expiration date. In addition, either
(1) certificates for such old notes must be received by the exchange agent
prior to the expiration date, along with the letter of transmittal,
(2) a timely confirmation of a book-entry transfer of these old notes into
the exchange agent's account at The Depository Trust Company ("DTC" or
the "Book-Entry Transfer Facility") pursuant to the procedure for
book-entry transfer described below, must be received by the exchange
agent prior to the expiration date or
(3) the holder must comply with the guaranteed delivery procedures
described below. To be tendered effectively, the old notes, or the
book-entry confirmation, as the case may be, the letter of transmittal
and other required documents must be received by the exchange agent at
the address set forth below under "-- Exchange Agent" prior to 5:00
p.m., New York City time, on the expiration date.
DELIVERY OF DOCUMENTS TO THE BOOK-ENTRY TRANSFER FACILITY IN ACCORDANCE WITH ITS
PROCEDURE DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT.
DTC has authorized DTC participants that hold old notes on behalf of
beneficial owners of old notes through DTC to tender their old notes as if they
were holders. To effect a tender of old notes, DTC participants should either
(1) complete and sign the letter of transmittal (or a manually signed
facsimile thereof), have the signature thereon guaranteed if required
by the instructions to the letter of transmittal and mail or deliver
the letter of transmittal (or the manually signed facsimile) to the
exchange agent pursuant to the procedures set forth in "Procedures for
Tendering" or
(2) transmit their acceptance to DTC through the DTC Automated Tender Offer
Program for which the transaction will be eligible and follow the
procedures for book-entry transfer set forth in "-- Book-Entry
Transfer."
The tender by a holder will constitute an agreement between this holder and
us in accordance with the terms and subject to the conditions contained in this
prospectus and in the letter of transmittal.
The method of delivery of the old notes and the letter of transmittal and
all other required documents to the exchange agent is at the election and risk
of the holder. Instead of delivery by mail, it is recommended that holders use
an overnight or hand delivery service. In all cases, sufficient time should be
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allowed to assure delivery to the exchange agent before the expiration date. No
letter of transmittal or old notes, or book-entry confirmation, as the case may
be, should be sent to us.
Any beneficial owner whose old notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee, and who wishes
to tender, should contact the registered holder promptly and instruct the
registered holder to tender on the beneficial owner's behalf. If the beneficial
owner wishes to tender on his own behalf, the owner must, prior to completing
and executing the letter of transmittal and delivering the beneficial owner's
old notes, either make appropriate arrangements to register ownership of the old
notes in this owner's name or obtain a properly completed bond power from the
registered holder. The transfer of registered ownership may take considerable
time.
If the letter of transmittal is signed by a person other than the
registered holder of any old notes listed therein, these old notes must be
endorsed or accompanied by a properly completed bond power and signed by the
registered holder as the registered holder's name appears on the old notes.
If the letter of transmittal or any old notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, these
persons should so indicate when signing unless waived by us. Evidence
satisfactory to us of their authority so to act must be submitted with the
letter of transmittal.
Signatures on a letter of transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by an eligible institution unless the old notes
tendered pursuant thereto are tendered
(1) by a registered holder who has not completed the box entitled "Special
Issuance Instructions" or "Special Delivery Instructions" on the letter
of transmittal, or
(2) for the account of an eligible institution. In the event that
signatures on a letter of transmittal or a notice of withdrawal, as the
case may be, are required to be guaranteed, such guarantee must be by a
member firm of a registered national securities exchange or of the
National Association of Securities Dealers, Inc., a commercial bank or
trust company having an office or correspondent in the United States or
an "eligible guarantor institution" within the meaning of Rule 17Ad-5
under the Exchange Act (an "Eligible Institution").
We will determine all questions as to the validity, form, eligibility,
including time of receipt, acceptance and withdrawal of tendered old notes in
our sole discretion, which determination shall be final and binding. We reserve
the absolute right to reject any and all old notes not properly tendered or any
old notes our acceptance of which would, in the opinion of our counsel, be
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unlawful. We also reserve the right to waive any defects, irregularities or
conditions of tender as to particular old notes. Our interpretation of the terms
and conditions of the exchange offer, including the instructions in the letter
of transmittal, shall be final and binding on all parties. Unless waived, any
defects or irregularities in connection with the tender of old notes must be
cured within the time as we shall determine. Neither we, the exchange agent nor
any other person shall incur any liability for failure to give notice of any
defect or irregularity with respect to any tender of old notes. Tenders of old
notes will not be deemed to have been made until such defects or irregularities
have been cured or waived. Any old notes received by the exchange agent that are
not properly tendered and as to which the defects or irregularities have not
been cured or waived will not be deemed to have been properly tendered. Any old
notes received by the exchange agent that are not properly tendered and as to
which the defects or irregularities have not been cured or waived will be
returned by the exchange agent to the tendering holders, unless otherwise
provided in the letter of transmittal, as soon as practicable following the
expiration date.
By tendering, each holder will represent to us, among other things, that it
is not a restricted holder. Each participating broker-dealer must acknowledge
that it will deliver a prospectus in connection with any resale of the new
notes. See "Plan of Distribution."
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES
For each old note accepted for exchange, the holder of this old note will
receive a new note having a principal amount equal to that of the surrendered
old note. For purposes of the exchange offer, we shall be deemed to have
accepted properly tendered old notes for exchange when, as and if we have given
oral or written notice thereof to the exchange agent.
In all cases, the issuance of new notes for old notes that are accepted for
exchange pursuant to the exchange offer will be made only after timely receipt
by the exchange agent of certificates for the old notes or a timely book-entry
confirmation of these old notes into the exchange agent's account at the book-
entry transfer facility, a properly completed and duly executed letter of
transmittal or agent's message and all other required documents. If any tendered
old notes are not accepted for any reason set forth in the terms and conditions
of the exchange offer, or if old notes are submitted for a greater principal
amount than the holder desires to exchange, these unaccepted or non-exchanged
old notes will be returned without expense to the tendering holder of these
notes (or, in the case of old notes tendered by book-entry transfer into the
exchange agent's account at the book-entry transfer facility, pursuant to the
book-entry transfer procedures described below. These non-exchanged old notes
will be credited to an account maintained with such book-entry transfer facility
as promptly as practicable after the expiration date.
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BOOK-ENTRY TRANSFER
The exchange agent will establish a new account or utilize an existing
account with respect to the old notes at DTC promptly after the date of this
prospectus. Any financial institution that is a participant in DTC and whose
name appears on a security position listing as the owner of old notes may make a
book-entry tender of old notes by causing DTC to transfer such old notes into
the exchange agent's account in accordance with DTC's procedures for such
transfer. However, although the tender of old notes may be effected through
book-entry transfer into the exchange agent's account at DTC, the letter of
transmittal, or a manually signed facsimile thereof, properly completed and
validly executed, with any required signature guarantees, or an agent's message
in lieu of the letter of transmittal, and any other required documents, must, in
any case, be received by the exchange agent at its address set forth below under
the caption "Exchange Agent" on or prior to the expiration date, or the
guaranteed delivery procedures described below must be complied with. The
confirmation of a book-entry transfer of old notes into the exchange agent's
account at DTC as described above is referred to herein as a "Book-Entry
Confirmation." Delivery of documents to DTC in accordance with DTC's procedures
does not constitute delivery to the exchange agent.
The term "agent's message" means a message transmitted by DTC to, and
received by, the exchange agent and forming a part of a book-entry confirmation,
which states that DTC has received an express acknowledgment from the
participant in DTC tendering the old notes stating
(1) the aggregate principal amount of old notes which have been tendered by
the participant,
(2) that this participant has received and agrees to be bound by the term
of the letter of transmittal and
(3) that we may enforce such agreement against the participant.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their old notes and
(1) whose old notes are not immediately available,
(2) who cannot deliver their old notes, the letter of transmittal or any
other required documents to the exchange agent prior to the expiration
date or
(3) who cannot complete the procedure for book-entry transfer on a timely
basis,
may effect a tender if:
(a) the tender is made through an eligible institution;
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(b) prior to the expiration date, the exchange agent receives from such
eligible institution a properly completed and duly executed notice of
guaranteed delivery, by facsimile transmission, mail or hand
delivery, setting forth the name and address of the holder, the
certificate number(s) of the old notes and the principal amount of
old notes tendered, stating that the tender is being made thereby and
guaranteeing that, within three New York Stock Exchange trading days
after the expiration date, the letter of transmittal (or facsimile
thereof) or, in the case of a book-entry transfer, an agent's
message, together with the certificate(s) representing the old notes,
or a book-entry confirmation, as the case may be, and any other
documents required by the letter of transmittal will be deposited by
the eligible institution with the exchange agent; and
(c) such properly completed and executed letter of transmittal (or
facsimile thereof) or, in the case of a book-entry transfer, an
agent's message, as well as the certificate(s) representing all
tendered old notes in proper form for transfer, or a Book-Entry
Confirmation, as the case may be, and all other documents required by
the letter of transmittal are received by the exchange agent within
three New York Stock Exchange trading days after the expiration date.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of old notes may be withdrawn
at any time prior to 5:00 p.m., New York City time, on the expiration date.
To withdraw a tender of old notes in the exchange offer, a written or
facsimile transmission notice of withdrawal must be received by the exchange
agent at its address set forth herein prior to 5:00 p.m., New York City time, on
the expiration date. Any notice of withdrawal must
(1) specify the name of the person having deposited the old notes to be
withdrawn (the "Depositor"),
(2) identify the old notes to be withdrawn (including the certificate
number or numbers and principal amount of such old notes),
(3) be signed by the holder in the same manner as the original signature on
the letter of transmittal by which such old notes were tendered
(including any required signature guarantees) or be accompanied by
documents of transfer sufficient to have the trustee with respect to
the old notes register the transfer of these old notes into the name of
the person withdrawing the tender and
(4) specify the name in which any of the old notes are to be registered, if
different from that of the Depositor.
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If certificates for old notes have been delivered or otherwise identified
to the exchange agent, then, prior to the release of such certificates, the
withdrawing holder must also submit the serial numbers of the particular
certificates to be withdrawn and a signed notice of withdrawal with signatures
guaranteed by an eligible institution unless the holder is an eligible
institution. If old notes have been tendered pursuant to the procedure for
book-entry transfer described above, any notice of withdrawal must specify the
name and number of the account at the book-entry transfer facility to be
credited with the withdrawn old notes and otherwise comply with the procedures
of the book-entry transfer facility. We will determine in our sole discretion
all questions as to the validity, form and eligibility (including time of
receipt) of those notices, which determination shall be final and binding on all
parties. Any old notes so withdrawn will be deemed not to have been validly
tendered for purposes of the exchange offer and no new notes will be issued with
respect thereto unless the old notes so withdrawn are validly retendered.
Properly withdrawn old notes may be retendered by following one of the
procedures described above.
Any old notes which have been tendered but which are not accepted for
payment due to withdrawal, rejection of tender or termination of the exchange
offer will be returned as soon as practicable after withdrawal, rejection of
tender or termination of the exchange offer to the holder of the old notes,
without cost to the holder. In the case of old notes tendered by book-entry
transfer into the exchange agent's account at the book-entry transfer facility
pursuant to the book-entry transfer procedures described above, the old notes
will be credited to an account maintained with such book-entry transfer facility
for the old notes.
CONDITIONS
Notwithstanding any other term of the exchange offer, we are not required
to accept for exchange, or exchange new notes for, any old notes, and may
terminate the exchange offer as provided herein before the acceptance of such
old notes, if:
(a) any action or proceeding is instituted or threatened in any court or by
or before any governmental agency with respect to the exchange offer
which, in our reasonable judgment, might materially impair our ability
to proceed with the exchange offer or materially impair the
contemplated benefits of the exchange offer to us, or any material
adverse development has occurred in any existing action or proceeding
with respect to us or any of our subsidiaries;
(b) any change or any development involving a prospective change in our
business or our financial affairs or in that of any of our subsidiaries
has occurred which, in our reasonable judgment, might materially impair
our ability to proceed with the exchange offer or materially impair the
contemplated benefits of the exchange offer to us;
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(c) any law, statute, rule or regulation is proposed, adopted or enacted,
which, in our reasonable judgment, might materially impair our ability
to proceed with the exchange offer or materially impair the
contemplated benefits of the exchange offer to us; or
(d) any governmental approval has not been obtained, which approval we, in
our reasonable discretion, shall deem necessary for the consummation of
the exchange offer as contemplated hereby.
The foregoing conditions are for our sole benefit and may be asserted by us
regardless of the circumstances giving rise to any such condition or may be
waived by us in whole or in part at any time and from time to time in our
reasonable discretion. Our failure at any time to exercise any of the foregoing
rights shall not be deemed a waiver of the respective right and each of these
rights shall be deemed an ongoing right which may be asserted at any time and
from time to time.
If we determine in our reasonable discretion that any of the conditions are
not satisfied, we may
(1) refuse to accept any old notes and return all tendered old notes to the
tendering holders,
(2) extend the exchange offer and retain all old notes tendered prior to
the expiration of the exchange offer, subject, however, to the rights
of holders to withdraw their tendered old notes (see "-- Withdrawal of
Tenders" above) or
(3) waive the unsatisfied conditions with respect to the exchange offer and
accept all properly tendered old notes which have not been withdrawn.
If such waiver constitutes a material change to the exchange offer, we
will promptly disclose this waiver by means of a prospectus supplement
that will be distributed to the registered holders. We will also extend
the exchange offer for a period of five to ten business days, depending
upon the significance of the waiver and the manner of disclosure to the
registered holders, if the exchange offer would otherwise expire during
such five to ten business day period.
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EXCHANGE AGENT
The Bank of New York has been appointed as exchange agent for the exchange
offer. Requests for additional copies of this prospectus or of the letter of
transmittal should be directed to the exchange agent, addressed as follows:
To: The Bank of New York
By Hand/Overnight Courier:
The Bank of New York
101 Barclay Street
Corporate Trust Window
Ground Level
New York, NY 10286
Attn: Ayikwei Aryeety
Facsimile Transmission
(Eligible Institutions Only)
(212) 815-6339
Confirm by Telephone: (212) 815-6387
FEES AND EXPENSES
We will bear the expenses of soliciting tenders. We have not retained any
dealer-manager in connection with the exchange offer and will not make any
payments to brokers, dealers or others soliciting acceptances of the exchange
offer. We, however, will pay the exchange agent reasonable and customary fees
for its services and will reimburse it for its reasonable out-of-pocket expenses
in connection therewith.
We will also pay the cash expenses to be incurred in connection with the
exchange offer. These expenses include fees and expenses of the exchange agent
and trustee, accounting and legal fees and printing costs, among others.
We will pay all transfer taxes, if any, applicable to the exchange of old
notes pursuant to the exchange offer. If, however, certificates representing new
notes or old notes for principal amounts not tendered or accepted for exchange
are to be delivered to, or are to be issued in the name of, any person other
than the registered holder of the old notes tendered, the amount of any such
transfer taxes (whether imposed on the registered holder or any other persons)
will be payable by the tendering holder. The same applies if tendered old notes
are registered in the name of any person other than the person signing the
letter of transmittal, or if a transfer tax is imposed for any reason other than
the exchange of old notes pursuant to the exchange offer. If satisfactory
evidence of payment of these taxes or exemption from these taxes is not
submitted with the letter of transmittal, the amount of these transfer taxes
will be billed directly to the tendering holder.
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ACCOUNTING TREATMENT
The new notes will be recorded at the same carrying value as the old notes,
which is the principal amount as reflected in our accounting records on the date
of the exchange. Accordingly, no gain or loss for accounting purposes will be
recognized. The expenses of the exchange offer and the unamortized expenses
related to the issuance of the old notes will be amortized over the term of the
notes.
REGULATORY APPROVALS
We do not believe that the receipt of any material federal or state
regulatory approvals will be necessary in connection with the exchange offer,
other than the effectiveness of the exchange offer registration statement under
the Securities Act.
OTHER
Participation in the exchange offer is voluntary and holders of old notes
should carefully consider whether to accept the terms and conditions of the
exchange offer. Holders of the old notes are urged to consult their financial
and tax advisors in making their own decisions on what action to take with
respect to the exchange offer.
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DESCRIPTION OF THE NOTES
The new notes are issued pursuant to the indenture, dated as of January 15,
1999, between Loral and The Bank of New York, as trustee. The terms of the new
notes are identical in all material respects to the terms of the old notes,
except that the new notes have been registered under the Securities Act and,
therefore,
- will not bear legends restricting their transfer and
- will not contain certain terms providing for an increase in the interest
rate under the circumstances described in the registration rights
agreement.
The indenture and its associated documents contain the full legal text of
the matters described in this section. A copy of the indenture has been filed
with the SEC as part of our registration statement. See "Where You Can Find More
Information" on page 101 on how to obtain a copy.
The following description is a summary of the material provisions of the
indenture. It does not restate that agreement in its entirety. In this section,
capitalized words signify defined terms that have been given special meaning in
the indenture. We describe the meaning only for the most important terms under
"Certain Definitions."
For purposes of this section, "Loral" refers to Loral Space &
Communications Ltd. and does not include its subsidiaries except for purposes of
financial data on a consolidated basis.
BRIEF DESCRIPTION OF THE NOTES
These notes:
- are general unsecured obligations of Loral;
- will mature on January 15, 2006;
- are structurally junior in right of payment to all existing and future
Indebtedness of Loral's subsidiaries, including Indebtedness incurred
under the Credit Agreement;
- are equal in right of payment with all existing and future senior
Indebtedness of Loral (except as to assets pledged to secure such
Indebtedness); and
- are senior in right of payment to any future Indebtedness which is by its
terms junior in right of payment to any senior Indebtedness of Loral.
As of the date of this prospectus, all of Loral's subsidiaries are
"Restricted Subsidiaries." However, under the circumstances described below
under the caption "-- Covenants -- Designation of Restricted and Unrestricted
Subsidiaries," Loral is permitted to designate certain of its subsidiaries as
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"Unrestricted Subsidiaries." Unrestricted Subsidiaries will not be subject to
many of the restrictive covenants in the indenture.
The indenture under which the notes are issued permits Loral and its
Restricted Subsidiaries (based on Loral's December 31, 1998 financial condition)
to incur at least $3.5 billion of additional Indebtedness, and does not limit
the amount of debt Loral's Restricted Subsidiaries may incur which is without
legal recourse to Loral. Indebtedness incurred by Loral's subsidiaries will be
effectively senior to the notes as to the assets of the borrowing subsidiary.
Such Indebtedness may also be secured, in which case it will be effectively
senior to the notes as to these assets. The other restrictive covenants
contained in the indenture contain similarly broad exceptions and
qualifications. For example, the indenture permits Loral to make investments in
affiliates that it does not control.
PRINCIPAL, MATURITY AND INTEREST
The indenture permits Loral to issue notes in a maximum aggregate principal
amount of $500 million. $350 million were issued in the offering on January 21,
1999. Loral has and will issue notes in denominations of $1,000 and integral
multiples of $1,000. The issued notes will mature on January 15, 2006.
Interest on the notes will accrue at the rate of 9 1/2% per annum and will
be payable semi-annually in arrears on January 15 and July 15, commencing on
July 15, 1999. Loral will make each interest payment to the holders of record on
the immediately preceding January 1 and July 1.
Interest on the notes will accrue from the Issue Date or, if interest has
already been paid, from the date it was most recently paid. Interest will be
computed on the basis of a 360-day year comprised of twelve 30-day months.
METHODS OF RECEIVING PAYMENTS ON THE NOTES
If the holder has given wire transfer instructions to Loral, it will pay
all principal, interest and premium payments on the holder's notes in accordance
with those instructions. All other payments on notes will be made at the office
or agency of the paying agent and registrar within the City and State of New
York unless Loral elects to make interest payments by check mailed to each
holder at the holder's address set forth in the register of holders.
PAYING AGENT AND REGISTRAR FOR THE NOTES
The trustee will initially act as paying agent and registrar. Loral may
change the paying agent or registrar without prior notice to the holders, and
Loral or any of its subsidiaries may act as paying agent or registrar.
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TRANSFER AND EXCHANGE
A holder may transfer or exchange notes in accordance with the indenture.
The registrar and the trustee may require the holders, among other things, to
furnish appropriate endorsements and transfer documents and Loral may require
the holders to pay any taxes and fees required by law or permitted by the
indenture. Loral is not required to transfer or exchange any note selected for
redemption. Also, Loral is not required to transfer or exchange any note for a
period of 15 days before a selection of notes to be redeemed.
The registered holder of a note will be treated as the owner of it for all
purposes.
OPTIONAL REDEMPTION
Before January 15, 2002, Loral may on any one or more occasions redeem up
to 35% of the aggregate principal amount of notes originally issued under the
indenture at a redemption price of 109.500% of the principal amount thereof,
plus accrued and unpaid interest, Additional Amounts and Liquidated Damages, if
any, to the redemption date, with the net cash proceeds of one or more equity
offerings; provided that:
(1) at least 65% of the aggregate principal amount of notes originally
issued remain outstanding immediately after each such redemption,
excluding notes held by Loral and its subsidiaries; and
(2) the redemption must occur within 60 days of the date of the closing of
such equity offering.
Except according to the preceding paragraph and as described in "-- Special
Tax Redemption," the notes will not be redeemable at our option before January
15, 2003.
On or after January 15, 2003, Loral may redeem all or part of the notes
upon not less than 30 nor more than 60 days' notice, at the redemption prices
described in the table below plus accrued and unpaid interest, Additional
Amounts and Liquidated Damages, if any, to the applicable redemption date, if
redeemed during the twelve-month period beginning on January 15 of the years
indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ---- ----------
<S> <C>
2003........................................................ 104.750%
2004........................................................ 102.375%
2005 and thereafter......................................... 100.000%
</TABLE>
Redemption prices are expressed as percentages of principal amount.
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<PAGE> 45
SPECIAL TAX REDEMPTION
If Loral determines, based upon an opinion of counsel, that it has become
or would become obligated to pay, on the next date on which any amount would be
payable with respect to a note, any Additional Amounts as a result of a change
in or an amendment to the laws (including any regulations promulgated under
these laws) of any relevant jurisdiction, or any change in or amendment to any
official position regarding the application or interpretation of these laws or
regulations, which change or amendment becomes effective on or after the date of
this prospectus and which change shall not have been disclosed to the public
before the date of this prospectus, and that this obligation cannot be avoided
by us taking reasonable measures Loral may redeem, at its option, all the
affected notes -- but, except pursuant to clause (c) below, not less than all
the affected notes -- on not less than 30 nor more than 60 days' notice, at 100%
of the principal amount thereof, plus accrued and unpaid interest, if any, and
Liquidated Damages, if any, to the date of redemption, subject to the right of
holders of record on the relevant record date to receive interest due on the
relevant interest payment date, (such optional redemption, a "Special Tax
Redemption"); provided, however, that
(a) no such notice of redemption may be given earlier than 60 days prior to
the earliest date on which Loral would be obligated to pay such
Additional Amounts were a payment in respect of the notes then due,
(b) at the time any such Special Tax Redemption notice is given, the
obligation to pay such Additional Amounts must remain in effect; and
(c) Loral may redeem the affected notes in part if it redeems all affected
notes held by holders in respect of which, as a result of the
foregoing, Loral is or would be obligated to pay Additional Amounts
based on a withholding tax rate in excess of 10%.
Notwithstanding the foregoing, Loral may not redeem the affected notes if
it is obligated to pay any Additional Amounts as a result of a change in or an
amendment to the laws, including regulations promulgated thereunder, or any
change in or amendment to any official position regarding the application or
interpretation of those laws or regulations, of a relevant jurisdiction that
occurs or is disclosed on or before the six month anniversary of the date on
which the relevant jurisdiction became a relevant jurisdiction. However, if
Loral reincorporates in the United States and Additional Amounts are payable
with respect to taxes imposed by the United States or any political subdivision
or taxing authority thereof or therein, this restriction on the Loral's ability
to redeem the affected notes shall not apply.
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Unless the change of law occurs or is disclosed before the date of such
reincorporation and shall not apply if, absent such reincorporation,
(a) Loral would nonetheless have been required to pay Additional Amounts
with respect to such affected notes in respect of such United States
taxes and
(b) without regard to this proviso, Loral would have been entitled to
redeem such affected notes under a Special Tax Redemption as a result
of such payment of Additional Amounts.
MANDATORY REDEMPTION
Loral is not required to make mandatory redemption or sinking fund payments
with respect to these notes.
ADDITIONAL AMOUNTS
All payments of principal of, premium, if any, Liquidated Damages, if any,
and interest on each note will be made free and clear of, and without
withholding or deduction for, any present or future taxes, duties, assessments
or governmental charges of whatever nature (collectively, "Taxes") imposed,
levied, collected, withheld or assessed by or within any jurisdiction in which
Loral is then incorporated (or the jurisdiction of incorporation of any
successor of Loral) or any other jurisdiction in which Loral (or Loral's
successor) are resident for tax purposes or any political subdivision or taxing
authority thereof or therein, unless such withholding or deduction is required
by law or by regulation or governmental policy having the force of law. In the
event that any such withholding or deduction in respect of principal, premium,
if any, liquidated damages, if any, or interest is so required, Loral, or any
successor, will pay those Additional Amounts as will result in receipt by each
holder of the notes of the gross amount as would have been received by the
holder or the beneficial owner with respect to this note, as applicable, had no
such withholding or deduction (including any withholding or deduction applicable
to Additional Amounts payable) been required, except that no Additional Amounts
will be payable for or on account of:
(1) Taxes that would not have been imposed but for
(a) the existence of any present or former connection between a holder
or a beneficial owner (or between a fiduciary, settler,
beneficiary, member or shareholder of, or possessor of a power
over, a holder, if the holder is an estate, trust, partnership or
corporation) and the relevant jurisdiction, including if this
holder (or such fiduciary, settler, beneficiary, member,
shareholder or possessor) is or has been a national, domiciliary
or resident of or treated as a resident thereof or having been
present or engaged in a trade or business therein or having had a
permanent establishment therein; or
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<PAGE> 47
(b) Section 881(c)(3)(A) of the Internal Revenue Code of 1986, as
amended (or any successor provision);
(2) any estate, inheritance, gift, sale, transfer or similar tax,
assessment or other governmental charge;
(3) any tax that is imposed or withheld by reason of a holder's failure or
a beneficial owner's failure to timely comply with Loral's request,
addressed to the holders (a) to provide reasonably required or
requested information concerning a holder's nationality, residence or
identity or those of a beneficial owner or (b) to make any reasonably
required or requested declaration, filing or claim or satisfy any
reasonably required or requested information or reporting requirement,
which, in the case of (a) or (b), is required or imposed by statute,
treaty, regulation or administrative practice of the taxing
jurisdiction as a precondition to exemption from all or part of such
tax; provided, however, that (i) providing information required by IRS
Forms W-8, 1001 and 4224 and any successors thereto and (ii) the
execution and delivery of such forms is deemed to be reasonably
required or requested; or
(4) any combination of (1), (2) and (3);
nor shall Additional Amounts be paid with respect to payment of the principal of
or any premium or interest on any such note, to any holder (including any
fiduciary or partnership) to the extent that the beneficial owner would not have
been entitled to such Additional Amounts had it been the holder of the note.
Where required by applicable law, Loral or any paying agent, as the case
may be, will also
(a) make such withholding or deduction in respect of any taxes and
(b) remit the full amount withheld or deducted to the relevant authority in
accordance with applicable law.
Loral will furnish to each holder, within 30 days after the date the
payment of any taxes is due pursuant to applicable law, certified copies of tax
receipts satisfactory to the trustee evidencing such payment by Loral.
Whenever there is mentioned in any context the payment of principal of or
any premium or interest on, or in respect of, a note, or the net proceeds
received from Loral on the sale or exchange of any note, such mention shall be
deemed to include mention of the payment of Additional Amounts provided for in
the indenture to the extent that, in such context, Additional Amounts are, were,
or would be payable in respect thereof pursuant to the indenture.
Loral will pay any present or future stamp, court or documentary taxes or
any other excise or property taxes, charges, or similar levies that arise in any
jurisdiction from the execution, delivery, enforcement or registration of the
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<PAGE> 48
notes or any other document or instrument relating thereto, or the receipt of
any payments with respect to the notes, excluding such taxes, charges, or
similar levies imposed by any jurisdiction outside of any jurisdiction in which
Loral or the paying agent are located or incorporated (except those resulting
from or required to be paid in connection with, the enforcement of the notes or
any other such document or instrument following the occurrence of any event of
default with respect to the notes), and has agreed to indemnify each holder for
any such taxes paid by the holder.
The foregoing obligations shall survive any termination, defeasance or
discharge of the indenture.
REPURCHASE AT THE OPTION OF HOLDERS
CHANGE OF CONTROL
If a Change of Control occurs, each holder will have the right to require
Loral to repurchase all or any part (equal to $1,000 or an integral multiple
thereof) of the holder's notes pursuant to a Change of Control Offer. In the
Change of Control Offer, Loral will offer a Change of Control Payment in cash
equal to 101% of the aggregate principal amount of notes to be repurchased plus
accrued and unpaid interest thereon and Liquidated Damages (if any), to the date
of purchase. Within ten days following any Change of Control, Loral will mail a
notice to each holder describing the transaction or transactions that constitute
the Change of Control and offering to repurchase notes on the Change of Control
Payment Date specified in such notice, pursuant to the procedures required by
the indenture and described in such notice. Loral will comply with the
requirements of Rule 14e-1 under the Exchange Act and any other securities laws
and regulations thereunder to the extent such laws and regulations are
applicable in connection with the repurchase of the notes as a result of a
Change of Control. To the extent that the provisions of any securities laws or
regulations conflict with the Change of Control provisions of the indenture,
Loral shall comply with the applicable securities laws and regulations and shall
not be deemed to have breached its obligations under the Change of Control
provisions of the indenture by virtue of such conflict.
On the Change of Control Payment Date, Loral will, to the extent lawful:
(1) accept for payment all notes or portions thereof properly tendered
pursuant to the Change of Control Offer;
(2) deposit with the paying agent an amount equal to the Change of Control
Payment in respect of all notes or portions thereof so tendered; and
(3) deliver or cause to be delivered to the trustee the notes so accepted
together with an Officers' Certificate stating the aggregate principal
amount of notes or portions thereof being purchased by Loral.
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<PAGE> 49
The paying agent will promptly mail to each holder so tendered the Change
of Control Payment for these notes, and the trustee will promptly authenticate
and mail (or cause to be transferred by book entry) to each holder a new note
equal in principal amount to any unpurchased portion of the notes surrendered,
if any; provided that each new note will be in a principal amount of $1,000 or
an integral multiple thereof.
Loral will publicly announce the results of the Change of Control Offer on
or as soon as practicable after the Change of Control Payment Date.
The provisions described above that require Loral to make a Change of
Control Offer following a Change of Control will be applicable regardless of
whether or not any other provisions of the indenture are applicable. Except as
described above with respect to a Change of Control, the indenture does not
contain provisions that permit Loral to require that Loral repurchases or
redeems the notes in the event of a takeover, recapitalization or similar
transaction.
Loral's other indebtedness may contain prohibitions of certain events that
would constitute a Change of Control. In addition, the exercise of a holder's
right to require Loral to repurchase the notes upon a Change of Control could
cause a default under or be restricted by other indebtedness, including the
Credit Agreement, even if the Change of Control itself does not, due to the
financial effect of such repurchases on Loral. Finally, Loral's ability to pay
cash to holders of notes upon a repurchase may be limited by Loral's then
existing financial resources.
Loral will not be required to make a Change of Control Offer upon a Change
of Control if a third party makes the Change of Control Offer in the manner, at
the times and otherwise in compliance with the requirements set forth in the
indenture applicable to a Change of Control Offer made by Loral and purchases
all notes validly tendered and not withdrawn under such Change of Control Offer.
The definition of Change of Control includes a phrase relating to the
direct or indirect sale, lease, transfer, conveyance or other disposition of
"all or substantially all" of the properties or assets of Loral and its
Restricted Subsidiaries taken as a whole. Although there is a limited body of
case law interpreting the phrase "substantially all," there is no precise
established definition of the phrase under applicable law. Accordingly, the
ability of a holder of notes to require Loral to repurchase such notes as a
result of a sale, lease, transfer, conveyance or other disposition of less than
all of the assets of Loral and its Restricted Subsidiaries taken as a whole to
another Person or group may be uncertain.
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<PAGE> 50
ASSET SALES
Loral will not, and will not permit any Restricted Subsidiary to,
consummate an Asset Sale unless:
(1) Loral (or the Restricted Subsidiary, as the case may be) receives
consideration at the time of such Asset Sale at least equal to the fair
market value of the assets or Equity Interests issued or sold or
otherwise disposed of;
(2) such fair market value is (a) determined by two Officers of Loral if
the fair market value is less than $25 million or (b) determined by
Loral's Board of Directors and evidenced by a resolution of the Board
of Directors if the fair market value is $25 million or greater, and,
in each case, such fair market value is set forth in an Officers'
Certificate delivered to the trustee; and
(3) at least 75% of the consideration therefor received by Loral or such
Restricted Subsidiary is in the form of cash or Cash Equivalents. Only
for purposes of this clause (3), each of the following shall be deemed
to be cash:
(a) any liabilities (as shown on Loral's or such Restricted
Subsidiary's most recent balance sheet), of Loral or any
Restricted Subsidiary (other than contingent liabilities and
liabilities that are by their terms junior in right of payment to
the notes) that are assumed by the transferee of any such assets
pursuant to a customary novation agreement that releases Loral or
such Restricted Subsidiary from further liability;
(b) any securities, notes or other obligations received by Loral or
any such Restricted Subsidiary from such transferee that are
contemporaneously (subject to ordinary settlement periods)
converted by Loral or such Restricted Subsidiary into cash (to the
extent of the cash received in that conversion);
(c) any assets described in clause (2) or (4) of the next succeeding
paragraph;
(d) Marketable Securities; and
(e) Designated Other Permitted Consideration; provided that the
aggregate fair market value (as determined above) of such
Designated Other Permitted Consideration, taken together with the
fair market value at the time of receipt of all other Designated
Other Permitted Consideration received pursuant to this clause
(e), less the amount of net cash proceeds previously realized in
cash from prior Designated Other Permitted Consideration is less
than 5% of Loral's Consolidated Tangible Assets at the time of the
receipt of such Designated Other Permitted
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Consideration (with the fair market value of each item of
Designated Other Permitted Consideration being measured at the
time received and without giving effect to subsequent changes in
value).
Within 360 days after the receipt of any Net Proceeds from an Asset Sale,
Loral may apply (or, in the case of clause (2), (3) or (4) below, enter into a
binding commitment to apply) such Net Proceeds:
(1) to repay Indebtedness of Loral or any Restricted Subsidiary which is
not junior in right of payment to the notes;
(2) to acquire all or substantially all of the assets of, or a majority of
the Voting Stock of, another Permitted Business or to purchase Equity
Interests of a Restricted Subsidiary from another Person;
(3) to make a capital expenditure in a Permitted Business or to make an
Investment in a Permitted Venture; or
(4) to acquire or to acquire the right to use other long-term assets that
are used or useful in a Permitted Business.
Pending the final application of any such Net Proceeds, Loral may
temporarily reduce revolving credit borrowings or otherwise invest such Net
Proceeds in any manner that is not prohibited by the indenture.
Any Net Proceeds from Asset Sales that are not applied or invested as
provided in the second preceding paragraph will constitute "Excess Proceeds."
When the aggregate amount of Excess Proceeds exceeds $15 million, Loral will
make an Asset Sale Offer to all holders of notes and all holders of other
Indebtedness that is equal in right of payment with the notes containing
provisions similar to those set forth in the indenture with respect to offers to
purchase or redeem with the proceeds of sales of assets to purchase the maximum
principal amount of notes and such other Indebtedness which is equal in right of
payment to the notes that may be purchased out of the Excess Proceeds. The offer
price in any Asset Sale Offer will be equal to 100% of principal amount plus
accrued and unpaid interest and Liquidated Damages (if any) to the date of
purchase, and will be payable in cash. If any Excess Proceeds remain after
consummation of an Asset Sale Offer, Loral may use such Excess Proceeds for any
purpose not otherwise prohibited by the indenture. If the aggregate principal
amount of notes and such other Indebtedness which is equal in right of payment
to the notes tendered into such Asset Sale Offer exceeds the amount of Excess
Proceeds, the trustee shall select the notes and such other Indebtedness which
is equal in right of payment to the notes to be purchased on a proportional
basis based on the principal amount of notes and such other Indebtedness which
is equal in right of payment to the notes tendered. Upon completion of each
Asset Sale Offer, the amount of Excess Proceeds shall be reset at zero.
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Loral will comply with the requirements of Rule 14e-1 under the Exchange
Act and any other securities laws and regulations thereunder to the extent such
laws and regulations are applicable in connection with each repurchase of notes
pursuant to an Asset Sale Offer. To the extent that the provisions of any
securities laws or regulations conflict with the Asset Sales provisions of the
indenture, Loral will comply with the applicable securities laws and regulations
and will not be deemed to have breached its obligations under the Asset Sale
provisions of the indenture by virtue of such conflict.
SELECTION AND NOTICE
If less than all of the notes are to be redeemed at any time (other than as
permitted by the provisions of the indenture described under "-- Special Tax
Redemption"), the trustee will select notes for redemption as follows:
(1) if the notes are listed, in compliance with the requirements of the
principal national securities exchange on which the notes are listed;
or
(2) if the notes are not so listed, on a proportional basis, by lot or by
such other method as the trustee shall deem fair and appropriate.
No notes of $1,000 or less shall be redeemed in part. Notices of redemption
shall be mailed by first class mail at least 30 but not more than 60 days before
the redemption date to each holder of notes to be redeemed at its registered
address. Notices of redemption may not be conditional.
If any note is to be redeemed in part only, the notice of redemption that
relates to that note shall state the portion of the principal amount thereof to
be redeemed. A new note in principal amount equal to the unredeemed portion of
the original note will be issued in the name of the holder of the note upon
cancellation of the original note. Notes called for redemption become due on the
date fixed for redemption. On and after the redemption date, interest ceases to
accrue on notes or portions of them called for redemption.
COVENANTS
In the indenture, Loral agreed to certain restrictions that limit its and
its Restricted Subsidiaries' ability to:
(1) pay dividends;
(2) acquire Equity Interests of Loral or any of its Restricted
Subsidiaries;
(3) redeem Indebtedness of Loral which is junior in right of payment to
the notes;
(4) make Restricted Investments;
(5) incur Indebtedness;
(6) issue Preferred Stock of our Restricted Subsidiaries;
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(7) create Liens;
(8) engage in sale and leaseback transactions;
(9) with respect to its Restricted Subsidiaries, pay dividends, make loans
or advances to Loral or any other Restricted Subsidiary or transfer
any of its property or assets to Loral or any other Restricted
Subsidiary;
(10) make Asset Sales;
(11) with respect to Loral, consolidate or merge with or into another
Person or sell all or substantially all of the properties or assets of
Loral and its Restricted Subsidiaries, taken as a whole, to another
Person;
(12) enter into transactions with Affiliates; and
(13) with respect to any of our Restricted Subsidiaries, guarantee or
pledge any assets to secure the payment of any other Indebtedness of
Loral.
In addition, if a change of Control occurs, each holder of notes will have
the right to require Loral to repurchase all or part of the holder's notes at a
price equal to 101% of their principal amount plus accrued and unpaid interest
to the date of purchase.
The above limitations are "restrictive covenants" that are promises that
Loral makes to you about how Loral will run its business, or business actions
that Loral promises not to take. A more detailed description of the restrictive
covenants and the exception to them follows below.
RESTRICTED PAYMENTS
Loral will not, and will not permit any Restricted Subsidiary to, directly
or indirectly:
(1) declare or pay any dividend or make any other payment or distribution
on account of Loral's or any of its Restricted Subsidiaries' Equity
Interests (including, without limitation, any distribution, dividend or
payment in connection with any merger or consolidation involving Loral
or any of its Restricted Subsidiaries) or to the direct or indirect
holders of Loral's or any of its Restricted Subsidiaries' Equity
Interests in their capacity as such (other than dividends or
distributions payable in Equity Interests (other than Disqualified
Stock) of Loral or to Loral or a Restricted Subsidiary of Loral);
(2) purchase, redeem or otherwise acquire or retire for value (including,
without limitation, in connection with any merger or consolidation
involving Loral) any Equity Interests of Loral, any Restricted
Subsidiary of Loral or any direct or indirect parent of Loral;
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(3) make any payment on or with respect to, or purchase, redeem, defease or
otherwise acquire or retire for value any Indebtedness that is junior
in right of payment to the notes, except the scheduled payment of
interest or principal at the Stated Maturity thereof; or
(4) make any Restricted Investment
(all such payments and other actions set forth in clauses (1) through (4)
above being collectively referred to as "Restricted Payments"),
unless, at the time of and after giving effect to such Restricted Payment:
(1) no Default or Event of Default shall have occurred and be continuing or
would occur as a consequence thereof; and
(2) Loral would, at the time of such Restricted Payment and after giving
pro forma effect thereto as if such Restricted Payment had been made at
the beginning of the applicable four-quarter period, have been
permitted to incur at least $1.00 of additional Indebtedness pursuant
to either test set forth in the first paragraph of the covenant
described below under the caption "-- Incurrence of Indebtedness and
Issuance of Preferred Stock;" and
(3) such Restricted Payment, together with the aggregate amount of all
other Restricted Payments made by Loral and its Restricted Subsidiaries
after the date of this prospectus (excluding Restricted Payments
permitted by clauses (2), (3), (4) and (6) of the next succeeding
paragraph) is less than the sum, without duplication, of:
(a) 50% of the Consolidated Net Income of Loral for the period (taken
as one accounting period) from the beginning of the first fiscal
quarter commencing after the Issue Date to the end of Loral's most
recently ended fiscal quarter for which internal financial
statements are available at the time of such Restricted Payment
(or, if such Consolidated Net Income for such period is a deficit,
less 100% of such deficit); plus
(b) 100% of the aggregate net cash proceeds received by Loral since
the Issue Date as a contribution to its common equity capital or
from the issue or sale of Equity Interests of Loral (other than
Disqualified Stock) or from the issue or sale of Disqualified
Stock or debt securities of Loral that have been converted into or
exchanged for such Equity Interests (other than Equity Interests
(or Disqualified Stock or convertible debt securities) sold to a
Subsidiary of Loral), except to the extent such net cash proceeds
are used to increase the amount of dividends on Preferred Stock of
Loral or the amount of Restricted Investments that may be made
pursuant to clause (7) of the next succeeding paragraph; plus
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(c) 100% of the fair market value (as determined by Loral's Board of
Directors and evidenced by a resolution of the Board of Directors
set forth in an Officers' Certificate delivered to the trustee) of
assets used or useful in a Permitted Business received by Loral
since the Issue Date as a contribution to its common equity
capital or from the issue or sale of Equity Interests of Loral
(other than Disqualified Stock); plus
(d) to the extent not already included in Consolidated Net Income of
Loral for such period, if any Restricted Investment that was made
by Loral or any Restricted Subsidiary after the Issue Date is sold
for cash or otherwise liquidated or repaid for cash, the lesser of
(A) the cash return of capital with respect to such Restricted
Investment (less the cost of disposition, if any) and
(B) the initial amount of such Restricted Investment or
designated amount of Unrestricted Subsidiary; plus
(e) to the extent that any Unrestricted Subsidiary is designated by
Loral as a Restricted Subsidiary after the Issue Date, an amount
equal to the lesser of
(A) the net book value of Loral's Investment in such
Unrestricted Subsidiary at the time of such designation and
(B) the fair market value of Loral's Investment in such
Unrestricted Subsidiary at the time of such designation.
The preceding provisions will not prohibit:
(1) the payment of any dividend within 60 days after the date of
declaration thereof, if at said date of declaration such payment would
have complied with the provisions of the indenture;
(2) the redemption, repurchase, retirement, defeasance or other
acquisition of any Indebtedness junior in right of payment of Loral or
of any Equity Interests of Loral or any Restricted Subsidiary in
exchange for, or out of the net cash proceeds of the substantially
concurrent sale (other than to a subsidiary of Loral) of, Equity
Interests of Loral (other than Disqualified Stock); provided that the
amount of any such net cash proceeds that are utilized for any such
redemption, repurchase, retirement, defeasance or other acquisition
shall be excluded from clause (3)(b) of the preceding paragraph;
(3) the defeasance, redemption, repurchase or other acquisition of
Indebtedness of Loral junior by its terms in right of payment to
senior Indebtedness of Loral with the net cash proceeds from an
incurrence of Permitted Refinancing Indebtedness;
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(4) the payment of any dividend or distribution by a Restricted Subsidiary
of Loral to the holders of its common Equity Interests so long as
Loral or such Restricted Subsidiary receives at least its proportional
share (and in like form) of such dividend or distribution in
accordance with its common Equity Interests;
(5) the repurchase, redemption or other acquisition or retirement for
value of any Equity Interests of Loral or any Restricted Subsidiary of
Loral held by any employee of Loral or a Restricted Subsidiary or
member of Loral's (or any of its Restricted Subsidiaries') management
pursuant to any equity subscription agreement or stock option
agreement; provided that the aggregate price paid for all such
repurchased, redeemed, acquired or retired Equity Interests shall not
exceed $10 million;
(6) the purchase by a Restricted Subsidiary of shares of Capital Stock of
Loral from Loral or the deemed repurchase of Capital Stock by Loral or
a Restricted Subsidiary on the exercise of stock options;
(7) payments of dividends by Loral on Preferred Stock of Loral or the
making of Restricted Investments by Loral or any Restricted Subsidiary
in an aggregate amount not to exceed 100% of the aggregate net cash
proceeds received by Loral since the Issue Date from the issue or sale
of Equity Interests of Loral (other than Disqualified Stock); provided
that the amount of any such net cash proceeds that are utilized for
any such dividend payment or Restricted Investment shall be excluded
from clause (3)(b) of the immediately preceding paragraph;
(8) the purchase by Loral or a Restricted Subsidiary of Equity Interests
in a Restricted Subsidiary from another Person;
(9) scheduled dividends payable on the Series C Preferred Stock;
(10) payment of dividends on Preferred Stock of a Restricted Subsidiary;
and
(11) other Restricted Payments in an aggregate principal amount not to
exceed $25 million;
provided that Loral will not and will not permit any of its Restricted
Subsidiaries to make any Restricted Payment contemplated by clauses (2) through
(10) above so long as a Default has occurred and is continuing.
The amount of all Restricted Payments (other than cash) shall be the fair
market value on the date of the Restricted Payment of the assets or securities
proposed to be transferred or issued to or by Loral or such Restricted
Subsidiary, as the case may be, pursuant to the Restricted Payment. The fair
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market value of any assets or securities that are required to be valued by this
covenant shall be either
(a) determined by the Board of Directors whose resolution with respect
thereto shall be delivered to the trustee or
(b) based upon an opinion or appraisal issued by an accounting, appraisal
or investment banking firm of international standing if the fair market
value exceeds $25 million. Not later than the date of making any
Restricted Payment, Loral shall deliver to the trustee an Officers'
Certificate stating that such Restricted Payment is permitted and
setting forth the basis upon which the calculations required by this
"Restricted Payments" covenant were computed, together with a copy of
any fairness opinion or appraisal required by the indenture.
INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK
Loral will not, and will not permit any of its Restricted Subsidiaries to,
directly or indirectly, create, incur, issue, assume, guarantee or otherwise
become directly or indirectly liable, contingently or otherwise, with respect to
(collectively, "incur") any Indebtedness (including Acquired Debt), and Loral
will not issue any Disqualified Stock and will not permit any of its Restricted
Subsidiaries to issue any shares of Preferred Stock; provided, however, that
Loral or any Restricted Subsidiary may incur Indebtedness (including Acquired
Debt), and Loral may issue Disqualified Stock, and any Restricted Subsidiary may
issue Preferred Stock, if, after giving effect to the incurrence of such
Indebtedness or the issuance of such Disqualified Stock or Preferred Stock and
the application of the proceeds thereof, no Default would occur as a consequence
of such incurrence or issuance or be continuing following such incurrence or
issuance and either
(1) the Consolidated Leverage Ratio of Loral would be less than 5.0 to 1.0,
or
(2) Loral's Consolidated Capital Ratio as of the most recent available
quarterly or annual balance sheet is less than 2.0 to 1.0.
As of December 31, 1998, on a pro forma basis after giving effect to this
offering of the notes and the use of proceeds therefrom, Loral's Consolidated
Capital Ratio would have been approximately 0.8 to 1.0.
The first paragraph of this covenant will not prohibit the incurrence of
any of the following items of Indebtedness (collectively, "Permitted Debt"):
(1) the incurrence by Loral and its Restricted Subsidiaries of additional
Indebtedness and letters of credit pursuant to Credit Facilities in an
aggregate principal amount at any one time outstanding under this
clause (1) not to exceed $850 million as of such date of incurrence
less the aggregate amount of all Net Proceeds of Asset Sales applied
to repay term Indebtedness outstanding under one or more Credit
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Facilities pursuant to clause (1) of the second paragraph of the
covenant described under the caption "-- Repurchase at the Option of
Holders -- Asset Sales";
(2) the incurrence by Loral and its Restricted Subsidiaries of Existing
Indebtedness;
(3) the incurrence by Loral of Indebtedness represented by the notes to be
issued on the Issue Date;
(4) the issuance by a Subsidiary of Preferred Stock or the incurrence by
Loral's Subsidiaries of Non-Recourse Debt (including Acquired Debt
that constitutes Non-Recourse Debt); provided, however, that if any
such Indebtedness ceases to be Non-Recourse Debt of a Subsidiary, such
event shall be deemed to constitute an incurrence of Indebtedness by a
Restricted Subsidiary of Loral that was not permitted by this clause
(4);
(5) the incurrence by Loral or any of its Restricted Subsidiaries of
Permitted Refinancing Indebtedness in exchange for, or the net
proceeds of which are used to refund, refinance or replace
Indebtedness (other than intercompany Indebtedness) that was permitted
by the indenture to be incurred under the first paragraph of this
covenant or clauses (2), (3) or (5) of this paragraph;
(6) the incurrence by Loral or any of its Restricted Subsidiaries of
intercompany Indebtedness between or among Loral and any of its
Restricted Subsidiaries; provided, however, that:
(a) if Loral is the obligor on such Indebtedness, such Indebtedness
must be expressly junior in right of payment to all Obligations
with respect to the notes and the indenture; and
(b)
(A) any subsequent issuance or transfer of Equity Interests that
results in any such Indebtedness being held by a Person other
than Loral or a Restricted Subsidiary thereof and
(B) any sale or other transfer of any such Indebtedness to a
Person that is not either Loral or a Restricted Subsidiary
thereof shall be deemed, in each case, to constitute an
incurrence of such Indebtedness by Loral or such Restricted
Subsidiary, as the case may be, that was not permitted by
this clause (6);
(7) the incurrence by Loral or any of its Restricted Subsidiaries of
Hedging Obligations that are incurred for the purpose of fixing or
hedging interest rate risk or currency exchange rate risk;
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(8) the accrual of interest, the accretion or amortization of original
issue discount, the payment of interest on any Indebtedness in the
form of additional Indebtedness with the same terms, and the payment
of dividends on Disqualified Stock or Preferred Stock in the form of
additional shares of the same class of Disqualified Stock or Preferred
Stock, as the case may be, will not be deemed to be an incurrence of
Indebtedness or an issuance of Disqualified Stock or Preferred Stock
for purposes of this covenant;
(9) the incurrence by Loral or any of its Restricted Subsidiaries of
additional Indebtedness in an aggregate principal amount (or accreted
value, as applicable) at any time outstanding, including all Permitted
Refinancing Indebtedness incurred to refund, refinance or replace any
Indebtedness incurred pursuant to this clause (9), not to exceed $50
million; or
(10) the incurrence by Restricted Subsidiaries of Guarantees of
Indebtedness of Loral or any Restricted Subsidiary that is not junior
in right of payment to the notes.
Loral will not incur any Indebtedness (including Permitted Debt) that is
contractually junior in right of payment to any other Indebtedness of Loral
unless such Indebtedness is also contractually junior in right of payment to the
notes on substantially identical terms; provided, however, that no Indebtedness
of Loral shall be deemed to be contractually junior in right of payment to any
other Indebtedness of Loral solely by virtue of being unsecured.
For purposes of determining compliance with this "Incurrence of
Indebtedness and Issuance of Preferred Stock" covenant, in the event that an
item of proposed Indebtedness meets the criteria of more than one of the
categories of Permitted Debt described in clauses (1) through (10) above, or is
entitled to be incurred pursuant to the first paragraph of this covenant, Loral
will be permitted to classify such item of Indebtedness on the date of its
incurrence in any manner that complies with this covenant.
LIENS
Loral will not, and will not permit any of its Restricted Subsidiaries to,
directly or indirectly, create, incur, assume or suffer to exist any Lien of any
kind on any asset now owned or hereafter acquired, except Permitted Liens.
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SALE AND LEASEBACK TRANSACTIONS
Loral will not, and will not permit any of its Restricted Subsidiaries to,
enter into any sale and leaseback transaction; provided that Loral or any
Restricted Subsidiary may enter into a sale and leaseback transaction if:
(1) Loral or such Restricted Subsidiary, as applicable, could have
(a) incurred Indebtedness in an amount equal to the Attributable Debt
relating to such sale and leaseback transaction under the covenant
described above under the caption "-- Incurrence of Indebtedness
and Issuance of Preferred Stock" and
(b) incurred a Lien to secure such Indebtedness pursuant to the
covenant described above under the caption "-- Liens";
(2) the gross cash proceeds of such sale and leaseback transaction are at
least equal to the fair market value, as determined in good faith by
the Board of Directors and set forth in an Officers' Certificate
delivered to the trustee, of the property that is the subject of such
sale and leaseback transaction; and
(3) the transaction complies with the covenant described above under the
caption "-- Repurchase at the Option of Holders -- Asset Sales."
DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED SUBSIDIARIES
Loral will not, and will not permit any of its Restricted Subsidiaries to,
directly or indirectly, create or permit to exist or become effective any
consensual encumbrance or restriction on the ability of any Restricted
Subsidiary to:
(1) pay dividends or make any other distributions on its Capital Stock to
Loral or any of its Restricted Subsidiaries, or with respect to any
other interest or participation in, or measured by, its profits, or
pay any indebtedness owed to Loral or any of its Restricted
Subsidiaries;
(2) make loans or advances to Loral or any of its Restricted Subsidiaries;
or
(3) transfer any of its properties or assets to Loral or any of its
Restricted Subsidiaries.
However, the preceding restrictions will not apply to encumbrances or
restrictions existing under or by reason of:
(1) Existing Indebtedness as in effect on the Issue Date and any
amendments, modifications, restatements, renewals, increases,
supplements, refundings, replacements or refinancings thereof,
provided that such amendments, modifications, restatements,
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renewals, increases, supplements, refundings, replacement or
refinancings are no more restrictive, taken as a whole, with respect
to such dividend and other payment restrictions than those contained
in such Existing Indebtedness, as in effect on the Issue Date;
(2) any customary (as conclusively determined in good faith by the Chief
Financial Officer of Loral) encumbrance or restriction applicable to
Loral or a Restricted Subsidiary that is contained in an agreement or
instrument governing or relating to Indebtedness of Loral or
Indebtedness contained in any Credit Facilities or Indebtedness
incurred pursuant to clause (4) of the second paragraph of the
covenant entitled "-- Incurrence of Indebtedness and Issuance of
Preferred Stock", provided that, other than with respect to Preferred
Stock of a Subsidiary or Non-Recourse Debt of a Subsidiary (including
Non-Recourse Debt that is Acquired Debt), such encumbrances and
restrictions permit the distribution of funds to Loral in an amount
sufficient for Loral to make the timely payment of interest, premium
(if any), Liquidated Damages (if any) and principal (whether at stated
maturity, by way of a sinking fund applicable thereto, by way of any
mandatory redemption, defeasance, retirement or repurchase thereof,
including upon the occurrence of designated events or circumstances or
by virtue of acceleration upon an event of default, or by way of
redemption or retirement at the option of the holder of the
Indebtedness, including pursuant to offers to purchase) according to
the terms of the indenture and the notes and other Indebtedness that
is solely an obligation of Loral, but provided further that such
agreement may nevertheless contain customary (as so determined) net
worth, leverage, invested capital and other financial covenants,
customary (as so determined) covenants regarding the merger of or sale
of all or any substantial part of the assets of Loral or any
Restricted Subsidiary, customary (as so determined) restrictions on
transactions with affiliates and customary (as so determined)
subordination provisions governing Indebtedness owed to Loral or any
Restricted Subsidiary;
(3) the Credit Agreement as in effect on the Issue Date and any
amendments, modifications, restatements, renewals, increases,
supplements, refundings, replacements or refinancings thereof,
provided that such amendments, modifications, restatements, renewals,
increases, supplements, refundings, replacement or refinancings are no
more restrictive, taken as a whole, with respect to such dividend and
other payment restrictions than those contained in such Credit
Agreement, as in effect on the Issue Date;
(4) the indenture and the notes;
(5) applicable law;
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(6) any instrument governing Indebtedness or Capital Stock of a Person
acquired by Loral or any of its Restricted Subsidiaries as in effect
at the time of such acquisition (except to the extent such
Indebtedness was incurred in connection with or in contemplation of
such acquisition), which encumbrance or restriction is not applicable
to any Person, or the properties or assets of any Person, other than
the Person, or the property or assets of the Person, so acquired,
provided that, in the case of Indebtedness, such Indebtedness was
permitted by the terms of the indenture to be incurred;
(7) customary non-assignment provisions in leases entered into in the
ordinary course of business and consistent with past practices;
(8) purchase money obligations for property acquired in the ordinary
course of business that impose restrictions on the property so
acquired of the nature described in clause (3) of the preceding
paragraph;
(9) any agreement for the sale or other disposition of a Restricted
Subsidiary that restricts distributions by that Restricted Subsidiary
pending its sale or other disposition;
(10) Permitted Refinancing Indebtedness, provided that the restrictions
contained in the agreements governing such Permitted Refinancing
Indebtedness are no more restrictive, taken as a whole, than those
contained in the agreements governing the Indebtedness being
refinanced;
(11) Liens securing Indebtedness that limit the right of the debtor to
dispose of the assets subject to such Lien;
(12) provisions with respect to the disposition or distribution of assets
or property in joint venture agreements, assets sale agreements, stock
sale agreements and other similar agreements entered into in the
ordinary course of business; and
(13) restrictions on cash or other deposits or net worth imposed by
customers under contracts entered into in the ordinary course of
business.
MERGER, CONSOLIDATION OR SALE OF ASSETS
Loral will not, directly or indirectly:
(1) consolidate or merge with or into another Person (whether or not Loral
is the surviving corporation); or
(2) sell, assign, transfer, convey or otherwise dispose of all or
substantially all of the properties or assets of Loral and its
Restricted
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Subsidiaries, taken as a whole, in one or more related transactions,
to another Person, unless:
(1) either: (a) Loral is the surviving corporation; or (b) the Person
formed by or surviving any such consolidation or merger (if other than
Loral) or to which such sale, assignment, transfer, conveyance or
other disposition shall have been made is a corporation organized or
existing under the laws of Bermuda, the United States, any state
thereof or the District of Columbia;
(2) the Person formed by or surviving any such consolidation or merger (if
other than Loral) or the Person to which such sale, assignment,
transfer, conveyance or other disposition shall have been made assumes
all the obligations of Loral under the notes and the indenture
pursuant to agreements reasonably satisfactory to the trustee;
(3) immediately after such transaction no Default exists; and
(4) Loral or the Person formed by or surviving any such consolidation or
merger or to which such sale, assignment, transfer, conveyance or
other disposition shall have been made (if other than Loral):
(a) will have Consolidated Net Worth immediately after the transaction
equal to or greater than the Consolidated Net Worth of Loral
immediately preceding the transaction; and
(b) will, on the date of such transaction after giving pro forma
effect thereto and any related financing transactions as if the
same had occurred at the beginning of the applicable four-quarter
period or balance sheet date, as applicable, be permitted to incur
at least $1.00 of additional Indebtedness pursuant to at least one
of the tests set forth in the first paragraph of the covenant
described above under the caption "-- Incurrence of Indebtedness
and Issuance of Preferred Stock."
In addition, Loral may not, directly or indirectly, lease all or
substantially all of its properties or assets in one or more related
transactions, to any other Person.
When a successor corporation, trustee, paying agent or registrar assumes
all of the obligations of its predecessor under the notes and the indenture, the
predecessor will be released from those obligations.
This "Merger, Consolidation or Sale of Assets" covenant will not apply to a
sale, assignment, transfer, conveyance or other disposition of assets between or
among Loral and any of its Restricted Subsidiaries.
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DESIGNATION OF RESTRICTED AND UNRESTRICTED SUBSIDIARIES
The Board of Directors may designate any Restricted Subsidiary to be an
Unrestricted Subsidiary if that designation would not cause a Default. If a
Restricted Subsidiary is designated as an Unrestricted Subsidiary, the aggregate
fair market value of all outstanding Investments owned by Loral and its
Restricted Subsidiaries in the Subsidiary so designated will be deemed to be an
Investment made as of the time of such designation and will reduce the amount
available for Restricted Payments under the first paragraph of the covenant
described above under the caption "-- Restricted Payments" or reduce the amount
available for future Investments under one or more clauses of the definition of
Permitted Investments, as Loral shall determine. That designation will only be
permitted if such Investment would be permitted at that time and if such
Restricted Subsidiary otherwise meets the definition of an Unrestricted
Subsidiary. The Board of Directors may redesignate any Unrestricted Subsidiary
to be a Restricted Subsidiary if the redesignation would not cause a Default.
Loral SpaceCom Corporation, Space Systems/Loral, Loral Orion and CyberStar
will initially be "Restricted Subsidiaries" under the indenture; SatMex,
Europe*Star, Globalstar and Globalstar Telecommunications Limited will initially
be "Permitted Ventures" under the indenture.
TRANSACTIONS WITH AFFILIATES
Loral will not, and will not permit any of its Restricted Subsidiaries to,
make any payment to, or sell, lease, transfer or otherwise dispose of any of its
properties or assets to, or purchase any property or assets from, or enter into
or make or amend any transaction, contract, agreement, understanding, loan,
advance or guarantee with, or for the benefit of, any Affiliate (each, an
"Affiliate Transaction"), unless:
(1) such Affiliate Transaction is on terms that are no less favorable to
Loral or the relevant Restricted Subsidiary than those that would have
been obtained in a comparable transaction by Loral or such Restricted
Subsidiary with an unrelated Person; and
(2) Loral delivers to the trustee with respect to any Affiliate Transaction
or series of related Affiliate Transactions involving aggregate
consideration in excess of $15 million, either
(a) a resolution of the Board of Directors set forth in an Officers'
Certificate certifying that such Affiliate Transaction complies with
this covenant and that such Affiliate Transaction has been approved by
a majority of the disinterested members of the Board of Directors or
(b) an opinion as to the fairness to the Holders of such Affiliate
Transaction from a financial point of view issued by an accounting,
appraisal or investment banking firm of international standing.
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The following items shall not be deemed to be Affiliate Transactions and,
therefore, will not be subject, except as set forth below, to the provisions of
the prior paragraph:
(1) any employment agreement entered into by Loral or any of its Restricted
Subsidiaries in the ordinary course of business and consistent with the
past practice of Loral or such Restricted Subsidiary, as the case may
be;
(2) transactions between or among Loral and/or its Restricted Subsidiaries;
(3) any sale or other issuance of Equity Interests (other than Disqualified
Stock) of Loral;
(4) payment of reasonable directors fees to Persons who are not otherwise
Affiliates of Loral;
(5) Restricted Payments that are permitted by, and Permitted Investments
that are not prohibited by, the provisions of the indenture described
above under the caption "-- Restricted Payments;" and
(6) transactions between Loral and/or its Restricted Subsidiaries, on the
one hand, and a Permitted Venture, on the other hand, provided that the
condition set forth in clause (1) of the prior paragraph is satisfied.
LIMITATIONS ON ISSUANCES OF GUARANTEES OF INDEBTEDNESS
Loral will not permit any of its Restricted Subsidiaries, directly or
indirectly, to Guarantee or pledge any assets to secure the payment of any other
Indebtedness of Loral unless such Restricted Subsidiary simultaneously executes
and delivers a supplemental indenture providing for the Guarantee of the payment
of the notes by such Restricted Subsidiary (a "Guarantor"), which Guarantee
shall
(1) be senior to or equal to in right of payment with such Restricted
Subsidiary's Guarantee of or pledge to secure such other Indebtedness
and
(2) remain in effect for so long as the Guarantee or pledge to secure such
other Indebtedness remains in effect.
No Guarantor will incur any Indebtedness (including Permitted Debt) that is
contractually junior in right of payment to any other Indebtedness of such
Guarantor unless such Indebtedness is also contractually junior in right of
payment to such Guarantor's Guarantee of the notes on substantially identical
terms; provided, however, that no Indebtedness of a Guarantor shall be deemed to
be contractually junior in right of payment to any other Indebtedness of such
Guarantor solely by virtue of being unsecured.
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BUSINESS ACTIVITIES
Loral will not, and will not permit any Restricted Subsidiary to, engage in
any business other than Permitted Businesses, except to the extent as would not
be material to Loral and its Restricted Subsidiaries, taken as a whole.
PAYMENTS FOR CONSENT
Loral will not, and will not permit any of its Restricted Subsidiaries to,
directly or indirectly, pay or cause to be paid any consideration to or for the
benefit of any holder of notes for or as an inducement to any consent, waiver or
amendment of any of the terms or provisions of the indenture or the notes unless
such consideration is offered to be paid and is paid to all holders of the notes
that consent, waive or agree to amend in the time frame set forth in the
solicitation documents relating to such consent, waiver or agreement.
REPORTS
Whether or not required by the SEC, so long as any notes are outstanding,
Loral will furnish to the holders of notes, within the time periods specified in
the SEC's rules and regulations:
(1) all quarterly and annual financial information that would be required
to be contained in a filing with the SEC on Forms 10-Q and 10-K (or any
successor forms) if Loral were required to file such Forms, including a
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" that describes the financial condition and
results of operations of Loral and its subsidiaries and, with respect
to the annual information only, a report on the annual financial
statements by Loral's certified independent accountants; and
(2) all current reports that would be required to be filed with the SEC on
Form 8-K (or any successor form) if Loral were required to file such
reports.
If Loral has designated any of its Subsidiaries as Unrestricted
Subsidiaries, then the quarterly and annual financial information required by
this covenant shall include selected financial information, either on the face
of the financial statements or in the footnotes thereto, regarding the financial
condition and results of operations of Loral and its Restricted Subsidiaries
separate from the financial condition and results of operations of the
Unrestricted Subsidiaries of Loral.
In addition, whether or not required by the SEC, Loral will file a copy of
all information and reports referred to in clauses (1) and (2) above with the
SEC for public availability within the time periods specified in the SEC's rules
and regulations (unless the SEC will not accept such a filing) and make such
information available to securities analysts and prospective investors upon
request.
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EVENTS OF DEFAULT AND REMEDIES
Each of the following is an Event of Default:
(1) default for 30 days in the payment when due of interest or Liquidated
Damages on the notes;
(2) default in payment when due of the principal of, or premium, if any, on
the notes;
(3) failure by Loral to comply with the provisions described under the
caption "-- Covenants -- Merger, Consolidation or Sale of Assets;"
(4) failure by Loral for 30 days after notice to comply with the provisions
described under the captions "-- Repurchase at the Option of
Holders -- Change of Control," "-- Repurchase at the Option of
Holders -- Asset Sales," "-- Covenants -- Restricted Payments" or
"-- Covenants -- Incurrence of Indebtedness and Issuance of Preferred
Stock;"
(5) failure by Loral or any of its Restricted Subsidiaries for 60 days
after notice to comply with any of the other agreements in the
indenture;
(6) default under any mortgage, indenture or instrument under which there
may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by Loral or any of its Restricted
Subsidiaries (or the payment of which is guaranteed by Loral or any of
its Restricted Subsidiaries) whether such Indebtedness or guarantee now
exists, or is created after the Issue Date, if that default:
(a) is caused by a failure to pay principal at maturity of such
Indebtedness prior to the expiration of the grace period provided
in such Indebtedness on the date of such default (a "Payment
Default"); or
(b) results in the acceleration of such Indebtedness prior to its
express maturity, and, in each case, the principal amount of any
such Indebtedness, together with the principal amount of any other
such Indebtedness under which there has been a Payment Default or
the maturity of which has been so accelerated, aggregates $25
million or more;
(7) failure by Loral or any of its Subsidiaries to pay final judgments
aggregating in excess of $25 million, which judgments are not paid,
discharged or stayed for a period of 60 days; and
(8) certain events of bankruptcy or insolvency with respect to Loral or any
of its Significant Subsidiaries.
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In the case of an Event of Default arising from certain events of
bankruptcy or insolvency with respect to Loral, any Subsidiary that is a
Significant Subsidiary or any group of Subsidiaries that, taken together, would
constitute a Significant Subsidiary, all outstanding notes will become due and
payable immediately without further action or notice. If any other Event of
Default occurs and is continuing, the trustee or the holders of at least 25% in
principal amount of the then outstanding notes may declare all the notes to be
due and payable immediately.
Holders of the notes may not enforce the indenture or the notes except as
provided in the indenture. Subject to certain limitations, holders of a majority
in principal amount of the then outstanding notes may direct the trustee in its
exercise of any trust or power. The trustee may withhold from holders of the
notes notice of any continuing Default or Event of Default (except a Default or
Event of Default relating to the payment of principal or interest) if it
determines that withholding notice is in their interest.
The holders of a majority in aggregate principal amount of the notes then
outstanding by notice to the trustee may on behalf of the holders of all of the
notes waive any existing Default and its consequences under the indenture except
a continuing Default in the payment of interest on, or the principal of, the
notes.
In the case of any Event of Default occurring by reason of any willful
action or inaction taken or not taken by or on behalf of Loral with the
intention of avoiding payment of the premium that Loral would have had to pay if
Loral then had elected to redeem the notes pursuant to the optional redemption
provisions of the indenture, an equivalent premium shall also become and be
immediately due and payable to the extent permitted by law upon the acceleration
of the notes.
Loral is required to deliver to the trustee annually a statement regarding
compliance with the indenture. Upon becoming aware of any Default, Loral is
required to deliver to the trustee a statement specifying such Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of Loral, as
such, shall have any liability for any obligations of Loral under the notes, the
indenture, or for any claim based on, in respect of, or by reason of, such
obligations or their creation. Each holder of notes by accepting a note waives
and releases all such liability. The waiver and release are part of the
consideration for issuance of the notes. The waiver may not be effective to
waive liabilities under the U.S. federal securities laws.
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LEGAL DEFEASANCE AND COVENANT DEFEASANCE
Loral may, at its option and at any time, elect to have all of its
obligations discharged with respect to the outstanding notes ("Legal
Defeasance") except for:
(1) the rights of holders of outstanding notes to receive payments in
respect of the principal of, or interest, Liquidated Damages or
premium, if any, on such notes when such payments are due from the
trust referred to below;
(2) Loral's obligations with respect to the notes concerning issuing
temporary notes, registration of notes, mutilated, destroyed, lost or
stolen notes and the maintenance of an office or agency for payment and
money for security payments held in trust;
(3) the rights, powers, trusts, duties and immunities of the trustee, and
Loral's obligations in connection therewith; and
(4) the Legal Defeasance provisions of the indenture.
In addition, Loral may, at its option and at any time, elect to have the
obligations of Loral released with respect to certain covenants that are
described in the indenture ("Covenant Defeasance") and thereafter any omission
to comply with those covenants shall not constitute a Default with respect to
the notes. In the event Covenant Defeasance occurs, certain events (not
including non-payment, bankruptcy, receivership, rehabilitation and insolvency
events) described under "Events of Default" will no longer constitute an Event
of Default with respect to the notes.
In order to exercise either Legal Defeasance or Covenant Defeasance:
(1) Loral must irrevocably deposit with the trustee, in trust, for the
benefit of the holders of the notes, cash in U.S. dollars, non-callable
U.S. Government obligations, or a combination thereof, in such amounts
as will be sufficient, in the opinion of an internationally recognized
firm of independent public accountants, to pay the principal of, or
interest and premium, if any, on the outstanding notes on the stated
maturity;
(2) in the case of Legal Defeasance, Loral shall have delivered to the
trustee an Opinion of Counsel reasonably acceptable to the trustee
confirming that
(a) Loral has received from, or there has been published by, the
Internal Revenue Service a ruling or
(b) since the Issue Date, there has been a change in the applicable
federal income tax law, in either case to the effect that, and
based thereon such Opinion of Counsel shall confirm that, the
holders of the outstanding notes will not recognize income, gain
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or loss for United States federal income tax purposes as a result
of such Legal Defeasance and will be subject to United States
federal income tax on the same amounts, in the same manner and at
the same times as would have been the case if such Legal
Defeasance had not occurred;
(3) in the case of Covenant Defeasance, Loral shall have delivered to the
trustee an Opinion of Counsel reasonably acceptable to the trustee
confirming that the holders of the outstanding notes will not recognize
income, gain or loss for United States federal income tax purposes as a
result of such Covenant Defeasance and will be subject to United States
federal income tax on the same amounts, in the same manner and at the
same times as would have been the case if such Covenant Defeasance had
not occurred;
(4) in the case of Legal Defeasance or Covenant Defeasance, Loral shall
have delivered to the trustee an Opinion of Counsel in Loral's
jurisdiction of incorporation reasonably acceptable to the trustee
confirming that the holders of the outstanding notes will not recognize
income, gain or loss for income tax purposes in such jurisdiction as a
result of such Legal Defeasance or Covenant Defeasance and will be
subject to income tax in such jurisdiction on the same amounts, in the
same manner and at the same times as would have been the case if such
Legal Defeasance or Covenant Defeasance had not occurred;
(5) no Default shall have occurred and be continuing either:
(a) on the date of such deposit (other than a Default resulting from
the borrowing of funds to be applied to such deposit); or
(b) insofar as Defaults from bankruptcy or insolvency events are
concerned, at any time in the period ending on the 91st day after
the date of deposit;
(6) such Legal Defeasance or Covenant Defeasance will not result in a
breach or violation of, or constitute a default under any material
agreement or instrument (other than the indenture) to which Loral or
any of its Subsidiaries is a party or by which Loral or any of its
Subsidiaries is bound;
(7) Loral must have delivered to the trustee an Opinion of Counsel to the
effect that, assuming no intervening bankruptcy of Loral between the
date of deposit and the 91st day following the deposit and, assuming
that no holder is an "insider" of Loral under applicable bankruptcy
law, after the 91st day following the deposit, the transfer of the
trust funds will not be characterizable as a preference under Section
547 of the United States Federal bankruptcy code;
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(8) Loral must deliver to the trustee an Officers' Certificate stating that
the deposit was not made by Loral with the intent of preferring the
holders of notes over the other creditors of Loral or with the intent
of defeating, hindering, delaying or defrauding creditors of Loral or
others; and
(9) Loral must deliver to the trustee an Officers' Certificate and an
Opinion of Counsel, each stating that all conditions precedent relating
to the Legal Defeasance or the Covenant Defeasance have been complied
with.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the succeeding paragraphs, the indenture or the notes
may be amended or supplemented with the consent of the Holders of at least a
majority in principal amount of the notes then outstanding (including, without
limitation, consents obtained in connection with a purchase of, or tender offer
or exchange offer for, notes), and any existing default or compliance with any
provision of the indenture or the notes may be waived with the consent of the
Holders of a majority in principal amount of the then outstanding notes
(including, without limitation, consents obtained in connection with a purchase
of, or tender offer or exchange offer for, notes).
Without the consent of each holder affected, an amendment or waiver may not
(with respect to any notes held by a non-consenting holder):
(1) reduce the principal amount of notes whose holders must consent to an
amendment, supplement or waiver;
(2) reduce the principal of or change the fixed maturity of any note or
alter the provisions with respect to the redemption of the notes (other
than provisions relating to the covenants described above under the
caption "-- Repurchase at the Option of Holders");
(3) reduce the rate of or change the time for payment of interest or
Liquidated Damages on any note;
(4) waive a Default in the payment of principal of, or interest, Liquidated
Damages or premium, if any, on the notes (except a rescission of
acceleration of the notes by the holders of at least a majority in
aggregate principal amount of the notes and a waiver of the payment
default that resulted from such acceleration);
(5) make any note payable in money other than that stated in the notes;
(6) make any change in the provisions of the indenture relating to waivers
of past Defaults or the rights of holders of notes to receive payments
of principal of, or interest, Liquidated Damages or premium, if any, on
the notes;
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(7) waive a redemption payment with respect to any note (other than a
payment required by one of the covenants described above under the
caption "-- Repurchase at the Option of Holders"); or
(8) make any change in the preceding amendment and waiver provisions.
Notwithstanding the preceding, without the consent of any holder of notes,
Loral and the trustee may amend or supplement the indenture or the notes:
(1) to cure any ambiguity, defect or inconsistency;
(2) to provide for uncertificated notes in addition to or in place of
certificated notes;
(3) to provide for the assumption of Loral's obligations to holders of
notes in the case of a merger or consolidation or sale of all or
substantially all of Loral's assets;
(4) to make any change that would provide any additional rights or benefits
to the holders of notes or that does not adversely affect the legal
rights under the indenture of any such holder;
(5) to provide for the issuance of additional notes in accordance with the
provisions set forth in the indenture; or
(6) to comply with requirements of the SEC in order to effect or maintain
the qualification of the indenture under the Trust indenture Act.
CONCERNING THE TRUSTEE
If the trustee becomes a creditor of Loral, the indenture limits its right
to obtain payment of claims in certain cases, or to realize on certain property
received in respect of any such claim as security or otherwise. The trustee is
permitted to engage in other transactions; however, if it acquires any
conflicting interest it must eliminate such conflict within 90 days, apply to
the SEC for permission to continue or resign.
The holders of a majority in principal amount of the then outstanding notes
have the right to direct the time, method and place of conducting any proceeding
for exercising any remedy available to the trustee, subject to certain
exceptions. The indenture provides that in case an Event of Default shall occur
and be continuing, the trustee will be required, in the exercise of its power,
to use the degree of care of a prudent man in the conduct of his own affairs.
Subject to such provisions, the trustee will be under no obligation to exercise
any of its rights or powers under the indenture at the request of any holder of
notes, unless such holder shall have offered to the trustee security and
indemnity satisfactory to it against any loss, liability or expense.
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GOVERNING LAW AND SUBMISSION TO JURISDICTION
The indenture provides that it and the notes governed by the indenture are
governed by, and construed in accordance with, the laws of the State of New York
without giving effect to applicable principles of conflicts of law to the extent
that the application of the law of another jurisdiction would be required
thereby.
Loral submits to the jurisdiction of the U.S. Federal and New York State
courts located in the Borough of Manhattan, City and State of New York for
purposes of all legal actions and proceedings instituted in connection with the
notes and the indenture. Loral has appointed an authorized agent upon which
process may be served in any such actions.
ADDITIONAL INFORMATION
Anyone who receives this prospectus may obtain a copy of the indenture and
the registration rights agreement without charge by writing to Loral Space &
Communications Ltd., Cedar House, 41 Cedar Avenue, Hamilton HM21, Bermuda,
Attention: Secretary.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the indenture. Reference
is made to the indenture for a full statement of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
"ACQUIRED DEBT" means, with respect to any specified Person:
(1) Indebtedness of any other Person existing at the time such other Person
is merged with or into or became a Restricted Subsidiary of such
specified Person, whether or not such Indebtedness is incurred in
connection with, or in contemplation of, such other Person merging with
or into, or becoming a Restricted Subsidiary of, such specified Person;
and
(2) Indebtedness secured by a Lien encumbering any asset acquired by such
specified Person.
"AFFILIATE" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control,"
as used with respect to any Person, shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of such Person, whether through the ownership of voting securities, by
agreement or otherwise; provided that beneficial ownership of 10% or more of the
Voting Stock of a Person shall be deemed to be control. For purposes of this
definition, the terms "controlling," "controlled by" and "under common control
with" shall have correlative meanings.
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"ASSET SALE" means:
(1) the sale, lease, transfer, conveyance or other disposition of any
assets or rights, other than sales of inventory in the ordinary course
of business consistent with past practices; provided that the sale,
lease, transfer, conveyance or other disposition of all or
substantially all of the assets of Loral and its Restricted
Subsidiaries taken as a whole will be governed by the provisions of the
indenture described above under the caption "-- Repurchase at the
Option of Holders -- Change of Control" and/or the provisions described
above under the caption "-- Covenants -- Merger, Consolidation or Sale
of Assets" and not by the provisions of the Asset Sale covenant; and
(2) the issuance of Equity Interests in any of Loral's Restricted
Subsidiaries or the sale of Equity Interests in any of its Restricted
Subsidiaries.
Notwithstanding the preceding, the following items shall not be deemed to
be Asset Sales:
(1) any single transaction or series of related transactions that: (a)
involves assets having a fair market value of less than $5 million; or
(b) results in net proceeds to Loral and its Restricted Subsidiaries of
less than $5 million;
(2) a transfer of assets between or among Loral and its Restricted
Subsidiaries;
(3) an issuance of Equity Interests by a Restricted Subsidiary to Loral or
to another Restricted Subsidiary;
(4) the sale or lease of satellites, transponders or other equipment,
inventory, accounts receivable or other assets in the ordinary course
of business;
(5) the sale or other disposition of cash or Cash Equivalents;
(6) a Restricted Payment or Permitted Investment that is permitted by the
covenant described above under the caption "-- Covenants -- Restricted
Payments"; and
(7) the issuance of partnership interests by CyberStar, L.P. pursuant to
participation bonuses in accordance with Section 4.3 of the CyberStar
partnership agreement.
"ATTRIBUTABLE DEBT" in respect of a sale and leaseback transaction means,
at the time of determination, the present value of the obligation of the lessee
for net rental payments during the remaining term of the lease included in such
sale and leaseback transaction including any period for which such lease has
been extended or may, at the option of the lessor, be extended. Such present
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value shall be calculated using a discount rate equal to the rate of interest
implicit in such transaction, determined in accordance with GAAP.
"BENEFICIAL OWNER" has the meaning assigned to such term in Rule 13d-3 and
Rule 13d-5 under the Exchange Act, except that in calculating the beneficial
ownership of any particular "person" (as that term is used in Section 13(d)(3)
of the Exchange Act), such "person" shall be deemed to have beneficial ownership
of all securities that such "person" has the right to acquire by conversion or
exercise of other securities, whether such right is currently exercisable or is
exercisable only upon the occurrence of a subsequent condition. The term
"beneficially owns" shall have a corresponding meaning.
"CAPITAL LEASE OBLIGATION" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at that time be required to be capitalized on a balance sheet in accordance with
GAAP.
"CAPITAL STOCK" means:
(1) in the case of a corporation, corporate stock;
(2) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however
designated) of corporate stock;
(3) in the case of a partnership or limited liability company, partnership
or membership interests (whether general or limited); and
(4) any other interest or participation that confers on a Person the right
to receive a share of the profits and losses of, or distributions of
assets of, the issuing Person.
"CASH EQUIVALENTS" means:
(1) United States dollars;
(2) securities issued or directly and fully guaranteed or insured by the
United States government or any agency or instrumentality thereof
(provided that the full faith and credit of the United States is
pledged in support thereof) having maturities of not more than one year
from the date of acquisition;
(3) certificates of deposit and eurodollar time deposits with maturities of
one year or less from the date of acquisition, bankers' acceptances
with maturities not exceeding one year and overnight bank deposits, in
each case, with any lender party to the Credit Agreement or with any
domestic commercial bank having capital and surplus in excess of $500
million and a Thompson Bank Watch Rating of "B" or better;
(4) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clauses (2) and
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(3) above entered into with any financial institution meeting the
qualifications specified in clause (3) above;
(5) commercial paper having one of the two highest ratings obtainable from
Moody's Investors Service, Inc. or Standard & Poor's Rating Services
and in each case maturing within six months after the date of
acquisition;
(6) money market funds at least 95% of the assets of which constitute Cash
Equivalents of the kinds described in clauses (1) through (5) of this
definition; and
(7) the Goldman Sachs US$ Liquid Reserves Fund and other funds with
substantially similar investment policies.
"CHANGE OF CONTROL" means the occurrence of any of the following:
(1) the direct or indirect sale, lease, transfer, conveyance or other
disposition (other than by way of merger or consolidation), in one or a
series of related transactions, of all or substantially all of the
properties or assets of Loral and its Restricted Subsidiaries taken as
a whole to any "person" (as that term is used in Section 13(d)(3) of
the Exchange Act);
(2) the adoption of a plan relating to the liquidation or dissolution of
Loral;
(3) the consummation of any transaction (including, without limitation, any
merger or consolidation) the result of which is that any "person" (as
defined above) becomes the Beneficial Owner, directly or indirectly, of
more than 35% of the Voting Stock of Loral, measured by voting power
rather than number of shares;
(4) the first day on which a majority of the members of the Board of
Directors of Loral are not Continuing Directors; or
(5) Loral consolidates with, or merges with or into, any Person, or any
Person consolidates with, or merges with or into, Loral, in any such
event pursuant to a transaction in which any of the outstanding Voting
Stock of Loral or such other Person is converted into or exchanged for
cash, securities or other property, other than any such transaction
where the Voting Stock of Loral outstanding immediately prior to such
transaction is converted into or exchanged for Voting Stock (other than
Disqualified Stock) of the surviving or transferee Person constituting
a majority of the outstanding shares of such Voting Stock of such
surviving or transferee Person (immediately after giving effect to such
issuance).
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"CONSOLIDATED CAPITAL RATIO" of any Person as of any date means the ratio
of
(1) the Total Indebtedness of such Person then outstanding to
(2) the stockholders' equity as of such date as shown on the consolidated
balance sheet of such Person in accordance with GAAP (which, in the
case of Loral, shall include the Series C Preferred Stock) after giving
pro forma effect to
(a) the incurrence of any Indebtedness proposed to be incurred or the
issuance of any Disqualified Stock proposed to be issued and the
receipt and application of the proceeds thereof,
(b) any other Indebtedness incurred, Disqualified Stock issued or
preferred stock of any Subsidiary issued or the repayment or
retirement of any of the foregoing since such balance sheet date
and the receipt and application of the proceeds thereof,
(c) any asset dispositions or asset acquisitions (including giving pro
forma effect to the application of proceeds of any asset
disposition) that has occurred since such balance sheet date, in
each case as if they had occurred and such proceeds had been
applied on the date of such balance sheet.
"CONSOLIDATED CASH FLOW" means, with respect to any specified Person for
any period, the Consolidated Net Income of such Person for such period plus:
(1) an amount equal to any extraordinary loss plus any net loss realized by
such Person or any of its Restricted Subsidiaries in connection with an
Asset Sale, to the extent such losses were deducted in computing such
Consolidated Net Income; plus
(2) provision for taxes based on income or profits of such Person and its
Restricted Subsidiaries for such period, to the extent that such
provision for taxes was deducted in computing such Consolidated Net
Income; plus
(3) consolidated interest expense of such Person and its Restricted
Subsidiaries for such period, whether paid or accrued and whether or
not capitalized (including, without limitation, amortization of debt
issuance costs and original issue discount, non-cash interest payments,
the interest component of any deferred payment obligations, the
interest component of all payments associated with Capital Lease
Obligations, imputed interest with respect to Attributable Debt,
commissions, discounts and other fees and charges incurred in respect
of letter of credit or bankers' acceptance financings, and net of the
effect of all payments made or received pursuant to Hedging
Obligations), to the extent that any such expense was deducted in
computing such Consolidated Net Income; plus
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(4) depreciation, amortization (including amortization of goodwill and
other intangibles but excluding amortization of prepaid cash expenses
that were paid in a prior period) and other non-cash expenses
(excluding any such non-cash expense to the extent that it represents
an accrual of or reserve for cash expenses in any future period or
amortization of a prepaid cash expense that was paid in a prior period)
of such Person and its Restricted Subsidiaries for such period to the
extent that such depreciation, amortization and other non-cash expenses
were deducted in computing such Consolidated Net Income; minus
(5) non-cash items increasing such Consolidated Net Income for such period,
other than the accrual of revenue in the ordinary course of business,
in each case, on a consolidated basis and determined in accordance with
GAAP.
Notwithstanding the preceding, amounts in respect of items (1), (2) and (4)
for a Restricted Subsidiary of Loral shall be added to Consolidated Net Income
to compute Consolidated Cash Flow of Loral only to the extent that a
corresponding percentage of the Consolidated Net Income of such Restricted
Subsidiary would be permitted at the date of determination to be dividended to
Loral by such Restricted Subsidiary without prior approval (that has not been
obtained) pursuant to the terms of its charter and all agreements, instruments,
judgments, decrees, orders, statutes, rules and governmental regulations
applicable to that Subsidiary or its stockholders.
"CONSOLIDATED LEVERAGE RATIO" means the ratio of
(1) the Total Indebtedness of Loral outstanding as of the most recent
available quarterly or annual balance sheet to
(2) the Consolidated Cash Flow of Loral for the four full fiscal quarters
next preceding the incurrence of such Indebtedness or the issuance of
such Disqualified Stock for which consolidated financial statements are
available; provided that pro forma effect shall be given to
(a) the incurrence of any Indebtedness proposed to be incurred or the
issuance of any Disqualified Stock proposed to be issued and the
receipt and application of the proceeds thereof,
(b) any other Indebtedness incurred, Disqualified Stock issued or
preferred stock of any Subsidiary issued or the repayment or
retirement of any of the foregoing since the beginning of such
four fiscal quarter period and the receipt and application of the
proceeds thereof and
(c) any asset dispositions or asset acquisitions (including giving pro
forma effect to the application of proceeds of any asset
disposition) that has occurred during such four fiscal quarter
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period, in each case as if they had occurred and such proceeds had
been applied on the first day of such four fiscal quarter period.
"CONSOLIDATED NET INCOME" means, with respect to any specified Person for
any period, the aggregate of the Net Income of such Person and its Restricted
Subsidiaries for such period, on a consolidated basis, determined in accordance
with GAAP; provided that:
(1) the Net Income (but not loss) of any Person that is not a Restricted
Subsidiary or that is accounted for by the equity method of accounting
shall be included only to the extent of the amount of dividends or
distributions paid in cash to the specified Person or a Restricted
Subsidiary thereof;
(2) the Net Income of any Restricted Subsidiary shall be excluded to the
extent that the declaration or payment of dividends or similar
distributions by that Restricted Subsidiary of that Net Income is not
at the date of determination permitted without any prior governmental
approval (that has not been obtained) or, directly or indirectly, by
operation of the terms of its charter or any agreement, instrument,
judgment, decree, order, statute, rule or governmental regulation
applicable to that Restricted Subsidiary or its stockholders;
(3) the Net Income of any Person acquired in a pooling of interests
transaction for any period prior to the date of such acquisition shall
be excluded;
(4) the Net Income (but not loss) of any Unrestricted Subsidiary shall be
excluded, whether or not distributed to the specified person or one of
its Subsidiaries; and
(5) the cumulative effect of a change in accounting principles shall be
excluded.
"CONSOLIDATED NET WORTH" means, with respect to any Person as of any date,
the sum of:
(1) the consolidated equity of the common stockholders of such Person and
its consolidated Subsidiaries as of such date; plus
(2) the respective amounts reported on such Person's balance sheet as of
such date with respect to any series of Preferred Stock (other than
Disqualified Stock) that by its terms is not entitled to the payment of
dividends unless such dividends may be declared and paid only out of
net earnings in respect of the year of such declaration and payment,
but only to the extent of any cash received by such Person upon
issuance of such Preferred Stock.
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"CONSOLIDATED TANGIBLE ASSETS" of any Person means the total amount of
assets (less applicable reserves and any other properly deductible items) which
under GAAP would be included on a consolidated balance sheet of such Person and
its Subsidiaries after deducting therefrom all goodwill (but not any other
intangible assets) which under GAAP would be included on such consolidated
balance sheet.
"CONTINUING DIRECTORS" means, as of any date of determination, any member
of the Board of Directors of Loral who:
(1) was a member of such Board of Directors on the Issue Date; or
(2) was nominated for election or elected to such Board of Directors with
the approval of a majority of the Continuing Directors who were members
of such Board at the time of such nomination or election.
"CREDIT AGREEMENT" means that certain Amended and Restated Credit and
Participation Agreement among Loral SpaceCom Corporation, Space Systems/ Loral,
Inc., certain lending banks, Bank of America National Trust and Savings
Association, as Administrative Agent, and Istituto Bancario San Paolo Di Torino
S.P.A., individually and as Italian Export Financing Arranger and as Selling
Bank, dated as of November 14, 1997, providing for up to $850 million of credit
extensions, including any related notes, guarantees, collateral documents,
instruments and agreements executed in connection therewith, and in each case as
amended, modified, renewed, refunded, replaced or refinanced from time to time.
"CREDIT FACILITIES" means one or more debt facilities (including, without
limitation, the Credit Agreement) or commercial paper facilities, in each case
with banks or other institutional lenders providing for revolving credit loans,
term loans, receivables financing (including through the sale of receivables to
such lenders or to special purpose entities formed to borrow from such lenders
against such receivables) or letters of credit, in each case, as amended,
restated, modified, renewed, refunded, replaced or refinanced in whole or in
part from time to time.
"DEFAULT" means any event that is, or with the passage of time or the
giving of notice or both would be, an Event of Default.
"DESIGNATED OTHER PERMITTED CONSIDERATION" means the fair market value of
non-cash consideration received by Loral or one of its Restricted Subsidiaries
in connection with an Asset Sale that is so designated as Designated Other
Permitted Consideration pursuant to an Officers' Certificate, setting forth the
basis of such valuation, less the amount of cash or Cash Equivalents received in
connection with a sale of such Designated Other Permitted Consideration.
"DISQUALIFIED STOCK" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible, or for which it is
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exchangeable, in each case at the option of the holder thereof), or upon the
happening of any event, matures or is mandatorily redeemable, pursuant to a
sinking fund obligation or otherwise, or is redeemable at the option of the
holder thereof, in whole or in part, on or prior to the date that is 91 days
after the date on which the notes mature. Notwithstanding the preceding
sentence, any Capital Stock that would constitute Disqualified Stock solely
because the holders thereof have the right to require Loral to repurchase such
Capital Stock upon the occurrence of a Change of Control or an asset sale shall
not constitute Disqualified Stock if the terms of such Capital Stock provide
that Loral may not repurchase or redeem any such Capital Stock pursuant to such
provisions unless such repurchase or redemption complies with the covenant
described above under the caption "-- Covenants -- Restricted Payments."
"EQUITY INTERESTS" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"EXISTING INDEBTEDNESS" means Indebtedness of Loral and its Subsidiaries
(other than Indebtedness under the Credit Agreement) in existence on the Issue
Date, until such amounts are repaid.
"EQUITY OFFERING" means any public or private sale of Equity Interests
(other than Disqualified Stock) of Loral, other than private sales of Equity
Interests to an Affiliate of Loral.
"GAAP" means generally accepted accounting principles in the United States
set forth in the opinions and pronouncements of the Accounting Principles Board
of the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by any such other entity as have been approved by a significant
segment of the accounting profession, which are in effect from time to time.
"GUARANTEE" means a guarantee other than by endorsement of negotiable
instruments for collection in the ordinary course of business, direct or
indirect, in any manner including, without limitation, by way of a pledge of
assets or through letters of credit or reimbursement agreements in respect
thereof, of all or any part of any Indebtedness.
"HEDGING OBLIGATIONS" means, with respect to any specified Person, the
obligations of such Person under:
(1) interest rate swap agreements, interest rate cap agreements and
interest rate collar agreements; and
(2) other agreements or arrangements entered into in the ordinary course of
business and consistent with past practices designed to protect such
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Person against fluctuations in interest rates or currency exchange
rates.
"INDEBTEDNESS" means, with respect to any specified Person, any
indebtedness of such Person, whether or not contingent, in respect of:
(1) borrowed money;
(2) evidenced by bonds, notes, debentures or similar instruments or letters
of credit, excluding letters of credit supporting obligations under
customer contracts until such letters of credit are drawn;
(3) banker's acceptances;
(4) Capital Lease Obligations;
(5) the balance deferred and unpaid of the purchase price of any property,
except any such balance that constitutes an accrued expense or trade
payable; or
(6) Hedging Obligations,
if and to the extent any of the preceding items (other than letters of credit
and Hedging Obligations) would appear as a liability upon a balance sheet of the
specified Person prepared in accordance with GAAP. In addition, the term
"Indebtedness" includes all Indebtedness of others secured by a Lien on any
asset of the specified Person (whether or not such Indebtedness is assumed by
the specified Person) and, to the extent not otherwise included, the Guarantee
by the specified Person of any Indebtedness of any other Person.
The amount of any Indebtedness outstanding as of any date shall be:
(1) the accreted value thereof, in the case of any Indebtedness issued with
original issue discount;
(2) the principal amount thereof, together with any interest thereon that
is more than 30 days past due, in the case of any other Indebtedness;
and
(3) in the case of an obligation under a Hedging Obligation
(a) zero if such obligation has been incurred pursuant to clause (7)
of the second paragraph of the covenant described under
"-- Covenants -- Incurrence of Indebtedness and Issuance of
Preferred Stock" or
(b) the notional amount of such obligation if not incurred pursuant to
such clause.
"INVESTMENTS" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the form of direct or indirect
loans (including Guarantees or other obligations), advances or capital
contributions (excluding commission, travel and similar advances to officers and
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employees made in the ordinary course of business), purchases or other
acquisitions for consideration of Indebtedness, Equity Interests or other
securities, together with all items that are or would be classified as
investments on a balance sheet prepared in accordance with GAAP; provided,
however, that Investments shall not include any commercially reasonable (as
determined in good faith by either the Board of Directors of Loral or senior
management of Loral) extensions of credit to, or Investments made in, any Person
in connection with the purchase or sale of satellites or satellite services. If
Loral or any Restricted Subsidiary of Loral sells or otherwise disposes of any
Equity Interests of any direct or indirect Restricted Subsidiary of Loral such
that, after giving effect to any such sale or disposition, such Person is no
longer a Restricted Subsidiary of Loral and is not a Permitted Venture, Loral
shall be deemed to have made an Investment on the date of any such sale or
disposition equal to the fair market value of the Equity Interests of such
Restricted Subsidiary not sold or disposed of in an amount determined as
provided in the final paragraph of the covenant described above under the
caption "-- Covenants -- Restricted Payments."
"ISSUE DATE" means the date on which the old notes were originally issued.
"LIEN" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law,
including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction.
"MARKETABLE SECURITIES" means, with respect to any Asset Sale, any readily
marketable equity securities that are
(1) traded on the New York Stock Exchange, the American Stock Exchange or
the Nasdaq National Market and
(2) issued by a corporation having a total equity market capitalization of
not less than $250 million; provided that the excess of
(a) the aggregate amount of securities of any one such corporation
held by Loral and any Restricted Subsidiary over
(b) ten times the average daily trading volume of such securities
during the 20 immediately preceding trading days shall be deemed
not to be Marketable Securities, as determined on the date of the
contract relating to such Asset Sale.
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"NET INCOME" means, with respect to any specified Person, the net income
(loss) of such Person, determined in accordance with GAAP and before any
reduction in respect of Preferred Stock dividends, excluding, however:
(1) any gain (but not loss), together with any related provision for taxes
on such gain (but not loss), realized in connection with:
(a) any Asset Sale or
(b) the disposition of any securities by such Person or any of its
Restricted Subsidiaries or the extinguishment of any Indebtedness
of such Person or any of its Restricted Subsidiaries; and
(2) any extraordinary gain (but not loss), together with any related
provision for taxes on such extraordinary gain (but not loss).
"NET PROCEEDS" means the aggregate cash proceeds received by Loral or any
of its Restricted Subsidiaries in respect of any Asset Sale (including, without
limitation, any cash received upon the sale or other disposition of any non-cash
consideration received in any Asset Sale), net of the direct costs relating to
such Asset Sale, including, without limitation, legal, accounting and investment
banking fees, and sales commissions, and any relocation expenses incurred as a
result thereof, taxes paid or payable as a result thereof, in each case, after
taking into account any available tax credits or deductions and any tax sharing
arrangements, and amounts required to be applied to the repayment of
Indebtedness (other than Indebtedness under any one or more Credit Facilities)
secured by a lien on the asset or assets that were the subject of such Asset
Sale, and any reserve for adjustment in respect of the sale price of such asset
or assets established in accordance with GAAP.
"NON-RECOURSE DEBT" means Indebtedness as to which neither Loral nor any of
its Restricted Subsidiaries (other than the Restricted Subsidiary that is the
primary obligor and its Subsidiaries so long as no Capital Stock of such
Subsidiaries is owned by Loral or any other Restricted Subsidiary),
(1) provides credit support of any kind (including any undertaking,
agreement or instrument that would constitute Indebtedness),
(2) is directly or indirectly liable as a guarantor or otherwise, or
(3) constitutes the lender.
"OBLIGATIONS" means any principal, premium if any, interest, penalties,
fees, indemnifications, guarantees, reimbursements, damages and other
liabilities payable under the documentation governing any Indebtedness.
"PERMITTED BUSINESS" means any of the lines of business conducted by Loral
and its Restricted Subsidiaries or its existing Permitted Ventures on the Issue
Date and any other space or communication businesses and any business reasonably
related thereto.
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"PERMITTED INVESTMENTS" means:
(1) any Investment in Loral or in a Restricted Subsidiary of Loral;
(2) any Investment in Cash Equivalents;
(3) any Investment by Loral or any Restricted Subsidiary of Loral in a
Person engaged in a Permitted Business, if as a result of such
Investment:
(a) such Person becomes a Restricted Subsidiary of Loral; or
(b) such Person is merged, consolidated or amalgamated with or into,
or transfers or conveys substantially all of its assets to, or is
liquidated into, Loral or a Restricted Subsidiary of Loral;
(4) any Investment made as a result of the receipt of non-cash
consideration from an Asset Sale that was made pursuant to and in
compliance with the covenant described above under the caption
"-- Repurchase at the Option of Holders -- Asset Sales;"
(5) any acquisition of assets solely in exchange for the issuance of
Equity Interests (other than Disqualified Stock) of Loral;
(6) Hedging Obligations;
(7) Investments in Permitted Ventures;
(8) Investments existing on the Issue Date;
(9) Investments in Skybridge, L.P. that are either
(a) required pursuant to the partnership agreement in existence on the
Issue Date or
(b) required to avoid disproportionate dilution to Loral's equity
interest therein pursuant to such partnership agreement or to
avoid financial penalties; and
(10) other Investments in any Person principally engaged in Permitted
Businesses having an aggregate fair market value (measured on the date
each such Investment was made and without giving effect to subsequent
changes in value), when taken together with all other Investments made
pursuant to this clause (10) at any time outstanding not to exceed 5%
of Loral's Consolidated Tangible Assets.
"PERMITTED LIENS" means:
(1) Liens on assets of Loral or its Restricted Subsidiaries securing
Indebtedness and other Obligations under Credit Facilities that were
permitted by the terms of the indenture to be incurred;
(2) Liens in favor of Loral or any of its Restricted Subsidiaries;
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(3) Liens on property of a Person existing at the time such Person is
merged with or into or consolidated with Loral or any Restricted
Subsidiary of Loral; provided that such Liens were in existence prior
to the contemplation of such merger or consolidation and do not extend
to any assets other than those of the Person merged into or
consolidated with Loral or the Restricted Subsidiary;
(4) Liens on property existing at the time of acquisition thereof by Loral
or any Restricted Subsidiary of Loral; provided that such Liens were
in existence prior to the contemplation of such acquisition;
(5) Liens to secure the performance of statutory obligations, surety or
appeal bonds, performance bonds or other obligations of a like nature
incurred in the ordinary course of business;
(6) Liens to secure Indebtedness (including Capital Lease Obligations)
permitted by clause (4) of the second paragraph of the covenant
entitled "-- Covenants -- Incurrence of Indebtedness and Issuance of
Preferred Stock";
(7) Liens existing on the Issue Date and Liens Loral or any Restricted
Subsidiary are or may be obligated to create pursuant to agreements in
existence on the Issue Date;
(8) Liens for taxes, assessments or governmental charges or claims that
are not yet delinquent or that are being contested in good faith by
appropriate proceedings promptly instituted and diligently concluded,
provided that any reserve or other appropriate provision as shall be
required in conformity with GAAP shall have been made therefor;
(9) Liens incurred in the ordinary course of business of Loral or any
Restricted Subsidiary of Loral with respect to obligations that do not
exceed $50 million at any one time outstanding;
(10) other Liens incidental to the conduct of Loral's and its Restricted
Subsidiaries' businesses or the ownership of their respective property
not securing any Indebtedness, and which do not in the aggregate
materially detract from the value of Loral's and its Restricted
Subsidiaries' property when taken as a whole, or materially impair the
use thereof in the operation of their respective businesses; and
(11) Liens on assets of Unrestricted Subsidiaries that secure Non-Recourse
Debt of Unrestricted Subsidiaries.
"PERMITTED REFINANCING INDEBTEDNESS" means any Indebtedness of Loral or any
of its Restricted Subsidiaries issued in exchange for, or the net proceeds of
which are used to extend, refinance, renew, replace, defease or refund other
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Indebtedness of Loral or any of its Restricted Subsidiaries (other than
intercompany Indebtedness); provided that:
(1) the principal amount (or accreted value, if applicable) of such
Permitted Refinancing Indebtedness does not exceed the principal
amount (or accreted value, if applicable), of the Indebtedness so
extended, refinanced, renewed, replaced, defeased or refunded (plus
all accrued interest thereon and the amount of all customary expenses
incurred in connection therewith);
(2) such Permitted Refinancing Indebtedness has a final maturity date
later than the final maturity date of, and has a Weighted Average Life
to Maturity equal to or greater than the Weighted Average Life to
Maturity of, the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded;
(3) if the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded is junior in right of payment to the notes, such
Permitted Refinancing Indebtedness has a final maturity date later
than the final maturity date of, and is junior in right of payment to,
the notes on terms at least as favorable to the Holders of notes as
those contained in the documentation governing the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded; and
(4) such Indebtedness is incurred either by Loral or by the Restricted
Subsidiary who is the obligor on the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded.
"PERMITTED VENTURE" means:
(1) a corporation, partnership or other entity other than a Subsidiary
engaged in one or more Permitted Businesses in respect of which Loral
or a Restricted Subsidiary
(a) beneficially owns at least 20% of the Capital Stock of such
entity and
(b) either is a party to an agreement providing for one or more
parties to such agreement (which may or may not be Loral or a
Subsidiary), or is a member of a group that, pursuant to the
constituent documents of the applicable corporation, partnership
or other entity, has the power, to direct the policies,
management and affairs of such entity; or
(2) Globalstar Telecommunications Limited ("Globalstar Telecommunications
Limited"), so long as Globalstar, L.P. is a Permitted Venture and
Globalstar Telecommunications Limited's principal asset consists of
Equity Interests in Globalstar.
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"PERSON" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint stock company, trust,
unincorporated organization, government or agency or political subdivision
thereof or any other entity.
"PREFERRED STOCK" of any Person means Capital Stock of such Person of any
class or classes (however designated) that ranks prior, as to the payment of
dividends or as to the distribution of assets upon any voluntary or involuntary
liquidation, dissolution or winding up of such Person, to shares of Capital
Stock of any other class of such Person.
"RESTRICTED INVESTMENT" means an Investment other than a Permitted
Investment.
"RESTRICTED SUBSIDIARY" of a Person means any Subsidiary of such Person
that is not an Unrestricted Subsidiary.
"SERIES C PREFERRED STOCK" means Loral's 6% Series C Convertible Redeemable
Preferred Stock due 2007.
"SIGNIFICANT SUBSIDIARY" means any Subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated by
the SEC, as such Regulation is in effect on the date hereof, using a percentage
of 5% for such calculations instead of the percentage set forth therein.
"STATED MATURITY" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and shall not include any contingent obligations to
repay, redeem or repurchase any such interest or principal prior to the date
originally scheduled for the payment thereof.
"SUBSIDIARY" means, with respect to any specified Person, any corporation,
partnership, association or other business entity that would be required under
GAAP to be consolidated in the financial statements of such Person or one or
more of the other Subsidiaries of that Person (or a combination thereof).
"TANGIBLE NET WORTH" of any Person as of any date means the Consolidated
Tangible Assets of such Person less the Total Indebtedness of such Person.
"TOTAL INDEBTEDNESS" means, at any time of determination, without
duplication, the sum of
(1) all Indebtedness of Loral and its Restricted Subsidiaries at such time,
(2) the aggregate redemption price of any Disqualified Stock and
(3) the aggregate liquidation preference of any Preferred Stock of Loral's
Restricted Subsidiaries, in each case as determined on a consolidated
basis in accordance with GAAP.
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"UNRESTRICTED SUBSIDIARY" means any Subsidiary of Loral that is designated
by the Board of Directors of Loral as an Unrestricted Subsidiary pursuant to a
Board Resolution, but only to the extent that such Subsidiary:
(1) has no Indebtedness other than Non-Recourse Debt;
(2) is not party to any agreement, contract, arrangement or understanding
with Loral or any Restricted Subsidiary of Loral unless the terms of
any such agreement, contract, arrangement or understanding are no less
favorable to Loral or such Restricted Subsidiary than those that might
be obtained at the time from Persons who are not Affiliates of Loral;
(3) is a Person with respect to which neither Loral nor any of its
Restricted Subsidiaries has any direct or indirect obligation
(a) to subscribe for additional Equity Interests or
(b) to maintain or preserve such Person's financial condition or to
cause such Person to achieve any specified levels of operating
results;
(4) has not guaranteed or otherwise directly or indirectly provided credit
support for any Indebtedness of Loral or any of its Restricted
Subsidiaries; and
(5) has at least one director on its board of directors that is not a
director or executive officer of Loral or any of its Restricted
Subsidiaries and has at least one executive officer that is not a
director or executive officer of Loral or any of its Restricted
Subsidiaries.
Any designation of a Subsidiary of Loral as an Unrestricted Subsidiary
shall be evidenced to the trustee by filing with the trustee a certified copy of
the Board Resolution giving effect to such designation and an Officers'
Certificate certifying that such designation complied with the preceding
conditions and was permitted by the covenant described above under the caption
"-- Covenants -- Restricted Payments." If, at any time, any Unrestricted
Subsidiary would fail to meet the preceding requirements as an Unrestricted
Subsidiary, it shall thereafter cease to be an Unrestricted Subsidiary for
purposes of the indenture and any Indebtedness of such Subsidiary shall be
deemed to be incurred by a Restricted Subsidiary of Loral as of such date and,
if such Indebtedness is not permitted to be incurred as of such date under the
covenant described under the caption "-- Covenants -- Incurrence of Indebtedness
and Issuance of Preferred Stock," Loral shall be in default of such covenant.
The Board of Directors of Loral may at any time designate any Unrestricted
Subsidiary to be a Restricted Subsidiary; provided that such designation shall
be deemed to be an incurrence of Indebtedness by a
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Restricted Subsidiary of Loral of any outstanding Indebtedness of such
Unrestricted Subsidiary and such designation shall only be permitted if
(1) such Indebtedness is permitted to be incurred under the covenant
described under the caption "-- Covenants -- Incurrence of Indebtedness
and Issuance of Preferred Stock," calculated on a pro forma basis as if
such designation had occurred at the beginning of the four-quarter
reference period or balance sheet date, as applicable, and
(2) no Default would be in existence following such designation.
"VOTING STOCK" of any Person as of any date means the Capital Stock of such
Person that is at the time entitled to vote in the election of the Board of
Directors of such Person.
"WEIGHTED AVERAGE LIFE TO MATURITY" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing:
(1) the sum of the products obtained by multiplying
(a) the amount of each then remaining installment, sinking fund,
serial maturity or other required payments of principal, including
payment at final maturity, in respect thereof, by
(b) the number of years (calculated to the nearest one-twelfth) that
will elapse between such date and the making of such payment; by
(2) the then outstanding principal amount of such Indebtedness.
"WHOLLY OWNED SUBSIDIARY" of any specified Person means a Subsidiary of
such Person all of the outstanding Capital Stock or other ownership interests of
which (other than directors' qualifying shares) shall at the time be owned by
such Person or by one or more Wholly Owned Subsidiaries of such Person and one
or more Wholly Owned Subsidiaries of such Person.
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BOOK-ENTRY; DELIVERY AND FORM
The new notes initially will be represented by one or more permanent global
certificates in definitive, fully registered form, called a "global note." The
global note will be deposited upon issuance with DTC and registered in the name
of DTC.
THE GLOBAL NOTE. We expect that pursuant to procedures established by DTC
(a) upon issuance of the global note, DTC or its custodian will credit, on
its internal system, the principal amount of the individual beneficial
interests represented by the global note to the respective accounts of
persons who have accounts with such depositary and
(b) ownership of beneficial interests in the global note will be shown on,
and the transfer of ownership will be effected only through, records
maintained by DTC or its nominee (with respect to interests of
participants) and the records of participants (with respect to
interests of persons other than participants).
Ownership of beneficial interests in the global notes will be limited to persons
who have accounts with DTC ("participants") or persons who hold interests
through participants.
So long as DTC or its nominee is the registered owner or holder of the new
notes, DTC or the nominee will be considered the sole owner or holder of the new
notes represented by the global note for all purposes under the indenture. No
beneficial owner of an interest in the global note will be able to transfer that
interest except in accordance with DTC's procedures.
Payments of interest, principal and other amounts due on the global note
will be made to DTC or its nominee as the registered owner. Neither we, the
trustee or any paying agent will have any responsibility or liability for any
aspect of the records relating to or payments made on account of beneficial
ownership interests in the global note or for maintaining, supervising or
reviewing any records relating to such beneficial ownership interest.
We expect that DTC or its nominee, upon receipt of any payment of interest,
principal or other amounts due on the global note, will credit participants'
accounts with payments in amounts proportionate to their respective beneficial
interests in the global note as shown on the records of DTC. We also expect that
payments by participants to owners of beneficial interests in the global note
held through such participants will be governed by standing instructions and
customary practice, as is the case with securities held for the accounts of
customers registered in the names of nominees for those customers. Such payments
will be the responsibility of the participants.
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Transfers between participants in DTC will be effected in the ordinary way
through DTC's settlement system in accordance with DTC rules and will be settled
in same day funds.
DTC has advised us that it will take any action permitted to be taken by a
holder of new notes only at the direction of a participant to whose account the
DTC interests in the global note are credited and only as to such portion of the
notes as to which the participant has given such direction. However, if there is
an event of default under the indenture, DTC will exchange the global note for
certificated notes, which it will distribute to its participants.
DTC has advised as follows: DTC is a limited purpose trust company
organized under the laws of the State of New York, a member of the Federal
Reserve System, a "clearing corporation" within the meaning of the Uniform
Commercial Code and a "Clearing Agency" registered pursuant to the provisions of
Section 17A of the Exchange Act. DTC was created to hold securities for its
participants and facilitate the clearance and settlement of securities
transactions between participants through electronic book-entry changes in
accounts of its participants, thereby eliminating the need for physical movement
of certificates. Participants include securities brokers and dealers, banks,
trust companies and clearing corporations and certain other organizations.
Indirect access to the DTC system is available to others such as banks, brokers
and trust companies that clear through or maintain a custodial relationship with
a participant, either directly or indirectly ("indirect participants").
Although DTC has agreed to the foregoing procedures to facilitate transfers
of interests in the global note among participants of DTC, it is under no
obligation to perform those procedures, and those procedures may be discontinued
at any time. Neither we nor the trustee will have any responsibility for the
performance by DTC or its participants or indirect participants of our
respective obligations under the rules and procedures governing their
operations.
CERTIFICATED SECURITIES. If DTC is at any time unwilling or unable to
continue as a depositary for the global note and a successor depositary is not
appointed by us within 90 days, certificated notes will be issued in exchange
for the global note.
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DESCRIPTION OF OTHER INDEBTEDNESS
LORAL SPACECOM CORPORATION AND SPACE SYSTEMS/LORAL CREDIT AGREEMENT
The Credit Agreement provides for borrowing availability of $500 million of
revolving loans, including letters of credit, $275 million of term loans and $75
million of additional letters of credit. Both the term loan facility and
revolving credit facility are for a period of five years from the date of the
Credit Agreement, November 14, 1997. The separate letter of credit facility runs
for a two-year period. The term loan facility requires repayment in twelve
consecutive quarterly installments beginning December 31, 1999. The first four
installments are $18.75 million each and the final eight installments are $25
million each. Obligations under the Credit Agreement are secured by the stock of
Loral SpaceCom Corporation and Space Systems/Loral and bear interest, at Loral
SpaceCom Corporation's option, at various rates based on margins over the lead
bank's base rate or the London Interbank Offer Rate for periods of one to six
months. Loral SpaceCom Corporation pays a commitment fee on the unused portion
of the facilities.
The Credit Agreement contains customary covenants including an interest
coverage ratio and debt to capitalization ratios. In addition, the Credit
Agreement contains limitations on indebtedness, liens, guarantee obligations,
asset sales, dividends, investments and transactions with affiliates. Under the
terms of the Credit Agreement, Loral SpaceCom may pay dividends to its parent if
the cumulative dividend payments do not exceed 50% of cumulative net income, as
defined, and the ratio of funded debt to EBITDA, as defined, is less than three
to one. Notwithstanding this dividend payment limitation, as of December 31,
1998 Loral SpaceCom could pay a dividend to its parent of up to $70 million.
Loral SpaceCom has an intercompany note payable outstanding with its parent in
the amount of $347 million at December 31, 1998. This note requires semi-annual
interest payments of $31.5 million to be made on the first day of April and
October. This note, however, can be prepaid down to $200 million under the terms
of the Credit Agreement. As of December 31, 1998 Loral SpaceCom could borrow an
additional $151 million under the Credit Agreement.
As of December 31, 1998, approximately $622 million, excluding letters of
credit, was outstanding under the Credit Agreement and other credit facilities.
LORAL SECURED STANDBY CREDIT FACILITY
Loral has a $115 million secured standby credit facility to support its
guarantee of a $115 million term loan obligation. This facility was undrawn as
of December 31, 1998.
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LORAL ORION NOTES
Loral Orion has outstanding $443 million in principal amount of 11 1/4%
senior notes due 2007 and $484 million in principal amount of 12 1/2% senior
discount notes due 2007. This indebtedness of Loral Orion is non-recourse to us.
SATMEX
In connection with the privatization by the Federal Government of Mexico
(the "Mexican Government") of its fixed satellite services business, Loral and
Principia, S.A. de C.V. ("Principia"), formerly known as Telefonica Autrey, S.A.
de C.V., formed a joint venture, Firmamento Mexicano, S.A. de R.L. de C.V.
("Holdings"). On November 17, 1997, Holdings acquired 75% of the outstanding
capital stock of SatMex for $646.8 million. The purchase price was financed by a
Loral equity contribution of $94.6 million, a Principia equity contribution of
$50.9 million and debt issued by a subsidiary of Holdings. As part of the
acquisition, Servicios Corporativos Satelitales, S.A. de C.V. ("Servicios"), a
wholly owned subsidiary of Holdings, agreed to issue a $125.1 million seven year
obligation bearing interest at 6.03% to the Mexican Government (the "Government
Obligation") in consideration for the assumption by SatMex of the debt incurred
by Servicios in connection with the acquisition. Holdings and the Mexican
Government have reached an agreement in principle to increase the amount of the
Government Obligation by approximately $5 million. The debt of SatMex and
Servicios is non-recourse to Loral and Principia. However, Loral and Principia
have agreed to maintain assets in a collateral trust in an amount equal to the
value of the Government Obligation through December 30, 2000 and, thereafter, in
an amount equal to 1.2 times the value of the Government Obligation until
maturity. As of December 31, 1998, Loral and Principia have pledged their
respective shares in Holdings in such trust. Loral has a 65% interest in
Holdings and a 49% indirect economic interest in SatMex.
On March 30, 1999, Loral acquired 577,554 shares of preferred stock of
SatMex at a purchase price of approximately $30.3 million. The preferred stock
has limited voting rights, pays a dividend in common stock of SatMex and is
exchangeable, at SatMex's option, into common stock of SatMex based upon a
predetermined exchange ratio.
As of December 31, 1998, SatMex had total indebtedness of $644 million. On
March 31, 1999, SatMex redeemed $35 million of its secured floating rate notes.
GLOBALSTAR
As of December 31, 1998, Globalstar had senior notes in an aggregate
principal amount of $1.45 billion outstanding. In addition, Globalstar had
vendor financing of $371 million outstanding as of December 31, 1998.
Globalstar's indebtedness is non-recourse to us; however, we are contingently
liable with respect to approximately $68 million of Globalstar's $250 million
revolving line of credit, which was undrawn as of December 31, 1998.
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FOREIGN ISSUER CONSIDERATIONS
The following discussion is based on the advice of Appleby, Spurling &
Kempe, Bermuda counsel to Loral.
We have been designated as a non-resident for exchange control purposes by
the Bermuda Monetary Authority.
Under Bermuda law, we are an exempted company (that is, we are exempted
from the provisions of Bermuda law which stipulate that at least 60% of our
equity must be beneficially owned by Bermudians). As an exempted company, we are
exempt from Bermuda laws which restrict the percentage of share capital that may
be held by non-Bermudians, but as an exempted company we may not participate in
certain business transactions, including:
(1) the acquisition or holding of land in Bermuda, except that required for
its business and held by way of lease or tenancy for terms of not more
than 21 years, without the express authorization of the Bermuda
legislature;
(2) the taking of mortgages on land in Bermuda to secure an amount in
excess of $50,000 without the consent of the Bermuda Minister of
Finance;
(3) the acquisition of securities created or issued by, or any interest in,
any local company or business, other than certain types of Bermuda
government securities or securities of another exempted company,
partnership or other corporation resident in Bermuda but incorporated
abroad; or
(4) the carrying on of business of any kind in Bermuda, except in
furtherance of our business carried on outside Bermuda or under a
license granted by the Bermuda Minister of Finance.
The Bermuda government actively encourages foreign investment in exempted
entities like Loral that are based in Bermuda but do not operate in competition
with local business. In addition to having no restrictions on the degree of
foreign ownership, we are subject neither to taxes on our income or dividends
nor to any foreign exchange controls in Bermuda. In addition, there is no
capital gains tax in Bermuda, and we can accumulate profits, as required,
without limitation.
BERMUDA TAX CONSIDERATIONS
At the date of this prospectus, there is no Bermuda income tax, corporation
or profits tax, withholding tax, capital gains tax, capital transfer tax, estate
or stamp duty or inheritance tax payable by us or the holders, other than
holders ordinarily resident in Bermuda, in respect of their investment in the
new notes. Accordingly, the exchange of the old notes for the new notes will not
be subject to taxes in Bermuda.
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We have obtained from the Minister of Finance under the Exempted
Undertakings Tax Protection Act 1966, as amended, a certificate confirming that,
in the event of there being enacted in Bermuda any legislation imposing 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, such
tax shall not until March 28, 2016 be applicable to us or to any of our
operations, or other obligations of us except insofar as such tax applies to
persons ordinarily resident in Bermuda and holding such new notes or other
obligations, or to any land in Bermuda leased or rented to us.
We are liable to pay the Bermuda government an annual registration fee
calculated on a sliding scale based upon our assessable capital, which fee will
not exceed BD$26,500.
We have been classified as non-resident of the Bermuda exchange control
area by the Bermuda Monetary Authority, whose permission for the issue of the
new notes has been obtained. The transfer of new notes between persons regarded
as non-resident of Bermuda for exchange control purposes and the issue and
redemption of new notes to and by such persons may be effective without specific
consents under the Exchange Control Act 1972 of Bermuda and Regulations made
thereunder. Transfers involving any person regarded as resident in Bermuda for
exchange control purposes requires specific authorization under that Act. By
virtue of being a non-resident of Bermuda for exchange control purposes, we are
free to acquire, hold and sell any foreign currency, securities and other
investments without restrictions.
Purchasers of new notes may be required to pay stamp taxes and other
charges in accordance with the laws and practices of the country of purchase.
Prospective purchasers should consult their tax advisers as to the tax laws of
applicable jurisdictions and the specific tax consequences of acquiring, holding
and disposing of the new notes.
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MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following is a general discussion of certain United States federal
income tax consequences associated with the exchange of the old notes for the
new notes pursuant to the exchange offer and the ownership and disposition of
the new notes, but does not purport to be a complete analysis of all potential
tax effects. The discussion is based on review of the Internal Revenue Code of
1986, as amended, U.S. Treasury Regulations, Internal Revenue Service rulings
and pronouncements and judicial decisions, all in effect as of the date hereof
and all of which are subject to change at any time, and any such change may be
applied retroactively in a manner that could adversely affect a holder of the
notes. The discussion does not address all of the U.S. federal income tax
consequences that may be relevant to a holder in light of such holder's
particular circumstances or to holders subject to special rules, such as certain
financial institutions, insurance companies, dealers in securities, tax-exempt
organizations and persons holding the notes as part of a "straddle", "hedge" or
"conversion transaction." In addition, this discussion is limited to persons
purchasing the old notes at the issue price. Moreover, the effect of any
applicable state, local or foreign tax laws is not discussed. The discussion
deals only with notes held as "capital assets" within the meaning of Section
1221 of the IRS Code. We have not sought and will not seek any rulings from the
IRS with respect to the position of Loral discussed below. There can be no
assurance that the IRS will not take a different position concerning the tax
consequences of the exchange of old notes for new notes and the ownership or
disposition of the new notes.
PROSPECTIVE HOLDERS OF NEW NOTES SHOULD CONSULT THEIR OWN TAX ADVISORS WITH
REGARD TO THE APPLICATION OF THE TAX CONSIDERATIONS DISCUSSED BELOW TO THEIR
PARTICULAR SITUATIONS AS WELL AS THE APPLICATION OF ANY STATE, LOCAL, FOREIGN OR
OTHER TAX LAWS, INCLUDING GIFT AND ESTATE TAX LAWS.
THE EXCHANGE OFFER
The exchange of old notes for new notes pursuant to the exchange offer will
not be treated as an exchange or other taxable event for United States federal
income tax purposes because, under the IRS Code and applicable regulations, the
new notes do not differ materially in kind or extent from the old notes. Rather,
the exchange of old notes for new notes pursuant to the exchange offer should be
treated as a continuation of the corresponding old notes because the terms of
the new notes are not materially different from the terms of the old notes.
Accordingly,
(1) no gain or loss should be realized,
(2) the holding period of the new note should include the holding period of
the old note exchanged for the new note and
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(3) the adjusted tax basis of the new note should be the same as the
adjusted tax basis of the old note exchanged for the new note
immediately before the exchange.
U.S. HOLDERS
This section discusses the rules applicable to the following U.S. holders:
(1) a citizen or resident of the United States for United States federal
income tax purposes,
(2) a corporation, partnership or other entity created or organized in or
under the laws of the United States or any political subdivision
thereof,
(3) an estate the income of which is subject to United States federal
income taxation regardless of its source or a trust if a U.S. court can
exercise primary supervision over the administration of the trust and
one or more U.S. persons have the authority to control all substantial
decisions of the trust or
(4) any other person whose worldwide income or gain is otherwise subject to
United States federal income taxation on a net income basis.
STATED INTEREST
Stated interest on the notes will be taxable to a U.S. holder as ordinary
interest income in accordance with the U.S. holder's method of tax accounting at
the time that the stated interest is accrued or actually or constructively
received. We believe that under applicable regulations, all of the stated
interest on the notes should be treated as foreign source income for United
States federal income tax purposes. For United States foreign tax credit
purposes, interest generally will be foreign source "passive income" or
"financial services income." Therefore, only foreign tax credits from sources
that also generate "passive income" or "financial services income" can offset
United States federal income tax imposed on the stated interest on the notes.
SALE, EXCHANGE AND RETIREMENT OF NOTES
A U.S. Holder of a note will recognize gain or loss upon the sale,
retirement or other taxable disposition of his/her notes. This gain or loss will
generally be equal to the difference between
(1) the amount of cash and the fair market value of property received for
the notes, other than amounts representing accrued but unpaid stated
interest, and
(2) the holder's adjusted tax basis in the notes.
The adjusted tax basis of the notes in the hands of an original holder
generally will be equal to the notes' purchase price. Gain or loss generally
will
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be capital gain or loss and will be long-term capital gain or loss, generally
taxed at a preferential rate, if the holder has held his/her notes for more than
one year. There are limits on the deductibility of capital losses. Any amounts
paid with respect to accrued but unpaid stated interest generally will be
taxable as ordinary interest income. Gain or loss realized on the sale,
retirement or other taxable disposition of a note derived by a U.S. holder
generally will treated as U.S. source income or loss for foreign tax credit
purposes.
LIQUIDATED DAMAGES
We intend to take the position that the liquidated damages described in the
registration rights agreement will be taxable to a U.S. holder as ordinary
income in accordance with the holder's method of accounting for United States
federal income tax purposes. It is possible, however, that the IRS may take a
different position, in which case a U.S. holder might be required to include
such liquidated damages in income as the liquidated damages accrue or become
fixed. The source of such liquidated damages is unclear; we believe that the
liquidated damages should be treated as foreign source income for foreign tax
credit purposes.
NON-U.S. HOLDERS
For purposes of this discussion, a Non-U.S. holder is any holder of notes
who is
(1) a nonresident alien individual or
(2) a foreign corporation, partnership or estate or trust which is not
subject to United States federal income tax on a net income basis.
Under present United States federal income and estate tax law, and subject
to the discussion of backup withholding below:
(1) payments of principal, premium, if any, and interest by us or any of
our paying agents to a Non-U.S. holder will not be subject to United
States federal withholding tax if, in the case of interest,
(a) the beneficial owner of the notes does not actually or
constructively own 10% or more of the total combined voting power
of all classes of our stock,
(b) the beneficial owner of notes is not a controlled foreign
corporation that is related to us through stock ownership, and
(c) either
(A) the beneficial owner of the notes certifies to us or our
agent, under penalties of perjury, that it is not a U.S.
holder and provides its name and address or
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(B) a securities clearing organization, bank or other financial
institution that holds customers' securities in the ordinary
course of its trade or business and holds the notes certifies
to us or our agent, under penalties of perjury, that a
statement that the beneficial owner is not a U.S. holder has
been received from the beneficial owner by it or by a
financial institution between it and the beneficial owner and
furnishes the payor with a copy thereof;
(2) a non-U.S. holder of notes will not be subject to United States federal
withholding tax on any gain realized on the sale or exchange of notes;
and
(3) notes held by an individual who at death is not a citizen or resident
of the United States will not be includible in the individual's gross
estate for purposes of the United States federal estate tax as a result
of the individual's death if (a) the individual did not actually or
constructively own 10% or more of the total combined voting power of
all classes of our stock and (b) the income on the note would not have
been effectively connected with a United States trade or business of
the individual at the individual's death.
Recently finalized regulations (the "Final Withholding Regulations"), that
are generally effective with respect to payments after December 31, 1999,
provide alternative methods for satisfying the certification requirement
described in clause (1)(c) above. The Final Withholding Regulations also
require, in the case of notes held by a foreign partnership, that
(1) the certification described in clause (1)(c) above be provided by the
partners rather than by the foreign partnership and
(2) the partnership provide certain information, including a United States
taxpayer identification number. A look-through rule will apply in the
case of tiered partnerships.
BACKUP WITHHOLDING AND INFORMATION REPORTING
U.S. HOLDERS
In general, information reporting requirements will apply to certain
payments of principal, premium, if any, and interest and to the proceeds of sale
of notes made to holders other than certain exempt recipients, such as
corporations. Backup withholding and information reporting generally will not
apply to payments of principal, premium, if any, and interest on notes made
outside the United States, other than payments made to an address in the United
Sates or by transfer to an account maintained by the holder with a bank in the
United States, by us or any paying agent, acting in its capacity as such, to a
holder. A 31% backup withholding tax may apply to such payments if the U.S.
holder fails to provide a taxpayer identification number or certification of
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foreign or other exempt status or is notified by the IRS that it has failed to
report in full dividend and interest income.
NON-U.S. HOLDERS
Under current law, information reporting on Internal Revenue Service Form
1099 and backup withholding will not apply to payments of principal, premium, if
any, and interest made by us or a paying agent to a Non-U.S. holder on notes;
provided, the certification described in clause (1)(c) under "Non-United States
Holders" above is received, and provided further that the payor does not have
actual knowledge that the holder is a U.S. person. We or a paying agent,
however, may report (on Internal Revenue Service Form 1042S) payments of
interest on notes.
Payments of the proceeds from the sale by a Non-U.S. holder of a note made
to or through a foreign office of a broker will not be subject to information
reporting or backup withholding, except that if the broker is a U.S. person, a
controlled foreign corporation for United States tax purposes or a foreign
person 50% or more of whose gross income is effectively connected with a United
States trade or business for a specified three-year period, information
reporting may apply to such payments. Payments of the proceeds from the sale of
notes to or through the United States office of a broker is subject to
information reporting and backup withholding unless the holder or beneficial
owner certifies as to its non-United States status or otherwise establishes an
exemption from information reporting and backup withholding. See the discussion
above with respect to the rules under the Final Withholding Regulations.
PLAN OF DISTRIBUTION
Each holder desiring to participate in the exchange offer will be required
to represent, among other things, that
(1) it is not an "affiliate" (as defined in Rule 405 of the Securities Act)
of us,
(2) it is not engaged in, and does not intend to engage in, and has no
arrangement or understanding with any person to participate in a
distribution of the new notes, and
(3) it is acquiring the new notes in the ordinary course of its business.
A holder unable to make the foregoing representations is referred to herein
as a "restricted holder". A restricted holder will not be able to participate in
the exchange offer, and may only sell its old notes pursuant to a registration
statement containing the selling securityholder information required by Item 507
of Regulation S-K of the Securities Act, or pursuant to an exemption from the
registration requirement of the Securities Act.
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Each participating broker-dealer is required to acknowledge in the letter
of transmittal that it acquired the old notes as a result of market-making
activities or other trading activities and that it will deliver a prospectus in
connection with the resale of such new notes. Based upon interpretations by the
staff of the SEC, we believe that new notes issued pursuant to the exchange
offer to participating broker-dealers may be offered for resale, resold, and
otherwise transferred by a participating broker-dealer upon compliance with the
prospectus delivery requirements, but without compliance with the registration
requirements, of the Securities Act. We have agreed that for a period of 180
days following consummation of the exchange offer, we will make this prospectus
available to participating broker-dealers for use in connection with any such
resale. During such period of time, delivery of this prospectus, as it may be
amended or supplemented, will satisfy the prospectus delivery requirements of a
participating broker-dealer engaged in market making or other trading
activities.
Based upon interpretations by the staff of the SEC, we believe that new
notes issued pursuant to the exchange offer may be offered for resale, resold
and otherwise transferred by a holder thereof, other than a participating
broker-dealer, without compliance with the registration and prospectus delivery
requirements of the Securities Act.
We will not receive any proceeds from any sale of new notes by broker-
dealers. New notes received by participating broker-dealers for their own
account pursuant to the exchange offer may be sold from time to time in one or
more transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the new notes or a combination of such methods
of resale, at market prices prevailing at the time of resale, at prices related
to such prevailing market prices or at negotiated prices. Any such resale may be
made directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
participating broker-dealer and/or the purchasers of any such new notes. Any
participating broker-dealer that resells new notes that were received by it for
its own account pursuant to the exchange offer and any broker or dealer that
participates in a distribution of such new notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit on any
such resale of new notes and any commissions or concessions received by any such
persons may be deemed to be underwriting compensation under the Securities Act.
The letter of transmittal states that by acknowledging that it will deliver and
by delivering a prospectus, a participating broker-dealer will not be deemed to
admit that it is an "underwriter" within the meaning of the Securities Act.
We have agreed to pay all expenses incidental to the exchange offer other
than commissions and concessions of any brokers or dealers and will indemnify
holders of the notes, including any broker-dealers, against certain liabilities,
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including liabilities under the Securities Act, as set forth in the registration
rights agreement.
INCORPORATION OF MATERIAL DOCUMENTS BY REFERENCE
The SEC allows us to "incorporate by reference" the information we file
with them, which means we can disclose important information to you by referring
you to those documents. The information included in the following documents is
incorporated by reference and is considered to be a part of this prospectus. The
most recent information that we file with the SEC automatically updates and
supersedes more dated information.
We have previously filed (File No. 1-14180) the following documents with
the SEC and are incorporating them by reference into this prospectus.
(a) Our Annual Report on Form 10-K for the fiscal year ended December 31,
1998, and Globalstar's consolidated financial statements included in
Globalstar Telecommunications Limited and Globalstar's Annual Report on
Form 10-K for the fiscal year ended December 31, 1998, all filed
pursuant to the Exchange Act;
(b) Our Current Report on Form 8-K, filed on January 19, 1999 pursuant to
the Exchange Act; and
(c) Our Proxy Statement relating to the 1999 annual meeting of
stockholders.
We also incorporate by reference all documents subsequently filed by us
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act until all of
the old notes are exchanged for new notes.
We will provide, upon request, without charge to each person, including any
person having a control relationship with that person, to whom a prospectus is
delivered, a copy of any or all of the information that has been incorporated by
reference in this prospectus but not delivered with this prospectus. If you
would like to obtain this information from us, please direct your request,
either in writing or by telephone, to Eric J. Zahler, Esq., General Counsel, 600
Third Avenue, New York, New York 10016, Telephone: (212) 697-1105.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports, proxy statements and other
information with the SEC and have filed a registration statement with the SEC on
Form S-4 to register this exchange offer. Since this prospectus does not contain
all of the important business and financial information included in the
registration statement, you may wish to refer to the registration statement and
its exhibits for further information about us, the exchange offer and the new
notes. This information is also available without charge upon written or oral
request. Call or write us at Loral SpaceCom Corporation, 600 Third Avenue,
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New York, New York, Attention: Secretary (Telephone (212) 697-1105) to
request your free copies. To obtain timely delivery, you should request the
information at least five days before you make your decision as to whether or
not to exchange your notes.
You can access our SEC filings electronically at www.sec.gov, and can read
and copy our filings at the SEC's Public Reference Room (800-SEC-0330) at 450
Fifth Street, N.W., Washington, D.C. 20549 and at regional public reference
facilities maintained by the SEC located at Seven World Trade Center, Suite
1300, New York, New York 10048 and Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. You can also obtain more information about
us by visiting our web site at http://www.loral.com.
We remind professional securities dealers of their obligation under the
securities laws to deliver a copy of this prospectus to anyone who buys new
notes from them until July 14, 1999, which is the 90th day after the date of
this prospectus. Securities dealers who were initial purchasers of the old notes
and are acting as underwriters of unsold allotments have additional prospectus
delivery requirements.
LEGAL MATTERS
The validity of the new notes will be passed upon for us by Appleby,
Spurling & Kempe, Hamilton, Bermuda. Mr. Robert Hodes is of counsel to the law
firm of Willkie Farr & Gallagher, a Director of Loral and Globalstar
Telecommunications Limited and a member of the Executive and Audit Committees of
the Boards of Directors of both Loral and Globalstar Telecommunications Limited.
As of March 15, 1999, Mr. Hodes beneficially owned 25,000 shares of the common
stock of Loral, including 5,000 shares exercisable under Loral's stock option
plan. Mr. Bruce R. Kraus, partner of the law firm of Willkie Farr & Gallagher
and counsel to Loral, beneficially owned 6,700 shares of common stock of Loral.
EXPERTS
The annual consolidated financial statements of Loral, Space Systems/Loral
and the financial statement schedule of Loral incorporated in this prospectus by
reference from Loral's Annual Report on Form 10-K for the fiscal year ended
December 31, 1998 and the consolidated financial statements of Globalstar,
incorporated in this prospectus by reference from the Annual Report on Form 10-K
of Globalstar Telecommunications Limited and Globalstar for the fiscal year
ended December 31, 1998, have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their reports, which are incorporated herein by
reference, and have been so incorporated in reliance upon the reports of such
firm given upon their authority as experts in auditing and accounting.
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OFFER TO EXCHANGE
$350,000,000 9 1/2% SENIOR NOTES DUE 2006
THAT HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 FOR OUTSTANDING
$350,000,000 9 1/2% SENIOR NOTES DUE 2006
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P R O S P E C T U S
DATED APRIL 15, 1999
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LORAL SPACE &
COMMUNICATIONS LTD.
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