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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
COMMISSION FILE NUMBER 1-14180
LORAL SPACE & COMMUNICATIONS LTD.
C/O LORAL SPACECOM CORPORATION
600 THIRD AVENUE
NEW YORK, NEW YORK 10016
TELEPHONE: (212) 697-1105
JURISDICTION OF INCORPORATION: BERMUDA
IRS IDENTIFICATION NUMBER: 13-3867424
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
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NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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COMMON STOCK, $.01 PAR VALUE NEW YORK STOCK EXCHANGE
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The registrant has filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and
has been subject to such filing requirements for the past 90 days.
Disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is
contained in the registrant's 1999 definitive proxy statement.
At March 5, 1999, 243,900,376 common shares were outstanding, and the
aggregate market value of such shares (based upon the closing price on the New
York Stock Exchange) held by non-affiliates of the registrant was approximately
$4.3 billion.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's 1999 definitive proxy statement are
incorporated by reference into Part III.
The financial statements required by Rule 3.09 of Regulation S-X of the
registrant's significant investee, Globalstar, L.P., are incorporated by
reference herein from the Annual Report on Form 10-K filed by Globalstar
Telecommunications Limited and Globalstar, L.P.
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PART I
ITEM 1. BUSINESS
THE COMPANY
Loral Space & Communications Ltd. (together with its subsidiaries, "Loral"
or the "Company") is one of the world's leading satellite communications
companies, with substantial activities in satellite manufacturing and
satellite-based communications services. Loral is developing the building blocks
necessary to create a seamless, global networking capability for the information
age. In 1998, Loral advanced its strategy significantly by acquiring Orion
Network Systems, Inc., increasing its ownership in Globalstar, L.P.
("Globalstar"), forming the Loral Global Alliance, including the formation of
Europe*Star Limited ("Europe*Star"), and organizing and integrating its
businesses to form four distinct operating segments. Loral has increased its
satellite fleet to seven satellites in orbit (including three owned by Satelites
Mexicanos, S.A. de C.V. ("SatMex"), Loral's 49% owned affiliate). Loral will
expand the geographic coverage and capacity of its fixed satellite services by
launching three additional satellites in 1999. Loral's four operating segments
are:
Satellite Manufacturing and Technology. Designing and manufacturing
satellites and other space systems and developing satellite technology for
a broad variety of customers and applications through Space Systems/Loral,
Inc. ("SS/L").
Fixed Satellite Services. Leasing transponder capacity and providing
value added services to customers for a wide variety of applications,
including the distribution of broadcast programming, news gathering,
business television, distance learning and direct-to-home ("DTH") services.
The Company's fixed satellite service ("FSS") assets, managed by Loral
Skynet and marketed under the Loral Global Alliance banner, consist of
seven high-power geosynchronous ("GEO") satellites - three Loral Skynet
Telstar satellites and one satellite of Loral Orion, Inc. ("Orion"), as
well as three SatMex satellites. The two satellites expected to be launched
by the recently formed Europe*Star joint venture with Alcatel, in which
Loral owns a 47% interest, also will be part of the Loral Global Alliance
and form a component of the Company's FSS business segment.
Data Services. Business in development, providing managed
communications networks and Internet and intranet services through Loral
Orion and delivering high-speed broadband data communications through
CyberStar, L.P. ("CyberStar"), using transponder capacity on the Telstar
and Loral Orion fleets. Loral is the managing general partner and owns
approximately 82% of CyberStar.
Global Mobile Telephony. Providing worldwide wireless mobile
telephony and narrow-band data communications through a constellation of
low-earth orbiting ("LEO") satellites (the "Globalstar(]) System") operated
by Globalstar, which is expected to commence service in September 1999.
Loral is the managing general partner and owns approximately 43% of
Globalstar.
Each of Loral's business segments has a well-defined mission designed to
create global networks and exploit the increasing demand for immediate
up-to-date information. Loral's strategy is to capitalize on its innovative
capabilities, market position and advanced technologies to offer value-added
satellite-based services as part of the evolving worldwide communications
networks and, where appropriate, to form strategic alliances with major
telecommunications service providers and equipment manufacturers to enhance and
expand its satellite-based service opportunities. Loral believes that demand for
satellite-based communications services will continue to grow due to
accelerating demand for high speed data services, 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 and continuing technological advancement.
In addition, Loral is pursuing additional satellite-based service
opportunities throughout the world. Loral is a partner in SkyBridge Limited
Partnership ("SkyBridge"), a partnership led by Alcatel, that is building a LEO
satellite system for the delivery of broadband data and multimedia services
worldwide; and Loral, together with partners, will act as the Globalstar service
provider in Canada, Mexico and Brazil.
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The following table presents a brief description of the orbital locations
that the Company and certain of its affiliates are authorized to use. All
satellite systems are subject to international frequency coordination
requirements and must obtain appropriate authority to provide service in a given
territory.
FIXED SATELLITE SERVICES
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SATELLITE LOCATION FREQUENCY COVERAGE IN SERVICE
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Loral Skynet Telstar 4 89(o) W.L. C-band, Ku-band North America F
Telstar 5 97(o) W.L. C-band, Ku-band North America F
Telstar 6 93(o) W.L. C-band, Ku-band North America F
Telstar 7 129(o) W.L. C-band, Ku-band North America
Telstar 8 77(o) W.L. C-band, Ku-band North America
Telstar 9 69(o) W.L. C-band, Ku-band North America
Loral Orion Orion 1 37.5(o) W.L. Ku-band Europe, SE Canada, U.S. East of F
the Rockies and parts of Mexico
Orion 2(1) 12(o) W.L. Ku-band Eastern U.S., SE Canada, Europe,
CIS, Middle East, North Africa
and Latin America, S. Africa
Orion 3 139(o) E.L. C-band, Ku-band China, Japan, Korea, India,
Hawaii, Southeast Asia,
Australia, New Zealand, Eastern
Russia and Oceania
Orion A 47(o) W.L. Ku/Ka-band Americas, Europe and Africa
Orion B(1) 135(o) W.L. Ku-band North America, Hawaii, Puerto
Rico, U.S. Virgin Islands
Orion C 144(o) E.L. C-band and Ku-band China, Japan, Korea, India,
Hawaii, Southeast Asia,
Australia, New Zealand, Eastern
Russia and Oceania
SatMex Solidaridad 1 109.2(o) W.L. C-band, Ku-band Mexico and portions of Latin F
America
Solidaridad 2 113.0(o) W.L. C-band, Ku-band Mexico and portions of Latin F
America
SatMex 5 116.8(o) W.L. C-band, Ku-band Americas F
Morelos II(2) 120(o) W.L. C-band, Ku-band North America (inclined
orbit)
Europe*Star 45(o)E.L. Ku-band Europe, SE Asia, Middle East,
South Africa and India
43(o) E.L. Ku-band Europe, SE Asia, Middle East, S.
Africa and India
47.5(o) Ku-band Europe, SE Asia, Middle East, S.
E.L. Africa and India
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DATA SERVICES
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SATELLITE LOCATION FREQUENCY/TRANSPONDERS COVERAGE IN SERVICE
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CyberStar CyberStar 115(o) W.L. Ka-band (spot beams) North America
CyberStar 93(o) W.L. Ka-band (spot beams) North and South America(3)
CyberStar 105.5(o) E.L. Ka-band (spot beams) Asia-Pacific
Loral Orion Orion Ka 89(o) W.L. Ka-band Americas
Orion Ka 81(o) W.L. Ka-band Americas
Orion Ka 78(o) E.L. Ka-band Russia, India, China, Europe,
Africa, CIS, Australia, Asia
Orion Ka 126.5(o) E.L. Ka-band Asia, Russia, Australia, Oceania
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GLOBAL MOBILE TELEPHONY
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SATELLITE LOCATION FREQUENCY COVERAGE IN SERVICE
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Globalstar Globalstar 52 satellites, LEO 1610 - 1621.35MHz, Global
2483.5 - 2500MHz, (16 satellites
feeder links in launched)
C-band
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(1) These satellites are conditionally licensed by the Federal Communications
Commission ("FCC"), subject to an appropriate showing of Loral's financial
capability to construct, launch and operate the satellites.
(2) Currently operating in inclined orbit beyond its designed life. This
satellite is authorized to utilize the 120(o) W.L. orbital slot pursuant to
a grant of special temporary authority by the FCC which expires on April 16,
1999. The Company anticipates that prior to that date, the FCC will extend
the grant of special temporary authority for a period not to exceed 180
days. Subject to such continued regulatory approval, Morelos II can be
expected to continue to generate modest revenues for approximately three
years.
(3) The FCC license does not describe a particular coverage area.
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In addition to the orbital slots listed in the table above, Loral has
International Telecommunication Union ("ITU") filings at 3.5(o)E.L., 8(o)E.L.,
10(o)E.L., 11(o)E.L., 30(o)E.L., 81(o)E.L., 105.5(o)E.L., 135(o)E.L., 58(o)W.L.,
95(o)W.L., 115(o)W.L. and 135(o)W.L. for use of the V-band frequency. Loral
Skynet also has ITU filings at 98(o)E.L., 122(o)E.L., 130(o)E.L., 167.45(o)E.L.
and 175(o)W.L. for use of the C- and Ku-band frequencies. R/L DBS Company,
L.L.C., a joint venture in which Loral owns a 50% interest, has 11 odd numbered
DBS channels 1-21 at 61.5(o)W.L.
Loral has applications pending at 77(o)W.L. for use of the Extended
C/Ku-band frequencies and at 135(o)W.L., 115(o)W.L., 95(o)W.L. and 58(o)W.L. for
use of the V-band frequency. Loral Orion has applications pending at 126(o)E.L.
for use of the Ku/Extended Ku/C and Extended C-band frequencies and at
139(o)E.L., 15(o)W.L. and 67(o)W.L. for use of the Ka-band frequency. Globalstar
also has applications pending for an 80 satellite LEO system using the V-band
frequency and for a second generation Globalstar system comprised of 64 LEO
satellites and four GEO satellites (at 80(o)W.L., 10(o)E.L., 100(o)E.L. and
170(o)E.L.) using the 2 GHz frequency.
In March 1999, the Brazilian telecommunications authority announced that
Loral Skynet do Brasil, which had submitted a bid of $18 million, had won
Brazil's auction for its 63(o)W.L. orbital slot.
SATELLITE MANUFACTURING AND TECHNOLOGY
SS/L is a worldwide leader in the design, manufacture and integration of
satellites and space systems. SS/L draws on its 40-year history, during which
satellites manufactured by SS/L have achieved more than 650 years of cumulative
on-orbit experience. SS/L also provides Loral with visibility into emerging and
new satellite-based technologies and applications. SS/L manufactures satellites
that provide telecommunications, weather forecasting and direct broadcast
services. SS/L is the leading supplier of satellites to Intelsat, an
international consortium of 135 member nations which is currently the world's
largest operator of commercial communications satellites. Other significant
customers include News Corp./EchoStar, TCI, ChinaSat, Globalstar, Loral Skynet,
Loral Orion and CD Radio.
As one of the premier providers of satellites and other space systems, SS/L
competes principally on the basis of technical excellence, a long record of
reliable performance, competitive pricing and on-orbit delivery packages. The
Company believes that SS/L's advanced manufacturing and testing facilities and
long-term customer relationships have enabled SS/L to compete effectively in the
commercial space systems marketplace.
SS/L has a history of technical innovation that includes the first
three-axis stabilized satellites, bipropellant propulsion systems for commercial
satellites that permit significant increases in the satellites' payload and
extend the satellites' on-orbit lifetime, rechargeable nickel-hydrogen batteries
with a life span of 10 years or more, the use of advanced composites to
significantly enhance satellite performance at lighter weights and the first
communications satellite with more than ten kilowatts of power. SS/L also
created the first multi-mission geostationary satellite and was one of the first
U.S. companies to acquire space technology from Russia's space industry,
obtaining exclusive rights outside the former Eastern bloc to an electric
propulsion subsystem that is five times more efficient than bipropellant
propulsion systems.
SS/L's capabilities in satellite bus technologies are extensive. For
example, it uses lightweight/high-strength composite materials for its
structural components. SS/L was also the first satellite manufacturer to employ
heat pipes to control heat transfer in commercial satellites, thereby providing
a more benign temperature environment and increased reliability. Nickel hydrogen
batteries, when combined with SS/L's patented thermal management system, are
among the most efficient space batteries ever produced. A new technology
currently being developed by SS/L could result in the doubling of the efficiency
of the batteries within the next three years. A new telemetry and command system
employing serial interfaces was introduced in 1997.
Active research and development projects are underway for both
communications and payload equipment and supporting bus elements. SS/L has
commenced development of the 20.20(TM), the first commercial satellite capable
of providing 20 kilowatts of power, which will significantly increase capacity
and service quality.
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Highlights of the payload program include the development of active microwave
components, which are among the lightest and most compact in the industry, and
high power state-of-the-art multiplexers and antennae that can be customized for
various customer requirements. Investments in state-of-the-art computer-aided
design and modeling tools have enabled SS/L to eliminate expensive and
time-consuming prototyping of most equipment, further reducing production time.
SS/L, Alcatel Space Industries and Finmeccanica S.p.A. have agreed
generally to operate as a team on satellite programs worldwide. SS/L believes
that this strategic alliance has enhanced its technological and manufacturing
capabilities and marketing resources and affords it improved access to
international government and commercial customers.
SS/L's major contracts fall into two categories: firm fixed-price contracts
and cost-plus-award-fee contracts. Under firm fixed-price contracts, work
performed and products shipped are paid for at a fixed price without adjustment
for actual costs incurred in connection with the contract. Risk of loss due to
increased cost, therefore, is borne by SS/L. The majority of SS/L's contracts
are fixed-price contracts. Under such contracts, SS/L may receive progress
payments, or it may receive milestone payments upon the occurrence of certain
program achievements. Under a cost-plus-award-fee contract, the contractor
recovers its actual allowable costs incurred and receives a fee consisting of a
base amount that is fixed at the inception of the contract (the base amount may
be zero) and an award amount that is based on the customer's subjective
evaluation of the contractor's performance based on criteria stated in the
contract.
Many of SS/L's contracts and subcontracts may be terminated at will by the
customer or the prime contractor. In the event of a termination at will, SS/L is
normally entitled to recover the purchase price for delivered items,
reimbursement for allowable costs for work in process and an allowance for
profit or an adjustment for loss, depending on whether completion of performance
would have resulted in a profit or loss. No assurance can be given that these
terminations will not occur in the future.
Total revenues for the Company's satellite manufacturing and technology
segment, including intercompany and affiliate sales, were $1.4 billion for each
of the years ended December 31, 1998 and 1997 and $1.0 billion for the nine
months ended December 31, 1996. The segment's intercompany and affiliate sales
were $889 million in 1998, $620 million in 1997 and $281 million in 1996. The
Company's satellite manufacturing and technology segment had EBITDA of $107
million, $100 million and $77 million for the years ended December 31, 1998 and
1997 and the nine months ended December 31, 1996, respectively. Total assets for
the segment were $1.7 billion, $1.5 billion and $1.1 billion as of December 31,
1998, 1997 and 1996, respectively.
As of December 31, 1998 and 1997, funded backlog for the segment was $1.5
billion and $1.4 billion, respectively, including intercompany backlog of $111
million in 1998 and $188 million in 1997. Approximately 70% of the 1998 external
funded backlog is expected to be realized in 1999. Sales to Globalstar
represented in excess of 40% of the Company's consolidated revenues in 1998. In
addition, sales to two other customers represented in excess of 10% of the
Company's consolidated revenues in 1998. For the years ended December 31, 1998
and 1997 and for the nine months ended December 31, 1996, the satellite
manufacturing and technology segment expended $35 million, $24 million and $16
million for research and development projects, respectively.
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FIXED SATELLITE SERVICES
Following its acquisition of the Skynet business from AT&T in March 1997,
Loral has rapidly established itself through a series of subsequent acquisitions
and joint venture transactions, as one of the world's leading providers of fixed
satellite services using GEO satellites, which orbit the Earth at fixed
positions approximately 22,000 miles above the Equator. GEO satellites provide
reliable, high bandwidth services anywhere in their coverage areas and therefore
serve as the backbone for many forms of telecommunications. In the United States
and other developed countries, customers lease transponder capacity primarily
for distribution of network and cable television programming, for DTH video
transmission and for live video feeds from breaking news and sporting events. In
the developing world, a substantial portion of such capacity is dedicated to
long-distance telephone service as well as television services. GEO satellites
are increasingly used throughout the world for international Internet
communications, high-speed data services for businesses through very small
aperture terminals ("VSAT") networks, and for distance learning and educational
television.
Loral Global Alliance
Through the Loral Global Alliance, Loral offers its customers an integrated
portfolio of satellite capacity that provides "one stop shopping" for local,
regional and global GEO satellite services. The alliance members, consisting of
Loral Skynet, Loral Orion, SatMex and Europe*Star, currently have seven
satellites in orbit with a total of 144 C-band and 192 Ku-band 36-MHz
transponder-equivalents. Loral Skynet and Loral Orion expect to launch three
additional satellites in the next six months, which, together with the alliance
members' existing satellites, will provide a total of 178 C-band and 309 Ku-band
36-MHz transponder-equivalents, and will have a footprint covering almost all of
the world's population.
The Loral Global Alliance provides for cross-selling arrangements among the
alliance members' respective sales forces and for cooperative marketing and
promotional activities. The Company believes that such arrangements will enable
the members of the alliance to compete more effectively in sales of
communications satellite services worldwide. In addition, the alliance offers
in-orbit backup capabilities for its members in regions where members' fleets
have overlapping coverage.
Loral Skynet
Loral Skynet's core business is providing satellite capacity to support
distribution of U.S. television network programming. The ABC and Fox television
networks are its major customers. All ABC and Fox stations have their antennae
pointed at Loral Skynet's satellites, creating a configuration known as a
"neighborhood" that is attractive to other users requiring similar distribution
channels. Other Loral Skynet customers include HBO, Disney, Time Warner and
third-party resellers, such as sports syndicators and distance learning
providers.
Loral Skynet currently has three high power GEO satellites in operation.
Telstar 4 was placed in service in November 1995 and has 24 C-band and 24
Ku-band transponders. Telstar 4 provides coverage over the continental United
States, Hawaii, Puerto Rico and the U.S. Virgin Islands. Telstar 5, with 24
C-band and 28 Ku-band transponders, was built by SS/L and was placed into
service on July 1, 1997. Telstar 5 provides coverage over the continental United
States, Hawaii, Puerto Rico, the Caribbean and into Canada and portions of Latin
America. Telstar 4 and Telstar 5 are currently operating at or near full
utilization.
Telstar 6, built by SS/L, was launched in February 1999 and commenced
commercial operations in March 1999. Telstar 6 is a broadcast video and data
communications satellite with 24 C-band and 28 Ku-band transponders. It provides
coverage over the continental United States, Hawaii, Puerto Rico, the Caribbean
and into Canada and portions of Latin America.
Loral Skynet plans to construct, launch and operate three additional high
power C- and Ku-band satellites. Telstar 7, with 24 C-band and 24 Ku-band
transponders, which is being built by SS/L is scheduled for launch in the second
quarter of 1999. In addition, Loral Skynet plans to launch Telstar 8 in 2000 and
Telstar 9 in 2001. The addition of Telstar 6 and these three satellites will
substantially increase Loral Skynet's
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capacity within the United States and will further extend its coverage of Canada
and portions of Latin America, subject to obtaining landing rights from
regulatory authorities in those regions.
Loral Skynet has entered into a strategic alliance with EchoStar
Communications Corporation ("EchoStar") that leverages Loral Skynet's assets and
EchoStar's capabilities to create two interdependent businesses that will share
revenues equally: (i) Skynet Direct, a Loral Skynet-managed value-added
transmission and distribution service marketed to niche market programmers, such
as ethnic and international channels, business television and distance learning
and (ii) Sky Vista, an EchoStar-managed 26-channel DTH service offered to
subscribers in the continental United States and subscribers in Alaska, Hawaii
and U.S. territories and commonwealths in the Caribbean, where EchoStar's basic
DTH service is not available.
Loral Orion
On March 20, 1998, Loral acquired Orion Network Systems, Inc., a rapidly
growing provider of satellite-based communications services. Loral Orion
currently owns one GEO satellite and is constructing two additional GEO
satellites that are expected to be launched in the second and third quarters of
1999. Loral Orion's leasing business currently provides satellite capacity for
video distribution, satellite news gathering and other satellite services
primarily to broadcasters, news organizations and telecommunications service
providers. During the fourth quarter of 1998, Loral completed its integration
plan for Loral Orion and transferred management of Loral Orion's satellite
capacity leasing and satellite operations to Loral Skynet, effective January 1,
1999.
Orion 1, a high power satellite with 34 Ku-band transponders, commenced
operations in January 1995, and provides coverage to 34 European countries, much
of the United States and parts of Canada, Mexico and North Africa. Orion 2,
which will be a high power satellite with 38 Ku-band transponders, will expand
Loral Orion's European coverage and extend coverage to portions of the former
Soviet Union, Latin America, the Middle East and South Africa. Orion 2, which is
being constructed by SS/L, is scheduled to be launched in the third quarter of
1999. Orion 3, which will be a high power satellite with 33 Ku-band transponders
and 10 C-band transponders, with a footprint covering broad areas of the Asia
Pacific region, including China, Japan, Korea, India, Southeast Asia, Australia,
New Zealand, Eastern Russia and Hawaii, is scheduled to be launched in the
second quarter of 1999. Eight Ku-band transponders on Orion 3 have been presold
to Dacom Corporation.
SatMex
In December 1997, a joint venture in which Loral holds a 65% economic
interest completed the acquisition from the Mexican government of a 75% interest
in SatMex. SatMex, which owns and operates three GEO communications satellites,
is currently the dominant satellite communications company providing FSS in
Mexico, and intends to expand its services to become a leading provider of
satellite services throughout Latin America. SatMex provides satellite
transmission capacity to broadcasting customers for network and cable television
programming, DTH service and on-site transmission of live news reports, sporting
events and other video feeds. SatMex also provides satellite transmission
capacity to telecommunications service providers for public telephone networks
in Mexico and elsewhere and to corporate customers for their private business
networks with data, voice and video applications. SatMex has landing rights to
provide broadcasting and telecommunications transmission capacity in 14 nations
in the Latin American region and the United States. SatMex's broadcasting
customers include Televisa, MVS Multivision and Television Azteca, and its
telecommunications services customers include Telmex, Bancomer, Pemex, Cemex and
the Mexican subsidiaries of Ford and DaimlerChrysler.
SatMex's satellites, Solidaridad 1, Solidaridad 2 and SatMex 5, are in
geostationary orbit at 109.2 degrees W.L., 113.0 degrees W.L. and 116.8 degrees
W.L., respectively, and have a total of 144 36-MHz transponder-equivalents
operating in the C and Ku-band, with an aggregate footprint covering
substantially all of the continental United States, the Caribbean as well as all
of Latin America, other than certain regions in Brazil. The Company believes
that this capacity is one of the largest satellite capacities dedicated
primarily to the Latin American region. SatMex holds 20-year concession titles
to operate in these three orbital locations, each of
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which will expire on October 22, 2017. The concession titles are renewable
thereafter, subject to certain conditions, for an additional 20-year term
without additional payment. In addition, SatMex operates two satellite control
centers.
Europe*Star
In December 1998, Loral finalized its strategic partnership with a
subsidiary of Alcatel to jointly build and operate Europe*Star, a multiple
geostationary satellite system to be marketed as part of the Loral Global
Alliance. Europe*Star, in which Loral owns a 47% interest, will provide
broadcast and telecommunications services via two high power all Ku-band
satellites, one of which is currently under construction. Europe*Star will
provide satellite services to Europe, Southeast Asia, the Middle East, South
Africa and India.
Total revenues for the fixed satellite services segment, including
intercompany and affiliate sales, were $254 million and $83 million for the
years ended December 31, 1998 and 1997, respectively. The segment's intercompany
and affiliate sales were $5 million in 1998 and $1 million in 1997. The
Company's fixed satellite services segment had EBITDA of $171 million and $52
million for the years ended December 31, 1998 and 1997 respectively. Total
assets for the segment were $3.4 billion and $1.8 billion as of December 31,
1998 and, 1997, respectively.
As of December 31, 1998 and 1997, funded backlog for the segment was $746
million and $396 million, respectively, including intercompany and affiliate
backlog of $140 million in 1998 and $6 million in 1997. Approximately 30% of the
1998 external funded backlog is expected to be realized in 1999.
DATA SERVICES
In order to align all of Loral's resources and activities in the developing
data services area, CyberStar's broadband business and Loral Orion's Internet
and corporate data networking businesses have been reorganized and in 1999 began
reporting to a group vice president. This alignment allows the business units to
continue to operate independently while taking advantage of the synergies they
share.
Loral Orion provides multinational corporations with managed communications
networks designed to carry high-speed data, fax, video teleconferencing, voice
and other specialized services. The Loral Orion network delivers high-speed data
to customers in emerging markets and remote locations which would otherwise lack
the necessary infrastructure to support these services. Loral Orion also offers
intranet services and provides high speed Internet access and transmission
services to companies outside the United States seeking to avoid "last mile"
terrestrial connections and to bypass congested regional Internet network
routes. Loral Orion provides its services directly to customer premises using
VSATs.
As a result of a transaction completed in December 1998, Loral Orion has
access to technology licensed from The Fantastic Corporation that will enable it
to provide broadband infrastructure for multicast delivery of multimedia
products and services to corporations, content developers, broadcasters,
Internet Service Providers ("ISPs") and other enterprises that have time
sensitive and complex data requirements. Loral Orion continues to introduce new
products that capitalize on the strengths its satellites bring to the global
Internet access market. For example, during the fourth quarter of 1998, Loral
Orion introduced its WorldCast Business Edition, which supplies high-bandwidth
satellite capacity to improve businesses' access to the U.S. Internet backbone
from foreign locations. Recently, Loral Orion introduced a new multicast
service, called WorldCast Newsfeed, that will enable ISPs to receive news from
the Internet using Loral satellites, thereby minimizing terrestrial network
costs.
Loral is the managing general partner and principal owner of CyberStar, a
high-speed broadband data communications system. CyberStar leverages satellites,
terrestrial networks and its sophisticated network operations center to deliver
information securely and reliably at speeds of up to 27 Mbps to multiple
locations simultaneously, using an Internet protocol multicasting technique.
CyberStar offers a variety of low-cost, interactive multimedia communications
services in the United States using leased Ku-band transponder capacity on Loral
Skynet's Telstar 5 satellite, and plans in the future to expand its service
worldwide. CyberStar has received licenses from the FCC for three Ka-band
orbital slots. CyberStar's satellite-based
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services include high-speed Internet access, data broadcasting, broadband
interconnection, intranet multicasting, real-time video streaming and other data
services. CyberStar intends to market its services worldwide, initially to
businesses and private networks and subsequently to consumers through a network
of local and regional service providers.
In the fourth quarter of 1998, Cyberstar announced the commercial
availability of its broadband satellite-based business communications service.
One of its first customers, National Cinema Networks, selected CyberStar to
deliver in-theater media to its nationwide cinema network. CyberStar is
conducting pilot programs with other enterprise customers in markets such as
entertainment, finance, real estate, training, insurance and retail.
Total revenues for the Company's data services segment were $40 million for
the year ended December 31, 1998. EBITDA before development costs for the
segment was a loss of $13 million in 1998. Total development and start-up costs
for Cyberstar were $33 million for each of 1998 and 1997. Total assets for the
segment were $153 million and $25 million as of December 31, 1998 and 1997,
respectively.
As of December 31, 1998, funded backlog for the segment was $147 million,
which was all from external sources. Approximately 35% of 1998 external funded
backlog is expected to be realized in 1999.
GLOBAL MOBILE TELEPHONY
Globalstar has begun to launch and is preparing to operate a worldwide, LEO
satellite-based digital telecommunications system. As of March 15, 1999,
Globalstar has launched 16 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. Loral is the managing general
partner of Globalstar, and owned approximately 43% of Globalstar as of December
31, 1998.
The Globalstar System has been designed to address the substantial and
growing demand for telecommunications services worldwide, particularly in
developing countries. More than three billion people today live without
residential telephone service, many of them in rural areas where the cost of
installing wireline service is prohibitively high. Moreover, even where
telephone infrastructure is available in developing countries, outdated
equipment often leads to unreliable local service and limited international
access.
The Globalstar System's worldwide coverage is designed to enable its
service providers to extend modern telecommunications services to millions of
people who currently lack basic telephone service and to enhance wireless
telecommunications in areas underserved or not served by existing or future
cellular systems, providing a telecommunications solution in parts of the world
where the build-out of terrestrial systems cannot be economically justified.
As of December 31, 1998, each of the elements of the Globalstar
System -- space and ground segments, user terminal supply, service provider
arrangements, licensing and system integration -- was on schedule to permit
Globalstar to commence commercial operations in September 1999 with at least 32
satellites in orbit and to complete its 52-satellite constellation, including
four in-orbit spares, by the end of 1999.
Space Segment. On March 15, 1999, Globalstar successfully launched four
satellites aboard a Soyuz launch vehicle from the Baikonur Cosmodrome in
Kazakhstan, bringing the total satellites in orbit to 16. This launch followed
Globalstar's successful launch on February 8, 1999 of four satellites from the
Baikonur Cosmodrome following the execution of a Technology Safeguard Agreement
among the governments of Russia, Kazakhstan and the United States. Globalstar
had previously launched its first group of four satellites on February 14, 1998
and its second group of four satellites on April 24, 1998. The first 12
Globalstar satellites have reached their final orbital positions and are
currently being used to test basic system functionality, including the system's
inter-satellite hand-off capabilities, and the latest four satellites are
expected to reach their final orbital positions and begin operations testing in
April 1999. As of March 15, 1999, in addition to the 16 satellites in orbit,
Globalstar had eight completed satellites on hand and 28 more in final
integration and test. In September 1998, a malfunction of a Zenit 2 rocket
resulted in the loss of 12 Globalstar satellites shortly after lift-off from the
Baikonur Cosmodrome and resulted in a delay in the program schedule. The cost
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of the launch vehicle and the lost satellites was substantially insured. As a
result of the launch failure, Globalstar implemented its contingency plan, which
provides for a flexible launch strategy that enables it to select among a number
of launch service suppliers in order to improve its ability to commence service
as planned. Globalstar has reserved six Soyuz launches of four satellites each
(two of which have already occurred as of March 15, 1999) six Delta 2 launches
of four satellites each, an Ariane launch of up to six satellites and two Zenit
launches, all in 1999, with options for additional launches in 2000. Production
is proceeding for the remaining satellites to meet scheduled launch dates.
Ground Segment. Globalstar's primary satellite operations control center
and back-up facility, which performed well in support of the Globalstar
launches, are fully-operational and are currently performing command and control
functions for the in-orbit satellites. Qualcomm has completed 38 gateways, of
which eight are already installed in Texas, France, Italy, Canada, Argentina,
China, South Africa and South Korea. The initial gateways helped monitor the
launch and orbital placement of Globalstar's first 16 satellites. Qualcomm has
released an upgraded, commercial version of its gateway operating software,
which is now undergoing testing and evaluation. Globalstar expects these eight
gateways to be fully operational by the commencement of commercial service, and
expects an additional eight gateways to be installed and operational by the end
of 1999. These 16 gateways will cover 61 countries that account for
approximately 58% of Globalstar's business plan.
User Terminals. Ericsson, Qualcomm and Telital are manufacturing
approximately 300,000 handheld and fixed user terminals under contracts
totalling $353 million from Globalstar and its service providers. The first
generation handheld Globalstar phones are expected to weigh about 12 ounces and
be available in attractive designs with dimensions (excluding antenna) of
approximately 6.25" x 2" x 1.75". Globalstar users will be able to access
terrestrial wireless systems, where available, through dual and tri-mode
portable and mobile user terminals. Qualcomm will offer a tri-mode handset that
can access Globalstar, AMPS (the U.S. analog cellular standard) and digital
cellular phones using code division multiple access technology. Ericsson's and
Telital's Globalstar/GSM dual mode phones will feature the GSM interface
familiar to wireless customers in Europe and many other areas of the world.
Service Providers. Globalstar and its partners have been seeking alliances
with service providers throughout the world and have entered into a number of
agreements in specific territories. Globalstar believes that these relationships
with in-country service providers will facilitate the granting of local
regulatory approvals -- particularly where its service provider and the
licensing authority are one and the same -- as well as provide local marketing
and technical expertise. Globalstar's local service providers have already
obtained some or all of the regulatory approvals they will need to provide
service in 32 nations, including China, the United States, Canada, Russia,
Brazil, Indonesia, Saudi Arabia and Ukraine. Due to general economic conditions
in Asia, Hyundai has withdrawn as a Globalstar service provider. Globalstar has
found a replacement in Finland and has identified a replacement in India, but
has been prevented from signing a new service provider agreement for India by
litigation brought by Hyundai's former in-country partner. The injunction
prohibiting such an agreement is currently on appeal. If Globalstar cannot
proceed in a timely manner to engage an adequate replacement service provider
for India, Globalstar will not be able to offer service in that country, and its
results of operations could be adversely affected.
In July 1998, as a result of a transaction in which Loral purchased
Globalstar partnership interests from certain other Globalstar partners, $210.0
million was placed in escrow by such Globalstar partners for the purchase of
Globalstar gateways and handsets.
Licensing. In January 1995, the FCC granted authority for the
construction, launch and operation of the Globalstar System and assigned
spectrum for its user links. Later that year, the 1995 World Radiocommunication
Conference allocated feeder link spectrum on an international basis for mobile
satellite service systems such as Globalstar, and in November 1996, the FCC
authorized Globalstar's feeder links. In September 1997, Globalstar applied to
the FCC for authorization to launch and operate satellite systems at 2 GHz and
40 GHz. If these applications are granted (as to which there can be no
assurance), Globalstar would be in a position to expand its capacity
substantially.
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System Integration. Globalstar is using its in-orbit satellites and
installed gateways to perform extensive tests of system functionality to ensure
reliable, high quality service, including simulations of high-traffic
conditions. In tests, the Globalstar System has delivered voice quality
comparable to terrestrial CDMA and landline phones. Multiple satellite coverage
and soft hand-offs of calls have occurred without dropped calls, and the second
generation gateway software is providing both immediate handset connectivity and
a seamless interface with the public telephone networks. To date, none of the
Globalstar satellites has experienced a failure or significant anomaly.
Expenditures and Commitments. Through December 31, 1998, Globalstar
incurred costs of approximately $2.7 billion for the design and construction of
the space and ground segments. Costs incurred during 1998 were approximately
$871 million. Qualcomm is in the process of completing its revision to cost
estimates for its portion of the ground segment. Due to additional scope and
cost growth and based on preliminary information, Globalstar expects the
increase from Qualcomm to be less than 3% of the total project cost. The
Qualcomm estimate is still subject to further review by Globalstar. As of
December 31, 1998, and including the effect of the preliminary Qualcomm
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. In addition to
expenditures for operating costs and debt service, Globalstar anticipates
further expenditures on system software for the improvement of system
functionality and the addition of new features beyond those planned for the
commencement of commercial service. Globalstar expects to achieve positive cash
flow in the third quarter of 2000. Substantial additional financing will be
required if there are delays in the commencement of 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 these
additional funds, there can be no assurance that such funds will be available on
favorable terms or on a timely basis, if at all.
Globalstar has agreed, subject to its partners' approval, to purchase from
SS/L 12 additional spare satellites for which the cost and payment terms have
not as yet been negotiated. It is anticipated that approximately $100 million
will be expended for these spare satellites by commencement of commercial
service. In addition, in order to accelerate the deployment of gateways around
the world, Globalstar has agreed to help finance approximately $80 million of
the cost of up to 32 of the initial 38 gateways. The contracts for the 38
gateways aggregate approximately $345 million. Ericsson, Qualcomm and Telital
are in the process of manufacturing approximately 300,000 handheld and fixed
user terminals under contracts totaling $353 million from Globalstar and its
service providers. Globalstar has agreed to finance approximately $151 million
of the cost of handheld and fixed user terminals. Globalstar expects to recoup
such costs upon the acceptance by the service providers of the gateways and user
terminals.
In January 1999, GTL, a general partner of Globalstar, completed a private
offering of $350 million of convertible preferred stock (of which Loral
purchased $150 million face amount to maintain its ownership percentage). GTL in
turn used the net proceeds from its offering to purchase convertible preferred
partnership interests of Globalstar. Globalstar in turn will use the proceeds
for the construction and deployment of its system.
As of January 31, 1999, Globalstar has raised or received commitments for
approximately $3.3 billion. Globalstar intends to raise the remaining funds
required, of approximately $600 million, prior to the initiation of commercial
service from a combination of sources, including: high yield debt issuance
(which may include an equity component), bank financing, equity issuance,
financial support from the Globalstar partners, projected service provider
payments and anticipated payments from the sale of gateways and Globalstar
subscriber terminals.
The Company's global mobile telephony segment had development and start-up
costs of $145 million, $87 million and $45 million for the years ended December
31, 1998 and 1997 and for the nine months ended December 31, 1996, respectively.
Total assets for the segment were $2.7 billion, $2.1 billion and $943 million as
of December 31, 1998, 1997 and 1996, respectively.
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PATENTS AND PROPRIETARY RIGHTS
SS/L relies, in part, on patents, trade secrets and know-how to develop and
maintain its competitive position. It holds 134 patents in the United States and
253 patents abroad and has applications for 77 patents pending in the United
States and 201 patents pending abroad. SS/L patents include those relating to
communications, station keeping, power control systems, antennae, filters and
oscillators, phase arrays and thermal control as well as assembly and
inspections technology. The SS/L patents that are currently in force expire
between 1999 and 2017.
In connection with the Globalstar System, Globalstar's design and
development efforts have yielded 16 patents issued and 30 patents pending in the
United States, as well as 17 patents issued and 100 patents pending
internationally for various aspects of communications satellite system design
and implementation of CDMA technology relating to the Globalstar System.
Qualcomm has obtained 189 issued patents and 463 patents pending in the United
States applicable to Qualcomm's implementation of CDMA. The issued patents
cover, among other things, Globalstar's process of combining signals received
from multiple satellites to improve the signal received and minimize call
fading.
In addition, CyberStar, Loral Orion and Loral SpaceCom Corporation have 16,
three and two patents pending in the United States, respectively. Each of
CyberStar and Loral Orion also has one patent pending abroad.
There can be no assurance that any of the pending patent applications by
the Company or Globalstar will be issued. Moreover, because the U.S. patent
application process is confidential, there can be no assurance that third
parties, including competitors, do not have patents pending that could result in
issued patents which the Company or Globalstar would infringe. In such an event,
the Company or Globalstar could be required to redesign its system or satellite,
as the case may be, or pay royalties to obtain a license, which could increase
cost or delay implementation of the system or construction of the satellite, as
the case may be.
FOREIGN OPERATIONS
Sales to foreign customers, primarily in Europe and Asia, represented 16%
and 30% of the Company's consolidated revenues for the years ended December 31,
1998 and 1997, respectively. As of December 31, 1998, 1997 and 1996, the Company
had substantially all of its long-lived assets located in the United States with
the exception of the in-orbit satellites. See "Certain Factors that May Affect
Future Results -- There are risks in conducting business internationally" for a
discussion of the risks related to operating internationally.
EMPLOYEES
As of December 31, 1998, the Company had approximately 3,900 full-time
employees (including approximately 465 employees of Globalstar and SatMex), some
of whom are subject to collective bargaining agreements.
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CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
This annual report on Form 10-K contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. In addition,
from time to time, the Company or its representatives have made or may make
forward-looking statements, orally or in writing. Such forward-looking
statements may be included in, but are not limited to, various filings made by
the Company with the Securities and Exchange Commission, press releases or oral
statements made by or with the approval of an authorized executive officer of
the Company. Actual results could differ materially from those projected or
suggested in any forward-looking statements as a result of a wide variety of
factors and conditions, including, but not limited to, the factors summarized
below.
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 currently 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.
Loral Skynet. Loral Skynet's Telstar 7 is currently scheduled to be
launched on the maiden flight of an Atlas IIIA. We can't be certain that the
maiden flight will succeed.
Globalstar. As of March 15, 1999, Globalstar needs to launch 16 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.
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. 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.
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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-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 a 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.
SPACE SYSTEMS/LORAL MAY FORFEIT PAYMENTS FROM CUSTOMERS DUE TO SATELLITE
FAILURES OR LOSSES AFTER LAUNCH, AND THESE LOSSES MAY BE UNINSURED.
Some of SS/L'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, SS/L is sometimes prohibited from insuring orbital
incentive payments. Some of SS/L's contracts call for in-orbit delivery,
transferring the launch risk to SS/L. SS/L generally insures against that
exposure.
SS/L records as revenue the present value of incentive payments as the
costs associated with these incentive payments are incurred. SS/L generally
receives the present value of these incentive payments if there is a launch
failure or a failure is caused by customer error. However, SS/L 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 SS/L experienced problems with
two of its antennae. SS/L 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.
We and our subsidiaries and operating affiliates have a significant amount
of outstanding debt and commitments, including:
- 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 senior 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.
- 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.
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- SS/L 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 pursuant to 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% interest. This obligation has a seven year
term and bears interest at 6.03%
The ability of our subsidiaries and affiliates to pay dividends to us or
otherwise support our obligations is limited by the terms of their 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.
IF OUR BUSINESS PLAN DOES NOT SUCCEED, OUR OPERATIONS MIGHT NOT GENERATE ENOUGH
CASH TO PAY OUR OBLIGATIONS.
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 unforseen 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 plans 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.
WE CURRENTLY DEPEND HEAVILY ON SS/L FOR A LARGE PORTION OF REVENUE AND OPERATING
INCOME.
Currently, SS/L generates a significant part of our revenue and operating
income. SS/L, 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.
SS/L'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.
GLOBALSTAR IS A DEVELOPMENT STAGE COMPANY THAT HAS NOT BEGUN COMMERCIAL
OPERATIONS.
Until the Globalstar System is fully deployed and tested, we can't 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 its
original estimates, and further increases are possible.
Barring unexpected adverse developments, Globalstar will need approximately
$600 million more 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
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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 difficulty 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 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, UNFORSEEN
ADDITIONAL COSTS AND UNCERTAINTIES TO SELL IN CERTAIN MARKETS.
Like other exporters of space-related products and services, SS/L 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.
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 SS/L 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 SS/L's
performance of its contractual obligations. If our customer terminates the
ChinaSat-8 contract because of this delay, SS/L will have to refund advances it
has received from ChinaSat. These advances totaled $124 million as of December
31, 1998. In addition, SS/L may incur penalties of up to $12 million upon such
termination. SS/L 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 SS/L 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.
government continues to deny export licenses for satellites sold to the Chinese
or other markets, SS/L's business could be hurt.
SS/L IS THE TARGET OF A GRAND JURY INVESTIGATION; CONGRESS HAS HELD RELATED
HEARINGS.
SS/L 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 SS/L is indicted or convicted, SS/L will remain
subject to the State Department's general statutory authority to prohibit
exports of satellites and related services if it finds that SS/L 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
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protect world peace or the security or foreign policy of the United States." If
SS/L were to be indicted and convicted of a criminal violation of the Arms
Export Control Act, it:
- would be subject to a fine of $1 million per violation;
- could be debarred from certain export privileges; and
- could be debarred from participation in government contracts.
Since many of SS/L's satellites are built for foreign customers and/or launched
on foreign rockets, a debarment would have a material adverse effect on SS/L'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 SS/L'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. To the extent that these entities are or become customers of SS/L,
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
17
<PAGE> 18
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;
- 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 business.
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.
SS/L COMPETES WITH LARGE MANUFACTURERS THAT HAVE 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. SS/L'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;
TECHNOLOGICAL 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
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 PanAmSat 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' 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.
18
<PAGE> 19
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 nor do we maintain "key man" life insurance. The departure of any of
our key executives could have an adverse effect on our business.
THERE ARE RISKS REGARDING FORWARD-LOOKING STATEMENTS.
Some statements or information contained in this document 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 SS/L 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.
ITEM 2. PROPERTIES
The Company leases approximately 47,000 square feet for its corporate
offices in New York. The Company's subsidiaries also maintain office space,
manufacturing and telemetry, tracking and control facilities primarily in the
United States. Management believes that the facilities are sufficient for its
current operations.
Satellite Manufacturing and Technology
SS/L's research, production and testing facilities are carried on in
SS/L-owned facilities covering approximately 562,000 square feet on 84 acres in
Palo Alto, California. In addition, SS/L leases approximately 780,000 square
feet of space from various third parties.
Fixed Satellite Services
Loral Skynet owns two telemetry, tracking and control stations covering
approximately 39,000 square feet on 220 acres in Hawley, Pennsylvania and Three
Peaks, California and leases approximately 51,000 square feet of office space.
19
<PAGE> 20
Data Services
Loral Orion owns seven acres of land in Mt. Jackson, Virginia and leases
approximately 78,000 square feet for office space and its operations center.
CyberStar leases approximately 44,000 square feet for office space and its
network operations center.
ITEM 3. LEGAL PROCEEDINGS
Export Control Matters. Various agencies and departments of the U.S.
government regulate Loral's ability to pursue business outside the United
States. Exports of space-related products, services and technical information
require U.S. government licenses. There can be no assurance that Loral or SS/L
will be able to obtain necessary licenses or approvals, and the inability to do
so, or the failure to comply with the terms thereof when granted, could have a
material adverse effect on their respective businesses.
On February 15, 1996, a Chinese Long March rocket carrying an Intelsat
satellite built by SS/L crashed seconds after launch. Thereafter, at the request
of insurance companies concerned about underwriting future Long March launches,
the manufacturer of the Long March, China Great Wall Industries Corporation
("CGWIC"), asked SS/L employees and personnel from other interested companies to
serve on a committee formed to consider whether studies of the crash made by the
Chinese had correctly identified the cause of the failure. In meetings with
CGWIC, the committee reviewed CGWIC's launch failure analysis, which consisted
of a preliminary explanation for the crash (a failed solder joint) and CGWIC's
plan for further studies it planned to make.
In May 1996, an SS/L employee transmitted a copy of the committee's
preliminary report to the members of the committee and, contrary to the
intentions of SS/L's management, to CGWIC before consulting with the U.S. State
Department. Upon becoming apprised of the facts, SS/L immediately informed the
State Department, and thereafter submitted a detailed voluntary written
disclosure to the State Department that included copies of the written materials
provided to CGWIC and descriptions of the committee's meetings with the Chinese
and of the events surrounding disclosure of the preliminary report. For the next
18 months, the Company had no notice of any adverse action being taken or
contemplated in connection with the matter.
SS/L is a target of a grand jury investigation being conducted by the U.S.
Attorney for the District of Columbia as to whether an unlawful transfer of
technology occurred in connection with the committee's work. The Company and
several of its employees have received subpoenas from that grand jury. SS/L is
not in a position to predict the outcome of this investigation. If SS/L were to
be indicted and convicted of a criminal violation of the Arms Export Control
Act, it would be subject to a fine of $1 million for each violation, and could
be debarred from certain export privileges and, possibly, from participation in
government contracts. Since many of SS/L's satellites are built for foreign
customers and/or launched on foreign rockets, such a debarment would have a
material adverse effect on SS/L's business, which would in turn affect the
Company. Indictment for such violations would subject SS/L to discretionary
debarment from further export licenses. Whether or not SS/L is indicted or
convicted, SS/L will remain subject to the State Department's general statutory
authority to prohibit exports of satellites and related services if it finds a
violation of the Arms Export Control Act that puts SS/L's reliability in
question, and it can suspend export privileges whenever it determines that
grounds for debarment exist and that such suspension "is reasonably necessary to
protect world peace or the security or foreign policy of the United States."
As far as SS/L can determine, no sensitive information or technology was
conveyed to the Chinese, and no secret or classified information was discussed
with or reported to them. SS/L believes that its employees acted openly and in
good faith and that none engaged in intentional misconduct. Accordingly, the
Company does not believe that SS/L has committed a criminal violation of the
export control laws. The Company does not expect the grand jury investigation or
its outcome to result in a material adverse effect upon its business. However,
there can be no assurance as to those conclusions.
In May 1997, SS/L applied for an export license for the launch of another
SS/L satellite in China, which was granted following the required Presidential
waiver in February 1998. The Company believes that the authorizations were
properly granted, and does not believe that it or any of its officers acted
improperly in obtaining them. The policy of the Bush administration, which has
been continued under President Clinton, has been to grant such waivers routinely
as being in the national interest; indeed, the Company is unaware of any
20
<PAGE> 21
requested waiver for a Chinese satellite launch ever having been denied.
According to press reports, President Bush signed three waivers covering nine
Long March launches, and President Clinton has signed eight waivers covering 11
Long March launches. This policy has, until recently, also enjoyed bipartisan
Congressional support. On December 23, 1998, the Office of Defense Trade
Controls ("ODTC") of the U.S. Department of State temporarily suspended the
previously approved technical assistance agreement under which SS/L had been
preparing for the launch of the ChinaSat-8 program. According to ODTC, the
purpose of the temporary suspension is to permit that agency to review the
agreement for conformity with newly-enacted legislation (Section 74 of the Arms
Export Control Act) with respect to the export of missile equipment or
technology. SS/L has complied with ODTC's instructions, and believes that a
review of the agreement will conclude that its terms comply with the new law.
The ODTC, however, has not completed its review, and the scheduled launch date
for ChinaSat-8 is being delayed. If such a delay were to continue for an
extended period, or if the suspension was not lifted, SS/L's customer could
decide to terminate the contract. If such a termination were to occur, SS/L
would have to refund advances received from ChinaSat ($124 million as of
December 31, 1998) and may incur penalties of up to $12 million and believes it
would incur costs of approximately $38 million to refurbish and retrofit the
satellite so that it could be sold to another customer. There can be no
assurance that SS/L will be able to find such a replacement customer.
Several Congressional committees have held hearings on U.S. satellite
export policy toward China, alleged influence of campaign contributions
(including contributions made by Loral's Chairman and CEO) on the Clinton
Administration's export policy toward China, and related matters. One of the
House committees investigating these matters, chaired by Representative Cox,
recently issued a classified report that is said to be critical of past
government and industry technology transfer practices and policies. This report
is also said to contain 38 proposals for legislative and executive action to
address perceived concerns. It is possible that adoption of some or all of such
proposals could have an adverse effect upon the ability of U.S.-based satellite
manufacturers such as SS/L, and possibly other U.S. exporters, to market their
products abroad in competition with foreign-based manufacturers, and might
adversely affect their ability to perform existing contracts. In addition, the
portions of the report that have not yet been declassified could contain
negative comments about SS/L's compliance with the export control laws.
CCD Lawsuits. On September 12, 1991, Loral Fairchild Corp. ("Loral
Fairchild"), a subsidiary of Loral Corporation ("Old Loral"), filed suit (the
"CCD Lawsuit") against a number of companies including Sony Corporation
("Sony"), Matsushita Electronics Corporation ("Matsushita") and NEC Corp.
("NEC") claiming that such companies had infringed Loral Fairchild's patents for
a "charged coupled device" ("CCD"), commonly used as an optical sensor in video
cameras and fax machines. Although the CCD patents have expired, Loral Fairchild
is seeking reasonable royalties through the expiration date from a number of
defendants. On February 22, 1996, a jury in the United States District Court for
the Eastern District of New York found unanimously that Sony had infringed the
CCD patents. The trial judge, however, in an order dated July 12, 1996, reversed
the jury verdict. Loral Fairchild has appealed the court's decision. Loral
Fairchild's claims against other defendants remain pending, but if the court's
decision is affirmed on appeal, a substantial portion, but not all, of the
damage claims against the other defendants would be adversely affected.
Matsushita has been granted a declaratory judgment that it has a valid and
enforceable license under the CCD patents. In addition, a trial on Matsushita's
claim against Loral Fairchild for tortious interference was conducted during
July 1996, and a verdict was rendered in favor of Loral Fairchild in September
1997.
Environmental Regulation. Operations at SS/L, Loral Skynet, Loral Orion,
CyberStar and Globalstar are subject to regulation by various federal, state and
local agencies concerned with environmental control. The Company believes that
these facilities are in substantial compliance with all existing federal, state
and local environmental regulations. With regard to certain sites, environmental
remediation is being performed by prior owners who retained liability for such
remediation arising from occurrences during their period of ownership. To date,
these prior owners have been fulfilling such obligations and the size and
current financial condition of the prior owners make it probable that they will
be able to complete their remediation obligations without cost to the Company or
Globalstar.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
21
<PAGE> 22
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS
(a) MARKET PRICE AND DIVIDEND INFORMATION
The Company's common stock is traded on the NYSE under the symbol LOR. The
following table presents, the reported high and low sales prices of the
Company's common stock as reported on the NYSE:
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
YEAR ENDED DECEMBER 31, 1998
Quarter ended March 31, 1998................................ $30 1/2 $19
Quarter ended June 30, 1998................................. 33 15/16 24 1/2
Quarter ended September 30, 1998............................ 31 7/8 12 1/8
Quarter ended December 31, 1998............................. 20 1/2 10 3/4
YEAR ENDED DECEMBER 31, 1997
Quarter ended March 31, 1997................................ $19 1/2 $14 1/8
Quarter ended June 30, 1997................................. 17 1/2 13
Quarter ended September 30, 1997............................ 21 14 1/16
Quarter ended December 31, 1997............................. 24 1/4 19
</TABLE>
The Company does not currently anticipate paying any dividends or
distributions on its common stock or the Series A Convertible Preferred Stock.
As required, Loral is currently paying dividends on its 6% Series C Convertible
Redeemable Preferred Stock. The credit facility maintained by the Company's
wholly owned subsidiary, Loral SpaceCom Corporation ("Loral SpaceCom") restricts
the ability of Loral SpaceCom to transfer cash or pay dividends to its parent
(see Note 7, to Loral's consolidated financial statements). Loral Orion's
indentures relating to its senior notes and its senior discount notes also
contain restrictions on Loral Orion's ability to make dividend payments to its
parent. Loral's indenture relating to its 9 1/2% Senior Notes due 2006 issued in
January 1999 also imposes limitations on Loral's ability to pay dividends to its
shareholders.
(b) APPROXIMATE NUMBER OF HOLDERS OF COMMON STOCK
At February 26, 1999, there were approximately 6,960 holders of record of
the Company's common stock.
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data has been derived from, and should be
read in conjunction with, the related financial statements. Historical financial
information as of and for the two years ended March 31, 1996, represents the
space and communications operations of Old Loral.
22
<PAGE> 23
LORAL SPACE & COMMUNICATIONS LTD.
(In thousands except per share data)
<TABLE>
<CAPTION>
YEARS ENDED NINE MONTHS YEARS ENDED
DECEMBER 31, ENDED MARCH 31,(1)
----------------------- DECEMBER 31, -------------------
1998(1) 1997(1) 1996(1) 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
OTHER DATA:
Ratio of earnings to fixed
charges.......................... 1.9x 3.7x
Deficiency of earnings to cover
fixed charges.................... $ 140,438
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
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
------------------------------------ -------------------
1998(1) 1997(1) 1996(1) 1996(1) 1995(1)
---------- ---------- ---------- -------- --------
<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
Convertible preferreds(3)........... 583,292
Debt................................ 1,555,775 435,398
Non-current liabilities............. 236,160 221,211 26,834
Shareholders' equity(4)/Invested
equity............................ 2,935,721 1,980,520 1,070,069 354,396 251,819
</TABLE>
- ---------------
(1) On March 20, 1998, Loral acquired all of the outstanding stock of Loral
Orion in exchange for common stock of Loral. The 1998 financial information
includes Loral Orion commencing 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. Financial information as of and for the two
years in the period ended March 31, 1996, represents the space and
communications operations of Old Loral. The results of operations for the
two years in the period ended March 31, 1996 include allocations and
estimates of certain expenses of Loral based upon estimates of actual
services performed by Old Loral on behalf of Loral. Interest expense was
allocated to Loral based on Old Loral's historical weighted average interest
rate applied to the average investment in affiliates.
(2) The Company's principal affiliates are Globalstar, SatMex since November 17,
1997 and Europe*Star since December 1998. Loral also has an investment in
SkyBridge 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 the Company's shareholders.
(4) As of December 31, 1998, the book value per share of the Series A Preferred
Stock and the common stock (which the Company 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.
23
<PAGE> 24
SPACE SYSTEMS/LORAL, INC.
(In thousands)
<TABLE>
<CAPTION>
NINE MONTHS YEARS ENDED
ENDED MARCH 31,
DECEMBER 31, -----------------------
1996 1996 1995
---- ---- ----
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.................................................... $1,017,653 $1,121,619 $ 633,717
Gross profit................................................ 64,157 34,406 27,785
Net income.................................................. 31,025 12,367 5,554
MARCH 31,
DECEMBER 31, -----------------------
1996 1996 1995
------------ ---------- ----------
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 19,181 $ 126,863 $ 52,222
Total assets................................................ 1,059,064 908,677 766,475
Long-term debt.............................................. 127,586 65,052 34,040
Shareholders' equity........................................ 478,893 447,868 435,501
</TABLE>
GLOBALSTAR, L.P.
(In thousands, except per partnership interest amounts)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1994
--------------------------------
PRE-CAPITAL
CUMULATIVE SUBSCRIPTION
MARCH 23, 1994 MARCH 23 PERIOD(1)
(COMMENCEMENT (COMMENCEMENT ------------
OF OPERATIONS) TO YEARS ENDED DECEMBER 31, OF OPERATIONS) TO JANUARY 1 TO
DECEMBER 31, ----------------------------------------- DECEMBER 31, MARCH 22,
1998 1998(3) 1997 1996 1995 1994 1994
---- ------- ---- ---- ---- ----------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues....................... $ -- $ -- $ -- $ -- $ -- $ -- $ --
Operating loss................. 404,033 146,684 88,071 61,025 80,226 28,027 6,872
Net loss applicable to ordinary
partnership interests........ 406,978 151,740 88,788 71,969 68,237 26,244 6,872
Net loss per weighted average
ordinary partnership interest
outstanding basic and
diluted...................... 2.69 1.74 1.53 1.50 0.73
Cash distributions per ordinary
partnership interest.........
OTHER DATA:
Deficiency of earnings to cover
fixed charges(2)............. 330,475 184,683 81,869 N/A N/A
CASH FLOW DATA:
Used in operating activities... 206,749 24,958 68,615 51,756 38,368 23,052
Used in investing activities... 2,014,396 684,834 619,538 379,130 280,345 50,549
Provided by partners' capital
transactions................. 898,320 14,825 132,990 284,714 318,630 147,161
Provided by (used in) other
financing activities......... 1,379,564 287,552 998,137 95,750 (1,875)
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------
1998 1997 1996 1995 1994
---------- ---------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................. $ 56,739 $ 464,154 $ 21,180 $ 71,602 $ 73,560
Total assets.............................................. 2,670,025 2,149,053 942,913 505,391 151,271
Vendor financing liability................................ 371,170 197,723 130,694 42,219
Debt...................................................... 1,396,175 1,099,531 96,000
Redeemable preferred partnership interests................ 303,089 302,037
Ordinary partners' capital................................ 602,401 380,828 315,186 386,838 112,944
</TABLE>
- ---------------
(1) Reflects certain costs incurred by Loral and Qualcomm prior to March 23,
1994, which were reimbursed by Globalstar through a capital subscription
credit or agreement for repayment in connection with the $275.0 million
capital subscription and commencement of Globalstar's operations on March
23, 1994.
(2) The ratio of earnings to fixed charges is not meaningful as Globalstar is in
the development stage and, accordingly, has incurred operating losses.
(3) The results of operations for 1998, include a $17.3 million loss from launch
failure.
24
<PAGE> 25
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Except for the historical information contained herein, the matters
discussed in this Management's Discussion and Analysis of Financial Condition
and Results of Operations of Loral Space & Communications Ltd. and subsidiaries
("Loral" or the "Company"), Globalstar, L.P. ("Globalstar") and Satelites
Mexicanos, S.A. de C.V. ("SatMex") are forward-looking statements that involve
risks and uncertainties, many of which may be beyond the companies' control. The
actual results that the companies achieve may differ materially from any
forward-looking projections due to such risks and uncertainties.
Loral is one of the world's leading satellite communications companies,
with substantial activities in satellite manufacturing and satellite-based
communications services. Loral is developing the building blocks necessary to
create a seamless, global networking capability for the information age. In
1998, Loral advanced its strategy significantly by acquiring Orion Network
Systems, Inc., increasing its ownership in Globalstar, forming the Loral Global
Alliance, including the formation of Europe*Star Limited ("Europe*Star"), and
organizing and integrating its businesses to form four distinct operating
segments. Accordingly, as of February 28, 1999, Loral has increased its
satellite fleet to seven satellites in orbit (including three owned by SatMex,
Loral's 49% owned affiliate). Loral will expand the geographic coverage and
capacity of its fixed satellite services by launching three additional
satellites for the Telstar and Loral Orion fleets in 1999. Loral's four
operating segments are:
Satellite Manufacturing and Technology. Designing and manufacturing
satellites and other space systems and developing satellite technology for
a broad variety of customers and applications through Space Systems/Loral,
Inc. ("SS/L"),
Fixed Satellite Services. Leasing transponder capacity and providing
value added services to customers for a wide variety of applications,
including the distribution of broadcast programming, news gathering,
business television, distance learning and direct-to-home ("DTH") services.
The Company's fixed satellite service ("FSS") assets, managed by Loral
Skynet and marketed under the Loral Global Alliance banner, consist of
seven high-power geosynchronous ("GEO") satellites as of February 28,
1999 - three Loral Skynet Telstar satellites and one satellite of Loral
Orion, Inc. ("Loral Orion"), as well as three SatMex satellites. The two
satellites expected to be launched by the recently formed Europe*Star joint
venture with Alcatel, in which Loral owns a 47% interest, also will be part
of the Loral Global Alliance and form a component of the Company's FSS
business segment,
Data Services. Business in development, providing managed
communications networks and Internet and intranet services through Loral
Orion and delivering high-speed broadband data communications through
CyberStar, L.P. ("CyberStar"), using transponder capacity on the Telstar
and Loral Orion fleets, and
Global Mobile Telephony. Providing worldwide wireless mobile
telephony and narrow-band data communications through a constellation of
low-earth orbiting ("LEO") satellites (the "Globalstar System") operated by
Globalstar, which is expected to commence service in September 1999. Loral
is the managing general partner and owned approximately 43%, 40% and 32% of
Globalstar as of December 31, 1998, 1997 and 1996, respectively.
CONSOLIDATED OPERATING RESULTS
In evaluating financial performance, management uses revenues and earnings
before interest, taxes, depreciation and amortization ("EBITDA") as a measure of
a segment's profit or loss. The following discussion of revenues and EBITDA
reflects the results of Loral's operating segments for the two years ended
December 31, 1998 and 1997 and for the nine months ended December 31, 1996.
Also, see Note 15 to Loral's consolidated financial statements for additional
information on segment results. The remainder of the discussion relates to the
consolidated results of Loral, unless otherwise noted.
25
<PAGE> 26
Operating revenues:
<TABLE>
<CAPTION>
YEARS ENDED NINE MONTHS
DECEMBER 31, ENDED
-------------------- DECEMBER 31,
1998 1997 1996
-------- -------- ------------
(IN MILLIONS)
<S> <C> <C> <C>
Satellite manufacturing and technology(1)......... $1,390.2 $1,442.6 $ 1,017.7
Fixed satellite services(2)....................... 254.2 83.0
Data services(3).................................. 39.8
Management fee from affiliate..................... 5.1
-------- -------- ---------
Operating segment revenues........................ 1,684.2 1,525.6 1,022.8
Less: Affiliate eliminations(4)................... (104.8) (12.9) (1,017.7)
Intercompany eliminations(5)................ (277.7) (200.1)
-------- -------- ---------
Operating revenues................................ $1,301.7 $1,312.6 $ 5.1
======== ======== =========
</TABLE>
EBITDA(6):
<TABLE>
<CAPTION>
YEARS ENDED NINE MONTHS
DECEMBER 31, ENDED
------------------ DECEMBER 31,
1998 1997 1996
------- ------- ------------
(IN MILLIONS)
<S> <C> <C> <C>
Satellite manufacturing and technology(1).......... $ 107.0 $ 99.7 $ 77.3
Fixed satellite services(2)........................ 171.2 51.8
Data services(3)................................... (13.3)
Corporate expenses(7).............................. (31.9) (15.7) (11.2)
------- ------- ------
EBITDA for operating segments before development
and start-up costs, and intercompany and
affiliate eliminations........................... 233.0 135.8 66.1
Development and start-up costs(8):
Data services(3)................................. (33.3) (32.6)
Global mobile telephony(9)....................... (145.0) (87.1) (45.0)
------- ------- ------
Total development and start-up costs............... (178.3) (119.7) (45.0)
------- ------- ------
Segment EBITDA..................................... 54.7 16.1 21.1
Less: Affiliate eliminations(4).................... 70.2 77.2 (32.3)
Intercompany eliminations(5)................. (23.7) (17.0)
------- ------- ------
EBITDA as reported................................. $ 101.2 $ 76.3 $(11.2)
======= ======= ======
</TABLE>
- ---------------
(1) Satellite Manufacturing and Technology includes 100% of SS/L's results. In
1996 Loral increased its ownership in SS/L from 32.7% to 51% and used the
equity method of accounting. In February 1997, Loral agreed to acquire the
remaining 49% of SS/L.
(2) Fixed Satellite Services includes 100% of the following companies since
their respective dates of acquisition: Loral Skynet acquired on March 14,
1997; Loral Orion's transponder leasing business acquired on March 20, 1998;
SatMex, a 49% equity investee acquired on November 17, 1997; and
Europe*Star, a 47% equity investee, since December 1998.
(3) Data services includes 100% of CyberStar and 100% of Loral Orion's data
services business since its acquisition on March 20, 1998.
(4) Represents amounts related to unconsolidated affiliates (SatMex, Europe*Star
and Globalstar and, in 1996, SS/L). These amounts are eliminated in order to
arrive at Loral's consolidated results. Loral's proportionate share of these
affiliates is included in equity in net loss from affiliates in Loral's
consolidated statements of operations.
(5) Represents the elimination of sales and EBITDA primarily for satellites
under construction by SS/L for wholly owned subsidiaries; as well as
eliminating sales for the lease of transponder capacity by Data Services
from Fixed Satellite Services.
(6) 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.
(7) Represents unallocated corporate expenses incurred in support of the
Company's operations.
(8) Represents EBITDA for operations in the development stage (CyberStar and
Globalstar).
(9) Includes 100% of Globalstar. Loral owned approximately 43%, 40% and 32% as
of December 31, 1998, 1997 and 1996, respectively.
26
<PAGE> 27
1998 COMPARED WITH 1997
Total revenues for Loral's operating segments were $1.7 billion for 1998
versus $1.5 billion in 1997, before intercompany and affiliate eliminations of
$383 million in 1998 and $213 million in 1997. The increase in revenues was due
primarily to growth in fixed satellite services as a result of including SatMex
for the full year, Loral Orion's leasing business for nine months, Loral
Skynet's results for a full year in 1998 versus nine and a half months in 1997
and increased utilization of Loral Skynet's Telstar satellites. The growth in
fixed satellite services was partially offset by a modest decline in satellite
manufacturing revenues which primarily resulted from the debooking of three
satellites for Asian customers at the end of 1997. The increase in affiliate
eliminations in 1998 reflects the elimination of a full year of SatMex sales.
The increase in intercompany eliminations in 1998, primarily reflects increased
investment in satellite construction by SS/L for Loral's FSS segment.
EBITDA for operating segments before development and start-up costs, and
intercompany and affiliate eliminations, increased in 1998 to $233 million from
$136 million in 1997, a year-over-year increase of 72%. This increase arose
primarily from the growth in fixed satellite services due to increased
utilization of Loral Skynet's Telstar satellites, the inclusion of Loral
Skynet's results for a full year in 1998 versus nine and a half months in 1997,
including the results of Loral Orion's leasing business subsequent to its
acquisition, and including SatMex's results for a full year in 1998 and growth
in satellite manufacturing and technology due to increased margins in satellite
manufacturing. These increases were partially offset by including the results of
Loral Orion's data services business in 1998 and increased corporate expenses,
which resulted primarily from costs incurred for the additional resources
required to manage the substantial growth in Loral's businesses, along with
increased legal and other costs in support of the Company's operations. Total
development and start-up costs rose substantially in 1998 to $178 million, a 49%
increase over 1997 spending of $120 million. While the investment required for
CyberStar remained constant year-over-year at approximately $33 million, costs
related to the further development of Globalstar rose to $145 million in 1998
from $87 million in 1997, due to increased activities in anticipation of the
commencement of commercial service. Affiliate eliminations decreased in 1998
primarily as a result of eliminating a full year of SatMex's results for 1998
versus one and a half months in 1997, partially offset by the elimination of
increased Globalstar costs in 1998 and the elimination of Europe*Star costs in
1998. Intercompany eliminations increased in 1998 primarily from increased
investment in satellite construction by SS/L for Loral's FSS segment. As a
result of the above, EBITDA as reported increased 33% to $101 million in 1998
from $76 million in 1997.
Depreciation and amortization rose to $135 million in 1998 from $63 million
in 1997, and excludes depreciation and amortization of unconsolidated affiliates
of $50 million and $7 million for 1998 and 1997, respectively, primarily for
SatMex. The increase primarily results from the inclusion of Loral Orion's
depreciation, the amortization of cost in excess of Loral Orion's net assets
acquired and from the inclusion of Loral Skynet's depreciation and amortization
for a full year in 1998, which includes the depreciation of Loral Skynet's
Telstar 5 satellite which was placed in service on July 1, 1997.
Interest and investment income increased to $54 million in 1998 from $49
million in 1997. This increase is principally due to including Loral Orion's
interest income in 1998, partially offset by lower cash balances available for
investment in 1998.
Interest expense of $51 million in 1998, net of capitalized interest of $60
million, reflects interest on borrowings under Loral's credit agreement and
other facilities and interest on Loral Orion's debt subsequent to its
acquisition. Interest expense of $15 million in 1997, net of capitalized
interest of $23 million, reflects interest on SS/L's debt assumed and interest
on Loral's outstanding Convertible Preferred Equivalent Obligations ("CPEOs").
On June 5, 1997, the CPEOs were exchanged for Loral 6% Series C Convertible
Redeemable Preferred Stock ("Series C Preferred Stock").
Loral realized a $35 million gain on the sale of Globalstar
Telecommunications Limited ("GTL") common stock, which was mostly offset by the
write-off of non-strategic investments in Asia Broadcasting and Communications
Network, Ltd. and in Continental Satellite Corporation of $30 million, which
were determined to have no future value to Loral. These items resulted in a net
gain on investments of $5 million in
27
<PAGE> 28
1998. In 1997, the Company realized a gain on investments of $80 million
resulting from the sale of the stock of K&F Industries, Inc. ("K&F"), net of
expenses.
For 1998, the Company recorded an income tax benefit of 15.1% on its loss
before income taxes, while for 1997, the Company recorded an income tax
provision of 27.5% on income before income taxes. The benefit rate for 1998 is
lower than the provision rate for 1997 primarily because of the Loral Orion
non-deductible amortization of costs in excess of net assets acquired in the
current year.
The minority interest benefit in 1998 primarily reflects the reduction of
CyberStar's loss attributed to CyberStar's other investor, who owned 17.6% as of
December 31, 1998. The minority interest expense in 1997 also reflects the
reduction of SS/L's income attributed to other partners' partial ownership in
SS/L until Loral acquired the remaining 49% in February 1997, as compared to
Loral's full ownership of SS/L in 1998 for the entire year.
The equity in net loss of affiliates was $120 million in 1998 compared to
$49 million in 1997. Loral's share of Globalstar's losses was $67 million in
1998 compared to $41 million in 1997. This increase was primarily due to
Globalstar's increased development and start-up costs and Loral's increased
ownership percentage in Globalstar in 1998 (42.6% as of December 31, 1998 versus
40.1% as of December 31, 1997) and Loral's proportionate share of a charge taken
by Globalstar in 1998 as a result of a Zenit launch failure. Loral's share of
SatMex's loss was $16 million and $6 million for the year ended December 31,
1998 and the period November 17, 1997 through December 31, 1997, respectively.
Also included as equity in net loss of affiliates for 1998 is Loral's share of
Europe*Star's loss of $4 million, Loral's share of SkyBridge Limited
Partnership's loss, net of the related tax benefit, of $25 million, and Loral's
share of losses from other affiliates of $8 million (see Note 6 to Loral's
consolidated financial statements).
Preferred distributions of $46 million and $26 million for the years ended
December 31, 1998 and 1997, relate to the Series C Preferred Stock. The increase
in 1998 reflects a full year of preferred distributions versus a partial year in
1997. The Series C Preferred Stock was issued in June 1997.
As a result of the above, net loss applicable to common stockholders for
1998 was $185 million or $0.68 per diluted share, compared to net income of $14
million or $0.06 per diluted share, for 1997. Diluted weighted average shares
were 273.4 million for 1998 and 243.6 million for 1997. This increase was
primarily due to the 23 million shares issued to the public and the 18 million
shares issued to acquire Orion in 1998.
1997 COMPARED WITH THE NINE MONTHS ENDING 1996
Total revenues for Loral's operating segments for 1997 were $1.5 billion
versus $1.0 billion in 1996, before intercompany and affiliate eliminations of
$213 million in 1997 and $1.0 billion in 1996. The increase in revenues was
primarily due to including the results of satellite manufacturing and technology
for a full year in 1997 versus nine months in 1996 and as a result of including
the results of Loral Skynet from the date of acquisition in 1997. The decrease
in affiliate eliminations primarily reflects the elimination of 100% of SS/L
sales in 1996, as SS/L was an equity investee of Loral prior to January 1, 1997.
The increase in intercompany eliminations in 1997 was due to the Company's
acquisitions of SS/L and Loral Skynet during 1997 and primarily represents the
elimination of satellite sales by SS/L to Loral Skynet.
EBITDA for operating segments before development and start-up costs, and
intercompany and affiliate eliminations, increased in 1997 to $136 million from
$66 million in 1996, a year-over-year increase of 105%. This increase was
primarily due to growth in the fixed satellite services segment as a result of
the acquisition of Loral Skynet and including satellite manufacturing and
technology for a full year in 1997 versus nine months in 1996. Total development
and start-up costs rose substantially in 1997 to $120 million, compared with
spending of $45 million for the nine months ended December 31, 1996. This
increase was due to the formation and start-up of CyberStar in 1997 for which
the Company invested $33 million and costs related to the development of
Globalstar which increased to $87 million in 1997 from $45 million for the nine
months ended December 31, 1996. The increase in affiliate eliminations was due
primarily to the acquisition of SS/L in 1997. Intercompany eliminations in 1997
were due to the Company's acquisitions of SS/L and Loral Skynet
28
<PAGE> 29
in 1997 and primarily represent the elimination of intercompany profit on
satellite sales by SS/L to Loral Skynet.
Depreciation and amortization increased to $63 million in 1997 from $1
million in 1996 and excludes depreciation and amortization of unconsolidated
affiliates of $7 million for 1997, primarily for SatMex, and $23 million for
SS/L in 1996. This increase was a result of the acquisitions of SS/L and Skynet
in 1997.
Interest and investment income of $49 million for 1997 primarily represents
$43 million of interest earned on the investment of available cash during the
year and interest on the GTL Convertible Preferred Equivalent Obligations ("GTL
CPEOs"). Interest and investment income for the nine months ended December 31,
1996 of $35 million reflects the investment of available cash during the period
and interest on the GTL CPEOs.
Interest expense of $15 million, net of capitalized interest of $23 million
for 1997, reflects the assumption of SS/L's debt, borrowings under the Credit
Agreement (see Note 7 to Loral's consolidated financial statements) and interest
on Loral's outstanding CPEOs until June 5, 1997, when the CPEOs were exchanged
for Series C Preferred Stock. Interest expense for the nine months ended
December 31, 1996 of $6 million reflects interest on the CPEOs for one quarter.
Gain on investments in 1997 of $80 million represents the gain on the sale
of K&F stock, net of expenses.
The Company's effective income tax rate for 1997 was 27.5%. 1997's
effective rate is lower than the statutory U.S. federal income tax rate because,
as a Bermuda company, a portion of the Company's income is not subject to
federal taxation.
The minority interest expense in 1997 primarily reflects the reduction of
SS/L's income attributed to the other partners partial ownership of SS/L, prior
to Loral acquiring the remaining 49% in February 1997, offset by the benefit of
the reduction in CyberStar's loss attributable to CyberStar's other investor.
The equity in net loss of affiliates for 1997 of $49 million primarily
reflects increased development costs at Globalstar as well as an increased
ownership percentage by Loral in Globalstar (40.1% as of December 31, 1997
versus 31.7% as of December 31, 1996), for which the Company's share of such
losses was $41 million. In addition, in connection with Loral's investment in
SatMex in 1997, Loral recorded its initial share of SatMex's losses of $6
million. The equity in net loss of affiliates for the nine months ended December
31, 1996 of $5 million, reflects the Company's share of Globalstar losses of $18
million offset by the Company's share of SS/L's income of $13 million. In 1997,
the Company discontinued using the equity method for its investment in SS/L and
fully consolidated SS/L's results of operations.
Preferred dividends in 1997 of $26 million result from the exchange of the
Company's CPEOs for Series C Preferred Stock.
As a result of the above, net income applicable to common stockholders for
1997 was $14 million, or $0.06 per diluted share, compared to $9 million, or
$0.04 per diluted share, for the nine months ended December 31, 1996. Diluted
weighted average shares were 243.6 million for 1997 and 229.4 million for the
nine months ended December 31, 1996. This increase was primarily due to the
common shares issued to acquire SS/L and additional partnership interests in
Globalstar.
RESULTS BY OPERATING SEGMENT
Satellite Manufacturing and Technology
Revenues at SS/L, the Company's satellite manufacturing and technology
subsidiary, before intercompany eliminations were approximately $1.4 billion in
both 1998 and 1997. EBITDA in 1998 rose to $107 million from $100 million in
1997. In 1997, in connection with delayed payments by two Asian customers for
three satellites, SS/L stopped work, reduced backlog by $291 million, which
reduced future sales, and recorded a charge of $23 million. If the current
programs for these three satellites are not restarted, the satellites will be
sold to other customers. Funded backlog for SS/L as of December 31, 1998 and
1997, was $1.5 billion and $1.4 billion, respectively, including intercompany
backlog of $111 million in 1998 and $188 million in 1997. Approximately 70% of
the 1998 external funded backlog is expected to be realized in 1999.
29
<PAGE> 30
Revenues recorded under contracts with Globalstar for the years ended December
31, 1998 and 1997 were $599 million and $408 million, respectively. Capital
expenditures for 1998 were approximately $40 million and are estimated to remain
fairly constant in 1999.
Fixed Satellite Services
Revenues and EBITDA for the fixed satellite services segment more than
tripled in 1998 versus 1997. FSS revenue for 1998 (including Loral Skynet, 100%
of SatMex for the full year and, nine months of Loral Orion's revenues from
leasing) was $254 million versus $83 million last year. EBITDA on the same basis
was $171 million in 1998, or 67% of revenues, up from EBITDA of $52 million, or
62% of revenues, in 1997. Funded backlog for the fixed satellite services
segment totaled $746 million at the end of 1998, almost double the $396 million
in backlog at year-end 1997, including intercompany and affiliate backlog of
$140 million in 1998 and $6 million in 1997. Approximately 30% of the 1998
external funded backlog is expected to be realized in 1999. Capital expenditures
for 1998 were approximately $639 million, which included $151 million and $67
million for SatMex and Europe*Star, respectively. In 1999, capital expenditures
are expected to decrease due to the successful launches of SatMex 5 and Telstar
6 and the expected launches of three additional satellites.
During the fourth quarter, Loral completed its integration plan for Loral
Orion and transferred management of Loral Orion's satellite capacity leasing and
satellite operations to Loral Skynet, effective January 1, 1999. In addition to
increasing the operational efficiency, capacity, flexibility and marketing reach
of Loral's FSS services, the realignment permits Loral Orion to focus on and
leverage its experience in the global data services market.
Data Services
In order to align all of Loral's resources and activities in the developing
data services area, CyberStar's broadband business and Loral Orion's Internet
and corporate data networking businesses have been reorganized and in 1999 began
reporting to a group vice president. This alignment allows the business units to
continue to operate independently while taking advantage of the synergies they
share. The reported results for the data services segment include Loral Orion's
operations relating to the providing of data services, exclusive of transponder
leasing, along with the results of CyberStar.
Revenues for the data services segment in 1998 were approximately $40
million, primarily from Loral Orion's corporate data networking and Internet and
intranet services businesses. EBITDA before development costs was a loss of
approximately $13 million. Total development and start-up costs for CyberStar
were $33 million for 1998 and 1997. As of December 31, 1998, funded backlog for
the segment was $147 million, which was all from external sources. Approximately
35% of 1998 external funded backlog is expected to be realized in 1999. Capital
expenditures in 1998 were approximately $27 million and are estimated to remain
fairly constant in 1999.
In the fourth quarter, CyberStar announced the commercial availability of
its broadband satellite-based business communications service. One of its first
customers selected CyberStar to deliver in-theater media to its nationwide
cinema network. CyberStar is conducting pilot programs with other enterprise
customers in markets such as entertainment, finance, real estate, training,
insurance and retail.
Global Mobile Telephony
Loral manages and is the largest equity owner of Globalstar, the global
mobile telephony segment of Loral. Globalstar is a development stage partnership
scheduled to commence commercial service operations in September 1999.
Globalstar's development and start-up costs were $145 million in 1998 as
compared to $87 million for 1997. The rise in costs relates primarily to
increased activities in anticipation of the start of service. Globalstar is
expending significant funds for the construction, testing and deployment of the
Globalstar System and expects such losses to continue through commencement of
revenue generating service operations.
30
<PAGE> 31
ACQUISITIONS AND INVESTMENTS IN AFFILIATES
The Company commenced operations in 1996 with equity holdings in SS/L,
Globalstar and K&F. In 1997 and 1998, Loral accelerated its transformation from
a company with extensive equity investments, to a major satellite manufacturer
and provider of satellite services by making a number of acquisitions and
investments that significantly affected its results of operations and financial
condition.
SS/L and Skynet
In February 1997, Loral agreed to acquire the remaining 49% of the common
stock of SS/L held by four international aerospace and communications companies
for $374 million in cash and Loral securities. On March 14, 1997, Loral acquired
Skynet for $462.1 million in cash. The acquisition of Skynet and the remaining
equity interest in SS/L have been accounted for as purchases. Loral's
consolidated financial statements for the year ended December 31, 1997 reflect
the results of operations of SS/L from January 1, 1997, the elimination of the
minority interest of the SS/L equity not owned by Loral during the period and
the results of operations of Loral Skynet from March 14, 1997. Prior to January
1, 1997, SS/L was accounted for using the equity method of accounting.
Globalstar
In each of 1998 and 1997, GTL effected a two-for-one stock split to
shareholders in the form of a 100% stock dividend. Accordingly, all GTL share
and per share amounts, have been restated to reflect the stock splits.
In 1997, Loral, the managing partner of Globalstar, increased its ownership
in Globalstar by exercising existing warrants and rights to acquire 1,312,696
Globalstar ordinary partnership interests for $34.8 million in cash and by
acquiring 2,748,372 Globalstar ordinary partnership interests from other
Globalstar partners for $97.5 million in cash, 1,255,684 shares of Loral common
stock and a deferred purchase price of $24.8 million, which was paid in January
1999.
On July 6, 1998, Loral purchased 4.2 million Globalstar ordinary
partnership interests (corresponding to approximately 16.8 million equivalent
shares of GTL common stock) from other Globalstar partners for $420 million in
cash (the "Globalstar Purchase"). The service provider partners participating in
the transaction deposited one half of their proceeds ($210 million) into escrow
accounts to be used for the purchase of Globalstar gateways and user terminals.
Loral used $175 million of the net proceeds from its equity offering (see Note 9
to Loral's consolidated financial statements) to finance a portion of the
Globalstar Purchase and the remaining balance was provided through the
concurrent sale by Loral of 8.4 million shares of GTL common stock owned by
Loral to persons or entities advised by or associated with Soros Fund Management
LLC ("Soros") for $245 million in cash. The shares of GTL common stock acquired
by Soros are restricted for U.S. securities law purposes. With respect to such
shares, GTL has agreed to file a shelf registration statement and have such
registration statement declared effective within one year from the closing date.
As a result of the sale to Soros, Loral recognized a gain of approximately $35
million, which is included in gain on investments in Loral's consolidated
statement of operations.
On November 5, 1998, Loral acquired 276,000 additional Globalstar ordinary
partnership interests (corresponding to approximately 1.1 million equivalent
shares of GTL common stock) from Dacom Corporation and a related subsidiary
("DACOM") in exchange for 717,600 shares of GTL common stock owned by Loral.
This has been accounted for as a share-for-share exchange for accounting
purposes and accordingly, no gain has been reported. The shares of GTL common
stock acquired by DACOM were restricted for U.S. securities law purposes. GTL
has filed a shelf registration statement covering the resale of these shares.
As of December 31, 1998, Loral had a 42.6% interest in Globalstar ordinary
partnership interests.
31
<PAGE> 32
SatMex
In connection with the privatization by 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 originally
issued by Servicios Corporativos Satelitales, S.A. de C.V. ("Servicios"), a
wholly owned subsidiary of Holdings. As part of the acquisition Servicios also
agreed to issue a $129.9 million seven year Government Obligation ("Government
Obligation") bearing interest at 6.03% to the Mexican Government in
consideration for the assumption by SatMex of the debt incurred by Servicios in
connection with the acquisition. The debt of SatMex and Holdings 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% economic interest in Holdings and a 49% indirect
economic interest in SatMex. Loral has accounted for SatMex using the equity
method since November 17, 1997.
Orion
On March 20, 1998, Loral acquired all of the outstanding stock of Orion
Network Systems, Inc. in exchange for Loral common stock. Loral issued 18
million shares of its common stock and assumed existing exercisable Orion
options and warrants to purchase an aggregate of 1.4 million shares of Loral
common stock. The resulting purchase price was $472.5 million. Loral has
accounted for the acquisition as a purchase and its consolidated financial
statements reflect the results of operations of Loral Orion from April 1, 1998.
Europe*Star
In December 1998, Loral finalized its strategic partnership with a
subsidiary of Alcatel to jointly build and operate Europe*Star, a geostationary
satellite system that will provide broadcast and telecommunications services to
Europe, the Middle East, Southeast Asia, India, and South Africa. Alcatel will
serve as the primary contractor of the Europe*Star turnkey system. SS/L will
provide the satellite bus and test and integrate the satellites. Europe*Star is
a member of the Loral Global Alliance of FSS providers which is led by Loral
Skynet. Loral invested $49 million in Europe*Star in 1998. In January 1999,
Loral invested an additional $17 million in Europe*Star.
TAXATION
Loral, as a Bermuda company, may be subject to U.S. federal, state and
local income taxation at regular corporate rates on any income that is
effectively connected with the conduct of a U.S. trade or business. When such
income is deemed removed from the U.S. business, it is subject to an additional
30% "branch profits" tax. Loral expects that a significant portion of its income
will be from non-U.S. sources and will not be effectively connected with a U.S.
trade or business; some portion of this income, however, will be subject to
taxation by certain foreign countries.
The Company's U.S. subsidiaries are subject to U.S. taxes on their
worldwide income. In addition, a 30% U.S. withholding tax will be imposed on
dividends and interest paid by such subsidiaries to Loral Space & Communications
Ltd.
LIQUIDITY AND CAPITAL RESOURCES
Loral intends to capitalize on its innovative capabilities, market position
and advanced technologies to offer value-added satellite-based services as part
of the evolving worldwide communications networks and, where appropriate, to
form strategic alliances with major telecommunications service providers and
equipment
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<PAGE> 33
manufacturers to enhance and expand its satellite-based communications service
opportunities. In order to pursue such opportunities, Loral may seek funds from
strategic partners and other investors, and through incurrence of debt or the
issuance of additional equity.
Debt
In January 1999, Loral completed a private offering of senior notes raising
$350 million, of which a portion was used to invest in $150 million face amount
of GTL's January 1999 $350 million offering of convertible preferred stock,
thereby maintaining Loral's proportionate ownership position in Globalstar. The
remainder of the funds raised will be used for general corporate purposes,
including investments in its other core businesses and to pursue emerging
satellite services opportunities worldwide.
On November 14, 1997, the Company's wholly owned subsidiary, Loral SpaceCom
Corporation, entered into an $850 million credit facility with a group of banks.
The facility consists of a $500 million revolving credit facility, a $275
million term loan and a $75 million letter of credit facility. The facility
replaced SS/L's existing credit facility. The facility is secured by the stock
of Loral SpaceCom Corporation and SS/L and contains various covenants, including
an interest coverage ratio, debt to capitalization ratios and restrictions on
cash transfers to its parent. At December 31, 1998, there was $622 million of
borrowings outstanding under this agreement and other credit facilities. In
addition, Loral had outstanding letters of credit as of December 31, 1998
totaling $99 million.
Loral Orion's outstanding debt as of December 31, 1998, was $933 million,
is non-recourse to Loral, and includes certain restrictions on Loral Orion's
ability to pay dividends or make loans to Loral.
Equity
On June 29, 1998, Loral sold 23 million shares of its common stock for $27
per share. The net proceeds were $602 million, of which Loral used $175 million
to fund the Globalstar Purchase on July 6, 1998 (see Acquisitions and
Investments). The remainder of the funds are being used for general corporate
purposes, including investing in its other core businesses and to pursue
emerging satellite service opportunities worldwide.
Cash and Restricted Cash
As of December 31, 1998, Loral had $547 million of cash and cash
equivalents. Loral intends to utilize its existing capital base and access to
the capital markets to construct and operate additional satellites, make
additional investments in Globalstar and Globalstar service provider
opportunities, invest in its other core businesses, and to pursue emerging
satellite service opportunities worldwide.
As of December 31, 1998, Orion had $73 million of restricted cash, which
will be used for interest payments on Orion's senior notes.
Loral Skynet
Loral Skynet currently has three high-power satellites in orbit. Loral
intends to expand Loral Skynet's business to become a worldwide satellite
service provider through the construction of additional satellites. As of
February 28, 1999, Loral Skynet has three satellites under construction by SS/L,
one of which is expected to be launched in 1999.
Loral Orion
Loral Orion currently has one satellite in orbit, one completed satellite
which is at the launch site (Orion 3) and is scheduled to be launched in April
1999 and one satellite under construction (Orion 2) which is expected to be
launched in 1999. The cost of Orion 3 is fully funded. Loral intends to fund
approximately $60 million of the construction cost of Orion 2. All other costs
related to Orion 2 are fully funded.
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<PAGE> 34
SatMex
SatMex currently has three satellites in orbit (SatMex 5, Solidaridad I and
Solidaridad II) and one satellite in inclined orbit (Morelos II). Loral and
Principia have committed to make an equity investment in SatMex of up to $35
million prior to March 31, 1999. As of December 31, 1998, SatMex had total
outstanding debt of $644 million, for which the related covenants restrict the
ability of SatMex to pay dividends to Loral.
Globalstar
The Company plans to begin a regional roll-out of commercial service in the
third quarter of 1999 with a minimum of eight gateways in operation. By the end
of 1999, Globalstar expects to have a total of at least 16 gateways in
operation. All of the 38 gateways on order have been manufactured and are ready
for installation.
On March 15, 1999, Globalstar successfully launched four satellites aboard
a Soyuz launch vehicle from the Baikonur Cosmodrome in Kazakhstan, bringing the
total satellites in orbit to 16. This launch followed Globalstar's successful
launch on February 8, 1999 of four satellites from the Baikonur Cosmodrome
following the execution of a Technology Safeguard Agreement among the
governments of Russia, Kazakhstan and the United States. Globalstar had
previously launched its first group of four satellites on February 14, 1998, and
its second group of four satellites on April 24, 1998. On September 9, 1998, a
malfunction of a Zenit 2 rocket, launched from the Baikonur Cosmodrome, resulted
in the loss of 12 Globalstar satellites. The launch vehicle and the satellites
were substantially insured. For the remainder of 1999, Globalstar's current
launch plan includes nine additional launches of four satellites each, using a
mix of Delta and Soyuz rockets. According to the plan, Globalstar will deploy an
operational constellation of a minimum of 32 satellites in September 1999 and a
total of 52 satellites (including four in-orbit spares) by the end of 1999.
Through December 31, 1998, Globalstar incurred costs of approximately $2.7
billion for the design and construction of the space and ground segments. Costs
incurred during 1998 were approximately $871 million. Qualcomm is in the process
of completing its revision to cost estimates for its portion of the ground
segment. Due to additional scope and cost growth and based on preliminary
information, Globalstar expects the increase from Qualcomm to be less than 3% of
the total project cost. The Qualcomm estimate is still subject to further review
by Globalstar. As of December 31, 1998, and including the effect of the
preliminary Qualcomm 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. In
addition to expenditures for operating costs and debt service, Globalstar
anticipates further expenditures on system software for the improvement of
system functionality and the addition of new features beyond those planned for
the commencement of commercial service. Globalstar expects to achieve positive
cash flow in the third quarter of 2000. Substantial additional financing will be
required if there are delays in the commencement of 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 these
additional funds, there can be no assurance that such funds will be available on
favorable terms or on a timely basis, if at all.
Globalstar has agreed, subject to its partners' approval, to purchase from
SS/L 12 additional spare satellites for which the cost and payment terms have
not as yet been negotiated. It is anticipated that approximately $100 million
will be expended for these spare satellites by commencement of commercial
service. In addition, in order to accelerate the deployment of gateways around
the world, Globalstar has agreed to help finance approximately $80 million of
the cost of up to 32 of the initial 38 gateways. The contracts for the 38
gateways aggregate approximately $345 million. Ericsson, Qualcomm and Telital
are in the process of manufacturing approximately 300,000 handheld and fixed
user terminals under contracts totaling $353 million from Globalstar and its
service providers. Globalstar has agreed to finance approximately $151 million
of the cost of handheld and fixed user terminals. Globalstar expects to recoup
such costs upon acceptance by the service providers of the gateways and user
terminals.
SS/L provides Globalstar with approximately $330 million of billings
deferred as follows -- $224 million of vendor financing (of which $163 million
was provided as of December 31, 1998) and $106 million of orbital incentives.
SS/L's subcontractors have assumed a portion of the vendor financing commitments
totaling
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<PAGE> 35
approximately $116 million (of which $96 million was provided as of December 31,
1998) which will be paid on similar terms. The $224 million of vendor financing
consists of three tranches -- $110 million, $90 million and $24 million. Only
the $90 million tranche is interest bearing and bears interest at the 30-day
LIBOR rate plus 3% per annum. Globalstar will repay the $110 million and $24
million tranches as follows: 50% will be paid over five years in equal monthly
installments following the launch and acceptance of 24 or more satellites (the
"Preliminary Constellation") and the remaining 50% will be paid over five years
in equal monthly installments following the launch and acceptance of 48 or more
satellites (the "Full Constellation"). Payment of the $90 million interest
bearing vendor financing will be due beginning March 31, 1999. Interest and
principal will be repaid in 20 equal quarterly installments over the next five
years. Approximately $47 million of the orbital incentives will be paid at both
the Preliminary Constellation Date and Full Constellation Date with the
remainder being paid with the delivery of the remaining satellites.
On January 21, 1999, GTL sold $350 million of 8% Convertible Redeemable
Preferred Stock due 2011 (the "Preferred Stock"). The Preferred Stock will be
convertible into shares of GTL common stock at a conversion price of $23.2563
per share. Loral purchased $150 million face amount of the $350 million
Preferred Stock offered, to maintain its ownership percentage. GTL used the
proceeds to purchase convertible preferred partnership interests in Globalstar,
and Globalstar will use the funds for the construction and deployment of the
Globalstar System.
As of January 31, 1999, Globalstar has raised or received commitments for
approximately $3.3 billion. Globalstar intends to raise the remaining funds
required, of approximately $600 million, prior to the initiation of commercial
service from a combination of sources, including: high yield debt issuance
(which may include an equity component), bank financing, equity issuance,
financial support from the Globalstar partners, projected service provider
payments and anticipated payments from the sale of gateways and Globalstar
subscriber terminals.
COMMITMENTS AND CONTINGENCIES
In connection with the merger agreement dated January 7, 1996 between Loral
Corporation and Lockheed Martin Corporation ("Lockheed Martin"), Lockheed Martin
assumed approximately $206 million of the guarantee under the Globalstar credit
agreement. The balance of $44 million of the guarantee was assumed by various
Globalstar partners, including $11.7 million by SS/L. Loral has agreed to
indemnify Lockheed Martin for its liability, if any, in excess of $150 million
under its guarantee of the Globalstar credit agreement. Globalstar is currently
financed without recourse to Loral other than the indemnification described
above. Loral has also guaranteed a $115 million term loan.
In 1997, two satellites built by SS/L experienced solar array circuit
failures. One customer asserted that, in light of the failures and uncertainty
as to future failure, it has not accepted the satellite. Loral believes that
this customer was contractually required to accept the satellite at completion
of in-orbit testing and that risk of loss has passed to the customer. SS/L
settled the other customer's claims in 1997. The statement of operations for
1997 includes the impact of these events. In 1998, another SS/L-built satellite
experienced degradation in the performance of two of its Ku-band antennae, which
SS/L currently estimates could result in the loss of approximately 25% of the
applicable orbital incentives, although further warranty claims could be made.
Loral's 1998 consolidated financial statements include the effect of this item.
Management believes that these matters will not have a material adverse effect
on the financial condition or results of operations of Loral.
SS/L is a target of a grand jury investigation being conducted by the
office of the U.S. Attorney for the District of Columbia with respect to
possible violations of export control laws that may have occurred in connection
with the participation of SS/L employees on a committee formed in the wake of
the 1996 crash of a Long March rocket in China and whose purpose was to consider
whether studies of the crash made by the Chinese had correctly identified the
cause of the failure. The Company is not in a position to predict the direction
or outcome of the investigation. If SS/L were to be indicted and convicted of a
criminal violation of the Arms Export Control Act, it would be subject to a fine
of $1 million per violation and could be debarred from certain export privileges
and, possibly, from participation in government contracts. Since many of SS/L's
satellites are built for foreign customers and/or launched on foreign rockets,
such a debarment would have a
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<PAGE> 36
material adverse effect on SS/L's business, which is important to the Company.
Indictment for such violations would subject SS/L to discretionary debarment
from further export licenses. Whether or not SS/L is indicted or convicted, SS/L
will remain subject to the State Department's general statutory authority to
prohibit exports of satellites and related services if it finds a violation of
the Arms Export Control Act that puts SS/L's reliability in question, and it can
suspend export privileges whenever it determines that grounds for debarment
exist and that such suspension "is reasonably necessary to protect world peace
or the security or foreign policy of the United States."
As far as SS/L can determine, no sensitive information or technology was
conveyed to the Chinese, and no secret or classified information was discussed
with or reported to them. SS/L believes that its employees acted openly and in
good faith and that none engaged in intentional misconduct. Accordingly, the
Company does not believe that SS/L has committed a criminal violation of the
export control laws. The Company does not expect the grand jury investigation or
its outcome to result in a material adverse effect upon its business. However,
there can be no assurance as to these conclusions.
Several Congressional committees have held hearings on U.S. satellite
export policy toward China, alleged influence of campaign contributions
(including contributions made by Loral's Chairman and Chief Executive Officer)
on the Clinton Administration's export policy toward China and related matters.
One of the House committees investigating these matters, chaired by
Representative Cox, recently issued a classified report that is said to be
critical of past government and industry technology transfer practices and
policies. This report is also said to contain 38 proposals for legislative and
executive action to address perceived concerns. It is possible that adoption of
some or all of such proposals could have an adverse effect upon the ability of
U.S.-based satellite manufacturers, such as SS/L, and possibly other U.S.
exporters, to market their products abroad in competition with foreign-based
manufacturers, and might adversely affect their ability to perform existing
contracts. In addition, the portions of the report that have not yet been
declassified could contain negative comments about SS/L's compliance with the
export control laws.
On December 23, 1998, the Office of Defense Trade Controls ("ODTC") of the
U.S. Department of State temporarily suspended the previously approved technical
assistance agreement under which SS/L had been preparing for the launch of the
ChinaSat-8 satellite. According to ODTC, the purpose of the temporary suspension
is to permit that agency to review the agreement for conformity with
newly-enacted legislation (Section 74 of the Arms Export Control Act) with
respect to the export of missile equipment or technology. SS/L has complied with
ODTC's instructions, and believes that a review of the agreement will show that
its terms comply with the new law. The ODTC, however, has not yet completed its
review, and the scheduled launch date for ChinaSat-8 is being delayed. If such a
delay were to continue for an extended period, or if the suspension was not
lifted, SS/L's customer could decide to terminate the contract. If such a
termination were to occur, SS/L would have to refund advances received from
ChinaSat ($124 million as of December 31, 1998) and may incur penalties of up to
$12 million and believes it would incur costs of approximately $38 million to
refurbish and retrofit the satellite so that it could be sold to another
customer. There can be no assurance that SS/L will be able to find such a
replacement customer.
NET CASH PROVIDED BY/USED IN OPERATING ACTIVITIES
Net cash provided by operating activities for the year ended December 31,
1998 was $4 million, primarily due to funds generated by earnings before
depreciation and amortization, taxes, gain on investments, minority interest and
equity in net loss of affiliates of $104 million and increases in customer
advances of $54 million, and long-term liabilities of $52 million, offset
primarily by increases in inventories of $91 million, contracts in process of $6
million and long-term receivables of $133 million. Net cash used in operating
activities for 1997, was $230 million, primarily due to increases in satellite
contracts in process of $34 million, inventories of $24 million, launch vehicle
deposits of $108 million, and long-term receivables of $79 million, and a
decrease in customer advances of $58 million, offset by funds generated from
earnings before depreciation and amortization, taxes, gain on investments,
minority interest and equity in net loss of affiliates of $110 million.
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<PAGE> 37
NET CASH USED IN INVESTING ACTIVITIES
During 1998, net cash used in investing activities was $473 million
primarily as a result of $489 million of capital expenditures mainly for the
construction of satellites, the $175 million net cost of acquiring additional
Globalstar partnership interests, $121 million of investments in affiliates,
offset by a reduction in restricted cash of $264 million, primarily used for the
construction of Loral Orion satellites. Cash used in investing activities for
1997 was $1 billion, primarily due to the cash portion of the purchase price of
Skynet and the SS/L equity interests for $546 million, the purchase of equity
interests in Globalstar and SatMex for $256 million and, capital expenditures of
$255 million, primarily for the construction of Loral Skynet's satellites by
SS/L and for facility expansion and renovation at SS/L, offset by the proceeds
from the sale of K&F stock of $80 million.
NET CASH PROVIDED BY FINANCING ACTIVITIES
During 1998, net cash provided by financing activities was $789 million
compared with $299 million in 1997, due primarily to the net proceeds of the
Company's equity offering of $602 million in 1998, partially offset by lower
proceeds from borrowings under existing credit facilities in 1998. Net cash
provided by financing activities was $1.2 billion in 1996, due primarily to
Lockheed Martin's contribution in connection with the distribution of Loral
Corporation's space and communications business to its shareholders in 1996 and
from the issuance of CPEOs in 1996.
OTHER MATTERS
Effect of Year 2000
The Company's Year 2000 Program is proceeding on schedule. The Year 2000
issue is the result of computer programs which were written using two digits
rather than four to signify a year (i.e., the year 1999 is denoted as "99" and
not "1999"). Computer programs written using only two digits may recognize the
year 2000 as the year 1900. This could result in a system failure or
miscalculations causing disruption of operations.
The Company and its operating affiliates, Globalstar and SatMex, have
implemented a Year 2000 program (the "Year 2000 Program") for their internal
products, system and equipment, as well as for key vendor and customer supplied
products, systems and equipment. As part of the Year 2000 Program, the Company
and its operating affiliates are assessing the Year 2000 capabilities of, among
other things, their satellites, ground equipment, research and development
activities, manufacturing processes and facility management systems. The Year
2000 Program consists of the following phases: inventory of Year 2000 items,
assessment (including prioritization), remediation (including modification,
upgrading and replacement), testing and auditing. This five-step program is
divided into six major sections covering both information and non-information
technology systems: 1) business systems, 2) technical systems, 3) products and
services, 4) imbedded hardware/firmware, 5) vendor supplied products and 6)
customer provided products. As of February 28, 1999, the Company and its
operating affiliates had completed approximately 95% of the inventory phase and
approximately 60% of the assessment phase. The Company expects to complete the
first four phases, through the testing phase, of the Year 2000 Program during
the third quarter of 1999, which is prior to any anticipated material impact on
the operations of the Company and its operating affiliates. The fifth phase, the
audit phase, commenced in January 1999 and is expected to continue through the
third quarter of 1999 to accommodate re-audits if deemed necessary.
Both internal and external resources are being utilized to execute the
Company's plan. The program to address Year 2000 has been underway since July
1997. The incremental costs incurred through December 31, 1998 for this effort
by the Company and its operating affiliates were approximately $1.4 million.
Based on the efforts of the Company and its operating affiliates to date, the
Company anticipates additional incremental expenses of approximately $5.7
million will be incurred to substantially complete the effort.
Based upon the accomplishments to date, no contingency plans are expected
to be needed. As risks are identified, contingency plans will be developed and
implemented as necessary. However, because of the
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<PAGE> 38
progress achieved to date and the Company's expectations that its Year 2000
program will be substantially complete in the third quarter of calendar 1999,
the Company believes adequate time will be available to insure alternatives can
be developed, assessed and implemented prior to a Year 2000 issue having a
material negative impact on the operations of the Company. However, there can be
no assurance that such modifications and conversions, if required, will be
completed on a timely basis.
The cost of the program and the dates on which the Company believes it will
substantially complete Year 2000 modifications are based on management's best
estimates. Such estimates were derived using software surveys and programs to
evaluate calendar date exposures and numerous assumptions of future events,
including the continued availability of certain resources, third-party Year 2000
readiness and other factors. Because none of these estimates can be guaranteed,
actual results could differ materially and adversely from those anticipated.
Specific factors that might cause an adjustment of costs are: number of
personnel trained in this area, the ability to locate and correct all relevant
computer codes, the ability to validate supplier certification and similar
uncertainties.
The Company's failure to remediate a material Year 2000 problem could
result in an interruption or failure of certain basic business operations. These
failures could materially and adversely affect the Company's results of
operations, liquidity and financial condition. The Company and its operating
affiliates are also assessing the Year 2000 readiness of their key third-party
suppliers. Information requests have been distributed to such suppliers and
replies are being evaluated. If the risk is deemed material, on-site visits to
suppliers will be conducted to verify the adequacy of the information received.
However, due to the general uncertainty of the Year 2000 problem, including
uncertainty with regard to third-party suppliers and customers, the Company is
unable to determine at this time whether the consequences of Year 2000 failures
will have an adverse material impact on the Company's results of operations,
liquidity or financial condition. There can be no assurance given that the
Company's Year 2000 Program will be successful in avoiding any interruption or
failure of certain basic business operations, which may have a material adverse
effect on the Company's results of operations or financial position.
Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement No.
133 Accounting for Derivative Instruments and Hedging Activities ("SFAS 133"),
which requires that all derivative instruments be recorded on the balance sheet
at their fair value. Changes in the fair value of derivatives are recorded each
period in current earnings or other comprehensive income, depending on whether a
derivative is designated as part of a hedge transaction and, if it is, the type
of hedge transaction. The Company has not yet determined the impact that the
adoption of SFAS 133 will have on its earnings or financial position. The
Company is required to adopt SFAS 133 on January 1, 2000.
ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Foreign Currency
The Company has limited involvement with derivative financial instruments
and does not use such instruments for trading purposes. The derivative financial
instruments are used to manage foreign currency exchange risk.
As of December 31, 1998, the Company had foreign currency exchange
contracts (forwards and swaps) with several banks to purchase and sell foreign
currencies, primarily Japanese yen, aggregating $197.5 million. Such contracts
were designated as hedges of certain foreign contracts and subcontracts to be
performed by SS/L through May 2006. The fair value of these contracts, based on
quoted market prices as of December 31, 1998, was $189.7 million. As of December
31, 1998, deferred gains on forward contracts to sell foreign currencies,
primarily yen, were $11.7 million and deferred losses on forward contracts to
purchase foreign currencies, primarily yen, were $3.9 million.
The Company is exposed to credit-related losses in the event of
nonperformance by counter parties to these financial instruments, but does not
expect any counter party to fail to meet its obligation.
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<PAGE> 39
The maturity of foreign currency exchange contracts held as of December 31,
1998 is consistent with the contractual or expected timing of the transactions
being hedged, principally receipt of customer payments under long-term contracts
and payments to vendors under subcontracts. These foreign exchange contracts
mature as follows (in thousands):
<TABLE>
<CAPTION>
TO PURCHASE TO SELL
-------------------- -------------------
AT AT AT AT
YEARS TO CONTRACT MARKET CONTRACT MARKET
MATURITY RATE RATE RATE RATE
-------- -------- -------- -------- -------
<S> <C> <C> <C> <C>
1................................. $ 97,776 $101,924 $56,158 $49,705
2 to 5............................ 11,124 10,913 20,748 17,949
6 to 10........................... 11,725 9,257
-------- -------- ------- -------
$108,900 $112,837 $88,631 $76,911
======== ======== ======= =======
</TABLE>
Interest
As of December 31, 1998, the fair value of the Company's long-term debt is
estimated to be $1.4 billion using quoted market prices. The long-term debt
carrying value exceeded fair value by $173 million. Market risk on debt is
estimated as the potential increase in annual interest expense resulting from a
hypothetical one percent increase in interest rates and amounts to $15 million.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to Financial Statements and Financial Statement Schedules on page
42.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS
Information required for this item is presented in the Company's 1999
definitive proxy statement which is incorporated herein by reference.
EXECUTIVE OFFICERS OF THE REGISTRANT
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Bernard L. Schwartz.......... 73 Chairman of the Board of Directors and Chief Executive
Officer since January 1996. Prior to that, Chairman and
Chief Executive Officer of Old Loral since 1972.
Gregory J. Clark............. 56 President and Chief Operating Officer since January 1998.
Prior to that, President of News Technology Group, a
division of News Corporation, since September 1994. Prior
to that, Director of Science and Technology of IBM in
Australia since 1988.
Michael P. DeBlasio.......... 62 First Senior Vice President since September 1998. Prior
to that, First Senior Vice President and Chief Financial
Officer since February 1998. Prior to that, Senior Vice
President and Chief Financial Officer since March 1996.
Prior to that, Senior Vice President -- Finance of Old
Loral since 1979.
Robert E. Berry.............. 70 Senior Vice President since November 1996 and President
of Space Systems/Loral since 1990.
Nicholas C. Moren............ 52 Senior Vice President and Treasurer since February 1998.
Prior to that, Vice President and Treasurer since March
1996. Prior to that, Vice President and Treasurer of Old
Loral since April 1991.
Richard J. Townsend.......... 48 Senior Vice President and Chief Financial Officer since
October 1998. Prior to that, Corporate Controller and
Director of Strategy for ITT Industries since 1997. Prior
to that, Vice President of Finance Worldwide Industries
for IBM and various other financial management positions
with IBM since 1979.
Eric J. Zahler............... 48 Senior Vice President, General Counsel and Secretary
since February 1998. Prior to that, Vice President,
General Counsel and Secretary since March 1996. Prior to
that, Vice President and General Counsel of Old Loral
since April 1992.
Laurence D. Atlas............ 41 Vice President, Government
Relations -- Telecommunications since May 1997. Prior to
that, Associate Chief of the Common Carrier Bureau of the
FCC since January 1995. Prior to that, Associate Chief of
the FCC's Wireless Telecommunications Bureau since
November 1994. Prior to that, associate in the law firm
of Willkie Farr & Gallagher since 1982.
W. Neil Bauer................ 52 Vice President since March 1998. Prior to that, Chief
Executive Officer and President of Orion Network Systems,
Inc. since September 1993.
</TABLE>
40
<PAGE> 41
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Jeanette H. Clonan........... 50 Vice President -- Communications and Investor Relations
since November 1996. Prior to that, Director -- Corporate
Communications from June 1996. Prior to that, Vice
President -- Corporate Relations of Jamaica Water
Securities since September 1992.
Terry J. Hart................ 52 Vice President since February 1998 and President of Loral
Skynet since March 1997. Prior to that, Division Manager
of AT&T Skynet Satellite Services since 1991.
Stephen L. Jackson........... 57 Vice President -- Administration since March 1997. Prior
to that, Vice President -- Administration of Old Loral
since 1978.
Avi Katz..................... 40 Vice President, Deputy General Counsel and Assistant
Secretary since February 1998. Prior to that, Deputy
General Counsel and Assistant Secretary since August
1997. Prior to that, Associate General Counsel and
Assistant Secretary since July 1996. Prior to that,
associate in the law firm of Willkie Farr & Gallagher
since 1987.
Ronald C. Maehl.............. 51 Vice President since February 1998 and President of
CyberStar since March 1997. Prior to that, Senior Vice
President of Strategic Ventures of SS/L since April 1996.
Prior to that, Senior Vice President of Advance Programs
of SS/L since January 1993.
Russell R. Mack.............. 44 Vice President -- Business Ventures since February 1998.
Prior to that, Director of Business Planning and
Development since April 1996. Prior to that, Manager of
Project Finance of Old Loral since July 1991.
Harvey B. Rein............... 45 Vice President and Controller since April 1996. Prior to
that, Assistant Controller of Old Loral since 1985.
Thomas B. Ross............... 69 Vice President -- Government Relations since November
1996. Prior to that, Vice President -- Corporate
Communications from April 1996. Prior to that, Vice
President -- Communications of Globalstar from May 1995
to April 1996. Prior to that, Special Assistant to the
President and Senior Director for Public Affairs of the
National Security Council from April 1994 to May 1995 and
Senior Vice President of Hill & Knowlton.
</TABLE>
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required under Items 11, 12 and 13, is presented in the
Company's 1999 definitive proxy statement which is incorporated herein by
reference.
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<PAGE> 42
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Index to Financial Statements............................... F-1
Loral Space & Communications Ltd.
Independent Auditors' Report.............................. F-2
Consolidated Balance Sheets as of December 31, 1998 and
1997................................................... F-3
Consolidated Statements of Operations for the years ended
December 31, 1998 and 1997 and for the nine months
ended December 31, 1996................................ F-4
Consolidated Statements of Shareholders' Equity for the
years ended December 31, 1998 and 1997 and for the nine
months ended December 31, 1996......................... F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1998 and 1997 and for the nine months
ended December 31, 1996................................ F-6
Notes to Consolidated Financial Statements................ F-7
Space Systems/Loral, Inc.
Independent Auditors' Report.............................. F-40
Consolidated Statement of Income for the nine months ended
December 31, 1996...................................... F-41
Consolidated Statement of Shareholders' Equity for the
nine months ended December 31, 1996.................... F-42
Consolidated Statement of Cash Flows for the nine months
ended December 31, 1996................................ F-43
Notes to Consolidated Financial Statements................ F-44
Globalstar, L.P. (A development stage limited partnership)
Independent Auditors' Report.............................. *
Consolidated Balance Sheets as of December 31, 1998 and
1997................................................... *
Consolidated Statements of Operations for the years ended
December 31, 1998, 1997 and 1996 and cumulative........ *
Consolidated Statements of Partners' Capital and
Subscriptions Receivable for the period March 23, 1994
(commencement of operations) to December 31, 1998...... *
Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1997 and 1996 and cumulative........ *
Notes to Consolidated Financial Statements................ *
- ---------------
* Incorporated herein by reference from the Annual Report on Form
10-K of Globalstar Telecommunications Limited and Globalstar,
L.P. for the year ended December 31, 1998, pages F-1 through
F-36.
(a) 2. Financial Statement Schedules
Independent Auditors' Report.................. S-1
Schedule I -- Condensed Financial Information
of Registrant............................................. S-2
Financial statement schedules not listed are
either not required or the information
required is reflected in the consolidated
financial statements.
</TABLE>
(a) 3. Exhibits
42
<PAGE> 43
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
2.1 Restructuring, Financing and Distribution Agreement, dated
as of January 7, 1996, among Loral Corporation, Loral
Aerospace Holdings, Inc., Loral Aerospace Corp., Loral
General Partner, Inc., Loral Globalstar L.P., Loral
Globalstar Limited, the Registrant and Lockheed Martin
Corporation(1)
2.2 Amendment to Restructuring, Financing and Distribution
Agreement, dated as April 15, 1996(1)
2.3 Agreement for the Purchase and Sale of Assets dated as of
September 25, 1996 by and between AT&T Corp., as Seller, and
Loral Space & Communications Ltd., as Buyer(2)
2.4 First Amendment to Agreement for the Purchase and Sale of
Assets dated as of March 14, 1997 by and between AT&T Corp.,
as Seller, and Loral Space & Communications Ltd., as
Buyer(3)
2.5 Agreement and Plan of Merger dated as of October 7, 1997 by
and among Orion Network Systems, Inc., Loral Space &
Communications Ltd. and Loral Satellite Corporation(4)
2.6 First Amendment to Agreement and Plan of Merger dated as of
February 11, 1998 by and among Orion Network Systems, Inc.,
Loral Space & Communications Ltd. and Loral Satellite
Corporation(5)
2.7 Second Amendment to Agreement and Plan of Merger dated as of
March 20, 1998 by and among Orion Network Systems, Inc.,
Loral Space & Communications Ltd. and Loral Satellite
Corporation(12)
3.1 Memorandum of Association(1)
3.2 Memorandum of Increase of Share Capital(1)
3.3 Second Amended and Restated Bye-laws(1)
3.4 Schedule III to Second Amended and Restated Bye-laws
relating to Registrant's 6% Series C Convertible Redeemable
Preferred Stock(6)
4.1 Rights Agreement dated March 27, 1996 between the Registrant
and The Bank of New York, Rights Agent(1)
4.2 Indenture dated as of January 15, 1999 relating to
Registrant's 9 1/2% Senior Notes due 2006+
10.1 Shareholders Agreement dated as of April 23, 1996 between
Loral Corporation and the Registrant(1)
10.2 Tax Sharing Agreement dated as of April 22, 1996 between
Loral Corporation, the Registrant, Lockheed Martin
Corporation and LAC Acquisition Corporation(1)
10.3 Exchange Agreement dated as of April 22, 1996 between the
Registrant and Lockheed Martin Corporation(1)
10.4 Amended and Restated Agreement of Limited Partnership of
Globalstar, L.P., dated as of January 26, 1999 among
Loral/Qualcomm Satellite Services, L.P., Globalstar
Telecommunications Limited, AirTouch Satellite Services,
Inc., Dacom Corporation, Dacom International, Inc., Hyundai
Corporation, Hyundai Electronics Industries Co., Ltd.,
Loral/DASA Globalstar, L.P., Loral Space & Communications
Ltd., San Giorgio S.p.A., TeleSat Limited, TE.S.AM and
Vodafone Satellite Services Limited+
10.5 Service Provider Agreements by and between Globalstar, L.P.
and each of Loral General Partner, Inc. and Loral/DASA
Globalstar, L.P.(8)
10.6 Contract between Globalstar, L.P. and Space Systems/Loral,
Inc.(8)
10.7 1996 Stock Option Plan(1)++
10.7.1 Amendment to 1996 Stock Option Plan+++
10.8 Common Stock Purchase Plan for Non-Employee Directors(1)++
10.9 Employment Agreement between the Registrant and Bernard L.
Schwartz(1)++
10.9.1 Amendment dated as of March 1, 1997 to Employment Agreement
between the Registrant and Bernard L. Schwartz(12)++
</TABLE>
43
<PAGE> 44
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
10.10 Registration Rights Agreement dated as of August 9, 1996
among Loral Space & Communications Ltd., Lehman Brothers
Capital Partners II, L.P., Lehman Brothers Merchant Banking
Portfolio Partnership L.P., Lehman Brothers Offshore
Investment Partnership L.P. and Lehman Brothers Offshore
Investment Partnership-Japan L.P.(9)
10.11 Registration Rights Agreement dated November 6, 1996
relating to the Registrant's 6% Convertible Preferred
Equivalent Obligations due 2006(6)
10.12 Registration Rights Agreement (Series C Preferred Stock)
dated as of March 31, 1997 between Loral Space &
Communications Ltd. and Finmeccanica S.p.A. and dated as
June 23, 1997 among Loral Space & Communications Ltd.,
Aerospatiale SNI and Alcatel Espace(10)
10.13 Registration Rights Agreement (Common Stock) dated as of
June 23, 1997 among Loral Space & Communications Ltd.,
Aerospatiale SNI and Alcatel Espace(10)
10.14 Alliance Agreement dated as of June 23, 1997 among Loral
Space & Communications Ltd., Aerospatiale SNI, Alcatel
Espace and Finmeccanica S.p.A.(10)
10.15 Principal Stockholder Agreement dated as of October 7, 1997
among Loral Space & Communications Ltd., Loral Satellite
Corporation, Orion Network Systems, Inc. and certain Orion
stockholders signatory thereto(4)
10.16 Amended and Restated Credit and Participation Agreement,
dated as of November 14, 1997, among Loral SpaceCom
Corporation, Space Systems/Loral, Inc., the Banks parties
thereto, 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 and Arranger and as Selling Bank(11)
10.16.1 First Amendment dated as of May 7, 1998 to and of the
Amended and Restated Credit and Participation Agreement,
dated as of November 14, 1997, among Loral SpaceCom
Corporation, Space Systems/Loral, Inc., the Banks parties
thereto, 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 and Arranger and as Selling Bank+
10.17 Agreement of Limited Partnership of CyberStar, L.P. dated as
of June 30, 1997(12)
10.18 Purchase and Sale Agreement dated November 17, 1997 between
the Federal Government of the United Mexican States and
Corporativo Satelites Mexicanos, S.A. de C.V. for the
purchase and sale of the capital stock of Satelites
Mexicanos, S.A. de C.V. (English translation of Spanish
original)(12)
10.19 Amended and Restated Membership Agreement dated and
effective as of August 21, 1998 among Loral SatMex Ltd. and
Ediciones Enigma, S.A. de C.V. and Firmamento Mexicano, S.
de R.L. de C.V.+
10.20 Letter Agreement dated December 29, 1997 between Loral Space
& Communications Ltd., Telefonica Autrey S.A. de C.V.,
Donaldson, Lufkin & Jenrette Securities Corporation, Lehman
Brothers Inc. and Lehman Commercial Paper Inc. and related
Agreement between the Federal Government of United Mexican
States, Telefonica Autrey, S.A. de C.V., Ediciones Enigma,
S.A. de C.V., Loral Space & Communications Ltd., Loral
SatMex Ltd. and Servicios Corporativos Satelitales, S.A. de
C.V.(12)
10.21 Shareholders Agreement dated December 7, 1998 by and among
Alcatel SpaceCom, Loral Space & Communications Ltd., Dr.
Jurgen Schulte-Hillen and EuropeStar Limited+
10.22 Registration Rights Agreement dated as of January 21, 1999
relating to Registrant's 9 1/2% Senior Notes due 2006+
12 Statement Re: Computation of Ratios+
21 List of Subsidiaries of the Registrant+
23 Consent of Deloitte & Touche LLP+
</TABLE>
44
<PAGE> 45
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
27 Financial Data Schedule (EDGAR only)+
99.1 Consolidated Financial Statements of Globalstar, L.P. and
Independent Auditors' Report(13)
</TABLE>
- ---------------
(1) Incorporated by reference from the Registrant's Registration Statement on
Form 10 (No. 1-14180).
(2) Incorporated by reference from the Registrant's Current Report on Form 8-K
filed on September 27, 1996.
(3) Incorporated by reference from the Registrant's Current Report on Form 8-K
on March 28, 1997.
(4) Incorporated by reference from the Registrant's Current Report on Form 8-K
filed on October 10, 1997.
(5) Incorporated by reference from the Registrant's Registration Statement on
Form S-4 filed on February 17, 1998 (File No. 333-46407).
(6) Incorporated by reference from the Registrant's Annual Report on Form 10-K
for the nine month period ended December 31, 1996.
(7) Incorporated by reference from the Annual Report on Form 10-K for the
fiscal year ended December 31, 1996 filed by Globalstar Telecommunications
Limited (File No. 0-25456).
(8) Incorporated by reference from the Registration Statement on Form S-1 of
Globalstar Telecommunications Limited (File No. 33-86808).
(9) Incorporated by reference from the Registrant's Current Report on Form 8-K
filed on August 13, 1996.
(10) Incorporated by reference from the Registrant's Current Report on Form 8-K
filed on July 8, 1997.
(11) Incorporated by reference from the Registrant's Current Report on Form 8-K
filed on December 9, 1997.
(12) Incorporated by reference from the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1997.
(13) Incorporated by reference from the Annual Report on Form 10-K for the
fiscal year ended December 31, 1998 filed by Globalstar Telecommunications
Limited and Globalstar, L.P. (File No. 0-25456).
+ Filed herewith.
++ Management compensation plan.
(b) Reports on Form 8-K
None.
45
<PAGE> 46
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
LORAL SPACE & COMMUNICATIONS LTD.
By: /s/ BERNARD L. SCHWARTZ
------------------------------------
Bernard L. Schwartz
(Chairman of the Board and
Chief Executive Officer)
Date: March 30, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<C> <S> <C>
/s/ BERNARD L. SCHWARTZ Chairman of the Board, Chief March 30, 1999
- --------------------------------------------------- Executive Officer and Director
Bernard L. Schwartz (Principal Executive Officer)
/s/ HOWARD GITTIS Director March 30, 1999
- ---------------------------------------------------
Howard Gittis
/s/ ROBERT B. HODES Director March 30, 1999
- ---------------------------------------------------
Robert B. Hodes
/s/ GERSHON KEKST Director March 30, 1999
- ---------------------------------------------------
Gershon Kekst
/s/ CHARLES LAZARUS Director March 30, 1999
- ---------------------------------------------------
Charles Lazarus
/s/ MALVIN A. RUDERMAN Director March 30, 1999
- ---------------------------------------------------
Malvin A. Ruderman
/s/ E. DONALD SHAPIRO Director March 30, 1999
- ---------------------------------------------------
E. Donald Shapiro
/s/ ARTHUR L. SIMON Director March 30, 1999
- ---------------------------------------------------
Arthur L. Simon
/s/ DANIEL YANKELOVICH Director March 30, 1999
- ---------------------------------------------------
Daniel Yankelovich
/s/ RICHARD J. TOWNSEND Chief Financial Officer and March 30, 1999
- --------------------------------------------------- Senior Vice President
Richard J. Townsend (Principal Financial Officer)
/s/ HARVEY B. REIN Vice President and Controller March 30, 1999
- --------------------------------------------------- (Principal Accounting Officer)
Harvey B. Rein
</TABLE>
46
<PAGE> 47
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Loral Space & Communications Ltd. and Subsidiaries
Independent Auditors' Report.............................. F-2
Consolidated Balance Sheets as of December 31, 1998 and
1997................................................... F-3
Consolidated Statements of Operations for the years ended
December 31, 1998 and 1997 and for the nine months
ended December 31, 1996................................ F-4
Consolidated Statements of Shareholders' Equity for the
years ended December 31, 1998 and 1997 and for the nine
months ended December 31, 1996......................... F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1998 and 1997 and for the nine months
ended December 31, 1996................................ F-6
Notes to Consolidated Financial Statements................ F-7
Space Systems/Loral, Inc.
Independent Auditors' Report.............................. F-40
Consolidated Statement of Income for the nine months ended
December 31, 1996...................................... F-41
Consolidated Statement of Shareholders' Equity for the
nine months ended December 31, 1996.................... F-42
Consolidated Statement of Cash Flows for the nine months
ended December 31, 1996................................ F-43
Notes to Consolidated Financial Statements................ F-44
</TABLE>
F-1
<PAGE> 48
INDEPENDENT AUDITORS' REPORT
TO THE SHAREHOLDERS OF LORAL SPACE & COMMUNICATIONS LTD.
We have audited the accompanying consolidated balance sheets of Loral Space
& Communications Ltd. (a Bermuda company) and its subsidiaries (collectively,
the "Company") as of December 31, 1998 and 1997 and the related consolidated
statements of operations, shareholders' equity and cash flows for the years
ended December 31, 1998 and 1997, and the nine months ended December 31, 1996.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the consolidated financial position of the Company as of
December 31, 1998 and 1997, and the results of its operations and its cash flows
for the years ended December 31, 1998 and 1997 and the nine months ended
December 31, 1996 in conformity with accounting principles generally accepted in
the United States of America.
DELOITTE & TOUCHE LLP
New York, New York
February 16, 1999
F-2
<PAGE> 49
LORAL SPACE & COMMUNICATIONS LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1998 1997
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 546,772 $ 226,547
Restricted cash........................................... 50,180
Accounts receivable, net.................................. 23,637 5,351
Contracts in process...................................... 378,685 372,783
Inventories............................................... 191,245 98,325
Other current assets...................................... 51,188 51,612
---------- ----------
Total current assets.............................. 1,241,707 754,618
Property, plant and equipment, net.......................... 1,667,508 926,679
Cost in excess of net assets acquired, net.................. 966,260 361,411
Long-term receivables....................................... 301,674 168,639
Restricted cash............................................. 22,675
Investments in affiliates................................... 707,917 497,471
Deposits.................................................... 140,970 154,970
Other assets................................................ 180,504 146,659
---------- ----------
$5,229,215 $3,010,447
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of debt................................... $ 22,736 $ 2,146
Accounts payable.......................................... 213,507 189,790
Accrued employment costs.................................. 44,256 38,797
Customer advances......................................... 122,326 68,159
Accrued interest and preferred dividends.................. 37,860 11,192
Other current liabilities................................. 37,276 26,059
Income taxes payable...................................... 17,630 30,121
---------- ----------
Total current liabilities......................... 495,591 366,264
Deferred income taxes....................................... 38,370 99,696
Pension and other postretirement liabilities................ 50,470 48,398
Long-term liabilities....................................... 147,320 73,117
Long-term debt.............................................. 1,533,039 433,252
Minority interest........................................... 28,704 9,200
Commitments and contingencies (Notes 6, 7, 10 and 12)
Shareholders' equity:
Series A convertible preferred stock, $.01 par value;
150,000,000 shares authorized, 45,896,977 shares
issued................................................. 459 459
Series B preferred stock, $.01 par value; 750,000 shares
authorized and unissued................................
6% Series C convertible redeemable preferred stock
($745,472 redemption value), $.01 par value; 20,000,000
shares authorized, 14,909,437 shares issued............ 735,437 733,762
Common stock, $.01 par value; 750,000,000 shares
authorized, 243,861,719 and 200,950,864 shares
issued................................................. 2,439 2,010
Paid-in capital........................................... 2,330,755 1,216,377
Treasury stock, at cost; 174,195 and 101,053 shares....... (3,360) (1,680)
Unearned compensation..................................... (8,231) (249)
Retained earnings (deficit)............................... (162,657) 22,566
Accumulated other comprehensive income.................... 40,879 7,275
---------- ----------
Total shareholders' equity........................ 2,935,721 1,980,520
---------- ----------
$5,229,215 $3,010,447
========== ==========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 50
LORAL SPACE & COMMUNICATIONS LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
NINE MONTHS
YEARS ENDED DECEMBER 31, ENDED
---------------------------- DECEMBER 31,
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Revenues from satellite sales......................... $1,117,721 $1,243,255
Revenues from satellite services...................... 183,981 69,336
Management fee from affiliate......................... $ 5,088
---------- ---------- --------
Total revenues...................................... 1,301,702 1,312,591 5,088
Costs of satellite sales.............................. 995,401 1,127,863
Costs of satellite services........................... 134,473 44,077
Selling, general and administrative expenses.......... 205,608 127,099 17,289
---------- ---------- --------
Operating income (loss)............................... (33,780) 13,552 (12,201)
Interest and investment income........................ 53,867 49,069 34,699
Interest expense...................................... 51,209 15,230 6,000
Gain on investments, net.............................. 5,494 79,591
---------- ---------- --------
Income (loss) before income taxes, equity in net loss
of affiliates and minority interest................. (25,628) 126,982 16,498
Income tax expense (benefit).......................... (3,871) 34,871 2,912
---------- ---------- --------
Income (loss) before equity in net loss of affiliates
and minority interest............................... (21,757) 92,111 13,586
Equity in net loss of affiliates...................... (120,417) (49,037) (4,709)
Minority interest..................................... 3,376 (3,070)
---------- ---------- --------
Net income (loss)..................................... (138,798) 40,004 8,877
Preferred dividends and accretion..................... (46,425) (26,315)
---------- ---------- --------
Net income (loss) applicable to common stockholders... $ (185,223) $ 13,689 $ 8,877
========== ========== ========
Earnings (loss) per share:
Basic and diluted................................... $ (0.68) $ 0.06 $ 0.04
========== ========== ========
Weighted average shares outstanding:
Basic............................................... 273,402 242,070 228,997
========== ========== ========
Diluted............................................. 273,402 243,591 229,396
========== ========== ========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 51
LORAL SPACE & COMMUNICATIONS LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1998 AND 1997 AND THE NINE MONTHS ENDED DECEMBER 31,
1996
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
6% SERIES C
SERIES A CONVERTIBLE
CONVERTIBLE REDEEMABLE
PREFERRED STOCK PREFERRED STOCK COMMON STOCK
--------------- ----------------- ----------------
SHARES SHARES SHARES PAID-IN TREASURY UNEARNED
ISSUED AMOUNT ISSUED AMOUNT ISSUED AMOUNT CAPITAL STOCK COMPENSATION
------ ------ ------ -------- ------- ------ ---------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance April 1, 1996............. 12 $ 354,396
Advances from Old Loral........... 2,425
April 23, 1996 Distribution:
Other assets transferred and
liabilities assumed, net from
Old Loral...................... 4,070
Common stock issued to Old Loral
shareholders and option
holders........................ 183,580 $1,836 254,152
Sale of Series A Convertible
Preferred Stock................ 45,897 $459 343,541
Common stock issued to acquire
interest in SS/L................. 7,500 75 100,238
Net income and comprehensive
income...........................
------ ---- ------ -------- ------- ------ ---------- ------- -------
Balance December 31, 1996......... 45,897 459 191,092 1,911 1,058,822
Shares issued:
Exercise of stock options and
related tax benefits, net of
shares tendered................ 208 2 2,015 $(1,680)
Employee savings plan............ 352 4 6,997
Acquisition of equity interest in
SS/L........................... 2,909 $149,600 8,043 80 130,820
Acquisition of Globalstar
partnership interests.......... 1,256 13 17,474
Mandatory exchange of Convertible
Preferred Equivalent
Obligations, net of unamortized
issue costs.................... 12,000 583,282
Unearned compensation............. 249 $ (249)
Preferred dividends $3.00 per
share............................
Accretion to redemption value..... 880
Net income........................
Other comprehensive income........
Comprehensive income..............
------ ---- ------ -------- ------- ------ ---------- ------- -------
Balance December 31, 1997......... 45,897 459 14,909 733,762 200,951 2,010 1,216,377 (1,680) (249)
Shares issued:
Common stock and vested options
issued to acquire Orion........ ...... 17,969 179 468,846
Unvested options issued to
acquire Orion.................. 4,512 (4,512)
Orion note conversion and
fractional shares.............. 32 (5)
Common stock sold to public,
net............................ 23,000 230 601,586
Exercise of stock options and
related tax benefits, net of
shares tendered................ 739 8 8,112 (1,680)
Employee savings plan............ 1,171 12 25,669
Unearned compensation............. 5,658 (5,658)
Amortization of unearned
compensation..................... 2,188
Preferred dividends $3.00 per
share............................
Accretion to redemption value..... 1,675
Net loss..........................
Other comprehensive income........
Comprehensive loss................
------ ---- ------ -------- ------- ------ ---------- ------- -------
Balance December 31, 1998......... 45,897 $459 14,909 $735,437 243,862 $2,439 $2,330,755 $(3,360) $(8,231)
====== ==== ====== ======== ======= ====== ========== ======= =======
<CAPTION>
ACCUMULATED
RETAINED OTHER TOTAL
EARNINGS COMPREHENSIVE SHAREHOLDERS'
(DEFICIT) INCOME EQUITY
--------- ------------- -------------
<S> <C> <C> <C>
Balance April 1, 1996............. $ 354,396
Advances from Old Loral........... 2,425
April 23, 1996 Distribution:
Other assets transferred and
liabilities assumed, net from
Old Loral...................... 4,070
Common stock issued to Old Loral
shareholders and option
holders........................ 255,988
Sale of Series A Convertible
Preferred Stock................ 344,000
Common stock issued to acquire
interest in SS/L................. 100,313
Net income and comprehensive
income........................... $ 8,877 8,877
--------- ------- ----------
Balance December 31, 1996......... 8,877 1,070,069
Shares issued:
Exercise of stock options and
related tax benefits, net of
shares tendered................ 337
Employee savings plan............ 7,001
Acquisition of equity interest in
SS/L........................... 280,500
Acquisition of Globalstar
partnership interests.......... 17,487
Mandatory exchange of Convertible
Preferred Equivalent
Obligations, net of unamortized
issue costs.................... 583,282
Unearned compensation.............
Preferred dividends $3.00 per
share............................ (25,435) (25,435)
Accretion to redemption value..... (880)
Net income........................ 40,004
Other comprehensive income........ $ 7,275
Comprehensive income.............. 47,279
--------- ------- ----------
Balance December 31, 1997......... 22,566 7,275 1,980,520
Shares issued:
Common stock and vested options
issued to acquire Orion........ 469,025
Unvested options issued to
acquire Orion..................
Orion note conversion and
fractional shares.............. (5)
Common stock sold to public,
net............................ 601,816
Exercise of stock options and
related tax benefits, net of
shares tendered................ 6.440
Employee savings plan............ 25,681
Unearned compensation.............
Amortization of unearned
compensation..................... 2,188
Preferred dividends $3.00 per
share............................ (44,750) (44,750)
Accretion to redemption value..... (1,675)
Net loss.......................... (138,798)
Other comprehensive income........ 33,604
Comprehensive loss................ (105,194)
--------- ------- ----------
Balance December 31, 1998......... $(162,657) $40,879 $2,935,721
========= ======= ==========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 52
LORAL SPACE & COMMUNICATIONS LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
NINE MONTHS
YEARS ENDED DECEMBER 31, ENDED
---------------------------- DECEMBER 31,
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Operating activities:
Net income (loss).......................................... $(138,798) $ 40,004 $ 8,877
Gain on investments, net................................... (5,494) (79,591)
Equity in net loss of affiliates........................... 120,417 49,037 4,709
Minority interest.......................................... (3,376) 3,070
Deferred taxes............................................. (5,940) 419 (926)
Accretion on GTL CPEOs and other non-cash interest
income................................................... (14,249) (1,739)
Non-cash interest expense.................................. 20,474
Depreciation and amortization.............................. 135,029 62,764 1,051
Changes in operating assets and liabilities, net of
acquisitions:
Accounts receivable, net................................... (4,086) (5,351)
Contracts in process....................................... (5,902) (33,690)
Inventories................................................ (90,897) (23,753)
Deposits................................................... 14,000 (107,670)
Long-term receivables...................................... (133,035) (78,634)
Other assets............................................... (10,798) (37,981)
Accounts payable........................................... 9,048 27,845 (1,832)
Accrued expenses and other current liabilities............. 19,432 (36,602) (4,506)
Income taxes payable....................................... (8,322) 24,873
Customer advances.......................................... 54,090 (57,778)
Long-term liabilities...................................... 51,844 24,529 (1,124)
Other...................................................... 980 (9,252)
--------- ----------- ----------
Cash provided by (used in) operating activities............. 4,417 (230,248) (3,003)
--------- ----------- ----------
Investing activities:
Cash acquired in connection with Orion acquisition......... 53,801
Acquisition of businesses, net of cash acquired............ (6,877) (545,642)
Proceeds from the sale of investment in affiliates, net.... 246,867 79,591
Investments in affiliates.................................. (541,701) (255,666) (6,425)
Other assets............................................... (45,715)
Use and transfer of restricted cash........................ 264,123
Capital expenditures....................................... (489,448) (255,340) (540)
Proceeds from the sale of property, plant and equipment.... 5,003
--------- ----------- ----------
Cash used in investing activities........................... (473,235) (1,022,772) (1,962)
--------- ----------- ----------
Financing activities:
Proceeds from sale of common stock, net.................... 601,816
Borrowings (repayments) under revolving credit facility,
net...................................................... 150,000 (4,000)
Borrowings under note purchase facility.................... 38,423 38,958
Proceeds from issuance of term loan........................ 275,000
Repayments under Export-Import credit facility............. (2,146) (2,146)
Repayments of other long-term obligations.................. (7,819)
Proceeds from convertible preferred equivalent
obligations.............................................. 583,292
Proceeds from exercise of stock options and issuances to
employee savings plan.................................... 32,121 7,338
Contributions from minority partners....................... 21,398 9,100
Preferred dividends........................................ (44,750) (25,435)
Proceeds from the Distribution............................. 612,274
Transaction expenses related to the Distribution........... (12,286)
Advances from Loral Corporation prior to the
Distribution............................................. 2,425
--------- ----------- ----------
Cash provided by financing activities....................... 789,043 298,815 1,185,705
--------- ----------- ----------
Increase (decrease) in cash and cash equivalents............ 320,225 (954,205) 1,180,740
Cash and cash equivalents -- beginning of period............ 226,547 1,180,752 12
--------- ----------- ----------
Cash and cash equivalents -- end of period.................. $ 546,772 $ 226,547 $1,180,752
========= =========== ==========
Non-cash activities:
Common stock issued to acquire Orion....................... $ 469,025
=========
Unrealized gain on available-for-sale securities........... $ 32,988 $ 7,275
========= ===========
Mandatory exchange of Convertible Preferred Equivalent
Obligations.............................................. $ 583,282
===========
Issuance of Series C Preferred Stock to acquire equity
interest in SS/L......................................... $ 149,600
===========
Issuance of Loral common stock to acquire equity interest
in SS/L and Globalstar partnership interests............. $ 148,387 $ 100,313
=========== ==========
Deferred purchase price to acquire Globalstar partnership
interests................................................ $ 24,787
===========
Assets transferred from Loral Corporation at the
Distribution............................................. $ 31,383
==========
Liabilities assumed from Loral Corporation at the
Distribution............................................. $ 27,313
==========
Transfer of GTL common stock to acquire equity interest in
SS/L..................................................... $ 5,158
==========
Supplemental information:
Interest paid.............................................. $ 68,485 $ 40,866
========= ===========
Taxes paid................................................. $ 9,789 $ 8,901 $ 1,528
========= =========== ==========
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE> 53
LORAL SPACE & COMMUNICATIONS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND PRINCIPAL BUSINESS
Loral Space & Communications Ltd. (together with its subsidiaries, "Loral"
or the "Company") is one of the world's leading satellite communications
companies with substantial activities in satellite manufacturing and
satellite-based communications services. Loral is developing the building blocks
necessary to create a seamless, global networking capability for the information
age. In 1998, Loral organized and integrated its businesses to form four
distinct operating segments (see Note 15):
Satellite Manufacturing and Technology: Designing and manufacturing
satellites and other space systems and developing satellite technology for
a broad variety of customers and applications through Space Systems/Loral,
Inc. ("SS/L"),
Fixed Satellite Services ("FSS"): Leasing transponder capacity and
providing value-added services to customers for a wide variety of
applications, including the distribution of broadcast programming, news
gathering, business television, distance learning and direct-to-home
("DTH") services, through the activities of Loral Skynet, Loral Orion, Inc.
("Loral Orion"), Satelites Mexicanos, S.A. de C.V. ("SatMex") and the
recently formed Europe*Star Limited ("Europe*Star"),
Data Services: Business in development, providing managed communications
networks and Internet and intranet services through Loral Orion and
delivering high-speed broadband data communications through CyberStar, L.P.
("CyberStar"), using transponder capacity on the Telstar and Loral Orion
fleets, and
Global Mobile Telephony: Will provide worldwide wireless mobile telephony
and narrow-band data communications through a constellation of low-earth
orbiting ("LEO") satellites (the "Globalstar System") operated by
Globalstar, L.P. ("Globalstar").
Loral was formed to effectuate the distribution of Loral Corporation's
("Old Loral") space and communications businesses (the "Distribution") to
shareholders of Old Loral and holders of options to purchase Old Loral common
stock pursuant to a merger agreement (the "Merger") dated January 7, 1996
between Old Loral and Lockheed Martin Corporation ("Lockheed Martin"). The
Distribution of approximately 183.6 million shares of Loral common stock was
made on April 23, 1996. In connection with the Distribution, Lockheed Martin
contributed $612 million in cash to the Company. Of the amount contributed, $344
million represented the purchase of 45,896,977 shares of Loral Series A
Convertible Preferred Stock ("Series A Preferred Stock"). Such stock is subject
to certain voting limitations, restrictions on transfer and standstill
provisions.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
Loral, a Bermuda company, has a December 31 fiscal year-end. The
consolidated financial statements for the years ended December 31, 1998 and 1997
and the nine months ended December 31, 1996, include the accounts of Loral and
the consolidated results of SS/L from January 1, 1997, Skynet from March 14,
1997 and Orion from April 1, 1998 (see Note 3) and have been prepared in
accordance with U.S. generally accepted accounting principles ("U.S. GAAP"). All
intercompany transactions have been eliminated.
Use of Estimates in Preparation of Financial Statements
The preparation of financial statements in conformity with U.S. GAAP
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the amounts of expenses
reported for the period. Actual results could differ from estimates.
F-7
<PAGE> 54
LORAL SPACE & COMMUNICATIONS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
A significant portion of Loral's satellite manufacturing and technology
revenue is associated with long-term contracts which require significant
estimates. These estimates include forecasts of costs and schedules, estimating
contract revenue related to contract performance (including orbital incentives)
and the potential for component obsolescence in connection with long-term
procurements. Significant estimates for the Company's FSS segment include the
estimated useful lives of the Company's satellites.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash on hand and highly liquid
investments with original maturities of three months or less.
Restricted Cash
In connection with the acquisition of Orion, Loral acquired cash and cash
equivalents which are restricted in use to the payment of interest on Orion's
senior notes and payments for satellite construction. At December 31, 1998,
restricted cash aggregated $72.9 million, of which $50.2 million is current.
Concentration of Credit Risk
Financial instruments which potentially subject Loral to concentrations of
credit risk consist principally of cash and cash equivalents, foreign exchange
contracts and contracts in process and long-term receivables. Loral's cash and
cash equivalents are maintained with high-credit-quality financial institutions.
Historically, Loral's customers have been primarily large multinational
corporations and U.S. and foreign governments for which the creditworthiness was
generally substantial. In recent years, the Company has added commercial
customers which include companies in emerging markets or the development stage,
some of which are highly leveraged or partially funded. Management believes that
its credit evaluation, approval and monitoring processes combined with
negotiated billing arrangements mitigate potential credit risks with regard to
the Company's current customer base.
Accounts Receivable
As of December 31, 1998 and 1997, accounts receivable was reduced by an
allowance for doubtful accounts of $2.5 million and $337,000, respectively.
Inventories
Inventories consist principally of common subassemblies not specifically
identified to contracts in process, and are valued at the lower of cost or
market. Cost is determined using the first-in-first-out (FIFO) or average cost
method.
Investments in Affiliates
Investments in affiliates are accounted for using the equity method. Income
and losses of the affiliates are recorded based on Loral's beneficial interest.
Intercompany profit arising from transactions between affiliates is eliminated
to the extent of the Company's beneficial interest. Equity in losses of
affiliates is not recognized after the carrying value of the investment has been
reduced to zero, unless guarantees or other obligations exist.
In connection with Loral's investment in Globalstar, a development stage
company, Loral capitalizes interest cost on its investment. For the years ended
December 31, 1998 and 1997 the amount of interest capitalized on the investment
in Globalstar was $25.4 million and $13.2 million, respectively.
F-8
<PAGE> 55
LORAL SPACE & COMMUNICATIONS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Investment in Available-For-Sale Securities and Other Securities
The Company accounts for investments in equity securities in accordance
with Statement of Financial Accounting Standards No. 115 ("SFAS 115"),
Accounting for Certain Investments in Debt and Equity Securities. Accordingly,
the Company's investment in CD Radio, Inc. ("CD Radio") common stock which
shares are classified as available-for-sale, is recorded at fair value, with the
resulting unrealized gain excluded from net income and reported as a component
of other comprehensive income (see Note 11). As of December 31, 1998 and 1997,
the Company owned approximately 1.9 million shares of CD Radio acquired at an
average cost of approximately $13.16 per share. The Company's investment in CD
Radio is included in other long-term assets.
The Company has made certain other investments in non-marketable equity
securities which are included in other long-term assets. In the fourth quarter
of 1998, the Company wrote off certain non-strategic investments totaling $29.5
million, which were determined to have no future value to Loral.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation is provided
primarily on the straight-line method over the estimated useful lives of the
related assets. Leasehold improvements are amortized over the shorter of the
lease term or the estimated useful life of the improvements.
Costs incurred in connection with the construction and successful
deployment of the Company's satellites and related equipment are capitalized.
Such costs include direct contract costs, allocated indirect costs, launch
costs, launch insurance and construction period interest. Capitalized interest
related to the construction of satellites for the years ended December 31, 1998
and 1997 was $34.7 million and $9.4 million, respectively. All capitalized
satellite costs are amortized over the estimated useful life of the related
satellite. The estimated useful life of the satellites, ranging from 12 to 18
years, was determined by engineering analyses performed at the in-service date.
Losses from unsuccessful launches and in-orbit failures of the Company's
satellites, net of insurance proceeds, will be recorded in the period a loss
occurs.
Cost in Excess of Net Assets Acquired
The excess of the cost of purchased businesses over the fair value of net
assets acquired is being amortized over 40 years using the straight-line method.
Accumulated amortization was $32.2 million and $10.8 million as of December 31,
1998 and 1997, respectively.
Valuation of Long-Lived Assets and Cost in Excess of Net Assets Acquired
The carrying value of Loral's long-lived assets and cost in excess of net
assets acquired is reviewed for impairment whenever events or changes in
circumstances indicate that an asset may not be recoverable. The Company looks
to current and future profitability, as well as current and future undiscounted
cash flows, excluding financing costs, as primary indicators of recoverability.
If an impairment is determined to exist, any related impairment loss is
calculated based on fair value.
Revenue Recognition
Revenue from satellite sales under long-term fixed-price contracts is
recognized using the cost-to-cost percentage-of-completion method. Revenue
includes estimated orbital incentives discounted to their present value at
launch date. Costs include the development effort required for the production of
high-technology
F-9
<PAGE> 56
LORAL SPACE & COMMUNICATIONS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
satellites, non-recurring engineering and design efforts in early periods of
contract performance, as well as the cost of qualification testing requirements.
Revenue under cost-reimbursable type contracts is recognized as costs are
incurred; incentive fees are estimated and recognized over the contract term.
Contracts with the U.S. government are subject to termination by the U.S.
government for convenience or for default. Other government contract risks
include dependence on future appropriations and administrative allotment of
funds and changes in government policies. Costs incurred under U.S. government
contracts are subject to audit. Management believes the results of such audits
will not have a material effect on Loral's financial position or its results of
operations.
Losses on contracts are recognized when determined. Revisions in profit
estimates are reflected in the period in which the conditions that require the
revision become known and are estimable.
In accordance with industry practice, contracts-in-process include unbilled
amounts relating to contracts and programs with long production cycles, a
portion of which may not be billable within one year.
Loral Skynet and Loral Orion provide satellite capacity under lease
agreements that generally provide for the use of satellites and, in certain
cases, earth stations for periods generally ranging from one year to the life of
the satellite. Some of these agreements have certain obligations, including
providing spare or substitute capacity, if available, in the event of satellite
failure. If no spare or substitute capacity is available, the agreement may be
terminated. Revenue under transponder lease agreements is recognized as services
are performed.
Research and Development
Independent research and development costs, which are expensed as incurred,
were $68.5 million and $56.8 million, respectively for the years ended December
31, 1998 and 1997 and are included in selling, general and administrative
expenses.
Foreign Exchange Contracts
Loral enters into foreign exchange contracts as hedges against exchange
rate fluctuations of future accounts receivable and accounts payable under
contracts in process which are denominated in foreign currencies. Realized and
unrealized gains and losses on foreign exchange contracts designated as hedges
are deferred and recognized over the lives of the related contracts in process.
Stock-Based Compensation
In accordance with Statement of Financial Accounting Standards No. 123
("SFAS 123"), Accounting for Stock-Based Compensation, Loral accounts for
stock-based awards to employees using the intrinsic value method in accordance
with Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees ("APB 25").
Income Taxes
Commencing with the Distribution, Loral became subject to U.S. federal,
state and local income taxation at regular corporate rates plus an additional
30% "branch profits" tax on any income that is effectively connected with the
conduct of a U.S. trade or business. U.S. subsidiaries are subject to regular
corporate tax on their worldwide income.
F-10
<PAGE> 57
LORAL SPACE & COMMUNICATIONS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Deferred income taxes reflect the tax effect of temporary differences
between the carrying amount of assets and liabilities for financial and income
tax reporting and are measured by applying tax rates in effect at the end of
each year.
Earnings Per Share
The Company follows Financial Accounting Standards Board Statement No. 128,
Earnings per share ("SFAS 128"), in presenting basic and diluted earnings per
share ("EPS"). The calculation of basic and diluted EPS is presented in Note 14.
Comprehensive Income
On January 1, 1998, Loral adopted Statement of Financial Accounting
Standards No. 130 ("SFAS 130"), Reporting Comprehensive Income, which
established rules for the reporting and disclosure of comprehensive income and
its components. SFAS 130 requires unrealized gains or losses on the Company's
foreign currency translation adjustments and unrealized gains on investments in
securities to be included in other comprehensive income. Prior years amounts
have been restated. The components of accumulated other comprehensive income are
as follows:
<TABLE>
<CAPTION>
ACCUMULATED YEARS ENDED
OTHER DECEMBER 31,
COMPREHENSIVE -----------------
INCOME 1998 1997
------------- ------- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Cumulative translation adjustment.................... $ 616 $ 616
Unrealized gains on available-for-sale securities.... 40,263 32,988 $7,275
------- ------- ------
Accumulated other comprehensive income............... $40,879 $33,604 $7,275
======= ======= ======
</TABLE>
New Accounting Pronouncements
For the year ended 1998, Loral adopted Statement of Financial Accounting
Standards No. 131, Disclosures About Segments of an Enterprise and Related
Information ("SFAS 131") and Statement of Financial Accounting Standards No.
132, Employers' Disclosures About Pensions and Other Postretirement Benefits
("SFAS 132"). See Notes 15 and 10, respectively for the related disclosures for
these standards.
In June 1998, the Financial Accounting Standards Board issued Statement No.
133 Accounting for Derivative Instruments and Hedging Activities ("SFAS 133"),
which requires that all derivative instruments be recorded on the balance sheet
at their fair value. Changes in the fair value of derivatives are recorded each
period in current earnings or other comprehensive income, depending on whether a
derivative is designated as part of a hedge transaction and, if it is, the type
of hedge transaction. The Company has not yet determined the impact that the
adoption of SFAS 133 will have on its earnings or financial position. The
Company is required to adopt SFAS 133 on January 1, 2000.
Reclassifications
Certain reclassifications have been made to conform prior year amounts to
the current year's presentation.
F-11
<PAGE> 58
LORAL SPACE & COMMUNICATIONS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. ACQUISITIONS
SS/L
On April 1, 1996, Loral had an effective 32.7% interest in SS/L. In 1996,
Loral made a strategic decision to increase its ownership in SS/L to 100%. The
first step in implementing this decision was the acquisition by Loral in August
1996 of the 18.3% interest in SS/L owned by certain partnerships affiliated with
Lehman Brothers (the "Lehman Partnerships") in exchange for 7.5 million newly
issued shares of Loral common stock, 1,069,024 shares (as adjusted for the
two-for-one stock splits, see Note 6) of common stock of Globalstar
Telecommunications Limited ("GTL") previously held by the Company and $4 million
in cash. As a result of this transaction, the Company increased its interest in
SS/L from 32.7% to 51%.
In February 1997, Loral agreed to acquire the remaining 49% of the common
stock of SS/L held by four international aerospace and communications companies
(the "Alliance Partners") for $374 million. In March 1997, Loral acquired 24.5%
of SS/L's common stock for $93.5 million in cash and $93.5 million of Loral's
Convertible Preferred Equivalent Obligations ("CPEOs"). In June 1997, the
Company acquired the remaining 24.5% of SS/L's common stock for $187 million in
the form of 8,042,922 shares of Loral common stock and 1,063,663 shares of
Series C Convertible Redeemable Preferred Stock ("Series C Preferred Stock").
The aggregate purchase price of the 67.3% interest in SS/L acquired by Loral was
$493.2 million. The purchase price represented $174.4 million in excess of
SS/L's proportionate net book value which was allocated primarily to the
incremental value of SS/L's investment in Globalstar of $62.2 million and cost
in excess of net assets acquired of $105.9 million. The consolidated financial
statements include the results of operations of SS/L since January 1, 1997, with
a reduction for the earnings attributed to the minority shareholders. Prior to
this date, the Company accounted for its investment in SS/L using the equity
method.
The three former Alliance Partners who accepted Loral securities in
exchange for their SS/L shares continue to have certain rights as strategic
partners of SS/L for as long as they continue to hold at least 81.6% of their
Loral securities; in return, the parties have agreed generally to operate as a
team on satellite programs worldwide. Each strategic partner is permitted one
representative on SS/L's seven member Board of Directors; certain corporate
actions require the vote of at least five members of the Board. In 1998, two of
the strategic partners merged to form one company; the resulting entity,
however, continued to have the right to designate two representatives to SS/L's
Board of Directors. In the event certain actions are approved by the Board over
the objection of one of the strategic partners, the strategic partner can elect
to sell its Loral securities in the open market within 30 days and be reimbursed
for the amount, if any, such proceeds are less than the original value of the
securities received. In addition, the strategic partners have a right of first
offer at fair market value on SS/L shares in the event of a change of control
(as defined) of either Loral or SS/L, including the right to use their Loral
holdings as part of the SS/L purchase price.
Loral Skynet
On March 14, 1997, Loral acquired Skynet from AT&T for $462.1 million in
cash. The fair value of assets and liabilities recorded in connection with the
purchase price allocation were $569.8 million and $107.7 million, respectively,
including cost in excess of net assets acquired of $39 million. Loral's
consolidated financial statements include the results of operations of Skynet
from the date of acquisition.
Loral Orion
On March 20, 1998, Loral acquired all of the outstanding stock, of Orion
Network Systems, Inc. ("Orion") in exchange for Loral common stock. Loral issued
18 million shares of its common stock and assumed existing Orion vested options
and warrants to purchase 1.4 million shares of Loral common stock representing
an aggregate purchase price of $472.5 million. The purchase price represented
$447.7 million in excess of Orion's net book value, which was primarily
allocated to costs in excess of net assets acquired of $619.7 million, and a
fair value adjustment of $153.4 million to increase the carrying value of
Orion's senior
F-12
<PAGE> 59
LORAL SPACE & COMMUNICATIONS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. ACQUISITIONS -- (CONTINUED)
notes and senior discount notes. In addition, Loral agreed to assume Orion's
unvested employee stock options, which resulted in a new measurement date and an
unearned compensation charge of $4.5 million, to be amortized over the vesting
periods of the options. Loral's consolidated financial statements include
Orion's results of operations from April 1, 1998.
The above acquisitions were accounted for using the purchase method. Had
the acquisitions of SS/L, Loral Skynet and Loral Orion and the investment in
SatMex (see Note 6) occurred on January 1, 1997 the unaudited pro forma revenue,
net loss applicable to common stockholders and related basic and diluted loss
per share for the years ended December 31, 1998 and 1997 would have been: $1.3
billion and $1.4 billion; $205 million and $101 million, and, $0.74 and $0.38,
respectively. These results, which are based on various assumptions, are not
necessarily indicative of what would have occurred had the acquisitions been
consummated on January 1, 1997.
4. CONTRACTS-IN-PROCESS AND LONG-TERM RECEIVABLES
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1998 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
U.S. government contracts:
Amounts billed....................................... $ 9,099 $ 5,243
Unbilled contract receivables........................ 11,543 10,274
-------- --------
20,642 15,517
-------- --------
Commercial contracts:
Amounts billed....................................... 216,775 189,646
Unbilled contract receivables........................ 141,268 167,620
-------- --------
358,043 357,266
-------- --------
Contracts-in-Process $378,685 $372,783
======== ========
</TABLE>
Unbilled amounts include recoverable costs and accrued profit on progress
completed which has not been billed. Such amounts are billed upon shipment of
the product, achievement of contractual milestones, or completion of the
contract and are reclassified to billed receivables.
Billed receivables relating to long-term contracts are expected to be
collected within one year. Loral classifies billings deferred (see Note 6) and
the orbital component of unbilled receivables expected to be collected beyond
one year as long-term. Receivable balances related to satellite orbital
incentive payments and billings deferred as of December 31, 1998 are scheduled
to be received as follows (in thousands):
<TABLE>
<S> <C>
1999.............................................. $133,567
2000.............................................. 64,479
2001.............................................. 47,660
2002.............................................. 73,532
2003.............................................. 54,172
Thereafter........................................ 61,831
--------
435,241
Less current portion.............................. (133,567)
--------
Long-term receivables $301,674
========
</TABLE>
F-13
<PAGE> 60
LORAL SPACE & COMMUNICATIONS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1998 1997
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Land and land improvements.......................... $ 25,073 $ 24,999
Buildings........................................... 61,539 58,443
Leasehold improvements.............................. 16,906 10,234
Satellites.......................................... 745,649 486,919
Satellites under construction....................... 690,661 218,933
Earth stations...................................... 52,914 34,204
Equipment, furniture and fixtures................... 216,294 154,684
Other construction in progress...................... 50,430 29,823
---------- ----------
1,859,466 1,018,239
Accumulated depreciation............................ (191,958) (91,560)
---------- ----------
$1,667,508 $ 926,679
========== ==========
</TABLE>
Depreciation expense was $106.2 million, $52.0 million and $1.1 million for
the years ended December 31, 1998 and 1997 and the nine months ended December
31, 1996, respectively.
6. INVESTMENTS IN AFFILIATES
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1998 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Globalstar............................................. $555,906 $383,714
SatMex................................................. 74,159 88,925
Europe*Star............................................ 45,413
SkyBridge.............................................. 14,053 15,504
Other affiliates....................................... 18,386 9,328
-------- --------
$707,917 $497,471
======== ========
</TABLE>
Equity in net income (loss) of affiliates consists of (in thousands):
<TABLE>
<CAPTION>
NINE MONTHS
YEARS ENDED DECEMBER 31, ENDED
------------------------- DECEMBER 31,
1998 1997 1996
----------- ---------- ------------
<S> <C> <C> <C>
Globalstar, net of tax benefit.......... $ (67,016) $(40,877) $(18,105)
SatMex.................................. (16,317) (6,396)
SS/L.................................... 13,396
Europe*Star............................. (3,624)
SkyBridge, net of tax benefit........... (25,465) (1,764)
Other affiliates........................ (7,995)
--------- -------- --------
$(120,417) $(49,037) $ (4,709)
========= ======== ========
</TABLE>
Globalstar
Loral is the managing general partner of Globalstar. Globalstar is
preparing to operate a worldwide, LEO satellite-based digital telecommunications
system (the "Globalstar(TM) System"), that is designed to enable
F-14
<PAGE> 61
LORAL SPACE & COMMUNICATIONS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. INVESTMENTS IN AFFILIATES -- (CONTINUED)
local service providers to offer low-cost, high quality wireless voice telephony
and data services in virtually every populated area of the world. As of March
15, 1999, Globalstar has launched 16 of the 52 satellites that will complete its
full constellation, and is scheduled to commence service in September 1999 with
at least 32 satellites (unaudited). Globalstar expects to complete its full
constellation by December 1999.
In May 1997 and in June 1998, Globalstar Telecommunications Limited
("GTL"), a general partner of Globalstar, issued two-for-one stock splits in the
form of 100% stock dividends. Accordingly, all GTL share and per share amounts
have been restated to reflect the two-for-one stock splits. Prior to the stock
splits, GTL's equity securities and convertible securities were represented by
equivalent Globalstar partnership interests on an approximate one-for-one basis.
Globalstar's partnership interests were not affected by the GTL stock splits
and, accordingly, GTL's equity securities are now represented by equivalent
Globalstar partnership interests on an approximate four-for-one basis.
As of December 31, 1998, Loral owned directly and indirectly approximately
24.8 million Globalstar ordinary partnership interests (corresponding to
approximately 99.2 million equivalent shares of GTL common stock), or
approximately 43% of the total 58.2 million Globalstar ordinary partnership
interests (corresponding to approximately 232.8 million equivalent shares of GTL
common stock) outstanding. As of December 31, 1998, the market value of the 8.3
million shares of GTL stock owned by Loral, based on the last reported sale, was
$166.5 million.
On September 14, 1995, Old Loral in its capacity as managing general
partner of Globalstar, granted certain officers of Old Loral, who were also
officers of GTL and Globalstar, options to purchase 560,000 shares of the GTL
common stock owned by Loral at an exercise price of $5.00 per share. On December
12, 1995, Loral granted non-employee directors of Loral options to purchase
800,000 shares of the GTL common stock owned by Loral at an exercise price of
$8.35 per share. These options were immediately exercisable and expire 12 years
from date of grant. On October 9, 1996 and in January 1998, Loral, in its
capacity as managing general partner, granted certain officers of Loral, who
were also officers of GTL and Globalstar, options to purchase 608,000 and 20,000
shares of the GTL common stock owned by Loral at exercise prices of $6.25 and
$12.88 per share, respectively. Such options vest over a three-year period and
expire 10 years from date of grant. During 1998, options were exercised to
purchase 240,000 shares at $5.00 per share and 80,000 shares at $8.35 per share.
On December 15, 1995, Globalstar entered into a $250 million credit
agreement (the "Globalstar Credit Agreement") with a group of banks. Lockheed
Martin, SS/L and certain other Globalstar partners have guaranteed $206.3
million, $11.7 million and $32.0 million of the Globalstar Credit Agreement,
respectively. In addition, Loral agreed to indemnify Lockheed Martin for any
liability in excess of $150 million. In exchange for the guarantee and
indemnity, GTL issued warrants to purchase 16,741,272 shares of GTL common stock
at $6.63 per share as follows: Loral and SS/L 4,550,088 warrants, Lockheed
Martin 10,044,760 warrants and certain other Globalstar partners 2,146,424
warrants. In February 1997, GTL accelerated the vesting and exercisability of
these warrants and the holders exercised such warrants. In addition, GTL
distributed to the holders of its common stock rights to subscribe for and
purchase 4,524,672 GTL shares for a price of $6.63 per share of which Loral
received rights to purchase 636,688 shares and agreed to purchase all shares not
purchased upon exercise of the rights. In March 1997, Loral exercised warrants
to purchase 4,550,088 shares of common stock of GTL for $30.1 million and, in
April 1997, Loral exercised its right to purchase an additional 700,696 shares
of GTL common stock for $6.63 per share. GTL used the proceeds from the exercise
of the warrants and the rights, to purchase additional Globalstar ordinary
partnership interests.
In March 1996, Loral purchased $100 million principal amount of GTL 6 1/2%
Convertible Preferred Equivalent Obligations, due 2006 par value $50 per share,
("GTL CPEOs") for $97 million. In April 1996,
F-15
<PAGE> 62
LORAL SPACE & COMMUNICATIONS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. INVESTMENTS IN AFFILIATES -- (CONTINUED)
Loral purchased an additional $2.5 million principal amount of the GTL CPEOs for
$2.4 million. Such amounts are included in the investment in Globalstar. On
April 30, 1998, Loral's holdings of GTL CPEOs were converted into 13,664,060
shares of GTL common stock, including additional shares issued in satisfaction
of a required interest make-whole payment. Loral's interest and investment
income includes $7.2 million, for the years ended December 31, 1998 and 1997 and
$5.5 million for the nine months ended December 31, 1996, related to its
investment in GTL CPEOs.
During 1997, Loral acquired 2,208,372 Globalstar ordinary partnership
interests (corresponding to approximately 8.8 million equivalent shares of GTL
common stock) from other Globalstar partners for $97.5 million in cash and
1,255,684 shares of Loral common stock. In addition, on October 21, 1997, Loral
acquired 540,000 ordinary partnership interests of Globalstar (corresponding to
approximately 2.2 million equivalent shares of GTL common stock) from another
Globalstar partner, for $24.8 million. The purchase price was payable in
installments during 1998 and accrued interest at 6%. The unpaid balance of $26
million at December 31, 1998 was paid in January 1999.
In July 1998, Loral purchased 4.2 million Globalstar ordinary partnership
interests (corresponding to approximately 16.8 million equivalent shares of GTL
common stock) from certain founding service provider partners of Globalstar for
$420 million in cash (the "Globalstar Purchase"). The founding service provider
partners participating in the transaction deposited one half of their proceeds
($210 million) into escrow accounts to be used for the purchase of Globalstar
gateways and user terminals. Loral used $175 million of the proceeds from its
1998 equity offering, (see Note 9), to finance the Globalstar Purchase and the
remaining balance was provided through the concurrent sale by Loral of 8.4
million shares of GTL common stock owned by Loral to persons or entities advised
by or associated with Soros Fund Management LLC ("Soros") for $245 million in
cash. The shares of GTL common stock acquired by Soros are restricted for U.S.
securities law purposes. With respect to such shares, GTL has agreed to file a
shelf registration statement and have such registration statement declared
effective within one year from the closing date. As a result of the sale to
Soros, Loral recognized a gain of approximately $35 million, which is included
in gain on investments in Loral's consolidated statement of operations.
On November 5, 1998, Loral acquired 276,000 additional Globalstar
partnership interests (corresponding to approximately 1.1 million equivalent
shares of GTL common stock) from other Globalstar partners in exchange for
717,600 shares of GTL common stock owned by Loral.
Pursuant to the Globalstar partnership agreement, Loral is responsible for
managing the operations of Globalstar and is entitled to receive a Managing
Partner's Allocation on commencement of commercial operations.
SS/L is the prime contractor for the construction and launch of
Globalstar's satellites under contracts aggregating approximately $2.1 billion.
SS/L has awarded subcontracts to third parties, including other investors in
Globalstar, for substantial portions of its obligations under the contracts.
Revenue recorded under the Globalstar contract for the years ended December 31,
1998 and 1997 was $598.7 million and $408.1 million, respectively. Billed and
unbilled receivables from Globalstar as of December 31, 1998 and 1997, were
$187.8 million and $84.2 million, respectively.
Through December 31, 1998, Globalstar incurred costs of approximately $2.7
billion for the design and construction of the space and ground segments. Costs
incurred during 1998 were approximately $871 million. Qualcomm is in the process
of completing its revision to cost estimates for its portion of the ground
segment. Due to additional scope and cost growth and based on preliminary
information, Globalstar expects the increase from Qualcomm to be less than 3% of
the total project cost. The Qualcomm estimate is still subject to further review
by Globalstar. As of December 31, 1998, and including the effect of the
preliminary Qualcomm estimate, Globalstar's budgeted expenditures were $3.17
billion for the design, construction and deployment of
F-16
<PAGE> 63
LORAL SPACE & COMMUNICATIONS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. INVESTMENTS IN AFFILIATES -- (CONTINUED)
the Globalstar System to commence commercial service and $340 million for
budgeted financing costs. In addition to expenditures for operating costs and
debt service, Globalstar anticipates additional expenditures on system software
for the improvement of system functionality and the addition of new features
beyond those planned for the commencement of commercial service. Substantial
additional financing will be required if there are delays in the commencement of
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 these additional funds, there can be no assurance that
such funds will be available on favorable terms or on a timely basis, if at all.
Globalstar has agreed, subject to its partners' approval, to purchase from
SS/L 12 additional spare satellites for which the cost and payment terms have
not as yet been negotiated. It is anticipated that approximately $100 million
will be expended for these spare satellites by commencement of commercial
service. In addition, in order to accelerate the deployment of gateways around
the world, Globalstar has agreed to help finance approximately $80 million of
the cost of up to 32 of the initial 38 gateways. The contracts for the 38
gateways aggregate approximately $345 million. Ericsson, Qualcomm and Telital
are in the process of manufacturing approximately 300,000 handheld and fixed
user terminals under contracts totaling $353 million from Globalstar and its
service providers. Globalstar has agreed to finance approximately $151 million
of the cost of handheld and fixed user terminals. Globalstar expects to recoup
such costs upon acceptance by the service providers of the gateways and user
terminals.
On March 4, 1998, Qualcomm entered into a deferred payment agreement with
Globalstar providing $100 million of vendor financing. The deferred payments
will accrue interest at a rate of 5.75% per annum, and will be added to the
outstanding principal balance. Beginning January 1, 2000, Globalstar will make
eight equal quarterly principal payments. The final payment including all unpaid
interest is due October 1, 2001.
In January 1999, GTL, completed a private offering of $350 million of
convertible preferred stock (of which Loral purchased approximately $150 million
face amount, to maintain its ownership percentage). GTL in turn used the net
proceeds from its offering to purchase convertible redeemable preferred
partnership interests of Globalstar.
As of January 31, 1999, Globalstar has raised or received commitments for
approximately $3.3 billion. Globalstar intends to raise the remaining funds
required, of approximately $600 million, prior to the initiation of commercial
service from a combination of sources including: high yield debt issuance (which
may include an equity component), bank financing, equity issuance, financial
support from the Globalstar partners, projected service provider payments and
anticipated payments from the sale of gateways and Globalstar subscriber
terminals.
SS/L provides Globalstar with approximately $330 million of billings
deferred as follows - $224 million of vendor financing (of which $163 million
was provided at December 31, 1998) and $106 million of orbital incentives.
SS/L's subcontractors have assumed a portion of the vendor financing commitments
totaling approximately $116 million (of which $96 million was provided as of
December 31, 1998), which will be paid on similar terms. The $224 million of
vendor financing consists of three tranches -- $110 million, $90 million and $24
million. Only the $90 million tranche is interest bearing and bears interest at
the 30-day LIBOR rate plus 3% per annum. Globalstar will repay the $110 million
and $24 million tranches as follows: 50% will be paid over five years in equal
monthly installments following the launch and acceptance of 24 or more
satellites (the "Preliminary Constellation") and the remaining 50% will be paid
over five years in equal monthly installments following the launch and
acceptance of 48 or more satellites (the "Full Constellation"). Payment of the
$90 million interest bearing vendor financing will be due beginning March 31,
1999. Interest and principal will be repaid in 20 equal quarterly installments
during the next five years. Approximately
F-17
<PAGE> 64
LORAL SPACE & COMMUNICATIONS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. INVESTMENTS IN AFFILIATES -- (CONTINUED)
$47 million of orbital incentives will be paid at both the Preliminary
Constellation Date and Full Constellation Date with the remainder being paid
with the delivery of the remaining satellites.
The following table presents summary financial data for Globalstar as of
December 31, 1998 and 1997 and for each of the three years in the period ended
December 31, 1998 and cumulative (in thousands):
<TABLE>
<CAPTION>
CUMULATIVE
MARCH 23, 1994
(COMMENCEMENT
OF OPERATIONS) YEARS ENDED DECEMBER 31,
TO DECEMBER 31, ----------------------------
1998 1998 1997 1996
-------------------- -------- ------- -------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues............................... $ -- $ -- $ -- $ --
Operating loss......................... 404,033 146,684 88,071 61,025
Net loss............................... 346,256 129,543 67,586 54,646
Preferred distributions................ 60,722 22,197 21,202 17,323
Net loss applicable to ordinary
partnership interests................ 406,978 151,740 88,788 71,969
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1998 1997
---------- ------------
<S> <C> <C>
BALANCE SHEET DATA:
Current assets............................................. $ 236,288 $ 493,780
Total assets............................................... 2,670,025 2,149,053
Current liabilities........................................ 401,190 143,810
Long-term debt............................................. 1,396,175 1,099,531
Long-term liabilities...................................... 270,259 221,795
Redeemable preferred partnership interests................. 303,089
Ordinary partners' capital................................. 602,401 380,828
</TABLE>
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 $129.9 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. 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% economic interest
in Holdings and a 49% indirect economic interest in SatMex. Loral and Principia
have committed to make an equity investment in SatMex of up to $35 million prior
to March 31, 1999.
F-18
<PAGE> 65
LORAL SPACE & COMMUNICATIONS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. INVESTMENTS IN AFFILIATES -- (CONTINUED)
Loral, together with Principia, are responsible for managing SatMex. They
are entitled to receive an aggregate management fee, based on a sliding scale,
applied to SatMex's quarterly gross revenues up to a maximum of 3.75% of each
year's cumulative gross revenues. Such fees to Loral were $181,000 for the year
ended December 31, 1998. In addition, beginning in 1999, Skynet will license
certain intellectual property to SatMex for a fee of 1.5% of SatMex's gross
revenues.
The following table presents summary financial data for SatMex as of
December 31, 1998 and 1997, and for the year ended December 31, 1998 and the
period November 17, 1997 (date of investment) through December 31, 1997 (in
thousands):
<TABLE>
<CAPTION>
NOVEMBER 17,
YEAR ENDED TO
DECEMBER 31, DECEMBER 31,
1998 1997
------------ ------------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues........................................... $ 104,779 $ 12,893
Operating income................................... 32,841 4,015
Net loss........................................... 23,650 4,440
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1998 1997
------------ ------------
<S> <C> <C>
BALANCE SHEET DATA:
Current assets..................................... $ 55,833 $ 65,484
Total assets....................................... 1,138,618 1,035,095
Current liabilities................................ 91,612 10,952
Long-term liabilities.............................. 85,535 87,735
Long-term debt..................................... 608,000 569,000
Shareholders' equity............................... 353,471 367,408
</TABLE>
SkyBridge
In June 1997, Loral and Alcatel formed a strategic partnership to jointly
develop, deploy and operate high-speed global multimedia satellite networks that
will bring high-bandwidth services to businesses and to consumers. The agreement
includes cross investments in Loral's geostationary (GEO) satellite-based
CyberStar project and Alcatel's low-earth-orbit (LEO) satellite-based SkyBridge
project. Each company will participate in the development of the two projects.
The SkyBridge project is currently in the development stage. As of December 31,
1998, Loral had contributed to SkyBridge and Alcatel had contributed to
CyberStar approximately $45 million and $30 million, respectively. As of
December 31, 1998, Loral owned approximately 16% of the outstanding partnership
interests in SkyBridge.
SS/L is a contractor for the construction of the SkyBridge satellites.
Revenue recorded under the Skybridge contract for the year ended December 31,
1998 was $6.9 million. There were no outstanding receivables related to this
contract as of December 31, 1998.
F-19
<PAGE> 66
LORAL SPACE & COMMUNICATIONS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. INVESTMENTS IN AFFILIATES -- (CONTINUED)
The following table presents summary financial data for SkyBridge as of
December 31, 1998 and 1997 for the year ended December 31, 1998, for the period
from February 26, 1997 to December 31, 1997, and cumulative (in thousands):
<TABLE>
<CAPTION>
CUMULATIVE
FEBRUARY 26, 1997
(INCEPTION) TO YEAR ENDED FEBRUARY 26, 1997
DECEMBER 31, DECEMBER 31, TO DECEMBER 31,
1998 1998 1997
----------------- ------------ -----------------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues............................... $ -- $ -- $ --
Operating loss......................... 191,898 144,624 47,274
Net loss............................... 188,239 141,714 46,525
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1998 1997
------------ ------------
<S> <C> <C>
BALANCE SHEET DATA:
Current assets................................... $74,186 $64,197
Total assets..................................... 74,585 64,197
Current liabilities.............................. 35,132 20,309
Net partners' capital............................ 39,453 43,888
</TABLE>
Europe*Star
In December 1998, Loral finalized its strategic partnership with a
subsidiary of Alcatel to jointly build and operate Europe*Star, a geostationary
satellite system anticipated to provide broadcast and telecommunications
services to Europe, the Middle East, Southeast Asia, India and South Africa.
Alcatel will serve as the primary contractor of the Europe*Star turnkey system.
SS/L will provide the satellite bus and test and integrate the satellites.
During 1998, Loral invested $49 million in Europe*Star. In January 1999, Loral
invested an additional $17 million in Europe*Star. As of December 31, 1998 and
January 31, 1999, Loral owned 47% of Europe*Star.
SS/L is a subcontractor for the construction of Europe*Star's satellites.
Revenue recorded under the Europe*Star contract for the year ended December 31,
1998 was $18.1 million. There were no outstanding receivables related to this
contract at December 31, 1998.
SS/L
In 1997, Loral discontinued the use of the equity method of accounting for
SS/L and consolidated SS/L's financial position and results of operations in its
financial statements (see Note 3).
The SS/L stockholders' agreement provided for management fees to be paid to
Loral, ranging from 0.5% to 1% of sales, as defined, depending upon SS/L's
operating performance. Such management fee was $5.1 million for the nine months
ended December 31, 1996. The stockholders' agreement also required SS/L to pay
Loral an annual fee for overhead reimbursement, not to exceed 1% of SS/L's
adjusted sales, as defined, for each fiscal year. This fee amounted to $2.7
million for the nine months ended December 31, 1996.
F-20
<PAGE> 67
LORAL SPACE & COMMUNICATIONS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. INVESTMENTS IN AFFILIATES -- (CONTINUED)
The following table presents summary financial data for SS/L for the nine
months ended December 31, 1996 (in thousands):
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
DECEMBER 31,
1996
------------
<S> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.................................................... $1,017,653
Operating income............................................ 54,011
Net income.................................................. 31,025
</TABLE>
K&F
Old Loral's 22.5% voting equity interest in K&F Industries, Inc. ("K&F")
was transferred to Loral at the Distribution. Loral used the equity method to
account for its investment in K&F; however, no income or loss was recognized due
to K&F's financial position. In December 1997, Loral sold its 22.5% equity
interest for $80.6 million and recorded a $79.6 million gain on the sale.
7. LONG-TERM DEBT
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1998 1997
---------- --------
(IN THOUSANDS)
<S> <C> <C>
Term loan, 6.7% and 7.2% at December 31, 1998 and
1997, respectively................................. $ 275,000 $275,000
Revolving credit facility, 6.7% and 7.2% at December
31, 1998 and 1997, respectively.................... 205,000 55,000
Note purchase facility............................... 126,657 88,234
Export-Import credit facility........................ 15,018 17,164
Other................................................ 605
Non-recourse debt of Orion:
11.25% Senior notes due 2007 (principal amount $443
million)........................................ 507,573
12.5% Senior discount notes due 2007 (principal
amount $484 million)............................ 408,812
Other.............................................. 17,110
---------- --------
Total debt........................................... 1,555,775 435,398
Less, current maturities............................. 22,736 2,146
---------- --------
$1,533,039 $433,252
========== ========
</TABLE>
Loral SpaceCom Corporation ("Loral SpaceCom"), a wholly owned subsidiary of
Loral, and SS/L entered into an $850 million amended and restated credit and
participation agreement (the "Credit Agreement") with a group of banks on
November 14, 1997. The Credit Agreement provides for a $275 million term loan
facility, a $500 million revolving credit facility, of which up to $175 million
may be used for letters of credit, and a separate $75 million letter of credit
facility. Both the term loan facility and revolving credit facility are for a
period of five years. The separate letter of credit facility runs for a two-year
period. The term loan facility requires repayment in 12 consecutive quarterly
installments beginning December 31, 1999. The
F-21
<PAGE> 68
LORAL SPACE & COMMUNICATIONS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. LONG-TERM DEBT -- (CONTINUED)
first four installments are $18,750,000 each with the final eight installments
being $25,000,000 each. Borrowings under the facilities are secured by the stock
of Loral SpaceCom and SS/L and bear interest, at Loral SpaceCom's option, at
various rates based on margins over the lead bank's base rate or the London
Interbank Offer Rate ("LIBOR") for periods of one to six months. Loral SpaceCom
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.
In 1994, SS/L entered into a $139.3 million note purchase facility with an
Italian bank. Borrowings were determined by formula and were made in accordance
with a specified schedule. The drawdown period has been extended through June
30, 1999. The outstanding principal is to be repaid on the earlier of
twenty-three months from the final acceptance date of certain satellite
deliveries or April 30, 2000. Interest is charged at a weighted average annual
rate of 4.26% and is payable semiannually. Interest, however, on any borrowings
that occur after January 13, 1999 and until delivery of the satellites related
to the specific borrowings that have taken place will be at full market rates
for this period and not at the 4.26% rate. All borrowings under this facility
reduce the amount available under the Credit Agreement.
SS/L borrowed a total of $42.9 million under an export-import credit
facility (the "EX-IM Facility") with a Japanese bank. The EX-IM Facility is
fully secured by a letter of credit arrangement with another bank. As of
December 31, 1998, no amounts remained available for borrowing under this
facility. The outstanding principal is to be repaid in semiannual installments
through November 1, 2005. Interest is charged at LIBOR less 1/4% and is payable
semiannually on May 1 and November 1.
In connection with the Orion acquisition, Loral did not assume Orion's
senior notes, senior discount notes or other debt instruments. Such debt is
non-recourse to Loral and includes certain restrictions on Loral Orion's ability
to pay dividends or make loans to Loral. The carrying value of the Orion senior
notes and senior discount notes was increased to reflect a fair value adjustment
of $153.4 million based on quoted market prices at the date of acquisition. Such
adjustment will result in effective interest rates of 8.69% and 9.69% on the
senior notes and senior discount notes, respectively, through maturity.
The Orion senior notes are due in 2007, bear interest of 11.25% and pay
interest semi-annually on January 15 and July 15 of each year. As of December
31, 1998 Orion had $73 million in restricted cash for future interest payments.
The Orion senior discount notes are due in 2007, bear interest of 12.5% and pay
interest semi-annually on January 15 and July 15 commencing on July 15, 2002.
Along with the issuance of each Orion senior note and Orion senior discount
note, one warrant was issued to purchase shares of common stock. Upon the
acquisition of Orion, each warrant was converted so that it could purchase
shares of Loral common stock. At the time of acquisition, the senior note
warrants could purchase a total of 263,794 shares of Loral common stock at a
conversion rate of 0.6056 shares per warrant and the senior discount note
warrants could purchase a total of 229,265 shares of Loral common stock at a
conversion rate of 0.4743 shares per warrant. As of December 31, 1998,
exercisable warrants for 234,934
F-22
<PAGE> 69
LORAL SPACE & COMMUNICATIONS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. LONG-TERM DEBT -- (CONTINUED)
shares of Loral common stock under the senior notes and 225,867 shares of Loral
common stock under the senior discount notes are yet to be exercised.
The aggregate maturities of total debt for the years 1999 through 2003 are
as follows: $22,736,000, $85,397,000, $104,547,000, $411,715,000 and $3,898,000.
On January 21, 1999, Loral sold $350 million of 9 1/2% senior notes due
2006. Loral used a portion of the proceeds to purchase $150 million face amount
of GTL convertible preferred stock issued, in order to maintain its ownership
interest in Globalstar (see Note 6).
8. INCOME TAXES
The (benefit) provision for income taxes consists of the following (in
thousands):
<TABLE>
<CAPTION>
NINE MONTHS
YEARS ENDED DECEMBER 31, ENDED
------------------------ DECEMBER 31,
1998 1997 1996
--------- --------- ------------
<S> <C> <C> <C>
Current:
U.S. federal........................... $ 2,069 $27,204 $2,913
State and local........................ 7,248 925
------- ------- ------
2,069 34,452 3,838
Deferred:
U.S. federal........................... (9,219) 1,762 (759)
State and local........................ 3,279 (1,343) (167)
------- ------- ------
(5,940) 419 (926)
------- ------- ------
Total (benefit) provision for income
taxes.................................. $(3,871) $34,871 $2,912
======= ======= ======
</TABLE>
The (benefit) provision for income taxes excludes: current tax benefits
related to the exercise of stock options, credited directly to Shareholders'
Equity, of $0.4 million and $0.5 million for the years ended December 31, 1998
and 1997, respectively; a current tax benefit of $0.3 million and $4.3 million,
and a deferred tax benefit of $2.1 million and a liability of $2.7 million for
the years ended December 31, 1998 and 1997, respectively, related to the
Globalstar partnership loss, and a deferred tax benefit of $3.9 million for the
year ended December 31, 1998, related to the SkyBridge partnership loss, which
are included in equity in net loss of affiliates; and a deferred tax liability
of $0.6 million for the year ended December 31, 1998, related to the minority
interest for Cyberstar.
The effective income tax rate differs from the statutory U.S. Federal
income tax rate for the following reasons:
<TABLE>
<CAPTION>
NINE MONTHS
YEARS ENDED DECEMBER 31, ENDED
---------------------------- DECEMBER 31,
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Statutory U.S. federal income tax
rate................................ 35.0% 35.0% 35.0%
State and local income taxes, net of
federal income tax.................. (8.3) 3.0 3.0
Non-U.S. income and losses taxed at
lower rates......................... 20.3 (15.0) (22.5)
Non-deductible amortization of cost in
excess of net assets acquired....... (28.8) 2.6
Other, net............................ (3.1) 1.9 2.2
------- ------- -------
Effective income tax rate... 15.1% 27.5% 17.7%
======= ======= =======
</TABLE>
F-23
<PAGE> 70
LORAL SPACE & COMMUNICATIONS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. INCOME TAXES -- (CONTINUED)
As of December 31, 1998, the Company had net operating loss carryforwards
of approximately $323.1 million, which includes $153.1 million related to Loral
Orion for its pre-acquisition tax years, the future use of which is limited due
to the ownership changes experienced by Orion, and tax credit carryforwards of
approximately $1.7 million. The separate company loss carryforwards for Loral
Orion expire at varying dates from 2003 through 2017. The balance generally
expires from 2011 through 2018. Due to uncertainty regarding its ability to
realize the benefits of the net operating loss carryforwards and certain other
net deferred tax assets related to Loral Orion for the years preceding the
acquisition date, the Company has established a valuation allowance of $70.9
million against these net deferred tax assets. For the years ended December 31,
1998 and 1997 and the nine months ended December 31, 1996, income before income
taxes includes approximately $15 million, $72 million and $10 million,
respectively, of non-U.S. source income.
The significant components of the net deferred income tax liability are (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1998 1997
--------- --------
<S> <C> <C>
Postretirement benefits other than pensions........... $ (15,547) $(14,927)
Inventoried costs..................................... (44,288) (37,457)
Net operating loss and tax credit carryovers.......... (124,270) (13,562)
Compensation and benefits............................. (11,655) (11,129)
Premium on senior notes............................... (69,203)
Other, net............................................ 5,780 (74)
Pension costs......................................... 4,335 5,957
Property, plant and equipment......................... 92,875 54,838
Income recognition on long-term contracts............. 125,967 120,237
--------- --------
subtotal............................................ (36,006) 103,883
Less valuation allowance.............................. 70,894
--------- --------
Net deferred income tax liability................... $ 34,888 $103,883
========= ========
</TABLE>
The net deferred income tax liability is classified as follows (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1998 1997
------- -------
<S> <C> <C>
Other current assets..................................... $(3,482)
=======
Income taxes payable..................................... $ 4,187
=======
Long-term deferred income tax liability.................. $38,370 $99,696
======= =======
</TABLE>
9. SHAREHOLDERS' EQUITY
Common Stock
On June 29, 1998, Loral sold 23 million shares of its common stock for $27
per share. The net proceeds were $602 million, of which Loral used $175 million,
net, to fund the Globalstar Purchase (see Note 6).
Series A Preferred Stock
Significant terms of the Company's Series A Preferred Stock include a
liquidation preference of $.01 per share prior to pro rata participation with
the common stock and the ability to convert to common stock upon the receipt of
certain antitrust clearance or sales to an unaffiliated third party. The Series
A Preferred Stock has the same voting rights as the Company's common stock
except, it has no right to vote for the election of directors.
F-24
<PAGE> 71
LORAL SPACE & COMMUNICATIONS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. SHAREHOLDERS' EQUITY -- (CONTINUED)
Series B Preferred Stock
The Series B Preferred Stock will, if issued, be junior to any other series
of preferred stock which may be authorized and issued.
6% Series C Preferred Stock
On November 1, 1996, the Company sold $600 million of 6% Convertible
Preferred Equivalent Obligations which, were mandatorily exchanged on June 5,
1997 into shares of the Company's Series C Preferred Stock resulting in a
reclassification of these amounts into shareholders' equity. In addition, the
Company issued additional CPEOs and shares of Series C Preferred Stock in
connection with the acquisition of interests in SS/L and Globalstar (see Notes 3
and 6). The Series C Preferred Stock has an aggregate liquidation preference
equal to its $745 million aggregate redemption value and a mandatory redemption
date of November 1, 2006. The Series C Preferred Stock is convertible into
shares of common stock of the Company at a conversion price of $20 per share. As
of December 31, 1998, the outstanding Series C Preferred Stock was convertible
into 37,273,593 shares of Loral common stock.
The Series C Preferred Stock, with respect to dividend rights and rights
upon liquidation, winding up and dissolution, ranks pari passu with Loral's
Series A Preferred Stock and senior to or pari passu with all other existing and
future series of preferred stock of Loral and senior to Loral common stock. The
Series C Preferred Stock is redeemable in cash or Loral common stock at any
time, in whole or in part, at the option of the Company (at a premium which
declines over time) commencing November 5, 1999.
Stock Plans
In April 1996, Loral established the 1996 Stock Option Plan. An aggregate
of 18 million shares of common stock have been reserved for issuance. Under this
plan, options are granted at the discretion of the Company's Board of Directors
to employees of the Company and its affiliates. Such options become exercisable
as determined by the Board, generally over five years, and generally expire no
more than 10 years from the date of the grant.
As discussed in Note 2, the Company continues to account for its
stock-based awards using the intrinsic value method in accordance with APB 25,
and its related interpretations. Accordingly, no compensation expense based on
the fair value method has been recognized in the financial statements for
employee stock arrangements.
SFAS 123 requires the disclosure of pro forma net income and earnings per
share as though the Company had adopted the fair value method. Under SFAS 123,
the fair value of stock-based awards to employees is calculated through the use
of option pricing models, even though such models were developed to estimate the
fair value of freely tradable, fully transferable options without vesting
restrictions, which significantly differ from the Company's stock option awards.
These models also require subjective assumptions, including future stock price
volatility and expected time to exercise, which greatly affect the calculated
values. The Company's calculations were made using the Black-Scholes option
pricing model with the following weighted average assumptions for 1998, 1997 and
1996: expected life, six months following vesting; stock volatility, 25%; risk
free interest rate, 4.44% to 6.55% based on date of grant; and no dividends
during the expected term. The Company's calculations are based on a multiple
option valuation approach and forfeitures are recognized as they occur. If the
computed fair values of the 1998, 1997 and 1996 awards, including stock-based
compensation awards to employees of the Company's affiliates, had been amortized
to expense over the vesting period of the awards, pro forma net (loss) income
applicable to common stockholders would have (increased) decreased by $(7.5)
million ($(.02) per diluted share), $4.4 million ($.02 per diluted share) and
$4.1 million ($.02 per diluted share) to $(192.7) million ($(.70) per diluted
share), $9.3 million ($.04 per
F-25
<PAGE> 72
LORAL SPACE & COMMUNICATIONS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. SHAREHOLDERS' EQUITY -- (CONTINUED)
diluted share) and $4.8 million ($.02 per diluted share) for the years December
31, 1998 and 1997 and the nine months ended December 31, 1996, respectively.
A summary of the status of the Company's stock option plans as of December
31, 1998, 1997 and 1996 and changes during the periods then ended is presented
below:
<TABLE>
<CAPTION>
WEIGHTED-
AVERAGE
EXERCISE
SHARES PRICE
---------- ---------
<S> <C> <C>
Outstanding at April 1, 1996................................ -- $ --
Granted at fair market value (weighted average fair value
$2.93 per share).......................................... 6,412,000 10.60
Forfeited................................................... (500) 10.50
---------- ------
Outstanding at December 31, 1996............................ 6,411,500 10.60
Granted at fair market value (weighted average fair value
$3.98 per share).......................................... 642,500 14.41
Granted below fair market value (weighted average fair value
$3.85 per share).......................................... 90,000 10.50
Exercised................................................... (207,750) 10.50
Forfeited................................................... (175,800) 12.98
---------- ------
Outstanding at December 31, 1997............................ 6,760,450 10.90
Granted at fair market value (weighted average fair value
$5.63 per share).......................................... 3,737,400 21.73
Granted below fair market value (weighted average fair value
$5.71 per share).......................................... 600,000 11.72
Orion stock options converted to Loral stock options
(weighted average fair value $5.22 per share)............. 1,443,240 14.78
Exercised................................................... (806,781) 12.15
Forfeited................................................... (857,477) 13.34
---------- ------
Outstanding at December 31, 1998............................ 10,876,832 $14.90
========== ======
Options exercisable at December 31, 1998.................... 3,638,305 $12.44
========== ======
Options exercisable at December 31, 1997.................... 2,014,250 $10.53
========== ======
Options exercisable at December 31, 1996.................... 1,200,000 $10.50
========== ======
</TABLE>
The following table summarizes information about Loral's outstanding stock
options at December 31, 1998:
<TABLE>
<CAPTION>
DECEMBER 31, 1998
----------------------------------------------------------
OUTSTANDING
----------------------------------- EXERCISABLE
WEIGHTED --------------------
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
CONTRACTUAL EXERCISE EXERCISE
EXERCISE PRICE RANGE NUMBER LIFE-YEARS PRICE NUMBER PRICE
- -------------------- ---------- ----------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
$10.50 - $16.00................... 7,835,409 7.56 $11.48 3,379,805 $11.53
$16.00 - $24.00................... 498,803 4.72 17.49 8,500 17.18
$24.00 - $27.28................... 2,542,620 9.16 24.92 250,000 24.44
---------- ---- ------ --------- ------
10,876,832 7.81 $14.90 3,638,305 $12.44
========== ==== ====== ========= ======
</TABLE>
F-26
<PAGE> 73
LORAL SPACE & COMMUNICATIONS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. SHAREHOLDERS' EQUITY -- (CONTINUED)
All options granted during the year were non-qualified stock options,
except for Incentive Stock Options ("ISOs") of Orion Network Systems, Inc. which
were converted into 461,241 of Loral ISOs. As of December 31, 1998, 7,524,280
shares of common stock were available for future grant under the Plan.
10. PENSIONS AND OTHER EMPLOYEE BENEFITS
Pensions
The Company maintains a pension plan and a supplemental retirement plan.
These plans are defined benefit pension plans and members in certain locations
may contribute to the pension plan in order to receive enhanced benefits.
Eligibility for participation in these plans vary and benefits are based on
members' compensation and/or years of service. In connection with the
Distribution, Loral assumed the obligations of such members previously employed
by Old Loral, in exchange for plan assets as defined. None of the employees
associated with the acquisition of Orion were transferred into these plans. The
Company's funding policy is to fund the pension plan in accordance with the
Internal Revenue Code and regulations thereon and to fund the supplemental
retirement plan on an actuarial basis, including service cost and amortization
amounts. Contributions of $1.9 million were made in 1998 and 1997. No
contributions were made for the nine months ended December 31, 1996. Plan assets
are generally invested in U.S. government and agency obligations and listed
stocks and bonds.
Other Benefits
In addition to providing pension benefits, the Company provides certain
health care and life insurance benefits for retired employees and dependents.
Participants are eligible for these benefits when they retire from active
service and meet the eligibility requirements for the Company's pension plan.
These benefits are funded primarily on a pay-as-you-go basis with the retiree
generally paying a portion of the cost through contributions, deductibles and
coinsurance provisions.
Effective December 31, 1998 the Company adopted SFAS 132. Prior years'
disclosures have been restated. The following tables provide a reconciliation of
the changes in the plans' benefit obligations and fair value of assets for the
years ended December 31, 1998 and 1997, and a statement of the funded status as
of December 31, 1998 and 1997, respectively.
<TABLE>
<CAPTION>
PENSION BENEFITS OTHER BENEFITS
-------------------- --------------------
1998 1997 1998 1997
-------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Reconciliation of benefit obligation
Obligation at January 1................. $204,166 $ 28,539 $ 36,010 $ 178
Acquisition of SS/L..................... 151,488 29,318
Service cost............................ 8,340 6,539 1,460 915
Interest cost........................... 15,358 14,278 2,553 2,315
Participant contributions............... 1,228 1,161 593
Plan amendments......................... (422)
Actuarial (gain) loss................... 7,231 11,631 (1,406) 4,431
Benefit payments........................ (9,944) (9,470) (2,023) (1,147)
-------- -------- -------- --------
Obligation at December 31............... $225,957 $204,166 $ 37,187 $ 36,010
-------- -------- -------- --------
</TABLE>
F-27
<PAGE> 74
LORAL SPACE & COMMUNICATIONS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. PENSIONS AND OTHER EMPLOYEE BENEFITS -- (CONTINUED)
<TABLE>
<CAPTION>
PENSION BENEFITS OTHER BENEFITS
-------------------- --------------------
1998 1997 1998 1997
-------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Reconciliation of fair value of plan
assets
Fair value of plan assets at January
1..................................... $198,013 $ 9,450 $ 2,022
Acquisition of SS/L..................... 167,635 $ 2,055
Actual return on plan assets............ 36,040 27,310 124 (33)
Employer contributions.................. 1,898 1,927 1,134 1,147
Participant contributions............... 1,228 1,161 683
Benefit payments........................ (9,944) (9,470) (2,023) (1,147)
-------- -------- -------- --------
Fair value of plan assets at December
31.................................... $227,235 $198,013 $ 1,940 $ 2,022
-------- -------- -------- --------
Funded status
Funded status at December 31............ $ 1,278 $ (6,153) $(35,247) $(33,988)
Unrecognized prior service cost......... (371) 55 (10,198) (11,470)
Unrecognized (gain) loss................ (8,270) 2,028 12,600 14,347
-------- -------- -------- --------
Net amount recognized................... $ (7,363) $ (4,070) $(32,845) $(31,111)
======== ======== ======== ========
</TABLE>
The following table provides the details of the net pension liability
recognized in the balance sheet as of December 31, 1998 and 1997, respectively
(in thousands):
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Prepaid benefit cost........................................ $ 10,262 $ 13,217
Accrued benefit liability................................... (17,625) (17,287)
-------- --------
Net amount recognized....................................... $ (7,363) $ (4,070)
======== ========
</TABLE>
The Company has a supplemental retirement plan, which had an accumulated
benefit obligation in excess of plan assets. The accumulated benefit obligation
and fair value of plan assets for the supplemental retirement plan were $25.1
million and $8.6 million and $24.1 million and $8.3 million, as of December 31,
1998 and 1997, respectively.
The following table provides the components of net periodic benefit cost
for the plans for the years ended December 31, 1998 and 1997 and the nine months
ended December 31, 1996, respectively (in thousands):
<TABLE>
<CAPTION>
PENSION BENEFITS OTHER BENEFITS
---------------------------- -----------------------
1998 1997 1996 1998 1997 1996
-------- -------- ------ ------- ------ ----
<S> <C> <C> <C> <C> <C> <C>
Service cost.................. $ 8,340 $ 6,539 $ 268 $ 1,460 $ 915 $13
Interest cost................. 15,358 14,278 1,410 2,553 2,315 9
Expected return on plan
assets...................... (18,531) (16,433) (576) (192) (196)
Amortization of prior service
cost........................ 4 4 (1,272) (1,272)
Amortization of net (gain)
loss........................ 20 2 319 194
-------- -------- ------ ------- ------ ---
Net periodic benefit cost..... $ 5,191 $ 4,390 $1,102 $ 2,868 $1,956 $22
======== ======== ====== ======= ====== ===
</TABLE>
F-28
<PAGE> 75
LORAL SPACE & COMMUNICATIONS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. PENSIONS AND OTHER EMPLOYEE BENEFITS -- (CONTINUED)
The principal actuarial assumptions were:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Discount rate............................................. 7.00% 7.25% 7.75%
Expected return on plan assets............................ 9.50% 9.50% 9.50%
Rate of compensation increase............................. 4.25% 4.50% 4.50%
</TABLE>
Actuarial assumptions used a health care cost trend rate of 8.75%
decreasing gradually to 5.25% by 2003. Assumed health care cost trend rates have
a significant effect on the amounts reported for the health care plans. A 1%
change in assumed health care cost trend rates for 1998 would have the following
effects:
<TABLE>
<CAPTION>
1% INCREASE 1% DECREASE
----------- -----------
<S> <C> <C>
Effect on total of service and interest cost
components of net periodic postretirement health
care benefit cost................................. $ 664,000 $ (522,000)
Effect on the health care component of the
accumulated postretirement benefit obligation..... 4,436,000 (3,785,000)
</TABLE>
Employee Savings Plan
In April, 1996 the Company adopted the employee savings plan which provides
that the Company match the contributions of participating employees up to a
designated level. Under this plan, the matching contributions in Loral common
stock or cash were $6.1 million and $5.6 million for the years ended December
31, 1998 and 1997, respectively and $0.1 million for the nine months ended
December 31, 1996.
11. FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
fair value:
The carrying amount of cash and cash equivalents and restricted cash
approximates fair value because of the short maturity of those instruments. The
fair value of the investment in available-for-sale securities and Series C
Preferred Stock are based on market quotations. The fair value of the Company's
long-term debt is based on carrying value for those obligations that have
short-term variable interest rates on the outstanding borrowings and based on
quoted market prices for obligations with long-term interest rates.
The estimated fair values of the Company's financial instruments are as
follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------
1998 1997
----------------------- -------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
---------- ---------- -------- --------
<S> <C> <C> <C> <C>
Cash and cash equivalents.......... $ 546,772 $ 546,772 $226,547 $226,547
Restricted cash.................... 72,855 72,855
Investment in available-for-sale
securities....................... 65,273 65,273 32,285 32,285
Long-term debt, including current
maturities....................... 1,555,775 1,382,890 435,398 435,398
Series C Preferred Stock........... 735,437 775,300 733,762 916,930
</TABLE>
F-29
<PAGE> 76
LORAL SPACE & COMMUNICATIONS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. FINANCIAL INSTRUMENTS -- (CONTINUED)
The fair value of investments in available-for-sale securities includes
unrealized gains of $40 million and $7 million as of December 31, 1998 and 1997,
respectively, which is included in accumulated other comprehensive income (see
Note 2).
Foreign Currency Hedges
As of December 31, 1998 and 1997, the Company had foreign currency exchange
contracts (forwards and swaps) with several banks to purchase and sell foreign
currencies, primarily Japanese yen, aggregating $197.5 million and $175.1
million, respectively. Such contracts were designated as hedges of certain
foreign contracts and subcontracts to be performed by SS/L through May 2006. The
fair value of these contracts, based on quoted market prices, was $189.7 million
and $139 million as of December 31, 1998 and 1997, respectively. As of December
31, 1998 and 1997, deferred gains on forward contracts to sell foreign
currencies, primarily yen, were $11.7 million and $26.6 million, respectively,
and deferred losses on forward contracts to purchase foreign currencies,
primarily yen, were $3.9 million and $9.5 million, respectively.
The Company is exposed to credit-related losses in the event of
nonperformance by counter parties to these financial instruments, but does not
expect any counter party to fail to meet its obligation.
The maturity of foreign currency exchange contracts held as of December 31,
1998 is consistent with the contractual or expected timing of the transactions
being hedged, principally receipt of customer payments under long-term contracts
and payments to vendors under subcontracts. As of December 31, 1998 these
foreign exchange contracts mature as follows (in thousands):
<TABLE>
<CAPTION>
TO PURCHASE TO SELL
-------------------- -------------------
AT AT AT AT
CONTRACT MARKET CONTRACT MARKET
YEARS TO MATURITY RATE RATE RATE RATE
- ----------------- -------- -------- -------- -------
<S> <C> <C> <C> <C>
1........................................ $ 97,776 $101,924 $ 56,158 $49,705
2 to 5................................... 11,124 10,913 20,748 17,949
6 to 10.................................. 11,725 9,257
-------- -------- -------- -------
$108,900 $112,837 $ 88,631 $76,911
======== ======== ======== =======
</TABLE>
12. COMMITMENTS AND CONTINGENCIES
In connection with the Merger between Old Loral and Lockheed Martin
Corporation ("Lockheed Martin"), Lockheed Martin assumed approximately $206
million of the guarantee under the Globalstar credit agreement. The balance of
$44 million of the guarantee was assumed by various Globalstar partners,
including $11.7 million by SS/L. In addition, Loral has agreed to indemnify
Lockheed Martin for its liability, if any, in excess of $150 million under its
guarantee of the Globalstar credit agreement. Globalstar is currently financed
without recourse to Loral other than the indemnification described above.
The Company leases certain facilities, equipment and transponder capacity
under agreements expiring at various dates. Certain leases covering facilities
contain renewal and or purchase options which may be exercised by the Company.
Rent expense was $26.4 million and $17.7 million for the year ended December 31,
1998 and 1997, respectively.
F-30
<PAGE> 77
LORAL SPACE & COMMUNICATIONS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. COMMITMENTS AND CONTINGENCIES -- (CONTINUED)
Future minimum payments, by year and in the aggregate, under noncancelable
operating leases with initial or remaining terms of one year or more consisted
of the following as of December 31, 1998 (in thousands):
<TABLE>
<S> <C>
1999.............................................. $ 28,173
2000.............................................. 25,346
2001.............................................. 24,000
2002.............................................. 20,604
2003.............................................. 17,164
Thereafter........................................ 53,414
--------
$168,701
========
</TABLE>
The Company had outstanding letters of credit of approximately $98.7
million and $71.5 million as of December 31, 1998 and 1997, respectively.
Loral has also guaranteed a $115 million term loan as of December 31, 1998.
Due to the long lead times required to produce purchased parts and launch
vehicles, the Company has entered into various purchase commitments with
suppliers. These commitments aggregated approximately $900 million as of
December 31, 1998.
Prior to its acquisition by Loral, Loral Skynet sold several transponders
under which title to specific transponders was transferred to the customer upon
the customer's acceptance. Under the terms of the contracts, Loral Skynet
continues to operate the satellites on which the transponders are located and
provides a warranty for a period of 10 to 14 years, generally the economic life
of the satellite. Depending on the contract, Loral Skynet is required to replace
the transponders failing to meet operating specifications. All customers are
entitled to a refund equal to the reimbursement value, as defined, in the event
there is no repair or replacement. The reimbursement value is determined based
on the original purchase price plus an interest factor from the time the payment
is received to acceptance of the transponder by the customer, reduced on a
straight-line basis over the warranty period. In case of satellite failure, the
reimbursement value may be paid from proceeds received from insurance policies.
In 1997, two satellites built by SS/L experienced solar array circuit
failures. One customer asserted that, in light of the failures and uncertainty
as to future failure, it has not accepted the satellite. Loral believes that
this customer was contractually required to accept the satellite at completion
of in-orbit testing and that risk of loss has passed to the customer. SS/L
settled the other customer's claims in 1997. The statement of operations for
1997 includes the estimated impact of these events. In 1998, another SS/L-built
satellite experienced degradation in the performance of two of its Ku-band
antennae, which SS/L currently estimates could result in the loss of
approximately 25% of the applicable orbital incentives, although further
warranty claims could be made. Loral's 1998 consolidated financial statements
include the effect of this item. Management believes that these matters will not
have a material adverse effect on the financial condition or results of
operations of Loral.
SS/L is a target of a grand jury investigation being conducted by the
office of the U.S. Attorney for the District of Columbia with respect to
possible violations of export control laws that may have occurred in connection
with the participation of SS/L employees on a committee formed in the wake of
the 1996 crash of a Long March rocket in China and whose purpose was to consider
whether studies of the crash made by the Chinese had correctly identified the
cause of the failure. The Company is not in a position to predict the direction
or outcome of the investigation. If SS/L were to be indicted and convicted of a
criminal violation of
F-31
<PAGE> 78
LORAL SPACE & COMMUNICATIONS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. COMMITMENTS AND CONTINGENCIES -- (CONTINUED)
the Arms Export Control Act, it would be subject to a fine of $1 million per
violation and could be debarred from certain export privileges and, possibly,
from participation in government contracts. Since many of SS/L's satellites are
built for foreign customers and/or launched on foreign rockets, such a debarment
would have a material adverse effect on SS/L's business, which is important to
the Company. Indictment for such violations would subject SS/L to discretionary
debarment from further export licenses. Whether or not SS/L is indicted or
convicted, SS/L will remain subject to the State Department's general statutory
authority to prohibit exports of satellites and related services if it finds a
violation of the Arms Export Control Act that puts SS/L's reliability in
question, and it can suspend export privileges whenever it determines that
grounds for debarment exist and that such suspension "is reasonably necessary to
protect world peace or the security or foreign policy of the United States."
As far as SS/L can determine, no sensitive information or technology was
conveyed to the Chinese, and no secret or classified information was discussed
with or reported to them. SS/L believes that its employees acted openly and in
good faith and that none engaged in intentional misconduct. Accordingly, the
Company does not believe that SS/L has committed a criminal violation of the
export control laws. The Company does not expect the grand jury investigation or
its outcome to result in a material adverse effect upon its business. However,
there can be no assurance as to these conclusions.
Several Congressional committees have held hearings on U.S. satellite
export policy toward China, alleged influence of campaign contributions
(including contributions made by Loral's Chairman and Chief Executive Officer)
on the Clinton Administration's export policy toward China and related matters.
One of the House committees investigating these matters, chaired by
Representative Cox, recently issued a classified report that is said to be
critical of past government and industry technology transfer practices and
policies. This report is also said to contain 38 proposals for legislative and
executive action to address perceived concerns. It is possible that adoption of
some or all of such proposals could have an adverse effect upon the ability of
U.S.-based satellite manufacturers such as SS/L, and possibly other U.S.
exporters, to market their products abroad in competition with foreign-based
manufacturers, and might adversely affect their ability to perform existing
contracts. In addition, the portions of the report that have not yet been
declassified could contain negative comments about SS/L's compliance with the
export control laws.
On December 23, 1998, the Office of Defense Trade Controls ("ODTC") of the
U.S. Department of State temporarily suspended the previously approved technical
assistance agreement under which SS/L had been preparing for the launch of the
ChinaSat-8 satellite. According to ODTC, the purpose of the temporary suspension
is to permit that agency to review the agreement for conformity with
newly-enacted legislation (Section 74 of the Arms Export Control Act) with
respect to the export of missile equipment or technology. SS/L has complied with
ODTC's instructions, and believes that a review of the agreement will show that
its terms comply with the new law. The ODTC, however, has not yet completed its
review, and the scheduled launch date for ChinaSat-8 is being delayed. If such a
delay were to continue for an extended period, or if the suspension was not
lifted, SS/L's customer could decide to terminate the contract. If such a
termination were to occur, SS/L would have to refund advances received from
ChinaSat ($124 million as of December 31, 1998) and may incur penalties of up to
$12 million and believes it would incur costs of approximately $38 million to
refurbish and retrofit the satellite so that it could be sold to another
customer. There can be no assurance that SS/L will be able to find such a
replacement customer.
F-32
<PAGE> 79
LORAL SPACE & COMMUNICATIONS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. RELATED PARTY TRANSACTIONS
In connection with contract performance, Loral provided services to and
acquired services from Lockheed Martin for the years ended December 31, 1998 and
1997, respectively. A summary of such transactions and balances is as follows
(in thousands):
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
-------------------
1998 1997
------- --------
<S> <C> <C>
Revenue from services sold.............................. $ 1,301 $ 3,550
Cost of purchased services.............................. 70,569 78,160
Balance at year end:
Receivable............................................ $ 2,159 $ 80
Payable............................................... 4,317 29,589
------- --------
Net payable............................................. $ 2,158 $ 29,509
======= ========
</TABLE>
Loral's sales to, purchase from, and balances with the Alliance Partners
(see Note 3), including the effect of the related party transactions in Note 6,
for the years ended December 31, 1998 and 1997, were as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Revenue from services sold........................... $ 40,791 $ 39,303
Cost of purchased services........................... 190,070 147,777
Balance at year end:
Receivable......................................... $ 6,579 $ 10,492
Payable............................................ 72,807 81,716
-------- --------
Net payable.......................................... $ 66,228 $ 71,224
======== ========
</TABLE>
14. EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share is computed based upon the weighted average
number of shares of common stock and the Series A Preferred Stock outstanding.
Diluted earnings (loss) per share excludes the assumed conversion of the Series
C Preferred Stock as the effect would have been antidilutive for the years ended
December 31, 1998 and 1997, respectively. For the year ended December 31, 1998,
weighted options equating to approximately 1.8 million shares as calculated
using the treasury stock method were excluded from the calculation of diluted
loss per share, as the effect would have been antidilutive.
The following table sets forth the computation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
YEARS ENDED NINE MONTHS
DECEMBER 31, ENDED
--------------------- DECEMBER 31,
1998 1997 1996
--------- -------- ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Numerator:
Net income (loss)............................. $(138,798) $ 40,004 $ 8,877
Preferred dividends and accretion............. (46,425) (26,315)
--------- -------- --------
Numerator for basic and diluted earnings per
share -- net income (loss) applicable to
common stockholders........................ $(185,223) $ 13,689 $ 8,877
========= ======== ========
</TABLE>
F-33
<PAGE> 80
LORAL SPACE & COMMUNICATIONS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
14. EARNINGS (LOSS) PER SHARE -- (CONTINUED)
<TABLE>
<CAPTION>
YEARS ENDED NINE MONTHS
DECEMBER 31, ENDED
--------------------- DECEMBER 31,
1998 1997 1996
--------- -------- ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Denominator:
Weighted average shares:
Common Stock............................... 227,505 196,173 186,799
Series A Preferred Stock................... 45,897 45,897 42,198
--------- -------- --------
Denominator for basic earnings per share...... 273,402 242,070 228,997
Effect of dilutive securities:
Employee stock options..................... 1,521 399
--------- -------- --------
Denominator for diluted earnings per share.... 273,402 243,591 229,396
========= ======== ========
Basic and diluted earnings (loss) per share..... $ (0.68) $ 0.06 $ 0.04
========= ======== ========
</TABLE>
15. SEGMENTS
Loral has four reportable business segments: Satellite Manufacturing and
Technology, Fixed Satellite Services, Data Services and Global Mobile Telephony
(see Note 1).
In evaluating financial performance, management uses revenues and earnings
before interest, taxes and depreciation and amortization ("EBITDA") as the
measure of a segment's profit or loss. Segment results include the results of
its subsidiaries and its affiliates, SatMex, Europe*Star and Globalstar, which
are accounted for using the equity method in these consolidated financial
statements. Intersegment revenues consist of satellites under construction by
SS/L for Loral Skynet, Loral Orion, Globalstar and Europe*Star. The accounting
policies of the reportable segments are the same as those described in Note 2.
F-34
<PAGE> 81
LORAL SPACE & COMMUNICATIONS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
15. SEGMENTS -- (CONTINUED)
Summarized financial information concerning the reportable segments is as
follows (in thousands):
1998 SEGMENT INFORMATION
<TABLE>
<CAPTION>
SATELLITE
MANUFACTURING FIXED GLOBAL
AND SATELLITE DATA MOBILE
TECHNOLOGY(1) SERVICES(2) SERVICES(3) TELEPHONY(4) CORPORATE(5) TOTAL
------------- ----------- ----------- ------------ ------------ -----
<S> <C> <C> <C> <C> <C> <C>
REVENUE AND EBITDA:
Revenue from external customers............ $ 500,918 $ 248,904 $ 39,856 $ 789,678
Intersegment revenue....................... 889,253 5,301 894,554
---------- ---------- ---------- ----------
Gross revenue.............................. $1,390,171 $ 254,205 $ 39,856 1,684,232
========== ========== ==========
Revenue of unconsolidated affiliates(6).... (104,779)
Intercompany revenue(7).................... (277,751)
----------
Consolidated revenue....................... $1,301,702
==========
EBITDA before development and start-up
costs and affiliate and intercompany
eliminations............................. $ 106,969 $ 171,239 $ (13,306) $ (31,875) $ 233,027
Development and start-up costs(8).......... (33,354) $ (144,953) (178,307)
---------- ---------- ---------- ---------- ---------- ----------
EBITDA before affiliate and intercompany
eliminations............................. $ 106,969 $ 171,239 $ (46,660) $ (144,953) $ (31,875) 54,720
========== ========== ========== ========== ==========
EBITDA of unconsolidated affiliates(6)..... 70,184
Intercompany EBITDA(7)..................... (23,655)
----------
EBITDA(9).................................. 101,249
Depreciation and amortization.............. 135,029
----------
Operating loss............................. $ (33,780)
==========
OTHER DATA:
Depreciation and amortization before
affiliate eliminations................... $ 39,696 $ 130,793 $ 10,193 $ 1,731 $ 2,981 $ 185,394
========== ========== ========== ========== ==========
Depreciation and amortization of
unconsolidated affiliates(6)............. (50,365)
----------
Depreciation and amortization.............. $ 135,029
==========
Capital expenditures before affiliate
eliminations............................. $ 39,650 $ 638,924 $ 27,287 $ 564,629 $ 2,387 $1,272,877
========== ========== ========== ========== ==========
Capital expenditures of unconsolidated
affiliates(6)............................ (783,429)
----------
Capital expenditures....................... $ 489,448
==========
Total assets before affiliate
eliminations............................. $1,673,030 $3,371,073 $ 152,667 $2,670,025 $1,238,434 $9,105,229
========== ========== ========== ========== ==========
Total assets of unconsolidated
affiliates(6)............................ (3,876,014)
----------
Total assets............................... $5,229,215
==========
</TABLE>
- ---------------
(1) Satellite Manufacturing and Technology includes 100% of SS/L's results. In
1996 Loral increased its ownership in SS/L from 32.7% to 51% and used the
equity method of accounting. In February 1997, Loral agreed to acquire the
remaining 49% of SS/L.
(2) Fixed Satellite Services includes 100% of the following companies since
their respective dates of acquisition. Loral Skynet acquired on March 14,
1997; Loral Orion's transponder leasing business acquired on March 20, 1998;
SatMex, a 49% equity investee, acquired on November 17, 1997; and
Europe*Star, a 47% equity investee, since December 1998.
(3) Data services includes 100% of CyberStar and 100% of Loral Orion's data
services business since its acquisition on March 20, 1998.
(4) Includes 100% of Globalstar. Loral owned approximately 43%, 40% and 32% at
December 31, 1998, 1997 and 1996, respectively.
(5) Represents unallocated corporate expenses incurred in support of the
Company's operations.
(6) Represents amounts related to unconsolidated affiliates (SatMex, Europe*Star
and Globalstar and in 1996, SS/L). These amounts are eliminated in order to
arrive at Loral's consolidated results. Loral's proportionate share of these
affiliates is included in equity in net loss from affiliates in Loral's
consolidated statements of operations.
(7) Represents the elimination of intercompany sales and EBITDA, primarily for
satellites under construction by SS/L for wholly-owned subsidiaries; as well
as eliminating sales for the lease of transponder capacity by Data Services
from Fixed Satellite Services.
(8) Represents EBITDA for operations in the development stage (CyberStar and
Globalstar).
(9) 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.
F-35
<PAGE> 82
LORAL SPACE & COMMUNICATIONS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
15. SEGMENTS -- (CONTINUED)
1997 SEGMENT INFORMATION
<TABLE>
<CAPTION>
SATELLITE
MANUFACTURING FIXED GLOBAL
AND SATELLITE DATA MOBILE
TECHNOLOGY(1) SERVICES(2) SERVICES(3) TELEPHONY(4) CORPORATE(5) TOTAL
------------- ----------- ----------- ------------ ------------ -----
<S> <C> <C> <C> <C> <C> <C>
REVENUES AND EBITDA:
Revenue from external
customers................. $ 822,885 $ 82,229 $ 905,114
Intersegment revenue........ 619,715 800 620,515
---------- ---------- -----------
Gross revenue............... $1,442,600 $ 83,029 1,525,629
========== ==========
Revenue of unconsolidated
affiliates(6)............. (12,893)
Intercompany revenue(7)..... (200,145)
-----------
Consolidated revenue........ $ 1,312,591
===========
EBITDA before development
and start-up costs and
affiliate and intercompany
eliminations.............. $ 99,723 $ 51,821 $ (15,719) $ 135,825
Development and start-up
costs(8).................. $ (32,612) $ (87,055) (119,667)
---------- ---------- ---------- ---------- ---------- -----------
EBITDA before affiliate and
intercompany
eliminations.............. $ 99,723 $ 51,821 $ (32,612) $ (87,055) $ (15,719) 16,158
========== ========== ========== ========== ==========
EBITDA of unconsolidated
affiliates(6)............. 77,197
Intercompany EBITDA(7)...... (17,039)
-----------
EBITDA(9)................... 76,316
Depreciation and
amortization.............. 62,764
-----------
Operating income............ $ 13,552
===========
OTHER DATA:
Depreciation and
amortization before
affiliate eliminations.... $ 35,308 $ 31,825 $ 78 $ 1,016 $ 1,387 $ 69,614
========== ========== ========== ========== ==========
Depreciation and
amortization of
unconsolidated
affiliates(6)............. (6,850)
-----------
Depreciation and
amortization.............. $ 62,764
===========
Capital expenditures before
affiliate eliminations.... $ 39,416 $ 212,183 $ 2,623 $ 589,373 $ 4,149 $ 847,744
========== ========== ========== ========== ==========
Capital expenditures of
unconsolidated
affiliates(6)............. (592,404)
-----------
Capital expenditures........ $ 255,340
===========
Total assets before
affiliate eliminations.... $1,483,759 $1,825,845 $ 24,921 $2,149,053 $ 711,017 $ 6,194,595
========== ========== ========== ========== ==========
Total assets of
unconsolidated
affiliates(6)............. (3,184,148)
-----------
Total assets................ $ 3,010,447
===========
</TABLE>
F-36
<PAGE> 83
LORAL SPACE & COMMUNICATIONS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
15. SEGMENTS -- (CONTINUED)
NINE MONTHS ENDED
DECEMBER 31, 1996
SEGMENT INFORMATION
<TABLE>
<CAPTION>
SATELLITE
MANUFACTURING GLOBAL
AND MOBILE
TECHNOLOGY(1) TELEPHONY(4) CORPORATE(5) TOTAL
------------- ------------ ------------ -----
<S> <C> <C> <C> <C>
REVENUE AND EBITDA:
Revenue from external customers............................. $ 737,026 $ 737,026
Intersegment revenue........................................ 280,627 $ 5,088 285,715
---------- ---------- ----------
Gross revenue............................................... $1,017,653 $ 5,088 1,022,741
========== ==========
Revenue of unconsolidated affiliates(6)..................... (1,017,653)
----------
Consolidated revenue........................................ $ 5,088
==========
EBITDA before development and start-up costs and affiliate
and intercompany eliminations............................. $ 77,253 $ (11,150) $ 66,103
Development and start-up costs(8)........................... $ (45,036) (45,036)
---------- ---------- ---------- ----------
EBITDA before affiliate eliminations........................ $ 77,253 $ (45,036) $ (11,150) 21,067
========== ========== ==========
EBITDA from unconsolidated affiliates(6).................... (32,217)
----------
EBITDA(9)................................................... (11,150)
Depreciation and amortization............................... 1,051
----------
Operating loss.............................................. $ (12,201)
==========
OTHER DATA:
Depreciation and amortization before affiliate
eliminations.............................................. $ 23,242 $ 582 $ 1,051 $ 24,875
========== ========== ==========
Depreciation and amortization of unconsolidated
affiliates(6)............................................. (23,824)
----------
Depreciation and amortization............................... $ 1,051
==========
Capital expenditures before affiliate eliminations.......... $ 26,731 $ 279,613 $ 540 $ 306,884
========== ========== ==========
Capital expenditures of unconsolidated affiliates(6)........ (306,344)
----------
Capital expenditures........................................ $ 540
==========
Total assets before affiliate eliminations.................. $1,059,064 $ 942,913 $1,699,326 $3,701,303
========== ========== ==========
Total assets of unconsolidated affiliates(6)................ (2,001,977)
----------
Total assets................................................ $1,699,326
==========
</TABLE>
F-37
<PAGE> 84
LORAL SPACE & COMMUNICATIONS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
15. SEGMENTS -- (CONTINUED)
Revenue by Customer Location
The following table presents revenues by country based on customer location
for the years ended December 31, 1998 and 1997 and the nine months ended
December 31, 1996 (in thousands).
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
United States.......................................... $1,096,497 $ 924,468 $5,088
People's Republic of China............................. 48,985 102,147
Japan.................................................. 53,567 45,179
France................................................. 43,702 40,719
Philippines............................................ 8,877 34,629
Thailand............................................... 9 77,422
Indonesia.............................................. 71,880
Other.................................................. 50,065 16,147
---------- ---------- ------
$1,301,702 $1,312,591 $5,088
========== ========== ======
</TABLE>
During 1998, three commercial customers of the Satellite Manufacturing and
Technology segment accounted for approximately 46%, 20% and 11%, respectively,
of consolidated revenues. During 1997, one customer of the Satellite
Manufacturing and Technology segment accounted for approximately 31% of
consolidated revenues. See Note 6. During the nine months ended December 31,
1996, all consolidated revenue was attributable to a management fee earned from
SS/L.
With the exception of the Company's satellites in orbit (see Note 5), the
Company's long-lived assets are primarily located in the United States.
16. QUARTERLY FINANCIAL INFORMATION (Unaudited, in thousands, except per share
amounts)
<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30,* DECEMBER 31,*
--------- -------- -------------- -------------
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1998
Revenues.......................... $295,213 $248,260 $289,588 $468,641
EBITDA (see Note 15).............. 18,410 12,175 19,936 50,728
Operating income (loss)........... 982 (26,266) (19,519) 11,023
Income (loss) before income taxes,
equity in net loss of affiliates
and minority interest........... 7,928 (31,299) 16,088 (18,345)
Net loss.......................... 15,443 58,973 10,699 53,683
Preferred dividends and
accretion....................... 11,606 11,607 11,606 11,606
Net loss applicable to common
shareholders.................... 27,049 70,580 22,305 65,289
Loss per share -- basic and
diluted......................... (0.11) (0.27) (0.08) (0.23)
Market price per share
High............................ 30 1/2 33 15/16 31 7/8 20 1/2
Low............................. 19 24 1/2 12 1/8 10 3/4
</TABLE>
- ---------------
* The results of operations for the quarter ended September 30, 1998, includes a
$35 million pre-tax gain on the sale of stock in an affiliate. The results of
operations for the quarter ended December 31, 1998 includes a pre-tax loss
recorded on the write-off of non-strategic investments of $29.5 million.
F-38
<PAGE> 85
LORAL SPACE & COMMUNICATIONS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
16. QUARTERLY FINANCIAL INFORMATION -- (CONTINUED)
<TABLE>
<CAPTION>
QUARTER ENDED
-------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,*
--------- -------- ------------- -------------
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1997
Revenues........................... $340,353 $291,148 $371,118 $309,972
EBITDA (see Note 15)............... 18,914 12,018 20,912 24,472
Operating income (loss)............ 9,337 (2,505) 2,321 4,399
Income before income taxes, equity
in net loss of affiliates and
minority interest................ 19,476 3,120 9,663 94,723
Net income (loss).................. (406) (10,296) (3,962) 54,668
Preferred dividends and
accretion........................ (2,947) (11,633) (11,735)
Net income (loss) applicable to
common shareholders.............. (406) (13,243) (15,595) 42,933
Earnings (loss) per share -- basic
and diluted...................... 0.00 (0.06) (0.06) 0.17
Market price per share
High............................. 19 1/2 17 1/2 21 24 1/4
Low.............................. 14 1/8 13 14 1/16 19
</TABLE>
- ---------------
* The results of operations for the quarter ended December 31, 1997, includes a
$79.6 million pre-tax gain on the sale of K&F stock.
F-39
<PAGE> 86
INDEPENDENT AUDITORS' REPORT
Space Systems/Loral, Inc.:
We have audited the accompanying consolidated statements of income,
shareholders' equity and cash flows of Space Systems/Loral, Inc. and its
subsidiaries for the nine months ended December 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects the results of operations and cash flows of Space
System/Loral, Inc. and its subsidiaries for the nine months ended December 31,
1996 in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
San Jose, California
February 24, 1997
F-40
<PAGE> 87
SPACE SYSTEMS/LORAL, INC.
CONSOLIDATED STATEMENT OF INCOME
(In thousands)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
DECEMBER 31,
1996
------------
<S> <C>
Revenues.................................................... $1,017,653
Costs and expenses.......................................... 953,496
----------
Gross profit................................................ 64,157
Amortization of cost in excess of net assets acquired....... 5,058
Management fee.............................................. 5,088
----------
Operating income............................................ 54,011
Interest income............................................. 9,179
Interest expense............................................ 3,098
----------
Income before income taxes, minority interest and equity in
net loss of affiliate..................................... 60,092
Provision for income taxes.................................. 27,643
----------
Income before minority interest and equity in net loss of
affiliate................................................. 32,449
Minority interest in losses of ISTI......................... 125
Equity in net loss of Globalstar, net of tax benefit........ (1,549)
----------
Net income.................................................. $ 31,025
==========
</TABLE>
See notes to consolidated financial statements.
F-41
<PAGE> 88
SPACE SYSTEMS/LORAL, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED DECEMBER 31, 1996
(In thousands, except share data)
<TABLE>
<CAPTION>
COMMON STOCK RETAINED
------------------ EARNINGS
SHARES (ACCUMULATED
ISSUED AMOUNT DEFICIT) TOTAL
------ -------- ------------ --------
<S> <C> <C> <C> <C>
Balance April 1, 1996............................ 4,000 $466,668 $(18,800) $447,868
Net income....................................... -- -- 31,025 31,025
----- -------- -------- --------
Balance December 31, 1996........................ 4,000 $466,668 $ 12,225 $478,893
===== ======== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-42
<PAGE> 89
SPACE SYSTEMS/LORAL, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
NINE
MONTHS ENDED
DECEMBER 31,
1996
------------
<S> <C>
Cash flows from operating activities:
Net income................................................ $ 31,025
Depreciation and amortization............................. 23,242
Deferred income taxes..................................... 26,673
Minority interest in losses of ISTI....................... (125)
Equity in net loss of Globalstar.......................... 1,549
Changes in operating assets and liabilities:
Contracts in process, including long-term
receivables........................................... (152,454)
Inventories............................................ (37,990)
Deposits and other current assets...................... (39,212)
Prepaid pension cost and other assets.................. (16,208)
Accounts payable and other current liabilities......... (7,803)
Customer advances...................................... 37,501
Postretirement and other liabilities................... 317
---------
Net cash used in operating activities....................... (133,485)
---------
Investing activities:
Capital expenditures...................................... (26,731)
Investment in ABCN........................................ (10,000)
---------
Net cash used in investing activities....................... (36,731)
---------
Financing activities:
Proceeds from borrowings.................................. 290,408
Repayment of debt......................................... (227,874)
---------
Net cash provided by financing activities................... 62,534
---------
Net decrease in cash and cash equivalents................... (107,682)
Cash and cash equivalents, beginning of period.............. 126,863
---------
Cash and cash equivalents, end of period.................... $ 19,181
=========
Supplemental information:
Interest paid, net of amounts capitalized................. $ 2,562
=========
Income taxes paid......................................... $ 1,449
=========
</TABLE>
See notes to consolidated financial statements.
F-43
<PAGE> 90
SPACE SYSTEMS/LORAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
Space Systems/Loral, Inc. ("SS/L"), a corporate joint venture owned by
Loral Space & Communications Ltd. ("Loral") and four international aerospace and
communications companies (the "Alliance Partners"), designs and produces
geosynchronous and low-earth-orbit satellites and subsystems for communications,
remote earth sensing and direct-to-home broadcast television. At December 31,
1996, Loral owned 51% of the common stock of SS/L and has agreed to increase its
ownership to 100% by acquiring the remaining 49% held by the Alliance Partners
(see Note 6). SS/L has operated under various agreements which specify actions
which can be taken by it or its equity investors. The consolidated financial
statements include the accounts of SS/L, its wholly owned foreign sales
corporation subsidiary, and International Space Technology, Inc. ("ISTI"), a
partially owned, corporate joint venture. All significant intercompany balances
and transactions have been eliminated. The investment in Globalstar is accounted
for on the equity method; intercompany profit is eliminated based on ownership
interests.
Change in Fiscal Year-end
In 1996, SS/L changed its fiscal year-end to December 31 from March 31. The
accompanying financial statements include audited financial statements for the
nine month transition period ended December 31, 1996.
Use of Estimates in Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the amounts of expenses reported for the period. Actual results
could differ from estimates.
A significant portion of SS/L's revenue is associated with long-term
contracts which require significant estimates. These estimates include
forecasting costs and schedules, estimating contract revenue related to contract
performance (including orbital incentives) and the potential for component
obsolescence in connection with long-term procurements.
Cash and Cash Equivalents
Cash equivalents consist of money market investments with an original
maturity of less than 90 days.
Major Customers
Sales to the U.S. government represented 8% of revenues for the nine months
ended December 31, 1996. Sales to foreign customers, primarily in Asia,
represented 25% of revenues for the nine months ended December 31, 1996. For the
nine months ended December 31, 1996 two commercial customers represented 28% and
15% of revenues.
Inventories
Inventories consist principally of common subassemblies not specifically
identified to contracts in process, and are valued at the lower of cost or
market. Cost is determined using the first-in-first-out (FIFO) or average cost
method.
F-44
<PAGE> 91
SPACE SYSTEMS/LORAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Revenue Recognition
Revenue under long-term fixed-price contracts is recognized using the
cost-to-cost percentage-of-completion method. Revenue includes estimated orbital
incentives discounted to present value at the launch date. Costs include the
development effort required for the production of high-technology satellites,
non-recurring engineering and design efforts in early periods of contract
performance, as well as the cost of qualification testing requirements.
Revenue under cost-reimbursement type contracts is recognized as costs are
incurred; incentive fees are estimated and recognized over the contract term.
Contracts with the U.S. government are subject to termination by the U.S.
government for convenience or for default. Other government contract risks
include dependence on future appropriations and administrative allotment of
funds and changes in government policies. Costs incurred under U.S. government
contracts are subject to audit. Management believes the results of such audits
will not have a material effect on SS/L's financial position or results of
operations.
Losses on contracts are recognized when determined. Revisions in profit
estimates are reflected in the period in which the conditions that require the
revision become known and are estimable.
In accordance with industry practice, contracts-in-process include unbilled
amounts relating to contracts and programs with long production cycles, a
portion of which may not be billable within one year.
Stock-Based Compensation
As permitted by Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation," SS/L accounts for stock-based awards
to employees using the intrinsic value method in accordance with Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees."
Property, Plant and Equipment
Depreciation of property, plant and equipment is provided using
predominantly accelerated methods over the estimated useful lives of the related
assets (buildings and improvements 20 to 45 years; all other assets 2 to 10
years). Leasehold improvements are amortized over the shorter of the lease term
or the estimated useful lives of the improvements.
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" ("SFAS 121"),
establishes the accounting standards for the impairment of long-lived assets and
certain intangible assets. SS/L adopted SFAS 121 in the nine months ended
December 31, 1996 and such adoption did not have any impact on its financial
position or results of operations.
Foreign Exchange Contracts
SS/L enters into foreign exchange contracts as hedges against exchange rate
fluctuations of future accounts receivable and accounts payable denominated in
foreign currencies. Realized and unrealized gains and losses on foreign exchange
contracts designated as hedges are deferred and recognized over the lives of the
related contracts in process.
Cost in Excess of Net Assets Acquired
Cost in excess of the fair value of net assets acquired is being amortized
over 40 years using the straight line method.
F-45
<PAGE> 92
SPACE SYSTEMS/LORAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The carrying amount of Cost in Excess of Net Assets Acquired is evaluated
on a recurring basis. Current and future profitability as well as current and
future undiscounted cash flows, excluding financing costs, are primary
indicators of recoverability. For the nine months ended December 31, 1996 there
was no adjustment to the carrying amount of the Cost in Excess of Net Assets
Acquired resulting from these evaluations.
Operating Expenses
Selling, general and administrative expenses for the nine months ended
December 31, 1996 was $45,231,000 and includes independent research and
development costs of $16,274,000. Depreciation and amortization expense was
$18,184,000 and capitalized interest costs were $97,000 for the nine months
ended December 31, 1996. Rent expense was $7,838,000 for the nine months ended
December 31, 1996.
2. INCOME TAXES
The components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
DECEMBER 31,
1996
-----------------
(IN THOUSANDS)
<S> <C>
Current:
Federal................................................... $ 683
State, local & foreign.................................... 287
-------
970
Deferred, principally federal............................... 26,673
-------
Total............................................. $27,643
=======
</TABLE>
The provision for income taxes excludes a deferred tax benefit of $834,000
for the nine months ended December 31, 1996, related to SS/L's share of
Globalstar, L.P. losses (see Note 3).
The income tax provision differs from the amount computed by applying the
statutory federal income tax rate to income before income taxes for the
following reasons:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
DECEMBER 31,
1996
-----------------
(IN THOUSANDS)
<S> <C>
Provision at statutory federal income tax rate.............. $21,032
State income taxes, net of federal income tax benefit....... 4,042
Non-deductible goodwill amortization........................ 1,770
Losses of ISTI.............................................. 229
Non-deductible meals, entertainment and lobbying expense.... 370
Other....................................................... 200
-------
Total provision for income taxes.................. $27,643
=======
</TABLE>
3. INVESTMENTS
In March 1994, SS/L purchased an 11% limited partnership interest in Loral
Qualcomm Satellite Services, L.P. ("LQSS") for $6,000,000. LQSS's only asset is
18,000,000 ordinary partnership interests in Globalstar, L.P. ("Globalstar"),
which represents a 38.3% interest in the ordinary partnership interests of
Globalstar at December 31, 1996. At December 31, 1996, SS/L and Loral had an
effective 4.2% and 31.7% interest, respectively, in Globalstar's ordinary
partnership interests. Globalstar was formed to design, construct
F-46
<PAGE> 93
SPACE SYSTEMS/LORAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
and operate a worldwide, low-earth-orbit satellite-based digital
telecommunications system. SS/L's investment has been reduced by $2,383,000 for
the nine months ended December 31, 1996, to reflect the pretax effect of its
proportionate share of Globalstar's losses.
In connection with the construction of the Globalstar system, Globalstar
entered into a $1.4 billion contract with SS/L to design, manufacture, test and
obtain launch vehicles and launch services for its constellation of 56
satellites. Under the contract, SS/L has agreed to act as Globalstar's agent to
obtain launch vehicles, arrange for the launch of Globalstar satellites and
obtain insurance to cover the replacement cost of satellites or launch vehicles
lost in the event of a launch failure. In addition, Globalstar has agreed to
purchase from SS/L eight additional spare satellites at a cost of approximately
$175 million. SS/L has entered into subcontracts with certain of Globalstar's
direct or indirect limited partners, some of whom are shareholders of SS/L.
Revenue recorded under the Globalstar contract for the nine months ended
December 31, 1996 was $280,627,000.
4. RELATED PARTY TRANSACTIONS
SS/L, its shareholders and Loral have entered into a stockholders'
agreement ("the Stockholders' Agreement") which provides for management fees to
be paid to Loral, ranging from 0.5% to 1% of sales, as defined, depending upon
SS/L's operating performance. Such management fees were $5,088,000 for the nine
months ended December 31, 1996.
The Stockholders' Agreement also requires SS/L to pay Loral an annual fee
for overhead reimbursement, not to exceed 1% of SS/L's adjusted sales, as
defined, for each fiscal year. This fee amounted to $2,695,000 for the nine
months ended December 31, 1996.
For the nine months ended December 31, 1996, SS/L was billed $10,066,000 by
Loral and $5,154,000 by Lockheed Martin for certain operational, executive,
administrative, financial, legal and other services provided by Loral and
Lockheed Martin.
In connection with contract performance, SS/L provided services to and
acquired services from Lockheed Martin for the nine months ended December 31,
1996. A summary of such transactions is as follows:
<TABLE>
<CAPTION>
NINE
MONTHS ENDED
DECEMBER 31,
1996
--------------
(IN THOUSANDS)
<S> <C>
Revenue from services sold.................................. $ 3,174
Cost of purchased services.................................. 124,275
</TABLE>
SS/L's sales to, and purchases from, the Alliance partners are as follows:
<TABLE>
<CAPTION>
NINE
MONTHS ENDED
DECEMBER 31,
1996
--------------
(IN THOUSANDS)
<S> <C>
Revenue from services sold.................................. $ 55,019
Cost of purchased services.................................. 150,608
</TABLE>
Certain employees of SS/L participate in Loral's 1996 Stock Option Plan.
Under this plan, options are granted at the discretion of Loral's Board of
Directors to employees of Loral and its affiliates. Such options become
exercisable as determined by the Board, generally over five years, and generally
expire no more than 10 years from the date of grant. For the nine months ended
December 31, 1996 Loral granted certain key employees of SS/L options to
purchase 1,474,000 shares of Loral common stock at a weighted average price
F-47
<PAGE> 94
SPACE SYSTEMS/LORAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
of $10.67 per share (weighted average fair value of $2.95 per share.) No options
were exercised, and at December 31, 1996, options to purchase 1,473,500 shares
were outstanding, none of which were exercisable.
As described in Note 1, SS/L accounts for its stock-based awards using the
intrinsic value method in accordance with Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" and its related
interpretations. SFAS No. 123, "Accounting for Stock-Based Compensation"
requires the disclosure of pro forma net income had SS/L adopted the fair value
method. SFAS No. 123 requires that equity instruments granted to an employee by
a principal stockholder be included as part of the disclosure. The pro forma
incremental effect on net income required to be disclosed under SFAS No. 123 is
not material to SS/L's results of operations for the nine months ended December
31, 1996.
5. COMMITMENTS AND CONTINGENCIES
At December 31, 1996, SS/L was party to various noncancellable real estate
leases with minimum aggregate rental commitments payable as follows (in
thousands):
<TABLE>
<S> <C>
1997............................................... $ 9,875
1998............................................... 8,574
1999............................................... 7,776
2000............................................... 7,284
2001............................................... 6,848
Thereafter......................................... 22,954
-------
$63,311
=======
</TABLE>
Leases covering major items of real estate contain renewal and/or purchase
options which may be exercised by SS/L.
Due to the long lead times required to produce purchased parts and launch
vehicles, SS/L has entered into various purchase commitments with suppliers.
These commitments aggregated $1,014,429,000 at December 31, 1996.
SS/L is party to various litigation arising in the normal course of its
operations. In the opinion of management, the ultimate liability for these
matters, if any, will not have a material adverse effect on SS/L's financial
position or results of operations.
6. SS/L SHAREHOLDERS
Loral has made a strategic decision to increase its ownership of SS/L to
100%. The first step in implementing this decision was the acquisition by Loral
in August 1996 of the 18.3% interest in SS/L owned by certain partnerships
affiliated with Lehman Brothers (the "Lehman Partnerships") in exchange for
7,500,000 newly issued shares of common stock of the Company, 267,256 shares of
common stock of GTL previously held by the Company and $4 million in cash. As a
result of this transaction, the Company increased its interest in SS/L from
32.7% to 51%. On February 12, 1997, Loral completed negotiations with SS/L's
Alliance Partners to acquire their respective ownership interests in SS/L for
$374 million of which $93 million will be paid in cash and the balance in Loral
common stock and Loral convertible preferred equivalent obligations. Partners
exchanging SS/L common stock for Loral common stock or convertible preferred
equivalent obligations will retain representation on the SS/L Board of Directors
and continue their strategic operating relationships with SS/L. Beginning in
1997, the financial position and results of operations of SS/L will be
consolidated in the financial statements of Loral.
F-48
<PAGE> 95
SPACE SYSTEMS/LORAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. PENSIONS AND OTHER EMPLOYEE BENEFITS
Pensions
SS/L maintains a contributory defined benefit pension plan covering
substantially all employees. Benefits are based on members' salaries and years
of service. SS/L's funding policy is generally to contribute in accordance with
cost accounting standards that affect government contractors, subject to the
Internal Revenue Code and regulations thereon. No contributions were made for
the nine months ended December 31, 1996. Plan assets are invested primarily in
U.S. government and agency obligations and listed stocks and bonds.
Net pension costs include the following components:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
DECEMBER 31,
1996
-----------------
(IN THOUSANDS)
<S> <C>
Service cost -- benefits earned during the period........... $ 3,808
Interest cost on projected benefit obligation............... 8,205
Actual loss (return) on plan assets......................... (9,934)
Net amortization and deferral............................... 574
-------
Net pension costs........................................... $ 2,653
=======
</TABLE>
<TABLE>
<S> <C>
The principal actuarial assumptions are as follows:
Discount rate............................................. 7.75%
Rate of increase in compensation levels................... 4.50%
Expected long-term rate of return on plan assets.......... 9.50%
</TABLE>
Postretirement Health Care and Life Insurance Cost
In addition to providing pension benefits, SS/L provides certain health
care and life insurance benefits for retired employees and dependents.
Participants are eligible for these benefits when they retire from active
service and meet the eligibility requirements for SS/L's pension plans. These
benefits are funded primarily on a pay-as-you-go basis with the retiree
generally paying a portion of the cost through contributions, deductibles and
coinsurance provisions.
In March 1993, SS/L adopted various plan amendments resulting in
unrecognized prior service gains, which are being amortized commencing in 1994.
Postretirement health care and life insurance costs include the following
components:
<TABLE>
<CAPTION>
NINE
MONTHS ENDED
DECEMBER 31,
1996
--------------
(IN THOUSANDS)
<S> <C>
Service cost -- benefits earned during the period........... $ 622
Interest cost on accumulated postretirement benefit
obligation................................................ 1,599
Net amortization and deferrals.............................. (916)
------
Total postretirement health care and life insurance costs... $1,305
======
</TABLE>
F-49
<PAGE> 96
SPACE SYSTEMS/LORAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The principal assumptions used in determining the pension benefit
obligation are as follows:
<TABLE>
<S> <C>
Discount rate............................................... 7.75%
Rate of increase in compensation levels..................... 4.50%
Present healthcare cost trend rate.......................... 10.59%
Ultimate trend rate by the year 2004........................ 5.50%
</TABLE>
Changing the assumed health care cost trend rate by 1% in each year would
change the aggregate service and interest cost components for the nine months
ended December 31, 1996 by approximately $325,000.
Employee Savings Plan
SS/L employees participate in the Loral Savings Plan ("the Plan"). Under
the Plan, SS/L matches 60% of participating SS/L employees' contributions up to
6% of base pay. SS/L's matching cash contributions were $2,859,000 for the nine
months ended December 31, 1996.
8. INTERNATIONAL SPACE TECHNOLOGY, INC. COMMON STOCK TRANSACTIONS
In September 1993 and March 1994, International Space Technology, Inc.
("ISTI"), a corporate joint venture with unrelated third parties, entered into
agreements to sell, in installments, a 22.8% equity interest in ISTI to two
unaffiliated entities. Under the first installment, ISTI sold 267.85 common
shares for $2.9 million in 1994, representing a 17.6% equity interest in ISTI.
In November 1994, in conjunction with the stock sales agreements, ISTI issued an
additional 28.95 common shares to one of the minority shareholders, increasing
the minority interest in ISTI by 1.6% to 19.2%. Accordingly, 17.6% of the losses
of ISTI incurred subsequent to the sale and prior to November 8, 1994, and 19.2%
of such incurred losses after November 7, 1994, have been allocated to the
minority interest. Additional sales of shares under the agreements are
contingent upon completion of certain product qualifications by SS/L.
F-50
<PAGE> 97
INDEPENDENT AUDITORS' REPORT
We have audited the consolidated financial statements of Loral Space &
Communications Ltd. (a Bermuda company) as of December 31, 1998 and 1997, and
for the years ended December 31, 1998 and 1997, and the nine months ended
December 31, 1996, and have issued our report thereon dated February 16, 1999,
included elsewhere in this Annual Report on Form 10-K. Our audits also included
the financial statement schedule listed in Item 14(a)2 of this Annual Report on
Form 10-K. This financial statement schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audits. In our opinion, such financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly in
all material respects the information set forth therein.
DELOITTE & TOUCHE LLP
New York, New York
February 16, 1999
S-1
<PAGE> 98
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
LORAL SPACE & COMMUNICATIONS LTD.
BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1998 1997
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 401,269 $ 171,850
Other current assets...................................... 1,147 3,864
---------- ----------
Total current assets........................................ 402,416 175,714
Note receivable from unconsolidated subsidiary.............. 346,600 349,000
Investments in affiliates................................... 626,977 435,053
Investment in unconsolidated subsidiaries................... 1,255,773 778,257
Due from unconsolidated subsidiaries........................ 284,609 245,089
Other assets................................................ 72,279 50,234
---------- ----------
$2,988,654 $2,033,347
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and other current liabilities............ $ 31,041 $ 29,187
Accrued interest and preferred dividends.................. 8,928 9,478
Income taxes payable...................................... 2,844 12,004
Deferred income taxes..................................... 1,796 1,796
---------- ----------
Total current liabilities................................... 44,609 52,465
Deferred income taxes....................................... 6,542 362
Long-term liabilities....................................... 1,782
Commitments and contingencies
Shareholders' equity:
Series A convertible preferred stock, $.01 par value;
150,000,000 shares authorized, 45,896,977 shares
issued................................................. 459 459
Series B preferred stock, $.01 par value; 750,000 shares
authorized and unissued................................
6% Series C convertible redeemable preferred stock
($745,472 redemption value), $.01 par value; 20,000,000
shares authorized, 14,909,437 shares issued............ 735,437 733,762
Common stock, $.01 par value; 750,000,000 shares
authorized, 243,861,719 and 200,950,864 shares
issued................................................. 2,439 2,010
Paid-in capital........................................... 2,330,755 1,216,377
Treasury stock, at cost; 174,195 and 101,053 shares....... (3,360) (1,680)
Unearned compensation..................................... (8,231) (249)
Retained earnings (deficit)............................... (162,657) 22,566
Accumulated other comprehensive income.................... 40,879 7,275
---------- ----------
Total shareholders' equity.................................. 2,935,721 1,980,520
---------- ----------
$2,988,654 $2,033,347
========== ==========
</TABLE>
See note to financial statements.
S-2
<PAGE> 99
LORAL SPACE & COMMUNICATIONS LTD.
STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
NINE MONTHS
YEARS ENDED DECEMBER 31, ENDED
--------------------------- DECEMBER 31,
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Costs and expenses...................................... $ 34,112 $ 14,123 $ 6,561
--------- -------- -------
Operating loss.......................................... (34,112) (14,123) (6,561)
Interest and investment income.......................... 53,217 60,915 34,717
Interest expense........................................ 695 6,000
Gain on sale of investments, net........................ 15,494 79,591 --
--------- -------- -------
Income before income taxes and equity in net loss of
unconsolidated subsidiaries and affiliates............ 34,599 125,688 22,156
Income taxes............................................ 9,872 19,644 1,263
--------- -------- -------
Income before equity in net loss of unconsolidated
subsidiaries and affiliates........................... 24,727 106,044 20,893
Equity in net loss of unconsolidated subsidiaries....... (46,593) (19,243) (7,307)
Equity in net loss of affiliates........................ (116,932) (46,797) (4,709)
--------- -------- -------
Net income (loss)....................................... (138,798) 40,004 8,877
Preferred dividends and accretion....................... (46,425) (26,315)
--------- -------- -------
Net income (loss) applicable to common stockholders..... $(185,223) $ 13,689 $ 8,877
========= ======== =======
Earnings (loss) per share:
Basic and diluted..................................... $ (0.68) $ 0.06 $ 0.04
========= ======== =======
Weighted average shares outstanding:
Basic................................................. 273,402 242,070 228,997
========= ======== =======
Diluted............................................... 273,402 243,591 229,396
========= ======== =======
</TABLE>
STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands)
<TABLE>
<CAPTION>
NINE MONTHS
YEARS ENDED DECEMBER 31, ENDED
--------------------------- DECEMBER 31,
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Net income (loss)....................................... $(138,798) $ 40,004 $ 8,877
Other comprehensive income - unrealized gains on
available-for-sale securities......................... 32,988 7,275
--------- -------- -------
Comprehensive income (loss)............................. $(105,810) $ 47,279 $ 8,877
========= ======== =======
</TABLE>
See note to financial statements.
S-3
<PAGE> 100
LORAL SPACE & COMMUNICATIONS LTD.
STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
NINE MONTHS
YEARS ENDED DECEMBER 31, ENDED
--------------------------- DECEMBER 31,
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Operating activities:
Net income (loss)......................................... $(138,798) $ 40,004 $ 8,877
Gain on investments....................................... (15,494) (79,591)
Equity in net loss of affiliates.......................... 116,932 46,797 4,709
Equity in net loss of unconsolidated subsidiaries......... 46,593 19,243 7,307
Deferred income taxes..................................... 10,082 (2,158)
Accretion on GTL CPEOs and other non-cash interest
income.................................................. (6,012) (1,739)
Depreciation and amortization............................. 78
Changes in operating assets and liabilities, net of
acquisitions:
Due from unconsolidated subsidiaries...................... (39,520) (244,898) 191
Accounts payable and other current liabilities............ 1,854 4,218 (217)
Accrued interest and preferred dividends.................. (773) 3,283 5,340
Income taxes payable...................................... (9,160) 10,741 1,263
Other..................................................... (8,953) (64,630) (5,010)
--------- ---------- -----------
Cash used in operating activities........................... (43,249) (268,652) 22,460
--------- ---------- -----------
Investing activities:
Proceeds from the sale of investments, net of expenses.... 246,868 79,591
Investment in affiliates.................................. (517,272) (250,496) (6,425)
Investments in unconsolidated subsidiaries................ (48,515) (144,060) (26,734)
Other assets.............................................. (52,454)
--------- ---------- -----------
Cash used in investing activities........................... (318,919) (367,419) (33,159)
--------- ---------- -----------
Financing activities:
Proceeds from sale of common stock........................ 601,816
Repayment (issuance) of note to unconsolidated
subsidiary.............................................. 2,400 (349,000)
Proceeds from convertible preferred equivalent
obligations............................................. 583,292
Proceeds from exercise of stock options and issuances to
employee savings plan................................... 32,121 7,338
Preferred dividends....................................... (44,750) (25,435)
Proceeds from the Distribution............................ 612,274
Transaction expenses related to the Distribution.......... (12,286)
Advances from Loral Corporation prior to the
Distribution............................................ 2,425
--------- ---------- -----------
Cash provided by financing activities....................... 591,587 (367,097) 1,185,705
--------- ---------- -----------
Increase (decrease) in cash and cash equivalents............ 229,419 (1,003,168) 1,175,006
Cash and cash equivalents -- beginning of period............ 171,850 1,175,018 12
--------- ---------- -----------
Cash and cash equivalents -- end of period.................. $ 401,269 $ 171,850 $ 1,175,018
========= ========== ===========
Non-cash transactions:
Common stock issued to acquire Orion...................... $ 469,025
=========
Unrealized gain on available-for-sale securities.......... $ 32,988 $ 7,275
========= ==========
Mandatory exchange of Convertible Preferred Equivalent
Obligations............................................. $ 583,282
==========
Issuance of Series C Preferred Stock to acquire equity
interest in SS/L........................................ $ 149,600
==========
Issuance of Loral common stock to acquire equity interest
in SS/L and Globalstar partnership interests............ $ 148,387 $ 100,313
========== ===========
Deferred purchase price to acquire Globalstar partnership
interests............................................... $ 24,787
==========
Assets transferred from Loral Corporation at the
Distribution............................................ $ 31,383
===========
Liabilities assumed from Loral Corporation at the
Distribution............................................ $ 27,313
===========
Transfer of GTL common stock to acquire equity interest in
SS/L.................................................... $ 5,158
===========
Supplemental information:
Interest paid............................................. $ 2,023 $ 22,823
========= ==========
Taxes paid................................................ $ 8,586 $ 6,205
========= ==========
</TABLE>
See notes to financial statements.
S-4
<PAGE> 101
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
NOTES TO FINANCIAL STATEMENTS
1. Loral Space & Communications Ltd. ("Loral"), a Bermuda company, is a
holding company which is the ultimate parent of all Loral subsidiaries and is
the registrant of all Loral securities. The accompanying financial statements
reflect the financial position, results of operations and cash flows of Loral on
a separate company basis. All subsidiaries of Loral are reflected as investments
accounted for under the equity method of accounting. Accordingly intercompany
payables and receivables have not been eliminated. This condensed financial
information should be read in conjunction with the consolidated financial
statements of Loral, included in Loral's Annual Report on Form 10-K for the year
ended December 31, 1998.
Loral's significant transactions with its subsidiaries other than the
investment account and related equity in net loss of unconsolidated subsidiaries
are the management fee charged by Loral SpaceCom Corporation ("SpaceCom") to
Loral and intercompany payables and receivables resulting primarily from the
funding of the construction of the Telstar and Loral Orion Satellites. The note
receivable from SpaceCom relates to the Loral Skynet acquisition and bears
interest at 8.2% per annum. Principal payments are restricted to a maximum of
$149,000,000 by a financing arrangement entered into by SpaceCom.
No cash dividends were paid to Loral by its subsidiaries or its affiliates
during the years ended December 31, 1998 and 1997, or the nine months ended
December 31, 1996.
S-5
<PAGE> 102
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------- ----------- ------------
<C> <S> <C>
2.1 Restructuring, Financing and Distribution Agreement, dated
as of January 7, 1996, among Loral Corporation, Loral
Aerospace Holdings, Inc., Loral Aerospace Corp., Loral
General Partner, Inc., Loral Globalstar L.P., Loral
Globalstar Limited, the Registrant and Lockheed Martin
Corporation(1)
2.2 Amendment to Restructuring, Financing and Distribution
Agreement, dated as April 15, 1996(1)
2.3 Agreement for the Purchase and Sale of Assets dated as of
September 25, 1996 by and between AT&T Corp., as Seller, and
Loral Space & Communications Ltd., as Buyer(2)
2.4 First Amendment to Agreement for the Purchase and Sale of
Assets dated as of March 14, 1997 by and between AT&T Corp.,
as Seller, and Loral Space & Communications Ltd., as
Buyer(3)
2.5 Agreement and Plan of Merger dated as of October 7, 1997 by
and among Orion Network Systems, Inc., Loral Space &
Communications Ltd. and Loral Satellite Corporation(4)
2.6 First Amendment to Agreement and Plan of Merger dated as of
February 11, 1998 by and among Orion Network Systems, Inc.,
Loral Space & Communications Ltd. and Loral Satellite
Corporation(5)
2.7 Second Amendment to Agreement and Plan of Merger dated as of
March 20, 1998 by and among Orion Network Systems, Inc.,
Loral Space & Communications Ltd. and Loral Satellite
Corporation(12)
3.1 Memorandum of Association(1)
3.2 Memorandum of Increase of Share Capital(1)
3.3 Second Amended and Restated Bye-laws(1)
3.4 Schedule III to Second Amended and Restated Bye-laws
relating to Registrant's 6% Series C Convertible Redeemable
Preferred Stock(6)
4.1 Rights Agreement dated March 27, 1996 between the Registrant
and The Bank of New York, Rights Agent(1)
4.2 Indenture dated as of January 15, 1999 relating to
Registrant's 9 1/2% Senior Notes due 2006+
10.1 Shareholders Agreement dated as of April 23, 1996 between
Loral Corporation and the Registrant(1)
10.2 Tax Sharing Agreement dated as of April 22, 1996 between
Loral Corporation, the Registrant, Lockheed Martin
Corporation and LAC Acquisition Corporation(1)
10.3 Exchange Agreement dated as of April 22, 1996 between the
Registrant and Lockheed Martin Corporation(1)
10.4 Amended and Restated Agreement of Limited Partnership of
Globalstar, L.P., dated as of January 26, 1999 among
Loral/Qualcomm Satellite Services, L.P., Globalstar
Telecommunications Limited, AirTouch Satellite Services,
Inc., Dacom Corporation, Dacom International, Inc., Hyundai
Corporation, Hyundai Electronics Industries Co., Ltd.,
Loral/DASA Globalstar, L.P., Loral Space & Communications
Ltd., San Giorgio S.p.A., TeleSat Limited, TE.S.AM and
Vodafone Satellite Services Limited+
10.5 Service Provider Agreements by and between Globalstar, L.P.
and each of Loral General Partner, Inc. and Loral/DASA
Globalstar, L.P.(8)
10.6 Contract between Globalstar, L.P. and Space Systems/Loral,
Inc.(8)
</TABLE>
<PAGE> 103
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------- ----------- ------------
<C> <S> <C>
10.7 1996 Stock Option Plan(1)++
10.7.1 Amendment to 1996 Stock Option Plan+++
10.8 Common Stock Purchase Plan for Non-Employee Directors(1)++
10.9 Employment Agreement between the Registrant and Bernard L.
Schwartz(1)++
10.9.1 Amendment dated as of March 1, 1997 to Employment Agreement
between the Registrant and Bernard L. Schwartz(12)++
10.10 Registration Rights Agreement dated as of August 9, 1996
among Loral Space & Communications Ltd., Lehman Brothers
Capital Partners II, L.P., Lehman Brothers Merchant Banking
Portfolio Partnership L.P., Lehman Brothers Offshore
Investment Partnership L.P. and Lehman Brothers Offshore
Investment Partnership-Japan L.P.(9)
10.11 Registration Rights Agreement dated November 6, 1996
relating to the Registrant's 6% Convertible Preferred
Equivalent Obligations due 2006(6)
10.12 Registration Rights Agreement (Series C Preferred Stock)
dated as of March 31, 1997 between Loral Space &
Communications Ltd. and Finmeccanica S.p.A. and dated as
June 23, 1997 among Loral Space & Communications Ltd.,
Aerospatiale SNI and Alcatel Espace(10)
10.13 Registration Rights Agreement (Common Stock) dated as of
June 23, 1997 among Loral Space & Communications Ltd.,
Aerospatiale SNI and Alcatel Espace(10)
10.14 Alliance Agreement dated as of June 23, 1997 among Loral
Space & Communications Ltd., Aerospatiale SNI, Alcatel
Espace and Finmeccanica S.p.A.(10)
10.15 Principal Stockholder Agreement dated as of October 7, 1997
among Loral Space & Communications Ltd., Loral Satellite
Corporation, Orion Network Systems, Inc. and certain Orion
stockholders signatory thereto(4)
10.16 Amended and Restated Credit and Participation Agreement,
dated as of November 14, 1997, among Loral SpaceCom
Corporation, Space Systems/Loral, Inc., the Banks parties
thereto, 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 and Arranger and as Selling Bank(11)
10.16.1 First Amendment dated as of May 7, 1998 to and of the
Amended and Restated Credit and Participation Agreement,
dated as of November 14, 1997, among Loral SpaceCom
Corporation, Space Systems/Loral, Inc., the Banks parties
thereto, 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 and Arranger and as Selling Bank+
10.17 Agreement of Limited Partnership of CyberStar, L.P. dated as
of June 30, 1997(12)
10.18 Purchase and Sale Agreement dated November 17, 1997 between
the Federal Government of the United Mexican States and
Corporativo Satelites Mexicanos, S.A. de C.V. for the
purchase and sale of the capital stock of Satelites
Mexicanos, S.A. de C.V. (English translation of Spanish
original)(12)
10.19 Amended and Restated Membership Agreement dated and
effective as of August 21, 1998 among Loral SatMex Ltd. and
Ediciones Enigma, S.A. de C.V. and Firmamento Mexicano, S.
de R.L. de C.V.+
</TABLE>
<PAGE> 104
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------- ----------- ------------
<C> <S> <C>
10.20 Letter Agreement dated December 29, 1997 between Loral Space
& Communications Ltd., Telefonica Autrey S.A. de C.V.,
Donaldson, Lufkin & Jenrette Securities Corporation, Lehman
Brothers Inc. and Lehman Commercial Paper Inc. and related
Agreement between the Federal Government of United Mexican
States, Telefonica Autrey, S.A. de C.V., Ediciones Enigma,
S.A. de C.V., Loral Space & Communications Ltd., Loral
SatMex Ltd. and Servicios Corporativos Satelitales, S.A. de
C.V.(12)
10.21 Shareholders Agreement dated December 7, 1998 by and among
Alcatel SpaceCom, Loral Space & Communications Ltd., Dr.
Jurgen Schulte-Hillen and EuropeStar Limited+
10.22 Registration Rights Agreement dated as of January 21, 1999
relating to Registrant's 9 1/2% Senior Notes due 2006+
12 Statement Re: Computation of Ratios+
21 List of Subsidiaries of the Registrant+
23 Consent of Deloitte & Touche LLP+
27 Financial Data Schedule (EDGAR only)+
99.1 Consolidated Financial Statements of Globalstar, L.P. and
Independent Auditors' Report(13)
</TABLE>
- ---------------
(1) Incorporated by reference from the Registrant's Registration Statement on
Form 10 (No. 1-14180).
(2) Incorporated by reference from the Registrant's Current Report on Form 8-K
filed on September 27, 1996.
(3) Incorporated by reference from the Registrant's Current Report on Form 8-K
on March 28, 1997.
(4) Incorporated by reference from the Registrant's Current Report on Form 8-K
filed on October 10, 1997.
(5) Incorporated by reference from the Registrant's Registration Statement on
Form S-4 filed on February 17, 1998 (File No. 333-46407).
(6) Incorporated by reference from the Registrant's Annual Report on Form 10-K
for the nine month period ended December 31, 1996.
(7) Incorporated by reference from the Annual Report on Form 10-K for the
fiscal year ended December 31, 1996 filed by Globalstar Telecommunications
Limited (File No. 0-25456).
(8) Incorporated by reference from the Registration Statement on Form S-1 of
Globalstar Telecommunications Limited (File No. 33-86808).
(9) Incorporated by reference from the Registrant's Current Report on Form 8-K
filed on August 13, 1996.
(10) Incorporated by reference from the Registrant's Current Report on Form 8-K
filed on July 8, 1997.
(11) Incorporated by reference from the Registrant's Current Report on Form 8-K
filed on December 9, 1997.
(12) Incorporated by reference from the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1997.
(13) Incorporated by reference from the Annual Report on Form 10-K for the
fiscal year ended December 31, 1998 filed by Globalstar Telecommunications
Limited and Globalstar, L.P. (File No. 0-25456).
+ Filed herewith.
++ Management compensation plan.
(b) Reports on Form 8-K
None.
<PAGE> 1
EXECUTION COPY
================================================================================
LORAL SPACE & COMMUNICATIONS LTD.,
Issuer
9-1/2% Senior Notes due 2006
----------------------------
INDENTURE
Dated as of January 15, 1999
----------------------------
THE BANK OF NEW YORK,
Trustee
================================================================================
<PAGE> 2
CROSS-REFERENCE TABLE
TIA Indenture
Section Section
- ------- -------
310(a)(1) ...........................................7.10
(a)(2) ...........................................7.10
(a)(3) ...........................................N.A.
(a)(4) ...........................................N.A.
(b) ...........................................N.A.
(c) ...........................................N.A.
311(a) ...........................................7.11
(b) ...........................................7.11
(c) ...........................................N.A.
312(a) ...........................................N.A.
(b) ...........................................11.03
(c) ...........................................11.03
313(a) ...........................................7.06
(b)(1) ...........................................N.A.
(b)(2) ...........................................7.06
(c) ...........................................N.A.
(d) ...........................................N.A.
314(a) ...........................................N.A.
314(a)(4) ...........................................4.14
(b) ...........................................N.A.
(c)(1) ...........................................N.A.
(c)(2) ...........................................N.A.
(c)(3) ...........................................N.A.
(d) ...........................................N.A.
(e) ...........................................N.A.
(f) ...........................................N.A.
315(a) ...........................................N.A.
(b) ...........................................N.A.
(c) ...........................................N.A.
(d) ...........................................N.A.
(e) ...........................................N.A.
316(a)(last sentence) ...........................................N.A.
(a)(1)(A) ...........................................N.A.
(a)(1)(B) ...........................................N.A.
(a)(2) ...........................................N.A.
(b) ...........................................N.A.
317(a)(1) ...........................................N.A.
(a)(2) ...........................................N.A.
(b) ...........................................N.A.
318(a) ...........................................N.A.
N.A. means Not Applicable.
- ----------
Note: This Cross-Reference Table shall not, for any purpose, be deemed to be
part of this Indenture.
<PAGE> 3
TABLE OF CONTENTS
ARTICLE 1
Page
----
Definitions and Incorporation by Reference
SECTION 1.01. Definitions ................................................ 1
SECTION 1.02. Other Definitions .......................................... 24
SECTION 1.03. Incorporation by Reference of Trust
Indenture Act ............................................ 24
SECTION 1.04. Rules of Construction ...................................... 25
ARTICLE 2
The Securities
SECTION 2.01. Form and Dating ............................................ 26
SECTION 2.02. Execution and Authentication ............................... 26
SECTION 2.03. Registrar and Paying Agent ................................. 27
SECTION 2.04. Paying Agent To Hold Money in Trust ........................ 27
SECTION 2.05. Holder Lists ............................................... 28
SECTION 2.06. Transfer and Exchange ...................................... 28
SECTION 2.07. Replacement Securities ..................................... 29
SECTION 2.08. Outstanding Securities ..................................... 29
SECTION 2.09. Temporary Securities ....................................... 30
SECTION 2.10. Cancelation ................................................ 30
SECTION 2.11. Defaulted Interest ......................................... 30
SECTION 2.12. CUSIP Numbers .............................................. 30
SECTION 2.13. Amount of Securities,
Issuable in Series ....................................... 31
ARTICLE 3
Redemption
SECTION 3.01. Right of Redemption ........................................ 32
SECTION 3.02. Notices to Trustee ......................................... 33
SECTION 3.03. Selection of Securities To Be
Redeemed ................................................. 34
SECTION 3.04. Notice of Redemption ....................................... 34
SECTION 3.05. Effect of Notice of Redemption ............................. 35
SECTION 3.06. Deposit of Redemption Price ................................ 35
SECTION 3.07. Securities Redeemed in Part ................................ 35
SECTION 3.08. Special Tax Redemption ..................................... 36
i
<PAGE> 4
ARTICLE 4
Covenants
SECTION 4.01. Intentionally Omitted ...................................... 37
SECTION 4.02. Payment of Securities ...................................... 37
SECTION 4.03. Reports .................................................... 37
SECTION 4.04. Restricted Payments ........................................ 38
SECTION 4.05. Incurrence of Indebtedness and
Issuance of Preferred Stock .............................. 42
SECTION 4.06. Liens ...................................................... 45
SECTION 4.07. Sale and Leaseback Transactions ............................ 45
SECTION 4.08. Dividend and Other Payment Restrictions
Affecting Restricted Subsidiaries ........................ 45
SECTION 4.09. Designation of Restricted and
Unrestricted Subsidiaries ................................ 48
SECTION 4.10. Transactions with Affiliates ............................... 48
SECTION 4.11. Limitation on Issuances and Guarantees
of Indebtedness .......................................... 50
SECTION 4.12. Business Activities ........................................ 50
SECTION 4.13. Change of Control .......................................... 50
SECTION 4.14. Asset Sales ................................................ 52
SECTION 4.15. Additional Amounts ......................................... 54
SECTION 4.16. Compliance Certificate; Statement by
Officers as to Default ................................... 57
SECTION 4.17. Further Instruments and Acts ............................... 57
ARTICLE 5
Successor Issuer
SECTION 5.01. When Issuer May Merge, Consolidate
or Sell Assets ........................................... 57
ARTICLE 6
Defaults and Remedies
SECTION 6.01. Events of Default .......................................... 59
SECTION 6.02. Acceleration ............................................... 61
SECTION 6.03. Other Remedies ............................................. 62
SECTION 6.04. Waiver of Past Defaults .................................... 62
SECTION 6.05. Control by Majority ........................................ 62
SECTION 6.06. Limitation on Suits ........................................ 63
SECTION 6.07. Rights of Holders to Receive Payment ....................... 63
SECTION 6.08. Collection Suit by Trustee ................................. 64
SECTION 6.09. Trustee May File Proofs of Claim ........................... 64
SECTION 6.10. Priorities ................................................. 64
ii
<PAGE> 5
SECTION 6.11. Undertaking for Costs ...................................... 64
SECTION 6.12. Waiver of Stay or Extension Laws ........................... 65
ARTICLE 7
Trustee
SECTION 7.01. Duties of Trustee .......................................... 65
SECTION 7.02. Rights of Trustee .......................................... 67
SECTION 7.03. Individual Rights of Trustee ............................... 67
SECTION 7.04. Trustee's Disclaimer ....................................... 68
SECTION 7.05. Notice of Defaults ......................................... 68
SECTION 7.06. Reports by Trustee to Holders .............................. 68
SECTION 7.07. Compensation and Indemnity ................................. 68
SECTION 7.08. Replacement of Trustee ..................................... 69
SECTION 7.09. Successor Trustee by Merger ................................ 70
SECTION 7.10. Eligibility; Disqualification .............................. 71
SECTION 7.11. Preferential Collection of Claims
Against Issuer ........................................... 71
ARTICLE 8
Discharge of Indenture; Defeasance
SECTION 8.01. Discharge of Liability on Securities;
Defeasance ............................................... 71
SECTION 8.02. Conditions to Defeasance ................................... 72
SECTION 8.03. Application of Trust Money ................................. 74
SECTION 8.04. Repayment to Issuer ........................................ 75
SECTION 8.05. Indemnity for Government Obligations ....................... 75
SECTION 8.06. Reinstatement .............................................. 75
ARTICLE 9
Amendments
SECTION 9.01. Without Consent of Holders ................................. 76
SECTION 9.02. With Consent of Holders .................................... 76
SECTION 9.03. Compliance with Trust Indenture Act ........................ 78
SECTION 9.04. Revocation and Effect of Consents
and Waivers .............................................. 78
SECTION 9.05. Notation on or Exchange of Securities ...................... 78
SECTION 9.06. Trustee To Sign Amendments ................................. 79
SECTION 9.07. Payment for Consent ........................................ 79
iii
<PAGE> 6
ARTICLE 10
Miscellaneous
SECTION 10.01. Trust Indenture Act Controls ............................... 79
SECTION 10.02. Notices .................................................... 79
SECTION 10.03. Communication by Holders with Other
Holders .................................................. 80
SECTION 10.04. Certificate and Opinion as to
Conditions Precedent ..................................... 80
SECTION 10.05. Statements Required in Certificate or
Opinion .................................................. 81
SECTION 10.06. When Securities Disregarded ................................ 81
SECTION 10.07. Rules by Trustee, Paying Agent and
Registrar ................................................ 81
SECTION 10.08. Legal Holidays ............................................. 81
SECTION 10.09. Governing Law .............................................. 82
SECTION 10.10. No Recourse Against Others ................................. 82
SECTION 10.11. Successors ................................................. 82
SECTION 10.12. Multiple Originals ......................................... 82
SECTION 10.13. Table of Contents; Headings ................................ 82
SECTION 10.14. Jurisdiction, Consent to
Service of Process .................................... 83
Rule 144A/Regulation S Appendix
iv
<PAGE> 7
INDENTURE dated as of January 15, 1999, between Loral Space &
Communications Ltd., a Bermuda company (the "Issuer") and The Bank of New York,
a New York banking corporation (the "Trustee").
The Issuer and the Trustee agree as follows for the benefit of the other
party and for the equal and ratable benefit of the Holders of the Issuer's
9-1/2% Senior Notes due 2006 (the "Initial Securities") and, if and when issued
pursuant to a registered exchange for Initial Securities, the Issuer's 9-1/2%
Senior Notes due 2006 (the "Exchange Securities") and, if and when issued
pursuant to a private exchange for Initial Securities, the Issuer's 9-1/2%
Senior Notes due 2006 (the "Private Exchange Securities", together with the
Exchange Securities and the Initial Securities, the "Securities"). The term
"Securities" shall also refer to any additional series of Securities authorized
by Section 2.13.
ARTICLE 1
Definitions and Incorporation by Reference
SECTION 1.01. Definitions.
"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
<PAGE> 8
2
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.
"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 (other than a sale, lease,
transfer, conveyance or other disposition of all or substantially all of
the assets of the Issuer and its Restricted Subsidiaries taken as a whole);
and
(2) the issuance of Equity Interests in any of the Issuer'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 the Issuer and its Restricted Subsidiaries of
less than $5 million;
(2) a transfer of assets between or among the Issuer and its
Restricted Subsidiaries;
(3) an issuance of Equity Interests by a Restricted Subsidiary to the
Issuer 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
under Section 4.04; and
(7) the issuance of partnership interests by CyberStar, L.P. pursuant
to participation bonuses in accordance with Section 4.3 of the CyberStar,
L.P. partnership agreement.
<PAGE> 9
3
"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
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.
"Board of Directors" means the Board of Directors of the Issuer.
"Business Day" means each day which is not a Legal Holiday.
"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
<PAGE> 10
4
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
$500 million and a Thompson Bank Watch Rating of "B" or better;
(4) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clauses (2) and (3) above
entered into with any financial institution meeting the qualifications
specified in clause (3) above;
(5) commercial paper having one of the two highest ratings obtainable
from Moody's Investors Service, Inc. or Standard & Poor's Rating Services
and in each case maturing within six months after the date of acquisition;
(6) money market funds at least 95% of the assets of which constitute
Cash Equivalents of the kinds described in clauses (1) through (5) of this
definition; and
(7) the Goldman Sachs US$ Liquid Reserves Fund and other funds with
substantially similar investment policies.
"Change of Control" means the occurrence of any of the following:
<PAGE> 11
5
(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 the Issuer 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 the Issuer;
(3) the consummation of any transaction (including, without
limitation, any merger or consolidation) the result of which is that any
"person" (as that term is used in Section 13(d)(3) of the Exchange Act)
becomes the Beneficial Owner, directly or indirectly, of more than 35% of
the Voting Stock of the Issuer, 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 are not Continuing Directors; or
(5) the Issuer consolidates with, or merges with or into, any Person,
or any Person consolidates with, or merges with or into, the Issuer, in any
such event pursuant to a transaction in which any of the outstanding Voting
Stock of the Issuer 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 the Issuer 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).
"Code" means the Internal Revenue Code of 1986, as amended.
"Commission" means the Securities and Exchange Commission or any successor
agency.
"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
<PAGE> 12
6
of the Issuer, 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 or Preferred Stock of a Subsidiary
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 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 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
(4) depreciation, amortization (including amortization of goodwill and
other intangibles but
<PAGE> 13
7
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 the Issuer shall be added to Consolidated Net Income
to compute Consolidated Cash Flow of the Issuer 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
the Issuer 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 the Issuer outstanding as of the most recent available quarterly or annual
balance sheet to (2) the Consolidated Cash Flow of the Issuer 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 or Preferred Stock of a Subsidiary 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 period, in each case as if they had
occurred and
<PAGE> 14
8
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
<PAGE> 15
9
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.
"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 who:
(1) was a member of the Board of Directors on the Issue Date; or
(2) was nominated for election or elected to the Board of Directors
with the approval of a majority of the Continuing Directors who were
members of the Board of Directors 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.
<PAGE> 16
10
"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 the Issuer 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
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 Securities mature. Notwithstanding the preceding
sentence, any Capital Stock that would constitute Disqualified Stock solely
because the holders thereof have the right to require the Issuer 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 the Issuer may not repurchase or redeem any such Capital Stock
pursuant to such provisions unless such repurchase or redemption complies with
Section 4.04.
"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).
"Equity Offering" means any public or private sale of Equity Interests
(other than Disqualified Stock) of the Issuer, other than private sales to an
Affiliate of the Issuer.
"Event of Default" has the meaning set forth in Section 6.01.
"Exchange Act" means the Securities Exchange Act of 1934, as amended (or
any successor act) and the rules and regulations thereunder.
"Existing Indebtedness" means Indebtedness of the Issuer and its
Subsidiaries (other than Indebtedness under
<PAGE> 17
11
the Credit Agreement) in existence on the Issue Date, until such amounts are
repaid.
"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.
"Globalstar" means Globalstar, L.P., a Delaware limited partnership.
"GTL" means Globalstar Telecommunications Limited, a Bermuda company.
"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 Person against fluctuations in interest rates or currency exchange
rates.
"Holders" means the registered holders from time to time of the Securities.
"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
<PAGE> 18
12
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 paragraph
(b) of Section 4.05 or (B) the notional amount of such obligation if not
incurred pursuant to such clause.
"Indenture" means this Indenture as amended or supplemented from time to
time.
"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
employees made in the ordinary course of business), purchases or other
acquisitions for consideration of Indebtedness, Equity
<PAGE> 19
13
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 or
senior management of the Issuer) extensions of credit to, or Investments made
in, any Person in connection with the purchase or sale of satellites or
satellite services. If the Issuer or any Restricted Subsidiary of the Issuer
sells or otherwise disposes of any Equity Interests of any direct or indirect
Restricted Subsidiary of the Issuer such that, after giving effect to any such
sale or disposition, such Person is no longer a Restricted Subsidiary of the
Issuer and is not a Permitted Venture, the Issuer 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 paragraph (c) of Section
4.04.
"Issue Date" means the date on which the Securities 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.
"Liquidated Damages" means additional cash interest with respect to the
Securities payable upon the occurrence of certain events as specified in the
Registration Rights Agreement dated as of January 21, 1999, among the Issuer and
the Initial Purchasers named therein.
"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 the Issuer 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
<PAGE> 20
14
determined on the date of the contract relating to such Asset Sale.
"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 the Issuer 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 the Issuer 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 the Issuer 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,
<PAGE> 21
15
reimbursements, damages and other liabilities payable under the documentation
governing any Indebtedness.
"Offer to Purchase" means a written offer (the "Offer") sent by the Issuer
by first class mail, postage prepaid, to each Holder at his address appearing in
the Securities register on the date of the Offer offering to purchase up to the
principal amount of Securities specified in such Offer at the purchase price
specified in such Offer (as determined pursuant to this Indenture). Unless
otherwise required by applicable law, the Offer shall specify an expiration date
(the "Expiration Date") of the Offer to Purchase which shall be, subject to any
contrary requirements of applicable law, not less than 30 days or more than 60
days after the date of such Offer and a settlement date for purchase of
Securities within five Business Days after the Expiration Date. The Issuer shall
notify the Trustee at least 15 Business Days (or such shorter period as is
acceptable to the Trustee) prior to the mailing of the Offer of the Issuer's
obligation to make an Offer to Purchase, and the Offer shall be mailed by the
Issuer or, at the Issuer's request, by the Trustee in the name and at the
expense of the Issuer. The Offer shall contain information concerning the
business of the Issuer and its Subsidiaries which the Issuer in good faith
believes will enable such Holders to make an informed decision with respect to
the Offer to Purchase (which at a minimum shall include (1) the most recent
annual and quarterly financial statements and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" contained in the
documents required to be filed with the Trustee pursuant to this Indenture
(which requirements may be satisfied by delivery of such documents together with
the Offer), (2) a description of material developments in the Issuer's business
subsequent to the date of the latest of such financial statements referred to in
clause (1) (including a description of the events requiring the Issuer to make
the Offer to Purchase), (3) if applicable, appropriate pro forma financial
information concerning the Offer to Purchase and the events requiring the Issuer
to make the Offer to Purchase and (4) any other information required by
applicable law to be included therein). The Offer shall contain all instructions
and materials necessary to enable such Holders to tender Securities pursuant to
the Offer to Purchase.
"Officer" means the Chairman of the Board, the President, any Vice
President, the Treasurer or the Secretary of the Issuer.
<PAGE> 22
16
"Officers' Certificate" means a certificate signed by two Officers.
"Opinion of Counsel" means an opinion from legal counsel who is acceptable
to the Trustee. The counsel may be an employee of, or counsel to, the Issuer or
the Trustee.
"Permitted Business" means any of the lines of business conducted by the
Issuer 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.
"Permitted Investments" means:
(1) any Investment in the Issuer or in a Restricted Subsidiary of the
Issuer;
(2) any Investment in Cash Equivalents;
(3) any Investment by the Issuer or any Restricted Subsidiary of the
Issuer in a Person engaged in a Permitted Business, if as a result of such
Investment:
(A) such Person becomes a Restricted Subsidiary of the Issuer; 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, the Issuer or a Restricted Subsidiary of the
Issuer;
(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 Section 4.14.
(5) any acquisition of assets solely in exchange for the issuance of
Equity Interests (other than Disqualified Stock) of the Issuer;
(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 the Issuer's equity
<PAGE> 23
17
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 the Issuer's
Consolidated Tangible Assets.
"Permitted Liens" means:
(1) Liens on assets of the Issuer or its Restricted Subsidiaries
securing Indebtedness and other Obligations under Credit Facilities that
are permitted by the terms of this Indenture to be incurred;
(2) Liens in favor of the Issuer or any of its Restricted
Subsidiaries;
(3) Liens on property of a Person existing at the time such Person is
merged with or into or consolidated with the Issuer or any Restricted
Subsidiary of the Issuer; 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
the Issuer or the Restricted Subsidiary;
(4) Liens on property existing at the time of acquisition thereof by
the Issuer or any Restricted Subsidiary of the Issuer; 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 paragraph (b) of Section 4.05;
(7) Liens existing on the Issue Date and Liens the Issuer or any
Restricted Subsidiary are or may be obligated to create pursuant to
agreements in existence on the Issue Date;
<PAGE> 24
18
(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 the Issuer or
any Restricted Subsidiary of the Issuer with respect to obligations that do
not exceed $50 million at any one time outstanding;
(10) other Liens incidental to the conduct of the Issuer'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 the Issuer'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 the Issuer
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 Indebtedness of the Issuer 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;
<PAGE> 25
19
(3) if the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded is subordinated in right of payment to the Securities,
such Permitted Refinancing Indebtedness has a final maturity date later
than the final maturity date of, and is subordinated in right of payment
to, the Securities on terms at least as favorable to the Holders of
Securities 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 the Issuer 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
of the Issuer engaged in one or more Permitted Businesses in respect of
which the Issuer 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 the Issuer or a Subsidiary of the Issuer), 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) GTL, so long as Globalstar is a Permitted Venture and GTL's
principal asset consists of Equity Interests in Globalstar.
"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.
<PAGE> 26
20
"principal" of a Security means the principal of the Security plus the
premium, if any, payable on the Secu rity which is due or overdue or is to
become due at the relevant time.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Payment" with respect to any Person means:
(1) the declaration or payment of any dividend or the making of any
other payment or distribution on account of its Equity Interests
(including, without limitation, any distribution, dividend or payment in
connection with any merger or consolidation involving the Issuer or any of
its Restricted Subsidiaries) or to the direct or indirect holders of its
Equity Interests in their capacity as such (other than dividends or
distributions payable in Equity Interests (other than Disqualified Stock)
of the Issuer or to the Issuer or a Restricted Subsidiary of the Issuer);
(2) the purchase, redemption or other acquisition or retirement for
value (including, without limitation, in connection with any merger or
consolidation involving the Issuer) of any Equity Interests of the Issuer,
any Restricted Subsidiary of the Issuer or any direct or indirect parent of
the Issuer;
(3) the making of any payment on or with respect to, or the purchase,
redemption, defeasance or other acquisition or retirement for value of any
Indebtedness that is subordinated to the Securities, except the scheduled
payment of interest or principal at the Stated Maturity thereof; or
(4) the making of any Restricted Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of such Person
that is not an Unrestricted Subsidiary.
"Sale and Leaseback Transaction" means an arrangement relating to property
now owned or hereafter acquired whereby the Issuer or a Restricted Subsidiary
transfers such property to a Person and the Issuer or a Restricted Subsidiary
leases it from such Person.
"Securities" means the Securities issued under this Indenture.
<PAGE> 27
21
"Securities Act" means the Securities Act of 1933, as amended (or any
successor act) and the rules and regulations thereunder.
"Series C Preferred Stock" means the Issuer'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 Commission, 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.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. ss.ss. 77aaa-77bbbb)
as in effect on the date of this Indenture, except as provided by Section 9.03.
"Total Indebtedness" means, at any time of determination, without
duplication, the sum of (1) all Indebtedness of the Issuer 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 the Issuer's Restricted Subsidiaries, in each case as determined on a
consolidated basis in accordance with GAAP.
"Trust Officer" means any officer or assistant officer of the Trustee
assigned by the Trustee to administer its corporate trust matters.
<PAGE> 28
22
"Trustee" means the party named as such in this Indenture until a successor
replaces it and, thereafter, means the successor.
"Uniform Commercial Code" means the New York Uniform Commercial Code as in
effect from time to time.
"Unrestricted Subsidiary" means any Subsidiary of the Issuer that is
designated by the Board of Directors as an Unrestricted Subsidiary pursuant to a
resolution of the Board of Directors, 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 the Issuer or any Restricted Subsidiary of the Issuer
unless the terms of any such agreement, contract, arrangement or
understanding are no less favorable to the Issuer or such Restricted
Subsidiary than those that might be obtained at the time from Persons who
are not Affiliates of the Issuer;
(3) is a Person with respect to which neither the Issuer 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 the Issuer 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 the Issuer or any of its Restricted
Subsidiaries and has at least one executive officer that is not a director
or executive officer of the Issuer or any of its Restricted Subsidiaries.
Any designation of a Subsidiary of the Issuer as an Unrestricted Subsidiary
shall be evidenced to the Trustee by filing with the Trustee a certified copy of
the resolution of the Board of Directors giving effect to such designation and
an Officers' Certificate certifying that such
<PAGE> 29
23
designation complied with the preceding conditions and was permitted by Section
4.04. 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 this Indenture and any
Indebtedness of such Subsidiary shall be deemed to be incurred by a Restricted
Subsidiary of the Issuer as of such date and, if such Indebtedness is not
permitted to be incurred as of such date under Section 4.05, the Issuer shall be
in default of such Section. The Board of Directors 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 Restricted
Subsidiary of the Issuer 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 Section 4.05, 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.
"U.S. Government Obligations" means direct obligations (or certificates
representing an ownership interest in such obligations of the United States of
America (including any agency or instrumentality thereof) for the payment of
which the full faith and credit of the United States of America is pledged and
which are not callable or redeemable at the issuer's option.
"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.
<PAGE> 30
24
"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.
SECTION 1.02. Other Definitions.
Defined in
Term Section
---- -------
"Additional Amounts" ................... 4.15
"Affected Securities" .................. 3.07
"Affiliate Transaction" ................ 4.10
"Appendix" ............................. 2.01
"Bankruptcy Law" ....................... 6.01
"Change of Control Payment"............. 4.13
"Change of Control Payment Date"........ 4.13
"Change of Law"......................... 3.07
"covenant defeasance option" ........... 8.01(b)
"Custodian" ............................ 6.01
"Exchange Securities" .................. Recital
"Excess Proceeds"....................... 4.14
"Guarantor"............................. 4.11
"incur"................................. 4.05
"Initial Securities" ................... Recital
"Issuer" ............................... Preamble
"legal defeasance option" .............. 8.01(b)
"Legal Holiday" ........................ 10.08
"Notice of Default" .................... 6.01
"Paying Agent" ......................... 2.03
"Payment Default"....................... 6.01
"Permitted Debt"........................ 4.05
"Private Exchange Securities" .......... Recital
"Relevant Jurisdiction"................. 4.15
"Registrar"............................. 2.03
"Securities" ........................... Recital
"Special Tax Redemption"................ 3.07
"Taxes"................................. 4.15
"Trustee" .............................. Preamble
"United States Taxes".................. 3.07
<PAGE> 31
25
SECTION 1.03. Incorporation by Reference of Trust Indenture Act. This
Indenture is subject to the mandatory provisions of the TIA which are
incorporated by reference in and made a part of this Indenture. The following
TIA terms have the following meanings:
"Commission" means the Commission;
"indenture securities" means the Securities;
"indenture security holder" means a Holder;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the Trustee; and
"obligor" on the indenture securities means the Issuer and any other
obligor on the indenture securities.
All other TIA terms used in this Indenture that are defined by the TIA,
defined by TIA reference to another statute or defined by Commission rule have
the meanings assigned to them by such definitions.
SECTION 1.04. Rules of Construction. Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning assigned
to it in accordance with GAAP;
(3) "or" is not exclusive;
(4) "including" means including without limita tion;
(5) words in the singular include the plural and words in the plural
include the singular;
(6) unsecured Indebtedness shall not be deemed to be subordinate or
junior to secured Indebtedness merely by virtue of its nature as unsecured
Indebtedness;
(7) the principal amount of any noninterest bearing or other discount
security at any date shall be the principal amount thereof that would be
shown on a balance sheet of the issuer dated such date prepared in
accordance with GAAP but accretion of principal on such
<PAGE> 32
26
security shall not be deemed to be the incurrence of Indebtedness;
(8) the principal amount of any Preferred Stock shall be (i) the
maximum liquidation value of such Preferred Stock or (ii) the maximum
mandatory redemp tion or mandatory repurchase price with respect to such
Preferred Stock, whichever is greater;
(9) all references to the date the Securities were originally issued
and, with respect to the covenants set forth in Article IV (and the related
definitions) references to the Issue Date shall refer to the date the
Initial Securities were originally issued; and
(10) the terms "redemption" and "redeemable" shall not be deemed to refer
to Offers to Purchase or to repurchases pursuant to Section 4.13 or similar
offers or repurchases.
<PAGE> 33
27
ARTICLE 2
The Securities
SECTION 2.01. Form and Dating. Provisions relating to the Initial
Securities, the Private Exchange Securities and the Exchange Securities are set
forth in the Rule 144A/Regulation S Appendix attached hereto (the "Appendix")
which is hereby incorporated in and expressly made part of this Indenture. The
Initial Securities and the Trustee's certificate of authentication shall be
substantially in the form of Exhibit 1 to the Appendix which is hereby
incorporated in and expressly made a part of this Indenture. Any subsequent
series of Securities and the Trustee's certificate of authentication shall be in
substantially the form of Exhibit A, in each case with such appropriate
insertions, omissions, substitutions and other variations as are required or
permitted by this Indenture as may, consistently herewith, be determined by the
officers executing such Securities, as evidenced by their execution thereof. If
the form of Securities of any series is established by action taken pursuant to
a resolution of the Board, a copy of an appropriate record of such action shall
be certified by the Secretary or an Assistant Secretary of the Issuer and
delivered to the Trustee at or prior to the delivery of the written order of the
Issuer in the form of an Officers' Certificate contemplated by Section 2.02 for
the authentication and delivery of such Securities. The Exchange Securities, the
Private Exchange Securities and the Trustee's certificate of authentication
shall be substantially in the form of Exhibit A, which is hereby incorporated in
and expressly made a part of this Indenture. The Securities may have notations,
legends or endorsements required by law, stock exchange rule, agreements to
which the Issuer is subject, if any, or usage (provided that any such notation,
legend or endorsement is in a form acceptable to the Issuer). Each Security
shall be dated the date of its authentication. The terms of the Securities set
forth in the Appendix and Exhibit A are part of the terms of this Indenture.
SECTION 2.02. Execution and Authentication. Two Officers shall sign the
Securities for the Issuer by manual or facsimile signature.
If an Officer whose signature is on a Security no longer holds that office
at the time the Trustee authenti cates the Security, the Security shall be valid
neverthe less.
<PAGE> 34
28
At any time and from time to time after the execution and delivery of this
Indenture, the Issuer may deliver Securities of any series executed by the
Issuer to the Trustee for authentication, together with a written order of the
Issuer in the form of an Officers' Certificate for the authentication and
delivery of such Securities, and the Trustee in accordance with such written
order of the Issuer shall authenticate and deliver such Securities. If the form
or terms of the Securities of the series have been established by or pursuant to
a resolution of the Board as permitted by Section 2.13, in authenticating such
Securities, and accepting the additional responsibilities under this Indenture
in relation to such Securities, the Trustee shall be entitled to receive, and
(subject to Section 7.01) shall be fully protected in relying upon, an Opinion
of Counsel stating:
(1) if the form of such Securities has been established by or pursuant
to a resolution of the Board, that such form has been established in
conformity with the provisions of this Indenture;
(2) if the terms of such Securities have been established by or
pursuant to a resolution of the Board as permitted by Section 2.13, that
such terms have been established in conformity with the provisions of this
Indenture; and
(3) that such Securities, when authenticated and delivered by the
Trustee and issued by the Issuer in the manner and subject to any
conditions specified in such Opinion of Counsel, will constitute valid and
legally binding obligations of the Issuer enforceable in accordance with
their terms, subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general applicability
relating to or affecting creditors' rights and to general equity
principles.
If such form or terms have been so established, the Trustee shall not be
required to authenticate such Securities if the issue of such Securities
pursuant to this Indenture will affect the Trustee's own rights, duties or
immunities under the Securities and this Indenture or otherwise in a manner
which is not reasonably acceptable to the Trustee.
Notwithstanding the provisions of Section 2.13 and the preceding paragraph,
if all Securities of a series are not to be originally issued at one time, it
shall not be necessary to delivery the Officers' Certificate otherwise required
pursuant to Section 2.13 or the written order of
<PAGE> 35
29
the Company in the form of an Officers' Certificate and Opinion of Counsel
otherwise required pursuant to such preceding paragraph at or prior to the
authentication of each Security of such series if such documents are delivered
at or prior to the authentication upon original issuance of the first Security
of such series to be issued.
A Security shall not be valid until an authorized signatory of the Trustee
manually signs the certificate of authentication on the Security. The signature
shall be con clusive evidence that the Security has been authenticated under
this Indenture.
The Trustee shall authenticate and deliver Securities for original issue
upon a written order of the Issuer signed by two Officers or by an Officer and
either an Assistant Treasurer or an Assistant Secretary of the Issuer. Such
order shall specify the amount of the Securities to be authenticated and the
date on which the original issue of Securities is to be authenticated. The
aggregate principal amount of Securities outstanding at any time may not exceed
that amount except as provided in Section 2.07.
The Trustee may appoint an authenticating agent reasonably acceptable to
the Issuer to authenticate the Securities. Unless limited by the terms of such
appoint ment, an authenticating agent may authenticate Securities whenever the
Trustee may do so. Each reference in this Indenture to authentication by the
Trustee includes authen tication by such agent. An authenticating agent has the
same rights as any Registrar, Paying Agent or agent for service of notices and
demands.
SECTION 2.03. Registrar and Paying Agent. The Issuer shall maintain an
office or agency where Securities may be presented for registration of transfer
or for exchange (the "Registrar") and an office or agency where Securities may
be presented for payment (the "Paying Agent"). The Registrar shall keep a
register of the Secur ities and of their transfer and exchange. The Issuer may
have one or more co-registrars and one or more additional paying agents. The
term "Paying Agent" includes any addi tional paying agent.
The Issuer shall enter into an appropriate agency agreement with any
Registrar, Paying Agent or co-registrar not a party to this Indenture, which
shall incorporate the terms of the TIA. The agreement shall implement the provi
sions of this Indenture that relate to such agent. The Issuer shall notify the
Trustee of the name and address of any such agent. If the Issuer fails to
maintain a Registrar
<PAGE> 36
30
or Paying Agent, the Trustee shall act as such and shall be entitled to
appropriate compensation therefor pursuant to Section 7.07. The Issuer or any of
its Wholly Owned Subsidiaries incorporated in the United States may act as
Paying Agent, Registrar, co-registrar or transfer agent.
The Issuer initially appoints the Trustee as Registrar and Paying Agent in
connection with the Securi ties.
SECTION 2.04. Paying Agent To Hold Money in Trust. Prior to each due date
of the principal and interest and Liquidated Damages (if any) on any Security,
the Issuer shall deposit with the Paying Agent a sum sufficient to pay such
principal and interest and Liquidated Damages (if any) when so becoming due. The
Issuer shall require each Paying Agent (other than the Trustee) to agree in
writing that the Paying Agent shall hold in trust for the benefit of Holders or
the Trustee all money held by the Paying Agent for the payment of principal of
or interest and Liquidated Damages (if any) on the Securities and shall notify
the Trustee of any default by the Issuer in making any such payment. If the
Issuer or a Subsidiary of the Issuer acts as Paying Agent, it shall segregate
the money held by it as Paying Agent and hold it as a separate trust fund. The
Issuer at any time may require a Paying Agent to pay all money held by it to the
Trustee and to account for any funds disbursed by the Paying Agent. Upon
complying with this Section, the Paying Agent shall have no further liability
for the money delivered to the Trustee.
SECTION 2.05. Holder Lists. The Trustee shall preserve in as current a form
as is reasonably practicable the most recent list available to it of the names
and addresses of the Holders. If the Trustee is not the Registrar, the Issuer
shall furnish to the Trustee, in writing at least five Business Days before each
interest payment date and at such other times as the Trustee may request in
writing, a list in such form and as of such date as the Trustee may reasonably
require of the names and addresses of the Holders.
SECTION 2.06. Transfer and Exchange. The Securities shall be issued in
registered form and shall be transferable only upon the surrender of a Security
for registration of transfer. When a Security is presented to the Registrar or a
co-registrar with a request to register a transfer, the Registrar shall register
the transfer as requested if the requirements of Section 8-401(1) (or any
successor provision thereto) of the Uniform Commercial Code are met. When
Securities are presented to the Registrar or a co-registrar with a request to
exchange them for an equal
<PAGE> 37
31
principal amount of Securities of other denominations, the Registrar shall make
the exchange as requested if the same requirements are met. To permit
registration of transfers and exchanges, the Issuer shall execute and the
Trustee shall authenticate Securities at the Registrar's or co-registrar's
request. The Issuer may require payment of a sum sufficient to pay all taxes,
assessments or other governmental charges in connection with any transfer or
exchange pursuant to this Section 2.06. The Issuer shall not be required to make
and the Registrar need not register transfers or exchanges of Securities
selected for redemption (except, in the case of Securities to be redeemed in
part, the portion thereof not to be redeemed) or any Securities for a period of
15 days before a selection of Securities to be redeemed or 15 days before an
interest payment date.
Prior to the due presentation for registration of transfer of any Security,
the Issuer, the Trustee, the Paying Agent, the Registrar or any co-registrar may
deem and treat the person in whose name a Security is registered as the absolute
owner of such Security for the purpose of receiving payment of principal of and
interest and Liquidated Damages (if any) on such Security and for all other
purposes whatsoever, whether or not such Security is overdue, and none of the
Issuer, the Trustee, the Paying Agent, the Registrar or any co-registrar shall
be affected by notice to the contrary.
All Securities issued upon any transfer or exchange pursuant to the terms
of this Indenture will evidence the same debt and will be entitled to the same
benefits under this Indenture as the Securities surrendered upon such transfer
or exchange.
SECTION 2.07. Replacement Securities. If a mutilated Security is
surrendered to the Registrar or if the Holder of a Security claims that the
Security has been lost, destroyed or wrongfully taken, the Issuer shall issue
and the Trustee shall authenticate a replacement Security if the requirements of
Section 8-405 (or any successor provision thereto) of the Uniform Commercial
Code are met and the Holder satisfies any other reasonable requirements of the
Trustee. Such Holder shall furnish an indemnity bond sufficient in the judgment
of the Issuer and the Trustee to protect the Issuer, the Trustee, the Paying
Agent, the Registrar and any co-registrar from any loss which any of them may
suffer if a Security is replaced. The Issuer and the Trustee may charge the
Holder for their expenses in replacing a Security.
<PAGE> 38
32
Every replacement Security is an additional obligation of the Issuer.
SECTION 2.08. Outstanding Securities. Securities outstanding at any time
are all Securities authenticated by the Trustee except for those canceled by it,
those delivered to it for cancelation and those described in this Section as not
outstanding. A Security does not cease to be outstand ing because the Issuer or
an Affiliate of the Issuer holds the Security.
If a Security is replaced pursuant to Sec tion 2.07, it ceases to be
outstanding unless the Trustee and the Issuer receive proof satisfactory to them
that the replaced Security is held by a bona fide purchaser.
If the Paying Agent segregates and holds in trust, in accordance with this
Indenture, on a redemption date or maturity date money sufficient to pay all
principal and interest and Liquidated Damages (if any) payable on that date with
respect to the Securities (or portions thereof) to be redeemed or maturing, as
the case may be, then on and after that date such Securities (or portions
thereof) cease to be outstanding and interest and Liquidated Damages (if any) on
them ceases to accrue.
SECTION 2.09. Temporary Securities. Until definitive Securities are ready
for delivery, the Issuer may prepare and the Trustee shall authenticate
temporary Securities. Temporary Securities shall be substantially in the form of
definitive Securities but may have variations that the Issuer considers
appropriate for temporary Secur ities. Without unreasonable delay, the Issuer
shall prepare and the Trustee shall authenticate definitive Securities and
deliver them in exchange for temporary Securities.
SECTION 2.10 Cancelation. The Issuer at any time may deliver Securities to
the Trustee for cancelation. The Registrar and the Paying Agent shall forward to
the Trustee any Securities surrendered to them for registration of transfer,
exchange or payment. The Trustee and no one else shall cancel and may, but shall
not be required to, destroy (subject to the record retention requirements of the
Exchange Act) all Securities surrendered for registration of transfer, exchange,
payment or cancelation unless the Issuer directs the Trustee to deliver canceled
Securities to the Issuer. The Issuer may not issue new Securities to replace
Securities it has redeemed, paid or delivered to the Trustee for cancelation.
<PAGE> 39
33
SECTION 2.11. Defaulted Interest. If the Issuer defaults in a payment of
interest and Liquidated Damages (if any) on the Securities, the Issuer shall pay
defaulted interest and Liquidated Damages (if any) (plus interest on such
defaulted interest and Liquidated Damages (if any) to the extent lawful) in any
lawful manner. The Issuer may pay the defaulted interest and Liquidated Damages
(if any) to the persons who are Holders on a subsequent special record date. The
Issuer shall fix or cause to be fixed any such special record date and payment
date to the reasonable satisfaction of the Trustee and shall promptly mail to
each Holder a notice that states the special record date, the payment date and
the amount of defaulted interest and Liquidated Damages (if any) to be paid.
SECTION 2.12. CUSIP Numbers. The Issuer in issuing the Securities may use
"CUSIP" numbers (if then generally in use) and, if so, the Trustee shall use
"CUSIP" numbers in notices of redemption as a convenience to Holders; provided,
however, that any such notice may state that no representation is made as to the
correctness of such numbers either as printed on the Securities or as contained
in any notice of a redemption and that reliance may be placed only on the other
identification numbers printed on the Securities, and any such redemption shall
not be affected by any defect in or omission of such numbers. The Issuer shall
promptly notify the Trustee of any change in the CUSIP numbers.
SECTION 2.13 Amount of Securities; Issuable in Series. The aggregate
principal amount of Securities which may be authenticated and delivered under
this Indenture is $500,000,000. The Trustee shall authenticate Securities for
original issuance on January 21, 1999 in the aggregate principal amount of
$350,000,000.
The Securities may be issued in one or more series. All Securities shall be
identical in all respects other than interest rates, issuance dates and issuance
prices. There shall be established in or pursuant to a resolution of the Board
of Directors and, subject to Section 2.03, set forth, or determined in the
manner provided in an Officers' Certificate, or established in one or more
indentures supplemental hereto, prior to the issuance of Securities of any
series:
(1) the title of the Securities of the series (which shall distinguish
the Securities of the series from Securities of any other series);
<PAGE> 40
34
(2) the aggregate principal amount of the Securities of the series
which may be authenticated and delivered under this Indenture, which shall
be in aggregate principal amounts of not less than $10 million per series
and not to exceed $150 million in the aggregate (except for Securities
authenticated and delivered upon registration of transfer of, or in
exchange for, or in lieu of, other Securities of the series pursuant to
Sections 2.06, 2.07 or 2.09 and except for Securities which, pursuant to
Section 2.02, are deemed never to have been authenticated and delivered
hereunder);
(3) the rate at which any Securities of the series shall bear
interest, the date from which any such interest shall accrue, the interest
payment dates on which such interest shall be payable and the record date
for such interest payable on any interest payment Date; and
(4) if applicable, that any Securities of the series shall be issuable
in whole or in part in the form or one or more global Securities and, in
such case, the respective depositories for such Global Securities, the form
of any legend or legends which shall be borne by any such global Security
in addition to or in lieu of that set forth in the Appendix and any
circumstances in addition to or in lieu of those set forth in the Appendix
in which any such global Security maybe exchanged in whole or in part for
Securities registered, and any transfer of such global Security in whole or
in part may be registered, in the name or names of Persons other than the
depository for such global Security or a nominee thereof.
All Securities of any one series shall be substantially identical except as
to denomination. All series shall be identical in all respects other than
interest rate and issuance dates.
If any of the terms of any series are established by action taken pursuant
to a resolution of the Board of Directors, a copy of an appropriate record of
such action shall be certified by the Secretary or any Assistant Secretary of
the Issuer and delivered to the Trustee at or prior to the delivery of the
Officers' Certificate or the supplemental indenture setting forth the terms of
the series.
<PAGE> 41
35
ARTICLE 3
Redemption
SECTION 3.01. Right of Redemption. (a) Except pursuant to paragraph (b) of
this Section 3.01 and as set forth in Section 3.08, the Securities will not be
redeemable at the option of the Issuer prior to January 15, 2003. Thereafter,
the Securities will be redeemable, at the Issuer's option, in whole or in part,
at any time or from time to time, upon not less than 30 nor more than 60 days'
prior notice mailed by first-class mail to each Holder's registered address, at
the following redemption prices (expressed in percentages of principal amount),
plus accrued and unpaid interest, Additional Amounts and Liquidated Damages, if
any, to the applicable redemption date (subject to the right of Holders of
record on the relevant record date to receive interest due on the relevant
interest payment date) if redeemed during the 12-month period commencing on
January 15 of the years set forth below:
<TABLE>
<CAPTION>
Redemption
Year Price
---- -----
<S> <C>
2003............................................. 104.750%
2004............................................. 102.375%
2005 and thereafter.............................. 100.000%
</TABLE>
(b) In addition, at any time and from time to time prior to January 15,
2002, the Issuer may on any one or more occasions redeem up to 35% of the
aggregate principal amount of Securities originally issued under this Indenture
at a redemption price (expressed as a percentage of principal amount) of
109.500%, 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 Securities originally issued remain outstanding immediately after each
such redemption (excluding Securities held by the Issuer and its Subsidiaries)
and (2) the redemption must occur within 60 days of the date of the closing of
such Equity Offering.
(c) In the case of any partial redemption (other than a redemption pursuant
to paragraph (b) of this Section 3.01), selection of the Securities for
redemption will be made by the Trustee on a pro rata basis, by lot or by such
other method as the Trustee in its sole discretion shall deem to be fair and
appropriate, although no Security of $1,000 in original principal amount or less
shall be redeemed in part. If any Security is to be redeemed in part
<PAGE> 42
36
only, the notice of redemption relating to such Security shall state the portion
of the principal amount thereof to be redeemed. A new Security in principal
amount equal to the unredeemed portion thereof will be issued in the name of the
Holder thereof upon cancelation of the original Security.
SECTION 3.02. Notices to Trustee. If the Issuer elects to redeem Securities
pursuant to Section 3.01 or 3.08, it shall notify the Trustee in writing of the
redemption date, the principal amount of Securities to be redeemed and the
section of this Indenture pursuant to which the redemption will occur.
The Issuer shall give each notice to the Trustee provided for in this
Section 3.02 at least 60 days before the redemption date unless the Trustee
consents to a shorter period. Such notice shall be accompanied by an Officers'
Certificate and an Opinion of Counsel from the Issuer to the effect that such
redemption will comply with the relevant conditions herein.
SECTION 3.03. Selection of Securities To Be Redeemed. If less than all the
Securities are to be redeemed at any time (other than pursuant to Section 3.08),
the Trustee shall select the Securities to be redeemed by a method that complies
with the requirements of the principal national securities exchange, if any, on
which the Securities are listed, or if the Securities are not listed, on a pro
rata basis, by lot or by such method as the Trustee in its sole discretion shall
deem to be fair and appropriate and in accordance with methods generally used at
the time of selection by fiduciaries in similar circumstances. The Trustee shall
make the selection from outstanding Securities not previously called for
redemption. The Trustee may select for redemption portions of the principal of
Secur ities that have denominations larger than $1,000. Secur ities and portions
of them the Trustee selects shall be in amounts of $1,000 or a whole multiple of
$1,000. Provisions of this Indenture that apply to Securities called for
redemption also apply to portions of Securities called for redemption. The
Trustee shall notify the Issuer promptly of the Securities or portions of
Securities to be redeemed.
SECTION 3.04. Notice of Redemption. At least 30 days but not more than 60
days before a date for redemp tion of Securities, the Issuer shall mail a notice
of redemption by first-class mail to each Holder of Securities to be redeemed at
such Holder's registered address.
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The notice shall identify the Securities (including CUSIP number(s), if
any) to be redeemed and shall state:
(1) the redemption date;
(2) the redemption price;
(3) the name and address of the Paying Agent;
(4) that Securities called for redemption must be surrendered to the
Paying Agent to collect the redemp tion price;
(5) if fewer than all the outstanding Securities are to be redeemed,
the identification and principal amounts of the particular Securities to be
redeemed;
(6) that, unless the Issuer defaults in making such redemption payment
or the Paying Agent is pro hibited from making such payment pursuant to the
terms of this Indenture, interest and Liquidated Damages (if any) on
Securities (or portion thereof) called for redemption ceases to accrue on
and after the redemption date;
(7) the paragraph of the Securities pursuant to which the Securities
called for redemption are being redeemed; and
(8) that no representation is made as to the correctness or accuracy
of the CUSIP number, if any, listed in such notice or printed on the
Securities.
At the Issuer's request, the Trustee shall give the notice of redemption in
the Issuer's name and at the Issuer's expense. In such event, the Issuer shall
provide the Trustee with the information required by this Section 3.04.
SECTION 3.05. Effect of Notice of Redemption. Once notice of redemption is
mailed, Securities called for redemption become due and payable on the
redemption date and at the redemption price stated in the notice. Upon surren
der to the Paying Agent, such Securities shall be paid at the redemption price
stated in the notice, plus accrued interest and Liquidated Damages (if any) to
the redemption date. Failure to give notice or any defect in the notice to any
Holder shall not affect the validity of the notice to any other Holder.
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SECTION 3.06. Deposit of Redemption Price. On or prior to the redemption
date, the Issuer shall deposit with the Paying Agent (or, if the Issuer or a
Subsidiary of the Issuer is the Paying Agent, shall segregate and hold in trust)
money sufficient to pay the redemption price of and accrued interest and
Liquidated Damages (if any) on all Securities to be redeemed on that date other
than Securities or portions of Securities called for redemption which have been
delivered by the Issuer to the Trustee for cancelation.
SECTION 3.07. Securities Redeemed in Part. Upon surrender of a Security
that is redeemed in part, the Issuer shall execute and the Trustee shall
authenticate for the Holder (at the Issuer's expense) a new Security equal in
principal amount to the unredeemed portion of the Security surrendered.
SECTION 3.08. Special Tax Redemption. If the Issuer 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 Security
(an "Affected Security" and, collectively, the "Affected Securities"), any
Additional Amounts as a result of a change in or an amendment to the laws
(including any regulations promulgated thereunder) of any Relevant Jurisdiction,
or any change in or amendment to any official position regarding the application
or interpretation of such laws or regulations, which change or amendment becomes
effective on or after the Issue Date and which change shall not have been
disclosed to the public prior to the Issue Date, and that such obligation cannot
be avoided by the Issuer taking reasonable measures available to it, then the
Issuer may redeem, at its option, all the Affected Securities (but, except
pursuant to clause (3) below, not less than all the Affected Securities), 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 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 (1) no
such notice of redemption may be given earlier than 60 days prior to the
earliest date on which the Issuer would be obligated to pay such Additional
Amounts were a payment in respect of the Securities then due, (2) at the time
any such Special Tax Redemption notice is given, such obligation to pay such
Additional Amounts must remain in effect and (3) the Issuer may redeem the
Affected Securities in part if the Issuer redeems all Affected Securities held
by Holders in respect of which, as a result of the foregoing, the Issuer is or
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39
would be obligated to pay Additional Amounts based on a withholding tax rate in
excess of 10%. Notwithstanding the foregoing, the Issuer may not redeem the
Affected Securities if the Issuer 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 such laws or regulations (any
such change in or amendment to, a "Change of Law"), of a Relevant Jurisdiction
that occurs or is disclosed on or before the six month anniversary of the date
on which such Relevant Jurisdiction became a Relevant Jurisdiction; provided,
however, that if the Issuer 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 ("United States
Taxes"), this restriction on the Issuer's ability to redeem the Affected
Securities shall not apply unless the Change of Law occurs or is disclosed
before the date of such reincorporation and shall not apply if, absent such
reincorporation, (1) the Issuer would nonetheless have been required to pay
Additional Amounts with respect to such Affected Securities in respect of such
United States Taxes and (2) without regard to this proviso, the Issuer would
have been entitled to redeem such Affected Securities pursuant to a Special Tax
Redemption as a result of such payment of Additional Amounts.
ARTICLE 4
Covenants
SECTION 4.01. Intentionally Omitted.
SECTION 4.02. Payment of Securities. The Issuer shall promptly pay the
principal of and interest and Liquidated Damages (if any) on the Securities on
the dates and in the manner provided in the Securities and in this Indenture.
Principal, interest and Liquidated Damages (if any) shall be considered paid on
the date due if on such date the Trustee or the Paying Agent holds in accordance
with this Indenture money sufficient to pay all principal, interest and
Liquidated Damages (if any) then due.
The Issuer shall pay interest on overdue principal at the rate specified
therefor in the Securities, and shall pay interest on overdue installments of
interest and Liquidated Damages (if any) at the same rate to the extent lawful.
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SECTION 4.03. Reports. (a) Whether or not required by the Commission, so
long as any Securities are outstanding, the Issuer shall furnish to the Holders
of Securities, within the time periods specified in the Commission's rules and
regulations:
(1) all quarterly and annual financial information that would be
required to be contained in a filing with the Commission on Forms 10-Q and
10-K (or any successor forms) if the Issuer 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 the Issuer and its Subsidiaries and, with
respect to the annual information only, a report on the annual financial
statements by the Issuer's certified independent accountants; and
(2) all current reports that would be required to be filed with the
Commission on Form 8-K (or any successor form) if the Issuer were required
to file such reports.
(b) If the Issuer has designated any of its Subsidiaries as Unrestricted
Subsidiaries, then the quarterly and annual financial information required by
this Section 4.03 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 the Issuer and its Restricted
Subsidiaries separate from the financial condition and results of operations of
the Unrestricted Subsidiaries of the Issuer.
(c) In addition, whether or not required by the Commission, the Issuer
shall file a copy of all information and reports referred to in clauses (1) and
(2) of paragraph (a) of this Section 4.03 with the Commission for public
availability within the time periods specified in the Commission's rules and
regulations (unless the Commission will not accept such a filing) and make such
information available to securities analysts and prospective investors upon
request.
(d) Delivery of such reports, information and documents to the Trustee is
for informational purposes only and the Trustee's receipt of such shall not
constitute constructive notice of any information contained therein or
determinable from information contained therein, including the Issuer's
compliance with any of its covenants hereunder
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(as to which the Trustee is entitled to rely exclusively on Officers'
Certificates).
SECTION 4.04. Restricted Payments. (a) The Issuer shall not, and shall not
permit any Restricted Subsidiary to, directly or indirectly, make a Restricted
Payment, 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) the Issuer 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 proviso to paragraph (a) of Section 4.05; and
(3) such Restricted Payment, together with the aggregate amount of all
other Restricted Payments made by the Issuer and its Restricted
Subsidiaries after the Issue Date (excluding Restricted Payments permitted
by clauses (2), (3), (4) and (6) of paragraph (b) of this Section 4.04) is
less than the sum, without duplication, of:
(A) 50% of the Consolidated Net Income of the Issuer 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 the
Issuer'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 the
Issuer since the Issue Date as a contribution to its common equity
capital or from the issue or sale of Equity Interests of the Issuer
(other than Disqualified Stock) or from the issue or sale of
Disqualified Stock or debt securities of the Issuer 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
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of the Issuer), except to the extent such net cash proceeds are used
to increase the amount of dividends on Preferred Stock of the Issuer
or the amount of Restricted Investments that may be made pursuant to
clause (7) of paragraph (b) of this Section 4.04; plus
(C) 100% of the fair market value (as determined by the 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 the Issuer since
the Issue Date as a contribution to its common equity capital or from
the issue or sale of Equity Interests of the Issuer (other than
Disqualified Stock); plus
(D) to the extent not already included in Consolidated Net Income
of the Issuer for such period, if any Restricted Investment that was
made by the Issuer or any Restricted Subsidiary after the Issue Date
is sold for cash or otherwise liquidated or repaid for cash, the
lesser of (i) the cash return of capital with respect to such
Restricted Investment (less the cost of disposition, if any) and (ii)
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 the Issuer as a Restricted Subsidiary after the Issue Date, an
amount equal to the lesser of (i) the net book value of the Issuer's
Investment in such Unrestricted Subsidiary at the time of such
designation and (ii) the fair market value of the Issuer's Investment
in such Unrestricted Subsidiary at the time of such designation.
(b) The preceding paragraph (a) shall 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 this Indenture;
(2) the redemption, repurchase, retirement, defeasance or other
acquisition of any subordinated Indebtedness of the Issuer or of any Equity
Interests
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of the Issuer 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 the Issuer) of, Equity Interests of the Issuer (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
paragraph (a) of this Section 4.04;
(3) the defeasance, redemption, repurchase or other acquisition of
subordinated Indebtedness of the Issuer with the net cash proceeds from an
incurrence of Permitted Refinancing Indebtedness;
(4) the payment of any dividend or distribution by a Restricted
Subsidiary of the Issuer to the holders of its common Equity Interests so
long as the Issuer or such Restricted Subsidiary receives at least its pro
rata 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 the Issuer or any Restricted Subsidiary of
the Issuer held by any employee of the Issuer or a Restricted Subsidiary or
member of the Issuer'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 the Issuer from the Issuer or the deemed repurchase of Capital Stock by
the Issuer or a Restricted Subsidiary on the exercise of stock options;
(7) payments of dividends by the Issuer on Preferred Stock of the
Issuer or the making of Restricted Investments by the Issuer or any
Restricted Subsidiary in an aggregate amount not to exceed 100% of the
aggregate net cash proceeds received by the Issuer since the Issue Date
from the issue or sale of Equity Interests of the Issuer (other than
Disqualified Stock); provided that the amount of any such net cash proceeds
that are utilized for any such dividend
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payment or Restricted Investment shall be excluded from clause (3)(B) of
paragraph (a) of this Section 4.04;
(8) the purchase by the Issuer 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 the Issuer shall not and shall 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.
(c) 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 the Issuer or a
Restricted Subsidiary, as the case may be, pursuant to the Restricted Payment.
The fair market value of any assets or securities that are required to be valued
by this Section 4.04 shall be either (1) determined by the Board of Directors,
whose resolution with respect thereto shall be delivered to the Trustee or (2)
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,
the Issuer 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 Section 4.04 were computed, together with a copy
of any fairness opinion or appraisal required by this Section 4.04.
SECTION 4.05. Incurrence of Indebtedness and Issuance of Preferred Stock.
(a) The Issuer shall not, and shall 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 the Issuer shall not issue any Disqualified Stock and shall not
permit any of its Restricted Subsidiaries to issue any shares of Preferred
Stock; provided, however, that the
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Issuer or any Restricted Subsidiary may incur Indebtedness (including Acquired
Debt), and the Issuer 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 the
Issuer would be less than 5.0 to 1.0, or (2) the Issuer's Consolidated Capital
Ratio as of the most recent available quarterly or annual balance sheet is less
than 2.0 to 1.0.
(b) Nothing contained in paragraph (a) of this Section 4.05 shall prohibit
the incurrence of any of the following items of Indebtedness (collectively,
"Permitted Debt"):
(1) the incurrence by the Issuer 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 Facilities pursuant
to clause (1) of paragraph (b) of Section 4.14;
(2) the incurrence by the Issuer and its Restricted Subsidiaries of
the Existing Indebtedness;
(3) the incurrence by the Issuer of Indebtedness represented by the
Securities to be issued on the Issue Date;
(4) the issuance by a Subsidiary of Preferred Stock or the incurrence
by the Issuer'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 the Issuer that was not permitted by this clause (4);
(5) the incurrence by the Issuer 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)
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that was permitted by this Indenture to be incurred under paragraph (a) of
this Section 4.05 or clauses (2), (3) or this clause (5) of this paragraph
(b);
(6) the incurrence by the Issuer or any of its Restricted Subsidiaries
of intercompany Indebtedness between or among the Issuer and any of its
Restricted Subsidiaries; provided, however, that:
(A) if the Issuer is the obligor on such Indebtedness, such
Indebtedness must be expressly subordinated to all Obligations with
respect to the Securities and this Indenture; and
(B) (i) any subsequent issuance or transfer of Equity Interests
that results in any such Indebtedness being held by a Person other
than the Issuer or a Restricted Subsidiary thereof and (ii) any sale
or other transfer of any such Indebtedness to a Person that is not
either the Issuer or a Restricted Subsidiary thereof shall be deemed,
in each case, to constitute an incurrence of such Indebtedness by the
Issuer or such Restricted Subsidiary, as the case may be, that was not
permitted by this clause (6);
(7) the incurrence by the Issuer 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;
(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 Section 4.05;
(9) the incurrence by the Issuer 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
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(10) the incurrence by Restricted Subsidiaries of Guarantees of
Indebtedness of the Issuer or any Restricted Subsidiary that is not
subordinated to the Securities.
(c) The Issuer shall not incur any Indebtedness (including Permitted Debt)
that is contractually subordinated in right of payment to any other Indebtedness
of the Issuer unless such Indebtedness is also contractually subordinated in
right of payment to the Securities on substantially identical terms; provided,
however, that no Indebtedness of the Issuer shall be deemed to be contractually
subordinated in right of payment to any other Indebtedness of the Issuer solely
by virtue of being unsecured.
(d) For purposes of determining compliance with this Section 4.05, 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) of
paragraph (b) of this Section 4.05, or is entitled to be incurred pursuant to
paragraph (a) of this Section 4.05, the Issuer shall be permitted to classify
such item of Indebtedness on the date of its incurrence in any manner that
complies with this Section 4.05.
SECTION 4.06. Liens. The Company shall not, and shall 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.
SECTION 4.07. Sale and Leaseback Transactions. The Issuer shall not, and
shall not permit any of its Restricted Subsidiaries to, enter into any Sale and
Leaseback Transaction; provided that the Issuer or any Restricted Subsidiary may
enter into a Sale and Leaseback Transaction if:
(1) the Issuer 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 Section 4.05 and (B)
incurred a Lien to secure such Indebtedness pursuant to Section 4.06;
(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
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delivered to the Trustee, of the property that is the subject of such Sale
and Leaseback Transaction; and
(3) the transaction complies with Section 4.14.
SECTION 4.08. Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries. (a) The Issuer shall not, and shall not permit any Restricted
Subsidiary 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 the Issuer 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 the Issuer or any of its Restricted Subsidiaries;
(2) make loans or advances to the Issuer or any of its Restricted
Subsidiaries; or
(3) transfer any of its properties or assets to the Issuer or any of
its Restricted Subsidiaries.
(b) The restrictions set forth in paragraph (a) of this Section 4.08 shall
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, 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 the Issuer) encumbrance or restriction
applicable to the Issuer or a Restricted Subsidiary that is contained in an
agreement or instrument governing or relating to Indebtedness of the Issuer
or Indebtedness contained in any Credit Facilities or Indebtedness incurred
pursuant to clause (4) of paragraph (b) of Section 4.05; provided that,
other than with respect to Preferred Stock of a Subsidiary or Non-Recourse
Debt of a
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Subsidiary (including Non-Recourse Debt that is Acquired Debt), such
encumbrances and restrictions permit the distribution of funds to the
Issuer in an amount sufficient for the Issuer 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 this Indenture and the Securities and other Indebtedness that is
solely an obligation of the Issuer, 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 the Issuer or any Restricted Subsidiary,
customary (as so determined) restrictions on transactions with affiliates
and customary (as so determined) subordination provisions governing
Indebtedness owed to the Issuer 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) this Indenture and the Securities;
(5) applicable law;
(6) any instrument governing Indebtedness or Capital Stock of a Person
acquired by the Issuer 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
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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 this 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 paragraph (a) of this Section 4.08;
(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.
SECTION 4.09. 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 the Issuer 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
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Restricted Payments under paragraph (a) of Section 4.04 or reduce the amount
available for future Investments under one or more clauses of the definition of
Permitted Investments set forth in Section 1.01, as the Issuer 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 set forth in Section 1.01. The Board of Directors may
redesignate any Unrestricted Subsidiary to be a Restricted Subsidiary if the
redesignation would not cause a Default.
SECTION 4.10. Transactions with Affiliates. (a) The Issuer shall not, and
shall 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 the Issuer or the relevant Restricted Subsidiary than those that would
have been obtained in a comparable transaction by the Issuer or such
Restricted Subsidiary with an unrelated Person; and
(2) the Issuer 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 Section 4.10 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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(b) The following items shall not be deemed to be Affiliate Transactions
and, therefore, shall not be subject, except as set forth below, to the
provisions of paragraph (a) of this Section 4.10:
(1) any employment agreement entered into by the Issuer or any of its
Restricted Subsidiaries in the ordinary course of business and consistent
with the past practice of the Issuer or such Restricted Subsidiary, as the
case may be;
(2) transactions between or among the Issuer and/or its Restricted
Subsidiaries;
(3) any sale or other issuance of Equity Interests (other than
Disqualified Stock) of the Issuer;
(4) payment of reasonable directors fees to Persons who are not
otherwise Affiliates of the Issuer;
(5) Restricted Payments that are permitted by, and Permitted
Investments that are not prohibited by, Section 4.04; and
(6) transactions between the Company 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 paragraph (a) of
this Section 4.10 is satisfied.
SECTION 4.11. Limitation on Issuances of Guarantees of Indebtedness. (a)
The Issuer shall 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 the Issuer unless such Restricted Subsidiary simultaneously
executes and delivers a supplemental indenture to this Indenture providing for
the Guarantee of the payment of the Securities by such Restricted Subsidiary (a
"Guarantor"), which Guarantee shall (1) be senior to or pari passu 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.
(b) No Guarantor shall incur any Indebtedness (including Permitted Debt)
that is contractually subordinated in right of payment to any other Indebtedness
of such Guarantor unless such Indebtedness is also contractually subordinated in
right of payment to such Guarantor's Guarantee of the Securities on
substantially
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identical terms; provided, however, that no Indebtedness of a Guarantor shall be
deemed to be contractually subordinated in right of payment to any other
Indebtedness of such Guarantor solely by virtue of being unsecured.
SECTION 4.12. Business Activities. The Issuer shall not, and shall not
permit any Restricted Subsidiary to, engage in any business other than Permitted
Businesses, except to the extent as would not be material to the Issuer and its
Restricted Subsidiaries, taken as a whole.
SECTION 4.13. Change of Control. (a) If a Change of Control occurs, each
Holder of Securities shall have the right to require the Issuer to repurchase
all or any part (equal to $1,000 or an integral multiple thereof) of that
Holder's Securities pursuant to a Change of Control Offer to Purchase. In the
Change of Control Offer to Purchase, the Issuer shall offer a payment (a "Change
of Control Payment") in cash equal to 101% of the aggregate principal amount of
the Securities 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, the Issuer shall mail a notice to each Holder describing
the transaction or transactions that constitute the Change of Control and
offering to repurchase Securities on the date (the "Change of Control Payment
Date") specified in such notice, pursuant to the procedures required by this
Indenture and described in such notice. The Issuer shall 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 Securities as a result of a
Change of Control. To the extent that the provisions of any securities laws or
regulations conflict with this Section 4.13 or the requirements set forth in the
definition of Offer to Purchase, the Issuer shall comply with the applicable
securities laws and regulations and shall not be deemed to have breached its
obligations under the provisions of this Section 4.13 or such definition by
virtue of such conflict.
(b) On the Change of Control Payment Date, the Issuer shall, to the extent
lawful:
(1) accept for payment all Securities or portions thereof properly
tendered pursuant to the Change of Control Offer;
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(2) deposit with the Paying Agent an amount equal to the Change of
Control Payment in respect of all Securities or portions thereof so
tendered; and
(3) deliver or cause to be delivered to the Trustee the Securities so
accepted together with an Officers' Certificate stating the aggregate
principal amount of Securities or portions thereof being purchased by the
Issuer.
(c) The Paying Agent shall promptly mail to each Holder of Securities so
tendered the Change of Control Payment for such Securities, and the Trustee
shall promptly authenticate and mail (or cause to be transferred by book entry)
to each Holder a new Security equal in principal amount to any unpurchased
portion of the Securities surrendered, if any; provided that each such new
Security will be in a principal amount of $1,000 or an integral multiple
thereof.
(d) The Issuer shall publicly announce the results of the Change of Control
Offer on or as soon as practicable after the Change of Control Payment Date.
(e) The Issuer shall not be required to make a Change of Control Offer to
Purchase upon a Change of Control if a third party makes the Change of Control
Offer to Purchase in the manner, at the times and otherwise in compliance with
the requirements set forth in this Section 4.13 applicable to a Change of
Control Offer to Purchase made by the Issuer and purchases all Securities
validly tendered and not withdrawn under such Change of Control Offer.
SECTION 4.14. Asset Sales. (a) The Issuer shall not, and shall not permit
any Restricted Subsidiary to, consummate an Asset Sale unless:
(1) the Issuer (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 the
Issuer if the fair market value is less than $25 million or (B) determined
by the 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
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set forth in an Officers' Certificate delivered to the Trustee; and
(3) at least 75% of the consideration therefor received by the Issuer
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 the Issuer's or such Restricted
Subsidiary's most recent balance sheet), of the Issuer or any
Restricted Subsidiary (other than contingent liabilities and
liabilities that are by their terms subordinated to the Securities)
that are assumed by the transferee of any such assets pursuant to a
customary novation agreement that releases the Issuer or such
Restricted Subsidiary from further liability;
(B) any securities, notes or other obligations received by the
Issuer or any such Restricted Subsidiary from such transferee that are
contemporaneously (subject to ordinary settlement periods) converted
by the Issuer 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 paragraph (b) of
this Section 4.14;
(D) Marketable Securities; and
(E) Designated Other Permitted Consideration; provided that the
aggregate fair market value (as determined pursuant to clause (2)
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 the Issuer's Consolidated Tangible Assets at the
time of the receipt of such Designated Other Permitted 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).
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(b) Within 360 days after the receipt of any Net Proceeds from an Asset
Sale, the Issuer 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 the Issuer or any Restricted Subsidiary
which is not subordinated to the Securities;
(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.
(c) Pending the final application of any such Net Proceeds, the Issuer may
temporarily reduce revolving credit borrowings or otherwise invest such Net
Proceeds in any manner that is not prohibited by this Indenture.
(d) Any Net Proceeds from Asset Sales that are not applied or invested as
provided in paragraph (b) of this Section 4.14 shall constitute "Excess
Proceeds." When the aggregate amount of Excess Proceeds exceeds $15 million, the
Issuer shall make an Offer to Purchase to all Holders of Securities and all
holders of other Indebtedness that is pari passu with the Securities containing
provisions similar to those set forth in this Indenture with respect to offers
to purchase or redeem with the proceeds of sales of assets to purchase the
maximum principal amount of Securities and such other pari passu Indebtedness
that may be purchased out of the Excess Proceeds. The offer price in any Offer
to Purchase shall be equal to 100% of principal amount plus accrued and unpaid
interest and Liquidated Damages (if any) to the date of purchase, and shall be
payable in cash. If any Excess Proceeds remain after consummation of an Offer to
Purchase, the Issuer may use such Excess Proceeds for any purpose not otherwise
prohibited by this Indenture. If the aggregate principal amount of Securities
and such other pari passu Indebtedness tendered into such Offer to Purchase
exceeds the amount of Excess Proceeds, the Trustee shall select the Securities
and such other pari passu Indebtedness to be purchased on a pro rata basis based
on the principal
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amount of Securities and such other pari passu Indebtedness tendered. Upon
completion of each Offer to Purchase required by this Section 4.14, the amount
of Excess Proceeds shall be reset at zero.
(e) The Issuer shall 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 Securities required by this Section 4.14. To the extent that the
provisions of any securities laws or regulations conflict with the provisions of
this Section 4.14 or the definition of the Offer to Purchase, the Issuer shall
comply with the applicable securities laws and regulations and shall not be
deemed to have breached its obligations under the provisions of this Section
4.14 or such definition by virtue of such conflict.
SECTION 4.15. Additional Amounts. (a) All payments of principal of,
premium, if any, Liquidated Damages, if any, and interest on each Security 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 the Issuer is then incorporated (or the
jurisdiction of incorporation of any successor of the Issuer) or any other
jurisdiction in which the Issuer (or such successor) is resident for tax
purposes or any political subdivision or taxing authority thereof or therein
(hereinafter, a "Relevant Jurisdiction"), 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, the Issuer, or any successor, shall pay such additional amounts
("Additional Amounts") as will result in receipt by each Holder of a Security of
such gross amount as would have been received by such Holder or the beneficial
owner with respect to such Security, 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
such Holder or such beneficial owner (or between a fiduciary, settlor,
beneficiary, member or shareholder of, or
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possessor of a power over, such Holder, if such Holder is an estate,
trust, partnership or corporation) and the Relevant Jurisdiction,
including such Holder (or such fiduciary, settlor, beneficiary,
member, shareholder or possessor) being or having been a national,
domiciliary or resident of or treated as a resident thereof or being
or having been present or engaged in a trade or business therein or
having had a permanent establishment therein; or
(B) Section 881(c)(3)(A) of the Code (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 the failure of
the Holder or beneficial owner of a Security to timely comply with a
request of the Issuer, addressed to the Holder (A) to provide reasonably
required or requested information concerning the nationality, residence or
identity of the Holder or such 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 Internal Revenue
Service 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 Security, 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 Security.
(b) Where required by applicable law, the Issuer or any Paying Agent, as
the case may be, shall also (1) make such withholding or deduction in respect of
any Taxes and (2) remit the full amount withheld or deducted to the
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relevant authority in accordance with applicable law. The Issuer shall furnish
to each Holder of Securities, 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 the Issuer.
(c) Whenever there is mentioned in any context the payment of principal of
or any premium or interest on, or in respect of, a Security, or the net proceeds
received from the Issuer on the sale or exchange of any Security, such mention
shall be deemed to include mention of the payment of Additional Amounts provided
for in this Section 4.15 to the extent that, in such context, Additional Amounts
are, were, or would be payable in respect thereof pursuant to this Section 4.15.
(d) The Issuer shall 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 Securities or any other document or instrument relating
thereto, or the receipt of any payments with respect to the Securities,
excluding such taxes, charges, or similar levies imposed by any jurisdiction
outside of any jurisdiction in which the Issuer or the Paying Agent is located
or incorporated (except those resulting from or required to be paid in
connection with, the enforcement of the Securities or any other such document or
instrument following the occurrence of any Event of Default with respect to the
Securities), and shall indemnify the Holders for any such taxes paid by such
Holders.
(e) The foregoing obligations shall survive any termination, defeasance or
discharge of this Indenture.
SECTION 4.16. (a) Compliance Certificate; Statement by Officers as to
Default. The Issuer shall deliver to the Trustee within 120 days after the end
of each fiscal year of the Issuer an Officers' Certificate, one of the signers
of which shall be the principal executive, principal financial or principal
accounting officer of the Issuer, stating that in the course of the performance
by the signers of their duties as Officers of the Issuer they would normally
have knowledge of any Default and whether or not the signers know of any Default
that occurred during such period. If they do, the certificate shall describe the
Default, its status and what action the Issuer are taking or propose to take
with respect thereto. The Issuer also shall comply with TIA ss. 314(a)(4).
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(b) The Issuer shall deliver to the Trustee, as soon as possible and in any
event within five days after the Issuer becomes aware of the occurrence of any
Event of Default or an event which, with notice or the lapse of time or both,
would constitute an Event of Default, an Officers' Certificate setting forth the
details of such Event of Default or Default and the action which the Issuer
proposes to take with respect thereto.
SECTION 4.17. Further Instruments and Acts. Upon request of the Trustee,
the Issuer will execute and deliver such further instruments and do such further
acts as may be reasonably necessary or proper to carry out more effectively the
purpose of this Indenture.
ARTICLE 5
Merger, Consolidation or Sale of Assets
SECTION 5.01. When Issuer May Merge, Consolidate or Sell Assets. (a) The
Issuer shall not, directly or indirectly: (x) consolidate or merge with or into
another Person (whether or not the Issuer is the surviving corporation); or (y)
sell, assign, transfer, convey or otherwise dispose of all or substantially all
of the properties or assets of the Issuer and its Restricted Subsidiaries, taken
as a whole, in one or more related transactions, to another Person, unless:
(1) either: (A) the Issuer is the surviving corporation; or (B) the
Person formed by or surviving any such consolidation or merger (if other
than the Issuer) 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 the Issuer) or the Person to which such sale, assignment,
transfer, conveyance or other disposition shall have been made assumes all
the obligations of the Issuer under the Securities and this Indenture
pursuant to agreements reasonably satisfactory to the Trustee;
(3) immediately after such transaction no Default exists; and
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(4) the Issuer 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 the
Issuer):
(A) will have Consolidated Net Worth immediately after the
transaction equal to or greater than the Consolidated Net Worth of the
Issuer 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 proviso to paragraph (a) of Section 4.05.
(b) In addition, the Issuer shall not, directly or indirectly, lease all or
substantially all of its properties or assets in one or more related
transactions, to any other Person.
(c) When a successor corporation, trustee, paying agent or registrar
assumes all of the obligations of its predecessor under the Securities and this
Indenture, the predecessor shall be released from those obligations.
(d) This Section 5.01 shall not apply to a sale, assignment, transfer,
conveyance or other disposition of assets between or among the Issuer and any of
its Restricted Subsidiaries.
ARTICLE 6
Defaults and Remedies
SECTION 6.01. Events of Default. An "Event of Default" occurs if:
(1) the Issuer defaults in any payment of interest or Liquidated
Damages (if any) on any Security when the same becomes due and payable, and
such default continues for a period of 30 days;
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(2) the Issuer defaults in the payment of the principal of, or
premium, if any, on any Security when the same becomes due and payable at
its Stated Maturity, upon optional redemption, upon required repurchase,
upon declaration or otherwise;
(3) the Issuer fails to comply with Section 5.01;
(4) the Issuer fails to comply Section 4.04, Section 4.05, Section
4.13 or Section 4.14 and such failure continues for 30 days after the
notice specified below;
(5) the Issuer or any of its Restricted Subsidiaries fails to comply
with any of their agreements in the Securities or this Indenture (other
than those referred to in clause (1), (2), (3) or (4) above) and such
failure continues for 60 days after the notice specified below;
(6) the Issuer or any of its Restricted Subsidiaries defaults 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 the Issuer or any of its Restricted Subsidiaries (or the payment of
which is guaranteed by the Issuer or any of its Restricted Subsidiaries)
whether such Indebtedness or guarantee now exists, or is created after the
Issue Date, if such 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) any judgment or decree for the payment of money in excess of $25
million or its foreign currency equivalent at the time is entered against
the Issuer or any of its Subsidiaries, remains outstanding for a period of
60 days following the entry of such judgment or decree and is not
discharged, waived or the
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execution thereof stayed within 10 days after the notice specified below;
(8) the Issuer or any Significant Subsidiary pursuant to or within the
meaning of any Bankruptcy Law:
(A) commences a voluntary case;
(B) consents to the entry of an order for relief against it in an
involuntary case;
(C) consents to the appointment of a Custodian of it or for any
substantial part of its property; or
(D) makes a general assignment for the bene fit of its creditors;
or takes any comparable action under any foreign laws relating to
insolvency; or
(9) a court of competent jurisdiction enters an order or decree under
any Bankruptcy Law that:
(A) is for relief against the Issuer or any Significant
Subsidiary in an involuntary case;
(B) appoints a Custodian of the Issuer or any Significant
Subsidiary or for any substantial part of its property; or
(C) orders the winding up or liquidation of the Issuer or any
Significant Subsidiary;
or any similar relief is granted under any foreign laws and the order or
decree remains unstayed and in effect for 60 days.
The foregoing will constitute Events of Default whatever the reason for any
such Event of Default and whether it is voluntary or involuntary or is effected
by operation of law or pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body.
The term "Bankruptcy Law" means Title 11, United States Code, or any
similar Federal or state law for the relief of debtors. The term "Custodian"
means any receiver, trustee, assignee, liquidator, custodian or similar official
under any Bankruptcy Law.
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A Default under clauses (4), (5), or (7) is not an Event of Default until
the Trustee or the holders of at least 25% in principal amount of the
outstanding Securities notify the Issuer of the Default and the Issuer does not
cure such Default within the time specified after receipt of such notice. Such
notice must specify the Default, demand that it be remedied and state that such
notice is a "Notice of Default".
The Issuer shall deliver to the Trustee, within 30 days after the
occurrence thereof, written notice in the form of an Officers' Certificate of
any Event of Default under clause (6) and any event which with the giving of
notice or the lapse of time would become an Event of Default under clause (4),
(5) or (7), its status and what action the Issuer is taking or proposes to take
with respect thereto.
SECTION 6.02. Acceleration. If an Event of Default (other than an Event of
Default specified in Section 6.01(8) or (9) with respect to the Issuer, any
Subsidiary that is a Significant Subsidiary or any group of Subsidiaries that,
taken together, would constitute a Significant Subsidiary) occurs and is
continuing, the Trustee by notice to the Issuer, or the Holders of at least 25%
in principal amount of the Securities by notice to the Issuer and the Trustee,
may declare the principal of and accrued but unpaid interest and Liquidated
Damages (if any) on all the Securities to be due and payable. Upon such a
declaration, such principal, interest and Liquidated Damages (if any) shall be
due and payable immediately. If an Event of Default specified in Section 6.01(8)
or (9) with respect to the Issuer occurs, the principal of and interest and
Liquidated Damages (if any) on all the Securities shall ipso facto become and be
immediately due and payable without any declaration or other act on the part of
the Trustee or any Holders. The Holders of a majority in principal amount of the
Securities by notice to the Trustee may rescind an acceleration and its
consequences if the rescission would not conflict with any judgment or decree
and if all existing Events of Default have been cured or waived except nonpay
ment of principal or interest and Liquidated Damages (if any) that has become
due solely because of acceleration. No such rescission shall affect any
subsequent Default or impair any right consequent thereto.
SECTION 6.03. Other Remedies. If an Event of Default occurs and is
continuing, the Trustee may pursue any available remedy to collect the payment
of principal of or interest and Liquidated Damages (if any) on the Securities
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or to enforce the performance of any provision of the Securities or this
Indenture.
The Trustee may maintain a proceeding even if it does not possess any of
the Securities or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Holder in exercising any right or remedy accruing
upon an Event of Default shall not impair the right or remedy or constitute a
waiver of or acquiescence in the Event of Default. No remedy is exclusive of any
other remedy. All available remedies are cumulative.
SECTION 6.04. Waiver of Past Defaults. The Holders of a majority in
principal amount of the Securities by notice to the Trustee may waive an
existing Default and its consequences except (1) a Default in the payment of the
principal of or interest and Liquidated Damages (if any) on a Security or (2) a
Default in respect of a provision that under Section 9.02 cannot be amended
without the consent of each Holder affected. When a Default is waived, it is
deemed cured, but no such waiver shall extend to any subsequent or other Default
or impair any consequent right.
SECTION 6.05. Control by Majority. The Holders of a majority in principal
amount of the Securities may direct the time, method and place of conducting any
proceed ing for any remedy available to the Trustee or of exercising any trust
or power conferred on the Trustee. However, the Trustee may refuse to follow any
direction that conflicts with law or this Indenture or, subject to Section 7.01,
that the Trustee determines is unduly prejudicial to the rights of other Holders
or would involve the Trustee in personal liability; provided, however, that the
Trustee may take any other action deemed proper by the Trustee that is not
inconsistent with such direction. Prior to taking any action hereunder, the
Trustee shall be entitled to reasonable indemnification satisfactory to it in
its sole discretion against all losses and expenses caused by taking or not
taking such action.
SECTION 6.06. Limitation on Suits. Except to enforce the right to receive
payment of principal, premium (if any) or interest and Liquidated Damages (if
any) when due, no Holder may pursue any remedy with respect to this Indenture or
the Securities unless:
(1) the Holder gives to the Trustee written notice stating that an
Event of Default is continuing;
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(2) the Holders of at least 25% in principal amount of the Securities
make a written request to the Trustee to pursue the remedy;
(3) such Holder or Holders offer to the Trustee reasonable security or
indemnity against any loss, liability or expense;
(4) the Trustee does not comply with the request within 60 days after
receipt of the request and the offer of security or indemnity; and
(5) the Holders of a majority in principal amount of the Securities do
not give the Trustee a direction inconsistent with the request during such
60-day period.
A Holder may not use this Indenture to prejudice the rights of another
Holder or to obtain a preference or priority over another Holder.
SECTION 6.07. Rights of Holders to Receive Payment. Notwithstanding any
other provision of this Inden ture, the right of any Holder to receive payment
of princi pal of and interest and Liquidated Damages (if any) on the Securities
held by such Holder, on or after the respective due dates expressed in the
Securities, or to bring suit for the enforcement of any such payment on or after
such respective dates, shall not be impaired or affected without the consent of
such Holder.
SECTION 6.08. Collection Suit by Trustee. If an Event of Default specified
in Section 6.01(1) or (2) occurs and is continuing, the Trustee may recover
judgment in its own name and as trustee of an express trust against the Issuer
for the whole amount then due and owing (together with interest on any unpaid
interest and Liquidated Damages (if any) to the extent lawful) and the amounts
provided for in Section 7.07.
SECTION 6.09. Trustee May File Proofs of Claim. The Trustee may file such
proofs of claim and other papers or documents as may be necessary or advisable
in order to have the claims of the Trustee and the Holders allowed in any
judicial proceedings relative to the Issuer, its creditors or its property and,
unless prohibited by law or applicable regulations, may vote on behalf of the
Holders in any election of a trustee in bankruptcy or other Person performing
similar functions, and any Custodian in any such judicial proceeding is hereby
authorized by each Holder to make payments to the Trustee and, in the event that
the
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Trustee shall consent to the making of such payments directly to the Holders, to
pay to the Trustee any amount due it for the reasonable compensation, expenses,
disburse ments and advances of the Trustee, its agents and its counsel, and any
other amounts due the Trustee under Section 7.07.
SECTION 6.10. Priorities. If the Trustee col lects any money or property
pursuant to this Article 6, it shall pay out the money or property in the
following order:
FIRST: to the Trustee for amounts due under Section 7.07;
SECOND: to Holders for amounts due and unpaid on the Securities for
principal, interest and Liquidated Damages (if any), ratably, without
preference or priority of any kind, according to the amounts due and
payable on the Securities for principal, interest and Liquidated Damages
(if any), respectively; and
THIRD: to the Issuer.
The Trustee may fix a record date and payment date for any payment to
Holders pursuant to this Section. At least 15 days before such record date, the
Issuer shall mail to each Holder and the Trustee a notice that states the record
date, the payment date and amount to be paid.
SECTION 6.11. Undertaking for Costs. In any suit for the enforcement of any
right or remedy under this Inden ture or in any suit against the Trustee for any
action taken or omitted by it as Trustee, a court in its discretion may require
the filing by any party litigant in the suit of an undertaking to pay the costs
of the suit, and the court in its discretion may assess reasonable costs,
including rea sonable attorneys' fees and expenses, against any party litigant
in the suit, having due regard to the merits and good faith of the claims or
defenses made by the party litigant. This Section does not apply to a suit by
the Trustee, a suit by a Holder pursuant to Section 6.07 or a suit by Holders of
more than 10% in principal amount of the Securities.
SECTION 6.12. Waiver of Stay or Extension Laws. The Issuer (to the extent
it may lawfully do so) shall not at any time insist upon, or plead, or in any
manner whatso ever claim or take the benefit or advantage of, any stay or
extension law wherever enacted, now or at any time hereafter in force, which may
affect the covenants or the performance of this Indenture; and the Issuer (to
the extent that it may
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lawfully do so) hereby expressly waives all benefit or advantage of any such
law, and shall not hinder, delay or impede the execution of any power herein
granted to the Trustee, but shall suffer and permit the execution of every such
power as though no such law had been enacted.
ARTICLE 7
Trustee
SECTION 7.01. Duties of Trustee. (a) If an Event of Default has occurred
and is continuing, the Trustee shall exercise the rights and powers vested in it
by this Indenture and use the same degree of care and skill in their exercise as
a prudent Person would exercise or use under the circumstances in the conduct of
such Person's own affairs.
(b) Except during the continuance of an Event of Default:
(1) the Trustee undertakes to perform such duties and only such duties
as are specifically set forth in this Indenture and no implied covenants or
obligations shall be read into this Indenture against the Trustee; and
(2) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness of
the opinions expressed therein, upon certificates or opinions furnished to
the Trustee and conforming to the require ments of this Indenture. However,
in the case of any such certificates or opinions which by any provision
hereof are specifically required to be furnished to the Trustee, the
Trustee shall be under a duty to examine the same to determine whether or
not they conform to the requirements of this Indenture (but need not
confirm or investigate the accuracy of mathematical calculations or other
facts stated therein).
(c) The Trustee may not be relieved from liabil ity for its own negligent
action, its own negligent failure to act or its own wilful misconduct, except
that:
(1) this paragraph does not limit the effect of paragraph (b) of this
Section 7.01;
(2) the Trustee shall not be liable for any error of judgment made in
good faith by a Trust Officer
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unless it is proved that the Trustee was negligent in ascertaining the
pertinent facts; and
(3) the Trustee shall not be liable with respect to any action it
takes or omits to take in good faith in accordance with a direction
received by it pursuant to Section 6.05.
(d) Every provision of this Indenture that in any way relates to the
Trustee is subject to paragraphs (a), (b) and (c) of this Section 7.01.
(e) The Trustee shall not be liable for interest on any money received by
it except as the Trustee may agree in writing with the Issuer.
(f) Money held in trust by the Trustee need not be segregated from other
funds except to the extent required by law.
(g) No provision of this Indenture shall require the Trustee to expend or
risk its own funds or otherwise incur financial liability in the performance of
any of its duties hereunder or in the exercise of any of its rights or powers,
if it shall have reasonable grounds to believe that repayment of such funds or
adequate indemnity against such risk or liability is not reasonably assured to
it.
(h) Every provision of this Indenture relating to the conduct or affecting
the liability of or affording protection to the Trustee shall be subject to the
provisions of this Section 7.01 and to the provisions of the TIA.
SECTION 7.02. Rights of Trustee. (a) The Trustee may conclusively rely on
any document believed by it to be genuine and to have been signed or presented
by the proper Person. The Trustee need not investigate any fact or matter stated
in the document.
(b) Before the Trustee acts or refrains from acting, it may require an
Officers' Certificate or an Opin ion of Counsel. The Trustee shall not be liable
for any action it takes or omits to take in good faith in reliance on the
Officers' Certificate or Opinion of Counsel.
(c) The Trustee may act through agents and shall not be responsible for the
misconduct or negligence of any agent appointed with due care.
(d) The Trustee shall not be liable for any action it takes or omits to
take in good faith which it
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believes to be authorized or within its rights or powers; provided, however,
that the Trustee's conduct does not constitute wilful misconduct or negligence.
(e) The Trustee may consult with counsel of its selection, and the advice
or opinion of counsel with respect to legal matters relating to this Indenture
and the Securities shall be full and complete authorization and protection from
liability in respect to any action taken, omitted or suffered by it hereunder in
good faith and in accordance with the advice or opinion of such counsel.
(f) The Trustee shall not be deemed to have notice of any Default or Event
of Default unless a Trust Officer has actual knowledge thereof or unless written
notice of any event which is in fact such a default is received by the Trustee
at the principal corporate trust office of the Trustee, and such notice
references the Securities and this Indenture.
SECTION 7.03. Individual Rights of Trustee. The Trustee in its individual
or any other capacity may become the owner or pledgee of Securities and may
otherwise deal with the Issuer or its Affiliates with the same rights it would
have if it were not Trustee. Any Paying Agent, Registrar, co-registrar or
co-paying agent may do the same with like rights. However, the Trustee must
comply with Sections 7.10 and 7.11.
SECTION 7.04. Trustee's Disclaimer. The Trustee shall not be responsible
for and makes no representation as to the validity or adequacy of this Indenture
or the Secur ities, it shall not be accountable for the Issuer's use of the
proceeds from the Securities, and it shall not be responsible for any statement
of the Issuer in this Inde nture or in any document issued in connection with
the sale of the Securities or in the Securities other than the Trustee's
certificate of authentication.
SECTION 7.05. Notice of Defaults. If a Default occurs and is continuing and
if it is actually known to a Trust Officer of the Trustee, the Trustee shall
mail to each Holder notice of the Default within 90 days after it occurs. Except
in the case of a Default in payment of principal of or interest and Liquidated
Damages (if any) on any Security (including payments pursuant to the mandatory
redemption provisions of such Security, if any), the Trustee may withhold the
notice if and so long as a committee of its Trust Officers in good faith
determines that withholding the notice is in the interests of Holders.
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SECTION 7.06. Reports by Trustee to Holders. If required by TIA ss. 313(a),
as promptly as practicable after each May 15 beginning with the May 15, 1999,
and in any event prior to July 15 in each year, the Trustee shall mail to each
Holder a brief report dated as of May 15 that complies with such TIA ss. 313(a).
The Trustee also shall comply with TIA ss. 313(b).
A copy of each report at the time of its mailing to Holders shall be filed
with the Commission and each stock exchange (if any) on which the Securities are
listed. The Issuer agrees to notify promptly the Trustee whenever the Securities
become listed on any stock exchange and of any delisting thereof.
SECTION 7.07. Compensation and Indemnity. The Issuer shall pay to the
Trustee from time to time such compensation as shall be agreed in writing
between the Issuer and the Trustee for its services. The Trustee's compensation
shall not be limited by any law on compensation of a trustee of an express
trust. The Issuer shall reim burse the Trustee upon request for all
out-of-pocket expenses incurred or made by it, including costs of collection, in
addition to the compensation for its services. Such expenses shall include the
reasonable compensation and expenses, disbursements and advances of the
Trustee's agents, counsel, accountants and experts. The Issuer shall fully
indemnify the Trustee and any predecessor Trustee against any and all loss,
damage, claim, liability or reasonable expense (including reasonable attorneys'
fees and expenses and taxes other than taxes based upon the income of the
Trustee) incurred by it in connection with the acceptance or administration of
this trust and the performance of its duties hereunder. The Trustee shall notify
the Issuer promptly of any claim for which it may seek indemnity. Failure by the
Trustee to so notify the Issuer shall not relieve the Issuer of its obligations
hereunder. The Issuer shall defend the claim and the Trustee may have separate
counsel and the Issuer shall pay the reasonable fees and expenses of such
counsel. The Issuer need not reimburse any expense or indemnify against any
loss, liability or expense incurred by the Trustee through the Trustee's own
wilful misconduct, negligence or bad faith.
To secure the Issuer's payment obligations in this Section 7.07, the
Trustee shall have a lien prior to the Securities on all money or property held
or collected by the Trustee other than money or property held in trust to pay
principal of and interest and Liquidated Damages (if any) on particular
Securities.
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The Issuer's payment obligations pursuant to this Section shall survive the
discharge of this Indenture. When the Trustee incurs expenses after the
occurrence of a Default specified in Section 6.01(8) or (9) with respect to the
Issuer, the expenses are intended to constitute expenses of administration under
the Bankruptcy Law.
SECTION 7.08. Replacement of Trustee. The Trustee may resign at any time by
so notifying the Issuer. The Holders of a majority in principal amount of the
Secur ities may remove the Trustee by so notifying the Trustee and may appoint a
successor Trustee. The Issuer shall remove the Trustee if:
(1) the Trustee fails to comply with Section 7.10;
(2) the Trustee is adjudged bankrupt or insolvent;
(3) a receiver or other public officer takes charge of the Trustee or
its property; or
(4) the Trustee otherwise becomes incapable of acting.
If the Trustee resigns, is removed by the Issuer or by the Holders of a
majority in principal amount of the Securities and such Holders do not
reasonably promptly appoint a successor Trustee, or if a vacancy exists in the
office of Trustee for any reason (the Trustee in such event being referred to
herein as the retiring Trustee), the Issuer shall promptly appoint a successor
Trustee.
A successor Trustee shall deliver a written acceptance of its appointment
to the retiring Trustee and to the Issuer. Thereupon the resignation or removal
of the retiring Trustee shall become effective, and the successor Trustee shall
have all the rights, powers and duties of the Trustee under this Indenture. The
successor Trustee shall mail a notice of its succession to Holders. The retiring
Trustee shall promptly transfer all property held by it as Trustee to the
successor Trustee, subject to the lien provided for in Section 7.07.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee or the Holders of
10% in principal amount of the Securities may petition, at the expense of the
Issuer, any court of competent jurisdiction for the appointment of a successor
Trustee.
If the Trustee fails to comply with Section 7.10, any Holder may petition
any court of competent jurisdiction for the removal of the Trustee and the
appointment of a successor Trustee.
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Notwithstanding the replacement of the Trustee pursuant to this Section,
the Issuer's obligations under Section 7.07 shall continue for the benefit of
the retiring Trustee.
SECTION 7.09. Successor Trustee by Merger. If the Trustee consolidates
with, merges or converts into, or transfers all or substantially all its
corporate trust busi ness or assets to, another corporation or banking associa
tion, the resulting, surviving or transferee corporation without any further act
shall be the successor Trustee.
In case at the time such successor or successors by merger, conversion or
consolidation to the Trustee shall succeed to the trusts created by this
Indenture any of the Securities shall have been authenticated but not delivered,
any such successor to the Trustee may adopt the certificate of authentication of
any predecessor trustee, and deliver such Securities so authenticated; and in
case at that time any of the Securities shall not have been authenticated, any
successor to the Trustee may authenticate such Securities either in the name of
any predecessor hereunder or in the name of the successor to the Trustee; and in
all such cases such certificates shall have the full force which it is anywhere
in the Securities or in this Indenture provided that the certificate of the
Trustee shall have.
SECTION 7.10. Eligibility; Disqualification. The Trustee shall at all times
satisfy the requirements of TIA ss. 310(a). The Trustee shall have a combined
capital and surplus of at least $50,000,000 as set forth in its most recent
published annual report of condition. The Trustee shall comply with TIAss.
310(b); provided, however, that there shall be excluded from the operation of
TIAss. 310(b)(1) any indenture or indentures under which other securities or
certificates of interest or participation in other securities of the Issuer are
out standing if the requirements for such exclusion set forth in TIAss.
310(b)(1) are met.
SECTION 7.11. Preferential Collection of Claims Against Issuer. The Trustee
shall comply with TIA ss. 311(a), excluding any creditor relationship listed in
TIA ss. 311(b). A Trustee who has resigned or been removed shall be subject to
TIA ss. 311(a) to the extent indicated.
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ARTICLE 8
Discharge of Indenture; Defeasance
SECTION 8.01. Discharge of Liability on Securities; Defeasance. (a) When
(1) the Issuer delivers to the Trustee all outstanding Securities (other than
Securities replaced pursuant to Section 2.07) for cancelation or (2) all
outstanding Securities have become due and payable, whether at maturity or as a
result of the mailing of a notice of redemption pursuant to Article 3 hereof and
the Issuer irrevocably deposits with the Trustee funds suffi cient to pay at
maturity or upon redemption all outstanding Securities, including interest and
Liquidated Damages (if any) thereon to maturity or such redemption date (other
than Securities replaced pursuant to Section 2.07), and if in either case the
Issuer pays all other sums payable hereunder by the Issuer, then this Indenture
shall, subject to Section 8.01(c), cease to be of further effect. The Trustee
shall acknowledge satisfaction and discharge of this Indenture on demand of the
Issuer accompanied by an Officers' Certificate and an Opinion of Counsel and at
the cost and expense of the Issuer.
(b) Subject to Sections 8.01(c) and 8.02, the Issuer at any time may
terminate (1) all of its obligations under the Securities and this Indenture
("legal defeasance option") or (2) its obligations under Sections 4.03, 4.04,
4.05, 4.06, 4.07, 4.08, 4.09, 4.10, 4.11, 4.12, 4.13 and 4.14 and the operation
of Sections 6.01(4), 6.01(5) (with respect to breaches of Article IV), 6.01(6),
6.01(7), 6.01(8) and 6.01(9) (but, in the case of Sections 6.01(8) and (9), with
respect only to Significant Subsidiaries) and the limitations contained in
clause (4) of paragraph (a) of Section 5.01 ("covenant defeasance option"). The
Issuer may exercise its legal defeasance option notwithstanding its prior
exercise of its covenant defeasance option.
If the Issuer exercises its legal defeasance option, payment of the
Securities may not be accelerated because of an Event of Default with respect
thereto. If the Issuer exercises its covenant defeasance option, payment of the
Securities may not be accelerated because of an Event of Default specified in
Sections 6.01(4), 6.01(5) (with respect to breaches of Article IV), 6.01(6),
6.01(7), 6.01(8) or 6.01(9) (but, in the case of Sections 6.01(8) and (9), with
respect only to Significant Subsidiaries) or because of the failure of the
Issuer to comply with clause (4) of paragraph (a) of Section 5.01.
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Upon satisfaction of the conditions set forth herein and upon request of
the Issuer, the Trustee shall acknowledge in writing the discharge of those
obligations that the Issuer terminates.
(c) Notwithstanding paragraphs (a) and (b) of this Section 8.01, the
Issuer's obligations in Sections 2.03, 2.04, 2.05, 2.06, 2.07, 2.08, 4.02, 4.15,
7.07 and 7.08 and in this Article 8 shall survive until the Securities have been
paid in full. Thereafter, the Issuer's obligations in Sections 7.07, 8.04 and
8.05 shall survive such satisfaction and discharge.
SECTION 8.02. Conditions to Defeasance. The Issuer may exercise its legal
defeasance option or its covenant defeasance option only if:
(1) the Issuer irrevocably deposits in trust with the Trustee money or
U.S. Government Obligations for the payment of principal of and interest
and Liquidated Damages (if any) on the Securities to maturity or
redemption, as the case may be;
(2) the Issuer delivers to the Trustee a cer tificate from a
internationally recognized firm of independent public accountants
expressing their opinion that the payments of principal and interest and
Liquidated Damages (if any) when due and without reinvestment on the
deposited U.S. Government Obliga tions plus any deposited money without
investment will provide cash at such times and in such amounts as will be
sufficient to pay principal and interest and Liquidated Damages (if any)
when due on all the Secur ities to maturity or redemption, as the case may
be;
(3) no Default shall have occurred and be continuing on the date of
the deposit (other than a Default resulting from the borrowing of funds to
be applied to such deposit) and 91 days pass after the deposit is made and
during the 91-day period no Default specified in Sections 6.01(8) or
6.01(9) with respect to the Issuer occurs which is continuing at the end of
the period;
(4) the deposit will not result in a breach or violation of, or
constitute a default under any material agreement or instrument (other than
this Indenture) to which the Issuer or any of its Subsidiaries is a party
or by which the Issuer or any of its Subsidiaries is bound;
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(5) the Issuer delivers to the Trustee an Opinion of Counsel to the
effect that the trust resulting from the deposit does not constitute, or is
qualified as, a regulated investment company under the Investment Company
Act of 1940;
(6) in the case of the legal defeasance option, the Issuer shall have
delivered to the Trustee an Opinion of Counsel confirming that (A) the
Issuer 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 Securities will not recognize income, gain
or loss for United States Federal income tax purposes as a result of such
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;
(7) in the case of the covenant defeasance option, the Issuer shall
have delivered to the Trustee an Opinion of Counsel confirming that the
Holders of the outstanding Securities 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;
(8) in the case of the legal defeasance option or the covenant
defeasance option, the Issuer shall have delivered to the Trustee an
Opinion of Counsel in the Issuer's jurisdiction of incorporation confirming
that the Holders of the outstanding Securities 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;
(9) the Issuer delivers to the Trustee an Opinion of Counsel to the
effect that, assuming no intervening bankruptcy of the Issuer between the
date of deposit and the 91st day following the deposit and, assuming that
no Holder is an "insider" of the Issuer under
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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 Bankruptcy Law;
(10) the Issuer delivers to the Trustee an Officers' Certificate
stating that the deposit was not made by the Issuer with the intent of
preferring the Holders of Securities over the other creditors of the Issuer
or with the intent of defeating, hindering, delaying or defrauding
creditors of the Issuer or others; and
(11) the Issuer delivers to the Trustee an Offi cers' Certificate and
an Opinion of Counsel, each stating that all conditions precedent to the
defeasance and discharge of the Securities as contemplated by this Article
8 have been complied with.
Before or after a deposit, the Issuer may make arrangements satisfactory to
the Trustee for the redemption of Securities at a future date in accordance with
Article 3.
SECTION 8.03. Application of Trust Money. The Trustee shall hold in trust
money or U.S. Government Obliga tions deposited with it pursuant to this Article
8. It shall apply the deposited money and the money from U.S. Government
Obligations through the Paying Agent and in accordance with this Indenture to
the payment of principal of and interest and Liquidated Damages (if any) on the
Securities.
SECTION 8.04. Repayment to Issuer. The Trustee and the Paying Agent shall
promptly turn over to the Issuer upon written request any excess money or
securities held by them at any time.
Subject to any applicable abandoned property law, the Trustee and the
Paying Agent shall pay to the Issuer upon request any money held by them for the
payment of principal or interest and Liquidated Damages (if any) that remains
unclaimed for two years, and, thereafter, Holders entitled to the money must
look to the Issuer for payment as general creditors.
SECTION 8.05. Indemnity for Government Obligations. The Issuer shall pay
and shall indemnify the Trustee against any tax, fee or other charge imposed on
or assessed against deposited U.S. Government Obligations or the princi pal and
interest received on such U.S. Government Obliga tions.
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SECTION 8.06. Reinstatement. If the Trustee or Paying Agent is unable to
apply any money or U.S. Government Obligations in accordance with this Article 8
by reason of any legal proceeding or by reason of any order or judgment of any
court or governmental authority enjoining, restrain ing or otherwise prohibiting
such application, the Issuer's obligations under this Indenture and the
Securities shall be revived and reinstated as though no deposit had occurred
pursuant to this Article 8 until such time as the Trustee or Paying Agent is
permitted to apply all such money or U.S. Government Obligations in accordance
with this Article 8; provided, however, that, if the Issuer has made any payment
of interest and Liquidated Damages (if any) on or principal of any Securities
because of the reinstatement of their obligations, the Issuer shall be
subrogated to the rights of the Holders of such Securities to receive such
payment from the money or U.S. Government Obligations held by the Trustee or
Paying Agent.
ARTICLE 9
Amendments
SECTION 9.01. Without Consent of Holders. The Issuer and the Trustee may
amend this Indenture or the Securities without notice to or consent of any
Holder:
(1) to cure any ambiguity, omission, defect or inconsistency;
(2) to comply with Article 5;
(3) to provide for uncertificated Securities in addition to or in
place of certificated Securities; provided, however, that the
uncertificated Securities are issued in registered form for purposes of Sec
tion 163(f) of the Code or in a manner such that the uncertificated
Securities are described in Section 163(f)(2)(B) of the Code;
(4) to provide for the issuance of additional Securities in accordance
with the provisions set forth in this Indenture;
(5) to comply with any requirements of the Commission in connection
with qualifying, or maintaining the qualification of, this Indenture under
the TIA; or
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(6) to make any change that would provide any additional rights or
benefits to the Holders of Securities or that does not adversely affect the
legal rights under this Indenture of any such Holder.
After an amendment under this Section becomes effective, the Issuer shall
mail to Holders a notice briefly describing such amendment. The failure to give
such notice to all Holders, or any defect therein, shall not impair or affect
the validity of an amendment under this Section.
SECTION 9.02. With Consent of Holders. The Issuer and the Trustee may amend
this Indenture or the Securities without notice to any Holder but with the
written consent of the Holders of at least a majority in principal amount of the
Securities then outstanding (including consents obtained in connection with a
purchase of, or tender offer or exchange offer for, the Securities). However,
without the consent of each Holder affected thereby, an amendment may not:
(1) reduce the principal amount of Securities whose Holders must
consent to an amendment;
(2) reduce the rate of or extend the time for payment of interest or
Liquidated Damages (if any) on any Security;
(3) reduce the principal of or extend the Stated Maturity of any
Security or alter the provisions with respect to the redemption of the
Securities (other than provisions relating to the covenants set forth in
Sections 4.13 and 4.14);
(4) reduce the premium payable upon the redemption of any Security or
change the time at which any Secur ity may be redeemed in accordance with
Article 3;
(5) make any Security payable in money other than that stated in the
Securities;
(6) waive a Default in the payment of principal of, or interest,
Liquidated Damages or premium, if any, on the Securities (except a
rescission of acceleration of the Securities by the Holders of at least a
majority in aggregate principal amount of the Securities and a waiver of
the Payment Default that resulted from such acceleration);
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(7) waive a redemption payment with respect to any Security (other
than a payment required by the covenants set forth in Sections 4.13 and
4.14); or
(8) modify the rights of Holders to receive Additional Amounts; or
(9) make any change in Section 6.04 or 6.07 or the second sentence of
this Section.
It shall not be necessary for the consent of the Holders under this Section
to approve the particular form of any proposed amendment, but it shall be
sufficient if such consent approves the substance thereof.
After an amendment under this Section becomes effective, the Issuer shall
mail to Holders a notice briefly describing such amendment. The failure to give
such notice to all Holders, or any defect therein, shall not impair or affect
the validity of an amendment under this Section.
SECTION 9.03. Compliance with Trust Indenture Act. Every amendment to this
Indenture or the Securities shall comply with the TIA as then in effect.
SECTION 9.04. Revocation and Effect of Consents and Waivers. A consent to
an amendment or a waiver by a Holder of a Security shall bind the Holder and
every subse quent Holder of that Security or portion of the Security that
evidences the same debt as the consenting Holder's Security, even if notation of
the consent or waiver is not made on the Security. However, any such Holder or
subse quent Holder may revoke the consent or waiver as to such Holder's Security
or portion of the Security if the Trustee receives the notice of revocation
before the date the amendment or waiver becomes effective. After an amendment or
waiver becomes effective, it shall bind every Holder. An amendment or waiver
becomes effective upon the execution of such amendment or waiver by the Trustee.
The Issuer may, but shall not be obligated to, fix a record date for the
purpose of determining the Holders entitled to give their consent or take any
other action described above or required or permitted to be taken pursuant to
this Indenture. If a record date is fixed, then notwithstanding the immediately
preceding paragraph, those Persons who were Holders at such record date (or
their duly designated proxies), and only those Persons, shall be entitled to
give such consent or to revoke any consent previously given or to take any such
action, whether or not such Persons continue to be Holders after such record
date.
<PAGE> 87
81
No such consent shall be valid or effective for more than 120 days after such
record date.
SECTION 9.05. Notation on or Exchange of Securi ties. If an amendment
changes the terms of a Security, the Trustee may require the Holder of the
Security to deliver it to the Trustee. The Trustee may place an appropriate
notation on the Security regarding the changed terms and return it to the
Holder. Alternatively, if the Issuer or the Trustee so determines, the Issuer in
exchange for the Security shall issue and the Trustee shall authenticate a new
Security that reflects the changed terms. Failure to make the appropriate
notation or to issue a new Security shall not affect the validity of such
amendment.
SECTION 9.06. Trustee To Sign Amendments. The Trustee shall sign any
amendment authorized pursuant to this Article 9 if the amendment does not
adversely affect the rights, duties, liabilities or immunities of the Trustee.
If it does, the Trustee may but need not sign it. In sign ing such amendment the
Trustee shall be entitled to receive indemnity reasonably satisfactory to it and
to receive, and (subject to Section 7.01) shall be fully protected in relying
upon, an Officers' Certificate and an Opinion of Counsel stating that such
amendment is authorized or permitted by this Indenture.
SECTION 9.07. Payments for Consent. The Issuer shall not, and shall 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
Securities for or as an inducement to any consent, waiver or amendment of any of
the terms or provisions of this Indenture or the Securities unless such
consideration is offered to be paid to all Holders of Securities that consent,
waive or agree to amend in the time frame set forth in solicitation documents
relating to such consent, waiver or agreement.
ARTICLE 10
Miscellaneous
SECTION 10.01. Trust Indenture Act Controls. If any provision of this
Indenture limits, qualifies or con flicts with another provision which is
required to be included in this Indenture by the TIA, the required provi sion
shall control.
<PAGE> 88
82
SECTION 10.02. Notices. Any notice or communica tion shall be in writing
and delivered in person or mailed by first-class mail addressed as follows:
if to the Issuer:
Loral Space & Communications Ltd.
600 Third Avenue
New York, NY 10016 95164-0670
Attention: Eric J. Zahler
Facsimile: (212) 338-5350
if to the Trustee:
The Bank of New York
101 Barclay Street, Floor 21 West
New York, NY 10286
Attention: Corporate Trust Administration
Facsimile: (212) 815-5915
The Issuer or the Trustee by notice to the other may designate additional
or different addresses for subse quent notices or communications.
Any notice or communication mailed to a Holder shall be mailed to the
Holder at the Holder's address as it appears on the registration books of the
Registrar and shall be sufficiently given if so mailed within the time
prescribed.
Failure to mail a notice or communication to a Holder or any defect in it
shall not affect its sufficiency with respect to other Holders. If a notice or
communication is mailed in the manner provided above, it is duly given, whether
or not the addressee receives it.
SECTION 10.03. Communication by Holders with Other Holders. Holders may
communicate pursuant to TIA ss. 312(b) with other Holders with respect to their
rights under this Indenture or the Securities. The Issuer, the Trustee, the
Registrar and anyone else shall have the protection of TIA ss. 312(c).
SECTION 10.04. Certificate and Opinion as to Conditions Precedent. Upon any
request or application by the Issuer to the Trustee to take or refrain from
taking any action under this Indenture, the Issuer shall furnish to the Trustee:
(1) an Officers' Certificate in form and substance reasonably
satisfactory to the Trustee stating that, in
<PAGE> 89
83
the opinion of the signers, all conditions precedent, if any, provided for
in this Indenture relating to the proposed action have been complied with;
and
(2) an Opinion of Counsel in form and substance reasonably
satisfactory to the Trustee stating that, in the opinion of such counsel,
all such conditions precedent have been complied with.
SECTION 10.05. Statements Required in Certificate or Opinion. Each
certificate or opinion with respect to compliance with a covenant or condition
provided for in this Indenture shall include:
(1) a statement that the individual making such certificate or opinion
has read such covenant or condi tion;
(2) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(3) a statement that, in the opinion of such individual, he has made
such examination or investigation as is necessary to enable him to express
an informed opinion as to whether or not such covenant or condition has
been complied with; and
(4) a statement as to whether or not, in the opin ion of such
individual, such covenant or condition has been complied with.
SECTION 10.06. When Securities Disregarded. In determining whether the
Holders of the required principal amount of Securities have concurred in any
direction, waiver or consent, Securities owned by the Issuer or by any Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with the Issuer shall be disregarded and deemed not to be
outstanding, except that, for the purpose of determining whether the Trustee
shall be protected in relying on any such direction, waiver or consent, only
Securities which a Trust Officer of the Trustee actually knows are so owned
shall be so disregarded. Also, subject to the foregoing, only Securities
outstanding at the time shall be considered in any such determination.
SECTION 10.07. Rules by Trustee, Paying Agent and Registrar. The Trustee
may make reasonable rules for action by or a meeting of Holders. The Registrar
and the Paying Agent may make reasonable rules for their functions.
<PAGE> 90
84
SECTION 10.08. Legal Holidays. A "Legal Holiday" is a Saturday, a Sunday or
a day on which banking institu tions are not required to be open in the State of
New York. If a payment date is a Legal Holiday, payment shall be made on the
next succeeding day that is not a Legal Holiday, and no interest and Liquidated
Damages (if any) shall accrue for the intervening period. If a regular record
date is a Legal Holiday, the record date shall not be affected.
SECTION 10.09. Governing Law. This Indenture and the Securities shall be
governed by, and construed in accordance with, the laws of the State of New York
but without giving effect to applicable principles of conflicts of law to the
extent that the application of the laws of another jurisdiction would be
required thereby.
SECTION 10.10. No Recourse Against Others. No past, present or future
director, officer, partner (including any general partner) employee,
incorporator or stockholder, as such, of the Issuer shall have any liability for
any obligations of the Issuer under the Securities or this Indenture or for any
claim based on, in respect of or by reason of such obligations or their
creation. By accepting a Security, each Holder shall waive and release all such
liability. The waiver and release shall be part of the consideration for the
issue of the Securities.
SECTION 10.11. Successors. All agreements of the Issuer in this Indenture
and the Securities shall bind their successors. All agreements of the Trustee in
this Indenture shall bind its successors.
SECTION 10.12. Multiple Originals. The parties may sign any number of
copies of this Indenture. Each signed copy shall be an original, but all of them
together represent the same agreement. One signed copy is enough to prove this
Indenture.
<PAGE> 91
85
SECTION 10.13. Table of Contents; Headings. The table of contents,
cross-reference sheet and headings of the Articles and Sections of this
Indenture have been inserted for convenience of reference only, are not intended
to be considered a part hereof and shall not modify or restrict any of the terms
or provisions hereof.
SECTION 10.14. Jurisdiction; Consent to Service of Process. THE ISSUER
HEREBY IRREVOCABLY AND UNCONDITIONALLY CONSENTS TO SUBMIT TO THE EXCLUSIVE
JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK AND OF THE UNITED STATES
DISTRICT COURTS LOCATED IN THE CITY OF NEW YORK FOR ANY LAWSUITS, CLAIMS OR
OTHER PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT AND AGREES NOT TO
COMMENCE ANY SUCH LAWSUIT, CLAIM OR OTHER PROCEEDING EXCEPT IN SUCH COURTS. THE
ISSUER HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY OBJECTION TO THE LAYING
OF VENUE OF ANY LAWSUIT, CLAIM, OR OTHER PROCEEDING ARISING OUT OF OR RELATING
TO THIS AGREEMENT IN THE COURTS OF THE STATE OF NEW YORK OR THE UNITED STATES
DISTRICT COURTS LOCATED IN THE CITY OF NEW YORK, AND HEREBY FURTHER IRREVOCABLY
AND UNCONDITIONALLY WAIVES AND AGREES NOT TO PLEAD OR CLAIM IN ANY SUCH COURT
THAT ANY SUCH LAWSUIT, CLAIM OR OTHER PROCEEDING BROUGHT IN ANY SUCH COURT HAS
BEEN BROUGHT IN AN INCONVENIENT FORUM. THE ISSUER HAS APPOINTED ERIC J. ZAHLER
AT 600 THIRD AVENUE, NEW YORK, NEW YORK 10016, U.S.A. (HEREINAFTER REFERRED TO
IN SUCH CAPACITY AS THE "PROCESS AGENT"), AS ITS AUTHORIZED AGENT UPON WHOM
PROCESS MAY BE SERVED IN ANY SUCH SUIT OR PROCEEDING. THE ISSUER REPRESENTS TO
THE TRUSTEE THAT IT HAS NOTIFIED THE PROCESS AGENT OF SUCH DESIGNATION AND
APPOINTMENT AND THAT THE PROCESS AGENT HAS ACCEPTED THE SAME IN WRITING. THE
ISSUER HAS AUTHORIZED AND DIRECTED THE PROCESS AGENT TO ACCEPT SUCH SERVICE. IF
THE PROCESS AGENT SHALL CEASE TO ACT AS THE ISSUER'S AGENT FOR SERVICE OF
PROCESS, THE ISSUER SHALL APPOINT WITHOUT DELAY ANOTHER SUCH AGENT AND NOTIFY
THE TRUSTEE OF SUCH APPOINTMENT. THE ISSUER FURTHER AGREES THAT SERVICE OF
PROCESS UPON THE PROCESS AGENT AND WRITTEN NOTICE OF SAID SERVICE TO THE ISSUER
MAILED BY FIRST CLASS MAIL OR DELIVERED TO THE PROCESS AGENT SHALL BE DEEMED IN
EVERY RESPECT EFFECTIVE SERVICE OF PROCESS UPON IT IN ANY SUCH SUIT OR
PROCEEDING. NOTHING HEREIN SHALL AFFECT THE TRUSTEE'S RIGHT OR THE RIGHT OF ANY
PERSON CONTROLLING THE TRUSTEE TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY
LAW. THE ISSUER AGREES THAT A FINAL ACTION IN ANY SUCH SUIT OR PROCEEDING SHALL
BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT
OR IN ANY OTHER LAWFUL MANNER.
<PAGE> 92
86
IN WITNESS WHEREOF, the parties have caused this Indenture to be duly
executed as of the date first written above.
LORAL SPACE & COMMUNICATIONS LTD.
by /s/ Richard Townsend
-----------------------------
Name:
Title:
THE BANK OF NEW YORK, as Trustee
by /s/ Mary La Gumina
-----------------------------
Name: Mary La Gumina
Title:Assistant Vice President
<PAGE> 1
CONFORMED AS AMENDED
AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
GLOBALSTAR, L.P.
=====================
Dated as of
January 26, 1999
=====================
<PAGE> 2
TABLE OF CONTENTS
Page
----
ARTICLE I. ORGANIZATIONAL MATTERS
SECTION 1.1. Continuation...............................................2
SECTION 1.2. Name.......................................................2
SECTION 1.3. Registered Office; Principal Office........................3
SECTION 1.4. Power of Attorney..........................................3
SECTION 1.5. Term.......................................................5
SECTION 1.6. Title to Partnership Property..............................5
SECTION 1.7. Effectiveness of Partnership Agreement.....................5
ARTICLE II. DEFINITIONS
SECTION 2.1. Definitions................................................5
ARTICLE III. PURPOSE
SECTION 3.1. Purpose...................................................25
ARTICLE IV. CAPITAL CONTRIBUTIONS
SECTION 4.1. General Partners..........................................26
SECTION 4.2. Limited Partners..........................................27
SECTION 4.3. Additional Contribution...................................27
SECTION 4.4. Additional Limited Partners...............................27
SECTION 4.5. Capital Accounts..........................................27
SECTION 4.6. Interest..................................................29
SECTION 4.7. No Withdrawal.............................................29
SECTION 4.8. Loans.....................................................29
SECTION 4.9. Preemptive Rights.........................................29
SECTION 4.10. Sale of Partnership Interests and Partnership
Securities................................................31
SECTION 4.11. Business Plans............................................32
SECTION 4.12. Limitation on a Limited Partner's Ownership..................34
ARTICLE V. ALLOCATIONS, DISTRIBUTIONS AND SERVICE PROVIDER AGREEMENTS
SECTION 5.1. Allocations Generally.....................................34
SECTION 5.2. Regulatory Allocations....................................36
SECTION 5.3. Other Allocations When Book Value Differs from Tax
Basis.....................................................39
SECTION 5.4. Special Allocation of Foreign Taxes.......................39
SECTION 5.5. Distributions.............................................40
<PAGE> 3
SECTION 5.6. Service Provider Agreements...............................43
SECTION 5.7. Terms of PPIs.............................................43
SECTION 5.8. Guaranteed Payments.......................................43
SECTION 5.9. Allocations Relating to Issue of Partnership
Interests.................................................44
ARTICLE VI. MANAGEMENT AND OPERATION OF BUSINESS
SECTION 6.1. Management................................................44
SECTION 6.2. Limitations on Authority of Committee and the
General Partners..........................................49
SECTION 6.3. Change of Control and Reduction in Interest...............53
SECTION 6.4. Certificate of Limited Partnership........................54
SECTION 6.5. Reliance by Third Parties.................................55
SECTION 6.6. Compensation, Expenses and Reimbursement of
General Partners..........................................56
SECTION 6.7. Outside Activities........................................57
SECTION 6.8. Partnership Funds.........................................58
SECTION 6.9. Loans from the General Partners...........................58
SECTION 6.10. Indemnification of Partners...............................59
SECTION 6.11. Liability of General Partners.............................61
SECTION 6.12. Other Matters Concerning the General Partners.............62
SECTION 6.13. Conversion to Corporate Form..............................63
SECTION 6.14. FCC Compliance............................................64
ARTICLE VII. RIGHTS AND OBLIGATIONS OF THE LIMITED PARTNERS
SECTION 7.1. Limitation of Liability...................................64
SECTION 7.2. Management of Business....................................64
ARTICLE VIII. BOOKS, RECORDS, ACCOUNTING AND REPORTS
SECTION 8.1. Records and Accounting....................................65
SECTION 8.2. Fiscal Year...............................................65
SECTION 8.3. Reports and Annual Meeting................................65
SECTION 8.4. Disclosure to Limited Partners............................66
SECTION 8.5. Determination of Book Value of Partnership Assets.........67
ARTICLE IX. TAX MATTERS
SECTION 9.1. Preparation of Tax Returns................................69
SECTION 9.2. Tax Elections.............................................69
SECTION 9.3. Tax Controversies.........................................69
SECTION 9.4. Taxation as a Partnership.................................70
(ii)
<PAGE> 4
ARTICLE X. TRANSFER OF INTERESTS
SECTION 10.1. Transfer..................................................70
SECTION 10.2. Transfer of Interests of General Partners.................71
SECTION 10.3. Transfer of Interests of Limited Partners.................73
SECTION 10.4. Certain Transfers.........................................76
ARTICLE XI. ADMISSION OF SUBSTITUTE PARTNERS
SECTION 11.1. Admission of Successor Limited Partner....................77
SECTION 11.2. Admission of Successor General Partner....................78
SECTION 11.3. Amendment of Agreement and of Certificate of
Limited Partnership.......................................78
ARTICLE XII. WITHDRAWAL OR REMOVAL
SECTION 12.1. Withdrawal or Removal of the General Partners.............79
SECTION 12.2. Right of the Managing General Partner to Become a
Limited Partner...........................................81
SECTION 12.3. Withdrawal of Limited Partner.............................81
ARTICLE XIII. DISSOLUTION AND LIQUIDATION
SECTION 13.1. Dissolution...............................................81
SECTION 13.2. Continuation of the Business of the Partnership
after Dissolution.........................................82
SECTION 13.3. Winding Up and Liquidation................................83
SECTION 13.4. Cancellation of Certificate of Limited Partnership........85
SECTION 13.5. Return of Capital.........................................86
SECTION 13.6. Waiver of Partition.......................................86
SECTION 13.7. Deficit Upon Liquidation..................................86
ARTICLE XIV. AMENDMENT OF PARTNERSHIP AGREEMENT; MEETINGS; RECORD DATE
SECTION 14.1. Amendments to be Adopted Without Consent of the
Partners..................................................86
SECTION 14.2. Amendment Procedures......................................87
ARTICLE XV. GENERAL PROVISIONS
SECTION 15.1. Addresses and Notices.....................................87
SECTION 15.2. Titles and Captions.......................................88
SECTION 15.3. Pronouns and Plurals......................................88
SECTION 15.4. Further Action............................................88
SECTION 15.5. Binding Effect............................................89
SECTION 15.6. Integration...............................................89
(iii)
<PAGE> 5
SECTION 15.7. Creditors.................................................89
SECTION 15.8. Waiver....................................................89
SECTION 15.9. Counterparts..............................................89
SECTION 15.10. Dispute Resolution........................................89
SECTION 15.11. Applicable Law............................................91
SECTION 15.12. Confidentiality...........................................91
SECTION 15.13. Invalidity of Provisions..................................94
SCHEDULE A -- Schedule of Partners
SCHEDULE B -- Related Party Transactions
SCHEDULE C -- Provisions Relating to Preferred Partnership Interests
(iv)
<PAGE> 6
AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
GLOBALSTAR, L.P.
This AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP is
entered into and shall be effective as of the 26th day of January, 1999, by and
among Loral/QUALCOMM Satellite Services, L.P., a Delaware limited partnership
("LQSS" or the "Managing General Partner"), Globalstar Telecommunications
Limited, a company organized under the laws of Bermuda ("GTL", together with
LQSS, the "General Partners"), and all of the limited partners set forth on the
signature page hereto (collectively referred to herein as the "Limited
Partners"), pursuant to the provisions of the Delaware Revised Uniform Limited
Partnership Act (the "Delaware Act"), on the following terms and conditions:
WHEREAS, LQSS formed Globalstar, L.P. (the "Partnership"), a
Delaware limited partnership, pursuant to that certain Certificate of Limited
Partnership of Globalstar, L.P., filed November 19, 1993, with the Secretary of
State of the State of Delaware;
WHEREAS, the Limited Partners (other than Finmeccanica S.p.A. and
TeleSat Limited) or their predecessors were admitted into the Partnership on
March 23, 1994, pursuant to that certain Amended and Restated Agreement of
Limited Partnership of Globalstar, L.P., dated as of March 23, 1994, by and
among LQSS and the Limited Partners (the "Original Partnership Agreement");
WHEREAS, GTL had filed a registration statement on Form S-1, No.
33-86808, pursuant to which it made offerings (the "GTL Initial Offerings") of
shares of its common stock;
WHEREAS, in contemplation of the GTL Initial Offerings, the
Partnership had pursuant to Section 4.10 of the Original Partnership Agreement,
effected a recapitalization in November 1994 to provide for a 6-for-1 split of
its Partnership Interests (as defined below);
WHEREAS, Finmeccanica S.p.A. ("Finmeccanica") was admitted into the
Partnership as a Limited Partner and GTL was admitted into the Partnership as a
General Partner on December 31, 1994 and the Original Partnership Agreement was
amended and restated on December 31, 1994 (the "Amended and Restated Partnership
Agreement") to provide for such admission, the contribution of the proceeds from
the GTL Initial Offerings to the
<PAGE> 7
Partnership and the creation of a committee (the "Committee") comprised of
representatives of LQSS and GTL to manage the Partnership;
WHEREAS, GTL made an offering (the "CPEO Offering") of 6 1/2%
Convertible Preferred Equivalent Obligations due 2006 (the "CPEOs") on March 6,
1996 and in connection therewith the Amended and Restated Partnership
Agreement was amended;
WHEREAS, TeleSat Limited was admitted as a partner on April 8, 1998
and in connection therewith the Amended and Restated Partnership Agreement was
further amended;
WHEREAS, on January 26, 1999, GTL made an offering (the "Preferred
Stock Offering") of 8% convertible redeemable preferred Stock due 2011 and in
connection therewith the Amended and Restated Partnership Agreement was further
amended; and
NOW, THEREFORE, the Partners, in consideration of the premises and
their mutual agreements as hereinafter set forth, do hereby agree to amend and
restate the Amended and Restated Partnership Agreement as follows:
ARTICLE I.
ORGANIZATIONAL MATTERS
SECTION 1.1. Continuation. Subject to the provisions of this
Agreement, the Partnership hereby continues as a limited partnership pursuant to
the provisions of the Delaware Act. The rights and obligations of the Partners
and the administration and termination of the Partnership shall be governed by
this Agreement and the Delaware Act.
SECTION 1.2. Name. The name of the Partnership shall be, and the
business of the Partnership shall be conducted under the name of, "Globalstar,
L.P." The Partnership's business may be conducted under any other name or names
deemed advisable by the Committee, including the name of a General Partner or
any Affiliate (as defined below) of a General Partner. The Committee, upon the
Consent of the Partners (as defined below), may change the name of the
Partnership at any time and from time to time. Notice will be given to the
Limited Partners within ten (10) days after any change in the name of the
Partnership.
SECTION 1.3. Registered Office; Principal Office. The registered
office of the Partnership in the State of Delaware shall be located at c/o
Corporation Trust Company, 1209 Orange Street, Wilmington, Delaware 19801, and
the registered agent for
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<PAGE> 8
service of process on the Partnership at such registered office shall be
Corporation Trust Company. The principal office of the Partnership shall be 3200
Zanker Road, San Jose, CA 95164, or such other place as the Partnership may from
time to time designate to the Partners. Notice will be given to the Limited
Partners within ten (10) days after any change in the principal office of the
Partnership. The Partnership may maintain offices at such other place as it
deems advisable unless such offices create undue adverse tax consequences for
the Partners.
SECTION 1.4. Power of Attorney. (a) Each Limited Partner hereby
irrevocably appoints and empowers each General Partner and each of the General
Partner's authorized officers and attorneys-in-fact with full power of
substitution as its true and lawful agent and attorney-in-fact (the "Attorney"),
with full power and authority in its name, place and stead, for so long as such
Attorney is a General Partner or an authorized officer or attorney-in-fact of a
General Partner, to:
(i) make, execute, acknowledge, publish and file in the appropriate
public offices (A) any duly approved amendments to this Agreement or to
the Certificate of Limited Partnership pursuant to the Delaware Act and to
the laws of any state in which such documents are required to be filed;
(B) any certificates, instruments or documents as may be required by, or
may be appropriate under, the laws of any state or other jurisdiction in
which the Partnership is doing or intends to do business; (C) any other
instrument which may be required to be filed by the Partnership under the
laws of any state or other jurisdiction or by any governmental agency, or
which the Committee deems advisable to file; (D) any documents which may
be required to effect the continuation of the Partnership, the admission,
withdrawal or substitution of any Partner pursuant to Article XI or
Article XII hereof, the dissolution and termination of the Partnership
pursuant to the terms of this Agreement, or the surrender of any rights or
the assumption of any additional responsibilities by the General Partners
or the Committee; and (E) any document which may be required to effect an
amendment to this Agreement to correct any mistake, omission or
inconsistency, or to cure any ambiguity herein, to the extent such
amendment is permitted by Section 14.1 hereof; and
(ii) sign, execute, swear to and acknowledge all ballots, consents,
approvals, waivers, certificates and other instruments appropriate or
necessary, to make, evidence, give, confirm or ratify any vote, consent,
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<PAGE> 9
approval, agreement or other action which is made or given by the Partners
hereunder or is consistent with the terms of this Agreement and/or
appropriate or necessary to effectuate the terms or intent of this
Agreement; provided, however, that when the consent or approval of the
Partners is required under the terms of this Agreement, an Attorney may
exercise the power of attorney made in this subsection (ii) only after the
necessary consent or approval has been received.
(b) To the maximum extent permitted by applicable law, the foregoing
grant of authority (i) is a special power of attorney, coupled with an interest,
and it shall survive the death, incompetency, disability, liquidation,
dissolution, bankruptcy or termination of any Partner and shall extend to such
Partner's heirs, successors, assigns and personal representatives; (ii) may be
exercised by an Attorney for each and every Limited Partner acting as
attorney-in-fact for each and every Limited Partner; and (iii) shall survive the
assignment by any Limited Partner of all or any portion of its Partnership
Interest and shall be fully binding upon such assignee but not on the assignor.
Each Limited Partner hereby agrees to be bound by any representations made by an
Attorney acting in good faith pursuant to such power of attorney in furtherance
of the Partnership's business. Each Limited Partner shall execute and deliver to
either General Partner, within fifteen (15) days after receipt of a request
therefor, such further designations, powers of attorney and other instruments as
the Committee deems necessary to effectuate this Agreement and the purposes of
the Partnership.
SECTION 1.5. Term. The Partnership commenced upon the completion of
filing for record of the Certificate of Limited Partnership for the Partnership
in accordance with the Delaware Act and shall continue in existence until the
earlier termination of the Partnership in accordance with the provisions of
Article XIII hereof.
SECTION 1.6. Title to Partnership Property. All property owned by
the Partnership, whether real or personal, tangible or intangible, shall be
deemed to be owned by the Partnership as an entity, and no Partner,
individually, shall have any ownership of such property. The Partnership shall
hold all of its assets in its own name; provided, however, that it may hold
marketable securities in street name.
SECTION 1.7. Effectiveness of Partnership Agreement. This Agreement
shall become effective as of the date hereof.
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<PAGE> 10
ARTICLE II.
DEFINITIONS
SECTION 2.1. Definitions. Any capitalized terms used herein and not
otherwise defined shall have the meaning ascribed to such term in this Article
II. For purposes of this Agreement, the following terms shall have the following
meanings:
"Accounting Period" means a period beginning on the first day after
the end of the prior Accounting Period and ending on the earlier of (i) the end
of the Partnership's fiscal year, (ii) the end of the Partnership's tax year,
(iii) the day prior to the day on which there is a material adjustment to the
Book Values of the Partnership's assets under Section 8.5(c), or (iv) such other
date as determined by the Committee.
"Additional Closing" means any closing, following the Initial
Closing, at which Additional Partnership Interests are issued.
"Additional Limited Partner" shall mean the Limited Partners
admitted to the Partnership pursuant to Section 4.4.
"Additional Partnership Interests" means any Partnership Interests
issued by the Partnership after the GTL Effective Date.
"Adjusted Capital Account" means, for any Partner, its Capital
Account balance (after deducting the amount of expected distributions of
Distributable Cash Flow and Distributable Capital Proceeds on hand on the date
as of which the computation is made) plus (a) its share of Partnership Minimum
Gain, (b) its share of Partner Minimum Gain and (c) the amount, if any, by which
a deficit Capital Account balance exceeds the sum of (a) and (b) and which, due
to an unpaid Capital Commitment, a Partner is obligated to restore (or is
treated as obligated to restore under Treasury Regulation Section
1.704-1(b)(2)(ii)(c)).
"Adjusted Income" means the excess, if any, of the sum of (a)
Operating Income plus (b) Capital Transaction Gain plus (c) the deductions for
depreciation and amortization taken into account in computing Operating Loss
over the sum of (d) Operating Loss and (e) Capital Transaction Loss. All the
elements of Adjusted Income are reduced by the amounts thereof allocated under
Sections 5.2, 5.4 and Section 8.5(c).
"Affiliate" means any Person that directly or indirectly controls,
is controlled by, or is under common control
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<PAGE> 11
with the Person in question, provided that (i) in the case of Hyundai/DACOM,
such term shall refer to any of Hyundai Electronics Industries Co., Ltd.
("Hyundai"), DACOM Corporation ("Dacom") or an Affiliate of Hyundai or Dacom,
(ii) in the case of TE.SA.M. ("TESAM"), such term shall refer to any of Alcatel,
NV, Alcatel France, France Telecom or any Persons controlled, directly or
indirectly, by any of them, (iii) in the case of Finmeccanica, the term
"Affiliate" shall only include any other Person controlled by Finmeccanica, (iv)
in the case of Loral SpaceCom or LQSS, GTL shall not be deemed to be an
Affiliate of Loral SpaceCom or LQSS with respect to any matter brought before
the Partners for a vote in accordance with the terms of this Agreement when the
vote of GTL with respect to the transaction in question is determined by
directors who are not employed by, or otherwise affiliated with Loral SpaceCom
and (v) in the case of TeleSat, the term "Affiliate" shall include only
ChinaSat, CTHKG and any Persons controlled by ChinaSat or CTHKG. Upon a GTL
Change of Control or Reduction in Interest as described in Section 6.3, the
exception with respect to GTL set forth in the preceding sentence shall not
apply in determining whether GTL is an Affiliate of Loral SpaceCom or LQSS. As
used in this definition of "Affiliate," the term "control" means the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of a Person, whether through ownership of voting
securities, by contract or otherwise. The terms "controlled" and "common
control" shall have correlative meanings.
"Affiliate Successor" has the meaning specified in Section 10.2
hereto.
"Agreement" means this Amended and Restated Agreement of Limited
Partnership, as it may be amended or supplemented from time to time.
"Annual Budget" has the meaning specified in Section 4.11 hereto.
"Authorized Partnership Interests" means the sum of (i) 55,448,837
Partnership Interests, (ii) 4,769,231 Partnership Interests, (iii) the number of
Ordinary Partnership Interests issuable upon exercise of the warrants issuable
to certain Partners or Affiliates thereof and to GTL in connection with the
guarantee of the Partnership's obligations under the Globalstar Credit
Agreement, (iv) the number of Preferred Partnership Interests issuable to GTL in
connection with GTL's offering of 8% convertible redeemable preferred stock of
GTL due 2011, including as a result of the exercise by the purchasers thereof of
the option to purchase additional shares thereof under the purchase
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<PAGE> 12
agreement relating thereto and (v) the number of Ordinary Partnership Interests
issuable upon conversion of the PPIs or in satisfaction of any distribution,
make-whole or redemption payment thereon; provided that any greater number of
Authorized Partnership Interests may be authorized from time to time with the
Consent of the Partners.
"Average Market Value" means the arithmetic average of the Current
Market Value of the GTL Common Stock for the ten trading days ending on the
fifth business day prior to (i) in the case of a payment of a Scheduled
Distribution, the record date for the corresponding dividend payment on the
Preferred Stock and (ii) in the case of any other payment, the date of such
payment.
"Baseline Business Plan" means (i) as to the first generation
satellite constellation, the Original Business Plan, insofar as it pertains to
that generation, (ii) as to the second generation satellite constellation, the
Original Business Plan, but only if the actual total revenues and net income of
the Partnership for the 12-month period prior to the month in which a proposed
Baseline Business Plan would otherwise be required to be submitted to the
Partners pursuant to Section 4.11(b) equal or exceed the projected amounts
thereof for such period set forth in the Original Business Plan or, if such
12-month period is not set forth separately therein, the projected amount for
such 12-month period implicit in the annual projected amounts set forth therein,
(iii) as to the second generation satellite constellation if clause (ii) does
not apply, and for all subsequent generations of satellite constellations, a new
Baseline Business Plan adopted in accordance with Section 4.11(b) for such
generation and all previous generations still in operation, or (iv) as to any
generation satellite constellation, a business plan adopted in accordance with
Section 4.11(b) expressly intended as a superseding replacement for any of the
foregoing.
"Book Value" has the meaning determined under Section 8.5.
"Business Day" means Monday through Friday of each week, except that
a legal holiday recognized as such by the government of the United States shall
not be regarded as a Business Day.
"Business Plan" means a business plan prepared in accordance with
Section 4.11, with only such amendments and modifications thereto adopted from
time to time by the Committee as are not inconsistent with the provisions of
Sections 4.11, 5.5(c) and 6.2.
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"CSO" means Council of Service Operators as defined in the
Service Provider Agreements.
"CTHKG" means China Telecom (Hong Kong) Group Limited.
"Capital Account" means each capital account maintained pursuant to
Section 4.5 hereof.
"Capital Commitment" means the aggregate Capital Contribution which
a Partner has made and is committed to make pursuant to a Subscription Agreement
for the acquisition of Partnership Interests from the Partnership.
"Capital Contribution" means any cash or property which a Partner
contributes to the Partnership pursuant to Sections 4.1, 4.2, 4.4 or 4.10.
"Capital Transaction" means a sale or disposition of all, or a
substantial part, of the Partnership's property in one transaction or in a
series of transactions pursuant to the same plan. The term includes a borrowing
effected by the Partnership to obtain proceeds for distribution to Partners and
a transfer of Partnership assets to a corporation pursuant to Section 6.13, but
does not include the rights granted to a Service Provider under a Service
Provider Agreement or other dispositions in the ordinary course of a continuing
business.
"Capital Transaction Gain" means the gross income and gain realized
by the Partnership for federal income tax purposes on a Capital Transaction,
plus (a) income and gain of the Partnership exempt from tax, described in Code
Section 705(a)(1)(B) and realized by the Partnership on a Capital Transaction,
(b) on a distribution of a substantial part of the Partnership's property (other
than cash and cash equivalents) to Partners, the excess, if any, of the fair
market value of the distributed property over its Book Value and (c) the amount
of any increase in the Book Value of Partnership property pursuant to Section
8.5(c). The term does not include COD Income or Operating Income. In Computing
Capital Transaction Gain, items of income and gain relating to Partnership
assets shall be computed based upon the Book Values of the Partnership's assets
rather than upon the assets' adjusted basis for federal income tax purposes.
"Capital Transaction Loss" means the deductions and loss realized by
the Partnership for federal income tax purposes on a Capital Transaction, plus
(a) deduction and loss of the Partnership described in Code Section 705(a)(2)(B)
and realized by the Partnership on a Capital Transaction, (b) on a distribution
of
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<PAGE> 14
a substantial part of the Partnership's property (other than cash and cash
equivalents) to Partners, the excess, if any, of the Book Value of the
distributed property over its fair market value and (c) the amount of any
decrease in the Book Value of Partnership property pursuant to Section 8.5(c).
The term does not include Operating Loss. In Computing Capital Transaction Loss,
items of deduction and loss relating to Partnership assets shall be computed
based upon the Book Values of the Partnership's assets rather than upon the
assets' adjusted basis for federal income tax purposes.
"Certificate of Limited Partnership" means the Certificate of
Limited Partnership of Globalstar, L.P. filed with the Secretary of State of the
State of Delaware on November 19, 1993, as amended on December 31, 1994 pursuant
to the Delaware Act, as it may be further amended from time to time.
"ChinaSat" means China Telecommunications Broadcast Satellite
Corporation, an independent legal entity organized under the laws of the
People's Republic of China.
"ChinaSat Option" means the option granted to CTHKG by the
Partnership in consideration for ChinaSat entering into the ChinaSat Service
Provider Agreement to purchase, subject to the satisfaction of certain
conditions, an additional 937,500 Ordinary Partnership Interests at an aggregate
purchase price of $18.75 million.
"ChinaSat Service Provider Agreement" means the Founding Service
Provider Agreement, dated as of September 17, 1996, by and between ChinaSat and
the Partnership.
"COD Income" means income realized by the Partnership on the
cancellation of recourse indebtedness under federal income tax principles
whether or not the income is excluded from taxable income under Section 108 of
the Code or under common law principles of federal income taxation. For this
purpose, indebtedness is recourse if it is treated as recourse for purposes of
the Treasury Regulations under Code Section 704(b).
"Code" means the Internal Revenue Code of 1986, as amended.
"Committee" has the meaning specified in the recitals.
"Communications Act" means the Communications Act of 1934, as
amended.
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<PAGE> 15
"Confidential Information" has the meaning specified in Section
15.12.
"Consent of Disinterested Partners" means the votes at a
Representatives Meeting held in accordance with Section 6.2(g) representing a
majority of the Partnership Interests present and qualified to vote at a meeting
or represented by a qualifying proxy or written consent. Partnership Interests
held on behalf of any Delinquent Partner or any Partner or Partners having a
direct or indirect financial interest in the transaction in question shall not
be qualified to vote. For these purposes, it is to be specifically noted that
without limiting the foregoing, that (i) the Partnership Interests held by LQSS
will be deemed to be owned and voted by the Upper Tier Partner having the right
to direct the vote thereof pursuant to the LQSS Partnership Agreement, (ii) in
respect of contracts to supply goods or services to the Partnership (including
employment agreements) or other such related matters, Loral SpaceCom and its
Affiliates, SS/L and the strategic equity investors in SS/L (as hereinafter
described in Section 6.2(a)) and their respective Affiliates shall be deemed to
have a direct or indirect financial interest in any transaction to which any of
them is a party, and (iii) Loral SpaceCom and its Affiliates, SS/L and Qualcomm
Incorporated ("Qualcomm") and their respective Affiliates shall be deemed to
have a direct or indirect financial interest in any transaction or event to
which any of Loral SpaceCom, SS/L or Qualcomm is a party.
"Consent of the Partners" means, as to any action or proposed action
by the Partnership, approval of such action by a majority of votes cast at a
Representatives Meeting held in accordance with Section 6.2(g), unless 9,000,000
(adjusted to reflect any recapitalizations of the Partnership in the nature of a
subdivision or combination of Partnership Interests into a greater or lesser
number thereof but not adjusted to reflect dilution caused simply by the
issuance of additional Partnership Interests) or more qualifying votes are cast
against such action, in which event the Consent of the Partners will be deemed
denied, provided that neither any single Limited Partner, any limited partner in
any Upper Tier Partnership nor GTL shall be entitled to cast more than 6,000,000
qualifying votes against any such action, regardless of the number of
Partnership Interests it holds, and provided further that no more than 3,000,000
qualifying votes shall be cast by GTL in respect of partnership interests
acquired using the proceeds of the GTL Offerings or pursuant to the exercise of
Exchange Rights. Solely for purposes of determining the number of qualifying
votes a Partner who has exercised its Exchange Right in whole or in part, may
cast against an action as set forth above, a Partner
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<PAGE> 16
shall be deemed to continue to own the number of Partnership Interests equal to
the amount of GTL Common Stock acquired by such Partner pursuant to its Exchange
Right and which have not theretofore been disposed of.
"Consumer Price Index" has the meaning of "Index" specified in
Article 5.4 of the Service Provider Agreements.
"Conversion Ratio" has the meaning ascribed to such term in Section
3.1 of Schedule C to this Agreement.
"Current Market Value" means the average of the high and low sales
prices of the GTL Common Stock as reported on the Nasdaq National Market or any
national securities exchange upon which the GTL Common Stock is then listed for
the Trading Day in question.
"Debt Securities" means notes, bonds, debentures, loans, capitalized
lease obligations and any other debt obligation issued by the Partnership.
"Delaware Act" means the Delaware Revised Uniform Limited
Partnership Act, as it may be amended from time to time, and any successor to
such Act.
"Delinquent Partner" means a Partner who has failed to pay any
installment of its Remaining Contribution when due, and such delinquency has not
been cured.
"Descriptive Memorandum" has the meaning specified in Section 3.1.
"Distributable Capital Proceeds" means the amount received by the
Partnership on a Capital Transaction (including amounts realized on an
installment obligation received in a Capital Transaction) minus the costs of
that transaction and the amount of any proceeds applied by the Partnership, in
its reasonable discretion, towards Partnership expenditures or reserves for
Partnership purposes other than distributions to Partners.
"Distributable Cash Flow" means the amount by which the sum of (i)
the Partnership's receipts (from all sources including borrowings and Capital
Contributions, but excluding Distributable Capital Proceeds) and (ii) the
amounts released from reserves by the Partnership exceeds the sum of (iii) the
Partnership's cash expenditures (including debt service on Partnership
borrowings) and (iv) any increase in reserves that the Partnership, in
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<PAGE> 17
accordance with Section 5.5, determined to be necessary or appropriate for
accrued or anticipated Partnership liabilities or expenditures.
"Distribution Arrearages" means the amount of Scheduled
Distributions that the Partnership has elected to defer that remain unpaid.
"Distribution Make-Whole Payment" means the payment due to GTL with
respect to the PPIs called for redemption pursuant to a Provisional Redemption,
which payment shall be equal to the sum of (i) the present value of the
aggregate amount of Scheduled Distributions thereafter payable on such PPIs
during the Distribution Make-Whole Period, which shall be calculated using the
bond equivalent yield on U.S. Treasury notes or bills having a remaining term
nearest in length to that of the Distribution Make-Whole Period as of the Notice
Date plus (ii) the amount of any accrued and unpaid Scheduled Distributions
(including an amount equal to a prorated Scheduled Distribution for any period
following the immediately preceding Scheduled Distribution Payment Date) and
Preferred Stock Liquidated Damages, if any, to the Provisional Redemption Date.
"Distribution Make-Whole Period" means the period of time from the
Provisional Redemption Date through February 15, 2002.
"Effective Date" means December 31, 1994.
"Equity Rights" has the meaning specified in Section 6.13(a).
"Exchange and Registration Rights Agreement" means the Exchange and
Registration Rights Agreement among Globalstar, GTL, LQSS and the Limited
Partner signatories thereto.
"Exchange Right" means the right of LQSS and the Limited Partners
signatories thereto to exchange Partnership Interests for shares of GTL Common
Stock pursuant to the Exchange and Registration Rights Agreement.
"FCC" means the U.S. Federal Communications Commission.
"FCC Applications" means the applications relating to the Globalstar
System dated June 3, 1991, bearing the file numbers 19 DSS P91C48 and CSS 91
014.
"Fiscal Year" has the meaning specified in Section 8.2.
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<PAGE> 18
"Foreign Taxing Jurisdiction" means a jurisdiction outside the
United States that imposes a tax upon the Partnership or a subsidiary of the
Partnership.
"GAAP" has the meaning specified in Section 5.5(c).
"GTL" has the meaning specified in the recitals.
"GTL Change of Control" has the meaning specified in Section 6.3.
"GTL Common Stock" means the common stock, par value $1.00 per
share, of GTL.
"GTL Conversion Price" shall mean the conversion price of the
Preferred Stock, adjusted upon the occurrence of certain dilutive events as set
forth in the Preferred Stock Schedule.
"GTL Dividend Payment Notice" means a public announcement by GTL as
to whether or not a dividend will be paid and, if a dividend is to be paid,
whether GTL is paying the dividend in (A) cash, (B) GTL Common Stock or (C)
through any combination of the foregoing. Such Notice shall be delivered on the
tenth Business Day prior to the record date relating to such dividend.
"GTL Effective Date" means the date on which GTL Offerings were
consummated and GTL purchased Partnership Interests in connection therewith.
"GTL Independent Directors" means the directors of GTL who are not
employed by, or otherwise affiliated with Loral SpaceCom, a Strategic Partner,
or any of their respective Affiliates, and who are GTL's representatives on the
Committee.
"GTL Offerings" has the meaning specified in the recitals.
"GTL Registration Default" means the occurrence of any of the
following: (i) GTL fails to file the Shelf Registration Statement on or prior to
the 90th day after the consummation of the Preferred Stock Offering, (ii) the
Shelf Registration Statement is not declared effective by the Securities and
Exchange Commission on or prior to the 210th day after the consummation of the
Preferred Stock Offering or (iii) the Shelf Registration Statement is declared
effective but thereafter ceases to be effective or usable during the period in
which GTL is required to maintain the effectiveness of the Shelf
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<PAGE> 19
Registration Statement, for any period of ten consecutive days or for any 20
days in any 180-day period in connection with resales of Transfer Restricted
Securities (provided, that GTL will have the option of suspending the
effectiveness of the Shelf Registration Statement, without becoming obligated to
pay Preferred Stock Liquidated Damages for periods of up to a total of 60 days
in any calendar year if the Board of Directors of GTL determines that compliance
with the disclosure obligations necessary to maintain the effectiveness of the
Shelf Registration Statement at such time could reasonably be expected to have
an adverse effect on GTL or a pending corporate transaction).
"GTL Response Redemption Notice" means written notice delivered to
the holders of the Preferred Stock notifying them of, among other things, the
redemption and whether GTL is paying the redemption price of and Scheduled
Distributions (including any applicable Distribution Make-Whole Payment) on such
Preferred Stock (i) in cash, (ii) in GTL Common Stock or (iii) through any
combination of the foregoing. Such Notice shall be delivered not fewer than 30
days nor more than 60 days before the applicable redemption date.
"General Partner" means LQSS or GTL or both, as the context may
require, or any successor general partners admitted as such.
"Global Service Date" has the meaning specified in the Service
Provider Agreements.
"Globalstar Credit Agreement" means that certain Credit Agreement
dated as of December 15, 1995, among the Partnership, Chemical Bank and the
banks signatories thereto.
"Globalstar Distribution Payment Notice" means written notice
delivered to GTL by the Partnership notifying GTL of (i) whether the Partnership
has elected to defer the applicable Scheduled Distribution pursuant to the
provisions of this Agreement and (ii) if it has not elected to defer such
Scheduled Distribution, whether it will pay such Scheduled Distribution (A) in
cash, (B) by delivery of Ordinary Partnership Interests or (C) through any
combination of the foregoing. Such Notice shall be delivered at least 15
Business Days prior to the record date corresponding to the applicable Scheduled
Distribution Payment Date.
"Globalstar Redemption Notice" means written notice delivered to GTL
by the Partnership notifying GTL of (i) the Partnership's election to redeem any
Preferred Partnership
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<PAGE> 20
Interests pursuant to the provisions of this Agreement and (ii) whether it will
make such redemption (A) in cash, (B) by delivery of Ordinary Partnership
Interests or (C) through any combination of the foregoing. Such Notice shall be
delivered at least 20 Business Days prior to the applicable Redemption Date and
shall contain the information required by Section 2.3 of Schedule C to this
Agreement.
"Globalstar System" has the meaning specified in Section 3.1.
"Governing Documents" has the meaning specified in
Section 6.13(b).
"Indebtedness" means the principal amount of all secured or
unsecured indebtedness for borrowed money of the Partnership, the amount of all
guarantees of such indebtedness, the amount of the purchase price in any sale
and leaseback transaction accounted for as a capital lease under GAAP, and any
interest-bearing vendor financing treated as debt under GAAP.
"Initial Closing" means the closing at which GTL was first admitted
to the Partnership pursuant to Section 4.1(c) hereof.
"Initial Purchasers" means the initial purchasers of the CPEOs
set forth in the Purchase Agreement.
"In-Service Year" means a period of twelve consecutive calendar
months, beginning on the Global Service Date, or beginning on any anniversary of
such date.
"Joint Venture Company" has the meaning specified in the Service
Provider Agreements.
"Limited Partners" means all of the limited partners listed on the
signature page hereto and any Additional Limited Partners admitted as such
pursuant to Section 4.4 hereof, or any successor limited partners admitted as
such pursuant to the terms of this Agreement.
"Liquidation Preference" means the $50 liquidation preference of
each share of Preferred Stock.
"Liquidator" has the meaning specified in Section 13.3.
"Loral SpaceCom" means, if prior to April 22, 1996, Loral
Corporation, a New York corporation, and if thereafter, Loral Space &
Communications Ltd, a Bermuda company.
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<PAGE> 21
"Losses" has the meaning specified in Section 6.10.
"LQP" means Loral/QUALCOMM Partnership, L.P., the general partner
of LQSS.
"LQSS" means Loral/QUALCOMM Satellite Services, L.P. or an
Affiliate thereof.
"LQSS Partnership Agreement" means the Amended and Restated
Agreement of Limited Partnership of LQSS, dated March 23, 1994, as modified,
supplemented or amended in accordance with the terms thereof.
"Majority in Interest of the Partners" means, as to any action or
proposed action by the Partnership, approval of such action by a majority of
votes cast at a Representatives Meeting held in accordance with Section 6.2(g).
"Managing General Partner" means LQSS or any successor to LQSS
continuing the business of the Partnership as a managing general partner.
"Mandatory Redemption Date" means February 15, 2011; provided,
however, that, if such date shall not be a Business Day, then the Mandatory
Redemption Date shall be the next Business Day.
"Minimum Gain" has the meaning specified in Treasury Regulation
Section 1.704-2(b)(2) for "partnership minimum gain".
"Mutual Non-Disclosure Agreement" has the meaning specified in
Section 15.6.
"Nonperformance" means the substantial and continuing failure by a
General Partner to perform its material obligations under the Agreement and/or
such continued negligence or misconduct by the General Partner resulting in a
material adverse effect upon the assets or business of the Partnership that is
not otherwise cured by the General Partner and/or knowing breach of specific
provisions of this Agreement and/or fraud or willful misconduct on the part of
the General Partner.
"Notice Date" means the date of mailing of a notice of provisional
redemption of Preferred Stock by GTL to the holders of Preferred Stock.
"Offerees" has the meaning specified in Section 10.3.
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<PAGE> 22
"Offering Memorandum" means the final offering memorandum, dated
January 21, 1999, relating to the Preferred Stock.
"Operating Expenses" means operating expenses of the Partnership,
excluding only Project related items as detailed in the Sources and Uses of
Funds Statement of the Original Business Plan and the compensation referred to
in Section 6.6.
"Operating Income" means the gross income and gains of the
Partnership for federal income tax purposes plus, (a) income of the Partnership
exempt from taxation and described in Code Section 705(a)(1)(B) and (b) the
excess, if any, of the fair market value of distributed property (other than
distributed property taken into account in computing Capital Transaction Gain or
Capital Transaction Loss) over its Book Value. The term does not include COD
Income or Capital Transaction Gain. In computing Operating Income, items of
income and gain relating to Partnership assets shall be computed based upon the
Book Values of the Partnership's assets rather than upon the assets' adjusted
basis for federal income tax purposes.
"Operating Loss" means the deductions and losses of the Partnership
for federal income tax purposes, plus (a) items of expenditure described in Code
Section 705(a)(2)(B), (b) the amount referred to in Section 4.1(b)(iii) and (c)
the excess, if any, of the Book Value of distributed property (other than
distributed property taken into account in computing Capital Transaction Gain or
Capital Transaction Loss) over its fair market value. The term does not include
Capital Transaction Loss. In computing Operating Loss, items of deduction and
loss relating to the Partnership's assets shall be computed based upon the Book
Values of the Partnership's assets rather than upon the assets' adjusted basis
for federal income tax purposes.
"Optional Redemption" has the meaning specified in Section 2.7 of
Schedule C to this Agreement.
"Optional Redemption Date" means the Redemption Date for an Optional
Redemption as specified in Section 2.7 of Schedule C to this Agreement.
"Ordinary Partnership Interests" or "OPIs" means partnership
interests, general or limited, as the case may be, in the Partnership, which
interests are not entitled to the preferential allocation of profits and losses
set forth in Section 5.1(a).
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<PAGE> 23
"Original Business Plan" means the business plan of the Partnership
for the construction, launch and operation of the first and second generations
of satellite constellations (including forecasts of operating expenses, capital
expenditures, revenues, cash balances (including cash balances set aside in
reserve for capital expenditures) and financial structure (i.e. debt and equity
capital requirements)), dated March 15, 1994, as restated to the same or a
greater level of detail (with a full reconciliation, but not otherwise modified
or amended) consistent with GAAP, and including a capital expenditure budget
consistent therewith prepared on a cash basis.
"Outstanding" when used with respect to PPIs means, as of the date
of determination, all PPIs issued pursuant to this Agreement except PPIs
theretofore canceled by the Partnership or delivered to the Partnership for
cancellation, pursuant to redemption or conversion.
"Partner" means the General Partners or the Limited Partners, or
both, as the context may require.
"Partner Minimum Gain" means "partner nonrecourse debt minimum gain"
as defined in Treasury Regulation Section 1.704-2(i)(2).
"Partnership" means the limited partnership established by this
Agreement.
"Partnership Agreement" or this "Agreement" means this Amended and
Restated Agreement of Limited Partnership of Globalstar, L.P., as the same may
be modified, supplemented, or amended in accordance with the terms hereof.
"Partnership Interest" means an interest (whether ordinary or
preferred as the context may require) in the Partnership of a General Partner, a
Limited Partner, or both, as the context may require, provided, however, that
with respect to matters relating to the voting of Partnership Interests, except
as provided in Section 13.2, the term shall refer only to Ordinary Partnership
Interests. The Partners' respective equity interests in the Partnership are
represented by the Partnership Interests they hold, as set forth on Schedule A
of this Agreement.
"Percentage Interest" means the ratio, expressed as a percentage,
that the number of Ordinary Partnership Interests held by a Partner bears to the
total number of Ordinary Partnership Interests outstanding.
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<PAGE> 24
"Person" means an individual or a corporation, partnership, trust,
unincorporated organization, association or other entity.
"Preemptive Securities" has the meaning specified in Section 4.9.
"Preferred Partnership Interests" or "PPIs" means general
partnership interests in the Partnership, the capital contributions for which
are set forth in Section 4.1(d) and for which separate Capital Accounts will be
maintained and that have the right to convert into Ordinary Partnership
Interests as set forth in Article III of Schedule C hereto, the right to
distributions set forth in Section 5.5(a) and the right to allocations set forth
in Section 5.1(a) and that are subject to redemption under Article II of
Schedule C hereto.
"Preferred Stock" means the 8% Convertible Redeemable Preferred
Stock of GTL due 2011.
"Preferred Stock Effective Date" means the date on which the
Preferred Stock is issued and GTL contributes to the Partnership the net
proceeds from the sale of such Preferred Stock.
"Preferred Stock Liquidated Damages" means an amount accruing at a
rate of 0.50% per annum of the Liquidation Preference of each share of the
Preferred Stock constituting Transfer Restricted Securities, which shall accrue
from the date of the GTL Registration Default to and including the 30th day
following such GTL Registration Default and increase by 0.50% per annum for each
subsequent 30 day period; provided, however, that such Preferred Stock
Liquidated Damages may not accrue at any time at a rate greater than 2.00% per
annum of the Liquidation Preference of the Preferred Stock constituting Transfer
Restricted Securities.
"Preferred Stock Representative" has the meaning set forth in
Section 4.3 of Schedule C to this Agreement.
"Preferred Stock Schedule" means the schedule to the Bye-Laws of GTL
setting forth the terms of the Preferred Stock.
"Preliminary Service Date" has the meaning specified in the
Service Provider Agreement.
"Project" means each of the following: for each generation of
satellites, each line item detailed in the Sources
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<PAGE> 25
and Uses of Funds Statement of the Original Business Plan under the Use of Funds
Heading, except those under S/T Operations).
"Provisional Redemption" has the meaning specified in Section 2.6 of
Schedule C to this Agreement.
"Provisional Redemption Date" means the Redemption Date for a
Provisional Redemption as specified in Section 2.6 of Schedule C to this
Agreement.
"Purchase Agreement" means that certain Purchase Agreement, dated
February 29, 1996, among GTL, the Partnership and Lehman Brothers Inc., Bear,
Stearns & Co. Inc., Donaldson, Lufkin & Jenrette Securities Corporation and
Unterberg Harris as the Initial Purchasers.
"Qualcomm" means QUALCOMM Incorporated.
"Redemption Date", when used with respect to any PPI to be redeemed,
means the date fixed for such redemption by or pursuant to this Agreement and
includes the Provisional Redemption Date, the Optional Redemption Date and
Mandatory Redemption Date, as the case may be.
"Redemption Price", when used with respect to any PPI to be
redeemed, means the price at which it is to be redeemed pursuant to this
Agreement.
"Regular Record Date" for the distribution payable on any Scheduled
Distribution Payment Date means February 1, May 1, August 1 and November 1
(whether or not a Business Day), as the case may be, next
preceding such Scheduled Distribution Payment Date.
"Remaining Contribution" has the meaning specified in Section
4.5(c) hereof.
"Representatives Meeting" has the meaning specified in Section
6.2(g).
"SS/L" means Space Systems/Loral, Inc., a Delaware corporation.
"Sale Notice" has the meaning specified in Section 4.9.
"Scheduled Distribution" means the distribution payable on a
Scheduled Distribution Date by the Partnership in respect of the PPIs, which
payment, subject to Section 5.5(d), may be deferred by the Committee in its sole
discretion.
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"Scheduled Distribution Payment Date" means February 15, May 15,
August 15, and November 15, commencing May 15, 1999; provided, however, that if
such date shall not be a Business Day, then the applicable payment date shall be
the next Business Day.
"Section 704(c) Asset" has the meaning specified in Section 5.3.
"Securities Act" means the Securities Act of 1933, as from time to
time amended, and any successor to such statute.
"Service Provider" has the meaning specified in the Service
Provider Agreement.
"Service Provider Agreement" means each of the agreements between
the Partnership and a Partner or its Affiliate or Joint Venture Company,
pursuant to which such Person provides to its subscribers the services of the
Globalstar System.
"Shelf Registration Statement" means a shelf registration statement
filed by GTL with the Securities and Exchange Commission to cover resales of
Transfer Restricted Securities by holders thereof (other than Loral) who satisfy
certain conditions relating to the provision of information in connection with
the Shelf Registration Statement.
"Significant Variance" means, as applicable:
(i) a cumulative adverse variance (net of any favorable variances)
in capital expenditures for any Project:
(x) in the case of any Business Plan, as measured over
such Project's planned remaining life from the beginning of
such Business Plan plus the actual capital expenditures from
the beginning of such Project until the beginning of the
period to which such Business Plan relates;
(y) in the case of any Annual Budget, as measured by the
actual capital expenditure from the beginning of such Project
until the beginning of the year to which such Annual Budget
relates plus the amount of such expenditure as projected in
such Annual Budget;
compared in each case with the then current Baseline Business Plan, which
exceeds 10% of the total cumulative capital
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expenditure for such Project over such Project's planned life as shown in
such Baseline Business Plan; or
(ii) an adverse variance in total Operating Expenses in any fiscal
year that exceeds 10% of the amount set forth in the then current Baseline
Business Plan for such year.
provided that the amount of each Significant Variance will be subject to
adjustment to account for increases in the Consumer Price Index which are in
excess of the inflation assumptions, if any, used in the preparation of the
applicable Baseline Business Plan, it being understood and agreed that the
Original Business Plan used a 4% per annum inflation assumption, compounded
annually and such increases for inflation will apply to expenses or expenditures
for Projects set forth in the then current Baseline Business Plan which are
fixed by contractual terms from and after the date of the applicable contracts
only to the extent provided for in such contracts.
"Similar Satellite Service" has the meaning specified in the
Service Provider Agreement.
"Stated Value" means the $50 face amount of each PPI.
"Strategic Partners" means the limited partners in any of
Globalstar, LQSS or LQP.
"Subscription Agreement" means the agreement entered into by each
General Partner and each Limited Partner (or the assignor that assigned its
Partnership Interests to such Limited Partner) prior to becoming a Partner.
"System Specification" means the specifications for the Globalstar
System dated February 1, 1994, No. LQSS/SS/94-0001, heretofore delivered to the
Partners.
"TeleSat" means TeleSat Limited, a company organized under the
International Business Companies Ordinance of the British Virgin Islands.
"Trading Day" means (a) if the GTL Common Stock is listed or
admitted for trading on the New York Stock Exchange or another national
securities exchange, a day on which such GTL Common Stock actually trades on the
New York Stock Exchange or another national securities exchange, (b) if the GTL
Common Stock is quoted on the Nasdaq National Market, a day on which the GTL
Common Stock actually trades or (c) if the GTL Common Stock is
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not so listed, admitted for trading or quoted, any Business Day on which the GTL
Common Stock actually trades.
"Transfer Restricted Securities" means each share of Preferred Stock
and each share of Common Stock issuable upon conversion of the Preferred Stock
or in satisfaction of any dividend or other payment on the Preferred Stock and
any securities into which such shares of Preferred Stock or Common Stock shall
be converted or into which they shall be changed by operation of law or
otherwise until (a) the date on which such security has been effectively
registered under the Securities Act and disposed of in accordance with the Shelf
Registration Statement or (b) the date on which such security is distributed to
the public pursuant to Rule 144 under the Securities Act or may be distributed
to the public pursuant to Rule 144(k) under the Securities Act.
"Transferor" has the meaning specified in Section 10.3.
"Trigger Percentages" means the percentages set forth in Section 2.6
of Schedule C to this Agreement that triggers the Partnership's option to redeem
the PPIs pursuant to a Provisional Redemption.
"Upper Tier Partner" means any Partner in either LQSS or LQP.
"Upper Tier Partnership" means LQP or LQSS.
"Usage Fees" has the meaning specified in the Service Provider
Agreements.
"Voting Rights Triggering Event" means the accumulation of accrued
and unpaid dividends on the outstanding Preferred Stock in an amount equal to
six quarterly dividends (whether or not consecutive).
ARTICLE III.
PURPOSE
SECTION 3.1. Purpose. The purpose and business of the Partnership
shall be:
(a) to develop, design, deploy, own and operate a worldwide
low-earth orbit satellite-based digital telecommunication system (the
"Globalstar System") which is more fully described in the Globalstar Descriptive
Memorandum, dated March 1993, as supplemented by the Supplement thereto, dated
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March 1994 (the "Descriptive Memorandum") and to engage in the business of
providing satellite communications and communications related services,
including but not limited to voice, data, paging and geolocation services, and
search and rescue, disaster relief and environmental and industrial monitoring
and control services through the Globalstar System to Service Providers;
(b) to acquire, hold, own, operate, lease, manage, maintain,
improve, repair, replace, reconstruct, sell or otherwise dispose of and use the
assets of the Partnership; and
(c) to enter into any lawful transaction and engage in any lawful
activity incidental to or in furtherance of the foregoing purposes.
ARTICLE IV.
CAPITAL CONTRIBUTIONS
SECTION 4.1. General Partners. (a) LQSS has made, or will make, at
the times and in the amounts set forth in its Subscription Agreement, cash
Capital Contributions to the Partnership in the amount set forth in Schedule A
hereto in return for 18,000,000 Ordinary Partnership Interests.
(b) The amount of cash LQSS is required to contribute pursuant to
Section 4.1(a) shall be reduced by the amount of expenditures designated by LQSS
and paid or incurred strictly on the Partnership's behalf after December 31,
1992 and prior to March 23, 1994, provided that any property or rights produced
by such expenditures shall be contributed to the Partnership. Credit will only
be given for expenditures for preexisting goodwill and intangibles of LQSS and
its Affiliates if such goodwill or intangibles are purchased from parties other
than LQSS, Upper Tier Partners or their Affiliates or created in connection with
the business to be conducted by the Partnership. The amount of this reduction
shall be allocated by the Partnership on its books and records to (i) the right
(which LQSS shall cause to be transferred to the Partnership) to cause LQP to
utilize the FCC Applications and, when granted, the FCC licenses, to operate the
Globalstar System, exclusively through, and for the exclusive benefit of, the
Partnership, (ii) any other property or rights contributed to the Partnership
under this Section 4.1(b) and (iii) other expenditures described in this Section
4.1(b) that did not produce property to be contributed to the Partnership under
this Section. Nothing in this provision shall alter the ownership of
intellectual property as provided in the Contract for Development of Globalstar
Ground
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Communication Segment Equipment between Globalstar and Qualcomm dated March 18,
1994.
(c) GTL has made cash Capital Contributions to the Partnership in
the amount of $186 million in return for 10,000,000 Ordinary Partnership
Interests.
(d) On the Preferred Stock Effective Date, GTL will contribute the
net proceeds of the Preferred Stock Offering to the Partnership as described in
the Offering Memorandum in return for PPIs with an aggregate Stated Value equal
to the aggregate Liquidation Preference of the Preferred Stock issued by GTL in
the Preferred Stock Offering. The Stated Value of each PPI shall be $50. The
aggregate contribution and Stated Value of the PPIs shall be set forth in
Schedule A. If, on or after the Preferred Stock Effective Date, the option
granted to the purchasers thereof to purchase additional shares of Preferred
Stock is exercised (as described in the Offering Memorandum), in full or in
part, then GTL shall contribute the additional net proceeds from the exercise of
such option to the Partnership in return for additional PPIs which shall be
reflected in a similar manner in Schedule A.
SECTION 4.2. Limited Partners. Each Limited Partner has made, or
will make at the times and in the amounts set forth in its Subscription
Agreement, cash Capital Contributions to the Partnership in the amount set forth
on Schedule A hereto in return for the number of Ordinary Partnership Interests
set forth on such Schedule A. The total number of such Partnership Interests is
19,937,500.
SECTION 4.3. Additional Contribution. No Partner is required to make
any additional Capital Contribution to the Partnership beyond its capital
commitment set forth in Sections 4.1 and 4.2 above.
SECTION 4.4. Additional Limited Partners. Subject to Sections 4.9
and 4.10, the Partnership is hereby authorized to offer Additional Partnership
Interests, and to admit as Limited Partners those Persons who subscribe to
purchase Additional Partnership Interests and who are acceptable to the
Committee. At each Additional Closing, the Capital Contributions of those
Persons then being admitted as Additional Limited Partners shall be transferred
to the Partnership, which amounts shall be credited to their respective Capital
Accounts pursuant to Section 4.5 hereof. Upon acceptance by the Committee of the
subscription agreement of a Person subscribing to Additional Partnership
Interests, the schedule of Partners as set forth on Schedule A
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hereto shall be amended to reflect such Person's name and Capital Contribution
and such Person will be admitted as an Additional Limited Partner.
SECTION 4.5. Capital Accounts. (a) The amount of cash contributed to
the Partnership by the Partner, and, in addition in the case of LQSS, the Book
Value of any property contributed and the amount referred to in Section
4.1(b)(iii) and, in the case of TeleSat, (i) the amount of the bonus in the
Capital Account balance that it received for ChinaSat entering into the ChinaSat
Service Provider Agreement and (ii) the excess, if any, of the amount credited
to the capital accounts for Ordinary Partnership Interests acquired by TeleSat
upon its exercise of the ChinaSat Option over the exercise price. The amounts
described in this clause (i) and (ii) for purposes of Schedule A and this
Agreement shall be considered part of TeleSat's Capital Contribution.
(b) A transferee of a Partnership Interest (i) will succeed to the
portion of the Capital Account of the Partners transferring such Partnership
Interest which relates to the Partnership Interest transferred and (ii) will
receive distributions whose Regular Record Date is after the effective date of
such transfer.
(c) If the Partnership distributes OPIs with respect to PPIs under
Section 5.5(a)(iii), a portion of the Adjusted Capital Account for such PPIs
will be transferred to such OPIs. The transferred amount shall be equal to the
lesser of: (i) the amount of the cash distribution obligation on the PPIs
discharged by the distribution of such OPIs, (ii) the excess, if any, of the
prior allocations of Adjusted Income to such PPIs under Sections 5.1(a)(i) and
(iii) over the sum of the prior allocations of Loss to such PPIs under Section
5.1(c)(iii), prior and current distributions on such PPIs under Section
5.5(a)(ii) not paid in OPIs and the initial Adjusted Capital Accounts of OPIs
previously issued in payment of distributions under Section 5.5(a)(ii) or (iii)
an amount per distributed OPI equal to the Adjusted Capital Account for
outstanding OPI with the highest Adjusted Capital Account. Any excess of (ii)
over the lesser of (i) or (iii), shall be transferred among the Partnership
Interests as provided in Subsection (e).
(d) If the Partnership distributes OPIs in connection with a
redemption or conversion of PPIs under Article II or III of Schedule C hereto,
the Adjusted Capital Account of the redeemed or converted PPIs (after reduction
for any cash or the fair market value of other property paid by the Partnership
as
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part of the redemption or conversion) shall be transferred to such distributed
OPIs; provided, however, that the amount transferred shall not exceed an amount
per distributed OPI equal to the Adjusted Capital Account for the outstanding
OPI with the highest Adjusted Capital Account. Any portion of the Adjusted
Capital Account of the redeemed or converted PPI that cannot be transferred to
the distributed OPIs, shall be transferred among the Partnership Interests as
provided in Subsection (e).
(e) The excess amounts described in Subsections (c) and (d) shall be
transferred first to the PPIs as if it were Adjusted Income to the extent
provided for in the allocation of Adjusted Income under Section 5.1(a), then
under Section 5.1(b) and then to all OPIs (including the OPIs being distributed)
in accordance with their Percentage Interests.
SECTION 4.6. Interest. No interest shall be paid by the Partnership
on Capital Contributions, on balances in Partners' Capital Accounts or on any
other funds distributed or distributable under this Agreement.
SECTION 4.7. No Withdrawal. No Partner shall have the right to the
withdrawal or reduction of any part of its Capital Contribution. It is the
intent of the Partners that no distribution to the Limited Partners of cash
pursuant to Section 5.5 shall be deemed a return or withdrawal of capital, even
if such return or distribution represents, for federal income tax purposes or
otherwise (in whole or in part), a distribution of depreciation or any other
non-cash item accounted for as a loss or deduction from or offset to the
Partnership's income, and that the Limited Partners shall not be obligated to
pay any such amount to, or for the account of, the Partnership or any creditor
of the Partnership; provided, however, that if any court of competent
jurisdiction holds that, notwithstanding the provisions of this Agreement, any
Limited Partner is obligated to make any such payment, such obligation shall be
the obligation of such Limited Partner and not of the General Partners.
SECTION 4.8. Loans. Loans by a Partner to the Partnership shall not
be considered Capital Contributions.
SECTION 4.9. Preemptive Rights. The Partnership hereby grants to the
Partners a preemptive right, in accordance with the procedures set forth in this
Section 4.9, with respect to the issuance and sale by the Partnership of
Additional Partnership Interests or Debt Securities (each referred to
hereinafter as "Preemptive Securities"); provided, however, the Partners shall
have no preemptive rights with respect to
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Preemptive Securities issued pursuant to Section 4.10(a)(i) in connection with
the execution of a Service Provider Agreement or pursuant to or in connection
with an underwritten public offering.
(a) At least 30 days prior to the sale of Preemptive Securities to
which this preemptive right applies, the Partnership shall deliver a written
notice (a "Sale Notice") to each Partner setting forth (i) the number of
Preemptive Securities to be sold, (ii) the price for which and other terms and
conditions upon which such Preemptive Securities are to be sold, and (iii) all
written information distributed to offerees of such Preemptive Securities,
together with the following irrevocable offer from the Partnership:
to issue and sell to each Partner, at the same price per Preemptive
Security and on the same other terms and conditions set forth in the Sale
Notice: (i) in the case of Additional Partnership Interests, the number of
Additional Partnership Interests which shall equal the sum of (A) the
product of the total number of Additional Partnership Interests set forth
in the Sale Notice multiplied by the Partner's Percentage Interest,
calculated at the time of the Sale Notice and (B) such Partner's pro rata
share (calculated as set forth above) of any such Additional Partnership
Interests offered to, but not purchased by, other Partners and (ii) in the
case of Debt Securities, the sum of (I) the total principal amount of Debt
Securities being issued multiplied by such Partner's Percentage Interest
and (II) such Partner's pro rata share (calculated as set forth above) of
any such Debt Securities offered to, but not purchased by, other Partners.
(b) The Partners shall have absolute discretion to accept or decline
such offers. If a Partner wishes to accept any of the offers made pursuant to
this Section 4.9, it shall give the Partnership irrevocable written notice of
its election to accept such offer within 15 days of its receipt of the
applicable Sale Notice (which notice may specify acceptance of all securities
offered in the Sale Notice, or acceptance of up to a number or principal amount
thereof as specified therein) and the closing thereunder shall occur five days
thereafter (or, if not a Business Day, on the next Business Day thereafter) at
the offices of the Partnership or at such other time and place as the parties
shall agree. Promptly after expiration of the acceptance period, the Partnership
will give accepting Partners notice of the actual
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number of Preemptive Securities to be purchased by them pursuant to the Sale
Notice.
(c) In connection with any proposed or contemplated sale of
Preemptive Securities, upon the request of the Partnership, each Partner shall
indicate to the Partnership its good faith intentions (which indications shall
not be binding) with respect to whether or not it will exercise the preemptive
rights described herein.
SECTION 4.10. Sale of Partnership Interests and Partnership
Securities. (a) Subject to the provisions of Section 4.9 and this Section 4.10,
the Partnership may, upon the determination of the Committee, issue or sell, on
such terms as the Committee deems appropriate and in the best interests of the
Partnership:
(i) Additional Partnership Interests to Additional Limited Partners
or Partners from time to time or to other Persons and to admit them to the
Partnership as Additional Limited Partners pursuant to Section 4.4 hereof,
without being required to obtain the approval of the Limited Partners or
any other persons who may acquire an interest in the Partnership
Interests, provided, that such Additional Partnership Interests may not be
issued at a price that is less than $12.50 per Partnership Interest
without the Consent of the Partners, provided further that no additional
Partner shall be admitted to the Partnership without the Consent of the
Partners, which consent shall not be unreasonably withheld. In addition,
if any Partner shall have specified to the Partnership on or prior to
March 31, 1994 the names of any third parties, no such third party, nor
any of its Affiliates, will be admitted as an Additional Limited Partner
without the prior, written consent of the specifying Partner.
(ii) Subject to Sections 4.9 and 4.10(b) hereof, any other type of
security of the Partnership from time to time to Partners or other persons
on terms and conditions established in the sole and complete discretion of
the Committee, all without the approval of the Partners or any other
person who may acquire any other type of security of the Partnership,
including, without limitation, unsecured and secured debt obligations of
the Partnership, debt obligations of the Partnership convertible into any
class or series of Partnership Interests that may be issued by the
Partnership, options, rights or warrants to purchase any such class or
series of Partnership Interests or any
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combination of any of the foregoing. The Partnership is also authorized to
enter into sale and leaseback transactions with respect to all or any part
of the assets of the Partnership. Subject to subsection (b) below, there
shall be no limit on the number of Partnership Interests or other
securities that may be so issued, and except as set forth in Section
4.10(a)(i) hereto, the Committee shall have the sole and complete
discretion in determining the consideration and terms and conditions with
respect to any future issuance of Partnership Interests or other
securities.
(b) The Partnership shall not at any time issue or reserve for
issuance Additional Partnership Interests or other equity interests if,
immediately after such issuance, the number of Partnership Interests outstanding
or reserved for issuance would exceed the Authorized Partnership Interests.
(c) The Partnership shall not incur any Indebtedness if, immediately
after the incurrence thereof, the Partnership's outstanding Indebtedness would
exceed 110% of the maximum amount of debt obligations contemplated over the life
of the then current Baseline Business Plan.
SECTION 4.11. Business Plans. (a) The Committee shall annually
prepare a Business Plan which contains the following elements: (i) a budget for
the forthcoming financial year on a quarterly basis (the "Annual Budget")
substantially in the same level of detail as the then current Baseline Business
Plan and (ii) for the design and operational lifetime of each generation of
satellites at the time under active development or design, or currently in
orbit:
(A) Schedules of estimated capital expenditures for each year,
segregated by Project and showing the estimated cost for each year until
completion of the Project;
(B) Schedules of sources and uses of funds for each such year;
(C) a projected income and expense statement for each such
year; and
(D) projected year-end balance sheet for each such year.
Unless it shall have first obtained the Consent of the Partners, the
Committee shall not adopt or otherwise approve any
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Business Plan or Annual Budget containing any Significant Variance from the
then-current Baseline Business Plan, provided that where Consent of the Partners
is obtained with respect to any Significant Variance, further Consent of the
Partners will be required for any subsequent unfavorable variance from the
amounts so approved. Where any Business Plan and/or any Annual Budget contains
more than one Significant Variance, then a separate Consent of the Partners
shall be sought for each such Significant Variance. The Business Plan and the
Annual Budget will not otherwise require the approval of the Partners. Except as
otherwise provided in this Agreement, the General Partners will not be liable to
the Partnership or any Limited Partner solely for any failure to achieve any
Business Plan or Annual Budget, or any element thereof which does not amount to
Nonperformance.
(b) At least 90 days prior to the beginning of the year in which
expenditures (excluding cumulative expenditures of $1,500,000 or less pertaining
to the preparation of the new Baseline Business Plan) relating to a new
generation of satellites are anticipated (except, insofar as the second
generation is concerned, in the case that the Original Business Plan is in
effect as the Baseline Business Plan therefor), the Committee will submit to the
Partners for their approval a proposed new Baseline Business Plan for the
Partnership covering the period through the expected useful life of such next
generation which, if approved with the consent of a Majority in Interest of the
Partners, will constitute a new Baseline Business Plan, provided that, for
purposes of such approval, the votes of the Managing General Partner will be
cast in favor of such approval if the proposed Baseline Business Plan in
question meets the return on investment criteria set forth in Section 6.2(f),
and, unless GTL is the Managing General Partner, the vote of GTL will be
determined by the GTL Independent Directors. In the event a proposed Baseline
Business Plan is submitted for such a vote and is not so approved, no Limited
Partner voting against such approval or any of its Affiliates or Joint Venture
Companies will have rights under Article 6.1 of the applicable Founding Service
Provider Agreement (as such term is defined in the Service Provider Agreements)
to purchase the assets of the Partnership.
SECTION 4.12. Limitation on a Limited Partner's Ownership. No
individual Limited Partner (other than a corporation formed solely for the
purpose of holding Partnership Interests, all of whose shares are offered to the
public in an underwritten public offering) may acquire more than 20% of the
Partnership Interests in the Partnership without the consent of the Committee
and the Consent of the Disinterested Partners.
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ARTICLE V.
ALLOCATIONS, DISTRIBUTIONS AND SERVICE
PROVIDER AGREEMENTS
SECTION 5.1. Allocations Generally. After the allocations in
Sections 5.2 and 5.4 at the end of each Accounting Period, Adjusted Income,
Operating Income, Operating Loss, Capital Transaction Gain and Capital
Transaction Loss will be allocated as follows:
(a) Allocation of Adjusted Income to PPIs. Adjusted Income will be
allocated to the Capital Account maintained for the outstanding PPIs:
(i) in the amount equal to the excess of prior allocations of
Operating Loss and Capital Transaction Loss to currently outstanding PPIs
under subsections (c)(iii) over prior allocations to them under this
subsection (a)(i);
(ii) then in the amount necessary to bring the Capital Account of
each outstanding PPI to $50;
(iii) then in an amount equal to a cumulative 8% per annum return on
the Stated Value of each outstanding PPI; this return shall be computed on
the basis of a 360-day year with twelve 30-day months;
(iv) then in an amount equal to the excess of (x) the cumulative
United States federal, state and local income taxes imposed on the
cumulative excess of the amounts of income allocated to PPIs under this
Agreement (including allocations under this Subsection (a)(iv) and
Subsection (a)(v) that are subject to tax by those jurisdictions over the
amounts of tax losses allocated to the PPIs pursuant to this Agreement
that, under the laws of the particular jurisdiction, could be carried back
or carried over to offset such taxable income by a Bermuda company holding
the PPIs that was not engaged in business in the United States otherwise
than by being a Partner in the Partnership over (y) prior allocations
under this Section 5.1(a)(iv); and
(v) then in an amount equal to the excess of the sum of (x) the
cumulative amounts of branch profits taxes that were imposed on the holder
of each outstanding PPI under Section 884 of the Code for prior and
current actual or deemed distributions with respect to such interest and
(y) the branch profits tax that will be imposed on the holder of such
interest under Code section 884 upon the future actual
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or deemed distribution of taxable amounts allocated to such interests
under this Agreement (including allocations under Subsection (a)(iv)
(excluding allocations for federal income taxes) and this Subsection
(a)(v)) over (z) prior allocations under this Section 5.1(a)(v).
(b) Allocation of Adjusted Income to OPIs. Adjusted Income will then
be allocated to OPIs that were issued under Section 5.5(a)(iii), Section 1.2(b)
of Schedule C or Article III of Schedule C, in proportion to, and to the extent
that, the Adjusted Capital Account for each such OPI is less than the Adjusted
Capital Account for the outstanding OPI with the highest Adjusted Capital
Account.
(c) Operating Loss and Capital Transaction Loss. Operating Loss in
excess of any remaining Operating Income after the allocations set forth above
and then Capital Transaction Loss in excess of any remaining Capital Transaction
Gain after the allocations set forth above shall be allocated:
(i) among the Partners holding OPIs in accordance with their
Percentage Interests until the Adjusted Capital Account for the OPIs of
such a Partner is reduced to zero;
(ii) then, among such Partners in proportion to, and to the extent
of, their Adjusted Capital Accounts for their OPIs;
(iii) then, to the holders of outstanding PPIs in proportion to, and
to the extent of, the Adjusted Capital Accounts for their PPIs; and
(iv) then, among the General Partners in proportion to their
Percentage Interests.
(d) Operating Income. Any Operating Income remaining after the
allocations set forth above in excess of Operating Loss will be allocated among
the Partners holding Ordinary Partnership Interests in proportion to, and to the
extent of, distributions to be made with respect to such OPIs under Section
5.5(b), then in proportion to, and to the extent of, negative Adjusted Capital
Account balances for one or more OPIs, and then in accordance with Percentage
Interests.
(e) Capital Transaction Gain. Any Capital Transaction Gain remaining
after the allocations set forth above in excess of Capital Transaction Loss will
be allocated among the Partners holding OPIs (other than a Delinquent Partner);
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(i) In proportion to, and to the extent of, negative Adjusted
Capital Account balances for one or more OPIs; and
(ii) Then, in accordance with Percentage Interests.
SECTION 5.2. Regulatory Allocations.
(a) Partnership Nonrecourse Deductions. Operating Loss and Capital
Transaction Loss attributable (under Treasury Regulation Section 1.704-2(c)) to
"partnership nonrecourse liabilities" (within the meaning of Treasury Regulation
Section 1.704-2(b)(3)) shall be allocated among the Partners in accordance with
Percentage Interests. As the allocation of partnership nonrecourse deductions
will increase the potential minimum gain chargeback under Section 5.2(d), an
allocation of partnership nonrecourse deductions under this provision will not
reduce a Partner's Adjusted Capital Account.
(b) Partner Nonrecourse Deductions. Operating Loss and Capital
Transaction Loss attributable (under Treasury Regulation Section 1.704-2(i)(2))
to "partner nonrecourse debt" (within the meaning of Treasury Regulation Section
1.704-2(b)(4)) shall be allocated, in accordance with Treasury Regulation
Section 1.704-2(i)(1), to the Partner who bears the economic risk of loss with
respect to the debt to which the Loss is attributable. As the allocation of
partner nonrecourse deductions will increase the potential minimum gain
chargeback under Section 5.2(e), an allocation of partner nonrecourse deductions
under this provision will not reduce a Partner's Adjusted Capital Account.
(c) COD Income. COD Income shall be allocated among the Partners in
proportion to the deemed distribution each is deemed to receive pursuant to Code
Section 752(b) with respect to the canceled debt.
(d) Minimum Gain Chargeback. If, in any year there is a net decrease
in Minimum Gain (other than a decrease attributable to a "book up" in the Book
Value of the Partnership's assets, a decrease offset by an increase in Partner
Minimum Gain or any other decrease for which a minimum gain chargeback is not
required under Treasury Regulation Section 1.704-2(f)), then each Partner will
be allocated Capital Transaction Gain and Operating Income equal to that
Partner's share of the net decrease in minimum gain for the year, as determined
by Treasury Regulation Section 1.704-2(g)(2). The items of Capital Transaction
Gain and Operating Income to be allocated under this section are determined
under Treasury
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Regulation Section 1.704-2(j)(2). In the event there is insufficient Capital
Transaction Gain and Operating Income for the year to fully chargeback each
Partner's share of the decrease in Minimum Gain, then the chargeback for the
year shall be in proportion to each Partner's share of the decrease and any
decrease that has not been charged back shall be carried over and be treated as
a decrease in Minimum Gain in the following year. This subsection is intended to
comply with the minimum gain chargeback requirement of Treasury Regulation
Section 1.704-2(f) and shall be interpreted consistently therewith.
(e) Partner Minimum Gain Chargeback. If, in any year there is a net
decrease in Partner Minimum Gain (other than a decrease attributable to a "book
up" in the Book Value of the Partnership's assets, a decrease offset by an
increase in Minimum Gain or any other decrease for which a Partner Minimum Gain
chargeback is not required under Treasury Regulation Section 1.704-2(i)(4)),
then, after the allocation set forth above in Section 5.2(d), each Partner will
be allocated Capital Transaction Gain and Operating Income equal to that
Partner's share of the net decrease in Partner Minimum Gain for the year, as
determined by Treasury Regulation Section 1.704-2(i)(5). The items of Capital
Transaction Gain and Operating Income to be allocated under this section are
determined under Treasury Regulation Section 1.704-2(j)(2). In the event there
is insufficient Capital Transaction Gain and Operating Income for the year to
fully chargeback each Partner's share of the decrease in Partner Minimum Gain,
then the chargeback for the year shall be in proportion to each Partner's share
of the decrease and any decrease that has not been charged back shall be carried
over and be treated as a decrease in Partner Minimum Gain in the following year.
This subsection is intended to comply with the requirement of Treasury
Regulation Section 1.704-2(i)(4) that there be a chargeback of partner
nonrecourse debt minimum gain and shall be interpreted consistently therewith.
(f) Qualified Income Offset. In the event any Partner received any
adjustment, allocation or distribution described in Treasury Regulation Section
1.704-1(b)(2)(ii)(d)(4), (5) or (6) that was not reasonably expected at the end
of the preceding year and that causes, or increases, a deficit in the Partner's
Capital Account, Capital Transaction Gain and Operating Income (composed of a
pro rata portion of each element remaining after the allocations in earlier
subsections of this section) shall be allocated to that Partner in an amount and
manner sufficient to eliminate any portion of the deficit balance in the
Partner's Capital Account that is attributable to the adjustment, allocation, or
distribution referred to above. If there is
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insufficient Capital Transaction Gain and Operating Income in any year to make
the allocation called for under this subsection, then the shortfall shall be
carried over to subsequent years and will be treated as items to be offset in
those years. Allocations under this subsection will only be made to the extent
that a Partner has a deficit in his Capital Account after all other allocations
provided in Article V have been tentatively made as if this subsection were not
in the Agreement. For purposes of this subsection, a Partner's Capital Account
balance shall be (a) increased by (i) its share of Minimum Gain plus (ii) its
share of Partner Minimum Gain plus (iii) the amount, if any, by which its
deficit Capital Account balance exceeds the sum of (i) and (ii) and which the
Partner is obligated to restore (or is treated as obligated to restore under
Treasury Regulation Section 1.704-1(b)(2)(ii)(c)) and (b) decreased by (i) the
amount of expected distributions in the next year from the current year's
earnings plus (ii) to the extent not previously taken into account, the items
described in Treasury Regulation Section 1.704-1(b)(2)(ii)(d)(4), (5) and (6).
SECTION 5.3. Other Allocations When Book Value Differs from Tax
Basis. When the Book Value of a Partnership asset is different from its adjusted
tax basis for income tax purposes, then, solely for federal, state and local
income tax purposes and not for purposes of computing Capital Accounts, income,
gain, loss, deduction and credit with respect to such assets ("Section 704(c)
Assets") shall be allocated among the Partners to take this difference into
account in accordance with the principles of Code Section 704(c), as set forth
in the Treasury Regulation thereunder. In addition, under the principles of
Treasury Regulation Section 1.704-3(b)(2) Example 2(ii)(C), in order to prevent
the shifting of tax consequences with respect to built-in gain or built-in loss
prior to the contribution or revaluation of an item of Section 704(c) Property,
tax gain on the sale of that Section 704(c) Property shall be allocated among
the Partners to offset the ceiling rule limitation of Treasury Regulation
Section 1.704-3(b)(1).
SECTION 5.4. Special Allocation of Foreign Taxes. If a Foreign
Taxing Jurisdiction imposes a tax upon the Partnership, upon a subsidiary of the
Partnership or upon payments to one of the foregoing and such tax is not borne
by a third party as a result of a "gross up" provision, tax indemnity or
otherwise, then, to the extent that such tax would not have been imposed on
income allocated with respect to an Ordinary Partnership Interest if any Partner
holding such Partnership Interests or a direct or indirect partner in such
Partner were subject only to United
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States income taxes on the income or payments subject to tax by the Foreign
Taxing Jurisdiction:
(a) the amount of such tax shall be charged against the Capital
Account of such Partner for such Ordinary Partnership Interest and shall reduce
the amounts distributable to it under Section 5.5;
(b) the amounts distributable to each Partner under Section 5.5
shall be increased by an amount equal to the Partner's Percentage Interest times
the aggregate amounts specially allocated to all Partners under subsection (a)
above; and
(c) the Partnership shall use its best efforts to provide
documentation to assist a Partner in recovering from a Foreign Taxing
Jurisdiction any applicable tax credit for taxes incurred by that Partner with
respect to Globalstar income or allocated to that Partner under this Agreement.
SECTION 5.5. Distributions.
(a) Distributions to Holders of PPIs.
(i) The Partnership shall distribute pro rata on the PPIs an amount
such that the cumulative distributions under this Subsection (a)(i) equal
the sum of (x) the cumulative United States federal, state and local
income taxes imposed on the cumulative excess of the amounts of income
allocated to the PPIs under this Agreement that are subject to tax by
those jurisdictions over the amounts of tax losses allocated to the PPIs
pursuant to this Agreement that, under the laws of the particular
jurisdiction, could be carried back or carried over to offset such taxable
income by a Bermuda company holding the PPIs that was not engaged in
business in the United States otherwise than by being a Partner in the
Partnership and (y) the cumulative branch profits taxes imposed with
respect to PPIs under Section 884 of the Code. Distributions under this
Subsection (a)(i) shall be made prior to the time that the holder of the
PPI is required to make payments to the relevant taxing authority.
(ii) Then, on each Scheduled Distribution Payment Date (or, if not a
Business Day, the next succeeding Business Day), Distributable Cash Flow
and Distributable Capital Proceeds shall be distributed to the holder of
each outstanding PPI, until cumulative distributions under this Subsection
(a)(ii) give each such holder a cumulative return
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in an amount equal to a cumulative 8% per annum return on the Stated Value
of each outstanding PPI; this return shall be computed on the basis of a
360-day year with twelve 30-day months.
(iii) The Committee may determine to pay all or any portion of the
amount of the distributions described above in OPIs, under the procedures
set forth in Section 1.2 of Schedule C hereto. Cash distributions under
this Section (a) shall first be made from Distributable Cash Flow and then
from Distributable Capital Proceeds.
(iv) Each holder of a PPI must receive the amount described in
Subsection (a)(i) prior to, or contemporaneously with, any distributions
with respect to the OPIs and, except for distributions to permit the
payment of taxes imposed on the Partners by the jurisdictions in which the
Partnership does business, each holder of a PPI must receive the amount
described in Subsection (a)(ii) prior to, or contemporaneously with, any
other distributions with respect to the OPIs.
(b) Distributions of Remaining Distributable Capital Cash Flow.
Distributions of any remaining Distributable Cash Flow shall be made among the
Partners holding OPIs in accordance with their Percentage Interests.
(c) Distributions of Remaining Distributable Capital Proceeds.
Distributions of any Distributable Capital Proceeds remaining after the
distributions set forth above shall be made after making the allocations under
Article V through the date of distribution among the Partners holding OPIs in
accordance with their Percentage Interests until the Adjusted Capital Account of
a Partner with respect to its OPIs is reduced to zero and then in proportion to,
and to the extent of, any positive Adjusted Capital Account balances for OPIs
held by the other Partners and then, in accordance with Percentage Interests.
(d) Reserves. For any year, the Partnership shall distribute all
Distributable Cash Flow, provided that, except as contemplated in the following
sentence, without the Consent of the Partners, the Partnership will not
establish any reserves more than 10% in excess of the amount of reserves for
expenditures contemplated by the Business Plan currently in effect for such
period unless the establishment of reserves in a greater amount is required in
accordance with generally accepted accounting principles in the United States
("GAAP"), as confirmed in writing by the Partnership's independent accountants,
the
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Partnership specifies in writing to the Partners the contingency for which such
reserve is required and undertakes to release the reserve at such time as it is
no longer required in respect of such contingency. If the Partnership shall seek
to establish reserves at a level that exceeds either the 10% or the GAAP level
described above and such reserves shall not have been approved by the Consent of
the Partners ("Excess Reserve"), the Partnership may require, as a condition to
the distribution of such Excess Reserve, the indemnification of the Partnership
by each of the Partners for their share of such Excess Reserve by an 18-month
surety bond or other instrument or security reasonably acceptable to the
Partnership. In order to trigger such indemnification, the Partnership must (1)
have itemized the liabilities which prompted its call for the Excess Reserve and
(2) existing reserves must be exhausted. Only then and only to the extent
necessary may such indemnification be called upon. In any event, the period of
such indemnification or the term of any surety bond purchased pursuant to this
Section shall not exceed eighteen months.
(e) Prohibited Distributions. No distribution shall be made to a
Partner with respect to either a PPI or an OPI under this Section or a payment
or redemption under Article I and II of Schedule C hereto, if such distribution
or payment would reduce the Adjusted Capital Account for such Partnership
Interest to less than zero or such distribution is otherwise prohibited by the
Globalstar Credit Agreement or any other applicable indenture or credit
agreement that the Partnership may enter into from time to time.
(g) Withholding Taxes. Each Partner authorizes the Partnership to
withhold and pay over any withholding or other tax payable by the Partnership as
a result of such Partner holding an interest in the Partnership. Such amounts,
if withheld from distributions to a Partner, shall be treated as a distribution
to the Partner and a payment of the withheld tax by such Partner to the
appropriate taxing authorities. In the event that current distributions to GTL
or any Limited Partner are not sufficient to cover the withheld tax, the amount
withheld in excess of the amount covered by distributions to such Partner shall
be a loan to such Partner with respect to whom such withholding has been
undertaken and such Partner hereby grants the Partnership a security interest in
its entire interest in the Partnership at the time any such loan is made to it
to secure the repayment of such loan. Such loans shall bear interest at the rate
publicly announced by Chemical Bank from time to time in New York City as its
prime rate, shall be compounded monthly, and shall be payable on demand. The
Partnership may apply future distributions to
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such Partner against amounts due under the loan. In the event that such excess
amounts are withheld on behalf of the Managing General Partner and current
distributions to the Managing General Partner are not sufficient to cover the
withheld tax, the Managing General Partner shall promptly reimburse the
Partnership for the amount of such excess.
In the event that the Internal Revenue Service shall determine that
the amount of taxes that should have been withheld with respect to a Partner is
in excess of the amount withheld by the Partnership, that Partner shall
indemnify the Partnership for the amount of any such shortfall.
SECTION 5.6. Service Provider Agreements. For federal income tax
purposes, each Partner will report as its initial tax basis in the rights it
acquires under its Service Provider Agreement the Partnership's basis in such
rights. The transfer of rights to the Partner shall not be treated as a
distribution under Article V and future transactions between the Partnership and
that Partner under the Service Provider Agreement shall be treated for purposes
of Articles IV and V as if occurring between the Partnership and the Partner
acting other than in its capacity as a partner.
SECTION 5.7. Terms of PPIs. The PPIs shall have the additional terms
set forth in Schedule C hereto.
SECTION 5.8. Guaranteed Payments. If, as of any Scheduled
Distribution Payment Date, there shall have been a GTL Registration Default that
remains uncured or a GTL Registration Default that has been cured but with
respect to which there remains accrued but unpaid Preferred Stock Liquidated
Damages, then, not later than such Scheduled Distribution Payment Date, the
Partnership shall pay to GTL an amount that, after United States withholding
taxes and branch profits taxes, if any, imposed with respect to such payment,
shall equal to the accrued but unpaid Preferred Stock Liquidated Damages.
Amounts paid pursuant to this Section 5.8 are intended to constitute guaranteed
payments within the meaning of Section 707(c) of the Code and shall not be
treated as distributions for purposes of computing GTL's Capital Account.
SECTION 5.9. Allocations Relating to Issue of Partnership Interests.
Upon the issue of PPIs, Adjusted Income, Capital Transaction Gain, Capital
Transaction Loss, Operating Income, Operating Loss and COD Income will be
allocated on a closing of the books method as of the last day of the month in
which the PPIs were issued. In all other cases, the allocations
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shall be made using reasonable methods and/or conventions that are permitted
under Section 706(d) of the Code as determined by the Managing General Partner.
ARTICLE VI.
MANAGEMENT AND OPERATION OF BUSINESS
SECTION 6.1. Management. (a) The Partnership will be managed by the
General Partners through the Committee, which will consist of five to seven
members, as determined by LQSS. GTL will appoint two members to the Committee
and the remaining members will be appointed by LQSS. The members serve on the
Committee at the discretion of the General Partner appointing them to the
Committee and may be removed and replaced at any time by such General Partner,
provided that in the case of GTL's representatives to the Committee, GTL must at
all times appoint as representatives GTL Independent Directors. The Committee
will be responsible for managing the affairs of Globalstar. The Committee shall
have complete and exclusive discretion in the management and control of the
affairs and business of the Partnership and shall possess all powers necessary,
convenient or appropriate to carrying out the purposes and business of the
Partnership; provided however, that the day to day activities of the Partnership
will be managed by its officers, subject to the supervision of the Committee.
Regular meetings of the Committee shall be held each quarter. Action by the
Committee may be taken only with a concurrence of a majority of the members,
whether present in person at a meeting or by written consent; provided however,
that written notice of any proposed action by the Committee shall be given to
all members prior to the taking of any such action, unless waived by any such
member. Notwithstanding the foregoing, and any other provision contained in this
Agreement, all matters relating to the FCC Applications, compliance with the
Communications Act, and all compliance and regulatory matters related thereto
will be under the exclusive control of LQP, acting in its capacity as the sole
general partner of LQSS. As provided in Section 4.1(b), LQP will use the FCC
Applications and any license granted thereunder for the exclusive benefit of the
Partnership.
(b) The General Partners shall, through their appointed
representatives on the Committee, use their best efforts to carry out the
purposes of the Partnership through implementation of the Business Plan and
shall devote to the management of the business and affairs of the Partnership
such time as shall be required for the operation thereof. Without limiting the
generality of the foregoing, the General Partners,
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through their appointed representatives on the Committee, shall be responsible
for arranging for the development, design, launch and placement in service of
the Globalstar satellite constellation and operations control centers and for
ensuring that the Globalstar System will function substantially as anticipated.
The General Partners shall be under a fiduciary duty and obligation to conduct
the affairs of the Partnership in the best interests of the Partnership and of
the Limited Partners, including the safekeeping of all Partnership fund and
assets (whether or not in the immediate possession or control of the General
Partners) and the use thereof for the exclusive benefit of the Partnership and
shall not permit the Partnership to enter into any transactions with any
interested Partner on terms less favorable to the Partnership than those which
would have been achievable in a transaction negotiated on an arm's length basis.
Without delegating the substance of their responsibilities and obligations
hereunder, the General Partners may, subject to the provisions of Section
6.2(a), contract or otherwise deal with any Person, including employees of
Affiliates of the General Partners, to perform any acts or services for the
Partnership as such General Partners shall approve. Notwithstanding any such
delegation, the General Partners shall remain liable to the extent provided
herein for any action or omission of any such delegee. Any such delegee having
access to confidential information shall be deemed to be bound by a
confidentiality agreement containing substantially the same terms as Section
15.12 hereof. Without limitation on any power that may be conferred upon it
hereunder or by law, and except as hereinafter stated and subject to the
limitations in Sections 6.1(a) and 6.2, the Committee shall have the power to
authorize the Partnership to:
(i) make and enter into such contracts and incur expenses on behalf
of the Partnership, as the Committee deems necessary or appropriate for
the efficient conduct and operation of the Partnership's business;
(ii) compromise, submit to arbitration, sue on or defend all claims
in favor of or against the Partnership; commence or defend litigation that
pertains to the Partnership or any Partnership assets, and arrange for the
settlement of any pending or threatened litigation, by or against the
Partnership, through compromise, arbitration or otherwise;
(iii) make and revoke any election permitted the Partnership by any
taxing authority (having due regard for
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the interests of any Partners that may be adversely affected thereby);
(iv) do all acts the Committee deems necessary or appropriate for
the protection and preservation of the Partnership's assets;
(v) make distributions and allocations to the Partners in accordance
with Article V hereof;
(vi) designate such officers of the Partnership as authorized
signatories with the authority to execute on behalf of the Partnership,
any documents or instruments of any kind that the Committee may deem
appropriate or advisable to carry out the purposes of the Partnership
taking into consideration the terms and conditions of such document or
instrument;
(vii) prepare, execute and file federal, state and local income tax
returns and pay any taxes on behalf of the Partnership and the Partners;
(viii) make all payments required of the Partnership under the terms
of this Agreement, including such payments, fees and reimbursements as the
General Partners, or any of their respective Affiliates, may be entitled
to receive under the terms of this Agreement;
(ix) contest any determination by the Internal Revenue Service which
the Committee deems to be adverse to the best interests of the
Partnership;
(x) invest Partnership funds on a temporary basis pending
distribution in such investments (other than investments in Affiliates of
a General Partner) as the Committee determines appropriate, provided that
the Committee shall not invest Partnership funds in such a manner that the
Partnership will be considered to be holding itself out as being engaged
primarily in the business of investing, reinvesting, or trading in
securities or will otherwise be deemed to be an investment company under
the Investment Company Act of 1940, as amended;
(xi) employ Persons (including any Affiliate of a General Partner)
for the operation and management of the Partnership and engage such other
experts and advisers as the Committee may deem necessary or advisable, in
each case, on such terms and for such compensation as the Committee may
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determine, (subject, as applicable, to the requirements of Sections
6.1(d), 6.1(e) and 6.2(a));
(xii) borrow money on behalf of the Partnership as the Committee
deems necessary or appropriate and in the best interests of the
Partnership and make, accept, endorse and execute promissory notes,
drafts, bills of exchange and other instruments and evidences of
indebtedness in connection therewith and secure the payment of any such
Partnership indebtedness by mortgage, pledge or assignment of or security
interest in all or any part of the property then owned or thereafter
acquired by the Partnership, (subject, as applicable, to the requirements
of Sections 4.9 and 4.10); and
(xiii) call a meeting of Partners from time to time as the Committee
deems necessary or advisable.
(c) The Committee may delegate any of such foregoing powers and any
additional powers conferred upon it under this Agreement or by law to officers
of the Partnership; provided however, that transactions involving amounts in
excess of $100,000, other than transactions in the ordinary course of business
or actions taken to implement any Business Plan previously approved by the
Committee, shall require the prior approval of the Committee. Subject to the
foregoing provision, the Partners hereby agree that each such authorized officer
of the Partnership is authorized to execute, deliver and perform any agreements,
acts, transactions and matters in connection with the exercise of power
hereunder on behalf of the Partnership without any further act, approval or vote
of the Partners or the Partnership, except in connection with acts otherwise
prohibited by this Agreement, the Delaware Act or any applicable law, rule or
regulation.
(d) The Committee will ensure that the business of the Partnership
is conducted under the supervision of a qualified senior executive who shall
serve on a full-time basis as the President of Globalstar (with or without the
title of Chief Executive Officer) (the "President"). In the event that the
President is to be replaced, the Committee will as promptly as practicable seek
a qualified replacement, and, prior to offering the position formally to any
candidate, will present such candidate, his or her qualifications and proposed
compensation and employee benefits arrangements to the Partners, and shall not
make any such offer without the Consent of the Partners, provided, that, pending
receipt of such consent, and following any failure to obtain the Consent of the
Partners to the appointment of any
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candidate for the office of President, the Committee may appoint as interim
President an officer or employee of the Partnership (other than any such officer
or employee previously rejected by the Partners as President). The Committee
shall diligently and in good faith seek out a suitable candidate for such office
and shall present such a candidate to the Partners at a Representatives Meeting
within two months of such appointment. Prior to terminating the employment of
the President, the Committee will call a Representatives Meeting to explain the
reasons for such action and to consult with the representatives of the Limited
Partners, unless the Committee certifies to the Limited Partners in writing that
immediate action is necessary, specifying the exigent circumstances in question.
(e) In addition to the limitations set forth in Section 6.1(d)
above, the Committee will not dismiss any officer of the Partnership with a rank
of senior vice president or above or appoint any person to serve as an officer
of the Partnership with a rank of senior vice president or above, without the
consent of at least one GTL Independent Director. If the GTL Independent
Directors shall have vetoed the appointment of the Committee's candidate for a
position as set forth above, and upon submission by the Committee of a second
candidate for such position, shall have also vetoed such candidate, then,
notwithstanding the lack of approval by a GTL Independent Director, the
Committee shall be authorized to appoint its second candidate to serve in the
designated office if it shall have submitted such candidate to the Limited
Partners and such selection shall have received the Consent of the Partners.
Pending the receipt of the consent required under this Section 6.1(e), the
Committee may appoint a person to serve as interim officer of the Partnership
(other than any such person previously rejected by the GTL Independent
Directors).
SECTION 6.2. Limitations on Authority of Committee and the General
Partners. (a) Notwithstanding anything herein to the contrary, the Partnership
shall not, after the date hereof, sign or enter into any agreement or agreements
between the Partnership and any Partner, any Upper Tier Partner, any direct or
indirect corporate parent thereof, any strategic equity investor in SS/L
(consisting as of December 31, 1994 of Aerospatiale Societe Nationale
Industrielle, Alcatel Espace, Finmeccanica and Daimler-Benz Aerospace AG) or any
of their respective Affiliates which, in the aggregate, involve payments or
receipts in excess of $1,000,000 unless the terms and conditions thereof have
been approved with the Consent of the Disinterested Partners. The Partnership
hereby warrants that it has not entered into any such contracts during the
period from
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March 23, 1994 to December 31, 1994, except for the agreements itemized in the
Subscription Agreements and those contracts set forth on Schedule B hereto,
which are hereby authorized and approved and, if required, are consented to. The
Partnership shall report to the Partners no less frequently than annually on the
terms and conditions of any such contracts that would, but for the $1,000,000
limitation referred to above, require such approval.
(b) Notwithstanding anything herein to the contrary, the Partnership
shall not undertake any of the actions specified in this Section 6.2(b) without
the Consent of the Partners and in the case of clauses (i) through (vi), will
not bring such actions before a vote of the Partners without the consent of at
least one GTL Independent Director:
(i) Make any material amendments or modifications to this Agreement,
except as otherwise provided in Section 14.1;
(ii) Approve any business plan of the Partnership that would result
in any material change in the purpose of the Partnership as set forth in
this Agreement or otherwise change the Partnership's business so that it
varies materially from the business set forth in this Agreement;
(iii) Acquire (x) a controlling interest in, or a majority of the
voting stock or equity of, any corporation or other entity or (y) any
other assets not in the ordinary course of business of the Partnership, in
either case if the aggregate fair market value thereof is greater than $10
million;
(iv) Sell, lease (as lessor), exchange or otherwise dispose of
material assets of the Partnership (other than to a Person controlled by
the Partnership); provided, however that in the event of a sale of all or
substantially all of the assets of the Partnership (other than to a Person
controlled by the Partnership), the Partnership shall distribute the
proceeds of such sale to the Partners as soon as practicable thereafter;
(v) Except as provided in Section 6.13 hereof, cause or permit the
dissolution and/or liquidation of the Partnership;
(vi) Take any action for the (A) commencement of a voluntary case
under any applicable bankruptcy, insolvency
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or similar law now or hereafter in effect, (B) consent to the entry of any
order for relief in an involuntary case under any such law to the extent
that the giving or withholding of such consent is within the Partnership's
discretion, (C) consent to the appointment or taking possession by a
receiver, liquidator, assignee, custodian, trustee, sequestrator (or
similar official) of it or of any substantial part of its property or (D)
making by it of a general assignment for the benefit of creditors;
(vii) Initiate or settle any litigation, arbitration or other
proceeding if such litigation, arbitration or other proceeding is against,
or names as an adverse party, a Partner;
(viii) Enter into any material business outside the scope
contemplated in this Agreement;
(ix) Commence any litigation or arbitration that pertains to the
Partnership or any Partnership assets, or arrange for the settlement of
any pending or threatened litigation, by or against the Partnership,
through compromise, arbitration or otherwise if the damages claimed for
such lawsuit or arbitration shall exceed $100,000; or
(x) Adopt any modification to the System Specification that would
change any major parameter by more than 10% of the amount set forth in the
System Specification or otherwise result in a material adverse effect on
any Service Provider and the Partnership shall give the Limited Partners
reasonable notice of any such proposed modification.
(c) Notwithstanding the foregoing, in the event that any of the
decisions set forth in paragraph (b) above would result in the Partnership being
engaged in a business entirely unrelated to that disclosed in the Descriptive
Memorandum, such actions shall require the prior, written consent of all the
Partners.
(d) Unless it shall have received the prior consent of the affected
Partner or Partners, the Partnership shall not enter into contracts or
agreements with any Person or Persons which conflict with or prejudice in any
material respect the rights of any Partner under (i) the provisions of this
Agreement or (ii) any contract or agreement between the Partnership and a
Partner or its Affiliates except as otherwise disclosed in the Subscription
Agreement. LQSS warrants that neither it nor the Partnership has entered into
any such contract or agreement as of December 31, 1994 without such consent.
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(e) The Partnership shall submit to the Partners for their review
and comment the material elements of its proposed launch strategy for the
Globalstar System, including the selection of launch vehicles, cost, and risk
allocation (including issues of space risk management and related insurance
coverage and self-insurance), and shall consider in good faith any alternative
launch strategies proposed by any Partner. If the Partnership's proposed
strategy does not obtain the Consent of the Partners, the Partnership shall
promptly undertake a detailed review of such strategy, especially addressing any
particular issues identified by the dissenting Partner representatives, and
analyze any alternative launch strategies proposed by any of them, and shall not
undertake any material commitments with respect to its launch strategy until it
has made a written report to the Partners of the results of such review, and
called a Representatives Meeting to discuss such report.
(f) Any decision on the part of the Committee not to undertake
either action set forth below shall require the consent of a Majority in
Interest of the Partners: (i) construction and launch of additional
first-generation satellites, or in the event a second or subsequent generation
constellation has been launched, additional second generation or subsequent
generation satellites, as the case may be, that can be financed by the
Partnership without additional Capital Contributions from its Partners, if such
satellites are anticipated to produce a compound return on investment of 25% per
annum or more or (ii) the design, development, construction and launch of a
second or subsequent generation satellite constellation that can be financed by
the Partnership without additional Capital Contributions from its Partners if
such system is anticipated to produce a rate of return on investment greater
than the rates applicable to 30-year U.S. Treasury obligations.
The Partnership shall give each Partner prompt written notice of any
decision not to launch a second or subsequent generation of satellites at least
48 months in advance of the termination or significant degradation of service
from the satellite constellation then in operation, and will discuss any such
decision with the CSO within a period of two months after such notification.
(g) The Partnership shall give notice of a proposed action calling
for the Consent of the Partners, the Consent of the Disinterested Partners, or
the consent of a Majority in Interest of the Partners or such other matters
requiring the action of Partners as set forth herein or pursuant to the
Subscription Agreements. The Partnership shall give such notice to each of the
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Partners in the manner set forth in Section 15.1 hereto as soon as practicable
but in no event less than 15 days prior to the date called for a meeting of
senior management representatives (the "Representatives") of the Partners (a
"Representatives Meeting") regarding such proposal.
The quorum for a Representatives Meeting shall be as follows: (x)
with respect to a matter requiring the Consent of the Partners or a Majority in
Interest of the Partners, Representatives present in person, by proxy or written
consent, representing a majority of the Partnership Interests outstanding and
(y) with respect to a matter requiring Consent of the Disinterested Partners,
Representatives present in person, by proxy or written consent, representing a
majority of the Partnership Interests outstanding held by the disinterested
Partners. Each Partner (in the case of a matter requiring the Consent of the
Partners or the consent of a Majority in Interest of the Partners) or each
disinterested Partner (in the case of a matter requiring the Consent of the
Disinterested Partners) (and in all cases other than a Delinquent Partner),
shall have the right to designate one Representative to attend each
Representatives Meeting, who will have the right to cast at the meeting a number
of votes equal to the number of Partnership Interests such Partner holds,
provided that LQSS shall in all instances vote in accordance with Section 6.4 of
the LQSS Partnership Agreement, or, in lieu of voting in such a manner, may
assign any Upper Tier Partner the right to designate a Representative to cast at
the Representatives Meeting a number of votes equal to the number of Partnership
Interests LQSS's Representative is required to cast on its behalf in accordance
with such Section 6.4, provided, however, that in no event shall such votes
exceed the total number of Partnership Interests held by LQSS. In the event of
such an assignment, the Upper Tier Partners' Representatives shall have the same
right to attend and vote at Partners' meetings as Representatives of Partners in
the Partnership.
SECTION 6.3. Change of Control and Reduction in Interest. (i) For
purposes of this Section 6.3, "GTL Change of Control" shall mean an event or
series of events not approved either by the Managing General Partner or by the
Consent of the Partners, at a time when GTL owns less than 50% of the
Partnership Interests outstanding, by which (i) any "person" or "group" (as such
terms are defined in Section 13(d) and 14(d) of the Securities Exchange Act of
1934 (the "Exchange Act")) becomes the beneficial owner (as defined in Rules
13d-3 and 13d-5 under the Exchange Act), directly or indirectly, of more than
30% of the GTL Common Stock then outstanding, (ii) GTL consolidates with
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or merges into another corporation or conveys, transfers or leases all or
substantially all of its assets to any Person, or any corporation consolidates
with or merges into GTL, in either event pursuant to a transaction in which the
outstanding GTL Common Stock is changed into or exchanged for cash, securities
or other property, other than any transaction (A) between GTL and either Loral
SpaceCom, an Affiliate of Loral SpaceCom or a wholly-owned subsidiary of Loral
SpaceCom or (B) after which the shareholders who beneficially owned GTL Common
Stock immediately before such transaction beneficially own at least 50% of the
outstanding voting stock of the surviving entity and no Person beneficially owns
more than 30% of the outstanding voting stock of the surviving entity, (iii)
during any period of two consecutive years, individuals who at the beginning of
such period constituted the Board of Directors of GTL (together with any new
directors whose election by the Board of Directors or whose nomination for
election was approved by a vote of 66 2/3% of the directors then still in office
who were either directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any reason to
constitute a majority of the directors then in office, or (iv) GTL makes on any
day any distribution or distributions of cash, property or securities (other
than regular dividends, common stock or rights to acquire common stock) to its
shareholders, or purchases or otherwise acquires GTL Common Stock, and the sum
of the fair market value of such distribution or purchase, plus the fair market
value of all other such distributions and purchases which have occurred during
the preceding twelve months, exceeds 30% of the fair market value of GTL Common
Stock outstanding.
(b) A "Reduction in Interest" shall have occurred upon the sale or
other disposition of Partnership Interests by GTL after which GTL's Percentage
Interest is reduced to less than 5% and such reduction was not previously
approved either by the Managing General Partner or by the Consent of the
Partners.
(c) Upon a GTL Change of Control or a Reduction in Interest, GTL
will become a Limited Partner and will lose all of its rights as a General
Partner under this Agreement, including the right to appoint representatives to
serve on the Committee and, through the GTL Independent Directors, to veto
certain actions of the Partnership. The Committee will thereby dissolve and all
actions previously authorized to be taken by the Committee will thereupon be
taken by the Managing General Partner as the sole General Partner. In addition,
upon a GTL Change of Control or a Reduction in Interest, any PPIs then held by
GTL would automatically
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convert into preferred limited partnership interests and any OPIs then held by
GTL would automatically convert into limited OPIs. GTL's preferred limited
partnership interests will have the same terms as the PPIs except that they will
convert into, and payments of any OPIs with respect thereto, would be made in
limited OPIs rather than general OPIs.
SECTION 6.4. Certificate of Limited Partnership. The Partnership has
filed the Certificate of Limited Partnership with the Secretary of State of the
State of Delaware as required by the Delaware Act and shall file such other
certificates or documents as may be deemed by the Partnership to be reasonable
and necessary or appropriate for the formation or qualification and operation of
a limited partnership (or a partnership in which the limited partners have
limited liability) in the State of Delaware or any other state in which the
Partnership may elect to do business. To the extent that the Committee in its
discretion determines such action to be reasonable and necessary or appropriate
and to the extent consistent with this Agreement, the Committee shall file
amendments to the Certificate of Limited Partnership and do all the things to
maintain the Partnership as a limited partnership (or a partnership in which the
limited partners have limited liability) under the laws of the State of Delaware
or any other state in which the Partnership may elect to do business.
SECTION 6.5. Reliance by Third Parties. Notwithstanding any other
provision of this Agreement to the contrary, no lender or purchaser, including
any purchaser of property from the Partnership or any other Person dealing with
the Partnership, shall be required to look to the application of proceeds
hereunder or to verify any representation by the Managing General Partner as to
the extent of the interest in the assets of the Partnership that the Managing
General Partner is entitled to encumber, sell or otherwise use, and any such
lender or purchaser shall be entitled to rely exclusively on the representations
of the Managing General Partner as to its authority to enter into such financing
or sale arrangements and shall be entitled to deal with the Managing General
Partner as if it were the sole party in interest therein, both legally and
beneficially. In no event shall any Person dealing with the Managing General
Partner or the Managing General Partner's representative with respect to any
business or property of the Partnership be obligated to ascertain that the terms
of this Agreement have been complied with, or be obligated to inquire into the
necessity or expedience of any act or action of the Managing General Partner or
the Managing General Partner's representative; and every contract, agreement,
deed, mortgage, security agreement, promissory note or other instrument or
document executed by the Managing General Partner or the Managing
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General Partner's representative with respect to any business or property of the
Partnership shall be conclusive evidence in favor of any and every Person
relying thereon or claiming thereunder that (a) at the time of the execution
and/or delivery thereof this Agreement was in full force and effect, (b) such
instrument or document was duly executed in accordance with the terms and
provisions of this Agreement and is binding upon the Partnership, and (c) the
Managing General Partner or the Managing General Partner's representative was
duly authorized and empowered to execute and deliver any and every such
instrument or document for and on behalf of the Partnership.
SECTION 6.6. Compensation, Expenses and Reimbursement of General
Partners. (a) Commencing from and after the time in which Globalstar receives
revenue from Usage Fees, the Partnership shall pay to the Managing General
Partner in cash for each quarter during the period the Partnership is in
existence, as payment in connection with services rendered by the Managing
General Partner, compensation equal to 2.5% of the Partnership's gross operating
revenue up to $500 million per annum, based upon revenues through the end of the
quarter in question plus 3.5% of the Partnership's gross operating revenue in
excess of $500 million per annum (the "Management Fee"). All quarterly payments
are subject to adjustment based on year-end audit. The Management Fee shall be
paid quarterly during each In-Service Year, provided that for any In-Service
Year in which there is a net loss to the Partnership computed under GAAP, the
Management Fee shall be reduced by 50% and the Managing General Partner will
reimburse the Partnership for Management Fee payments, if any, received in any
prior quarter of such In-Service Year, sufficient to reduce its Management Fee
by 50%. To the extent the year-to-date result through the first, second or third
quarter of an In-Service Year is a net loss, no Management Fee will be paid with
respect to such quarter to the extent it would (together with any Management Fee
payments with respect to any earlier quarter in such In-Service Year) exceed 50%
of the Management Fee otherwise payable (but for such net loss). No further
Management Fee payments shall be required to be paid after the date that
distribution of all of the Partnership's assets to the Partners has been
completed. In any quarter in which the Partnership would report negative cash
flow from operations if the Management Fee for such quarter is paid in full in
cash, payment of the Management Fee (or such lesser portion thereof as shall
equal the amount of such negative cash flow) shall be deferred with interest at
a rate equal to 4% per annum and shall be payable at such time as the
Partnership shall have sufficient cash flow. No
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Management Fee or other compensation shall be owing to GTL in connection with
its services as a General Partner.
(b) All expenses incurred in connection with the organization of the
Partnership (other than expenses borne by LQSS or any Upper Tier Partner for
which capital contribution credit is received pursuant to Section 4.1) will be
borne by the Partnership and, to the extent not otherwise allocated by Article
V, charged to the Partners' Capital Accounts according to their Percentage
Interests. Such expenses, including legal and investment banking fees, are
approximately $3,728,000.
(c) The General Partners shall be reimbursed on a monthly basis for
all fair and reasonable expenses they incur or make on behalf of the Partnership
(including amounts paid to any Person to perform services for the Partnership or
the General Partners or who is an employee of the Partnership or the General
Partners). Such reimbursement shall be in addition to any reimbursement to a
General Partner as a result of indemnification pursuant to Section 6.10 hereof,
but shall only be in respect of reasonable out-of-pocket expenses incurred
solely on behalf of Globalstar, and shall not include any amounts in respect of
compensation of persons who are officers, directors or employees of GTL, the
Upper Tier Partners or their Affiliates or any other corporate overhead of such
persons.
SECTION 6.7. Outside Activities. (a) Subject to Section 6.7(b), each
Partner agrees, subject to the requirements of applicable law, that the Partners
and their respective subsidiaries, partners, associates, employees, Affiliates
and agents may engage in other business activities or possess interests in other
business activities of every kind and description, independently or with others,
except that no Partner or any of its subsidiaries or Affiliates shall possess an
interest, directly or indirectly, in any business activity operating Similar
Satellite Service until the earlier of (i) the third anniversary of the date
such Partner (including its Affiliates) ceases to be a Partner of the
Partnership, (ii) the beginning of the third In-Service Year and (iii) the date
183 days following the date that such Partner (including its Affiliates) ceases
to be or have equity interest in a Service Provider; provided, however, that (i)
a passive investment representing not more than 5% of the equity securities of a
company in direct competition with the Partnership whose equity securities are
listed on a nationally recognized securities exchange or (ii) the sale or
provision of goods or services (except as may otherwise be specifically agreed
to between the Partnership and the Partner) in the ordinary course of business
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of a Partner or its Affiliates shall not violate this provision. For purposes of
this Section 6.7, governmental and military systems and satellite systems such
as OmniTRACS or Euteltracs, and, insofar as France Telecom is concerned,
intergovernmental systems, such as INMARSAT and EUTELSAT, and their respective
logical extensions, shall not be considered Similar Satellite Service. This
paragraph may not be amended without the consent of TESAM. ChinaSat and its
Affiliates, as Chinese government entities, shall not be subject to this Section
6.7(a).
(b) The General Partners shall not engage in any business other than
management of the business and affairs of the Partnership, and shall not own any
assets other than Partnership Interests, Partnership capital contributions and
distributions, and related assets, without the Consent of the Disinterested
Partners.
(c) The General Partners shall not, and shall not permit any of
their respective Affiliates, including SS/L, to, act as prime contractor or
systems integrator for any Similar Satellite Service.
SECTION 6.8. Partnership Funds. The funds of the Partnership shall
be deposited in such account or accounts as are designated by the Partnership
and shall not be commingled with any other funds. All withdrawals from or
charges against such accounts shall be made by duly authorized officers or
agents of the Partnership. Funds of the Partnership may be invested as
determined by the Committee, except in connection with acts otherwise prohibited
by this Agreement.
SECTION 6.9. Loans from the General Partners. A General Partner or
any Affiliate of the General Partner may lend to the Partnership funds needed by
the Partnership for such periods of time as the General Partner may determine;
provided, however, that such loan is approved in advance with the Consent of the
Disinterested Partners. The Partnership shall reimburse the General Partner or
its Affiliate, as the case may be, for any additional costs incurred by the
General Partner or such Affiliate in connection with the borrowing of funds
obtained by the General Partner or such Affiliate and loaned to the Partnership.
SECTION 6.10. Indemnification of Partners. (a) The Partnership shall
indemnify and hold harmless the Partners, the Upper Tier Partners, their
respective Affiliates, and all of their respective officers, directors,
partners, controlling shareholders, employees, and agents (individually, an
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"Indemnitee"), from and against any and all losses, claims, demands, costs,
damages, liabilities, joint and several, expenses of any nature (including
attorneys' fees and disbursements), judgments, fines, settlements, and other
amounts arising from any and all claims, demands, actions, suits or proceedings,
civil, criminal, administrative or investigative, in which an Indemnitee may be
involved, or threatened to be involved, as a party or otherwise ("Losses"),
arising out of or incidental to the business of the Partnership, regardless of
whether an Indemnitee continues to be a Partner, an Affiliate, or an officer,
director, partner, controlling shareholder, employee, or agent of a Partner or
of an Affiliate at the time any such Loss is paid or incurred, if the
Indemnitee's conduct did not constitute actual fraud, gross negligence, knowing
breach of specific provisions of this Agreement or willful or wanton misconduct.
The termination of any action, suit, or proceeding by settlement or upon a plea
of nolo contendere, or its equivalent, shall not, in and of itself, create a
presumption or otherwise constitute evidence that the Indemnitee's actions
constituted actual fraud, gross negligence or willful or wanton misconduct.
(b) Expenses (including legal fees and expenses) incurred in
defending any proceeding subject to subsection (a) of this Section 6.10 shall be
paid by the Partnership in advance of the final disposition of such proceeding
upon receipt of an undertaking (which need not be secured) by or on behalf of
the Indemnitee to repay such amount if it shall ultimately be determined, by a
court of competent jurisdiction or otherwise, that the Indemnitee is not
entitled to be indemnified by the Partnership as authorized hereunder.
(c) The indemnification provided by this Section 6.10 shall be in
addition to any other rights to which each Indemnitee may be entitled under any
agreement or vote of the Partners, as a matter of law or otherwise, both as to
action in the Indemnitee's capacity as a Partner or as a partner, controlling
shareholder, officer, director, employee or agent of a Partner, or as to action
in the Indemnitee's capacity as a Person serving at the request of the
Partnership as set forth above, and shall continue as to an Indemnitee who has
ceased to serve in such capacity and shall inure to the benefit of the heirs,
successors, assigns, administrators and personal representatives of the
Indemnitee. Such indemnification, however, shall only apply to Losses incurred
by virtue of the Indemnitee's status as a Partner, the Upper Tier Partner,
Affiliate or officer, director, partner, controlling shareholder, employee or
agent thereof, and not as to Losses incurred in other capacities (for example,
by virtue of being a Service Provider or otherwise contracting with the
Partnership).
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(d) The Partnership may purchase and maintain insurance on behalf of
any one or more Indemnitees and other such Persons as the Partnership shall
determine against any liability which may be asserted against or expense which
may be incurred by such Person in connection with the Partnership's activities,
whether or not the Partnership would have the power to indemnify such Person
against such liability under the provisions of this Agreement.
(e) Any indemnification hereunder shall be satisfied only out of the
assets of the Partnership and no Partner shall be subject to personal liability
by reason of these indemnification provisions.
(f) An Indemnitee shall not be denied indemnification in whole or in
part under this Section 6.10 because the Indemnitee had an interest in the
transaction with respect to which the indemnification applies if the transaction
was otherwise permitted by the terms of this Agreement.
(g) The provisions of this Section 6.10 are for the benefit of the
Indemnitees and the heirs, successors, assigns, administrators and personal
representatives of the Indemnitees and shall not be deemed to create any rights
for the benefit of any other Persons.
(h) Any Person that proposes to assert the right to be indemnified
under this Article VI shall, promptly after receipt of notice of any action
which is subject to indemnification hereunder, notify the Partnership of the
commencement of such action, enclosing a copy of all papers served. The failure
so to notify the Partnership of any such action shall not relieve it from any
liability that it may have to any indemnified party hereunder, unless such party
is prejudiced thereby. In case any such action shall be brought and notice given
to the Partnership of the commencement thereof, the Partnership shall be
entitled to participate in, and to assume the defense thereof, with counsel
reasonably satisfactory to the indemnified party, and after notice from the
Partnership to such indemnified party of its election so to assume the defense
thereof, the Partnership shall not be liable to such indemnified party for any
legal or other expenses, except as provided below and except for the reasonable
costs of investigation subsequently incurred by such indemnified party at the
request of the Partnership in connection with the defense thereof. The
indemnified party shall have the right to employ separate counsel and to
participate in (but not control) any such action, but the fees and expenses of
such counsel shall be the expense of such indemnified party unless (i) the
employment of
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counsel by such indemnified party has been authorized by the Partnership, (ii)
the employment of separate counsel is necessitated by a conflicting interest
among indemnified parties, or (iii) the Partnership shall not in fact have
employed counsel to assume the defense of such action. In each such case, the
fees and expenses of counsel shall be at the expense of the Partnership. The
Partnership shall not be liable for any settlement of any action or claims
effected without its written consent unless the Partnership has failed to assume
the defense of any such action or claims.
SECTION 6.11. Liability of General Partners. (a) The General
Partners, the Upper Tier Partners and their respective Affiliates and all
officers, directors, partners, controlling shareholders, employees and agents of
the General Partners, the Upper Tier Partner and their respective Affiliates
shall not be liable to the Partnership or to the Limited Partners for any losses
sustained or liabilities incurred as a result of any act or omission of the
General Partners, their Affiliates or any such officers, directors, partners,
controlling shareholders, employees or agents if (i) the General Partner, such
Affiliate, or such officer, director, partner, controlling shareholder, employee
or agent acted in good faith and in a manner it or he reasonably believed to be
in, or not opposed to, the best interests of the Partnership, and (ii) the
conduct of the General Partner, such Affiliate or such officer, director,
partner, shareholder, employee or agent did not constitute gross negligence or
Nonperformance. For purposes of this Agreement, any act or omission, if done or
omitted to be done in reliance upon the advice of legal counsel or public
accountants (the "Professionals") selected with reasonable care, will be
conclusively presumed to have been done or omitted to be done in good faith and
not to constitute willful or wanton misconduct, gross negligence or
Nonperformance; provided, however, that the reliance was reasonable and the
General Partner had disclosed all relevant facts to the Professionals.
(b) Each General Partner shall fully indemnify and hold harmless the
Limited Partners and their Affiliates and their respective partners, officers,
directors, employees and agents to the fullest extent permitted by law from and
against any and all losses, claims, demands, costs, damages, liabilities (joint
or several), expenses of any nature (including attorney's fees and
disbursements), judgments, fines, settlements and other amounts including, but
not limited to, those arising directly or indirectly from or relating to any
civil, criminal, administrative or investigative proceeding, arising out of or
incidental to conduct by such General Partner or one of its Affiliates with
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respect to the business or activities of or relating to the Partnership which
constituted bad faith, gross negligence or Nonperformance. The obligations of a
General Partner under this Section 6.11 shall extend only to its own acts or
omissions or acts or omissions by one of its Affiliates and not with respect to
acts or omissions of the other General Partner or its Affiliates. For purposes
of the preceding sentence, actions by the Committee shall be deemed to be
actions of LQSS only. GTL shall not be deemed to be an Affiliate of LQSS and
LQSS shall not be deemed to be an Affiliate of GTL, for purposes of this Section
6.11(b) with respect to any action determined solely by directors who are not
employed by, or otherwise affiliated with Loral SpaceCom.
SECTION 6.12. Other Matters Concerning the General Partners. (a)
Each General Partner may rely and shall be protected in acting or refraining
from acting upon any resolution, certificate, statement, instrument, opinion,
report, notice, request, consent, order, bond, debenture, or other paper or
document believed by it to be genuine and to have been signed or presented by
the proper party or parties.
(b) A General Partner may consult with legal counsel, Service
Providers, and other consultants and advisers selected by it, and any advice of
such Person as to matters which the General Partner believes to be within such
Person's professional experience shall be full and complete authorization and
protection in respect of any action taken or suffered or omitted by the General
Partner hereunder in good faith and in accordance with such advice. Any such
Person receiving confidential information shall be deemed to be bound by a
confidentiality agreement containing substantially the same terms as Section
15.12 hereof.
SECTION 6.13. Conversion to Corporate Form. (a) In the event that
the Committee shall determine that it is desirable or helpful for the business
of the Partnership to be conducted in a corporate rather than in a partnership
form, the Committee may incorporate the Partnership or take such other action as
it may deem advisable in light of such changed conditions, including, without
limitation, dissolving the Partnership, provided that, the Committee may not
incorporate the Partnership without the Consent of the Partners. In connection
with any such incorporation of the Partnership, the Partners shall receive, in
exchange for their Partnership Interests, shares of capital stock of such
corporation having the same relative rights and preferences as to dividends and
distributions and the same voting and transfer rights, subject in each case to
any modifications required solely as a result of the conversion to corporate
form (all such rights and preferences being referred to, collectively,
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as "Equity Rights"), as are set forth in this Agreement as among the holders of
interests in the Partnership.
(b) Prior to taking any such action to incorporate the Partnership,
the Committee shall submit to the Partners the proposed forms of a certificate
or articles of incorporation, by-laws, shareholders' agreement and any other
governing documents proposed to be established for such corporation (the
"Governing Documents"). If Limited Partners holding Partnership Interests
representing at least 20% (or 15% in the event GTL becomes a Limited Partner
pursuant to Section 6.3 hereof) of the total number of outstanding Partnership
Interests held by all Limited Partners (not including any Partnership Interest
held by LQSS or its Affiliates) notify the Committee within 15 days of the date
the proposed forms of Governing Documents are submitted to the Limited Partners
that they have concluded in good faith that, based upon such Governing
Documents, the shares of capital stock of such corporation proposed to be issued
to them in exchange for such Partnership Interests do not have the same Equity
Rights as are set forth in this Agreement, the Committee and such Limited
Partners shall negotiate in good faith to resolve any differences with respect
thereto. If the Committee and such Limited Partners do not resolve such
differences, the Committee may appoint an investment banking firm of
internationally recognized standing reasonably acceptable to such Limited
Partners to advise the Partnership as to such dispute, and the conclusion of
such firm shall be binding on the parties, and any modification recommended by
such investment banking firm in the Equity Rights shall be incorporated into the
Governing Documents. Nothing contained herein shall be construed to give the
Limited Partners any right to cause the business of the Partnership to be
conducted in corporate form or to limit the right of the Committee to elect, at
any time, to continue such business as a partnership.
SECTION 6.14. FCC Compliance. The Partners hereby understand, agree
and acknowledge that the rights described in Section 4.1(b)(i) of this Agreement
are subject to the Communications Act, and the rules and regulations promulgated
thereunder.
ARTICLE VII.
RIGHTS AND OBLIGATIONS OF THE LIMITED PARTNERS
SECTION 7.1. Limitation of Liability. No Limited Partner shall be
personally liable for any debts, liabilities or obligations of the Partnership,
whether to the Partnership, to the General Partners, or to creditors of the
Partnership, beyond
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the amount contributed by such Limited Partner to the capital of the Partnership
and such Limited Partner's share of the accumulated but undistributed profits of
the Partnership and the amount of any distribution (including the return of any
Capital Contribution) made to such Limited Partner that must be returned to the
Partnership pursuant to applicable state law. The General Partners shall use
reasonable efforts, in the conduct of the Partnership's business, to put all
Persons with whom the Partnership does business on notice that the Limited
Partners and their Affiliates are not liable for Partnership obligations, and
all material agreements to which the Partnership is a party shall include a
statement to the effect that the Partnership is a limited partnership organized
under the laws of Delaware.
SECTION 7.2. Management of Business. The Limited Partners shall not
take part in the operation, management or control (within the meaning of the
Delaware Act) of the Partnership's business, transact any business in the
Partnership's name or have the power to sign documents for or otherwise bind the
Partnership. No Limited Partner has the right to require the partition of
Partnership property or compel any sale or appraisal of Partnership assets or
sale of a deceased Partner's interest therein.
ARTICLE VIII.
BOOKS, RECORDS, ACCOUNTING AND REPORTS
SECTION 8.1. Records and Accounting. The Partnership shall keep or
cause to be kept appropriate books and records with respect to the Partnership's
business, which books shall at all times be kept at the principal office of the
Partnership. Any records maintained by the Partnership in the regular course of
its business, books of account and records of Partnership proceedings, may be
kept on, or be in the form of, punch cards, magnetic tape, photographs,
micrographics or any other information storage device, provided that the records
so kept are convertible into clearly legible written form within a reasonable
period of time. The records and books of account of the Partnership will be
audited as of the end of each Fiscal Year by Deloitte & Touche LLP ("Deloitte &
Touche"). In the event the Partnership shall seek to replace Deloitte & Touche,
the Partnership shall select as Deloitte & Touche's successor independent
certified public accountants of recognized international standing (other than
the principal auditors of Loral SpaceCom or Qualcomm), provided that such choice
may be disapproved once, but only once, by a vote requiring the Consent of the
Partners, and thereafter such accountants may be selected
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by the Partnership in its sole discretion (other than the principal auditors of
Loral SpaceCom or of Qualcomm).
SECTION 8.2. Fiscal Year. The fiscal year (the "Fiscal Year") of the
Partnership shall be the calendar year, unless otherwise determined by the
Partnership in its sole discretion.
SECTION 8.3. Reports and Annual Meeting. (a) As soon as practicable,
but in no event later than 90 days after the close of each fiscal year, the
Partnership shall deliver to the Partners reports containing financial
statements of the Partnership for the fiscal year, presented in accordance with
GAAP, including a balance sheet, a statement of income, a statement of Partners'
equity and a statement of changes in cash flow, such statements to be audited by
the firm of independent certified public accountants selected in accordance with
Section 8.1.
(b) As soon as practicable, but in no event later than 45 days after
the close of each calendar quarter, including the last calendar quarter of each
fiscal year, the Partnership shall deliver to the Partners a quarterly report
containing a balance sheet and statements of income and changes in financial
position for such calendar quarter.
(c) In addition to any meetings of the Partners called pursuant to
Section 6.1(b)(xiii) or any Representatives Meeting called pursuant to Section
6.2(g), the Partnership shall hold an annual meeting of the Partners ("Annual
Meeting") on fifteen (15) days prior written notice to the Partners, such Annual
Meeting to be held no sooner than thirty (30) days and no later than sixty (60)
days after delivery to the Partners of the annual financial statements for the
preceding fiscal year pursuant to Section 8.3(a). At the Annual Meeting,
officers of the Partnership will review the operations of the Partnership during
the preceding year, discuss the plans and operating budget for the current year
and any amendments to the Business Plan and answer whatever questions may be
raised by representatives of the Partners at the Annual Meeting.
SECTION 8.4. Disclosure to Limited Partners. (a) The Limited
Partners shall have full access to all financial and other information directly
related to the business and affairs of the Partnership. In particular, the
following will be open for examination, by any Limited Partner or his duly
authorized representatives:
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(i) books and records pertaining to the Partnership's business
showing all of its assets and liabilities, receipts and disbursements,
realized profits and losses, and all transactions (including all contracts
and commitments) entered into by the Partnership;
(ii) a current list of the full name and last known mailing address
of each Partner set out in alphabetical order, together with a list
showing the Capital Contributions and Capital Account of each Partner;
(iii) a copy of the Certificate of Limited Partnership and all
amendments to it, together with executed copies of any powers of attorney
pursuant to which the Certificate and any amendments to it have been
executed;
(iv) copies of all the Partnership's U.S. Federal, state, local and
foreign income tax returns and reports, if any; and
(v) copies of this Agreement as may be amended from time to time.
(b) The Partnership shall make available, on a reasonable basis, its
financial officers and auditors to the Limited Partners for consultation and to
respond to questions of the Limited Partners relating to the financial condition
of the Partnership. The Partnership will prepare and mail to each Limited
Partner promptly upon the request of any Limited Partner such further
information concerning the business, affairs and financial conditions of the
Partnership, as any Limited Partner may reasonably request.
(c) Notwithstanding the provisions set forth in this Section 8.4,
the Partnership may keep confidential from the Limited Partners for a period of
time deemed reasonable by it information (excluding any matters required to be
disclosed pursuant to Section 8.3 or clause (ii)-(v) of Section 8.4) to the
extent the Partnership, in good faith, determines (i) that disclosure is not in
the best interests of the Partnership, (ii) that disclosure could damage the
Partnership or its business or (iii) that the Partnership is required by law or
by a third party to keep the information confidential.
SECTION 8.5. Determination of Book Value of Partnership Assets. (a)
Except as set forth below, Book Value of any Partnership asset is its adjusted
basis for federal income tax purposes.
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(a) The initial Book Value of any assets contributed by a Partner to
the Partnership shall be the gross fair market value of such assets. The Book
Value of property and property rights contributed by LQSS and described in
Section 4.1(b)(i) and (ii) shall be the amount allocated to them pursuant to
Section 4.1(b).
(b) The Book Values of all of the Partnership's assets shall be
adjusted by the Partnership to equal their respective gross fair market values
as of the following times: (a) the admission of a new Partner to the Partnership
or acquisition by an existing Partner of an additional interest in the
Partnership from the Partnership (including the acquisition of PPIs as set forth
in Section 4.1(d)); (b) the distribution by the Partnership of money or property
to a withdrawing, retiring or continuing Partner in consideration for the
retirement of all or a portion of such Partner's interest in the Partnership;
and (c) the termination of the Partnership for Federal income tax purposes
pursuant to section 708(b)(1)(B) of the Code; provided, however, that no
adjustment shall be made upon the issue of an OPI pursuant to Section
5.5(a)(iii) or Section 1.2(b) of Schedule C. The Partnership will not be
required to make an adjustment upon the exercise of a warrant to acquire an OPI
or upon a conversion of a PPI pursuant to Article III of Schedule C until the
sum of the cumulative face amount of PPIs converted and the exercise price of
warrants exercised since the last adjustment exceeds $15,000,000. In such case,
the Partnership shall make at least one adjustment during the year and, if no
other adjustment event occurs during the year and after the $15,000,000
threshold was reached, a required adjustment shall be made as of the date of the
last PPI conversion or warrant exercise during the year. Upon a conversion of a
PPI and an adjustment to the Book Values of Partnership assets under this
Section, any resulting Capital Transaction Loss shall be first allocated to
holders of OPIs whose Adjusted Capital Accounts are higher than the Adjusted
Capital Accounts of the OPIs acquired on exercise of a warrant or on conversion
in amounts and proportions to reduce the differences between such Adjusted
Capital Accounts and any resulting Capital Transaction Gain shall first be
allocated to the Capital Account of the OPIs acquired on exercise of a warrant
and on conversion in an amount to reduce or eliminate the amount by which the
Adjusted Capital Accounts for such OPIs are less than the Capital Account for
the outstanding OPI with the highest Adjusted Capital Account. Any remaining
Capital Transaction Gain or Loss shall be allocated under Section 5.1. The
Partnership will promptly report any such adjustment to the Partners.
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ARTICLE IX.
TAX MATTERS
SECTION 9.1. Preparation of Tax Returns. (a) The Partnership shall
arrange for the preparation and timely filing of all returns of Partnership
income, gains, deductions, losses and other items necessary for federal and
state income tax purposes. The Partnership shall use all reasonable efforts to
furnish to the Partners within 90 days of the close of the taxable year the tax
information reasonably required for federal, state and foreign income tax
reporting purposes. Subject to the provisions of Section 9.2, the
classification, realization and recognition of income, gain, losses and
deductions and other items shall be on the accrual method of accounting for
federal income tax purposes, to the extent permitted by applicable law. The
taxable year of the Partnership shall be the calendar year, unless otherwise
required by the federal income tax laws and the Treasury Regulations thereunder
or unless otherwise determined by the Partnership.
(b) The Partnership will prepare the state and local tax returns for
those non-U.S. Limited Partners who are not otherwise engaged in business in the
United States.
SECTION 9.2. Tax Elections. Except as otherwise provided herein, the
Partnership shall, in its sole discretion, determine whether to make any
available election, including but not limited to an election under Code Section
709 to amortize organization and start-up expenditures over a sixty month
period, and an election under Code Section 754 to adjust the bases of
Partnership property with respect to the Partnership or with respect to a
transferee Partner. In the event a Section 754 election is made, the Partnership
may in its sole discretion charge transferees for the additional costs incurred
in preparing their tax information under such election.
SECTION 9.3. Tax Controversies. Subject to the provisions hereof,
the Managing General Partner is designated the Tax Matters Partner (as defined
in Section 6231 of the Code), and is authorized and required to represent the
Partnership (at the Partnership's expense) in connection with all examinations
of the Partnership's affairs by tax authorities, including resulting
administrative and judicial proceedings, and to expend Partnership funds for
professional services and costs associated therewith. The Partners agree to
cooperate with the Managing General Partner and to do or refrain from doing any
or all things reasonably required by the Managing General Partner to conduct
such proceedings, provided that the foregoing shall not be
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construed to prevent a Partner from taking steps reasonably necessary to protect
and defend its own interests.
SECTION 9.4. Taxation as a Partnership. No election shall be made by
the Partnership or any Partner for the Partnership to be excluded from the
application of any of the provisions of Subchapter K, Chapter 1 of Subtitle A of
the Code or from any similar provisions of any state tax laws.
ARTICLE X.
TRANSFER OF INTERESTS
SECTION 10.1. Transfer. (a) The term "transfer," when used in this
Article X with respect to a Partnership Interest, includes a sale, assignment,
gift, pledge, encumbrance, hypothecation, mortgage, exchange or any other
disposition; provided however, that an exchange of Partnership Interests by LQSS
or the Limited Partners pursuant to the terms of the Exchange and Registration
Rights Agreement shall not, other than with respect to Section 10.4(c) hereof,
be deemed to be a "transfer" for purposes of this Article X.
(b) Any Partnership Interest may be transferred, in whole or in
part, provided that such transfer shall be made, where applicable, in accordance
with the terms and conditions set forth in this Article X. Any transfer or
purported transfer of any Partnership Interest not made in accordance with this
Article X shall be null and void.
(c) Notwithstanding anything contained herein to the contrary, no
transfer of a Partnership Interest may be made if such transfer (i) would
violate the then applicable federal or state securities laws or rules and
regulations of the Securities and Exchange Commission, state securities
commissions, the Communications Act, or rules and regulations of the FCC and any
other government agencies with jurisdiction over such transfer or (ii) would
affect the Partnership's existence or qualification under the Delaware Act. In
the event a transfer of a Partnership Interest is otherwise permitted hereunder,
notwithstanding any provision hereof, no Partner shall transfer all or any
portion of such Partner's Partnership Interest unless and until such Partner,
upon the request of the Partnership, delivers to the Partnership an opinion of
counsel, addressed to the Partnership, reasonably satisfactory to the
Partnership, to the effect that (1) such Partnership Interest has been
registered under the Securities Act and any applicable state securities laws, or
that the proposed transfer of such Partnership Interest is exempt from any
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registration requirements imposed by such laws and that the proposed transfer
does not violate any other applicable requirements of federal or state
securities laws and (2) that such transfer will not adversely affect the tax
status of the Partnership. Such opinion shall not be deemed delivered until the
Partnership confirms to such Partner that such opinion is acceptable, which
confirmation will not be unreasonably withheld.
(d) For so long as the Exchange Right is in effect, each of the
Partners hereby agrees that it will not (i) make a public offering of its
Partnership Interests, or (ii) transfer any of their Partnership Interests to a
Person, other than to GTL, if (x) such Partnership Interests would constitute
all or substantially all of the assets of such transferee and (y) the purpose of
the transfer is to enable the transferee Person make a public offering of its
equity interests.
SECTION 10.2. Transfer of Interests of General Partners. (a) Subject
to Section 12.1 hereof, a General Partner shall not transfer all or any part of
its Partnership Interests without the Consent of the Disinterested Partners;
provided, that a transfer by GTL is further subject to the provisions of Section
6.3 hereof. A General Partner may transfer any or all of its Partnership
Interests to an Affiliate of the General Partner ("Affiliate Successor") without
such approval; provided however, that in the case of GTL, GTL may transfer only
to an Affiliate that is 100% owned by GTL and any such transfer shall be subject
to the consent of the Managing General Partner, which consent may be granted or
withheld in the Managing General Partner's sole discretion. Such transfer to an
Affiliate Successor shall not relieve the General Partner of any of its
obligations hereunder unless the Affiliate Successor has been adjudged by the
Consent of the Disinterested Partners (which consent shall not be unreasonably
withheld) to be a Person that has at least such comparable financial strength
and technical and managerial capabilities and know-how sufficient for it to
perform its duties and obligations hereunder. The Partners hereby consent to any
such approved transfer or any transfer to an Affiliate Successor, subject to the
provisos set forth above. The Affiliate Successor of a General Partner pursuant
to this Section 10.2 shall be admitted to the Partnership as General Partner
immediately prior to the effective date of transfer of the General Partner's
Partnership Interests and the Affiliate Successor shall continue the business
and operations of the Partnership without dissolution provided that prior to
such effective date the Affiliate Successor shall have furnished to (a) the
Partnership (i) acceptance in form satisfactory to counsel to the Partnership of
all the terms and conditions of this Agreement and (ii) such
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other documents or instruments as may be required by such counsel in order to
effect such transfer and (b) to the other Partners an opinion of counsel to the
effect that such transfer will not adversely affect the tax status of the
Partnership. Such opinion will not be deemed furnished until approved by the
Consent of the Partners, which consent will not be unreasonably withheld. The
transferring General Partner hereby further agrees to hold the Partnership and
each other Partner wholly and completely harmless from any cost, liability or
damage (including, without limitation, liabilities for income taxes and costs of
enforcing this indemnity) incurred by any of such indemnified Persons as a
result of a transfer or attempted transfer by it in violation of this Agreement.
(a) Notwithstanding anything to the contrary contained herein, a General Partner
will not take any action which would constitute or result in the transfer of
control of the Partnership if such transfer would require, under existing law
(including, without limitation, the written rules and regulations promulgated by
the FCC), the prior approval of the FCC, without first obtaining such approval
of the FCC.
(b) A General Partner shall diligently prosecute its application for
approval of the transfer identified in Section 10.2(b) hereof and shall
immediately provide to the FCC all information requested by the FCC in
connection with the application.
(c) Prior to the FCC's grant of the approval of the transfer
application identified in Section 10.2(b) hereof, a General Partner seeking to
transfer its Partnership Interests shall continue to act in a manner consistent
with the provisions of Article VI of this Agreement.
(d) Any transfer by GTL, other than to an Affiliate, shall be
further subject to a right of first offer as set forth in Section 10.3(b) hereof
fully as though it were a Limited Partner.
SECTION 10.3. Transfer of Interests of Limited Partners.
(a) Restrictions on Transfers. Except as expressly permitted or
required by this Agreement or by the Limited Partner's Subscription Agreement,
absent a Change of Control, as defined below, no Limited Partner shall transfer
all or any portion of its Partnership Interests or any rights therein within the
three year period following March 23, 1994 without the consent of the General
Partners acting through the Committee
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(which consent shall not be unreasonably withheld or delayed), and provided that
if such consent is given, any such transfer shall be subject to Section 10.3(b)
and (c) hereof; provided, however, that a Limited Partner may transfer any or
all of its Partnership Interests to an Affiliate of such Limited Partner without
such approval. Any transfer or attempted transfer by any Limited Partner in
violation of the preceding sentence shall be null and void and of no effect
whatsoever. Each Limited Partner hereby acknowledges the reasonableness of the
restrictions on transfer imposed by this Agreement in view of the Partnership
purposes and the relationship of the Partners. Accordingly, the restrictions on
transfer contained herein shall be specifically enforceable. Each Limited
Partner hereby further agrees to hold the Partnership and each Partner (and each
Partner's successors and assigns) wholly and completely harmless from any cost,
liability, or damage (including, without limitation, liabilities for income
taxes and costs of enforcing this indemnity) incurred by any of such indemnified
Persons as a result of a transfer or an attempted transfer in violation of this
Agreement. As used in this Section 10.3, a "Change of Control" shall be deemed
to have occurred if (i) any person or group (as defined in Section 13(d)(3) of
the Exchange Act) shall have acquired ownership of a majority of the voting
stock of Loral SpaceCom, or (ii) Loral SpaceCom shall no longer be in control,
directly or indirectly, of LQSS.
(b) Rights of First Offer. Except as expressly permitted or required
by this Agreement or by the Limited Partner's Subscription Agreement, absent a
Change of Control, no Limited Partner shall transfer any or all of its
Partnership Interests unless the Limited Partner desiring to make the transfer
(the "Transferor") shall have first made the offers to sell to the other
Partners and, as hereinafter provided, to the Partnership (the "Offerees") and
such offers shall not have been accepted.
(i) Copies of the Transferor's offer (the "Offer Notice") shall be
given to the Offerees and shall consist of an offer to sell to the
Offerees such number of Partnership Interests (the "Offered Interests")
then proposed to be transferred by the Transferor, at a cash price
designated by the Transferor ("Stated Price"), upon only customary terms
and conditions, representations, warranties, covenants and conditions.
(ii) Within 15 days after the receipt of the offer described in
Section 10.3(b)(i) above, each Partner Offeree may, at its option, by
written notice elect to purchase some
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or all the Offered Interests, as specified in such notice, provided that
in the event of an oversubscription, purchases will be pro rated according
to the relative Percentage Interest of all Partners Offerees electing to
exercise their rights of first offer, subject to the 20% ownership
limitation set forth in Section 4.12 hereof. The Partner Offerees shall
exercise such option by giving notice thereof to the Transferor within
such 15-day period. The Partnership will promptly inform each Partner
Offeree in the event that fewer than all of the Offered Interests are
subscribed for, and each Partner Offeree may, within 48 hours thereafter,
increase the amount of its requested maximum subscription.
(iii) Within 10 days after the expiration of the Partners' exercise
period set forth in Section 10.3(b)(ii), if the Partners choose not to
exercise all their rights of first offer under Section 10.3(b)(ii), the
Partnership may, at its option, with the Consent of the Partners, elect to
purchase some or all of the remaining Offered Interests, unless it shall
have refused a request to waive the provisions of Section 4.12 with
respect to a proposed purchase by one or more Limited Partners pursuant to
Section 10.3(b)(ii) above. The Partnership shall exercise such option by
giving notice thereof to the Transferor within such 10-day period.
(iv) If the Transferor's offer shall not be fully subscribed by the
Partners and/or the Partnership at the end of the twenty-five day period
described above, the Transferor shall terminate its offer to the Offerees
on the twenty-sixth day after receipt by the Offerees of the Transferor's
Offer Notice (the "Termination Date") and the Transferor shall be free to
solicit offers for its Offered Interests from third parties for a period
of three months following the Termination Date; provided, however, that
the Transferor shall not offer the Offered Interests at a price that is
less than 95% of the Stated Price, and provided further that if the sale
to the third party is other than entirely for cash on terms described in
clause (a) above, the Transferor shall certify to each of the other
Partners as to the cash value of any noncash consideration. In the event
that the Transferor shall have offered the Offered Interests to third
parties at a price that is less than 95% of the Stated Price or the three
month period shall have lapsed and no bona fide sale of the Offered
Interests shall have been made by the Transferor to a third party, the
restrictions provided for herein shall again become
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effective, and no transfer of Offered Interests may be made thereafter
without again offering the same in accordance with this Section 10.3.
(v) The above-described right of first offer will apply following
any public offering of Partnership Interests, provided that once the
Partners shall have declined to accept an offer at the then-prevailing
market price of the Partnership Interests, the Transferor shall have the
right to sell at any price equal to or in excess of 95% of the prevailing
market price at the time it is permitted to sell hereunder.
(c) Permitted Transfers of Limited Partner Interests. Sections
10.3(a) and (b) hereof shall not apply to any transfer by a Limited Partner of
all or any portion of its Partnership Interests to any Affiliate of such Limited
Partner and will not apply to any of the transactions contemplated by such
Memorandum of Agreement, dated as of January 1, 1995, by and between AirTouch
and Loral Corporation, a New York corporation. Prior to such transfer, such
Affiliate shall affirm in writing that it shall be subject to the terms and
conditions of this Agreement and, if such Affiliate is not controlled by the
Limited Partner transferring its Partnership Interest, the Person who controls
such Affiliate shall agree in writing not to transfer control of such Affiliate
for so long as such Affiliate remains a Limited Partner. If the Limited Partner
transferring its interest controls such Affiliate, the Limited Partner hereby
agrees that it shall not transfer control of such Affiliate for so long as such
Affiliate remains a Limited Partner.
SECTION 10.4. Certain Transfers.
(a) Change of Control. A Partner, substantially all of whose assets
shall consist of Partnership Interests of the Partnership, shall not offer to
sell its securities, or permit its securities or the securities of any
controlling Affiliate to be sold, to another party if such sale would result in
a "Change in Control" of that Partner until and unless such Partner shall have
first made a right of first offer with respect to such securities to the other
Partners and the Partnership in the same manner as that set forth in Section
10.3(a)-(b) above. For purposes of this paragraph, a "Change of Control" shall
be defined as the acquisition of a majority of the voting stock or analogous
equity interest of a Partner by a party other than an Affiliate of the Partner.
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(b) Pre-Approved Transfers. The provisions of Section 10.3(a) and
(b) shall not apply to any transfer of Partnership Interests contemplated by
Schedule X to the Subscription Agreements.
(c) Prior to the third anniversary of the Global Service Date, LQSS
(i) will not withdraw, (ii) will not permit LQSS to be controlled by any Person
other than Loral SpaceCom and (iii) will not, and will not permit any of its
Affiliates to sell, assign or otherwise transfer securities or Partnership
Interests such that, immediately following such transfer, Loral SpaceCom's
direct and indirect interest in the Partnership is reduced to less than 23% of
the total number of Partnership Interests outstanding. Thereafter, unless it
shall have received the Consent of the Disinterested Partners, Loral SpaceCom's
interest in the Partnership held through a General Partner (including GTL for so
long as there has been no GTL Change of Control), whether direct or indirect,
shall not be reduced to less than 15% of the total number of Partnership
Interests outstanding.
ARTICLE XI.
ADMISSION OF SUBSTITUTE PARTNERS
SECTION 11.1. Admission of Successor Limited Partner. (a) A
transferee of a Limited Partner's Partnership Interest shall not be admitted to
the Partnership as a substituted Limited Partner, until the transferee shall
have furnished the Partnership with an agreement, in form reasonably
satisfactory to the Partnership, to be bound by all the terms and conditions of
this Agreement and such other documents or instruments as may be required by the
Partnership in order to effect such transferee's admission as a Limited Partner.
Prior to the time that any transferee of Partnership Interests is admitted to
the Partnership as a Partner, it will have only the rights of a transferee under
Delaware law, shall have no right to require any information or account of the
Partnership transactions constituting Confidential Information or to inspect the
Partnership's books.
(b) Any transferee of a Limited Partner's Partnership Interest who
meets the requirements of subsection (a) may be admitted as a substituted
Limited Partner in the Committee's sole discretion.
(c) For a transferee of a Limited Partner's Partnership Interest to
be admitted as a substituted Limited
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Partner under subsection (d) or (e) below, the transferee must deliver to the
Partnership an opinion of counsel, addressed to the Partnership and in form and
substance satisfactory to the Partnership, to the effect that, assuming the
Partnership has the corporate characteristic of free transferability of
interests and that the transferee is admitted as a substituted Limited Partner,
the Partnership would be classified as a partnership for federal income tax
purposes and would not be classified as an association taxable as a corporation.
(d) Any transferee of a Limited Partner's Partnership Interest who
meets the requirements of subsections (a) and (c) and who is an Affiliate of the
transferor will be admitted as a substituted Limited Partner.
(e) Any transferee of a Limited Partner's Partnership Interest who
meets the requirements of subsections (a) and (c) will be admitted as a
substituted Limited Partner with the consent of the Committee, which consent
will not be unreasonably withheld.
SECTION 11.2. Admission of Successor General Partner. A successor
General Partner selected pursuant to Section 12.1 or the transferee of or
successor to the entire Partnership Interest of a General Partner pursuant to
Section 10.2 shall be admitted to the Partnership as a General Partner,
effective immediately prior to the withdrawal of the withdrawing General Partner
and upon the receipt of proper FCC approval pursuant to Section 10.2(b), and
shall continue the business of the Partnership without dissolution.
Notwithstanding the foregoing, the provisions of Section 11.1 shall govern the
admission of a transferee in a transfer resulting in a GTL Change of Control or
a Reduction in Interest as though GTL were a Limited Partner. The successor
General Partner shall furnish to the Partnership (a) acceptance in form
satisfactory to counsel to the Partnership of all the terms and conditions of
this Agreement and (b) such other documents or instruments as may be required by
such counsel in order to effect its admission as a General Partner. No such
admission shall be effected until the General Partner delivers to the
Partnership an opinion of counsel, addressed to the Partnership and its Partners
to the effect that such admission will not adversely affect the tax status of
the Partnership. Such opinion will not be deemed delivered until approved by the
Consent of the Disinterested Partners, which consent will not be unreasonably
withheld. Any transferee of less than all of the Partnership Interests of a
General Partner pursuant to Section 10.2 shall have only the rights of an
assignee under Delaware law, shall have no right to require any information or
account of the Partnership transactions constituting Confidential Informa-
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tion or to inspect the Partnership's books and shall not be admitted to the
Partnership as a successor General Partner.
SECTION 11.3. Amendment of Agreement and of Certificate of Limited
Partnership. For the admission to the Partnership of any successor Partner, the
Partnership shall take all steps necessary and appropriate to prepare and record
or file as soon as practicable an amendment of this Agreement and the
Certificate of Limited Partnership and may for this purpose exercise the power
of attorney granted pursuant to Section 1.4.
ARTICLE XII.
WITHDRAWAL OR REMOVAL
SECTION 12.1. Withdrawal or Removal of the General Partners. (a) Any
transfer by a General Partner of all of its Partnership Interests as a General
Partner pursuant to Section 10.2 or the conversion of all of its Partnership
Interests pursuant to the Exchange and Registration Rights Agreement shall
constitute the withdrawal of the General Partner for purposes of, and may be
effected only in accordance with, this Section 12.1 and in the case of GTL,
shall be further subject to the provisions of Section 6.3 and in the case of
LQSS, 10.4(c) hereof. A General Partner may not withdraw from the Partnership as
General Partner unless it gives at least 90 days prior written notice of such
withdrawal to the other Partners, such withdrawal shall have been approved by
Consent of the Disinterested Partners and a successor General Partner shall have
been elected by Consent of the Disinterested Partners; provided, however, that
such transfer shall not relieve the General Partner of any of its obligations
hereunder unless the transferee has been adjudged by the Consent of the
Disinterested Partners (which consent shall not be unreasonably withheld) to be
a Person that has at least such comparable financial strength and technical and
managerial capabilities and know-how sufficient for it to perform its duties and
obligations hereunder and it has assumed all preexisting liabilities and
obligations of the General Partner. The notice and election described above
shall not be required in connection with a withdrawal resulting from a transfer
of all of the General Partner's Partnership Interest to an Affiliate Successor,
but the General Partner shall not be relieved of any of its obligations
hereunder without the Consent of the Disinterested Partners required under the
third sentence of Section 10.2(a).
(b) A General Partner may be removed if such removal is for
Nonperformance and if such removal is approved with the Consent of the
Disinterested Partners. Such removal shall be
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effective immediately subsequent to the admission of the successor general
partner who shall be subject to the qualifications of Section 12.1(a) hereto.
The right to remove a General Partner shall not exist or be exercised unless the
Partnership has received an opinion of counsel (which may be counsel selected by
Consent of the Disinterested Partners) that the removal of the General Partner
and the selection of a successor general partner (a) would not cause the loss of
limited liability pursuant to Delaware law of the Limited Partners under this
Agreement, and (b) would not cause the Partnership to be treated as an
association taxable as a corporation for federal income tax purposes.
(c) A General Partner will be discharged from, and the Partnership
or any Person or Persons continuing the business of the Partnership in the event
it has dissolved, shall assume and pay, as they mature, all Partnership
obligations and liabilities that exist on the date of a General Partner's
removal or Approved Withdrawal from the Partnership and, except as otherwise
expressly provided herein, will hold the General Partner harmless from any
action or claim arising or alleged to arise from such assumed obligations and
liabilities accruing after such date. The Partnership or any such Person or
Persons continuing the business of the Partnership will promptly pay all
creditors as of such date or notify such creditors (i) of the withdrawal or
removal of such General Partner, as the case may be, (ii) of the discharge of
such General Partner from all of the Partnership's obligations and liabilities,
and (iii) of the assumption thereof by the Partnership or such Person or Persons
continuing the business of the Partnership. The Partnership or such Person or
Persons continuing the business of the Partnership if the Partnership has
dissolved will use reasonable efforts to procure and execute an agreement from
creditors of the Partnership discharging such General Partner from liability to
such creditors as of the date of such removal or Approved Withdrawal of such
General Partner. Nothing contained in this Section 12.1 shall relieve a General
Partner of any liability it may have as of the date of its withdrawal under
Section 6.11(b). As used in this Section 12.1(c), the term "Approved Withdrawal"
shall mean a withdrawal of a General Partner following the election of a
successor General Partner by Consent of the Disinterested Partners pursuant to
the second sentence of Section 12.1(a) and approval by Consent of the
Disinterested Partners of such successor General Partner's financial strength
and technical and managerial
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capabilities and know-how pursuant to the proviso to the second sentence of
Section 12.1(a) or, in the case of an Affiliate Successor, approval by Consent
of the Disinterested Partners of such Affiliate Successor's financial strength
and technical and managerial capabilities and know-how pursuant to the third
sentence of Section 10.2(a).
(d) Upon such removal, and the election of a successor General
Partner, the interest of a General Partner in the Partnership shall be converted
into limited Partnership Interests, provided that, no representative of such
Limited Partner will be entitled to a vote with respect to such Partnership
Interests to the extent the voting thereof is controlled by Loral SpaceCom
pursuant to Section 6.4 of the LQSS Partnership Agreement.
SECTION 12.2. Right of the Managing General Partner to Become a
Limited Partner. The Managing General Partner may become a Limited Partner by
either (i) converting some but not all of its Partnership Interests to limited
Partnership Interests or (ii) acquiring limited Partnership Interests and
thereby become entitled to all of the rights of a Limited Partner to the extent
of the limited Partnership Interest so converted or acquired, and the Consent of
the Partners need not be obtained. Such event shall not be deemed to reduce any
of the Managing General Partner's liability hereunder and will not prevent the
Managing General Partner from continuing to act as a General Partner. Any
transfer by the Managing General Partner of such limited Partnership Interests
shall be subject to the provisions of Section 10.2(b)-(d). The Managing General
Partner's Capital Contribution referred to in Section 4.1 hereof will be made in
its capacity as General Partner and such Capital Contribution will not entitle
the Managing General Partner to any rights of a Limited Partner, including those
set forth in Article VII hereof.
SECTION 12.3. Withdrawal of Limited Partner. A Limited Partner who
shall have withdrawn from the Partnership shall have no further rights
hereunder.
ARTICLE XIII.
DISSOLUTION AND LIQUIDATION
SECTION 13.1. Dissolution. The Partnership shall dissolve upon:
(a) December 31, 2044;
(b) the withdrawal of a General Partner, or any other event that
results in its ceasing to be a General Partner such as the removal, bankruptcy
or dissolution of the General Partner (other than by reason of a transfer
pursuant to Section 10.2 or withdrawal effective following selection of a
successor pursuant
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to Section 12.1) unless at the time LQSS or a successor to LQSS remains a
general partner of the Partnership;
(c) a sale of all or substantially all of the assets of the
Partnership;
(d) the bankruptcy or the dissolution (and commencement of winding
up) of the Managing General Partner;
(e) any other event that under the Delaware Act would cause its
dissolution, except as otherwise provided herein; or
(f) with the Consent of the Partners, as set forth in Section
6.2(b)(v).
For purposes of this Section 13.1, bankruptcy of the Managing
General Partner shall be deemed to have occurred when (i) it commences in good
faith and under appropriate circumstances a voluntary proceeding or files in
good faith and under appropriate circumstances an answer or other pleading
admitting or failing to contest the material allegations of a petition filed
against it in any involuntary proceeding, which voluntary or involuntary
proceeding seeks a liquidation, reorganization or other relief under any
bankruptcy, insolvency or other similar law now or hereafter in effect, (ii) it
is adjudged bankrupt or insolvent, or has entered against it a final and
non-appealable order for relief under any bankruptcy, insolvency or similar law
now or hereafter in effect, (iii) it executes and delivers a general assignment
for the benefit of its creditors, (iv) it seeks, consents to or acquiesces in
the appointment of a trustee, receiver or liquidator for it or for all or any
substantial part of its properties, or (v) (1) any proceeding of the nature
described in clause (i) above has not been dismissed 120 days after the
commencement thereof or (2) the appointment without its consent or acquiescence
of a trustee, receiver or liquidator appointed pursuant to clause (ii) above has
not been vacated or stayed within 90 days of such appointment, or (3) such
appointment is not vacated within 90 days after the expiration of any such stay.
SECTION 13.2. Continuation of the Business of the Partnership after
Dissolution. To the extent permitted by the Delaware Act, upon dissolution of
the Partnership in accordance with Section 13.1(b), (d) or (e), the remaining
Partners may elect to reconstitute the Partnership and continue its business on
the same terms and conditions set forth in this Agreement if holders of a
majority of the outstanding PPIs and a Majority in Interest of the Partners
agree in writing (1) to continue the business of the Partnership and (2) to the
appointment, if
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necessary, effective as of the date of withdrawal, of a successor Managing
General Partner. Unless such an election is made within 90 days after
dissolution, the Partnership shall conduct only activities necessary to wind up
its affairs. If such an election is made within 90 days after dissolution, then:
(a) the reconstituted Partnership shall continue unless earlier dissolved in
accordance with this Article XIII; and
(b) all necessary steps shall be taken to cancel this Agreement and
the Certificate of Limited Partnership and to enter into a new partnership
agreement and certificate of limited partnership, and the successor Managing
General Partner or GTL, as the case may be, may for this purpose exercise the
powers of attorney granted pursuant to Section 1.4 or such similar provision in
the new partnership agreement.
SECTION 13.3. Winding Up and Liquidation. (a) Upon dissolution of
the Partnership other than pursuant to Section 6.13, unless the Partnership is
continued under an election to reconstitute and continue the Partnership
pursuant to Section 13.2, the Managing General Partner or, in the event the
Managing General Partner has been dissolved or removed, has become bankrupt as
defined in Section 13.1 or has withdrawn from the Partnership, a liquidator or
liquidating committee selected by Consent of the Partners, shall be responsible
for the winding up of the affairs of the Partnership and the distribution of its
assets. The Person or Persons who assume such responsibility (whether they be
the Managing General Partner or not) are referred to herein as the "Liquidator."
In connection with a winding up of the affairs of the Partnership, the
Liquidator shall cause an accounting to be made of the assets and liabilities of
the Partnership. If any liability is contingent or uncertain in amount, a
reserve will be established in such amount as the Liquidator deems reasonably
necessary. Upon satisfaction or other discharge of such contingency, the amount
of the reserve not required, if any, will be distributed as provided in this
Section 13.3.
(b) The Liquidator (if other than the Managing General Partner)
shall be entitled to receive such compensation for its services as may be
approved by Consent of the Partners. The Liquidator shall agree not to resign at
any time without fifteen (15) days' prior written notice and (if other than the
Managing General Partner) may be removed at any time, with or without cause, by
notice of removal signed by Consent of the Partners. Upon dissolution, removal
or resignation of the Liquidator, a
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successor and substitute Liquidator (who shall have and succeed to all rights,
powers and duties of the original Liquidator) shall within thirty (30) days
thereafter be selected by Consent of the Partners. The right to appoint a
successor or substitute Liquidator in the manner provided herein shall be
recurring and continuing for so long as the functions and services of the
Liquidator are authorized to continue under the provisions hereof, and every
reference herein to the Liquidator will be deemed to refer also to any such
successor or substitute Liquidator appointed in the manner herein provided.
Except as expressly provided in this Article XIII, the Liquidator appointed in
the manner provided herein shall have and may exercise, without further
authorization or consent of any of the parties hereto, all of the powers
conferred upon the Committee under the terms of this Agreement (but subject to
all of the applicable limitations, contractual and otherwise, upon the exercise
of such powers) to the extent necessary or desirable in the good faith judgment
of the Liquidator to carry out the duties and functions of the Liquidator
hereunder for and during such period of time as shall be reasonably required in
the good faith judgment of the Liquidator to complete the winding up and
liquidation of the Partnership as provided for herein.
(c) The Liquidator shall liquidate the assets of the Partnership,
and apply and distribute the proceeds of such liquidation in the following order
of priority, unless otherwise required by mandatory provisions of applicable
law:
(i) to the payment of Partnership creditors, including Partners in
respect of loans or guaranteed payments, in order of priority provided by
law;
(ii) to the establishment of reasonable reserves for contingencies;
and
(iii) to the Partners in proportion and to the extent of the
positive balances in their respective Capital Accounts (determined after
applying the provisions of Article V).
(d) The Liquidator shall be authorized to sell any, all or
substantially all of the assets of the Partnership for deferred payment
obligations, and to hold, collect and otherwise administer any such obligations
or any other deferred payment obligations held or acquired as assets of the
Partnership, regardless of the terms of such obligations.
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(e) A reasonable time, including, without limitation, any time
required to collect deferred payment obligations, shall be allowed for the
orderly liquidation of the assets of the Partnership and the discharge of
liabilities to creditors so as to enable the Liquidator to minimize the normal
losses attendant upon the liquidation. Upon the Liquidator's compliance with the
foregoing distribution plan, the Partners shall execute, acknowledge, swear to
and cause to be filed a Certificate of Cancellation of the Partnership. Except
as otherwise expressly provided herein, the General Partners shall not be
personally liable for the return of the original investment or contributions of
the Limited Partners, or any portion thereof. Any such return shall be made
solely from Partnership assets and in accordance with the express provisions
hereof.
(f) If, in the process of collecting any deferred payment obligation
generated by a sale of assets of the Partnership, the Partnership reacquires any
such assets, and if, at such time, there is a Managing General Partner and the
same so determines, the Partnership shall be reconstituted with the Consent of
the Partners upon the terms and conditions hereof.
SECTION 13.4. Cancellation of Certificate of Limited Partnership.
Upon the completion of the distribution provided for in Section 13.3, the
Partnership shall be terminated, and the Liquidator (or the General Partners and
the Limited Partners if necessary) shall cause the cancellation of the
Certificate of Limited Partnership and all qualifications of the Partnership as
a foreign limited partnership in jurisdictions other than the State of Delaware
and shall take such other actions as may be necessary to terminate the
Partnership.
SECTION 13.5. Return of Capital. Except as otherwise expressly
provided herein, the General Partners shall not be personally liable for the
return of the Capital Contribution of the Limited Partners, or any portion
thereof, it being expressly understood that any such return shall be made solely
from Partnership assets.
SECTION 13.6. Waiver of Partition. Each Partner hereby waives any
rights to partition of Partnership property.
SECTION 13.7. Deficit Upon Liquidation. Upon liquidation, the
Partners shall not be obligated to the Partnership for any deficit in their
Capital Accounts.
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ARTICLE XIV.
AMENDMENT OF PARTNERSHIP AGREEMENT;
MEETINGS; RECORD DATE
SECTION 14.1. Amendments to be Adopted Without Consent of the
Partners. The Partnership (pursuant to powers of attorney granted under Section
1.4 hereof), without the Consent of the Partners, may amend any provision of
this Agreement, and execute, swear to, acknowledge, deliver, file and record
whatever documents may be required in connection therewith, to reflect:
(a) a change in the name of the Partnership approved with the
Consent of the Partners or a change in the location of the principal place of
business of the Partnership;
(b) a change that the Partnership, based upon the opinion of outside
counsel, furnished to all the Partners, has determined to be reasonable and
necessary or advisable (i) to qualify or continue the qualification of the
Partnership as a limited partnership or a partnership in which the limited
partners have limited liability under the laws of any state or (ii) to ensure
that the Partnership will not be treated other than as a partnership for federal
income tax purposes;
(c) a change (i) that the Partnership, based upon the opinion of
outside counsel, furnished to all the Partners, has determined is necessary or
desirable to satisfy any requirements, conditions or guidelines contained in any
opinion, directive, order, ruling or regulation of any federal or state agency
or judicial authority or contained in any federal or state statute, compliance
with any of which the Partnership deems to be in the best interests of the
Partners, or (ii) that is expressly required or expressly contemplated by this
Agreement or is otherwise herein expressly permitted to be made by the
Partnership;
(d) immaterial amendments to correct any mistake or clear omission
or to reflect the surrender of any rights or the assumption of any additional
responsibilities by the General Partners; or
(e) any amendment necessary to give effect to the issuance and sale
of Additional Partnership Interests permitted by Sections 4.4 and 4.10 hereof or
to give effect to the admission of any Additional Limited Partners pursuant
thereto, including such amendments to Article V hereof as are necessary to give
effect to any allocations of Income or Loss to the holder of such Additional
Partnership Interests and any distributions to be
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made to such holders and do not adversely affect the other Partners.
SECTION 14.2. Amendment Procedures. Except as provided in Section
14.1, all amendments to this Agreement shall be made in accordance with the
following requirements. Subject to Sections 6.2(b)(i) and 14.1, any proposed
amendment shall be effective only upon the consent of the Committee and the
Consent of the Partners, provided, that no amendment adversely affecting the
capital account or other economic rights of any Partner shall be made without
such Partner's consent. Promptly after the adoption of an amendment to this
Agreement as provided hereunder, the Partnership shall forward a copy of such
amendment to each Partner.
ARTICLE XV.
GENERAL PROVISIONS
SECTION 15.1. Addresses and Notices. The address of each Partner for
all purposes shall be the address as set forth on the signature page of this
Agreement or such other address of which each other Partner has received written
notice. All notices, requests, demands and other communications required or
permitted to be given under this Agreement shall be sent to the party to whom
the notice is to be given, by telex, fax (confirmed by first class mail, postage
prepaid), telegram or first class mail, postage prepaid and properly addressed
as provided in this Agreement (in each case such notice shall be deemed to have
been duly given on the day the notice is first received by that party) or to
such other address or Person as may be designated by a party, by notice given in
accordance with this Section.
SECTION 15.2. Titles and Captions. All article or section titles or
captions in this Agreement are for convenience only. They shall not be deemed
part of this Agreement and in no way define, limit, extend or describe the scope
or intent of any provisions hereof. Except as specifically provided otherwise,
references to "Articles" and "Sections" are to Articles and Sections of this
Agreement.
SECTION 15.3. Pronouns and Plurals. Whenever the context may
require, any pronoun used in this Agreement shall include the corresponding
masculine, feminine or neuter forms, and the singular form of nouns, pronouns
and verbs shall include the plural and vice versa.
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SECTION 15.4. Further Action. (a) The parties shall execute
and deliver all documents, provide all information and take or refrain from
taking action as may be necessary or appropriate to achieve the purposes of
this Agreement.
(b) At any time or times, upon the request of the Partnership, the
Partners hereby agree to sign and swear to any certificate required by Delaware
or other applicable law, to sign and swear to any amendment to or cancellation
of any such certificate whenever such amendment or cancellation is required by
or appropriate under law, to sign and swear to or acknowledge similar
certificates or affidavits or certificates of fictitious firm name, trade name
or the like (and any amendments or cancellations thereof) required by or
appropriate under the laws of Delaware or any other jurisdiction in which the
Partnership does or proposes to do business, and cause the filing of any of the
same for record wherever such filing shall be required by law.
SECTION 15.5. Binding Effect. This Agreement shall be binding
upon and inure to the benefit of the parties hereto and their heirs,
executors, administrators, successors, legal representatives and permitted
assigns.
SECTION 15.6. Integration. This Agreement together with the
Subscription Agreement entered into by each Partner or the assignor of its
Partnership Interests and the Mutual Non-Disclosure Agreement dated January 11,
1994, entered into by and among the Partnership and certain of its Partners (the
"Mutual Non-Disclosure Agreement"), constitutes the entire agreement among the
parties hereto pertaining to the subject matter hereof and supersedes all prior
agreements and understandings pertaining thereto.
SECTION 15.7. Creditors. None of the provisions of this
Agreement shall be for the benefit of or enforceable by any creditors of the
Partnership.
SECTION 15.8. Waiver. No failure by any party to insist upon the
strict performance of any covenant, duty, agreement or condition of this
Agreement or to exercise any right or remedy consequent upon a breach thereof
shall constitute waiver of any such breach or any other covenant, duty,
agreement or condition.
SECTION 15.9. Counterparts. This Agreement may be executed in
counterparts, all of which together shall constitute one agreement binding on
all the parties hereto, notwithstanding that all such parties are not
signatories to the original or
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the same counterpart. Each party shall become bound by this Agreement
immediately upon affixing its signature hereto independently of the signature of
any other party.
SECTION 15.10. Dispute Resolution. (a) The Parties shall attempt to
resolve by good faith and diligent negotiation any dispute, controversy or claim
between them arising out of or relating to this Agreement, or the breach,
termination or invalidity thereof. If such negotiations are not concluded within
30 days of a Party's request for negotiations, a Party may (other than with
respect to a controversy arising pursuant to Section 12.1 hereof) initiate
arbitration as provided for below.
(b) International Arbitration. Any dispute, controversy or claim
arising out of or relating to this Agreement, or the breach, termination or
invalidity thereof, that involves a non-U.S. Party and that has not been
amicably resolved pursuant to the procedures of Section 15.10(a), shall be
settled by arbitration in accordance with the UNCITRAL Arbitration Rules as at
present in force. The language of the arbitration proceedings shall be English.
The number of arbitrators shall be one. If such an international arbitration is
initiated by the Partnership, the place of arbitration shall be Geneva,
Switzerland, the appointing authority shall be the Chamber of Commerce and
Industry of Geneva; and any arbitrator appointed by the appointing authority
shall be a retired Swiss federal or cantonal judge of a federal or cantonal
court of general jurisdiction or any court having appellate jurisdiction over
such a court. If the arbitration is initiated by GTL or the Limited Partners,
the place of arbitration shall be New York, New York; the appointing authority
shall be the American Arbitration Association; and any arbitrator appointed by
the appointing authority shall be a retired United States federal judge or a
retired state court judge of a federal or state court of general jurisdiction or
any court having appellate jurisdiction over such a court.
(c) U.S. Arbitration. Any dispute, controversy or claim arising out
of or related to this Agreement, or the breach, termination or invalidity
thereof, that involves only U.S. Parties and that has not been amicably resolved
pursuant to the procedures of Section 15.10(a), shall be settled by arbitration
in accordance with the UNCITRAL Arbitration Rules as at present in force. The
language of the arbitration proceedings shall be English. The number of
arbitrators shall be one. If the arbitration is initiated by the Partnership,
the place of arbitration shall be San Francisco, California. If the arbitration
is initiated by the Limited Partners, the place of arbitration shall be New
York, New York. The appointing authority shall be the American Arbitration
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Association. Any arbitrator appointed by the appointing authority shall be a
retired United States federal judge or a retired state court judge of a federal
or state court of general jurisdiction or any court having appellate
jurisdiction over such a court.
(d) Resolution of Common Issues. If at any time there is pending an
arbitration under this Section 15.10 and such arbitration involves one or more
significant issues of law or fact the resolution of which a Partner desires
binding on some or all its Partners, the Partnership may give written notice to
such Partners identifying the issue of law or fact the resolution of which the
Partnership desires to be so binding and inviting each Partner to join in such
arbitration as provided in this Section 15.10(d). Each Partner which shall have
received such a notice shall have the right (but shall not be obligated) to
become a party to such arbitration for the limited purpose of the resolution of
such issue of law or fact. The arbitrator in such arbitration may supplement and
alter the UNCITRAL Rules in their application to such arbitration as may be
necessary or appropriate to accommodate the multi-party nature of the
arbitration and to ensure the just, expeditious, economical and final
determination of the dispute. The award in any such arbitration shall be final
and binding, as to resolution of the issues of fact and law decided therein and
identified in the notice from the Partnership given pursuant to this Section
15.10(d), on all of the Partners who were given notice of such arbitration and
an opportunity to participate as parties therein, whether or not they
participated in such arbitration.
(e) Enforcement. Arbitral awards under this Section 15.10 shall be
final and binding, and shall be enforceable in any court having jurisdiction.
SECTION 15.11. Applicable Law. THIS AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF DELAWARE, WITHOUT
REGARD TO THE PRINCIPLES OF CONFLICTS OF LAW. REFERENCES HEREIN TO TEMPORARY OR
FINAL TREASURY REGULATIONS ALSO REFER TO CORRESPONDING PROVISIONS OF SUCCESSOR
AND SUPERSEDING REGULATIONS.
SECTION 15.12. Confidentiality. (a) For purposes of this Agreement,
"Confidential Information" shall mean all oral, written and/or tangible
technical, financial, business and/or any other information of whatever kind
created by the Partnership or disclosed by a Partner or its Affiliate or the
Partnership (in any case "Owner") to a receiving party ("Recipient") which is
confidential, proprietary and/or not generally available to the public,
including, but not limited to, information relating, in
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whole or in part, to present and future services related to the Partnership's
business, business plans and strategies, marketing ideas and concepts, pricing,
volume estimates, financial data, market testing information, development plans,
specifications, configurations, designs, plans, drawings, apparatus, sketches,
software, hardware, data, connecting requirements or other technical and
business information. Confidential Information provided by Owner shall remain
the sole and exclusive property of Owner.
(b) During the term of this Agreement, and until the fifth
anniversary of the termination thereof, or in the event of the transfer by a
Partner of all of its Partnership Interests prior to the termination of this
Agreement, until the fifth anniversary of such transfer, Confidential
Information:
(i) shall be treated in confidence by Recipient and shall be used
only for purposes of Recipient's performance of its obligations under this
Agreement, or any other written agreement between Owner and Recipient
entered into subsequent to the Effective Date or the GTL Effective Date,
as the case may be, in connection with the Partnership's business;
(ii) shall not be reproduced or copied in whole or in part, except
as necessary for use as authorized herein; and
(iii) shall be disseminated only to those of its and its Affiliates'
employees, agents and subcontractors who have a need to know it (and such
employees, agents and subcontractors shall be advised of the obligations
assumed herein). Recipient shall ensure by appropriate procedures that
those employees, agents and subcontractors to whom Confidential
Information is disseminated or disclosed treat such Confidential
Information in confidence pursuant to this paragraph.
(c) Notwithstanding the foregoing, information shall not be deemed
Confidential Information and Recipient shall have no obligation with respect to
any such information which:
(i) is or was in the possession of the Recipient at the time
of disclosure by Owner, and was not previously acquired by the Recipient
directly or indirectly from Owner under an obligation to keep such
information confidential; or
(ii) is or becomes publicly known, through no negligence or
other wrongful act of Recipient; or
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(iii) is received by Recipient from a third party having, to
the best knowledge of the Recipient, a lawful right to disclose, subject
to, as to disclosed information, any restriction as to use, imposed by
such third party; or
(iv) is independently developed by Recipient, as evidenced by
its records.
(d) Upon the termination of this Agreement, or upon a transfer by a
Partner of its Partnership Interest, written Confidential Information will be
returned to Owner or destroyed immediately upon the request of Owner, and no
copies, extracts or other reproductions shall be retained by Recipient. All
documents, memoranda, notes and other writings whatsoever prepared by Recipient
which contain the Confidential Information shall be returned to Owner or
destroyed at Owner's request. The redelivery or destruction of such materials
shall not relieve Recipient of its obligation of confidentiality or other
obligations hereunder.
(e) If Recipient (or its Affiliate) is required by order of any
competent authority (by oral questions, interrogatories, directions, requests
for information or documents, subpoena, civil investigative demand or similar
process) to disclose any Confidential Information, Recipient will promptly
notify Owner of such order or requirement and shall cooperate with Owner in
seeking appropriate protective arrangements requested by Owner. If, in the
absence of a protective order or the receipt of a waiver hereunder, Recipient
(or any of its Affiliates) is in the written opinion of Recipient's counsel
compelled to disclose the Confidential Information or else stand liable for
contempt or suffer other censure or significant penalty, Recipient (or its
Affiliate) may disclose only so much of the Confidential Information to the
authority compelling disclosure as is required by law. Recipient will exercise
(and will cause its Affiliate to exercise) reasonable efforts to obtain
appropriate protective arrangements or other reliable assurance that
confidential treatment will be accorded to Confidential Information.
(f) The terms and conditions of this Agreement and all exhibits,
attachments and amendments hereto and thereto shall be considered Confidential
Information protected under this Section 15.12.
(g) Notwithstanding anything in this Section 15.12 to the contrary,
in the event that any Confidential Information is also subject to a limitation
on disclosure or use contained in another written agreement between Owner and
Recipient which is
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more restrictive than the limitations contained in this Section 15.12, then the
limitation in such agreement shall supersede this Section 15.12.
(h) The Partners hereby agree that within six months of the date of
this Agreement, they shall conform the provisions set forth in this Section
15.12 with those contained in the Mutual Non-Disclosure Agreement and any other
agreement relating to confidentiality that may be in effect among the parties
hereto.
SECTION 15.13. Invalidity of Provisions. If any provision of this
Agreement is or becomes invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained
herein shall not be affected thereby, unless the effect would be to materially
and adversely affect the economic rights of any Partner.
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IN WITNESS WHEREOF, the undersigned have caused this Amendment to be
duly executed and delivered by this respective duly authorized officer as of the
day and year first above written.
LORAL/QUALCOMM SATELLITE SERVICES, L.P.
by LORAL/QUALCOMM PARTNERSHIP, L.P.
its General Partner
by LORAL GENERAL PARTNER, INC.
its General Partner
By:/s/Eric J. Zahler
--------------------------------------
Name: Eric J. Zahler
Title: Vice President
GLOBALSTAR TELECOMMUNICATIONS LIMITED
By:/s/Eric J. Zahler
--------------------------------------
Name: Eric J. Zahler
Title: Vice President
Limited Partners:
AIRTOUCH SATELLITE SERVICES, INC.
DACOM CORPORATION
DACOM INTERNATIONAL, INC.
HYUNDAI CORPORATION
HYUNDAI ELECTRONICS INDUSTRIES CO., INC.
LORAL/DASA GLOBALSTAR, L.P.
LORAL SPACE & COMMUNICATIONS LTD.
SAN GIORGIO S.p.A.
TELESAT LIMITED
TE.SA.M
VODAFONE SATELLITE SERVICES LIMITED
By: LORAL/QUALCOMM SATELLITE SERVICES, L.P.
by LORAL/QUALCOMM PARTNERSHIP, L.P.
its General Partner
by LORAL GENERAL PARTNER, INC.
its General Partner
By:/s/Eric J. Zahler
--------------------------------------
Name: Eric J. Zahler
as Attorney-in-Fact
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Addresses for Notices
of Limited Partners:
AIRTOUCH SATELLITE SERVICES, INC.
One California Street
San Francisco, CA 94105
DACOM CORPORATION
DACOM Building
65-228
3 Ka. Hangang-Ro
Yongson-ku
Seoul, Korea
DACOM INTERNATIONAL, INC.
DACOM Building
Kukje Elec. Center
Seochu Ku,
Seoul 137 070
Korea
HYUNDAI CORPORATION
Hyundai-Jeonja
Building #1003
66 Chuckseon-Dong,
Chongro-Ku
Seoul, Korea 110-052
HYUNDAI ELECTRONICS
INDUSTRIES CO., LTD.
Hyundai-Jeonja
Building #1003
66 Chuckseon-Dong,
Chongro-Ku
Seoul, Korea 110-052
LORAL/DASA GLOBALSTAR, L.P.
3825 Fabian Way
Palo Alto, CA 94303
LORAL SPACE & COMMUNICATIONS LTD.
600 Third Avenue
38th Floor
New York, N.Y. 10016
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<PAGE> 95
SAN GIORGIO S.p.A.
Viale Maresciallo Pilsudski 92
00197 Roma, Italy
TELESAT LIMITED
c/o ChinaSat
42 Xue Yuan Road
Beijing, China 10083
T.E.SA.M.
66, Avenue du Maine
75014 Paris, France
VODAFONE SATELLITE SERVICES LIMITED
The Courtyard
2-4 London Road
Newbury, Berkshire RG13 1JL
United Kingdom
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SCHEDULE A
SCHEDULE OF PARTNERS
Initial Capital Interests Currently
Partner Contribution* Held
- ------- ------------- ----
LQSS $50,000,000 18,000,000 OPIs
$326,956,000** 15,338,533 OPIs
see Footnote No. 1A 4,904,060 OPIs
GTL see Footnote No. 1B 7,000,000 PPIs
AirTouch Satellite
Services $37,500,000 3,000,000 OPIs
DACOM International see Footnote No. 2 90,000 OPIs
Hyundai Corporation see Footnote No. 2 183,000 OPIs
Hyundai Electronics see Footnote No. 2 1,281,000 OPIs
Loral/DASA Globalstar,
L.P. $37,500,000 3,000,000 OPIs
Loral Space &
Communications Ltd. $37,500,000 7,176,000 OPIs
San Giorgio S.A. $18,750,000 610,000 OPIs
TE.SA.M $37,500,000 1,830,000 OPIS
TeleSat $18,750,000 937,500 OPIs
Vodafone Satellite
Services Limited $37,500,000 1,830,000 OPIs
- -------------------
* Represents initial capital contributions funded by the partners to
acquire partnership interests at the outset.
** Includes the net proceeds from GTL's initial public offerings and issuance
by GTL of common stock upon the exercise of outstanding warrants and
employee stock options as of December 31, 1998.
1A. 4,769,231 PPIs were issued in consideration of the net proceeds from the
CPEO Offering; these were subsequently converted into 4,769,231 OPIs. In
addition, an interest make-whole payment of 134,829 OPIs were issued in
April, 1998 in connection with a provisional redemption of the PPIs.
1B. Issued in consideration of the net proceeds from the Preferred Stock
Offering.
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2. The initial contribution of $37,500,000 was made by the Hyundai/DACOM
consortium.
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SCHEDULE B
RELATED PARTY TRANSACTIONS
1. Contract for the Development of Certain Portions of the Ground Operations
Control Center between Globalstar and Loral Western Development
Laboratories, a division of Loral Aerospace Corp. as outlined in the
request for Consent of Disinterested Partners, dated May 2, 1994.
2. Contract for the Development of Satellite Orbital Operations Centers
between Globalstar and Loral Aerosys, a division of Loral Aerospace Corp.
3. Office Lease between Globalstar and Loral Western Development
Laboratories.
4. Subcontract Providing Work for Hyundai, dated April 29, 1994, between
Globalstar, SS/L and Hyundai.
5. Support Agreement (completed), dated August 26, 1994, between Globalstar
and AirTouch.
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SCHEDULE C
ARTICLE I
Covenants
SECTION 1.1. Distributions on PPIs. Cumulative accrued distributions
shall be payable on the PPIs as set forth in Section 5.5(a)(ii) and subject to
Section 5.5(e) of this Agreement on each Scheduled Distribution Payment Date
commencing on May 15, 1999 (or, if such date is not a Business Day, on the next
succeeding Business Day). Subject to Section 5.5 of this Agreement,
distributions on the PPIs shall occur, as and if designated by the Committee in
its sole discretion. Distributions on the PPIs will accrue on a daily basis (360
day year and twelve 30-day months) (without interest or compounding) whether or
not the Partnership has earnings or profits, whether or not there are funds
legally available for the payment of such distributions and whether or not such
distributions are declared.
Distribution Arrearages shall not accrue interest.
SECTION 1.2. Deferral of Distributions. The Partnership may defer
paying Scheduled Distributions on any Scheduled Distribution Payment Date if the
Committee so determines in its sole discretion, but so long as any Distribution
Arrearage remains outstanding, except as set forth in Section 5.5(a)(iv) of the
Partnership Agreement and Section 4.1 of this Schedule C, the Partnership will
be prohibited from paying distributions on (i) its OPIs or (ii) preferred
partnership interests that may be issued in the future other than pro rata based
on the redemption amount of such preferred partnership interests, except for
distributions (A) on OPIs consisting solely of OPIs, (B) on securities that rank
pari passu or junior to the PPIs, in securities that rank pari passu or junior
to the PPIs, respectively, or (C) on securities that rank senior to the PPIs.
SECTION 1.3. Payment of Redemption Price and Distributions.
(a) The Partnership will duly and punctually pay or cause to be paid
by no later than one Business Day prior to the date such payment is due the
redemption price of the PPIs, and any applicable additional amounts in
accordance with the terms of Sections 2.6, 2.7 and 2.8 of this Schedule C;
(b) The Partnership may elect, at its option, to pay the Redemption
Price (including any Distribution Make Whole
<PAGE> 100
Payment) of, and Scheduled Distributions, on, the PPIs, (i) in cash, (ii) by
delivery of OPIs (in the manner described in paragraph (c) of this Section 1.3)
or (iii) through any combination of the foregoing as selected by the Committee
in its sole discretion.
(c) If the Partnership elects to deliver any OPIs in lieu of a cash
payment on the applicable date of payment, the Partnership shall deliver, in the
aggregate, the number of OPIs equal to (i) the amount of payment that is not
being paid in cash, (ii) divided by: (A) in the case of any Scheduled
Distributions, Provisional Redemption payment, Distribution Make-Whole Payment,
Optional Redemption payment, or portion thereof, 95% of the Average Market Value
of the GTL Common Stock; (B) in the case of any Mandatory Redemption payment, or
portion thereof, (1) if on the date of such payment the Shelf Registration
Statement covers the resale of such shares and is effective or no longer
required to be effective, 100% of the Average Market Value of the GTL Common
Stock and (2) otherwise, 90% of the Average Market Value of the GTL Common
Stock; provided, however, if GTL shall have made a GTL Dividend Payment Notice
or a GTL Response Redemption Notice which indicates that GTL shall have elected
to make its corresponding payment from the proceeds from the sale of any
issuance of GTL Common Stock, then the valuation of the OPIs to be issued by the
Partnership pursuant to Section 1.3(c) of this Schedule C shall be based upon
the actual price at which such GTL Common Stock is sold.
(d) The Partnership shall deliver a Globalstar Distribution Payment
Notice to GTL 15 Business Days prior to the applicable record date corresponding
to the Scheduled Distribution Payment Date.
SECTION 1.4. Certain Accompanying Payments. PPIs surrendered for
conversion during the period from the close of business on any Regular Record
Date next preceding any Scheduled Distribution Payment Date to the opening of
business on such Scheduled Distribution Payment Date (except PPIs called for
redemption on a Redemption Date from the close of business on any Regular Record
Date to the close of business on the Business Day immediately following the
corresponding Scheduled Distribution Payment Date) must be accompanied by
payment in cash, OPIs or a combination thereof in an amount equal to the
distribution thereon which GTL is entitled to receive; provided, that no payment
shall be owed or payable to GTL if the Committee shall have elected to defer the
distribution to be made on such Scheduled Distribution Payment Date. No other
adjustment for
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<PAGE> 101
distributions, including any Distribution Arrearages, is to be made upon
conversion.
ARTICLE II
Redemption of PPIs
SECTION 2.1. Right of Redemption; Mechanics of Redemption. (a) The
PPIs may be redeemed pursuant to (i) a Provisional Redemption (as described in
Section 2.6 of this Schedule C, any such Provisional Redemption shall include
the Distribution Make-Whole Payment, as well as accrued and unpaid Scheduled
Distributions (including an amount equal to a prorated Scheduled Distribution
for any period following the immediately preceding Scheduled Distribution
Payment Date) and Preferred Stock Liquidated Damages, if any, to the date of
such Provisional Redemption)) or (ii) an Optional Redemption (as described in
Section 2.7 of this Schedule C, any such Optional Redemption shall include
accrued and unpaid Scheduled Distributions (including an amount equal to a
prorated Scheduled Distribution for any period following the immediately
preceding Scheduled Distribution Payment Date) and Preferred Stock Liquidated
Damages, if any, to the date of such Optional Redemption), at the election of
the Partnership, in whole or from time to time in part; the PPIs shall be
redeemed at the Mandatory Redemption Date, at the Redemption Price specified in
Section 2.8, together with accrued and unpaid Scheduled Distributions and
Preferred Stock Liquidated Damages, if any, to the Mandatory Redemption Date.
(b) The Partnership shall deliver a Globalstar Redemption Notice to
GTL not fewer than 40 days nor more than 60 days before any such Redemption
Date.
SECTION 2.2. Selection by the Managing General Partner of PPIs to be
Redeemed. If any PPI selected for partial redemption is converted in part before
termination of the conversion right with respect to the portion of the PPI so
selected, the converted portion of such PPI shall be deemed (so far as may be)
to be the portion selected for redemption. PPIs which have been converted during
a selection of PPIs to be redeemed shall be treated by the Managing General
Partner as Outstanding for the purpose of such selection, but not for the
purpose of paying the Redemption Price thereof.
For all purposes of this Schedule C, unless the context otherwise
requires, all provisions relating to the redemption of PPIs shall relate, in the
case of any PPIs redeemed or to be
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<PAGE> 102
redeemed only in part, to the portion of the redemption amount of such PPI which
has been or is to be redeemed.
SECTION 2.3. Notice of Redemption. Whenever a Globalstar Redemption
Notice is required to be delivered to GTL, such Notice shall state:
(1) the Redemption Date;
(2) the Redemption Price and the form of consideration the
Partnership will use to satisfy the Redemption Price;
(3) if less than all the Outstanding PPIs are to be redeemed, the
identification (and, in the case of partial redemption, the redemption
amounts) of the particular PPIs to be redeemed;
(4) that on the Redemption Date the Redemption Price, together with
(i) in the case of a Provisional Redemption, the Distribution Make-Whole
Payment and accrued and unpaid Scheduled Distributions (including an
amount equal to a prorated Scheduled Distribution for any period following
the immediately preceding Scheduled Distribution Payment Date) and
Preferred Stock Liquidated Damages, if any, to the Provisional Redemption
Date (ii) in the case of an Optional Redemption, accrued and unpaid
Scheduled Distributions (including an amount equal to a prorated Scheduled
Distribution for any period following the immediately preceding Scheduled
Distribution Payment Date) and Preferred Stock Liquidated Damages, if any,
to the Optional Redemption Date, and (iii) in the case of a Mandatory
Redemption, accrued and unpaid Scheduled Distributions and Preferred Stock
Liquidated Damages, if any, to the Mandatory Redemption Date, will become
due and payable upon each such PPI to be redeemed and that distributions
thereon will cease to accrue on and after said date;
(5) the Conversion Ratio, the date on which the right to convert the
PPIs to be redeemed will terminate and the place or places where such PPIs
may be surrendered for conversion; and
(6) the place or places where such PPIs are to be surrendered for
payment of the Redemption Price.
SECTION 2.4. Deposit of Redemption Price. Prior to any Redemption
Date, the Partnership shall deposit with the
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<PAGE> 103
Partnership's paying agent (or, with the Partnership if the Partnership is
acting as its own paying agent with respect to the PPIs) an amount of
consideration sufficient to pay, in the case of a cash payment, or deliver, in
the case of delivery of OPIs, the Redemption Price, together with (i) in the
case of a Provisional Redemption, the Distribution Make-Whole Payment and
accrued and unpaid Scheduled Distributions (including an amount equal to a
prorated Scheduled Distribution for any period following the immediately
preceding Scheduled Distribution Payment Date) and Preferred Stock Liquidated
Damages, if any, to the Provisional Redemption Date (ii) in the case of an
Optional Redemption, accrued and unpaid Scheduled Distributions (including an
amount equal to a prorated Scheduled Distribution for any period following the
immediately preceding Scheduled Distribution Payment Date) and Preferred Stock
Liquidated Damages, if any, to the Optional Redemption Date, and (iii) in the
case of a Mandatory Redemption, accrued and unpaid Scheduled Distributions and
Preferred Stock Liquidated Damages, if any, to the Mandatory Redemption Date, on
all the PPIs which are to be redeemed on that date (other than any PPIs called
for redemption on that date which have been converted prior to the date of such
deposit, except with respect to any applicable Distribution Make-Whole Payment
and Preferred Stock Liquidated Damages, which shall be payable regardless of
such conversion).
If any PPI called for redemption is converted, any cash or OPIs
deposited with the Partnership's paying agent or with the Partnership shall
(subject to any right of GTL to receive accrued and unpaid distributions as
provided in Section 1.3 of this Schedule C) be paid or delivered to the
Partnership upon its request. Any Distribution Make-Whole Payment will be paid
to GTL on the date of conversion or the Provisional Redemption Date, as the case
may be.
SECTION 2.5. PPIs Payable on Redemption Date. Notice of redemption
having been given as aforesaid, the PPIs so to be redeemed shall, on the
Redemption Date, become due and payable at the Redemption Price therein
specified plus such other amounts as may be due and payable pursuant to the
terms hereof, and from and after such date (unless the Partnership shall default
in the payment of the Redemption Price and accrued Scheduled Distributions
(including an amount equal to a prorated Scheduled Distribution for any period
following the immediately preceding Scheduled Distribution Payment Date) and
Preferred Stock Liquidation Damages, if any, to the Redemption Date or, if
applicable, any Distribution Make-Whole Payment) no further distributions shall
be payable or accrue with respect to such
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<PAGE> 104
PPIs and such PPIs shall cease to be convertible into OPIs. Upon surrender of
any such PPI for redemption in accordance with said notice, such PPI shall be
paid, subject to Section 1.3, by the Partnership at the Redemption Price,
together with accrued Scheduled Distributions to the Redemption Date.
If any PPI called for redemption shall not be so paid upon surrender
thereof for redemption, the Redemption Price (but not any accrued and unpaid
Scheduled Distributions) shall, until paid, bear interest from the Redemption
Date at 8% per annum.
SECTION 2.6. Provisional Redemption. The Partnership may redeem, in
whole or in part (a "Provisional Redemption"), at any time on or prior to
February 15, 2002, at the Redemption Price of 104.6% of the aggregate Stated
Value of the PPIs to be redeemed (the "Provisional Redemption Date"), in the
event that the Current Market Value of the GTL Common Stock equals or exceeds
the following Trigger Percentages of the prevailing GTL Conversion Price then in
effect for at least 20 Trading Days in any consecutive 30 Trading Day period
ending on the Trading Day prior to the date of mailing of the Globalstar
Redemption Notice if called for Provisional Redemption in the 12-month period
ending February 15 of the following years:
Year Trigger Percentage
---- ------------------
2000 170%
2001 160%
2002 150%
Upon any Provisional Redemption, the Partnership shall make the
Distribution Make-Whole Payment with respect to the PPIs called for redemption.
The Partnership shall make the Distribution Make-Whole Payment on all PPIs
called for Redemption, regardless of whether such PPIs are converted prior to
the Provisional Redemption Date.
SECTION 2.7. Subsequent Optional Redemption. The PPIs may be
redeemed, in whole or from time to time in part, at the option of the
Partnership (the "Optional Redemption") on or after February 20, 2002 at a
redemption price equal to the percentage of the Stated Value set forth below, in
each case, together with accrued and unpaid Scheduled Distributions (including
an amount equal to a prorated Scheduled Distribution for any period following
the immediately preceding Scheduled Distribution
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<PAGE> 105
Payment Date) and Preferred Stock Liquidated Damages, if any, to the date of
redemption, upon not less than 30 nor more than 60 days' prior written notice,
if redeemed during the 12-month period commencing on the dates set forth below:
Year Redemption Price
---- ----------------
February 20, 2002 104.6%
February 19, 2003 103.4%
February 19, 2004 102.3%
February 19, 2005 101.1%
February 19, 2006 and
thereafter 100.0%
SECTION 2.8. Mandatory Redemption. Each PPI (if not earlier redeemed
or converted) will be mandatorily redeemed by the Partnership on the Mandatory
Redemption Date at a Redemption Price of 100% of the Stated Value thereof,
together with accrued and unpaid Scheduled Distributions and Preferred Stock
Liquidated Damages, if any, to the Mandatory Redemption Date.
SECTION 2.9. Other Redemption Procedures. No Provisional Redemption
or Optional Redemption may be authorized or made unless, prior to giving the
applicable redemption notice, all accumulated and unpaid distributions for
periods ended prior to the date of such redemption notice shall have been paid
in cash or OPIs. In the event of partial redemptions of PPIs, the PPIs to be
redeemed will be determined pro rata or by lot, as determined by the
Partnership, provided that the Partnership may redeem all PPIs held by holders
of fewer than 100 PPIs (or by holders that would hold fewer than 100 PPIs
following such redemption) prior to its redemption of other PPIs.
ARTICLE III
Conversion of PPIs
SECTION 3.1. Conversion Privilege and Conversion Price. Subject to
and upon compliance with the provisions of this Article, one PPI initially shall
be convertible into the number of OPIs (the "Conversion Ratio") determined by
dividing $50 by the product of the initial conversion price applicable to the
Preferred Stock, which is $23.2563, and 4.05. One PPI shall initially be
convertible into .53085 OPIs (i.e., $50 Stated
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<PAGE> 106
Value/($23.5623 initial conversion price times 4.05)). This Conversion Ratio
shall be adjusted in certain circumstances as provided in Section 3.4. Upon any
conversion of Preferred Stock by a holder thereof, GTL shall convert a
proportionate amount of PPIs into OPIs. Such conversion right shall expire at
the close of business on the Business Day next preceding the Mandatory
Redemption Date. In case a PPI or portion thereof is called for redemption, such
conversion right in respect of the PPI so called shall expire at the close of
business on the Business Day next preceding the Redemption Date, unless the
Partnership defaults in making the payment due upon redemption.
SECTION 3.2. Exercise of Conversion Privilege. PPIs surrendered for
conversion during the period from the close of business on any Regular Record
Date next preceding any Scheduled Distribution Payment Date to the opening of
business on such Scheduled Distribution Payment Date shall (except PPIs called
for redemption on a Redemption Date from the close of business on any Regular
Record Date to the close of business on the Business Day immediately following
the corresponding Scheduled Distribution Payment Date) be accompanied by payment
in cash, OPIs or a combination thereof in an amount equal to the distribution
thereon which GTL is entitled to receive; provided, that no payment shall be
owed or payable to GTL if the Committee shall have elected to defer the
distribution to be made on such Scheduled Distribution Payment Date. No other
adjustment for distributions, including any Distribution Arrearages, is to be
made upon conversion.
PPIs shall be deemed to have been converted immediately prior to the
close of business on the day of surrender of such PPIs for conversion in
accordance with the foregoing provisions, and at such time the rights of GTL
with respect to such PPIs shall cease, and OPIs issuable upon conversion shall
be treated for all purposes as having been issued at such time.
SECTION 3.3. Fractions of Interests. In the event that GTL shall be
required to pay a cash adjustment in lieu of any issuance of fractional
interests in GTL Common Stock as provided in its Bye-Laws and GTL shall not have
cash available to make such payment, then the Partnership shall make a cash
distribution to GTL, in lieu of a payment of such amount in OPIs under this
Agreement and to the extent that funds shall be legally available thereof, to
allow GTL to make such cash adjustments.
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<PAGE> 107
SECTION 3.4. Adjustment of Conversion Ratio. Upon a subdivision,
combination or reclassification of OPIs, the Conversion Ratio shall be adjusted
to take into account such subdivision, combination or reclassification.
SECTION 3.5. Provisions in Case of Consolidation, Merger or
Conveyance or Transfer of Properties and Assets. In case of any consolidation of
the Partnership with, or merger of the Partnership into, any other partnership
or other business entity, or in case of any merger of another partnership or
other business entity into the Partnership (other than a merger which does not
result in any reclassification, conversion, exchange or cancellation of
outstanding Partnership Interests or a transaction governed by Section 6.13 of
this Agreement), or in case of any conveyance or transfer of the properties and
assets of the Partnership substantially as an entirety, the partnership,
corporation, or other business entity formed by such consolidation or resulting
from such merger or which acquires by conveyance or transfer such properties and
assets, as the case may be, shall execute and deliver to GTL an agreement
providing that GTL shall have the right thereafter, during the period PPIs shall
be convertible as specified in this Article III, to convert such PPIs only into
the kind and amount of securities, cash and other property receivable upon such
consolidation, merger, conveyance or transfer by a Partner holding OPIs
immediately prior to such consolidation, merger, conveyance or transfer,
assuming such Partner failed to exercise its rights of election, if any, as to
the kind or amount of partnership interests, securities, cash and other property
receivable upon such consolidation, merger, conveyance or transfer (provided
that, if the kind or amount of securities, cash and other property receivable
upon such consolidation, merger, conveyance or transfer is not the same for each
unit of Ordinary Partnership Interests in respect of which such rights of
election shall not have been exercised ("nonelecting share"), then for the
purpose of this Section the kind and amount of partnership interests, cash and
other property receivable upon such consolidation, merger, conveyance or
transfer by each nonelecting OPI shall be deemed to be the kind and amount so
receivable per share by a plurality of the nonelecting OPIs). Such agreement
shall provide for adjustments which, for events subsequent to the effective date
of such agreement, shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Article. The above provisions of this Section
shall similarly apply to successive consolidations, mergers, conveyances or
transfers. The Partnership will not become a party to any consolidation or
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<PAGE> 108
merger unless the terms of such consolidation or merger are consistent with this
Section.
SECTION 3.6. Taxes on Conversions. The Partnership will pay any
and all taxes that may be payable in respect of the issue or delivery of OPIs
on conversion of PPIs pursuant hereto.
ARTICLE IV
Subordination of PPIs
SECTION 4.1. PPIs Subordinate to All Liabilities. The PPIs shall be
subordinated and subject, to the extent and in the manner herein set forth, in
right of payment to the prior payment in full of all existing and future
liabilities of the Partnership, including without limitation: (i) certain
distributions made to partners in respect of taxes levied upon the operations of
Globalstar; (ii) distributions of the Management Fee; and (iii) guarantee fees
to be made to partners and other persons in connection with their guarantee of
the Partnership's obligations under the Globalstar Credit Agreement.
SECTION 4.2. No Payments When Liabilities in Default; Payment Over
of Proceeds upon Dissolution, etc. In the event the Partnership shall default in
the payment of any liabilities of the Partnership when the same becomes due and
payable, whether at maturity or at a date fixed for prepayment or by declaration
or otherwise, then, unless and until such default shall have been cured or
waived or shall have ceased to exist, no direct or indirect payment (in cash or
property, by setoff or otherwise) need be made or agreed to be made on account
of the PPIs (excepting cash payment for fractional interests as set forth in
Section 3.3 above).
Upon the happening of an event of default with respect to any
liability, as defined therein or in the instrument under which the same is
outstanding, permitting the holders thereof to accelerate the maturity thereof
(under circumstances when the terms of the preceding paragraph are not
applicable), unless and until such event of default shall have been cured or
waived or shall have ceased to exist, no direct or indirect payment (in cash or
property, by setoff or otherwise) need be made or may agreed to be made on
account of the PPIs (excepting cash payment for fractional interests as set
forth in Section 3.3 above).
In the event of:
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<PAGE> 109
(a) any insolvency, bankruptcy, receivership, liquidation,
reorganization, readjustment, composition or other similar proceeding relating
to the Partnership or its property;
(b) any proceeding for the liquidation, dissolution or other winding
up of the Partnership or its property;
(c) any assignment by the Partnership for the benefit of
creditors; or
(d) any other marshaling of the assets of the Partnership;
all liabilities (including any interest thereon accruing after the commencement
of any such proceedings) shall first be paid in full before any payment or
distribution (direct or indirect), whether in cash or property, by setoff or
otherwise, need be made on account of any PPIs.
SECTION 4.3. Voting Rights. Excepting as required by law, the PPIs
will not have any voting rights. Upon a Voting Rights Deferral Triggering Event,
(i) the number of members of the Committee will be increased by one and (ii) the
holders of the Preferred Stock, voting separately as a class with the holders of
any other securities upon which similar voting rights have been conferred and
are exercisable, will be entitled to elect one representative to the Committee
(the "Preferred Stock Representative"). The Preferred Stock Representative will
promptly resign upon receipt of notice from GTL that all Distribution Arrearages
with respect to the PPIs have been paid.
-11-
<PAGE> 1
AMENDMENT TO THE
LORAL SPACE & COMMUNICATIONS LTD.
1996 STOCK OPTION PLAN
The Loral Space & Communications Ltd. 1996 Stock Option Plan (the "Plan")
is hereby amended as follows:
The first sentence of Section 3 of the Plan is amended to read as
follows:
"The total number of shares of Common Stock which shall be subject
to Options granted under the Plan shall not exceed 18,000,000, subject
to adjustment as provided in Section 7 hereof."
<PAGE> 1
1
FIRST AMENDMENT
FIRST AMENDMENT, dated as of May 7, 1998 (this "Amendment"), to and of the
Amended and Restated Credit and Participation Agreement, dated as of November
14, 1997 (as amended, supplemented or otherwise modified from time to time, the
"Credit Agreement"), among LORAL SPACECOM CORPORATION (the "Borrower"), SPACE
SYSTEMS/LORAL, INC. ("SS/L"), the Banks from time to time parties thereto (the
"Banks"), ISTITUTO BANCARIO SAN PAOLO DI TORINO S.P.A. ("San Paolo"),
individually and as selling bank (in such capacity, the "Selling Bank"), BANK OF
AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION ("Bank of America"), as
administrative agent (in such capacity, the "Administrative Agent") and as
issuing bank, THE CHASE MANHATTAN BANK, as syndication agent and NATIONSBANK OF
TEXAS, N.A., as documentation agent.
W I T N E S S E T H :
WHEREAS, the Borrower has requested that the Credit Agreement be amended to
extend the period of time by which the Borrower must deliver financial
statements to the Administrative Agent, the Selling Bank and each Bank; and
WHEREAS, the Required Banks are willing to agree to such amendment;
NOW, THEREFORE, in consideration of the premises and mutual agreements
contained herein and for other valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
Section 1. Defined Terms. Unless otherwise defined herein, terms defined in
the Credit Agreement are used herein as therein defined.
Section 2. Amendment of Subsection 8.1 (Financial Statements). Subsection
8.1 of the Credit Agreement is hereby amended as follows:
(a) by deleting the reference to "90 days" in the first line of
paragraph (a) of such subsection and substituting "120 days" therefor.
(b) by deleting the phrase "45 days" in the first line of paragraph
(b) of such subsection and substituting "60 days" therefor.
Section 3. Conditions Precedent. This Amendment shall become effective as
of the date (the "Amendment Effective Date") that the Administrative Agent shall
have received counterparts of this Amendment, duly executed by the Borrower,
SS/L, the Selling Bank and the Required Banks.
Section 4. Legal Obligation. The Company represents and warrants to each
Bank that this Amendment constitutes the legal, valid and binding obligation of
the Borrower,
<PAGE> 2
2
enforceable against it in accordance with its terms, subject to the effects of
bankruptcy, insolvency, fraudulent conveyances, reorganization, moratorium and
other similar laws relating to or affecting creditors' rights generally, general
equitable principles (whether considered in a proceeding in equity or at law)
and an implied covenant of good faith and fair dealing.
Section 4. Continuing Effect. Except for the amendments expressly provided
herein, the Credit Agreement shall continue to be, and shall remain, in full
force and effect in accordance with its terms. The amendments provided herein
shall be limited precisely as drafted and shall not be construed to be an
amendment or waiver of any other provision of the Credit Agreement other than as
specifically provided herein.
Section 5. Expenses. The Borrower agrees to pay or reimburse the Agent for
all of its reasonable out-of-pocket costs and expenses incurred in connection
with the development, preparation and execution of, and any amendment,
supplement or modification to, this Amendment and any other documents prepared
in connection herewith, and the consummation of the transactions contemplated
hereby and thereby, including, without limitation, the reasonable fees and
disbursements of counsel to the Administrative Agent.
SECTION 6. GOVERNING LAW. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF
THE PARTIES UNDER THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
<PAGE> 3
3
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and delivered by their proper and duly authorized officers as of
the date first above written.
LORAL SPACECOM CORPORATION
By: /s/ Loral SpaceCom Corporation
------------------------------------------
Title:
SPACE SYSTEMS/LORAL, INC.
By: /s/Space Systems/Loral, Inc.
------------------------------------------
Title:
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION,
as Administrative Agent and as a
Bank
By: /s/Steve A. Aronowitz
------------------------------------------
Title: Managing Director
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, as Issuing Bank
By: /s/Steve A. Aronowitz
------------------------------------------
Title: Managing Director
ISTITUTO BANCARIO SAN PAOLO DI TORINO,
S.P.A.,
as Selling Bank and in its
individual capacity
By: /s/Istituto Bancario San Paolo Di
------------------------------------------
Torino, S.P.A.
Title: Vice Presidents
By:
------------------------------------------
Title:
<PAGE> 4
4
THE CHASE MANHATTAN BANK
By: /s/Richard C. Smith
------------------------------------------
Title:
NATIONSBANK OF TEXAS, N.A.
By: /s/Pamela S. Kurtzman
------------------------------------------
Title: Vice President
THE BANK OF NEW YORK
By: /s/Ken Sneider
------------------------------------------
Title: Vice President
BARCLAYS BANK PLC
By:/s/Barclays Bank PLC
------------------------------------------
Title: Director
CREDIT LYONNAIS, NEW YORK BRANCH
By: /s/Credit Lyonnais, New York Branch
------------------------------------------
Title: Vice President
<PAGE> 5
5
DEUTSCHE BANK AG, NEW YORK AND/OR
CAYMAN ISLANDS BRANCHES
By: /s/Robert Wood
------------------------------------------
Title: Director
By:/s/Susan L. Pearson
------------------------------------------
Title: Director
THE INDUSTRIAL BANK OF JAPAN, LIMITED
By: /s/The Industrial Bank of Japan, Limited
------------------------------------------
Title: Joint General Manager
MELLON BANK N.A.
By: /s/Mellon Bank N.A
------------------------------------------
Title: Senior Vice President
THE SANWA BANK, LIMITED,
NEW YORK BRANCH
By:
------------------------------------------
Title:
SOCIETE GENERALE
By: /s/Societe Generale
------------------------------------------
Title: Vice President
<PAGE> 6
6
THE SUMITOMO BANK LIMITED
By: /s/John C. Kissinger
------------------------------------------
Title: Joint General Manager
BANK OF MONTREAL
By: /s/W.T. Calder
------------------------------------------
Title: Director
THE BANK OF NOVA SCOTIA
By: /s/J. Alan Edwards
------------------------------------------
Title:
BANQUE NATIONALE DE PARIS
By: /s/Sophie Revillard Kaufman
------------------------------------------
Title: Vice President
By: /s/Gwen Abbott
------------------------------------------
Title: Assistant Vice President
BANQUE PARIBAS
By: /s/Banque Paribas
------------------------------------------
Title: Vice President
By: /s/Matthew C. Bishop
------------------------------------------
Title: Assistant Vice President
<PAGE> 7
7
BAYERISCHE LANDESBANK GIROZENTRALE
CAYMAN ISLANDS BRANCH
By: /s/Peter Oberman
------------------------------------------
Title: Senior Vice President
Manager Lending Division
By: /s/Sean O'Sullivan
------------------------------------------
Title: Vice President
CIBC INC.
By: /s/Cynthia McCahill
------------------------------------------
Title: Executive Director
CITICORP USA, INC.
By: /s/Citicorp USA, Inc.
------------------------------------------
Title: Attorney-in-Fact
FUJI BANK, LIMITED
By: /s/Fuji Bank, Limited
------------------------------------------
Title: Vice President and Manager
THE LONG-TERM CREDIT BANK OF JAPAN,
LIMITED
By: /s/Ken Yoshizaki
------------------------------------------
Title: Deputy General Manager
<PAGE> 8
8
THE MITSUBISHI TRUST AND BANKING
CORPORATION
By: /s/Scott J. Paige
------------------------------------------
Title: Senior Vice President
NATIONAL CITY BANK
By:
------------------------------------------
Title:
PNC BANK, NATIONAL ASSOCIATION
By:/s/Steffen W. Crowther
------------------------------------------
Title: Vice President
THE TOKAI BANK, LIMITED
NEW YORK BRANCH
By: /s/The Tokai Bank, Limited New York Branch
------------------------------------------
Title: Assistant General Manager
THE TOYO TRUST & BANKING CO., LTD.
By: /s/The Toyo Trust & Banking Co., Ltd.
------------------------------------------
Title: Vce President
<PAGE> 9
9
YASUDA TRUST AND BANKING COMPANY,
LIMITED
By:
------------------------------------------
Title:
<PAGE> 1
CONFORMED AS AMENDED
FIRMAMENTO MEXICANO, S. DE R.L. DE C.V.
MEMBERSHIP AGREEMENT
Amended and Restated Membership Agreement, dated and effective as of the
21st day of August, 1998, among Loral SatMex Ltd., a company organized under the
laws of the Islands of Bermuda ("Loral") and Ediciones Enigma, S.A. de C.V., a
sociedad anonima de capital variable organized under the laws of Mexico ("EE"
and, together with Loral, the "Members"), and Firmamento Mexicano, S. de R.L. de
C.V., a sociedad de responsibilidad limitada de capital variable organized under
the laws of Mexico (the "Company"). Certain terms used in this Agreement are
defined in Section 8 hereof.
R E C I T A L S
WHEREAS, the Company has been created with an authorized capital of
P$1,170,050,000, which capital is divided into voting capital represented by
Class A Social Parts and Class B Social Parts (collectively, the "Voting
Capital") and non-voting capital represented by Class N Social Parts (the
"Non-Voting Capital"). The authorized Voting Capital and Non-Voting Capital was
subscribed on November 17, 1997 by Loral and EE in the following amounts and in
exchange for issuance of the following Social Parts:
EE:
1. a Class A Social Part representing invested capital of P$25,500 and
constituting 51% of the total Voting Capital.
2. a Class N Social Part representing invested capital of P$409,492,000
and constituting 35% of the total Non-Voting Capital.
LORAL:
1. a Class B Social Part representing invested capital of P$24,500 and
constituting 49% of the total Voting Capital.
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2. a Class N Social Part representing invested capital of P$760,508,000
and constituting 65% of the total Non-Voting Capital.
WHEREAS, the Company owns all but one share of the issued and outstanding
capital stock of Servicios Corporativos Satelitales, S.A. de C.V. ("Satmex
Holdings"), which in turn owns all but two shares of the issued and outstanding
capital stock of Corporativo Satelites Mexicanos, S.A. de C.V. (the "Acquisition
Sub"). The Acquisition Sub was formed for the purpose of making the acquisition
of 75% of the equity interest of Satelites Mexicanos, S.A. de C.V. (the
"Acquisition");
WHEREAS, the amounts invested by EE and Loral in the Company have been used
to fund, through the Acquisition Sub, a portion of the purchase price payable at
the first closing of the Acquisition;
WHEREAS, the second closing of the Acquisition will occur on December 29,
1997 and in connection therewith, Loral and EE may be required pursuant to the
terms of the Financing Documents to make certain Additional Capital
Contributions to the Company; and
WHEREAS, the Members and the Company desire to promote their mutual
interests by agreeing to certain matters relating to the Additional Capital
Contribution, the operations and governance of the Company and the Companies
Entities and the disposition and voting of Social Parts.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the parties hereto hereby agree as follows:
1. ADDITIONAL CAPITAL CONTRIBUTION; SOCIAL PART CERTIFICATES
(a) Each of Loral and EE hereby agrees that if an Additional Capital
Contribution is required, then it shall, in accordance with the terms set forth
below, fund 65% and 35%, respectively, of the amount of such Additional Capital
Contribution by increasing the authorized equity capital of the Company in such
amount, which increase will be allocated among Voting Capital and Non-Voting
Capital in the same proportion as the initial funding and which increased
capital will be subscribed by Loral and EE in the same proportions as the
initial funding such that the percentage of Voting Capital and Non-Voting
Capital of each of Loral and EE remains unchanged.
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(b) Closing. The closing of any such sales and purchases shall take place
at 9:00 A.M., New York City time, on the date of the second closing of the
Acquisition, at the offices of Sanchez Mejorada Velasco y Valencia, Paseo de la
Reforma 450, Lomas de Chapultepec, 11000 Mexico, D.F., or such other location as
the Members shall mutually select.
(c) Application of Proceeds. The initial capital contribution, as well as
any Additional Capital Contribution was and shall be used to fund the
Acquisition. Such funding was and shall be effected by a contribution of the
invested capital by the Company to its Subsidiaries.
(d) Legends. The certificates evidencing the Social Parts subscribed by the
Members, will bear the legend set forth in Section 5(d) and the following legend
reflecting the restrictions on the transfer of such interests contained in this
Agreement:
"The Social Parts evidenced hereby are subject to the terms of that
certain Membership Agreement dated and effective as of November 17, 1997,
by and among the Company and certain Members identified therein, including
certain restrictions on transfer. A copy of this Agreement is available
upon request to the Company."
2. GOVERNANCE
(a) Election of Directors. The Members and the Company shall take all
action within their respective power, including, but not limited to, the voting
of all Voting Capital owned by them to cause the Board of Directors of the
Company to consist of five (5) members or such other odd number as the Members
may from time to time establish (the "Authorized Number"), which shall at all
times throughout the term of this Agreement (except as set forth in Section 4(e)
hereof) be comprised of (i) directors equal to a simple majority of the
Authorized Number and holding a simple majority of the votes entitled to be cast
by directors at any meeting of the Board, each such director to be designated by
EE (each, an "EE Director"), and (ii) the remaining director(s) to be designated
by Loral (each, a "Loral Director"). For so long as EE designates the majority
of directors of the Board of the Company pursuant to the foregoing sentence, EE
shall nominate the Chairman of the Board of the Company and the Members agree
that they shall take all action within their respective
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power to elect such nominee. For so long as EE designates the Chairman of the
Board of the Company, Loral shall have the right to nominate the Secretary of
the Board (and his alternate) and the Members agree that they shall take all
action within their respective power to elect such nominee, which Secretary
shall not be a member of the Board for any purpose and shall not count as a
Loral Director. The Company shall cause the Board of Directors of SatMex and any
other direct or indirect subsidiary of the Company to be constituted in an
identical manner unless determined otherwise by the Board of Directors of the
Company by a Consensus Vote provided that the Board of Directors of SatMex shall
have such additional directors (not appointed by either Loral or EE) as may be
required pursuant to Mexican law or the by-laws of SatMex. Each of Loral and EE
shall have the authority to designate alternate directors (each a "Designated
Alternate") to substitute for the Loral Directors or EE Directors, as the case
may be, in accordance with the bylaws of the Company Entities. As of the date
hereof, the Board of each Company Entity (as defined below) shall consist of
those persons set forth on Schedule I hereto.
(b) Replacement Directors. Each Loral Director or EE Director is subject to
removal at any time for any reason or for no reason by the Member who designated
him or her. If, at any time, a vacancy is created on the Board of any Company
Entity by reason of the death, removal or resignation of any Loral Director or
EE Director, the Member who designated such director shall, within five days
after the date such vacancy first occurs, take such action as is reasonably
necessary, including the voting of all Voting Capital held by it, to elect a
director or directors designated in accordance with Section 2(a) hereof to fill
such vacancy or vacancies; provided, that during such five day period following
the creation of the vacancy, the Board of such Company Entity shall not transact
any other business except by Consensus Vote. Each Member agrees that it will
vote or execute a written consent with respect to all of its Voting Capital to
effectuate the intent of this Section 2(b).
(c) Quorum; Required Vote. A quorum of any meeting of the Board of any
Company Entity shall require the presence of a majority of the Board, which
shall include at least one Loral Director and one EE Director. No action at any
meeting may be taken by the Board unless a quorum is present and notice therefor
(setting forth all actions to be taken at such meeting) is duly given at least
five business days before the date of the meeting (or unless duly waived by the
directors in accordance with the by-laws). No resolution, action or decision
required or permitted to be taken, adopted or made by the Board of any Company
Entity shall be so taken, adopted or made without a vote of the majority of all
directors present, provided that if the matter being considered is an
Extraordinary Matter, the approval of at least one Loral Director and one EE
Director shall be
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<PAGE> 5
required (a "Consensus Vote"). Any such resolution, action or decision may also
be taken, adopted or made by unanimous written consent.
(d) Mutual Approvals Required for Certain Action. A Consensus Vote, or if
the matter requires approval by shareholders or members under Mexican law or the
by-laws of the Company Entities, the approval of each Member, shall be required
to approve and authorize any of the following matters with respect to any
Company Entity (each, an "Extraordinary Matter"):
(i) New Line of Business. Engagement by the Company Entities in any
business other than that conducted on the date hereof or as set forth in
the Business Plan and any business directly related to such business, in
each case, as such business or businesses may, from time to time develop,
provided, that such related business or developed business does not
constitute a material change in the nature of the business of the Company
Entities as it is conducted on the date hereof or as set forth in the
Business Plan.
(ii) Transfer of Material Assets. Sell, lease (as lessor), transfer,
mortgage, assign, pledge, exchange or otherwise dispose of all or
substantially all of the assets of any of the Company Entities.
(iii) Merger or Liquidation. Approve any transaction or merger,
consolidation, amalgamation, recapitalization or other form of business
combination, or any liquidation, winding up or dissolution of any of the
Company Entities or any other transaction in which a Company Entity is not
the surviving entity.
(iv) Voluntary Bankruptcy. Commence a voluntary case under the
applicable Mexican bankruptcy code, as now or hereafter in effect, or any
successor thereto, or any other proceeding under any reorganization,
arrangement, adjustment of debt, relief of debtors, dissolution,
insolvency, liquidation or similar law under any other jurisdiction or make
a general assignment for the benefit of creditors.
(v) Organizational Documents. Amend in any material manner the
articles of incorporation or by-laws or organizational documents of any of
the Company Entities, except as contemplated in the SatMex Stock Purchase
Agreement.
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(vi) Adoption of or Amendments to the Business Plan. Adopt or amend in
any material manner the Business Plan.
(vii) Dividends and Distributions; Redemption and Repurchase; Dividend
Policy. Declare or pay any dividends or distributions (other than (i) to
the Company or (ii) in the case of SatMex, in accordance with the SatMex
Dividend Policy) or repurchase or redeem any equity securities of any of
the Company Entities except as set forth in Section 4(f). Amend in any
manner the SatMex Dividend Policy.
(viii) Affiliated Parties. Enter into or engage in transactions with
entities directly or indirectly, controlling, controlled by or under common
control of either of the Members other than the Permitted Transactions. For
such purposes, "control" shall mean the direct or indirect possession of
the power to direct or cause the direction of the management and policies
of a Person, whether through the ownership of Voting Control, by contract
or otherwise.
(ix) Significant Decisions. Any Significant Decision.
(x) Budget. The adoption by the Company Entities of a Budget, as more
fully described in Section 2(f).
(xi) Capital Expenditures and Certain Actions. Except as provided in
any Budget approved by a Consensus Vote, (i) any individual or series of
related expenditures, commitments, obligations or agreements by any Company
Entity in excess of US$1,000,000 or (ii) any commitment, arrangement or
agreement outside of the ordinary course of business of the Company
Entities, including without limitation entering into any joint venture or
strategic alliances or partnerships.
(xii) Incurrence or Payment of Indebtedness. Create, incur, guarantee,
assume, refinance or pre-pay indebtedness of any Company Entities outside
of the ordinary course of business except for the indebtedness contemplated
by the Business Plan, the Bridge Note Commitment Letter, the Facility
Commitment Letter, the Interim Facility, the Fixed Rate Financing and the
Government Obligations and any refinancing of any of the foregoing.
(xiii) Acquisitions. The direct or indirect loan or advance to, any
acquisition of any business, assets, capital stock, equity interest or
other security of, or other
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investment in, any Person or Persons, in each case, by any Company Entity,
in any transaction or in any series of related transactions, that involve
or could reasonably be valued in excess of US$1,000,000, except for the
transactions contemplated under the SatMex Stock Purchase Agreement.
(xiv) Issuance of Securities. Approve any issuance of equity
securities or any other security convertible, exercisable or exchangeable
into equity securities of any Company Entity (other than to the Company or
as contemplated in the Business Plan), including any option, warrant, put,
call or other arrangement of any kind to purchase or otherwise receive from
any Company Entity (other than to the Company or as contemplated in the
Business Plan) any such securities outside of the ordinary course of
business, except for (i) the issuance of warrants in connection with the
High Yield Financing or as contemplated in the Bridge Commitment Letter and
(ii) the issuance of securities pursuant to an employee stock option plan
or similar plan adopted pursuant to a Consensus Vote in accordance with
Section 2(d)(xix).
(xv) Appointment, Suspension or Removal of Senior Officers;
Compensation. Except as set forth in Section 2(h), any appointment,
suspension or removal of any person who is, or upon appointment would be, a
senior executive officer of any of the Company Entities and the
determination of the compensation in respect of any such senior executive
officer.
(xvi) Engagement of Accountants. The engagement or dismissal of
independent public accountants, whether in connection with an audit of the
financial statements of the Company Entities or otherwise.
(xvii) Accounting and Tax. Establish or modify the accounting or tax
methods, practices, procedures or policies of the Company Entities except
as required by law or generally accepted accounting principles.
(xviii) Litigation and Arbitration. Commence any litigation or
arbitration that pertains to any of the Company Entities or assets of any
of the Company Entities or the settlement or any other material decision
relating to a litigation, arbitration, governmental investigation or other
proceeding, with a potential claim for damages in excess of US$1,000,000.
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<PAGE> 8
(xix) Employee Benefit Plans. Adopt, amend or make any grants pursuant
to any employee benefit or stock option plans.
(xx) Transfer of Telecommunications Licenses. Sell, lease (as lessor),
transfer, mortgage, assign, pledge, exchange or otherwise dispose of the
telecommunications licenses of the Company Entities, except as contemplated
under the Facility Commitment Letter.
(xxi) Certain Agreements. The entry into any agreement or arrangement
to do any of the foregoing.
(e) Management and Operating Decisions. The day and day management and
operation of SatMex, including the taking of such actions as may be necessary to
implement the Business Plan, shall be vested in the Chief Executive Officer and
the Chief Operating Officer of SatMex who shall have authority to approve all
decisions related thereto; provided, however, that any decision that would
impact the Operating Cash Flow, as set forth in the Business Plan, by more than
10% or US$10 million (a "Significant Decision") shall be approved by a Consensus
Vote of the Board of Directors as set forth in Section 2(d)(ix) above. The Chief
Operating Officer shall report to the Chief Executive Officer of SatMex and the
Executive Committee of SatMex and shall serve as Chief Executive Officer of
SatMex during any period in which there is a vacancy in the position of Chief
Executive Officer.
(f) Budget Approval. (i) The Members shall consider and, if agreement is
reached, shall adopt and approve at least once each fiscal year, a budget for
the successive fiscal year. If any proposed budget, or any material amendment
thereto, is not approved by a Consensus Vote, then the last budget so approved
by the Members shall be extended as described below (the "Carry-Over Budget"),
until approval is received from by Consensus Vote.
(ii) The Carry-Over Budget shall provide for (x) adjustments for the
greater of five percent (5%) per annum or the increase in the Consumer Price
Index in effect for the period in question, (y) any additional increases
necessary to meet (A) any payment escalation provisions of any authorized
contractual commitments of the Company Entities, or (B) any authorized
contractual commitments of the Company Entities, in either case to the extent
such contractual commitments shall have been previously approved by the Members
or by a Consensus Vote to the extent required by the provisions hereof or the
provisions of the By-laws or the Membership Agreement and (z) if any material
items set
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<PAGE> 9
forth in the Budget shall be denominated in Pesos, a method for adjusting any
peso denominated amounts in the event of a material fluctuation in the
Peso-Dollar exchange rate.
(g) Appointment of Officers.
(i) Each Member and the Company hereby agrees to take such action as may be
necessary to appoint as officers to SatMex, effective as of the date hereof, as
follows: (A) as Chief Executive Officer, such individual as Loral and EE shall
mutually agree and who shall be a Mexican national, (B) as Chief Operating
Officer, such individual as may be designated by Loral, with the approval of EE,
which approval shall not be unreasonably withheld and (C) as all other executive
officers, such individuals as Loral and EE shall mutually agree. Schedule II
hereto sets forth the officers of SatMex as of the date hereof.
(ii) Each Member and the Company hereby agrees to take such action as may
be necessary to appoint as officers to the Company, effective as of the date
hereof, as follows: (i) as President, such individual as may be designated by
EE, with the approval of Loral, which approval shall not be unreasonably
withheld, (ii) as Chief Executive Officer, such individual as may be designated
by Loral, with the approval of EE, which approval shall not be unreasonably
withheld, (iii) as Chief Operating Officer, such individual as may be designated
by Loral, with the approval of EE, which approval shall not be unreasonably
withheld and (iv) as Chief Financial Officer, such individual as may be
designated by EE, with the approval of Loral, which approval shall not be
unreasonably withheld. Schedule II hereto sets forth the officers of the Company
as of the date hereof.
(iii) The officers of all other Company Entities shall be appointed by
their respective Board of Directors, if the members agree that they are needed.
(h) Removal of Officers. The officers of SatMex shall be removed as
follows: (i) the Chief Executive Officer, by either EE or Loral, (ii) the Chief
Operating Officer, by Loral or by the Executive Committee if removal of such
officer was recommended to the Executive Committee by the Chief Executive
Officer and such recommendation was approved by the Executive Committee and
(iii) all other executive officers, by either EE or Loral or by the Executive
Committee if removal of such officer was recommended to the Executive Committee
by either the Chief Executive Officer or Chief Operating Officer and such
recommendation was approved by
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<PAGE> 10
the Executive Committee. The officers of the Company shall be removed as
follows: (i) the President and Chief Financial Officer, by EE and (ii) the Chief
Executive Officer and Chief Operating Officer, by Loral. Each Member and the
Company hereby agrees to take such action as may be necessary to effect all such
removal and to appoint any successor to fill any vacancy resulting from such
removal or from the death or resignation of any officer in accordance with
Section 2(g) above.
(i) Executive Committee. Each of the Members and the Company agrees to take
such action as shall be necessary to create an Executive Committee of the Board
of Directors of the Company and SatMex, which Executive Committee shall be
composed of one Loral Director and one EE Director. Schedule I hereto sets forth
the members of the Executive Committees as of the date hereof. The Executive
Committees shall be authorized to take action on all matters, including
Extraordinary Matters that may be authorized by the Board of Directors under
this Agreement or otherwise. Each of Loral and EE shall be authorized to
designate an alternate director to substitute for the Loral Director and EE
Director, as the case may be, on each Executive Committee (each an "Executive
Committee Alternate"). Schedule I hereto sets forth the Executive Committee
Alternates as of the date hereof.
(j) Certain Actions of SatMex Board. Each of Loral and EE shall use its
reasonable best efforts to cause the directors of the Board of SatMex designated
by Loral or EE, as the case may be, to vote in favor of any action relating to
SatMex previously approved by the Board of the Company.
(k) By-laws. The Members and the Company shall cause the provisions of this
Section 2 to be included in the by-laws of each of the Company Entities, as
applicable.
3. DEADLOCK
(a) Proposal. If either Loral or EE proposes a capital expenditure (the
"Proposing Member") in excess of US$1 million not provided for in the Business
Plan, but such expenditure is within the existing line of business of the
Company as described in Section 2(d)(i) (the "Proposal"), the Proposing Member
shall send to the other Member written notice of its intent to effect such a
capital expenditure and if within ten Business Days following receipt of such
notice such expenditure is opposed in writing by the other Member (the
"Objection"), the Proposing Member may, notwithstanding the provisions of
Section 2(d)(xi), implement the Proposal, and the other member (the "Opposing
Member") shall vote its Social Parts and otherwise cooperate to
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<PAGE> 11
implement the Proposal, provided that the Opposing Member shall have the option,
exercisable by delivering to the Proposing Member written notice of its intent
to exercise its option under this Section 3(a), within 60 days after the date of
the Objection, to sell to the Proposing Member, and the Proposing Member shall
be required to purchase, all of the Social Parts of the Company held by the
Opposing Member and its Affiliates for Fair Market Value (as defined in Section
3(d)) as of the end of the fiscal quarter immediately preceding the date the
Proposal was made. If the Opposing Member is EE and it elects to exercise its
rights under this Section 3(a), Loral may, in its sole discretion, elect to
assign the right to purchase the Social Parts of the Company owned by EE to a
Qualified Mexican Person at a price negotiated with such buyer, provided that in
no event shall EE receive for its Social Parts less than the Fair Market Value
as of the end of the fiscal quarter immediately preceding the date the Proposal
was made.
(b) EE Action. If EE causes any of the Company Entities to take any
material action not explicitly provided for in the Business Plan and Loral
opposes such action in writing within ten (10) Business Days from the day it
first becomes aware of such material action, then Loral, in its sole discretion,
shall have the option to provide EE with a written notice (the "Opposition
Notice") stating its opposition to the action and the reason it is material and
that the failure to cure such action within twenty days after receipt of the
Opposition Notice shall give rise to its option under this Section 3(b). No such
action shall be deemed material if it would not require a Consensus Vote or if
it does not involve the expenditure or incurrence of obligations in excess of US
$1 million. If EE does not cure such action within twenty days after receipt of
the Opposition Notice, Loral shall have the option, exercisable by delivering to
EE written notice of its intent to exercise its option under this Section 3(b)
within 60 days of the date of the Opposition Notice, to either: (i) sell to EE,
and EE shall be required to purchase, all of the Social Parts of the Company
held by Loral and its Affiliates at a price equal to 120% of the Fair Market
Value of such Social Parts as of the end of the fiscal quarter immediately
preceding the date such action was taken, or (ii) purchase from EE and EE shall
be required to sell, all of the Social Parts of the Company held by EE and its
Affiliates for cash in an amount equal to the Fair Market Value of such Social
Parts as of the end of the fiscal quarter immediately preceding the date such
action was taken, provided that such exercise shall be conditioned upon Loral
identifying a Qualified Mexican Person willing to purchase
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the Social Parts of the Company owned by EE and its Affiliates at such Fair
Market Value.
(c) Loral Inaction. If Loral fails to approve any material matter which
requires a Loral vote and which is provided for in the Business Plan and EE
approves such a matter and has given Loral written notice (the "Warning Notice")
that such failure to approve the matter gives rise to its option under this
Section 3(c), then unless Loral grants such approval within twenty (20) days
after receipt of such notice, then EE shall have the option, exercisable by
delivering to Loral written notice of its intent to exercise its option under
this Section 3(c) within sixty (60) days of the date of such notice, to either:
(i) sell to Loral, and Loral shall be required to purchase, all of the Social
Parts of the Company held by EE and its Affiliates at a price equal to 120% of
the Fair Market Value of such Social Parts as of the end of the fiscal quarter
immediately preceding the date of the Warning Notice, as (ii) purchase from
Loral and Loral shall be required to sell, all of the Social Parts of the
Company held by Loral and its Affiliates for cash in an amount equal to the Fair
Market Value of such Social Parts as of the end of the fiscal quarter
immediately preceding the date of the Warning Notice. No such action will be
deemed material if it would not require a Consensus Vote or if it does not
involve the expenditure or incurrence of obligations in excess of US $1 million.
(d) Determination of Fair Market Value. The determination of the fair
market value (the "Fair Market Value") of the Social Parts described in Section
3(a) - 3(c) above shall be made in accordance with this Section 3(d). Promptly
upon receipt by a Member of a call or put notice, as the case may be, under
Sections 3(a), 3(b) or 3(c) above, each Member shall promptly appoint as an
appraiser an internationally-recognized investment banking firm (a "recognized
investment banking firm"). Each appraiser shall, within thirty (30) days of
appointment, separately investigate the value of the Social Parts to be
purchased or sold, as the case may be, as of the proposed transfer date and
shall submit a notice of an appraisal of that value to each Member. If the
appraised values of such consideration (the "Earlier Appraisals") vary by less
than ten percent (10%), the average of the two appraisals on a per unit basis
shall be controlling as the fair market value. If the appraised values vary by
more than ten percent (10%), the appraisers, within ten (10) days of the
submission of the last appraisal, shall appoint a third appraiser which shall be
a recognized investment banking firm. The third appraiser shall, within thirty
(30) days of its appointment, appraise the fair market value of the Social Parts
in question as of the proposed
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transfer date and submit notice of its appraisal to each Member. The value
determined by the third appraiser shall be controlling as the fair market value
of the Social Parts unless the value is greater than the two Earlier Appraisals,
in which case the higher of the two Earlier Appraisals will control, and unless
the value is lower than the two Earlier Appraisals, in which case the lower of
the two Earlier Appraisals will control. If any Member fails to appoint an
appraiser or if one of the two initial appraisers fails after appointment to
submit its appraisal within the required period, the appraisal submitted by the
remaining appraiser shall be controlling. Each Member shall bear the cost of its
respective appointed appraiser. The cost of the third appraisal shall be shared
equally between the Members.
(e) Closing. Within the later of 30 days after the date on which the fair
market value of the Social Parts is finally determined pursuant to Section 3(d),
the Member selling the Social Parts, whether pursuant to a call or a put option,
as the case may be, shall convey to the purchasing Member all of the Social
Parts then held by it or its Affiliates, free and clear of all liens, claims and
encumbrances, and the purchasing Member shall deliver cash to the selling Member
equal to the appropriate amount in consideration therefor, at a closing to be
held at the offices of the Company or at such other place as shall be agreed to
by the Members.
4. TRANSFER OF STOCK
(a) Resale of Social Parts. No Member shall Transfer any Social Parts other
than in accordance with the provisions of this Section 4. Any Transfer or
purported Transfer made in violation of this Section 4 shall be null and void
and of no effect.
(b) Rights of First Offer.
(i) If a Member proposes to Transfer any of the Social Parts owned by it
other than in a Permitted Transfer, then the Member desiring to make the
Transfer (hereinafter referred to as the "Transferor") must first make the offer
to sell the Social Parts to the other Member (the "Other Member").
(ii) Offer by Transferor. Copies of the Transferor's offer shall be given
to the Other Member and shall consist of an offer to sell to the Other Member,
for cash, all of the Social Parts then proposed to be transferred by the
Transferor (the "Subject Social Parts") upon customary terms and conditions,
representations,
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warranties and covenants, at a cash price designated by the Transferor (the
"Stated Price").
(iii) Acceptance of Offer. Within twenty (20) days after the receipt of the
offer described in Section 4(b)(ii), the Other Member may, at its option, elect
to purchase all, but not less than all, of the Subject Social Parts for the
Stated Price on the terms and conditions set forth in such offer. The Other
Member shall exercise such option by giving notice to the Transferor, in which
event the notice required to be given by the purchasing party (the "Purchaser")
shall specify a date for the closing of the purchase which shall not be more
than thirty (30) days after the date of the giving of such notice. If the Other
Member does not accept the offer by the twentieth day following the date the
offer was received, it shall be deemed to have waived all its rights under this
Section 4(b)(iii) with respect to such offer.
(iv) Closing of Purchase. The closing of the purchase shall take place at
the office of the Company or such other location as shall be mutually agreeable
and the Stated Price shall be paid at the closing. At the closing, the
Transferor shall cause the Company to deliver to the Purchaser new certificates
evidencing the Subject Social Parts to be conveyed.
(v) Release from Restriction; Termination of Rights. If the offer to sell
is not accepted by the Other Member, the Transferor shall be free for six months
following the period described in Section 4(b)(iii) above to solicit offers for
the Social Parts, provided that (A) the Transferor shall not offer or sell the
Social Parts at a price that is less than 98% of the Stated Price, and if the
sale to the third party is other than entirely for cash, the Transferor shall
certify to the other Member as to the cash value of any noncash consideration,
(B) such Transfer shall be made only in strict accordance with the other terms
of the offer described in Section 4(b)(ii) and (C) the transferee agrees, in
writing, to be bound by the provisions of this Agreement. In the event that the
Transferor shall have failed to effect a sale of the Social Parts in compliance
with the requirements of (A), (B) and (C) above in the six month period provided
herein or shall have offered the Social Parts to third parties at a price that
is less than 98% of the Stated Price, the restrictions provided for herein shall
again become effective, and no transfer of Social Parts may be made thereafter
without again offering
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<PAGE> 15
the same in accordance with this Section 4(b). Any purported transfer of the
Social Parts which contravenes any of this Section 4(b)(v) shall be deemed null
and void.
(vi) Assignment by Loral. The parties hereto agree that if EE is the
Transferor, Loral shall be free to assign its rights under this Section 4(b) to
a Qualified Mexican Person upon written notice to EE of its intent to do so,
which notice shall state the name and address of the Qualified Mexican Person,
and following the date of such notice, the Qualified Mexican Person shall be
treated as the Other Member for all purposes of this Section 4(b).
(vii) Limitations. The provisions of this Section 4(b) shall not apply to
sales by Tag-Along Holders (as defined below) pursuant to Section 4(c) hereof.
(c) Tag-Along Rights.
(i) In the event any Member intends to Transfer any or all of its Social
Parts (excluding a Permitted Transfer but including Transfers made to third
parties pursuant to Section 4(b)(v)), such Member (the "Selling Member") shall
notify the other Member (the "Tag-Along Holder"), in writing, of such proposed
Transfer, the name of the third party and its terms and conditions. Within
twenty (20) days of the date of such notice, the Tag-Along Member shall notify
the Selling Member if it elects to participate in such Transfer. If the
Tag-Along Holder fails to notify the Selling Member within such twenty (20) day
period, it shall be deemed to have waived its rights hereunder. Upon
notification by the Tag-Along Holder of its intent to exercise its rights under
this Section 4(c), the Tag-Along Holder shall have the right to sell, at the
same price and on the same terms and conditions as the Selling Member, an amount
of Social Parts equal to the Social Parts the third party actually proposes to
purchase multiplied by a fraction, the numerator of which shall be the number of
Social Parts issued and owned by the Tag-Along Holder and the denominator of
which shall be the aggregate number of Social Parts issued and owned by the
Selling Member and the Tag-Along Holder. The Selling Member agrees that, in such
event, it will reduce the amount of Social Parts to be sold by it to such third
party by a corresponding amount. If, however, the Selling Member proposes to
sell all of its Social Parts and the third party shall have agreed to purchase
all the Social Parts held by the Selling Member and the Tag-Along Holder, the
Tag-Along Holder shall have the
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<PAGE> 16
right to sell at the same price and on the same terms and conditions as the
Selling Member all of its Social Parts.
(ii) Notwithstanding anything contained in this Section 4(c), in the event
that all or a portion of the purchase price consists of securities and the sale
of such securities to the Tag-Along Holder would require either a registration
under the Securities Act or the preparation of a disclosure document pursuant to
Regulation D under the Securities Act (or any successor regulation) or a similar
provision of any jurisdiction's securities law (and such sale would not
otherwise have been registered under the Securities Act), then, at the option of
the Selling Member, the Tag-Along Holder may receive, in lieu of such
securities, the fair market value of such securities in cash, as may be
determined (A) in the case of publicly traded securities, by calculating the
average of the reported closing market prices per share of such securities for
the 10 consecutive trading days ending on the fifth trading day prior to the
closing date for such Transfer, (B) in the case of non-publicly traded
securities, as determined by a nationally recognized investment banking firm
appointed by a Consensus Vote, or (C) in such other manner as may be determined
by a Consensus Vote of the Board of Directors of the Company.
(d) Minimum Holdings. EE hereby agrees that without the prior written
consent of Loral, it shall not Transfer any of its Social Parts, if immediately
following such Transfer, the direct and indirect ownership in the Company then
held by Qualified Mexican Persons is reduced to less than the number of Social
Parts required to be held by a Qualified Mexican Person under Mexican law.
(e) Amendments to Applicable Mexican Law. Should the applicable Mexican law
be amended to allow Persons not organized under the laws of Mexico to hold a
majority of the voting securities of SatMex and the Company, the parties hereto
shall promptly take action to (i) amend the designation of the Class N Social
Parts to convert them into voting securities and (ii) amend the provisions of
Section 2(a)(i) to provide that the majority of the Board of Directors of the
Company Entities shall be designated by the Person holding a majority of the
Social Parts then outstanding. In addition, if so requested by EE at its option,
Loral shall thereafter negotiate in good faith with EE to exchange all Social
Parts in the Company held by EE and its Affiliates (the "EE Social Parts") for
common stock, par value US$.01 per share, of Loral Space & Communications Ltd.
(the
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<PAGE> 17
"Loral Common Stock"), based upon an appraisal of the fair market value of the
EE Social Parts in accordance with the provisions of Section 3(d).
(f) Redemption of Social Parts. At the request of either Loral or EE (the
"Requesting Member"), the Company shall sell such number of shares of common
stock (the "SatMex Equivalent Shares") of SatMex held by the Company as shall
correspond to the indirect interest in SatMex represented by the Social Parts
proposed to the Transferred by the Requesting Member. The Company shall promptly
thereafter use the proceeds of such sale to redeem from the Requesting Member
the applicable number of Social Parts requested to be Transferred by the
Requesting Member. Notwithstanding the provisions of this Section 4(f), the sale
of the SatMex Equivalent Shares shall (A) be made in compliance with any
applicable restrictions under the Ley General de Sociedades Mercantiles, or any
other applicable law, and (B) remain subject to the provisions of Section 4(a)
through 4(c) as if they were Social Parts proposed to be Transferred by a
Member.
(g) Sale of Member. A Member, substantially all of the assets of which
shall consist of Social Parts, shall not offer to sell its securities, or permit
its securities to be sold, to another party if such sale would result in a
Change of Control of such Member until and unless such Member shall have first
made a right of first offer with respect to such securities to the other Member
in the same manner as that set forth in Section 4(b) above.
5. CERTAIN COVENANTS OF THE PARTIES
(a) Expenses and Indemnification. Each of Loral and EE agrees to cause the
Company Entities to pay the fees and expenses incurred by the lenders under the
Commitment Letters, and to provide indemnification to the lenders as set forth
therein. In the event that the Company Entities shall be unable for whatever
reason, to provide such expense reimbursement or indemnification, then Loral and
EE, severally, agree to assume the obligations to pay such expenses or provide
such indemnity, as the case may be, in the following proportion: Loral 65% and
EE 35%.
(b) The Members shall cause SatMex to: (i) enter into a management services
agreement with each of Loral and EE or their respective Affiliates substantially
in the form set forth as Exhibit A hereto (the "Management Services Agreement");
(ii) enter into a license agreement with Loral or its Affiliates substantially
in the form set forth as Exhibit B hereto (the "IP Agreement") and (iii) adopt a
marketing policy submitted by
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<PAGE> 18
Loral, which policy shall be consistent with the guidelines set forth in the
definitive prospectus relating to the exchange offer of SatMex's 10 1/8% Senior
Notes due 2004 and approved by EE (the "Marketing Policy"). The Members hereby
agree that they shall not amend, or cause SatMex to amend, any of the Management
Services Agreement, the IP Agreement or the Marketing Policy without the consent
of Loral and EE.
(c) Tax Considerations. Each of Loral and EE agrees that, at the request of
either Member, it shall execute and deliver any documents necessary for the
Company or any Company Entity to be treated as a partnership to the extent
permitted for United States federal income tax purposes, provided that such
designation shall not adversely effect the other Member or any Company Entity.
(d) Application of (Mexican) General Business Entities Act. Each of Loral,
EE and the Company covenants and agrees, and each party hereto acknowledges that
each other party hereto is entering into this Agreement in reliance on, the
following:
(i) that any and all rights that the parties hereto may have under
Articles 38 and 42 of the General Business Entities Act (or any successor
provisions) are hereby expressly waived;
(ii) that the events of rescission provided for in Article 50 of the
General Business Entities Act (or any successor provisions) shall not be
actionable by the parties hereto and shall not apply to the Company except
as may be expressly provided for in this Agreement or in the by-laws of the
Company; and
(iii) any attempt by any party hereto to exercise or invoke any of the
provisions of Articles 15, 38, 42 or 50 of the General Business Entities
Act (or any successor provisions) other than as expressly provided for
herein or in the by-laws of the Company shall be void and shall constitute
a material breach of this Agreement by such party which will be actionable
by any other party.
The Company covenants and agrees that each certificate evidencing Social
Parts or other instrument issued by the Company which represents or evidences an
interest in Social Parts shall bear a legend to the foregoing effect.
(e) Loral hereby agrees that, without the prior written consent of EE after
full disclosure of all material facts and
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<PAGE> 19
circumstances, it will not knowingly permit any Company Entity to take any
action or adopt any policy that would discriminate unfairly against any Company
Entity in favor of Loral or any of its other Affiliates in any material respect,
including, without limitation, marketing policies applicable to areas in which
any Company Entity competes with Loral or such Affiliate.
6. WARRANTIES AND REPRESENTATIONS OF THE MEMBERS
Each Member severally, represents to the other Member that:
(a) Corporate Existence and Power. Such Member (a) is duly organized
and validly existing under the laws of the jurisdiction of its organization
and (b) has the corporate power and authority to execute, deliver and
perform its obligations under this Agreement. Such Member is duly qualified
to do business as a corporation in each jurisdiction in which the conduct
of its business or the nature of the property owned by it requires such
qualification except where the failure to so qualify would not have a
material adverse effect on such Member.
(b) Authorization. This Agreement constitutes the valid and binding
obligation of such Member, enforceable against such Member in accordance
with its terms, except to the extent that enforceability thereof may be
limited by bankruptcy, insolvency, reorganization, moratorium, fraudulent
transfer and other similar laws affecting creditors' rights and remedies
generally from time to time in effect. The execution, delivery, and
performance of this Agreement have been duly authorized by all necessary
action on the part of such Member.
(c) No Contravention. The execution, delivery and performance by such
Member of this Agreement and the transactions contemplated hereby (a) do
not contravene the terms of the charter, by-laws or other organizational
documents of such Member, (b) do not violate, conflict with or result in
any breach or contravention of, or the creation of any lien under, any
indenture, mortgage, deed of trust, credit agreement or other agreement to
which such Member is party or to which its properties may be bound and (c)
do not violate any provisions of applicable law.
(d) Governmental Authorization; Third Party Consents. No approval,
consent, exemption, authorization or other action by, or notice to, or
filing with, any governmental authority or any other Person in respect of
any requirement of law or any requirement of contract or otherwise, and no
lapse of a waiting
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<PAGE> 20
period under any requirement of law, is necessary or required in connection
with the execution, delivery or performance by such Member, or the
enforcement against such Member, of this Agreement, or the transactions
contemplated hereby.
(e) Investment for Own Account. Such Member is acquiring the Social
Parts purchased hereunder for its own account for investment and not with a
view towards the resale, transfer or distribution thereof, nor with any
present intention of distributing such Social Parts. Except as set forth in
this Agreement, no other Person has any right with respect to or interest
in the Social Parts to be purchased by such Member, nor has the Member
agreed to give any Person any such interest or right in the future.
(f) Offering Exemption. Such Member understands that the Social Parts
being purchased by it hereunder have not been registered under the
Securities Act, nor qualified under any state securities laws, and that
they are being offered and sold pursuant to an exemption from such
registration and qualification based in part upon the representations of
the Members contained herein.
7. INTERPRETATION OF THIS AGREEMENT
(a) Terms Defined. As used in this Agreement, the following terms have
the respective meaning set forth below:
Acquisition: has the meaning set forth in the recitals hereto.
Acquisition Sub: has the meaning set forth in the recitals
hereto.
Additional Capital Contribution: shall mean any additional equity
contribution that may be required to be funded by Acquisition Sub as a
condition precedent to the closing of the Credit Agreement or the
Bridge Securities Purchase Agreement.
Affiliate: means any Person or entity, directly or indirectly
controlling, controlled by or under common control with such Person or
entity.
Bridge Note Commitment Letter: shall mean that certain commitment
letter, dated as of November 17, 1997, by and between Loral Space &
Communications Ltd. and Telefonica Autrey, S.A. de C.V., on the one
hand, and DLJ Bridge Finance, Inc. and LB I
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<PAGE> 21
Group Inc., on the other hand, with respect to the financing of
certain bridge securities, in the amount of up to US$270 million.
Bridge Securities Purchase Agreement: shall mean the definitive
securities purchase agreement entered into in connection with the
Bridge Note Commitment Letter.
Business Plan: shall mean the business plan dated January 23,
1998 agreed upon by Loral and EE in connection with the Acquisition.
Change of Control: shall mean the acquisition of a majority of
the voting stock or analogous equity interest of a Member by a party
other than an Affiliate of such Member.
Closing Date: shall have the meaning set forth in Section 1(c).
Concession Agreements: The Agreements dated October 23, 1997
entered into between SetMex and the Mexican Government relating to
geostationary orbital positions located at 116.8(Degree)W,
109.2(Degree)W and 113.0(Degree)W.
Concession Subsidiary: shall mean a subsidiary of the Company
formed for the purpose of applying for, and holding, a license from
the Mexican Government to provide satellite transmission services
directly to end-users.
Consumer Price Index: shall mean the Bureau of Labor Statistics
Consumer Price Index, Subgroup "Urban Consumers (Revised)" for the
United States as published by the United States Department of Labor.
Commitment Letters: shall mean collectively, the Bridge Note
Commitment Letter and the Facility Commitment Letter.
Company Entities: shall mean the Company, SatMex and their
respective subsidiaries provided that if the Board of Directors of the
Company shall determine by a Consensus Vote under Section 2(a)(i) that
the board of directors of any subsidiary (other than SatMex) need not
be identical to that of the Board of Directors of the Company, then
such subsidiary shall not be deemed to be a Company Entity for
purposes of Section 2 (a)-(d).
Consensus Vote: shall have the meaning set forth in Section 2(c).
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<PAGE> 22
Credit Agreement: shall mean the definitive credit agreement
entered into in connection with the Facility Commitment Letter.
Earlier Appraisals: shall have the meaning set forth in Section
3(d).
Extraordinary Matter: shall have the meaning set forth in Section
2(d).
Facility Commitment Letter: shall mean that certain commitment
letter, dated as of November 17, 1997, by and between Loral Space &
Communications Ltd. and Telefonica Autrey, S.A. de C.V., on the one
hand, and DLJ Capital Funding, Inc., Lehman Commercial Paper Inc. and
Donaldson Lufkin & Jenrette Securities Corporation on the other hand,
with respect to the financing up to US$500 million of secured credit
facilities.
Financing Documents: shall mean collectively, the Bridge
Securities Purchase Agreement and the Credit Agreement and all related
documents.
Fixed Rate Financing: shall mean the issuance of notes of a
Company Entity to finance a portion of the purchase price of the
SatMex acquisition or to refinance indebtedness, if any, outstanding
in respect of the Bridge Note Commitment Letter.
Government Obligation: The obligation incurred by SatMex Holdings
to the federal government of the United Mexican States under that
certain Agreement, dated as of December 1997.
Interim Facility: shall mean that Demand Loan Agreement dated as
of November 17, 1997, by and between Corporativo Satellites Mexicanos,
S.A. de C.V., on the one hand, and DLJ Capital Funding, Inc., Lehman
Commercial Paper Inc. and Donaldson Lufkin & Jenrette Securities
Corporation, on the other hand, with respect to the financing up to
US$57.5 million of interim credit facilities.
Member, Members: shall have the meaning set forth in the
introduction.
Permitted Transactions: shall mean collectively, the following:
(i) transactions contemplated under the Management Services Agreement,
as amended from time to time in accordance with the terms hereof, (ii)
transactions contemplated under the IP Agreement, as amended from time
to time in accordance with the terms hereof, (iii) transactions
contemplated under the Marketing
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Policy, as amended from time to time in accordance with the terms
hereof, (iv) the guarantee by Loral Space & Communications Ltd. of the
Interim Credit Facility, (v) transactions between and among the
Company Entities and any of the Service Subsidiary or the Concession
Subsidiary and (vi) transactions between and among the Company
Entities.
Permitted Transfer: a transfer (i) by either Loral or EE of
Social Parts owned by it to any of its Affiliates, (ii) to the Company
provided that in the case of clause (i), the transferee shall agree in
writing to comply with all the provisions of this Agreement and
provided further that no such transfer shall relieve the transferring
Member from any liability of such transferring Member hereunder.
Person: an individual, partnership, joint-stock company,
corporation, trust or unincorporated organization, and a government or
agency or political subdivision thereof.
Proposal: shall have the meaning set forth in Section 3(a).
Proposing Member: shall have the meaning set forth in Section
3(a).
Purchaser: shall have the meaning set forth in Section 4(b).
Qualified Mexican Person: shall mean a Person that is either a
Mexican national or is organized under the laws of Mexico and
satisfies the requirements of the Federal Telecommunications Law and
Foreign Investment Laws as then in effect.
SatMex: Satelites Mexicanos, S.A. de C.V., a company organized
under the laws of Mexico.
SatMex Holdings: shall have the meaning set forth in the recitals
hereto.
SatMex Dividend Policy: The policy by SatMex to pay annual
dividends in an amount equal to at least 20% of the total amount
available for distribution (after payment of liabilities and
establishment of appropriate reserves as determined by management) but
only to the extent such dividends are permitted under the debt
instruments to which the Company Entities are bound and only to the
extent of the balance in SatMex's Cuenta de Fiscal Neta (CUFIN)
account.
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<PAGE> 24
SatMex Stock Purchase Agreement: The Stock Purchase Agreement
between the Company and the Mexican government dated as of November
17, 1997, with respect to the purchase of a 75% interest in SatMex.
Securities Act: the United States Securities Act of 1933, as
amended.
Selling Member: shall have the meaning set forth in Section 4(c).
Service Subsidiary: shall mean a subsidiary of the Company formed
for the purpose of hiring and providing administrative, management,
accounting, legal, operations, maintenance and other ancillary
services to SatMex.
Significant Decision: shall have the meaning set forth in Section
2(e).
Social Parts: shall have the meaning set forth in the Recitals.
Stated Price: shall have the meaning set forth in Section 4(b).
Subject Social Parts: shall have the meaning set forth in Section
4(b).
subsidiary: shall mean in respect of any Person any other Person
which, at the time as of which any determination is being made, such
Person or one or more of its subsidiaries has, directly or indirectly,
Voting Control.
Tag-Along Holder: shall have the meaning set forth in Section
4(c).
Transfer: any sale, assignment, pledge, hypothecation, or other
disposition or encumbrance.
Transferor: shall have the meaning set forth in Section 4(b).
Voting Control: shall mean, at any time, (A) the ownership or
control, whether direct or indirect, of outstanding Social Parts of
capital stock of (or equity interests in) a Person, which Social Parts
or interest at such time have by the terms thereof ordinary voting
power to elect a majority of the members of the Board of Directors (or
Persons performing similar functions) of such Person (excluding voting
power of the holders
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<PAGE> 25
of preferred stock arising upon the occurrence of a contingency) or
(B) with respect to any partnership when (i) the sole general partner
or the managing general partner of which is such Person or a
subsidiary of such Person or (ii) the only general partners of which
are such Person or of one or more subsidiaries of such Person (or any
combination thereof).
(b) Directly or Indirectly. Where any provision in this Agreement refers to
action to be taken by any Person, or which such Person is prohibited from
taking, such provision shall be applicable whether such action is taken directly
or indirectly by such Person.
(c) Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of Mexico applicable to contracts made and to be
performed entirely within such jurisdiction.
(d) Section Headings. The headings of the sections and subsections of this
Agreement are inserted for convenience only and shall not be deemed to
constitute a part thereof.
(e) Arbitration. In the event of any dispute, controversy or claim arising
out of or relating to this Agreement, or to the breach or termination hereof (a
"Dispute"), the parties agree to resolve the same as follows:
(a) The parties to the Dispute shall initially attempt to resolve it
through consultations and negotiations.
(b) If the Dispute has not been resolved amicably within thirty (30)
days after any party provides notice thereof, unless the parties agree
otherwise, the Dispute shall be resolved by final and binding arbitration
in New York, New York, if EE shall have initiated the proceeding or in
Dallas, Texas, if Loral shall have initiated the proceeding, in each case
in accordance with the Arbitration Rules of the United Nations Commission
on International Trade Law ("UNCITRAL"), as in effect on the date of this
Agreement. The language to be used in the arbitral proceeding shall be
English. The International Chamber of Commerce shall serve as the
appointing authority. The arbitrators shall render a written award stating
the reasons for the decision. Judgment on an arbitral award or decision may
be entered by any court of competent jurisdiction, or application may be
made to such a court for judicial acceptance of the award or decision and
any appropriate order, including enforcement (homologacion).
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<PAGE> 26
(c) Each of the parties hereto consents to the submission of any
Dispute for settlement by final and binding arbitration in accordance with
paragraph (b) above. Such consent shall satisfy the requirements for:
(i) A written arbitration agreement between the parties pursuant
to Article I of the Inter-American Convention on International
Commercial Arbitration (Convercion Interamericana Sobre Arbitaje
Comercial Internacional), promulgated in Panama on January 30, 1975;
(ii) An "agreement in writing" pursuant to Article II of the
United Nations Convention on the Recognition and Enforcement of
Foreign Arbitration Awards, done at New York on June 10, 1958; and
(iii) A written arbitration agreement between the parties
pursuant to Article 1423 of the Mexican Commercial Code (Codigo de
Comercio).
(d) The parties hereby agree to continue to perform their obligations
hereunder while any Dispute is pending.
(e) Each of the parties hereby undertakes to carry out without delay
the provisions of any arbitral award or decision.
8. CONFIDENTIALITY
As to so much of the information and other material furnished under or in
connection with this Agreement (whether furnished before, on or after the date
hereof) as constitutes or contains confidential business, financial or other
information of any of the Company Entities, each Member covenants for itself and
its directors, officers and partners that it will use due care to prevent its
officers, directors, partners, employees, counsel, accountants and other
representatives from disclosing such information to Persons other than their
respective authorized employees, counsel, accountants, Members, partners,
limited partners and other authorized representatives; provided, however, that a
Member may disclose or deliver any information or other material disclosed to or
received by it should the Member be advised by its counsel that such disclosure
or delivery is required by law, regulation or judicial or administrative order.
For purposes of this Section 9, "due care" means at least the same level of care
that a Member would use to protect the
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<PAGE> 27
confidentiality of its own sensitive or proprietary information, and this
obligation shall survive termination of this Agreement.
9. MISCELLANEOUS
(a) Notices.
(i) All communications under this Agreement shall be in writing and shall
be delivered by hand or mailed by overnight courier or by facsimile:
(A) if to Loral, at Loral SpaceCom Corporation, 600 Third Avenue, New
York, New York 10016, marked for the attention of Eric J. Zahler, Vice
President, General Counsel and Secretary, or at such other address as Loral
may have furnished the Company in writing (with a copy to Willkie Farr &
Gallagher, One Citicorp Center, 153 East 53rd Street, New York, New York
10022 for the attention of Bruce R. Kraus, Esq. and Sanchez Mejorada
Velasco y Valencia, Paseo de la Reforma 450, Lomas de Chapultepec, 11000
Mexico, D.F. to the attention of Carlos R. Valencia Barrera, Esq.);
(B) if to EE, at Sierra Santa Rosa No. 61, Lomas de Chapultepec,
Mexico, D.F. 11650, marked for the attention of Lauro Gonzalez, or at such
other address as EE may have furnished the Company in writing (with a copy
to Vinson & Elkins L.L.P., 3700 Trammel Crow Center, Dallas, Texas 75201
for the attention of Tim Foarde); and
(C) if to the Company, at Eje Central Lagard Cardenas 567 Piso 12, Ala
Norte Col. Narvarte, C.P. 03020, Mexico D.F. marked for attention of
General Counsel, or at such other address as it may have furnished in
writing to each of the Members.
(ii) Any notice so addressed shall be deemed to be given: if delivered by
hand, on the date of such delivery; if mailed by courier, on the third business
day following the date of such mailing; and if sent by facsimile, on the next
business day after receipt of confirmation.
(b) Reproduction of Documents. This Agreement and all documents relating
thereto, including, without limitation, (i) consents, waivers and modifications
which may hereafter be executed, (ii) documents received by each Member pursuant
hereto and (iii) financial statements, certificates and other
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<PAGE> 28
information previously or hereafter furnished to each Member, may be reproduced
by each Member by a photographic, photostatic, microfilm, microcard, miniature
photographic or other similar process and each Member may destroy any original
document so reproduced. All parties hereto agree and stipulate that any such
reproduction shall be admissible in evidence as the original itself in any
judicial or administrative proceeding (whether or not the original is in
existence and whether or not such reproduction was made by each Member in the
regular course of business) and that any enlargement, facsimile or further
reproduction of such reproduction shall likewise be admissible in evidence.
(c) Injunctive Relief. The Company and the Members hereby declare that it
is impossible to measure in money the damages which will accrue to the parties
hereto by reason of the failure of any party to perform any of its obligations
set forth in this Agreement. Therefore, the Company and the Members agree that
in the event of a breach or threatened breach by any other party of the
provisions of this Agreement, in addition to any remedies at law, they shall,
respectively, without posting any bond, be entitled to obtain equitable relief
in the form of specific performance, a temporary restraining order, a temporary
or permanent injunction or any other equitable remedy which may then be
available, and if any party hereto shall institute any action or proceeding to
enforce the provisions hereof, each of the Company and the Members hereby waives
the claim or defense that the party instituting such action or proceeding has an
adequate remedy at law.
(d) Successors and Assigns. This Agreement shall inure to the benefit of
and be binding upon the successors and assigns of each of the parties.
(e) Entire Agreement; Amendment and Waiver. This Agreement constitutes the
entire understanding of the parties hereto relating to the subject matter hereof
and supersedes all prior understandings among such parties, between any of them
and the Company or among any of them. This Agreement may be amended, and the
observance of any term of this Agreement may be waived, with (and only with) the
written consent of the Company, Loral and EE.
(f) Severability. In the event that any part or parts of this Agreement
shall be held illegal or unenforceable by any court or administrative body of
competent jurisdiction, such determination shall not effect the remaining
provisions of this Agreement which shall remain in full force and effect.
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<PAGE> 29
(g) Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and all of which
together shall be considered one and the same agreement.
(h) Non-Contravention. Each of the parties hereto agrees that it shall not
take any action that would result in a violation of the Federal
Telecommunications law (by Federal Telecommunicaciones) or the Concession
Agreements.
(i) Further Actions. Each of the parties hereto agrees that it shall amend,
or cause to amend, the by-laws of the Company Entities in such manner as may be
reasonably requested by either Loral or EE so as to effectuate the provisions of
this Agreement.
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IN WITNESS WHEREOF, the parties hereto have executed this Membership
Agreement as of the date first above written.
EDICIONES ENIGMA, S.A. DE C.V.
By:/s/ Lauro A. Gonzalez Moreno
-------------------------------------
Name: Lauro A. Gonzalez Moreno
Title:
LORAL SATMEX LTD.
By:/s/ Eric J. Zahler
-------------------------------------
Name: Eric J. Zahler
Title:
FIRMAMENTO MEXICANO, S. de R.L. de C.V.
By:/s/ Lauro A. Gonzalez Moreno
-------------------------------------
Name: Lauro A. Gonzalez Moreno
Title:
By:/s/ Eric J. Zahler
-------------------------------------
Name: Eric J. Zahler
Title:
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<PAGE> 31
SCHEDULE I
Board of Directors
Board of Directors of the Company and SatMex(1)
Designating Member Director
------------------ --------
EE Sergio Autrey Maza,
Chairman of the Board(2)
Loral Bernard L. Schwartz(2)
Loral Eric J. Zahler (3)
EE Lauro Gonzalez Moreno(3)
EE Xavier Autrey Maza
In addition, Eric J. Zahler shall serve as Secretary to the Board of the
Company and SatMex.
- ----------
(1) In addition to the persons set forth on this Schedule I, the Mexican
Government shall have the right to appoint one additional director to
SatMex.
(2) Member of the Executive Committee.
(3) Executive Committee Alternate.
-31-
<PAGE> 32
SCHEDULE II
Executive Officers of the Company
President Sergio Autrey Maza
Chief Executive Officer Bernard L. Schwartz
Chief Operating Officer Gregory J. Clark
Chief Financial Officer Lauro Gonzalez Moreno
Executive Officers of SatMex
Chief Executive Officer Lauro Gonzalez Moreno
Chief Operating Officer Joseph Del Riego
Chief Financial Officer Cynthia Pelini
Chief Accounting Officer Jorge Lopez Aguado
<PAGE> 1
SHAREHOLDERS AGREEMENT
DATE: 7th December, 1998
PARTIES:
(1) ALCATEL SPACECOM SOCIETE PAR ACTIONS SIMPLIFIEE, a company incorporated in
France whose principal place of business is at 12, rue de la Baume, 75008
Paris, France ("ALCATEL");
(2) LORAL SPACE & COMMUNICATIONS LTD., a company incorporated in Bermuda whose
registered office is at Cedar House, 41 Cedar Avenue, Hamilton HM12,
Bermuda ("LORAL");
(3) DR. JURGEN SCHULTE-HILLEN of Haus Altgluck, 53773 Hennef, Germany, for
himself and as agent for the Schulte-Hillen Parties ("JSH"); and
(4) EUROPE*STAR LIMITED, a company incorporated in England under registered
number 3562015 whose registered office is at 35 Basinghall Street, London
EC2V 5DB (the "COMPANY").
<PAGE> 2
2
PART 1
INTERPRETATION AND CONDITIONS PRECEDENT TO THIS AGREEMENT
1. DEFINITIONS AND INTERPRETATION
1.1 DEFINITIONS
Terms defined in Schedule 1, Part I of the Definitions Agreement dated on
or about the same date as this agreement shall have the same meaning and
construction when used in this agreement.
1.2 INTERPRETATION
The rules of construction and interpretation set out in Schedule 1, Part II
of the Definitions Agreement shall apply to this agreement, unless
otherwise specified.
1.3 SCHEDULES
The schedules form part of this agreement and shall have the same force and
effect as if expressly set out in the body of this agreement, and any
reference to this agreement shall include the schedules.
2. CONDITIONS PRECEDENT
This agreement shall come into force immediately upon execution and
delivery of all the Definitive Agreements by all the parties thereto.
<PAGE> 3
3
PART 2
JOINT VENTURE OPERATIONS AND MANAGEMENT
3. OPERATIONS
3.1 SCOPE OF BUSINESS
The parties agree that (unless and until a resolution is passed in
accordance with clause 6.1) the business of the Company shall be:
(i) to build, launch and operate the Initial Satellite and one or more
other geostationary communications satellites to be located at one or
more of the Orbital Positions and otherwise to develop, market,
finance, build and operate the Europe*Star System; and
(ii) to engage in the business of providing satellite services in
connection therewith,
in accordance with the provisions of this agreement and the other
Definitive Agreements.
3.2 OPERATIONS CENTRE
The operations centre of the Company will be located in Toulouse (i)
pursuant to the E*S System Contract and (ii) otherwise on terms approved by
the Directors.
3.3 SALES AND MARKETING
Sales and marketing of Europe*Star capacity will be conducted in accordance
with the principles set forth in the Loral Global Alliance Policy
Statement. The Chief Executive Officer of the Company, and any other
executive officer of the Company as may be required, shall attend monthly
operations review meetings with executives from Loral and Loral Skynet, in
order to discuss plans and operating performance.
4. MANAGEMENT PLANNING AND BUDGETS
4.1 PURPOSE OF BUSINESS PLANS AND ANNUAL BUDGETS
Subject to clause 6.1, the affairs of the Company shall be managed
initially in accordance with the Initial Business Plan, and thereafter in
accordance with the Business Plan and Annual Budget current from time to
time.
4.2 BUSINESS PLANS
(a) PREPARATION: Each Business Plan shall be prepared in respect of the period
from and including, in the case of the Initial Business Plan, the Final
Closing Date or, in the case of any subsequent Business Plan, the date on
which such plan is first adopted in accordance with the provisions of
clause 4.2(b), to the date falling 15 years after the Operations Date for
the Initial Satellite. Each Business Plan shall be substantially in the
form of, and shall contain financial data of a nature substantially the
same as that contained in, the Initial Business Plan. All Business Plans
shall also incorporate appropriate explanations of the management's
proposed strategy, business forecasts and details of the assumptions used.
<PAGE> 4
4
(b) ADOPTION AND APPROVAL: The A Shareholders shall adopt the Initial Business
Plan on or prior to the Final Closing Date. By not later than 60 days prior
to the end of each Annual Period, a revised draft of the Business Plan
shall be submitted by the Directors to the A Shareholders for approval in
accordance with this clause prior to the beginning of the next Annual
Period. If a Business Plan has not been so adopted or approved prior to the
relevant date or period then, until such time as a new Business Plan is so
adopted or approved in accordance with the provisions of this clause, the
previous approved Business Plan shall continue to apply, subject to clause
6.2(d).
4.3 ANNUAL BUDGETS
(a) PREPARATION: The first Annual Budget shall cover the first Annual Period
and shall be adopted by the A Shareholders on or prior to the Final Closing
Date. By not later than 60 days prior to the end of each subsequent Annual
Period, a draft annual budget covering the next Annual Period shall be
submitted by the Directors to the A Shareholders for approval in accordance
with this clause. Each draft Annual Budget shall include, inter alia, a
breakdown in reasonable detail of:
(i) monthly revenues, operating expenses, operating results and net
interest expenses;
(ii) quarterly capital expenditures and cash flow;
(iii) balance sheet as at the end of such Annual Period and profit and loss
account for such Annual Period;
(iv) expected funding requirements on a quarterly basis and the proposed
methods of meeting those requirements, including without limitation
any proposal to raise any loan or otherwise incur any indebtedness in
respect of borrowed money;
(v) cash flow return on investment.
All Annual Budgets shall incorporate, in addition to the above financial
data, appropriate explanations of the management's proposed strategy,
business forecasts and details of the assumptions used.
(b) ADOPTION AND APPROVAL: If an Annual Budget for a particular period has not
been adopted prior to the beginning of that period then, until such time as
a new Annual Budget is adopted and approved in accordance with the
provisions of this clause 4, the previous approved Annual Budget shall
continue to apply (subject to clause 6.2(d)).
5. MANAGEMENT STRUCTURE
5.1 BOARD OF DIRECTORS
(a) NUMBER: The maximum number of Directors shall be six.
(b) APPOINTMENT AND REMOVAL: No person shall be appointed or removed from
office as a Director except in accordance with the provisions of the
Articles of Association and this agreement.
(c) OBSERVERS: The Schulte-Hillen Parties shall be entitled, for so long as JSH
(or any of the other Schulte-Hillen Parties) continues to hold any B
Shares, to designate one person to attend at all meetings of the board of
Directors as a non-voting observer.
<PAGE> 5
5
5.2 CHAIRMAN
The Chairman of the board of Directors shall be one of the Directors
designated by Alcatel (so long as it is a Relevant A Shareholder) and shall
preside at any general meeting at which he is present.
5.3 CHIEF EXECUTIVE OFFICER
(a) NOMINATION BY ALCATEL: Alcatel shall, so long as it is a Relevant A
Shareholder, be entitled (subject to the prior written approval of Loral,
so long as it is a Relevant A Shareholder, under clause 5.3(b) below and
subject to clause 5.3(e)), by notice in writing to the Company and Loral to
nominate a Director to act as the Chief Executive Officer of the Company.
(b) APPROVAL BY LORAL: If Loral has not notified Alcatel in writing that it
disapproves of the Director nominated by Alcatel within 10 days of being
notified of such nomination, the appointment of the relevant Director shall
be treated as having been approved for the purposes of this clause 5.3.
(c) REMOVAL AND REPLACEMENT: Alcatel (so long as it is a Relevant A
Shareholder) shall be entitled, and at the request of Loral (so long as it
is a Relevant A Shareholder) shall be obliged, by notice in writing to the
Company and the other Relevant A Shareholders, to remove the Chief
Executive Officer appointed under this clause, any successor to be
appointed in accordance with paragraph (a) above.
(d) POWERS: The Chief Executive Officer shall be responsible for the day to day
operations of the Company and the implementation of the Business Plan, and
all executives of the Company (including the Head of Marketing and the
Chief Financial Officer) shall be responsible to him. Immediately upon the
appointment of the Chief Executive Officer the parties shall procure the
passing of a resolution of the board of Directors pursuant to which the
Chief Executive Officer shall be authorised and empowered to manage the day
to day operations of the Company and to implement the Business Plan (other
than Extraordinary Decisions).
(e) NOMINATION BY LORAL: Loral shall be entitled, in place of Alcatel (subject
to corresponding rights in favour of Alcatel equivalent to those of Loral
regarding approval (clause 5.3(b)), removal and replacement (clause
5.3(c)), to nominate the Chief Executive Officer under clause 5.3(a), in
the circumstances specified in paragraph 13 of Schedule 4.
(f) FIRST SENIOR VICE PRESIDENT: During any period in which Loral is entitled
to nominate the Chief Executive Officer pursuant to clause 5.3(e), Alcatel
shall be entitled (subject to corresponding rights in favour of Loral
regarding approval (clause 5.3(b)) and removal and replacement (clause
5.3(c) that apply to the nomination of the Chief Executive Officer) by
notice in writing to the Company and to Loral to nominate a person to act
as the First Senior Vice President of the Company.
5.4 HEAD OF MARKETING AND SALES
(a) NOMINATION BY LORAL: Loral shall, so long as it is a Relevant A
Shareholder, be entitled (subject to the prior written approval of Alcatel,
so long as it is a Relevant A Shareholder, under (b) below) by notice in
writing to the Company to nominate from time to time the Head of Marketing
and Sales of the Company.
(b) APPROVAL BY ALCATEL: If Alcatel has not notified Loral in writing that it
disapproves of the appointment of the Head of Marketing and Sales (whose
title shall be Executive Vice President and Vice President of Marketing and
Sales) nominated by Loral within 5 business days of being notified of such
nomination, the appointment of the relevant person shall be treated as
having been approved for the purpose of this clause.
<PAGE> 6
6
(c) REMOVAL AND REPLACEMENT: Loral (so long as it is a Relevant A Shareholder)
shall be entitled, and at the request of Alcatel (so long as it is a
Relevant A Shareholder) shall be obliged, by notice in writing to the
Company and the other Relevant A Shareholders, to remove from office any
head of marketing appointed under this clause, any successor to be
appointed in accordance with paragraph (a) above. The Head of Marketing and
Sales may only be removed from office pursuant to this clause 5.4.
(d) SALES AND MARKETING ORGANISATION: The Head of Marketing shall report to the
Chief Executive Officer and shall be responsible for the marketing of the
Company in accordance with the Business Plan and the Loral Global Alliance
Policy Statement. A director of sales (who need not be a Director) shall be
recommended by the Head of Marketing and Sales and appointed by the
Directors and shall report and be responsible to the Head of Marketing and
Sales. The sales organisation of the Company shall report and be
responsible to the director of sales and, ultimately, to the Head of
Marketing and Sales.
5.5 CHIEF FINANCIAL OFFICER
(a) NOMINATION: The Chief Executive Officer for the time being shall, subject
to the prior written approval of both Alcatel and Loral (in each case, so
long as it is a Relevant A Shareholder), be entitled by notice in writing
to the Company, Alcatel and Loral to nominate from time to time the Chief
Financial Officer of the Company.
(b) APPROVAL: If either Alcatel or Loral has not notified the Chief Executive
Officer that it disapproves of the appointment of the Chief Financial
Officer of the Company so nominated within 5 business days of being
notified of such nomination, it shall be deemed to have given its consent
to such nomination for the purposes of this clause 5.5.
(c) REMOVAL AND REPLACEMENT: Alcatel or Loral shall be entitled (in each case,
so long as it is a Relevant A Shareholder) by notice in writing to the
Company and the other Relevant A Shareholders, to remove from office any
Chief Financial Officer of the Company appointed under this clause, any
successor to be appointed in accordance with paragraph (a) above.
5.6 INDEMNITY
Any Relevant A Shareholder who, pursuant to this clause 5, removes (other
than pursuant to a request of the other Relevant A Shareholder) a Director
or an officer of the Company appointed in accordance with this clause 5
from office shall indemnify each other Shareholder and the Company against
any claim, whether for compensation for loss of office, wrongful dismissal
or otherwise, which arises out of the removal of that Director or officer
of the Company from office.
5.7 EXECUTIVE COMMITTEE
(a) FUNCTION: An Executive Committee shall be formed, the only functions of
which shall be to:
(i) meet with the Chief Executive Officer of the Company and such other
executive officer of the Company as may be required, for the purpose
of discussing and exchanging information regarding the operations of
the Company;
(ii) advise and make recommendations to the Chief Executive Officer as it
deems appropriate; and
(iii) discuss and attempt to resolve disagreements or disputes between the
parties in a timely manner pursuant to clause 28.1.
<PAGE> 7
7
(b) STATUS: The Executive Committee shall have the advisory powers and
functions specified in paragraph (a) above. It shall not be a committee of
the board of Directors for the purposes of the Articles of Association or
be vested with any powers of such a committee, except to the extent the
Directors may unanimously decide. For the avoidance of doubt, the Executive
Committee shall not be entitled to exercise any of the responsibilities,
powers and functions assigned to the Chief Executive Officer.
(c) NOMINATIONS: Immediately upon the appointment of the Chief Executive
Officer of the Company, Loral shall appoint the President of Skynet and
Alcatel shall appoint the President of Alcatel Spacecom to participate in
meetings of the Executive Committee. Each Executive Committee member shall
participate in meetings in person or, in the case of absence, may from time
to time nominate another senior executive to represent him. Loral and
Alcatel shall each be entitled from time to time to remove such committee
member and replace, as a member of the Executive Committee, the person who
is for the time being (in the case of Loral) the President of Skynet and
(in the case of Alcatel) the President of Alcatel Spacecom.
(d) MEETINGS: The Executive Committee shall convene at the Company's offices or
any other mutually agreed location and members of the Executive Committee
may participate in its meetings by telephone or video conference which
allows all persons participating in the meeting to hear each other, it
being understood that meetings in person are preferred. The Executive
Committee shall convene as frequently as required, but no less than once a
month, and its meetings may also be attended by Loral and Alcatel
executives.
6. MANAGEMENT POWERS
6.1 EXTRAORDINARY DECISIONS
(a) APPROVAL: As a matter overriding any other provision of this agreement or
the Articles of Association, the Company shall not (unless the relevant
decision is one to which Schedule 4 applies) take, or do or agree to do
anything which would require it to take, any Extraordinary Decision unless
and until each of Alcatel and Loral (in each case, so long as (i) it is a
Relevant A Shareholder and (ii) it has not transferred, other than to
transferees which continue to be members of its Group, A Shares
representing 30% or more of its holding of A Shares (appropriately adjusted
to reflect any sub-division, consolidation or other re-organisation of the
capital of the Company) immediately following completion of the
Subscription Agreement) has given its prior approval:
(i) in writing; or
(ii) by a vote in favour of a separate and specific members' resolution on
that matter; or
(iii) by a vote in favour of a separate and specific directors' resolution
on that matter by a Director appointed by that Shareholder.
(b) NO DEEMED APPROVAL: The approval of any Business Plan or Annual Budget
shall not imply or be deemed to be an approval of any matter within that
Business Plan or Annual Budget which would itself constitute an
Extraordinary Decision requiring approval in accordance with this clause.
6.2 PROCEDURES TO RESOLVE DEADLOCK
(a) CONSULTATION PROCESS: If Alcatel or Loral does not approve any
Extraordinary Decision which has been submitted to it for approval in
accordance with the provisions of clause 6.1, they shall, in good faith and
for the period of three months following the date on which such approval is
withheld, enter into discussions and take such other steps as may be
considered desirable to resolve such deadlock (including, but without
limitation, procuring, where initial discussions have been unsuccessful,
<PAGE> 8
8
discussions between the senior management of each Alcatel's and Loral's
Group). If, at the end of such three month period, Alcatel and Loral have
not reached an agreement on such Extraordinary Decision in accordance with
the provisions of clause 6.1 then the following provisions of this clause
shall apply.
(b) PART 1 MATTERS: If any disapproval of an Extraordinary Decision specified
in Part 1 of Schedule 1 is not resolved pursuant to (a) above, each of
Alcatel and Loral shall have the right to serve a notice on the other
Shareholders (a "DEADLOCK NOTICE"), with a copy to the Company, specifying
that a deadlock has occurred, and the provisions of clause 11.3 shall
apply.
(c) PART 2 MATTERS: If any disapproval of an Extraordinary Decision specified
in Part 2 of Schedule 1 is not resolved pursuant to (a) above, such
Extraordinary Decision may, so long as Alcatel remains a Relevant A
Shareholder, be approved by Alcatel only. Such approval may be given be
Alcatel in accordance with the provisions of clause 6.1(a) and once given,
such matter shall be regarded in all respects as having been approved by
the Company. If Alcatel approves such matter, then Loral (and members of
its Group then holding A Shares) may, if Loral continues to disapprove such
matter, serve a notice on Alcatel requiring it (or a third party nominated
by Alcatel) to purchase all of the A Shares held by Loral (and members of
its Group); and Alcatel shall be obliged to purchase or procure the
purchase of such Shares in accordance with the provisions of clause 11.2.
(d) PART 3 MATTERS: If any disapproval of an Extraordinary Decision specified
in Part 3 of Schedule 1 is not resolved pursuant to (a) above, then the
last approved Business Plan or, as the case may be, the last approved
Annual Budget shall continue to apply (pending agreement on a new Business
Plan or Annual Budget) subject to the following adjustments:
(i) all costs, revenues payments or other amounts in the relevant Business
Plan or, as the case may be, Annual Budget shall be increased by 5%
flat;
(ii) all such costs, revenues payments or other amounts shall be further
increased (beyond that specified in (i) above) to the extent necessary
to reflect any payment or other escalation or indexing provisions
applicable to any authorised contractual commitments of the Company
and its Subsidiaries, and any other present or future obligations or
liabilities or commitments of the Company and its Subsidiaries which
have been duly approved by the board of Directors or the Chief
Executive Officer in accordance with the powers set forth in clause
5.3(d).
7. MANAGEMENT FEES
(a) MANAGEMENT SERVICES AGREEMENTS: In consideration of management and other
administrative services to be provided by Alcatel and Loral, the Company
shall pay or procure the payment of management fees to Alcatel and Loral in
accordance with the Management Services Agreements.
(b) The Company agrees that if there is any modification to the definition or
the basis for determining the amount of "Gross Revenue" for the purpose of
calculating management fees under any of the Management Services
Agreements, then it will procure that the same modification is offered to
SLOD regarding the provisions of the License of the Slot Usage Agreement
insofar as those provisions affect the determination of Gross Revenue or
the extent to which SLOD is obliged to accept royalty payments in
currencies which are determined by the Company to be non-convertible or
non-transferable.
<PAGE> 9
9
PART 3
JOINT VENTURE FINANCING ARRANGEMENTS
8. CAPITAL REQUIREMENTS OF THE JOINT VENTURE
8.1 INITIAL CAPITAL
(a) INITIAL SHARE CAPITAL: The initial share capital of the Company will,
following the Final Closing, be the aggregate amount of the consideration
payable for the subscriptions for the A Shares and the B Shares made by or
on behalf of the Shareholders pursuant to clause 2 of the Subscription
Agreement (being $16,260,000 in the case of Alcatel, $15,622,353 in the
case of Loral and (pound)5 in the case of JSH). The proceeds of such
subscriptions shall be used in accordance with the Schedule of Sources and
Uses of Proceeds.
(b) SHAREHOLDER LOANS: In addition to the initial share capital referred to in
clause 8.1(a), the Company and the A Shareholders acknowledge that as at
the date of this agreement each A Shareholder has contributed additional
capital to fund payments under the E*S System Contract and other operating
expenses of the Company, amounting to: (i) in the case of ALCATEL,
$29,768,700 ($8,000,000 pursuant to the Authorisations to Proceed dated
20th February, 1998, $20,050,000 pursuant to the Authorisations to Proceed
dated 22nd October, 1998 and $1,718,700 towards operating expenses); and
(ii) in the case of Loral, $28,601,300 ($12,768,347 pursuant to the
Authorisations to Proceed dated 22nd October, 1998, $1,651,300 towards
operating expenses and $14,181,653 in cash on the Final Closing Date).
8.2 COMMITTED CAPITAL SPECIFIED IN THE BUSINESS PLAN
(a) FUNDING SCHEDULE: In addition to initial capital referred to in clause 8.1,
the parties agree that the capital requirements of the Company shall be
funded, by way of additional shareholder loan capital or other debt or
financial support, in the amounts and on the dates shown in the Funding
Schedule. Such initial capital and such agreed additional loan capital,
which together amounts to $125,000,000, are hereafter called the "COMMITTED
CAPITAL".
(b) FORM OF COMMITTED CAPITAL: In the absence of agreement to the contrary
between Alcatel and Loral, all instalments of Committed Capital, other than
the initial share capital referred to in clause 8.1, shall be advanced and
treated as shareholder loans to the Company on terms to be agreed by
Alcatel and Loral in accordance with clause 6.1.
(c) CONSEQUENCES OF FAILURE TO CONTRIBUTE COMMITTED CAPITAL: If and to the
extent that an A Shareholder fails to make its Committed Capital
contribution when due, then the other non-defaulting A Shareholder (i) may
(but only for so long as such failure remains unremedied) in its sole
discretion make or procure that its Affiliates make its own Committed
Capital contribution in the form of a loan to the Company which shall bear
interest at a rate equal to LIBOR plus 2% and (ii) if it so elects, having
first provided all its Committed Capital contribution as and when due or in
the form of a loan pursuant to (i) above, may in its discretion provide, or
cause its Affiliates to provide, all or part of the amount of the Committed
Capital contribution of the defaulting A Shareholder in the form of a loan
to the Company which shall bear interest at a rate equal to LIBOR plus 4%,
and which shall be repaid by the Company out of the proceeds of the
Committed Capital contribution of the defaulting A Shareholder immediately
upon receipt of such proceeds. If the defaulting A Shareholder has not made
its Committed Capital contribution within 60 days of the non-defaulting A
Shareholder making such loan, the non-defaulting A Shareholder (or its
Affiliates) making such loan shall be entitled to convert such loan into
additional A Shares at a conversion price per share equal to the lesser of
the fair market value or book value of one A Share or, in the
<PAGE> 10
10
case where its Affiliates have provided the loan, effect a transaction the
economic effects of which are consistent with the conversion described
above.
(d) A SHAREHOLDERS' RIGHTS OF FIRST REFUSAL: The parties shall procure that any
Shares or other securities which may be issued by the Company pursuant to
(and any right to participate in any other form of debt or other financial
support contemplated under) clause 8.2(a) or otherwise under the Business
Plan shall be offered to the A Shareholders on equal terms pro rata, as
nearly as practicable, to the nominal value of their holdings of A Shares
at the time of such offer.
8.3 ADDITIONAL CAPITAL
(a) PROCEDURE FOR RAISING ADDITIONAL CAPITAL: If the board of Directors shall
determine that any capital in addition to the Committed Capital is at any
time required from the Shareholders by the Company, whether as a result of
capital requirements which were not contemplated by the Business Plan, or
the Company being unable to raise all or part of any third party financing
contemplated in the Business Plan from external sources on reasonable
terms, or otherwise ("ADDITIONAL CAPITAL"), the Company shall (not less
than 30 days prior to the proposed date for approval of the raising of such
Additional Capital, if required under clause 6.1) issue to each of the A
Shareholders a written notice (with a copy to the B Shareholders) setting
out in reasonable detail:
(i) the amount of Additional Capital considered by the Directors to be
necessary;
(ii) the proposed manner in which such Additional Capital is to be raised;
(iii) the purpose of such Additional Capital; and
(iv) an explanation for the variation (if any) between the amount of
Additional Capital required and the amount of Committed Capital shown
by the most recent Business Plan.
Such proposals are referred in this clause 8.3 as an "ADDITIONAL CAPITAL
PROPOSAL".
(b) NOTICE OF ISSUE: Subject to any approval of the Additional Capital
Proposal, if required, pursuant to clause 6.1, the Company shall not less
than 30 days prior to the proposed date for issue of the securities under
such Additional Capital, serve a notice on each of the A Shareholders (with
a copy to the B Shareholders):
(i) confirming that the Additional Capital Proposal has, if required, been
approved pursuant to clause 6.1 in the form specified in the
Additional Capital Proposal;
(ii) specifying the number, price and terms of payment of the Shares,
securities to be issued, or other financial support to be raised, and
inviting each of the "A" Shareholders to state in writing within a
period of 14 days whether it is willing to take on any, and if so what
maximum number or value of, such Shares or securities or other
financial support; and
(iii) specifying the time and place where completion of the subscription
for the shares or securities, or of the provision of other financial
support, shall take place.
(c) RIGHTS OF FIRST REFUSAL: At the expiration of the time stipulated by an
offer pursuant to paragraph (b) of this clause 8.3, the Directors shall,
subject to compliance with the terms of that offer, allot and issue the
Shares or other securities offered to or amongst those A Shareholders who
have notified to the Company their willingness to take any of the Shares or
other securities offered. In the case of competition, such allotment shall
be made in proportion (as nearly as may be and without involving fractions)
to the number of A Shares held by them respectively at the date of the
offer but so that no person shall be required to take more than the maximum
number of Shares or other securities which it has stated it is willing to
take. In addition, the A Shareholders shall have the pre-emptive right, but
not any obligation, to participate in any other form of debt or other
<PAGE> 11
11
financial support contemplated in any Additional Capital Proposal and, in
the case of competition, in proportion to the number of A Shares then held
by them.
(d) FAILURE TO AGREE ADDITIONAL CAPITAL PROPOSAL PRIOR TO SECOND CLOSING DATE:
If Additional Capital is required at any time before the Second Closing
Date, but the Directors are not able to agree upon the form and content of
an Additional Capital Proposal in accordance with clause 8.3(a), then
Alcatel and Loral shall negotiate in good faith with a view to agreeing
upon a method of providing such Additional Capital on an agreed basis. If
Alcatel and Loral have not reached such an agreement by the date on which
the unutilised amount of the US$125 million of Committed Capital becomes
insufficient to enable the Company to continue to perform the E*S System
Contract or to satisfy other budgeted expenses contemplated in the Business
Plan as and when they fall due and payable, then during the period (the
"INTERIM FUNDING PERIOD") commencing on such date and ending on the Second
Closing Date, the provisions of Schedule 4 will apply.
8.4 BORROWING AND GUARANTEES
(a) REQUESTS FOR SHAREHOLDER GUARANTEES: Except as contemplated in Schedule 4,
if, as a term of entering into any borrowing, a third party requires any
Shareholders to enter into any guarantee in respect of the Company's
obligations or liabilities, then the Company shall consult with the A
Shareholders with a view to agreeing whether it is appropriate for such
borrowing to be made or other agreement or arrangement to be entered into.
(b) PROVISION OF SHAREHOLDER GUARANTEES: Except as contemplated in Schedule 4,
if all the Relevant A Shareholders consent to such borrowing, then any
guarantee which any of them may agree to give shall be given on a several
basis in the same proportion as its respective holdings of A Shares, or
such greater proportion as it may agree at its discretion. Any A
Shareholder which provides such a guarantee may receive reasonable
consideration for so doing whether by charging a fee, receiving warrants to
subscribe for Shares or otherwise.
8.5 B SHAREHOLDERS
For the avoidance of doubt, none of the provisions set out in clauses 8.2,
8.3 or 8.4 nor any other provision of any of the Definitive Agreements
shall impose on the B Shareholders any obligation to advance loans, given
guarantees or otherwise provide capital for the benefit of the Company
except to the extent expressly provided in this agreement or otherwise
expressly accepted in writing by the B Shareholders.
<PAGE> 12
12
PART 4
OWNERSHIP STRUCTURE AND EXIT ARRANGEMENTS
9. ISSUES OF SHARES AND EQUITY SECURITIES
9.1 RESTRICTIONS ON NEW ISSUES
The parties shall procure that during the continuance of this agreement
there shall be no issue of any Shares or equity securities in the Company,
nor any grant of any option or other right to subscribe Shares or any
security or other right or obligations of any kind convertible or
exchangeable into share capital of the Company, other than pursuant to the
provisions of the Articles of Association, pursuant to the provisions of
this agreement, or with the consent of all the Relevant A Shareholders
given pursuant to clause 6.1.
9.2 EXISTING SHAREHOLDERS' RIGHTS OF FIRST REFUSAL
Except as contemplated in Schedule 4, the parties shall procure that any
new Shares of any class or other equity or debt securities for the time
being unissued and which may be created or issued in future shall be
offered, before they are issued, to the existing holders of Shares of that
class in accordance with the provisions set out in the Articles of
Association.
In addition, no A Shares may be allotted or issued during the period from
the Final Closing Date until the Second Closing Date unless, simultaneously
with such allotment or offer, the existing holders of the B Shares are each
offered on equal terms, pro rata, as nearly as practicable, to the nominal
amount of their existing holdings of B Shares, such number of B shares as
will result in the aggregate number of B Shares for the time being in issue
(immediately following the allotment of such A Shares) representing the
same percentage as the aggregate of all the A Shares and B Shares then in
issue as they represented on the Final Closing Date. In the case of any
Additional Capital Proposal made after the Second Closing Date, Alcatel and
Loral shall, during the period of 30 days from the date of such Additional
Capital Proposal, consult with JSH in good faith with a view to
establishing whether some basis can be agreed for JSH to subscribe at
market value for additional B Shares in such number as would result in JSH
and the other Schulte-Hillen Parties and their Relatives together
continuing to hold 5% of the issued ordinary share capital of the Company,
but without any liability whatever on any party in the event of any failure
to so agree.
9.3 UNDERTAKINGS BY NEW SHAREHOLDERS
No new member shall be registered as the holder of any Shares unless it:
(i) shall first have entered into a Deed of Adherence in which such
allottee shall undertake to the Shareholders and the Company to be
bound by the provisions of this agreement as if it were a party to
this agreement as a Shareholder (but without prejudice to the
continuation inter se of the rights and obligations of the
Shareholders); and
(ii) produces to the Company satisfactory evidence that all necessary
Regulatory Consents have been obtained.
<PAGE> 13
13
10. VOLUNTARY DISPOSALS OF SHARES
10.1 RESTRICTIONS ON DEALINGS IN SHARES
No disposal of any Share or any legal or beneficial interest in a Share
shall be permitted except a transfer of the entire legal and beneficial
interest in the Share made in accordance with the provisions of the
Articles of Association and the terms of this agreement.
10.2 COMPLIANCE BY GROUP TRANSFEREES
Each Shareholder shall procure that all Group Transferees or Relatives
holding Shares in respect of which it is the Original Holder shall execute
a Deed of Adherence.
11. MANDATORY TRANSFERS OF SHARES
11.1 INSOLVENCY, DISSOLUTION ETC.
If:
(i) Insolvency: any Shareholder is unable or admits in writing its
inability to pay its debts as they fall due or commences negotiations
with one or more of its creditors with a view to the general
readjustment or rescheduling of all or part of its indebtedness or
proposes or enters into any composition or other arrangement for the
benefit of its creditors generally or any class of creditors or
proceedings are commenced in relation to any Shareholder under any
law, regulation or procedure relating to reconstruction or
readjustment of debts;
(ii) Dissolution: an order is made or a resolution passed for the
administration, receivership, winding up, liquidation or dissolution
of any Shareholder (other than for the purpose of a solvent
amalgamation or reconstruction) or any other analogous event under the
laws applicable to the relevant Shareholders,
then the relevant Shareholder shall, and shall procure that all its
Affiliates shall, forthwith serve a Transfer Notice or Transfer Notices in
respect of all the Shares owned by that Shareholder and its Affiliates, in
accordance with the provisions of the Articles of Association. If the
relevant Shareholder or any of its Affiliates shall default in the service
of such Transfer Notice or Notices, it and the relevant Affiliates shall be
deemed to have given Transfer Notices to the Company in respect of all the
Shares held by them, and the provisions of the Articles of Association
shall apply, save that:
(a) any deemed Transfer Notice shall be deemed to:-
(1) provide that the price of such Shares shall be their Fair Value
determined by the procedure set out in clause 11.3(a); and
(2) provide for the transfer of all the Shares owned by the relevant
Shareholder;
(b) the fourteen days in which the Company is required to send a
notice to existing holders of Shares under Article 36 of the
Articles of Association shall commence on the date on which the
Company receives the certification of the Fair Value of such
Shares in the manner described in clause 11.3(a).
<PAGE> 14
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11.2 LORAL PUT OPTION
Loral (and its Affiliates) shall be entitled, in the circumstances
described in clause 6.2(c), to serve notice in writing (an "OPTION NOTICE")
on Alcatel requiring Alcatel to purchase or procure the purchase by a third
party of all of the Shares then held by Loral and its Affiliates at their
Fair Value, established using the procedure described in clause 11.3(a),
and setting out the time (not being less than two nor more than seven days
after the date of determination of the Fair Value but in no event later
than 30 days after the date of the Option Notice) and place for completion
of the sale and purchase of such Shares.
11.3 PROCEDURE FOR SALE FOLLOWING DEADLOCK
(a) DETERMINATION OF FAIR VALUE: The Company shall, promptly upon this clause
becoming applicable, procure the appointment of an Expert to make a
determination of the Fair Value of the A Shares, acting as an expert and
not as arbitrator. Such Expert shall be such independent investment bank or
international firm of accountants of good repute as may be appointed
jointly by Alcatel and Loral or if a joint appointment is not agreed within
10 days from the written notice of nomination of an expert by one party to
the other, by the President for the time being of the Institute of
Chartered Accountants in England and Wales on the application of either
Alcatel or Loral. The Expert shall conduct its valuation in accordance with
generally accepted accounting principles and on the following assumptions
and bases:-
(i) the A Shares are being sold on an arm's length basis between a willing
vendor and a willing purchaser;
(ii) the purchaser is acquiring the A Shares in order to continue the
business of the Company in co-operation with the remaining
shareholders of the Company in accordance with the terms of this
agreement (without giving effect to minority discounts);
(iii) if the Company is then carrying on business as a going concern, that
it will continue to do so;
(iv) taking full account of the rights and restrictions attaching to the A
Shares and other Shares; and
(v) on such other terms as it shall consider appropriate and making such
assumptions as it considers necessary.
The Expert shall notify the Company of its determination which shall, in
the absence of manifest or proven error, be final and binding on the A
Shareholders. The costs of the valuation (including, but without
limitation, the fees and expenses of the Expert) are to be borne by the A
Shareholders in their respective Relevant Proportions.
(b) ELECTIONS TO BUY OR SELL AT FAIR VALUE: Following receipt of a Deadlock
Notice and the Expert's determination, the Company will notify each of the
A Shareholders of the Fair Value of the A Shares. Each of Alcatel and Loral
shall within 10 (ten) days of such notice, serve notice in writing (each an
"ELECTION NOTICE") on the other electing either (i) to buy all the A Shares
held by the other and its Affiliates or (ii) to sell all the A Shares held
by it and its Affiliates. Each Election Notice delivered by that party
under this paragraph shall constitute an irrevocable offer (until
superseded by any later Election Notice delivered by that party under this
clause) to sell or, as the case may be, buy all the A Shares held by the
other party and its Affiliates at the Fair Value of those A Shares.
(c) IF ONE PARTY WISHES TO BUY AND THE OTHER TO SELL: If one of Alcatel and
Loral offers in its Election Notice to buy all the A Shares held by the
other of them (and Affiliates), and the other one of them
<PAGE> 15
15
elects in its Election Notice to sell all the A Shares held by it (and
Affiliates), those parties shall be bound to buy and sell the relevant A
Shares at Fair Value in accordance with their elections.
(d) IF BOTH PARTIES WISH TO BUY: If each of Alcatel and Loral elects, in its
Election Notice, to purchase all the A Shares held by the other (and that
other's Affiliates), the Company shall invite Alcatel and Loral to serve a
second Election Notice within 7 days setting out an offer for all, but not
some, of the A Shares of the other (and its Affiliates) at a price which
shall not be less than the Fair Value. If both Alcatel and Loral deliver a
second Election Notice to purchase, the Company shall invite Alcatel and
Loral to serve a third Election Notice within 7 days setting out an offer
for all, but not some, of the A Shares of the other (and its Affiliates),
which shall not be less than the highest value attributed to the A Shares
by any of the second Election Notices, and such process shall be repeated
until one only of Alcatel and Loral elects to purchase all the A Shares
held by the other (and its Affiliates), at which point the other party (and
its Affiliates) shall be obliged to sell all of its (and their) A Shares to
the party who submitted the final Election Notice to purchase . Each
Election Notice delivered by any party under this paragraph shall
constitute an irrevocable offer (until superseded by any later Election
Notice by that party) to sell or, as the case may be, buy all the A Shares
held by the other party and members of its Group at the value stated in
such Election Notice.
(e) IF BOTH PARTIES WISH TO SELL: In the event that all the A Shareholders
elect at any time to sell the A Shares held by them (and members of their
respective Groups), the Company shall offer all, but not some, of the A
Shares as agent for the A Shareholders to third parties which may, for the
avoidance of doubt, include any holder of B Shares. The Company shall use
its reasonable endeavours to procure the sale of all, but not some, of the
A Shares to such a third party and accordingly, shall (at the expense of
the A Shareholders) accept the highest offer made by any such third party
for all, but not some of, the A Shares.
(f) COMPLETION: Subject to the provisions of clause 11.3(g), completion of each
sale and purchase under clause 11.3(c) and (d) shall be made on the date
specified by the purchaser which shall be not less than two and not more
than seven days from the date its offer is accepted, or deemed to be
accepted, under clause 11.3 (c) and (d).
(g) REGULATORY REQUIREMENTS: An A Shareholder may make an offer under this
clause 11.3 conditional upon receiving Regulatory Consent within 60 days of
acceptance of such offer. If it does so, then the parties will use their
reasonable endeavours to obtain that Regulatory Consent. In the event that
such regulatory Consent is refused or not obtained within such 60 days
period such offer shall lapse, without any liability or obligation on the
part of the offering party.
In this paragraph the term "REGULATORY CONSENT" means the obtaining of all
relevant statutory or governmental, regulatory or other licences, consents,
authorisations and approvals required for, or in connection with, such
transfer (including, without limitation, for the purchaser of the Shares to
hold such Shares and the Company to continue carrying on its business
following such transfer in the same manner in which it was carried on prior
to such transfer).
(h) ASSIGNMENT: Following the service of a Deadlock Notice, each of the A
Shareholders shall have the right to assign (in whole or in part) to any
person all its rights to elect to purchase and to purchase A Shares in
accordance with the provisions of this clause 11.3 and following any such
assignment, references in this clause 11.3 to any A Shareholder, shall, in
connection with any election to purchase, be to such assignee.
11.4 JSH CALL OPTION
JSH shall be entitled, in the circumstances contemplated in clause 11.3(a)
where:
(i) Alcatel (and its Affiliates) has given or has been deemed to have
given Transfer Notices in respect of all the Shares held by it and its
Affiliates; and
<PAGE> 16
16
(ii) Loral (and its Affiliates) has given or has been deemed to have given
Transfer Notices in respect of all the Shares held by it and its
Affiliates,
to serve a notice in writing on Alcatel and Loral requiring all of the
Shares held by Alcatel (and its Affiliates) and Loral (and its Affiliates)
to be sold to JSH (or his Relatives) at a price which shall be whichever is
the higher of the Fair Value established using the procedure described in
clause 11.3(a) and such higher value as may have been specified in any such
Transfer Notice, by a date not more than seven days after the date of
determination of the Fair Value. Time shall be of the essence of such sale
and in the event of any failure by JSH (or his Relatives) to purchase all
of the relevant Shares at their Fair Value on the due date, each of Alcatel
and Loral shall have no further obligation under this clause and shall,
subject to the provisions of the Articles of Association, be at liberty to
sell its Shares to any third party on such terms as it may at its
discretion see fit.
12. TAG-ALONG RIGHTS
(a) TAG-ALONG NOTICE: If an A Shareholder ("DIVESTING SHAREHOLDER") proposes to
sell any or all of its Shares to a third party, and pursuant to the
Articles of Association becomes entitled to transfer any Shares to a third
party, the Divesting Shareholder shall immediately give written notice to
the other Shareholders (the "TAG ALONG NOTICE") specifying the name and
address of the third party and the price and other material terms and
conditions of the transaction.
(b) TAG-ALONG DEMAND: Each of the other Shareholders may, not later than 20
days after receipt of the Tag-Along Notice, deliver to the Divesting
Shareholder a notice in writing invoking the provisions of this clause 12
(a "TAG-ALONG DEMAND"). The delivery by any Shareholder (a "TAG-ALONG
SHAREHOLDER") of a Tag-Along Demand shall be irrevocable and shall bind the
Divesting Shareholder:
(i) to sell or procure the sale, in accordance with the provisions of this
clause, of such number of Shares (the "TAG-ALONG Shares") owned by the
relevant Tag-Along Shareholder and its Affiliates or Relatives as is
equal to the number of Shares which the Divesting Shareholder is
proposing to sell, multiplied by a fraction, the numerator of which
shall be the number of Shares owned by the relevant Tag-Along
Shareholder and its Affiliates or Relatives and the denominator of
which shall be the number of Shares owned by the Divesting Shareholder
(and its Affiliates) and each other Tag-Along Shareholder that
delivers a Tag-Along Demand with respect to such sale (and their
respective Affiliates or Relatives); or
(ii) at the option of the Divesting Shareholder (notified to the relevant
Tag-Along Shareholders not later than three days before commencing any
sale) to acquire, or cause the third party to deliver to the relevant
Tag-Along Shareholders an irrevocable, valid, binding and bona fide
offer in writing (the "TAG-ALONG OFFER") to acquire, the Tag-Along
Shares from the relevant Tag-Along Shareholders and their respective
Affiliates or Relatives. The Tag-Along Offer shall remain open for
acceptance for a period of not less than fourteen days from the date
at which it is delivered to the Tag-Along Shareholders. If it is not
accepted in writing during that period the Tag-Along Offer may lapse.
(c) TERMS AND CONDITIONS OF SALE: The purchase by the Divesting Shareholder or,
as the case may be, the Tag-Along Offer shall, subject to the provisions of
this clause:
(i) in the case of any A Shares held by any Tag-Along Shareholders, be
made only on such terms and conditions as are identical to those upon
which the Divesting Shareholder or any of its Affiliates proposes to
sell A Shares to the third party and the price for A Shares which
shall be paid by the Divesting Shareholder or specified in the
Tag-Along Offer (as the case may be), shall be the same as, or the
cash equivalent of, the consideration at which the Divesting
Shareholder or any of its Affiliates proposes to sell to the third
party; and
<PAGE> 17
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(ii) in the case of any B Shares, be at such price as may be specified by
the Divesting Shareholder or in the Tag-Along Offer as being the price
which the Divesting Shareholder at its discretion, acting in good
faith, considers to be the fair market value of such B Shares having
regard to the rights and restrictions attaching to such Shares.
Subject thereto, each Tag-Along Shareholder shall, if requested by the
Divesting Shareholder, join as an additional seller in the sale and
purchase agreement entered into between the Divesting Shareholder and the
third party purchaser, and so that such Tag-Along Shareholder shall,
(i) in respect of any A Shares which it is selling, have substantially the
same rights and several obligations as those of the Divesting
Shareholder in respect of the A Shares being sold by the Tag-Along
Shareholder
(ii) in respect of any B Shares which it is selling, have such rights as
shall be specified by the Divesting Shareholder acting in good faith
and obligations which are not more onerous than those applicable to
any Tag-Along Shareholder which is selling A Shares.
(d) EXCEPTIONS: The provisions of this clause 12 shall not apply if any steps
have been taken to commence Insolvency Proceedings in respect of the
Company, or in the case of any consolidation or merger of the Company with
or into any other person or entity.
<PAGE> 18
18
PART 5
PROTECTION OF JOINT VENTURE
13. CONFIDENTIALITY
13.1 CONFIDENTIAL INFORMATION
Each party shall treat as confidential all information ("CONFIDENTIAL
INFORMATION") obtained as a result of negotiating and entering into this
agreement and the other Definitive Agreements or, in the case of a
Shareholder, through its interest in the Company or any of its business or
assets and which relates to: (i) the provisions of this agreement; (ii) the
negotiations relating to this agreement; (iii) the Company or its business
or assets; or (iv) any Shareholder.
13.2 USE OF CONFIDENTIAL INFORMATION
Each party shall:-
(i) not disclose any Confidential Information to any person other than a
Director appointed by it or any person employed by it whose duties
include the management or monitoring of the business of the Company or
its investment in the Company and who needs to know such information
in order to discharge his duties;
(ii) not use any Confidential Information other than for the purpose of
managing or monitoring its investment in the Company or the business
of the Company;
(iii) use its best efforts to cause any person to whom Confidential
Information is disclosed by it to comply with the restrictions set out
in this clause 13 as if such person were a party to this agreement.
13.3 PERMITTED DISCLOSURE
(a) Notwithstanding the previous provisions of this clause 13, any party may
(subject to clause 13.2(iii)) disclose Confidential Information:-
(i) if and to the extent required by law or for the purpose of any
judicial proceedings;
(ii) if and to the extent required by the Initial Project Documents and the
Definitive Agreements;
(iii) if and to the extent required by any securities exchange or
regulatory or governmental body to which that party is subject,
wherever situated, whether or not the requirement for information has
the force of law;
(iv) to its professional advisers, auditors, lenders and bankers (provided
that in each case, they have agreed to keep such information in
confidence);
(v) if and to the extent the information has come into the public domain
through no fault of that party; or
(vi) to a proposed third party transferee of any Shares after notice has
been given to the other parties of the identity of the proposed
transferee and with the prior written approval of the Shareholder to
whom the Confidential Information belongs or, if the Confidential
<PAGE> 19
19
Information belongs to the Company, the prior written approval of each
of the A Shareholders such approval not to be unreasonably withheld or
delayed.
(b) Any information to be disclosed pursuant to paragraphs (i), (ii), or (iii)
of this clause 13.3 shall be disclosed only after (if and to the extent
practicable) prior notification to the party or parties to whom the
Confidential Information belongs.
(c) Each Director is irrevocably authorised by the Company to disclose any
information or records belonging to or concerning the Company, its
subsidiaries and its or their business and assets to any Shareholder who
has appointed him.
13.4 DURATION OF OBLIGATIONS
The restrictions contained in this clause 13 shall continue to apply to
each party (including any Shareholder who has ceased to hold Shares) for 5
years after termination of this Agreement.
14. ANNOUNCEMENTS
14.1 RESTRICTION ON ANNOUNCEMENTS
No announcement concerning this agreement shall be made by any party
without the prior written approval of the others, such approval not to be
unreasonably withheld or delayed. This clause 14.1 does not apply in the
circumstances described in clause 14.2.
14.2 PERMITTED ANNOUNCEMENTS
Any party may, after (if and to the extent practicable) prior notification
to the other parties, make an announcement concerning this agreement if
required by: (i) law; or (ii) any of the Initial Project Documents or the
Definitive Agreements; or (iii) any securities exchange or regulatory or
governmental body to which that party is subject, wherever situated,
whether or not the requirement has the force of law.
14.3 DURATION OF RESTRICTIONS
The restrictions contained in this clause 14 shall continue to apply to
each party (including any Shareholder who has ceased to hold Shares) for 5
years after termination of this agreement.
15. VOTING UNDERTAKINGS
Each Shareholder shall exercise its voting rights and other rights as
members of the Company in order to procure (insofar as they are able to do
so through the exercise of such rights) that the Company complies with the
provisions of this agreement. Each Shareholder shall procure that any
Director appointed by it from time to time shall (subject to their
fiduciary duties to the Company) exercise their voting rights and other
powers and authorities in order to procure (insofar as they are able to do
so through the exercise of such rights, powers and authorities) that the
Company complies with the provisions of this agreement.
<PAGE> 20
20
PART 6
GENERAL PROVISIONS
16. RESTRICTIVE TRADE PRACTICES ACT 1976
If this agreement (which for the purposes of this clause 16 includes any
other agreement or arrangement of which it forms part) contains any
provision which causes or would cause it to be subject to registration
under the Restrictive Trade Practices Act 1976, and if it is not a
non-notifiable agreement under that Act, that provision will not take
effect until the day after particulars of this agreement have been
furnished to the Director General of Fair Trading in accordance with
section 24 of that Act.
17. ASSIGNMENT
This agreement shall be binding on and inure for the benefit of each
party's successors in title but (subject to clause 11.3(h)) no party shall
assign all or any part of the benefit of, or its rights or benefits under,
this agreement without the prior written consent of the other parties (such
consent not to be unreasonably withheld), provided that:
(i) any A Shareholder may (subject to paragraph (ii) below) assign all or
any part of the benefit of, or its rights or benefits under this
agreement to any member of its Group; and
(ii) each A Shareholder expressly acknowledges that any such assignment to
another member of its Group shall not in any respect release it from
any of its obligations under this agreement which shall continue in
full force and effect, unless otherwise agreed in writing by all other
A Shareholders.
18. ENTIRE AGREEMENT
(a) WHOLE AND ONLY AGREEMENT: This agreement and the other Definitive
Agreements together constitute the whole and only agreement between the
parties relating to the Company and its business and assets.
(b) PRE-CONTRACTUAL STATEMENTS SUPERSEDED: Except to the extent repeated in
this agreement or any Definitive Agreement, this agreement and the
Definitive Agreements supersede and extinguish any Pre-contractual
Statement. Each party acknowledges that in entering into this agreement and
the Definitive Agreements it is not relying upon any Pre-contractual
Statement which is not set out in this agreement or in a Definitive
Agreement. For this purpose "PRE-CONTRACTUAL STATEMENT" means a draft,
agreement, undertaking, representation, warranty, promise, assurance or
arrangement of any nature whatsoever, whether or not in writing, relating
to the Company and its business and assets made or given by a party to this
agreement or any Definitive Agreement or any other person at any time prior
to the execution of this agreement or any Definitive Agreement.
(c) EXCLUSION OF OTHER RIGHTS OF ACTION: None of the parties shall have any
right of action against any other party to this agreement arising out of or
in connection with any Pre-contractual Statement (except in the case of
fraud) except to the extent repeated in this agreement or in a Definitive
Agreement.
(d) RESTRICTIONS ON COLLATERAL ARRANGEMENTS: No Shareholder shall enter into
any agreement, arrangement or understanding with any person (whether
legally binding or not) which imposes
<PAGE> 21
21
(directly or indirectly) obligations or restrictions with respect to the
exercise of any voting rights attached to any Share, other than as set out
or referred to in this Agreement.
(e) VARIATION: This agreement may only be varied in writing signed by each of
the parties.
(f) CONFLICT WITH ARTICLES OF ASSOCIATION: In the event of any ambiguity or
discrepancy between the provisions of this agreement and the Articles of
Association, then as between the Shareholders the provisions of this
agreement shall prevail. Each of the Shareholders shall exercise all voting
and other rights and powers available to it so as to give effect to the
provisions of this agreement and, if necessary, to procure (so far as it is
able to do so) any required amendment to the Articles of Association.
19. NOTICES
(a) NOTICES TO BE IN WRITING: A notice or other communication required or
permitted under this agreement shall be given in writing and shall be
delivered personally or sent by prepaid telegram or by telex or by
facsimile transmission, or by post or by reputable international courier.
(b) NOTICES EFFECTIVE ON RECEIPT: Such notice or other communication shall be
deemed to have been effectively given:
(i) if delivered personally or sent by prepaid telegram, at the time of
delivery at the correct address;
(ii) if sent by facsimile, at the time of despatch if the correct facsimile
number appears on the relevant transmission report;
(iii) if sent by reputable international courier, two days following the
date of despatch;
(iv) if sent by post, ten days following the date of posting.
(c) ADDRESSES: Notices and other communications under this agreement shall be
delivered to the address of the intended recipient as set out below:
If to Alcatel
26 Ave Jean-Francois
Champollion BP
1187-31037
Facsimile no. 33 (0)5 34 35 51 32
Attention: Mr. Alain Roger
<PAGE> 22
22
If to Loral
c/o Loral Spacecom Corporation
600 Third Avenue,
New York, New York 10016
U.S.A.
Facsimile no. 212 338 5350
Attention: Eric J. Zahler
If to JSH
c/o SCIENTIFIC CONSULTING Dr Schulte-Hillen
GmbH
Mathias-Bruggen Stra(beta)e 87-89
D-50829 Koln,
Germany
Facsimile no. 0049 221 597 0049
Attention: Beatrix von Wietersheim
(Private and Confidential)
If to the Company
26 Ave Jean-Francois
Chaupollion BP
1187-31037
France
Facsimile no. 33 (0)5 34 35 51 32
Attention: Mr Alain Roger
Any party may change its address and other details on giving notice to the
other parties of the change.
(d) SERVICE OF SERVICE DOCUMENTS: The provisions of this clause 19 shall not
apply in relation to the service of Service Documents.
<PAGE> 23
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20. EXERCISE OF RIGHTS AND REMEDIES
(a) DELAY: No delay or omission by any party to this agreement in exercising
any right, power or remedy provided by law or under this agreement shall
affect, or operate as a waiver of, that right, power or remedy.
(b) PARTIAL EXERCISE: The single or partial exercise of any right, power or
remedy provided by law or under this agreement shall not preclude any other
or further exercise of it or the exercise of any other right, power or
remedy.
(c) REMEDIES NON-EXCLUSIVE: The rights, powers and remedies provided in this
agreement are cumulative and not exclusive of any rights, powers and
remedies provided by law.
(d) ENFORCEMENT: Notwithstanding any express remedies provided under this
agreement and without prejudice to any other right or remedy which any
party may have, each party acknowledges and agrees that damages alone may
not be an adequate remedy for any breach by it of the provisions of this
agreement, so that in the event of a breach or anticipated breach of such
provisions, the remedies of injunction and/or an order for specific
performance would in appropriate circumstances be available.
21. INVALIDITY AND SEVERABILITY
If at any time any provision of this agreement is or becomes illegal,
invalid or unenforceable in any respect under the law of any jurisdiction,
that shall not affect or impair:-
(i) the legality, validity or enforceability in that jurisdiction of any
other provision of this agreement; or
(ii) the legality, validity or enforceability under the law of any other
jurisdiction of that or any other provision of this agreement.
22. NO PARTNERSHIP
Nothing in this agreement and no action taken by the parties under this
agreement shall constitute a partnership, association, or other
co-operative entity between any of the parties or constitute any party the
agent of any other party for any purpose.
23. COSTS AND EXPENSES
Except as otherwise stated in this agreement, each party shall pay its own
costs and expenses in relation to the negotiation, preparation, execution
and carrying into effect of this agreement and the Definitive Agreements.
24. COUNTERPARTS
This agreement may be executed in any number of counterparts, and by the
parties on separate counterparts, but shall not be effective until each
party has executed at least one counterpart. Each counterpart shall
constitute an original of this agreement, but all the counterparts shall
together constitute but one and the same instrument.
<PAGE> 24
24
25. CHOICE OF GOVERNING LAW
This agreement is to be governed by and construed in accordance with
English law.
26. JURISDICTION
(a) JURISDICTION OF ENGLISH COURTS: Subject to clause 28, the courts of England
are to have jurisdiction to settle any dispute arising out of or in
connection with this agreement. Any proceeding, suit or action arising out
of or in connection with this agreement ("PROCEEDINGS") may therefore be
brought in the English courts. This jurisdiction agreement is irrevocable
and each Shareholder and the Company agrees that it is for the exclusive
benefit of the other Shareholder.
(b) RIGHT TO TAKE PROCEEDINGS: Nothing contained in this clause 26 shall limit
either Shareholder's right to take Proceedings against the other
Shareholder or the Company in any other court or in the courts of more than
one jurisdiction at the same time.
(c) WAIVER OF OBJECTIONS: Each party irrevocably waives any objection, on the
ground of forum non conveniens or on any other ground, to the taking of
Proceedings in any court referred to in this clause 26. Each party also
irrevocably agrees that a judgement in Proceedings brought in any
jurisdiction referred to in this clause 26 shall be conclusive and binding
upon it and may be enforced in any other jurisdiction.
27. AGENT FOR SERVICE
(a) APPOINTMENT OF AGENT(S): Alcatel irrevocably appoints Alcatel Network
Systems Limited of Alcatel Court, 19 George Street, Banbury, Oxon OX16 8BH
to be its agent for the service of process in England, Loral irrevocably
appoints Willkie, Farr & Gallagher of 35 Wilson Street, London EC2M 2UA to
be its agent for service and process in England and JSH appoints Ashurst
Morris Crisp (Attn: Graeme Ward) of Broadwalk House, 5 Appold Street,
London EC2A 2HA to be his agent for service of process in England. Each of
the Shareholders agrees that any writ, summons, order, judgement or other
process issued out of the courts of England and Wales in connection with
any Proceedings ("SERVICE DOCUMENT") may be effectively served on it in
connection with Proceedings in England and Wales by service on its agent.
(b) SERVICE OF SERVICE DOCUMENTS: Any Service Document shall be deemed to have
been duly served if addressed to the relevant agent for service of process
at the applicable address specified in clause 27(a) or such other address
within England or Wales as may be notified and:
(i) left at the specified address; or
(ii) sent to the specified address by first class post.
In the case of (i), the Service Document shall be deemed to have been duly
served when it is left. In the case of (ii), the Service Document shall be
deemed to have been duly served two clear business days after the date of
posting.
(c) APPOINTMENT OF REPLACEMENT AGENT: If the agent at any time ceases for any
reason to act as such, Alcatel, Loral or JSH (as the case may be) shall
appoint a replacement agent having an address for service in England or
Wales and shall notify the other parties of the name and address of the
replacement agent. Failing such appointment and notification, the Company
shall be entitled by notice to Alcatel, Loral or JSH (as the case may be)
to appoint a replacement agent to act on Alcatel, Loral or JSH (as the case
may be) behalf. The provisions of this clause 27 applying to service on an
agent apply equally to service on a replacement agent.
<PAGE> 25
25
(d) COPIES OF SERVICE DOCUMENTS: A copy of any Service Document served on an
agent shall be sent by post to Alcatel, Loral or JSH (as the case may be).
Failure or delay in so doing shall not prejudice the effectiveness of
service of the Service Document.
28. DISPUTE RESOLUTION
28.1 INITIAL DISPUTE RESOLUTION MEETING
If any disagreement or dispute arises under or in connection with this
agreement which the relevant parties are unable to resolve, any of the
parties to such disagreement or dispute may (without prejudice to those
matters which are specifically required to be referred to an Expert or to
clause 6.1 or 6.2) notify the other relevant parties to such dispute
pursuant to this clause and request that a meeting of the Executive
Committee be held as soon as reasonably practicable to discuss and attempt
to resolve the disagreement or dispute.
28.2 MEMORANDUM OF THE MATTER IN DISPUTE
If any of the parties gives notice of a disagreement or dispute pursuant to
clause 28.1 which the parties to such disagreement or dispute are unable to
resolve through the Executive Committee within a period of 5 (five)
business days of such notice being given, or such further time as the
parties to such disagreement or dispute may agree, or if a meeting of the
Executive Committee is not held within such period, then (save in the case
of those matters which are specifically required to be referred to an
Expert under this Agreement and without prejudice to clause 6.1 and 6.2),
any party may give written notice to the other pursuant to this clause
after which, within 30 (thirty) business days of the date of service of
such notice, each party shall prepare and send to the other party a
memorandum stating its understanding of the matter in dispute or
disagreement, its position in relation to such dispute or disagreement, its
reasons for taking such position and any proposals for resolving such
dispute or disagreement.
28.3 FURTHER EXECUTIVE COMMITTEE MEETING
If within 5 (five) business days from the delivery of the memoranda
referred to in clause 28.2, the parties shall have failed to resolve the
dispute or disagreement, a further meeting of the Executive Committee shall
be held as soon as reasonably practicable to discuss the dispute or
disagreement and each party shall use its reasonable endeavours to procure
that the dispute or disagreement is resolved.
28.4 ARBITRATION
If any such claim, dispute or difference is not resolved within 60 (sixty)
days of the notice under clause 28.1 being given, or such further time as
the parties to such claim, dispute or difference may agree, any claim or
dispute or difference arising out of or under or in connection with this
Agreement (if it arises under clause 3 (Operations), clause 4 (Management
Planning and Budgets) or clause 8.4 (Borrowing and Guarantees)) shall be
fully resolved by an arbitration by three arbitrators under the Rules on
Conciliation and Arbitration of the International Chamber of Commerce,
which Rules are deemed incorporated by reference into this clause 28, in
each case as such Rules may be amended by agreement between the parties to
such claim, dispute or difference or as ordered by their arbitrators.
<PAGE> 26
26
28.5 ARBITRATORS' DECISION FINAL
The decision of any arbitrators appointed pursuant to clause 28.4 shall be
final, conclusive and binding on the parties hereto without right of appeal
and may be enforced in any court of competent jurisdiction.
28.6 LANGUAGE
Any arbitration hereunder shall be held in London and shall be conducted in
the English language.
<PAGE> 27
27
SCHEDULES
SCHEDULE 1:
EXTRAORDINARY DECISIONS
PART I:
MATTERS TO WHICH, ON DEADLOCK, COMPULSORY SALE AND PURCHASE PROVISIONS APPLY
Constitution and Existence
(1) any amendment to the memorandum or articles of association of the Company
or any change to the rights attaching to any class of shares in the
Company;
(2) taking steps to commence Insolvency Proceedings in respect of the Company
or the making of any settlement with creditors generally;
(3) the merger and consolidation of the Company with any other person or
entity;
Equity and debt financing
(4) the creation, issue or allotment of any share or loan capital of the
Company or the creation of any option or right to subscribe or acquire or
convert any security into any share or loan capital of the Company (other
than in accordance with the terms of this agreement or pursuant to and in
accordance with the terms of any convertible security, the terms of which
have been approved in accordance with the terms of this agreement) or the
redemption or other repayment prior to its stated maturity of any equity or
debt security issued by the Company (it being expressly understood and
agreed that the provision of Bridge Finance or other interim funding
pursuant to the provisions of Schedule 4 shall not constitute an
Extraordinary Decision which is subject to clause 6.1);
(5) the raising of any loan or credit or the variation or termination of any
agreement for the raising of any loan or credit by the Company or the
entering into any leasing, hire purchase or deferred payment agreement or
any other indebtedness in respect of borrowed money, other than in
accordance with the terms of this agreement or any overdraft or other
banking facility established in the ordinary course of business and
contemplated by the Business Plan or Annual Budget currently in force) (it
being expressly understood and agreed that the provision of Bridge Finance
or other interim funding pursuant to the provisions of Schedule 4 shall not
constitute an Extraordinary Decision which is subject to clause 6.1);
(6) the repayment by the Company of any Shareholder Loan (as defined in the
Agreement relating to Shareholders Loans) or the payment of interest
thereon by the Company;
Business
(7) any material expansion in the nature and any material change in the scope
of the Business, including the introduction of any field of activity;
(8) any amendment, variation or termination of the Loral Global Alliance Policy
Statement;
Assets
(9) any disposal of all or substantially all of the assets of the Company;
Transactions with related parties
(10) the entering into or variation of any transaction by the Company with a
Shareholder or any Affiliate thereof or any Director or officer of the
Company or of any Subsidiary of the Company which is not
<PAGE> 28
28
a wholly owned Subsidiary, in all such cases other than pursuant to the
Definitive Agreements (but it being expressly understood and agreed that
the matters specified in paragraphs (11) and (12) below shall constitute
Extraordinary Decisions subject to clause 6.1);
(11) the exercise of the Company's option to launch the Second Satellite
pursuant to the E*S System Contract;
(12) the voluntary termination by the Company of the E*S System Contract;
Subsidiaries
(13) the formation of any subsidiary and the effecting of any of the matters
specified in this Part I by a Subsidiary of the Company.
PART 2:
MATTERS FOR WHICH, ON DEADLOCK, ALCATEL'S DECISION SHALL PREVAIL
Capital Expenditure
(14) any capital expenditure or commitment of the Company or any Subsidiary
which is not accounted for in the Business Plan in force for the time being
(including, without limitation, expenditure relating to construction,
launch and operation of additional satellites);
Distributions
(15) the declaration or payment of any dividend or other distribution or any
resolution to retain or allocate profits or the repayment of capital or
assets to members;
Transactions
(16) the entering into, variation or termination of any agreement or arrangement
outside the ordinary course of the Business (including, without limitation,
the initiation or settlement of litigation or arbitration proceedings where
the disputed amounts exceed US$500,000) which does not otherwise involve an
Extraordinary Decision;
Assets
(17) any subscription for, acquisition or disposal of any securities in or the
assets of any person by the Company or making, varying or terminating any
arrangements for any joint venture, partnership or consortium;
(18) making any investment, or the liquidation of any investment made by the
Company, in any other person or business;
Subsidiaries
(19) the effecting of any of the matters specified in this Part 2 by a
Subsidiary of the Company.
PART 3:
BUSINESS PLAN AND ANNUAL BUDGETS
(20) the adoption of any Business Plan (other than the Initial Business Plan) or
approval of any amendment to any Business Plan, or the approval or
ratification of any departure from the current Business Plan;
<PAGE> 29
29
(21) the adoption of any Annual Budget or any amendment thereto or the approval
or ratification of any departure from the current Annual Budget.
<PAGE> 30
SIGNATURES
Signed by ALAIN ROGER
for and on behalf of
ALCATEL SPACECOM SOCIETE ALAIN ROGER
PAR ACTIONS SIMPLIFIEE (Signature of named signatory)
Signed by AVI KATZ
for and on behalf of
LORAL SPACE & COMMUNICATIONS LTD AVI KATZ
(Signature of named signatory)
Signed by
DR. JURGEN SCHULTE-HILLEN DR. JURGEN SCHULTE-HILLEN
(Signature of named signatory)
Signed by ALAIN ROGER
for and on behalf of
EUROPE*STAR LIMITED ALAIN ROGER
(Signature of named signatory)
<PAGE> 1
EXECUTION COPY
LORAL SPACE & COMMUNICATIONS LTD.
$350,000,000
9-1/2% Senior Notes due 2006
REGISTRATION RIGHTS AGREEMENT
New York, New York
January 21, 1999
Lehman Brothers Inc.
Bear, Stearns & Co. Inc.
Donaldson, Lufkin & Jenrette
Securities Corporation
C.E. Unterberg, Towbin
CIBC Oppenheimer Corp.
ING Baring Furman Selz LLC
c/o Lehman Brothers Inc.
3 World Financial Center
200 Vesey Street
New York, New York 10285
Ladies and Gentlemen:
Loral Space & Communications Ltd., a Bermuda company (the "Company"),
proposes, subject to the terms and conditions stated in a purchase agreement
dated January 15, 1999 (the "Purchase Agreement"), to issue and sell to you (the
"Initial Purchasers") $350,000,000 aggregate principal amount of 9-1/2% Senior
Notes due 2006 (the "Notes"). The Notes will be issued pursuant to an indenture
dated as of January 15, 1999 (the "Indenture"), between the Company and The Bank
of New York, as trustee (the "Trustee"). This Agreement will have no force and
effect until the Notes are issued. As an inducement to the Initial Purchasers,
the Company hereby agrees with the several Initial Purchasers, for the benefit
of the holders of the Notes (including, without limitation, the Initial
Purchasers), the Exchange Notes (as defined below) and the Private Exchange
Notes (as defined below)(collectively, the "Holders"), as follows:
1 Registered Exchange Offer. The Company shall, at its cost and
expense, prepare and, not later than 90 days after (or if the 90th day is
not a business day, the first business day thereafter) the Issue Date (as
defined in the Indenture) of the Notes, file with the Securities and
Exchange Commission (the "Commission") a registration statement (the
"Exchange Offer Registration Statement") on an appropriate form under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to
a proposed offer (the "Registered Exchange Offer") to the Holders of
Transfer Restricted Notes (as defined in Section 6(e)), who are not
prohibited by any law or policy of the Commission from participating in the
Registered Exchange Offer, to issue and deliver to such Holders, in
exchange for the Notes, a like aggregate principal amount of debt
securities (the "Exchange Notes") of the Company issued under the Indenture
and identical in all material respects to the Notes (except for the
transfer restrictions relating to the Notes) that would be registered under
the Securities Act. The Company shall use reasonable efforts to cause such
Exchange Offer Registration Statement to become effective under the
Securities Act within 210 days (or if the 210th day is not a business day,
the first business day thereafter) after the Issue Date of the Notes and
shall keep the Exchange Offer Registration Statement effective for not less
than 30 days (or longer if required by applicable law or the policy of the
Commission) after the date on which notice of the Registered Exchange Offer
is mailed to the Holders (such period being called the "Exchange Offer
Registration Period").
If the Company effects the Registered Exchange Offer, the Company will be
entitled to close the Registered Exchange Offer 30 days after the commencement
thereof; provided, however, that the Company has accepted all the Notes
theretofore validly tendered in accordance with the terms of the Registered
Exchange Offer.
Following the declaration of the effectiveness of the Exchange Offer
Registration Statement, unless the Registered Exchange Offer would not be
permitted by applicable law or the Commission's policy, the Company shall
promptly commence the Registered Exchange Offer, it being the objective of such
Registered Exchange Offer to enable each Holder of Transfer Restricted Notes
electing to exchange the Notes for Exchange Notes (assuming that such Holder is
not an affiliate of the Company within the meaning of the Securities Act,
acquires the Exchange Notes in the
<PAGE> 2
ordinary course of such Holder's business, has no arrangements with any person
to participate in the distribution (within the meaning of the Securities Act) of
the Exchange Notes and is not prohibited by any law or policy of the Commission
from participating in the Registered Exchange Offer) to trade such Exchange
Notes from and after their receipt without any limitations or restrictions under
the Securities Act and without material restrictions under the securities laws
of the several states of the United States. In connection with such Registered
Exchange Offer, the Company shall take all such reasonable further action,
including, without limitation, appropriate filings under state securities laws,
as may be necessary to realize the foregoing objective subject to the proviso of
Section 3(h).
The Company and the Initial Purchasers acknowledge that the foregoing
statement of the objective of the Registered Exchange Offer is based upon
current interpretations by the staff of the Commission's Division of Corporation
Finance, which interpretations are subject to change without notice, and further
acknowledge that, pursuant to current interpretations by the Commission's staff
of Section 5 of the Securities Act, in the absence of an applicable exemption
therefrom, (i) each Holder that is a broker-dealer electing to exchange Notes,
acquired for its own account as a result of market making activities or other
trading activities, for Exchange Notes (an "Exchanging Dealer"), is required to
deliver a prospectus containing the information set forth in Annex A hereto on
the cover, in Annex B hereto in the "Exchange Offer Procedures" section and the
"Purpose of the Exchange Offer" section, and in Annex C hereto in the "Plan of
Distribution" section of such prospectus in connection with a sale of any such
Exchange Notes received by such Exchanging Dealer pursuant to the Registered
Exchange Offer and (ii) an Initial Purchaser that elects to sell Exchange Notes
acquired in exchange for Notes constituting any portion of an unsold allotment
is required to deliver a prospectus containing the information required by Items
507 or 508 of Regulation S-K under the Securities Act, as applicable, in
connection with such sale.
The Company shall use its reasonable efforts to keep the Exchange Offer
Registration Statement effective and to amend and supplement the prospectus
contained therein in order to permit such prospectus to be lawfully delivered by
all persons subject to the prospectus delivery requirements
<PAGE> 3
of the Securities Act for such period of time as such persons must comply with
such requirements in order to resell the Exchange Notes; provided, however, that
(i) in the case where such prospectus and any amendment or supplement thereto
must be delivered by an Exchanging Dealer or an Initial Purchaser, such period
shall be the lesser of 180 days after the expiration date of the Registered
Exchange Offer and the date on which all Exchanging Dealers and the Initial
Purchasers have sold all Exchange Notes held by them (unless such period is
extended pursuant to Section 3(j) below), and (ii) the Company shall make such
prospectus and any amendment or supplement thereto available to any
broker-dealer for use in connection with any resale of any Exchange Notes for a
period not less than 90 days after the consummation of the Registered Exchange
Offer.
If, upon consummation of the Registered Exchange Offer, any Initial
Purchaser holds Transfer Restricted Notes acquired by it as part of its initial
distribution, the Company, simultaneously with the delivery of the Exchange
Notes pursuant to the Registered Exchange Offer, shall issue and deliver to such
Initial Purchaser upon the written request of such Initial Purchaser, in
exchange (the "Private Exchange") for the Transfer Restricted Notes held by such
Initial Purchaser, a like principal amount of debt securities of the Company
issued under the Indenture and identical in all material respects (including the
existence of restrictions on transfer under the Securities Act and the
securities laws of the several states of the United States) to the Transfer
Restricted Notes (the "Private Exchange Notes"); provided, however, that the
Company shall not be required to effect such exchange if, in the opinion of
counsel to the Company, such exchange cannot be effected without registration
under the Securities Act. The Private Exchange Notes shall bear the same CUSIP
number as the Exchange Notes. The Transfer Restricted Notes, the Exchange Notes
and the Private Exchange Notes are herein collectively called the "Securities".
In connection with the Registered Exchange Offer, the Company shall:
(a) mail, or cause to be mailed, to each Holder a copy of the
prospectus forming part of the Exchange Offer Registration Statement,
together with an appropriate letter of transmittal and related documents;
<PAGE> 4
(b) keep the Registered Exchange Offer open for not less than 30
calendar days (or longer, if required by applicable law or policy of the
Commission) after the date notice thereof is mailed to the Holders;
(c) utilize the services of a depositary for the Registered Exchange
Offer with an address in the Borough of Manhattan, The City of New York,
which may be the Trustee or an affiliate of the Trustee;
(d) permit Holders to withdraw tendered Transfer Restricted Notes at
any time prior to the close of business, New York time, on the last
Business Day (as defined in the Indenture) on which the Registered Exchange
Offer shall remain open;
(e) use its best efforts to consummate the Registered Exchange Offer
within 30 business days after the Exchange Offer Registration Statement is
declared effective; and
(f) otherwise comply in all material respects with all applicable law.
As soon as practicable after the close of the Registered Exchange Offer or
the Private Exchange, as the case may be, the Company shall:
(i) accept for exchange all the Transfer Restricted Notes validly
tendered and not validly withdrawn pursuant to the Registered Exchange
Offer or the Private Exchange, as the case may be;
(ii) deliver, or cause to be delivered to, the Trustee for cancelation
all the Transfer Restricted Notes so accepted for exchange; and
(iii) cause the Trustee to authenticate and promptly deliver to each
Holder of the Transfer Restricted Notes, Exchange Notes or Private Exchange
Notes, as the case may be, equal in principal amount to the Transfer
Restricted Notes of each Holder so accepted for exchange.
The Exchange Notes and the Private Exchange Notes may be issued under the
Indenture, which will provide that
<PAGE> 5
the Exchange Notes will not be subject to the transfer restrictions set forth in
the Indenture and that all the Securities will vote and consent together on all
matters as one class and that none of the Securities will have the right to vote
or consent as a class separate from one another on any matter.
Interest on the Exchange Notes and the Private Exchange Notes will accrue
from (A) the later of (i) the last interest payment date on which interest was
paid on the Securities surrendered in the exchange therefor or (ii) if the
Securities are surrendered for exchange on a date in a period which includes the
record date for an interest payment date to occur on or after the date of such
exchange and as to which interest will be paid, the date of such interest
payment date or (B) if no interest has been paid on such Securities, from the
date of original issue of the Securities.
Each Holder participating in the Registered Exchange Offer shall be
required to represent to the Company that at the time of the consummation of the
Registered Exchange Offer (i) any Exchange Notes received by such Holder will be
acquired in the ordinary course of business, (ii) such Holder will have no
arrangements or understanding with any person to participate in the distribution
of the Notes or the Exchange Notes within the meaning of the Securities Act,
(iii) such Holder is not an "affiliate", as defined in Rule 405 of the
Securities Act, of the Company or, if it is an affiliate, such Holder will
comply with the registration and prospectus delivery requirements of the
Securities Act to the extent applicable, (iv) if such Holder is not a
broker-dealer, that it is not engaged in, and does not intend to engage in, the
distribution of the Exchange Notes, and (v) if such Holder is a broker-dealer,
that it will receive Exchange Notes for its own account in exchange for Notes
that were acquired as a result of market-making activities or other trading
activities and that it will deliver a prospectus in connection with any resale
of such Exchange Notes.
Notwithstanding any other provisions hereof, the Company will ensure that
(i) any Exchange Offer Registration Statement and any amendment thereto and any
prospectus forming part thereof and any supplement thereto will comply in all
material respects with the Securities Act and the rules and regulations
thereunder, (ii) any Exchange Offer
<PAGE> 6
Registration Statement and any amendment thereto does not, when it becomes
effective, contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading and (iii) any prospectus forming part of any Exchange
Offer Registration Statement, and any supplement to such prospectus, will not
include an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; provided, however, that in no such case shall the Company be
responsible for information concerning any Initial Purchaser of the Securities
included in the Exchange Offer Registration Statement, the prospectus contained
therein, or any amendment or supplement thereto, as the case may be.
2 Shelf Registration. If (i) the Company is not required to file the
Exchange Offer Registration Statement or permitted to consummate the Registered
Exchange Offer because the Registered Exchange Offer is not permitted by
applicable law or Commission policy; or (ii) any Holder of Transfer Restricted
Notes notifies the Company prior to the 20th day following the consummation of
the Registered Exchange Offer that (A) it is prohibited by law or Commission
policy from participating in the Registered Exchange Offer, or (B) that it may
not resell the Exchange Notes acquired by it in the Registered Exchange Offer to
the public without delivering a prospectus and the prospectus contained in the
Exchange Offer Registration Statement is not appropriate or available for such
resales, or (C) that it is a broker-dealer and owns Notes acquired directly from
the Company or an affiliate of the Company, the Company shall take the following
actions:
(a) The Company shall, at its cost, use reasonable efforts to file, as
promptly as practicable (but in no event later 90 days after so required or
requested pursuant to this Section 2 with the Commission and shall
thereafter use its reasonable efforts to cause to be declared effective
within 210 days after the obligation to file such Shelf Registration
Statement arises a registration statement (a "Shelf Registration Statement"
and, together with the Exchange Offer Registration Statement, a
"Registration Statement") on an appropriate form under the Securities Act
relating to the offer and sale of
<PAGE> 7
the Transfer Restricted Notes by the Holders thereof from time to time in
accordance with the methods of distribution set forth in the Shelf
Registration Statement and Rule 415 under the Securities Act (hereinafter,
a "Shelf Registration"); provided, however, that no Holder (other than an
Initial Purchaser) shall be entitled to have the Securities held by it
covered by such Shelf Registration Statement unless such Holder agrees in
writing to be bound by all the provisions of this Agreement applicable to
such Holder (including certain indemnification obligations).
(b) The Company shall use its reasonable efforts to keep any Shelf
Registration Statement continuously effective in order to permit the
prospectus included therein to be lawfully delivered by the Holders of the
relevant Securities, until the principal of, and interest and Liquidated
Damages (if any) on, the Securities have been paid in full or such shorter
period that will terminate when all the Securities covered by the Shelf
Registration Statement (i) have been sold pursuant thereto or (ii) are
distributed to the public pursuant to Rule 144 under the Securities Act or
are saleable pursuant to Rule 144(k) under the Securities Act (in any such
case, such period being called the "Shelf Registration Period"). Subject to
Section 6(b), the Company shall be deemed not to have used its reasonable
efforts to keep a Shelf Registration Statement effective during the
requisite period if the Company voluntarily takes any action that would
result in Holders of Securities covered thereby not being able to offer and
sell such Securities during that period, unless such action is required by
applicable law; provided, however, that the Company shall not be deemed to
have voluntarily taken any such action if the Company enters, in good
faith, into negotiations concerning, or executes and delivers any agreement
or other document relating to, any business combination, acquisition or
disposition.
(c) Notwithstanding any other provisions of this Agreement to the
contrary, the Company shall cause any Shelf Registration Statement and the
related prospectus and any amendment or supplement thereto, as of the
effective date of the Shelf Registration Statement, amendment or
supplement, (i) to comply in all material respects with the applicable
requirements of the Securities Act and the rules and
<PAGE> 8
regulations of the Commission and (ii) not to contain any untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading.
3 Registration Procedures. In connection with any Shelf Registration
contemplated by Section 2 hereof and, to the extent applicable, the Registered
Exchange Offer contemplated by Section 1 hereof, the following provisions shall
apply:
(a) The Company shall (i) furnish to each Initial Purchaser, prior to
the filing thereof with the Commission, a copy of each Registration
Statement and each amendment thereof and each supplement, if any, to the
prospectus included therein and, in the event that an Initial Purchaser
(with respect to any portion of an unsold allotment from the original
offering) is participating in the Registered Exchange Offer or a Shelf
Registration Statement, shall use its reasonable efforts to reflect in each
such document, when so filed with the Commission, such comments as such
Initial Purchaser reasonably may propose; (ii) include the information set
forth in Annex A hereto on the cover, in Annex B hereto in the "Exchange
Offer Procedures" section and the "Purpose of the Exchange Offer" section
and in Annex C hereto in the "Plan of Distribution" section of the
prospectus forming a part of the Exchange Offer Registration Statement and
include the information set forth in Annex D hereto in the Letter of
Transmittal delivered pursuant to the Registered Exchange Offer; (iii) if
requested by an Initial Purchaser, include the information required by
Items 507 or 508 of Regulation S-K under the Securities Act, as applicable,
in the prospectus forming a part of the Exchange Offer Registration
Statement; (iv) include within the prospectus contained in the Exchange
Offer Registration Statement a section entitled "Plan of Distribution",
reasonably acceptable to the Initial Purchasers, which shall contain a
summary statement of the positions taken or policies made by the staff of
the Commission with respect to the potential "underwriter" status of any
broker-dealer that is the beneficial owner (as defined in Rule 13d-3 under
the Securities Exchange Act of 1934, as amended (the "Exchange Act")) of
Exchange Notes received by such
<PAGE> 9
broker-dealer in the Registered Exchange Offer (an "Exchanging Dealer"),
whether such positions or policies have been publicly disseminated by the
staff of the Commission or such positions or policies, in the reasonable
judgment of the Initial Purchasers based upon advice of counsel (which may
be in-house counsel), represent the prevailing views of the staff of the
Commission; and (v) in the case of a Shelf Registration Statement, include
the names of the Holders who propose to sell Securities pursuant to the
Shelf Registration Statement as selling securityholders.
(b) The Company shall give written notice to the Initial Purchasers
and the Holders of the Securities from whom the Company has received prior
written notice that it will be an Exchanging Dealer in the Registered
Exchange Offer (which notice pursuant to clauses (ii)-(v) hereof shall be
accompanied by an instruction to suspend the use of the prospectus until
the requisite changes have been made):
(i) when a Registration Statement or any amendment thereto has
been filed with the Commission and when the Registration Statement or
any post-effective amendment thereto has become effective;
(ii) of any request by the Commission for amendments or
supplements to a Registration Statement or the prospectus included
therein or for additional information (provided, however, that with
respect to any requests prior to the effectiveness of the Registration
Statement, the Company shall be required to give written notice only
to the Initial Purchasers and their counsel, Cravath, Swaine & Moore);
(iii) of the issuance by the Commission of any stop order
suspending the effectiveness of a Registration Statement or the
initiation of any proceedings for that purpose;
(iv) of the receipt by the Company of any notification with
respect to the suspension of the qualification of the Securities for
sale in any jurisdiction or the initiation or threatening of any
proceeding for such purpose; and
<PAGE> 10
(v) of the happening of any event that requires the Company to
make changes in the Registration Statement or the prospectus in order
that the Registration Statement or the prospectus does not contain an
untrue statement of a material fact nor omit to state a material fact
required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
(c) The Company shall make every reasonable effort to obtain the
withdrawal at the earliest possible time of any order suspending the
effectiveness of the Registration Statement.
(d) The Company shall furnish to each Holder of Securities included
within the coverage of the Shelf Registration, without charge, at least one
copy of the Shelf Registration Statement and any post-effective amendment
thereto, including financial statements and schedules, and, if the Holder
so requests in writing, all exhibits thereto (including those, if any,
incorporated by reference).
(e) The Company shall deliver to each Exchanging Dealer and each
Initial Purchaser, and to any other Holder who so requests, without charge,
at least one copy of the Exchange Offer Registration Statement and any
post-effective amendment thereto, including financial statements and
schedules, and, if any Initial Purchaser or any such Holder requests, all
exhibits thereto (including those incorporated by reference).
(f) The Company shall deliver to each Holder of Securities included
within the coverage of the Shelf Registration, without charge, as many
copies of the prospectus (including each preliminary prospectus) included
in the Shelf Registration Statement and any amendment or supplement thereto
as such person may reasonably request. The Company consents, subject to the
provisions of this Agreement, to the use of the prospectus or any amendment
or supplement thereto included in the Shelf Registration Statement by each
of the selling Holders of the Securities in connection with the offering
and sale of the Securities covered by such prospectus, or any such
amendment or supplement.
<PAGE> 11
(g) The Company shall deliver to each Initial Purchaser, any
Exchanging Dealer and such other persons required to deliver a prospectus
during the Exchange Offer Registration Period and/or Shelf Registration
Period, as applicable, without charge, as many copies of the final
prospectus included in the Exchange Offer Registration Statement and any
amendment or supplement thereto as such persons may reasonably request. The
Company consents, subject to the provisions of this Agreement, to the use
of the prospectus or any amendment or supplement thereto by any Initial
Purchaser, if necessary, any Exchanging Dealer and such other persons as
are required to deliver a prospectus following the Registered Exchange
Offer in connection with the offering and sale of the Exchange Notes
covered by the prospectus, or any amendment or supplement thereto, included
in such Exchange Offer Registration Statement, in each case in the form
most recently provided to each party by the Company.
(h) Prior to any public offering of the Securities, pursuant to any
Registration Statement, the Company shall use its reasonable efforts to
register or qualify or cooperate with the Holders of the Securities
included therein and their respective counsel in connection with the
registration or qualification of the Securities for offer and sale under
the securities or "blue sky" laws of such states of the United States as
any Holder of the Securities reasonably requests in writing and do any and
all other acts or things necessary or advisable to enable the offer and
sale in such jurisdictions of the Securities covered by such Registration
Statement; provided, however, that the Company shall not be required to (i)
qualify generally to do business in any jurisdiction where it is not then
so qualified, (ii) take any action which would subject it to general
service of process or to taxation in any jurisdiction where it is not then
so subject, (iii) register or qualify Securities or take any other action
under the securities or "blue sky" laws of any jurisdiction if, in the
judgment of the Board of Directors or such other governing body of the
Company, the consequences of such registration, qualification or other
action would be unduly burdensome to the Company or (iv) make any changes
to its organizational documents or any agreement with its equity holders.
<PAGE> 12
(i) The Company shall cooperate with the Holders of the Securities to
facilitate the timely preparation and delivery of certificates representing
the Securities to be sold pursuant to any Registration Statement free of
any restrictive legends and in such denominations and registered in such
names as the Holders may request a reasonable period of time prior to sales
of the Securities pursuant to such Registration Statement.
(j) Upon the occurrence of any event contemplated by paragraphs (ii)
through (v) of Section 3(b) above during the period for which the Company
is required to maintain an effective Registration Statement, the Company
shall promptly prepare and file a post-effective amendment to the
Registration Statement or a supplement to the related prospectus and any
other required document so that, as thereafter delivered to Holders of the
Notes or purchasers of Securities, the prospectus will not contain an
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading.
If the Company notifies the Initial Purchasers, the Holders of the
Securities and any known Exchanging Dealer in accordance with paragraphs
(ii) through (v) of Section 3(b) above to suspend the use of the prospectus
until the requisite changes to the prospectus have been made, then the
Initial Purchasers, the Holders of the Securities and any such Exchanging
Dealers shall suspend use of such prospectus, and the period of
effectiveness of the Shelf Registration Statement provided for in Section
2(b) above and the Exchange Offer Registration Statement provided for in
Section 1 above shall each be extended (i) by the number of days from and
including the date of the giving of such notice to and including the date
when the Initial Purchasers, the Holders of the Securities and any known
Exchanging Dealer shall have received such amended or supplemented
prospectus pursuant to this Section 3(j) or (ii) if earlier, until the date
when none of the Securities represent Transfer Restricted Notes (as defined
in Section 6(e)).
<PAGE> 13
(k) Not later than the effective date of the applicable Registration
Statement, the Company will provide a CUSIP number for the Transfer
Restricted Notes, the Exchange Notes or the Private Exchange Notes, as the
case may be, and provide the applicable trustee with printed certificates
for the Notes, the Exchange Notes or the Private Exchange Notes, as the
case may be, in a form eligible for deposit with The Depository Trust
Company.
(l) The Company will comply with all rules and regulations of the
Commission to the extent and so long as they are applicable to the
Registered Exchange Offer or a Shelf Registration, and the Company will
make generally available to its security holders (or otherwise provide in
accordance with Section 11(a) of the Securities Act) an earnings statement
satisfying the provisions of Section 11(a) of the Securities Act, no later
than 45 days after the end of a 12-month period (or 90 days, if such period
is a fiscal year) beginning with the first month of its first fiscal
quarter commencing after the effective date of the Registration Statement,
which statement shall cover such 12-month period.
(m) The Company shall cause the Indenture to be qualified under the
Trust Indenture Act of 1939, as amended, in a timely manner and containing
such changes, if any, as shall be necessary for such qualification. In the
event that such qualification would require the appointment of a new
trustee under the Indenture, the Company shall appoint a new trustee
thereunder pursuant to the applicable provisions of the Indenture.
(n) The Company may require each Holder of Securities to be sold
pursuant to any Shelf Registration Statement to furnish to the Company such
information regarding the Holder and the distribution of the Securities as
the Company may from time to time reasonably require for inclusion in the
Shelf Registration Statement, and the Company may exclude from such
registration the Securities of any Holder that unreasonably fails to
furnish such information within a reasonable time after receiving such
request. Each such Holder agrees to notify the Company as promptly as
practicable of any inaccuracy or change in
<PAGE> 14
information previously furnished by such Holder to the Company or of the
occurrence of any event, in either case, as a result of which any
prospectus relating to such registration contains or would contain an
untrue statement of a material fact regarding such Holder or such Holder's
intended method of distribution of such Securities, or omits to state a
material fact regarding such Holder or such Holder's intended method of
distribution of such Securities, required to be stated therein or necessary
to make the statements therein not misleading in light of the circumstances
then existing, and promptly to furnish to the Company any additional
information required to correct and update any previously furnished
information or required so that such prospectus shall not contain, with
respect to such Holder or the distribution of such Securities, an untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not
misleading in light of the circumstances then existing. Each such Holder
shall comply with the provisions of the Securities Act applicable to such
Holder with respect to the disposition by such Holder of Securities,
covered by such registration statement in accordance with the intended
methods of disposition by such Holder set forth in such registration
statement.
(o) The Company shall enter into such customary agreements (including
if requested an underwriting agreement in customary form) and take all such
other action, if any, as Holders of a majority in aggregate principal
amount of Securities being sold or the managing underwriters shall
reasonably request in order to facilitate the disposition of the Securities
pursuant to any Shelf Registration; provided, however, that in the case of
actions that facilitate the disposition of a particular Holder's
Securities, only such Holders request is required; provided further, that
the Company shall not be required to enter into any such agreement more
than once with respect to all of the Securities and may delay entering into
such agreement until the consummation of any underwritten public offering
which the Company shall have then undertaken.
(p) In the case of a Shelf Registration, the Company shall (i) make
reasonably available for
<PAGE> 15
inspection by the Holders of the Securities, any underwriter participating
in any disposition pursuant to the Shelf Registration Statement and any
attorney, accountant or other agent retained by the Holders of the
Securities or any such underwriter all relevant financial and other
records, pertinent corporate documents and properties of the Company and
(ii) cause the Company's officers, directors, employees, accountants and
auditors to supply all relevant information reasonably requested by the
Holders of the Securities or any such underwriter, attorney, accountant or
agent in connection with the Shelf Registration Statement, in each case, as
shall be reasonably necessary, in the judgment of the Holder or any such
underwriter, attorney, accountant or agent referred to in this paragraph,
to conduct a reasonable investigation within the meaning of Section 11 of
the Securities Act; provided, however, that the foregoing inspection and
information gathering shall be coordinated on behalf of the Initial
Purchasers by you and on behalf of the other parties by one counsel
designated by and on behalf of such other parties as described in Section 4
hereof and shall be expressly subject to the confidential treatment by such
parties as to all proprietary information of the Company.
(q) In the case of a Shelf Registration, the Company, if requested by
(i) Holders of a majority in aggregate principal amount of Securities, (ii)
such Holder's counsel, or (iii) the managing underwriter (if any), covered
thereby, shall use reasonable efforts to cause (x) its counsel to deliver
an opinion and updates thereof relating to the Registration Statement and
the Securities in customary form addressed to such Holders and the managing
underwriters, if any, thereof and dated the effective date of such Shelf
Registration Statement covering the matters customarily covered in opinions
of counsel requested in underwritten offerings and such other matters as
may be reasonably requested by the managing underwriter or underwriters;
(y) its officers to execute and deliver all customary documents and
certificates and updates thereof reasonably requested by any underwriters
of the applicable Securities; and (z) its independent public accountants to
provide to the selling Holders of the applicable Securities and any
underwriter therefor a comfort letter in customary form and covering
matters of the
<PAGE> 16
type customarily covered in comfort letters in connection with primary
underwritten offerings, subject to receipt of appropriate documentation as
contemplated, and only if permitted, by Statement of Auditing Standards No.
72.
(r) In the case of the Registered Exchange Offer, if requested by any
Initial Purchaser or any known Exchanging Dealer, the Company shall use
reasonable efforts to cause (i) its counsel to deliver to such Initial
Purchaser or such Exchanging Dealer a signed opinion in the form as is
customary in connection with such a Registration Statement and (ii) its
independent public accountants to deliver to such Initial Purchaser or such
Exchanging Dealer a comfort letter, in customary form.
(s) If the Registered Exchange Offer or a Private Exchange is to be
consummated, upon delivery of the Transfer Restricted Notes by Holders to
the Company (or to such other Person as directed by the Company) in
exchange for the Exchange Notes or the Private Exchange Notes, as the case
may be, the Company shall mark, or cause to be marked, on the Transfer
Restricted Notes so exchanged that such Transfer Restricted Notes are being
canceled in exchange for the Exchange Notes or the Private Exchange Notes,
as the case may be; in no event shall the Transfer Restricted Notes be
marked as paid or otherwise satisfied.
(t) In the event that any broker-dealer registered under the Exchange
Act shall underwrite any Securities or participate as a member of an
underwriting syndicate or selling group or "assist in the distribution"
(within the meaning of the Conduct Rules of the By-Laws of the National
Association of Securities Dealers, Inc. (the "NASD")) thereof, whether as a
Holder of such Securities or as an underwriter, a placement or sales agent
or a broker or dealer in respect thereof, or otherwise, the Company shall
assist such broker-dealer in complying with the requirements of such Rules
and By-Laws.
(u) The Company will use its reasonable efforts to cause the
Securities or the Exchange Securities, as applicable, covered by a
Registration Statement to continue to be rated, during the period for which
such
<PAGE> 17
Registration Statement is required to be effective, by the rating agencies
that initially rated the Securities, if so requested by Holders of a
majority in aggregate principal amount of Securities covered by such
Registration Statement or the Exchange Securities, as the case may be, or
the managing underwriters, if any.
(v) The Company shall use its reasonable efforts to take all other
steps reasonably necessary to effect the registration of the Securities
covered by a Registration Statement contemplated hereby.
4 Registration Expenses. The Company shall bear all fees and expenses
incurred in connection with the performance of the Company's obligations under
Sections 1 through 3 hereof (including the reasonable fees and expenses of one
counsel to the Initial Purchasers, incurred in connection with the Registered
Exchange Offer), whether or not the Registered Exchange Offer or a Shelf
Registration is filed or becomes effective, and, in the event of a Shelf
Registration, shall bear, or reimburse the Holders of the Securities covered
thereby for, the reasonable fees and disbursements of one firm of counsel
designated by the Holders of a majority in principal amount of the Securities
covered thereby to act as counsel for the Holders of the Securities in
connection therewith, it being understood that the Company shall not be
responsible for the fees and expenses of more than one counsel employed at any
one time; provided, however, that in an underwritten offering, the Company shall
not be responsible for any fees or expenses of any underwriter, including any
underwriting discounts or commissions, or any legal fees or expenses of counsel
to any underwriter. Notwithstanding the foregoing, the Holders of Securities
being registered shall pay all agency or brokerage fees and commissions and
underwriting discounts and commissions attributable to the sale of such
Securities and the fees and disbursements of any counsel or other advisors or
experts retained by such Holders (severally or jointly), other than the one
counsel specifically referred to above.
5 Indemnification. (a) The Company agrees to indemnify and hold harmless
each Holder of the Securities and each person, if any, who controls such Holder
or such Exchanging Dealer within the meaning of the Securities Act or the
Exchange Act (each Holder, any Exchanging Dealer and
<PAGE> 18
such controlling persons being referred to collectively as the "Indemnified
Parties") from and against any losses, claims, damages or liabilities, joint or
several, or any actions in respect thereof (including, but not limited to, any
losses, claims, damages, liabilities or actions relating to purchases and sales
of the Securities) to which each Indemnified Party may become subject under the
Securities Act, the Exchange Act or otherwise, insofar as such losses, claims,
damages, liabilities or actions arise out of or are based upon any untrue
statement or alleged untrue statement of a material fact contained in a
Registration Statement or prospectus or in any amendment or supplement thereto,
or arise out of, or are based upon, the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, and shall reimburse, as incurred, the Indemnified Parties for
any legal or other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability or action in
respect thereof; provided, however, that (i) the Company shall not be liable in
any such case to the extent that such loss, claim, damage or liability arises
out of or is based upon any untrue statement or alleged untrue statement or
omission or alleged omission made in a Registration Statement or prospectus or
in any amendment or supplement thereto or in any preliminary prospectus relating
to a Shelf Registration in reliance upon and in conformity with written
information pertaining to such Holder and furnished to the Company by or on
behalf of such Holder specifically for inclusion therein, (ii) with respect to
any untrue statement or omission or alleged untrue statement or omission made in
any prospectus relating to the registration statement, the indemnity agreement
contained in this subsection (a) shall not inure to the benefit of any person as
to which there is a prospectus delivery requirement (a "Delivering Seller") that
sold the Securities to the person asserting any such losses, claims, damages or
liabilities to the extent that any such loss, claim, damage or liability of such
Delivering Seller results from the fact that there was not sent or given to such
person, on or prior to the written confirmation of such sale, a copy of the
relevant prospectus, as amended and supplemented, provided that (A) the Company
shall have previously furnished copies thereof to such Delivering Seller in
accordance with this Agreement and (B) such furnished prospectus, as amended and
supplemented, would have corrected any such untrue statement
<PAGE> 19
or omission or alleged untrue statement or omission, and (iii) this indemnity
agreement will be in addition to any liability which the Company may otherwise
have to such Indemnified Party. The Company shall also indemnify underwriters,
their officers and directors and each person who controls such persons within
the meaning of the Securities Act or the Exchange Act to the same extent as
provided above with respect to the indemnification of the Holders of the
Securities if requested by such Holders; provided, however, that the Company
shall not indemnify any such party to the extent its liability arises from its
failure to comply with the requirements described in Annexes A, B, C and D
hereto, as updated.
(b) Each Holder of the Securities (and, if requested by the Company, each
placement agent or underwriter in connection with the registration), severally
and not jointly, will indemnify and hold harmless the Company and each person,
if any, who controls the Company within the meaning of the Securities Act or the
Exchange Act and the directors, officers, agents and employees of such
controlling persons from and against any losses, claims, damages or liabilities
or any actions in respect thereof to which the Company, any such controlling
person or director, officer, agent or employee of such controlling person may
become subject under the Securities Act, the Exchange Act or otherwise, insofar
as such losses, claims, damages, liabilities or actions arise out of or are
based upon any untrue statement or alleged untrue statement of a material fact
contained in a Registration Statement or prospectus or in any amendment or
supplement thereto or in any preliminary prospectus relating to a Shelf
Registration, or arise out of or are based upon the omission or alleged omission
to state therein a material fact necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading, but in
each case only to the extent that the untrue statement or alleged untrue
statement or omission or alleged omission was made in reliance upon and in
conformity with written information pertaining to such Holder or such
underwriter, as the case may be, and furnished to the Company by or on behalf of
such Holder or such underwriter, as the case may be, specifically for inclusion
therein; and, subject to the limitation set forth immediately preceding this
clause, shall reimburse, as incurred, the Company for any legal or other
expenses reasonably incurred by the Company or any such controlling person in
connection with investigating or defending any
<PAGE> 20
loss, claim, damage, liability or action in respect thereof. This indemnity
agreement will be in addition to any liability which such Holder or such
underwriter, as the case may be, may otherwise have to the Company or any such
controlling persons.
(c) Promptly after receipt by an indemnified party under this Section 5 of
notice of the commencement of any action or proceeding (including a governmental
investigation), such indemnified party will, if a claim in respect thereof is to
be made against the indemnifying party under this Section 5, notify the
indemnifying party of the commencement thereof; but the omission so to notify
the indemnifying party will not, in any event, relieve the indemnifying party
from any obligations to any indemnified party other than the indemnification
obligation provided in paragraph (a) or (b) above, except to the extent that it
is prejudiced or harmed in any material respect by failure to give such prompt
notice. In case any such action is brought against any indemnified party, and it
notifies the indemnifying party of the commencement thereof, the indemnifying
party will be entitled to participate therein and, to the extent that it may
wish, jointly with any other indemnifying party similarly notified, to assume
the defense thereof, with one counsel (and local counsel as necessary)
reasonably satisfactory to such indemnified party (who shall not, except with
the consent of the indemnified party, be counsel to the indemnifying party), and
after notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof the indemnifying party will not be
liable to such indemnified party under this Section 5 for any legal or other
expenses, other than reasonable costs of investigation, subsequently incurred by
such indemnified party in connection with the defense thereof. No indemnifying
party shall, without the prior written consent of the indemnified party, not to
be unreasonably withheld, effect any settlement of any pending or threatened
action in respect of which any indemnified party is or could have been a party
and indemnity could have been sought hereunder by such indemnified party unless
such settlement includes an unconditional release of such indemnified party from
all liability on any claims that are the subject matter of such action. No
indemnifying party shall be liable for any amounts paid in settlement of any
action or claim without its written consent, which consent shall not be
unreasonably withheld, but if settled in accordance with its written consent or
if there be a final
<PAGE> 21
judgment of the plaintiff in any such action, the indemnifying party agrees to
indemnify and hold harmless any indemnified party from and against any loss or
liability by reason of such settlement or judgment.
(d) If the indemnification provided for in this Section 5 is unavailable or
insufficient to hold harmless an indemnified party under subsections (a) or (b)
above for any reason other than as provided in subsection (c) above, then each
indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of the losses, claims, damages or liabilities (or
actions in respect thereof) referred to in subsection (a) or (b) above (i) in
such proportion as is appropriate to reflect the relative benefits received by
the indemnifying party or parties on the one hand and the indemnified party or
parties on the other from the exchange of the Notes, pursuant to the Registered
Exchange Offer, or (ii) if the allocation provided by the foregoing clause (i)
is not permitted by applicable law, in such proportion as is appropriate to
reflect not only the relative benefits referred to in clause (i) above but also
the relative fault of the indemnifying party or parties on the one hand and the
indemnified party or parties on the other in connection with the statements or
omissions that resulted in such losses, claims, damages or liabilities (or
actions in respect thereof) as well as any other relevant equitable
considerations. The relative fault of the parties shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company on the one hand or such Holder or
such other indemnified person, as the case may be, on the other, and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. The amount paid by an indemnified
party as a result of the losses, claims, damages or liabilities referred to in
the first sentence of this subsection (d) shall be deemed to include any legal
or other expenses reasonably incurred by such indemnified party in connection
with investigating or defending any action or claim which is the subject of this
subsection (d). Notwithstanding any other provision of this Section 5(d), the
Holders of the Securities shall not be required to contribute any amount in
excess of the amount by which the net proceeds received by such Holders from the
sale of the Securities pursuant to a Registration Statement exceeds the
<PAGE> 22
amount of damages which such Holders have otherwise been required to pay by
reason of such untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation. For purposes
of this paragraph (d), each officer, director, employee, representative and
agent of an indemnified party and each person, if any, who controls such
indemnified party within the meaning of the Securities Act or the Exchange Act
shall have the same rights to contribution as such indemnified party, and each
officer, director, employee, representative and agent of the Company and each
person, if any, who controls the Company within the meaning of the Securities
Act or the Exchange Act shall have the same rights to contribution as the
Company.
(e) The agreements contained in this Section 5 shall survive the sale of
the Securities pursuant to a Registration Statement and shall remain in full
force and effect, regardless of any termination or cancelation of this Agreement
or any investigation made by or on behalf of any indemnified party.
6 Liquidated Damages Under Certain Circumstances. (a) Additional cash
interest (the "Liquidated Damages") with respect to the Securities shall be
assessed against the Company as follows if any of the following events occurs
(each such event in clauses (i) through (iv) below a "Registration Default"):
(i) if the Company fails to file either the Exchange Offer
Registration Statement or Shelf Registration Statement on or before the
date specified for the filing thereof in Sections 1 and 2 hereof,
respectively;
(ii) if any such Registration Statement so required to be filed is not
declared effective by the Commission on or before, in the case of the
Exchange Offer Registration Statement, the date that is 210 days after the
Issue Date, and in the case of the Shelf Registration Statement, the date
that is 210 days after the obligation to file such Shelf Registration
Statement arises (each such date being hereinafter referred to as an
"Effectiveness Target Date");
<PAGE> 23
(iii) if the Company fails to consummate the Registered Exchange Offer
within 30 business days after the Effectiveness Target Date with respect to
such Registered Exchange Offer; or
(iv) if after either an Exchange Offer Registration Statement or a
Shelf Registration Statement is declared effective (A) such Registration
Statement thereafter ceases to be effective; or (B) such Registration
Statement or the related prospectus ceases to be usable (except as
permitted in paragraph (b)) in connection with resales of Transfer
Restricted Notes during the periods specified herein because either (1) any
event occurs as a result of which the related prospectus forming part of
such Registration Statement would include any untrue statement of a
material fact or omit to state any material fact necessary to make the
statements therein in the light of the circumstances under which they were
made not misleading, or (2) it shall be necessary to amend such
Registration Statement or supplement the related prospectus, to comply with
the Securities Act or the Exchange Act or the respective rules thereunder.
Liquidated Damages shall accrue on the Transfer Restricted Notes with respect to
the first 90-day period immediately following such Registration Default in an
amount equal to $.05 per week per $1,000 principal amount of Transfer Restricted
Notes held by each Holder (over and above the interest set forth in the title of
the Transfer Restricted Notes) from and including the date on which any such
Registration Default shall occur until the date on which all such Registration
Defaults have been cured. The Liquidated Damages will increase by an additional
$.05 per week per $1,000 principal amount of the Notes held by each Holder
during each subsequent 90-day period until the date on which all such
Registration Defaults have been cured; provided, however, that the rate of
Liquidated Damages shall not exceed a maximum of $.50 per week per $1,000
principal amount of the Notes held by each Holder at any time.
(b) A Registration Default referred to in Section 6(a)(iv)(B) shall be
deemed not to have occurred and be continuing in relation to a Shelf
Registration Statement or the related prospectus if (i) such Registration
Default has occurred solely as a result of (x) the filing of a post-
<PAGE> 24
effective amendment to such Shelf Registration Statement to incorporate annual
audited or, if required by the rules and regulations under the Securities Act,
quarterly unaudited financial information with respect to the Company where such
post-effective amendment is not yet effective and needs to be declared effective
to permit Holders to use the related prospectus or (y) other material events or
developments with respect to the Company that would need to be described in such
Shelf Registration Statement or the related prospectus and (ii) in the case of
clause (y), the Company is proceeding promptly and in good faith to amend or
supplement such Shelf Registration Statement and related prospectus to describe
such events; provided, however, that in no event shall the Company be required
to disclose the business purpose for such suspension if the Company determines
in good faith that such business purpose must remain confidential.
Notwithstanding the foregoing, the Company shall not be required to pay
Liquidated Damages with respect to the Securities of a Holder if the failure
arises from the Company's failure to file, or cause to become effective, a Shelf
Registration Statement within the time periods specified in this Section 6 by
reason of the failure of such Holder to provide such information as (i) the
Company may reasonably request, with reasonable prior written notice, for use in
the Shelf Registration Statement or any prospectus included therein to the
extent the Company reasonably determines that such information is required to be
included therein by applicable law, (ii) the Commission may request in
connection with such Shelf Registration Statement or (iii) is required to comply
with the agreements of such Holder as contained in Section 3(n) to the extent
compliance thereof is necessary for the Shelf Registration Statement to be
declared effective.
(c) The parties hereto agree that the Liquidated Damages provided for in
this Section constitute a reasonable estimate of and are intended to constitute
the sole damages that will be suffered by Holders of Securities by reason of the
failure of the applicable Registration Statement to be filed, to be declared
effective or to remain effective, or of the Exchange Offer to be consummated, as
the case may be, to the extent required by this Agreement.
(d Any Liquidated Damages accruing on the Transfer Restricted Notes will be
payable in cash on the regular interest payment dates (each a "Damages Payment
<PAGE> 25
Date") with respect to the Transfer Restricted Notes to the holders of record on
the applicable record date.
(e "Transfer Restricted Notes" means each Security until (i) the date on
which such Transfer Restricted Note has been exchanged by a person other than a
broker-dealer for a freely transferrable Exchange Note in the Registered
Exchange Offer, (ii) following the exchange by a broker-dealer in the Registered
Exchange Offer of a Transfer Restricted Note for an Exchange Note, the date on
which such Exchange Note is sold to a purchaser who receives from such
broker-dealer on or prior to the date of such sale a copy of the prospectus
contained in the Exchange Offer Registration Statement, (iii) the date on which
such Transfer Restricted Note has been effectively registered under the
Securities Act and disposed of in accordance with a Shelf Registration Statement
or (iv) the date on which such Transfer Restricted Note is distributed to the
public pursuant to Rule 144 under the Securities Act or is saleable pursuant to
Rule 144(k) under the Securities Act.
7. Rules 144 and 144A. The Company shall use its reasonable efforts to file
the reports required to be filed under the Securities Act and the Exchange Act
in a timely manner and, if at any time the Company is not required to file such
reports, will, upon the request of any Holder of Transfer Restricted Notes, make
publicly available other information so long as necessary to permit sales of its
securities pursuant to Rules 144 and 144A. The Company covenants that it will
take such further action as any Holder of Transfer Restricted Notes may
reasonably request, all to the extent required from time to time to enable such
Holder to sell Transfer Restricted Notes without registration under the
Securities Act within the limitation of the exemptions provided by Rules 144 and
144A (including the requirements of Rule 144A(d)(4)). The Company will provide a
copy of this Agreement to prospective purchasers of Notes identified to the
Company by the Initial Purchasers upon request. Upon the request of any Holder
of Transfer Restricted Notes, the Company shall deliver to such Holder a written
statement as to whether it has complied with such requirements. Notwithstanding
the foregoing, nothing in this Section 7 shall be deemed to require the Company
to register any of its securities pursuant to the Exchange Act.
8. Underwritten Registrations. If any of the Transfer Restricted Notes
covered by any Shelf Registration
<PAGE> 26
are to be sold in an underwritten offering, the investment banker or investment
bankers and manager or managers that will administer the offering ("Managing
Underwriters") will be selected by the Holders of a majority in aggregate
principal amount of such Transfer Restricted Notes to be included in such
offering (subject to the approval (which approval shall not be unreasonably
withheld) of the Company, provided, however, that the Company shall not be
obligated to arrange for more than one underwritten offering during the period
that such Shelf Registration is required to be effective pursuant to this
Agreement).
No person may participate in any underwritten registration hereunder unless
such person (i) agrees to sell such person's Transfer Restricted Notes on the
basis reasonably provided in any underwriting arrangements approved by the
persons entitled hereunder to approve such arrangements and (ii) completes and
executes all questionnaires, lock-up agreements, powers of attorney,
indemnities, underwriting agreements and other documents reasonably required
under the terms of such underwriting arrangements.
9. Miscellaneous. (a) Amendments and Waivers. The provisions of this
Agreement may not be amended, modified or supplemented, and waivers or consents
to departures from the provisions hereof may not be given, except by the Company
and the written consent of the Holders of a majority in principal amount of the
Securities affected by such amendment, modification, supplement, waiver or
consents.
(b) Notices. All notices and other communications provided for or permitted
hereunder shall be made in writing by hand delivery, first-class mail, facsimile
transmission, or air courier which guarantees overnight delivery:
<PAGE> 27
(1) if to a Holder of the Securities, at the most current address
given by such Holder to the Company in accordance with the provisions of
this Section 9(b), which address initially is, with respect to each Holder,
the address of such Holder to which confirmation of the sale of the Notes
to such Holder was first sent by the Initial Purchasers, with a copy in
like manner to you as follows:
Lehman Brothers Inc.
3 World Financial Center
200 Vesey Street
New York, NY 10285
Attention: Syndicate Department
with a copy to:
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, New York 10019
Fax No.: (212) 474-3700
Attention: Robert Rosenman
(2) if to the Initial Purchasers, at the addresses specified in
Section 9(b)(1);
(3) if to the Company, at its address as follows:
Loral Space & Communications Ltd.
600 Third Avenue
New York, NY 10016
Attention: Eric J. Zahler
with a copy to:
Willkie Farr & Gallagher
787 Seventh Avenue
New York, NY 10019
Fax No: (212) 728-8111
Attention: Bruce R. Kraus
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; three business
days after being deposited in the mail, postage prepaid, if mailed;
<PAGE> 28
when receipt is acknowledged by recipient's facsimile machine operator, if sent
by facsimile transmission; and on the day delivered, if sent by overnight air
courier guaranteeing next day delivery.
(c) No Inconsistent Agreements. The Company has not, as of the date hereof,
entered into, nor shall it, on or after the date hereof, enter into, any
agreement with respect to its securities that is inconsistent with the rights
granted to the Holders herein or otherwise conflicts with the provisions hereof.
(d) Successors and Assigns. This Agreement shall be binding upon the
Company and its successors and assigns.
(e) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(f) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(g) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES
OF CONFLICTS OF LAWS.
(h) Jurisdiction; Consent to Service of Process. THE COMPANY HEREBY
IRREVOCABLY AND UNCONDITIONALLY CONSENTS TO SUBMIT TO THE EXCLUSIVE JURISDICTION
OF THE COURTS OF THE STATE OF NEW YORK AND OF THE UNITED STATES DISTRICT COURTS
LOCATED IN THE CITY OF NEW YORK FOR ANY LAWSUITS, CLAIMS OR OTHER PROCEEDINGS
ARISING OUT OF OR RELATING TO THIS AGREEMENT AND AGREES NOT TO COMMENCE ANY SUCH
LAWSUIT, CLAIM OR OTHER PROCEEDING EXCEPT IN SUCH COURTS. THE COMPANY HEREBY
IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY OBJECTION TO THE LAYING OF VENUE OF
ANY LAWSUIT, CLAIM, OR OTHER PROCEEDING ARISING OUT OF OR RELATING TO THIS
AGREEMENT IN THE COURTS OF THE STATE OF NEW YORK OR THE UNITED STATES DISTRICT
COURTS LOCATED IN THE CITY OF NEW YORK, AND HEREBY FURTHER IRREVOCABLY AND
UNCONDITIONALLY WAIVES AND AGREES NOT TO PLEAD OR CLAIM IN ANY SUCH COURT THAT
ANY SUCH LAWSUIT, CLAIM OR OTHER PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN
BROUGHT IN AN INCONVENIENT FORUM. THE COMPANY HAS
<PAGE> 29
APPOINTED ERIC J. ZAHLER AT 600 THIRD AVENUE, NEW YORK, NEW YORK 10016, U.S.A.
(HEREINAFTER REFERRED TO IN SUCH CAPACITY AS THE "PROCESS AGENT"), AS ITS
AUTHORIZED AGENT UPON WHOM PROCESS MAY BE SERVED IN ANY SUCH SUIT OR PROCEEDING.
THE COMPANY REPRESENTS TO YOU THAT IT HAS NOTIFIED THE PROCESS AGENT OF SUCH
DESIGNATION AND APPOINTMENT AND THAT THE PROCESS AGENT HAS ACCEPTED THE SAME IN
WRITING. THE COMPANY HAS AUTHORIZED AND DIRECTED THE PROCESS AGENT TO ACCEPT
SUCH SERVICE. IF THE PROCESS AGENT SHALL CEASE TO ACT AS THE COMPANY'S AGENT FOR
SERVICE OF PROCESS, THE COMPANY SHALL APPOINT WITHOUT DELAY ANOTHER SUCH AGENT
AND NOTIFY YOU OF SUCH APPOINTMENT. THE COMPANY FURTHER AGREES THAT SERVICE OF
PROCESS UPON THE PROCESS AGENT AND WRITTEN NOTICE OF SAID SERVICE TO THE COMPANY
MAILED BY FIRST CLASS MAIL OR DELIVERED TO THE PROCESS AGENT SHALL BE DEEMED IN
EVERY RESPECT EFFECTIVE SERVICE OF PROCESS UPON IT IN ANY SUCH SUIT OR
PROCEEDING. NOTHING HEREIN SHALL AFFECT YOUR RIGHT OR THE RIGHT OF ANY PERSON
CONTROLLING ANY OF YOU TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW.
THE COMPANY AGREES THAT A FINAL ACTION IN ANY SUCH SUIT OR PROCEEDING SHALL BE
CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR
IN ANY OTHER LAWFUL MANNER.
(i) Severability. If any one or more of the provisions contained herein, or
the application thereof in any circumstance, is held invalid, illegal or
unenforceable, the validity, legality and enforceability of any such provision
in every other respect and of the remaining provisions contained herein shall
not be affected or impaired thereby.
(j) Securities Held by the Company. Whenever the consent or approval of
Holders of a specified percentage of principal amount of Securities is required
hereunder, Securities held by the Company or its affiliates (other than
subsequent Holders of Securities if such subsequent Holders are deemed to be
affiliates solely by reason of their holdings of such Securities) shall not be
counted in determining whether such consent or approval was given by the Holders
of such required percentage.
<PAGE> 30
If the foregoing is in accordance with your understanding of our agreement,
please sign and return to Lehman Brothers Inc. a counterpart hereof, whereupon
this Agreement will become a binding agreement among the Company and the several
Initial Purchasers in accordance with its terms.
Very truly yours,
LORAL SPACE & COMMUNICATIONS LTD.
by
/s/ Richard Townsend
----------------------------
Name:
Title:
The foregoing Registration
Rights Agreement is hereby confirmed
and accepted as of the date first
above written.
LEHMAN BROTHERS INC.
BEAR, STEARNS & CO. INC.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
C.E. UNTERBERG, TOWBIN
CIBC OPPENHEIMER CORP.
ING BARING FURMAN SELZ LLC
by LEHMAN BROTHERS INC.
by
/s/ Stephen Mehos
-------------------------
Name: Stephen Mehos
Title: Vice President
<PAGE> 31
ANNEX A
Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. The Letter of
Transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. This prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of Exchange Notes received in exchange for Notes where such Notes
were acquired by such broker-dealer as a result of market-making activities or
other trading activities. The Company has agreed that, for a period of 180 days
after the Expiration Date (as defined herein), it will make this prospectus
available to any broker-dealer for use in connection with any such resale. See
"Plan of Distribution."
<PAGE> 32
ANNEX B
Each broker-dealer that receives Exchange Notes for its own account in
exchange for Notes, where such Notes were acquired by such broker-dealer as a
result of market-making activities or other trading activities, must acknowledge
that it will deliver a prospectus in connection with any resale of such Exchange
Notes. See "Plan of Distribution."
ANNEX C
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. This
prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of Exchange Notes received in
exchange for existing Notes where such existing Notes were acquired as a result
of market-making activities or other trading activities. The Company has agreed
that, for a period of 180 days after the Expiration Date, it will make this
prospectus, as amended or supplemented, available to any broker-dealer for use
in connection with any such resale. In addition, until [ ], 1999, all dealers
effecting transactions in the Exchange Notes may be required to deliver a
prospectus. */
The Company will not receive any proceeds from any sale of Exchange Notes
by broker-dealers. Exchange Notes received by 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 Exchange 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
- --------
*/ In addition, the legend required by Item 502(e) of Regulation S-K will
appear on the back cover page of the Exchange Offer prospectus.
<PAGE> 33
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 broker-dealer for the purchasers of any
such Exchange Notes. Any broker-dealer that resells Exchange 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 Exchange Notes may be
deemed to be an "underwriter" within the meaning of the Securities Act and any
profit on any such resale of Exchange Notes and any commission 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 broker-dealer will not be
deemed to admit that it is an "underwriter" within the meaning of the Securities
Act.
For a period of 180 days after the Expiration Date the Company will
promptly send additional copies of this prospectus and any amendment or
supplement to this prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal. The Company has agreed to pay all expenses
incident to the Exchange Offer (including the reasonable expenses of one counsel
for the Holders of the Notes) other than commissions or concessions of any
brokers or dealers and will indemnify the Holders of the Securities (including
any broker-dealers) against certain liabilities, including liabilities under the
Securities Act.
<PAGE> 34
ANNEX D
_____
/____/ CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO.
Name: ____________________________________________
Address: _________________________________________
_________________________________________
If the undersigned is not a broker-dealer, the undersigned represents that it is
not engaged in, and does not intend to engage in, a distribution of Exchange
Notes. If the undersigned is a broker-dealer that will receive Exchange Notes
for its own account in exchange for Notes that were acquired as a result of
market-making activities or other trading activities, it acknowledges that it
will deliver a prospectus in connection with any resale of such Exchange Notes;
however, by so acknowledging and by delivering a prospectus, the undersigned
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act.
<PAGE> 1
EXHIBIT 12
LORAL SPACE & COMMUNICATIONS LTD.
COMPUTATION OF DEFICIENCY OF EARNINGS TO COVER FIXED CHARGES
AND RATIO OF EARNINGS TO COVER FIXED CHARGES
(in thousands, except ratios)
(Unaudited)
<TABLE>
<CAPTION>
YEARS ENDED NINE MONTHS
DECEMBER 31, ENDED
-------------------- DECEMBER 31,
1998 1997 1996
-------- -------- ------------
<S> <C> <C> <C>
Earnings:
Income (loss) before income taxes, equity in net loss
of affiliates and minority interest................. $(25,628) $126,982 $16,498
Plus fixed charges:
Interest expense.................................... 111,334 37,871 6,000
Interest component of rent expense(1)............... 6,600 4,400
Less capitalized interest.............................. 60,125 22,641
-------- -------- -------
Earnings available to cover fixed charges................ $ 32,181 $146,612 $22,498
======== ======== =======
Fixed charges(2)......................................... $172,619 $ 78,568 $ 6,000
======== ======== =======
Deficiency of earnings to cover fixed charges............ $140,438
========
Ratio of earnings to cover fixed charges................. 1.9x 3.7x
======== =======
</TABLE>
- ---------------
(1) The interest component of rent expense is deemed to be approximately 25% of
total rent expense.
(2) Fixed charges include preferred dividends as adjusted for the Company's
effective tax rate.
<PAGE> 1
Exhibit 21
LORAL SPACE & COMMUNICATIONS Ltd.
As of February 28, 1999, active subsidiaries, all 100% owned directly or
indirectly (except as noted below) consist of the following:
LORAL SPACE & COMMUNICATIONS CORPORATION DELAWARE
LORAL GENERAL PARTNER, INC. DELAWARE
LORAL HOLDINGS, INC. DELAWARE
LORAL COMMUNICATIONS SERVICES, INC. DELAWARE
LORAL ORION, INC. DELAWARE
LORAL GLOBAL SERVICES, INC. DELAWARE
LORAL ORION EUROPE, INC. DELAWARE
LORAL ORION ASIA PACIFIC, INC. DELAWARE
LORAL ORION AMERICAS, INC. DELAWARE
LORAL ORION GLOBAL SERVICES, INC. DELAWARE
ORION OLDCO SERVICES, INC. DELAWARE
LORAL ORION SERVICES, INC. DELAWARE
ORIONNET, INC. DELAWARE
ORIONNET FINANCE CORPORATION(6) DELAWARE
ORION FINANCE PARTNERSHIP DELAWARE
ORION NETWORK SYSTEMS EUROPE GMBH(1) GERMANY
LORAL SPACECOM CORPORATION DELAWARE
SPACE SYSTEMS/LORAL, INC. DELAWARE
INTERNATIONAL SPACE TECHNOLOGY, INC. (9) DELAWARE
COSMOTECH (9) RUSSIAN FEDERATION
SS/L EXPORT CORPORATION U.S. VIRGIN ISLANDS
MABUHAY SPACE HOLDINGS LIMITED (11) BERMUDA
EUROPE*STAR LIMITED (8) UNITED KINGDOM
EUROPE*STAR GESELLSCHAFT FUR DEN BETRIEB
VON NACHRICHTENSATELLITEN MBH (8) GERMANY
GLOBALSTAR, L.P.(10) DELAWARE
GLOBALSTAR CAPITAL CORPORATION (10) DELAWARE
GLOBALTEL (14) RUSSIAN FEDERATION
GLOBALTRAK PTY (10) AUSTRALIA
GLOBALSTAR SERVICES COMPANY, INC. (10) DELAWARE
GLOBALSTAR CORPORATION (10) DELAWARE
GLOBALSTAR TELECOMMUNICATION LIMITED (15) BERMUDA
LGP (BERMUDA) LTD. BERMUDA
LORAL CYBERSTAR LTD. BERMUDA
LORAL BROADBAND HOLDINGS, L.P. DELAWARE
LORAL CYBERSTAR L.L.C. DELAWARE
CYBERSTAR, L.P. (3) DELAWARE
CYBERSTAR LICENSEE, L.L.C. (3) DELAWARE
LORAL/DASA GLOBALSTAR L.P. (5) DELAWARE
LORAL/DASA DO BRASIL LTDA (5) BRAZIL
GLOBALSTAR DO BRASIL, S.A. (12) BRAZIL
LORAL GLOBAL SERVICES, N.V. NETHERLANDS ANTILLES
LORAL GLOBAL SERVICES, B.V. NETHERLANDS
EUROPE*STAR GESELLSCHAFT FUR
SATELLITENKOMMUNIKATION MBH (13) GERMANY
LORAL HOLDINGS LTD. BERMUDA
LORAL SPACE DO BRASIL LTDA. BRAZIL
LORAL SKYNET DO BRASIL LTDA. BRAZIL
LORAL ORION HOLDINGS LTD. BERMUDA
ONS-MAURITUS MAURITUS
LORAL/QUALCOMM PARTNERSHIP, L.P. (6) DELAWARE
LQ LICENSEE, L.L.C. (6) DELAWARE
LORAL/QUALCOMM SATELLITE SERVICES, L.P. (4) DELAWARE
LORAL SATMEX, LTD. BERMUDA
ENLANCES SATELLITE S. DE R.L. DE C.V. (16) MEXICO
FIRMAMENTO MEXICANO S. DE R.L. DE C.V. (16) MEXICO
SERVICOS CORPORATION SATELITALES S.A. DE C.V. (16) MEXICO
SATTELITES MEXICANOS, S.A. DE C.V. (17) MEXICO
LORAL SKYNET LTD. BERMUDA
LORAL SPACECOM DBS HOLDINGS, INC. DELAWARE
R/L DBS COMPANY L.L.C. (7) DELAWARE
LORAL SPACECOM DBS, INC. DELAWARE
CONTINENTAL SATELLITE CORPORATION (2) CALIFORNIA
TABLE
(1) ONLY 99.5% OWNED DIRECTLY OR INDIRECTLY
(2) ONLY 86% OWNED DIRECTLY OR INDIRECTLY
(3) ONLY 85.6% OWNED DIRECTLY OR INDIRECTLY
(4) ONLY 75.2% OWNED DIRECTLY OR INDIRECTLY
(5) ONLY 66.7 OWNED DIRECTLY OR INDIRECTLY
(6) ONLY 51% OWNED DIRECTLY OR INDIRECTLY
(7) ONLY 50% OWNED DIRECTLY OR INDIRECTLY
(8) ONLY 46.6% OWNED DIRECTLY OR INDIRECTLY
(9) ONLY 42.9% OWNED DIRECTLY OR INDIRECTLY
(10) ONLY 42.6% OWNED DIRECTLY OR INDIRECTLY
(11) ONLY 35 OWNED DIRECTLY OR INDIRECTLY
(12) ONLY 32.7% OWNED DIRECTLY OR INDIRECTLY
(13) ONLY 25% OWNED DIRECTLY OR INDIRECTLY
(14) ONLY 20.8% OWNED DIRECTLY OR INDIRECTLY
(15) ONLY 10.1% OWNED DIRECTLY OR INDIRECTLY
(16) ONLY 65% OF THE ECONOMIC INTEREST AND
49% OF THE VOTING INTEREST OWNED DIRECTLY
OR INDIRECTLY
(17) ONLY 48.8% OF THE ECONOMIC INTEREST AND
49% OF THE VOTING INTEREST OWNED DIRECTLY
OR INDIRECTLY
<PAGE> 1
EXHIBIT 23
CONSENT OF DELOITTE & TOUCHE LLP
We consent to the incorporation by reference in Registration Statement Nos.
333-26517 and 333-46401 on Form S-3 and Nos. 333-14863, 333-61723 and 333-49091
on Form S-8 of Loral Space & Communications Ltd. (a Bermuda company) of our
reports with respect to the consolidated financial statements of Loral Space &
Communications Ltd., Space Systems/Loral, Inc. and Globalstar, L.P. and the
financial statement schedule of Loral Space & Communications Ltd., appearing in
or incorporated by reference in this Annual Report on Form 10-K of Loral Space &
Communications Ltd. for the year ended December 31, 1998.
DELOITTE & TOUCHE LLP
New York, New York
March 30, 1999
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule contains summary financial information extracted from the
financial statements of Loral Space & Communications Ltd. for the fiscal year
ended December 31, 1998, and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 546,772
<SECURITIES> 0
<RECEIVABLES> 402,322
<ALLOWANCES> 2,521
<INVENTORY> 191,245
<CURRENT-ASSETS> 1,241,707
<PP&E> 1,859,466
<DEPRECIATION> 191,958
<TOTAL-ASSETS> 5,229,215
<CURRENT-LIABILITIES> 495,591
<BONDS> 0
0
735,896
<COMMON> 2,439
<OTHER-SE> 2,197,386
<TOTAL-LIABILITY-AND-EQUITY> 5,229,215
<SALES> 1,117,721
<TOTAL-REVENUES> 1,301,702
<CGS> 995,405
<TOTAL-COSTS> 1,129,874
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 51,209
<INCOME-PRETAX> (25,628)
<INCOME-TAX> (3,871)
<INCOME-CONTINUING> (185,223)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (185,223)
<EPS-PRIMARY> (0.68)
<EPS-DILUTED> (0.68)
Note: The adoption of SFAS 128 had no effect on reported earnings per share for
the year ended December 31, 1998.
</TABLE>
