<PAGE> 1
Filed Pursuant to Rule 424(b)(3)
Registration No. 333-34652
PROSPECTUS
LORAL SPACE & COMMUNICATIONS LTD.
45,896,978 SHARES OF COMMON STOCK
------------------------
The shares of our common stock offered under this prospectus are owned by
Lockheed Martin Investments, Inc., a wholly owned subsidiary of Lockheed Martin
Corporation.
Lockheed Martin and any of its affiliates may deliver this prospectus when
they offer or sell their shares of our common stock. After that, the shares will
be free of restrictions under the securities laws. Buyers who purchase from
Lockheed Martin will receive unlegended, freely tradeable common 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.
OWNERS OF OUR COMMON STOCK FACE BUSINESS AND FINANCIAL RISKS. A DESCRIPTION
OF THOSE RISKS BEGINS ON PAGE 6.
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
<PAGE> 2
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.
<PAGE> 3
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
2
<PAGE> 4
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.
3
<PAGE> 5
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.
4
<PAGE> 6
THE OFFERING
Common Stock offered by
Lockheed Martin............ 45,896,978 shares
Common Stock outstanding prior
to offering(1)............. 295,442,287 shares
Common Stock outstanding after
offering(1)................ 295,442,287 shares
For detailed information regarding the Common Stock, you should refer to
the section of this prospectus called "Description of Common Stock."
RISK FACTORS
An investment in our Common Stock involves risks that should be considered
by prospective investors. These risks are discussed in the section of this
prospectus called "Risk Factors."
- ---------------
(1) As of March 31, 2000 and does not include shares of our Common Stock
issuable upon exercise of options and warrants and upon conversion of our
convertible preferred stock.
5
<PAGE> 7
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
6
<PAGE> 8
3.0 to 1.0. Loral SpaceCom Corporation's ability to repay cash advances made to
it by its 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,
7
<PAGE> 9
and we cannot be sure that these service providers will be successful. We expect
that these 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
8
<PAGE> 10
result, the satellite, manufactured by Hughes Space and Communications
Corporation, 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.
9
<PAGE> 11
- 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.
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
10
<PAGE> 12
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 China could adversely affect our ability to launch from
these countries or materially increase the costs of doing so.
11
<PAGE> 13
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.
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
12
<PAGE> 14
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.
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
13
<PAGE> 15
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 example, if Europe*Star does not have a satellite in
its 45[DEGREES] 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.
14
<PAGE> 16
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.
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
15
<PAGE> 17
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.
PRICES OF OUR COMMON 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%.
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, 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 of the date of this prospectus, subject to certain
extensions.
16
<PAGE> 18
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.
17
<PAGE> 19
USE OF PROCEEDS
We will receive no proceeds from sales of securities under this prospectus.
18
<PAGE> 20
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
19
<PAGE> 21
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.
20
<PAGE> 22
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.
21
<PAGE> 23
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.
22
<PAGE> 24
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 common
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 Common 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 common stock, as discussed below. Dividends on
our common 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 common 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.
23
<PAGE> 25
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 his stock.
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 common
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 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 common 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 common 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.
24
<PAGE> 26
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 common
stock (other than such holders ordinarily resident in Bermuda) in respect of
their investment in the stock.
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 common 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
common 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 our common stock may be required to pay stamp taxes and other
charges in accordance with the laws and practices of the country of purchase.
Prospective
25
<PAGE> 27
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 our common stock.
The terms of our common stock do 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 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.
26
<PAGE> 28
SELLING SHAREHOLDERS
As of March 31, 2000, Lockheed Martin held 45,896,978 shares of our common
stock (the "Lockheed Martin Common Stock"), which were acquired upon conversion
of 45,896,978 shares of our Series A preferred stock. Lockheed Martin may
dispose of the Lockheed Martin Common Stock pursuant to this prospectus or in
other transactions exempt from the registration provisions of the federal
securities laws.
We are registering the Lockheed Martin Common Stock as agreed in the
Amended Shareholders Agreement dated as of March 29, 2000 between us and
Lockheed Martin. Along with the registration of the Lockheed Martin Common
Stock, we are simultaneously registering our Series D preferred stock and the
shares of our common stock issuable upon conversion of, or otherwise in
connection with, our Series D preferred stock. The registration statement for
the Lockheed Martin Common Stock must remain effective until May 19, 2001,
subject to certain extensions. In the Amended Shareholders Agreement, we agreed
to refrain from selling equity securities in the public markets for our own
account until the six-month anniversary of the date of this prospectus, subject
to certain extensions. Lockheed Martin has agreed in the Amended Shareholders
Agreement not to sell or transfer shares of our common stock to any person who,
immediately following such sale or transfer, would, to the best of Lockheed
Martin's knowledge, own more than 4% of our common stock. Lockheed Martin has
also agreed not sell or transfer to any person, in a single transaction or
series of related transactions, shares of our common stock representing more
than 2% of our outstanding common stock. The Amended Shareholders Agreement also
provides that Lockheed Martin will not sell or transfer shares of our common
stock to any person who publicly proposed a business combination with us, or
discussed a possible business combination or similar transaction with, or a
change of control of, us, which transaction has not obtained the approval of our
board of directors. The foregoing restrictions do not apply to certain sales or
transfers in underwritten offerings or in other transactions with investment
banking firms that agree to make resales of our common stock in compliance with
the foregoing restrictions.
27
<PAGE> 29
PLAN OF DISTRIBUTION
The Lockheed Martin Common Stock offered pursuant to this prospectus may be
sold from time to time to purchasers directly by the Selling Shareholders. We
are registering the Lockheed Martin Common Stock on behalf of the Selling
Shareholders. As used in this prospectus, "Selling Shareholders" includes
Lockheed Martin Corporation and any of its affiliates selling shares of the
Lockheed Martin Common Stock under this prospectus, including Lockheed Martin,
Investments, Inc. The Selling Shareholders may offer or sell shares of the
Lockheed Martin Common Stock from time to time in one or more types of
transactions, including underwritten transactions, transactions (which may
include block transactions) on the New York Stock Exchange or any other
securities exchange or quotation service on which the Lockheed Martin Common
Stock is listed or quoted, in the over-the-counter market, in negotiated
transactions or transactions otherwise than on securities exchanges or in the
over-the-counter market, through put or call options transactions relating to
the Lockheed Martin Common Stock, through short sales of shares of the Lockheed
Martin Common Stock, or a combination of any such methods. The Lockheed Martin
Common Stock may be offered or sold from time to time at fixed prices, at market
prices prevailing at the time of offer or sale, or at negotiated prices.
The Selling Shareholders may effect transactions by offering or selling
shares of the Lockheed Martin Common Stock directly to purchasers or to or
through underwriters or broker-dealers, which may act as agents or principals.
Underwriters, broker-dealers and agents participating in any sales of the
Lockheed Martin Common Stock may receive compensation in the form of discounts,
concessions, or commissions from the Selling Shareholders and/or the purchasers
of the Lockheed Martin Common Stock for whom such underwriters or broker-dealers
may act as agents or to whom they may sell as principal, or both (which
compensation as to a particular underwriter or broker-dealer might be in excess
of customary compensation). Lockheed Martin has advised us that, as of the date
of this prospectus, it has not entered into any agreements, understandings or
arrangements with any underwriters, broker-dealers or agents in connection with
any proposed sale of the Lockheed Martin Common Stock by the Selling
Shareholders.
The Selling Shareholders will pay all agent fees and commissions and
underwriting discounts and commissions relating to sales of the Lockheed Martin
Common Stock under this prospectus and will pay all fees and expenses of their
counsel and accountants. We will pay the fees and expenses of our counsel and
accountants in connection with the registration of the Lockheed Martin Common
Stock. All other fees and expenses in connection with the registration of the
Lockheed Martin Common Stock will be shared equally by us on the one hand and
the Selling Shareholders on the other.
The Selling Shareholders and any underwriters, broker-dealers or agents
that participate in the offering and sale of the Lockheed Martin Common Stock
may be deemed to be "underwriters" within the meaning of the Securities Act, and
any profit on the sale of the Lockheed Martin Common Stock received by them and
any discounts, concessions, commissions or other compensation received by them
may be deemed to be underwriting discounts or commissions under the Securities
Act. We have agreed to indemnify each Selling Shareholder against certain
liabilities, including certain liabilities arising under the
28
<PAGE> 30
Securities Act. The Selling Shareholders have agreed to indemnify us against
certain liabilities, including certain liabilities arising under the Securities
Act. We also may agree similarly to indemnify underwriters, broker-dealers or
agents participating in transactions involving offers or sales of the Lockheed
Martin Common Stock.
Because Selling Shareholders may be deemed to be "underwriters" within the
meaning of the Securities Act, the Selling Shareholders may be subject to the
prospectus delivery requirements of the Securities Act, which may include
delivery through the facilities of the New York Stock Exchange pursuant to Rule
153 under the Securities Act.
Selling Shareholders also may sell all or a portion of the Lockheed Martin
Common Stock outside of this prospectus in market transactions in reliance upon
Rule 144 under the Securities Act or in other transactions exempt from the
registration requirements of the Securities Act, provided they meet the criteria
and conform to the requirements of Rule 144 or such exemption and they otherwise
satisfy the provisions of the Amended Shareholders Agreement, dated as of March
29, 2000 between us and Lockheed Martin.
Upon our being notified by a Selling Shareholder that any material
arrangement has been entered into with an underwriter, broker-dealer or agent
for the sale of the Lockheed Martin Common Stock through an underwritten
offering or a block trade, special offering, exchange distribution or secondary
distribution or a purchase by a broker-dealer, a supplement to this prospectus,
if required, will be filed under the Securities Act, disclosing (i) the name of
each such Selling Shareholder and of the participating underwriters,
broker-dealers or agents, (ii) the number of shares of the Lockheed Martin
Common Stock involved, (iii) the price at which shares of the Lockheed Martin
Common Stock were sold, (iv) the commissions paid or discounts or concessions
allowed to such underwriters, broker-dealers or agents, where applicable, and
(v) other information material to the transaction.
29
<PAGE> 31
LEGAL MATTERS
The validity of our common stock 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. 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.
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 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
30
<PAGE> 32
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.
31
<PAGE> 33
- ------------------------------------------------------
- ------------------------------------------------------
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.
----------------------------------
TABLE OF CONTENTS
----------------------------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................. 1
Risk Factors........................ 6
Forward-Looking Statements.......... 17
Use of Proceeds..................... 18
Description of Common Stock......... 19
Taxation............................ 23
Selling Shareholders................ 27
Plan of Distribution................ 28
Legal Matters....................... 30
Experts............................. 30
Incorporation of Certain Documents
by Reference...................... 30
Where You Can Find More
Information....................... 31
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
[LORAL SPACE LOGO]
45,896,978 SHARES OF
COMMON STOCK
-------------------------
PROSPECTUS
MAY 10, 2000
-------------------------
- ------------------------------------------------------
- ------------------------------------------------------
