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Filed Pursuant to Rule 424(b)(3)
Registration No. 333-34652
PROSPECTUS
LORAL SPACE & COMMUNICATIONS LTD.
8,000,000 SHARES OF 6% SERIES D CONVERTIBLE REDEEMABLE
PREFERRED STOCK DUE 2007
AND
20,171,152 SHARES OF COMMON STOCK
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The holders of restricted shares of our Series D preferred stock named on
pages 47 and 48 should deliver this prospectus when they offer or sell their
shares of our Series D preferred stock or shares of our common stock that may be
issued to them upon conversion of, or in connection with, dividend, redemption,
or other payments on restricted shares of our Series D preferred stock. After
that, the shares will be free of restrictions under the securities laws. We
originally issued our Series D preferred stock in a private placement in
February 2000.
At the time of the private placement, we agreed with the initial purchasers
that we would use our reasonable efforts to effect this registration after the
closing and to keep it in effect for up to two years after our Series D
preferred stock was originally issued. The named selling stockholders may resell
their shares despite any restrictive legends on the face of their securities if
they deliver this prospectus, unless we instruct them that they may not. Buyers
who purchase from them will receive unlegended, freely tradeable stock.
Our common stock is listed on the New York Stock Exchange under the symbol
"LOR." On May 9, 2000 the last reported sale price of our common stock was
$8.625 per share. Our Series D preferred stock is eligible for trading in the
Portal Market, a subsidiary of The Nasdaq Stock Market, Inc.
OWNERS OF OUR SERIES D PREFERRED STOCK AND COMMON STOCK FACE BUSINESS AND
FINANCIAL RISKS. A DESCRIPTION OF THOSE RISKS BEGINS ON PAGE 8.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED THESE SECURITIES OR DETERMINED THAT THIS PROSPECTUS IS
ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
May 10, 2000
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PROSPECTUS SUMMARY
The following is only a summary of some of the important terms of the
offering described in this prospectus. The main body of this prospectus, as well
as documents and financial statements that are incorporated by reference,
contain more detailed information regarding Loral. Loral is referred to in this
prospectus as "we," "our," "us," or "Loral." In the context of our business
activities, these terms refer to both Loral, the parent company, and its
operating subsidiaries, divisions and affiliates.
We are a holding company. Our principal operating subsidiaries are: Loral
Skynet, a division of Loral SpaceCom Corporation; Loral CyberStar, Inc.
(formerly known as Loral Orion, Inc.), which we refer to as Loral CyberStar;
Space Systems/Loral, our satellite manufacturing company, known as SS/L; and our
82% owned subsidiary CyberStar, L.P. We refer to Loral CyberStar and CyberStar,
L.P., which implement our data services business, collectively as the Loral
CyberStar Group. Loral's principal operating affiliates, which are less than 50%
owned, are Satelites Mexicanos, S.A. de C.V., referred to as Satmex, Europe*Star
Limited, referred to as Europe*Star and Globalstar, L.P., referred to as
Globalstar.
Loral is one of the world's leading satellite communications companies,
with substantial activities in satellite manufacturing and satellite-based
communications services. Loral has assembled the building blocks necessary to
provide a seamless, global networking capability for the information age.
Loral's four operating segments are:
FIXED SATELLITE SERVICES
Through the Loral Global Alliance, which currently consists of Loral
Skynet, Loral CyberStar, Satmex and Europe*Star, we have become one of the
world's leading providers of satellite services using geostationary
communications satellites. We lease transponder capacity on our satellites to
our customers and provide related services. Television broadcasters and cable
programmers use our transponder capacity to assemble their programming and
advertising from diverse locations around the world, for news gathering, and for
transmission to local stations and cable companies. Our customers also use our
transponder capacity for Internet access and transmission, private voice and
data networks, business television, distance learning and direct-to-home
television.
Loral Global Alliance customers include the ABC, CBS and Fox television
networks, as well as HBO, Disney, Time Warner, Viewers Choice, the A&E
Television Network, the Playboy Channel, Televisa, TV Azteca, PSINet, Hughes
Network Systems, BellSouth and United Pan Europe Communications. The Loral
Global Alliance offers customers an integrated portfolio of satellite capacity,
with marketing efforts coordinated through Loral Skynet, which we acquired from
AT&T in 1997. As of December 31, 1999, Loral Global Alliance backlog (including
100% of Satmex backlog) totaled $1.5 billion, comprised of leases with customers
having an average term of approximately 4.5 years, using approximately 268
36 MHz transponder-equivalents, with approximately 146 additional 36 MHz
transponder-equivalents available for lease, excluding 21 36 MHz transponders
not available due to previous sales or other events.
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The Loral Global Alliance currently has ten high-power geosynchronous
satellites in orbit: the seven-satellite Telstar fleet and three Satmex
satellites, with footprints covering almost all of the world's population.
BROADBAND DATA SERVICES
Through the Loral CyberStar Group, we currently:
- deliver U.S.-based Internet content via satellite to more than 130
Internet Service Providers, or ISPs, in more than 32 foreign countries,
which reach approximately seven million residential customers around the
world;
- distribute high-speed data over private corporate very small aperture
terminal, or VSAT, networks, which reach approximately 2.5 million
corporate desktops around the world; and
- offer business television, or BTV, services by satellite to corporations
for the delivery of teleconferences, distance learning and training, and
special events.
Our broadband strategy will build on our existing resources to address both
the expanding market for today's broadband services and to become a leading
medium for delivery of even richer Internet content in the future. We have
identified two attractive opportunities for early market entry: consumer
broadband services and streaming media services.
Consumer Broadband Services. We plan to serve the growing consumer
broadband services market, initially in North America, with an affordable,
ubiquitous, two-way, high-speed Internet access service employing a hybrid
satellite/fiber network. When fully deployed, this network will be capable of
serving at least ten million homes and small businesses. The network will offer
point-to-point downlink data rates of 1.5 megabits per second and uplink data
rates of 128 kilobits per second. In addition, the system will offer streaming
multimedia in multicast mode at speeds of up to 30 megabits per second. We
intend to serve as the "wholesaler" of this connectivity service to ISPs, cable
companies, and telephone companies who will market and sell the service to their
customers as a high-value extra feature in their own portfolio of services.
Because this high-capacity system can be rapidly deployed and will be available
anywhere in the satellites' broad coverage area, end-users not served by digital
subscriber lines, or DSL, or cable modems will be an important market. And
because of the system's multimedia multicasting and competitive pricing, we
expect to compete effectively in areas served by these terrestrial services as
well. We currently estimate that the required investment for the consumer
broadband services business in North America will be approximately $3.0 billion,
with the services implemented and the associated investments made in several
phases.
Streaming Media Services. We intend to exploit the technical advantages
of satellites to deliver streaming media services more effectively than
terrestrial alternatives. Instead of flooding the Internet with multiple
point-to-point transmissions of these massive files, our system will move
content directly from its source via satellite to multiple servers located at
the "edge of the net," near the end user. This should eliminate bottlenecks,
improve quality, lower cost and expand content choices and applications. We plan
to focus our marketing
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efforts initially on our existing base of ISP and corporate customers. We intend
to enter three streaming media business segments: transport services to the
"edge of the net" for content and applications service providers; content
aggregation services for customers wishing to outsource their streaming media
distribution process; and development of a portal tailored for businesses. We
currently estimate the required investment for the streaming media services
business at approximately $500 million.
SATELLITE MANUFACTURING AND TECHNOLOGY
SS/L is one of the world's leading manufacturers of satellites and space
systems. SS/L has long been the leading supplier of satellites to Intelsat, an
international consortium of 135 member nations that is currently the world's
largest operator of commercial communications satellites. SS/L's customers also
include EchoStar, TCI, Globalstar, Sirius Satellite Radio (formerly known as CD
Radio) and Cable & Wireless Optus of Australia, as well as Loral Skynet and
other members of the Loral Global Alliance. As of December 31, 1999, SS/L's
funded backlog was $1.3 billion.
SS/L manufactures some of the world's most powerful and longest-lived
satellites. SS/L has a history of technical innovation in key areas of satellite
design, including three-axis stabilization technology, propulsion systems,
long-lived rechargeable batteries, the use of light-weight composite materials
and the first communications satellite with more than ten kilowatts of power. To
continue in this leadership position, SS/L recently announced that it will be
developing new satellites that will be 40% more powerful than its existing
satellites, significantly increasing both communications capacity and service
quality.
SS/L provides its customers with a full suite of services, including:
developing custom designs to meet their requirements, manufacturing and testing,
and arranging for launch services and insurance.
GLOBAL MOBILE TELEPHONE SERVICE
Loral is the managing general partner and 40% owner of Globalstar.
Globalstar owns and operates a 52-satellite constellation, including four
in-orbit spares, that forms the backbone of a global telecommunications network
designed to serve virtually every populated area of the world. The Globalstar
system commenced operations in the first quarter of 2000, and, as of March 31,
2000, 25 countries were in full service served by 11 gateways. These countries
include Austria, Argentina, Brazil, Canada, Greece, Italy, South Korea,
Switzerland and the United States. By the end of 2000, Globalstar's service
providers, which include France Telecom, Vodafone AirTouch, ChinaSat, Elsacom
and Dacom, plan to have billable service available in a total of approximately
120 countries.
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STRATEGIC ALLIANCES
Loral's strategy is to capitalize on its market position and advanced
technologies to offer value-added satellite-based services as part of the
evolving worldwide communications networks. Where appropriate, we seek to form
strategic alliances with major telecommunications service providers and
equipment manufacturers to enhance and expand our satellite-based service
opportunities. For example, Loral is a partner in SkyBridge, a partnership led
by Alcatel that is building a low earth orbit satellite system for the delivery
of broadband data and multimedia services worldwide. 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.
The address of Loral SpaceCom Corporation, our principal U.S. operating
subsidiary, is 600 Third Avenue, New York, New York 10016. Its telephone number
is (212) 697-1105.
SECURITIES BEING OFFERED
This prospectus covers the offer and sale of 8,000,000 shares of our Series
D preferred stock owned by the selling stockholders named on pages 47 and 48 and
20,171,152 shares of our common stock which are issuable upon conversion of our
Series D preferred stock or in connection with dividend, redemption, or other
payments thereon.
TERMS OF OUR SERIES D PREFERRED STOCK
Liquidation Preference........ Each share of our Series D preferred stock has
a "liquidation preference" of $50, which is the
amount a holder of one share of our Series D
preferred stock would be entitled to receive if
our company were to be liquidated.
Total Liquidation
Preference.................... $400 million, that is, $50 per share times
8,000,000 shares of our Series D preferred
stock.
Ranking....................... Our Series D preferred stock ranks:
- junior to all our existing and future
indebtedness and other obligations,
- junior to any of our capital stock or
preferred stock which provides that it
be ranked senior to our Series D
preferred stock,
- equal to our 6% Series C convertible
redeemable preferred stock due 2006 and
any of our preferred stock issued in
the future which provides
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that it be ranked equal with our Series D
preferred stock, and
- senior to all shares of our other
capital stock, unless the other stock
expressly provides otherwise.
Dividends..................... Dividends accrue at the rate of 6% per year and
are payable quarterly in arrears on February
15, May 15, August 15 and November 15 of each
year, starting on May 15, 2000.
Optional Conversion by
Holders....................... Holders of our Series D preferred stock have
the right to convert some or all of their
shares of our Series D preferred stock, unless
we have already redeemed or converted them. The
initial conversion price is $19.8303 per share.
At that price, holders of our Series D
preferred stock would receive 2.5214 shares of
our common stock for each $50 liquidation
preference of our Series D preferred stock
(that is, $50/$19.8303). Holders of our Series
D preferred stock will not be entitled to any
accrued dividends upon conversion. The
conversion price will be adjusted if specified
dilutive events occur.
Mandatory Conversion of Our
Series D Preferred Stock by
Us............................ Beginning on February 15, 2003, we will have
the right to cause some or all of our Series D
preferred stock to be automatically converted
into that number of shares of our common stock
as equals the liquidation preference of the
Series D preferred stock to be converted
divided by the then prevailing conversion price
(equivalent initially to a conversion rate of
$50/$19.8303, or 2.5214 shares of our common
stock for each share of our Series D preferred
stock). We may exercise this mandatory
conversion right only if our common stock is
trading at or above 115% of the then-
prevailing conversion price for at least 20 out
of 30 consecutive trading days, including the
last trading day of such period.
Mandatory Redemption of Our
Series D Preferred Stock by
Us............................ We will be required to redeem any of our Series
D preferred stock still outstanding on February
15, 2007 at a redemption price equal to 100% of
the total liquidation preference plus accrued
dividends and liquidated
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damages, if any, to that date. We may pay this
redemption in cash or shares of our common
stock (subject to some restrictions) or a
combination of the two.
Conversion Price Adjustment
Upon Certain Changes of
Control....................... Upon certain changes of control (as defined) in
which less than 50% of the consideration is
listed common stock, if the market price of our
common stock is less than the conversion price,
the conversion price will be reduced for a
30-day period to the market price of our common
stock at the time.
We Will Use the Proceeds from
the Original Sale of Our
Series D Preferred Stock for
General Corporate Purposes.... We will receive no proceeds from sales of
securities under this prospectus. We will use
the net proceeds from the original offering of
our Series D preferred stock for general
corporate purposes, including investment in our
broadband strategy and expansion of the Loral
Global Alliance by acquisition of additional
satellites and orbital slots or otherwise.
Method of Dividend, Redemption
and Other Payments............ We may at our option, make payments due on our
Series D preferred stock:
- in cash,
- by delivery of our common stock (valued
at 95% of the Average Market Value (as
defined) or, in the case of a mandatory
redemption payment, at 100% of the
Average Market Value) or
- through any combination of the two.
Limited Voting Rights......... Holders of our Series D preferred stock are
generally not entitled to any voting rights,
unless we have not declared or paid dividends
for a total of six consecutive quarterly
periods.
Registration Rights For
Holders of Our Series D
Preferred Stock............... We have agreed for the benefit of the holders
of our Series D preferred stock that we will
maintain the effectiveness, under the
Securities Act of 1933, of the shelf
registration statement that includes this
prospec-
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tus for a period of up to two years after our
Series D preferred stock was originally issued
(or less, if all restricted securities traded
under the shelf registration statement have
been sold or no longer constitute restricted
securities).
If we do not satisfy these obligations, we will
be required to pay liquidated damages.
Trading....................... Our common stock currently trades on the New
York Stock Exchange under the symbol LOR. Our
Series D preferred stock is eligible for
trading in the Portal Market, a subsidiary of
The Nasdaq Stock Market, Inc.
For detailed information regarding our Series D preferred stock, you should
refer to the section of this prospectus called "Description of Preferred Stock"
and "Description of Common Stock."
RISK FACTORS
An investment in our common stock and preferred stock involves risks that
should be considered by prospective investors. These risks are discussed in the
section of this prospectus called "Risk Factors."
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RISK FACTORS
This prospectus and the documents incorporated by reference in this
prospectus contain forward-looking statements within the meaning of Section 27A
of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934. 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.
WE HAVE SUBSTANTIAL DEBT AND GUARANTEE OBLIGATIONS.
We and our subsidiaries and operating affiliates have a significant amount
of outstanding debt and guarantee obligations. As of December 31, 1999:
- Our consolidated total debt was $2.0 billion, of which $1.0 billion was
recourse to the Loral parent company or our principal operating
subsidiary, Loral SpaceCom Corporation.
- Our unconsolidated affiliate, Globalstar, had $1.45 billion principal
amount of senior notes outstanding, $400 million of term loans
outstanding under its $500 million credit facility and vendor financing
of $394 million, of which $282 million was provided by SS/L. Two of our
subsidiaries have guaranteed Globalstar's obligations under its $500
million credit facility and secured their guarantees by a pledge of their
stock, the Telstar 6 and Telstar 7 satellites and certain other assets.
SS/L has guaranteed $11.7 million under Globalstar's $250 million credit
facility, and Loral has agreed to reimburse Lockheed Martin Corporation
up to $56 million if Lockheed Martin is required to fund its guarantee of
that credit facility, which is currently undrawn.
- Satmex, our 49%-owned Mexico affiliate, had total debt of $588 million.
We have agreed to maintain certain assets in a trust to collateralize an
obligation of Servicios Corporativos Satelitales, S.A. de C.V., the
parent company of Satmex, in which we have a 65% interest. This
obligation has an initial face amount of $125 million which accretes at
6.03% over a seven-year period, expiring in December 2004.
We intend to use our available cash ($240 million at December 31, 1999) and
the net proceeds from our February 2000 offering of our Series D preferred stock
to help pay for the growth and operation of our businesses. If any of our
subsidiaries or affiliates finds itself faced with an imminent default, we may
be faced with a choice between providing additional support to that company or
accepting the loss of some or all of our equity investment.
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.
For example, under the terms of Loral SpaceCom Corporation's credit
facility, it may pay dividends to us only if cumulative dividend payments do not
exceed 50% of its cumulative consolidated net income and the ratio of its funded
debt to EBITDA is less than 3.0 to 1.0. Loral SpaceCom Corporation's ability to
repay cash advances made to it by its
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parent is also limited to $70 million and is further subject to there being at
least $700 million in shareholders' equity.
OUR CONSUMER BROADBAND AND STREAMING MEDIA STRATEGIES ARE SUBJECT TO SUBSTANTIAL
FINANCING AND EXECUTION RISKS.
We have recently announced our consumer broadband and streaming media
strategies and are only now taking steps toward their implementation. Although
we estimate that these projects will require an investment of approximately $3.5
billion, these projected costs are not based on bids from third parties, but
rather on our own experience and estimates, so the actual cost could be
considerably more. We do not have sufficient funds on hand to finance our
anticipated share of these costs. We expect third party strategic partners to
bear a significant portion of these costs and to provide critical resources such
as access to technology, content and customers, but we have no firm commitments
from any prospective strategic partners at this time.
We will face significant competition in both these businesses from
terrestrial fiber optic, digital subscriber lines, or DSL, and broadband
wireless Internet Service Providers, or ISPs, as well as from competing
broadband satellite service providers. Competing satellite services providers
will include Hughes Network Systems, in which America Online, the nation's
largest ISP, has made a $1.5 billion investment in connection with a strategic
alliance. We expect to compete with Hughes and other satellite-based broadband
data services providers not only for customers but also for relationships with
key content and equipment providers and marketing partners and for access to the
capital markets.
The streaming and multicast media services we plan to offer are new, and
our predictions of rising demand for, and our manner of delivering, these
services may be inaccurate. Moreover, our business plan depends on the
development and volume production of low-cost customer premises equipment, and
this might not occur.
THE GLOBALSTAR SYSTEM HAS JUST COMMENCED OPERATIONS AND WE CANNOT PREDICT
CUSTOMER DEMAND FOR THE SERVICE.
Since telephone systems using low-earth orbit satellites are a new
commercial technology, we cannot predict demand for Globalstar's service. The
first company to launch service in this industry, Iridium L.L.C., filed for
bankruptcy in August 1999. More recently, Iridium announced that it was
terminating commercial service on March 17, 2000 and that it was commencing the
process of liquidating its assets. For the quarter ended March 31, 2000,
Globalstar reported revenues of $609,000. If Globalstar fails to generate
sufficient cash flow from operations through the marketing efforts of its
service providers, it will be unable to fund its operating costs or service its
debt.
GLOBALSTAR DEPENDS ON SERVICE PROVIDERS TO MARKET ITS SERVICE AND IMPLEMENT
IMPORTANT PARTS OF ITS SYSTEM AND ON OTHER THIRD PARTIES TO COMPLETE ITS SYSTEM.
Globalstar depends on independent service providers to supply ground
equipment and user terminals and to market Globalstar service in each country
where it plans to operate, and we cannot be sure that these service providers
will be successful. We expect that these
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service providers will operate in 125 countries, many of which have developing
economies. Globalstar's strategy of focusing on areas that lack basic telephone
service exposes it to the risk that customers in these countries will not be
able to afford the service.
Globalstar currently has no service provider for several important regions
and countries, including India, Malaysia, Indonesia, the Philippines and other
parts of Southeast Asia. If Globalstar cannot enlist suitable service providers
in these territories, it will not be able to offer service in those areas.
Globalstar service providers could fail to obtain local partners; to
acquire, install or adequately maintain and operate the Globalstar gateways; or
to obtain the regulatory licenses needed for service in their countries. If
Globalstar is unable to offer service in any particular region or country, it
will not benefit from the potential demand in that region or country.
IF OUR BUSINESS PLAN DOES NOT SUCCEED, OUR OPERATIONS MIGHT NOT GENERATE ENOUGH
CASH TO PAY OUR OBLIGATIONS.
For the year ended December 31, 1999, we had a deficiency of earnings to
cover fixed charges of $192 million. In addition to our debt service
requirements, our core businesses are capital intensive and need substantial
investment before returns on investment can be realized. For example,
construction of satellites to expand our fixed satellite services business and
to implement our broadband data services business will require us to make
significant expenditures. Loral CyberStar also anticipates that it will have
additional funding requirements in excess of cash from operations to fund the
purchase of very small aperture terminals, or VSATs, other capital expenditures,
senior note interest payments and other operating needs, which it will need to
secure from us or externally. We are subject to substantial financial risks from
possible delays or reductions in revenue, unforeseen capital needs or unforeseen
expenses. Our ability to meet our obligations and execute our business plan
could depend upon our ability, and that of our operating subsidiaries and
affiliates, to raise cash in the capital markets. We cannot be certain that this
source of cash will be available in the future on favorable terms, if at all.
LAUNCH FAILURES HAVE DELAYED SOME OF OUR OPERATIONS IN THE PAST AND MAY DO SO
AGAIN IN THE FUTURE.
We depend on third parties, in the United States and abroad, to launch our
satellites. Satellite launches are risky, and launch attempts have ended 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 launch failures result in uninsured economic 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.
On May 4, 1999, the Orion 3 broadcast communications satellite was placed
into a lower-than-expected orbit after its launch on a Boeing Delta III rocket.
According to Boeing, the Delta III rocket apparently failed to complete its
second stage burn, and, as a result, the satellite, manufactured by Hughes Space
and Communications Corporation,
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achieved an orbit well below the planned final altitude. As a result, the
satellite cannot be used for its intended purpose. This loss resulted in Loral
CyberStar having to refund approximately $34 million to DACOM Corporation,
representing the amount of the prepayments made by DACOM towards its purchase of
eight transponders on Orion 3.
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 significant delay in Globalstar's program schedule.
AFTER LAUNCH, OUR SATELLITES REMAIN VULNERABLE TO IN-ORBIT FAILURE, WHICH MAY
RESULT IN UNINSURED LOSSES.
Random failure of satellite components may result in damage to or loss of a
satellite before the end of its expected life. Satellites are carefully built
and tested and have certain redundant systems in case of failure. However,
in-orbit failure may result from various causes including:
- component failure;
- loss of power or fuel;
- inability to control positioning of the satellite;
- solar and other astronomical events; and
- space debris.
Repair of satellites in space is not feasible. Many factors affect the useful
lives of our satellites. These factors include:
- fuel consumption;
- 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 Loral 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 due to the loss of these revenue
producing assets. Moreover, because Globalstar has a large constellation and
will have a number of spare satellites, Globalstar currently does not intend to
insure its satellites against in-orbit failures.
Some of the satellites we currently have in-orbit have experienced
operational problems:
- In November 1995, a component on Telstar 11 malfunctioned, resulting in a
two-hour service interruption. Full service was restored using a back-up
component. If the back-up component fails, Telstar 11 would lose a
significant amount of usable capacity.
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- On April 28, 1999, Satmex's Solidaridad 1 satellite experienced a loss of
its primary satellite control processor. Service was restored after 14
hours, using the backup satellite control processor. Failure of the
backup satellite control processor would result in the loss of
Solidaridad 1.
A loss of transponders on a satellite can also adversely affect us. Prior
to its acquisition by us, Loral Skynet sold several transponders outright to
customers. Under the terms of the sales 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. Depending on the contract, Loral Skynet
may be required to replace any transponders failing to meet operating
specifications. All customers are entitled to a refund equal to the
reimbursement value in the event there is no replacement. The reimbursement
value is determined based on the original purchase price plus an interest factor
from the time the payment was received to acceptance of the transponder by the
customer, reduced on a straight-line basis over the warranty period.
WE DEPEND HEAVILY ON SPACE SYSTEMS/LORAL FOR A LARGE PORTION OF REVENUE AND
OPERATING INCOME.
SS/L generates a significant part of our revenue and operating income.
SS/L, in turn, has historically derived a large part of its revenue and
operating income from a few customers. For example, in the year ended December
31, 1999, three of SS/L's customers accounted for approximately 25%, 18% and 13%
of Loral's consolidated revenues. As a result, our revenue and operating results
would be hurt if completed or canceled contracts are not promptly replaced with
new orders. Some of SS/L's customers are start-up companies, and there can be no
assurance that these companies will have the ability to fulfill their payment
obligations under their contracts with SS/L.
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 in which 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.
SS/L MAY FORFEIT PAYMENTS FROM CUSTOMERS DUE TO SATELLITE FAILURES OR LOSSES
AFTER LAUNCH OR BE LIABLE FOR PENALTY PAYMENTS UNDER CERTAIN CIRCUMSTANCES, 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 over 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 these
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.
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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. SS/L forfeits these payments,
however, if the loss is caused by satellite failure or as a result of its own
error.
In addition, some of SS/L's contracts provide that SS/L may be liable to a
customer for penalty payments under certain circumstances, including upon late
delivery of a satellite. These payments are not insured by SS/L.
SS/L IS CURRENTLY IN ARBITRATION PROCEEDINGS WITH PANAMSAT CORPORATION OVER A
SATELLITE REFLECTOR DISPUTE.
In late 1998, following the launch of an SS/L-built satellite sold to
PanAmSat, a manufacturing error was discovered that affected the geographical
coverage of the Ku-band transponders on the satellite. On January 6, 2000,
PanAmSat filed an arbitration proceeding in connection with this error claiming
damages of $225 million for lost profits and increased sales and marketing
costs. SS/L believes it has meritorious defenses to the claim and that its
liability is limited to a loss of a portion of the applicable orbital
incentives, the estimated impact of which is included in Loral's consolidated
financial statements. PanAmSat has received a recovery from its insurance
carrier that should reduce any damage claim. While this proceeding is in its
very early stages, management believes that this matter will not have a material
adverse effect on the financial condition or results of operations of Loral.
WE FACE RISKS IN CONDUCTING BUSINESS INTERNATIONALLY.
Some of our business is conducted outside the United States. 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, UNFORESEEN
ADDITIONAL COSTS AND UNCERTAINTIES 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. 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 U.S.
government delayed a Globalstar launch from Kazakhstan by several months when it
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
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China could adversely affect our ability to launch from these countries or
materially increase the costs of doing so.
On December 23, 1998, the Office of Defense Trade Controls, or 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. In
December 1999, we concluded an agreement with ChinaSat to extend the date for
delivery of the ChinaSat-8 satellite to July 31, 2000. In return for this
extension and other modifications to the contract, we have agreed to provide the
customer two 36 MHz and one 54 MHz transponders on Telstar 10/Apstar IIR for the
life of those transponders. As a result, a net charge to earnings of $35 million
was recorded by us. If the suspension is not lifted by July 31, 2000, ChinaSat
could decide to terminate the contract. If such a termination were to occur,
SS/L would have to refund advances received from ChinaSat ($134 million as of
December 31, 1999), and may incur penalties of up to $13 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, however, that SS/L will be able to find a replacement customer for
the satellite or its Chinese launch vehicle. SS/L will record a charge to
earnings of approximately $35 million if it is unable to find a replacement
customer for this launch vehicle.
In February 1999, the U.S. government informed Hughes Space &
Communications, Inc. that it intended to deny an export license for a
telecommunications satellite it was 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.
In March 1999, jurisdiction for satellite licensing was transferred from
the Commerce Department to the State Department and the State Department has
issued regulations relating to the export of and disclosure of technical
information related to, satellites and related equipment. SS/L anticipates that
obtaining licenses and technical assistance agreements under these new
regulations will take more time and will be considerably more burdensome than in
the past. Delays in obtaining the necessary licenses and technical assistance
agreements may delay SS/L's performance on existing contracts, and, as a result,
SS/L may incur penalties or lose incentive payments under these contracts. In
addition, such delays may have an adverse effect on SS/L's ability to compete
against foreign satellite manufacturers for new satellite contracts.
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SS/L IS THE TARGET OF A GRAND JURY INVESTIGATION WHICH MAY ADVERSELY AFFECT
SS/L'S ABILITY TO EXPORT ITS PRODUCTS.
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. Under the applicable regulations, SS/L could be debarred from
export privileges without being convicted of any crime if it is indicted for
these alleged violations, and loss of export privileges would harm SS/L's
business. 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 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 some of SS/L's satellites are built for foreign customers and/or are
launched on foreign rockets, a debarment would have a material adverse effect on
SS/L's business, which in turn would affect us.
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 from taking 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 LP and has supermajority rights in
it.
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THERE ARE POTENTIAL CONFLICTING COMMERCIAL INTERESTS AMONG OUR SUBSIDIARIES AND
AFFILIATES.
Loral Skynet, Satmex, Loral CyberStar 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 CyberStar own or are building satellites
whose coverage areas overlap with those of Satmex and Europe*Star. If Loral
Skynet and Loral CyberStar do not collaborate with Satmex and Europe*Star, or
vice versa, under the Loral Global Alliance, Loral Skynet and Loral CyberStar
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, or ITU, and the European Union. As a result, some of
the activities which are important to our strategy are beyond our control. The
following are some strategically important activities which are regulated by
various government authorities:
- the expansion of Loral Skynet's operations beyond the domestic U.S.
market;
- the international service offered by the Loral CyberStar Group;
- the manufacture, export and launch of satellites;
- the expansion of Satmex's Latin American business; and
- the implementation of Europe*Star's business plan.
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, thereby, increase our cost of doing business. The regulatory process also
requires potentially costly negotiations 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. For
example, as part of our coordination effort on Telstar 12, we agreed to provide
four 54 MHz transponders on Telstar 12 to Eutelsat for the life of the
satellite. We also granted Eutelsat the right to acquire, at cost, four
transponders on the next replacement satellite for Telstar 12. Moreover, as part
of this international coordination process, we continue to conduct discussions
with various administrations regarding Telstar 12's operations at 15 degrees
W.L. If these discussions are not successful, Telstar 12's useable capacity may
be reduced. We cannot guarantee successful frequency coordination for our
satellites.
Our coordination efforts are subject to the regulatory regime of the ITU,
which has rules and regulations governing the relative rights that companies
have to orbital slots. For
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example, if Europe*Star does not have a satellite in its 45[DEGREE] E.L. orbital
location by July 2000, it would, under ITU regulations, lose its priority rights
in that slot.
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. Hughes recently agreed to sell
its satellite manufacturing operations to The Boeing Company, another large
company. 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 OTHERS FOR MARKET SHARE AND CUSTOMERS; TECHNOLOGICAL
DEVELOPMENTS FROM COMPETITORS OR OTHERS MAY REDUCE DEMAND FOR OUR SERVICES.
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 and Eutelsat. Competition in
this market may cause downward price pressures, which may adversely affect our
profits.
The Loral CyberStar Group also faces 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, digital
subscriber line, or DSL, providers, wireless local loop providers and
traditional telephone service providers. In addition, the Loral CyberStar Group
may face competition in the future from proposed satellite systems, including
Teledesic Corporation's proposed system and Hughes' Spaceway system. We cannot
assure you that the Loral CyberStar Group will attract enough customers either
to compete effectively or to implement fully its business plan.
Globalstar faces intense competition for customers from various companies,
including providers of land-based mobile phone services and fixed satellite
systems. We cannot assure you that Globalstar will attract enough subscribers
either to compete effectively or to implement fully its current business plan.
ICO Global has announced a global mobile satellite system similar to the
Globalstar system and has stated its intention to begin introducing its
satellite services in 2001. If, as expected, ICO Global emerges from its
bankruptcy proceedings with a debt-free or reduced debt capital structure, it
will be in a position to compete more effectively with Globalstar.
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.
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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.
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.
THE RIGHTS OF SHAREHOLDERS UNDER BERMUDA LAW ARE DIFFERENT FROM RIGHTS OF
SHAREHOLDERS UNDER U.S. LAW.
Since we are a Bermuda company, the principles of law that govern
shareholder rights, the validity of corporate procedures and other matters are
different from those that would apply if we were a U.S. company. For example, it
is not certain whether a Bermuda court would enforce liabilities against us or
our officers and directors based upon United States securities laws either in an
original action in Bermuda or under a United States judgment. Bermuda law giving
shareholders rights to sue directors is less developed than in the United States
and may provide fewer rights.
THERE IS NO PUBLIC MARKET FOR OUR SERIES D PREFERRED STOCK, AND NO SUCH MARKET
MAY DEVELOP.
There is no public market for our Series D preferred stock. We do not
intend to list it on any exchange or on the New York Stock Exchange. It is
possible that an active trading market will not develop or may be discontinued
and the shares of our Series D preferred stock may remain relatively illiquid.
PRICES OF OUR COMMON STOCK AND OUR SERIES D PREFERRED STOCK MAY EXPERIENCE
SUDDEN CHANGES.
Many things that we cannot predict or control may cause sudden changes in
the price of our common stock. Risks associated with the deployment and
operation of satellite systems, in particular, may cause sudden changes in the
price. For example, on September 10, 1998, the day following the loss of the
twelve Globalstar satellites in Kazakhstan, the price of our common stock fell
by 28%.
Since the value of our Series D preferred stock will be partly based on the
value of our common stock, it is also likely to have a volatile price.
THE MARKET FOR OUR STOCK COULD BE ADVERSELY AFFECTED BY SALES OF SIGNIFICANT
AMOUNTS OF OUR COMMON STOCK.
As of March 31, 2000, 295,442,287 shares of our common stock were
outstanding, including the shares of our common stock issued upon conversion by
Lockheed Martin Corporation of our Series A preferred stock. In addition, there
were 13,487,911 stock options outstanding on such date, of which 6,092,381 were
immediately exercisable,
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warrants outstanding that were exercisable for 342,071 shares of our common
stock and 13,498,313 shares of our 6% Series C preferred stock which were
convertible into 33,745,782 shares of our common stock. On April 18, 2000, our
Board of Directors approved a new "broadly-based" stock option plan for
13,000,000 shares, of which options for approximately 4,500,000 shares are
currently outstanding. Sales of significant amounts of our common stock to the
public, or the perception that those sales could happen, could affect the price
of our common stock.
On March 31, 2000, Lockheed Martin converted our Series A preferred stock
into 45,896,978 shares of our common stock, the resale of which is being
registered along with the registration of our Series D preferred stock. Lockheed
Martin may dispose of the common stock in transactions registered under, or
exempt from the registration provisions of, the federal securities laws. We have
agreed to maintain the effectiveness of the registration of the common stock
Lockheed Martin acquired upon conversion of the Series A preferred stock until
May 19, 2001, subject to certain extensions, and have agreed to refrain from
selling equity securities in the public markets for our own account until the
six-month anniversary date of this prospectus, subject to certain extensions.
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FORWARD-LOOKING STATEMENTS
Some statements contained in this prospectus or incorporated by reference
are known as "forward-looking statements," as that term is used in Section 27A
of the Securities Act and Section 21E of the Exchange Act. Forward-looking
statements may relate to, among other things, future performance generally,
business development activities, future capital expenditures, financing sources
and availability and the effects of regulation and competition.
When we use the words "believe," "intend," "expect," "may," "will,"
"should," "anticipate" or their negatives, or other similar expressions, the
statements which include those words are usually forward-looking statements.
When we describe strategy that involves risks or uncertainties, we are making
forward-looking statements.
We warn you that forward-looking statements are only predictions. Actual
events or results may differ as a result of risks that we face, including those
set forth in the section of this prospectus called "Risk Factors." Those are
representative of factors that could affect the outcome of the forward-looking
statements.
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RATIOS
LORAL SPACE & COMMUNICATIONS LTD.
RATIO OF DEFICIENCY OF EARNINGS TO COVER FIXED CHARGES AND
PREFERRED STOCK DIVIDENDS AND RATIO OF EARNINGS TO COVER
FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
The ratio of earnings to cover fixed charges and preferred stock dividends
presented below should be read together with the consolidated financial
statements and the notes accompanying them and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" found in our Annual
Report on Form 10-K for the year ended December 31, 1999 incorporated into this
prospectus by reference.
<TABLE>
<CAPTION>
NINE MONTHS YEAR
ENDED ENDED
YEARS ENDED DECEMBER 31, DECEMBER 31, MARCH 31,
------------------------ ------------ ---------
1999 1998 1997 1996 1996
-------- -------- ---- ------------ ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Deficiency of earnings to cover fixed
charges and preferred stock
dividends........................... $191,932 $140,438
Ratio of earnings to cover fixed
charges and preferred stock
dividends........................... 1.9x 3.7x
</TABLE>
USE OF PROCEEDS
We will receive no proceeds from sales of securities under this prospectus.
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DESCRIPTION OF INDEBTEDNESS
LORAL SENIOR NOTES
In January 1999, Loral completed a private offering of $350 million
principal amount of 9.5% Senior Notes due 2006, of which a portion was used to
invest in $150 million face amount of Globalstar Telecommunications Limited's
("GTL") $350 million offering of GTL Series A Preferred Stock, thereby
maintaining Loral's prior proportionate ownership position in Globalstar. The
remainder of the funds raised are being used for general corporate purposes,
including investments in its other core businesses and to pursue emerging
satellite services opportunities worldwide.
The Indenture governing the 9.5% Senior Notes due 2006 contains certain
restrictive covenants, including limitations on the ability of Loral and its
subsidiaries to borrow money, pay dividends on stock or purchase stock, make
investments, use assets as security in other transactions, and sell certain
assets or merge with or into other companies. If Loral is rated investment grade
by both Moody's and Standard & Poor's, these covenants will no longer apply,
whether or not Loral maintains such ratings.
LORAL LETTERS OF CREDIT
In addition to the letters of credit facility available under the Credit
Agreement (as defined below), as of December 31, 1999, Loral had approximately
$23 million of outstanding letters of credit.
LORAL SPACECOM CORPORATION AND SS/L CREDIT AGREEMENTS
The Amended and Restated Credit Agreement, dated as of November 10, 1999,
among Loral SpaceCom Corporation, SS/L and the banks party thereto (the "Credit
Agreement") provides for borrowing availability of $500 million of revolving
loans (including $175 million of letters of credit), $275 million of term loans
and $75 million of additional letters of credit. The revolving credit facility's
termination date is November 14, 2002. The termination date of the separate
letter of credit facility is December 31, 2000. The term loan facility requires
repayment in twelve consecutive quarterly installments beginning December 31,
1999. The first four installments are $18.75 million each, and the final eight
installments are $25 million each. Obligations under the Credit Agreement are
secured by the stock of Loral SpaceCom Corporation and SS/L and bear interest,
at Loral SpaceCom Corporation's option, at various rates based on margins over
the lead bank's base rate or the London Interbank Offer Rate for periods of one
to six months. Loral SpaceCom Corporation pays a commitment fee on the unused
portion of the facilities.
The Credit Agreement contains certain restrictive covenants, including an
interest coverage ratio, a senior debt to capitalization ratio and a funded debt
to capitalization ratio. In addition, the Credit Agreement contains limitations
on indebtedness, liens, guarantees, fundamental changes, asset sales, dividends,
investments, transactions with affiliates, intercompany debt and indebtedness to
Loral SpaceCom Corporation's parent (a wholly owned subsidiary of Loral) or
Loral. Under the terms of the Credit Agreement, Loral SpaceCom Corporation may
pay dividends to its parent if cumulative dividend payments do
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not exceed 50% of cumulative consolidated net income, as defined, and the ratio
of funded debt to EBITDA, as defined, is less than 3.0 to 1.0, provided that no
event of default has occurred. Loral SpaceCom Corporation may also pay its
parent up to $70 million in respect of cash advances from its parent so long as,
after such payment, Loral SpaceCom Corporation's shareholders' equity totals at
least $700 million. At December 31, 1999, Loral SpaceCom Corporation had equity
of approximately $1.2 billion.
As of December 31, 1999, approximately $670.5 million (excluding letters of
credit) was outstanding under the Credit Agreement.
SS/L had approximately $12.9 million in borrowings outstanding under a
Japanese Export/Import Credit Facility, which matures on November 5, 2005. The
facility requires semi-annual payments of $1.1 million on each May and November
until maturity.
LORAL CYBERSTAR SENIOR NOTES
Loral CyberStar has outstanding $443 million in principal amount of 11.25%
Senior Notes due 2007 and $484 million in principal amount of 12.50% Senior
Discount Notes due 2007. This indebtedness is non-recourse to Loral or to Loral
SpaceCom Corporation.
SATMEX
At December 31, 1999, Satmex had outstanding indebtedness of $588 million.
In addition, Servicios Corporativos Satelitales, S.A. de C.V., a wholly owned
subsidiary of a joint venture formed by Loral and Principia, S.A. de C.V.,
issued an obligation to the Mexican Government (the "Government Obligation")
with an initial face amount of $125 million in consideration for the assumption
by Satmex of the debt incurred in connection with its acquisition. The initial
face amount of the Government Obligation accretes in lieu of interest at 6.03%
over a seven-year period expiring in December 2004. 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.
GLOBALSTAR
At December 31, 1999, Globalstar had $1.45 billion principal amount of
senior notes outstanding, $400 million of term loans outstanding under its $500
million credit facility and had vendor financing of $394 million outstanding of
which $282 million has been provided by SS/L. Globalstar's indebtedness is
generally non-recourse to Loral; however, Loral is contingently liable with
respect to approximately $68 million of Globalstar's $250 million revolving line
of credit, which was undrawn as of December 31, 1999. Subsidiaries of Loral have
also guaranteed Globalstar's obligations under its $500 million credit facility
secured by a pledge of their stock, the Telstar 6 and Telstar 7 satellites and
certain other assets.
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DESCRIPTION OF PREFERRED STOCK
The following summary is not intended to be complete. For a complete
description of our Series D preferred stock and the registration rights
agreement, you should read the relevant schedule to our bye-laws and the
registration rights agreement, which are on file with the Securities and
Exchange Commission ("SEC").
The transfer agent for our Series D preferred stock will be The Bank of New
York unless we select a successor.
RANKING
Our Series D preferred stock will rank, with respect to dividend
distributions and distributions upon our liquidation, winding-up and
dissolution,
- junior to all our existing and future indebtedness and other obligations;
- junior to each class of capital stock or series of preferred stock we
establish after February 15, 2000, the terms of which expressly provide
that such class or series will rank senior to our Series D preferred
stock as to dividend distributions and distributions upon our
liquidation, winding-up and dissolution (we refer to these securities as
"Senior Securities");
- equal to our Series C preferred stock and with any shares of our
preferred stock issued in the future and any other class of capital stock
or series of preferred stock we establish after February 15, 2000, the
terms of which expressly provide that such class or series will rank on a
parity with our Series D preferred stock as to dividend distributions and
distributions upon our liquidation, winding-up and dissolution (we refer
to these securities as "Parity Securities"); and
- senior to all classes of our common stock and to each other class of
capital stock or series of our preferred stock established after February
15, 2000, the terms of which do not expressly provide that it ranks
senior to or on a parity with our Series D preferred stock as to dividend
distributions and distributions upon our liquidation, winding-up and
dissolution (we refer to these securities, together with our common
stock, as "Junior Securities").
Our Series D preferred stock will be subject to the issuance of Junior
Securities, Parity Securities and Senior Securities, provided that we may not
issue any new class of Senior Securities without the approval of the holders of
at least 66 2/3% of the shares of our Series D preferred stock then outstanding,
voting or consenting, as the case may be, together as one class.
No dividend shall be declared or paid upon, and no sum will be set apart
for the payment of dividends upon, any outstanding share of our Series D
preferred stock with respect to any dividend period unless all dividends for all
preceding dividend periods have been declared and paid, or declared and a
sufficient sum set apart for the payment of such dividends, upon all outstanding
shares of Senior Securities.
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DIVIDENDS
When, as and if the board of directors declares a dividend out of funds we
have legally available therefor, the holders of our Series D preferred stock
will be entitled to receive a dividend. Dividends:
- are cumulative from the issue date of our Series D preferred stock and
accrue at the rate per annum of 6% of the Liquidation Preference per
share;
- are payable quarterly in arrears on each February 15, May 15, August 15
and November 15 commencing on May 15, 2000 (each, a "Dividend Payment
Date") (unless such date is not a business day, in which case such
payment shall be made on the next succeeding business day), to the
holders of record as of the next preceding February 1, May 1, August 1
and November 1 (each, a "Record Date");
- are computed on the basis of a 360-day year consisting of twelve 30-day
months and are deemed to accrue on a daily basis;
- accrue whether or not we have earnings or profits, whether or not we have
funds legally available for the payment of such dividends and whether or
not we declare dividends; and
- accumulate to the extent they are not paid on the Dividend Payment Date
for the period to which they relate.
We may elect to pay dividends in cash, by delivery of our common stock or
through any combination of cash and common stock.
We will, in accordance with our Series D preferred stock schedule, take all
actions required or permitted under The Companies Act 1981 of Bermuda (the
"Companies Act") to permit the payment of dividends on our Series D preferred
stock.
No dividends of any kind shall be declared or paid upon, and no sum will be
set apart for the payment of dividends upon, any outstanding share of our Series
D preferred stock with respect to any dividend period unless all dividends for
all preceding dividend periods have been declared and paid, or declared and a
sufficient sum set apart for the payment of such dividends, upon all outstanding
shares of our Series D preferred stock.
Unless full cumulative dividends on all outstanding shares of our Series D
preferred stock for all past dividend periods shall have been declared and paid,
or declared and a sufficient sum for the payment thereof set apart, then:
- no dividend (other than a dividend payable solely in shares of any Junior
Securities or Parity Securities or a partial dividend on Parity
Securities that is paid pro rata on shares of our Series D preferred
stock) shall be declared or paid upon, or any sum set apart for the
payment of dividends upon, any shares of Junior Securities or Parity
Securities, respectively;
- no other distribution shall be declared or made upon, or any sum set
apart from the payment of any distribution upon, any shares of Junior
Securities or Parity Securities, other than a distribution consisting
solely of Junior Securities or Parity Securities, respectively;
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- no shares of Junior Securities or Parity Securities or any warrants,
rights, calls or options exercisable for or convertible into any Junior
Securities or Parity Securities shall be purchased, redeemed or otherwise
acquired (excluding an exchange for shares of other Junior Securities or
Parity Securities, respectively) by us or any of our subsidiaries; and
- no monies shall be paid into or set apart or made available for a sinking
or other like fund for the purchase, redemption or other acquisition of
any shares of Junior Securities or Parity Securities or any warrants,
rights, calls or options exercisable for or convertible into any Junior
Securities or Parity Securities by us or any of our subsidiaries.
Holders of our Series D preferred stock will not be entitled to any
dividends, whether payable in cash, property or stock, in excess of the full
cumulative dividends as described above.
In the future, we may be party to credit agreements or other agreements
relating to indebtedness that contain restrictions on our ability to pay cash
dividends on our Series D preferred stock.
MANDATORY CONVERSION
At any time on or after February 15, 2003, we may at our option cause our
Series D preferred stock, in whole or from time to time in part, to be
automatically converted into that number of shares of our common stock per share
of our Series D preferred stock equal to $50.00 (the Liquidation Preference per
share of our Series D preferred stock) divided by the then prevailing conversion
price if the Current Market Value of our common stock equals or exceeds 115% of
the then prevailing conversion price for at least 20 trading days in any
consecutive 30-day trading period, including the last trading day of such 30-day
period, ending on the trading day prior to the issuance of the press release
announcing the mandatory conversion referred to below.
To exercise a mandatory conversion, we will issue a press release
announcing such mandatory conversion prior to the opening of business on the
first trading day after the conditions described in the preceding sentence have
been met. We will give notice of the mandatory conversion by mail or by
publication (with subsequent prompt notice by mail) to the holders of our Series
D preferred stock not more than four business days after the date of the press
release announcing our intention to convert our Series D preferred stock. The
conversion date will be a date selected by us not less than 30 nor more than 60
days after the date on which we issue such press release.
In addition to any information required by applicable law or regulation,
notice of mandatory conversion shall state, as appropriate, (i) our Series D
preferred stock conversion date, (ii) the number of shares of common stock to be
issued upon conversion of each share of our Series D preferred stock, (iii) the
number of shares of our Series D preferred stock to be converted (and, if fewer
than all the shares of our Series D preferred stock are to be converted, the
number of shares of our Series D preferred stock to be converted from such
holder), (iv) the place(s) where the shares of our Series D preferred stock are
to be
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surrendered for delivery of shares of common stock, and (v) that dividends on
the shares to be converted will cease to accumulate on such mandatory conversion
date.
The dividend payment with respect to each share of our Series D preferred
stock called for mandatory conversion on a date during the period from the close
of business on any Record Date for the payment of dividends to the close of
business on the business day immediately following the corresponding Dividend
Payment Date will be payable on such Dividend Payment Date to the record holder
of such share on such Record Date if such share has been converted after such
Record Date and prior to such Dividend Payment Date. Except as provided in the
immediately preceding sentence with respect to a mandatory conversion, no
payment or adjustment will be made upon conversion of shares of our Series D
preferred stock for accumulated and unpaid dividends or for dividends with
respect to shares of our common stock issued upon such conversion.
On and after the mandatory conversion date, dividends will cease to accrue
on shares of our Series D preferred stock and all rights of holders of such
shares will terminate except for the right to receive the shares of our common
stock issuable upon conversion thereof.
We may not authorize or make any mandatory conversion unless, prior to
giving the conversion notice, all accumulated and unpaid dividends on our Series
D preferred stock for periods ended prior to the date of such conversion notice
shall have been paid in cash or common stock, and the shelf registration
statement referred to below is in effect or is no longer required to be
effective. In the event of partial mandatory conversions of our Series D
preferred stock, the shares to be converted will be determined pro rata or by
lot, as determined by us, provided that we may convert all shares held by
holders of fewer than 100 shares of our Series D preferred stock (or by holders
that would hold fewer than 100 shares of our Series D preferred stock following
such conversion) prior to our conversion of other shares of our Series D
preferred stock.
MANDATORY REDEMPTION
Unless already converted, our Series D preferred stock will be mandatorily
redeemed by us on February 15, 2007 (the "Mandatory Redemption") at a redemption
price equal to 100% of its Liquidation Preference, together with accumulated and
unpaid dividends and Liquidated Damages (defined below), if any, to the
mandatory redemption date.
METHOD OF PAYMENTS
Subject to certain restrictions, we may generally make any payments due on
our Series D preferred stock,
- in cash,
- by delivery of our common stock, or
- through any combination of cash and our common stock.
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If we elect to make any such payment, or any portion thereof, in shares of
our common stock, such shares shall be valued for such purpose:
- in the case of any dividend payment, or portion thereof, at 95% of the
Average Market Value (as defined below); and
- in the case of any Mandatory Redemption payment, or portion thereof, at
100% of the Average Market Value.
We will make each dividend payment and Mandatory Redemption payment on
shares of our Series D preferred stock in cash, except to the extent we have
elected to make all or any portion of such payment in shares of our common
stock. We may not make any such payment, or any portion thereof (other than a
Mandatory Redemption payment, or portion thereof), in shares of our common stock
unless, on the date of such payment, the shelf registration statement referred
to below is effective or is no longer required to be effective.
If, as a matter of law, we are not able to issue our common stock in
payment of the mandatory redemption price, then we may, at our option, cause our
Series D preferred stock to be converted on the mandatory redemption date into
the same number of shares of our common stock as we could otherwise have issued
in satisfaction of the mandatory redemption price. We shall give the holders of
our Series D preferred stock notice at least 30 days prior to the mandatory
redemption date of (i) the form of consideration we will use to make payments
due on the mandatory redemption date and (ii) if any such payments are to be
made in our common stock, whether we will issue our common stock or convert our
Series D preferred stock into our common stock. No fractional shares of our
common stock will be delivered to the holders of our Series D preferred stock,
but we will instead pay a cash adjustment to each holder that would otherwise be
entitled to a fraction of a share of our common stock. The amount of such cash
adjustment will be determined based on the proceeds received by the transfer
agent from the sale of that number of shares of our common stock, which we will
deliver to the transfer agent for such purpose, equal to the aggregate of all
such fractions (rounded up to the nearest whole share).
The transfer agent is authorized and directed in our Series D preferred
stock schedule to sell such shares at the best available prices and distribute
the proceeds to the holders in proportion to their respective interests therein.
We will pay the expenses of the transfer agent with respect to such sale,
including brokerage commissions. Any portion of any such payment that is
declared and not paid through the delivery of shares of common stock will be
paid in cash.
We will make a public announcement no later than the close of business on
the tenth business day prior to the Record Date for each dividend as to whether
we will pay such dividend and, if so, the form of consideration we will use to
make such payment.
"Average Market Value" of our common stock means the arithmetic average of
the Current Market Value of our common stock for the ten trading days ending on
the second business day prior to (a) in the case of the payment of any dividend,
the Record Date for such dividend and (b) in the case of any other payment, the
date of such payment.
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"Current Market Value" of our common stock means the average
volume-weighted daily trading price of our common stock as reported on the
Nasdaq National Market or such other SEC-recognized national securities exchange
or trading system which we may from time to time designate upon which the
greatest number of our common stock is then listed or traded, for the trading
day in question.
Shares of our Series D preferred stock issued and reacquired will, upon
compliance with the applicable requirements of law, have the status of
authorized but unissued shares of our preferred stock undesignated as to series
and may with any and all other authorized but unissued shares of our preferred
stock be designated or redesignated and issued, as part of any series of our
preferred stock.
CONVERSION RIGHTS
At any time after the offering date, each share of our Series D preferred
stock will be convertible at any time, at the option of the holder thereof, into
that number of shares of our common stock equal to $50.00 (the Liquidation
Preference per share of each of our Series D preferred stock) divided by the
conversion price then applicable. A holder's right to convert shares of our
Series D preferred stock will terminate at the close of business on the business
day preceding the mandatory redemption date and will be lost if not exercised
prior to that time, unless we default in making the payment due upon redemption.
The initial conversion price is $19.8303 per share. At that price, holders
of our Series D preferred stock would receive 2.5214 shares of our common stock
for each $50.00 liquidation preference of our Series D preferred stock (that is,
$50/$19.8303). The conversion price is subject to adjustment in certain events,
including:
- the payment of dividends (and other distributions) in our common stock on
our common stock;
- the issuance to all holders of our common stock of rights, warrants or
options entitling them to subscribe for or purchase our common stock at
less than the current market price (as calculated pursuant to our Series
D preferred stock schedule);
- subdivisions, combinations and reclassifications of our common stock;
- distributions to all holders of our common stock of (i) evidences of our
indebtedness, (ii) shares of any class of our capital stock, (iii) cash
or (iv) other assets (including securities, but excluding those
dividends, rights, warrants, options and distributions referred to in the
three clauses above and dividends and distributions paid in cash out of
our accumulated deficit or retained earnings, unless the sum of all such
cash dividends and distributions made and the amount of cash and the fair
market value of other consideration paid in respect of any repurchases of
our common stock by us or any of our subsidiaries, in each case within
the preceding 12 months in respect of which no adjustment has been made,
exceeds 10% of the product of the then current market price of our common
stock times the aggregate number of shares of our common stock
outstanding on the record date for such dividend or distribution); and
- upon a change of control, as described below.
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We are not required to make any adjustment of the conversion price until
cumulative adjustments amount to 1% or more of the conversion price as last
adjusted. Notwithstanding the foregoing, no adjustment to the conversion price
shall reduce the conversion price below the then applicable par value per share
of our common stock. In addition to the foregoing adjustments, we are permitted
to make such reductions in the conversion price as we consider to be advisable
in order that any event treated for federal income tax purposes as a dividend of
stock or stock rights will not be taxable to the holders of our common stock.
In the case of certain consolidations or mergers to which we are a party or
the transfer of substantially all of our assets, each share of our Series D
preferred stock then outstanding would become convertible only into the kind and
amount of securities, cash and other property receivable upon the consolidation,
merger or transfer by a holder of the number of shares of our common stock into
which such share of our Series D preferred stock might have been converted
immediately prior to such consolidation, merger or transfer (assuming such
holder of common stock failed to exercise any rights of election and received
per share the kind and amount receivable per share by a plurality of
non-electing shares).
No fractional shares of our common stock will be issued upon conversion; in
lieu thereof, we will pay a cash adjustment based upon the closing price of our
common stock on the business day prior to the conversion date.
The holder of record of each share of our Series D preferred stock at the
close of business on a Record Date with respect to the payment of dividends on
our Series D preferred stock will be entitled to receive such dividends with
respect to such share on the corresponding Dividend Payment Date,
notwithstanding the conversion of such share after such Record Date and prior to
such Dividend Payment Date.
Each share of our Series D preferred stock surrendered for conversion
during the period from the close of business on any Record Date for the payment
of dividends to the opening of business of the corresponding Dividend Payment
Date must be accompanied by a payment in cash, our common stock or a combination
thereof (depending on the method of payment that we have chosen to pay the
dividend) in an amount equal to the dividend payable on such Dividend Payment
Date.
ADJUSTMENT TO CONVERSION PRICE UPON CERTAIN CHANGES OF CONTROL
If a change of control, as defined below, occurs, the conversion price
shall be reduced for a period of 30 days commencing on the day we notify the
holders of such change of control to the arithmetic average of the
volume-weighted average daily trading prices of our common stock during ten
trading days ending on the fifth business day prior to the date of the closing
of the change of control, if that average is less than the conversion price then
in effect. If the conversion price is reduced for such 30-day period, the
holders of our Series D preferred stock will have the option to exercise their
conversion rights at such reduced conversion price during such period. After
such 30-day period, the conversion price will be the conversion price prevailing
immediately prior to the adjustment referred to in the preceding sentence.
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Subject to the following paragraph, a change of control will be deemed to
have occurred if at any time after the original issuance of our Series D
preferred stock any of the following transactions occurs and less than 50% of
the consideration to be received by holders of our common stock therein
(excluding amounts payable in respect of appraisal rights and cash in lieu of
fractional shares) consists of shares of common stock traded or to be traded
immediately following such change of control on a national securities exchange
or the Nasdaq National Market:
- the acquisition by any person of beneficial ownership of 80% or more of
both the total voting power and value of all shares of our capital stock
entitled to vote generally in elections of directors. Beneficial
ownership may be acquired directly or indirectly, through a purchase,
merger or other acquisition transaction or series of transactions, other
than any acquisition by us, any of our subsidiaries or any of our
employee benefit plans; or
- our consolidation or merger with or into any other entity, any merger of
another entity into us, or any conveyance, transfer, sale, lease or other
disposition of all or substantially all of our properties and assets to
another person or entity, other than:
- any transaction pursuant to which holders of our voting stock
immediately prior to such transaction are entitled to exercise,
directly or indirectly, 20% or more of the total voting power of all
shares of capital stock entitled to vote generally in the election of
directors of the continuing or surviving entity immediately after
such transaction, or
- any merger which is effected solely to change our jurisdiction of
incorporation and results in a reclassification, conversion or
exchange of outstanding shares of common stock solely into shares of
common stock of the surviving entity.
"Beneficial owner" will be determined in accordance with Rule 13d-3
promulgated by the SEC under the Exchange Act. "Person" includes any syndicate
or group which would be deemed to be a "person" under Section 13d-3 of the
Exchange Act.
Within 30 days after the occurrence of a change of control, we will notify
the holders of our Series D preferred stock of any change of control resulting
in an adjustment to the conversion price.
VOTING RIGHTS
Holders of shares of our Series D preferred stock have no voting rights,
except as required by law and upon the occurrence of a voting rights triggering
event. The accumulation of accrued and unpaid dividends on the outstanding
shares of our Series D preferred stock in an amount equal to six consecutive
quarterly dividends constitutes a voting rights triggering event, giving the
holders of a majority of the outstanding shares of our Series D preferred stock
the right to elect such number of members to our board of directors constituting
at least 20% of the then existing board of directors before such election
(rounded to the nearest whole number). However, such number shall be no less
than one nor greater than two, and the number of members of our board of
directors will be immediately and automatically increased by one or two, as the
case may be. Voting rights
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arising as a result of a voting rights triggering event will continue until all
dividends in arrears on our Series D preferred stock are paid in full, at which
time the term of office of any such members of our board of directors so elected
shall terminate and such directors shall be deemed to have resigned.
In addition, our Series D preferred stock schedule provides that without
the approval of holders of at least 66 2/3% of the shares of our Series D
preferred stock then outstanding, voting or consenting, as the case may be, as
one class:
- we will not authorize any class of Senior Securities or any obligation or
security convertible or exchangeable into or evidencing a right to
purchase shares of any class or series of Senior Securities, and
- we may not amend our Series D preferred stock schedule or bye-laws so as
to affect adversely the specified rights, preferences, privileges or
voting rights of holders of shares of our Series D preferred stock or
authorize the issuance of any additional shares of our Series D preferred
stock.
Our Series D preferred stock schedule also provides that:
- except as set forth above with respect to Senior Securities, (a) the
creation, authorization or issuance of any shares of Junior Securities,
Parity Securities or Senior Securities or (b) the increase or decrease in
the amount of authorized capital stock of any class, including any shares
of our Series D preferred stock, shall not require the consent of the
holders of our Series D preferred stock and shall not be deemed to affect
adversely the rights, preferences, privileges, special rights or voting
rights of holders of shares of our Series D preferred stock, and
- we will not require the consent of the holders of our Series D preferred
stock to authorize, create (by way of reclassification or otherwise) or
issue any Parity Securities or any obligation or security convertible or
exchangeable into or evidencing a right to purchase, shares of any class
or series of Parity Securities.
MERGER, CONSOLIDATION AND SALE OF ASSETS
Without the vote or consent of the holders of a majority of the then
outstanding shares of our Series D preferred stock, we may not consolidate or
merge with or into, or sell, assign, transfer, lease, convey or otherwise
dispose of all or substantially all of its assets to, any person unless:
- the entity formed by such consolidation or merger (if other than us) or
to which such sale, assignment, transfer, lease, conveyance or other
disposition shall have been made (in any such case, the "resulting
entity") is a corporation organized and existing under the laws of
Bermuda, the United States or any State thereof or the District of
Columbia;
- if we are not the resulting entity, our Series D preferred stock is
converted into or exchanged for and becomes shares of such resulting
entity, having in respect of such resulting entity the same (or more
favorable) powers, preferences and relative, participating, optional or
other special rights thereof that our Series D preferred stock had
immediately prior to such transaction; and
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- immediately after giving effect to such transaction, no voting rights
triggering event has occurred and is continuing.
The resulting entity of such transaction shall thereafter be deemed to be
the "Company" for all purposes of our Series D preferred stock schedule.
Except as described herein, our Series D preferred stock schedule does not
provide the holders of our Series D preferred stock with any special protection
in the event of a takeover, recapitalization or similar transaction which could
adversely affect our capital structure or the value of our Series D preferred
stock or our common stock.
LIQUIDATION PREFERENCE
Upon any voluntary or involuntary liquidation, dissolution or winding-up of
our company or reduction or decrease in our capital stock resulting in a
distribution of assets to the holders of any class or series of our capital
stock, each holder of shares of our Series D preferred stock will be entitled to
payment out of our assets available for distribution of an amount equal to the
Liquidation Preference per share of our Series D preferred stock held by such
holder, plus accrued and unpaid dividends and Liquidated Damages, if any, to the
date fixed for liquidation, dissolution, winding-up or reduction or decrease in
capital stock (including an amount equal to a prorated dividend for the period
from the last dividend payment date to the date fixed for liquidation,
dissolution, winding up or reduction or decrease in capital stock), before any
distribution is made on any Junior Securities, including, without limitation,
common stock.
After payment in full of the Liquidation Preference and all accrued
dividends and Liquidated Damages, if any, to which holders of our Series D
preferred stock are entitled, such holders will not be entitled to any further
participation in any distribution of our assets. If, upon our liquidation,
dissolution or winding-up, whether voluntary or involuntary, the amounts payable
with respect to our Series D preferred stock and all other Parity Securities are
not paid in full, the holders of our Series D preferred stock and the Parity
Securities will share equally and ratably in any distribution of our assets in
proportion to the full Liquidation Preference and accumulated and unpaid
dividends and Liquidated Damages, if any, to which each is entitled. However,
neither the voluntary sale, conveyance, exchange or transfer (for cash, shares
of stock, securities or other consideration) of all or substantially all of our
property or assets nor our consolidation or merger with or into one or more
entities will be deemed to be a voluntary liquidation, dissolution or winding-up
or reduction or decrease in capital stock, unless such sale, conveyance,
exchange or transfer shall be in connection with a liquidation, dissolution or
winding-up of our business or reduction or decrease in capital stock.
Our Series D preferred stock schedule does not contain any provision
requiring funds to be set aside to protect the liquidation preference of our
Series D preferred stock, although such liquidation preference will be
substantially in excess of the par value of such shares of our Series D
preferred stock. Consequently, there will be no restriction upon our surplus
solely because the liquidation preference of our Series D preferred stock will
exceed the par value thereof and there will be no remedies available to holders
of our Series D preferred stock before or after the payment of any dividend,
other than in connection with our
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liquidation, solely by reason of the fact that such dividend would reduce our
surplus to an amount less than the difference between the liquidation preference
of our Series D preferred stock and its par value.
COVENANT TO REPORT
We will, pursuant to our Series D preferred stock schedule, file with the
transfer agent within 15 days after we file them with the SEC, copies of the
annual, quarterly and current reports and the information, documents, and other
reports that we are required to file with the SEC pursuant to Section 13(a) or
15(d) of the Exchange Act ("SEC Reports").
In the event we are not required or shall cease to be required to file SEC
Reports pursuant to the Exchange Act, we will nevertheless continue to file such
reports with the SEC (unless the SEC will not accept such a filing). Whether or
not required by the Exchange Act to file SEC Reports with the SEC, so long as
any shares of our Series D preferred stock are outstanding, we will furnish
copies of the SEC Reports to the holders of our Series D preferred stock at the
time we are required to make such information available to the transfer agent
and to prospective investors who request it in writing.
In addition, we have agreed that, for so long as any shares of our Series D
preferred stock remain outstanding, we will furnish to the holders and to
securities analysts and prospective investors, upon their request, the
information required to be delivered pursuant to Rule 144A(d)(4) under the
Securities Act.
REGISTRATION RIGHTS; LIQUIDATED DAMAGES
Under the registration rights agreement entered into between us and the
initial purchasers of our Series D preferred stock, we have agreed to maintain
the effectiveness of such shelf registration statement for a period ending on
the earlier of the second anniversary of the original issuance of our Series D
preferred stock and the date when all of our Transfer Restricted Securities
covered by the shelf registration statement have been sold.
In the event of a Registration Default (as defined below), we have agreed
to pay to each holder of our Transfer Restricted Securities liquidated damages
("Liquidated Damages").
A "Registration Default" occurs and triggers the Liquidated Damages in the
event that (i) we fail to file a shelf registration statement within 90 days
after the closing of this offering, (ii) such shelf registration statement is
not declared effective on or prior to the date that is 180 days after the
consummation of the offering or (iii) such shelf registration statement is
declared effective but thereafter ceases to be effective or usable for any
period of ten consecutive trading days or for any 20 days in any 180-day period
in connection with resales of our Transfer Restricted Securities (provided, that
we will have the option of suspending the effectiveness of the shelf
registration statement or notifying holders of our Transfer Restricted
Securities that the shelf registration statement shall be deemed to not be
effective (in which case the shelf registration statement shall not be
considered "effective" for the purposes of the Series D preferred stock
provisions), without becoming obligated to pay Liquidated Damages for periods of
up to a total of 60 days in any calendar
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year if our board of directors 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
us or a pending corporate transaction).
"Transfer Restricted Securities" for this purpose, means each share of our
Series D preferred stock and each share of our common stock issuable upon
conversion of our Series D preferred stock or in satisfaction of any dividend on
our Series D preferred stock 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.
Liquidated Damages, if any:
- will be paid at a rate of 0.25% of the Liquidation Preference of our
Series D preferred stock constituting Transfer Restricted Securities;
- accrue from the date of the Registration Default to and including the
90th day following such Registration Default and, increase by 0.25% for
each subsequent 90 day period;
- may not exceed 1.00% of the Liquidated Preference of our Series D
preferred stock; and
- will be paid in cash on each Dividend Payment Date specified in our
Series D preferred stock schedule with respect to shares of our Series D
preferred stock.
Following the cure of all Registration Defaults, the accrual of Liquidated
Damages will cease.
We will provide to each holder of our Series D preferred stock copies of
the prospectus which will be a part of the shelf registration statement, notify
each holder when the shelf registration statement has become effective and take
certain actions as are required to permit unrestricted resales of our Series D
preferred stock (and shares of our common stock into which our Series D
preferred stock is convertible). A Holder of Transfer Restricted Securities
selling such securities pursuant to the shelf registration statement is
generally required to be named as a selling securityholder in the related
prospectus and to deliver a prospectus to purchasers, will be subject to certain
of the civil liability provisions under the Securities Act in connection with
such sales and is bound by the provisions of the Registration Rights Agreement
which are applicable to such holder (including certain indemnification
obligations).
FORM AND DENOMINATION
Global Shares; Book Entry Form. Shares of our Series D preferred stock
have been evidenced by one or more global certificates (the "Global
Certificate") which have been deposited with, or on behalf of, the Depository
Trust Company (the "Depositary" or "DTC") and registered in the name of Cede &
Co., as nominee of the Depositary. Except as set forth below, record ownership
of the Global Certificate may be transferred, in whole
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or in part, only to another nominee of the Depositary or to a successor of the
Depositary or its nominee.
Owners of a beneficial interest in the Global Certificate may hold their
interest in the Global Certificate directly through the Depositary if such
holder is a participant in the Depositary or indirectly through organizations
that are participants in the Depositary. Persons who are not participants may
beneficially own interests in the Global Certificate held by the Depositary only
through participants or certain banks, brokers, dealers, trust companies and
other parties that clear through or maintain a custodial relationship with a
participant, either directly or indirectly. So long as Cede & Co., as the
nominee of the Depositary, is the registered owner of the Global Certificate,
Cede & Co. for all purposes will be considered the sole holder of the Global
Certificate.
Investors who purchase shares of our Series D preferred stock in offshore
transactions in reliance on Regulation S under the Securities Act may hold their
interests in the Global Certificate directly through Morgan Guaranty Trust
Company of New York, Brussels office, as operator of the Euroclear system and
Clearstream, if they are participants in these systems, or indirectly through
organizations that are participants in these systems. Euroclear and Clearstream
will hold interests in the Global Certificate on behalf of their participants
through their respective depositaries, which in turn will hold the interests in
the Global Certificate in customers' securities accounts in the depositaries'
names on the books of DTC. Citibank, N.A., is acting initially as depositary for
Clearstream, and The Chase Manhattan Bank is acting initially as depositary for
Euroclear.
The shares of our Series D preferred stock represented by the Global
Certificate are exchangeable for certificates in definitive form (the
"Definitive Securities") of like tenor as our Series D preferred stock if (i)
the Depositary notifies us that it is unwilling or unable to continue as
Depositary for the Global Certificate and a successor is not promptly appointed
or if at any time the Depositary ceases to be a clearing agency registered under
the Exchange Act or (ii) we determine at any time in our discretion not to have
all of the shares of our Series D preferred stock represented by the Global
Certificate. Each share of our Series D preferred stock that is exchangeable
pursuant to the preceding sentence is exchangeable for Definitive Securities
issuable in authorized denominations and registered in such names as the
Depositary shall direct. Subject to the foregoing, the Global Certificate is not
exchangeable, except for a Global Certificate of the same aggregate denomination
to be registered in the name of the Depositary or its nominee. In addition, such
certificates will bear the legend referred to under "Notice to Investors"
(unless we determine otherwise in accordance with applicable law) and will be
subject, with respect to such shares of our Series D preferred stock, to the
provisions of such legend.
Payments of dividends on and any redemption price with respect to the
Global Certificate will be made to the Global Certificate holder or its nominee,
as registered owner of the Global Certificate, by wire transfer of immediately
available funds on each Dividend Payment Date or redemption date, as applicable.
Neither we nor the transfer agent will have any responsibility or liability for
any aspect of the records relating to or payments made on account of beneficial
ownership interests in the Global Certificate or for maintaining, supervising or
reviewing any records relating to such beneficial ownership interest.
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We have been informed by the Depositary that, with respect to any payment
of dividends on, or the redemption price with respect to, the Global
Certificate, the Depositary's practice is to credit participants' accounts on
the payment date therefor, with payments in amounts proportionate to their
respective beneficial interests in our Series D preferred stock represented by
the Global Certificate as shown on the records of the payments by participants
to owners of beneficial interests in our Series D preferred stock represented by
the Global Certificate held through such participants will be the responsibility
of such participants, as is now the case with securities held for accounts of
customers registered in "street name."
So long as the Depositary or its nominee is the registered holder and owner
of the shares of our Series D preferred stock, the Depositary or such nominee,
as the case may be, will be considered the sole legal owner of the shares of our
Series D preferred stock represented by the Global Certificate for all purposes
under our Series D preferred stock schedule. Except as set forth below, owners
of beneficial interests in the Global Certificate will not be entitled to
receive Definitive Securities and will not be considered to be the legal owners
or holders of any shares of our Series D preferred stock under the Global
Certificates. No beneficial owner of any interest in the Global Certificates
will be able to transfer the interest except in accordance with the Depositary's
procedures, in addition to those provided for under our Series D preferred stock
schedule and, if applicable, those of Euroclear and Clearstream.
Transfers between participants will be effected in the ordinary way in
accordance with the Depositary's rules and will be settled in immediately
available funds. Participants in Euroclear and Clearstream will effect transfers
with other participants in the ordinary way in accordance with the rules and
operating procedures of Euroclear and Clearstream, as applicable. The laws of
some jurisdictions require that certain persons take physical delivery of
securities in definitive form. Consequently, the ability to transfer beneficial
interests in the Global Certificate to such persons may be limited. Because the
Depositary can only act on behalf of a beneficial interest in shares of our
Series D preferred stock represented by the Global Certificate to pledge such
interest to persons or entities that do not participate in the Depositary
system, or otherwise take actions in respect of such interest, may be affected
by the lack of a physical certificate evidencing such interest.
Cross-market transfers between DTC, on the one hand, and directly or
indirectly through Euroclear or Clearstream participants, on the other, will be
effected in DTC in accordance with DTC rules on behalf of Euroclear or
Clearstream, as the case may be, by its respective depositary; however, these
cross-market transactions will require delivery of instructions to Euroclear or
Clearstream, as the case may be, by the counterparty in the system in accordance
with its rules and procedures and within its established deadlines (Brussels
time). Euroclear or Clearstream, as the case may be, will, if the transaction
meets its settlement requirements, deliver instructions to its respective
depositary to take action to effect final settlement on its behalf by delivering
or receiving interests in the Global Certificate in DTC, and making or receiving
payment in accordance with normal procedures for same-day funds settlement
applicable to DTC. Euroclear participants and Clearstream participants may not
deliver instructions directly to the depositaries for Euroclear or Clearstream.
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<PAGE> 39
Because of time zone differences, the securities account of a Euroclear or
Clearstream participant purchasing an interest in the Global Certificate from a
DTC participant will be credited during the securities settlement processing day
(which must be a business day for Euroclear or Clearstream, as the case may be)
immediately following the DTC settlement date, and the credit of any
transactions interests in the Global Certificate settled during the processing
day will be reported to the relevant Euroclear or Clearstream participant on
that day. Cash received in Euroclear or Clearstream as a result of sales of
interests in the global debenture by or through a Euroclear or Clearstream
participant to a DTC participant will be received with value on the DTC
settlement date, but will be available in the relevant Euroclear or Clearstream
cash account only as of the business day following settlement in DTC.
We expect that the Depositary, as the legal owner of the shares of our
Series D preferred stock, will follow the instructions of any participant with
respect to the shares corresponding to the interests in the Global Certificate
credited to the account of that participant.
Neither we nor the transfer agent will have responsibility for the
performance of the Depositary, Euroclear or Clearstream or their participants or
indirect participants of their respective obligations under the rules and
procedures governing their operations. The Depositary has advised us that it
will take any action permitted to be taken by a holder of our Series D preferred
stock (including, without limitation, the presentation of Depositary interests
in the Global Certificate are credited, and only in respect of our Series D
preferred stock represented by the Global Certificate as to which such
participant or participants has or have given such direction).
The Depositary has also advised us that the Depositary is a limited purpose
trust company organized under the laws of the State of New York, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the
Uniform Commercial Code and a "clearing agency" registered pursuant to the
provisions of Section 17a of the Exchange Act. The Depositary was created to
hold securities for its participants and to facilitate the clearance and
settlement of securities transactions between participants through electronic
book-entry changes to accounts of its participants, thereby eliminating the need
for physical movement of certificates. Participants include securities brokers
and dealers, banks, trust companies and clearing corporations and may include
certain other organizations such as the initial purchasers of our Series D
preferred stock. Certain of such participants (or their representatives),
together with other entities, own the Depositary. Indirect access to the
Depositary system is available to others such as banks, brokers, dealers and
trust companies that clear through, or maintain a custodial relationship with a
participant, either directly or indirectly.
Although we expect that DTC, Euroclear and Clearstream will agree to the
foregoing procedures, they are under no obligation to perform or to continue to
perform such procedures and they may discontinue such procedures at any time.
Neither we nor the transfer agent will have any responsibility for the
performance by DTC, Euroclear and Clearstream or their respective participants
or indirect participants of their respective obligations under the rules and
procedures governing their operations.
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DESCRIPTION OF COMMON STOCK
We have authorized 750,000,000 shares of our common stock, par value $.01
per share. As of March 31, 2000, we had 295,442,287 shares of our common stock
outstanding.
BERMUDA LAW
The following discussion is based upon the advice of Appleby, Spurling &
Kempe, our Bermuda counsel.
We were incorporated as an exempted company under the Companies Act.
Accordingly, the rights of our shareholders are governed by Bermuda law and our
Memorandum of Association and Bye-Laws.
The following is a summary of certain provisions of Bermuda law and our
organizational documents. You should note that this summary is not a
comprehensive description of such laws and documents and that it is qualified in
its entirety by appropriate reference to Bermuda law and to our organizational
documents.
Dividends. Under Bermuda law, a company may pay such dividends as are
declared from time to time by its board of directors unless there are reasonable
grounds for believing that the company is or would, after the payment, be unable
to pay its liabilities as they become due or that the realizable value of its
assets would thereby be less than the aggregate of its liabilities and issued
share capital and share premium accounts.
Voting Rights. Under Bermuda law, questions brought before a general
meeting of shareholders are decided by a majority vote of shareholders present
at the meeting (or by such majority as the Companies Act or our Bye-Laws
prescribe). Each shareholder has one vote, irrespective of the number of shares
held, unless a poll is requested.
Our Bye-Laws provide that, subject to the provisions of the Companies Act,
any questions proposed for the consideration of the shareholders will be decided
by a simple majority of the votes cast. Each shareholder present, or person
holding proxies for any shareholder, is entitled to one vote. If a poll is
requested, each shareholder present in person or by proxy has one vote for each
share held.
A poll may only be requested under our Bye-Laws by:
- the Chairman of the meeting,
- at least three shareholders present in person or by proxy,
- any shareholder or shareholders, present in person or by proxy, holding
between them not less than 10% of the total voting rights of all
shareholders having the right to vote at such meeting, or
- a shareholder or shareholders, present in person or by proxy, holding our
voting shares on which an aggregate sum has been paid up equal to not
less than 10% of the total sum paid up on all such voting shares.
Rights in Liquidation. Under Bermuda law, in the event of liquidation,
dissolution or winding up of a company, the proceeds of such liquidation,
dissolution or winding up are
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<PAGE> 41
distributed pro rata among the holders of common stock. However, such
distribution may only be effected after satisfaction in full of all claims of
creditors and subject to the preferential rights accorded to any series of
preferred stock.
Meetings of Shareholders. Under Bermuda law, a company is required to
convene at least one general shareholders' meeting per calendar year. Bermuda
law provides that a special general meeting may be called by the board of
directors and must be called upon the request of shareholders holding not less
than 10% of such of the paid-up capital of the company carrying the right to
vote. Bermuda law also requires that shareholders be given at least five days'
advance notice of a general meeting but the accidental omission of notice to any
person does not invalidate the proceedings at a meeting. Under our Bye-Laws, at
least 20 days' notice of the annual general meeting and at least 30 days' notice
of any special general meeting must be given to each shareholder.
Under Bermuda law, the number of shareholders constituting a quorum at any
general meeting of shareholders is determined by the bye-laws of a company. Our
Bye-Laws provide that the presence in person or by proxy of the holders of more
than 50% of our voting capital stock constitutes a quorum.
Access to Books and Records and Dissemination of Information. Members
of the general public have the right to inspect the public documents of a
company available at the office of the Registrar of Companies in Bermuda. These
documents include the company's certificate of incorporation, its memorandum of
association (including its objects and powers) and any alteration to the
company's memorandum of association.
Under Bermuda law, the shareholders have the additional right to inspect
the bye-laws of the company, minutes of general meetings and the company's
audited financial statements, which must be presented at the annual general
meeting. The register of shareholders of a company is also open to inspection by
shareholders without charge and to members of the general public on the payment
of a fee. A company is required to maintain its share register in Bermuda but
may, subject to the provisions of the Companies Act, establish a branch register
outside Bermuda.
A company is required to keep at its registered office a register of its
directors and officers which is open for inspection for not less than two hours
in each day by members of the public without charge. Bermuda law does not,
however, provide a general right for shareholders to inspect or obtain copies of
any other corporate records.
Election or Removal of Directors. Under Bermuda law and our Bye-Laws,
directors are elected at the annual general meeting or until their successors
are elected or appointed, unless they are earlier removed or resign.
Under Bermuda law and our Bye-Laws, a director may be removed at a special
general meeting of shareholders specifically called for that purpose, provided
that the director was served with at least 14 days' notice. The director has a
right to be heard at the meeting. Any vacancy created by the removal of a
director at a special general meeting may be filled at such meeting by the
election of another director in his or her place or, in the absence of any such
election, by the board of directors.
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Amendment of Memorandum of Association and Bye-Laws. Bermuda law
provides that the memorandum of association of a company may be amended by a
resolution passed at a general meeting of shareholders of which due notice has
been given. An amendment to the memorandum of association also requires the
approval of the Bermuda Minister of Finance, who may grant or withhold approval
at his discretion. However, such approval of the Bermuda Minister of Finance is
not required for an amendment which alters or reduces a company's share capital
as provided in the Companies Act. Except as set forth therein, the bye-laws may
be amended by a resolution passed by a majority of shares cast at a general
meeting.
Under Bermuda law, the holders of an aggregate of no less than 20% in par
value of a company's issued share capital have the right to apply to the Bermuda
Court for an annulment of any amendment of the memorandum of association adopted
by shareholders at any general meeting. This does not apply to an amendment
which alters or reduces a company's share capital as provided in the Companies
Act. Where such an application is made, the amendment becomes effective only to
the extent that it is confirmed by the Bermuda Court. An application for
amendment of the memorandum of association must be made within 21 days after the
date on which the resolution altering the company's memorandum is passed. Such
application may be made on behalf of the persons entitled to make the
application by one or more of their number as they may appoint in writing for
the purpose. No such application may be made by persons voting in favour of the
amendment.
Appraisal Rights and Shareholder Suits. Under Bermuda law, in the
event of an amalgamation of two Bermuda companies, a shareholder who is not
satisfied that fair value has been paid for his shares may apply to the Bermuda
Court to appraise the fair value of his shares. The amalgamation of a company
with another company requires the amalgamation agreement to be approved by
- the board of directors,
- a meeting of the holders of shares of the amalgamating company of which
they are directors,
- a meeting of the holders of each class of such shares, and
- the Bermuda Minister of Finance (who may grant or withhold consent at his
discretion).
Class actions and derivative actions are generally not available to
shareholders under Bermuda law. The Bermuda courts, however, would ordinarily be
expected to permit a shareholder to commence an action in the name of a company
to remedy a wrong done to the company where the act complained of
- is alleged to be beyond the corporate power of the company,
- is illegal, or
- would result in the violation of the company's memorandum of association
or bye-laws.
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Furthermore, consideration would be given by the Court to acts that are
alleged to constitute a fraud against the minority shareholders or, for
instance, where an act requires the approval of a greater percentage of the
company's shareholders than those who actually approved it.
When the affairs of a company are being conducted in a manner oppressive or
prejudicial to the interests of some part of the shareholders, one or more
shareholders may apply to the Bermuda Court for an order regulating the
company's conduct of affairs in the future or ordering the purchase of the
shares by any shareholder, by other shareholders or by the company.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is The Bank of New
York.
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TAXATION
This summary of material United Stated Federal income tax considerations is
based upon current (as of the date of this prospectus) laws, treaties, cases,
regulations and rulings, all of which are subject to change, possibly with
retroactive effect. It assumes that the stock is a capital asset in the hands of
the holder. It does not consider all the tax issues that might be relevant to an
investor or that depend upon an investor's particular circumstances.
Prospective investors should consult their own professional advisors about
the tax consequences of acquiring, holding and disposing of shares of our Series
D preferred stock under the laws of the jurisdictions in which they are subject
to taxation.
The legal conclusions set forth below in the discussion of U.S. tax law are
the opinions of Willkie Farr & Gallagher, our U.S. counsel. The summary of
certain Bermuda tax consequences is the opinion of Appleby, Spurling & Kempe,
our Bermuda counsel.
UNITED STATES TAX CONSIDERATIONS
Taxation of United States Holders of our Series D Preferred Stock. This
section discusses certain rules applicable to a holder of stock that is a United
States Holder. For purposes of this discussion, a "United States Holder" means a
holder of stock who or that is
- an individual who is a citizen or resident of the United States for U.S.
Federal income tax purposes,
- a corporation or other entity taxable as a corporation created or
organized under the laws of the United States or any political
subdivision thereof (including the States and the District of Columbia),
- an estate or trust described in Section 7701(a)(30) of the Internal
Revenue Code of 1986, as amended (the "Code"), or
- a person whose worldwide income or gain is otherwise subject to U.S.
Federal income taxation on a net income basis.
Certain U.S. Federal income tax consequences relevant to a holder other
than a United States Holder (a "non-U.S. Holder") are discussed separately
below.
A dividend payment on the stock will be taxable as ordinary dividend income
to the extent it is paid out of our current or accumulated earnings and profits.
Payments in excess of earnings and profits will be treated as a tax-free return
of capital to the extent of the United States Holder's tax basis in the stock.
These payments will reduce the tax basis at which the stock is held. Payments in
excess of tax basis will be treated in the same manner as gains arising from a
sale or other disposition of our Series D preferred stock, as discussed below.
Dividends on our Series D preferred stock paid with shares of our common stock
will be taxed in the same manner as a cash distribution in an amount equal to
the fair market value of such stock. Certain adjustments to the conversion price
of our Series D preferred stock also would be taxed as if they were cash
distributions, generally equal in amount to the fair market value of any
increase in proportionate interest in us caused by the adjustment.
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Because we are a foreign corporation, the dividend payments will not be
eligible for the inter-corporate dividends-received deduction.
Subject to the discussion below on passive foreign investment companies
("PFICs"), any gain or loss recognized by a United States Holder on the sale or
other disposition of stock will be capital gain or loss. Such capital gain or
loss will be long-term or short-term depending on the holding period for the
stock. A United States Holder will also generally recognize capital gain or loss
upon a redemption of stock for cash.
Notwithstanding the foregoing, on a redemption of our Series D preferred
stock, in certain limited circumstances (primarily those involving United States
Holders whose proportionate interests in us remain the same or increase after
the redemption, and those involving United States Holders with significant
interests in us whose interests in us are not materially reduced as a result of
the redemption), such United States Holders may be required to treat any
payments received with respect to such redemption as a dividend (taxable as
described above) in whole or in part, without offset for such United States
Holder's basis in our Series D preferred stock, and may not be entitled to
recognize a loss on such redemption.
The conversion of our Series D preferred stock into our common stock or the
receipt of solely common stock on a Provisional, Optional or Mandatory
Redemption would not be a taxable event. If both cash and common stock are
received in a redemption, subject to the discussion below on PFICs, the United
States Holder would realize a gain (which under certain limited circumstances
may be taxed as ordinary dividend income) equal to the amount by which the fair
market value of our common stock and the cash received exceeded his tax basis in
the preferred stock surrendered. However, the gain recognized for tax purposes
would be the lesser of (x) the gain realized or (y) the cash received.
Different rules, however, would apply if we were a PFIC. A PFIC is a
foreign corporation (1) 75% or more of whose income is passive or (2) 50% or
more of whose assets produce or are held to produce passive income. We believe
that we have not been a PFIC and will not become one.
Very generally, if we were a PFIC, a United States Holder of our Series D
preferred stock would be subject to a tax-deferral charge on gain on a
disposition of such stock and on certain "excess distributions" received from
us. Any such gains or excess distributions would be taxable at ordinary income
rates. Alternatively, the United States Holder could elect to include in his
taxable income his pro rata share of our ordinary earnings and net capital gain
for each taxable year (regardless of when or whether cash attributable to such
income is actually distributed to such shareholder by us). If we become a PFIC,
we will notify our shareholders, and we will undertake to provide each United
States Holder with the information needed to make such election and to determine
the pro rata share of our ordinary earnings and net capital gain applicable to
our stock. If we are a PFIC, each United States Holder should consult their
professional tax advisors regarding alternative types of treatment.
Taxation of Non-U.S. Holders of Stock. We expect that a non-U.S. Holder
will not be subject to U.S. Federal income taxation on distributions received
from us unless those
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distributions are effectively connected with the conduct by the non-U.S. Holder
of a trade or business in the United States. A non-U.S. Holder will be subject
to U.S. Federal income taxation on gains realized on a sale or exchange of our
Series D preferred stock that are effectively connected with the conduct by the
non-U.S. Holder of a trade or business in the United States. Also, an individual
non-U.S. Holder who is present in the United States for 183 days or more during
the year of sale may be subject to U.S. Federal income taxation on gains
realized on a sale or exchange of our Series D preferred stock that are not
effectively connected with the conduct by the individual of a trade or business
in the United States if (i) the individual has a tax home in the United States
and the sale of the stock is not attributable to an office or fixed place of
business maintained by the individual outside the United States or (ii) the
individual does not have a tax home in the United States and the sale of the
stock is attributable to an office or fixed place of business maintained by the
individual in the United States. The determination of whether a non-U.S. Holder
is engaged in the conduct of a trade or business in the United States or whether
the sale of a non-U.S. Holder's stock is attributable to an office or fixed
place of business of the non-U.S. Holder in the United States depends on the
facts and circumstances of each case. Each prospective non-U.S. Holder should
consult with his own tax advisor to determine whether his distributions or gains
will be subject to U.S. Federal income taxation.
United States Federal Income Taxation of Loral. Loral is not incorporated
under the laws of the United States or any of its political subdivisions. Loral
will be subject to United States Federal income tax at regular corporate rates
(and to United States branch profits tax) on its income that is effectively
connected with the conduct of a trade or business within the United States and
will be required to file Federal income tax returns with respect to that income.
We expect that a significant portion of our worldwide income will not be subject
to tax by the United States. The United States Treasury Department is, however,
engaged in a project to draft and propose regulations that may recharacterize a
substantial portion of our income as derived from U.S. sources and as
effectively connected with a U.S. trade or business so as to subject that income
to regular U.S. Federal income tax and a 30% branch profits tax. We cannot
predict the outcome of that regulatory project.
The worldwide income of any of our U.S. subsidiaries will be subject to
regular U.S. Federal income taxation. In addition, a 30% U.S. withholding tax
will be imposed on dividends and interest paid by such corporations to Loral.
BERMUDA TAX CONSIDERATIONS
At the date of this prospectus, there is no Bermuda income tax, corporation
or profits tax, withholding tax, capital gains tax, capital transfer tax, estate
or stamp duty or inheritance tax payable by us or the holders of our Series D
preferred stock or our common stock (other than such holders ordinarily resident
in Bermuda) in respect of their investment in the stock.
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We have obtained from the Minister of Finance under the Exempted
Undertakings Tax Protection Act 1966, as amended, a certificate confirming that,
in the event of there being enacted in Bermuda, any legislation imposing tax
computed on profits or income, or computed on any capital asset, gain or
appreciation or any tax in the nature of estate duty or inheritance tax, such
tax shall not until March 28, 2016 be applicable to us or to any of our
operations, or our other obligations except insofar as such tax applies to
persons ordinarily resident in Bermuda and holding our Series D preferred stock
or other obligations, or to any land we lease or let in Bermuda.
We are liable to pay the Bermuda government an annual registration fee
calculated on a sliding scale based upon our assessable capital which fee will
not exceed BD$27,825.
We have been classified as non-resident of the Bermuda exchange control
area by the Bermuda Monetary Authority, whose permission for the issue of our
Series D preferred stock has been obtained. The transfer of stock between
persons regarded as non-resident of Bermuda for exchange control purposes and
the issue and redemption of stock to and by such persons may be effective
without specific consents under the Exchange Control Act 1972 of Bermuda and
Regulations made thereunder. Transfers involving any person regarded as resident
in Bermuda for exchange control purposes may require specific authorization
under that Act. We, by virtue of being a non-resident of Bermuda for exchange
control purposes, are free to acquire, hold and sell any foreign currency,
securities and other investments without restrictions.
Purchasers of stock may be required to pay stamp taxes and other charges in
accordance with the laws and practices of the country of purchase. Prospective
purchasers should consult their tax advisers as to the tax laws of applicable
jurisdictions and the specific tax consequences of acquiring, holding and
disposing of shares of our Series D preferred stock.
Our Series D preferred stock schedule does not provide for additional
payments by us following a change in the tax laws or rules of Bermuda that is
adverse to the holders of our Series D preferred stock or our common stock.
TAX CONSIDERATIONS IN OTHER JURISDICTIONS
Any portion of our income from sources outside the United States, realized
through Globalstar or otherwise, may be subject to taxation by foreign countries
and the extent to which these countries may require us to pay tax or to make
payments in lieu of tax cannot be determined in advance. However, based upon our
review of current tax laws, including applicable international tax treaties of
certain countries that we believe to be among our key potential markets, we
expect that a significant portion of our worldwide income will not be subject to
tax by Bermuda or by the other foreign countries from which we derive our
income.
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SELLING STOCKHOLDERS
We originally issued and sold our Series D preferred stock in February 2000
to Lehman Brothers Inc., Banc of America Securities LLC, Bear, Stearns & Co.
Inc., ING Barings LLC, C.E. Unterberg, Towbin, Credit Lyonnais Securities (USA)
Inc. and SG Cowen Securities Corporation, in a private placement. Our Series D
preferred stock was then resold by those initial purchasers in transactions
exempt from the registration requirements of the Securities Act in the United
States to qualified institutional buyers (as defined in Rule 144A under the
Securities Act) and to a limited number of institutional accredited investors
(as defined in Rule 501(A) under the Securities Act). The selling stockholders
listed below may, pursuant to this prospectus, from time to time offer and sell
the number of shares of our Series D preferred stock listed below and/or the
number of shares of our common stock into which our Series D preferred stock has
been converted (the "Conversion Shares") or that may be issued in connection
with dividend, redemption or other payments thereon (the "Payment Shares"). The
Conversion Shares are also listed below.
<TABLE>
<CAPTION>
SHARES OF CONVERSION
SELLING PREFERRED STOCKHOLDERS PREFERRED STOCK SHARES
- ------------------------------ --------------- ----------
<S> <C> <C>
Deutsche Bank Securities...................... 1,019,700 2,571,065
Warburg Dillon Read LLC....................... 763,000 1,923,824
Argent Classic Convertible Arbitrage Fund
(Bermuda).................................. 400,000 1,008,558
R(2) Investments, LDC......................... 210,700 531,258
Tribeca Investments LLC....................... 207,500 523,189
Alpine Associates............................. 177,100 446,539
RAM Trading Ltd. ............................. 150,000 378,209
AIG Soundshore Opportunity Holding Fund
Ltd. ...................................... 137,532 346,772
Canyon Value Realization (Cayman) Ltd. ....... 108,000 272,311
JMG Triton Offshore Fund, Ltd. ............... 103,750 261,595
SAM Investments LDC........................... 100,000 252,139
Oppenheimer Convertible Securities Fund....... 100,000 252,139
Value Realization Fund, L.P. ................. 86,000 216,840
Forrestal Funding Master Trust................ 85,000 214,318
Fidelity Capital & Income Fund................ 80,000 201,712
AIG Soundshore Holdings Ltd. ................. 72,500 182,801
Double Black Diamond Offshore, LDC............ 71,920 181,339
McMahan Securities Company L.P. .............. 67,000 168,933
Clinton Riverside Convertible Portfolio
Limited.................................... 55,000 138,677
Bear Stearns & Co. Inc. ...................... 50,000 126,070
White River Securities LLC.................... 50,000 126,070
Bank Austria Cayman Island, Ltd. ............. 50,000 126,070
</TABLE>
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<TABLE>
<CAPTION>
SHARES OF CONVERSION
SELLING PREFERRED STOCKHOLDERS PREFERRED STOCK SHARES
- ------------------------------ --------------- ----------
<S> <C> <C>
Argent Classic Convertible Arbitrage Fund
L.P. ...................................... 50,000 126,070
Grace Brothers, Ltd. ......................... 45,000 113,463
Kellner, Dileo & Co. ......................... 40,000 100,856
Donaldson, Lufkin & Jenrette Securities
Corp. ..................................... 37,500 94,552
AIG Soundshore Strategic Holding Fund Ltd. ... 35,000 88,249
Alpine Partners, L.P. ........................ 27,900 70,347
Black Diamond Offshore, Ltd. ................. 22,400 56,479
Canal Insurance Company....................... 20,000 50,428
Pacific Life Insurance Company................ 20,000 50,428
JMG Capital Partners, L.P. ................... 18,750 47,276
People's Benefit Life Insurance Company --
Teamsters Separate Account................. 15,000 37,820
Tamar Capital Investments, Ltd. .............. 15,000 37,821
Triton Capital Investments, Ltd. ............. 15,000 37,821
Retail Clerks Pension Trust................... 12,500 31,517
General Motors Welfare Benefit Trust.......... 12,500 31,517
Ramius Capital Group Holdings, Ltd. .......... 10,000 25,214
Quattro Fund Ltd. ............................ 10,000 25,214
Value Realization Fund B, LP.................. 6,000 15,128
St. Claire International Ltd. (GVI)........... 5,000 12,607
Fidelity Advisor High Income Fund............. 2,000 5,043
</TABLE>
The information concerning the selling stockholders may change from time to
time. If required, such changes will be set forth in accompanying supplements to
this prospectus. Because the selling stockholders may offer all or some portion
of our common stock and/or preferred stock pursuant to this prospectus, and
because there are currently no agreements, arrangements or understandings with
respect to the sale of our common stock or preferred stock, we cannot predict
the number of shares of our common stock and preferred stock that will be held
by the selling stockholders upon termination of this offering.
48
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PLAN OF DISTRIBUTION
Our Series D preferred stock, the Conversion Shares and the Payment Shares
(collectively, the "Securities") offered pursuant to this prospectus may be sold
from time to time to purchasers directly by the selling stockholders.
Alternatively, the selling stockholders may from time to time offer the
Securities through brokers, dealers or agents who may receive compensation in
the form of discounts, concessions or commissions from the selling stockholders
and/or the purchasers of the Securities for whom they may act as agent. The
selling stockholders and any such brokers, dealers or agents who participate in
the distribution of the Securities may be deemed to be "underwriters," and any
profits on the sale of the Securities by them and any discounts, commissions or
concessions received by any such brokers, dealers or agents might be deemed to
be underwriting discounts and commissions under the Securities Act. To the
extent the selling stockholders may be deemed to be underwriters, the selling
stockholders may be subject to certain statutory liabilities of the Securities
Act, including, but not limited to, Sections 11, 12 and 17 of the Securities Act
and Rule 10b-5 under the Exchange Act.
The Securities offered hereby may be sold from time to time by the selling
stockholders, or, to the extent permitted, by pledgees, donees, transferees or
other successors in interest. The Securities may be disposed of from time to
time in one or more transactions through any one or more of the following:
- a block trade, in which the broker or dealer so engaged will attempt to
sell the Securities as agent but may position and resell a portion of the
block as principal to facilitate the transaction;
- purchases by a broker or dealer as principal and resale by such broker or
dealer for its account;
- ordinary brokerage transactions and transactions, in which the broker
solicits purchasers;
- an exchange distribution in accordance with the rules of such exchange or
transactions in the over-the-counter market;
- the writing of options on the Securities;
- by the purchasers directly;
- sales through underwriters or dealers who may receive compensation in the
form of underwriting discounts, concessions, or commissions from the
selling stockholders or such successors in interest and/or from the
purchasers of the Securities for whom they may act as agent; and
- the pledge of the Securities as security for any loan or obligation,
including pledges to brokers or dealers who may, from time to time,
themselves effect distributions of the Securities or interest therein.
In addition, the Securities covered by this prospectus may be sold in
private transactions or under Rule 144 rather than pursuant to this prospectus.
There is no assurance that any selling stockholder will sell any or all of
the Securities offered by it hereunder or that any such selling stockholder will
not transfer, devise or gift such Securities by other means not described
herein.
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<PAGE> 51
Such sales may be made at prices and at terms then prevailing or at prices
related to the then current market price or at negotiated prices and terms. In
effecting sales, brokers or dealers may arrange for other brokers or dealers to
participate. The selling stockholders or such successors in interest, and any
underwriters, brokers, dealers or agents that participate in the distribution of
the Securities, may be deemed to be "underwriters" within the meaning of the
Securities Act, and any profit on the sale of the Securities by them and any
discounts, commissions or concessions received by any such underwriters,
brokers, dealers or agents may be deemed to be underwriting commissions or
discounts under the Securities Act.
In the event of any such offering, we will distribute a revised prospectus
or prospectus supplement, if required, which will set forth the aggregate amount
and type of Securities being offered and the terms of the offering, including
the name or names of any underwriters, dealers or agents, any discounts,
commissions and other items constituting compensation from the selling
stockholders and any discounts, commissions or concessions allowed or reallowed
or paid to dealers. Such prospectus supplement and, if necessary, a
post-effective amendment to the registration statement of which this prospectus
is a part, will be filed with the SEC to reflect the disclosure of additional
information with respect to the distribution of the Securities.
To the best of our knowledge, there are currently no plans, arrangements or
understandings between any selling stockholders and any broker, dealer, agent or
underwriter regarding the sale of the Securities by the selling stockholders.
The selling stockholders and any other person participating in such
distribution will be subject to applicable provisions of the Exchange Act and
the rules and regulations thereunder, including, without limitation, Regulation
M, which may limit the timing of purchases and sales of any of the Securities by
the selling stockholders and any other such person. Furthermore, under
Regulation M under the Exchange Act, any person engaged in the distribution of
the Securities may not simultaneously engage in market-making activities with
respect to the particular Securities being distributed for certain periods prior
to the commencement of such distribution. All of the foregoing may affect the
marketability of the Securities and the ability of any person or entity to
engage in market-making activities with respect to the Securities.
Pursuant to the terms of the registration rights agreement dated February
18, 2000, between us and the initial purchasers (the "Registration Rights
Agreement"), holders of our Series D preferred stock covered by a shelf
registration statement, on the one hand, and we, on the other hand, have agreed
to indemnify each other against certain liabilities, including certain
liabilities under the Securities Act, or will be entitled to contribution in
connection therewith.
Pursuant to the Registration Rights Agreement, we have agreed to pay
substantially all expenses of the registration, offering and sale of our Series
D preferred stock to the public, including, without limitation, SEC filing fees
and expenses of compliance with state securities or "blue sky" laws; provided,
however, that the selling stockholders will pay all underwriting discounts,
selling commissions and related fees, if any.
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LEGAL MATTERS
The validity of our Series D preferred stock, the Conversion Shares and the
Payment Shares will be passed upon for us by Appleby, Spurling & Kempe,
Hamilton, Bermuda. The legal conclusions regarding U.S. tax law will be passed
upon for us by Willkie Farr & Gallagher, our U.S. counsel. As of December 31,
1999, partners and counsel in Willkie Farr & Gallagher beneficially owned
approximately 110,000 shares of our common stock. Mr. Robert B. Hodes is counsel
to the law firm of Willkie Farr & Gallagher, a director of Loral and Globalstar
Telecommunications Limited and a member of the Executive and Audit Committees of
the Boards of Directors of both Loral and Globalstar Telecommunications Limited.
EXPERTS
The consolidated financial statements and the related financial statement
schedule of Loral and the consolidated financial statements of Globalstar
incorporated in this prospectus by reference from Loral's Annual Report on Form
10-K for the year ended December 31, 1999, have been audited by Deloitte &
Touche LLP, independent auditors, as stated in their reports, which are
incorporated herein by reference, and have been so incorporated in reliance upon
the reports of such firm given upon their authority as experts in auditing and
accounting.
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<PAGE> 53
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The SEC allows us to "incorporate by reference" the information we file
with it, which means we can satisfy our legal obligations to disclose important
information contained in those documents by referring you to them. The
information included in the following documents is incorporated by reference and
is considered to be a part of this prospectus. More recent information that we
file with the SEC automatically updates and supersedes any inconsistent
information contained in prior filings.
The documents listed below have been filed under the Securities and
Exchange Act of 1934, with the SEC and are incorporated herein by reference:
- Loral's Annual Report on Form 10-K for the year ended December 31, 1999
and Globalstar's consolidated financial statements included in Globalstar
Telecommunications Limited and Globalstar's Annual Report on Form 10-K
for the year ended December 31, 1999; and
- Loral's Current Report on Form 8-K, filed on February 1, 2000; and
- Loral's Current Report on Form 8-K, filed on May 3, 2000.
We also incorporate by reference all documents subsequently filed by us
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act, until the
offering of our Series D preferred stock and our common stock under this
prospectus is completed.
We will provide, upon request, without charge to each person, including any
person having a control relationship with that person, to whom a prospectus is
delivered, a copy of any or all of the information that has been incorporated by
reference in this prospectus but not delivered with this prospectus. If you
would like to obtain this information from us, please direct your request,
either in writing or by telephone to Loral Space & Communications Ltd., c/o
Loral SpaceCom Corporation, 600 Third Avenue, New York, New York 10016, Attn:
Secretary, (212) 697-1105.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports, proxy statements and other
information with the SEC and have filed a registration statement with the SEC on
Form S-3 to register these securities. Since this prospectus does not contain
all of the information included in the registration statement you may wish to
refer to the registration statement and its exhibits for further information
about us and the registered securities.
You can access our SEC filings electronically at www.sec.gov, and can read
and copy our filings at the SEC's Public Reference Room (800-SEC-0330) at 450
Fifth Street, N.W., Washington, D.C. 20549.
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YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
DIFFERENT OR ADDITIONAL INFORMATION. THIS PROSPECTUS IS NOT AN OFFER TO SELL NOR
IS IT SEEKING AN OFFER TO BUY SHARES OF OUR COMMON STOCK IN ANY JURISDICTION
WHERE THE OFFER OR SALE IS NOT PERMITTED. THE INFORMATION CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS IS CORRECT ONLY AS OF THE DATE OF
THIS PROSPECTUS, REGARDLESS OF THE TIME OF THE DELIVERY OF THIS PROSPECTUS OR
ANY SALE OF OUR COMMON STOCK.
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TABLE OF CONTENTS
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<TABLE>
<CAPTION>
PAGE
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<S> <C>
Prospectus Summary.................. 1
Risk Factors........................ 8
Forward-Looking Statements.......... 20
Ratios.............................. 21
Use of Proceeds..................... 21
Description of Indebtedness......... 22
Description of Preferred Stock...... 24
Description of Common Stock......... 39
Taxation............................ 43
Selling Stockholders................ 47
Plan of Distribution................ 49
Legal Matters....................... 51
Experts............................. 51
Incorporation of Certain Documents
by Reference...................... 52
Where You Can Find More
Information....................... 52
</TABLE>
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[LORAL SPACE LOGO]
8,000,000 SHARES
OF 6% SERIES D CONVERTIBLE
REDEEMABLE PREFERRED STOCK
DUE 2007
AND
20,171,152 SHARES OF
COMMON STOCK
-------------------------
PROSPECTUS
MAY 10, 2000
-------------------------
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